So this is where the bears get stuffed. Shares of Build-A-Bear Workshop
With a brutal 7% to 9% drop in same-store sales projected, the retail chain where teddy bear lovers accessorize and bring to life their creations is in a funk. The company is looking to earn $0.07 to $0.10 per share for the second quarter that ends this month. That is well off the $0.15 per share it earned a year ago, as well as the $0.15 to $0.19 a share in profitability that Build-A-Bear had originally predicted.
You are so right, Stephen Colbert. You warn us in your weekly ThreatDown segment that bears are one of our greatest enemies. First they came after our picnic baskets. Then it was our jugulars. Now they are coming after our pocketbooks.
What gets me is that the company is laying some serious blame on higher costs due to three things:
- Increased advertising expenses as a percentage of sales
- Performance-based bonus compensation
- Language translation costs associated with store openings in Montreal and Puerto Rico
Marketing expenses are up, yet comps are still free-falling? Profit projections and unit level sales targets are being slashed, yet bonuses are higher? And what's the deal with language translation costs? I've been to Montreal a few times. I've been to Puerto Rico dozens of times, and lived in Mayaguez on the west coast for five years. You don't need to speak French in Montreal or Spanish in Puerto Rico because nearly everyone knows at least a little English, especially in retail districts. If this is going to be a recurring problem with global expansion, is it too late to go with an approach that uses more pictures than words?
Braced for bear
I've been a fan of Build-A-Bear Workshop in the past. However, I have always accepted that it's an easy concept to knock off and it's quite faddish. Stuffed animal toys tend to go that way. A few years ago, Ty had the Beanie Babies. These days, Webkinz are the critters that Web-savvy kids crave, pairing a plush animal plaything with an online social networking experience.
Obviously, I'm not the first person to suggest that Build-A-Bear Workshop needs to tap into expanding its reach through a Webkinz-esque model. David Meier said it two months ago. Tom Taulli said it last month.
Even if the Build-A-Bear audience skews young, birthing bears should be the beginning -- and not the end -- of the experience that can be fleshed out in a controlled cyberspace environment.
Yes, that is what Build-A-Bearville is supposed to be, but it has to be more engaging, addictive, and less promotional than it is now.
Build-A-Bear hasn't had a problem teaming up with brands that skew older, like Harley-Davidson
Earnings are going the wrong way this quarter, but this is a company that was slowing down anyway. Earnings rose just 7% last year, and the guidance given Thursday night is for earnings to grow as little as 8% in 2007.
An officer and a gentle plan
If profit growth is maturing, maybe we can get Maxine Clark to ditch the ridiculous "chief executive bear" title. That was cute when toddlers would jump out of their strollers at the sight of a Build-A-Bear Workshop. Right now, it has all the kitsch of a 1980s boy band trying to swing the old signature dance steps in their 30s.
Besides, Build-A-Bear isn't all about bears anymore. Folks can stuff monkeys, hippos, dinosaurs, ogres, and penguins. I'm not suggesting that Clark go with chief executive zoologist, but you can't come on as corny when your shareholders are already groaning and rolling their eyes.
So let's see Build-A-Bear claw its way out of this trap. The problems are real. The excuses are debatable. I hope this ends with bull toys on the birthing menu. Given the latest market reaction, it would be nice to see bulls come back to get stuffed, too.
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Longtime Fool contributor Rick Munarriz feels that stuffing animals is the work of taxidermists. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.