Build-A-Bear Workshop, Inc. (BBW) on Q4 2021 Results - Earnings Call Transcript
Operator: Greetings. Welcome to the Build-A-Bear Workshop Fourth Quarter 2021 Earnings Call. At this time, all participants will be in a listen-only mode. A question and answer session will follow the formal presentation. And please note, this conference is being recorded. I will now turn the conference over to your host, Allison Malkin with ICR. Thank you. You may begin.
Allison Malkin: Good morning. Thank you for joining us. With me today are Sharon John, CEO; and Voin Todorovic, CFO. For today's call, Sharon will begin with the discussion of our fourth quarter and fiscal 2021 performance and the priorities we have set as we begin fiscal 2022. After, Voin will review the financials and guidance in more detail. We will then open the call to take your questions. Please note, the call is being recorded and broadcast live via the Internet. The earnings release is available on the Investor Relations portion of our corporate website. A replay of both our call and webcast will be available later today on the IR site. I will remind everyone that forward-looking statements are inherently subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the Risk Factors section in the company's annual report on Form 10-K. We undertake no obligation to revise any forward-looking statements. And now I would like to turn the call over to Sharon.
Sharon John: Good morning, and thank you for joining us today. As fiscal 2021 came to a close, we were thrilled to kick-off our year-long celebration of Build-A-Bear's milestone 25th anniversary on the heels of the most profitable year in the company's history. Today, we will reflect on the record-breaking results from 2021, which were achieved while navigating through the challenges, volatility and uncertainty of a global pandemic and provide an update on the strategy that contributed to our positive outcome. We will also share a few details about newer initiatives that we're working on for 2022. . First, it's important to note that the advancements this company made in 2021 reflects the successful execution of a multifaceted strategy that is required years of planning and investment. The model was primarily envisioned to elevate and monetize our iconic brand while evolving the company into a digitally driven, diversified, omnichannel entity, enhanced by a dynamic and efficient vertical retailtainment presence. With many of the building blocks now in place, we believe Build-A-Bear is fundamentally different than it was when we began this process or even prior to COVID. In fact, many of the necessary changes in transformative initiatives actually accelerated during the pandemic. Additionally, we believe these efforts have provided the company with a platform for a compelling future as we continue to leverage and build on these new capabilities with the goal of creating ongoing shareholder value. To achieve this transformation, this leadership team initiated and led wide-scale long horizon efforts designed to evolve the company, both during and in response to a variety of external pressures included changes in consumer shopping habits, resulting in the rapid rise of the digital economy and shifting mall traffic patterns. We systematically invested in and executed plans to improve operations and profitability, including an organizational restructure and acquisition of new talent aligned with the strategic objectives and IT infrastructure and systems overhaul, sweeping supply chain improvements with sourcing diversification, the addition of a new warehouse management system, a relaunch and expansion of the e-commerce side and back end to include omnichannel capabilities, a relaunch of our valued loyalty program, a significant shift to digital marketing and content and consumer communication tools and rationalization, renegotiation and evolution of the store fleet, resulting in a significantly improved 4-wall contribution. While we have acknowledged that there is likely some accretive impact from the pent-up demand and government stimulus, we believe the majority of our positive results this year are due to the cumulative effect of the strategic advances that we were just noted. With that in mind, our fiscal 2021 financial highlights include: total revenues of $411.5 million, an increase of over 60% compared to fiscal 2020 and more than 20% versus fiscal 2019; growth in digital demand to a record level of $73 million with a penetration of nearly 20% of net retail sales; pretax income of $50.7 million, exceeding the upper end of the range of our most recent guidance. As noted, this is the highest pretax income in our company's nearly 25-year history and compares to a pretax loss of $20.2 million in fiscal 2020 and a pretax income of $1.6 million in fiscal 2019. And we ended the year with cash and cash equivalents of $32.8 million, putting us in a strong position to continue to fund strategic capital investments. Note that this position is reflective of the fourth quarter $20 million special cash dividend paid to our shareholders and the repurchase of over $4 million of our shares associated with the recently announced stock buyback program. With this proven strategy and continued momentum in 2022 quarter-to-date, we intend to remain focused on accelerating and expanding our key initiatives while we leverage the excitement that comes with our 25th anniversary celebration plan. Build-A-Bear is beloved and well-known with earned multigenerational appeal. Since the company was launched, we have sold over 200 million Furry Friends and have remained relevant by capturing many popular interests of a broad range of today's consumers, including a desire for collectibility, experience, personalization and DIY or through collaborations with other powerful brands to broaden our popularity beyond the core consumer. Additionally, we are proud that Build-A-Bear is importantly also recognized as an authentic and trusted