Build-A-Bear Workshop Inc (BBW) 2008 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Q4 2008 Build-A-Bear Workshop Inc. earnings conference call. At this time all participants are in a listen only mode. We will be facilitating a question-and-answer session towards the end of the conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Director of Investor Relations Molly Salky, you may proceed.

Thank you operator. And good morning everyone and thank you for joining us for a review of our results for the 2008 fiscal fourth quarter and full year. With me this morning are Maxine Clark, Chairman and Chief Executive Bear; Tina Klocke, Chief Financial Bear and Dorrie Krueger, Managing Director of Strategic Bear Planning.

In a moment we will turn the call over to Maxine to provide her comments on the fourth quarter. Tina will follow with additional comments on our financial results. And at the end of our remarks we'll open the call up for your questions.

Members of the media who may be on the call today should contact us after this call with their questions. We ask that you limit your questions to one question. This way we can get to everyone's question during this one-hour call. Feel free to requeue if you have further questions.

Please know that our call is being recorded and broadcast live via the Internet. The earnings release is available on our Investor Relations website and a replay of both our call and webcast will the available later today on the Investor Relations portion of our corporate website.

Before we get started, I will remind everyone that the forward-looking statements are inherently subject to risks and uncertainties. Our actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the Risk Factors section of our 2007 annual report on Form 10-K filed with the SEC. And we undertake no obligation to update or revise any forward-looking statements.

Now I will turn the call to Maxine Clark for her comments.

Thanks Molly and good morning everyone, and thank you for joining us to review our fourth quarter and fiscal 2008 results.

Without a doubt, the economy deteriorated in the fourth quarter impacting our performance and we expect 2009 to continue to be a challenge. Throughout the year and continuing in the fourth quarter we took a number of actions to allow us to manage through these times. In today's discussion I want to make a number of points about how we are approaching this year.

First, we consider our brand to be the cornerstone of our successful and profitable business model and we will continue to preserve and build its long-term value by emphasizing our affordable and fun store experience and unique product offerings. However, we are equally focused on reducing costs and expenses associated with our business as well as preserving and maintaining positive cash flow. My discussion today will provide more detail on each of these areas.

Financially we ended the year with a strong balance sheet, with $47 million in cash even as we invested $14 million to repurchase 1.7 million shares during the year. Cash flow remained positive and we have put plans in place to maximize our cash flow position in 2009.

In addition during the year, we expanded our credit facility to $40 million with a [seasonal over line] to $50 million while lowering interest rates. This expanded facility provides us with added financial flexibility even though we have not borrowed on our credit facility since 2003.

We are comfortable with the level and composition of our inventory as we begin 2009. We will continue to manage our inventory tightly and monitor sales trends closely in order to maintain our lean and clean inventory level. Recognizing the importance of cash, we will reduce capital spending by 61% to $9 million in fiscal 2009.

A very important initiative for us to allow us to maximize our cash position is to reduce our expenses and costs. We have implemented cost reduction plans that are expected to generate approximately $15 million in annualized pretax savings. Cost reduction initiatives include reductions of approximately $8 million in marketing and advertising; $2 million from transportation and distribution center savings; as well as $5 million through central office payroll reductions, reductions in outside services and other store related expense cuts.

While we continue to focus on managing our store payroll, our signature store experience is as strong as ever. Despite making the necessary adjustments to labor to reflect the sales trends, our guest satisfaction scores remain near record levels. Our associates have always been key to our success, so I am very proud that Build-A-Bear Workshop was recently named to Fortune's 100 Best Companies To Work For list.

Let's now turn to our brand building initiatives, beginning with Europe, which continues to be a positive story, delivering a 6.7% increase in comparable store sales during the quarter and 7.7% increase for the year. Full year revenues grew 28% and pretax income increased to $4.3 million before charges, up from 700,000 in fiscal 2007.

The business in Europe is performing as expected. Our sales have grown every year since we took over the operations in 2006. The higher rent expense in Europe demands that the stores perform at highly productive levels and we know we have significant room for growth. The best use for us is that the business continues to grow during a time when the UK economy is under significant pressure.

