Build-A-Bear Workshop Inc (BBW) 2012 Q3 法說會逐字稿

Greetings and welcome to the Build-A-Bear Workshop third-quarter fiscal 2012 results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allison Malkin of ICR. Thank you, Ms. Malkin. You may begin.

Good morning. Thank you for joining us. With me today are Maxine Clark, Chairman and Chief Executive Bear and Tina Klocke, Chief Operations and Financial Bear.

Before I turn the call over to management, I want to remind members of the media who may be on our call today to contact us after this conference call with their questions. We ask that you limit your questions to one question and one follow-up. This way, we can get to everyone's question during this one-hour call. Feel free to requeue if you have further questions.

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

Before we get started, I will remind everyone that 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 in our Annual Report on Form 10-K and we undertake no obligation to update or revise any forward-looking statements. Now I would like to turn the call over to Maxine Clark.

Thank you, Allison and good morning, everyone. Thank you for joining us to discuss our 2012 third-quarter and first nine month results. On our call today, I will review the progress that we've made on our key strategies, as well as update you on our store, marketing and product initiatives. Then I will turn the call over to Tina Klocke, our Chief Operations and Financial Bear, to review the financial results in more detail. After my concluding remarks, we will open the call to answer your questions.

Clearly, we are disappointed with our third-quarter results. We are up against a difficult comparison from last year when products tied to the release of the Smurfs movie drove traffic and transactions throughout the quarter. Our product and marketing events were not strong enough to offset the strength of last year's products, which was supported by tremendous studio marketing and advertising.

As you know, we are in a turnaround phase. Build-A-Bear Workshop has historically produced very high sales per square foot and profitability and we are taking steps that are needed to regain that position. For more than a year, we have had bold actions in play to deliver our long-term strategies and objectives.

As a reminder, our objectives, as well as our recent progress, include, first, introducing a new store design to reinvent our experience that gives our stores destination appeal. We have opened three of the six stores scheduled for this year. Second, improved store productivity by reducing our store base and overall square footage to drive traffic and sales to fewer stores that are overall more profitable. We are in the midst of executing aggressive store closure and repositioning plans.

Third, increase shopping frequency by rebalancing our marketing to emphasize brand advertisement as opposed to strictly product and promotion messaging. In mid-October, we launched our new national brand TV advertising campaign in the United States, which I will add is already seeing positive guest reaction. Fourth, reinforce Build-A-Bear Workshop as a great place for gifts. We have built a strong holiday product and marketing plan.

Fifth, broad global presence. We continue to expand internationally primarily through our franchisees. And sixth, continue to improve cost efficiencies. We saved an additional $1 million this quarter bringing our year-to-date savings to $6.3 million. We are on track to achieve $7 million in savings this year for a total of $10 million over the past 18 months.

In today's call, I will go into more detail on three of these objectives with particular attention to the aspects of our real estate strategy. As you know, we have been working on reinventing our store experience with a new format store with destination appeal. Our competitive advantage at Build-A-Bear Workshop is our hands-on bear-making experience and we now have successfully opened three of six stores planned for this year in our new design. We have added new experiences for our guests by merging the power of technology with our signature process.

Sales at all three locations are up 30% or more exceeding our expectations. Build-A-Bear Workshop has always had strong openings, but these stores have also exceeded their original grand opening performances, which occurred in much better economic times and when Build-A-Bear Workshop had lower market penetration.

The sales increase is the result of higher traffic and transaction, which was our goal. The stores are driving repeat and new guest visits and keeping strong average transaction value. We know that it is early, but, by all metrics, these stores are off to a great start.

We remain on track to have all six newly imagined stores open this year. Given the strong initial results, we are moving forward with plans to update additional stores to incorporate key elements of our new design. We are working on getting the costs in line with our recent historical averages and our landlords have been very supportive financially with these initial stores. By the end of 2014, we expect to refresh our store design in at least 40 to 50 locations with either full or partial elements of our new design.

