Not long ago, I came across the stuffed teddy bear I had as a little boy and found that with the thread loosening, its head was falling off. This image came to mind when I studied Build-A-Bear Workshop's (NYSE: BBW ) second-quarter results.
Same-store sales dropped 9.4% compared to the same period a year ago. That's worrisome, particularly when considering that comps in the second quarter of last year were also negative, declining 4.4%. In the company's quarterly earnings conference call, management revealed that merchandise margins held up OK, but the biggest reason for the poor comps was weaker store traffic.
Driven by new store openings, net sales did improve by 7.2%. But when older stores that have been open for more than a year perform so poorly, it is very difficult being optimistic even about this growth. If the company does not get comps moving in the right direction again, as my colleague Rick Aristotle Munarriz opined, I believe that Build-A-Bear's days as an independent public company are numbered.
The conference call highlighted several strategies that management is implementing to improve performance. A new social-networking site, to be introduced in the fourth quarter, is expected to "leverage the store experience." Also, a new video game is set for release on the Nintendo (OTC BB: NTDOY.PK) DS. And on an operational level, the company is partnering with FedEx (NYSE: FDX ) to utilize its FedEx Ground service.
But it was also revealed in the call that there will be no new movie-related animal this holiday season, in partnership with Disney (NYSE: DIS ) or otherwise. Speaking of holiday sales, management refused to discuss guidance for the remainder of the year.
Build-A-Bear does offer a unique one-of-a-kind experience and product for its customers. Just last week, my good friend took his little nephew to a Build-A-Bear Workshop in Indianapolis, and the little boy created a dog with a lion's voice. Leave it to children to come up with the cool stuff!
Build-A-Bear definitely serves a niche. The only problem is, it's a very small niche. As such, there is a strong possibility that Build-A-Bear's days as an independent company are numbered. For that reason, this is probably not the time to buy this stock -- unless you have a thing for limbs falling off in your portfolio.
Nintendo, FedEx, and Disney are all Motley Fool Stock Advisor recommendations.