Build-A-Bear Workshop, Inc. Reports Fiscal 2008 Second Quarter Results

Build-A-Bear Workshop, Inc. (NYSE: BBW), an interactive entertainment retailer of customized stuffed animals, today reported results for the 2008 second quarter. Fiscal 2008 second quarter (13 weeks ended June 28, 2008) total revenue was $94.7 million, a decline of 6% compared to $100.4 million in the fiscal 2007 second quarter (13 weeks ended June 30, 2007). The second quarter net loss was $4.8 million, or a loss of $0.25 per diluted share. In the fiscal 2007 second quarter, the Company reported net income of $1.6 million, or $0.08 per diluted share. "The slowdown in consumer spending is having a significant impact on our current business,” said Maxine Clark, Build-A-Bear Workshop chairman and chief executive bear. "In response to this environment, we are carefully allocating capital and managing cash, while aggressively reducing expenses. Foremost, our goal is to improve our sales trend while selectively investing in our unique brand for long-term growth. "While we will not provide specific earnings guidance for 2008, based upon our current business assumptions, we believe that our 2008 earnings will meet the average of current analysts’ estimates for earnings of $0.68 per diluted share. Our outlook for the balance of the year reflects the current positive trends in our European operations and the enthusiastic Guest response to our virtual world Web site buildabearville.com™, as well as continued weakness in U.S. consumer spending. "Looking to 2009, our capital spending plan is for a significant reduction in new store openings -- six stores compared to 25 stores this year. This lower store opening plan and the associated lower capital spending position us to maintain our strong balance sheet and financial flexibility, while continuing to make long-term investments in our brand and returning value to shareholders through the repurchase of our stock,” Clark concluded. Fiscal 2008 Second Quarter Financial Results Fiscal 2008 second quarter total revenue includes net retail sales of $93.5 million, a decline of $5.6 million or 5.7% compared to $99.1 million in last year’s second quarter. The net retail sales decline was driven by a decrease in comparable store sales in North America partially offset by new stores opened during the past twelve months and an increase in comparable store sales in European operations. Total revenue also includes revenue from international franchise fees and third-party licensing. Second quarter 2008 consolidated comparable store sales (North American and European operations) declined 17.9%. Comparable stores sales in North America declined 20.5% compared to a decline of 9.4% in the 2007 second quarter. Comparable stores sales in Europe increased 2.2%. Net retail sales from European operations totaled $15.3 million in the 2008 second quarter, compared to $11.0 million in the 2007 second quarter, an increase of 39%. The loss from European operations totaled $1.0 million in the 2008 second quarter, compared to a loss of $1.7 million in the 2007 second quarter. Second quarter 2008 was negatively affected when compared to the 2007 second quarter because of the shift in the Easter holiday and associated school vacations, an important selling time for the Company. In 2007, Easter sales were included in the second quarter; in 2008 Easter sales were included in the first quarter. The fiscal 2008 second quarter net loss of $4.8 million includes stock-based compensation expense of $0.9 million ($0.6 million net of tax or $0.03 per diluted share). The net income decline compared to the 2007 second quarter was driven primarily by reduced sales leverage on fixed costs and expenses and lower interest income, partially offset by lower store preopening expenses. Fiscal 2007 second quarter net income of $1.6 million includes stock-based compensation expense of $0.8 million ($0.5 million net of tax or $0.02 per diluted share). During the 2008 second quarter, the Company opened four new stores in North America, as planned, compared with opening 15 new stores during the 2007 second quarter. In Europe, the Company opened one new store -- in Liverpool, England -- compared with opening one new store during the 2007 second quarter. Build-A-Bear Workshop Company-owned stores at the end of the second quarter totaled 330 -- 278 in North America and 52 in Europe. For the full-year 2008 the Company plans to open 25 new company-owned stores – 20 new stores in North America (versus 39 new stores in 2007) and five new stores in Europe (opening 11 new stores in 2007). During the fiscal 2008 second quarter, the Company repurchased and retired 520,215 shares of common stock for $4.8 million. At the end of the 2008 second quarter the Company’s consolidated cash position was $15.6 million. Year-to-Date