Build-A-Bear Workshop [BBW] Conference call transcript for 2022 q2
2022-09-01 13:58:05
Fiscal: 2022 q2
Operator: Greetings, and welcome to the Build-A-Bear Workshop Second Quarter and First Half 2022 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allison Malkin of ICR. Thank you. You may begin.
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 second quarter and first half 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 one hour call. Feel free to re-queue 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 Price John: Thank you, Allison. Good morning. And thanks for joining us today. We are pleased to announce another strong quarterly performance for Build-A-Bear. Following the most profitable year in our company's history, we have built on that performance to deliver an all-time high for total revenues and profitability for the fiscal first half of 2022. We believe that our strategic plan, which capitalizes on our powerful brand, executed with discipline and agility is the primary driver of our results. This morning, I will begin with some highlights of our second quarter, followed by an update on the progress of our strategy that focuses on continuing our digital transformation, accelerating our store evolution and leveraging expanded omnichannel capabilities, while utilizing our solid balance sheet and free cash flow to support key business initiatives intended to drive further profitable growth. Combined as noted, these initiatives led to a solid second quarter and record breaking first half, even as we navigated continued freight cost pressures and supply chain disruptions. Our overall sales trends and traffic patterns at retail have continued to be positive as we start the third quarter. And while we are mindful of the macroeconomic uncertainties, we have demonstrated an ability to remain nimble and adapt our more diversified business model to navigate challenging circumstances that had â and had already anticipated these supply chain issues and inflationary pressures. Therefore, we are reaffirming our annual guidance. Now let me turn to some highlights of the second quarter and first half. Total revenues were $100.7 million, an increase over our strong top line results in last year's period. For the first half, total revenues were $218.3 million a record setting performance for our company's first half, representing a 17% increase over the prior year. Pretax income was $7.6 million for the fiscal 2022 second quarter and includes the impact of approximately $4 million of incremental freight expense. For the first half of fiscal 2022, pretax income was $25.8 million, an increase over the record setting results of 2021. EBITDA was $10.7 million for the fiscal 2022 second quarter, again, including the impact of incremental freight expense. For the first half of fiscal 2022, EBITDA exceeded $32 million and subsequent to the end of the second quarter, we completed the $25 million share repurchase authorized by our Board of Directors in November, 2021. And as announced yesterday, the board has authorized a new program, which Voin will cover in more detail. Let me now turn the discussion to our pillars for growth, which include: one, accelerating a broad reaching and comprehensive digital transformation; two, continuing to evolve our retail experience and footprint while taking advantage of our expanded omnichannel capabilities and three, leveraging our solid financial position to invest in initiatives intended to drive growth and return value to our shareholders. First, we are confident that our multi-year comprehensive digital transformation is providing benefits to our entire organization and driving positive results. A key to our success has been to bifurcate our digital shopping options and our retail store experience. Rather than solely focusing on digitizing the store experience that families love a strategic and discipline shift to diversify the consumer base has contributed to strong e-commerce demand, which is up triple-digits compared to 2019, prior to the implementation of some of these initiatives. Online, we over indexed with teen and adult consumers. Many of whom grew up with our brand. We drive engagement with this segment by offering a curated merchandise assortment that features licensed affinity products, adult centric fashions, and accessories, and broad based gifting programs. Our store experience remains the entertaining hands on step by step process that we're famous for and over indexes with kids and their families, and often leaves lasting memories that become a basis for a lifetime of engagement with our brand. Interestingly, as we've continued to refine our communications and product assortment for older consumers, we've seen this demographic also return to our stores for the experience they know and love at increasing rates. We feel this evolved business model is creating synergy across channels, which is providing stability and resilience for all of our business. The initiatives to diversify our consumer base have contributed to growth in guest acquisition and retention and have positively impacted our database of first-party contacts. As you know, we gained capabilities which allowed us to accelerate our business market shift to more efficiently reach an expanded addressable market as we enhanced resources, evolved our talent and improved our digital proficiency. This includes the implementation of select sales force products. And I think it's notable that sales force has chosen to recognize Build-A-Bear as the marquee Dreamforce customer at their upcoming conference. One of the largest global tech events of the year indicating the scale of what we've achieved in this space. We're proud of our team and its