Depending on how you look at it, a multitude of new product and concept ideas could bring specialty retailer Build-A-Bear (NYSE: BBW ) new sources of revenue and brand awareness. However, these initiatives cost money, and they could be distracting management from improving sales in its existing store base, which needs help.
In first-quarter results released Tuesday, same-store sales dropped another 6.9%. Comp trends have been weak for some time now, and management expects flat-to-negative same-store growth at the flagship North American stores for all of fiscal 2007.
Build-A-Bear also took another charge related to last year's acquisition of the U.K.'s Bear Factory, and reported an operating loss there. During the earnings conference call, management said that there's potential for 75 stores in the U.K., with another 50 possible in France to fill out European expansion ambitions.
Build-A-Bear also highlighted many new initiatives to offer children stuffed animals. It is partnering with McDonald's (NYSE: MCD ) to offer toy animals in Happy Meals, and it's opening stores within Landry's Restaurants' (NYSE: LNY ) Rainforest Cafes. It has also been selling a Mumbles stuffed animal from the film Happy Feet, which has proven popular. A Shrek character is on the way, to coincide with this summer's release of Shrek the Third from DreamWorks Animation (NYSE: DWA ) .
This all sounds impressive, but management must simultaneously increase marketing and advertising spending while expanding its domestic store base and digesting Bear Factory. It has also discussed building an interactive website with games and other entertainment options for children. This spending is showing up in the financials; last year, capital spending ate up nearly all of the cash flow generated from operations. And that didn't include the $40 million spent on acquisitions.
Time will tell whether the Build-A-Bear concept is here to stay, but I'm becoming increasingly bearish. It appears that the company's new ideas are getting increasingly expensive, yet not helping to revive same-store sales at existing domestic locations, with even more murky trends abroad.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.