The business performance metrics all point to improving fundamentals in our stores in Europe. Through the year we achieved a higher number of transactions and a higher average transaction value which allowed us to leverage payroll expense, all while maintaining very high guest satisfaction scores. The growth in our in-store party business which is still a rather new concept in Europe, has also introduced many new guests to our brand.

Our continued positive performance in Europe, in contrast to many other retailers there, is driven by our unique store experience. We see further opportunities to grow brand awareness and continue to bring new guests into our stores while building frequency of visits from returning guests as we simultaneously improve our SG&A costs.

In North America our emphasis on value also proved successful, allowing us to increase new guest visits. Through guest research, we found that people who had never visited our stores had the mistaken impression that our brand was expensive, despite our bears starting at just $10. So during the holiday season, one of our key initiatives was aimed at the message that our stuffed animals start at just $10 and the broader assortment of animals priced at $10 and $12. This initiative helped us significantly increase the number of new guests that came to our stores.

We believe the added focus on the value product is the right strategy for the current environment with new guest visits helping us offset a decline in returning guest visits prompted by the weaker economy. As the trend grows for [families] (inaudible) vacations, Build-A-Bear Workshop is a very close to home, theme park in the mall, affordable family experience. And while people may the making less visits to the mall, they still want to celebrate and make memories on special occasions. Build-A-Bear Workshop has always been a preferred place for these kinds of events.

While we expect comp sales to remain challenged, we are attracting new guests with our value messaging and expect to retain these customers thereby broadening our customer base and providing us with improved growth potential as the economy stabilizes.

Now let me turn to BuildABearville.com. We remain very pleased with BuildABearville and the community that it is building. We have encouraging prospects for direct monetization of the space.

BuildABearville's growth and traction continues with evidence that it is a driver of the traffic to our stores. Guest survey data shows that 10% of all store guests are highly influenced to visit because of BuildABearville and they visit our stores more often and on average spend more each visit.

Having millions of eyeballs or unique visitors per month gives us the ability to consistently inform and engage this community, similar to the impact a direct-mail piece would have had in the past. Bonuses and virtual incentives that are offered on in-store product purchases are attractive benefits for virtual citizens and play a part in driving store [trials].

Through BuildABearville we were able to expand the entertainment value of our brand. For example the fourth quarter included our holiday animals, Holly & Hal Moose, who came with a storybook that helped develop them into vivid characters. We distributed over 100,000 books through traditional channels, but through the virtual world we reached even more kids. Over 925,000 viewings of Holly & Hal animated webisodes were seen in the theater in BuildABearville.

Holly & Hal Moose became our biggest holiday animals ever sold. We believe that our ability to tell the story across the multiple entertainment platforms drove the increase in unit sales of these items. We continue to use this platform to deepen the emotional connection with our brand.

For example, this past weekend, we introduced a song created for Build-A-Bear Workshop sung by acclaimed artist David Archuleta of American Idol fame. In BuildABearville we can leverage our relationship with David in ways not possible before with an online interview, music video and song clip. In the past we have had artists appear at select malls, but through the Internet and our virtual world we can essentially share that personal experience with millions of guests around the world.

Just one year into the launch of the site, we are finding that guests are just as passionate about BuildABearville as they are about our stores and we are translating this passion into increased revenues.

The first initiative was the sale of Bear Bills gamecards which provide the player with 10,000 Bear Bills, our online currency to spend in the virtual world, and a choice of virtual rides like the hoverboard or a scooter. The cards are sold online and in our stores and other selected third party outlets.

We sold 25,000 gamecards in just nine weeks during the holiday season. And as you can imagine, the gross margin on a virtual item is quite high. As evidence of the passion our guests have for these products, over 95% of gamecards are redeemed in the first 24 hours after being purchased.

The virtual world is still very much an emerging play space for kids. While our site is free and will remain that way, we do see ways to monetize some highly desirable options. We are encouraged by the initial response to our gamecard sales and continue to build the direct revenue programs through the virtual world.

How we ultimately monetize this platform will be via a combination of add-on experience and spaces, virtual goods, and added value options for purchase, options that are accessible for kids using their allowance. The unique combination of our store base, our strong brand awareness and our virtual world gives us very unique opportunities other companies that operate singularly in either the real world or virtual space do not have.