accomplishment, which has also been recognized as one of the America's fastest growing online shops 2022, and America's best trending online shops 2021 by Newsweek and Statista. In addition to the accomplishments in e-commerce, we believe that our digital marketing campaigns are contributing to sales growth and our retail stores by reaching more consumers and driving traffic in brick-and-mortar stores that continues to be positive and is outpacing reported national retail traffic. We have also seen increased website traffic and engagement related to Build-A-Bear shopping trips, including our plan a visit and find a store pages, these two areas combined represent the second highest entry point to our site only behind our homepage. In addition, traffic to the section to book a party and get details on our Count Your Candles Birthday Treat Bear program, which is only offered in stores is also significantly up over the period of the prior year. To be clear, we have been building a diversified yet integrated business model of continuous engagement where each consumer interface with our brand is designed to support, enhance and drive sales through another consumer interface. For example, as noted, our website is designed primarily to drive e-com sales through exploration of our core products, gifting, and collectibles selection, but also while encouraging users to plan a store visit or an in-store party. Store visits and the memory making engagement enroll our talented Bear builders play is designed primarily to drive store conversion and dollars per transaction. While also encouraging a visit to the website or a suggestion to watch say our Honey Girls film on Netflix and our expanded digital content, including films, social media, TikTok, digital marketing or Build-A-Bear Radio is designed primarily to engage consumers while also driving yet another visit to the store or to our website. We've also been adding other digital capabilities to enhance testing to allow us to improve user experiences, more efficiently manage product information, improve site analytics and track users across applications and other sites, all with the goal of driving profitable growth. In addition, we have expanded our e-commerce reach internationally through a relationship with Global-e currently focused on the markets of Canada and Mexico with plans to add other areas in the future. Separately, as we previously reported, we have been in the process of planning for an update to our website for nearly a year, which remains on track for a third quarter release with redesigned site components that are expected to phase in on a cadence basis. With the support of Deloitte Digital, these upgrades are intended to modernize the site, gain efficiency and optimize traffic through improved interfaces to ultimately drive conversion in sales. Given the vast majority of traffic to our site comes through a mobile device. A mobile-first design has been a priority during this development process. Activity has included behind the scenes testing as well as the recent upgrade to new tools such as Google Analytics and Intelligence Module that provides consumer tracking across applications, software, and websites, providing data to improve conversion. Given that it takes time to feed the intelligence algorithm is not uncommon to see some bumpy e-commerce sales during the learning cycle. This process along with some challenging comps to the prior year, which benefited from the strong launch of a key license product collection negatively impacted our year-over-year e-commerce trend for the quarter, which we anticipated. On an annual basis, digital commerce is still expected to deliver growth, which is reflected in our reaffirmed annual guidance. I do think itâs worth noting that our first half e-commerce sales were up 180% compared to the 2019 period, which is noted was prior to the implementation of key digital initiatives. Also notable, penetration of digital demand and our net retail sales, which includes e-commerce, has more than doubled for the yearâs first half compared to 2019. We also are elevating our consumer retention initiatives and believe the recent launch of the sales force loyalty module gives us tools that can advance our efforts to increase average annual purchases from the millions of members in our robust and growing bonus club, as well as leverage our tens of millions of first-party data contacts. Turning to our second pillar, which is continuing to evolve our retail experience and footprint, while leveraging our expanded omni-channel capabilities. Year to date, 12 new Build-A-Bear retail workshops have been opened, demonstrating the progress we are making to reach our previously announced goal of opening approximately 20 new locations through a combination of corporately managed and third-party retail this fiscal year. We expect to finish fiscal 2022 with a net increase in the number of stores in North America, inclusive of third-party retail sites and have fewer locations in Europe. Combined across geographies and business models, we plan to have more total locations at the end of this fiscal year compared to the end of 2021. We have made a concerted effort to shift to non-traditional locations, including family-centric tourist sites and now have approximately 35% of total retail locations in non-traditional settings. As consumers have embraced their return to physical and in-person experiences and travel in general key metrics in our non-traditional sites have continued to outpace traditional retail locations. As a reminder, our third-party model in which our other companies operate Build-A-Bear Workshop stores, including providing labor and purchasing inventory on a wholesale basis is heavily weighted