Build-A-Bear Workshop, Inc.

Greetings, and welcome to the Build-A-Bear Workshop second quarter 2024 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 Schneiro, Investor Relations. Thank you, sir. You may begin.

Thank you. Good morning, everyone, and welcome to Build-A-Bear's second quarter 2024 earnings conference call. With us today are Build-A-Bear's CEO, Sharon Price-John, and CFO, Boynt Dorovich. During this call, we'll refer to forward-looking statements that are subject to risk and uncertainties. Actual results could differ materially. Please refer to our forms 10-K and 10-Q, including the risk factor section. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings release, which is distributed and available to the public through our investor relations website. And now, I'll turn the call over to Sharon.

Thank you, Gary. Good morning, and thanks for joining us for Build-A-Bear's second quarter fiscal 2024 earnings call. For the past several years, we have shared our strategy to evolve the company's business model with the goal of sustained profitable growth by leveraging the power and affinity of the Build-A-Bear brand. We have occasionally referred to this as approaching the business as a way to expand with new people, new places, and with new types of product offerings. With that in mind, over the past few years, we have worked to extend Build-A-Bear's consumer base beyond kids to take advantage of our growing multi-generational appeal. We have done this with primarily collectibles, trend products, licensing, and gifting, resulting in an increase in our teen and adult business now representing approximately 40% of our total retail sales. We have continued to drive our consumers' first engagement with Build-A-Bear at its experience locations by broadening our geographic reach and store types beyond our historical U.S.-focused mall-based traditional footprint. We have become more global with more store types in a variety of shopping environments with new business models. This effort has led to an acceleration of store growth And by the end of fiscal 2024, we expect to have opened nearly 90 net new locations over the past two years, all while continuing to maintain and integrate with a meaningful web business. And we are evolving product categories beyond the iconic make your own customizable cadre of characters with new introductions, like the successful mini beans collectibles, which have already sold over 1.5 million units since their launch earlier this year. These efforts have resulted in a more diversified business, which, when coupled with more efficient operations, has, as envisioned, delivered more products in more places to more people at a consistently higher level of profitability. With strong cash flow and no borrowing, the company has been able to both invest in the future and return capital to shareholders. In fact, over the past three-plus years, Build-A-Bear has enjoyed record-breaking results, including an unprecedented period of profitability compared to any other time in its quarter-century history. Aligned with this trend, I'd like to share some highlights of our 2024 second quarter. These results represent the best second quarter in the company's history. Revenues of nearly $112 million. an increase of nearly 2.5% and pre-tax income of more than $11 million, representing growth of over 10%. These results coupled with strong third quarter to date trends and robust back half plans support the reiteration of our full year guidance. Of note, even when compared to a strong second quarter in 2023, and in the wake of negative reported national retail traffic trends, our unique and memorable retail experience, which so often serves as the first step in the important lifetime consumer journey, remained solid. Conversely, given some of the ongoing systems enhancements and product launch timing, Build-A-Bear.com's overall web demand results were significantly down for the quarter. Fortunately, the challenges driven by shifts of popular online product launches versus 2023 are expected to be mitigated over the course of the total fiscal year, as we have already started to see in early third quarter. On balance, second quarter delivered strong earnings per share with a much higher level of profitability when compared to any pre-COVID second quarter over the past 15 years. We also remain committed to returning capital to shareholders via a combination of share repurchases and quarterly dividends, totaling over $12 million in the second quarter and $24 million through the first half of 2024. Again, overall, we believe these sustained results are largely associated with the continued focus on the execution of our multi-year, three-pronged strategy designed to deliver long-term profitable growth grounded in our most valuable asset, the Build-A-Bear brand. Our plans to systematically monetize the awareness and power of the brand include, one, based on the long-held belief of our founder that a teddy bear hug is understood in every language, our first strategic pillar is dedicated to expansion through the experience location. This well-researched global retail scaling effort represents not only the evolution of store types but also of financial models, including a corporately operated model, partner-operated model, and franchising. While the company has operated in select international markets for decades, a recent post-COVID effort has resulted in a multi-country rollout, mostly through our partner-operated business model in both continental Europe and South America. In Europe, beyond our long-standing corporate operation in the UK, we opened new locations across Italy and France via our Capital Light partner-operated business model. In Italy, we partnered with the well-known toy retail and entertainment company, Giochi Preziosi, with plans to introduce a combination of standalone workshops and shop-and-shops inside their own toy stores, as well as families' toy stores, through a shared relationship with the multibillion-dollar global conglomerate Reliance Industries. We also opened our first partner-operated location in France at the iconic Paris department store Galeries Lafayette in Champs-Élysées in conjunction with longtime partner FAO Schwartz, with whom we operate the recently expanded and very successful Rockefeller Plaza Shop and Shop in New York City. As a part of our continued U.S. expansion, And in conjunction with our successful tourist location strategy, we opened two Las Vegas shop-and-shops with our new partner, WH Smith, located inside their Welcome to Las Vegas gift shop at the Forum and Link Promenade. We also opened in the historic Wrigley Building on Chicago's famed Magnificent Mile. This store features a specially procured line of licensed, branded, and themed products to appeal to the Windy City guests, just as we do with many of our other