Build-A-Bear Workshop, Inc.

Greetings and welcome to the Build-to-Bear Workshop First Quarter 2022 Earnings Conference. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, you may 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.

Good morning. Thank you for joining us. With me today are Sharon Price-John, CEO, and Voyn Tovorovich, CFO. For today's call, Sharon will begin with a discussion of our first quarter fiscal 2022 performance and update the progress we have made on our key priorities. After, Boyne 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, 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.

Thank you, Allison, and hello, and thanks to everyone for joining us this morning. I will start today's call by highlighting some of our financial accomplishments for the first quarter, and then I will provide updates on our strategic pillars. We believe that the disciplined execution of our plans has allowed us to build a foundation that has advanced our capabilities and diversified our business models and formats, which we expect to fuel further growth in the fiscal year and beyond. Following an outstanding performance in 2021, we were pleased to report that the first quarter of fiscal 2022 continued our positive trends. Our financial results include total revenues of $118 million, an increase of 28% over the prior year's period, Total revenues were the highest for a first quarter in our company's history, with growth in both North America and Europe, and all reported business segments including direct-to-consumer, commercial, and franchising business, as well as in both net retail sales and digital demand. As noted, we had increases in e-commerce in both North America and in Europe. The growth in Europe is particularly impressive given that the fact that in the first quarter of 2021, our stores were closed for the majority of the period due to government mandated restrictions and e-commerce was the dominant channel for sales during that time. For added dimension, our 2022 first quarter consolidated digital demand is greater than our e-commerce sales for the entire 2017 fiscal year. demonstrating the progress we have made in our digital transformation over the last five years. And importantly, we continued our trend of record-breaking profitability for the fifth consecutive quarter with pre-tax income of over $18 million, representing an increase of 38% over last year's previous all-time high. As noted in this morning's press release, We are pleased to see continued positive momentum in our current second quarter and are providing annual guidance with growth projected for total revenues and profit compared to the prior year's results. We believe that our sustained profitable growth is largely the result of a multifaceted, multi-year strategic plan that we have been successfully executing while navigating a highly volatile environment. Our disciplined focus and agility, particularly during the prolonged pandemic-related challenges, have played a key role in the evolution of our company into a more digitally-driven, diversified, omnichannel entity that includes a dynamic and efficient vertical experiential retail concept that remains relevant to today's consumers who have been increasingly seeking highly engaging, family-friendly activities and shopping as restrictions have lifted. With a strategy in place that has been delivering strong and consistent results, we remain focused on expanding our capabilities to drive additional profitable growth across our stated key pillars, which include advancing a broad-ranging and comprehensive digital transformation across the company, continuing to evolve our retail experience and footprint while leveraging our expanded omnichannel capabilities, and optimizing our solid financial position to invest in initiatives intended to drive further growth. First, as it relates to leveraging our ongoing digital transformation across the organization, we have confidence that we are propelling our results by leveraging the platforms and added capabilities that we have put in place. This includes a dynamic and efficient marketing program across a variety of media with a range of content designed to drive awareness, engagement, trial, and repeat purchases that we believe is positively impacting our financial performance. Impressions from our paid digital media initiatives are up over 20% compared to the prior year, and we believe this is contributing to higher net retail sales in both brick and mortar and digital channels. We also believe our efficient and primarily digital marketing activities are driving traffic to our stores and to our website. we saw a significant increase in store footfall compared to the prior year's quarter, which outpaced national trends and fueled our net retail sales while also advancing digital commerce to record-setting levels. Our expanded digital capabilities have allowed us to develop multidimensional marketing campaigns designed to reach diverse audiences and consumer segments, with dynamic content reaching millions of followers and delivering tens of millions of views across a number of platforms including Facebook, Instagram, Twitter, and TikTok. We are in the process of updating our website later this year with a reimagined online guest experience with the goal of driving additional e-commerce business. We expect to modernize the site, improve efficiency, and optimize organic traffic through leading SEO practices in order to improve interfaces across all areas of the site including gifting, Affinity, and the BearBuilder 3D Workshop, as well as improved conversion at checkout. We have engaged with Deloitte Digital to guide and elevate this process. Deloitte Digital is one of the leading agencies specializing in merging strategy, experience, and technology to drive digital growth and innovation. And we expect to enhance our analytical capabilities to further refine our digital campaigns and targeted