I'm never one to say I told you so, since smugness almost always results in comeuppance. So I won't say I told you so about Build-A-Bear Workshop's (NYSE:BBW) most recent earnings warning. Things could still turn around for company, although I'm skeptical that they will.
My bottom line: I think Build-A-Bear is a fad. Why? The concept, same-store sales, and the miss.
Months ago, I raised concerns about the company's concept. My argument was simple: There is a finite number of bears that the child will want. My 4-year-old cannot get enough of Walt Disney's (NYSE:DIS) Princess line, and there are a million ways to sell princesses. But there's only one way to sell a bear. And no matter how many different outfits you offer, it's still a bear.
The company's second-quarter comps will be in the negative single digits, and those for 1H will be flat. When I see reversals like these in same-store sales, I have to wonder whether this is the start of the downtrend.
But the thing that really grabbed my attention was the big miss in the second quarter. What's more, the company's excuses for why earnings will be 50% lower than expected were bizarre. Here's what Build-A-Bear said:
"Our sales plan underestimated the impact of calendar shifts in the first and second quarters -- the shift of Easter and resulting shift of school spring breaks. We also believe our sales plan underestimated the positive impact of appearing on a syndicated talk show in late February last year. This resulted in our first quarter results coming in ahead of our original plans and our second quarter results lagging our original plans."
Calendar shifts, huh? The old standby excuse. And blaming lagging sales on a year-old syndicated show that resulted in increased earnings one quarter, but lower ones in the following quarter? What's next? Alien bears invading from outer space, driving up sales in one quarter only to drop the next when the aliens leave?
Again, I'm not seeing much that convinces me that this isn't a fad. Sure, the company is on track to grow earnings by 26%-32% a year. Then again, it is adding 30 new stores to the 170 it had at year's end. Without much help from same-store sales growth, those new stores had better perform well. You do the math and tell me whether that is a compelling growth story.
To me, the company's outlook is -- oh, I can't resist saying it -- bearish.
For more on bears in general (the investing type), read:
Fool contributor Lawrence Meyers does not own shares in any company mentioned.