The other side of optimizing our stores is reducing our store base and overall square footage to drive traffic and sales to fewer stores, again building on our destination appeal. As we have discussed in previous calls and in our most recent 10-Q, the evaluation of our real estate is an ongoing process. Over the past few years, we have aggressively renegotiated rents while retaining kickout and termination rights, so we would have maximum flexibility to manage our portfolio.

We currently believe the optimal number of Build-A-Bear Workshop stores in North America is between 225 to 250 locations. We have determined what we believe to be the appropriate number of stores in each market and we will close underperforming locations while repositioning our most productive stores to incorporate features of our new design.

We are building on a solid base. On a trailing 12-month basis, over 80% of our stores were contribution positive on average at 15%. By the end of 2014, we plan our store base to be more productive as we see the impact of the combined effect of store closures and remodeling key stores in major markets.

We have given particular focus to the stores that are contribution negative or marginally profitable on a trailing 12-month basis. Some of these stores have already been addressed with completed closures and we expect to close 50 to 60 more stores in the next two years in conjunction with natural lease events. And we are also projecting to move our remaining stores to a profitable position as a result of rent renegotiations or the transfer of sales from one of the closing locations. This essentially will put 98% of our stores in a profitable position based on current performance.

Our net retail sales will be impacted by the store closures, but the remaining stores should be more profitable. On an annualized basis, we currently project the impact of store closures, net of sales transfer, to be a reduction of $30 million to $35 million in net sales. This includes transfer of 20% to 30% of the sales from closed markets to other locations, which is based on preliminary results in select markets.

We are forecasting a $2.5 million to $4 million benefit to overall store profitability by the end of 2014, which comes from both the closure of unprofitable stores and the transfer of a portion of sales into other profitable stores. I should also add that this is an ongoing evaluation and we will continue to refine and adjust our strategies to maximize our store and market profitability.

I also want to note that while we are reducing our store count in North America, we see opportunities to continue to expand internationally predominantly through our franchisees. As our work with real estate shows, we are committed to improving our business across our store base. We have also recently made a significant move toward our objective to reinvigorate our marketing by emphasizing brand advertising, particularly on television, which will help raise the performance of our entire store base.

We have a multidimensional marketing program, but TV as a media remains important to maintain high brand awareness and keep our experience top of mind. Build-A-Bear Workshop started advertising nationally in the United States on television primarily targeting kids programming in 2004. While we initially featured our brand and experience, our messaging evolved to most recently focusing strictly on product and promotion adds.

While it was appropriate to feature product and promotion during the height of the recession, we think that it is imperative that we rebalance the messaging at this point to speak to our experience, which is important to bring in new guests and our products, which tend to resonate strongest with repeat guests.

Our advertising is designed to reach both kids and moms. We want to show kids our fun store and interactive experience and make it easy for moms to say yes. While we will continue to offer select promotions and value add offers, our research shows that moms also respond very positively to brand marketing, specifically messages that get at the emotion of the shared store experience.

We began our new advertising campaign on October 15 and we will continue through December. Essentially, kids that are entering our target age range for guest acquisition, those children ages 3 to 6, have never seen a Build-A-Bear branded message. And those in our core demographic, age 7 to 12, have not seen a brand message in four years. At a time when we are focused more than ever on our experience, this advertising will renew consumer excitement in our overall brand profile and drive incremental traffic to our stores. I encourage you to check into our new spots, which can be viewed on our website in the About Us section and on our Investor website.

Let me wrap up by speaking to our holiday merchandise. We have put significant work into rebalancing our holiday inventory and merchandise mix with innovative proprietary products and classic characters. Our proprietary products for this holiday include a collection of animals that each come with a scented plush accessory. We first introduced scented products with our highly popular Ice Cream Bear collection in 2011 and have since added scent chips that can be inserted into any animal. This year's holiday animals will have seasonal scents of mint, sugar cookie and gingerbread.

On November 7, we will launch our core Christmas story with nostalgic, but updated favorites of Rudolph the Red Nosed Reindeer and Clarice, both with light-up features. In North America, we will have a new addition to our classics with the Grinch who comes with a heart that lights up and grows.