brand that is elevated to pop culture status, and we believe our brand power and successful strategy coupled with an accomplished and proven team, along with our passionate and dedicated organization, provide a strong model for delivering sustained profitable growth to the combination of an efficient core business, driven by continued enhancements, diversification and innovation, including newer initiatives such as the Bear Case, which is an age-gated section of our website, designed to expand our addressable market by offering what could be considered a somewhat surprising selection of adult-targeted Furry Friend collectibles and licensed products for older consumers, such as the recent launch of our Matrix Bear or our fan-favorite Deadpool Bear as well as romantic gift and the instantly popular Van Gogh Museum collection. Bear’s Cave may have recently hit your radar screen as Valentine's with the broad interest in our after dark marketing campaign, which alone generated over 1 billion global media impressions. HeartBox, a new gift box collection that offers a tasteful curated assortment of theme products, including a custom Build-A-Bear Furry Friend, Sweet from Sugarfina and Drinkware from Swig to provide an upscale convenient online solution for a wide range of adult-to-adult gift-giving occasions with the goal of participating in the expansive gifting market. Build-A-Bear 3D Workshop, a fun e-commerce experience and creative shopping option, designed so guests can interactively engage in a reimagined virtual Build-A-Bear Workshop. They see their new Furry Friends come to life as they select sounds and clothing with a unique digital make your own animated process that ultimately directs the final product to our site checkout cart. Our new automatic Teddy machines or ATMs are innovative interactive teddy bear vending machines designed as a tool to efficiently expand the brand's presence into a variety of new locations. They have successfully debuted in airports in conjunction with our partners at Hudson as well as in Children's Hospital. Corona has been added to our online checkout process to provide guests with a convenient extended payment plan for purchases with the goal of improving conversion and increasing average order value. In fact, the average order value of our fourth quarter Klarna transactions was over 50% higher than non-Klarna orders. Buy online, pick up in store, buy online, ship from store and same-day delivery through ships, lowers common purchasing hurdles by providing important last-mile options for our guests while improving our efficiency by using our retail workforce and store fleet as fulfilment centers. Because this approach also shortens delivery time, it extends the shopping window for holidays and occasion gifting. And our ongoing evolution of digital marketing capabilities and consumer service tools is expected to continue to drive both e-commerce and physical store traffic and sales. As a reminder, these recently launched programs are all aligned with our strategic pillars of: one, further driving our digital transformation; two, continuing to evolve our retail experience and leverage our expanded omnichannel capabilities and three, optimizing our solid financial position to invest in growth while generating sustained profitability. With that, I would also like to share some additional efforts that are expected to launch in 2022 to support these three strategies, including: first, as it relates to leveraging our ongoing digital transformation, we have plans in place to improve repeat purchase and enhance engagement with the 12 million opted in first-party data contacts, including over 10 million active Build-A-Bear Bonus Club loyalty members by implementing a new advanced loyalty module with Salesforce, to better leverage the improvements that have already been made in the digital marketing area and by utilizing this module to access a single view of our individual Bonus Club members, to engage with them using relevant guest specific and personalized experiences and sales messaging, as this approach has been shown to deliver higher click-through rate and conversion metrics, which contributes to incremental purchases. In addition to optimizing our current first-party data with add-on purchases, we also have programs aimed to extend our addressable market by reaching beyond the core kid base to acquire new team, teen and adult consumers with unique affinity offerings and expanded purchasing occasions. We have over 75 licensed relationships in place, ranging from Star Wars to Harry Potter to Pokemon to the NFL and have added properties such as the recently launched and already popular Elvis Furry Friend and the new RevelGirls collection that launched on Tuesday in honor of International Women's Day. We have shown a consistent ability to leverage the affinity that consumers have for other brands to fuel new guest acquisition through the use of our dynamic digital marketing tools, resulting in additive sales and significant increase in Google search data for our brand, yet another proof point of its relevant. Also, we plan to continue to utilize digital media, content and entertainment as marketing and brand building tools to engage consumers and create value. We have a variety of Build-A-Bear created intellectual properties, including Honey Girls, the popular product line that inspired the music-driven live action film starring Grammy Award winner, Ashanti, that was released last fall in conjunction with Sony. We are delighted that the movie was recently added to the quality selection of Netflix entertainment viewing options, expanding the potential audience for Honey Girls by millions of target consumers. Next, we expect to continue to leverage our expanded omnichannel capabilities while further evolving retail experiences and purchase occasions. With 97% of North American stores profitable with an average contribution margin of over 25% in fiscal 2021, we believe