Build-A-Bear Workshop, Inc.

Welcome to Build-A-Bear Workshop 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Allison Malkin of ICR.

Good morning. Thank you for joining us. With me today are Sharon Price-John, CEO, and Boyne Taborovich, CFO. For today's call, Sharon will begin with the discussion of our fourth quarter and fiscal year 2020 performance and highlight our priorities as we begin fiscal 2021. After, Boyne will review the financials and our outlook in more detail. We will then open the call to take your questions. We ask that you limit your questions to one question and one follow-up. This way, we can get to everyone's questions during this one-hour call. Feel free to re-queue if you have further questions. Members of the media who may be on our call today should contact us after this conference call with your questions. Please note, the call is being recorded and broadcast live via the internet. The earnings release is available on the investor relations portion of our corporate website. A replay of both our call and webcast will be available later today on the IR site. The COVID-19 pandemic continues to have a significant impact on our operations cash flow and financial position. The uncertain and dynamic nature of our current conditions and its ongoing impact could materially alter our outlook. I will remind everyone that forward-looking statements are inherently subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the risk factors section in the company's annual report on Form 10-K. We undertake no obligation to revise any forward-looking statements. And now, I would like to turn the call over to Sharon.

Thank you, Allison, and good morning, everyone. Thanks for joining us today as we share our results for our fourth quarter and fiscal year 2020. In reviewing the year, I think it's accurate to see it as a tale of two halves. In the first half of the year, we rapidly responded to the onset of a global pandemic that forced a governmental mandated closure of all of our corporately operated stores, as well as many third party and franchise locations. We took immediate action to maintain the financial well-being of the company, including aggressive expense management and cash preservation, while pivoting to drive e-commerce demand, even as our headquarters shifted to full virtual mode. As we moved into the second half and stores reopened on a staggered basis as guidelines transitioned, our focus turned to accelerating key initiatives to drive digital transformation and evolve retail. I am proud of the resilience shown by this organization with a headquarter staff that continues to work virtually and its ability to rapidly adapt to lead the change that drove us to deliver a profitable second half a stronger year-end cash position compared to the prior year-end, and no borrowings on our credit facility. Looking in more detail at our fourth quarter, we exceeded our previously issued guidance across a number of key metrics, even with the ongoing negative impact of COVID-19 on retail store operations. This included an 18% reduction in store operating days driven largely by the forced reclosure of all stores in Europe, for most of the quarter, as well as restrictions on operating hours and the number of consumers to be in stores, with achievable sales on key days during the holiday season. Even as the brick-and-mortar retail situation remained in flux, we continued to drive triple-digit growth in e-commerce demand, accelerate our digital transformation, and stepped up the rollout of key initiatives to expand our consumer base and purchase frequency that we expect to have ongoing benefits and position our company to achieve our stated goal of profitable growth, assuming a more stable economic and retail environment. Finally, we also kept an eye on the future of the business by delivering on brand initiatives beyond the retail model. In the fourth quarter, we reported total revenue of $93.7 million, exceeding the guidance we provided in January, but still representing a decline compared to the prior year. Our brick-and-mortar stores, while negatively impacted, showed improvement in weekly trends to finish the year and digital performance remained strong with another triple-digit increase, giving us momentum in our business as the period ended. Gross profit margin also exceeded the previously guided range with an increase in merchandise margin and benefit from rent reductions leading to an almost flat gross margin rate in the quarter compared to the prior year. This is despite lower leverage on occupancy expense due to the reduction in total revenue partially offset by the benefit of pandemic-driven government-assisted programs in the United Kingdom. GAAP pre-tax income increased by over 20% compared to the prior year to $9.2 million. While on the balance sheet, we finished the year with higher total cash of $34.8 million. up 30% versus the prior year. As I noted, we saw positive momentum as we finished 2020, yet we remain cautious as we begin fiscal 2021 given the ongoing uncertainty. Underlying both our pandemic response and future outlook is a strategy to leverage the power and emotional connection of the brand created by the one-to-one retail guest engagement and marketing model. that can monetize in categories and channels beyond traditional retail. Our discipline focus on the execution of this strategy has centered on three key platforms. As a reminder, they include, one, further digital transformation, including content and entertainment initiatives, two, rapidly evolving our retail capabilities, which includes significantly expanding our e-commerce capacity, and three, maintaining financial stability and managing the liquidity so we can both support our business and make strategic investments designed to drive future growth. Regarding the acceleration of our digital transformation, we sustained our trend of triple-digit growth in e-commerce demand in the