Build-A-Bear Workshop Inc (BBW) 2015 Q1 法說會逐字稿

Greetings and welcome to the Build-A-Bear Workshop first-quarter 2015 results conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host today, Ms. Allison Malkin of ICR. Thank you. You may begin.

Good morning. Thank you for joining us. With me today are Sharon Price John, CEO, and Voin Todrovic, CFO. For today's call Sharon will begin with a discussion of our first-quarter results and the performance against the key priorities we identified at the start of the year. Voin will review the financials and then we will take your questions.

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

Please note the 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 I turn the call over to management, 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 the annual report on form 10-K and we undertake no obligation to revise any forward-looking statements.

Now I would like to turn the call over to Sharon John, CEO.

Thanks, Allison. Good morning, everyone. Thank you for joining us today.

The first quarter of fiscal 2015 marks our night consecutive quarter of improved operating results driven by an increase in consolidated comparable store sales of 2%, a 330 basis point expansion in retail gross margin, a 33% increase in pretax profit to $7.1 million from $5.3 million last year, and adjusted diluted EPS of $0.49 compared to $0.29 last year. The quarter's comparable store sales growth was led by a double-digit increase in Europe balanced by a flat performance in North America. The growth was driven by an increase in both dollars per transaction and unit per transaction countered by some post-Valentines headwinds and overall traffic and conversion primarily in North America.

On our call in mid-February, we noted all geographies had posted solid positive store sales from year to date buoyed by seasonal gift card redemptions in January and a strong Valentine's Day performance. Not unlike recent retail reports however, during the post-Valentine and leading up to Easter, adverse weather became a factor in North America. We rebounded to a positive comp for the key Easter week resulting in a flat comp performance for the quarter. Overall we believe our positive consolidated comparable store sales which were led by areas that were less affected by weather particularly in Europe as well as our continuing improvement in operating results point toward the ongoing impact we are making with our disciplined management of the business as well as the elevation of our product and marketing campaigns.

For example, our Valentine Share Your Heart marketing campaign resulted in the highest average sales per square foot on a single day since 2006. We leveraged our evolved segmentation strategy to drive business across all of our key consumer groups while enhancing the story with a heartfelt [cause] marketing tie-in. Specifically, our Share Your Heart call to action paid homage to our iconic and holiday appropriate heart ceremony and emphasized adding a personalized message to your furry friend with our popular record a sound accessory. The dedicated multifaceted marketing including TV advertising not only helped increase our total business but drove an increase in the sound business by double-digit for the period contributing to our overall increase in UPTs.

As a part of the campaign, we expanded our US partnership with the Make a Wish Foundation to include the UK and Canada. This brand-right relationship enabled our guest to share their hearts and their support for children with life-threatening illnesses by making a donation to Make a Wish. Overall, we facilitated $0.5 million in consumer donations indicating a strong consumer connection to the campaign. We also orchestrated a number of very special Build-A-Bear wishes for these kids in need.

As we stated, during 2015, we intend to transition our overall objective from sustained profitability to sustained profitable growth. To do this we are staying focused on the plan we have outlined to evolve the Company that includes continuous improvement in businesses where we are already starting to show success while simultaneously establishing the building blocks for strategic and profitable expansion of the top line from current and new areas of development.

As a part of this ongoing disciplined approach, we have articulated our MORE x 4 strategic plan that outlines specific opportunities for both our continuous improvement and strategic expansion initiatives. Progress for the MORE x 4 plan include one, more places. On the continuous improvement side using our data driven cohort strategy, we have identified store groupings such as tourist and outlet locations that tend to over-index on key metrics. With that insight in mind starting in July, we have plans to add a number of new stores in outlet centers near key tourist destinations including Hilton head, South Carolina; Williamsburg, Virginia, and Rehoboth Beach, Delaware.

In addition to the sales growth that should come from the added doors, we expect our reinvented merchandising approach which includes an outlet specific value offering to become an important link in our new product lifecycle process designed to improve inventory turn and profitability.

