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DATE

Thursday, May 28, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Sharon Price John
• Chief Executive Officer (Designate) — J. Christopher Hurt
• Chief Financial Officer — Voin Todorovic

TAKEAWAYS

• Total Revenue -- $125.3 million, down 2.4%, with commercial segment growth partially offsetting declines in direct-to-consumer sales.
• Gross Margin -- 63.8%, up 700 basis points, including a 560 basis point benefit from a $7 million tariff refund, and a 140 basis point increase from higher average unit retail, partially offset by occupancy cost leverage.
• Domestic Traffic -- Down 7%, lagging national retail traffic trends and contributing to direct-to-consumer segment declines.
• E-Commerce Demand -- Declined 26.1%, signaling persistent softness in web traffic.
• Commercial Segment Growth -- Up 34.1% when combined with international franchise revenue, now a primary driver of overall growth.
• Pre-Tax Income -- $23.9 million reported; adjusted pre-tax income excluding the $7 million tariff refund was $16.9 million.
• SG&A Expenses -- $56.1 million, or 44.8% of total revenues, up 310 basis points mainly from higher wage rates, increased talent investment, inflation pressures, and timing of long-range investments.
• EPS / Adjusted EPS -- $1.45 reported EPS with high pre-tax income and lower share count, partially offset by a higher tax rate; adjusted EPS $1.03.
• Shareholder Returns -- $14.3 million returned in the quarter and $45.9 million over the past 12 months via dividends and share repurchases, reducing share count by 5% with $47 million remaining on the existing repurchase program.
• Store Activity -- 7 net new locations opened, including a new country (the Philippines), taking the international footprint to 37 countries, up from 19 two years ago.
• Product Highlights -- Promise Pets collection sales more than doubled year over year and pre-stuffed mini beans volume rose nearly 30%, reaching almost 4 million units since launch.
• Inventory -- $77.8 million at quarter-end, $5.6 million higher, primarily due to tariffs in product costs and preparation for increased sales expected in the second half.
• Revised Guidance -- Full-year revenue now projected at $530 million to $550 million, flat to 4% growth, with pretax income guidance increased to $72 million to $78 million ($65 million to $71 million on an adjusted basis excluding $7 million tariff refund); commercial segment expected to grow at least 20% for the year.
• Strategic Initiatives -- Four-pillar strategy reaffirmed: organic growth, location expansion, wholesale/brand licensing, and gifting/personalization, with immediate focus on scaling international franchise and commercial business.
• Tariff Dynamics -- A $13 million refund related to prior and current inventory tariffs is included in results and guidance, with approximately $10 million net tariff costs expected for the year assuming a 10% tariff rate continues.
• Leadership Change -- Leadership transition from Sharon Price John to J. Christopher Hurt as CEO confirmed for June 11, with John remaining on the board of directors.
• Loyalty and Traffic Programs -- The birthday treat bear program sustains over 20,000 units sold weekly, driving Bonus Club loyalty program participation and potentially indicating evolving customer behavior in younger demographics.

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RISKS

• CFO Todorovic stated, "Given the current trends, in the overall macroeconomic and geopolitical environment, we expect second quarter profitability to be down year over year."
• Management noted, "traffic was down 7%. Which lagged national retail traffic trends in The US," highlighting store traffic underperformance as a near-term challenge.
• Web business continues to face "soft" demand with e-commerce down 26.1%, and CEO-designate Hurt cited the need to "mitigating the disruption associated with Google driven AI search changes from last year."
• Revenue guidance was formally reduced due to "first quarter and second-quarter-to-date results coming in below our expectations," incorporating "a more conservative view for the total year outlook."

SUMMARY

Build-A-Bear Workshop, Inc. (BBW +0.79%) reported a 2.4% top-line contraction driven by falling direct-to-consumer and online demand, though commercial and franchise segments posted strong double-digit growth. Strategic emphasis shifted toward asset-light international expansion and wholesale initiatives, with seven net new locations, entry into the Philippines, and continued rollout in Germany and other markets. The company adjusted full-year revenue guidance down, but increased expected pre-tax income due to a $13 million tariff refund, while cautioning on macroeconomic headwinds, inflation, and digital marketing disruption. Leadership transition to J. Christopher Hurt as CEO was confirmed, with Sharon Price John remaining on the board to ensure strategic continuity.

• Management projects "second quarter will likely be weaker than the first quarter. With easier comparisons and planned growth for the third and fourth quarters."
• Recent product launches targeting older collector, tween, and adult demographics—such as the frosted animal cookies and Promise Pets—demonstrated outsized sales velocity, with most new items "selling through in less than 2 weeks."
• Retail operating metrics improved as "dollars per transaction" and "units per transaction increased," partially offsetting negative traffic trends.
• Wholesale expansion includes Mini Beans launches in 1,500 Walmart stores and investment in a new Los Angeles showroom to build out this revenue pillar.
• Major upcoming initiatives include a new Halloween collection, a thirtieth anniversary celebration with "vault" nostalgia relaunches, and refreshed key license collections such as Harry Potter, all timed for stronger second-half performance.

