Build-A-Bear Workshop [BBW] Conference call transcript for 2022 q1
2022-05-26 12:10:06
Fiscal: 2022 q1
Operator: Greetings, and welcome to the Build-A-Bear Workshop’s First Quarter 2022 Earnings Conference. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Allison Malkin of ICR. Thank you. Please go ahead.
Allison Malkin: Good morning. Thank you for joining us. With me today are Sharon Price John, CEO; and Voin Todorovic, CFO. For today's call, Sharon will begin with the discussion of our first quarter fiscal 2022 performance and update the progress we have made on our key priorities. After, Voin will review the financials and guidance in more detail. 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 1 hour call. Feel free to requeue 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 website. 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. And now, I would like to turn the call over to Sharon.
Sharon John: Thank you, Allison, and hello, and thanks to everyone for joining us this morning. I will start today's call by highlighting some of our financial accomplishments for the first quarter, and then I will provide updates on our strategic pillars. We believe that the disciplined execution of our plan has allowed us to build a foundation that has advanced our capabilities and diversified our business models and formats, which we expect to fuel further growth in the fiscal year and beyond. Following an outstanding performance in 2021, we were pleased to report that the first quarter of fiscal 2022 continued our positive trend. Our financial results include total revenues of $118 million, an increase of 28% over the prior year's period. Total revenues were the highest for a first quarter in our company's history, with growth in both North America and Europe, and all reported business segments, including direct-to-consumer, commercial and franchising business, as well as in both net retail sales and digital demand. As noted, we had increases in e-commerce in both North America and in Europe. The growth in Europe is particularly impressive given that the fact that in the first quarter of 2021, our stores were closed for the majority of the period due to government mandated restrictions and e-commerce was the dominant channel for sales during that time. For added dimension, our 2022 first quarter consolidated digital demand is greater than our e-commerce sales for the entire 2017 fiscal year, demonstrating the progress we have made in our digital transformation over the last five years. And importantly, we continued our trend of record breaking profitability for the fifth consecutive quarter with pre-tax income of over $18 million representing an increase of 38% over last year's previous all-time high. As noted in this morning's press release, we are pleased to see continued positive momentum in our current second quarter and are providing annual guidance with growth projected for total revenues and profit compared to the prior year's results. We believe that our sustained profitable growth is largely the result of a multi-faceted, multi-year strategic plan that we have been successfully executing while navigating a highly volatile environment. Our disciplined focus and agility particularly during the prolonged pandemic-related challenges, have played a key role in the evolution of our company into a more digitally driven diversified omni-channel entity that includes a dynamic inefficient vertical experiential retail concept that remains relevant to today's consumers, who have been increasingly seeking, highly engaging, family friendly activities and shopping as restrictions have lifted. With a strategy in place that has been delivering strong and consistent results, we remain focused on expanding our capabilities to drive additional profitable growth across our stated key pillars, which include advancing a broad ranging and comprehensive digital transformation across the company, continuing to evolve our retail experience and footprint while leveraging our expanded omnichannel capabilities, and optimizing our solid financial position to invest in initiatives intended to drive further growth. First, as it relates to leveraging our ongoing digital transformation across the organization, we have confidence that we are propelling our results by leveraging the platforms and adding capabilities that we have put in place. This includes a dynamic and efficient marketing program across variety of media with a range of content designed to drive awareness, engagement, trial, and repeat purchases that we believe is positively impacting our financial performance. Impressions from our paid digital media initiatives are up over 20% compared to the prior year and we believe this is contributing to higher net retail sales in both brick-and-mortar and digital channels. We also believe our efficient and primary digital marketing activities are driving traffic to our stores and to our website. We saw a significant increase in store footfall compared to the prior year's quarter, which outpaced national trends and fueled our net retail sales while also advancing digital commerce to record setting levels. Our expanded digital capabilities have allowed us to develop multi-dimensional marketing campaigns designed to reach diverse audiences and consumer segments. With dynamic content reaching millions of followers and delivering tens of millions of views across a number of platforms, including Facebook, Instagram, Twitter and TikTok. We are in the process of updating our website later this year, with a reimagined online guest experience with the goal of driving additional e-commerce business. We expect to modernize the site, improve efficiency and optimize organic traffic through leading SEO practices. In order to improve interfaces across all areas of the site, including gifting, affinity and the Bear Builder 3D Workshop, as well as improve conversion to checkout. We have engaged with Deloitte (ph) Digital to guide and elevate this process. Deloitte Digital is one of the leading agencies specializing and merging strategy, experience and technology