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spk03: Greetings and welcome to the Build-A-Bear Workshop Second Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Alison Malkin of ICR. Thank you. Please go ahead.
spk01: Good morning. Thank you for joining us today. With me are Sharon Price-John, CEO, and Voyn Tovorovich, CFO. For today's call, Sharon will begin with the discussion of our second quarter fiscal 2021 performance and our outlook for the year. After, Voyn will review the 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 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 this 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. With that, I would now like to turn the call over to Sharon.
spk04: Thank you, Allison. Good morning, everyone, and thanks for joining us today to discuss our results for the second quarter of fiscal 2021. We're pleased to have delivered the highest profit in our history for our second quarter, coming on the heels of a record-setting profit in our first quarter. Accordingly, in fiscal 2021 thus far, we have achieved the highest profit for our first half in our company's nearly 25-year existence. We believe these results reflect momentum that has been building from the execution of our stated strategy, agility to adapt to a rapidly evolving environment, and ability to accelerate key initiatives to drive sustained profitable growth, while recognizing that the business is also benefiting from pandemic-related factors such as pent-up demand and stimulus funds. I continue to be proud of our team across all areas. From corporate, where we continue to work from a virtual environment, to our store associates enthusiastically engaging with our guests, and to those working in our warehouses to move inventory and fulfill orders, our associates have remained nimble and dedicated to our mission to add a little more heart to life. While we remain appropriately cautious given the uncertainty in course changes due to COVID-19 and its impact on consumer mobility and the supply chain, We began third quarter with continued strength. We're excited about the opportunities that lie ahead to continue our favorable performance in the second quarter, in the second half of the year, which is reflected in the upward revision in annual guidance that was announced this morning. The quarter's results were outstanding. Total revenues were $94.7 million, up 135% from 2020 and up almost 20% from the fiscal 2019 second quarter. reaching the highest level in over a decade. Our brick-and-mortar stores were predominantly temporarily closed last year, so the comparison to 2019 isn't relevant, showing the strength that is coming from this channel, including the benefit from our enhanced omnichannel capability, such as buy online and either ship from store or pick up in store or same-day delivery with our relationship with ships. While e-commerce demand was up by 159% over 2019, digital demand declined by 28% compared to fiscal 2020. While we had previously noted and anticipated a decline in our prior year's digital demand, which had been buoyed by temporary store closures and the online exclusive launches of some powerful licensed properties, the decrease was greater than expected, driven by disruptions in the supply chain and delayed launches a select e-commerce product. Second quarter gross profit margin improved by 53.2% of total revenues. Our higher margin reflects the benefit of ongoing lease negotiation, leverage of fixed occupancy expense, and a triple-digit expansion in merchandise margin compared to 2019. And we delivered pre-tax income of $9.5 million. the highest pre-test profit in the second quarter in our company's history, an improvement of over $20 million from the loss we incurred in last year's second quarter, and an increase of over $10 million from the fiscal 2019 second quarter. As we've previously shared, we remain focused on our strategic priorities for the year, which are centered on three key areas. First, further acceleration of our digital transformation, including content and entertainment initiatives. Second, rapidly evolving our retail capabilities and experiences, including omnichannel and significant expansion of our e-commerce capacity. And finally, leveraging our solid financial position, including a strong ballot sheet, to support our business and enable us to make strategic investments designed to drive further growth and increase shareholder value. 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 platform to inform and drive marketing and content efforts. We believe that the positive multi-year e-commerce demand trajectory that we have achieved demonstrates that we are making progress in this area. In the second quarter, we continue to leverage gifting moments and occasions, including Mother's Day, Father's Day, as well as graduations, and Just Because. We believe our investment in an expanded digital platform is enhancing our ability to diversify and grow consumer segments during these multi-generational gifting opportunities. We continue to invest in platforms to expand our capability to fuel demand across all channels, We are driving positive sales results through new and enhanced use of cloud-based technology that we initiated in 2020 and continue to refine. We are able to more effectively target new guests to drive initial transactions as well as connect with existing guests by providing personalized offerings based on individual buying and engagement habits. As we continue to focus on accelerating our digital capabilities, We recently invested in an additional loyalty suite with Salesforce, which we expect to allow us to further leverage our millions of active bonus club members to drive repeat