INDUSTRY GLOSSARY

• Mini Beans: Small, pre-stuffed plush collectibles central to Build-A-Bear’s recent revenue and wholesale expansion strategies.
• Commercial Segment: Build-A-Bear’s business division focused on wholesale distribution and international franchising channels, distinct from direct-to-consumer.
• Pay Your Age/Birthday Treat Bear: Entry-level, promotional plush sold at a special price tied to a customer’s age, serving as a primary driver of in-store birthday celebrations and loyalty club sign-ups.

Full Conference Call Transcript

Sharon Price John: Thank you, Gary, and good morning, everyone. I appreciate you joining us today for Build A Bear's first quarter fiscal 26 earnings call. Before reviewing the business, as I am nearing in on my last day as CEO of Build A Bear on June 11, I wanted to briefly reiterate what a privilege it is been to serve this beloved company for years. Build A Bear is an exceptional organization envisioned by an inspiring founder nurtured by a remarkable team of people who care deeply about the brand. Working at our headquarters in The US and The UK as well as our warehouses and retail locations around the world.

It is supported by amazing partners across scores of functional areas from factories to fulfillment. I have gotten to know many of these individuals over the years and, like them, have been moved by the indelible, memorable impact Build A Bear can have on people of all ages around the globe. Needless to say, this has been incredibly rewarding. To have navigated the company through multiple challenges with this great team. And to have been an integral part of its successful strategy, brand expansion and revenue growth, and particularly over the last few years, the shareholder value that has been created since taking the position.

1 of the most important decisions, however, was to bring Chris Hurt on board as the COO in 2015. Over the past 11 years, Chris has proven his dedication to this company. As well as his resilience, and ability to drive the business forward.

As such, both the board and I believe he is ready to take the helm of Build A Bear that he will continue to be a trusted partner to this outstanding leadership team and the company at large just as he was during his leadership of our largest business division, global retail operations, during a period of significant profit improvement and later while driving our global location expansion as well as more recently, with his oversight and process reinvention of our product and brand go to market strategy. With this successful track record, I have confidence that the company will be in excellent hands as he builds on our success.

While also taking the company to company to new heights and look forward to staying appropriately engaged from my continued role as a member of the Build A Bear board of directors. With that, I would like to formally congratulate Chris as he takes the helm and I am enthusiastically looking forward to this next chapter.

J. Christopher Hurt: Thank you, Sharon, for the introduction and your leadership. As well as our partnership for more than a decade. Which has helped the company operationally and financially evolve to achieve new levels of success. With the last 5 years of record results establishing the groundwork, from which to drive the next phase of growth I am proud to build on that foundation. Even though we have been pleased with advancements in our strategic initiatives ranging from store openings to learnings and positive impacts from innovative product launches. As you may recall from last quarter, we know the likelihood of a slower start to fiscal 26 and expected first quarter revenue to be approximately flat year over year.

Which was based on the traffic trends we were seeing through mid March. As the quarter progressed, unfortunately, the subsequent results fell below our expectations. While we are continuing to assess and address the causal factors both in store and related to the noted web demand challenges we believe a portion of the softness and variability reflects a broader macro shift Consumer sentiment data has been mixed but cautious. Largely driven by geopolitical concerns and related price increases. Conversely, we had our best Valentine's Day in our North American history. And a solid Easter performance. And when consumers engaged with the brand, in the quarter, both in store and online, it drove positive operating metrics.

Including higher dollars per transaction, because of improvements in both units per transaction and price increases. This is directly related to our trend product launches which are focused on the tween, teen, and adult segments of our business and possibly a nod to the K-economy. We also saw increase in our birthday treat bear. The key item of our entry level pay your age program designed for kids. This may reflect some trade down behavior but it remains important as this product serves as a key customer and loyalty program acquisition tool. And could be a bellwether future brand relevance. It shows that children continue to choose Build A Bear as an experience to celebrate their most special day.

To give you a sense of the scale of this program, we sell more than 20 thousand birthday treat bears each week. Which in turn drives guests to join our bonus club loyalty program. Importantly, even as we have seen some traffic challenges, we believe both of these consumer group insights as well as the ongoing interest around visiting Build A Bear workshop during key occasions like Valentine's, Easter, and birthdays supports the continued underlying strength of the brand. All this led to mixed results for the first quarter, specifically, we delivered a $125 million in revenue, down 2% year over year. However, still representing the second best first quarter in the company's history and a 9% increase over 2024.