tourist destinations, which generally serves as a meaningful contributor to our comparative overperformance in this type of location on almost every key metric. When you include new franchise locations with existing Gulf states and Chilean partners, we added a total of 17 net new locations for the quarter and 23 for the first half across all three business models, corporately operated, partner operated, and franchised. which keeps us on track with our guidance to open at least 50 new experience locations for the fiscal year, in addition to the 37 locations we opened last fiscal year, expanding our global footprint to over 20 countries. Two, the next initiative is the acceleration of a comprehensive digital transformation for the company ranging from overall corporate IT upgrades to website integration to content creation, which we began about a decade ago to unlock value from improved processes and new systems across the entire enterprise. One of the key objectives is to become a true omnichannel entity, which is when a company provides a consistent and synergistic shopping experience across all channels, including in-store, mobile, and online. While we have many of the tools in place to drive greater integration between Build-A-Bear.com and Build-A-Bear Workshop, especially when it comes to efforts like buy online, ship from store, we are still in the process of fully integrating our guest first-party data and shopping history with synergistic marketing and product offerings across the enterprise. The omni-channel model, when fully executed, has been proven to unleash combined power of in-store e-commerce, email, social media, loyalty, and traditional communications tactics through a more personalized, unified vision, ultimately driving repeat purchase. When you consider that each year, up to 50 million people enter a Build-A-Bear workshop, and we have an estimated 50 million annual visits to our website, combined with an 85% capture rate in stores and over 20 million first-party data records, you can understand why we believe This is such an important part of our strategic efforts. However, it is not uncommon for the learning curve associated with implementing and optimizing omnichannel integration tools to be somewhat disruptive. Therefore, we have been working with partners, such as Salesforce, as well as other consultants, to identify, prioritize, and implement opportunities. As an example, on our last call, we shared that we had a significant decline in our web traffic, which was deemed to be largely associated with a decrease in organic search linked to competitive conquesting. Since then, our web traffic has increased and we have enjoyed improved organic search results. We believe this is due to a combination of changes to our search terms, improvements to our SEO strategy, the viral popularity of key new product launches, and the positive trickle-down impact of the upper funnel investment we made in the Stuff You Love campaign earlier this year. While we are encouraged by these recent results, we also recognize we have more work to do to address the larger web opportunity and plan to continue to stay focused on our digital transformation and omnichannel integration improvements to drive the business. Three, our last pillar is our continued fiscal focus, designed to enable us to make strategic investments to leverage the brand to drive profitable growth while returning value to our shareholders. With this in mind, given the company's meaningful improvement in cash flow over the past few years, we've been able to make a large number of long-term strategic decisions across the company, touching product, brand, partnerships, content, talent, and infrastructure, all while returning over $116 million to shareholders through dividends and stock repurchases. As we look to the second half of the year, I'm pleased to share that with the backdrop of the ongoing implementation of the above strategies, our third quarter to date results have been strong. And driven largely by our Halloween product line, we have posted solid increases in store and double digit increases online. Interestingly, Halloween seasonal product in general has been growing in both interest and revenue in recent years according to the National Retail Federation. and Build-A-Bear has seen the same phenomenon. Having sold out of key items well before October 31st in 2023, the company made some strategic choices to focus on this year's Halloween season with more offerings, deeper inventory, and an earlier launch. Leading with a new glow-in-the-dark assortment, a Sanrio collection of exclusive Halloween designs, and the reintroduction of a popular replica, of the classic 2008 Pumpkin Kitty from our vault of favorite furry friends, we had planned on kicking off the season in mid-August. However, due to an unauthorized leak of a specific product imagery, we accelerated the launch and shared the situation in a press release, via social media, and in a direct mail to the over 25,000 plus fans that had already provided contact information to be informed about the Pumpkin Kitty relaunch. These efforts led to an estimated 285 million PR and media impressions in a viral event, contributing to the sellout of the first phases of Pumpkin Kitty, helping to drive record quarter-to-date sales. Our remaining pipeline for the third quarter includes additional exciting Halloween introductions and the launch of a broadened NFL product offering, the celebration of National Teddy Bear Day on September 9th, with in-store events and special promotion, an enhanced relationship with Varsity Spirit, the worldwide leading brand for competitive cheerleading, which includes pop-up shops at cheer camps, and reflecting on our exciting press release earlier today, the introduction of an exclusive 50th anniversary Hello Kitty Make Your Own Plush, as well as our November plans to open a first-of-its-kind Build-A-Bear and Hello Kitty and Friends workshop with our partner Sanrio in the premier Westfield Century City Shopping Center in Los Angeles. Overall, we delivered solid second quarter results, although we saw some challenges with web demand. As we continue to execute on the strategic initiatives, inclusive of the continued omnichannel integration, we expect to see positive momentum as the year progresses. In closing, while we are very proud of this organization as a pioneer in the creation of experiential retail, it is always nice to receive external validation, as we recently did with Newsweek's third annual ranking of America's Best Retailers. We not only had one of the higher rankings in the list, but were ranked as the number one toy retailer. With that, I would like to thank all of the Build-A-Bear associates, guests, and partners for continuing to deliver record results as we work toward our mission of adding a little more heart to life. Moin.

