Build-A-Bear Workshop, Inc. 2027 Q2 Earnings Call

Good morning, everyone, and welcome to Build-A-Bear's second quarter 2026 earnings conference call. With us today are Chris Hurt, Build-A-Bear's Chief Executive Officer, and Voin Todorovic, our Chief Financial Officer and Chief Administrative Officer. During this call, we will refer to forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially. Please refer to our Forms 10-K and 10-Q, including the Risk Factors section. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our investor relations website. Now, I will turn the call over to Chris.

Thank you, Gary, and good morning, everyone. I appreciate you joining us today for Build-A-Bear's second quarter fiscal 2026 earnings call. As we communicated earlier this year, we expected fiscal 2026 to be a tale of two halves, with more difficult comparisons impacting the first half, followed by less challenging comparisons and anticipated improved performance in the back half of the year. Although we continue to expect a stronger second half than the first, second quarter results fell short of our projections, driven mainly by continued traffic challenges due to the performance of our summer trend collection, in addition to macroeconomic conditions. As a result, we have moderated our direct-to-consumer expectations for the balance of the year. Together with our updated outlook for our commercial segment, we reduced our full-year guidance. Voin will discuss the updated guidance in more detail in his remarks.

Second quarter was up against a particularly strong performance last year, when DTC revenue increased 11% and web demand increased 15%. These results were driven by a number of strong summer collections, including trend product with our innovative Fruit Stand assortment, exclusive licensed offerings such as the Sanrio Sweet Shop, and a selection of movie-related items, highlighted by the How to Train Your Dragon launch featuring a new Toothless, which through the years has proven to be one of our most successful movie characters. Following the success of summer 2025, we used this year's assortment to push even further into product innovation, including novel designs such as Slushie Plushie and Beary Goods. While these less customizable concepts did not resonate as strongly as anticipated and contributed to weaker performance than last year, the quarter also reinforced an important insight.

Guests continue to respond positively to products that highlight Build-A-Bear's signature customization experience. For example, our dressable Chummy Shark, one of the key characters in our Make Your Own Summer collection, sold out during the quarter. Promise Pets, our own intellectual property, continues to be a meaningful growth platform, driving higher-than-average DPT due to strong attachment rates of clothing and accessories. These insights and learnings will help us strike a better balance between continued product innovation and the core elements of the Build-A-Bear experience that resonate most strongly with our guests. Even as DTC sales came in short of last year's record level, it's important to note they represented our second-highest second quarter DTC sales performance in the history of the company. Turning to the numbers. Second quarter revenue was $115.3 million, and pre-tax income was $11.6 million.

For the first half of fiscal 2026, revenue was $240.6 million, pre-tax income was $35.5 million, and adjusted pre-tax income was $28.5 million, excluding the $7 million IEEPA tariff refund related to 2025. Importantly, while our second quarter performance and revised guidance reflect near-term pressures, we remain confident in the strength of our brand, our long-term strategy, and our ability to execute against the opportunities ahead. Notably, our Halloween launch delivered the highest non-fourth quarter sales week in the company's history and the third highest U.S. e-commerce sales week behind only Black Friday weeks of 2020 and 2025. While August remains part of the difficult comparison period, our third-quarter sales performance to date has improved over the first half.

These early third-quarter results reinforce our view that guests continue to respond strongly to trend-right product offerings and beloved characters, such as our recently redesigned Harry Potter bear, that build on the customization and engagement inherent in the Build-A-Bear experience. With that as a backdrop, we remain focused on the four strategic pillars we have discussed over the past two quarters. One, drive organic growth. Two, location expansion. Three, wholesale and outbound brand licensing. Four, gifting and personalization. Together, these priorities are designed to evolve and extend the Build-A-Bear brand, including into large addressable markets beyond our traditional vertical retail channel. Our first pillar is organic growth. We must continue to drive our core business through trend-right products and compelling experiences while remaining true to what makes Build-A-Bear unique. Guests continue to value the creativity, self-expression, and connection that comes from building and personalizing their own furry friend.

We remain focused on enhancing that experience across demographics and occasions. Just as importantly, our success has not been limited to core offerings. We have consistently demonstrated an ability to identify, create, and capitalize on powerful consumer trends, particularly those related to nostalgia, pop culture, collectibility, and the adult market. Products such as Spring Green Frog, Pink Axolotl, and Capybara began as trend-right offerings, but have since become enduring parts of our assortment, illustrating our ability to transform emerging trends into evergreen products while maintaining the core elements of the Build-A-Bear experience. The Halloween season has become another compelling example of our ability to identify, create, and capitalize on consumer trends, while also representing an increasingly important growth opportunity for the brand. This year's assortment featured trend-right products, including a reintroduction of our fan favorite Posable Bat, a new Jumping Spider, and Mini Beans of those respective products.