there is an opportunity to strategically add new locations. Specifically, in addition to a number of nontraditional locations that were opened in 2021, which were shared in our third quarter call, we expect to add between 15 and 20 new store locations in North America through a combination of corporate and third-party retail with an emphasis on tourist sites over the next two to three years. As a part of this initiative, we recently opened a new retail format called Build-A-Bear Adventure in our home market in St. Louis, featuring party rooms and an arcade in addition to the classic bare building process. This concept is designed to build on and extend the strong connection consumers have with the brand in association with birthdays and parties by offering a next-level experience for guests. While also providing expanded omnichannel fulfilment support. Speaking of parties, after a nearly two year pandemic-driven hiatus, we are expecting to relaunch our beloved build to party business and stores in the coming weeks, historically generating up to 5% of sales our party business has long been a staple of memory making for guests and has served as a right of passage for millions of children. We could not be more pleased to bring parties back to the workshop in conjunction with our own 25th anniversary celebration. Separately, while we have shared that the Pentimic disrupted some of our international franchise operations, we continue to believe in the broader opportunity of the brand globally. With that in mind, we recently partnered with Global E, which offers a platform to enable and accelerate direct-to-consumer crop border e-commerce as we roll out the capabilities in the upcoming months, international shoppers will be able to more efficiently access our digital product offerings, starting with Canada and Mexico. As noted, we plan to capitalize on Build-A-Bear's 25th anniversary to create interest leverage nostalgia and drive incremental visits and sales. We have activities planned throughout the year, including for the first time in our history, a special collection of fan favorite Furry Friends inspired from the past being launched with new releases planned intermittently throughout the year. Our Valentine's Day Classic parts for you pump sold out quickly, and we have seen positive consumer reaction on social media in anticipation of upcoming releases. We have also developed a number of exclusive limited edition collaboration with a selection of our powerful portfolio of licensed partners, which is expected to create buzz and drive demand and a new celebratory marketing campaign was introduced on January 25, encouraging our millions of fans and guests to engage with us, while recalling their own personal memories related to the millions of Furry Friends that have been made leading up to this milestone anniversary of Build-A-Bear Workshop. With respect to the final strategic pillar of continuing to optimize our solid financial position to invest in growth while generating sustained profitability, we plan to maintain disciplined pass management particularly in light of the inflationary pressures, wage increases and supply chain challenges. We also remain focused on ongoing post-pandemic lease negotiations and continuing to evolve real estate portfolio to new locations, formats and business models, and we expect to continue to strategically manage capital to support key initiatives and innovative development designed to deliver long-term profitable growth and return value to our shareholders. As we kick off our fiscal 2022, following the close of a remarkable year of challenge and change that ultimately delivered record profitability, it feels appropriate to take a quick look back on the winding road this team and company has navigated to arrive at this juncture. One way to highlight the significant progress is by comparing our fiscal 2021 results with those of 2012, the last fiscal year before the broader strategic plan was put in place. Total 2021 revenues were over $411 million compared to $384 million in fiscal 2012. 2021 digital demand reached over $70 million, with a penetration of nearly 20% of net retail compared to e-commerce sales of approximately $14 million in 2012 or 4% of net retail sales. 2021 Merchandise margin increased over 950 basis points compared to 2012, even with pandemic-driven challenges and supply chain disruptions. 97% of North American stores were profitable in fiscal 2021 with an average contribution margin of over 25% compared to 20% of all locations being unprofitable with less than an average 10% margin in 2012 and reflecting our efforts to diversify our retail footprint at year-end in 2021, less than 65% of our stores were in traditional malls versus over 85% in 2012. Finally, in 2021, we delivered over $50 million in pretax income, again, resulting in the most profitable year in our history compared to a pretax loss of $47 million in 2012. In closing, as noted, thus far, we have continued to experience positive momentum in the first quarter of 2022. I would also like to note that our company was recently named to the Forbes list of America's Best Employers for the third consecutive time. With that, I would like to thank everyone at Build-A-Bear for delivering these record-breaking results in fiscal 2021. Our passionate and dedicated team is the beating heart of our company and brand. We are also grateful to our valued guests, suppliers and other partners who have played a part in delivering this business expansion. We believe we have strong plans in place to continue the positive start of our 25th anniversary year, assuming no further negative COVID impacts or effects from other external disruptions. And we intend to remain focused on leveraging our broadened capabilities and innovative programs with the goal of driving further profitable growth and shareholder return. Now, I would like to turn the call over to Voin to discuss our financial results in more detail.