to drive digital growth and innovation. And we expect to enhance our analytical capabilities to further refine our digital campaigns and targeted personalized messages to our 14 million opted-in first party data contacts. As part of these efforts, we remain on track to launch the new loyalty module as the next step in our multi-faceted sales force implementation plan before the end of the year. Moving to our second pillar, we leveraged our expanded omni-channel capabilities while further evolving our retail footprint and adding engaging experiences and purchase occasions. As previously stated, we believe there is opportunity to strategically grow our profitable North American store base that had an average contribution margin of over 25% in 2021. We previously shared that we planned to open 15 to 20 locations over the next two to three years. However, we have elected to accelerate that timeline and now expect to add approximately 20 sites in fiscal 2022. Through a combination of our corporately managed and third-party retail model. Our high level of lease optionality has allowed us to strategically exit select locations which we plan to continue to do. However, our accelerated opening plans position us to finish the year with more total retail locations as compared to fiscal 2021. Separately, as previously announced, we recently re-launched our historical popular in-store party program, which had represented approximately 5% of net retail sales in our stores. We have seen steady demand and have held over 1000 party, since the relaunch, with the average party transaction up over 15% from the last comparable period of 2019. While the party business as a percentage of sales remains below our historic norm, we have plans to raise awareness that parties are back at Build-A-Bear to drive further demand. We also continue to innovate experiences to expand our brand reach. This includes Build-A-Bear vending machines, also known as ATMs, or Automatic Teddy Machine. We expect to have approximately 10 machines by the end of this year with more than half of them in airports through our relationship with Hudson Group, a leader in travel retail throughout North America. In addition to the ATMs, Hudson's also plans to offer premade Build-A-Bear products in more than 10 other travel stores through a wholesale model with expectations to continue to expand that in the future. Third, we remain intent on leveraging our solid financial position to invest in growth while generating sustained profitability. As we look forward to the balance of the year, we plan to continue with the celebration of our 25th anniversary, with a variety of guest facing activities designed to spur consumer interest and drive sales. We have delivered the first Furry Friends that are part of a special collection that's inspired by past popular plush products. Other collectible options have been developed in conjunction with select licensed partners, including a 25th celebration Toothless from the popular movie franchise “How to Train Your Dragon,” which has historically been one of our best-selling entertainment theme characters. We also recently launched a silver addition of the Darth Vader Bear inspired by the evergreen Star War Saga. In addition, we have encouraged consumer engagement through an anniversary themed marketing campaign that leans on the millions of special memories our guests have for Build-A-Bear by leveraging the nostalgic aspects of this iconic brand to encourage user generated content and build engagement. In a year of special commemorative events, we also recently introduced a new collectible gift bundle, as part of the Walt Disney World 50th celebration. We are offering a collectable -- this collectible gift bundle and experience to reveal an upcoming trip for families, planning to travel to the beloved theme part during that anniversary. We also are teaming up with other popular in licensing partners for collectible Furry Friends to create buzz and drive sales through our growing affinity segment. We expect to release product from perennial favorites, like Hello Kitty, YouTube sensation Love Diana and Ryan's World and to update offering supporting our Harry Potter and Pokemon collections. We will also be adding select Build-A-Bear After Dark offerings and updated products to the Bear Cave, selection of our website including items from popular pulp (ph) programs like The Office and Friends. In addition, we plan to have merchandise that will tie in with a number of highly anticipated upcoming films including Jurassic World, Elvis and later in the year, Lord of the Rings and Puss in Boots 2. We will also offer products inspired by the highly anticipated movies Disney and Pixar's light year and Marvel Studios Doctor Strange in the Multiverse of Madness as well as Thor: Love and Thunder. We are proud to have kicked-off this special anniversary year with a successful quarter. And I want to thank everyone at Build-A-Bear for their commitment and drive to once again deliver record-breaking results. I would also like to share that our company has been recognized as one of America's best retailers for 2022 in a list that was recently published by Newsweek and Statista. And lastly, we wanted to offer our appreciation for the support from our suppliers and other strategic partners that continue to work with us to achieve this sustained business expansion. In closing, as a nearly 25-year-old company that offers a relevant in demand personalized retail experience founded on a classic toy. We have evolved into a digital driven diversified omnichannel entity with expanded product offerings and diversified consumer segment by leveraging the power of our iconic brand. With this distinct combination, we believe our company is well positioned to achieve the growth anticipated in the annual guidance shared this morning, and to achieve our broader longer-term objectives including the continued increasing of our shareholder value. Now I would like to turn the call over to Voin to discuss financial metrics, including providing more detail on our outlook for the fiscal year.