As you know, we have significantly reduced our capital expenditures on new stores and while stores are highly profitable, occupancy costs are important to our cost structure. I would like to take a minute to discuss real estate in some detail.

We are taking a very methodical and strategic approach to optimizing store productivity largely due to the fact that we have just 292 stores in the best malls in the United States and Canada today. Unlike other retailers with 600 or more stores, we are not forced to make wholesale cuts and closures in real estate. Therefore we expect to improve our rent structure with minimal store closures at this point.

We are a highly desired tenant with mall landlords. Keep in mind that tenant allowance paid for nearly half of the cost of our stores which makes our landlords one of the biggest investors in our company. Our leases are structured so that we often have one or more kick out clauses that allow us to exit if our sales are below a predetermined threshold.

In determining whether to exercise these options, we look at the store's current performance and its future prospects, and balance the cost of exercising the kick out clause which includes the write up of nondepreciated store assets and repayment of any unamortized tenant allowance and the impact on overall cost and leverage.

We also expect as a normal course of business, that some expiring leases will be renewed, some stores made the relocated to smaller spaces and other leases will not be renewed. Importantly, in many cases we are negotiating shorter term renewals to maximize our real estate flexibility as we anticipate the mall's landscape will change during these times.

Through our kick out negotiations and general landlord relationships we have been successful in negotiating reductions in occupancy expenses while maintaining future lease options to reevaluate stores and ensure they are meeting our assumptions and expectations. Let me assure you that in the current environment, improving store lease terms and optimizing store productivity is a top priority. And now I will turn the call over to Tina for her comments.

Thanks Maxine and good morning everyone. I will provide additional details related to our fourth quarter and full year financial performance.

The decline in the fourth quarter total revenues of $5.3 million was driven by a 16.8% decrease in North American comp store sales. This decline was partially offset by new stores opened in the last 12 months and a $2.7 million adjustment to the loyalty program deferred revenue. With sales per square foot in our North American stores at $445, we continue to achieve productivity numbers above the averages for the malls in which we operate, demonstrating the enthusiasm for our stores.

As Maxine discussed earlier, our European operations delivered a strong performance in the fourth quarter, ending the quarter with 54 stores. And we continue to believe there is the potential to operate 70 to 75 stores in the UK and Ireland.

Total revenues include international franchise fees which decreased in the fourth quarter 13% to $1.1 million due primarily to the decline in store sales reflecting the global economic slowdown. During the fourth quarter, franchisees opened four stores and closed two stores, ending the year with 62 stores in 14 countries. For the full year, revenue from franchise fees increased 16% to $4.2 million.

Today the pace of store expansion in international locations is influenced by the economic health and stability of the franchisee country and the availability of the right real estate location for our stores, which in many countries can take time to identify and negotiate. While we see 2009 being a tough year for several of our franchisees, we continue to work hard to improve their performance. Our oversight and involvement includes real estate decisions, inventory planning, marketing programs, product development, store operations and associate training.

We currently anticipate franchisees will open five to ten new stores in 2009, with the majority opening in the second half of the year. These openings include the first store in the United Arab Emirates which is scheduled to open by early summer. The UAE is one of five countries franchised through our Gulf States franchisee, where the pacing issue is availability of real estate locations. We are looking for modest growth of approximately 5% in franchise fees in 2009.

Turning to licensing, revenues in the fourth quarter were $1.2 million, a decrease of 11% from the prior year due primarily to a change in mix of licensed products this fourth quarter versus last year in the fourth quarter. Full year licensing revenues increased about 5% to $2.7 million. 2008 benefited from our licensed Nintendo DS and Wii games. Our outlook for 2009 is for revenues of approximately $2.4 million, down slightly as our mix of licensed products continues to change.

Our fourth quarter results included $2.7 million reduction in deferred revenue related to our loyalty program. This change results in a corresponding increase in net sales and a $1.7 million increase to net income or $0.09 per diluted share. I'll discuss this change in estimate in more detail in a moment.