visits and increase household lifetime value, as well as add new members to the database. We expect to implement this new technology by early next year. In addition, we continue 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. We look forward to the upcoming launch of our new live-action feature film, Honey Girl, starring Grammy Award-winning multi-platinum artist Ashanti and digital media star Tessa Brooks. The movie, inspired by our historically successful, top-selling Honey Girl product line, is expected to be released in late October in conjunction with Sony Worldwide Pictures' acquisitions. We plan to leverage the buzz and interest to drive demand and affinity for an updated range of merchandise, as well as speed traffic to shop both online and in stores. Our second initiative, which is to rapidly evolve our retail capabilities, continues to show progress. We are offering consumers more ways to connect and are meeting their changing needs by driving omnichannel engagement and expanding delivery choices. which we believe is contributing to our positive sales trends. Our North American stores and our United Kingdom stores were predominantly open throughout 2021 second quarter. While traffic continued to trail historical levels, we drove higher transaction values that were approximately 20% up across geographies compared to 2019. Our results included strong sales growth in many of our tourist locations, which has been a strategic priority in the evolution of our real estate portfolio. With this in mind, we recently opened several new stores in tourist locations, including Icon Park in Orlando, Pier Park in Panama City, and in the River Center along River Walk in San Antonio. In addition, we continue to leverage the strong strategic optionality that we have maintained across our real estate portfolio with 70% of our leases having a natural lease event in the next three years to give us flexibility to optimize our corporately managed location. Our goal is to maintain a strong store base that contributes to our overarching strategic objectives, including supporting our expanded omnichannel capabilities and creating memorable relationships with our guests. We also have seen some stability return to our third-party retail model, which includes workshops at Great Wolf Lodge, Beaches Family Resort, and Carnival Cruise Line, which recently began a staggered return to operations. The third-party retail model allows us to expand in a cost-efficient manner, with each partner typically funding the capital investment to open their location, while also managing the operations of the store inventory, and staffing. As for our third priority regarding the company's financial health, we ended the quarter in a position of strength with a strong balance sheet and cash nearly doubled from a year ago. As it relates to our cash and strategic priorities, we continue to evaluate initiatives that would enable a more rapid acceleration of our key programs and investment opportunities to grow our company. At this time, we have elected to maintain flexibility and optionality as we navigate newly emerging headwinds from the ongoing evolving pandemic. As we look to the back half of the year, we are planning the annual celebration of National Teddy Bear Day in September with an event that will last the entire month and feature a sweepstakes that is designed to further add to our contact database and drive interest in our new product line. Following that, we have an expanded Halloween collection, which we expect to build on the success we saw last year. And the fourth quarter brings the highest demand of the year for gift-giving products for all of our consumer segments. We have a positive outlook for the back half of the year, but do want to voice some caution given external macro variables, such as inflationary wage pressure and supply chain disruption. We continue to closely monitor these issues and have made proactive moves including accelerating inventory purchases, select price increases, and updated employee recruitment and retention plans. As we look forward to building on the success that we are seeing in 2021 in order to achieve our goal of sustained profitable growth, we remain focused on our stated strategy and key initiatives. We expect our growth to be fueled by several factors including Accelerating and expanding our digital transformation, giving us additional capability and enabling our company to more aggressively participate in the digital economy. Our innovative gift-giving products and enhanced marketing tools allowing us to reach a broadened consumer base more efficiently. Our best-in-class license relationships that drive interest from engaged affinity segments. Our ability to leverage a high level of lease optionality and and multiple store expansion opportunities, including diverse formats and models, such as our third-party retail option. Our ability to leverage the emotional connection that consumers have for our brand, including the use of content and entertainment, such as the Honey Girls movie, coming in October to keep interest high with consumers. And finally, a solid financial position with a strong balance sheet to support incremental growth as we move forward. In closing, we are optimistic about our business trends with continued strength in our third quarter to date, as I noted earlier. We have again raised our profit guidance and look forward to fiscal 2021 year end. We are pleased with the progress that we have made and look forward to continuing to leverage our strong brand appeal to our broad and diverse base of consumers across multiple channels. Now, let me turn the call over to Voin to review our financial results in more detail.
