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spk08: Greetings and welcome to Build-A-Bear Workshop First Quarter 2021 Earnings Call. At this time, all participants are in 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 today, Ms. Alison Malkin of ICR. Please proceed.
spk05: Good morning. Thank you for joining us. With me today are Sharon Price-John, CEO, and Boyne Tavorovitch, CFO. For today's call, Sharon will begin with the discussion of our first quarter 2021 performance, our strategic initiatives, and our outlook for the year. After, Boyne will review our financials and guidance 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 question 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. 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.
spk07: Good morning, everyone, and thank you for joining us today to discuss our results for the first quarter of fiscal 2021. We delivered a record-breaking quarter on many levels. We attribute this in part to the investment and actions that we put in motion prior to the pandemic, and in many cases accelerated during the pandemic. These include leveraging the increased fulfillment capacity due to our warehouse reconfiguration and systems upgrades, driving innovation with intense efforts on merchandise and marketing, including aggressive positioning of our gift-giving program, as well as transforming our omnichannel capabilities supported by our Salesforce partnership. Overall, we believe that the discipline and relentless focus we've had on executing our strategic plan put us in a position to take advantage of the improving consumer demand that we saw in the quarter. The quarter's results were outstanding on both top and bottom line, including total revenues of $92 million, up 97% from 2020 and up 9% from the fiscal 2019 first quarter. This includes increases in both our physical stores and digital channels. We believe the improvement was driven by the strength of the emotional connection that has kept our Build-A-Bear brand a desired and relevant brand, strong merchandise mix, and improved digital marketing programs. While our company benefited from better traffic trends coincided with the timing of the stimulus package and pent-up demand as consumers sought to reengage in personal experiences, we delivered a material improvement in conversion rates and our highest level of dollars per transaction in our history, which drove our sales growth. Notably, we had an 87% increase in e-commerce demand compared to the fiscal 2020 first quarter and a 194% increase versus the 2019 period. This was fueled by a triple-digit increase in transactions from new guests highlighting the effectiveness of our digital marketing campaign. First quarter gross profit margin improved by 52.8% of total revenues reflecting the benefit of ongoing lease negotiations, leverage of fixed occupancy expense, and expansion of merchandise margin which we have been consistently expanding for multiple years. We returned to profitability in the quarter with $13 million in pre-tax income, which represents the highest profit for our first quarter in our nearly 25-year history. And looking at the balance sheet, we ended the quarter with total cash and equivalents of $46 million. We are pleased with our first quarter results, and while we expect to see continued evolution of consumer shopping patterns and preferences in the balance of the year, we believe we have evolved as an organization and built the infrastructure to respond with greater agility to deal with potential uncertainty as we expect to deliver growth in 2021. As we have previously shared, we remain focused on our strategic priorities for the year, which are centered primarily on three key areas. One, further acceleration of our digital transformation, including content and entertainment initiatives. Two, rapidly evolving our retail capabilities and experiences, including omni-channel and significantly expanding e-commerce capacity. And three, maintaining a solid financial position, including a strong balance sheet to support our business, and make strategic investments designed to drive further growth. Regarding the acceleration of our digital transformation, we are intent on building our 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. We believe that our multi-year sustained strong trend in e-commerce demand including this quarter's 87% increase over the prior year, highlighted by another quarter of triple-digit growth in North America, demonstrates the progress we continue to make in this area. In the first quarter, we saw significant gains in our business around gifting moments and occasions, including Valentine's Day, Easter, and most recently Mother's Day, as well as graduations. We leveraged our enhanced digital marketing to target consumers, that we're searching for gift solutions for these events. With many of the key occasions centered on adult-to-adult gifts, we are leveraging our status as a multi-generational brand to diversify and expand consumer segments to drive incremental sales. We also continue to develop our innovation pipeline and expanded our digital merchandise offerings for gift-giving and other older teen plus affinity guests with the launch of the Bear Cave, a new section of our website that offers carefully curated products designed specifically with these demographic segments in mind, which prefer to shop online. We expect to add products that are slightly edgier but still on brand as the year progresses. In addition to our proprietary products, the offerings will include relevant license options, which continue to contribute to increased digital demand. Sales from evergreen licenses such as Pokemon, Harry Potter, and the most recent successful introduction of a new product line inspired by Nintendo's highly popular Animal Crossing New Horizon digital game are driving robust interest and demand. Some of the upcoming additions planned for the Bear Cave licenses include Space Jam, Lord of the Rings, and Cruella, the new Disney movie. As noted, we are able to effectively target high potential consumers that are likely to have an affinity for Bear Cave products through our advanced digital marketing programs, including CRM, online campaigns, and improved communications across touchpoints. With the enhanced technology from the Salesforce platform that were added in early 2020, combined with robust consumer data, we continue to fine-tune our tactics. to efficiently acquire new consumers and drive lifetime value of existing guests, which we believe contributed to our first quarter results. In addition, we continued to use digital media, content, and entertainment as marketing and brand building tools to engage consumers and drive sales both online and in our stores as COVID restrictions began to ease. Our second initiative is to rapidly evolve our retail capabilities. as we extend ways to connect with and meet the changing needs of consumers by driving omnichannel engagement and expanding delivery options. Our North American stores were largely open and operating throughout the quarter. We began the period with all of our European stores closed due to governmental restrictions. However, the majority reopened in April. Not only did we see improving traffic patterns in stores as consumers re-engaged with our interactive