In the UK, we will offer the Snowman in lieu of the Grinch. The Snowman is a beloved character from a classic children's book that is also featured in an animated special that airs on television each year in the UK. We follow with the addition of Paddington Bear, another British icon, who will remain part of our core assortment post-holiday.

We are planning gift card sales to be strong this holiday. A gift card from Build-A-Bear Workshop allows you to give the gift of the experience and we expect the emphasis on our store experience in our advertising to bolster demand for this category.

In total, we believe our short-term product and marketing strategies will deliver a solid fourth quarter. I also firmly believe that our longer-term strategies to elevate our store experience, optimize our store base and broaden our customer base with brand-building marketing will drive improvement in our sales and profitability. We continue to have a strong balance sheet to support our strategies and despite our third-quarter results, I remain very optimistic about our prospects and outlook for the future.

And now I will turn the call over to Tina to recap the financial results in more detail.

Thanks, Maxine and good morning, everyone. I will highlight the key components of our third quarter and first nine month results. The full details can be found in our press release. For the quarter, total revenues were $86 million, a decrease of 12%, excluding the impact of foreign exchange. Consolidated net retail sales decreased 11.9%, excluding the impact of foreign exchange. This decrease was driven by a comp store sales decline of 11.1% due to the decline in transactions as our average transaction [value] was flat. E-commerce sales declined 7.6%, excluding the impact of foreign exchange.

Retail gross margin declined 370 basis points to 36.5%. We had benefits from reduced packaging costs. However, this benefit was offset by deleverage of occupancy costs of 270 basis points and merchandise margin pressure of 130 basis points. SG&A decreased to $37 million, or 42.5% of total revenues compared to 39% in 2011. The dollar savings were a result of lower store payroll. The increase as a percent of sales was driven by the deleverage of advertising and corporate expenses.

Pretax loss was $4 million compared to pretax income of $2 million last year. Our effective tax rate was 4.5% in the third quarter compared to 54% last year. Our tax rate continues to have high volatility due to the valuation allowance established on all of our US deferred tax assets at the end of 2011.

Net loss was $4 million, or $0.26 per share. This compares to net income of $900,000, or $0.05 per diluted share last year. Net loss for the quarter was negatively impacted by $0.14 per share related to the changes in the effective tax rate and $0.02 per share resulting from a change in share count due to repurchases that were made in the fourth quarter of 2011.

Turning now to our first nine month results, total revenues were $263 million, a decrease of 4.5% over last year, excluding the impact of foreign exchange. On a consolidated basis, comp store sales declined 4%. Retail gross margin declined (technical difficulty).

Ladies and gentlemen, thank you for your patience. Please remain on the line. Your conference will resume momentarily. Again, please remain on the line. Your conference will resume momentarily.

I apologize. Our power went off at our office, so I will begin at retail gross margin. Retail gross margin declined 110 basis points to 37.3%. In the fourth quarter, we expect to have a slight expansion versus the prior year. Compared to 2011, SG&A decreased by $6 million to $114 million remaining flat as a percent of total revenues. Included in 2011 SG&A was $3 million in consulting costs. Excluding these costs, SG&A as a percent of revenue decreased 210 basis points driven by decreases in store payroll and advertising costs partially offset by increases in corporate expenses. Pretax loss for the first nine months was $14 million compared to a pretax loss of $12 million last year.

Net loss was $13 million, or $0.79 per share, compared to a net loss of $8 million, or $0.45 per share in the first nine months last year. 2012 was negatively impacted by $0.24 per share related to the change in the effective tax rate and by $0.07 per share resulting from a change in the share count due to repurchases that were made in the fourth quarter of 2011. Net loss included in 2011 $0.11 per share in consulting fees.

We continue to have a strong balance sheet with no debt and consolidated cash of $22 million. Total inventory at quarter-end was $54.9 million and on a per square foot basis was flat with the prior-year period. Capital expenditures in the third quarter were $5 million, primarily to support our real estate strategies and to build our infrastructure. We expect capital expenditures for the full year to be approximately $18 million with about half of the capital supporting store activity and the balance for IT updates.