Commercial segment sales grew 34% partially offset offsetting a decline in net retail sales. And while pretax income increased almost $24 million with a $7 million tariff refund benefit related to 2025, is excluded, pretax income was almost $17 million. While the first quarter results were an important factor, they were not the only 1 that we contemplated when looking at our revenue expectations. for the remainder of the year. And while we have ultimately chosen to reduce our full year revenue guidance, we remain confident in certain initiatives that are slated for the back half. Even as we are taking a more cautious view of the economic and geopolitical environment, traffic trends, and inflationary pressures.

Importantly, this update reflects a disciplined approach to aligning our outlook with current visibility and does not change our strategy or our confidence in the long term opportunity. As part of our updated outlook, we are also revising our pretax income guidance to reflect the favorable tariff adjustment offset by lower than expected operating performance. Voin will provide additional details in his commentary. Moving to the strategy. As we have shared over the past several years, we have been evolving and diversifying our business model to better leverage the power of the Build A Bear brand. Simultaneously, we have had a disciplined approach to strengthening the business operationally and financially.

And today, Build A Bear is materially stronger than it was just a few years ago. For example, 2025 represented the largest revenue year in the company's history, We have meaningfully broadened the addressable market We have opened 129 net new global locations over the past 2 years. Our retail fleet is essentially 100% profitable and made substantial progress on systems investments not only to improve efficiencies, but to be more effectively expand into new channels of distribution. Therefore, looking ahead, our focus is increasingly on further scaling the company. We expect the next phase of growth to be driven by the 4 strategic pillars we discussed last quarter. Which are all expected to drive revenue.

As a reminder, the 4 pillars are 1, drive organic growth; 2, location expansion; 3, wholesale and outbound brand licensing; and 4, gifting and personalization. With the pillars of organic growth and location expansion, continuing to leverage proven strategies, and the newer revenue streams represented by the 2 other pillars. My intention is to highlight key advancement of select pillars each quarter. To keep you informed of our strategic progress. Today, we will update you on our organic growth international expansion, and wholesale. Organic growth is critical for the success of our omnichannel business.

While both our stores and ecommerce businesses faced tougher year over year comparisons, and we saw softer than expected traffic and revenue in the first quarter our stores continued to deliver top tier return on invested capital. Although our ecommerce business has continued to face challenges we remain dedicated to mitigating the disruption associated with Google driven AI search changes from last year. We are currently working with external partners while also adding experienced industry talent to develop targeted initiatives to enhance performance across the changing AI search landscape to drive improvements in our omnichannel metrics, loyalty program, and personalized engagement.

Based on a softer than expected quarter-to-date performance, combined with continued tough comparisons and macroeconomic challenges, we believe second quarter will likely be weaker than the first quarter. With easier comparisons and planned growth for the third and fourth quarters. With that in mind, we have plans in place to activate opportunities throughout the balance of the year. With some of these efforts based on seasonal needs and new initiatives. While we did not successfully anniversary some key stories and license launches, in the first quarter, we did have some strategic wins that will help inform our go forward plan. Specifically, select launches resonated with our older collector consumer. Often return to as adults.

These consumers tend to over index on nostalgic concepts. As an example of this, our fresh frosted animal cookies collection which harkens back to childhood for this segment, With most products selling through in less than 2 weeks. Was a top performer for Q1. Our public relations approach to this collection topped PR Newswire's published list of March's top 5 press releases due to its ability to catch both eyeballs and AI agents. We are pipelining additional creative nostalgic offerings later this year. Especially as we get closer to our 30th anniversary kickoff which I will discuss later. We also saw strength in our PromisePets collection. Which we recently relaunched with a new marketing campaign.

As you may know, Promise Pets is 1 of Build A Bear's owned intellectual properties. it is positioned as a product enabling kids to have an opportunity to demonstrate responsible pet ownership. PromisePets including the launch of our first Promise Pets mini beans collection, more than doubled sales year over year in the first quarter. And we believe that this collection continue to attract the core kid consumer back into our workshops. Our pre stuffed collection of mini beans continued strong momentum in the first quarter. Beating last year's results by almost 30% selling nearly 4 million units since launch across all channels.

We have continued to add to this collection with expansion in our own intellectual property, including the aforementioned PROMISE Pets and the Kabu characters based on our kawaii inspired animated series, which now has over 2 million views. Along with licensed mini beans, such as Sanrio's Hello Kitty. We reopened our newly remodeled New York City FAO Schwarz store. making 1 of our best stores even better and refreshing it with a fun twist. A New York subway themed experience complete with a personalization station where guests can now create embroidered furry friends and personalized T shirts. Right in the store. Thus far, overall guest response has driven positive results.