to the hospitality industry, primarily in amusement parks, resorts and with multi-unit partners, such as Carnival Cruise Lines, Great Wolf Lodge and Landry. This model is capital light for Build-A-Bear and an efficient way to leverage our partnerâs real estate positioning to expand in diverse areas and associate with other premium brands. Third, we remain intent on leveraging our solid financial position to invest in growth, while generating sustained profitability. We continue to take advantage of our financial stability to make strategic investments with the goal of driving further profitable growth and directly enhancing shareholder value through the recent completion of our previous buyback program and with plans to buyback additional shares through a newly authorized purchase program announced yesterday, which demonstrates the confidence our Board of Directors continues to have in our strategy and our future. We remain energized as we look forward to the balance of the year and the all important holiday season with exciting plans, including an early launch of Halloween and seasonal product as consumer demand has continued to lean into these purchases earlier in these categories. The celebration of our 25th anniversary in October, which has been highlighted all year long to drive interest engagement in revenue, while also shining a spotlight on the Build-A-Bear foundation and the difference it makes in the lives of kids in need. In addition to the release of a nostalgic collection of furry friends, weâve seen positive reaction to licensed collectible 25th anniversary products and our highly anticipating the release of upcoming anniversary versions of Spider-Man and Hello Kitty. We also plan to launch a bear to support childhood literacy in September as a part of our National Teddy Bear Day activities, and a portion of the sales of each of these bears known as Read Teddy will support Build-A-Bear foundation to reach its declared anniversary goal of donating at least 125,000 books through First Book, an organization committed to providing equal access to quality education for kids in underserved communities. And Build-A-Bear has plans to enter the metaverse with the introduction of our first NFTs as a part of our 25th anniversary celebration, leveraging our brand strengths in a totally new way. This launch is supported by a relationship with Web3 firm suite, which specializes in global brand NFT experiences. And we believe it further positions our brand and the culture of zeitgeist and allows us to capture the interest of our expanded and passionate Gen-Z and millennial consumer segments who have grown up with Build-A-Bear. Speaking of the metaverse, we are also pleased to announce that we recently engaged with a digital game development firm to bring a Build-A-Bear experience to a leading gaming platform. Video and online games have been successful for us in the past and we expect expansion into this highly popular space to give us another key consumer interface to drive engagement with kids and bring brand awareness top of mind, which can in turn lift our retail store and online sales. Separately, as previously highlighted, we plan to launch products tied to a number of films and a series, including Lord of the Rings. In addition, as we advance our new innovative gifting options, we plan to introduce new brand leveraging product line of family matching pajamas that will be sold online in the soon to be launched, Build-A-Bear pajama shop. Matching family pajamas are on trend, particularly around the holidays and is a trusted high quality brand, we believe this category is a natural extension, especially since our teddy bears often are in the arms of children as they fall asleep. Finally, we are also excited to announce the first ever Build-A-Bear pet toy product line, which is planned to be released through a licensed agreement with a leading industry manufacturer for the holiday season. The pet products are scheduled to be featured in over 1,600 pet smart store locations and through their e-commerce site. In summary, we are proud of our strong second quarter and exceptional first half performance and the progress we are making to maximize the opportunities ahead of us. We believe that we have become a fundamentally different and evolved company with multiple competitive advantages, starting with a strong balance sheet, a powerful and leveragable brand, enhanced digital capabilities and a business model that features expanded consumer segments and product categories, including toys and gifts that have historically shown resilience through uncertain economic periods. Lastly, I want to acknowledge and offer gratitude to our associates, suppliers and other business partners that work with us to forge ahead on this successful path. I would also like to congratulate Build-A-Bear Entertainment and the entire casting crew of the music driven live action film Honey Girls for recently winning three 2022 LEO Awards from the British Columbia film industry. And we are also looking forward to the silver celebration fundraiser gala that the Build-A-Bear foundation is planning to commemorate our 25th anniversary and honor our founder Maxine Clark in late October. Again, we want to thank our many sponsors that are supporting that event. In closing, we believe we are in a strong position to achieve further growth and increased value for our stakeholders as we take our first steps into our next 25 years as a more diverse, digitally-focused company that is poised to leverage and possibly monetize our iconic and powerful brand going forward. Now, I would like to turn the call over to Voin to provide more details on our year to date performance and outlook for the fiscal year.