Also in July we expect to open a new store in New York City on the ground floor of the world-famous Empire State Building. This high-traffic location has been selected in order to continue to service our New York City consumer base and tourist trade in light of the June closure of the Fifth Avenue store.

Separately, we recently rebuild a new break frame store design that incorporates evolved branding and is focused on elevating the consumer experience while improving overall store productivity. We are planning to update between 10 and 15 stores in this design in the back half of the year with the first location opening in August. The selection of the site is primarily driven by natural lease activity and includes locations in both the US and the UK. Included in our plan is our multimillion dollar flagship store in the Mall of America with a grand reopening scheduled for October.

On the strategic expansion front in more places, we have promising early results for the Tivoli Gardens store in Copenhagen, Denmark which was converted to an owned location from a franchise in February. As a reminder, Tivoli Gardens is one of Northern Europe's popular holiday destinations making this move consistent with our overall strategy of organic corporate expansion into international markets as well as global development of tourist locations.

Two, more people. From a continuous improvement perspective, we have steadily improved our boys segment by maintaining a solid offering of hot properties through the first quarter including Nickelodeon's successful Teenage Mutant Ninja Turtles and Toothless from DreamWorks How to Train Your Dragon film. The boys business was augmented throughout the first quarter with the introduction of our Superhero Bears designed for Marvel's Avengers Age of Ultron movie. The collection has also benefited from the studio marketing that led up to the May 1 film debut.

On the strategic expansion side, our first offering in a series of limited-edition Disney Princess Bears, Cinderella, launched late in the quarter in conjunction with Disney's mid-March live-action movie release. This collectible series appeals to our over 12 affinity consumer as well as younger girls. Supported with an exclusive service model and packaged as a complete ensemble including her signature song, gown and heart, we have sold thousands of Cinderella bears worldwide thus far for $80 each successfully stretching our previously assumed pricing boundary.

Three, more products. As we focus on continuous improvement on the product side by developing and marketing a variety of new stories with enhanced features designed to extend the play beyond the plush versus selling individual SKUs, we believe our expanded product selection and integrated storytelling approach to marketing is contributing to the increases in both our units and dollars per transaction as well as elevating our consumer engagement.

For example, following the Easter weekend we successfully introduced our proprietary Promise Pets collection of adorable puppies and kittens with strong initial consumer response from the targeted segments of older girls and boys. The Promise Pets mobile app virtually brings the new furry friends to life and has delivered over 100,000 unique game sessions in the first month, exceeding our expectations. Initial reads show that the UPTs and the DPTs on transactions including a Promise Pet are above average and we expect this line to remain strong as we deliver a variety of new animals to update the collection in the back half of the year.

In terms of strategic expansion into products beyond the plush, we have recently signed a number of outbound licensing agreements to sell Build-A-Bear branded merchandise in the fashion, confections, snack food and noncompetitive toy categories. We expect to continue to expand the offering with key partners in relevant areas and to realize some limited revenue in the back half of the fiscal year with a more meaningful impact in 2016.

Four, more profitability. During the quarter retail gross margin expanded 330 basis points and profitability rose over 30% as we continue to improve our process in areas including value engineering and supply chain management. We are currently updating some key systems including a new merchandise planning tool which we expect to help improve our product forecasting accuracy as well as provide support for our consumer segment and store cohort strategy.

On the strategic expansion front, we expect to further improve profitability by prioritizing the incremental growth initiatives that I have just discussed while leveraging our e-commerce business to target the gifting, affinity and collector consumer segments. In 2015, our plans are to upgrade our POS system moving us one step closer to having an omnichannel solution. This upgrade would allow us to integrate our growing and profitable web business with our retail model to systematically complete e-commerce transaction in our stores as well as online and through mobile platform.

Looking forward to second quarter and beyond, we are pleased to share some insights on a few best-in-class entertainment licenses. As we have highlighted, these powerful partnerships with organizations like Disney are an important part of our overall strategy as they provide Build-A-Bear with an opportunity to broaden our consumer base, stay fresh and relevant in a dynamic media driven marketplace, leverage built-in awareness of intellectual property and marketing spend for blockbuster films, market stories to drive add-on purchases, and enjoy premium pricing on select products.