Acknowledging the back half weighting of the year, looking ahead, we want to share a few fun highlights. In August, we will be introducing a new innovative Halloween collection to support what has become 1 of Build A Bear's biggest seasons including exciting exclusive items. In October, we will kick off our yearlong thirtieth anniversary celebration. Commemorating 3 decades of memory making experiences. Including up opening up our vault to relaunch some of the most popular nostalgic furry friends from the past for millions of guests and fans around the world. And in December, we will launch a refreshed Harry Potter collection in conjunction with the premiere of a new HBO series.

We also saw key advances in our second pillar, through continued expansion of the brand into markets both domestically and internationally. Through a mix of our 3 business models, corporately managed, partner-operated, and franchise, bringing our signature workshop experience to more people in more places for more occasions. We are particularly focused on international expansion with our asset light partner-operated model through a broad range of formats. From smaller shop-in-shops to larger tourist destinations. As well as on our multilevel ICON Park store that will open later this year. This Orlando corporately managed tourist destination is planned to feature new innovations and experiences that are intended to enhance brand engagement while providing learnings for inclusion in other workshops.

In the first quarter, we opened 7 net new locations. making progress towards our goal of opening at least 50 this year. We added a new country in the quarter, The Philippines. Bringing our international footprint to 37 countries, up from 19 just 2 years ago. As we have shared, Build A Bear reentered Germany in the early part of fourth quarter through 1 of our existing European partners, Intersource. This has become our fastest expanding market opening 4 stand-alone stores in the fourth quarter of last year with tremendous success. And 3 more in the first quarter in Cologne, Hanover, and Munster. This marks an important step in our European growth strategy.

We also continue to open stores in Italy, Colombia, Mexico, Latvia, and Norway. As is typical, we are constantly evolving our retail footprint. Which is why we report our net new locations. For example, our Norway partner closed 3 shop in shop locations replacing them with 2 full stand alone locations. Our Italian partner closed that location to open a superior tourist location in Como. Shifting back to The US, we continue to expand our corporate store footprint. 2 additional Build A Bear and Hello Kitty and Friends workshops mentioned last quarter opened in Mall of America, and American Dream.

Early results are outpacing initial expectations to the delight of enthusiastic Hello Kitty and Build A Bear fans of all ages. As a reminder, we believe our successful global expansion underscores the international scalability of the Build A Bear experience. Reinforcing that a teddy bear hug is understood in every language. I also want to briefly touch base on wholesale, part of our third pillar of growth. The goal for wholesale is twofold. To, of course, increase revenue. But also to extend our brand presence to tens of thousands of new points of sale. Importantly, we view wholesale as complementary to our workshops with the intention of ultimately serving as a mechanism for awareness and trial.

Which should also increase brand affinity and drive PAC traffic back to our stores for the full Build A Bear experience. In the first quarter, we expanded the team for this important strategy and opened a new Build A Bear showroom in Los Angeles. To help serve our wholesale account base. This was partially based on the confidence from the recent launch into 1.5 thousand Walmart locations featuring our popular mini beans collection. I look forward to updating you as we continue to execute on these strategic pillars. Before closing, as we have discussed, we anticipate 2026 will be a tale of 2 halves.

With more challenging comparisons in the first half and easier comparisons along with more opportunities in the back half of the year. Of note, this is Sharon's 52nd and last earnings call with us. I want to take another moment to thank Sharon for her truly exceptional leadership as our CEO. it is been a privilege to work for and learn from her over the past decade. And I know that our entire team shares this sentiment. Under Sharon's direction, Build A Bear has created significant shareholder value. And the team here had a lot of fun in the process.

We wish Sharon all the best in our next chapter and I am excited to officially step into the CEO role in 2 weeks and continue to execute on our strategy to deliver consistently strong returns on invested capital that our shareholders expect from Build A Bear. With that, I would like to turn it over to our CFO, Voin Todorovic.

Voin Todorovic: Thank you, Chris, and good morning, everyone. Before sharing Q1 comments I also want to express my deep gratitude for Sharon's exceptional leadership and partnership. Which have been instrumental in driving our company's success and delivering value to our shareholders. Sharon, best of luck in your new endeavors. Now I will move to discuss our quarterly performance. On the last call, we shared that we expected this quarter to be flat with the prior year. But it fell short of our expectations. Specifically for the first quarter, total revenues were $125.3 million a decrease of 2.4% driven by a decline in our direct to consumer business partially offset by the growth in our commercial segment.

In the direct to consumer segment, transactions declined. Primarily due to reduced store traffic. While average unit retail and units per transaction increased domestic traffic was down 7%. Which lagged national retail traffic trends in The US. Last year's first quarter benefited from robust traffic, and strong demand for our new collections especially among teens and adults. This year, however, with a few exceptions that Chris mentioned, we have seen a more pronounced drop in store visits from this demographic. Impacting overall results. E commerce demand declined 26.1%. As web traffic continues to be soft. The commercial segment, which primarily represents wholesale revenues, continues to be the fastest growing segment of our business.