Voin Todorovic: Thanks, Sharon and good morning, everyone. As Sharon noted, we are pleased to have delivered a strong second quarter and fiscal 2022, which contributed to a record setting first half for total revenues and profitability. In the second quarter, we delivered solid gross margin, even with the impact of much higher freight costs and other inflationary pressures, as well as we leveraged our SG&A. This brought pretax income for the quarter to $7.6 million inclusive of incremental freight expense of approximately $3.8 million. Overall for the first half of the year, we had total revenues of $218.3 million and pretax income of $25.8 million, which as noted were all time highs in the history of our company. As shared in this morningâs press release, we have continued to see positive momentum in our business with growth in overall sales and increased retail traffic levels. The combination of a strong first half, ongoing momentum and a strategy that has led us to sustain profitability gives us confidence that we will achieve our financial goals for the year and are reiterating our annual guidance. Moving now to a review of second quarter results. Total revenues were $100.7 million, a 6.3% increase compared to $94.7 million in the fiscal 2021 second quarter. Revenue growth was led by retail stores and our Commercial and International Franchise segment, which expanded over 40% compared to the prior year. Web demand declined 8.4% compared to the fiscal 2021 second quarter as growth in Europe was offset by decline in North America. As Sharon noted, we believe the decline was driven by a challenging comparative prior year period, which benefited from the introduction of key products that over index in North America, as well as the current transition process in advance of the launch of our redesign website. Compared to fiscal 2019 second quarter digital demand increased by almost 150%. We expect e-commerce sales for the year to increase for fiscal 2022 compared to fiscal 2021. Gross profit margin was 49.6% compared to our record setting gross profit margin of 53.2% in our fiscal 2021 second quarter, and noteworthy results when factoring in a significant macro freight and product inflation that we have experienced. While this yearâs gross profit margin contracted by 360 basis points versus last yearâs second quarter, when compared to the fiscal 2019 second quarter gross profit margin improved by 550 basis points. The 2022 results reflect a reduction of approximately 400 basis points in merchandise margin, partially offset by leverage in occupancy and distribution cost, as well as lower promotional activity. We expect our ongoing mitigation efforts along with some moderation in freight cost to improve gross margin in the second half of the year versus the first half of the year. SG&A was $42.3 million up $1.4 million from the second quarter of fiscal 2021, an improvement of 120 basis points as a percentage of total revenues. As noted, we have plans to continue to make calculated investments to advance our strategy with a goal of driving long-term incremental profitable revenue. We delivered pretax income of $7.6 million despite the incremental $3.8 million in freight expense as compared to record pretax income of $9.5 million in the 2021 second quarter. As the further comparison, our second quarter pretax income is greater than the full year of fiscal 2019. And EBITDA was $10.7 million a $1.8 million decrease from $12.5 million in the 2021 second quarter. For the first half of the year, total revenues were $218.3 million representing the highest first half in the companyâs history with growth of 17.1% compared to the fiscal 2021 first half. Pretax income also reached a record-setting level at $25.8 million compared to our previous record of $22.7 million in the fiscal 2021 first half. This is particularly impressive when taking into account that we had over $8 million of incremental freight expenses and still delivered a record-setting profitability. Net income was $20 million or $1.27 per diluted share compared to net income of $17.2 million or $1.08 per diluted share in the fiscal 2021 first half. EBITDA was $32.1 million, an increase of $3.3 million versus the fiscal 2021 first half. Subsequent to quarter end, we completed the stock buyback program that was approved by the Board of Directors in November of 2021, repurchasing over 1.5 million shares. Our robust execution of the buyback plan resulted in repurchasing nearly 10% of the shares outstanding at the end of the fiscal 2021 third quarter. And as previously mentioned, our Board of Directors has now authorized a new share repurchase program of up to $50 million effective through August 31, 2025. We believe this is further validation of the business outlook and belief in our strategy, reflecting the confidence the board has for our future performance and ability to drive sustained profitable growth while continuing to deliver value to shareholders. Turning to the balance sheet. We ended the second quarter with cash, and cash equivalents of $14.4 million compared to $51.1 million at the end of the second quarter last year. The reduced cash position at quarter end compared to the prior year reflects the share purchases of common stock payment of a special dividend and the higher investment in working capital to support strategic initiatives intended to drive further