Build-A-Bear CEO: 'No Way Around' Tariff Impact

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00:00You know, the company took preemptive actions and that really shielded you in the first half

00:04of this year. What is the state of play right now? Where are you most exposed when it comes

00:09to some of these tariffs? Well, to just sort of set the record straight, we have been providing

00:16information and counsel about these tariffs for the entire year. I think especially starting

00:23in second quarter, we had a much better idea about how it would impact the back half. And

00:29when we set that guidance in the second quarter, we reaffirmed guidance. So all of that's been

00:33contemplated in our 2025 numbers. What we've said is that we expect that the total tariff

00:38impact for 2025 to be approaching about $11 million. And we had about $1 million hit us in

00:47the second quarter. And then we had four or so in the third, and we're expecting about five to six

00:55in the fourth quarter. So that's how you get to that $11 million. And the warning that we wanted

01:02people to understand is that because we took such preemptive actions in the first half, that's going

01:09to be a tough compare in the following year. And we just don't want people to misunderstand that. We

01:15will have tariffed product run through our system in the first half of 2026. There's really no way

01:24around that. Right, right. But it's not always as self evident as as one might think. Yeah. And I mean,

01:29you take a look at the share reaction shares finishing yesterday down by 15 and a half percent. So

01:35clearly a little bit of surprise there. But talk us through I mean, the steps to mitigate some of this

01:42impact. I know that you put through a lot in the first half of the year. But as you move into 2026,

01:47just talk us through, you know, how you navigate some of that, especially given that, you know,

01:52it seems like the landscape shifts so rapidly when it comes to the state of trade policy. It does shift

01:57rapidly. And that does make it difficult. And I think that most of us know that some some precision

02:04and predictability and horizon in business is extremely helpful in planning a longer term approach to

02:11creating value for your shareholders. But what we've been able to do over the course of the last

02:17few years is diversify that sourcing strategy to some degree. Right. So we are in China and we're in

02:25Vietnam. But as much as we thought that would be a really advantageous strategy that has not stayed

02:32stable either. So really what we're focusing on mostly is just how do we manage it throughout every

02:40link of the value chain. It's not just at the source, the site of sourcing, even though you do

02:45negotiate with these partners and some of these partners we've had for a long, long time. Right.

02:49So it's not in anyone's best interest for anyone to not be operating as in the healthiest way

02:56possible. And so we do, you know, we all the things you're going to think. Yeah. Strategic price

03:02increases where it makes sense, where we're not really impeding the business, where we think we might

03:07have that elasticity, you know, squeezing down where we can in other areas that might save us,

03:14you know, whether it's SG&A or anything else that we feel like that we can push out those expenses.

03:20Well, let's talk about the other side of the equation, which is demand. And I mean,

03:23I know the holiday season kind of skews things because obviously everyone is sort of looking for

03:27sort of that special emotional type of gift. But when you talk about demand overall,

03:31all through this year and heading into next year, how does that compare relative to what we've seen in past

03:36years? Well, we have we've recently, you know, we had the record four years in a row. And with this

03:45reaffirmation of guidance, we're expecting our fifth consecutive year of record results on particularly

03:50on a revenue side. And that we expect that we with the guidance in mind would be our first half a

03:56billion dollar year in the history of the company. Our year to date was up eight percent. Now, some of

04:05that's pricing, but that's not all pricing. And we are seeing at least as we went into the first portion

04:12of the quarter to date for the fourth quarter, we noted that we saw some softness in the back end of

04:18October. But we're starting to see a trend shift and our conversion on a year to date basis while our DPT,

04:26excuse me, quarter to date basis, as well as our DPD on a quarter to date basis is up with Black Friday

04:31being the largest Black Friday we've ever had. I do think it's important to note to today we saw some

04:37recovery in our stock price. And a lot of times, you know, the first day is a lot of trading on the

04:43headlines. And then when you dig down into the information, the fundamentals are still there.

04:49This is because if you isolate for tariffs, you're going to be you see some very strong

04:55fundamentals to the business through diversification of consumer, diversification of our countries. We

05:01entered seven countries in this and just in the last quarter, we're now in 33 countries.

05:05I'm curious about the last time I spoke to you, you were talking about that international expansion.

05:08So that so that's gone well so far. And you plan to continue that?

05:12Well, absolutely. I mean, where's the growth? Where do you see the most opportunity for growth?

