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

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Overview

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.

Key Financial Performance

Revenue for Q3 2025 Revenue grew nearly 3% to almost $123 million. This growth was attributed to the company's strategic and operational advancements, despite a challenging macro environment.

Pretax Income for Q3 2025 Pretax income declined $2 million to nearly $11 million, inclusive of about a $4 million negative tariff impact. The decline was primarily due to the tariff impact.

Revenue for the first 9 months of 2025 Revenue grew more than 8% to over $375 million. This growth reflects the company's strategic initiatives and operational advancements.

Pretax Income for the first 9 months of 2025 Pretax income increased by 15% to almost $46 million, inclusive of about $5 million in a negative tariff impact. The increase was driven by strong operational performance.

Earnings Per Share (EPS) for the first 9 months of 2025 EPS grew more than 24%. This growth was supported by strong revenue and pretax income performance, as well as share buybacks.

Commercial Revenue for Q3 2025 Commercial revenue grew 4.2%. The timing of shipments negatively impacted the quarter, but year-to-date commercial revenue increased by 15.3%.

Gross Margin for Q3 2025 Gross margin was 53.7%, a decline of 40 basis points compared to last year. The decline was primarily due to the impact of tariffs.

SG&A Expenses for Q3 2025 SG&A was $55.3 million or 45.1% of total revenues, compared to 43.3% last year. The increase was due to higher store-level compensation, marketing expenses, and general inflationary pressures.

Inventory at Q3 2025 End Inventory was $83.3 million, an increase of $12.5 million. The increase was driven by accelerated purchases to mitigate tariff rate changes and support commercial segment growth.

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Operating Highlights

Mini Beans collection: Approaching 3 million units sold with over 60% growth in the third quarter. Expanded distribution into independent retailers.

Seasonal offerings: Strong Halloween collection with double-digit increase in 2025 sales compared to 2024. New fan favorite Posable Bat generated over 3 million social views.

Holiday products: Introduced Gingerbread Axolotl, Timeless Teddy in Santa gear, and seasonal Mini Beans. Reinforced Build-A-Bear as a holiday tradition with Merry Mission animated feature film.

Global expansion: Added 24 net new experience locations, 70% outside the U.S., bringing total locations to 651 across 33 countries. Expanded in Colombia, Denmark, Finland, Mexico, New Zealand, Panama, Qatar, South Africa, Sweden, and UAE.

Reentry into Germany: Opened locations in Berlin and Frankfurt with plans for Stuttgart, marking a step in European growth strategy.

Co-branded stores: Expanding Build-A-Bear Hello Kitty and Friends workshop concept to American Dream and Mall of America in early 2026.

Asset-light model: Doubled the number of partner-operated locations since Q2 2023, now representing over 25% of total units.

Digital transformation: Appointed Carmen Flores as SVP of E-commerce and Digital Experiences to enhance digital engagement and AI-driven personalization.

Brand equity leverage: Capitalizing on multigenerational brand equity with pre-stuffed branded plush sold outside workshops and Mini Beans collectibles.

Shareholder returns: Returned over $26 million to shareholders through dividends and buybacks in the first 9 months of 2025, contributing to over 24% EPS growth.

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Risk or Challenges

Tariff Impact: The company faced a $4 million negative tariff impact in the third quarter and a total of $5 million year-to-date, with an expected additional $6 million impact in the fourth quarter. This has directly reduced gross profit and pretax income.

Labor and Medical Costs: Higher store-level compensation, including medical benefits and higher minimum wage requirements, contributed to increased SG&A expenses, creating a $5 million headwind for the year.

E-commerce Performance: E-commerce demand declined 10.8% in the third quarter due to challenging comparisons from a strong license product launch in the prior year and timing shifts in web launches.

Inventory Management: Inventory increased by $12.5 million due to accelerated purchases to mitigate tariff rate changes and support commercial segment growth, which could pose risks if demand does not meet expectations.

Macroeconomic Environment: The company is navigating a challenging macroeconomic environment, including inflationary pressures and a government shutdown in October, which negatively impacted consumer traffic and sales.

Traffic Decline: Store traffic declined by 1% in the third quarter, with October seeing a sharper drop due to external factors like the government shutdown and tougher year-over-year comparisons.

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Guidance & Outlook

Revenue Guidance: Build-A-Bear reaffirms its full-year guidance, expecting fiscal 2025 revenue to exceed $0.5 billion for the first time in the company's history. This implies about 2% growth in the fourth quarter.

Commercial Segment Growth: The commercial segment is expected to grow by more than 20% for the full year, with at least 30% growth anticipated in the fourth quarter.