spk07: Thanks, Sharon, and good morning, everyone. We are very pleased to continue to build momentum as we deliver second quarter profit at the highest level in our history. Combined with our record-breaking first quarter, we were able to report the most profitable first six months ever for our company as well. total revenues, gross profit margin, and operating income showed solid improvement compared to the pre-pandemic levels in the 2019 second quarter, further demonstrating the validity of our strategy supported by the focused execution of key initiatives by our team. As Sharon noted, as we look at the balance of the year, we are appropriately cautious given the uncertain path of COVID-19 and potential headwinds stemming from supply chain disruptions. However, our strong first half performance and continuing positive trends give us the confidence to further increase our guidance for total revenues and EBITDA for the 2021 fiscal year, which I will discuss in more detail in just a minute. First, let me give more detail for our second quarter results, which include comparisons to both the 2020 and 2019 second quarters due to temporary COVID-related store closures last year. Total revenues were $94.7 million, a 135% increase compared to the second quarter of fiscal 2020 and a 19.6% increase compared to 2019. We are pleased to see this strong growth partially fueled by pandemic-related factors, but we believe also reflects the ongoing affinity that customers have for our brand and their desire to engage in hands-on and personal experiences. Our sales growth was primarily driven by an increase in average transaction value, which grew over 20% in North America compared to the 2019 second quarter and reached the highest level for a second quarter across geographies. Gross profit margin of 53.2 percent was significantly higher than the prior year's results of 18.7 percent and 44.1 percent in the second quarter of fiscal 2020 and fiscal 2019, respectively. The strong growth in total revenues allowed us to leverage fixed occupancy expense, which benefited from renegotiated lease terms, which started to take effect in 2020. Our merchandise margin also expanded, driven by both lower discounting and higher markup rates on certain products as we selectively raised prices to mitigate ongoing supply chain and inflationary pressures that we anticipate being headwinds for the foreseeable future. SG&A dollars increased compared to both the 2020 and 2019 second quarters. However, SG&A as a percent of total revenues improved to 43.2% versus 53.3% last year and 45.1% in 2019. The increase in SG&A dollars compared to prior years was driven by higher store labor expenses given the reopening of locations and expanded operating hours. We also recorded full corporate salaries this year as opposed to fiscal 2020 when pandemic-related cost containment initiatives included temporary wage reductions. In addition, the change in SG&A reflects an increase in variable costs driven by sales growth initiatives inclusive of higher marketing spend and funding of performance incentive programs. Notably, we delivered the highest second quarter pre-tax profit in our company's nearly 25-year history of $9.5 million. This compares to a pre-tax loss of $14 million in the prior year's quarter and to a pre-tax loss of $742,000 in the second quarter of fiscal 2019. Accordingly, with record-breaking first and second quarter profit, we have had a very successful first half. for the first six months of fiscal 2021. Total revenues were $186.4 million, an increase of 114% compared to the first six months of fiscal 2020 and 14% versus the first six months of 2019. Pre-tax income was $22.7 million, an improvement of over $50 million from the pre-tax loss recorded in the first six months of fiscal 2020, and $21 million increase compared to the first six months of fiscal 2019. And EBITDA was $28.8 million, an increase of $55.3 million compared to the first six months of fiscal 2020, and an increase of $19 million compared to the first six months of fiscal 2019. Turning to the balance sheet, we ended the second quarter with cash and cash equivalents of $51.1 million with no borrowings on our credit facility. Our cash balance is somewhat inflated from timing of inventory receipts and capital expenditures. At quarter end, inventory was down $8 million a reduction of 14.4% from last year's second quarter. We have proactively accelerated the timing of our placements and increased quantities for core products and evergreen merchandise collections to support our business momentum and as part of our efforts to mitigate ongoing supply chain disruptions. Assuming no additional material COVID impact, either in factories, logistics, consumer sentiment, or store operations, we are targeting to have increased inventory levels compared to the fiscal year ends of both 2020 and 2019 to meet our anticipated business needs. In addition, our use of capital will continue to focus on investments supporting initiatives that are expected to generate a strong return in support of our strategy. For the first half of the year, our capital expenditures were $1.6 million, and we continue to expect to invest close to $10 million on a full year basis, again, assuming there are no additional significant COVID-related disruptions or delays in availability of goods and services. Also, as our performance expectations improve, we are anticipating making cash tax payments this year. Based on our strong second quarter performance and positive trends, we are raising our guidance for total revenues and EBITDA for fiscal 2021 as compared to what we shared in conjunction with our first quarter earnings release on May 26th. Specifically, we currently expect total revenues to be in the range of $375 to $385 