In addition to providing our make your own versions of popular characters like Toothless from How to Train your Dragon, in many cases we collaborate with our partners to create uniquely Build-A-Bear interpretations of characters such as our highly successful Elsa and Anna Bears from Disney's Frozen film.

Additionally, we generally benefit from the broader story that often includes fashions and other accessories that drive up the total transactional value. For example in 2014, the average value of a transaction that included an Anna Bear was over $85 which is more than twice the average transaction value for our stores overall.

With that in mind, we would like to update you on a few license collections we will be launching in the next few months. First, prior to the July 10 US premiere of Minions, a spinoff of the hit Despicable Me franchise from Universal Pictures, we will launch three minion characters. We expect these characters to have wide appeal across all of our consumer segments and geographies.

Second, we are partnering with MGA Entertainment to introduce a very special collection of Lalaloopsy plush dolls targeting our younger girls. As the popular TV show notes, Lalaloopsy characters magically come to life when the last stitch is sewn which of course is the perfect fit for the Build-A-Bear Workshop experience. Our launch will be in June to coincide with MGA's multifaceted celebration of Lalaloopsy's fifth birthday.

Finally, we recently returned from the Star Wars celebration 2015 event where we received great feedback on our upcoming Star Wars Classics line based on the original film series. For the first time, Build-A-Bear is offering a make your own version of Chewbacca as well as a signature Star Wars bear. This fall we will offer a compelling collection of new products inspired by the eagerly anticipated film, Star Wars The Force Awakens.

On a final note in April we named Chris Hurt as our new Chief Operations Officer overseeing our global Company-owned retail operations. Chris has over 20 years of retail experience and most recently served as Senior Vice President of North America for American Eagle Outfitters where he was responsible for over 1000 retail locations in the US, Canada and Mexico. Chris is a strong leader and is passionate about retail and we believe his first-hand retail operations experience will be instrumental for us as we work toward achieving our long-term objectives.

Overall our year-to-date consolidated comp is flat and trending positive post the anniversary of last year's Easter on April 20. This is consistent with our expectations that May and June are the larger months of the second quarter when Easter falls in the first quarter. We believe we have an exciting cadence of launches planned for the balance of 2015. These include a number of new proprietary stories as well as products associated with some of this year's most anticipated movie events. This lineup combined with disciplined execution should position us to deliver on our stated objective of sustained profitability while we continue to establish the groundwork to evolve our objective to sustain profitable growth.

Now I would like to turn the call over to Voin to review our first-quarter financials in more detail.

Thanks, Sharon, and good morning everyone. We are pleased to report positive comparable store sales, expanded retail gross margin and increased net income for the first quarter of 2015 demonstrating the ongoing effective execution of our strategy.

Before I review the results this morning, I would like to discuss two items that impacted our performance in the first quarter.

First, there was a one-way calendar shift in the quarter due to the addition of a 53rd week in fiscal 2014. Comparable store sales were not impacted as we adjusted for the shift and used an equal number of weeks in the calculation. That said, it did create a tougher comparison for us from a total revenue perspective.

The second item relates to currency losses due to the strengthening of the US dollar versus the British pound and Canadian dollar. On the one hand we saw gains and losses as we translated the sales, cost of goods and SG&A of our international operations back into dollars. This lowered first-quarter net retail sales by $1.9 million but was not material to our bottom line.

We also saw an impact from the remeasurement of the balance sheet based on the end of the quarter exchange rate. This had a negative impact of $1.3 million on net income or $0.08 per diluted share.

Turning to our first-quarter results, net retail sales were $92 million compared to $97 million in the fiscal 2014 first quarter. The lower sales are primarily due to the shift in the fiscal calendar and the foreign currency impact. Consolidated comparable-store sales increased 2% driven by a 9% increase in dollars per transaction and a 3% increase in units per transaction partially offset by a decrease in traffic and conversion.

