Build-A-Bear Workshop, Inc.

Greetings and welcome to the Build-A-Bear Workshop second 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 Shinero, Vice President, Investor Relations and Corporate Finance. Thank you, sir. You may begin.

Good morning. Thank you for joining us. With me today are Sharon Price-John, CEO, and Voyn Todorovic, CFO. For today's call, Sharon will begin with a discussion of our second quarter performance and update the progress we have made on our key priorities. After, Voyn 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 websites. 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 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 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 second quarter 2023 earnings call. We are pleased to report record second quarter and first half 2023 results, and we remain confident in our annual guidance for the year. At a headline level for the second quarter, revenues increased 8.5% to over $109 million. Pre-tax income increased 37% to $10 million, and diluted EPS grew 50% to 57 cents. For the first half of 2023, revenues increased 5% to $229 million. Pre-tax income increased 15.5% to $30 million, and diluted EPS grew almost 24% to $1.57 cents. We are pleased to note that each of these data points represent record levels for our fiscal second quarter and fiscal first half. Additionally, Boyden will address our revenue and profitability in more detail during his remarks. As we look forward to the second half of the year, we currently expect to see our strong sales momentum continue into the back half and the important holiday time period to be driven by traffic and ongoing interest in the brand by continuing to execute our strategy with the phasing of our growth initiatives, including additional new store openings, the launch of a variety of new products ranging from proven collectible license offerings to Build-A-Bear exclusive, the celebration of National Teddy Bear Day on September 9th, including a Buy-A-Bear, Give-A-Bear promotion in conjunction with our Build-A-Bear Foundation, and the introduction of a new elevated and integrated marketing and media program inspired by and designed to drive awareness of our new heartwarming animated film featuring our multi-year best-selling holiday collection, Glisten and the Merry Mission, which we expect to drive traffic and sales during the Christmas season. With our positive third quarter to date results and these important initiatives in place, we continue to remain confident that we will deliver total revenues for the fiscal year to increase in the range of 5% to 7% and pre-tax income growth of 10% to 15%. Our record first half 2023 results follow our record setting results for both 2021 and 2022 and demonstrate our ability to grow the Build-A-Bear brand at a sustainably higher level of profitability. We are able to profitably grow by continuing to execute on our three key strategic initiatives of one, expanding our experience location footprint, two, accelerating our digital transformation, and three, strategically increasing our investments to support these initiatives by leveraging our significant brand equity to diversify our appeal to a broader consumer base and expand in a new category to continue to deliver success. this sustained profitable growth as we enter into our next chapter. Our first strategic initiative is the continuing growth and evolution of our experience location footprint. Because our guests see workshops as a destination, up to 80% of trips to Build-A-Bear are planned, which is one reason why our retail traffic has outpaced the industry for 114 weeks in a row. Additionally, With 100% of our stores profitable and delivering on average greater than 25% store-level contribution margins, they generate a less than two-year investment payback. With top-tier store economics and research showing the opportunity for more stores, we began a concerted post-COVID effort to reach more potential markets by growing our corporate store footprint. As such, we continue to expand into tourist and hospitality locations, and we are also opening experienced locations on a more localized level, as many guests that experience Build-A-Bear for the first time at a vacation destination also desire to visit a local workshop closer to home. Over the past several years, we have created multiple flexible store models, whether it's our traditional models in different sizes and configurations or smaller concourse models, Our store within a store, allowing us to open highly profitable, corporately managed stores in many different types of locations and geographies. Our second quarter retail sales growth of nearly 8% reflects our continued growth in traffic at existing stores as well as unit growth. Our partner-operated store growth is in addition to our corporately managed store growth. Our wide variety of partners, such as Great Wolf Lodge, Carnival Cruise Lines, or Kalahari Resorts, continue to add stores in other specialized locations. Note that the partner operated store growth is captured in our commercial revenue reporting segment. Our second strategic initiative has been our digital transformation, which touches nearly every aspect of the company. This includes our ongoing website upgrade and redesign, CRM and loyalty optimization, AI tools for improved data management, and the current rollout of a new POS system and other integrated in-store technology. These are all designed to increase consumer engagement, sales, and our profitability across a number of areas ranging from optimizing our omni-channel capabilities to driving gifting and personalization programs to increasing repeat business and building the lifetime value of our dedicated guests. both in-store and online. To highlight just a few of our transformations, recall that to expand our e-commerce business, we focused on creating product offerings that had appeal beyond our core kid consumer, which is why Build-A-Bear.com is primarily driven by our teen and adult consumers who are looking for gifts and collectibles. Our ongoing website evolution is a large part of Build-A-Bear addressing these purchase occasions. enlarging our addressable market from predominantly kids at our inception 25 years ago to include teens and adults who now generate approximately 40% of total sales. Additionally, through our digital transformation, we have recently tested personalized messaging, new perks, and target marketing, which is delivering an increase in repeat business and new loyalty member acquisitions. both up double digits for the trailing 12 months. The majority of second quarter's 14% growth in web demand reflects these digital transformations as well as new product assortments targeted at our teen and adult consumers. Having consistently generated high returns on capital, we have been able to focus on our third key strategic initiative of increasing investment to support our growth areas that leverage the power of the brand. Specifically, in addition to the capital associated with our footprint expansion and systematic digital infrastructure evolution, we have been making investments in content and entertainment creation designed to raise awareness and drive sales, ranging from our Roblox Build-A-Bear Tycoon game with over 11 million players and a 91% approval rating to the Honey Girls live action film that has continued to endear guests while driving sales of these characters. Another key example of this type of investment is our upcoming animated feature film, Glisten and the Merry Mission. The movie, featuring a host of voice talent from Julia Michaels as the lead elf to Chevy Chase as Santa Claus, will include our furry fan favorite, Glisten the Magical Snow Deer. The film is based on the Christmas-themed storyline that has supported our best-selling holiday Merry Mission collection, which has generated over $100 million in revenue since its launch in 2015. The movie will be shown during the holiday season on over 100 Cinemark screens across the U.S., many within the same malls as Build-A-Bear workshops, allowing for significant co-marketing opportunities. For example, Build-A-Bear's plans include in-store ticket promotions to drive incremental movie attendance, plus physical marketing promotions inside these Cinemark theaters. In conjunction, GLSEN and the Merry Mission promotional activities are also planned as a part of our annual holiday pop-up store program at Gaylord Resort's ICE event in six major cities across the country. Our other Merry Mission marketing plans include multi-dimensional media and social campaigns and an in-store and online takeover, plus a Merry Mission digital game launch. To provide context, I believe it's important to highlight that we have managed these investments while continuing to expand our margins and return capital to shareholders. Specifically, over the past seven quarters, we have paid two special dividends and repurchased more than 1 million shares, returning $81 million to shareholders. We believe these efforts of both investment and capital return demonstrate our confidence in our future prospects. Before turning the call over to Voyne, I would like to thank all of the Build-A-Bear associates and partners for their efforts in working together to add a little more heart to life while focusing on achieving yet another record-setting year while setting the company up for a profitable long-term growth. Voyne?