Build-A-Bear Workshop, Inc. Q2 FY2025 earnings call

Key Points

• Achieved record second quarter and first half results with revenue growth, expanded pretax margin, and higher earnings per share.
• Focus on three strategic pillars: expansion/evolution of experiential retail footprint, advancement of digital transformation, and investment to leverage brand equity while returning capital to shareholders.
• Retail footprint expansion: 14 net new experience locations opened in the quarter, 86% international, expanding to 32 countries; domestic and international partners/franchisees continuing to expand.
• Digital transformation: Social media initiatives across platforms driving omnichannel sales, with user-generated content and successful marketing campaigns like the fruit stand assortment.
• Brand leverage: Introduction of new concepts like mini beans collection, licensed partnerships (e.g., Hello Kitty), and strong performance in Halloween sales with new product launches.

In the second quarter, total revenues were $124.2 million, with net retail sales at $114.6 million (a 10.8% increase) and commercial revenue (wholesale sales to partner operators) at $9.6 million (an 18.3% increase). Retail contributed approximately 92.3% of total revenues, while commercial was about 7.7%. For the first half, retail and commercial segments both grew double digits, with retail up 11% and commercial up 22%.

Forward-Looking Statements

• Increased revenue and pretax income guidance for 2025, based on current tariff rates and higher net new unit growth expectations.
• Raised net new unit growth to at least 60 locations from the previous 50.
• Pretax income guidance now in the range of $62 to $70 million, assuming current tariff rates remain in effect. Tariffs are expected to impact income statement, but net impact is less than $11 million for fiscal 2025, with about $1 million in Q2 results.

Risks Discussed

• Tariffs impacting the cost of goods sold, particularly on Chinese and Vietnamese imports. The 30% tariff on Chinese imports and 20% tariff on Vietnamese imports create cost headwinds.
• Macroeconomic uncertainties and potential economic instability that could affect consumer spending.
• Medical and labor cost headwinds, totaling approximately $16 million for the year.

Q: Talk about response to price increases and consumer reaction.

A: Price increases are selective and strategic. The count your candles program helps maintain entry-level price points, and while some core animals have minor price changes, collectors and licensed products see larger increases. Traffic to stores remains strong with 3% growth, outperforming national benchmarks.

Q: Update on MiniBeans sales and wholesale distribution.

A: MiniBeans saw an 80% year-over-year revenue increase. Wholesale distribution is expanding, with partners like Hudson, Applegreen, and international toy stores carrying MiniBeans, and a new licensed Sanrio launch is upcoming.

Q: Implied second half guidance and margin expectations.

A: Second half has tougher comps due to strong prior year results, but focus remains on controllable factors. Tariffs and other costs create headwinds, but pretax guidance remains positive despite these challenges.

Q: Momentum with new partners and customer differences in partner vs. corporate stores.

A: New partner Intersource is expanding in Germany and had a successful standalone store in Copenhagen. Customer base is similar globally as the brand's power is understood internationally, with partners adapting social media outreaches to local markets.