Build-a-bear Workshop, Inc. · NYSE:BBW
Build-a-bear Workshop — Investor Presentation (January 2018)
35 slides from Build-a-bear Workshop's investor presentation, Jan 9, 2018
Slide 1: Build-A-Bear: Sharon Price John, President & CEO
Sharon Price John President & CEO BUILD-A-BEAR EST. 1997
Slide 2: Forward-looking statements
This presentation contains certain statements that are, or may be considered to be, “forward-looking statements” for the purposeof federal securities laws, including, but not limited to, statements that reflect our current views with respect to future events and financial performance. We generally i
Slide 3: About BBW
About BBW•20 YEARS YOUNG: Established in 1997 as an experiential retailer offering make-your-owned stuffed animals; IPO in 2004•GLOBAL: Over 400 retail locations around the world through a combination of direct and franchise operations generating over $350MM in annual revenue•VALUED CULTURE: 9 conse
Slide 4: Brand Business
Brand Business 4
Slide 5: Brand: Broad Consumer Appeal
Brand Broad Consumer Appeal: Gender, Age and Geography 170 Million Furry Friends Sold Globally** 90%+ Aided Brand Awareness* Powerful Social & Loyalty Engagement *US data, C&R Research, Jan 2017 **Since 1997 5
Slide 6: Business 2012
Business 2012 •2012 GAAP Pre-Tax Loss of ~$50MM •4 consecutive years of GAAP Pre-Tax Losses (2009 -2012) 6
Slide 7: Business 2013-2017: Returned to Profitability
•Diversified real estate portfolio; closed select stores •Reduced discounts, enhanced marketing to leverage the brand emotion and highlight the in-store EXPERIENCE •Refreshed brand look and store design focused on productivity •Rationalized expenses, renegotiated contracts •Value-engineered product
Slide 8: Rebuilding Systems and Processes & Updating Org Structure
Re-organized with new management team and upgraded talent; Board of Directors evolution •Instituted new, more efficient processes •Updating IT infrastructure & digital capabilities; added new systems including new website and omni-channel platforms •Re-building international infrastructure •Restruct
Slide 9: In the Face of Significant Retail Industry Headwinds
In the Face of Significant RETAIL INDUSTRY Headwinds From 2012 to 2016 traditional mall traffic declined close to 40% *2012-2016 Estimate based on ShopperTrak and Retail Next data ** 2012–2016 from 6% to 12% while e-commerce sales DOUBLED as a percent of total retail** * 9 BUILD-A-BEAR 2018
Slide 10: Resulting in Over 12,000 Retail Door Closures
Resulting in… Over12,000 retail door closures in 2016 with scores of retail bankruptcies * US data NPR 1-3-2018 and projections of an additional 9,000 retail door closures in 2017* 10 BUILD-A-BEAR 2018
Slide 11: Retail Industry Headlines
Despite Reported TOTAL Retail Industry 4Q 2017 Sales Increases, Recent Headlines Include… America’s ‘Retail Apocalypse’ Is Really Just Beginning –Bloomberg Holiday shopping 2017: The truth about the "retail apocalypse” -USA Today “The 4 Reasons Why 2017 is the Tipping Point for Retail” -The Atlantic
Slide 12: Retail Apocalypse or an Era of Rapid Change?
The Truth…A RETAIL APOCALYPSE ?OR AN ERA OF RAPID CHANGE? 12 BUILD-A-BEAR 2018
Slide 13: The Economist: Next Steps for Brick & Mortar
BUILD-A-BEAR 2018 “The Economist” recently noted these next steps for Brick & Mortar to “Fight Back”*… Make store associates core to store experience Use customer insights to drive profit not just promotions Take a surgical approach to store closures and remodels Refresh brand to appear more contemp
Slide 14: Who Thrives in the Long Run?
Who Thrives in the Long Run? COMPANIES THAT HAVE: •Meaningful, stretchable brands •Unique in-store experiences and product offerings •Omni-channel capabilities •A diversified business model •Efficient and nimble operations •Direct, data-driven relationships with their consumers 14 BUILD-A-BEAR 2018
Slide 15: Consecutive Years of Profitability
4 CONSECUTIVE YEARS OF PROFITABILITY ~95% Profitable US Stores compared to 78% at the start of the turnaround in 2013 Based on preliminary FY2017 resultsBusiness Now 2014-2017 GAAP Pre-Tax 15
Slide 16: BBW is Now a Stronger Company Delivering Sustained Profitability
2009-2012 BUILD-A-BEAR 2018 2013 2014-2017 BBW is Now a Stronger Company Delivering Sustained Profitability Based on preliminary FY2017 results BEGINNING OF TURNAROUND PLAN Pre-Turnaround: 4 consecutive years of Pre-Tax Losses Post Turnaround: 4 consecutive years of Pre-Tax Profits ($77MM) Cumulativ
Slide 17: Consistent Improvement in Underlying Metrics
BBW Retail Gross Margin BUILD-A-BEAR 2018 Consistent Improvement in Underlying Metrics +760 bps *Based on preliminary FY2017 results $35.38 $37.32 $40.61 $44.10 $45.61 $46.29 2012 2013 2014 2015 2016 2017* NA Dollars Per Transaction +31% NA Units Per Transaction 3.66 3.69 3.76 3.95 3.99 4.06 2012 20
Slide 18: Strong Cash Flow & No Debt
Strong Cash Flow & No Debt Based on preliminary FY2017 resultsBusiness Now 1 8 18
Slide 19: 2017 Preliminary Results
•$356MM Total Revenues •46.5% Retail Gross Margin •$12-13MM GAAP Pre-Tax Income 2017 Preliminary Results 2017 vs 2016 With Consolidated Comparable Sales of -6.5%, we delivered: Based on preliminary FY2017 results 19
Slide 20: 2017 Highlights
