On Thursday, Build-A-Bear Workshop (NYSE:BBW) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Build-A-Bear Workshop's second quarter revenue was $115.3 million, a 7.2% decrease, with pre-tax income of $11.6 million. For the first half of 2026, revenue was $240.6 million and adjusted pre-tax income was $28.5 million.
The company lowered its full-year revenue guidance to $500-$525 million from $530-$550 million due to underperformance in summer trend products and macroeconomic challenges.
Key strategic initiatives focus on organic growth, location expansion, wholesale and licensing opportunities, and enhancing gifting and personalization, with plans for at least 50 new locations this year.
Despite weaker summer performance, the Halloween launch showed strong sales, indicating guest preference for customizable products. The company plans further product innovation with a focus on core customization experiences.
The company experienced traffic challenges but reports improved sales performance in early third quarter, driven by successful Halloween product launches.
Management expressed confidence in long-term strategy and brand strength, noting a significant collaboration with McDonald's and plans for a 30th anniversary celebration.
Full Transcript
OPERATOR (Operator)
Greetings and welcome to the Build-A-Bear Workshop second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Gary Shioniro, Vice President, Investor Relations.
Please go ahead.
Gary Shioniro, Vice President, Investor Relations
Thank you. 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 Todorovich, our Chief Financial Officer and Chief Administrative Officer. During this call we'll 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. And now I'll turn the call over to Chris.
Voin Todorovic, Chief Financial Officer
Thank you, Chris, and good morning, everyone. I will discuss the quarterly results and then share more about our updated full-year outlook. As we shared on our last call, we expected a year-over-year decline this quarter. However, results fell short of our projections primarily due to underperformance from summer trend products as well as ongoing macroeconomic challenges, both contributing to weaker traffic. Specifically for the second quarter, total revenues were $115.3 million, a decrease of 7.2%, mainly driven by a decline in our direct-to-consumer business.
In the direct-to-consumer segment, transactions declined primarily due to lower store traffic. Average unit retail also decreased, partially offset by an increase in units per transaction. Domestic store traffic was down and lagged broader U.S. traffic trends. Last year's second quarter benefited from particularly strong traffic and robust demand for new collections, especially among teens and adults. Despite the year-over-year decline versus second quarter, total direct-to-consumer revenue grew 3% versus 2024. e-commerce demand declined 15.6% compared to last year as web traffic remained soft. However, demand improved sequentially from the first quarter, reflecting progress against our initiatives to strengthen the digital business. While year-to-date performance remained below last year, the team continues to make progress while returning this channel to growth. Gross margin for the quarter was 54.2%, a decrease of 340 basis points compared to last year, reflecting occupancy cost deleverage and increased promotional activity.
SG&A expenses were $51.4 million, or 44.6% of total revenues, compared to 45.4% last year. The 80 basis point decrease in SG&A was driven mainly by lower incentive compensation expense. Our pre-tax income was $11.6 million compared to $15.3 million last year, a decline of 24.1%. Turning to the balance sheet, at the second quarter end our cash balance was $14 million, representing a $25 million decrease versus last year, mainly driven by a higher level of stock repurchases compared to the same time frame last year and the timing of capital expenditure activity that was more front-loaded this year to support our strategic initiatives.
Inventory at quarter end was $81.1 million, a decrease of $600,000 compared to the same period last year. The company remains comfortable with the level and composition of its inventory, and we currently expect to finish the year at or below last year's level. We continue to deliver capital to shareholders, as we returned $8.5 million to shareholders during the quarter. Over the past 12 months we have reduced our share count by more than 5%, and we currently have $43.2 million remaining under the board-authorized $100 million share repurchase program.
Turning to the outlook, we reduced our revenue and pre-tax income guidance as well as our expectations for commercial segment growth. We continue to expect the addition of at least 50 net new experience locations, most of which will be operated by our international partners. We have lowered our revenue guidance to a range of $500 to $525 million, down from our previous range of $530 to $550 million. This reflects second quarter results below our expectations, continuing traffic uncertainty, and no longer expecting to anniversary our multimillion-dollar Walmart order from last year.
For the second half, we expect third quarter performance to improve sequentially, supported by a more favorable year-over-year comparison. As Chris noted, we are seeing positive momentum in our stores and e-commerce at the beginning of our third quarter, but our performance is still slightly below our prior expectations. Looking ahead, as is typical, we expect the fourth quarter to be our strongest quarter even with an anticipated year-over-year decline in commercial segment revenue.