Voin Todorovic: Thanks, Sharon, and good morning, everyone. We are pleased to speak with you today to share another quarter of strong results highlighted by record breaking first quarter revenue, solid gross margin, and leverage in SG&A. Combined, this drove another first quarter record for pretax income and EBITDA. We believe our ongoing growth demonstrates the successful execution of our strategy. Some highlights of the quarter include broad-based revenue growth across channels, geographies and customers, reflecting the worldwide a feel of our experience with revenues rising in physical stores and online across the geographies we operate. We capitalized on our unique advantages that include a differentiated and sought after product offering that consistently sells with minimal discounts, efficient marketing that leverages our robust loyalty program to drive traffic and transactions, and then an agile organization that enabled us to navigate supply chain disruption and mitigate a significant portion of the inflationary headwinds. Given our consistent results, strong balance sheet and positive outlook for the year. We are pleased to share that we continue to return value to our shareholders utilizing $14.1 million to repurchase approximately 800,000 shares of our common stock as of market closed yesterday, under the $25 million program authorized by our Board, in November 30, 2021. As we begin the second quarter, we recognize that the macro environment remains uncertain. That said, we are continuing to experience positive sales trends and believe we remain well positioned to deliver fiscal 2022 revenue, pre-tax income and EBITDA ahead of the records we set in 2021, and in line with today's guidance, which I will discuss in further detail shortly. Moving now to a review of first quarter results. Total revenues were $117.7 million, a 28.4% increase compared to $91.7 million in the first quarter of fiscal 2021. Revenue growth was broad-based across channels, both retail and digital, geographies and business segments, approximately one-third of the total revenue increase was related to our European locations that are open for the full quarter this year versus being closed for majority of first quarter last year. Web Demand was up 2.1% compared to fiscal 2021. On a two-year basis, we saw growth in digital demand of about 90% and compared to fiscal 2019 first quarter. The increase was over 200%. Gross profit margin was 52.5% compared to a record-setting gross margin of 52.8% in our fiscal 2021 first quarter and noteworthy result when factoring in the significant price and product cost inflation we have experienced. Overall gross profit margin contracted by 30 basis points from last year's first quarter, reflecting 360 basis points reduction in merchandise margin, offset by 330 basis points of leverage in occupancy and distribution costs, driven by higher sales. The merchandise margin decline was driven by inflationary pressures mostly shown in significant price freight cost increases, partially mitigated through strategic price increases and lower promotional activity. We expect to see some relief in transportation cost in the second half of this fiscal year, which is reflected in our full year guidance SG&A was $43.6 million, up $8.4 million from the first quarter of fiscal 2021, an improvement of 130 basis points as a percentage of total revenues. About one half of the incremental SG&A was driven by increased salary expenses, as expected given the reopening of substantially all of our European store base. In addition, SG&A in the fiscal 2021 first quarter was a favorably impacted by approximately $1 million in government subsidies. We delivered pretax income of $18.2 million or 15.5% of sales. The highest level pretax income for the first quarter in Build-A-Bear's 25-year history, handily exceeding last year's order record setting first quarter pretax income of $13.2 million. And EBITDA was $21.5 million, an increase of 31.5% from $16.3 million in the 2021 first quarter. Turning to the balance sheet. We ended the first quarter with cash and cash equivalents of $26.1 million compared to $45.9 million at the end of the first quarter last year. The reduced cash position at quarter end compared to the prior year reflects the share repurchases of common stock, payment of a special dividend in the higher investment in working capital to support strategic initiatives intended to drive further growth, inclusive of the pull forward of inventory receipts. Inventory at quarter end was $77.4 million, an increase of $33.6 million versus the end of last year's first quarter. As I just noted, we proactively and strategically accelerated the timing of our order placements, resulting in increased quantities for core products and evergreen merchandise collection to support our business momentum and as part of our efforts to mitigate ongoing supply chain challenges. In addition to expected higher unit levels, the inventory balance reflects both higher transportation and product costs. We remain comfortable with the level and composition of our inventory. As we anticipate a more stabilized supply chain environment