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Build-A-Bear Workshop, Inc. Reports Increased Sales and Improved Operating Performance in Second Quarter Fiscal 2013

Consolidated net retail sales increase $1.4 million while operating 31 fewer stores than last year
Consolidated comparable store sales increase 7.3%

ST. LOUIS--(BUSINESS WIRE)--Jul. 25, 2013-- Build-A-Bear Workshop, Inc. (NYSE: BBW), an interactive entertainment retailer, today reported results for the second quarter and twenty-six weeks ended June 29, 2013.

Second Quarter 2013 Highlights (13 weeks ended June 29, 2013):

Consolidated net retail sales were $80.4 million while operating 31 fewer stores compared to $79.0 million in the fiscal 2012 second quarter, an increase of 2.2%, excluding the impact of foreign exchange;
Consolidated comparable store sales increased 7.3% and included an 8.6% increase in North America and a 1.7% increase in Europe;
Consolidated e-commerce sales rose 5.2%, excluding the impact of foreign exchange;
Net loss was $6.2 million, or $0.38 per share, an improvement from a net loss of $7.6 million, or $0.46 per share in the fiscal 2012 second quarter; and
Adjusted net loss was $5.4 million, or $0.33 per share, an improvement from an adjusted net loss of $7.5 million, or $0.46 per share, in the 2012 second quarter. (See Reconciliation of Net Loss to Adjusted Net Loss.)

Sharon Price John, Build-A-Bear Workshop’s Chief Executive Officer and Chief President Bear commented, “We continued to show progress in the second quarter with increased comparable store sales, growth in total sales on a lower store count and expansion in gross profit margin, as compared to last year. Our brand marketing, product and real estate initiatives led to our third consecutive quarter of positive comparable store sales in North America. This, along with a reduction in promotional activity, resulted in improved operating performance for the quarter and first half of the year.

“We are intently focused on executing our plans for the balance of this year,” stated Ms. John. “As we move forward and solidify our longer term strategies, we will leverage the strength of the Build-A-Bear Workshop brand to return to profitability and build a platform for sustainable growth. We believe we have opportunities to evolve our business model to increase the lifetime value of our guests and further improve our efficiencies.”

Additional Second Quarter 2013 Details:

Total revenues were $81.9 million while operating 31 fewer stores compared to $80.4 million in the 2012 second quarter, an increase of 2.3%, excluding the impact of foreign exchange;
Retail gross margin expanded 180 basis points to 36.8% from 35.0% in the 2012 second quarter, primarily driven by leverage in occupancy cost and reduced promotional activity; and
Selling, general and administrative expense (“SG&A”) was $36.9 million, or 45.1% of total revenues, including $0.9 million in management transition and store closing expenses. This compares to $37.1 million, or 46.1% of total revenues in the fiscal 2012 second quarter.

First Six Months 2013 (26 weeks ended June 29, 2013):

Total revenues were $186.2 million compared to $176.8 million in the first six months of 2012, an increase of 5.5%, excluding the impact of foreign exchange;
Consolidated net retail sales were $183.3 million, compared to $174.2 million in the first six months of fiscal 2012, an increase of 5.4%, excluding the impact of foreign exchange;
Consolidated comparable store sales increased 9.0% and included a 9.7% increase in North America and a 5.9% increase in Europe;
Consolidated e-commerce sales rose 6.3%, excluding the impact of foreign exchange;
Retail gross margin expanded 170 basis points to 39.4% from 37.7% in the first six months of 2012 primarily driven by leverage in occupancy costs and reduced promotional activity, partially offset by higher product costs in the first quarter;
SG&A was $80.6 million, or 43.3% of revenues, a 40 basis point improvement from the first six months of 2012, including $3.2 million in management transition and store closing expenses as well as incremental marketing expenses in the first quarter;
Net loss was $6.2 million or $0.38 per share, an improvement from a net loss of $8.6 million, or $0.53 per share in the first six months of fiscal 2012; and
Adjusted net loss was $3.1 million or $0.19 per share, an improvement from an adjusted net loss of $8.0 million, or $0.49 per share in the first six months of fiscal 2012. (See Reconciliation of Net Loss to Adjusted Net Loss.)

Store Activity

During the quarter, the Company closed ten stores to end the period with 323 company-owned stores – 263 in North America and 60 in Europe. (See Company-Owned Store Activity Schedule.) The Company remodeled four stores in its new design format. The Company’s international franchisees ended the quarter with 90 stores in 14 countries.