million which represents an increase from our previous guidance for fiscal 2021 total revenues to exceed fiscal 2019 total revenues of $338.5 million. And EBITDA to be in the range of $45 million to $50 million, an increase from our previous expectation for EBITDA in the range of $28 to $32 million. In addition, we continue to expect depreciation and amortization in the range of $13 to $14 million. As it relates to our third quarter, as noted in this morning's press release, sales trends have remained strong, and we expect total revenues to exceed both 2020 and 2019 levels. Debt growth is coming from the recapture of sales in our physical stores, which, as I have noted, were partially closed last year. We expect our third quarter e-commerce demand to remain flat with last year's third quarter, while still representing a triple-digit increase over 2019. We expect to have higher overall expenses driven in part by higher payroll and marketing costs resulting from temporary reductions in last year's third quarter to mitigate COVID closings. The third quarter is generally our smallest quarter of the year and is and is historically typical, we currently expect to have a pre-tax loss in the period. Our full-year guidance 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 guidance includes the impact of higher payroll and marketing expenses to support the current business and drive growth. Accordingly, our guidance also reflects funding of performance-based incentive programs as well as projections on inflationary pressures from product, trade, and minimum wage increases. In closing, we are pleased with our record-setting first six months and our momentum so far in the third quarter. We remain focused on accelerating the execution of key strategic initiatives, and we are confident that we are in a position to achieve our goal of long-term, sustained, profitable growth. This concludes our prepared remarks, and we will now turn the call back over to the operator for questions. Operator?
spk03: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. 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. We do ask that you please limit yourself to one question and one follow-up. Again, that is star 1 to register a question at this time. Our first question is coming from Eric Beder of SCC Research. Please go ahead.
spk06: Good morning. Congratulations on a great quarter. Thank you, Eric. Thanks, Eric. When you look at – I'm going to ask it differently. So you've obviously picked up a lot of customers here, and there was tremendous pent-up demand from COVID. How do you feel about converting that first-time customer into a many-time customer going forward, and how do you look upon that as an opportunity here?
spk04: Thank you for the question, Eric. You are correct. As we noted in the prepared remarks, we do believe that this is a combination of factors that are driving this growth. Yes, there is some impact of the pent-up demand and stimulus funds, but we do believe that some of the fundamental changes that we've made in the business from infrastructure, particularly IT, technology, commerce, opening up our ability to ship from stores, much of what was implemented over the course of years. And interestingly, we flipped the switch on the final portions of some of this with warehouse management system and the new Salesforce relationship in February of 2020. All of that has enabled us to manage this in a very interesting way where it's almost as if it's synergistic. So yes, people are coming back into our stores, but we have all new ways to capture and enhance that relationship with them and new opportunities, whether it's journeys or loyalty programs to re-engage them to drive that lifetime value. Now to answer your specific question with all of that background, It depends is the answer. Some of these more traditional consumers that we have that might be in the 60% that are 12 and under, we will use a lot of our traditional ways and know what they shopped for before, why they came into Build-A-Bear for the first time, how to re-engage with them based on what property they may have purchased or when they're perhaps even if they've provided this information through our Loyalty data when their next birthday is. On the adult side, the 12 plus, the 40% that are teens, tweens, and adults that are shopping us, that really depends on some of the affinity products. If they're, for example, a Pokemon fan, it's highly likely that they will re-engage with us. There's a lot of data about the collectability of that particular line. If they are engaging with us in some of these new gifting programs, adult-to-adult giftings, We're still learning and evolving on how we then get them to engage with us in the next gifting opportunity. Working to shift in the mindset of Build-A-Bear as an optional gift for a wide variety of reasons. And that's a lot of our internet efforts that we're making to push Build-A-Bear as an option sort of in a competitive realm of other natural gifting opportunities. Interestingly, this past year, because people were separated, Build-A-Bear has served as a, as I mentioned in the remarks, a just-because gift. Just people wanting to reach out and send a little bit of heart to someone and let them know that they're thinking about them. And we believe that that is a big opportunity for us going forward.
spk06: Great. And just a follow up here. So, you know, the third party business, national franchising, those seem to be a little bit more of a lagging indicator than what you're seeing at the stores. Should we be thinking about going forward? Those opportunities are going to become much more, if COVID stays the way it is, much more, you know, something more aggressively to pursue as, you know, they start to ramp up once again?
