Build-A-Bear Workshop Inc (BBW) 2015 Q4 法說會逐字稿

Greetings and welcome to the Build-A-Bear workshop fourth-quarter 2015 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, you may begin.

Good morning. Thank you for joining us. With me are Sharon Price John, CEO; and Voin Todorovic, CFO.

For today's call, Sharon will begin with a discussion of our fourth quarter and fiscal year results and highlight our priorities as we began fiscal 2016. Voin will review the financials and guidance and then we will take your question.

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 re-queue if you have further questions.

Members of the media who may be on our call today should contact us after this conference call with your question. 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 side.

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.

And now, I would like to turn the call over to Sharon Price John.

Thanks, Allison. Good morning, everyone, and thanks for joining us today.

The fourth quarter represented a solid finish to another productive year. Since my arrival in 2013, the Company has been keenly focused on achieving and sustaining profitability by driving operational improvement across a number of functional areas.

We are pleased to note that fiscal 2015 marks our third consecutive year of margin growth, profit expansion and positive consolidated comparable sales. Furthermore, as our recent guidance suggests, given the impact of the fundamental changes we have made from infrastructure to talent, we expect to report our fourth consecutive year of consolidated comparable sales and profit improvement in fiscal 2016.

We believe this consistent performance demonstrates our ability and potential to increasingly monetize our powerful Build-A-Bear brand through the evolution of our business model. The objective of this evolved model is to diversify and develop more consumers, categories and locations by leveraging a number of additive revenue streams that take Build-A-Bear beyond its traditional mall retail focus.

Internally, we simply refer to this effort as our More strategy, as it reflects our goal to systematically and profitably build the business by appealing to more people with more products made available through more places. As noted, over the past few years we have been in the process of improving both the effectiveness and efficiency of our infrastructure while securing a talented leadership team to execute our plans.

With many of these important initiatives behind us, we believe our Company is well-positioned to begin generating sustain profitable growth. Many thanks to our thousands of employees across multiple countries for their valued contributions through this transition period.

As we have previously reported, our fiscal 2015 fourth-quarter results include a decline in consolidated comparable sales of 5.6%, which follows a 9.8% increase in the fourth quarter of 2014, delivering a positive consolidated comp on a two-year basis, merchandise margin expansion of 50 basis points and pretax income of $9.9 million as compared to $12.6 million in the fourth quarter of fiscal 2014. The majority of the year-over-year decrease was due to one less week of sales compared to fiscal 2014, which included a 53rd week that was reported in last year's fourth quarter.

In the quarter, amid a difficult macro retail environment, our sales started slowly but gained momentum throughout the period, culminating with our best sales occurring during the weeks of Christmas and New Year's.

Top stories included our proprietary Merry Mission offering, which appealed to a broad consumer base during its limited eight-week holiday appearance. As you may recall, we had strong sales when we originally introduced Merry Mission in the fourth quarter of 2014 as the first development of our own intellectual property that was supported with a downloadable app and game.

To build on that initial success, we enhanced the story in 2015, adding our new Snowy White Glisten character and launched the story with a fully integrated marketing program including in-store, TV and direct mail, similarly to our successful 2014 campaign. This approach propelled Glisten, who was particularly popular with girls, to our number-one selling item for the fourth quarter in both units and dollar volumes.

And on the licensing front, we successfully introduced our new Frozen Fever collection to continue to leverage the strength of the property to support our young girls business and to help offset the high impact of the initial Frozen launch in the fourth quarter of 2014.

To drive the boys business we introduced our Star Wars line, which significantly gain momentum as the quarter progressed, especially as excitement heightened for the December 18 movie release of The Force Awakens. Star Wars was our number 1 boys business and significantly contributed to our teen-plus consumer sales, as expected.

E-commerce revenue, including mobile, grew double digits in the quarter, driven by an upgraded platform, improvements in our online marketing precision and exclusive product offerings. For example, we developed merchandise to drive our team plus Giftgiving Infinity consumers, including an online-only gift box and a Pikachu bundle that included our own exclusive Pokemon collector card, which launched in mid-December and sold out in 10 days.