The Company continues to expect to close an additional 20 to 35 stores in fiscal 2013 and 2014, along with limited, opportunistic store openings, to reach its optimal store count of 225 to 250 stores in North America. These select store closures are expected to transfer approximately 20% of sales to other stores in the same markets, which is consistent with the average transfer rate of the stores closed since 2012.

Balance Sheet

The Company ended the 2013 second quarter with a strong balance sheet and no borrowings under its revolving credit facility. As of June 29, 2013, cash and cash equivalents totaled $28.1 million, over half of which was domiciled outside the U.S. Total inventory at quarter end was $48.1 million compared to $47.0 million at quarter end 2012. Inventory per square foot increased 11.5%, as compared to the prior year period. The Company expects capital expenditures to be $19 to $22 million in fiscal 2013 to support the refresh and repositioning of stores and investment in infrastructure. Depreciation and amortization is expected to be approximately $20 million.

Accomplishments toward Long Term Objectives:

Introduce a new store design – At quarter end, the Company operated 11 newly imagined stores which continued to drive average same store sales increases of over 20% in the second quarter. The Company expects to operate approximately 30 locations in this new store format by the end of 2013 with an additional 20 to 25 locations planned in 2014.
Improve store productivity and profitability – The Company has closed 38 stores since the beginning of 2012 transferring over 20% of those sales to other stores in the same markets. In addition, the Company reduced the square footage of 16 other stores since the beginning of 2012 by remodeling and moving them to smaller locations within the same malls.
Increase shopping frequency – The Company reintroduced brand building TV advertising in its U.S. markets beginning in mid-October 2012 and rebalanced the mix of marketing in Europe to drive customer traffic, further engage existing guests and attract new guests to its stores. This contributed to an improvement in sales trend with comparable store sales increasing 9.7% in North America and 5.9% in Europe in the first six months of 2013.
Reinforce Build-A-Bear Workshop as a top destination for gifts – The Company capitalized on its brand advertising to drive the gift of experience which led to a 30% increase in the issuance of gift cards at its stores on a consolidated basis during last year’s peak fourth quarter gifting period, followed by a 20% increase in the first six months of 2013. This contributed to increased retail sales in the first half of 2013 as the cards were redeemed.
Optimize the Company’s global presence – The Company’s franchisees operated 90 international locations as of June 29, 2013. The Company expects its franchisees to open a total of 8 to 12 locations in fiscal 2013 which are likely to be offset by select closures.
Improve cost efficiencies – The Company continues to expect to realize cost savings of $5 million to $10 million in fiscal 2013, which include expense reduction initiatives and savings from closed stores which will primarily be realized in the remainder of the year.

Today’s Conference Call Webcast

Build-A-Bear Workshop will host a live Internet webcast of its quarterly investor conference call at 9 a.m. ET today. The audio broadcast may be accessed at the Company’s investor relations Web site, http://IR.buildabear.com. The call is expected to conclude by 10 a.m. ET.

A replay of the conference call webcast will be available in the investor relations Web site for one year. A telephone replay will be available beginning at approximately noon ET today until midnight ET on August 8, 2013. The telephone replay is available by calling (858) 384-5517. The access code is 412352.

About Build-A-Bear Workshop, Inc.

Build-A-Bear Workshop, Inc. is the only global company that offers an interactive make-your-own stuffed animal retail-entertainment experience. There are more than 400 Build-A-Bear Workshop stores worldwide, including company-owned stores in the U.S., Puerto Rico, Canada, the United Kingdom and Ireland, and franchise stores in Europe, Asia, Australia, Africa, the Middle East, Mexico and South America. Founded in St. Louis in 1997, Build-A-Bear Workshop is the leader in interactive retail. Brands include make-your-own Major League Baseball^® mascot in-stadium locations, and Build-A-Dino^® stores. Build-A-Bear Workshop extends its in-store interactive experience online with its award winning virtual world Web site at bearville.com^®. The company was named to the FORTUNE 100 Best Companies to Work For^® list for the fifth year in a row in 2013. Build-A-Bear Workshop (NYSE: BBW) posted total revenue of $380.9 million in fiscal 2012. For more information, call 888.560.BEAR (2327) or visit the company's award-winning Web site at buildabear.com^®.