Our gross margin rate in the fourth quarter was 43.6% compared to a rate of 46.2% last year. The decline in gross margin was primarily attributable to the decline in merchandise margin which reflects our value pricing strategy for products put in place during the fourth quarter. Also contributing to the decline is a lack of leverage on fixed occupancy costs in North American operations, partially offset by positive leverage and occupancy costs in Europe.

Gross margin also includes a non-cash charge of $1.8 million associated with store asset impairment. The impairment charge contributed 130 basis points to the decline in the rate versus the prior year. Offsetting this decline is the benefit of 190 basis points due to the reduction of the loyalty program deferred revenue. The asset impairment charge results from our annual asset impairment review and relates to a handful of stores in both North America and Europe.

During the fourth quarter, the SG&A expense margin increased to 38.8% compared to 36.6% last year. The margin increase includes $300,000 for severance costs related to central office staff reductions. Store payroll, marketing, spending and the cost of maintaining multiple websites was up versus the fourth quarter last year. Partially offsetting these higher costs were reductions in travel expense and outside services.

Moving down the income statement, store preopening expenses were lower in the fourth quarter this year versus last year and full year preopening expenses were $2.4 million, down from $4.4 million in 2007. Store preopening expenses will decline to less than $100,000 in 2009 given our store plans.

With regard to friends 2B made, over the next several quarters we will finalize some location closure plans for the nine locations with our landlords and recognize the remaining costs of closing the concept. The remaining charge of $1.9 million to $2.3 million pretax includes lease obligation fees, potential and sold liquidations, inventory costs and other estimated costs associated with location closings.

Moving to interest income, which declined in the current quarter as we experienced lower interest rates and lower cash balances at compared to last year. The effective tax rate for the fourth quarter was 36.2% as compared to 33.3% in the fourth quarter last year. For the full year our tax rate was 36.9% which compared to an effective rate of 35.7% last year.

The lower dilute share count in the quarter reflects the impact of our share repurchase program this year. We took a conservative approach to the use of cash during the fourth quarter and did not repurchase any shares. Approximately $31 million remains available to repurchase under our $50 million authorization.

Moving now to cash flow. Spending on capital items in the fourth quarter was $2.9 million, down from $4.2 million in the 2007 fourth quarter primarily due to fewer new store openings this year. Full year capital spending totaled $23.2 million compared to $37.2 million in 2007 and depreciation and amortization for the year was $28.9 million.

Our capital plan for 2009 has been reduced to approximately $9 million and includes costs associated with one store opening and one store relocation in addition to store maintenance costs, investment in the virtual world and ongoing capitalization of intangibles. The plan also includes approximately $2 million for capital related to converting a select number of friends 2B made locations to expanded Build-A-Bear Workshop locations and we target depreciation and amortization to be approximately $30 million in 2009.

Our consolidated inventory at the end of the quarter stood at $49.9 million compared to $48.6 million at the end of 2007. Inventory per square foot declined 4% in the quarter and is in line with our net retail sales.

Let me spend a minute discussing the adjustment to the loyalty program deferred revenue. You may recall that in July 2006, we implemented an automated system in our US stores for tracking the frequent shopper loyalty program, the Stuff Fur Stuff Club. Part of that time we used a manual punch card system and a portion of every transaction was deferred.

With this new automated system, we did not change the program benefit. The program benefit has been and remains that for every dollar spent, the guest earns one point and receives a $10 loyalty certificate upon reaching 100 points. What did change is that our guests now actively join our loyalty club. They take the time to enroll in the club and share their personal info with us, which points to the motivation and connection these guests have with our brand.

Since this is one of our significant accounting estimates, we review the redemption rates and assess the adequacy of the deferred revenue at the end of each quarter. Based upon the most recent assessment of historical redemption rates, we reduced our estimated loyalty program redemption rate, which is reflected in our results today.

This concludes my remarks. Now I'll turn the call back to Maxine.

Thanks Tina. I'll conclude the call with just a few final comments.

2009 is going to remain a challenge and we are putting our focus on what we can impact, reducing expenses and costs to maximize our cash position while optimizing the value of our brand in terms of affordability and high-value experience both in store and online. We have taken actions to align operating expenses with revenue expectations, slow capital expenditures while at the same time investing in brand building initiatives and our future growth.