When combined with international franchise revenue, these segments rose 34.1%. Gross margin for the quarter was 63.8%, an increase of 700 basis points compared to last year. This reflects a 560 basis point benefit from the $7 million tariff refund related to prior fiscal year cost. As well as 140 basis points driven by an increase in average unit retail partially offset by the leverage of occupancy costs. SG&A expenses were $56.1 million or 44.8% of total revenues, compared to 41.7% last year. Higher wage rates and investment in talent followed by general inflationary pressures and timing of longer range investments all contributed to the 310 basis point increase.

Our pretax income was $23.9 million compared to $19.6 million last year. Excluding the 2025 tariff reversal, adjusted pretax income was $16.9 million. EPS totaled $1.45 reflecting high pretax income and a reduced share count. Partially offset by higher tax rate. Adjusted EPS totaled $1.03. Turning to the balance sheet. At the first-quarter end, our cash balance was $26.2 million representing an $18.1 million decrease versus last year mainly driven by tariff payments and elevated CapEx to support our strategic investments.

Inventory at quarter end was $77.8 million an increase of $5.6 million mainly driven by tariffs embedded in our product costs, as well as our inventory levels required to support expected increases in sales activity in the back half of the year. The company remains comfortable with the level and composition of its inventory. We continue to deliver capital to shareholders. As we returned $14.3 million to shareholders in the first quarter and $45.9 million over the past 12 months. Through dividends and share repurchases. We have repurchased almost 650 thousand shares over the past 12 months. Reducing our share count by 5% and we have $47 million remaining under the board authorized $100 million share repurchase program.

Second quarter to date, we have repurchased almost 90 thousand additional shares. Turning to the outlook. We reduced our revenue guidance while increasing pretax income expectations. We continue to expect the addition of at least 50 net new experience locations most of which will be operated by our international partners, and we continue to expect our commercial segment revenue to grow by at least 20% for the year. We have lowered our revenue guidance to $530 million to $550 million range. Representing essentially flat to 4% growth year over year. Down from our previous mid single digit guidance due to first quarter and second-quarter-to-date results coming in below our expectations.

And taking a more conservative view for the total year outlook. Moving to our updated pretax income guidance. Specifically, we increased our pretax outlook to be in the range of $72 million to $78 million This reflects $13 million of USTR tariffs we previously paid partially offset by the impact from the reduction in our revenue guidance. Excluding the approximately $7 million of tariff refund, related to prior year cost, We expect adjusted pretax income of $65 million to $71 million This outlook continues to reflect the current Section 301 tariffs and the related costs of approximately $10 million and assumes the 10% tariff rate for the rest of the fiscal year.

The outlook also continues to reflect approximately $3 million in longer range investments for fiscal 26. Given the current trends, in the overall macroeconomic and geopolitical environment, we expect second quarter profitability to be down year over year. Looking forward, our focus is to execute our strategy and manage controllable factors to address these challenges and cost pressures driven by oil prices and tariff inflation. We continue to see opportunities to expand our global footprint and further develop our wholesale business. Even with our updated guidance, we expect 2026 to be 1 of the strongest years in Build A Bear's history.

With the potential to deliver another year of record revenues, maintain solid pretax income margins, and continue returning capital to shareholders. With that, on behalf of Sharon, Chris, and myself, I would like to thank our store and warehouse associates along with our corporate team members and partners for their dedication to the Build A Bear brand as we continue to work towards delivering on our strategic mission to add a little bit more heart to life around the world. This concludes our prepared remarks. We will now turn the call back over to the operator for questions. Operator?

Operator: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star-1 on your telephone keypad. You may press star-2 if you would like to remove your question from the queue. Before pressing the star keys. 1 moment please while we poll for questions. And our first question comes from the line of Eric Beder with SCS Research. Please proceed.

Eric Beder: Hi. Hello. Hello. Okay. So could you talk about I see the impact of the $7 million Is there going to be any further tariff impacts Beyond what you said here from the remainder of the refund in Q2?

Voin Todorovic: So thanks, Eric, for the question. So let me step back and, like, explain. The tariff situation has been very challenging over the last couple of years since April of last year. And, you know, it does create a lot of noise, especially it did create a lot of noise last year. it is creating some noise this year. On a positive note, it is good that tariff rates are coming down, and it is beneficial to us. But at the at the same time, it creates this uncertainty from the forecasting and how the accounting works. So I will try to explain a little bit more detail to help some of that.

And so when we think about what we shared in our previous guidance, we expect it to have about $16 million of total tariff impact. And this was about $5 million net increase versus $11 million that we experienced last year. So net $5 million. However, since Supreme Court overruled a tariff decision. We booked $13 million in expected refunds. And that number, the way it is hitting our P&L, it is part of our GAAP guidance on a full year basis.

