By Carter Harrison
Unfortunately for Build-A-Bear the better performance seen during the first quarter has not been carried through into the latest reporting period. Indeed, with sales down sharply and the company firmly in loss-making territory, this is one of the worst quarterly outcomes in well over two years. That said, the numbers do not come as any particular surprise given both the tough comparable from the same period last year and the various investments the company has been making which have proven disruptive to sales and income.
The prior year comparative was a tough one to beat with same-store sales rising by 8.7% and net income up by a whopping 758%. Most of this was thanks to a strong showing from the Minions collection, for which there was no comparable replacement this year. Various store initiatives, which came to fruition around this time last year, also aided growth — but again, there has been no comparable benefit this year. Both of these things have been exacerbated by a harsher exchange rate environment which had a $0.5 million negative impact on earnings.
The tough comparative is not the only factor at play in these diminished numbers, especially on the profit front. Here the company’s current investments have also played a role. Given that these have included store closures for refurbishment and some disruption thanks to IT investments, it is reasonable to assume that they have affected the top-line as much as they have the bottom-line.
The new Discovery store format provides a much more interesting, engaging, brighter shopping environment, with comparable sales some 10% higher than traditional stores thanks to a combination of higher customer traffic and average basket value. The store reformat and continued selective expansion into non-traditional locations, including a wholesale agreement with Carnival Cruise Line ships, should help lift numbers.
Looking in more detail at these investments we are satisfied that they are both prudent and necessary and that, over the longer term, they will pay dividends. That they have been made in the first half of the year, which is a traditionally quiet period for Build-A-Bear, is eminently sensible and will allow the company to bed them in as it moves into its all-important second half.
One of the most significant investments is the new Discovery store format which provides a much more interesting, engaging, brighter shopping environment. To date, Build-A-Bear has rolled out 31 of these new stores with a target of 50 to 55 stores by year end. Early results are positive with comparable sales some 10% higher than traditional stores thanks to a combination of higher customer traffic and average basket value. The small number of stores converted thus far means that there is scope for Build-a-Bear to ramp up performance as more stores are converted, although this is also likely to soften bottom line results somewhat as the company moves into fiscal 2017 and beyond.
Alongside the store reformat the continued selective expansion into non-traditional locations, including a wholesale agreement with Carnival Cruise Line ships, should help to lift numbers in the remaining two quarters of this year. As such we are penciling in positive comparable and total sales uplifts for the second half.
Carter Harrison is a retail analyst at research firm Conlumino.