We have shown that our business model can generate profits and cash flow even in a very difficult retail environment. Our debt free balance sheet and $40 million bank credit line provide financial flexibility, liquidity and staying power. We look for to updating you on our progress in the months ahead. Thank you for your participation and now we can take your questions.

(Operator Instructions). Paul Lejuez.

Couple of housekeeping questions. Can you share with us what you got in the extra week in both sales and earnings and then maybe explain that UK impairment charge? It seems larger than the overall company charge I think because it was internal, just trying to understand that. What was free cash flow for the year and your expectations for '09? And the comp that you are reporting in the European business, is that constant currency or is that in dollars?

We're just running the (inaudible) (multiple speakers).

Extra (multiple speakers) UK impairment charge, free cash flow and the constant currency.

What we identified was that the 53rd week was the last week of the year. Just as a reminder, in our -- we are a calendar year end. So that week is the last week of December and it is usually between Christmas and New Year's and this week is always included in our fiscal year. And it is an important revenue week for our kids as they're out of school and gift card redemptions are high. So it is meaningful. But we are not going to break it out separately because it would be difficult to isolate or extract this week from our results and it occurs every year.

But cash flow, while we are not completed with our cash flow (inaudible) and we typically do not include the cash flow statement in our earnings release, but based upon preliminary results we looked at that our cash flow from operations is positive for the year. And when you look at the UK, the UK -- the other charges that we talked about in our release totaled $3 million. It includes some impairment and also includes an intercompany charge related to royalty from the US -- from the UK to the US from a tax perspective. So it is not all asset impairment, just to be clear about that.

(multiple speakers) The comps in Europe are computed based upon constant currency.

Do you have that number, what it is in dollars? (multiple speakers).

Well it would be -- so it would be the same because you would convert -- if you looked at it in pounds, it's the number and then if you converted, you would convert it at the current year rate. So it would be consistent.

Okay. And do you foresee having to borrow on your credit facility this year?

Well again, a lot is going to depend upon our current economic condition. And I would probably tell you that every year I expect that we might borrow in the end of the third quarter to the fourth quarter as we start to build our inventories for the holiday season. But as you know, we haven't borrowed on our line of credit in the last several years. So hopefully we will continue that pattern.

And just to go back on the comp for a second, you were saying that the comp you reported in the European business, that's in local currency?

Yes.

Thank you.

(Operator Instructions). Sean McGowan.

I have a question regarding Europe as well. Sales look like they are holding up pretty well there, even though [we are all increased] and same-store sales increased. So could you talked a little bit more about the operating cost factors that are -- other than the onetime charges that are depressing the margin there?

One of the things that when we look that Europe, we are looking at it not only the UK but we are also looking at France. And remember France is in the startup phase as there are only three stores. And in 2007 we had them for about three months. The stores opened in the latter part of -- I guess in the beginning actually of fourth quarter. And this year they are in there for a full year. So remember it is in a startup phase, so it has cost associated with that and that is combined with the UK operations.

That makes sense. And then when you are in '09, you would be comping full year against full year for those stores (multiple speakers) anyway, little bit less pressure on that.

Correct.

Okay. Thank you. If there's time, I would like to ask another question later. Thanks.

Okay. Sean go ahead.

Okay. Regarding the cost savings plan to put in place for 2009 to cut costs, it is pretty substantial relative to the overall pretax income that you have shown not only in '08, but in '07. So does that give you confidence that, knowing that we are in a challenging environment, it is going to probably stay that way all year? Does it at least give you some confidence that these cost savings can offset that pressure so that we could actually wind up with an increased in the bottom line in '09?

I think quite honestly based upon the current economy, I don't think anybody knows. I mean I think we're doing everything in our power to try to minimize that. And that is why we started right away with putting as many initiatives as we could at this point in time and we are going to continue to look at it throughout the year to try to offset any economic pressures on the topline.

Okay. And which kind of loops back to another question I had regarding gross margin. So you put a value enhancement initiative in place to get the message out that these products are more affordable. Do think that will be stepped up in '09? Should we look for stability on the gross margin line or further pressure?