Thank you, Sharon, and good morning, everyone. It's good to speak with you again today to share our second quarter 2024 results. Before I touch on the financials from the past quarter, I want to recap a few highlights. This was our best ever second quarter as we continue to deliver on our strategic initiatives. Even though we faced headwinds working through transitory web challenges, our strong results reflect the ongoing diversification of the business. Also as the result of consistent performance and strong cash flow generation, we continue to return capital to shareholders. We paid our second quarterly dividend and during the quarter spent $9.1 million to repurchase shares. In addition, since the end of the second quarter, we have spent $1.7 million. On a year-to-date basis, we have repurchased over 5% of our outstanding share count. Now moving to second quarter results. For the quarter, total revenues were $111.8 million, up 2.4% year-over-year. Net retail sales were flat at $103.5 million. A 28.2% decline in web demand was offset by growth at existing stores plus the addition of new locations. As we discussed on our Q1 call, last year's 53rd week caused a shift in comparable weeks this year. First quarter's impact was mostly reversed during the second quarter, benefiting store sales. Additionally, retail sales for second quarter last year increased nearly 8%, driven by the timing of product launches bought in stores and online, creating a more difficult comparison for the quarter. Our store traffic outpaced national traffic, though slightly down for the quarter, and was offset by increased store conversion. Traffic improved in July, And that trend has continued into the third quarter, most likely benefiting from the earlier investments in our brand campaign, The Stuff You Love, as well as new product launches. Web demand was impacted by a lighter product launch schedule this past quarter against successful product launches last year. Challenges related to organic search also impacted web demand, but we have seen solid search improvements starting in late Q2 and into Q3. Looking ahead, third quarter, which includes Halloween, has a stronger product launch schedule. And as Sharon mentioned in her comments, web demand is up double digits, and our stores have also posted strong performance on a quarter-to-day basis. Commercial revenue, which primarily represents wholesale sales to partner operators and international franchise revenue, were up 44.8% versus the prior year. We continue to expect strong growth for the segment on a full-year basis. Gross margin was 54.2%, an increase of 50 basis points compared to last year, mainly due to commercial margin expansion. The remainder of improvement was from retail gross margin expansion driven by growth in the retail merchandise margin, partially offset by higher depreciation expense, related to last year's rollout of the new point of sale system. SG&A expenses were $49.2 million, or 44% of total revenues, compared to 44.2% last year. The 20 basis point improvement in SG&A rate was primarily driven by expense timing and disciplined cost management. On our previous call, we mentioned that for the first quarter, SG&A was negatively impacted by expense timing and this partially reversed in Q2. For the full year, we continue to expect SG&A is a percent of total revenue to be at or below 2023's level. Pre-tax income grew 10.2% to $11.5 million, a second quarter record. Diluted earnings per share was 64 cents, an increase of 12.3%. This reflects our growth in pre-tax income and a reduction in the share count, partially offset by a higher tax rate compared to prior year. With respect to the balance sheet, at second quarter end, our cash balance was $25.2 million, representing a $7.4 million decline year over year. This was after returning $33 million to shareholders over the past year and also reflects some cash flow timing due to the calendar shift. Inventory at quarter end was $67 million, increasing $700,000 or 1% compared to the same period last year, and it is in line with our expectations. Turning to the outlook. Given our solid second quarter results and third quarter to date momentum, we are reiterating our annual guidance. The full details of guidance are included in the press release, but I will highlight a few key metrics compared to fiscal 2023, excluding the impact of the 53rd week. We continue to expect total revenues to grow on a mid single digit basis. This growth is partially driven by the addition of at least 50 net new locations with the majority coming through partner-operated expansion both internationally and domestically. As we add more experienced locations and expect a more favorable fourth quarter comparison on a 13-week basis, we expect revenue acceleration in both the third and fourth quarter. Pre-tax income to grow in the mid-single-digit range on a full-year basis. The outlook also reflects ongoing wage and inflationary pressures, increased depreciation expense, and increased freight costs. In closing, I would like to thank all of our store and warehouse associates, as well as corporate team members and partners for their ongoing dedication to the execution of our strategy to evolve the company by leveraging the power of the Build-A-Bear brand. This concludes our prepared remarks, and we will now turn the call back over to the operator for questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. 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 star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Eric Beder with SCC Research. Please proceed with your question.

