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Courtesy of Build-A-Bear

Build-A-Bear Workshop offers stuffed animals for the different holidays.

Build-A-Bear Workshop reports an under-stuffed bottom line

by Carolina Herrera
Feb 14, 2013


Carolina Herrera/MEDILL

Build-A-Bear Workshop Inc. profits have been under pressure in recent years.

Build-A-Bear Workshop Inc.’s motto is: “Where Best Friends Are Made.” But these days, the St. Louis company hasn’t been making many friends on Wall Street.

Hurt by a one-time charge, Build-A-Bear turned in a hefty fourth-quarter loss Thursday morning, closing out a disappointing year.

Build-A-Bear reported a net loss of $36.5 million, or $2.23 per diluted share, much worse than the loss of $9 million, 56 cents per share in the same period a year ago. Sales also fell 1 percent to $118.2 million from $119.1 million.

The latest quarter was hurt by a $33.7 million charge to write down certain assets. Excluding special items, the company said, adjusted earnings per share were 13 cents, compared to 34 cents a year ago. But even that 13-cent per-share profit fell short of the 31 cents analysts surveyed by Yahoo Inc. were expecting.

In New York Stock Exchange trading Thursday, the company’s already battered shares drooped 24 cents, or 4.7 percent, to close at $4.91.

Build-A-Bear is an interactive retailer that allows customers to choose, assemble and customize their own teddy bears and stuffed animals.

“My kids love it, and I have fun watching them,” said Elise Stapp as she left the downtown Chicago store with her 6-year-old daughter on Wednesday. “You’re always begging me to come here aren’t you?” she said smiling as her daughter nodded her head. “She can’t get enough!”

Although it has remained popular among some younger children and parents, Build-A-Bear Workshop has had a bleak year, despite being the largest company of its kind.

"The real issue isn't somebody else doing the same thing," said Thomas Filandro, an analyst at Susquehanna Financial Group. "Where is your growth coming from? They pushed locations to areas that don't have the volume to support, and this is classic with retailers."

The company has acknowledged its ambitious initial growth plan caused it to over expand, but over time, officials hope to return to profitability. The current state of transition and a significant decline in global business have contributed to the weak quarter.

In the company conference call Thursday morning, Maxine Clark discussed her resignation announcement last month. Clark has been founder and CEO (or as the company calls it – Chief Executive Bear) since 1997.

“With our multi-year turnaround strategies to position our company for long-term profitable growth in place, and beginning to gain traction, I feel it is the right time to attract a new chief executive to take the company forward,” she said.

Build-A-Bear Workshop proposed several key initiatives last quarter that it plans to continue. A main focus of the turnaround has been to increase productivity by remodeling stores and closing under-performing ones. The business hopes to establish a base of fewer, but stronger stores by the end of 2014.

Fifty to 60 stores will be closed in the next two years to reach a store count of no more than 250 stores. Ten stores were already closed in the fourth quarter.

Global stores will also be a main focus of the company. While North American store sales were up 15 percent, European store sales were down over 11 percent. The company has said it will not open any more stores in the United Kingdom until they see improvements in the current operating ones.

But the company is not just closing its stores. At the end of last year, Build-A-Bear added tech gadgets to six existing stores to increase interactivity with kids. The newly designed stores saw an increase in sales of 30 percent showing that these turnaround initiatives could be helping.

For the fiscal 2012 year, net loss was $49.3 million compared to $17.1 million in 2011. Total sales for 2012 were also down 3 percent from 2011 to $380.9 million.

"They already satisfied a lot of their target audience," said Filandro. "They aren't as new and exciting anymore. Now all you're really doing is serving new children, and the old ones aren't repeating. It's a shrunken market."

Future company changes and new toy collections will show if stuffed toys can crawl back into children’s arms and parents’ wallets.