By geography, comparable-store sales are flat in North America and increased 13% in Europe. Our e-commerce business increased by 9% excluding the impact of foreign exchange and delivered continued improvement in profitability.

Retail gross margin improved by 330 basis points to 46.8% with the majority of the expansion coming from enhanced merchandise margin, supply chain and reduced discounts which offset the deleverage of fixed occupancy expenses due to the lower sales volume. The strengthening of the US dollar negatively impacted gross margin by 10 basis points.

SG&A was $37.2 million or 39.9% of total revenues and included $1.5 million currency loss. This compares to SG&A of $37.8 million or 38.6% of total revenues including a $200,000 currency gain in the first quarter last year.

Pretax income improved to $7.1 million compared to $5.3 million in the first quarter last year and increased $3.5 million excluding the impact of currency gains and losses.

Income tax expense was $230,000 for an effective tax rate of 3.3%. As mentioned on our fourth-quarter call, our tax expense and effective tax rate reflect a reversal of the US valuation allowance. We continue to expect to report a reversal of the remaining US valuation allowance in fiscal 2015 which would result in an overall tax benefit for the year. For modeling purposes, we are suggesting to use no tax expense or benefit this year.

Net income per diluted share improved to $0.40. Adjusted net income per diluted share rose to $0.49 compared to adjusted net income per diluted share of $0.29 last year.

Turning to the balance sheet at quarter end consolidated cash was $55 million, up $13 million from last year. This is primarily attributable to improved operating performance and our decreased capital spend partially offset by share repurchases. We had no borrowings on our credit facility.

During the first quarter, we repurchased 154,000 shares of our common stock for $3 million which left approximately $7 million of availability under the current stock repurchase program. Consolidated inventories at quarter end totaled $51 million compared to $44 million last year. The $7 million increase is primarily due to a combination of the impact of lower sales to adverse weather in North America, the timing of receipts and the arrival of new proprietary product stories to drive post-Easter sales. We feel good about the composition and quality of our inventory as we enter the second quarter.

Capital expenditures were $3 million in the first quarter. For fiscal 2015, we continue to expect capital expenditures to be $20 million to $25 million. These expenditures will support our previously discussed store refresh program and the ongoing investment in IT infrastructure. Depreciation and amortization is expected to be $16 million to $18 million.

In the quarter, we delivered our ninth consecutive quarter of improved operating results based on our continued disciplined execution of our stated strategies. I am pleased with these results in light of headwinds within the quarter including adverse weather impact in North America, the one week calendar shift due to the addition of a 53rd week in fiscal 2014, and negative impact of foreign currency.

Looking forward, the second quarter has historically been the smallest quarter of the year. However, we believe we are positioned to continue our improved operating performance for the balance of the year.

And now I would like to turn the call over to the operator to begin the question-and-answer portion of the call.

(Operator Instructions). Steph Wissink, Piper Jaffray.

Good morning, everyone. Just a question for you, Sharon, and maybe Voin as a follow-up on the out-licensing opportunities. As you start to evaluate some of those, can you help us prioritize where we should start to look for some of those opportunities in the marketplace?

Separately with respect to the financial impact, should we assume that there is some sort of upfront inbound cash receipt that is some sort of guarantee around the licenses or the royalty stream? How should we think about that over time in terms of just the financial or the P&L effect of out-licensing? Thank you.

Thank you, Steph. Good morning. Great question. Yes, we wanted to share today some of the things that we are doing on the out-licensing front. We do have some exciting news that we shared in the script about some key categories that we are moving into. We will share a little more detail at the end of second quarter. A lot of these are actually verticals so if I share where they are going to show up, you will actually know who the deal is with and we are not quite ready to express some of that so particularly on fashion.