2017 Highlights DIVERSIFYING and EXPANDING PROFITABLE REAL ESTATE PORTFOLIO: •“Tourist Locations” tend to outperform traditional mall stores; NYC store next to Empire State Building opened 4Q 2017 is exceeding plan •Remodeled Discovery stores outperform Heritage stores on average •Newer formats like
Slide 21: 2017 Highlights: Gift Cards, Stock Repurchase, New Revenue Streams
2017 Highlights GIFTCARD GROWTH: Standard gift card sales increased, particularly at 3rdparty vendors; the gift of the “Build-A-Bear Experience” is in strong demandSTOCK REPURCHASE: Concluded Strategic Alternatives process with Board approval of a stock buy back of $20MM*; repurchased ~500,000 share
Slide 22: Insights: Real Estate Diversification and E-Commerce
Insights REAL ESTATE DIVERSIFICATION REMAINS KEY •Opportunity to continue to diversify real estate portfolio •Add more “tourist locations” + opportunistic Discovery remodels -Planned openings in San Francisco, Baltimore, Orlando and Chicago •Continue to leverage “concourse shops” and “pop-up shops”
Slide 23: Insights: Consumer Shopping Habits Are Changing
Insights CONSUMER SHOPPING HABITS ARE CHANGING AT A MORE RAPID PACE –WITH VOLATILITY FOCUSED IN 4Q & DECEMBER: •The acute macro shift in December consumption patterns to e-commerce shopping negatively impacted our total business for the quarter and the year –we will re-think our December go-to-marke
Slide 24: Insights: Profitable US Store Base Can Fund Future State
Insights PROFITABLE US STORE BASE CAN FUND FUTURE STATE: •Profitable store base generates cash, even with negative comps, to fund new business model designed to leverage the brand power into new, margin accretive revenue streams Why not close stores that aren’t comping positive? 24
Slide 25: Store Profitability
Store Profitability Top Quartile US Stores (with or without .com) Bottom Quartile US Stores ~18% EBIT Based on preliminary FY2017 results; Quartiles are Comp based DOUBLE DIGIT NEGATIVE COMP POSITIVE COMP ~18% EBIT Comparable store sales alone do not accurately reflect the health of our business 25
Slide 26: Real Estate Portfolio Evolution
Real Estate Portfolio Evolution Before 2013 2018 Projected Next 3-5 Years ~90%+In-line locations in Traditional Malls ~80% In-line locationsin Traditional Malls ~60-70% In-line locations in Traditional Malls 2,800 Square Feet per Store 2,200 Square Feet per Store 1,800 Square Feet per Store Heritage
Slide 27: But What Happens When Malls Close?
But What Happens When Malls Close? BUILD-A-BEAR 2018 “Malls are doomed: 25% will be gone in the next 5 years” -CNN MONEY 27
Slide 28: Why Mall Closures Are Not Expected to Hurt BBW
WHY? BUILD-A-BEAR 2018 -Approximately 1,200 malls currently operating in the US -BBW has already closed most of our underperforming mall stores and has temporarily extended favorable lease terms in mid-tier malls -~25% of mall closure equates to 900-1,000 malls remaining open -BBW is planning no mor
Slide 29: The Strategy is Sound
The Strategy is Sound Use experiential retail model to diversify and expand the global footprint to generate cash Leverage and invest in the power of the brand to build margin accretive revenue streams An experiential retailer with a strong brand A strong branded company with a diversified profitabl
Slide 30: E-Comm and Omni-Channel Opportunity
E-Comm and Omni-Channel Opportunity BUILD-A-BEAR 2018 Before 2013 2018 Projected Next 3-5 Years Heritage Look/no “experience” Re-launched site with “Bear- Builder” experience Upgrade with gifting and expand omni-channel Less than 4% of Retail Sales 8-10% of retail sales Over 10% of retail sales Losi
Slide 31: International Franchising Expansion
International Franchising Expansion BUILD-A-BEAR 2018 Mexico Germany Turkey UAE, Qatar, Bahrain, Kuwait Australia S Africa Thailand Current Operating Franchise Territories Singapore China “Shrink to Grow” Approach: •Terminated marginal operators while restructuring international organization and add
Slide 32: Outbound Licensing and Entertainment Growth
Outbound Licensing and Entertainment Growth BUILD-A-BEAR 2018 2013 Expected 2018 Next 3-5 years No new licensees 15 Licensees/10+ categories 20+ licensees/20+ categories 90%+ flow through of royalty revenue 90%+ flow through of royalty revenue •Royalty based revenue model with higher than average fl
Slide 33: The Strategy is Sound: Diversified Revenue Stream Summary
The Strategy is Sound Revenue Stream 3-5 Years Potential Growth Rates Expected Contribution Margin Percentage Expected Relative Contribution Dollars Expected Relative Capital Investment Brick & Mortar Retail Low to Mid Single Digits 20-25% High Med – High E-commerce High Single to Low Double Digits
Slide 34: 2018 Preliminary Expectations
2018 Preliminary Expectations * Given the potential impact of anticipated accounting changes and recent tax changes, we expect to be able to provide additional guidance during our upcoming 2017 year-end earnings call. In addition, as a reminder, the BBW fiscal year will change to a February to Janua
Slide 35: Thank you!
Thank you! Build-A-Bear 1954 Innerbelt Business Center Dr. St. Louis, MO 63114 www.buildabear.com
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