Financial Results Total revenue for the first six months of fiscal 2008 (26 weeks ended June 28, 2008) was $218.5 million, compared to $217.2 million in the first six months of fiscal 2007 (26 weeks ended June 30, 2007). Total revenue for the first six months of fiscal 2008 includes net retail sales of $215.3 million, compared to $215.0 million in last year’s first six months. Sales from European operations totaled $31.6 million in the first six months of fiscal 2008, compared to $21.8 million in the first six months of fiscal 2007, an increase of $9.8 million or 45.0%. Consolidated comparable store sales (North American and European operations) for the first six months of fiscal 2008 declined 13.9%. Comparable store sales in North America declined 16.5% compared to a decline of 8.1% in the 2007 first six months. Comparable store sales in Europe increased 8.3% in the first six months of fiscal 2008. During the 2008 first quarter the Company began reporting comparable store sales for European operations for the first time. Net income for the first six months of fiscal 2008 was $1.6 million, or $0.08 per diluted share, and included a loss of $1.1 million from European operations and stock-based compensation expense of $1.1 million. Net income for the first six months of fiscal 2007 was $9.7 million, or $0.47 per diluted share, and included a loss of $3.9 million from European operations and stock-based compensation expense of $0.9 million. During the first six months of fiscal 2008 the Company repurchased and retired 1,567,515 shares of common stock for $13.4 million. International Franchising During the 2008 second quarter international franchisees opened six stores. The Company ended the quarter with 58 international franchise stores located in 14 countries. The Company currently has franchise agreements covering 20 countries and anticipates franchisees will open approximately 14 new stores (net of store closings) in 2008. Other News The Company also announced today that its total equity investment in RidemakerZ, LLC, has increased to $7.3 million, funded by a combination of cash and contributed services. RIDEMAKERZ™ is an early-stage company developing an interactive retail concept that allows children and families to build and customize their own personalized cars. In addition to the current equity investment in RIDEMAKERZ, the Company has an agreement to provide operating and advisory services to RIDEMAKERZ in exchange for additional preferred equity ownership. Outlook The Company’s outlook assumes a continued challenging economic environment and does not include the impact of the Company’s share repurchase program. While not providing specific earnings guidance for fiscal 2008 (53 weeks ending Jan. 3, 2009), the Company believes that its earnings per share for the year will meet the average of current analysts’ earnings estimates of $0.68 per diluted share. The Company also noted that fiscal 2008 is a 53 week fiscal year and that the 53rd week falls in the fourth quarter. For fiscal 2009 (52 weeks ending Jan. 2, 2010), the Company’s current outlook includes: Slower new store growth compared to fiscal 2008 – opening six new stores (four stores in North America versus 20 in 2008 and two stores in Europe versus five in 2008). Capital expenditures of approximately $15 million and depreciation and amortization of approximately $35 million. Today’s Conference Call Webcast Build-A-Bear Workshop will host a live Internet webcast of its quarterly investor conference call at 9 a.m. EDT today. The broadcast may be accessed at our investor relations Web site, http://IR.buildabear.com. The call is expected to conclude by 10 a.m. A replay of the conference call webcast will be available in the investor relations Web site for one year. A telephone replay will be available beginning at approximately noon EDT today until midnight on August 7, 2008. The telephone replay is available by calling (617) 801-6888. The access code is 71126598. About Build-A-Bear Workshop, Inc. Build-A-Bear Workshop, Inc. is the only global company that offers an interactive make-your-own stuffed animal retail-entertainment experience. The Company currently operates more than 375 Build-A-Bear Workshop stores worldwide, including company-owned stores in the U.S., Puerto Rico, Canada, the United Kingdom, Ireland and France, and franchise stores in Europe, Asia, Australia and Africa. Founded in St. Louis in 1997, Build-A-Bear Workshop is the leader in interactive retail. Brands include make-your-own Major League Baseball® mascot in-stadium locations, Build-A-Dino® stores and friends 2B made® doll locations. In December 2007, Build-A-Bear Workshop extended its in-store interactive experience online with the launch of its virtual world at www.buildabearville.com. Build-A-Bear Workshop (NYSE: BBW) posted total revenue of $474 million in fiscal 2007. For more information, call 888.560.BEAR (2327) or visit the Company’s award-winning Web sites at www.buildabear.com and www.friends2bmade.com. Forward-Looking Statements This press release contains "forward-looking statements" (within the meaning of the federal securities laws) which represent Build-A-Bear Workshop expectations or beliefs with respect to future events. