By
Colleen Paulson
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April 24, 2008
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Build-A-Bear Workshop's (NYSE: BBW ) first-quarter earnings report makes me want to put those bears on a diet.
The good news? Build-A-Bear beat earnings and EPS targets, though these were not stretch goals. The company has completed its ongoing strategy for thriving in the competitive retail marketplace, amid expectations so low that the stock price actually jumped on 6% revenue growth and a 20.7% drop in earnings.
Europe currently drives Build-A-Bear's expansion; across the Atlantic, the company delivered a 52% sales increase and a 14.5% same-store sales jump year over year. Overall same-store sales growth was a real bear at 10.5%, with North American same-store sales declining 13.1%, compared to a 6.9% drop last year.
Costs remain a concern, since both COGS and SG&A outpaced revenue growth, generating a 170-basis-point drop in net profits, from 6.9% to 5.2%. The cost-of-goods increase of 10.4% has me wondering what those bears are eating. At least they're keeping their fuzzy paws off the company's credit line; despite 48 new stores added in 2007, Build-A-Bear continues to fund growth out of its free cash flow, with no long-term debt.
Following Disney (NYSE: DIS ) , the corporate role model for delivering an interactive retail experience, Build-A-Bear has launched its new interactive website to compete with online offerings from Hasbro (NYSE: HAS ) and Mattel (NYSE: MAT ) . While Chief Executive Bear (yes, Bear) Maxine Clark says that the new site has had "strong adoption," it doesn't look like web-savvy consumers are building the Bear's bottom line yet.
Of course, the pending recession and inflation don't bode well for retailers on the whole. Build-A-Bear doesn't plan to launch as many stores this year, cutting North American and European new-store-location growth in half for 2008. With same-store sales faltering, Build-A-Bear must put the bears on a cost-cutting diet immediately if it wants to sweeten its stock price.
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