Shares of teddy bear retailer Build-A-Bear Workshop (BBW -2.95%) took off at the start of trading on Dec. 1, rising by as much as 20% in the first hour of the session. There's little question about what drove investor enthusiasm here; the company reported impressive third-quarter 2021 earnings results this morning. Here's a quick look at the business and the numbers.
Build-A-Bear Workshop has a unique model, in which it turns buying a teddy bear into an interactive experience. Essentially, consumers (both kids and adults) make their own bears in the company's stores. That, however, was not such a great business approach in 2020, when the coronavirus pandemic led to economic shutdowns and social distancing. With stores reopened, however, Build-A-Bear's business has rebounded in 2021 -- and that's kind of understating it.
Sales in the third quarter of 2021 came in at $95.1 million, up 27.4% compared to the same period in 2020 (e-commerce revenue made up 20% of the 2021 total). That improvement isn't shocking given the pandemic headwinds last year. However, the company's sales were an incredible 35.2% better than what it pulled in during Q3 2019 (in other words, before the pandemic). In fact, Build-A-Bear highlighted that the third quarter of 2021 set a revenue record!
A glass-half-empty take on the quarter's performance would be that pent-up demand spurred the strong sales result and that business will fall off once that demand is satisfied. That's actually not an unreasonable view given the experiential nature of the company's product and the reopening economy over the past year or so. However, management definitely deserves some credit for an impressive turnaround after what could have been an insurmountable headwind for its business (the global pandemic). Notably, the retailer's gross margin improved over both periods, showing the business has been getting more efficient. Meanwhile, adjusted earnings per share came in at $0.38 compared to $0.11 in the year-ago period (and a loss of $0.44 per share in the third quarter of 2019). Analysts had been expecting the company to lose $0.11 per share.
Build-A-Bear is doing very well right now and investors are clearly pleased. Today's rally coming after a broad market sell-off related to coronavirus variant fears yesterday probably helped juice Build-A-Bear's gains this morning. But it is hard to deny that this unique experiential retailer managed to get through a tough patch with a stronger business than when it entered the period. It looks like investors have every right to be impressed today, especially since Build-A-Bear also announced a $1.25-per-share special dividend and $25 million stock buyback program.