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Those factors include, without limitation: we may be unable to generate interest in and demand for our interactive retail experience, or to identify and respond to consumer preferences in a timely fashion; our marketing and on-line initiatives may not be effective in generating sufficient levels of brand awareness and guest traffic; we may be unable to generate sufficient comparable store sales; we may be unable to open new stores or may be unable to effectively manage our growth; we may be unable to effectively manage our international franchises or laws relating to those franchises may change; customer traffic may continue to decrease in the shopping malls where we are located, on which we depend to attract guests to our stores; general economic conditions may continue to deteriorate, which could lead to disproportionately reduced consumer demand for our products, which represent relatively discretionary spending; high petroleum products prices could continue to increase our inventory transportation costs and adversely affect our profitability; we may be unable to repurchase shares at all or at the times or in the amounts we currently anticipate or the results of the share repurchase program may not be as beneficial as we currently anticipate; we may be unable to realize some of the expected benefits of the acquisition of Amsbra and Bear Factory, and the inclusion of France as a Company-owned country; we may lose key personnel, be unable to hire qualified additional personnel, or experience turnover of our management team; the ability of our principal vendors to deliver merchandise may be disrupted; the availability and costs of our products could be adversely affected by risks associated with international manufacturing and trade; we may be unable to realize the anticipated benefits from our company-owned distribution center or our third-party distribution center providers may perform poorly; fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline; we may be unable to renew or replace our store leases, or enter into leases for new stores on favorable terms or in favorable locations, or may violate the terms of our current leases; our market share could be adversely affected by a significant, or increased, number of competitors; we may suffer negative publicity or be sued due to violations of labor laws or unethical practices by manufacturers of our merchandise; our products could become subject to recalls or product liability claims that could adversely impact our financial performance and harm our reputation among consumers; we may improperly obtain or be unable to protect information from our guests in violation of privacy or security laws or expectations; we may fail to renew, register or otherwise protect our trademarks or other intellectual property; and we may have disputes with, or be sued by, third parties for infringement or misappropriation of their proprietary rights. These and other applicable risks, cautionary statements and factors that could cause actual results to differ from the Company's forward-looking statements are included in the Company's filings with the SEC, including as described in the Company's annual report on Form 10-K for the fiscal year ended December 29, 2007. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.   BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Operations (dollars in thousands, except share and per share data)     13 Weeks     13 Weeks   Ended Ended June 28, % of Total June 30, % of Total 2008 Revenues(1) 2007 Revenues(1) Revenues: Net retail sales $ 93,468 98.7 $ 99,102 98.7 Franchise fees 824 0.9 677 0.7 Licensing revenue   403   0.4     604   0.6   Total revenues   94,695   100.0     100,383   100.0   Costs and expenses: Cost of merchandise sold 59,430 63.6 57,682 58.2 Selling, general and administrative 42,174 44.5 39,250 39.1 Store preopening 622 0.7 1,369 1.4 Interest expense (income), net   (179 ) (0.2 )   (356 ) (0.4 ) Total costs and expenses   102,047   107.8     97,945   97.6   Income (loss) before income taxes (7,352 ) (7.8 ) 2,438 2.4 Income tax (benefit) expense   (2,561 ) (2.7 )   846   0.8   Net income (loss) $ (4,791 ) (5.1 ) $ 1,592   1.6   Earnings (loss) per common share: Basic $ (0.25 ) $ 0.08   Diluted $ (0.25 ) $ 0.08   Shares used in computing common per share amounts: Basic 18,935,410 20,222,624 Diluted 18,935,410 20,427,858   (1) Selected statement of operations data expressed as a percentage of total revenues, except cost of merchandise sold which is expressed as a percentage of net retail sales. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and rounding.   BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Operations (dollars in thousands, except share and per share data)     26 Weeks     26 Weeks   Ended Ended June 28, % of Total June 30, % of Total 2008 Revenue(1) 2007 Revenue(1) Revenues: Net retail sales $ 215,322 98.5 $ 214,985 99.0 Franchise fees 2,073 0.9 1,372 0.6 Licensing revenue   1,107   0.5     840   0.4   Total revenues   218,502   100.0     217,197   100.0   Costs and expenses: Cost of merchandise sold 128,169 59.5 119,928 55.8 Selling, general and administrative 87,001 39.8 80,688 37.1 Store preopening 1,175 0.5 2,057 0.9 Interest expense (income), net   (639 ) (0.3 )   (901 ) (0.4 ) Total costs and expenses   215,706   98.7     201,772   92.9   Income before income taxes 2,796 1.3 15,425 7.1 Income tax expense   1,194   0.5     5,768   2.7   Net income $ 1,602   0.7 $ 9,657   4.4   Earnings per common share: Basic $ 0.08   $ 0.48   Diluted $ 0.08   $ 0.47   Shares used in computing common per share amounts: Basic 19,546,596 20,252,222 Diluted 19,637,956 20,476,603   (1) Selected statement of operations data expressed as a percentage of total revenues, except cost of merchandise sold which is expressed as a percentage of net retail sales. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and rounding.   BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (dollars in thousands, except share and per share data)     June 28,   December 29, 2008 2007 ASSETS Current assets: Cash and cash equivalents $ 15,625 $ 66,261 Inventories 46,763 48,638 Receivables 6,179 7,068 Prepaid expenses and other current assets 19,845 14,624 Deferred tax assets   4,130   3,606 Total current assets 92,542 140,197   Property and equipment, net 138,333 139,841 Goodwill 42,683 42,840 Other intangible assets, net 4,190 4,016 Investment in affiliate 7,267 4,307 Other assets, net   8,853   8,330 Total Assets $ 293,868 $ 339,531     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 23,613 $ 45,044 Accrued expenses 7,284 11,788 Gift cards and customer deposits 22,925 34,567 Deferred revenue   9,239   8,708 Total current liabilities   63,061   100,107   Deferred franchise revenue 2,094 2,511 Deferred rent 44,063 41,697 Other liabilities 1,215 1,608     Stockholders' equity: Common stock, par value $0.01 per share 195 207 Additional paid-in capital 75,930 88,388 Accumulated other comprehensive income 7,009 6,314 Retained earnings   100,301   98,699 Total stockholders' equity   183,435   193,608 Total Liabilities and Stockholders' Equity $ 293,868 $ 339,531   BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES Unaudited Selected Financial and Store Data (dollars in thousands, except square foot data)     13 Weeks   13 Weeks   26 Weeks   26 Weeks Ended Ended Ended Ended June 28, June 30, June 28, June 30, 2008 2007 2008 2007   Other financial data: Gross margin ($) (1) $ 34,038 $ 41,420 $ 87,153 $ 95,057 Gross margin (%) (1) 36.4 % 41.8 % 40.5 % 44.2 % Capital expenditures, net (2) $ 9,003 $ 11,765 $ 14,715 $ 17,140 Depreciation and amortization $ 7,241 $ 6,365 $ 14,243 $ 12,625 Sales over the Internet $ 1,861 $ 2,040 $ 4,869 $ 5,286   Store data (3): Number of company-owned stores at end of period North America 278 252 Europe   52     41   Total stores 330 293   Number of franchised stores at end of period 58 42   Company-owned store square footage at end of period North America 824,574 761,633 Europe (4)   74,796     61,243   Total square footage 899,370 822,876   Comparable store sales change (%) (5) North America (20.5 )% (9.4 )% (16.5 )% (8.1 )% Europe   2.2 %   —     8.3 %   —   Consolidated (17.9 )% (9.4 )% (13.9 )% (8.1 )%   (1) Gross margin represents net retail sales less cost of merchandise sold. Gross margin percentage represents gross margin divided by net retail sales. (2) Capital expenditures, net represents cash paid for property, equipment, other assets and other intangible assets. (3) Excludes our webstore and seasonal and event-based locations. North American stores are located in the United States, Canada and Puerto Rico. In Europe, stores are located in the United Kingdom, Ireland and France. (4) Square footage for stores located in Europe is estimated selling square footage. (5) Comparable store sales percentage changes are based on net retail sales and stores are considered comparable beginning in their thirteenth full month of operation. Fiscal 2008 first quarter is the first quarter that our European operations have met the criteria for inclusion in our comparable store calculation. As such, there is no comparable data for 2007 for Europe.