Build-A-Bear Workshop, Inc. (BBW) Q2 2025 Earnings Conference Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance with record revenue guidance and improved margins, alongside successful product launches and international expansion. The Q&A reveals strategic pricing and expansion plans, with strong e-commerce growth and positive partner-operated store momentum. Despite some challenges in the second half, the overall sentiment is positive, driven by optimistic guidance and strategic initiatives.

Key Financial Performance

Revenue (Q2 2025) $124.2 million, an increase of 11.1% year-over-year. Growth attributed to strong store performance, increased e-commerce demand (up 15.1%), and favorable timing of product launches.

Revenue (First Half 2025) $252 million, an increase of over 11% year-over-year. Growth driven by double-digit increases in both retail (11%) and commercial segments (22%).

Pretax Income (Q2 2025) $15.3 million, an increase of 32.7% year-over-year. Growth due to improved gross profit margins and disciplined expense management.

Pretax Income (First Half 2025) $35 million, an increase of over 31% year-over-year. Growth supported by higher store contribution margins and growth in higher-margin commercial segment.

Earnings Per Share (EPS, Q2 2025) $0.94, an increase of 46.9% year-over-year. Growth driven by higher pretax income, lower income tax rate, and reduced share count.

Earnings Per Share (EPS, First Half 2025) $2.11, an increase of 44.5% year-over-year. Growth attributed to strong revenue and profitability improvements.

EBITDA Margin (First Half 2025) Nearly 17%, more than tripled compared to the first half of 2019. Growth driven by annual store contribution margins of over 25% and higher-margin commercial segment.

Gross Margin (Q2 2025) 57.6%, an improvement of 340 basis points year-over-year. Growth due to reduced promotional activity, selective price increases, and leverage of fixed costs.

SG&A Expenses (Q2 2025) $56.4 million, 45.4% of total revenues, up from 44% last year. Increase due to higher store-level compensation, corporate costs, and inflationary pressures, partially offset by timing of marketing expenses.

Cash and Cash Equivalents (End of Q2 2025) $39.1 million, an increase of 55.4% year-over-year. Growth achieved after returning $31 million to shareholders over the past 12 months.

Inventory (End of Q2 2025) $81.8 million, an increase of $14.8 million year-over-year. Growth driven by tariffs, accelerated purchase of core products, and investments to support elevated commercial segment sales.

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Operating Highlights

Mini Beans collection: Introduction of new concepts like the Mini Beans collection, representing a strategy to leverage brand equity and evolve beyond traditional retail and product space.

Fruit Stand assortment: Launched a non-holiday, non-licensed collection that drove triple-digit growth in media impressions and contributed significantly to Q2 success. Included products like Make Your Own Watermelon Frog, Dragon Fruit Dragon, and Pineapple Axolotl.

Halloween-themed Mini Beans: Expanded the collection with themed products like candy corn Longhorn, contributing to positive comparisons for Halloween 2025.

Global expansion: 14 net new experience locations opened, 86% of which were international, expanding the brand to 32 countries. Entered new markets like Georgia and Uzbekistan.

Return to Germany: Build-A-Bear brand will return to Germany in Q3 2025, operated by a current partner.

ICON Park in Orlando: Plans for a multilevel Build-A-Bear workshop at ICON Park in Orlando, Florida, scheduled to open in the second half of 2026.

Digital transformation: Advancement of social media initiatives across platforms like Instagram, TikTok, Facebook, and YouTube. Focused on user-generated content and AI tools to create engaging product stories.

E-commerce growth: E-commerce demand increased by 15.1%, driven by strong consumer response to key product launches.

Commercial revenue growth: Wholesale sales to partner operators grew by 18.3%, making it the fastest-growing segment.

Capital-light partner-operated retail model: Used to accelerate global expansion strategy.

Increased revenue and pretax income guidance: Updated guidance reflects higher expectations for fiscal 2025, with revenue growth in mid-to-high single digits and pretax income between $62 million to $70 million.

Brand equity investment: Focused on leveraging brand power for incremental growth through licensed partnerships, new product types, and organizational evolution.

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Risk or Challenges

Economic Uncertainty: Acknowledged potential for economic uncertainty ahead, which could impact the company's performance and strategic plans.

Tariff Impact: Current U.S. tariffs on Chinese and Vietnamese imports are creating cost pressures, with an expected net impact of less than $11 million on fiscal 2025 income statement. This includes a $1 million impact already reflected in Q2 results.

Labor and Medical Costs: Additional medical and labor costs are expected to create a headwind of approximately $5 million for the year.

Inflationary Pressures: Higher store-level compensation and general inflationary pressures have contributed to increased SG&A expenses, impacting profit margins.

Supply Chain Costs: Increased inventory levels due to tariffs and accelerated purchases of core products have added to supply chain costs.

Competitive Pressures: The company faces challenges in maintaining traffic growth and transaction values in a competitive retail environment.

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Guidance & Outlook

Revenue Growth: Increased guidance for revenue growth to be in the range of mid-single to high single digits for fiscal 2025, following double-digit first-half growth and a solid start to the third quarter.

Pretax Income: Raised pretax income guidance to be in the range of $62 million to $70 million, assuming current tariff rates remain in effect for the rest of the fiscal year.

Net New Unit Growth: Increased net new unit growth expectations for 2025 to at least 60 locations, up from the previous guidance of 50 locations, with the majority driven by partner-operated models, especially internationally.

Tariff Impact: Anticipates tariffs and associated cost impacts on fiscal 2025 income statement, net of mitigation, to be less than $11 million, with $1 million already reflected in Q2 results.