However, we are calling out a couple of the components $7 million of that $13 million relates to tariffs that were expensed in the prior fiscal year. that is why we are adjusting the numbers as for modeling purposes that is going to be a better comparison for 2027. The remaining $6 million of tariffs you know, it is for the inventory and product cost related to tariffs that was in inventory at the end of the year, and early this year. And as that inventory sells through, it is going to be offset with this $6 million. So we are going to see a benefit versus our previous guidance of a $6 million that relates to this year.

This $6 million, it is split up There is a larger portion that is gonna hit us in Q1. And smaller portion that is gonna be released in Q2, again, just as it ties to inventory timing. So still, tariffs are going to be part of our forecast. As I mentioned earlier in our prepared remarks, we expect on a full year basis still impact of approximately $10 million that is related to tariff related costs that we continue to see, as well as our assumption is to have 10% from section 22 tariffs that are in effect for the remainder of the fiscal year. Right. Okay.

Eric Beder: The $13 million refund, have you received any of it yet? And do you expect to receive it all in this year?

Voin Todorovic: So we received a small portion of that. Again, we book the receivable, and there are still some things that we will have to work through, but again, that is going to come back to the treasury and people when they are going to pay us back. But, you know, that $13 million is part of our results. When that cash is going to come in, it is a little bit outside of our control. Okay.

Eric Beder: Moving to Walmart, we ramped that up in Q4. Came out in Q1. What are kind of the initial learnings from it? And why do you see it going kind of the rest of the year and longer term? Thank you.

J. Christopher Hurt: Yeah. Thanks, Eric. And as we have stated, we have had a relationship with Walmart in various forms over the over the past years. This was a actual Trend Pod placement as a in 1.5 thousand locations. To all to test the viability of some of our products and new collections such as our Mini Beans. Also to be on trend as we discussed with blind bags. And also different packs of these mini bean collections. So this is 1 of those areas where we are looking to expand our wholesale business We are using this as an example of that.

As I talked about, we also opened up a Los Angeles showroom to be able to have other accounts to be able to view our new wholesale lines, and grow this business. And we have added to our team to do that. As you know, there is a long cycle on the wholesale business, so we are putting plans in place to grow this pillar of our strategy.

Eric Beder: Okay. Last question. Pokemon and the adult business, a lot of that drives itself through kind of new rollouts and new pieces I know you are revamping the Pokemon outfit here. What should we think about being the potential for either kind of movies or other licensed products going forward to help drive that cadult market even more. Thank you. Sorry, Eric. There was a little bit of a bell in there. Were you talking about movies? I thought about okay. So 1 thing is that you are rolling out relaunching kind of Pokemon again with the evolution starting today.

And we are talking about how those kind of items drive the adult market going forward and kind of what do you see as kind of the focus on that in terms of potential new things going forward? Thank you.

J. Christopher Hurt: Yeah. Thanks, Eric. Certainly, license is an important part of our overall omnichannel business. Our licensed products, tend more into the tween teen and adult. In our as we talk about the cadult segment of our business. We have had a long standing partnership with licenses such as you say as Pokemon, and those provide us opportunities to bring out new characters for these collectors. So this is 1 of those go forward licenses that we have had for several years and will continue to be an important part of our go forward strategy with licensing. Another 1 of those is Sanrio.

Sanrio characters, we also have exclusive designs in our stores and the success of that is what led to us being able to open up our first Hello Kitty store in Los Angeles in Century City And then based on the success of that, as I mentioned in the script, we opened up a Hello Kitty and Friends workshop In Mall of America. And also in American Dream. Those opened in the first quarter, and they have exceeded our expect expectations and have been well received by our Build-A-Bear guests and fans. So licensing is a part of our overall collection. it is an important part of the cadult area that we have.

But we combine that and make sure that we have all consumer segments covered in our workshops and in our online business. Because as I talked, we materially broadened our market size from kids to adults. Thanks.

Voin Todorovic: Thank you.

Operator: The next question comes from the line of Chris Moore with CJS Securities. Please proceed.

Chris Moore: Hey, good morning guys. Thanks for taking a couple. So maybe start with gross margins. Gross margins were up 140 basis points in the quarter year over year, even without the $7 million tariff benefit. Can you just maybe talk about what you know, fiscal 20 how you are looking at fiscal 26 versus 2025 from a gross margin perspective. You know, without the tariff benefits in there?

Voin Todorovic: Yes. So we are definitely pleased with the progress that we made from the gross margin perspective and even excluding the impact of tariffs, as you mentioned, 140 basis points improvement year over year Some of that stuff it is related also to timing, as you know, later in the year as a result of higher tariff rates, we did some selective price increases. So we are seeing some of the benefits in the first quarter as a result of an you know, lower prices last year. But, you know, gross margin and some of the things that are within our control, it is something that we are very focused on.