Pretax Income Guidance: The company expects about $20 million in pretax income for the fourth quarter, with a total tariff impact of less than $6 million for the last quarter of the year.

Store Expansion: Build-A-Bear plans to achieve its guidance of at least 60 net new locations in 2025, with a focus on asset-light partner-operated models and international expansion.

Digital Transformation: The company aims to strengthen consumer engagement and drive digital business growth through personalized, seamless interactions powered by technology and AI.

Product Expansion: Build-A-Bear plans to expand the distribution of its Mini Beans collectibles globally, leveraging thousands of additional points of sale beyond its workshops.

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Shareholder Return Plan

Dividends returned to shareholders: More than $26 million returned to shareholders through dividends in the first 9 months of fiscal 2025.

Total shareholder returns since 2021: Over $160 million returned to shareholders since the beginning of fiscal 2021.

Share buybacks: More than $26 million returned to shareholders through buybacks in the first 9 months of fiscal 2025.

Share repurchase authorization: Approximately $70 million remaining under the Board approved repurchase authorization.

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Key Q&A

Q:What are the opportunities to reduce tariff impacts next year and how should we think about mitigating these costs?

A:The company had about 7 months of tariff expenses this year, totaling less than $11 million. Next year, the first 5 months will have tougher comparisons due to tariffs. Management is working to mitigate challenges by reducing costs with partners in Asia, selectively increasing prices, and managing promotions and discounts. Additionally, Chinese tariff rates will decrease from 30% to 20% next year, providing some relief.

Q:How is the diversification in pricing, such as Mini Beans and higher-priced items like Giant Furry Friends, impacting the business?

A:The company has diversified its pricing strategy, offering products like Mini Beans at $10 and higher-priced items like Giant Furry Friends and limited editions like Glisten at $100. This strategy appeals to a broader customer base, including teens and adults, who make up 40% of sales. Mini Beans are collectible and often purchased in multiples, while higher-priced items cater to gifting and special occasions. The diversification aligns with the brand's goal to appeal to more people in more places for more occasions.

Q:How did promotional activity in the quarter compare year-over-year?

A:Promotional activity was managed more stringently, resulting in a lower discount rate compared to previous quarters. The company focused on expanding merchandise margins and enhancing customer experiences rather than driving growth through promotions. This approach aligns with the brand's unique positioning as a destination for special events.

Q:What trends are being observed with Mini Bean sales and new SKU introductions?

A:Mini Beans sales are approaching $3 million, with a 60% increase in the last quarter. The product is being sold in Build-A-Bear stores, partner-operated locations, and other retailers. Mini Beans are collectible, seasonal, and include licensed characters like Hello Kitty. The success of Mini Beans demonstrates the potential to extend the brand beyond the traditional make-your-own plush experience.

Q:How do licensed products tied to high-profile movie launches perform, and what is the sales tail for these products?

A:Licensed products tied to movies, like Wicked, contribute to sales but are not the sole drivers of events like Black Friday. The sales tail for these products varies widely, with sequels offering more predictability. The company manages risk by leveraging known entities and preparing for potential demand.

Q:What is the rationale behind expanding to a second Build-A-Bear location in large malls like American Dream and Mall of America?

A:Expanding to a second location in large malls leverages Build-A-Bear's ability to drive foot traffic and enhance the shopping experience. The brand's destination-driven marketing and emotional connection with customers make it a valuable partner for malls, contributing to the revival of in-person shopping.

Q:Did the government shutdown impact customer spending, and was there a shift towards lower-priced products?

A:The government shutdown and other factors like the absence of a new licensed product launch in October contributed to a slowdown in traffic. However, the company saw growth in both lower-priced products like Mini Beans and higher-priced items like giants. Dollar per transaction and conversion rates remained strong, indicating no significant negative impact on overall spending.

Q:What is the opportunity for Mini Beans in other retailers and how does it compete in the plush market?

A:Mini Beans offer an opportunity to expand Build-A-Bear's presence in thousands of retail locations beyond its workshops. The product benefits from the brand's equity, which differentiates it from other plush toys. Early sales in external retail channels have been promising, highlighting the potential for growth in the wholesale channel.

Q:Review of Unclear Management Responses

A:Management avoided providing specific guidance on 2026 tariff impacts and used general language about mitigating challenges. Additionally, the response to the sales tail of licensed products tied to movies was vague, describing them as unpredictable and varying widely without offering concrete data or examples.

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Earnings Word Cloud

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

BBW Transcript

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

Unknown12-5

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

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

Positive8-28

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.

Build-A-Bear Workshop, Inc. (NYSE:BBW) Q1 2025 Earnings Call Transcript

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.

BBW Report

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BUILD-A-BEAR WORKSHOP INC 10-K

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