As a part of our real estate evolution, we benefited from the introduction of our new Discovery store format that I will expand on in a moment. And we also added sales that continued diversification away from traditional malls by successfully opening six stores and our first-ever value-driven outlet concept in both the US and the UK.

Separately, we once again extended our holiday presence with seven shop-in-shops with key Macy's flagship doors. We also established a relationship with Gaylord Hotel by opening our first seasonal store in their popular ICE exhibition in Orlando.

As in 2014, these incremental revenue streams broadened our reach to a wide variety of holiday shoppers in large urban markets at this critical high-traffic time period. For the year, we achieved consolidated comparable sales of 1% growth on top of a 1.7% increase the prior year, merchandise margin improvement of 150 basis points, which drove our gross margin to 47.1%, our highest rate since 2006, and pretax income of $17.9 million, up 11.7% from 2014.

From a strategic perspective in 2015, we successfully extended our core consumer engagement with a roster of relevant licenses and new intellectual properties, such as Honey Girls and Promise Pets, enhanced by Play Beyond The Plush-related apps, games, music and videos, drove e-commerce sales by expanding our Team Plus segment by leveraging gifting, license and collectibles to appeal to this generally less price-sensitive demographic that is more likely to purchase online, and launched a number of outbound Build-A-Bear license programs across a variety of categories while signing new agreements with partners like Spinmaster, a top five global toy company, and Frankfurt Candy, the largest licensed candy manufacturer in the United states.

Additionally, we deployed capital to further diversify our real estate portfolio with our compelling Discovery format, opened new value outlet stores and increased shop-in-shop presence with seasonal pop-up locations to evolve our international strategy including the conversion of the franchise store in Denmark at Copenhagen's popular Tivoli Gardens tourist location to an owned and operated location, to invest in updating and adding critical new IT systems, including TXT retail, an end-to-end merchandise planning tool designed to improve our ability to manage inventory, which we expect to result in continued margin expansion, and to repurchase 1.7 million shares of our common stock for an aggregate amount of $26 million, all while posting our highest units per transaction since 2008 at almost 4 units and achieving the highest dollars per transaction in our history at slightly over $44.

Overall, we are pleased with this year's accomplishments and believe that the disciplined approach to executing our More strategy has been instrumental to our delivery of three consecutive years of consolidated comparable sales and profit improvement and believe that the investments we have made will enable us to transition to sustain profitable growth.

With that in mind, we intend to continue to focus on our more strategy in 2016 with specific objectives designed to deliver against our more places, more people and more product platform including more places: the keystone to this initiative is the diversification, expansion and upgrade of our real estate portfolio.

Since 2013 we have been in an active process of evolving our presence beyond traditional malls by closing unproductive stores and opening new permanent stores in the variety of locations as well as adding shop-in-shop and pop-ups

in high-traffic seasonal and/or tourist sites.

One of the most important efforts to date in this comprehensive multiyear initiative has been the introduction of our new format called the Discovery Store. As you may know, we recently launched this new format in one of our flagship doors in The Mall of America, a highly popular tourist destination. We ended the year with 11 locations representing a combination of in-place remodels, remodels within the same mall, but with an improved position, and completely new stores.

In addition to refreshing our aging brand look, our objective for the new design is to drive both overall sales and sales per square foot. To do this we rethought practically all aspects of the store from a consumer-centric and business building perspective, including the creation of a focal point using our most unique selling proposition, the stuffing process and heart ceremony. In fact, the front and center placement of our new high-impact stuffer versus the previous back-of-the-store position of the low-profile stuffer is creating lease line theater and drawing in traffic while opening up valuable wall space for merchandise without the need for additional square footage.

As we have noted, we are pleased with the performance of the remodeled doors, which have delivered double-digit growth versus the norm, driven by a substantial increase in traffic combined with above average dollars per transaction and units per transaction. Based on these initial positive results, we have now aggressively value-engineered the new format to create standardized buildout models for a variety of store types and sizes, including allowing us to accelerate our plans to open new Discovery stores in 2015 and beyond.