We believe in, really managing every chain within our supply chain link. And every link within our supply chain. And, you know, this is an area that since I have been here, like and Chris has been here, like, we got over, like, a thousand basis points improvement in gross margin. We continue to find ways with our teams to be more from the sourcing perspective. We are really focused on how we are managing promotions and things that are within our control. And, you know, so all these things add up.

And, you know, as we go through the year, you know, it is gonna be very important for us to continue to find the right pricing strategies and promotions to really help drive some of the traffic as well as to engage with our guests. Because even when people are coming to our stores, as we mentioned in the call, they continue to spend at the higher levels, and our dollars per transactions continue to go up. Got it. Very helpful.

Chris Moore: You guys obviously have done a great job over the last 5 or 6 years. I am I am just trying to put a little more of kind of a framework around you know, from a 3- to 5-year perspective, you know, financial targets and how that plays into location mix. Obviously, commercial is the highest growth, highest margins, highest ROC. I think at the end of the quarter, commercial was 27% of your locations.

Is there, you know, is there a 3- to 5-year target in terms of the percentage of pretax income that will come from commercial or just, you know, any help maybe you can give in terms of a bigger picture perspective on how we should be thinking about you know, from a financial target perspective beyond 2026.

Voin Todorovic: Thank you for that question. As we step back and think strategically what our objectives are, it is really to continue to diversify our, business streams. As we talked on our, in our prepared remarks, we still believe, you know, there is big opportunity from the international store expansion. We are focused on the wholesale opportunities and some of the things that Chris talked about for different pillars. We have not provided specific targets or numbers for out years. At this point.

But, again, what is out there and what we talked about in the past, when you look at some of those things and how they may be accretive from the overall revenue and profitability perspective, You know, you know, it can be modeled, and you guys can make some assumptions based on some of those rates, what we are able to do. And when we think about our store count and where we are, roughly half of our stores, you know, like, we have 350 locations in North America that we own and operate. But then there is a lot more opportunities internationally Chris mentioned that we are in about 37 or 38 countries.

And, you know, that is you know, still very small number because there is no reason that we cannot have as many or more stores outside of US than we have in our markets where we are currently operating. But, again, when we think strategically, we are focused on some of those areas and these parts of diversification that could have significant addition to the top line, but at the same time that are very accretive to our bottom line.

Chris Moore: I got it. I appreciate that. I will leave it there. Thank you very much.

Operator: The next question comes from the line of Steve Silver with Argus Research. Please proceed.

Steve Silver: Thanks, operator, and thanks for taking my questions. Hoping you guys could provide a little color around the shift in the store traffic trends. it is been quite a while that Build A Bear has talked about, really with the store traffic. Outpacing national trends really as a destination in and of itself, beyond a regular mall visit. So was hoping you could provide just a little color whether that has provided any opportunity to maybe on what kind of trends you saw in Q1 And maybe with the store traffic taking a dip in Q1, just reinvigorate a focus on, like, in store parties just to drive store traffic.

J. Christopher Hurt: Thanks, Steve. Appreciate the question. And, yes, as we talked about, our traffic was tougher as a comparison in our first half in Q1. This is coming off, you know, 5 years of record results. And, in a double digit increase in Q1 of last year. so there are some tougher comparisons as we talked about going into this first quarter and second quarter with easier comparisons in the back half of the year.

We have looked at, you know, the timing of the success of some of our key stories and license launches, and there is movement in those as we as we move through quarters based on movies or different opportunities that we have when we launch those in store. So we did see some, you know, areas where we could improve in those key stories and licensed launches. But the macroeconomic environment also has played a part we believe, in our traffic against national traffic. There. We will say, though, and Boyd mentioned that, when our guests are engaged in our in the store, we are seeing the Build A Bear experience being of high value to them.

They are going through the full experience. Our dollar per transaction is up. And yes, part of that is from price increases, but it is also units per transactions. We are seeing our guests come into the store, and they are going and engaging through the full Build A Bear experience. So those are very good indicators of our brand health, And when people are entering, they are engaged. They are having fun, and they are going through our entire process. Certainly, we are looking all areas of our business to drive traffic in our stores and parties is certainly 1 of those. As we look forward, I talked about our birthdays and celebrations. With our Pay Your Age bear.

We sell over 20 thousand pay your age bears, that we sell a week. And those are mainly for birthdays. So that is an opportunity when those people come in. They do bring their family, and they do bring other children with them, and they are able to have that experience there as well. So we are looking at all different areas to drive traffic in the store and reverse this trend.