Moving to our updated pre-tax income guidance, we have lowered our pre-tax income guidance range to a range of $16 million to $68 million, down from our previous range of $72 to $78 million. Excluding the approximately $7 million of the tariff refund related to prior year costs, we expect adjusted pre-tax income to be in the range of $53 million to $61 million. The outlook also reflects $10 million to $11 million of ongoing traffic tariffs and related costs based on the current increased tariff rate of 12.5%, as well as approximately $3 million in longer-term investments.
In closing, we continue to see opportunities to expand our global footprint and to further develop our wholesale business. Even with our updated guidance, we expect 2026 to be one of the stronger years in Build-A-Bear Workshop history, and we are focused on working to build teams and strengthen our foundation for fiscal 2027 and beyond. With that, we would like to thank our store and warehouse associates, along with our corporate team members and partners, for their dedication to the Build-A-Bear Workshop brand as we continue to work toward delivering on our strategic mission to add a little bit more heart to life around the world.
This concludes our prepared remarks. We will now turn the call back over to the operator for questions.
OPERATOR (Operator)
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question today will come from Chris Moore with CJS Securities.
Please proceed with your question.
Chris Moore, Analyst at CJS Securities
Hey, good morning, guys. Thank you for taking a couple. Maybe we'll start on the commercial side. So you lost four partners. Maybe talk a little bit about what happened there and what's behind the updated guide assuming no commercial growth in '26.
Chris Hurt, President and Chief Operating Officer
Yeah, thanks, Chris, and good morning. From our commercial segment, we had guided to a plus 20% for the full year, with the reduction of the Walmart multimillion dollar that we now don't anticipate that that will happen in the back half of the year. That was a reduction in that guidance. We do anticipate to still be close to our original guidance with our commercial segment with our international partners and our domestic partners. There is certainly a repositioning of some of those store locations, and we still have our guidance to open at least 50 net new locations this year.
Chris Moore, Analyst at CJS Securities
Gotcha. And with respect to Walmart, I mean it sounded like things were going pretty well there. Any other details you can provide on that front?
Chris Hurt, President and Chief Operating Officer
Yeah, as we talked about from the Walmart last year, that was an opportunistic opportunity for us with a direct program going into those locations. This year we were unable to anniversary that particular program, and there has been some slowness in anticipation of other wholesale opportunities within the back half. We are continuing to work on those wholesale systems to be able to provide replenishment and to be able to work into those as we move forward.
We still see this as an important opportunity and growth strategy for Build-A-Bear Workshop. As we talked about with that Walmart last year, we did see a strong sell-through with the Build-A-Bear Workshop branded license product, and we believe that that is the opportunity for us in the future to be able to take advantage of these opportunistic wholesale opportunities.
Chris Moore, Analyst at CJS Securities
Got it. That's helpful. And just thinking in terms of wildcards, kind of looking at what's going on in Iran and, you know, the potential China response, is that one of the bigger, you know, potential negative wildcards? If U.S. really presses China, China reacts unfavorably. Is there a potential there from a kind of Chinese tariff perspective that would have a, could have a meaningful negative impact on you guys later this year or '27?
Voin Todorovic, Chief Financial Officer
I'll take that, Chris. So thank you for the question. You know, it is very challenging to answer some of those things clearly. You know, the geopolitical and macro environment do impact us in some cases more or less. But, you know, tariffs even this quarter have changed from 10%—what we assumed—to 12.5%. Again, that's something that's outside of our control and if and when it will happen, if it happens at all. But, you know, we continue to stay focused on what we can control.
We are working with our partners around the world really to find ways to mitigate some of those things and strengthen our supply chain to support our business across the globe. And clearly some of those challenges, especially if there is a hike in oil prices, will impact us directly or indirectly. But it is really challenging to think about what those impacts are. But, you know, in the past we have a strong history and good history of finding ways to mitigate some of the challenges during those times of these unusual spikes, if you will.
Thank you.
OPERATOR (Operator)
And our next question, we'll hear from Eric Vetter with SCC Research. Please go ahead.
Eric Vetter, Analyst at SCC Research
Good morning.
Chris Hurt, President and Chief Operating Officer
Good morning, Eric.
Eric Vetter, Analyst at SCC Research
Morning. What are you seeing in terms of the consumer? What are you seeing in terms of their purchasing, you know, in terms of imperative to purchase, and are they kind of trading down for some of the other pieces now that you have, you know, the mini beans and some other pieces? Is that part of the issue too?