It's Maxine, good morning. I would say that in last year obviously we, I think we talked about this program. We tested it in July and it was really told us that the customer was very responsive. So week moved forward the way that -- and used inventory that we had on order and negotiated some prices.

But now that we see how strong it is we have been able to develop our line, the products that we are bringing into the assortment for this year into our normal markups on these products at lower retail. That's still -- while the margin may be fine, the margin percent is fine, still you have to sell a lot more of these items to get to the margin dollars of the higher priced item. And there are some pressures that will be there no matter at how you look at it.

But I think we have put a higher emphasis on it and we are negotiating and working really hard with our suppliers and now we know that we would continue this program into the fourth quarter, particularly with even new products that would come in at $10 and $12 price points. So we've worked really hard on that. And I think we will be in much better shape from a markup perspective going in with a plan than we were last year, midyear, changing a strategy and sort of chasing it.

Okay. Great, thank you.

Brad Leonard, BML Capital Management.

Just to be clear on the European comps, the EU comps were in local currency and then the total revenue for the EU was below the comp number and that's due to the stronger dollar?

Can you repeat the question -- I mean your comment again because I just want to make sure that (multiple speakers)

Well your comps for the fourth quarter for Europe were up 6.8. Your total revenue was up 5.7 -- or 6.7% I guess you were up in the comp and your revenue was up [5.8] and you have 7% more square footage or something like that, so I'm assuming it is a dollar when you -- is that what -- or am I missing something else there?

The impact of the dollar, yes.

So that's why you are -- I mean you are reporting the comp in a local currency. So normally your total revenue, as long as you are not shrinking, your total revenue should have been higher.

Correct.

Okay. Then also on the merchandise margin, did you guys say how much that was down in the fourth quarter?

We don't normally tease out merchandise margin.

Okay. Was it all then due to the decline in merchandise margin? Would it have been all due to your kind of implementing a side program, I'm assuming and that was basically the hit to it?

Yes. Right. The biggest driver of that was the value pricing of our products in the fourth quarter.

Okay. And so if I heard Maxine correctly, that will not be as big of a problem going forward as you've retooled some of this merchandise and bought it for that purpose versus taking animals and just marking them off $4 or whatever you did?

Correct. We also worked with our vendors last year, but we've done it from the get go and it is planned into our assortment.

The negative, the uncertainty there though is that while we have a plan to sell a certain amount of products, under $15 and a certain amount of products over $15, as the merchandise, as the customer feels more pressure and they find -- they come to Build-A-Bear and they decide instead of a $15 animal they are going to buy a $12 animal, you may have to take your higher priced animals and move them down into prices just to move them through.

But we are hopefully going to be able to keep that balance because we buy so close to time of need. But there is pressure from the customer on higher price points in general and we know they are looking for great value every single day.

So -- and there are other things in the business. Like last year Hannah Montana was new and fresh and a huge business in the toy business and this year less. It's up against itself, but not nearly as big as it was a year ago. So that kind of product where you made really great margins at high retail is under pressure.

(Operator Instructions). [Evelyn Greene with SIG].

It's actually Tom Filandro. Just a couple of questions really related to marketing. If you could possibly dig a little deeper, give us a sense of where you are pulling back. I believe you said it was 8 million in terms of dollars. Is it television, is it direct-mail, is it new to file shoppers that you are targeting less? And can you give us a sense of what we should -- how we should view marketing as of percent of sales in 2009? Thank you very much.

Yes, I will give you just and overview and possibly we can talk more about it offline and get more specifics for you, but we are cutting pretty much across the board, but television will have the most impact. And we are looking at it really holding our advertising for the really key shopping periods, making sure we don't decrease in the fourth quarter [less] substantially. So it is coming a lot from that.

We are reallocating dollars because this -- the MomTV campaign that we ran with value pricing was very successful and we want to make sure that we can run that throughout the year and mother -- TV for moms costs more than children's TV. We are also going to leverage BuildABearville, because you get as many, you get so many millions of kids on BuildABearville and we are able to use that as a marketing tool to announce launches, to announce promotions, to gain access that is really targeting -- at least it's targeting very engaged existing guests.

