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BFD Expert Voices - Retail Deals

BFD Expert Voices

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.

1 big thing: Build-A-Bear back better

Two children pose with their plush toys at a Build-A-Bear store.

Photo: Joe Amon/The Denver Post via Getty Images

Activist investor Carl Icahn said he will drop his proxy campaign against Kroger following the loss of his pig welfare campaign by McDonald’s shareholders last month, Kimberly writes.

Why it’s the BFD: While his proxy contests at the fast-food giant and grocery chain haven't had much success, his high-profile efforts raised awareness of the treatment of pigs — particularly the use of gestation crates for pregnant sows — in the food industry’s supply chains. 

The latest: Icahn noted that this campaign was different from his typical fights in that both companies are performing financially well.

“I congratulate the McDonald’s team on their victory in this proxy engagement and, after much contemplation, given the company’s financial position, I believe the same outcome will result at Kroger,” Icahn said in a letter to both Kroger and McDonald’s shareholders.

Yes, but: “I do not believe, however, that the respective boards of directors of these companies are holding their management teams properly accountable with respect to the treatment of animals or with respect to the welfare of their employees,” he adds.

Icahn also knocked on the wage disparity between executives and average workers.

“It is unconscionable that it will take average employees at these companies multiple years to make what their CEO earns in one day,” he said in the letter.

State of play: Since launching his animal welfare-focused campaign earlier this year, Icahn said several companies have opened up and updated their policies on these issues. 

The Cheesecake Factory said it would shift a majority of its supply chain to group-housed pork supply. 

General Mills plans to end the use of gestation crates in its pork supply chain by the end of next year.

Conagra and Denny’s also said they are crafting plans to get to 100% crate-free pork.

Flashback: Icahn put forth two candidates at the fast-food giant earlier this year, but at McDonald’s annual shareholder meeting, all of the company's board nominees were re-elected.

He followed a similar playbook at Kroger’s, nominating two to its board and casting the same qualms about its animal welfare policies and wage gap. 

A Kroger spokeswoman didn’t immediately respond to a request for comment. McDonald’s wasn’t immediately available for comment.

​​What’s next: “I will continue to focus on the injustices I mention above and will determine what I believe are the most effective actions to drive change in the near future,” Icahn said.

2. The BFD: Icahn drops pig welfare proxy fights

Illustration of a pig stepping on the McDonald's logo.

• Sterling Group agreed to buy Ergotron, a St. Paul, Minn.-based maker of ergonomic desks, from Melrose Industries (LSE: MRON) for $650m. http://axios.link/9UhK

• Gathr Outdoors, a maker of outdoor camping, recreation products and equipment, has acquired WaterPORT, a portable, self-pressurized water tank maker for an undisclosed sum. http://axios.link/bynB 

• Cuisine Solutions, the maker of sous vide foods, received a $250m minority investment from Bain Capital. http://axios.link/K0Dv 

• Seafood Reboot, a Paris-based developer of plant-made seafood, raised €3.2m led by Demeter Partners. http://axios.link/IJ2m

3. Retail transactions

• Coca-Cola bottler Coca-Cola Beverages Florida said CFO Duane Still plans to retire from his post, effective July 1. The company promoted Paul Pheffer, its v.p. of finance and controller, to the role. http://axios.link/cmh4

• Bumble Bee Seafood has named Tiffany Hicks as its vice president of specialty channels. http://axios.link/EOot

4. It's Personnel

Situational awareness: Snoop Dogg is planning to cut the ribbon on Los Angeles eatery Dr. Bombay’s Sweet Exploration, an “immersive retail dessert experience” inspired by his Bored Ape NFT.

June 06, 2022

1 big thing: Build-A-Bear back better