Sure. Good morning. Congratulations on a solid Q2 and a strong start to Q3. Thank you, Eric. Thank you. The mini beans, great new product. a little bit lower price than the full-size bear. Are you seeing that being as more of an add-on or just a single purchase? How is that helping to change the overall mix of, I guess, units and in pricing in terms of the stores?

Thanks, Eric. Appreciate that. The mini beans have been – a labor of love for us. We love the fact that not only are we creating unique mini beans, but a lot of the ones that we create from a design perspective are what we call takedowns of some of our most popular products. One of the reasons we do that, it might be a little counterintuitive, but a lot of people want to buy the mini bean of a product that they've already purchased, the larger make-your-own item. So that dynamic often drives the add-on purchase for mini beans. And one of the key reasons, so at NetNet, we're seeing, as the sales would reflect, in total, we're seeing an increase, although there is a combination of people coming in for just a mini bean or four or five mini beans sometimes. But that lower price point also helps us drive our conversion, which Boyne mentioned, if somebody's coming in and that's an easy pickup purchase for them. But there is this other dynamic that's also an add-on purchase. And so you're seeing on total an increase overall of our sales and a slight increase in conversion, as we talked about. One of the reasons, though, strategically that we launched the mini beans was not just to put them in our stores, but as a proof point of the power of the brand to stretch beyond the make-your-own concept with plush. And we wanted to prove that inside of our own retail location. That opens up a wholesale opportunity for us because there's not that make your own experience process necessary for you to enjoy these products. And we are in the process of working with other retailers, not only here in the United States, but across the globe, to sell mini beans as just their own plush items.

That's a great point. Quickly, on the international and the licensing opportunity, I would assume that as this is a success in one country, you're going to see people come to you for other locations, other territories. You know, how should we be thinking about where we are in the potential growth for this group, and where should we be thinking about it going longer term? Thank you.