personalized messages to our 14 million opted-in first-party data contacts. As part of these efforts, we remain on track to launch the new loyalty module as the next step in our multi-faceted Salesforce implementation plan before the end of the year. Moving to our second pillar, we leveraged our expanded omnichannel capabilities while further evolving our retail footprint and adding engaging experiences and purchase occasions. As previously stated, we believe there is opportunity to strategically grow our profitable North American store base that had an average contribution margin of over 25% in 2021. We previously shared that we planned to open 15 to 20 locations over the next two to three years. However, we have elected to accelerate that timeline and now expect to add approximately 20 sites in fiscal 2022. through a combination of our corporately managed and third-party retail model. Our high level of lease optionality has allowed us to strategically exit select locations, which we plan to continue to do. However, our accelerated opening plans position us to finish the year with more total retail locations as compared to fiscal 2021. Separately, as previously announced, we recently relaunched our historical popular in-store party program, which had represented approximately 5% of net retail sales in our stores. We have seen steady demand and have held over 1,000 parties since the relaunch, with the average party transaction up over 15% from the last comparable period of 2019. While the party business as a percentage of sales remains below our historic norm, We have plans to raise awareness that parties are back at Build-A-Bear to drive further demand. We also continue to innovate experiences to expand our brand reach. This includes Build-A-Bear vending machines, also known as ATMs, our automatic teddy machines. We expect to have approximately 10 machines by the end of this year, with more than half of them in airports through our relationship with Hudson Group, a leader in travel retail throughout North America. In addition to the ATMs, Hudson's also plans to offer pre-made Build-A-Bear products in more than 10 other travel stores through a wholesale model with expectations to continue to expand that in the future. Third, we remain intent on leveraging our solid financial position to invest in growth while generating sustained profitability. As we look forward to the balance of the year, we plan to continue with the celebration of our 25th anniversary. with a variety of guest-facing activities designed to spur consumer interest and drive sales. We have delivered the first furry friends that are part of a special collection that's inspired by past popular plush products. Other collectible options have been developed in conjunction with select licensed partners, including a 25th celebration Toothless from the popular movie franchise How to Train Your Dragon, which has historically been one of our best-selling entertainment-themed characters. We also recently launched a silver edition of the Darth Vader bear inspired by the evergreen Star Wars saga. In addition, we have encouraged consumer engagement through an anniversary-themed marketing campaign that leans on the millions of special memories our guests have for Build-A-Bear by leveraging the nostalgic aspect of this iconic brand to encourage user-generated content and build engagement. In a year of special commemorative events, we also recently introduced a new collectible gift bundle as part of the Walt Disney World 50th celebration. We are offering this collectible gift bundle and experience to reveal an upcoming trip for families planning to travel to the beloved theme park during that anniversary. We also are teaming up with other popular in-licensing partners, for collectible furry friends to create buzz and drive sales through our growing affinity segment. We expect to release products from perennial favorites like Hello Kitty, YouTube sensations Love Diana, and Ryan's World, and to update offerings supporting our Harry Potter and Pokemon collections. We will also be adding select Build-A-Bear After Dark offerings and updated products to the Bear Cave. selection of our website, including items from popular pulp programs like The Office and Friends. In addition, we plan to have merchandise that will tie in with a number of highly anticipated upcoming films, including Jurassic World, Elvis, and later in the year, Lord of the Rings and Puss in Boots 2. We will also offer products inspired by the highly anticipated movies, Disney and Pixar's Lightyear, and Marvel Studios' Doctor Strange in the Multiverse of Madness, as well as Thor, Love and Thunder. We are proud to have kicked off this special anniversary year with a successful quarter, and I want to thank everyone at Build-A-Bear for their commitment and drive to once again deliver record-breaking results. I would also like to share that our company has been recognized as one of America's best retailers for 2022 in a list that was recently published by Newsweek and Statista. And lastly, we wanted to offer our appreciation for the support from our suppliers and other strategic partners that continue to work with us to achieve this sustained business expansion. In closing, as a nearly 25-year-old company that offers a relevant, in-demand, personalized retail payment experience, Founded on a classic toy, we have evolved into a digital-driven, diversified, omnichannel entity with expanded products offerings and diversified consumer segments by leveraging the power of our iconic brand. With this distinct combination, we believe our company is well-positioned to achieve the growth anticipated in the annual guidance shared this morning and to achieve our broader, longer-term objectives including the continued increasing of our shareholder value. Now, I would like to turn the call over to Moin to discuss financial metrics, including providing more detail on our outlook for the fiscal year.