in the latter part of the year, we expect to be able to return to a more normalized receipt flow which would result in ending this fiscal year below prior year's inventory level. At quarter end, we had no borrowings on our credit facility. Based on our strong first quarter performance and positive trends and outlook, we are introducing fiscal 2022 guidance, which includes total revenues in the range of $440 million to $460 million, as compared to $411.5 million in fiscal 2021. Pre-tax income in the range of $50 million to $62 million, as compared to $50.7 million in fiscal 2021. EBITDA in the range of $65 million to $75 million, as compared to $63 million in fiscal 2021. Income tax rate in the range of 24% to 25%. Capital expenditures in the range of $10 million to $15 million, and depreciation and amortization of approximately $13 million. Please keep in mind that our guidance for growth in profitability takes into account anticipated ongoing inflationary pressures, as well as our plans to mitigate the impact on margins. Also notable, our outlook assumes no further material changes in the operations of our supply chain including the ability to receive and ship product on a timely basis. The macro-economic environment or relevant foreign currency exchange rates. In closing, I'm proud of the hard work and accomplishments of our team to deliver another record-setting quarter on the hills (ph) of a successful 2021. Fiscal 2022 is off to a strong start and we look forward to continuing our momentum and reporting further success on our investments in strategic initiatives. This concludes our prepared remarks and we will now turn the call back over to the operator for questions. Operator?
Operator: Thank you. The floor is now open for questions. The first question is coming from Eric Beder of SCC Research. Please go ahead.
Eric Beder: Good morning. Congratulations on a solid start to the year.
Voin Todorovic: Thanks, Eric.
Eric Beder: When you look as -- so this year, you had the 25th anniversary and now the rollout of parties. Are you seeing part of the demand being driven by people who have kind of rediscovered Build-A-Bear that want these products long time ago. For now comes to the parties and see what's going on in doing that. And how do you plan on kind of capturing those people and driving them even further after kind of the initial run?
Sharon John: Yeah. So on a separate some of those concepts, we're still in the middle of our 25th anniversary that's an all year long experience that's not behind if that's actually in front of us. We just been doing a lot of product launches and preparation, and creating marketing momentum based on the fact that our 25th anniversary is actually later this year. So this is our 25th anniversary celebration year. Now, your question about is that engaging people that may have gone to Build-A-Bear in the past and now want to come, again, yes indeed that is the case. In fact that entire marketing program is trying to capture that very sentiment of expecting and encouraging people to remember how fun it is to go to Build-A-Bear and in fact, as an advertising itself is designed to talk about to get you to think about that you're most fun experiences at Build-A-Bear and come back in either celebrate that again as a teenager, when you as a kid or celebrate it with your child because you haven't -- because you wouldn’t when you were also a child. So an awful lot of nostalgia brand building, historical engagement because of this, hundreds and over 200 million Bear's that we sold over the course of last 25 years. Each one of those is a memory and an opportunity to re-engage. The second question about parties, we just -- the last call, we had announced that we had expected to start the party business and start that marketing shortly after right around that time. And as I noted, we've already had over 1,000 parties and we're starting to see the ramp up of those parties. It does take a while to get people back into the habit of and the recognition that parties are back at Build-A-Bear since they had been closed down for the vast majority of the entire pandemic period. So we expected to see some ramp-up on that to get back to our historical 5% of sale, but those parties as you're noting Eric, they are an important trial mechanism for us because not only are the parties themselves generate sales and high value sales high DPT because it's usually multiple bears and multiple kids. But a lot of times through our research, we know that the kids that come to the party to celebrate with the birthday person for example, often have not been the Build-A-Bear. So a lot of times that creates a desire for them to want to come back and create their own special Bear. So all of those things are good for us. Yes, so we are getting repeat trial and repeat from the 25th anniversary bringing back different types of guests, older guests, people that have been before, want to reengage with Build-A-Bear in the parties are have always been a great mechanism for us to drive future sales and those was have not been a part of our mix for nearly two years now. So we're certainly hoping that helps.