Depreciation and amortization for the quarter was $5 million compared to $6 million in 2011. We continue to expect depreciation and amortization for the full year to be approximately $21 million.

As Maxine mentioned, we see the opportunities to grow internationally. In October, we opened two stores in the UK, but we continue to believe the market potential is about 70 stores. We currently operate 60 stores, so while we have room to grow, we are now pushing into the store count, especially with the economic pressures in Europe. We will open stores on an opportunistic basis in this market. For example, the two stores we opened this year were on a short-term basis in order to validate sales plans. Both are in new markets, which will not impact other existing stores.

In international franchise operations, our franchisees operated 87 stores in 14 countries at the end of the quarter. Our revenue from franchise operations was $800,000 for the quarter and $2 million for the first nine months. Now I will turn the call back to Maxine.

Thank you, Tina and I apologize again for our loss of electricity there. We are both using a mobile phone, so I hope you can hear us. At the end of our last quarterly earnings call, I wrapped up by saying that I am confident we will post improvement in sales productivity and profitability when 2012 is complete. I still feel that way. Our brand is a favorite of kids and moms, which we have seen clearly in the initial response to our new store design.

I want to emphasize that our plans are not just about closing stores; we are changing our business dynamic across the board. What does success look like for Build-A-Bear Workshop? Success means positive comps starting in the fourth quarter driven by a balanced assortment and supported by our brand advertising. Success means consistent annual profitability. This will come from elevating our experience and reducing our store count, to have destination locations in each market. By the end of 2014, we expect to have between 225 to 250 locations in North America. These stores will have higher sales and profitability as they benefit from the transfer of sales from closed locations. The other essential piece of our plan is to refresh our store design in at least 40 to 50 locations. And we expect to continue our global expansion, particularly with existing and new franchisees.

I am optimistic as we begin the fourth quarter. We continue to drive all of our long-term strategies in order to return our Company to its leadership position for the benefit of our shareholders, our associates and our guests and with that, I will open the call for your questions.

(Operator Instructions). Tom Filandro, Susquehanna Financial Group.

Hey, thanks. Maxine, can you please first confirm you guys are paying your electric bills, right?

Yes. The whole place is dark, the whole office complex outside and all around us. It's not just us here. Somebody must have cut a cable.

Okay, well, hopefully everybody is safe. So two quick questions. I want to really hone in a little bit more on the new store design. Can you be more specific about what is going on in that store that is different than your core stores? And more important is, from a merchandising point of view, what are the variances there?

And then my second question, my second question is also related to that. If you can more deeply explain what you said about that 30% pop. Is it possible that you are a little premature in identifying 50 to 60 store closings if you have just identified what potentially can be a big productivity boost to your core base? Thank you.

Thank you, Tom. That is a good and long question. So let's just say that we have always said, at Build-A-Bear Workshop, the story for the customer, what they are paying for when they come into our store is half of it is the product and half is the experience. And while our product has changed over time a lot, meaning every couple of months or every couple of weeks sometimes, we are changing and bringing in new products, we really haven't changed our experience in 15 years. And that is pretty amazing when you think that we have stood the test of time that way with children who are constantly being bombarded with new and different all the time.

So we have been aware, obviously, when we added Bear Bills that that was something that kids liked and gaming is a big part of our engagement after the Build-A-Bear Workshop experience. But we really wanted to figure out how to incorporate that love of the technology with their love of a soft cuddly stuffed animal and we have worked hard on that for the last 18 months, including our guests. We're totally including our guests to help us do that.

So at the store, you will basically go through the same processes, but we have enhanced several of them. The first one that has been enhanced is the opening of the store. You can actually see into the store. You are not blocked by signing. Everything is wide open and bright. We have interactive digital signing at the door that greets you and tells you about the new merchandise, but we can also convert it into a game that kids can play with on the front door if there is lines, which fortunately in these new stores -- in some ways, that's fortunate. Anyway, they happen. They are playing with that and keeping them active in the line.