05:16Well, I mean, in some ways, we're simply scratching the surface. Even if I say I'm in 33 countries,

05:21it sounds like a lot. But that's not a lot when you think about the white space there.

05:25For example, this is a really great way to think about it. We have in the past been in

05:32more international countries. And when Build-A-Bear was struggling 15 years ago,

05:39and right after I arrived there about 12 and a half years ago, we pulled out of some of those

05:43countries to kind of stabilize the company overall. And now we're going back in with an entirely new

05:49model, business model called partner operated. It's a bit of a hybrid between kind of a corporately

05:56operated and a franchise model.

05:58How much control, though, do you have over making sure that the stores sort of meet the

06:03same standard that most people expect? And more importantly, not just stores, but the service,

06:06really?

06:07Yeah. No, I think that's a really important point. And I think that one of the reasons

06:10that this has been a more successful approach for us is we've really raised the water level

06:15and the vetting of finding those great partners who have a proven track record on having a high-touch

06:21service model. The great example is going back into countries where we've been, like Denmark or

06:29Germany, which we just launched a brand new store. It's in Berlin and Frankfurt.

06:34Is marketing there the same? It's going to be a really dumb question.

06:38No, it's not.

06:39But are teddy bears, I mean, are bears, I mean, are they such a big thing in some of those countries

06:43the way they are here?

06:43Well, Germany is a great example.

06:45The Germans? Oh, gosh.

06:47So let's just put this one on the table here. So Germany is probably, you know, it's more

06:53of a, actually more of a toy-centric market and definitely a teddy bear market.

06:58Okay. All right.

06:59So, I mean, just, I said to someone earlier today, I'm like, it's a bear market. I'm like,

07:03no, no, I don't mean that. I didn't mean that at all. So, but there's a teddy bear market.

07:08We had lines around, out and around the corner in both of these mall locations of these standalone

07:13stores. And so now we'll have like three before the end of the year. And when we had a franchise

07:19in Germany, back in the day, that was about 23 stores. So you're looking at some runway

07:25here. We have given no 26 guidance on that. And when you ask about control, it's less control,

07:32but that's a cap light model. That is not my capital that we're using to expand. That's

07:37their capital. Right. And we're giving them the training, the marketing, the products. Um,

07:43and, and they now are entering into markets where we have multi-generational knowledge and appeal.

07:49Right. And, uh, I just got to say the idea of a teddy bear market, so much cuter than a bear market.

07:55I do want to go back to your stock price. Uh, and I'm going to zoom out here. I'm going to talk

07:59about the five-year performance. Okay. I'll talk about that.

08:02It's stunning. It's stunning. Build-A-Bear is higher by more than 1100% on a total return basis

08:08over the past five years. Those are NVIDIA type levels. Yes, that's true.

08:13NVIDIA is higher by about 1200%, I think. You think about the S&P 500, just for comparison,

08:17up 100% in that time. You know, I talk to a lot of CEOs. A lot of them tell me we don't pay

08:23attention to the stock price. Is this something that you have printed out, though? Because, I mean,

08:27it is a stunning chart. Um, I'm surprised that a CEO told you that they don't pay attention

08:33to the stock price. Multiple, multiple. Because that is the essence of the creation of shareholder

08:38value. Um, so when we, we, that is part of my job. Yeah. Um, whether it's in the appreciation

08:44of the stock price or returning capital through buybacks all the way to dividends. Um, so we're,

08:49we're very focused on the return of capital to shareholders. But yes, uh, and you know what's

08:54funny about that is I did not know that that was true until I was on a, I was in an interview

08:59and someone shared it with me. And I, I'll try not to like replicate the face that I made

09:05on national news. But yeah, it, and now it, we've had a lot of questions about that. And,

09:10um, we're, but I think, you know, it's important to pay attention, but not to get caught up in

09:16it because we're not driving it for driving its sake. Like we're not quarter to quarter, but

09:21that's what ended up happening because we've kept delivering over those four consecutive

09:27years, quarter on quarter on quarter of great fundamentals of diversification of the plan.

09:33Even think about this, this international expansion that we're doing, that is a diversification

09:39away from and gives me a hedge on tariffs because the more I sell outside the United States where

09:45I'm not going to have the tariffs, you know, the better off on an average cost basis it will

09:51be.

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