Voin Todorovic: Thanks, Sharon, and good morning, everyone. Our performance continues to reflect the success of our strategy, which has allowed us to put the building blocks in place to develop a powerful platform to support our initiatives to deliver consistent, profitable growth. We believe our elevated omnichannel business model, which includes a highly profitable e-commerce and experiential retail store base complemented by diversified revenue streams and disciplined expense and balance sheet management, puts us in a solid position for continued future success, which includes a strong start in the first quarter of this year. We are pleased to finish fiscal 2021 near the high end of revenue and profit guidance provided in early January, even as the surge in COVID variant cases less temporary closures of certain locations, reducing the number of operating days in the month by about 4%, negatively impacting our revenue by approximately $1 million. Even with that, we delivered full year pretax profit of $50.7 million, which has been noted as the highest in our company's history. Due to strength of these results, we reversed the tax valuation allowance in North America, which reduced our tax expense for the year. Accordingly, for comparability purposes, I will focus my comments on pretax income and EBITDA. Let me now share more information on our fourth quarter results, which include comparisons to both the 2020 and 2019 fourth quarters due to the temporary COVID-related store closures last year. Total revenues were $130 million, a 38.8% increase compared to the fourth quarter of fiscal 2020 and a 24.3% increase compared to 2019. Our sales improved across geographies, driven by higher traffic sales -- higher traffic levels as well as an increase in average unit retail compared to the 2020 fourth quarter. Gross profit margin of 53.5% increased more than 300 basis points from 50.2% and 50.4% in the fourth quarter of fiscal 2020 and fiscal 2019, respectively. The growth in total revenues drove leverage in fixed occupancy expense, and we also benefited from renegotiated lease terms, which started to take effect in 2020. Merchandise margin reflected lower promotional activity and the strategic increase of prices on highly sold active products which was more than offset by increased air freight costs and supply chain and inflationary pressures that we continue to anticipate being headwinds for the foreseeable future. SG&A dollars increased compared to both the 2020 and 2019 fourth quarters. However, SG&A as a percent of total revenues improved to 38% versus 38.7% last year and 43.1% in 2019. The increase in SG&A dollars compared to the prior year was driven by higher store labor expenses, increase in variable costs driven by sales growth initiatives, inclusive of higher marketing spend and funding of performance-based incentive programs. Notably, we delivered $20.1 million in pretax income, an improvement of $9.4 million compared to the prior year's quarter and an increase of $12.5 million versus the fourth quarter of fiscal '19. For fiscal 2021, total revenues were $411.5 million, an increase of 61% compared to fiscal 2020 and a 22% increase versus fiscal 2019. Pretax income was $50.7 million, an improvement of $70.9 million from fiscal 2020 and an increase of $49.1 million from fiscal 2019. And EBITDA was $63 million, an increase of $70 million compared to fiscal 2020 and $47.7 million compared to fiscal 2019. Turning to the balance sheet. We ended the year with cash and cash equivalents of $32.8 million with no borrowings on our credit facility. This compares to $34.8 million at the end of fiscal 2020. During the fourth quarter, we returned $24.4 million in value to shareholders through share repurchases and payment of a special dividend. The ending cash balance also reflected increased investment in working capital. Total year -- total inventory at year-end was $73.6 million, an increase of $26.7 million from fiscal 2020 year-end and an increase of $20.2 million from fiscal 2019 year-end. As we have previously shared, we proactively accelerated the timing of many of our order placements and we increased quantities for core products and evergreen merchandise collection to support our business momentum and as part of our efforts to mitigate ongoing supply chain challenges. We remain comfortable with the level and composition of our inventory. Capital expenditures were $8.1 million for the year, and depreciation and amortization totaled $12.3 million. As it relates to our outlook for 2022, we are currently providing first quarter guidance for revenue and profit. We are not introducing a full year expectation for these metrics at this time, given the need to assess the initial impact of stimulus on consumer spending, which occurred later in the prior year as well as to have better understanding of current geopolitical situations, the evolving pandemic and the potential impact of additional inflationary pressures. Based on the positive momentum that we are seeing in our business across geographies, in our first quarter, we currently expect total