We are also looking at our direct-mail and now we have so much history in our Stuff Fur Stuff and our best shoppers and how they shop and when they shop and when their children's birthdays are. And we can target our -- we are working much harder at targeting and making sure that we are getting the mileage there. And when we are targeting that, the advertising will be slightly below last year's levels as a percent to total, assuming that the sales stay on target and don't deteriorate any more dramatically because we don't have as much advertising as we've had in the past.

That is a risk, but it is a risk I think that is worth doing at this point. Customers are very much into appointment shopping. That is what I call it, which is, it's my child's birthday. They made good grades on their report card, it's Valentine's Day, and on those peak times -- like Valentine's Day was incredibly busy in our stores. And we know that customers shop and we have to be able to move with those flexibilities and move the marketing accordingly.

Mike Smith, Kansas City Capital.

Good morning and nobody said good job, but good job guys. It's tough out there, I think.

Thank you.

I wonder if you could give us a little bit more detail about how you are using BuildABearville and how important you think that is to you in terms of a long-term basis? And I have a follow-up after that.

Again, thank you for the compliment. It is tough out there and we have a great team of people working very hard at the business everyday.

BuildABearville, we are very excited about BuildABearville and encouraged by it especially as we see it so dramatically impacting children's play. Not just BuildABearville, but other virtual worlds as well. And one important thing is that as mom doesn't use recreational shopping as something to do with the children anymore, or not as frequently as she used to, for sure, one of the things that kids are is home. And they're on their computers and they are playing.

And we know that that is -- we can actually visualize them play now. We can see them and we can interact with them and we can see the kinds of things they want to do and the things they want to be involved with. And it is a great way for us and it's so easy to change something. If you want to move around something in BuildABearville, it's just a computer system, not changing every store across the country. So you are able to make some -- have an impact pretty quickly and at a relatively low-cost and we see it much more impacting our business.

It also is the engagement of our brand. One thing that is really hard to replicate in television or any other way is the engagement that customer has when they come into a real Build-A-Bear Workshop store. And the one great thing about virtual worlds is that it is a way for children who love Build-A-Bear and the interaction in our stores to stay engaged and connect with our brand outside of the store.

And the other thing we are very encouraged by is the monetization opportunity. Of course our whole business is the financial, has financial connections to BuildABearville. Meaning we told you that 10% of our customers are influenced by BuildABearville and we see that growing over the year. Remember we are only one year old.

But we also seek the monetization opportunity from specific things that are really products that will be used in the virtual world. So whether it is new businesses that they can create, there are new homes that they can buy with added features. There's new rides they can buy and other things that we are working on. Those things will be able to be added to your collection, but for an added price.

And while there might be some cannibalization, meaning a child might spend $10 on something for BuildABearville or $5 and not buy something in the real world, it's a way to capture them immediately when they want it and when they have their allowance money for it, and we are going to make it very easy to connect between Build-A-Bearville and Build-A-Bear.com.

And also put in an opportunity for parents to make it easier for children through a subscription process where they can add on -- not adding on to subscribe to the site, the site is free, but adding on Bearville points that you can use for credits in BuildABearville. So you can buy $25 or $50 for your children ahead of time and they will be able to play online. We will be testing this with parents and rolling in out through the year, but we feel like this is something that when it is a choice, and when kids can still have so much to do for free or for buying the stuffed animal in our store, that this has great potential for us.

In the past I think you gave us numbers as to how many avatars you had or something like that. Is there a way to sort of quantify that in terms of how many people go to BuildABearville and then keep going to BuildABearville as opposed to how many members you have?

Right. We have about 7.8 million registered avatars, but children can register multiple avatars and they do. But for the most part it's probably less than -- I think it's still under two per avatar -- two per child, per email out address. But remember also children have multiple email addresses as well. They are very much into these things and for many it is a full-time hobby.

But it is really on visits and we see that our visits are up and that our customers -- we don't share that information because we think it's competitive information. But our unique business, the time per visit points to a real engagement. They stay on the site a long time and they come back frequently during the month. So while you might look at uniques and say okay, that's (inaudible) coming one time a month. But they have come back and that is really what the key is and that for us is significant.