The next big difference is Build-A-Bear's core trademark and what moms and kids tell us they love the best about Build-A-Bear is putting the heart inside in the bear and making that special and we have created a special heart station, which really begins your process of customization now. And when you put your heart in, you add attributes to it through a gigantic tablet that is turned into two heart stations and allows you to personalize with different kinds of -- smart, silly, funny, cute, strong, all kinds of different attributes. And actually we will also be able to -- when you get a special barcode from us on your mailer -- come in in the future and just scan it and get special attributes also.

The stuffing station is the same for the most part. However, there are some different interactions that now our bear builders can perform with you because they know exactly what is inside your bear. When they scan your barcode, it pops up on their screen right there in front of them what the attributes are about your bear. And if you have told us today is your birthday, they now know that and they are able to go through the birthday experience. The other is that there is a squishometor on there and you can decide how soft and fluffy you want it or how hard you want your bear to be stuffed.

The next big change, and I think it is still the most -- personally I love it -- is the bear bath. We have always had a bear bath at Build-A-Bear Workshop, but this one has a tabletop cap on it that makes it look like it is really a bathtub and the different toys that you play with on the bathtub, the little toy boat, the soap, the soap causes it to bubble, the little toy boat goes across it and toot, toot, toot, makes a noise and then the little duck swims across. And then in a few seconds later, it starts to tell you that it is getting ready to -- your bear is getting cleaner and cleaner and now it drains and you move onto the next station because kids would stay there. We learned that in the testing, they would have stayed there forever. That and the heart station are what they say right now are their favorite stations.

You go into Dress Me and beginning with your Dress Me transaction is now what we call Match Me, which allows you to scan the barcode of your animal and it will show you a picture of the most popular outfit for your bear and it will also -- it is being refined as we go and as more and more kids put their -- scan their barcodes, it gets to know what the most popular outfits are. But, right now, it is showing you the most popular outfits that we know of and it is also going to break down the accessories and tell you where to go find -- what the accessories actually are. So kids are printing that out, taking it with them, taking it home, giving it to grandma. That has been a popular station.

And then the Dress Me is different in two ways. One, it is divided in half, so half is on the right side of the floor and half is on the left side and each one of them has a theme at the top. So for lack of a better description, I am going to say it is half -- one side is boys, mostly boys and the other side is mostly girls, which allows boys now to have their sort of own section, which they have requested over time and we will see if this really makes a difference. Boys have always been about 30% of our business and we haven't seen a marked change in that. It is still 30% of our business, but on a bigger base of customers that are coming into these stores.

Name Me is slightly different. Now that it has -- it is still Name Me and you still get to add your name and address and participate, but now that your bear has these special attributes in it, when you start the naming process and you put your bear on the top of the tablet, it scans the bear and it tells you to find all the things that are inside your bear and when you find it, you get some extra benefits as well. And then it tells you about Bear Bill and it prints your birth certificate and it takes you on a -- it tells you to go to Bearville and register your bear. Also, when the birth certificate prints out now, each one prints out individually, it will print out with the attributes and a picture of your bear, which we have never had that before. You can see a virtual tour of the store, by the way, online and Take Me Home is basically the same.

So the other part, important part of your question is is the merchandise any different. The merchandise is exactly the same as merchandise in every other store that we have. There is only one product that is different, which we made a little bath kit to mimic the bath kit that is on the -- at the Fluff Me station. That is the only difference and in St. Louis, for instance, we can see all the other two mall stores that we have and we can see that St. Louis, at the West County store, which has the new store design and we can see that it is exactly the same and presented in an attractive way, but the new store is doing so much better.

And that is I think a testament to the fact that merchandise isn't our problem really; it is the experience had not been refreshed. And this has been consistently now on our third store, actually the fourth one opens tomorrow, but it has been -- every single one of these stores have shown the exact same thing. When you compare it to other stores in the market, it is the same. So I think that that is a really -- that just bodes incredibly well for this.