revenue to exceed prior year revenue, and both pretax income and EBITDA to exceed the record profitability we recorded in Q1 of 2021. As a reminder, during the majority of the first quarter of fiscal 2021, our stores in the United Kingdom and Ireland were all temporarily closed due to government mandates. Therefore, we had no store revenue or payroll expenses during that time, and our U.K. revenue was driven by e-commerce. In addition, we benefited about $900,000 from U.K. government business restart grants that are not expected to repeat in 2022. Regarding the longer outlook, on full year basis, we currently expect capital expenditures to be in the range of $10 million to $15 million. Depreciation and amortization to be in the range of $12 million to $14 million and tax rate to be around 25%. In closing, we are pleased with our record performance and the momentum in our business so far in the first quarter, and I want to thank and congratulate the teams across the globe that have driven these results. Our store, warehouse and corporate office associates continue to make a difference every day, along with the support received from our vendors, logistics suppliers and other partners. We remain focused on accelerating the execution of key strategic initiatives and with the goal of delivering long-term sustained profitable growth and increasing shareholder value. This concludes our prepared remarks, and we will now turn the call back over to the operator for questions. Operator?
Operator: Our first question comes from the line of Eric Beder with SCC Research. You may proceed with your question.
Eric Beder: We've talked, and I know it's a big push to get to the team between adult customers, what are the economics of that customer? Do they buy more product? Do they pay more full pricing? How should we be thinking as that kind of shift goes in terms of their value as a customer?
Sharon John: Yes. That's a good question, Eric, but it's kind of a multifaceted answer, unfortunately. First of all, just to level set, we've evolved, that consumer base can now represent about 40% of our total consumer base. So we were comparing making some comparisons to 2012, that's a significant improvement or a significant expansion. And by doing that, we believe that there is a a longer-term, more consistent potential in the broader addressable market that, that represents versus the kids market, which is still critically important to us, obviously, still the majority of our business. But I think that most people understand in the kids business, there's a bit of a churn you have to -- there's a leaky bucket of kids that age in and age out than of your market. So there's an ongoing marketing initiative that we have to keep those kids renewed in there. On the -- specifically to your question, they kind of group into -- I'll talk about the 2 biggest areas. One is a collector. Those are incredibly valuable consumer sets. They're very efficient consumers for us. So we'll just use Pokemon as an example. Those average purchases are above our average DPT, our average DPT in the mid-50s and where that's usually a minimum purchase in $60, $65, sometimes %75, and we know who those consumers are, and we're able to efficiently and directly communicate with them. We're also able to tag Pokemon collectors and with our advanced digital marketing capabilities. So they tend to buy efficiently, they buy online, they usually buy mobile, and they over-index in our e-commerce business. The other side is this giftables market, and that's a new opportunity for us, a newer opportunity for us, but we've been building that we started building it three or four years ago, really in a more overt way with some of our adult-to-adult Valentine's gifting that really did explode this year with the after-dark initiative. Those are -- what we're doing with that is we're tagging other giftable types of searches to find these consumers to position Build-A-Bear as an alternative to other adult-to-adult tide gifting. Cartbox fits in that category as well. So as we -- I believe, introduce and educate people with Build-A-Bear and this multigenerational aspect as a gifting alternative, we'll have more opportunity to build out that business. They won't -- and the goal is that they will repeat for additional occasions. So when we talk about expanding consumers to expanding occasions and expanding products, that's a perfect example of that. So in both cases, both that market as an example, the sheer size of it, of the addressable market of the team teens and adults is bigger than our core market from a mining perspective. But the categories that we're pushing like gifting or collectibles is bigger than plush or toys. So we feel like that this is an important initiative for us for future growth.
Eric Beder: The other question is the new stores, you talked about expanding into more tourist-driven locations. What are you seeing from that? What, in terms of, I don't know, maybe metrics or pieces here makes you want to be more aggressive in terms of that -- rolling out that business even more than you had before?
