Build-A-Bear Workshop (NYSE: BBW) reported Q2 EPS of ($0.82), $0.02 worse than the analyst estimate of ($0.80). Revenue for the quarter came in at $40.4 million versus the consensus estimate of $31.79 million.

Second Quarter Fiscal 2020 Results: (13 weeks ended August 1, 2020 compared to the 13 weeks ended August 3, 2019):

• Total Revenues were $40.4 million compared to $79.2 million in the fiscal 2019 second quarter, reflecting 60% fewer operating days, driven by the significant impact of temporary store closures due to the COVID pandemic partially offset by a 299% increase in e-commerce sales;
• Loss per share totaled $0.93, including $2.1 million in estimated non-cash asset impairment charges compared to a loss per share of $0.08 in the fiscal 2019 second quarter;
• Adjusted loss per share totaled $0.82, compared to an adjusted loss per share of $0.02 in the fiscal 2019 second quarter (see Reconciliation of GAAP to Non-GAAP Results); and
• Maintained solid balance sheet with no borrowings on its credit facility with cash and cash equivalents of $25.3 million, an increase of $10.3 million compared to end of the fiscal 2019 second quarter.

Operational Highlights for the Second Quarter of fiscal 2020:

• Retail merchandise margin improved by 210 basis points compared to the fiscal 2019 second quarter driven by lower promotional activity and favorable merchandise mix;
• In the second quarter and continuing through the end of August, reflecting its strong lease flexibility, the Company has successfully completed renegotiations of approximately 95% of its store leases resulting in a combination of rent reductions, deferments and abatements;
• Total inventory at quarter-end was $55.5 million, an 11% decrease compared to the end of the fiscal 2019 second quarter; and
• Selling, general and administrative expenses reduced by $14.2 million from the second quarter of fiscal 2019 reflecting expense saving initiatives as well as the benefit of a corporate reorganization.

Following Quarter End:

• In August, the Company saw a sequential improvement in sales trends in its operating stores and recaptured over 80% of sales in its brick and mortar locations which was an improvement from 70% in its second quarter compared to the same periods in fiscal 2019, while its e-commerce demand continued to grow at triple-digit rates;
• The Company entered into a new five-year asset-based credit facility including a revolving line of credit for up to $25 million.

Sharon Price John, Build-A-Bear Workshop President and Chief Executive Officer, commented, “Our second quarter results show the impact of store closures in response to the COVID-19 pandemic and the significant shift to e-commerce which increased nearly 300% for the period. We put actions in place to drive sales while reducing inventory and leveraging the high optionality that we had in place with leases to renegotiate terms on approximately 95% of our store locations to date. In addition, strict expense management, revised marketing activities and a corporate reorganization contributed to $14.2 million in cost savings, or a 40% reduction, as compared to the prior year’s second quarter.”

“Entering the third quarter, we have reopened approximately 90% of our corporately-managed store locations with a reimagined bear-building experience that reflects recommended safety protocols designed to continue to keep both our associates and our guests as safe as possible. We have seen sales trends steadily improve in store locations while e-commerce has continued to be strong. To support the increase in digital sales, we have enhanced our omni-channel capabilities with rapid expansion of “buy online, ship from store” which also allows us to take advantage of geographic proximity and available store labor to meet the higher demand. We have initiatives in place to further accelerate our digital transformation which has been a key pillar of our strategy to capitalize on the power of our Build-A-Bear brand and diversify our revenue streams. Finally, with an ongoing focus on financial liquidity, we recently entered a new agreement for an asset-based credit facility giving us increased flexibility to manage through these unusual circumstances resulting from the COVID-19 impact while we simultaneously continue to execute our strategic plans designed to drive long term profitable growth for the benefit of our stakeholders,” concluded Ms. John.

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