Build-A-Bear Workshop, Inc.

Greetings, and welcome to the Build-A-Bear Workshop first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Gary Gennaro, Vice President of Investor Relations and Corporate Finance. Thank you, sir. You may begin.

Good morning, and thank you for joining us. I'm excited to speak to you on my first earnings call as the Vice President of Investor Relations and Corporate Finance for Build-A-Bear. With me today are Sharon Price-John, CEO, and Voin Todorovic, CFO. For today's call, Sharon will begin with a discussion of our first quarter and update the progress we have made on our key priorities. After, Boyne will review the financials in more detail and provide our guidance. 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 uncertainty. 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 unless required by law. Also during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items, which management believes can be useful in evaluating the company's performance. The presentation of non-GAAP financial measures should not be considered in isolation or a substitute for results prepared in accordance with GAAP. If non-GAAP measures are presented, you will find information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in the company's earnings release. And now, I would like to turn the call over to Sharon.

Thank you, Gary. Good morning, and thank you for joining us for Build-A-Bear's first quarter 2023 earnings call. I'm pleased to share that the year has gotten off to a good start. Following our record-setting results for both fiscal full year 2021 and 2022, we have again posted record results for the first quarter of 2023, and we are reiterating our annual guidance. Before I provide more details regarding our first quarter financial results, I'd like to reflect on some of the reasons why Build-A-Bear Workshop has and continues to resonate with guests of all ages. has greater than 95% aided brand awareness and more than 90% of cold moms agree that Build-A-Bear is a fun experience for a child. First, Build-A-Bear's mission is to add a little more heart to life, and over the past quarter century, we have delivered on that mission in a variety of ways, especially through our well-known store experience. These interactive engagements enable our guests to tailor their chosen furry friends with outfits accessories, and sounds, as well as name their new friend and receive a birth certificate. Most importantly, during the stuffing process, they bond with their new furry friend by giving it a heart during our memorable heart ceremony. This memory-making experience often sets the stage for a lifetime relationship with our brand that includes additional visits, social media posts, and membership in our loyalty program. As an example, I'd like to quickly share some recent feedback that is indicative of the relationships we create with our valued gifts, like this email. We took our twin nieces to a Build-A-Bear today to celebrate their birthdays. I just wanted to relay how much fun they had thanks to the wonderful and caring staff. Watching Lydia help them stuff and bring their bears to life was such a treat. Or this Facebook post from just a couple of weeks ago. Kudos to the staff for being so sweet and patient with Millie. It was our first time at the store, and creating her own furry friend from McGinnington was such an experience to watch, and she loved every minute of it. The Build-A-Bear Heart Ceremony was awesome. Each day, we work hard to ensure that our guests' unique Build-A-Bear experience is at the core of our business model, and we take pride in the fact that our nearly 500 corporately managed, partner managed, and international franchise locations have enabled our guests through their creativity and self-expression to make these powerful one-to-one memorable moments. With more than 225 million furry friends made over the past 25 years, many of our guests have grown up with our brand, and they now often wish for their own children to experience the magic of Build-A-Bear, too. Additionally, in growing numbers, our older consumers also come back to Build-A-Bear Workshop or go to our e-commerce sites to not only create additional moments for themselves, but to create gifts for others. Between our stores and our website, our guests of all ages are creating wonderful, joyful experiences and memories at Build-A-Bear. With teens and adults now representing 40% of our sales, We are a brand that multiple generations love and trust. Now, with that backdrop, first quarter total revenues topped last year's previous record. We delivered growth across all geographies in our direct-to-consumer segment. We posted growth in our commercial segment, which includes our asset-like partner-operated model, adding eight stores over the past year. and we posted growth in our international franchising segment. Our first quarter earnings per share of 98 cents represented the highest for our first quarter in Build-A-Bear's history. Recall our direct-to-consumer segment is made up of our corporately managed stores and our e-commerce sites. Overall DTC revenue increased for the quarter driven by an increase in revenues at our stores partially offset by a decline in our web demand. We experienced greater volatility in web demand than expected, largely due to continued testing and optimization of the new website and product launch shifts. Web demand is generally more affected by product launches and calendar timing than our workshop, where an estimated 80% of store trips are planned. Digital demand has rebounded, with sales increasing at nearly double-digit rates. thus far for the second quarter driven by recent product launches including Hello Kitty, which will be followed by more launches associated with products tied to key feature films. Also, while we expect web demand to ebb and flow, we are confident in continued e-commerce growth and our expectation of positive sales growth across segments this year. In our commitment to continue to drive shareholder value, I would also like to highlight our ongoing capital return to shareholders through special dividends and stock repurchases. Over the past two years, we've paid two special dividends totaling $2.75 per share, and we have repurchased 2.1 million shares. We believe this capital return effort, along with our strategic initiatives, demonstrates confidence in our future prospects. With record first quarter performance and positive second quarter to date trends, we are reiterating the annual guidance provided earlier this year for total revenues to increase in the range of 5% to 7% compared to fiscal 2022 with growth in all three of our operating segments and pre-tax income growth of 10% to 15%, both of which reflect the added benefit of the 53rd week. We continue to expect accelerating sales trends as the year progresses. driven by the phasing of new product launches and other growth initiatives. This includes 20 to 30 new stores, inclusive of the Kalahallery Resorts openings and tourist locations that was announced in a press release this morning, as well as new marketing and media introductions, including the Build-A-Bear documentary and Merry Mission movies later this year. We are particularly excited about these two film releases as they represent Build-A-Bear's continued expansion into content creation, which includes books, through our recently announced relationship with Macmillan Publishing and Digital Initiative, which includes the launch of our Roblox Tycoon game that has more than 9 million users. Specifically, the documentary entitled Unstuffed, A Build-A-Bear Story is expected to further enhance the brand's iconic pop culture status by exploring the heartfelt journey of Build-A-Bear's first 25 years. Award-winning director Taylor Morden has set out to answer the question, What is it about Build-A-Bear that resonates with so many people? And the second film slated for release this holiday season is our first animated feature highlighting GLSEN and the Merry Mission based on our successful seasonal collection that was originally launched in 2014. Since its introduction, our Merry Mission product line, which is available only a few weeks each year, has generated over $100 million in revenue. with our magical snow deer, Glisten, often being the top item for our holiday season. This story centers on the belief in the spirit of Christmas and our heroine, Glisten, who worked with Santa, the elf, and other reindeer to make sure there are enough toys for everyone on the nightclub. In closing, I would like to announce that Gary Shinero has recently joined the company as our Vice President of Investor Relations and Corporate Finance. Gary brings over two decades of experience analyzing public companies as an equity research analyst and portfolio manager and welcomes the opportunity to be a valuable resource for both existing and potential investors. I would also like to thank all the Build-A-Bear associates and partners for their efforts this quarter as we work together to continue to add a little more heart to life while focusing on achieving yet another record-setting year and continuing to return value to our shareholders. Before I turn the call over to Voing to review our financial results in more detail, I would also like to thank the Axiom Space Mission for adding our very own Gigi the Bear to its space crew as its zero gravity indicator for their SpaceX Falcon rocket. With over 500 million PR impressions since the rocket launched this past week, it's one small step for Gigi, but one giant leap for Bearkind. Voing.