Sharon John: Right. So we did mention our expectation to roll out new stores over the next two to three years. As we've discussed and shared for some years now, tourist locations tend to over index on all key metrics or many of our key metrics. It's a marketplace where there is a different mindset we found of a consumer. They look at Build-A-Bear as the best possible souvenir in some cases. We have procured products that are pushed out from a micro distribution perspective to make that even more special, maybe something about a specific feature, the right -- the correct sports team or any -- something that's city-based that makes it very, very memorable part of the trip for a family. And there's usually a little bit of a more open wallet when you're on holiday, which is usually what's happening in these tourist locations. We believe that there's a lot more additional partnerships as well with our third-party retail, not just our -- the own types of one-off locations and some tourist destination areas. And the source destinations that we shared at the end of our third quarter call, they are currently out, at least for the end of 2021 -- by the end of 2021, which we're reporting on they were outperforming their pro forma. So we're very pleased with the selections that we've made and Phil feel very good about our strategy in this regard, particularly since we don't believe we're overstored and that we have a very efficient model on how to roll out. I think the one of the more exciting things that we shared though on the store openings was the Build-A-Bear Venture, which is an entirely new way to experience Build-A-Bear and amplify one of the consumers favorite things about Build-A-Bear is the celebratory party aspect of who we are.
Eric Beder: Right. I just want to -- before I -- one quick clarification. You said those 15 and 20 vets you're openings? Or is that in conjunction with other people?
Sharon John: What we specified in the remarks is it's a combination of both.
Operator: Our next question comes from the line of David Kanen with Kanen Wealth Management. You may proceed with your question.
David Kanen: So I've got a number of questions, so please bear with me, be patient. You spent a lot of time sketching out incremental opportunities, and there are a few of them. So I've got a number of questions if we could drill down on that. So if you could start with, let's call it, the expanded total addressable market opportunities getting into collectibles, teens, tweens, adults. Could you give us a little bit more color there and talk about the size of that opportunity? And what you think you can accomplish over the next thee years versus -- or in comparison to your core historical business?
Sharon John: Thanks, David. So I just -- one thing that I'd want to start by clarifying, I don't think we're trying to position that we're "getting" into the collectibles business. We've been in the Collectibles business for some time now, which is how we've accomplished the 40% of our total sales being attributable to teens, tweens and adults, which that's over indexes with that. We've partnered with a lot of these licenses over time from -- we started to see this emerge all the way back to, let's say, how to Train Your Dragon, where that over-indexed with our adult consumer and now with Baby Yoda was a good example, harry Potter is a great example of our ability to generate meaningful sales at good margins with this different type of consumer base. And as I mentioned, some of them are highly repeatable kinds of consumers. So -- and then now with After Dark, which was another -- I don't know if you were able to -- you caught some of that in the -- maybe you were one of the billion-plus impressions that we received from After Dark. Now we have not shared what we believe that potential is, but we know that given our multigenerational aspect that there is a desire to see Build-A-Bear, particularly matched up with other -- what's called the mash-up with other popular brands. And it is -- tends to be a higher price point, higher DPT with an accretive margin. And when they are engaged in a single sort of like Pokemon, like I used as an example with Eric, that's the second and third and fourth purchase is very efficient for us to market to them because we know their history. And so they do drive -- once we get them in that kind of consumer profile, they do drive a strong lifetime value.
David Kanen: So I mean, could you talk about the opportunity and quantify it? Do you think that over time, over the next three years, that is a business that can equal or exceed your core business?
Sharon John: David, we've not shared information like that over the -- future information over the next three years by segment. But clearly, given that we're emphasizing it, and we are building out online experiences like Bear Cave, our specific marketing efforts like After Dark expanding some of our core licenses into things like Matrix or Friends. We believe there is a significant -- enough opportunity for us to divert our time, energy and capital with the proper return to make that decision.
David Kanen: And then you spoke about the store fleet right now, and please correct me if I'm wrong, it sounded like you're averaging 25% store level EBITDA. If that's incorrect, please clarify. But if that is the case, could you talk about the opportunities, white space areas where you can fill in and potentially match or exceed those results within your fleet?
Voin Todorovic: So David, yes, as Sharon had in her prepared remarks, we talked about the progress the company has made since 2012, and the 4-wall contribution was under 10%. We finished the year with 97% of our stores being profitable on a 4-wall basis with over a 25% 4-wall contribution. We are actually -- 99% stores are profitable on EBITDA, 4-wall EBITDA, so really strong performance in that EBITDA number. It's a few percentage points higher. So we are definitely pleased with what we have been able to do and achieve. . Definitely, as we think about white space in some of those areas, we believe, as we shared previously, opening stores in tourist locations, and in places where people and families go for fun and entertainment, continues to be very accretive for us. And we shared on previous calls, some of the locations in tourist places that we opened recently. We continue to work with different partners, both for stores that we own and operate and third-party retail stores. So we definitely believe that there's opportunity, and we called out 20 to 25 stores that we are planning to open over the next couple of years.