retail experience, our workshops also helped fulfill the increase in digital demand through buy online, ship from store, or pick up in store options. Locations effectively acted as mini distribution centers, leveraging labor and optimizing inventory. So the reopening of our brick and mortar locations provided advantages in multiple ways. The enhanced capabilities that we put in place in 2020 to diversify our omnichannel options, including adding an allocation algorithm to optimize geographic positioning, have continued to provide critical building blocks to support our sustained strong e-commerce demands. This allowed approximately one in every five digital orders to be made and shipped from a traditional store in this year's first quarter. As our third priority regarding financial positioning, given our improved results and strong balance sheet, as well as our positive business trends, we are actively evaluating initiatives that would enable a more rapid acceleration of key programs and investment opportunities to aggressively grow our company. As such, we plan to provide more details on investment priorities, including use of capital on our second quarter call. In closing, as I noted at the beginning of this call, we believe the initiatives and investments that were put in place prior to the pandemic and in many cases accelerated during the pandemic are driving improved results, which we continue to expect to continue. We have developed a meaningful business segment through gift products and occasions that we plan to aggressively expand. Licensed products continue to be important and we remain strongly positioned with best in class partners. And we have reopened the vast majority of brick and mortar stores in the US and UK. Thus far, sales in the current second quarter have remained strong, giving us the confidence to increase our profit guidance for the fiscal year as highlighted in this morning's press release. As Build-A-Bear, like the rest of the world, continues to navigate the pandemic, our associates have remained focused on fulfilling our mission to add a little more heart to life. I'm very appreciative of the care they show to deliver personal experiences both in-store and through digital interactions. I'm proud of our organization's ability to remain agile and successfully pivot to drive our strategic plans forward in this uncertain environment. This includes aggressively evolving our digital capabilities, increasing omnichannel integration, maintaining a flexible real estate portfolio with high lease optionality, and diversifying revenue streams to leverage our powerful brand. Finally, I'm excited to share that we recently sold our 200 millionth furry friend since the company was established in 1997. And that is a lot of heart. Ultimately, it's the consumer connections associated with these experiences that have kept this brand strong and gives us a great opportunity to grow and expand our business with a goal to deliver long-term, sustained, profitable growth. Now, let me turn the call over to Voin for further discussions on our performance and outlook.
spk09: Thanks, Sharon, and good morning, everyone. We are pleased with a strong start to our year and the robust momentum we have in our business. These results reflect the affinity consumers have with the Build-A-Bear brand and the progress we have made towards our strategic goals, including leveraging our elevated digital platform and competency to transform our omnichannel capabilities. We believe that pent-up demand and stimulus programs in the U.S. positively benefited our business. Throughout the period, we saw improving traffic and sales trends in our brick-and-mortar locations across the U.S. as the quarter progressed. Our stores in the United Kingdom and Ireland were closed for the majority of the quarter, with reopenings starting on April 12th. Sales in those locations have been meeting our expectations. As Sharon noted, thus far in the second quarter, we have maintained strong momentum. Moving now to a review of first quarter results. total revenues were $91.7 million, a 96.7% increase compared to $46.6 million in the first quarter of fiscal 2020. For added perspective, compared to the first quarter of 2019, which wasn't impacted by the pandemic, total revenues increased 8.7%. We delivered growth in total revenues even as our European and Canadian stores were temporarily closed for majority of the quarter due to COVID restrictions. Separately, our net store count decreased by 14 stores at the end of the period compared to the prior year due to least events. Gross margin profit was significantly higher compared to prior year as strong sales growth leveraged fixed occupancy expense. In fact, the margin rate was the highest percentage in Build-A-Bear's history for first quarter results. Rent expense was lower year over year as we benefited from more favorable lease terms that were negotiated starting in 2020 with the onset of the pandemic. We also saw expansion in merchandise margin. Also, the highest ever during the first quarter, driven by strong initial markup and lower promotional activity. As a reminder, the fiscal 2020 first quarter included full occupancy costs for 13 weeks, while we only had sales for six weeks. On a two-year basis, a retail gross margin expanded 750 basis points versus the first quarter of 2019. SG&A was $35.2 million, up $8.5 million from the first quarter of fiscal 2020, driven by increased salary expenses given the reopening of our store base. As a reminder, at the end of the first quarter in 2020, the majority of our workforce was on furlough and corporate salaries for the remaining associates had been temporarily reduced. On a two-year basis, SGA as a percent of sales improved by 400 basis points. We delivered the highest level of pre-tax income for the first quarter in Build-A-Bear's nearly 25-year history with $13.2 million. On an adjusted basis, pre-tax income was $12.3 million. This compares to pre-tax loss of $18.7 million in the prior year's quarter and to pre-tax income of $2.4 million in the first quarter of 2019. Turning to the balance sheet, we ended the first quarter with cash and cash equivalents of $45.9 million with no borrowings in our credit facility. Strong business performance and profitability improvement helped drive the $24 million increase in cash. Our cash balance is partially benefiting from timing of inventory receipts and deferred rent payments for 2020 obligations that were pushed out to this year to preserve cash during the pandemic. Also, the cash balance is benefiting from timing of capital expenditures. During the quarter, we spent about $500,000 versus $2.8 million in last year's quarter. Our current plan includes capital expenditures in the range of $5 to $10 million for the fiscal 2021. The surge in demand across channels in the first quarter caused us to end the period with inventory down $9.5 million, a reduction of 17.8% from the 2020 first quarter. We have accelerated inventory receipts in order to support the anticipated strong demand. While we have experienced some challenges with our global supply chain, our goal is to minimize the impact of product and transportation cost increases, logistic disruptions, and delays in product shipments. Based on the strong first quarter performance and positive