Forward-Looking Statements

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. These risks and uncertainties include, without limitation, those detailed under the caption “Risk Factors” in our annual report on Form 10-K for the year ended December 29, 2012, as filed with the SEC, and the following:

	--		general global economic conditions may continue to deteriorate, which could lead to disproportionately reduced consumer demand for our products, which represent relatively discretionary spending;
	--		customer traffic may decrease in the shopping malls where we are located, on which we depend to attract guests to our stores;
	--		we may be unable to generate interest in and demand for our interactive retail experience, or to identify and respond to consumer preferences in a timely fashion;
	--		our marketing and on-line initiatives may not be effective in generating sufficient levels of brand awareness and guest traffic;
	--		we may be unable to generate comparable store sales growth;
	--		we may be unable to effectively operate or manage the overall portfolio of our company-owned stores;
	--		we may not be able to operate our company-owned stores in the United Kingdom and Ireland profitably;
	--		we may be unable to renew or replace our store leases, or enter into leases for new stores on favorable terms or in favorable locations, or may violate the terms of our current leases;
	--		the availability and costs of our products could be adversely affected by risks associated with international manufacturing and trade, including foreign currency fluctuation;
	--		our products could become subject to recalls or product liability claims that could adversely impact our financial performance and harm our reputation among consumers;
	--		we may lose key personnel, be unable to hire qualified additional personnel, or experience turnover of our management team;
	--		we are susceptible to disruption in our inventory flow due to our reliance on a few vendors;
	--		high petroleum products prices could increase our inventory transportation costs and adversely affect our profitability;
	--		we may be unable to effectively manage our international franchises or laws relating to those franchises may change;
	--		we may improperly obtain or be unable to adequately protect customer information in violation of privacy or security laws or customer expectations;
	--		we may suffer negative publicity or be sued due to violations of labor laws or unethical practices by manufacturers of our merchandise;
	--		we may suffer negative publicity or negative sales if the non-proprietary toy products we sell in our stores do not meet our quality or sales expectations;
	--		we may be unable to operate our company-owned distribution center efficiently or our third-party distribution center providers may perform poorly;
	--		our market share could be adversely affected by a significant, or increased, number of competitors;
	--		we may fail to renew, register or otherwise protect our trademarks or other intellectual property;
	--		poor global economic conditions could have a material adverse effect on our liquidity and capital resources;
	--		we may have disputes with, or be sued by, third parties for infringement or misappropriation of their proprietary rights;
	--		fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline; and
	--		we may be unable to repurchase shares of our common stock at the times or in the amounts we currently anticipate or the results of the share repurchase program may not be as beneficial as we currently anticipate.

All other brand names, product names, or trademarks belong to their respective holders.


BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(dollars in thousands, except share and per share data)

		13 Weeks					13 Weeks
		Ended					Ended
		June 29,		% of Total			June 30,		% of Total
		2013		Revenues ⁽¹⁾			2012		Revenues ⁽¹⁾
Revenues:
Net retail sales	$	80,395		98.2		$	78,989		98.2
Commercial revenue		750		0.9			705		0.9
Franchise fees		757		0.9			716		0.9
Total revenues		81,902		100.0			80,410		100.0
Costs and expenses:
Cost of merchandise sold		51,169		63.1			51,704		64.9
Selling, general and administrative		36,901		45.1			37,075		46.1
Interest expense (income), net		(55	)	(0.1	)		(63	)	(0.1	)
Total costs and expenses		88,015		107.5			88,716		110.3
Loss before income taxes		(6,113	)	(7.5	)		(8,306	)	(10.3	)
Income tax expense (benefit)		105		0.1			(755	)	(0.9	)
Net loss	$	(6,218	)	(7.6	)	$	(7,551	)	(9.4	)

Loss per common share:
Basic	$	(0.38	)			$	(0.46	)
Diluted	$	(0.38	)			$	(0.46	)
Shares used in computing common per share amounts:
Basic		16,460,474					16,458,889
Diluted		16,460,474					16,458,889

(1) Selected statement of operations data expressed as a percentage of total revenues, except cost of merchandise sold which is expressed as a percentage of net retail sales and commercial revenue. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding.


BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(dollars in thousands, except share and per share data)

		26 Weeks					26 Weeks
		Ended					Ended
		June 29,		% of Total			June 30,		% of Total
		2013		Revenues ⁽¹⁾			2012		Revenues ⁽¹⁾
Revenues:
Net retail sales	$	183,326		98.5		$	174,189		98.5
Commercial revenue		1,223		0.7			1,081		0.6
Franchise fees		1,618		0.9			1,513		0.9
Total revenues		186,167		100.0			176,783		100.0
Costs and expenses:
Cost of merchandise sold		111,640		60.5			109,170		62.3
Selling, general and administrative		80,636		43.3			77,201		43.7
Interest expense (income), net		(106	)	(0.1	)		(149	)	(0.1	)
Total costs and expenses		192,170		103.2			186,222		105.3
Loss before income taxes		(6,003	)	(3.2	)		(9,439	)	(5.3	)
Income tax expense (benefit)		202		0.1			(871	)	(0.5	)
Net loss	$	(6,205	)	(3.3	)	$	(8,568	)	(4.8	)

Loss per common share:
Basic	$	(0.38	)			$	(0.53	)
Diluted	$	(0.38	)			$	(0.53	)
Shares used in computing common per share amounts:
Basic		16,345,882					16,248,884
Diluted		16,345,882					16,248,884

(1) Selected statement of operations data expressed as a percentage of total revenues, except cost of merchandise sold which is expressed as a percentage of net retail sales and commercial revenue. Percentages will not total due to cost of merchandise sold being expressed as a percentage of net retail sales and commercial revenue and immaterial rounding



BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share data)

	June 29,			December 29,			June 30,
	2013			2012			2012
ASSETS
Current assets:
Cash and cash equivalents	$	28,061		$	45,171		$	26,450
Inventories		48,134			46,904			47,029
Receivables		6,866			9,428			4,935
Prepaid expenses and other current assets		13,115			14,216			13,604
Deferred tax assets		269			987			469
Total current assets		96,445			116,706			92,487

Property and equipment, net		68,273			71,459			73,518
Goodwill		-			-			32,643
Other intangible assets, net		611			633			595
Other assets, net		3,258			3,304			6,704
Total Assets	$	168,587		$	192,102		$	205,947

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	33,897		$	38,984		$	24,253
Accrued expenses		8,547			11,570			7,227
Gift cards and customer deposits		24,744			30,849			22,848
Deferred revenue		4,892			4,800			5,568
Total current liabilities		72,080			86,203			59,896

Deferred franchise revenue		1,057			1,177			1,301
Deferred rent		18,099			20,843			22,075
Other liabilities		570			742			257


Stockholders' equity:
Common stock, par value $0.01 per share		173			171			174
Additional paid-in capital		67,225			66,112			66,060
Accumulated other comprehensive loss		(8,949	)		(7,683	)		(9,082	)
Retained earnings		18,332			24,537			65,266
Total stockholders' equity		76,781			83,137			122,418
Total Liabilities and Stockholders' Equity	$	168,587		$	192,102		$	205,947



BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Unaudited Selected Financial and Store Data
(dollars in thousands, except square foot data)

			13 Weeks			13 Weeks			26 Weeks			26 Weeks
			Ended			Ended			Ended			Ended
			June 29,			June 30,			June 29,			June 30,
			2013			2012			2013			2012

Other financial data:
	Retail gross margin ($) ⁽¹⁾	$	29,563		$	27,666		$	72,252		$	65,677
	Retail gross margin (%) ⁽¹⁾		36.8	%		35.0	%		39.4	%		37.7	%
	E-commerce sales	$	2,289		$	2,191		$	5,628		$	5,316
	Capital expenditures, net ⁽²⁾	$	5,209		$	4,525		$	9,016		$	8,304
	Depreciation and amortization	$	4,761		$	5,273		$	9,677		$	10,636

Store data ⁽³⁾:
	Number of company-owned stores at end of period
	North America - Traditional								257			285
	North America - Non-traditional								6			11
	Total North America								263			296
	Europe								60			58
	Total stores								323			354

	Number of franchised stores at end of period								90			84

	Company-owned store square footage at end of period
	North America - Traditional								728,639			817,486
	North America - Non-traditional								9,759			18,120
	Total North America								738,398			835,606
	Europe ⁽⁴⁾								86,331			83,631
	Total square footage								824,729			919,237

	Comparable store sales change (%)⁽⁵⁾
	North America		8.6	%		(1.8	)%		9.7	%		1.1	%
	Europe		1.7	%		(1.3	)%		5.9	%		(6.0	)%
	Consolidated		7.3	%		(1.7	)%		9.0	%		(0.1	)%

(1)	Retail gross margin represents net retail sales less retail cost of merchandise sold. Retail gross margin percentage represents retail gross margin divided by net retail sales.
(2)	Capital expenditures, net represents cash paid for property, equipment, other assets and other intangible assets.
(3)	Excludes our webstore and pop-up, seasonal and event-based locations. North American stores are located in the United States, Canada and Puerto Rico. In Europe, stores are located in the United Kingdom and Ireland.
(4)	Square footage for stores located in Europe is estimated selling square footage.
(5)	Comparable store sales percentage changes are based on net retail sales and stores are considered comparable beginning in their thirteenth full month of operation.