And they would never come back to our store that frequently -- in a given month come back three, four or five times. They come back multiple times in a week. We would never be able to get that engagement. So it really is a great, you know I think about it as an invention. We didn't invent virtual worlds, but I think about it as an invention to keep your customers engaged with you nonstop.

It is a full-time job keeping ahead of the kids and what they like and what they want. And we have a very strong communication plan with them, which I think is another thing that keeps them engaged. We really speak to them one-on-one and answer their questions and share their ideas and we have contests for them to participate. There's one right now and there will be one later on in the year where they company really -- they get to be the star or the hero. And that is one of things that really plays to them.

So we are very -- this has been a great first year for our virtual world and we continue to see growth for it, dramatic growth, especially in how we use it to market and monetize itself and expand the usability of BuildABearville to be even more of a lifestyle choice. It also is for older kids. It keeps the kids at the upper age of the spectrum which I think is also important for Build-A-Bear.

(Operator Instructions). Brad Leonard, BML Capital Management.

Maxine can you just talk a little bit about calendar shift this year again and how it may impact the quarterly flow with the Easter shift? Then also did you get any benefit from having Valentine's Day on a Saturday versus a weekday this year? Thanks.

Yes. Valentine's Day is always better when it's on a Saturday because you get the days leading up to it and then you get the day off that people are off to last-minute shopping. And we had a really, really strong weekend, again pointing to the value of the brand and the great giftability of it. Quite frankly it was one of the strongest days we have ever had. So we are very positive about that. And I will let Tina talk to you about Easter.

Again as a calendar year end, Easter for us, when Easter falls in April it is going to move out of the first quarter which last year it was in March. It is in the second quarter this year. And so again in our business fluctuates based upon when kids are out of school. So -- and the corresponding spring break. So there will be some shift to the second quarter this year.

Okay. Maxine, just back on Valentine's Day a little bit, we did some checks around the country and the lines of like two hours to get in the store. I mean 2.5 hours was reported in one region. And I mean, can you just talk a little bit about trends year-to-date? And we are halfway through the first quarter here. Can you give us any color on anything?

We don't do that, but I would say that again pointing to the appointment shopping, Valentine's Day was very strong. We also launched the promotion with David Archuleta and the song which was very appropriate for the timing and we had great values.

I think that you can buy a bear as a gift for your mom or for your girlfriend for under $25 fully dressed. And we featured those kinds of things in our mailer which made it great. It is also a strong experience of going to the store with someone that you love and making a bear, whether it is a child or your girlfriend. A strong teenager experience as well.

There were waits. Always on the busy Saturday there are waits, but it was an extraordinarily good day and I think that when the children -- when children have money and a real reason, Build-A-Bear is the place they come. We were -- in all of the malls that we were in here locally, it was incredibly busy and we were the busiest store in the mall.

So I think that that points to our brand stability and the power of the experience and just managing through these tough times and trying to create as much awareness of individual special occasions. You are not going to get that kind of traffic for St. Patrick's Day even though we have bears and clothes and outfits for St. Patrick's Day as you get for Valentine's Day. It is a very strong -- it always has been incredibly strong for us.

It is also President's weekend, which allows another -- kids are out of school and they have their Bear Bucks to spend and we were able to maximize it very, very strongly this year.

Mike Smith, Kansas City Capital.

Just one other thing, Maxine. Your comps are down about 16% in the quarter, not surprising, but how much of that was price and how much of that was traffic?

In the fourth quarter, or at least closer to Christmas anyway, transactions were much stronger and that came from the value pricing. We saw a lot of a lot more transactions and so it was a much stronger negative impact from the value of the transaction. But overall it really was both.

I mean we had less mall traffic and -- much less traffic overall, the whole course of the year. And prior to the fourth quarter, our average transaction was about the same, but it definitely, our strategy definitely impacted the customer and it did impact our -- it changed the traffic trends more positively, but it lowered the average transaction.

Thank you.

At this time we are showing no more further questions. Molly Salky, you may proceed.

Thank you operator and thanks to everyone for your participation today. If you have any follow-up questions from today's presentation, please feel free to give me a call or send me an e-mail. Thanks again. Bye-bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.