Eric Beder: Great. And last one here, Inflation, so have you seen, and I know you always offer some Bear in the 20 or so dollar range, have you seen push back from raising pricing or from continue -- not discounting as much. What has been the feedback to the customer on that?
Sharon John: Well, we always have, what we have offered as you know, it's not just a $20 Bear or a $14, $15 a Bear. We have a product called our birthday treat spare where on any month as the birth of a child, they can pay the age, that they're turning for that year. And so that's from one-year-old to 14-years-old, and that is a very accessible price point. And so the opportunity to experience Build-A-Bear remained comparatively affordable for what you get not just as Furry Friend, but this entire personalized experience this one on one engagement. This is very special experience and part of the reason we do that is not just to assure that we have a broader socio-economic strata reach for the entry level price point. But because we know that that really special engagement that experience is what creates a Build-A-Bear fan for life. So that's an important part of our strategy, not just an important part of our pricing strategy. It's a big part of the way, we think about filling the pipeline in the future and driving that loyalty, which is so important to us. But we -- to the degree that you could measure, push back to your question, our sales are up, and our traffic is up, and we have not -- a lot of times we might hear some of that may be in social or specific emails or through our Bear builders, they're very good at sharing information from our guests and then sweeping terms, we have not.
Eric Beder: Great. Well congrats and good luck for the rest of the year. Thank you.
Operator: Thank you. The next question is coming from David Kanen of Kanen Wealth Management. Please go ahead.
David Kanen: Good morning. Congratulations, Sharon to you and team.
Sharon John: Thank you, David. Good morning.
David Kanen: If it's okay -- good morning. If it's okay, I have several questions, I'm going to be traveling later. So if I could to stretch the rules, a little bit. So first question is in regards to the 20 sites that you expect to open this year. Can you just take me through the economics, what you expect to spend in CapEx per site? And then if you could give us some early results, I believe you opened a new format. I think in the St. Louis area with an augmented experience, if you could just give us an early read on that, if it's open yet? Appreciate it.
Sharon John: Thanks, David. We -- yes, we have a pipeline now, we wanted to share that we feel very good about that have evolved over the last month to three months that we feel more comfortable pulling forward a lot of these store openings and getting benefit from them earlier in the process, we've never believed that we've been overstored. We just needed to make sure that we had the right economic model to assure continued four-wall profit and that expansion -- particularly as it relates to the expansion that we've seen over the past few years of getting to that 25% profitability on our retail side. But I want to be clear that the stores that we're opening are not just corporately managed and owned stores, they are also third-party retail stores, which are very different economics, which I think you know. So I just wanted to clarify that and give some -- some of them are stores where you're going to see this capital that we're opening the locations and some more in the more traditional form and those third-party stores what we consider cap light and that the third-party like a Great Wolf Lodge for example, or some of the theme parks that we do business with, they buy the fixtures that, that’s their labor they buy the product. So again those are treated more like a wholesale business and with very different economics. So that's not, that's not going to impact our capital spend in the way you might think. So Voin add a little more color there.