fourth quarter, and we intend to build on this business with more effective use of technology, and improved and enhanced fulfillment capabilities while leveraging our expanded digital platforms to inform and drive marketing and content efforts. In the fourth quarter, we continued to see robust demand for key licensed products, including those inspired by the child from the hit Star Wars series, The Mandalorian, and an expanded Harry Potter collection, plus new Pokemon characters. We entered a new space with the launch of a product line created in collaboration with TikTok influencers, We Wear Cute. And we also saw robust demand for our proprietary Merry Mission holiday collection, as well as gifting products, which carried over into the new year with a strong Valentine's performance. Separately, we advanced our overall digital capabilities across the enterprise, including our CRM program. With the digital technology and capabilities from Salesforce, that were added in 2020 combined with robust consumer data, we have created new multi-channel buyer journeys designed to efficiently acquire new customers and drive lifetime value of existing guests. We have refined and expanded our communication tools and expect to benefit from both having these platforms available for the entire year as well as making further progress in our execution. We also saw innovative developments in our effort to evolve and accelerate consumer engagement in their preferred digital platform as we seek to leverage our 10 million-plus opted-in consumer base across social channels and through direct communication. Throughout 2020, we hosted a number of online streaming events, adding new ways for consumers to interact with our brand, as well as capabilities to transact with new in-app purchase options, which proved successful, and we are planning to expand that in the new year. In addition, we continue to use digital media, content, and entertainment as marketing and brand-building tools to engage consumers and drive sales. Build-A-Bear Radio on the iHeart platform has grown steadily and most recently surpassed 500,000 monthly listeners while our first live action film delivered by Christmas was seen by millions of viewers on the Hallmark Movies and Mystery Channel. As Build-A-Bear Entertainment continues to develop, we are pleased to be wrapping production on our first live action film through our agreement with Sony Pictures Worldwide Acquisition. As part of this agreement, the film Honey Girls, which is expected to be released in fall of 2021, is inspired by our popular intellectual property and successful product line. It uses the power of music as a way to celebrate individuality while recognizing that we can also be better together, all wrapped up in a fun girl empowerment journey of discovery. We expect to see heightened consumer engagement with the branded entertainment content when the film is released, with the movie and original music effectively acting as marketing tools to drive increased interest for Honey Girl's products across channels. Our second initiative is to rapidly evolve retail capabilities as we extend ways to connect with and meet the changing needs of consumers by driving omnichannel engagement and expanding delivery options. In 2020, we made strong progress in the second half with over 100% growth in online demand for both new guest acquisitions and incremental purchases from a previously lapsed account. We plan to continue to broaden our addressable market and expand our consumer base with omni-channel engagement using occasion-based offerings and high appeal licenses. As such, I'm pleased to announce plans to initially launch products exclusively online later this quarter based on the highly popular Nintendo Switch game Animal Crossing New Horizons. Accordingly, With the increased digital demand, we needed to expand our fulfillment capabilities to efficiently deliver the increased order creation by improving warehouse throughput and adding omnichannel capabilities. We have been able to leverage our stores to effectively act as mini distribution centers, leveraging labor and optimizing inventory. In 2020, we added diversified omnichannel options to more than double our fulfillment capacity by improving warehouse efficiency, developing buy online, ship from store, buy online, pick up in store, and curbside pickup capabilities, as well as partnering with Shipt to provide a same-day delivery option for our guests. And finally, we remain keenly focused on maintaining our financial stability with the liquidity needed to support our business while managing working capital as COVID uncertainty continues. During the pandemic, we have leveraged our strategic high lease optionality to renegotiate over 90% of all store leases. Importantly, we maintained that optionality with over 75% of leases continuing to have an event in the next three years. We expect to further negotiate our real estate portfolio as the disruption continues. Separately, we plan to invest capital, particularly in the digital space, to drive acceleration and transformation goals. In closing, 2020 was indeed a tale of two halves, but I believe that ultimately we will look back on the year as one that called on this organization to take action to not only survive a pandemic, but to be able to thrive in the future. I would like to once again thank our associates for their resilience and commitment to our company's mission. As they know, the comfort of a hug from a furry friend from Build-A-Bear can provide. We believe our back half results demonstrate the benefit of a solid strategy and the disciplined focus and execution from a responsive and driven management team. We are committed to monetize the power of our beloved brand to deliver future profitable growth as the challenging times stabilize and consumers return to more normal activities. Now, let me turn the call over to Voing to further discuss the year and our outlook.