David Kanen: So 20 to 25 new doors over the next couple of years?
Voin Todorovic: In North America, correct. Yes.
David Kanen: And then -- I'm sorry, I have so many questions here, but they're very important to me. So just bear with me. I'm declaring COVID over now, and people are going to start doing birthday parties. It seems like we're in agreement. Could you help us understand maybe as a percent or just some rough idea, how much was that of your business back in 2019, so we can size up what that opportunity is going forward? And by the way, I'm -- if you could just clarify, I'm assuming there were very few, if any, parties in Q1 with Omicron raging and so forth. Could you also just comment on that?
Sharon John: Happy to. As we mentioned in the remarks, historically, birthday parties represent about 5% of our business. And no, we did not have any birthday parties in the first quarter because we had not restarted them yet. We are expecting to restart them in the next quarter. We have announced the restart so people can start to sign up for them but we have not yet executed a party. We're quite excited about it, as I shared, though birthday parties have historically been an important part of who we are. It's millions of kids over the course of our last almost 25 years have used that as a right of passage. It's also a really efficient trial mechanism. It's almost paid for trial, all the other kids that are invited fall in love with Build-A-Bear, too. Our average party is about five to six kids. So we're -- our bare builders have all been retrained since many of them -- some of them, obviously, the newer ones since we've been closed down 100% for two years due to the pandemic. So there could be some pent-up demand here. We don't really have a good sense having just since the e-mail exactly how that's going to shake out, obviously, but we are expecting a positive response to that.
David Kanen: And then you spoke a little bit about your new concept store, Build-A-Bear Adventure. Could you delve into the store economics there? What do you think the prototype in Chesterfield, what do you think it costs to build that box and then what the ROI potentially will be? And what's the early read? I know it's like very early, but is there any initial response in terms of bookings, parties and events and so forth?
Voin Todorovic: So David, it is a little bit too early to talk about that store. We just -- I think the first weekend is last weekend was the first weekend you know that we had some events there. Definitely, this is one of those opportunities that we continue to look and diversify our real estate portfolio. When we think about cost and economics of these stores, it is too early because usually when you do this first prototype, and we are looking to innovate and be creative. Typically, you don't get a scale that we can get at a point, like assuming this is going to be successful and you start rolling it out. I think we have a good track record and history that in the past when we draw these things out and do things, we were creative and we will drive cost down of these things and return strong -- and deliver strong ROI. That's manifested in that number that I shared previously with you, that 25%, 26% 4-wall contribution. So definitely, we have expectations for these stores. They are in these contrast to field area that you called out. So definitely, we believe with favorable rent structure and being in different places that we are going to be able to drive growth, drive sales. And this is going to be like part of that strategy to diversify off mall.
David Kanen: And then my next question is, you spoke about incremental opportunities, the expanded TAM and with collectibles, teens, tweens adults, e-comm is a growth opportunity, 20 to 25 new stores. What you didn't talk about is pets. I believe that pet gifts toys are an enormous opportunity, equal -- maybe even equal to the current business over time. In the past, you referenced there was something in the pipeline. Has that slipped? Or is that still something that you are currently working on and that we could expect in the future?
Sharon John: Yes, David, we did share that we had signed an outbound licensing deal for Build-A-Bear with pets. It has not slipped, and we are still continuing to work with that organization, and we will make likely a consumer-facing announcement when it is appropriate.
David Kanen: And then I'm going to wrap it up, but with a quick question and then a comment. So my question is, with our stock trading currently at 3.5 times EBITDA, maybe 3.75 times, depending on what quote you used from this morning, I'm very surprised the stock is down. You guys have not been real aggressive in terms of going out and telling the story. We have very little. I think Eric Peter does a great job, but we have very little sponsorship from the sell side. You haven't really been at conferences. Things are opening up now. This year, do you expect to be out there and to tell the story? That's number one. And then just my commentary for you guys and the Board is a special dividend. I mean, I appreciate that money going into my bank account, but there's no -- the market doesn't put a multiple on it. It's a one-shot deal. You don't get credit for it. A buyback over time shrinks the share count and increases EBITDA per share, as you guys know very well. As we continue to generate very strong free cash flow, I would -- my message to the Board, many of which don't have a lot of stock, is for us, shareholders, it's very important to retire the share count and drive EBITDA per share. Not only will it increase EBITDA per share, but the market will ultimately say you guys are great capital allocators and then you get a premium valuation. So just that's my commentary and message for the Board on a go-forward basis after you guys exhaust the remaining balance of this 20 -- $25 million buyback. I would like to see you guys reload and continue if we're at these kind of levels to shrink shares. So then I'll let you talk about the conferences. Thank you, and best of luck for the remainder of the year.