Your last question about the number of stores, are we being too soon on this. We are not closing them tomorrow and if we see that there is a difference, certainly we can adjust. But I believe this is the right number. When I wrote my business plan in 1997, I said that we would have 250 stores and as we got bigger and we got to the marketing, we saw how the advertising was growing and also the encouragement of our investors and business partners, such a great concept, why don't you bring it to more places.

I think that in some ways we have actually maybe saturated some markets more than we should have or needed to and we saw that when we closed West County to remodel it, how much business went from West County to the Galleria. Just because we were closing it temporarily, that store had a huge boost and it just says that maybe we don't have to have three to six stores in a market. We can have fewer stores and make them more destination stores, as I originally planned.

And as we know, Disney has about 210 stores, Lego has about 54 plus they are adding more, but I don't think there will be much more than probably 150, maybe 200 and then American Girl only has 14 stores and they have said [possibly] they are going to have 16 stores. So those are most competitive, directly competitive to Build-A-Bear even if you could call them that.

So I believe that when you are in this kind of discriminating and discretionary product category and the malls and everyone is going through so much economic changes and the Internet is part of our life today that we are smarter to think about a 250 store or less footprint. And right now, I think that is a really comfortable number. It's funny that it came back to the exact same number I said originally, but that is through refinement store-by-store, not by just saying, oh, let's go back to that number.

So it is a long answer to your question, but I think it is important to understand where we are coming from on that.

Thank you.

(Operator Instructions). Gerrick Johnson, BMO Capital Markets.

Hey, good morning. I was wondering if you could talk about the impact of the Olympics on the UK business. Was it a positive or was it actually a negative considering the change in shopping dynamics over there?

I would say it was probably a negative. In some places, like in Stratford Mall, we have a store. They actually closed it off. They had tight security, so people were having their bags checked and so it was probably not as well-executed in the retail space. They also told people to stay home, so in some parts of Central London, it wasn't nearly as busy as it should've been. And we know this to be true also from our concessions that we have in other retail stores, not just Build-A-Bear, but how other stores fared.

So I think it was really good leading up to it and the Queen's Jubilee and all of that was really fabulous for business and especially in the London stores where that was tourist and traffic-driven. But when the onslaught of tourists came, they weren't shopping as much as any of us had hoped in the retail area. But quite frankly, we had started the British product category starting at Boxing Day this past year. So we actually had a phenomenal year in selling product that related to I Heart London, I Heart Great Britain, the Union Jack, all kinds of fashion products that revolved around the patriotism going on in the UK. But those couple of weeks of the Olympics were quite difficult.

Okay, great. Thank you. Can I ask two questions?

Sure.

All right. Excluding the stores that you guys are planning for closing, do you know what your 3Q same-store sales result would have been for the rest of the portfolio? I mean I understand there's going to be different dynamics after those closures, but right now how are those other stores, excluding the, what was it, 50 or 60 or so that are planned for closing, how are those comping?

We haven't actually determined all the stores that will exactly close, just the ones maybe in the early stages of the decision-making process. So we can't tell you that by market, but we are really looking at the stores on -- they aren't closed, so they aren't having an impact on the other stores yet, except in some stores that we have closed in prior years and earlier this year where we did have an average of about a 20% to 30% transfer sale, so that helped the store that is receiving the sale. But otherwise, we haven't closed those stores and there is no way to tell you their comp because the other stores are still open.

Okay, all right. Thank you.

Tom Filandro, Susquehanna Financial Group.

Hey, just one quick one on the marketing, sort of a two-part question. I think I heard Tina say that the ATV for the quarter was basically flat. So what I am curious about, Maxine, is why the change in strategy on the marketing where I think you had said before previously that the marketing was more tied to pricing and now you want to tie it more to branding. If you didn't see a downward pressure on ATV and maybe AUR was [thin], maybe that is the reason.

And then the second part of that question is how do you leverage -- how do you leverage television advertising and marketing overall? And, Tina, if could put some numbers around this, when you're going to have $30 million to $35 million I think you said of lower volume as you close these stores over time. Thank you.