A lot of the confections will begin to show up actually at Build-A-Bear which is pretty exciting as well. We also see some of the confection as an opportunity to enhance our party solution and then the noncompetitive toy area will be in mass merchandise. It is a part of a bigger offering that a company has where we are just one SKU in a bigger is sort of toy category that they have which is exciting and we will be sharing some more specifics again at the end of the second quarter.

On the financial impact side, there is not any material significant guarantees with these particular deals, not that there couldn't be in the future. I would think about it as it flows from a normal royalty base where we get that income usually the quarter after you see the retail sales.

Okay, that is really helpful. Thank you.

Alex Fuhrman, Craig-Hallum.

Great, thanks, guys. Wanted to talk a little bit about the international business and specifically your plan to look at bringing some more of our franchisee operated stores in house. I'm curious of the 70 odd stores that are currently franchisee run, how many of them are in locations that you would want? Is it 10 or 20 that we might be talking about or potentially the whole lot there?

Can you give us some insight into how the franchisees have been comping over the last year or so in 2014 and specifically then in Q4 and Q1, have they been roughly comping in line with your international business or any insight there would be helpful.

Yes, sure. Thanks, Alex. As we mentioned I believe last year we have been pretty consistent with this. Our international franchise business just as it is in a lot of companies tends to follow what we have sometimes referred to as the mother ship. So the North American business we are now gone through the beginnings and we are getting on the other side of a retail turnaround where we went from 22% of our doors being unprofitable to now less than 2% of our doors being unprofitable. We had a very specific strategy that we followed to do that.

Now as we are on stable ground if you might say in the North American area, the franchisees are following suit with a lot of this retailer approach to the improvement of their overall profitability and their store health. So we have worked very closely with them and you are going to see some churn in those doors as we start to stabilize and move them to more desirable locations.

That being said, even though we do have some locations that are more tourist driven, that is not the overarching strategy. Those are doors that tend to as we mentioned over perform but the core of your business must remain and just like in the North American malls in our B malls and our A malls, to do the everyday business that happens where people live and not just visit.

So there will be a balanced approach to the way we think about the real estate model in these franchises and we do expect after the stabilization occurs and we relook at how we want to franchise -- we are looking at a number of different strategic approaches as we have mentioned -- I expect that we start to see some store growth in some of these markets as well as additional franchise partners being signed on over the next year or two.

On the comp, same situation. It varies by market because the ability in the economics in those markets as well as some of the ability of the franchise partners has varied over the course of time and as we mentioned last year during I believe it was the third quarter call, we had re-signed a new partner in Germany for those very reasons and now we are with a best-in-class partner in Germany and we are starting to see some improvements in those areas.

So it is a market-by-market approach that we look at and we have some that are in negative comps and some that are in positive comps and we are working to get us all moving in the right direction.

But I think that the model that we have created, the successful model that we have created in North America now gives our franchise partners something to look at on how to move this business forward and we are creating some pretty powerful relationships. I am excited about the international business frankly.

Great, that is really helpful, Sharon. Can you give us an update on your New York City store in terms of the profitability there and your thoughts as that lease comes up for renewal?

As I mentioned in the call, the store does close in June so the Fifth Avenue store will be closed in June -- end of June, first of July. We close it the last of June and in conjunction with that closure, we are opening a store in the Empire State Building on the ground floor and that is going to be a percent deal. The topline volumes will vary clearly. The store on Fifth Avenue is an over 20,000 square foot store and the Empire State Building store is a much more traditional 3000 square foot type location. But we, by definition I believe being a percent business, will probably show more profitability.

Great, that is helpful. Thank you very much.

Greg McKinley, Dougherty & Company.

Thank you. So, Sharon, I wonder if you could talk to us a little bit about how your key brands performed in the latter part of the quarter? You mentioned some weather headwinds but anything notable around consumer response to your most important license brands?

And then Voin, I think you had indicated your same-store sales included a 9% dollar per transaction plus 3% units but then maybe some lower conversion which I guess you suggested has probably continued a little bit here in the second quarter. Maybe just some color on why you think that is occurring and to the extent you think that is a concern or a risk or how you feel about that?