growth inclusive of the pull forward of inventory receipt. At quarter end, we had no borrowings under our revolving credit facility. We ended a quarter with $87.7 million in inventory, an increase of $40.4 million from the end of fiscal 2021 second quarter. As I just noted, we proactively and strategically accelerated the timing of our order placements, giving us increased quantities of core products in demand holiday offerings, and evergreen merchandise collections to support our business momentum as part of our efforts to mitigate ongoing supply chain challenges. In addition to the planned higher unit levels, the inventory balance reflects both higher transportation and product costs. We remain comfortable with a level and composition of our inventory and continue to expect our ending year inventory to be below the fiscal 2021 year-end level. While mindful of the overall macro environment based on our strong first half performance and positive trends and outlook, we are reaffirming our 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 $52 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 the 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 and profitability takes into account anticipated ongoing inflationary pressures, as well as our plans to minimize 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 macroeconomic environment, inflationary pressures, or relevant foreign currency exchange rates. In closing, I am proud of the hard work and accomplishments of our team to deliver a record-setting first half of 2022 on the heels of a previous all-time high annual profitability in 2021, with a strong first half and fiscal 2022 and momentum as we enter the all important back half of the year, including the holiday season. We look forward to continuing to deliver further success, which would top the record set in 2021. This concludes our prepared remarks, and we will now turn the call back over to the operator for questions. Operator?
Operator: Thank you. Thank you. Our first question comes from line of Eric Beder with SCC Research. Please proceed with your question.
Eric Beder: Good morning. Congratulations on a strong Q2 and the guidance.
Voin Todorovic: Good morning. Thanks, Eric.
Eric Beder: Could you talk a little bit, how â could you talk a little bit about your ability to pass along inflation â the inflationary pressures you are seeing and your ability to pass them along to consumers and to offset them? What are you seeing in terms of your ability to do that now?
Voin Todorovic: So Eric, as we think about inflationary pressures, we started to phase those early last year in the second quarter, we started by selectively increasing our prices and that made some of our comparisons from the margin perspective a little bit more challenging in this quarter, but we continue to really stay focused on things that are within our control. We are seeing some unprecedented levels of trade increases caused by supply chain disruptions over the last 12 months. Those are starting to slow down, but as we continue to look at our overall business, we continue to deliver these strong results. And we are trying to find the right balance to make sure that we are passing some of those costs through higher prices increases. But at the same time, we are cognizant of the fact, with the overall macro environment challenges and inflationary pressures and maybe changes in consumer discretionary income levels. So, we are still driving the strong business. Our transactions are up. Our business â our traffic is high. So like we believe that the overall results that we are sharing on a year-to-date basis that are a record level topping, record level results from last year, continue to show strong execution that the team has to really support this ongoing challenges and to support our strategy. Thatâs reaffirming our annual guidance.
Sharon Price John: Yes, Eric, I think too, itâs usually important to, for you to understand some color around that as well, that when we do go in and increase prices, itâs very specific, very scaffold. We donât just use that term peanut butter, our price increases, because of our diversification strategy to different consumers, with different types of products; those giftable products of collectible products have a lot more elasticity. So, weâre able to increase the sale, increase those the prices of some of those bundles of these big license collectibles, while keeping some of our core products more approachable, particularly our birthday treat there that still remains a Pay Your Age product that from the Count Your Candles program. So, we do want to have accessibility to a broad range of consumers from adults to kids, but also different socioeconomic strata. And we believe that weâre well positioned, because of some of that thinking and strategy if indeed we do see continued economic strap.
Eric Beder: Great. And I know that you guys have been rolling out in-store parties. What has kind of been the response to that? And whatâs kind of learnings for that going forward?
Sharon Price John: Yes, weâre â we have, we did launch those in April of this year, because we had been dormant on those from a COVID-related perspective for quite some time. And weâre in the ramp up and rollout period still weâre still seeing increases in parties on a week-to-week basis, but we have not achieved our pre-pandemic levels yet.