Voin Todorovic: Yeah. So as Sharon said like the third-party retail locations very asset light, and the mix of these stores that we called out 20 stores and again, the timing of those probably going to be more in the second half of the year, but David, we are also looking to open a lot more of these stores in tourist locations and some of these unique space. So we have done a really good job. The teams have done a really good job managing our capital expenditures and managing the cost associated with these stores. We have a variety of different formats and cost structures for those debts reflected within our capital plan, definitely some of those costs with some of the inflationary pressures versus couple of years are going to be shifting and challenges in the labor market. But I don't expect an average probably in that range between $300,000 and $500,000 per store depending on the mix and the composition of these owned and operated. And as I mentioned, some of the third-party retail location, there is no capital investment.
David Kanen: Okay. So on the stores that you opened, if you can hit that 25% store level mark, you were talking about one to two year ROIs essentially?
Voin Todorovic: Yeah. Hitting that 25% is our typical stores in North America do. Yes, your math is correct.
Operator: Thank you. Our next question is coming from William Zolezzi of Divisadero Capital. And just as a reminder to please limit yourself to one question and one follow-up in the interest of time. William, please go ahead.
William Zolezzi: Sure. It's Divisadero Street. Anyway, really quickly can you guys just speak to the linearity in the quarter based on our checks, it seems like, and we're looking at things on kind of a three-year basis. It looks like the business accelerated pretty materially from -- throughout the quarter with April being resoundingly the strongest month compared to ‘19 in an environment where a lot of people are having their businesses, get a little worse, given some of the macro noise. So it's just an outlier that you got your business is accelerating, when others are decelerating so, was that parties or can you speak to what drove that acceleration, we might have picked up on? So maybe, if you can speak to whether there was an acceleration throughout the quarter versus ‘19 and then maybe a little color if that indeed happen on what drove that?
Voin Todorovic: So William, I'll start definitely, we did see some of the improvements in the second half of the quarter. Even in the call when we were guiding that we still expect to see the growth for the revenue and profit for Q1. We were a little bit skeptical as we were starting to anniversary some of the results from last year and the impact of the stimulus and pending demand and things of that nature that we had last year. But, our results were surprisingly well and they held and they keep holding also as well in May. Some of the stuff with March, April timeframe also could be related to timing of Easter and spring break shifts as kids are out of school that definitely changes, some of the timing, but definitely, we were pleased with the results that we have seen in the second part of the quarter, what we are seeing in May. And that's part of the reason that we are feeling more comfortable about giving full year guidance on the results that we have seen so far.
William Zolezzi: Okay. That's helpful. And I guess just on the share repurchase and I appreciate there are a lot of moving pieces this year with some of the macro. But stepping back, it seems like your business is accelerating throughout Q1, if you take the EBITDA percentage of the full year versus, kind of you did -- the EBITDA in Q1 last year was about 26% full-year EBITDA. So if you run that math forward based on what you guys reported today, I'm getting new and obviously, you shouldn't guide to this because there are a lot of moving pieces, but the flip side of that is things seem to be getting better, not worse, but I'm getting over 350 in earnings this year, and the stock today is sub-$20 and I'm happy you guys bought $14 million of stock in the quarter, but the dislocation here is so pronounced that I would encourage you guys to be more aggressive with the buyback and maybe do more than the 25. So there is some unsolicited advice, but again, the results are very strong and I appreciate the hard work you guys are doing so thank you, Bye.
Sharon John: Thank you, William.
Voin Todorovic: Thank you.
Operator: Thank you. The next question is coming from Justin Adelipour of Capstone Equities. Please go ahead.
Justin Adelipour: Hi. Good morning. First of all, it's great job on the quarter. I just wanted to, second what was just mentioned about the multiple -- the multiples your stock is trading at? And just to ask, how do you guys think about that relative to the accelerating, let's say, growth prospects, a new stores. I mean it seems like you can just kind of buyback your old stores at pretty good multiples and just wanted to get a sense for your thoughts in that regard?