Yes, thanks, Greg. It is Sharon. On the key brands, we were from a balance perspective, we were quite pleased with the first-quarter sales in terms of the balance between the proprietary products and the licensed products including Frozen and Marvel.

On the licensed question specifically, Frozen continued to perform. We anticipated that it would, we bought long into it because we believed it would continue to perform after the holiday season and we have been able to take advantage of that momentum.

Marvel also has been a nice buoy for us as a new introduction in the first quarter. Of course it started to really gain momentum as the movie advertising and marketing started to hit and the movie came out on May 1 as you know. So we are actually gaining momentum through the first part of the second quarter with that Marvel story. But the key licenses that we had for the end of the fourth quarter inclusive of Frozen, Toothless and Turtles continue to perform.

On the proprietary front, the vast majority of what we sell through the Valentines time period which is a core holiday for us is our proprietary product. It is all about our Valentine story and that Valentine story as I mentioned was about adding a build-your-own sound which really drove up our dollars per transaction and units per transaction because all of the products, many of the products went out with the sounds.

And then our Easter product which is also a key holiday time period for us, key sales period, is proprietary. So as well as our license business did, our proprietary business did equally as well and when you look at how the mix is compared to the fourth quarter we actually have an increase in proprietary product versus licensed product as a composition of the sales in the first quarter.

On your comp question, I will let Voin answer the first part of that and then I will add some color to it.

So as we mentioned, we had some strong impact from the dollar per transactions, 9%. Our units per transaction were up 3% during the quarter. We are seeing similar results across all geographies. What is offsetting that is you know slower traffic compared to the last year as well as you know we are still having some conversion challenges. And I will let Sharon speak about some of the more detail around the things that we are working on to really solve that challenge for us currently.

So we started to see some slight conversion impact at the tail end of the fourth quarter. I think we mentioned this and started to dig in and usually when you look at a conversion situation where you have your DPTs and your UPTs going up, some of the first hypotheses are is your pricing too high particularly since you have taken some recent pricing increases, are your labor models right? How is your consumer satisfaction? And so we dug deep into those areas. We actually did intercept interviews on the pricing question and now included that as a natural question in our research that we to with consumers on a regular basis.

And that is not the issue, it is -- we didn't see any material impact on the fact that some of our pricing strategies have flowed through particularly on the licensed product, our more high-value proprietary product where we offer a free app or even on increase from a price banding perspective, the increase on entry level price point from $10 to $12. That has not been a negative consumer impact.

On the labor model front, we do feel like we have some opportunity to be a little more fine-tuned on labor model. When you overlay our payroll and labor in stores with our sales, we are not exactly aligned, we believe that we are probably leaving some unserviced opportunity particularly on the weekend and we are going to fine-tune those labor models using data as we move further into the second quarter. And clearly we want to have that mastered by the time we move into the high traffic sales period of the fourth quarter.

Interestingly, another thing that makes us feel like that is definitely one of our opportunities is our consumer satisfaction, CSAT scores, also follow that same cadence. They are less satisfied on the weekends than they are in the middle of the week implying they might not be serviced as comprehensively. Those are kind of the natural things you look at when you see some conversion impact.

One of the things that we had a hypothesis about that actually turned out to be true is as we mentioned, we have had this much more robust segmentation strategy where we are now targeting consumers that we hadn't targeted in the past including the over 12 consumer, being a little more assertive with the boy business and here is the pro-and the cons. The marketing is working so we are having consumers come into Build-A-Bear that have not been into Build-A-Bear before and in many cases are Bear Builders, which is what we call the people that service our guests are really much more accustomed to servicing consumers that are very familiar with Build-A-Bear, the repeat customers. We have to expand beyond the repeat customers if we're going to grow this business.

So we got one end of the equation really right and drove the product, created the product and drove the traffic and now we just have to push that all the way through to the service model on teaching our bear builders how to assess who is a new consumer and who is a repeat guest and how you treat them differently. Does that make sense?

Yes, thank you.

(Operator Instructions). James Fronda, Sidoti & Company.