spk04: Yeah, and it's a bit bifurcated, Eric. Great Wolf Lodge is tracking not that differently from the rest of our fleet. And Carnival Cruise Lines, for obvious reasons, is just now sort of getting this staggered launch up and running. But COVID aside, the third-party retail opportunity is, we believe, quite advantageous for us on a number of fronts. not the least of which is the lower capital required to roll out new locations and create new guests and new memories and new loyalty members as the next generation gets to experience Build-A-Bear. So we have a few things that we are working on all the time on how do we take this opportunity and drive that low capital expansion of our experience in the right types of locations, which tend to be tourist destinations.
spk06: Great. Good luck to the back end.
spk03: Thanks so much.
spk06: Thanks.
spk03: Thank you. Our next question is coming from David Cannon of Cannon Wealth Management. Please go ahead.
spk05: Good morning. Congratulations. Excellent quarter. Thank you, David. So a couple questions. First, for the back half of the year and for next fiscal year, do we have any, quote, transformational initiatives? So far, you guys, as I see it, have done a better job of executing on things that we've done all along. Is there anything new? And what I'm referring to would be the enhanced website that you've alluded to in the past, you know, that incorporates virtual reality components, potentially getting into the pet gifting category and or crypto NFTs. Or if there's something that I'm missing, if you could call that out.
spk04: Thanks so much, David. Appreciate the question. We have been very focused on three initiatives as we've highlighted on driving our strategy. The first initiative is acceleration of the digital transformation. And as a part of that, yes, we're always looking for ways to engage with consumers in new and different ways and advance the interconnectivity and engagement and experience levels. even on e-com because that's really the core of who we believe we are as a brand since we're often getting credit for reinventing experience retail almost 25 years ago. So with that in mind, as a matter of fact, we actually are in the soft launch of the Bear Builder 3D, which we did announce was expected to launch this year on our ICR, I believe in an ICR deck earlier this fiscal year. And feel free to go online right now. We're soft launching to make sure that we pick up any of these. It's really an advanced technology with a lot of great partners. So we're working through it to make sure that it is seamless and exciting and fun. If you go online, you can find the Bear Builder 3D on your laptop desktop on the upper right-hand corner. And if you're on your phone, you'll have to – I have to click, sorry for the e-com language on the hamburger, to get it to pull up. So feel free to experience it and let me know what you think. On the other front, you know, continuing to evolve and do things transformational, you know, this last year, 2020, was the first year for us to have buy online, ship in store, buy online, pick up in store, buy online, and have it delivered in the same day. So they're all a part of a broadened approach to initiatives where we can meet the consumer where they want to be met and where we can meet the needs of a broader range of consumers. We believe that Build-A-Bear, being multi-generational now, has the opportunity to engage with a much, much broader addressable market for many more occasions. And all of these different mechanisms, we believe, are allowing us to be able to do that more efficiently and effectively.
spk05: Okay, so really the only thing that is new in terms of potentially transformational is the 3D Build-A-Bear, which is being launched currently. You're doing a soft launch right now. There's nothing else potentially transformative. Another thing I would mention is a new large national chain for third-party retail. I would view that as transformational. but you don't have anything else like pets or, um, you know, crypto, crypto pets, you know, crypto plush NFTs. None of that is currently in the pipeline for this year or next year.
spk04: So, you know, David, again, you know, the third party, we have noted, we agree with you. We believe that's very, um, important to us. I just noted on the remarks, you know, that we are always looking for good, good partners. We're, um, And we believe that there is continued opportunity and that it's a very efficient model for us. From a transformational perspective, we're very excited to be able to launch a brand-new movie with Sony that is highlighting one of our own intellectual properties called Honey Girls with multiple Grammy award-winning artists and brand-new music. We believe that that has an opportunity and the continued relationship with our multidimensional, multi-year deal with Sony Pictures worldwide acquisition has clearly an opportunity to be transformational as well and pushing into all of our other entertainment and content efforts. And NFTs, as we noted on the last call, it is something that we are looking at. And the assessment, we're working with some outside companies on the assessment of the validity of that and how we would execute that within the Build-A-Bear properties.
spk05: Do you have an aversion to making toys for pets? Is that something that you think is not effective use of your time, or is it something that you're interested in?
spk04: David, I'm so glad that you asked that question as well. I apologize, please, for not answering in the previous response. We actually are launching a... a new headline in conjunction with a license relationship where we're not privy to speak about it in detail yet. Thank you.
spk05: Okay. Glad to hear that. Good luck and look forward to chatting on the next call.