trends and outlook, we are raising our profit expectations for fiscal 2021 EBITDA and introducing total revenue guidance. For fiscal 2021, we currently expect EBITDA to be in the range of $28 to $32 million. This is an increase from our previous guidance, which was to exceed fiscal 2019 EBITDA of $15.3 million. Our updated expectations include appreciation and amortization in the range of $13 to $14 million. We are also adding insight that we expect total revenues for fiscal 2021 to be above fiscal 2019 total revenues of $338.5 million. Specifically related to our second quarter, as noted in our press release, sales trends have remained strong and we expect total revenues to exceed both 2020 and 2019 levels. As a reminder, In fiscal 2020, e-commerce was our only channel of revenue for the majority of the period due to temporary store closures. Combined with the launch of several highly anticipated licensed products, we had online growth of 299% compared to the fiscal 2019 quarter. With that in mind, although we believe e-commerce demand will be strong for the full year, In the second quarter, we expect demand to be essentially flat to 2020, maintaining a triple-digit increase over 2019. This outlook assumes no additional significant negative impact from the pandemic, such as prolonged store closures due to government mandates. Please keep in mind that while we expect to see annualized savings from expense reduction initiatives implemented in fiscal 2020, Our plans reflect higher payroll and marketing expenses as salary levels have been reinstated to pre-pandemic levels. Furloughed employees have returned, and marketing activity has expanded to drive sales growth. In closing, we are pleased with our financial and operational performance in the first quarter and believe the momentum of our business and progress against our initiatives position us well for the remainder of the year. This concludes our prepared remarks, and we will now turn the call back over to the operator for questions. Operator?
spk08: Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one at this time. One moment while we pull for our first question. Our first question comes from Eric Beder with FCC Research. Please proceed.
spk03: Good morning.
spk02: Congratulations.
spk03: Good morning, Eric. Thank you.
spk02: So, you know, we're getting back to normal here in this space. How do you look at the potential to eventually add parties to the mix and the potential to see gains from movies coming out as being part of the mix again?
spk07: Thank you, Eric. Well, as we have carefully done throughout the pandemic, we follow the CDC guidelines and balance that with our own needs from a business perspective and the oversight of the safety of our guests. and our associates. So we're carefully, as we would and as we have, assessing the party business because clearly that gathers groups of children together and adults, and we just have to be mindful of that. I think, you know, that we're looking out into the future. We would expect to see parties, assuming everything stays the same and there's no resurgence of the pandemic, I think we'll start to see parties trickle back into the system later this year. We have not specified date yet. And it may depend on the size of the store. So, you know, we'll be rolling them out based on, again, the CDC guidelines of distancing and ensuring that We can meet the needs as well as not disappoint other guests that are there to participate in Build-A-Bear, given our higher demand for natural traffic, that we can service them appropriately at the same time. So there's a lot of levers. It seems so simple, just flip the switch and start having parties, but there's a lot of complexity involved, and we thus far have been, I think, diligent and prudent, and it has served us well. On your question about the movies, we're certainly looking forward to a lot of these films that we've already had. As we mentioned, we have these best-in-class license relationships. Some of these films that were planned were planned for 2020 and 2021. They've been pushed out. We've been in relationships with these guys for a long time. We already have all the products developed. In some cases, some of the product made. So we're looking forward to it. And I think we're going to have to be, again, mindful I'm not sure anyone's willing to take the big bet on how many people are going to go out to see, you know, go straight to the theaters, particularly with children. But I think that either way, our partners will find an approach, a marketing approach that makes the characters appealing and exciting. And, you know, this is right in our wheelhouse of knowing how to optimize. So we're looking forward to that.
spk02: Great. And one more. the last year, maybe Yoda was a huge success. It went from online to stores and it's still doing well over a year plus into it. When you look at Animal Crossing, does that, you've started to, still online, you can order it in stores. Is that kind of regression that we saw with Yoda and where it moved and how successful it's been, do you believe that is kind of what we'll be seeing with Animal Crossing and do you believe that franchise has the ability to be something like a Pokemon or a Yoda that has a tremendous life to it as opposed to kind of a movie, which is a little bit shorter.
spk07: Well, sometimes the films are what we call spiky and sometimes they have long tails. It really depends on the franchise. So I can't categorize that all movies act this way or that way. You know, because sometimes the movie itself becomes a franchise. Star Wars is a great example of that. For Yoda, which is an adjunct product, actually, of Baby Yoda, Grogu, to the Star Wars franchise, that has maintained some of the excitement because the Mandalorian continues to have new, you know, had continued to have new episodes. So as long as, you know, the Lucasfilm believes that there's potential and opportunity with the Mandalorian series, you know, I think we could expect to see some business associated with Grogu. In fact, one of our top selling graduation gifts this year was a Grogu with a, you know, congratulations 2020 grad sash. So, you know, he's very stretchable. Your second question about Animal Crossing, very different, right? It's not that you're sitting waiting to see some piece of entertainment. That's an always-on type of quote-unquote entertainment, the gaming side, that people have tremendous affinity for. They relate to these characters and play with them in their own world. And out of the gate, we were very pleased with Animal Crossing. and certainly expect that that will have a long tail as well. So we're pleased about both of these types of properties, and it's the balance of management of the spiky kinds of movies, the relationships with these franchise types of entertainment properties, as well as now These great, what have turned into being long-term relationships with the gaming side, like a Pokemon, that gives us balance across the licensing side that has aided us in being able to create a smoother curve and plan out years in a better and more effective way. Now, will Animal Crossing become a Pokemon? Pokemon's got multiple decades behind it. That's certainly hard to say. But thus far, we're very pleased with it. Thank you for the question.
