Shares of Build-A-Bear
Build-A-Bear represents one of the only new and interesting concepts in the toy-store area of specialty retailing. It's hard to succeed in this space; witness the difficulties Toys "R" Us has had in competing with aggressively priced toys from the likes of Wal-Mart
Build-A-Bear bridges both the retailing and product arenas of toy-shopping by letting kids assemble their own stuffed animal at convenient mall locations. After some impressive top- and bottom-line growth, the company has recently experienced some growing pains.
The company released third-quarter results Thursday, offering useful insight into recent sales trends and details on the large purchase of U.K. rival Bear Factory. The specifics of the quarter can be found in the Fool by Numbers, but to sum it up, top-line growth was strong, same-store sales figures weren't, and the company is still digesting Bear Factory, making operating results a bit tough to discern. On a positive note, it reaffirmed full-year guidance, though it expects earnings to come in at the low end of a $1.44-to-$1.53 range.
Same-store sales trends remained weak, falling 5.8% for the quarter after a 4.4% decrease last month. But total sales grew nearly 21% due to the addition of the Bear Factory and the company opening new stores, including some new international locations owned by franchisees.
Right now, I can't see the shares advancing much further until comparable sales numbers improve. Also, investors won't have a full year of results including Bear Factory stores until early next year, because the acquisition closed on April 2 this year. At that point, it should be easier to break out domestic store sales and profitability trends -- they look horrible now, but they could be affected by merger-related costs.
Fortunately, Build-A-Bear has no long-term debt, and cash flow generation appears to be holding up, though we will know more after it files its third-quarter 10-Q with the Securities and Exchange Commission. It will take some time to figure out whether the store concept is here to stay, but judging by the shares' recent recovery, investors are giving the company the benefit of the doubt for now.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.