spk03: Thank you. Once again, that is Star 1. If you would like to register a question at this time. Thank you. Our next question is coming from Greg Cohen of Rambleside Holdings. Please go ahead.
spk02: Hi, Sharon. Congrats on a great quarter.
spk04: Thank you. Really appreciate it.
spk02: I just have one question on capital allocation. By my math, our enterprise value is roughly $250 million. And the guidance actually seems like it might be conservative given the fourth quarter holiday season being a very strong one for this company. And so given the valuation could be as low as four times EBITDA and we have a significant cash balance, no debt, And it seems like our CapEx is very light. So my question is, do we have any plans to return capital to shareholders in the form of buybacks or anything that would be accretive to earnings per share?
spk04: Yeah, I'll start in going to anything if he'd like. Yeah, we agree. And clearly we're twice the cash balance as we were last year. We also pointed out that You know, some of that is moment in time where we have a few things that we're going to have to pay to bring that cash balance down with the payment of inventory that's still moving in, some changes, some pressures on the cash in the back half, as well as some of our delayed rent payments. But for the most part, absolutely understand your point. We, as always, work with our board of directors to assess proper capital allocation and look at different options on many of the things that you've pointed out. And as you know, we have in the past implemented buyback programs and do believe in those types of programs to return shareholder value. And I think, though, one of the notes that I had included in the prepared remarks As of this moment, with some of the additional wrap-up of new COVID issues, we do want to stay very fiscally responsible until we understand exactly what is, what's in the future, what the future holds. And I think that we all have learned if we, I think we can agree that it's very difficult to predict how these types of things, unfold and all of our recommendations and all of our current, even our changes in our guidance, are isolating any ongoing or acute COVID impact. So we really want to stay prudent on that front. And I don't know, Boynton, if there's anything you want to add.
spk05: I think you covered it really well.
spk02: Okay, great. That's helpful. and I guess kind of the second question as a follow up to that would be, um, you know, obviously the, the, um, the stock prices is two components, right? It's, you know, it's earnings per share, EBITDA per share, and obviously the multiple that would be applied to that. Um, and, and I think, you know, one of the reasons why, we traded such a low multiple. I mean, this is, this is frankly one of the cheapest stocks, I think in the entire stock market. Um, and when you layer on the significant growth that we're seeing, the significant profitability, the significant margin improvement, um, and all these, these good, these good factors, it's, it's actually shocking that we're trading it at such a cheap price. And I guess, My question is, why do you think that is? I think one of the other callers alluded to the fact that we haven't made at least any public announcements in some of the more progressive, forward-thinking digital monetization tools such as NFTs. which you're seeing in similar consumer brands, obviously Playboy being one, Funko being another. So that's just my personal view because otherwise I can't figure out why we're trading at such cheap multiples. I'm curious what you think about why the market is sort of undervaluing the company or misunderstanding the significant value capture opportunity at these levels. Thanks.
spk04: Yeah, again, I'll start with this and open it up. First, I think that the market looks for consistency and deliverables. And we have had a goal for many years of driving sustained profitable growth. And I think a lot of companies have been somewhat challenged. We've had some issues with that over the past few years, as you know, whether that's with the significant contraction of traffic to mall-based retailers. And we've had to go through this really dramatic transition of our retail evolution, e-commerce evolution, and we had to rebuild our entire infrastructure to get to this particular point. And now you're starting to see that consistency. and you're also starting to see some revenue growth, which I know that that has been something that the investors have been looking for. So we're really excited about that as we believe we're expanding the potential addressable market, as I shared with you, and also being able to get that addressable market to have a longer lifetime value. So there's multiple fronts and levers. The second piece of that on the multiple fronts, we believe that – that our evolution to be more of a branded intellectual property company versus quote-unquote just a retailer should be able to drive us toward a higher multiple range if you look at like companies. That is the endeavor into a lot of this entertainment and content type of business where there's a different approach on how intellectual property is valued. So I think we have to show that consistency, and we need to be able to provide some proof points of this hypothesis. Even though we believe we've shown some proof points in the hypothesis, I believe that the consistency on top of that would likely provide some data that perhaps could provide a little more confidence for the investment community on both front points.