Eric Beder: Do you think thatâs positive? Is that a goal?
Sharon Price John: Oh, sure. Yes, itâs certainly a goal. And weâre â we are excited about that goal. Parties are an important part of our strategy. Parties not only are clearly a large transaction, because theyâre usually multiple units. In many ways the party business serves as a great opportunity to introduce kids to Build-A-Bear that otherwise hadnât been to Build-A-Bear. So, we and we love having that memory for kids for the rest of their lives too.
Eric Beder: Great. And just a quick housekeeping question, in terms of the share buybacks, assuming no more share buybacks, and Iâm not assuming that what is the share count going forward?
Voin Todorovic: So just Eric, maybe like probably is, we are going to have a little bit more detail in the queue, but I would use around $15 million approximate current share have assuming no buybacks at this point.
Eric Beder: Right. And that seems nothing incremental from the new $15 million.
Voin Todorovic: Correct.
Eric Beder: Okay, great. Thank you.
Voin Todorovic: Just announced. Yes.
Eric Beder: Congratulations. Good luck. Enjoy your anniversary in October.
Sharon Price John: Thank you.
Operator: Our next question comes from the line of David Kanen with Kanen Wealth Management. Please proceed with your question.
David Kanen: Hi guys. Good morning.
Sharon Price John: Good morning, David.
David Kanen: Congratulations. And just quick comment for you and the board. I appreciate you guys listening to the shareholders in particular, large follow on buyback, getting them to Pet Toys and then, sort of dipping your toe in with the NFT. So, I appreciate you guys listening to the shareholders. So just two questions, one of them follow up. The first one is on this deal. This Pet Toys deal, did you say it was PetSmart and PetCo and then is there an exclusivity to it or do you have the flexibility to expand upon it in the future?
Sharon Price John: Yes, we mentioned that itâs 1,600 PetSmart store locations that we expect it to be our Pet Toys to be in. And if you could help me with your question on what do you mean by expanding?
David Kanen: Yes. Is there an exclusivity to it? Could you then move on to PetCo or Pet Store plus or different online venues? Are you limited to selling product to them only?
Sharon Price John: Well, as a reminder, it is a licensed relationship. So it is our licensed partner that is selling this to PetSmart. And this is a, I believe for the season, it is exclusive, but that does not mean that it is exclusive forever to my understanding. But for this season, there is some exclusivity to it. So that when you create relationships like that, thereâs usually, some benefit that comes with it. And I know that thereâs going to be some, itâll be a featured product line for them. And we were full, in their full distribution.
David Kanen: Okay. So, when you say Christmas, itâll be in stores probably in by November, correct?
Sharon Price John: And I think usual set for a big box is at mid to late October.
David Kanen: Okay. And then going on transportation costs that was sort of the Delta, between last yearâs EBITDA and this one and then some, so you alluded to second half of the year transportation and freight cost coming down. Could you give us a little more detail quantify it? I think year-over-year we were up what, $3.8 million incrementally. How much of that do you think weâll get back in the second half of the year?
Voin Todorovic: Yes, David. So, we have been experiencing the higher level of freight cost for last, through the entire, basically Q4 of last year Q1 and most of that Q2. We are starting to see freight rates to come down. How much we are going to see if the matter of timing as well as the inventory sell through. We still have like portion of this inventory with a higher freight cost. So, I would expect Q3 freight costs still to be higher than what we would see in Q4. These rates continue to come down. Are they going to stay at those levels? Itâs hard to say, but again, assuming the current rate, we would start to see sequential improvement compared to the first half of the year in Q3 and then in Q4.
David Kanen: Okay. Thank you. Iâm going to be greedy. Iâve got one more quick question. On the buyback obviously in the pre-market there was weakness, which I view as an opportunity, given the growth we have in front of us with some of these new initiatives, are you blacked out for 48-hours, due to the earnings or are you covered under your 10b5-1, where you could potentially even be in the market today?
Voin Todorovic: So David, as we thinkâ¦
Sharon Price John: Oh, sorry, David. Yes, thereâs generally a cooling off period. And post that weâll assess the opportunity and as we have done in the past, take advantage where it makes sense to buyback appropriately.
Operator: Our next question comes from the line of Gary Schnierow with RiverPark Capital. Please proceed with your question.