With that in mind, we plan to end the year with 45 to 55 new or remodeled Discovery stores including flagships at Myrtle Beach, Navy Pier in Chicago and the previously mentioned Denmark store in Tivoli Gardens, all of which generate several million dollars in annual sales. We also expect to open a new flagship store in China this June in Disney Town at the Shanghai Disney Resort.

Importantly, we expect the payback for this new format to be less than two years and we have a four-wall margin contribution goal of over 20%. This goal is above our current contribution margin, which is already more than double the average of the fleet when our real estate initiative kicked off in 2013.

Consistent with our retail diversification strategy, we expect to open additional stores in our outlet format in the year and offer a branded experience with Carnival Cruise Lines in a number of their ships starting in the second half of 2016, using our wholesale model.

Finally, on the international front, during 2015 we focused on evolving the overall franchise model while updating critical processes and systems, including the initiation of a new global product ordering tool. As a result of these efforts and the initial results of the Discovery format, we expect the franchisees to open an estimated 20 to 25 new royalty-generating stores by the end of the year.

On the More people front, we are focused on further enhancing our business with our key consumer segments including girls, boys and our teen-plus consumer. Important efforts to deliver this goal in 2016 include driving our younger girls business with the continuation of important license properties like Frozen, while attracting older girls with the launch of new concepts tied to some exciting films that will be premiering later this year.

We will also build on our existing proprietary properties, such as Honey Girls, with a refreshed story line and new characters; strengthening our boys business by driving our key properties including Power Patrol and the Star Wars line with the introduction of new characters as well as launching a number of products associated with a variety of movie releases throughout the year; and continuing to attract new teen-plus consumers with our roster of best in class affinity and multigenerational license property while appealing to the large gift market during the traditional high-traffic seasonal timeframe of Valentines, Easter and Christmas with our own proprietary products.

For example, our recent Share Your Heart Valentines program offered a number of add-ons for the gift giver including Build-A-Bear branded conversation heart candies with our license partner, Nekko; premium branded chocolates from [Prang], plush roses and our recorded sound stuffer that enables consumers of all ages to create a one-of-a-kind Valentines gift with a personalized message straight from the heart.

Concerning our More product strategy, we continue to expect to offer new and different ways for our consumers to engage with our brand through our Play Beyond the Plush program offered for existing intellectual properties such as Promise Pets, Honey Girl and Merry Mission. With the generation of approximately 10 million digital interfaces from these supporting apps, games and music videos, we've clearly extended the mind share in consumer engagement with these popular selections and with our brand overall.

Separately, as mentioned, our outbound licensing program is in the marketplace across a number of categories, and we are pleased to be working with Finmaster to make, market and distribute a line of Build-A-Bear branded toys. The new toy line is scheduled to launch in mass-market retailers this fall and is expected to be both topline and margin accretive while significantly increasing our brand reach.

As it relates to our use of capital and aligning with our overall strategy, we expect to focus on the following areas: the continued diversification and expansion of our real estate portfolio, the continued upgrade and addition of infrastructure, and opportunistic repurchase of our stock. Thus far in the first quarter, we are posting positive consolidated comparable sales. Significant contributors include the continued success of our key licensed products, our Slumber Party offering, which was introduced post-Christmas and designed to appeal to the large number of girls that received gift cards in their holiday stockings as well as our previously mentioned Valentines Share Your Heart campaign, which included a successful cause marketing partnership with Save The Children.

Separately, we are excited about our new proprietary Easter offering that has an innovated advertiser feature product called Hide and Go Beep. Note that Easter falls on March 27 and will again be reported in our first-quarter results.

Overall, we now have a proven strategy in place that is driving results and the right team to execute our plan and deliver our revenue and profit goals in 2016.

Now I would like to turn the call over to Voin to review our fourth-quarter and full-year financials in more detail.

Thanks, Sharon, and good morning, everyone. We were pleased with our performance in fiscal 2015.