So thanks for the question, Eric. International opportunity as it relates to this partner-operated location is really one of the bright spots for the organization. We are very pleased with success that we have been seeing so far in some of the countries that we are operating and expanding and definitely positive feedback from our partners. As you may recall, over the last couple of years, you know, after COVID, it was really challenging for anybody to travel and to go and expand some of those relationships. You know, we have... many inbound requests about some of these opportunities, and we are working on some of those, and we continue to evaluate, and we want to make sure that we explore all the opportunities and find the right partners that can scale in the respective markets that they are operating. But we believe this is going to be an opportunity for many years to come.

When you think about where could this go, we've mentioned this in the past, Eric, just from a macro perspective, and this would be inclusive of the operated stores that we have in the UK and Canada and Ireland, but most of the time, U.S.-based companies look at store opportunities or even business opportunities in general as the scale in the United States usually is about half or 40% of what's possible on a global basis. So We've mentioned before that we feel that it's not unreasonable to believe that we could have as many stores outside of the United States as we have inside the United States. But just note when you're modeling that, that right now that's leaning toward more partner operated and franchise operated, which is a little different way to calculate it from a retail revenue perspective.

Thank you. Enjoy the early Halloween. The stores look great, and good luck for the rest of the year.

Thanks, Eric.

Our next question comes from the line of Michael Baker with DA Davidson. Please proceed with your question.

Okay, thanks. The back half guidance suggests much better trends than the first half, I think even better than the second quarter, which Seems reasonable because you're doing really well. But I guess, you know, what sort of risks or if you could flesh out the back half guidance, your holiday expectations, how you think about, you know, besides you guys, we're seeing a lot of consumer, you know, negative consumer data points. People are concerned about the election. How does all that play into your outlook that, again, the second half seems like it's going to be just a lot better than the first half?

So I'll take that, Mike. Thanks for the question. You know, our guidance really hasn't changed from the beginning of the year. We keep reiterating. We have known this being an election year, there is going to be a lot of ups and downs, as well as, you know, we have some choppiness in our comparison with the prior year. We always said that it's going to be back half-weighted. And when you think about, we shared about store count. We opened about 23 stores so far. on a year-to-date basis. 17 we added in the second quarter, 16 first quarter. You know, we expect some of that stuff to accelerate to get to at least net 50 by the end of the year. So we believe that's a big piece of some of that growth. In addition to that, our commercial business has been very strong, and we expect to see the expansion in that particular segment. Also, from the product launch perspective, we talked about some of the things and some of the strong trends that we are seeing in Q3. Again, that's all contemplated within our full-year guidance, but when some of these launches and timing of product arrivals happens, Q2 versus Q3, you know, there is some noise. But speaking from the home perspective and some of the comparisons with last year, Second quarter was our toughest comp quarter because, you know, we saw some strong results last year. And as we went last year into Q3 and to Q4, our business was a little bit softer. So we believe we have some more opportunities later on in the year. And as well, we are excited about the Halloween success that we have seen so far and the amount of investment that we made in that product. And so that gives us the confidence as we think about the full year guidance. In addition to that, there is still some uncertainty. That's why we have the high and low end range of the guidance. We feel good about things that are within our control and what we can do. But, you know, the external and outside factors that could impact us, you know, are clearly outside of our control. And thus, you know, some of that impact for the range the way we have it.

Yep, makes sense. A lot of good things there. Another, you know, I think good news situation, but maybe a little more color is Just to clarify, so web demand was down 28% in the second quarter, and you're saying it's up in the third quarter? Did you say up double digits in the third quarter? So I just want to make sure those metrics are sort of apples to apples. You swung from down 28% to now up double digits, or am I hearing that wrong?

So we were down on a full quarter, down 28.2%. we are up strong double digits so far on a quarter to date Q3.

Okay. And so then I guess the fallout there is that just some of the – I presume it's just the – is there anything in the comparison that's influencing that? Or just is that improvement because of the better search, all the initiatives that you talked about, and the benefit you're getting from bringing in Salesforce consultants, et cetera?