spk02: Great. Thank you, and good luck for the rest of the year.
spk08: Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad. Our next question comes from Dave Cannon with Cannon Wealth Management. Please proceed.
spk11: Good morning, guys. Congratulations. Thanks, Dave. Good morning. Also, you know, let me add congratulations to some of your team members, and I'm not omitting anyone on purpose, but I know Jen and Chris are a big part of helping execute, and I would just like to express my gratitude and acknowledgement of their efforts in doing a great job, all of you guys. So first question, do you guys at this point have a specific initiative to go after the pet gifting market? Do you have a dedicated product for that with a ruggedized or durable shell, so to speak?
spk07: We certainly haven't announced anything like that or shared anything like that, David. There's nothing in the public forum concerning that.
spk11: Okay. So my question is, is this an initiative that you're eyeballing and is in the works?
spk10: Let me rephrase it.
spk07: We haven't announced anything specific about any sort of strategic initiatives concerning pet products in the public forum.
spk11: Okay. And then if I can, I guess a similar category would be non-fungible tokens, NFTs. You know, right now, a lot of buzz, halo effect there. It seems like this is an opportunity for you guys. Are you evaluating it? Is this something potentially that you will look to monetize?
spk07: Although we have not shared anything like that in the public forum as well, I'm happy to tell you that we've spoken with some experts in the arena to assess the value of NFTs, the way they operate, and whether that makes sense for Build-A-Bear and Build-A-Bear's type of assets.
spk11: Mm-hmm. Okay, and then can you give us an update on your 3D e-commerce initiative?
spk07: As we shared in the January ICR deck, we have expectations to launch what we call the Bear Builder 3D in 2021.
spk11: Okay, and then, but this is quick, I'm just whipping off questions here. Okay. So the next one is third party retail, obviously, you know, with, uh, forced closures and so forth, it could not have contributed much. Uh, can you tell me what's your expectation in terms of the cadence of that ramping back up throughout the year? And, uh, I believe third party was what, like 2.5 million for the quarter. Where do you see it ultimately settling when things go back to normal?
spk07: Well, we wouldn't, you know, normally provide specific projections on individual revenue-generating areas, but the third-party retail is in, depending on the partner itself, it's in different places in its evolution post-COVID. Great Wolf Lodge is already open and doing quite well. And, of course, you know, as a complete opposite, Carnival Cruise Line still is, you know, they're still in the process of preparing their ships, and I know that they have started to announce some expectations of when they will start going on cruises again, and we would anticipate participating in those cruises when they do start to embark. So, we're excited about that, and Boynton, if you'd like to add any color on that, it'd be fine.
spk09: All right. We covered a lot. David, you know, this is one of those asset-light initiatives that, you know, we are definitely very well prepared aware of and like we continue to work to try to find additional partners but you know again with the covet delays and impact some of these things have slowed down but definitely this is one of our high priorities for the organization okay i guess what the way i'm looking at it is even though the quarter was phenomenal it was really with very little contribution from third-party retail with two and a half million dollars
spk11: What was your peak? What I'm driving at is this is going to be incremental as we work through the year and into next year as things go back to normal. So what were your peak quarterly revenues in third-party retail prior to the pandemic?
spk09: I mean, it's a little bit hard to answer that question because, you know, like really when you initiate some of those relationships and you have some of the initial orders and shipments and you are rolling things out, there are some spikes that we are seeing. Definitely on a full year basis in the past we have seen, you know, like that business was pretty big and, you know, like that information is available publicly. We believe with some of those things, as things return back to normal, and as Shantok, like when Carnival Cruise, that is a big portion of our lineup of third-party retail locations reopens, and assuming they have same number of ships sailing, that we are going to be able to get back to some of those numbers that we had shared historically. But then again, it's just going to depend on some of these partners and how well their business is, as a lot of them are in tourist locations. And so this is where unfortunately the COVID is impacting not as directly, but indirectly through some of these partners. And as I mentioned, we are going to continue to look at ways to grow this channel through different partners. But again, there is nothing more that I can share at this point in time.
spk11: Okay. I'll go back and I'll research it, what your peak was. The final item on my list here, it's more of a comment to the board. Even though our stock has gone up quite a bit, when I assume an $11 stock price and then back out the cash and using $31 million of EBITDA, we're trading at like 4.25 times EV to EBITDA. CapEx is coming down. We're positioned to generate very substantial free cash flow. To me, it makes sense to actually buy back our stock here. Now, I know psychologically, seeing it go from 3 to 11, one would have a knee-jerk reaction and say, oh, no, it's up a lot. But the valuation is so low, and it would be so value accretive. So just a commentary for the board, being that I think at this point we're somewhat overcapitalized. and well-positioned, and frankly, I think your EBITDA guidance is very low. I think you're going to easily exceed it. So anyway, again, congratulations, and thank you for your hard work, and I look forward to next quarter.
spk08: Thank you, David.
spk10: Thank you.
spk08: Thank you. At this time, I would like to turn the call back over to management for closing comments.
spk07: Thanks to everyone for joining us today, and we look forward to seeing some of you on Zoom during our meeting at the COUN conference later today and tomorrow during a fireside chat with D.A. Davidson. Have a great day.