Steve Silver: Thanks. Thanks for the color. And 1 more, if I may. Obviously, it is very dynamic and the macro environment is subject to change. But I am curious as to your thoughts in terms of what you are seeing in terms of the tourism environment, particularly in Florida as you plan to open the ICON Park store in the second half?

J. Christopher Hurt: Yeah. Thanks for that question. You know, historically, our locations, our workshops in tourist areas certainly are some of our highest indexing locations and revenue areas. What we have seen and what we have heard, there is also this idea that people have booked their vacations. they have booked these ideas and those are happening. Now as we talked about the emerging K-economy, there are people that are trading down in some places. They may not be doing as big a vacation, so they may be driving to a destination. Such as Pigeon Forge, Tennessee, where we have 1 of our top performing stores.

And they may be then going to an Orlando instead of spending 7 days there, they are spending 3 or 4 days there. We are seeing and hearing those ideas. So there is a lot of different variations. In that tourist traffic. But, again, we over index in these tourist areas. Build A Bear has traditionally been experience of memory making. So we are 1 of the ultimate souvenirs when you go on that destination. You remember where you were. Remember going to Build A Bear. And you remember making that incredible furry friend. And for 50 years, you know, Orlando is a top tourist destination. And have 70 million tourists annually.

So we are very excited about our ICON Park location. This multilevel location is right in the heart of Orlando, it is centered in ICON Park, which is an entertainment district that has a zero price entry. To go into this entertainment district and we will be 1 of the anchors of this area. Thanks so much for the additional color.

Operator: And the next question comes from the line of Keegan Cox with D.A. Davidson. Please proceed.

Keegan Cox: Just want to congratulate you, Sharon, on your time at Build A Bear, and good luck with future ventures. And to Chris, excited to start working with you more closely. My question is on your commercial and franchise stores, specifically internationally and how those are performing, kind of wondering how those openings compared with internal expectations and what gives you confidence in the store opening pipeline for the rest of the year?

J. Christopher Hurt: Yeah. Thanks. Certainly, we talked about our commercial segment, was up 34% in the first quarter. So those stores are performing very well. Now remember, there is a lot of different sizes of formats in those locations from shop-in-shops that are much smaller So those can sit inside of toy stores internationally or inside of other retail stores in those different countries. there is also stand alone stores. Germany is what we talked about where they are opening stand alone stores. So those are larger formats that have the opportunity to have higher volume.

We also talked about in Norway, you know, they reduced their shop-in-shops, but then opened 2 stand alones because of the success that they were seeing in those locations. So, you know, we talked about that we are looking for a 20% increase this commercial segment. As Voin said, we are in we are in 37 countries. there is a whole world out there. That we believe the Build A Bear experience is scalable. And it is recognizable that we have an opportunity to grow that business.

Voin Todorovic: Yeah. And, Keegan, just to add maybe a little bit more to that because when you think about sales to, these partners and through the commercial segment Yeah. Those are done through the wholesale model. So even whenever we recognize revenue, when we sell that product to them, And, you know, so there is usually some timing between So their between, like, when we sell product to them and when they sell the product to the final customer. performance and our performance may be a little bit out of sync. Yeah.

J. Christopher Hurt: As a reminder, you know, we are working with partners in these other countries. So, you know, there is there is a lot of variables that can happen on the timing of when these stores open. We certainly have plans in place, and we work with our partners on the design of those locations, the inventory of those locations, But, you know, they are left in our control of when they actually open. Now to that point, they are less risky. Because this is an asset light model where they are know, putting in the capital to open those stores. Then buying that inventory from us in a wholesale basis.

Keegan Cox: Got it. And then a follow-up is, you know, I kind of just want to parse out what drove the sales in the retail business this quarter. You kind of talked about traffic down, but DPT and UPT are up. I am just wondering, what is conversion like both in store and online? How big of a driver was online to the decline this quarter? I am just trying to get a sense of that.

Voin Todorovic: I mean, I will try to answer that. As I mentioned, you know, the traffic was down 7%. and I think our net retail sales are down about 5%. So, you know, when you think about some of that stuff, Keegan, some of the product even that we had some of the traffic last year when we talk about robust traffic, last year and strong demand that we experienced in first quarter of 25 for these licenses, people are coming specifically. So there is some impact on conversion because you have that destination traffic. But at the end of the day, traffic was the biggest challenge partially offset by DPT increase.

And, you know, like, we continue, as Chris said, like, to focus on what we can do. So when we get that traffic in the store, to do the best job we can of converting them as well as upselling to drive sales and enhance the experience.

Keegan Cox: Awesome. Thank you.

Operator: Thank you. This concludes the question and answer session. And I would like to turn the call back to Chris Hurt for closing remarks.

J. Christopher Hurt: Thank you for joining us today. We look forward to you joining us for our second quarter 26 call.

Operator: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.