Just I guess on the revenue decline, what is causing such an improvement on the gross margin side? Is that still streamlining efforts from you guys?

Yes, so as we previously discussed, we continue to see expansion in gross margin. We are seeing benefits of those pricing strategies and supply chain and value engineering that we started last year. We expect to see some of those things throughout the year. But again, it is going to be more of a modest improvement as we previously said first quarter is one where we are going to see able a bit more and it is going to scale down for the rest of the year.

Okay, thank you.

Greg McKinley, Dougherty & Company.

Sorry, didn't realize I was back in queue so quickly. So could you give us a little more color on new franchised markets. When might we expect to see some of those surface and where?

And then I am wondering if you can talk a little bit about your point-of-sale system what the main initiative with that system adoption is enabling e-commerce transactions from the store or maybe help us understand the benefits you expect to achieve with that?

Sure, thanks, Greg. I'm actually glad that you are back in the queue because I wanted to just also mention on the last question that you had about conversion that we are really excited to have Chris Hurt on board who is our new Chief Operating Officer. He really is a master of the four levers, he understands how to drive and build the business particularly and dissect what some of our opportunities are. And I think that is going to be a key part of us being able to get that conversion going in the right direction.

But on your second set of questions on the new franchise market, we have a number of franchised markets in the works. We are in negotiations. It would be really premature of me to mention those particular markets right now and we are tackling them as I've alluded to in a number of different ways. One is more of a traditional franchise model. There is one that is more of a shop in shop model in a market that is more difficult to enter.

Just looking at the market specific dynamics, understanding whether the consumer would be open to and ready for a Build-A-Bear, recognizing our ability from a physicality perspective to move into those markets, from a legal perspective so there is a lot of things that clearly as would be the case in any company looking at international franchises that we are considering when we are moving into these markets.

So I certainly hope to be able to share some news with you before the end of the year and hopefully by the second- or third-quarter call.

On the POS system, the upgrade for 2015, the underlying driver for those upgrades is compliance with chip and pin but in the construct of that compliance, we are also adding some capabilities that will improve our ability for us to have e-commerce transactions on-site. Having e-commerce transactions and the ability on-site at retail gives you a much more dynamic way to manage your inventory particularly when you have let's say there is not just the ability when you don't have the product in-store but you have in some stores, our bigger stores, we might set up a kiosk for example for the consumer who is interested in some of our sports licensing to find the exact license that they want of a Chicago Cubs outfit when they are actually in Miami.

Of course we wouldn't ship that to Miami from a physical perspective but we would have that capability with the endless aisle concept of e-commerce.

I had also mentioned when I first -- back in 2013, we had been reticent to be actively growing our e-commerce until we returned to profitability and improved our fulfillment model. So we have to achieved those objectives and now we feel that we are ready to really provide the opportunity for the consumer to engage with us across a number of different interfaces and as we mentioned in the notes, moving one step closer to an omnichannel model which will be helpful for us as we drive that business with the collectible and affinity group that we have identified.

Very good, thank you. Wondering if you could just help us understand as we go to your store openings plans, I know in our press release you commented on securing sites for four stores around outlet centers and near tourist destinations and you've got 10 to 15 remodels later this year. When all is said and done, how many total store openings do you expect, how many closures might you expect so that we are on the same page around square footage?

As we have look into the future, there is going to be a lot of activity as we are starting to refresh our chain in the second half of the year. As we get closer to the year end, our store count is going to be relatively flat, maybe slightly up from where we are, from where we were at the end of 2014. So there is going to be some closures, there is going to be some openings but our focus is going to be on refreshing our existing store fleet and you know in our tiers we are going to be expecting to further grow our store count.

Thank you.

(Operator Instructions). There are no further questions in queue at this time. I would like to turn the call back over to Mr. Sharon John for closing comments.

Thank you for joining us today. We really appreciate your interest in Build-A-Bear and look forward to updating you on our progress when we report our second-quarter 2015 results. Have a great day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.