spk08: Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation. Music Playing Thank you. Thank you. Thank you. Greetings and welcome to Build-A-Bear Workshop First Quarter 2021 Earnings Call. At this time, all participants are in 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 today, Ms. Allison Malkin of ICR. Please proceed.
spk05: Good morning. Thank you for joining us. With me today are Sharon Price-John, CEO, and Voyn Tavorovitch, CFO. For today's call, Sharon will begin with the discussion of our first quarter 2021 performance, our strategic initiatives, and our outlook for the year. After, Voyn will review our financials and guidance 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 question 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. 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.
spk07: Good morning, everyone, and thank you for joining us today to discuss our results for the first quarter of fiscal 2021. We delivered a record-breaking quarter on many levels. We attribute this in part to the investment and actions that we put in motion prior to the pandemic, and in many cases, accelerated during the pandemic. These include leveraging the increased fulfillment capacity due to our warehouse reconfiguration and systems upgrades, driving innovation with intense efforts on merchandise and marketing, including aggressive positioning of our gift-giving program, as well as transforming our omnichannel capabilities supported by our Salesforce partnership. Overall, we believe that the discipline and relentless focus we've had on executing our strategic plan put us in a position to take advantage of the improving consumer demand that we saw in the quarter. The quarter's results were outstanding on both top and bottom line, including total revenues of $92 million, up 97% from 2020 and up 9% from the fiscal 2019 first quarter. This includes increases in both our physical stores and digital channels. We believe the improvement was driven by the strength of the emotional connection that has kept our Build-A-Bear brand a desired and relevant brand, strong merchandise mix, and improved digital marketing programs. While our company benefited from better traffic trends coincided with the timing of the stimulus package and pent-up demand as consumers sought to reengage in personal experiences, we delivered a material improvement in conversion rates and our highest level of dollars per transaction in our history, which drove our sales growth. Notably, we had an 87% increase in e-commerce demand compared to the fiscal 2020 first quarter, and a 194% increase versus the 2019 period. This was fueled by a triple digit increase in transactions from new guests, highlighting the effectiveness of our digital marketing campaign. First quarter gross profit margin improved by 52.8% of total revenues, reflecting the benefit of ongoing lease negotiations, leverage of fixed occupancy expense, and expansion of merchandise margin which we have been consistently expanding for multiple years. We returned to profitability in the quarter with $13 million in pre-tax income, which represents the highest profit for our first quarter in our nearly 25-year history. And looking at the balance sheet, we ended the quarter with total cash and equivalents of $46 million. We are pleased with our first quarter results, and while we expect to see continued evolution of consumer shopping patterns and preferences in the balance of the year, we believe we have evolved as an organization and built the infrastructure to respond with greater agility to deal with potential uncertainty as we expect to deliver growth in 2021. As we have previously shared, we remain focused on our strategic priorities for the year, which are centered primarily on three key areas. One, further acceleration of our digital transformation, including content and entertainment initiatives. Two, rapidly evolving our retail capabilities and experiences, including omnichannel, and significantly expanding e-commerce capacity. And three, maintaining a solid financial position, including a strong balance sheet to support our business, and make strategic investments designed to drive further growth. Regarding the acceleration of our digital transformation, we are intent on building our 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. We believe that our multi-year sustained strong trend in e-commerce demand including this quarter's 87% increase over the prior year, highlighted by another quarter of triple-digit growth in North America, demonstrates the progress we continue to make in this area. In the first quarter, we saw significant gains in our business around gifting moments and occasions, including Valentine's Day, Easter, and most recently Mother's Day, as well as graduations. We leveraged our enhanced digital marketing to target consumers that we're searching for gift solutions for these events. With many of the key occasions centered on adult-to-adult gifts, we are leveraging our status as a multi-generational brand to diversify and expand consumer segments to drive incremental sales. We also continue to develop our innovation pipeline and expanded our digital merchandise offerings for gift giving and other older teen plus affinity guests with the launch of the Bear Cave, a new section of our website that offers carefully curated products designed specifically with these demographic segments in mind, which prefer to shop online. We expect to add products that are slightly edgier but still on brand as the year progresses. In addition to our proprietary products, the offerings will include relevant license options, which continue to contribute to increased digital demand. Sales from evergreen licenses such as Pokemon, Harry Potter, and the most recent successful introduction of a new product line inspired by Nintendo's highly popular Animal Crossing New Horizon digital game are driving robust interest and demand. Some of the upcoming additions planned for the Bear Cave licenses include Space Jam, Lord of the Rings, and Cruella, the new Disney movie. As noted, we are able to effectively target high potential consumers that are likely to have an affinity for Bear Cave products through our advanced digital marketing programs, including CRM, online campaigns, and improved communications across touchpoints. With the enhanced technology from the Salesforce platform that were added in early 2020, combined with robust consumer data, we continue to fine-tune our tactics. to efficiently acquire new consumers and drive lifetime value of existing guests, which we believe contributed to our first quarter results. In addition, we continued to use digital media, content, and entertainment as marketing and brand building tools to engage consumers and drive sales both online and in our stores as COVID restrictions began to ease. Our second initiative is to rapidly evolve our retail capabilities. as we extend ways to connect with and meet the changing needs of consumers by driving omnichannel engagement and expanding delivery options. Our North American stores were largely open and operating throughout the quarter. We began the period with all of our European stores closed due to governmental restrictions. However, the majority reopened in April. Not only did we see improving traffic patterns in stores as consumers