While our fourth-quarter results were impacted by headwinds, including last year's additional week and the strong performance of our initial Frozen product line, we advanced our progress to our strategic goals. This is demonstrated by our positive early results of the new Discovery format stores, which so far delivered 10% higher comps than our Heritage stores, contributing to our decision to accelerate the pace of openings and remodels in fiscal 2016.

Our 150 basis-point gross margin expansion primarily generated some value engineering work and strategic pricing actions and put increase in average overall contribution margin for our North American stores to 19.5%. We remain confident in our strategy that has now delivered three consecutive years of positive comparable sales and profit improvement, and expect to report our fourth consecutive year of comp sales and profit growth in fiscal 2016.

This morning's press release included details of our fourth-quarter and full-year financial performance. So I'm just going to touch on a few highlights.

Consolidated comparable sales, stores and e-commerce decline 5.6% following a 9.8% increase in the fourth quarter of last year. Our comparable sales included a decrease of 11.6% in transactions, partially offset by an increase in average transaction value.

Net retail sales declined $13.5 million or $11.6 million, excluding the impact of foreign exchange. This decline was driven by a decrease in comparable sales, the benefit of the 53rd week last year, permanent store closures and $1.3 million adjustment to deferred revenue related to our loyalty program in 2014 that did not repeat in 2015.

Retail gross margin contracted 100 basis points to 51.2% as the 50 basis point expansion in merchandise margin was more than offset by the deleverage of fixed occupancy cost due to the reduction in comparable sales as well as the benefit of the 53rd week in last year's fourth quarter.

SG&A was $50.6 million or 43% of total revenues compared to $56.4 million or 42.5% of total revenues last year. The majority of the $5.7 million reduction in SG&A was related to variable expenses incurred in the 53rd week in the 2014 fourth quarter and management transition costs that did not repeat in 2015. Fourth-quarter pretax income was $9.9 million versus $12.6 million last year. Adjusted pretax income for the quarter was $10.7 million compared to $14.6 million last year.

The tax benefit of $10.2 million in the fourth quarter reflects the final reversal of our tax valuation allowance. Adjusted net income per diluted share was $0.62 compared to $0.74 per diluted share.

As a reminder, adjusted net income per diluted share excludes currency, management transition costs, asset impairment charges and the reversal of the remaining valuation allowance on our US deferred tax assets. After the adjustments, our effective tax rate for the quarter was 1.3%.

Turning to fiscal year highlights, net retail sales were $372.7 million compared to $387.7 million last year, a decrease of 1.9% excluding the impact of foreign exchange. Again, the 53rd week in fiscal 2014 impacted the comparison.

Our consolidated comparable sales rose 1% including and11.8% increase in e-commerce sales. This follows a 1.7% consolidated comp increase in 2014.

Full-year gross margin of 47.1% represents an expansion of 150 basis points as we continued to benefit from our value engineering work and strategic pricing actions. SG&A was $161.5 million or 42.7% of total revenues compared to $164.4 million or 31.9% last year. The $3 million decrease was primarily attributable to lower variable cost related to the 53rd week and management transition expenses, partially offset by investments to advance the Company's stated long-term strategy.

Pretax income improved 11.7% to $17.9 million versus $16 million in the 53-week fiscal 2014. Adjusted pretax income, which excludes foreign-exchange losses, management transition costs and asset impairment charges grew to $21.1 million from $19.9 million in fiscal 2014.

Our tax benefit was $9.4 million, driven by the reversal of the remaining US tax valuation allowance that I mentioned earlier. Excluding the adjustments, our fiscal 2015 effective tax rate was 4.7%, driven by the impact of foreign and state taxes. The tax benefit brought net income to $27.9 million or $1.59 per diluted share compared to $14.4 million or $0.81 per diluted share last year.

Adjusted net income improved to $19.6 million or $1.14 per diluted share compared to last year's adjusted net income of $17.4 million or $0.98 per diluted share.

In 2016, with no tax valuation allowance remaining, we anticipate returning to a more normalized tax rate of approximately 30%, derived from the expected mix of taxable income in different jurisdictions. As a point of reference, with a 30% tax rate 2015 net income per diluted share would have been $0.86.