Chris Hurt, President and Chief Operating Officer
Thanks for the question, Eric. And as we stated, our second quarter performance was below our expectations, and we saw a continuation of persistent traffic challenges throughout the quarter. We have seen as we move into the first half of the third quarter, as I talked about with our Halloween launch, we have seen a change in those traffic patterns to the positive, and we've seen a change in our sales performance, while slightly still below our expectations.
That performance of our Halloween product really demonstrates the ability of people to come in and go through the full experience. We are seeing our four levers as far as DPT be above last year, and we've been able to take people through that, as we said, that entire experience. Those items are Halloween collection or more back to our core items where people are able to dress those, be able to go through the full experience. And that has given us the outlook of the third quarter as we move through.
Although August is still a part of our difficult comparison period, we see this as a positive sign moving forward, but again slightly below our prior expectations.
Eric Vetter, Analyst at SCC Research
Great. And when you look at, you know, are the inventories somewhat distort—are the inventory comparisons here somewhat also distorted here in Q2 by the tariffs being now part of the cost of goods and last year they weren't? You know, how should we think about the inventories going forward? I know you said at the end of the year it's going to be flattish. Is that because, in general, like A, you do a good job, but B, it also has to do with the tariff kind of normalizing too?
Voin Todorovic, Chief Financial Officer
So I'll try to answer that, Eric. You know, tariffs have been really—we've seen significant fluctuations since they were implemented, at least for our business, in April of last year, and they fluctuated from 50s to 20s down to 10%, and again they were increased to 12.5% recently. In addition to this really complicated story, we got some refunds from IPA tariffs that were enforced last year, and that went through our P&L mostly in Q1 and a portion of that was in Q2.
So we were really in this situation during Q2 that our tariff impact, with a lower rate this year versus last year—and last year they were starting late in the second quarter for us—you know, we had about a million-dollar impact in both quarters. So that wasn't that much of an impact this time around. But as we go for the back half of the year, and we go assuming they stay at 12.5%, clearly that will have some smaller impact on our pretax projection for the remainder of the year.
That's reflected in our guidance. But we should see some benefit, you know, from the overall total inventory as the rate would be lower compared to where the rate was at the end of last year.
Eric Vetter, Analyst at SCC Research
Got it. Okay. And kind of last question here. When you look at last year, the spring launch was a huge positive, and you know, this year wasn't as strong—what's the thought? What's the takeaway? What are your takeaways from that as you look forward to what you're going to do for the next kind of spring, summer launch for that, going forward? Thank you.
Chris Hurt, President and Chief Operating Officer
Yeah, thanks, Eric. And you're right, we talked about that. We did have—we were going up against very high comparisons in the second quarter for last year based on an innovation that I talked about of our fruit stand assortment along with a licensed product of our Sanrio Sweet Shop that drove us, after five years of record-breaking results over 20 quarters, to take the summer as an opportunity to push our innovation. And we did do that. We pushed our innovation with a line of Slushy Plushies, Berry Goods, and even Mashimals in that time period.
You know, summer is a time when you would want to push that envelope. Other times of the season there are products that consumers are really looking for, whether that’s Valentine, Easter, Halloween as we've seen success, and holiday. So summer is when we traditionally pushed that innovation. The reality is we pushed it too far. That product did not resonate as well with our consumers. It wasn't as dressable; it didn't go through the full customization experience.
And as a result we saw weaker results from that product line. As we move into Halloween, it's more into our core line that resonates with our guests, that gives them that full customization experience. We centered on a fan favorite from last year with the poseable bat, introducing a new trend item in there with the spider. Both of those able to be dressable, stuffable, be able to record your voice in, along with others in that line. And that's what we see going forward.
Our holiday collections are in that more core item along with licensed characters and trend products. So we believe that going forward we will still push trend. We have been very good at being able to get on emerging trends and look at those. But in the summer line we did push it too far, in our opinion, and it did not resonate with our guest.
Eric Vetter, Analyst at SCC Research
Okay, good luck on the back now.
Chris Hurt, President and Chief Operating Officer
Thank you.
OPERATOR (Operator)
And next I'll move to Keegan Cox with DA Davidson. Please go ahead.
Keegan Cox, Analyst at DA Davidson
Yeah, thanks for the question. I kind of wanted to get in on the commercial stores a little bit more—maybe just a follow-up. I know last quarter you talked about commercial partners closing smaller footprints to open larger stores. I was wondering if that dynamic played out in the closures we saw this quarter or if anything has changed on that front.
