Investors Growl at Build-A-Bear

Shares of the retailer of plush toys dropped on news of soft sales

Since opening its first store in 1997, Build-A-Bear Workshop (BBW) has added more then 200 outlets and grown overseas. Investors turned bearish on the stock on Feb. 20. sending it down 8.3% to $27.92, on news that the St. Louis-based company's sales at North American stores open more than a year fell 10.4% during the fourth quarter.

To be sure, more shoppers overall are going to Build-A-Bear to make their own stuffed animals by picking a plush hide, filling it with fluff, and then choosing the clothing and accessories (see BusinessWeek.com, 5/12/06, "Bullish for Bears -- Toy Ones, That Is"). Build-A-Bear's fourth quarter net retail sales increased 21% year-over-year to $141.3 million. Earnings per share amounted to 75 cents during the quarter, including one time items like acquisition accretion and stock-based compensation expense. That's up more than 44% compared to the same period of 2005.

Maxine Clark, who calls herself the company's chief executive bear, has pushed the business ahead with steps like the $41.4 million acquisition in spring 2006 of The Bear Factory, a United Kingdom-based stuffed animal retailer owned by Hamleys, Ltd. She's also promising more growth in fiscal year 2007. Build-A-Bear says full year fiscal 2007 earnings per share EPS will range between $1.65 and $1.75, compared to this year's $1.44 EPS. But the company sees 2007 North American same-store sales in the flat to negative mid-single digit range.

"In the coming year we will continue to invest in our growth," Clark said in a press release.

Standard & Poor's Equity Research analyst Michael Souers cut his estimate on Build-A-Bear's earnings per share for 2007 to $1.69 from $1.81, but also said he expects EPS to grow back to $1.93 in 2008. Souers raised his 12-month target price by $2 to $33, citing "ample growth opportunities domestically and abroad." (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)