At year end, cash and cash equivalents was $45.2 million and we had no borrowings under our revolving credit facility in 2015. During the year we repurchased 1.7 million shares of our common stock for $25.9 million, leaving $9.1 million of availability under the current stock repurchase program at year end. We finished the year with $53.9 million of consolidated inventories, representing a 3.7% increase over prior year. Inventory composition is in line with our expectations and we believe we are well-positioned at the start of 2016.

For the 2015 fiscal year, capital expenditures totaled 12 $4.4 million, primarily related to the refresh and opening of stores and IT infrastructure. Depreciation and amortization was $16.4 million. Our strong cash flow generation continues to enable us to invest in growth while keeping in mind our goals of ensuring flexibility in capital spending and maintaining a strong balance sheet.

Aligned with our strategy for fiscal 2016, we expect capital expenditures to be in the range of $25 million to $30 million. Approximately 75% of the 2016 capital expenditures is expected to be invested in further diversifying our real estate footprint with new stores and remodels.

As I mentioned, we remain very excited about our newly established store format with a targeted payback period of less than two years and a four-wall contribution margin goal of over 20%. We expect to invest remaining 25% of our capital budget in IT and system upgrades as well as platforms for new revenue streams.

Included in our plans are an upgrade to our POS system, implementation of an enterprise selling system, enhancing TXT planning functionality and updating consumer-facing store technology. As a result of the increase in capital expenditures, fiscal 2016 depreciation and amortization is expected to be between $17 million and $19 million.

Finally, as we shared at the ITR conference in January, our objective for 2016 is to transition from sustained profitability to sustained profitable growth. With that in mind, as you model 2016 for the full year we expect to deliver total revenue growth in the low to mid single-digit range, which assumes a low single-digit positive comp. As it relates to quarterly comparable sales, for Q1 we expect positive comparable sales in the low single digits. For Q2 we expect comp sales to be down, given the strength of Dominion's product last year, which helped us achieve a positive 9% comp since the second quarter of 2015. And, for both Q3 and Q4, we are currently planning positive comparable sales.

As it relates to expenses, beginning with Q1 we will break out store preopening costs, which are currently part of SG&A. We expect those costs to increase, predominantly in the first half of the year, as we accelerate the remodels and openings of our Discovery stores. These expenses will likely have a greater impact as the foregone revenue from the temporary closures during the remodel period will decrease sales in our smallest revenue quarters.

We expect pretax income to grow 15% to 25% from our GAAP pretax income of $17.9 million in fiscal 2015. We are forecasting an annual tax rate of approximately 30%. Further, we anticipate ending the year with 340 to 345 stores, 45 to 55 of which are planned to be in our new Discovery format.

Thanks for your time this morning. We will now turn the call back over to the operator to take some questions. Operator?

(Operator Instructions) Rick Patel, Stephens.

Good morning and congrats on the solid execution.

Sharon, can you talk to us about the health of your consumer and composition for wallet share as you think about 2016? For much of last year, there was a pretty big tailwind from gas prices and a deflationary apparel environment, which could have helped spending in your category. So, thematically speaking, I am n curious if you expect those same drivers to be in place for this year.

The health of our consumer -- that's an interesting question. I think there has been some overall positive economic impact to some degree.

However, you have to remember that our consumers are $50,000 and plus, on average, college-educated and not as impacted by fluctuating gas prices, for example, but sometimes more macro things. So, although we reached our highest dollars per transaction of $44.10, I think, this year, we do expect to see some ability for consumers to continue to come to Build-A-Bear.

And that $44.10 is an average of people coming in for birthday parties, which is -- that's a big ticket -- you are everyday sort of bear which is available for any consumer -- we start at $12, you can come in and buy a Build-A-Bear. But with some of our big licensed properties and all the add-ons we'll get an average dollar per transaction of something towards $77, $80 apiece.

So we are available and have options for a wide variety of consumers. So I can't say that I think that it would be that negative.