spk07: Yeah, so great question. And again, over the last several years, we have done a lot from the transformation perspective and diversification, especially as we think about our web business. And, you know, like when Sharon and I joined the company, our web business was like in low single digits as a percentage of total revenue. Now our web demand, it's a significant portion. So even when we are talking about the diversifications of revenue channels, significant change. When we think about, uh, third party revenue and getting that asset light model, the different multiple, different valuation, definitely that's been one big area of focus for us. As Sharon talked earlier about entertainment, all these different revenue streams do have different multiples, but again, that's still the biggest chunk of our revenue. It's coming from the Retail stores and that's probably partially a reason for some of those valuations But we are working and we are as we mentioned exploring some of those Opportunities that were presented and you know, we are looking forward to be sharing more information than the appropriate time but we definitely are looking for ways to expand and really create some of that momentum in these different channels and And as you pointed out, over the last few years, like our CapEx has been managed. We've been managing our expenses. We are seeing this revenue growth from different channels, and our flow through to the bottom line has been strong. And we definitely expect, you know, some of that to be realized by the investment community in months and years to come.
spk00: Okay. Thank you.
spk03: Thank you. We do have one follow-up question coming from David Cannon of Cannon Wealth Management. Please proceed with your follow-up question.
spk05: Yes. Some retailers are talking more about, and you alluded to this, being an omnichannel company and giving people product the way they want it, whether it's buy online, pick up in store, visiting the store, e-comm or, and this is the new thing that I wanted you to add some color to, is same day delivery. It seems like the market is starting to figure out that, in a way, brick and mortar retailers actually have an advantage over a pure play e-commerce company using the brick and mortar store, essentially. as a DC or warehouse, if you will, and being able to deliver to people same day. Can you talk a little bit about your strategy thereof? I saw an announcement with Shipt. Are there other partners and how specifically are you going to market that and is that an advantage for you?
spk07: Yes, you are absolutely correct. That's the initiative we started late last year. I think we signed a deal in December of 2020. Definitely, that was an extension of that buy online, ship from store, pick up in store, and as Sharon talked about earlier, expanding our capabilities and providing our guests with whichever option they would like to engage with the brands. This is one of those areas where we believe it's a big opportunity, especially around holidays when we do have compressed delivery times and time windows shipping from in the past to one focal point of our Ohio warehouse. So definitely as you get closer to holidays, this provides us with tremendous optionality to provide that product and be part of the consideration set as a as guests these orders. So this last mile program and things, you know, that you kind of like the buzz in the industry is definitely one of those big areas that, you know, we are spending a lot of time and energy. We believe it's a big opportunity and, you know, and still relatively new, but it's definitely one of those things that differentiating us, you know, providing that experience as quickly as possible to our guests. It's, it's critical.
spk04: I think this dovetails nicely, David, to our discussion about gifting as well. So the gifting side of this, for our two largest holidays, whether that's Christmas or Valentine, those last few days are important to consumers. And that same-day delivery can be very critical for us to excel as opportunities. in the final moments of providing a gift for a loved one.
spk05: Have you specifically marketed that service up until this point? And if not, do you see yourselves putting some dollars behind that initiative?
spk04: We have marketed it and we expect to continue to do so, especially at the last days of holiday, just because we believe there's a big opportunity there. to meet which would have otherwise been lost sales.
spk05: Okay. Just out of curiosity, do you agree? In the past, being a brick-and-mortar retailer was perceived as an albatross that perhaps in the marketplace people are beginning to rethink it and possibly perceive brick-and-mortar retailers that have, you know, BOPIS, e-coms, as well as same-day delivery as potentially disrupting pure play e-com companies. Just curious of your thoughts on that.
spk04: I don't want to speak what everyone else believes, but I'll certainly tell you that we have always believed that well-run profitable retail locations are an asset, not an anchor for Build-A-Bear. It's a virtuous circle that we're creating in a relationship with the consumer and where they create a really memorable experience and have great brand affinity for us. It's proven over time. Our affinity numbers are as big as some of the best-known kids' companies today, and it's coming from that experience that they have. And now we've evolved those 300-some-odd locations into mini-warehouses, as you say, and small delivery pool points. And, yes, that is a tremendous asset for us.
spk03: Thank you. Ladies and gentlemen, at this time, I'd like to turn the floor back over to management for closing comments.
spk04: Thanks for everyone joining us today. We appreciate it. And we look forward to seeing everyone on our third quarter call.
spk03: Ladies and gentlemen, thank you for your participation and interest in today's Build-A-Bear event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
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