* Non-GAAP Financial Measures

In this press release, the Company’s financial results are provided both in accordance with generally accepted accounting principles (GAAP) and using certain non-GAAP financial measures. In particular, the Company provides historic earnings (loss) and earnings (loss) per diluted share adjusted to exclude certain costs and accounting adjustments, which are non-GAAP financial measures. These results are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help identify underlying trends in the Company’s business and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company’s core operating results. These measures should not be considered a substitute for or superior to GAAP results.



BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Reconciliation of Net Loss to Adjusted Net Loss
(dollars in thousands, except share and per share data)

	13 Weeks			13 Weeks			26 Weeks			26 Weeks
	Ended			Ended			Ended			Ended
	June 29,			June 30,			June 29,			June 30,
	2013			2012			2013			2012
Net loss	$	(6,218	)	$	(7,551	)	$	(6,205	)	$	(8,568	)

Management transition costs⁽¹⁾		506			-			2,251			-
Store closing costs⁽²⁾		340			40			904			128
Losses from investment in affiliate⁽³⁾		-			-			-			475
Adjusted net loss	$	(5,372	)	$	(7,511	)	$	(3,050	)	$	(7,965	)


	13 Weeks			13 Weeks			26 Weeks			26 Weeks
	Ended			Ended			Ended			Ended
	June 29,			June 30,			June 29,			June 30,
	2013			2012			2013			2012
Net loss per share	$	(0.38	)	$	(0.46	)	$	(0.38	)	$	(0.53	)

Management transition costs⁽¹⁾		0.03			-			0.14			-
Store closing costs⁽²⁾		0.02			0.00			0.05			0.01
Losses from investment in affiliate⁽³⁾		-			-						0.03
Adjusted net loss per share	$	(0.33	)	$	(0.46	)	$	(0.19	)	$	(0.49	)

(1) Represents management transition costs related to the change in Chief Executive. Costs include severance, along with benefits and related taxes, executive search fees, signing bonus and professional fees.
(2) Represents the net impact related to the closing of stores, including asset impairment and disposal charges and severance costs along with adjustments to lease related liabilities.
(3) Represents non-recurring charge related to the Company's investment in Ridemakerz.



BUILD-A-BEAR WORKSHOP, INC. AND SUBSIDIARIES
Company-Owned Store Activity

	2013

	Twenty-six Weeks				Fifty-two Weeks - Projected
	December 29,			June 29,	December 29,			December 28,
	2012	Opened	Closed	2013	2012	Opened	Closed	2013
North America
Traditional	283	-	(26)	257	283	4	(35)	252
Non-traditional	8	-	(2)	6	8	-	(2)	6
	291	-	(28)	263	291	4	(37)	258

Europe	60	-	-	60	60	-	-	60
Total	351	-	(28)	323	351	4	(37)	318


	2012

	Twenty-six Weeks				Fifty-two Weeks
	December 31,			June 30,	December 31,			December 29,
	2011	Opened	Closed	2012	2011	Opened	Closed	2012
North America
Traditional	287	1	(3)	285	287	2	(6)	283
Non-traditional	11	1	(1)	11	11	1	(4)	8
	298	2	(4)	296	298	3	(10)	291

Europe	58	-	-	58	58	2	-	60
Total	356	2	(4)	354	356	5	(10)	351

The Company's long term store real estate goal is to bring its stores back to best in class productivity and profitability. Today, the Company believes that the optimal number of Build-A-Bear Workshop stores in North America is between 225 to 250 and 60 to 70 in the United Kingdom and Ireland for a total of 285 to 320 stores. The Company currently expects to reach this level with the closure of 60 to 70 stores in fiscal 2012 through 2014, primarily in North America, along with limited, opportunistic store openings. Locations to close and the timing of the closures are subject to ongoing negotiations and overall economic considerations as market repositioning and optimization plans are continually reevaluated.

Source: Build-A-Bear Workshop, Inc.

Build-A-Bear Workshop
Investors: Tina Klocke, 314.423.8000 x5210
Media: Jill Saunders, 314.423.8000 x5293