Gary Schnierow: Good morning, Sharon. Good morning, Voin.
Sharon Price John: Good morning.
Voin Todorovic: Good morning, Gary.
Gary Schnierow: Good morning. So first a quick housekeeping question, for the second half of the year. Is it still fair to assume that free cash flow is equal to your net income? And then we should adjust that for the inventory adjustment?
Voin Todorovic: Thatâs probably fair to assume.
Gary Schnierow: Okay, great. And then can you help us with your â to second quarter to third quarter revenue seasonality, obviously because of the last few years, things have been, itâs hard to look at that. It was, you were kind of flat second quarter to third quarter of last year. I donât know if thatâs typical. Can you help us understand one, whatâs typical and then two, Iâm guessing youâd have a little tailwind from the continued parties ramping and new stores, but whatâs general seasonality?
Voin Todorovic: Well, when we think about seasonality, quarterly seasonality, clearly as we always said, like Q4 and Q1 are two â top two quarters. Q2 and Q3 typically are lower revenue quarters, some of that stuff based on like how they are going to be compared to each other may depend on the promotional activity and different type of product launches that we may have. We havenât, we are not providing specific guidance for Q3, but like everythingâs within the full year guidance that we havenât changed on the full year basis. Still that $440 million to $460 million we still expect second half of the year as historically has been the case, be higher than first half of the year. As we said, we are our momentum going into Q3 is strong and we are pleased with our performance on a year-to-date basis that gave us that confidence to reiterate our guidance. But thatâs probably know like the best I can do at this time from giving you a little bit additional color.
Gary Schnierow: Okay. Thank you.
Operator: Thank you. Our next question comes from the line of Jeff Feinberg with Feinberg Investments. Please proceed with your question.
Jeff Feinberg: Thank you very much. Can you guys please talk a little bit about some of the new launches and new products that youâre most excited about?
Sharon Price John: Yes, hi. Absolutely. We have quite a nice pipeline of products that weâre looking forward to as we look out onto the Halloween and Christmas and Black Friday. And as I mentioned in the remarks we are pre-launching some of our holiday products. In fact, you can go online and look in there right now. Weâve gotten a new pumpkin spice assortment that actually got quite a bit of online pickup. So, you never know with Build-A-Bear. Itâs really interesting how much impact we can make with some of these. I mean, we, itâs not unusual for us to get quite a bit of media impressions with some of these unique and interesting gifting kinds of concepts that arenât just always for kids. But as we look into forward in the year, we mentioned some of the 25th anniversary, Silver Celebration products that we partnered with key licensers weâve had, for example, the silver tooth list from how to pay, How To Train Your Dragon. Weâve had Silver Darth Vader Bear and now we have coming up very highly anticipated. Hello Kitty, Silver Anniversary Hello Kitty, as well as the Silver Anniversary Spider-Man Bear. And we will be finishing our collection of historic favorites from Build-A-Bear as we finish out the year towards this 25th anniversary. Mentioned a few, one of the movies, movie properties that will be reintroducing is Lord of the Rings. Weâre also bringing out the second version of Puss in Boots. And a lot of course, is usually driven around our Merry Mission product line. Thatâs been historically our best selling product line during the holiday period, particularly Glisten, which is our key, our own intellectual property product, which is a white reindeer that is our best selling product generally in the December time period. So a lot of excitement as we look forward.
Jeff Feinberg: Wonderful. And would you expect the new product mix to have on average the same or a little higher price points?
Sharon Price John: On average, weâre going to â they have a little bit higher price points. And that first question that Eric asked is, we want, and when you make understand that we have this, a kind of a pricing arc that we look at and we tend to be very scaffold in the way we increase those prices, but weâve had to have in general, an increased pricing strategy to mitigate some of these freight costs, just like almost every other retailer.
Jeff Feinberg: Okay. But this should bought and really assist in the second half.
Sharon Price John: Thatâs right.
Jeff Feinberg: Thank you so much.
Sharon Price John: Absolutely. Thank you for the question
Operator: We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.
Sharon Price John: Thank you so much for joining us today. And we look forward to updating you further on our next call.
Operator: Ladies and gentlemen, this does conclude todayâs teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