Yes, that is a challenge that we're working on because the marketing is working and we can see that already in the change in our trend since it started. And that is pretty much what we had back in October of 2003 when we started testing television. We turned a significant negative into a positive by telling people about the brand of Build-A-Bear Workshop. And so the same thing has already started to happen. So we can see that this is different.

And it really is. When you look at the commercial, I think you'll see, if you can remember back to our first commercials, they engage -- it's a child engaged in the Build-A-Bear Workshop experience and mom is present and that is the way the Build-A-Bear Workshop experience is most -- happens the most of the time. And we never show that. We haven't shown that in years, in four years and so the customer, the young customers have been growing up with us, they don't remember. Four years is a lifetime to them, but the little kids that are just coming into our age, the 3 to 6-year-olds have never seen it.

So if they don't want the Hello Kitty that we had on television or they don't care about -- children don't care about $29.99. Mom cares about that. That is all they really have seen and we had to do that in 2008 in response to the recession and cutting back advertising dollars pretty dramatically. We are nowhere near those numbers, by the way. While we might end up a little bit higher in dollars for the quarter because we want to invest in this, you remember when you first met us, we had turned those dollars into huge sales and profitability by investing in the marketing.

So we can't exactly tell you the whole model on what the advertising -- how we are going to manage the national advertising on a smaller footprint, but we started national advertising when we had 150 stores. And so I think that we will be able to figure it out like we figure out most things. It is critical to our brand. I mean you [don't] see a sale advertisement on television. If you see any TV from Lego and Disney, you don't. And American girl does branded TV and I think it is the right place for our premium brand like Build-A-Bear Workshop.

If we aren't continuing to remind each generation of child this is fun, this is important, this is cool, they are not going to know it on their own. They have got a lot of other cool things being thrown at them all the time, not necessarily from advertising, but just from what they are playing on the games, etc.

But our research shows that the brand ad has about 2 times more impact on sales overall than a product commercial. We have done a lot of testing on this. So the money works harder for us when it is on our brand because it appeals to everyone. It doesn't appeal to just somebody who wants that Hello Kitty or a frog. It doesn't even tell them what products we have. And when we did those brand advertising, we also saw customers come in and buy a broader range of product.

And it is about transaction. We are driving transactions. We have always seen Build-A-Bear Workshop has high transactions. We have the sales that we want and the comps we want and the flow-through that we want. And so we are really focused on that and I think that we started in October 2003 with this test, the same exact time we kind of tried to mimic it so that we could project the results and so we feel really encouraged, Tom, about how this is -- not that we should -- we felt we should definitely been out of the market for four years. We did what we had to do that was appropriate for business and we thought we were doing the right thing, refocusing the advertising. But in retrospect, we probably should have had a much stronger balance and maybe not cut back as severely as we did.

Tina, I don't know if -- would you be willing to give us the AUR specifically for the quarter and what is the outlook of AUR for the fourth quarter?

I mean it has historically been around $35 a transaction and I think we are projecting it to be fairly consistent through the fourth quarter. Again, we will see slight variations over time, but, again, as Maxine said, the real thing that we need to do is drive transactions and that's one of the things that not only brand TV advertising did for us, it also reignites customers that may not have been in our store in a while. So again, it brings old, it brings new and then brings the current customers back.

One other thing, Tom, that I think is important to just highlight here is that we ran, for the grand opening of the St. Louis, West County store, we ran television advertising around that, not the first two weeks, but the second two weeks after it had opened. We let the normal buzz start on that, and the good news here is that we haven't seen the dissipation of the sales at the St. Louis Galleria, which was about eight miles apart. They have actually held their own and that is pretty impressive and I think that the only reason that is happening is because of the brand advertising. It is elevating the brand and so people are going to the St. Louis Galleria, the Fairview Heights store and the West County store, which is exactly what we wanted. Again, another vote for brand advertising.

Understood. Thank you.

(Operator Instructions). It appears there are no further questions at this time. I would like to turn the floor back over to Ms. Clark for any closing comments.

Thanks again for joining us today. I wish all of you a happy holiday and look forward to speaking with you when we report our year-end results in February. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.