Build-A-Bear Gets Stuffed

Fellow Fool David Meier wrote about Build-A-Bear Workshop's (NYSE: BBW  ) outstanding earnings report, a report that boasted comparable-store sales growth of 23% in the quarter and 18.8% for the full fiscal year. Those kinds of comps are worth salivating over.

Unfortunately, three weeks later, the company pulled the rug out from under investors by forecasting same-store sales growth of only 2%-3% for the upcoming fiscal year.

Huh?

Two things immediately come to mind, and neither is attractive to me from an investment standpoint. How exactly is it that on one day the company trumpets its amazing same-store growth from the past year and then, just three weeks later, makes a forecast for the entire fiscal year that is just plain awful? Are we supposed to believe that in those three weeks in January, it was able to forecast that kind of specificity? When it comes to investing, one can never be too suspicious. So I don't feel too bad asking why the 2005 forecast wasn't issued simultaneously with the earnings report. In addition, the company said it will need to restate some earnings results to properly account for certain lease payments following a recent guidelines clarification issued by the Securities and Exchange Commission. Probably not a big deal, but it isn't giving me reason to feel confident going forward.

This also brings to mind something I discussed in an earlier article. I fear the company's business model is built on a concept that may turn out to be a fad. This is not to say that the company won't find other ways of stimulating internal growth -- Starbucks (Nasdaq: SBUX  ) has grown way beyond selling espresso -- but I have to ask just how many stuffed animals one company can sell. On the one hand, cuddly toys would seem to have an infinite demand. As long as people keep having kids, those kids will need snuggly creatures. In fact, it almost sounds like the constant need to upgrade computers that companies like Dell have taken advantage of so well.

On the other hand, we have Cabbage Patch dolls, Tickle-Me Elmos, and a host of other once-hot kid items that you can now find on eBay for mere pennies. So, until Build-A-Bear can convince me that it is more than what it seems, I will continue to pass on the company as a potential investment.

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Fool contributor Lawrence Meyers owns none of the stocks mentioned in this article, which solely reflects his opinion and should not be considered as financial advice.


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