Voin Todorovic: Thanks for the question, Justin. Definitely, we are focused on the operations and what things that are within our control and I think the teams have been executed in excellent last year and as we started this year as well. So we feel good about things that we are controlling, things that we are doing, and what we are trying to do to mitigate the ongoing supply chain challenges and inflationary pressures. What's happening in the overall market and some of the multiples, as you can see in significant market fluctuations, there are some unexplained shift, but I personally believe based on the results and the economics of the business, the market will properly reflect and value our business with the results that we continue to deliver.
Justin Adelipour: Sometimes I just need a little help, oh sorry, not to interrupt, just wanted to say.
Sharon John: No, that's fine. We agree.
Justin Adelipour: And you could -- yeah, and you can help it out and you can take advantage, right. It's not the worst thing, you guys have plenty of cash. So I mean and I know you hear this a lot, I'm just saying, you guys can also take advantage of this opportunity as well. Sorry, did not mean to interrupt.
Sharon John: No, that’s fine, Justin. I was just going to reiterate that, that is the underlying strategy of the buyback program. Recognizing that our stock does have a lot of volatility. And in fact, the market has a lot of volatility right now, particularly in the recent trading periods. And it is that volatility that we believe that allows us to purchase opportunistically. And yes, we could -- as we do with our Board on a regular basis get into a lot of conversations about what is the right level. This was approved in November. And right now, we're more than halfway through that in the first six months of the process. So, but there is opportunity certainly and we will cancel with our Board as we always do on those types of decisions. I would also note that there are lot of things that I believe that the company has done organization to help us through some of these uncertain times, but -- and I want to reiterate that it is, in our belief, it's been the ongoing strategic shift and the multiple years of building blocks to get us to this point. Yes, we've made choices like pulling forward inventory and tightly managing our expenses and being conscientious of strategic price increases and how that would impact and affect our sales overall and all of those types of levers that everyone's pulling, but it's so much more of our shift to expand who we are as the company, the consumer base on to not just touch children, but also teens, tweens and adults expanding the why, and people come to Build-A-Bear and from gifting to collectibles to affinity products. So that makes us a more resilient company and those underlying strategic shifts have been important for us to be able to manage through a lot of these external volatile times.
Operator: Thank you. We'll move onto the next question. The next question is a follow-up coming from David Kanen of Kanen Wealth Management. Please go ahead.
David Kanen: Hi. Just to piggyback the two previous question posers in regards to buyback and you said that you're going to go back to the Board to discuss potentially augmenting it now. Outside of yourself, Sharon, I appreciate the amount of skin that you have in the game and alignment, but the Board really doesn't have any equity to speak up. So the message from the owners, meaning us the shareholders is you need to buy back more stock. In fact, when we look at real estate today, in particular, your distribution center. They're going easily for $50 a foot. We're seeing even, here in Florida in excess of $100 a foot, $150 which means we're sitting on an asset that doesn't really generate an ROI that could be worth, for sure that's worth $30 million, $35 million that could be worth $50 million or $60 million where we can return that to shareholders in the form of a very large buyback that would significantly increase our EBITDA per share -- EPS per share. So my message to the Board, who has very little, little to no skin in the game is listen to us owners and return that cash. Okay. And then in the last question that I posed, I asked for just an update on that new store format. I believe it was in St. Louis and what the early read is, if it's open yet?
Sharon John: Yeah. Thank you. Yes, I had written in my notes and did not address that, appreciate you bringing that back up. Yes, it's called Build-A-Bear Adventure and it is here in St. Louis, and it is an off-mall concept with the larger square footage. It has a Build-A-Bear experience in there, but it's really designed for bigger parties of groups of kids, groups of adults, different types of opportunities and we say well adventures for them to go on. I mean, it also has an arcade as inclusive of a sort of a party rooms and a place that you can make your own cupcakes and all kinds of things. So one of the challenges that was -- that we hear a lot from our guests when we do surveys and we were about to reopen our party business is that in our stores for certain health reason -- health and safety reasons, we really do not have food allowed in our stores and that's like the last checkbox that moms are often looking for the perfect kind of party. So we wanted to, now we partnered with people in the malls to try to make that full-service experience for them, but we wanted to test the concept or we could see how Build-A-Bear which is fair in this growing environment of big activity base parties. We've been open for nine weeks and we are learning a lot and we're pretty excited about it. There is a lot of people that love it. We've had a lot of parties and a lot of traffic. So we would expect to be able to provide some information in the coming quarters on where -- what we're doing with that and where that's going. The other piece to that David that's important is, it has that oversized bathroom that we see as a part of our solution for our omnichannel capabilities where you've done the buy online and ship from store, having a really robust like network of larger, larger kind of, I don't know if this is kind of contradictory but larger mini warehouses versus just our own stores, could be an interesting solution for us is our e-commerce business continues to accelerate and it gives us space to do more personalized types of products. So it's a multifaceted solution for a lot of different opportunities for us.
