Build-A-Bear's plush financial position

Build-A-Bear Workshop's (NYSE: BBW) investment in e-commerce and the revival of the physical store have led to record first-quarter results coming off record profit in fiscal 2021, CEO Sharon Price John tells Axios.

Why it matters: Build-A-Bear's omnichannel strategy has put the retailer, which once faced an uncertain future, in a position to put capital to work on deals.

What's next: The toy retailer's share price has recovered to more than $19 per share, after dipping below $2 per share during the early days of the pandemic.

• That has John assessing an M&A strategy that would include making acquisitions of businesses that add to the retailer's skill set and core competencies.
• As with all public companies, Build-A-Bear would also consider strategic or private equity offers to buy the company, she says, citing fiduciary duty.
• John noted that the company throws off a lot of cash and has further room to grow not only domestically in terms of physical stores, but internationally via franchising as well.

Flashback: John says there were schools of thought that Build-A-Bear could never participate in the digital economy because the company's reputation was based on the experiential nature of the stores.

• "Part of the transition of who we are as a company was ripping apart that mythology and not accepting that we had no value beyond the creation of the bear in the physical form," she says.

Details: Before the pandemic, the toy purveyor was already building out its e-commerce capabilities and upgrading its stores with new formats.

• "In fact, we flipped some switches on things like a new warehouse management system, the ability to buy online ship from store, all of these things really fell in place, some of them in the January and February of 2020," she elaborates.
• That drove triple-digit sales in e-commerce.
• In addition, licenses to sell Harry Potter and Baby Yoda and widening its audience to include adult collectors also boosted sales.

Of note: Build-A-Bear is back to opening stores and plans to open 20 locations this year.

By the numbers: "Financially we have emerged from the pandemic on very solid footing with a clean balance sheet and no borrowings on our credit facility and good cash flow," John says.

• The toy chain reported that revenue grew more than 28% to nearly $118 million and pre-tax profit increased 38% to about $18 million.
• It also has virtually no long-term debt and cash and cash equivalents of approximately $26 million.
• EBITDA for fiscal 2021 was $63 million and is expected to grow to between $65 million and $75 million this year.

💭 Our thought bubble: Despite those numbers, the company still trades at a low multiple. Based on a market cap of approximately $307 million, the company's enterprise value is about $281 million, which is nearly 4.5x EBITDA.

• A clean balance sheet, a solid growth trajectory, a low EV to EBITDA multiple, a number of physical locations in the works, a burgeoning adult business, experiential stores, and having multiple exit options are all attributes PE looks for in potential targets.