Build-A-Bear Workshop, Inc. Q1 FY2026 earnings call

CEO Transition

• Outgoing CEO Sharon Price John will step down on June 11, 2026, and will remain a member of the board of directors. She highlighted that Build A Bear has delivered strong revenue growth and shareholder value during her tenure, and endorsed incoming CEO J. Christopher Hurt (current COO) for his proven track record driving retail profit improvement, global expansion, and go-to-market strategy reinvention.
• Incoming CEO J. Christopher Hurt will take the helm after 11 years with the company, and will continue to execute the existing 4-pillar growth strategy built on 5 years of record company results.

Consumer and Brand Insights

• The company saw weaker than expected Q1 results, but achieved its best Valentine's Day performance in North American history and a solid Easter performance. When consumers engaged with the brand, dollars per transaction increased due to higher units per transaction and selective price increases, indicating underlying brand strength.
• Entry-level Birthday Treat Bear sales, part of the pay-your-age program for kids, increased, with over 20,000 units sold weekly to drive loyalty program acquisition; this indicates continued kid relevance for the brand, and may reflect mild trade-down behavior amid cautious macro conditions.
• Nostalgic collections for adult collectors saw strong performance: the Fresh Frosted Animal Cookies collection sold through in under 2 weeks, and topped PR Newswire's March top 5 press release list.
• Owned IP products delivered strong growth: PromisePets sales more than doubled year over year following a relaunch, and the pre-stuffed Mini Beans collection grew almost 30% year over year, with nearly 4 million units sold across all channels since launch.
• The newly remodeled FAO Schwarz location in New York City has received positive guest response to its new subway-themed experience and in-store personalization station.

Strategic Progress

• The company's 4 core growth pillars are: 1) organic omnichannel growth, 2) global location expansion, 3) wholesale and outbound brand licensing, 4) gifting and personalization.
• Organic Growth: The company is working to address e-commerce demand headwinds from Google's AI search changes, partnering with external firms and adding experienced talent to improve search performance. Upcoming key seasonal product initiatives include: an innovative new Halloween collection launching in August 2026, a year-long 30th anniversary celebration starting October 2026 that will bring back popular nostalgic products, and a refreshed Harry Potter collection launching in December 2026 tied to the new HBO series premiere.
• Location Expansion: The company opened 7 net new locations in Q1, putting it on track to meet its full-year target of at least 50 net new locations. Expansion highlights include entry into the Philippines, bringing the total international footprint to 37 countries (up from 19 two years ago); 3 additional stand-alone stores opened in Germany, making it the company's fastest-expanding market; and two new Hello Kitty and Friends branded workshops opened at Mall of America and American Dream, with early results outpacing expectations. A new multilevel corporately-managed ICON Park tourist location in Orlando is on track to open in H2 2026 with new experience innovations.
• Wholesale (Third Growth Pillar): The company expanded its wholesale team and opened a new Los Angeles showroom to support growth, following the launch of its Mini Beans collection in 1,500 Walmart locations. Wholesale is positioned to complement retail stores by increasing brand awareness and driving future foot traffic back to Build A Bear workshops.

Financial Operational Highlights

• The company returned $14.3 million to shareholders in Q1 via dividends and share repurchases, with $45.9 million returned over the last 12 months. 650,000 shares have been repurchased in the last 12 months, reducing the share count by 5%, with $47 million remaining in the authorized $100 million repurchase program.

Total company revenue for Q1 fiscal 26 was $125.3 million, a 2.4% decrease year over year, marking the second-best Q1 in company history. The Direct to Consumer (net retail) segment saw a revenue decline, driven by a 7% drop in domestic store traffic and a 26.1% decline in e-commerce demand; this decline was partially offset by growth in the Commercial segment. The Commercial segment, which includes wholesale and international franchise revenue, grew 34.1% year over year, making it the company's fastest-growing business segment. Gross margin for the quarter was 63.8%, an increase of 700 basis points year over year; 560 basis points of this increase came from a $7 million tariff refund related to the prior fiscal year, and 140 basis points came from higher average unit retail. Pretax income was $23.9 million (up from $19.6 million year over year); adjusted pretax income, excluding the $7 million tariff refund, was $16.9 million.