Global Expansion: Plans to open new experience locations globally, including a return to Germany in Q3 2025 and a multilevel workshop at ICON Park in Orlando, Florida, scheduled for the second half of 2026.

Digital Transformation: Continued investment in social media initiatives, AI, and trend analysis to drive engagement and sales, particularly targeting the growing 'Kidult' market.

Product Pipeline: Robust pipeline for the remainder of 2025, including National Teddy Bear Day, a launch tied to the sequel of 'Wicked for Good,' and a strong holiday lineup.

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Shareholder Return Plan

Capital Returned to Shareholders: During the first half of the fiscal year, we returned more than $13 million in capital to shareholders.

Dividends and Share Repurchases: During the quarter, we returned $6 million through dividends and share repurchases, bringing our year-to-date total to $13.1 million.

Share Repurchase Authorization: We also maintained significant flexibility with about $80 million remaining under our Board-approved repurchase authorization.

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Key Q&A

Q:Can you discuss the consumer response to price increases and how you manage pricing strategies?

A:The company takes a selective and strategic approach to price increases, often aligning them with seasonal store resets. They aim to maintain a balance between entry-level price points and higher-priced items, leveraging programs like the Count Your Candles birthday program to attract new customers. Price increases are more common for collectors and licensed products. Despite these changes, traffic and transactions have increased, and new product launches like Mini Beans have driven higher ticket prices.

Q:How should we think about the maturity and impact of partner-operated stores?

A:Partner-operated stores are a key part of the company's strategy for store evolution and expansion, particularly outside North America and the U.K. These stores, often shop-in-shops, have been successful and are expanding into new countries. Partners recognize the value of the Build-A-Bear brand and its experiential retail model, which has driven growth and positive responses.

Q:Can you provide an update on Mini Beans sales and wholesale distribution progress?

A:Mini Beans sales have increased by 80% year-over-year, with strong momentum driven by collectible assortments and integration with broader marketing stories. Priced at around $10, they are being sold in wholesale channels internationally and in locations like Hudson airport stores and Applegreen convenience stores. The company has also launched its first licensed Mini Beans with the Sanrio brand.

Q:What is driving the improved e-commerce demand, and what are the future plans for this channel?

A:E-commerce demand grew by over 15% in the quarter, supported by lower discounts and a shift in promotional cadence. The company views its website as a critical part of its omnichannel strategy, serving both as a sales platform and an information tool for customers planning store visits. Future plans include talent acquisitions and initiatives to enhance the digital experience.

Q:Does the second-half guidance imply weaker margins, and what are the reasons for this?

A:The second-half guidance reflects tougher year-over-year comparisons due to strong results in the previous year, including a record Halloween season. Additional challenges include increased tariffs, particularly from Vietnam, and higher labor costs, which together represent a $16 million headwind. Despite these challenges, the company expects to maintain or slightly exceed last year's profitability.

Q:What momentum are you seeing with new partners in partner-operated locations, and how do these customers differ from corporate stores?

A:New partners, such as Inner Stores in Germany, are expanding the brand successfully. Partner-operated locations often attract customers who value the unique Build-A-Bear experience, which is consistent across markets. The company leverages user-generated content and localized marketing to enhance brand recognition and customer engagement.

Q:How does the company view the potential for expanding company-operated stores internationally?

A:While the company is open to expanding company-operated stores, it currently focuses on partner-operated models for international growth. Partners bring local market expertise and existing infrastructure, which accelerates expansion. The company may consider strategic investments in partnerships but sees significant runway in the current model.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the question about the potential for expanding company-operated stores internationally. While they acknowledged the possibility of strategic investments, they emphasized the advantages of the partner-operated model without providing specific plans or timelines for company-operated expansion.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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Build-A-Bear Workshop, Inc. (BBW) Q3 2025 Earnings Call Transcript

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The earnings call reveals mixed signals: positive aspects include increased guidance for revenue and pretax income, strong commercial revenue growth, and strategic pricing diversification. However, concerns arise from declining e-commerce demand, increased SG&A expenses, and inventory buildup. The Q&A highlights efforts to mitigate tariff impacts and expand product offerings, yet vague management responses on tariffs and licensed product sales tails introduce uncertainty. Overall, the sentiment is neutral due to balanced positive and negative factors, with no strong catalyst for significant stock price movement.

Build-A-Bear Workshop, Inc. (BBW) Q3 2026 Earnings Call Transcript

Positive12-4

The earnings call shows strong revenue growth and increased guidance for revenue and pretax income. Despite a slight decline in gross margin due to tariffs, management has plans to mitigate these impacts, including cost reductions and price adjustments. The diversification in pricing strategy and expansion plans, alongside promising Mini Beans sales, indicate positive business momentum. While management was vague on some future impacts, the overall sentiment from the Q&A is positive, with analysts responding well to strategic initiatives. Given these factors, a positive stock price movement is expected.

Build-A-Bear Workshop, Inc. (BBW) Q2 2025 Earnings Conference Call Transcript

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Positive5-30

The earnings call reveals strong financial performance with significant revenue and EPS growth, improved margins, and a robust shareholder return plan. Although there are concerns about tariffs and inflationary pressures, the company's strategic initiatives, such as global expansion and digital transformation, are promising. The Q&A section highlights positive analyst sentiment, with successful partnerships and inventory management improvements. Despite some uncertainties, the optimistic guidance and strategic growth plans suggest a positive stock price movement over the next two weeks.

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