Build-A-Bear Q2 EPS meets estimate as sales miss, guidance cut
- Build-A-Bear Q2 FY26 diluted EPS met estimates at $0.70, but revenue fell 7.2% YoY to $115.3 million, missing the $121.1 million estimate.
- Full-year FY26 revenue guidance was lowered to $500 million-$525 million from $530 million-$550 million, citing weak traffic and summer product underperformance.
- Gross margins contracted 340 bps to 54.2% due to occupancy deleverage and promotions, while SG&A expenses improved by 80 bps.
- Cash and equivalents dropped 64.2% to $14.0 million as the company spent $5.6 million on share repurchases and $8.6 million on capital expenditures in the quarter.
*this image is generated using AI for illustrative purposes only.
Build-A-Bear Workshop, Inc. (NYSE: BBW) reported second-quarter fiscal 2026 diluted earnings per share (EPS) of $0.70, meeting analyst consensus. Total revenues fell 7.2% year-over-year to $115.3 million, missing the estimate of $121.1 million. The company lowered its full-year FY26 revenue guidance to $500 million-$525 million.
Shares traded lower following the results as investors weighed the revenue miss, a reduced full-year outlook and softer traffic trends. Build-A-Bear shares were trading lower by 25.83% at $29 at the time of publication.
Financial Performance
Total revenues decreased from $124.2 million in the same period last year. Net retail sales, the company's primary revenue driver, fell 7.1% to $106.5 million. Consolidated e-commerce demand contracted sharply by 15.6%, while commercial and international franchise revenues declined 9.0% to a combined $8.8 million.
Pre-tax income dropped 24.2% to $11.6 million, or 10.1% of total revenues, compared to $15.3 million (12.3%) in Q2FY25. Diluted earnings per share (EPS) totaled $0.70, down from $0.94 in the prior-year period. EBITDA was $15.2 million, representing 13.2% of total revenues, compared to $18.8 million (15.1%) last year. Net income fell to $8.76 million from $12.37 million a year earlier.
| Metric | Q2FY26 | Q2FY25 | Change |
|---|---|---|---|
| Total Revenues | $115.3 million | $124.2 million | -7.2% |
| Net Retail Sales | $106.5 million | $114.6 million | -7.1% |
| Pre-tax Income | $11.6 million | $15.3 million | -24.2% |
| Diluted EPS | $0.70 | $0.94 | -25.5% |
| EBITDA | $15.2 million | $18.8 million | -19.1% |
What the Numbers Show
The divergence between top-line contraction and margin compression highlights operational leverage challenges. While gross margins contracted by 340 basis points to 54.2% due to occupancy cost deleverage and increased promotional activity, selling, general, and administrative (SG&A) expenses actually improved by 80 basis points, driven mainly by lower incentive compensation. This suggests that fixed costs are weighing more heavily on profitability as sales volumes decline, even as variable administrative costs are managed effectively.
First Half Fiscal 2026 Review
For the first half of fiscal 2026, total revenues were $240.6 million, a 4.8% decline from the prior-year period. However, pre-tax income rose slightly to $35.5 million (14.8% margin) from $34.9 million (13.8%). This improvement was largely non-operational, supported by a $7 million International Emergency Economic Powers Act (IEEPA) tariff refund related to prior fiscal year costs. Excluding this refund, adjusted pre-tax income was $28.5 million, or 11.9% of total revenues.
Balance Sheet and Capital Allocation
Cash and cash equivalents stood at $14.0 million at the end of the second quarter, a 64.2% decrease from $39.1 million a year ago, primarily due to share repurchases and capital expenditure timing. Capital expenditures increased to $8.6 million from $3.4 million. The company maintained no borrowings under its revolving credit facility. Inventory levels remained stable at $81.1 million, down just 0.8% year-over-year.
Build-A-Bear returned $22.7 million to shareholders in the first half of FY26 through $17.1 million in share repurchases and $5.8 million in dividends. In the quarter specifically, the company spent $5.6 million to repurchase 155,118 shares and paid $2.9 million in dividends. The company has $43.2 million remaining under its board-authorized $100.0 million stock repurchase program.
Outlook and Strategic Initiatives
The company lowered its fiscal 2026 total revenue guidance from a previous range of $530 million to $550 million down to $500 million to $525 million. The pre-tax income outlook includes approximately $13 million from IEEPA tariff refunds; excluding prior-year costs, adjusted pre-tax income is expected to be $53 million to $61 million. The company expects pre-tax income of $60 million-$68 million for the full year.
CEO Chris Hurt noted that certain wholesale opportunities may take longer to realize than anticipated. Management clarified that the guidance reduction reflects underperformance in summer trend products, ongoing macroeconomic challenges, and the failure to anniversary a multimillion-dollar Walmart order from the prior year. Management also said last year’s multimillion-dollar Walmart program will not be repeated, while other wholesale opportunities are developing more slowly than expected. Build-A-Bear now expects commercial revenue to be flat versus fiscal 2025.
Despite the moderated outlook, the company plans to accelerate experience location openings, including the upcoming grand opening of its new multi-level destination at ICON Park in Orlando. Build-A-Bear added five net new experience locations during the quarter, bringing its total footprint to 674 locations. The company expects net new unit growth of at least 50 experience locations globally through a combination of corporately-managed, partner-operated, and franchise models.
Management noted improved early third-quarter sales performance driven by successful Halloween product launches, indicating guest preference for customizable products. However, early third-quarter traffic and sales remained slightly below prior expectations. The company also highlighted a significant collaboration with McDonald's and plans for a 30th anniversary celebration. Tariffs and related costs were approximately $1 million in both periods.
How will the strategic pivot away from the Walmart partnership impact Build-A-Bear's ability to achieve flat commercial revenue growth in FY26?
Can the upcoming 30th-anniversary celebration and McDonald's collaboration sufficiently offset the softening traffic trends and e-commerce contraction?
What is the expected ROI timeline for the accelerated expansion of experience locations, given the current pressure on gross margins from occupancy costs?
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