• Full year fiscal 26 revenue guidance was lowered to a range of $530 million to $550 million, representing flat to 4% year over year growth, down from the prior mid-single digit growth guidance. The revision reflects softer than expected Q1 and second-quarter-to-date results, and a more conservative outlook amid cautious macro and geopolitical conditions. The full-year target of at least 50 net new locations and at least 20% commercial segment revenue growth is maintained.
• Full year pretax income guidance was increased to a range of $72 million to $78 million, driven by $13 million in expected USTR tariff refunds partially offset by lower expected revenue. Adjusted pretax income, excluding the $7 million prior-year tariff refund, is expected to be $65 million to $71 million. This guidance assumes the current 10% Section 301 tariff rate remains in place for the rest of the fiscal year, and includes $3 million in planned long-term strategic investments.
• Management expects Q2 profitability to be lower year over year, with stronger performance coming in the second half of fiscal 26 due to easier year-over-year comparisons and planned seasonal and strategic initiatives. Even with the updated guidance, 2026 is still expected to be one of the strongest years in company history, with potential for record full-year revenue, solid margins, and continued capital return to shareholders.

• Macroeconomic and geopolitical uncertainty has driven cautious consumer sentiment, leading to softer than expected retail store and e-commerce traffic that resulted in Q1 results falling below internal expectations. E-commerce traffic continues to face structural headwinds from Google's recent AI search algorithm changes.
• Domestic retail traffic in Q1 was down 7%, lagging overall national retail traffic trends, with a particularly pronounced drop in visits from the tween/teen/adult collector demographic that drove strong results in Q1 of the prior year. The Q1 slowdown is expected to extend into the second quarter.
• Tariff policy changes create accounting and forecasting uncertainty, even as expected refunds provide a near-term financial benefit. Inflationary cost pressures, including higher wage rates, energy prices, and tariffs, continue to impact operating expenses and margins.
• International store opening timing is dependent on third-party partners, creating some variability against internal expansion targets, though the asset-light partner model reduces capital risk for Build A Bear.

Q: What is the timing and breakdown of the remaining $13 million total tariff refund beyond the $7 million recognized in Q1? What is the current status of cash receipts? / A: Of the $13 million total expected refund, $7 million relates to tariffs expensed in the prior fiscal year, and the remaining $6 million relates to tariffs embedded in existing inventory. The $6 million benefit will be recognized as inventory sells through, with most of the benefit hitting Q1 and a smaller portion releasing in Q2. A small portion of the total refund has already been received, with the remainder expected to be paid in 2026, though timing is partially outside the company's control. Full-year guidance still includes a $10 million net expected tariff cost impact for ongoing tariffs. (312 characters)

Q: What are the initial learnings from the new Walmart Mini Beans wholesale placement, and what is the long-term vision for wholesale growth? / A: The 1,500-location Walmart placement was a test to prove demand for the company's new Mini Beans and blind pack formats in broad retail. The company has expanded its wholesale team and opened a new Los Angeles showroom to onboard and serve additional wholesale accounts, building on this pilot. Wholesale is a core growth pillar, with a long development cycle, and the company is currently building out infrastructure to scale this segment over time. (328 characters)

Q: What is the role of licensed products (like Pokemon and Sanrio) for the adult collector segment going forward? / A: Licensed products are a core component of the company's offerings for the tween/teen/adult (cadult) collector segment, and long-standing partnerships like Pokemon will continue to be a key focus. The strong performance of Sanrio licensed products has enabled the company to open dedicated Hello Kitty branded workshops, which have outperformed initial expectations. The company balances licensed adult-focused offerings with core kid-focused products to serve all consumer segments across channels. (331 characters)

Q: What drove the gross margin improvement excluding the tariff benefit, and what is the medium-term outlook for gross margin? / A: Even excluding the tariff refund, gross margin improved 140 basis points year over year, partially driven by benefits from selective price increases implemented in the prior year to offset higher tariff costs. Over the past several years, the company has delivered over 1,000 basis points of gross margin improvement through ongoing supply chain efficiency, pricing management, and promotion optimization, and will continue to focus on these improvements to support margin going forward. (324 characters)

Q: Why did store traffic underperform national retail trends in Q1, and what plans does the company have to reverse the trend? / A: Q1 faced very tough comparisons following double-digit traffic growth in Q1 of the prior year, and macroeconomic caution also contributed to slower traffic. When customers do visit stores, average transaction value and units per transaction are up, indicating strong brand engagement and health. The company is focusing on growing traffic via key occasions like birthday parties (supported by the high-volume Birthday Treat Bear program) and improved timing of key licensed and themed product launches. (313 characters)