Fantastic quarterly results released by Build-A-Bear Workshop
BBW
this morning had its shares surging 21% on what was a terrible day for equities overall. And this reaction was more than justified. Indeed, with consumers continuing to flock to the company’s stores in droves and its e-commerce business also returning to growth after suffering some sales disruption from the planned redesign of its website in Q3, revenues in the period climbed 11.7% from the prior year to $145.1 million and easily exceeded the $137.5 million consensus view. And with the positive leverage of fixed occupancy expense from the higher sales and lower freight costs also nearly making up for the negative impact of the substantial swing from a $4.0 million tax benefit in Q4 of fiscal 2021 (which resulted from the full reversal of BBW’s tax valuation allowance in North America of $7.8 million) to a $5.7 million expense this year, earnings fell by a less-than-anticipated 6.1% to $1.39 per share, which was much better than the 24.3% drop to $1.12 analysts had been predicting.

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What’s more, with this positive momentum having carried over into the current year and interest for its brand only likely to continue to increase on the back of its recently released digital game, Build-A-Bear Tycoon, on Roblox (which is already closing in on 4 million engagements) and a number of additional aces the company has up its sleeves—like a Build-A-Bear documentary with award-winning documentarian Taylor Morden that is launching this year and the development of an animated film called Glisten and the Merry Mission based on its holiday plush star Glisten the snow deer that is slated for the 2023 holiday season—BBW thinks it can grow revenues by another 5-7% from the record $467.9 million achieved last year in 2023. Even the low end of the revenues of $491.3-500.7 million this implies is comfortably ahead of the Street’s $485.6 million forecast. And with freight costs expected to come down even further, the company sees pre-tax income growing by an even larger 10-15%. When you also apply BBW’s expected tax rate of 25%, the midpoint of this outlook suggests earnings per share of about $3.54, which is roughly 10% higher than the Street’s view of $3.21.

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But what really underscores just how confident BBW is in its prospects for the coming year, is the fact that it concurrently announced that it will be paying out a special dividend of $1.50 per share on April 6, 2023, to all stockholders of record as of March 23, 2023. While this amounts to a payout of a little over $22 million, the company has cash to spare given that it began fiscal 2023 with no debt and cash of $42.2 million and its guidance calls for the production of nearly $50 million in additional free cash flow this year. If it continues to deliver on these goals as I expect, I see further upside for the stock ahead. Just be mindful that once this special dividend is paid, the value of your stock will fall by the same $1.50 to reflect this transfer in value.