re-engaged with our interactive retail experience, our workshops also helped fulfill the increase in digital demand through buy online, ship from store, or pick up in store options. Locations effectively acted as mini distribution centers, leveraging labor and optimizing inventory. So the reopening of our brick and mortar locations provided advantages in multiple ways. The enhanced capabilities that we put in place in 2020 to diversify our omnichannel options, including adding an allocation algorithm to optimize geographic positioning, have continued to provide critical building blocks to support our sustained strong e-commerce demands. This allowed approximately one in every five digital orders to be made and shipped from a traditional store in this year's first quarter. As our third priority regarding financial positioning, given our improved results and strong balance sheet, as well as our positive business trends, we are actively evaluating initiatives that would enable a more rapid acceleration of key programs and investment opportunities to aggressively grow our company. As such, we plan to provide more details on investment priorities, including use of capital on our second quarter call. In closing, as I noted at the beginning of this call, we believe the initiatives and investments that were put in place prior to the pandemic and in many cases accelerated during the pandemic are driving improved results, which we continue to expect to continue. We have developed a meaningful business segment through gift products and occasions that we plan to aggressively expand. Licensed products continue to be important, and we remain strongly positioned with best-in-class partners. And we have reopened the vast majority of brick-and-mortar stores in the US and UK. Thus far, sales in the current second quarter have remained strong, giving us the confidence to increase our profit guidance for the fiscal year as highlighted in this morning's press release. As Build-A-Bear, like the rest of the world, continues to navigate the pandemic, our associates have remained focused on fulfilling our mission to add a little more heart to life. I'm very appreciative of the care they show to deliver personal experiences both in store and through digital interactions. I'm proud of our organization's ability to remain agile and successfully pivot to drive our strategic plans forward in this uncertain environment. This includes aggressively evolving our digital capabilities, increasing omnichannel integration, maintaining a flexible real estate portfolio with high lease optionality, and diversifying revenue streams to leverage our powerful brand. Finally, I'm excited to share that we recently sold our 200 millionth furry friend since the company was established in 1997. And that is a lot of heart. Ultimately, it's the consumer connections associated with these experiences that have kept this brand strong and gives us a great opportunity to grow and expand our business with the goal to deliver long-term, sustained, profitable growth. Now, let me turn the call over to Voin for further discussions on our performance and outlook.
spk09: Thanks, Sharon, and good morning, everyone. We are pleased with a strong start to our year and the robust momentum we have in our business. These results reflect the affinity consumers have with the Build-A-Bear brand and the progress we have made towards our strategic goals, including leveraging our elevated digital platform and competency to transform our omnichannel capabilities. We believe that pent-up demand and stimulus programs in the U.S. positively benefited our business. Throughout the period, we saw improving traffic and sales trends in our brick-and-mortar locations across the U.S. as the quarter progressed. Our stores in the United Kingdom and Ireland were closed for the majority of the quarter, with reopenings starting on April 12th. Sales in those locations have been meeting our expectations. As Sharon noted, thus far in the second quarter, we have maintained strong momentum. Moving now to a review of first quarter results. total revenues were $91.7 million, a 96.7% increase compared to $46.6 million in the first quarter of fiscal 2020. For added perspective, compared to the first quarter of 2019, which wasn't impacted by the pandemic, total revenues increased 8.7%. We delivered growth in total revenues even as our European and Canadian stores were temporarily closed for majority of the quarter due to COVID restrictions. Separately, our net store count decreased by 14 stores at the end of the period compared to the prior year due to least events. Gross margin profit was significantly higher compared to prior year as strong sales growth leveraged fixed occupancy expense. In fact, the margin rate was the highest percentage in Build-A-Bear's history for first quarter results. Rent expense was lower year over year as we benefited from more favorable lease terms that were negotiated starting in 2020 with the onset of the pandemic. We also saw expansion in merchandise margins. also the highest ever during the first quarter, driven by strong initial markup and lower promotional activity. As a reminder, the fiscal 2020 first quarter included full occupancy costs for 13 weeks, while we only had sales for six weeks. On a two-year basis, a retail gross margin expanded 750 basis points versus the first quarter of 2019. SG&A was $35.2 million, up $8.5 million from the first quarter of fiscal 2020, driven by increased salary expenses given the reopening of our store base. As a reminder, at the end of the first quarter in 2020, the majority of our workforce was on furlough and corporate salaries for the remaining associates had been temporarily reduced. On a two-year basis, SGA as a percent of sales improved by 400 basis points. We delivered the highest level of pre-tax income for the first quarter in Build-A-Bear's nearly 25-year history with $13.2 million. On an adjusted basis, pre-tax income was $12.3 million. This compares to pre-tax loss of $18.7 million in the prior year's quarter and to pre-tax income of $2.4 million in the first quarter of 2019. Turning to the balance sheet, we ended the first quarter with cash and cash equivalents of $45.9 million with no borrowings in our credit facility. Strong business performance and profitability improvement helped drive the $24 million increase in cash. Our cash balance is partially benefiting from timing of inventory receipts and deferred rent payments for 2020 obligations that were pushed out to this year to preserve cash during the pandemic. Also, the cash balance is benefiting from timing of capital expenditures. During the quarter, we spent about $500,000 versus $2.8 million in last year's quarter. Our current plan includes capital expenditures in the range of $5 to $10 million for the fiscal 2021. The surge in demand across channels in the first quarter caused us to end the period with inventory down $9.5 million, a reduction of 17.8% from the 2020 first quarter. We have accelerated inventory receipts in order to support the anticipated strong demand. While we have experienced some challenges with our global supply chain, our goal is to minimize the impact of product and transportation cost increases, logistic disruptions, and delays in product shipments. Based on the strong first quarter