Last month, I introduced a new weekly series, "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the Worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week I want to highlight Build-A-Bear Workshop's (NYSE: BBW ) Chief Executive Bear, Maxine Clark.
The dunce cap
No, that is not a misprint! The person at the top of this bear-making empire is referred to as the Chief Executive Bear -- can you see where this is going?
The trouble began with the company's fourth-quarter report, which was issued, ironically, just two days after Valentine's Day. In the quarter, Build-A-Bear reported an adjusted profit of $0.34 on a 6% reduction in sales. While this might sound decent, EPS actually missed Wall Street's estimates by $0.16.
The reason Build-A-Bear lost its stuffing this quarter is practically mind-numbing -- at least to myself and fellow Fool Rick Munarriz. According to CEO -- excuse me, I mean "CE Bear" -- Maxine Clark, the primary reason results fell short in the fourth quarter was because "our key holiday products tied into major theatrical release[s] ... underperformed at the box office."
What were these major theatrical releases, you might be wondering? How about Happy Feet Two and Alvin and the Chipmunks: Chipwrecked? These Oscar-caliber movies, somehow, didn't generate the market-breaking returns that had fueled Build-A-Bear's growth in the past few quarters. They did, however, create an upside surprise in my level of sarcasm.
These weak results pushed Build-A-Bear into another annual loss in 2011 and reduced earnings estimates in 2012 by roughly 30%.
To the corner, Ms. Clark...
But wait -- there's more!
Chief Executive Bear Maxine Clark wasn't done wowing us yet with her leadership expertise. She went on to say later in the report that, "We have demonstrated that we have been able to grow our sales both in our stores and online when we have the right product..."
Just in case you were curious what the secret is to growing Build-A-Bear's business, it's having the right product. Who knew? The company definitely didn't have the right product in the fourth quarter, with same-store sales dropping 4.9%.
I understand that Build-A-Bear's business model requires them to maintain a family and child-friendly atmosphere when it comes to their bears, but its choice of which movies to back this quarter was simply terrible.
Disney's (NYSE: DIS ) studio revenue fell 16% in the first quarter, but its movie, The Muppets, performed very well. Lions Gate Entertainment's (NYSE: LGF ) revenue also fell as shareholders eagerly anticipate the release of Hunger Games in late March. It has the possibility to be Lions Gate's next big-ticket sales generator. News Corp.'s (Nasdaq: NWSA ) X-Men: First Class was also an outstanding performer during the recently ended quarter.
Despite a veritable sea of successful movie titles, Build-A-Bear managed to pick two titles that greatly underperformed. I cautioned back in December that I didn't understand the craze associated with stuffed animals, and it appears, at least for this quarter, neither do investors.
To sum this up: Shareholders just had their stuffing pulled out, and the only answer Build-A-Bear could come up with is that it would do well if it had the right product. With that sort of ground-breaking analysis, who needs economists?
Do you have a CEO you'd like to nominate for this dubious weekly gaffe honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.
And if you'd like a surefire way to avoid investing in companies with questionable leadership practices, I invite you to download a copy of our latest special report, "11 Rock-Solid Dividend Stocks." This report contains a wide array of companies and sectors that are likely to keep your best interests in mind regardless of whether the market is up or down. Best of all, it's completely free for a limited time, so don't miss out!