It's the combination of things, as we noted in the prepared remarks. It is some of the improvements in our SEO strategy, some shifts in search engine, that is search engine, excuse me, SEO strategy, some other of our efforts on website integration. But most importantly, I think, and we note this, we've had some product timing shifts. And then we mentioned that even in the last call. And those product timing shifts are impactful for the web particularly. So, for example, when we launched this Halloween product collection, the first Hello Kitty phase, not Hello, the first Pumpkin Kitty phases that we mentioned, which was a vault product, they were online only. And that really did drive the business significantly. And we had not launched yet. any of the Halloween product, as an example, until much later in the third quarter last year.

Okay, that makes sense. Okay, thank you very much.

Our next question comes from the line of Greg Gibbous with Northland Securities. Please proceed with your question.

Hey, good morning, Sharon and Boyne. Thanks for taking the question. Congrats on the strong results. You know, wanted to follow up on just new store growth and your expectations there. You know, a solid step up in Q2, 17 versus 6 in Q1. You know, reiterating your expectations for the full year. Just wanted to get a sense of maybe the cadence of new store growth in Q3 versus Q4. And also, if you could maybe discuss, I guess, the geographic breakdown of the new store growth that you had in the quarter.

So I'll take that. So thanks for the question. Again, definitely we are pleased about our opportunities from the store count growth perspective. We would, of course, prefer to open those as quickly as possible, especially if our own stores or even for our partners to maximize the opportunity for this year. The goal is definitely to take advantage of the fourth quarter and open them as early as possible. Some of those things, especially internationally partner operated locations, there are some additional logistics things to work through, and especially with some of the challenges around the logistics routes around the world that are impacting and delaying in some cases some of these openings or the product and equipment flow. But again, the goal would be to open all that stuff to be ready for the holiday season as much as possible. When we think about some of the growth, we said a lot of those are going to be partner-operated between both domestic and international, and there is some of the owned and operated locations that we are expanding in some of the key markets, and Sharon touched on a few of the stores in some of the key tourist areas that we are opening that we are excited about.

Great. That's helpful.

you know, just, I know you don't like to necessarily point to kind of same-store sales growth, but I wanted to get a sense there, just given, you know, there were a good number of openings this quarter, and, you know, with web being down, I know it makes it a little challenging, but just wanted to get a sense of maybe same-store sales kind of on a brick-and-mortar front.

So we don't talk about the same-store sales, and, you know, but I'll try to provide some color about, you know, as we mentioned earlier, earlier in the year because the 53rd week shift, when you are making that true comparative of week over week, you know, our gap, 13 weeks this year versus 13 weeks last year, do are benefiting from the same thing that we were having some headwind in the first quarter of the year. So if you are looking at the existing store sales plus, you know, this week shift, you know, like an existing source, you know, we have seen and improvement. We also have seen some growth from the new stores that's offsetting this decline in web demand being flat for the quarter. And also another thing to point out, this 28% in web demand that we are seeing compared to last year, 25 to 30% of our business that we've seen from the web demand perspective gets fulfilled through our store locations, and we see and we report those sales based on the location where the stores are, where the shipments are fulfilled from. In this case, that's from our stores. So if the web demand theoretically was flat to last year and we kept the same things, you know, our stores would have seen even stronger results.

Great. That's helpful. Thank you.

Our next question comes from the line of Steve Silver with Argus Research. Please proceed with your question.

Thanks, Operator, and congratulations on the Q2 milestone. So a lot of the questions have already been answered, but one I have is the discussion around certain items from the Halloween collection being depleted. I know you guys have spoken on previous calls about the investments in the supply chain and managing inventory levels, but can you just talk a little broadly about how the supply chain is is set up to replenish items quickly, I guess given the fact that the company is so heavily involved with seasonal and holiday items. Just can we talk a little bit about how the company just is able to replenish so quickly in the supply chain? Thanks.