Chris Hurt, President and Chief Operating Officer
Yeah, thanks, Keegan. Again, we still expect to open at least 50 net new locations this year, and predominantly those being our partner-operated stores. And that did play out. There are partners that first opened in these smaller shop-in-shops and now have opened standalone stores. There is timing that is happening within that. Historically we've had a very small percent of store closures, and our partners are repositioning as they understand their business and they understand where these locations should be in the country and in the city.
So we are seeing some repositioning, and again the majority of our openings will be in the back half of the year and those will be with our international partners. Actually, we're very early into our international expansion. Over this two-year period we've seen this growth and doubled the number of countries that we're in. So with new partners, they are looking at where the best opportunities are for them as they have some test-and-learn abilities and to be able to reposition their stores, and now some of them move into higher-volume standalone locations.
Keegan Cox, Analyst at DA Davidson
And my follow-up is on the gross margins. I know part of the decline was occupancy deleverage, but you did mention promotional activity. So I just wanted to kind of get an idea of what items you had to promote—sounds like the summer trend—and then if you're seeing any trade-down aspects.
Voin Todorovic, Chief Financial Officer
So, thank you. Yes, Keegan, yes, you are right about our margin was down, and some of that's caused by the increased promotional activity. Really that was more focused to drive our move-through of some of the summer trend products that missed our expectations. But as Chris pointed out, we had strength in our dollar per transaction. We still are—and I mentioned our units per transaction were up—so some of those things are helping out. But because of some of those, for us, heavier promotions—again, we still have very low discount rates—you know, that impacted our average unit retail.
But still, dollar per transactions were up.
Keegan Cox, Analyst at DA Davidson
Got it. Thank you.
OPERATOR (Operator)
And as a reminder, if you would like to ask a question, please press star one on your telephone keypad. We'll next move to Greg Gibbes with Northland Securities. Please go ahead.
Greg Gibbes, Analyst at Northland Securities
Hey, good morning, Chris, Voin. Thanks for taking the question.
Chris Hurt, President and Chief Operating Officer
Good morning.
Greg Gibbes, Analyst at Northland Securities
Maybe to just follow up on your prepared remarks—I think you said early Q3 results have improved over the first half. Can you maybe clarify what metrics you're referring to and maybe what you attribute that to? Is that simply the Halloween launch versus kind of the summer products? Any color there would be helpful.
Chris Hurt, President and Chief Operating Officer
Yeah, Greg, thank you. Yes, as we talked about, we have seen some sequential improvement in both traffic and in our early sales reads with the Halloween launch. You know, we are going up against—as we talked about—early comparisons in the back half of the year. However, August is still part of that difficult comparison period. So these improvements in both our traffic and our sales performance are encouraging as we move forward into the back half of the year.
This is—as I talked about—moving into that Halloween. Two years ago we brought our Halloween product launch forward and we saw great success. We did that again last year. So we're going up against two years of very successful Halloween launches. So to be able to come across that in the third year is encouraging as we move forward. So yes, both positivity in traffic and a sales increase—while not to our prior expectations—it has increased in both of those areas.
Greg Gibbes, Analyst at Northland Securities
Got it. That's great to hear, and to maybe quickly follow up on kind of the Walmart program not repeating there—what is your understanding of kind of the reasoning there, and are you able to quantify its impact to guidance?
Voin Todorovic, Chief Financial Officer
So I'll start with that. That was a multimillion-dollar deal that we had with Walmart, and it did have an impact on guidance because we weren't able to anniversary that opportunistic program from last year. But at the same time, some of the other initiatives haven't panned out at the pace that we anticipated them. But, you know, with that being said, our total commercial segment would grow at least 20%. Now we are bringing it down to basically being flat.
Pretty much all of that decline is tied back to our traditional wholesale mix. As we think about the context of guidance, we also did miss our expectation in Q2, driven again by that summer trend product performance and persistent traffic pressures. And then, as we talked about the rest of the year, even though we are seeing some positive momentum and we are positive, we are slightly behind our original expectations. So we are cautiously optimistic about the back half of the year, and that's reflected in our guidance.
Greg Gibbes, Analyst at Northland Securities
Okay, that's helpful. Thanks, guys.
OPERATOR (Operator)
There are no further questions at this time. I would like to turn the floor back to Chris Hurt for closing remarks.
Chris Hurt, President and Chief Operating Officer
Thank you for joining us today and your interest in Build-A-Bear Workshop. We appreciate your continued support and look forward to speaking with you again next quarter. Have a great day.
OPERATOR (Operator)
Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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