performance and positive trends and outlook, we are raising our profit expectations for fiscal 2021 EBITDA and introducing total revenue guidance. For fiscal 2021, we currently expect EBITDA to be in the range of $28 to $32 million. This is an increase from our previous guidance, which was to exceed fiscal 2019 EBITDA of $15.3 million. Our updated expectations include appreciation and amortization in the range of $13 to $14 million. We are also adding insight that we expect total revenues for fiscal 2021 to be above fiscal 2019 total revenues of $338.5 million. Specifically related to our second quarter, as noted in our press release, sales trends have remained strong and we expect total revenues to exceed both 2020 and 2019 levels. As a reminder, In fiscal 2020, e-commerce was our only channel of revenue for the majority of the period due to temporary store closures. Combined with the launch of several highly anticipated licensed products, we had online growth of 299% compared to the fiscal 2019 quarter. With that in mind, although we believe e-commerce demand will be strong for the full year, In the second quarter, we expect demand to be essentially flat to 2020, maintaining a triple-digit increase over 2019. This outlook assumes no additional significant negative impact from the pandemic, such as prolonged store closures due to government mandates. Please keep in mind that while we expect to see annualized savings from expense reduction initiatives implemented in fiscal 2020, Our plans reflect higher payroll and marketing expenses as salary levels have been reinstated to pre-pandemic levels. Furloughed employees have returned, and marketing activity has expanded to drive sales growth. In closing, we are pleased with our financial and operational performance in the first quarter and believe the momentum of our business and progress against our initiatives position us well for the remainder of the year. This concludes our prepared remarks, and we will now turn the call back over to the operator for questions. Operator?
spk08: Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one at this time. One moment while we pull for our first question. Our first question comes from Eric Bede with FCC Research. Please proceed.
spk03: Good morning.
spk02: Congratulations.
spk03: Good morning, Eric. Thank you.
spk02: So we're getting back to normal here in this space. How do you look at the potential to eventually add parties to the mix and the potential to see gains from movies coming out as being part of the mix again.
spk07: Thank you, Eric. Well, as we have carefully done throughout the pandemic, we follow the CDC guidelines and balance that with our own needs from a business perspective and the oversight of the safety of our guests. and our associates. So we're carefully, as we would and as we have, assessing the party business because clearly that gathers groups of children together and adults, and we just have to be mindful of that. I think, you know, that we're looking out into the future. We would expect to see parties, assuming everything stays the same and there's no resurgence of the pandemic, I think we'll start to see parties trickle back into the system later this year. We have not specified date yet. And it may depend on the size of the store. So, you know, we'll be rolling them out based on, again, the CDC guidelines of distancing and ensuring that We can meet the needs as well as not disappoint other guests that are there to participate in Build-A-Bear, given our higher demand for natural traffic, that we can service them appropriately at the same time. So there's a lot of levers. It seems so simple, just flip the switch and start having parties, but there's a lot of complexity involved, and we thus far have been, I think, diligent and prudent, and it has served us well. On your question about the movies, we're certainly looking forward to a lot of these films that we've already had. As we mentioned, we have these best-in-class license relationships. Some of these films that were planned were planned for 2020 and 2021. They've been pushed out. We've been in relationships with these guys for a long time. We already have all the products developed. In some cases, some of the product made. So we're looking forward to it. And I think we're going to have to be, again, mindful. I'm not sure anyone's willing to take the big bet on how many people are going to go out to see, you know, go straight to the theaters, particularly with children. But I think that either way, our partners will find an approach, a marketing approach that makes the characters appealing and exciting. And, you know, this is right in our wheelhouse of knowing how to optimize. So we're looking forward to that.
spk02: Great. And one more. So last year, Baby Yoda was a huge success. It went from online to stores and it's still doing well over a year plus into it. When you look at Animal Crossing, does that, you've started to, still online, you can order it in stores. Is that kind of regression that we found with Yoda and where it moved and how successful it's been, do you believe that is kind of what we'll be seeing with Animal Crossing and do you believe that franchise has the ability to be something like a Pokemon or a Yoda that has a tremendous life to it as opposed to kind of a movie, which is a little bit shorter.
spk07: Well, sometimes the films are what we call spiky and sometimes they have long tails. It really depends on the franchise. So I can't categorize that all movies act this way or that way. You know, because sometimes the movie itself becomes a franchise. Star Wars is a great example of that. For Yoda, which is an adjunct product, actually, of Baby Yoda, Grogu, to the Star Wars franchise, that has maintained some of the excitement because the Mandalorian continues to have new, you know, had continued to have new episodes. So as long as, you know, the Lucasfilm believes that there's potential and opportunity with the Mandalorian series, you know, I think we could expect to see some business associated with Grogu. In fact, one of our top-selling graduation gifts this year was a Grogu with a, you know, congratulations 2020 grad sash. So, you know, he's very stretchable. Your second question about Animal Crossing, very different, right? It's not that you're sitting waiting to see some piece of entertainment. That's an always-on type of quote-unquote entertainment, the gaming side, that people have tremendous affinity for. They relate to these characters and play with them in their own world. And out of the gate, we were very pleased with Animal Crossing. and certainly expect that that will have a long tail as well. So we're pleased about both of these types of properties, and it's the balance of management of the spiky kinds of movies, the relationships with these franchise types of entertainment properties, as well as now These great, what have turned into being long-term relationships with the gaming side, like a Pokemon, that gives us balance across the licensing side that has aided us in being able to create a smoother curve and plan out years in a better and more effective way. Now, will Animal Crossing become a Pokemon? Pokemon's got multiple decades behind it. That's certainly hard to say. But thus far, we're very pleased with it. Thank you for the question.
