It’s hard work building a bear…

March 14, 2008

images4thumbnail1.jpegLast January, we footnoted the strange sequence of events at Build-A-Bear Workshop (BBW), which at the time was trading close to $30. In various presentations last winter and spring, I used the company as a case study, asking groups of participants to make either the bear or bull case on the company based on a series of filings. Because so many people are familiar with the stores — one proud father even showed me his “frequent bear card” or whatever it’s called — it always made for a pretty lively discussion, though I have to admit that I was definitely in the bearish camp.

I thought about this last night when I was reading the 10K that the company filed last night. Lots has changed over the past 14 months, including the stock price, which has fallen by 70%. A quick scan of 13Gs shows that Steve Cohen’s SAC Capital Advisors — one of the biggest bullish signs that participants pointed to last year — has gone from being a 5% owner to owning around .6%.

One of the things that really jumped out at me was the company’s enthusiasm for the Internet. Realizing that many of its prime customers were spending time on Club Penguin among others, the company launched its own new website late last year, using the 2007 buzzwords of “social networking community”. Though it’s unclear from the filing how much this new site cost or how well it’s doing, the company described the logic this way:

In 2006, kids aged 2 to 11 spent an average of 9 hours and 24 minutes per week on line which was an increase of over 40% from 2003. By kindergarten, 32% of kids have used the internet and the largest group of new users of the internet is kids age 2 to 5.

The 10-K also had an interesting disclosure on product safety, given last year’s lead scares from toys made in China. Like most other toy companies, the overwhelming majority of BBW’s products come from China and this is the first time in the filings that the company is addressing this potential problem. Yesterday’s filing also had some discussions on potential problems with the company’s franchise strategy, including in India, where the filing notes the franchisee “recently informed us of its intention to close the three stores currently in operation and discontinue the franchise agreement as a result of being unable to profitably operate their stores.

One other interesting thing about BBW was the string of comment letters (see here and here, which outline some questions the SEC had on accounting issues). What this all points to is yet another retail superstar — Boston Chicken, Krispy Kreme, and others — that seems to be struggling mightily to handle the buzz and the growth.

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