Build-A-Bear Workshop, Inc.

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.

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.

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.