Sharon John: Thank you, David.
Operator: Our next question comes from the line of Robert Sussman with Bentley Capital Management. You may proceed with your question.
Robert Sussman: Can I just say that the moderator started out the call by asking people to limit their questions to one. A number of the questioners, especially the last one, asked numerous questions that went on for quite a period of time, and there are several people on this call. And I think if the moderator is going to say that you should enforce it. What I'd like to say is that, obviously, your stock is getting hammered. And I assume that it's because -- and the headline was that the company is seeing inflationary pressures. But you saw inflationary pressures. I assume in the fourth quarter, you're seeing it in the first quarter, yet you're still forecasting record earnings, and you have purchased quite a bit of inventory to stock up. Can you talk about what the impact that inflation is having and whether it's completely changed your outlook for 2022 because the market seems to think this is a very, very big deal, but it doesn't seem that way to me.
Sharon John: Yes. Robert, thank you so much. That's not our headline. That's somebody else's headline. That's the journalist headline. Our headline was Build-A-Bear Workshop reports record pretax income. So we do feel good, and that's why we wanted to announce the first quarter -- give some guidance on first quarter to kind of moderate what could be misinterpreted. But at the same time, and I'll hand this over to Voin. There are some realities, and the situation is not that we don't -- we've mentioned multiple times in the remarks that we feel confident that we have the building blocks in place. But I think that it is also clear that there is some uncertainty, and we want to be able to provide accurate guidance on a full year basis. And that's -- we chose to be cautious in this situation, but it does not mean that we don't feel that our building blocks are in place, it certainly does not mean as we shared multiple times in the remarks that we have -- we're not seeing positive momentum right now at first quarter year-to-date, which we are.
Voin Todorovic: And Robert, thanks for your question, and you called it out in -- throughout last year, we were able to mitigate and manage some of those inflationary pressures that are also reflected in Q4, and we continue to manage things that are between our control. Yes, we were more aggressive and proactively we're providing inventory throughout last year and also this year to really mitigate some of those inflationary pressures. Those are real, and they continue to change and evlove. And more recent geopolitical uncertainty and situation has been created in Europe is definitely, you know, we don’t know what’s the full impact of that’s going to be. It's definitely more difficult to manage something when it's a moving target as inflation is at this point in time. But we continue to stay focused on things of target in our control. We have levers and things in place that we can continue to pull we continue to work with our vendors and suppliers to create efficiencies in supply chain to mitigate some of these potential challenges. We continue to be very disciplined from the promotional standpoint, from expense and balance sheet management. So those are things that we have at our disposal. In addition to that, we've been selectively increasing prices last year, and we are going to continue to look and reassess. And at the end of the day, we have been able to deliver strong results last year. As you pointed out and we called out, we expect to deliver, again, a record Q1 profitability and improvement in revenue versus last year. So we definitely feel good about things that we have seen so far. But again, there is just future uncertainty as especially it relates to some of the oil changes and some of the prices that we are seeing in the geopolitical front.
Sharon John: Right. And just some data to support that. As an example, our DPTs are at or near historic highs, and our promotional percentage is at or near historic levels.
Voin Todorovic: Low.
Robert Sussman: Well, I think you're doing a terrific job managing through it. And I think that, as you say, the headlines are extremely misleading.
Operator: At this time, we have reached the end of the question-and-answer session. And I will now turn the call back over to Sharon for any closing remarks.
Sharon John: Thanks. In closing, I'd like to note that we are participating in the D.A. Davidson Virtual Conference later today, and we expect to attend the Roth Investor Conference in person early next week. Separately, we intend to provide details in the coming weeks regarding a planned Build-A-Bear Workshop Virtual Investor meeting to be hosted by Bristol Capital, and Investor Relations and Capital Markets advisory firm. Thank you again for joining us today on the call, and we look forward to updating you on our first quarter results.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