spk02: Great. Thank you, and good luck for the rest of the year.
spk08: Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad. Our next question comes from Dave Cannon with Cannon Wealth Management. Please proceed.
spk11: Good morning, guys. Congratulations. Thanks, Dave. Good morning. Also, you know, let me add congratulations to some of your team members, and I'm not omitting anyone on purpose, but I know Jen and Chris are a big part of helping execute, and I would just like to express my gratitude and acknowledgement of their efforts in doing a great job, all of you guys. So first question, do you guys at this point have a specific initiative to go after the pet gifting market? Do you have a dedicated product for that with a ruggedized or durable shell, so to speak?
spk07: We certainly haven't announced anything like that or shared anything like that, David. There's nothing in the public forum concerning that.
spk11: Okay. So my question is, is this an initiative that you're eyeballing and is in the works?
spk10: Let me rephrase it.
spk07: We haven't announced anything specific about any sort of strategic initiatives concerning pet products in the public forum.
spk11: Okay. And then if I can, I guess a similar category would be non-fungible tokens, NFTs. You know, right now, a lot of buzz, halo effect there. It seems like this is an opportunity for you guys. Are you evaluating it? Is this something potentially that you will look to monetize?
spk07: Although we have not shared anything like that in the public forum as well, I'm happy to tell you that we've spoken with some experts in the arena to assess the value of NFTs, the way they operate, and whether that makes sense for Build-A-Bear and Build-A-Bear's type of assets.
spk11: Mm-hmm. Okay, and then can you give us an update on your 3D e-commerce initiative?
spk07: As we shared in the January ICR deck, we have expectations to launch what we call the Bear Builder 3D in 2021.
spk11: Okay, and then, but this is quick, I'm just whipping off questions here. Okay. So the next one is third party retail, obviously, you know, with, uh, forced closures and so forth, it could not have contributed much. Uh, can you tell me what's your expectation in terms of the cadence of that ramping back up throughout the year? And, uh, I believe third party was what, like 2.5 million for the quarter. Where do you see it ultimately settling when things go back to normal?
spk07: Well, we wouldn't, you know, normally provide specific projections on individual revenue generating areas, but the third-party retail is in, depending on the partner itself, it's in different places in its evolution post-COVID. Great Wolf Lodge is already open and doing quite well. And, of course, you know, as a complete opposite, Carnival Cruise Line still is, you know, they're still in the process of preparing their ships, and I know that they have started to announce some expectations of when they will start going on cruises again, and we would anticipate participating in those cruises when they do start to embark. So, we're excited about that, and Boynton, if you'd like to add any color on that, it'd be fine.
spk09: We covered a lot. David, you know, this is one of those asset-light initiatives that, you know, we are definitely very well prepared aware of and like we continue to work to try to find additional partners. But, you know, again, with the COVID delays and impact, some of these things have slowed down, but definitely this is one of our high priorities for the organization.
spk11: Okay, I guess what the way I'm looking at it is, even though the quarter was phenomenal, it was really with very little contribution from third party retail with two and a half million dollars. What was your peak? What I'm driving at is this is going to be incremental as we work through the year and into next year as things go back to normal. So what were your peak quarterly revenues in third-party retail prior to the pandemic?
spk09: I mean, it's a little bit hard to answer that question because, you know, like really when you initiate some of those relationships and you have some of the initial orders and shipments and you are rolling things out, there are some spikes that we are seeing. Definitely on a full year basis in the past we have seen, you know, like that business was pretty big and, you know, like that information is available publicly. We believe with some of those things, as things return back to normal, and as Shantok, like when Carnival Cruise, that is a big portion of our lineup of third-party retail locations reopens, and assuming they have same number of ships sailing, that we are going to be able to get back to some of those numbers that we had shared historically. But then again, it's just going to depend on some of these partners and how well their business is, as a lot of them are in tourist locations. And so this is where unfortunately the COVID is impacting not as directly, but indirectly through some of these partners. And as I mentioned, we are going to continue to look at ways to grow this channel through different partners. But again, there is nothing more that I can share at this point in time.
spk11: Okay. I'll go back and I'll research it, what your peak was. The final item on my list here, it's more of a comment to the board. Even though our stock has gone up quite a bit, when I assume an $11 stock price and then back out the cash and using 31 million of EBITDA, we're trading at like 4.25 times EV to EBITDA. CapEx is coming down. We're positioned to generate very substantial free cash flow. To me, it makes sense to actually buy back our stock here. Now, I know psychologically, seeing it go from 3 to 11, one would have a knee-jerk reaction and say, oh, no, it's up a lot. But the valuation is so low, and it would be so value accretive. So just a commentary for the board, being that I think at this point we're somewhat overcapitalized. and well-positioned, and frankly, I think your EBITDA guidance is very low. I think you're going to easily exceed it. So anyway, again, congratulations, and thank you for your hard work, and I look forward to next quarter.
spk08: Thank you, David.
spk10: Thank you.
spk08: Thank you. At this time, I would like to turn the call back over to management for closing comments.
spk07: Thanks to everyone for joining us today, and we look forward to seeing some of you on Zoom during our meeting at the COUN conference later today and tomorrow during a fireside chat with D.A. Davidson. Have a great day.
spk08: Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
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