All of which help drive the record-breaking launch week of the seasonal collection. As a reminder, these seasonal and trend-driven launches often generate significant user-created content, helping drive engagement, traffic, and ultimately sales. As we approach our 30th anniversary in 2027, we will kick off a year-long celebration commemorating three decades of memory-making experiences. Throughout the coming year, we plan to continue to reintroduce some of our most popular, nostalgic furry friends from our vault, reconnecting guests and fans with the Build-A-Bear characters from the past. As part of that celebration, beginning in October, we will also introduce a special version of our beloved mascot, Bearemy, one of our most recognizable characters, both to longtime fans as well as to a new generation of guests. We also continue to see meaningful opportunities within licensed products and collector-driven engagement.

Today, we launch our new Sanrio Halloween collection, highlighted by the popular Lloromannic duo, Berry and Cherry. This launch establishes Build-A-Bear as the first retailer in the U.S., Canada, and the U.K. to offer Lloromannic in plush form, further strengthening our position as a destination for sought-after licensed characters for all ages. Looking ahead, we continue to amplify the Build-A-Bear brand by leveraging the powerful combination of nostalgia, licensing, and innovation that differentiates us in the marketplace. Our upcoming collaboration with McDonald's is a great example. Later this year, McDonald's will begin rolling out Build-A-Bear-themed Happy Meal in the U.K., bringing together two iconic brands in a way that introduces Build-A-Bear to new customers while reinforcing engagement with existing fans.

We believe this collaboration represents a unique opportunity to increase brand awareness, create cultural relevance, and introduce Build-A-Bear to new customers through one of the world's most recognizable brands. Turning to our second pillar, location expansion. During the second quarter, we added five net new locations, bringing total net new openings to 12 through the first half of physical 2026 and ending the second quarter with 674 locations across 37 countries. We remain on track to achieve our objective of opening at least 50 net new locations this year, with the majority expected to be international partner-operated locations. This expansion reflects the global appeal of the Build-A-Bear brand and enables us to extend our reach efficiently into new markets. Turning to the third pillar, we remain committed to extending the reach of the Build-A-Bear brand through wholesale and licensing opportunities.

As a reminder, our wholesale business remains largely program-driven and opportunistic as we continue to make investments to grow our traditional wholesale channel and do not yet have broad replenishment capabilities. We are disappointed that this business has not developed at the pace we anticipated. We were unable to repeat the multimillion-dollar Walmart program, and other wholesale opportunities have progressed more slowly than expected. However, our experience with Walmart, namely the successful sell-through of our Build-A-Bear branded non-licensed products, demonstrated that a brand can extend into large-scale third-party distribution and reach consumers beyond our traditional channel. We continue to view wholesale and outbound licensing as attractive opportunities to further leverage the strength of our intellectual property, generate incremental profitable revenue, and extend the Build-A-Bear brand to new customers. Our fourth pillar focuses on enhancing gifting and personalization.

Our new highly immersive, multi-level location at Icon Park in Orlando, which remains on track to open in the third quarter, will showcase an elevated expression of the Build-A-Bear experience and will debut a number of premium gifting and personalizations offerings. Among them are our first-ever design studio, a high-touch, appointment-based experience where guests work one-on-one with a design consultant to create a truly one-of-a-kind furry friend by selecting elements such as the animal, fur type, eye color, and again, creating a truly one-of-a-kind design. A new Personalize Me station offering furry friend embroidery and clothing customization that creates lasting keepsakes. Enhancements to our Hear Me station that highlights our record your voice functionality, which is a critical differentiator for our brand. A new Scent Bar, where guests can personalize a scent to be added to their furry friend.

Build-A-Bear Bake Shop, featuring guided dessert experiences that extend the creativity and personalization of the workshop, while providing guests with a unique way to celebrate special occasions. These are just some of the many features we are introducing to create a highly differentiated experience at our new location at Icon Park, allowing us to showcase the full breadth of the Build-A-Bear brand while creating new opportunities for personalization, gifting, celebration, and gift engagement in a premier tourism destination. We intend to apply relevant successes and learnings from our Icon Park location to evolve other offerings within our store portfolio. In summary, our first half performance fell below our expectations. We have revised our fiscal 2026 outlook. Importantly, the early response to our Halloween launch and recent product introductions reinforces our confidence in the enduring strength of the Build-A-Bear brand, and we remain focused on our strategic growth initiatives.