On some of these seasonal items, it's obviously more difficult because the more truncated the time period is, the harder it is to push something through the supply chain process. But we work very hard to try to be as predictive as possible based on our history. And we have also learned through the years whether that's through not just seasonal items, but also sometimes items associated with hot licenses that might be event-driven, like a film, to manage the inventory. And oftentimes, as I mentioned, for Halloween last year, we will sell out before the date. Now, in this particular case, we learned, as we try to do under most circumstances, that there's a big shift in Halloween, and we did the research to support that shift. that there's much more interest from consumers across the board on Halloween. So as we mentioned in the remarks, we increased our inventory, our breadth of product. And in this particular case with the Pumpkin Kitty launch, we actually have a flow coming in. So it's hitting web first and then it hits the stores. So we still have a couple of bites at this for the flow of, of Hello Kitty, of Pumpkin Kitty. We didn't have it all come in at once. We wanted to get a sense and if we could catch some more of it and increase the number of units that we ordered for the last flow, we were able to do that. So there's a lot of different levers that we tried to pull. to optimize without getting ourselves way over our skis when we don't have specific knowledge. In this particular case, we did have some good knowledge because we had had Pumpkin Kitty in the past. The supply chain process is an entirely different kind of challenge for us that has issues kind of across the board from sourcing to shipping. But the other thing to think about that I think is really important is although we do have seasonal and licensed products, still the majority of our business is consistent, ongoing, evergreen items that our core business is made up of classic teddy bears, birthday treat bears, Paulette bunnies. We still do the majority of business there, and we're able – to manage our supply chain and basically, and I'm careful in making statements like this, always have something available for the consumer, whether online or in-store, that we hope they will like. It might not always be the licensed product or the exact right seasonal product, but because most of our business is evergreen, it does allow us to sometimes order long order short, stay deep, stay in inventory in a way that it might be difficult for some others because, again, there's no – it doesn't matter from a season's size, sizes, or age. There's no aged inventory for some of these Core Classic products. Teddy Bear, always appreciated.

Great. Thanks for the color. Congratulations again.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Doug Lane with Water Tower Research. Please proceed with your question.

Yes, thank you. Good morning, everybody. I was just curious because, really, business is good here, and financially you're very strong. And I'm just wondering, is there an opportunity to accelerate the reinvestment in your business, either through more capital expenditures or – you know, perhaps acquisitions? Just what are your thoughts on that front?

So thank you for the question. Yes, we are very pleased with things that you are sharing, that our balance sheet is healthy, that our profitability has been solid, and that we continue to find ways to optimize the business and support our growth. When you think about there are opportunities, you know, like we have regular discussions with our board and look at ways between investing in the business, that's always our number one opportunity, returning money to shareholders, and looking at other opportunities to grow the business. One of these things, even though we are expanding significantly our presence globally, we are doing it through this asset-light model where we are – opening stores through our partner operated locations and very asset light. So we are in more places without spending a lot of capital. In addition to that, we are looking at opening stores and share and cover some of those stores, even in domestic markets. And in UK, we shared some stores that we opened last year in these tourist locations. So we are definitely looking at ways to open more locations, be in more places. We are not saturated from the store count perspective. And then as we think about all the other opportunities, we are always open and interested in hearing and learning. And, you know, if there is a strong ROI, you know, we definitely would consider things.

And what is the track record with acquisitions? Have you looked at any small ones? Is there an opportunity for a big one, or is it just really not feasible or not practical?

I think it's important to understand as a publicly traded company, obviously we can't share what we're looking at or not looking at from an acquisition perspective or not. But on that front, we have often mentioned that we have an open mind to the right type, the right size. And most of the time when we're considering it, we're thinking about something that, like everybody else, is additive or synergistic. And in some cases, we are making concerted investments in the company. And you may want to, if we recognize it's often the case, buy the capability versus build the capability. And if there's something that can accelerate, particularly a strategy that's already proven and working for us, that makes sense we would do that. The largest acquisition, to my knowledge, that we've made as a company, however, was the U.K. acquisition of the stores themselves. There was a competitive company running a like Build-A-Bear concept in the U.K., and we purchased that entity some years ago prior to both me and Dwayne, and that is what we operate there is still the bones of that operation.

Okay, that's good color. Thank you.

Thank you. We have no further questions at this time. I'd now like to turn the floor back over to management for closing comments.

Thank you so much. We appreciate everybody being on to hear the results of our record-breaking second quarter, and we look forward to sharing third quarter results with you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.