Operator: Thank you. Our next question is coming from Gary Schnierow of RiverPark Funds. Please go ahead.
Gary Schnierow: Good morning, Sharon and Voin. Nice execution. Can you give us a little color on how you expect the revenue sequence to go quarterly this year, given the last couple of years have not been typical?
Voin Todorovic: God morning, Gary. Thanks for the question. As we think about some of the revenue, definitely as we called out in the first quarter, we did see an impact of our UK stores being reopened in the full-year basis and I called out -- sorry, in a full-quarter basis and I called out that one-third of our growth in Q1 was related to that. As we think about the rest of the year definitely, some of that’s reflected in our guidance from the low to high-end of the range. We are trying to encompass some of the ongoing macro environment challenges, as well as you know, the impact of exchange rates as particularly in UK, dollar strengthening against the pound it's hurting us from that perspective for the rest of the year. So that has some impact. As we think about this year definitely, there could be some choppiness between the quarter. We believe, even when you are looking at that absolute dollars Q2 to Q4 versus last year, there is going to be some growth, how that's going to manifest itself. We are confident, what we are seeing now that is strong trends, but we'll just have to wait and see and provide a bit more color as information becomes available for us on that particular timing, but maybe using last year and you just extrapolating some of the overall growth that we are seeing on a full year basis for the last three quarters would be one way to manage that.
Gary Schnierow: Right. But last year second quarter was -- second and third quarter sales were greater than first quarter, and it presumably you're guiding to second and third quarter being below first quarter this year, which is -- right, how it was in previous if we go pre-COVID. So I'm just trying to understand the inputs on that?
Voin Todorovic: Great. So historically speaking, Q1 was the second largest quarter of the year for us. Last year, Q1 was smaller again because of the impact of UK stores being closed for majority of the quarter. Now some of the timing with Q2, Q3 last year, UK stores open late Q1, so there was some of that pent-up demand, some of the impact that we have seen, and so that definitely we believe did help some sales in that particular region, but typically speaking, if we start using prior to COVID our seasonality Q1 was the second biggest quarter of the year, after Q4.
Gary Schnierow: Okay. But what should potentially offset that to some extent is the parties returning which should benefit 2Q and 3Q when you didn’t -- versus 1Q, is that fair?
Voin Todorovic: Correct. We started, as Sharon mentioned, we started parties you know to ramp up in late Q1. So definitely, we are below our historical levels. We are expecting and working on those things to improve. So definitely that could be one of those headwinds for the rest of the year.
Gary Schnierow: Right. Okay. Great. And relative to your guidance, is it fair that free cash flow for the year should be greater than net income, given inventory being flat year-over-year for modeling purposes?
Voin Todorovic: I think for modeling purposes that's fair to assume. There is a bit of elevated CapEx, but – probably 5% (ph).
Gary Schnierow: You're right. Your CapEx is, give or take, equal to your depreciation, could be a little bit more…
Voin Todorovic: Correct.
Gary Schnierow: Right, okay. Great. Thanks so much.
Voin Todorovic: Thanks, Gary.
Operator: Thank you. At this time, I'd like to turn the floor back over to Ms. John for closing comments.
Sharon John: Thank you all for joining us today. We really appreciate it and we look forward to updating you on our second quarter results at our next call.
Operator: Ladies and gentlemen, thank you for your participation and interest in Build-A-Bear Workshop. You may disconnect your lines or walk off the webcast at this time and enjoy the rest of your day.
