Shares of Build-A-Bear Workshop (NYSE: BBW) awoke from their prolonged hibernation on Friday, soaring 33% after reports surfaced indicating that the struggling retailer was shopping itself to private-equity firms.
It's been a long way down for the company whose colorful bear-stuffing stores were once the pulse of family-friendly malls.
Store-level sales peaked in 2004. Things then began to fall apart after posting slightly negative comps in 2005. It has only gotten worse.
| Comps | |
|---|---|
| 2006 | (6.5%) |
| 2007 | (9.9%) |
| 2008 | (14.0%) |
| 2009 | (13.4%) |
Consolidated same-store sales through the first nine months of 2010 have fallen by 1.2% -- and actually turned higher during the third quarter -- but don't break out the party hats. This bear-birthing concept is dead. When your average store is ringing up roughly 60% of the sales that it was drumming up six years ago, this fading fad isn't coming back.
It would be a shock to see a bidding war break out here. Private-equity firms may not have the best of reads when it comes to retail's pulse, but everyone knows that this is a dead bear walking.
If a firm believes that it can hold the distressed chain for a couple of years and flip it over for a quick profit, it's not going to happen. I'm guessing that firm's board has had collective amnesia since 2004.
Build-A-Bear was able to mask its store-level shortcomings through international expansion and pushing into unconventional outlets (e.g., baseball stadiums), but that only delayed the inevitable.
Build-A-Bear has had the stuffing beat out of it over the years -- and it's the reason why your kids haven't been invited to a birthday party at Build-A-Bear in ages.
Let's hand out the bidding cards
Build-A-Bear's only hope for an exit strategy at a premium would be from established entertainment companies and toymakers
On its own, with a nondescript owner in privatization, Build-A-Bear is toast. It needs the right kind of buyer that can exploit the concept in new and incremental ways.
Let's go over a few of the companies that I think should be tugging at the retailer's sleeve for consideration.
- Disney (NYSE: DIS) -- The last time I didn't run into a wall of cobwebs entering a Build-A-Bear was a couple of years ago in Disneyland's Downtown Disney shopping district. The collection of keepsake-starved tourists and well-to-do foreigners kept the store hopping. Disney has cashed in on the customization trend, with a Build-A-Bear-esque spin on the Muppets with the Whatnot Workshop it opened at FAO Schwarz two years ago.
- Viacom (NYSE: VIA) -- The parent company of Nickelodeon doesn't have the retail and theme park empire that Disney can exploit, but it can breathe new life into the retailer by building up the brand through a Nick or Nick Jr. show based on the franchise. Yes, Disney can do this, too, but this way Viacom can make sure its Nickelodeon characters get top billing among the store's licensed bears.
- Hasbro (NYSE: HAS) -- I'm favoring the country's second largest toymaker -- and not Mattel (NYSE: MAT) -- because Hasbro has been able to monetize its Transformers and G.I. Joe lines by bringing them to life in the silver screen. If Mattel can own the American Girl stores, I'm sure Hasbro will do just fine with the Build-A-Bear shops.
- The Children's Place (Nasdaq: PLCE) -- Sales, comps, and earnings fell in its latest quarter, suggesting that shoppers are picking up apparel basics for their kids at cheaper discount department stores. It could use a little diversification from a kid-centric concept that has nothing to do with clothing.
Toys "R" Us would be another logical target, especially since it's easy to picture the "store within a store" approach working inside the leading stand-alone toy retailer. As for media moguls, Discovery Communications (Nasdaq: DISCA) doesn't make as much sense as Disney and Viacom, though it could be a real boost to its recently launched The Hub channel if it were able to market a proprietary property instead of pushing Hasbro and other licensed programs.
I can't bear to watch
Bulls may wonder why Build-A-Bear is looking to punch out now. Comps did turn marginally positive in its latest quarter. Analysts see a strong holiday quarter and a return to annual profitability next year.
Unfortunately, this isn't the first time the company and its followers have pointed to a near-term turnaround, only to be burned by gravity. If Build-A-Bear is weighing buyout offers now, it's because it doesn't believe that it will be worth more -- on its own -- in a few quarters.
If private equity gets a whiff of that lack of confidence, you can be sure that bidding cards will be kept low. It's the entertainment and retailing juggernauts that can really turn this concept around.
Oh, and it does need to be turned around.
Who do you think should buy Build-A-Bear Workshop?