That's great, Sharon. And can you also perhaps provide some details around your product pipeline? Which product lines are you most excited about in 2016? You mentioned in the remarks that 2Q is going to be tough, given you lap the success of Minions; but as you think about this year do you see more opportunity on the proprietary product side, on the license side? And when should we expect those launches to be in the market?

Yes, we have a nice lineup of licensed properties for this year, a balance between boy and girl. Some I can't share. The ones that I can't is our continued relationship with Marvel, for example. We will have our Civil War product out starting in second quarter, which is exciting. We are also launching a new proprietary property for girls called Horses and Hearts that will be available in the second quarter and throughout the year.

So it will be the first time you've ever really, other than some unicorns, where you've had a realistic opportunity to -- breeds that girls will know.

Thank you very much.

Alex Fuhrman, Craig-Hallum.

Just with everything that's going on, on the real estate front, with the different types of stores that you are opening and some high-profile recent closures as well as the remodels, what type of same-store sales rate, looking at 2016 and beyond, would you need to leverage your occupancy cost?

So Alex, as we talked in the past, we just expect to have low single-digit comps in order for us to leverage our occupancy costs. But as also we talked in the past, as we continue to remodel these stores and [touch] them in 2016, we're going to have some downtimes as it relates to the store remodels. And as we mentioned previously, we would expect to touch those stores during our lower volume quarters, in particular Q2 and Q3. So there is going to be some noise in those numbers, and that's what we were trying to share with you guys in the guidance that I provided.

That's helpful, thanks. And then, thinking about your entry into China, could you talk a little bit about how that investment will be structured? And are there any other big markets internationally where your franchisees don't currently have a presence, that you have your sites on over the next couple of years?

Yes. The entry into China is actually not a franchise, it's a relationship, Alex. It's an owned and operated store. It's in a Disney location. So that's structured like our Denmark store.

We own it, we operate it. We do have a partnership -- not a partnership, but we have a relationship with Lee & Fung who's helping us through some of the complexities of China. But that's a standard relationship -- standard store.

The other opportunities though are, we believe, are there for us to look for the right types of relationships to expand our franchise footprint on a global basis. From a strategic perspective, the first thing that we've been doing on the international front is putting our processes in place, getting our systems in place so that we can scale.

As a part of that process, we've also been, as we've mentioned, culling some of the relationships where we didn't believe that, perhaps at this juncture, that the operator was the partner that we wanted to move forward with, which is why, for example, we took ownership of the what was franchised store of a key flagship in Tivoli Gardens.

So now that we have our side of the work done, we believe that we do have some opportunities to scale. And that scale doesn't come from just signing new franchises in different markets, although clearly that's a part of the overarching strategy on the horizon. But first is to make sure that we have the health of our own and existing franchisees like our big partners in Australia or Germany.

And you are starting to see that with this -- the just mentioned 22 to 25 expected new royalty-generating stores. It's been a while since you've seen that kind of dramatic increase in stores from our franchise partners. And that's on a scaled-back number of franchisees.

So it's a two-pronged strategy that first started with correcting our own issues, which we've now done, culling to get the best partners and in some cases upgrading the partners. You might recall we upgraded our German partner two years ago. And now we are ready to start moving forward at an accelerated pace.

Great, thank you very much.

Jeremy Hamblin, Dougherty.

Congratulations and thanks for taking my question. I wanted to just ask a follow-up on the Q1 same-store sales. I think you said that they were tracking up low single digit at this point in time, quarter to date. Is that correct?

Yes. Sharon mentioned that.

Yes.

Okay. And then just in terms of this store remodels, in Q2-Q3, can you provide us with a little bit more detail in terms of the total sales impact that you expect to have by quarter? Do you have a better sense or a range on what we can expect from that?

Well, we don't have the specifics, as we are working through some of those things, Jeremy. As you may think about, we are trying to be very proactive and try to manage our topline as well as the bottom line. In some of those instances, depending on availability at the particular malls where we are remodeling the stores, it may -- some of the temp store locations may or may not be available. So that's going to impact us as well as when we talk about the downtime related to those models.

We are going to have some of those activities in every quarter of the year but we expect the biggest impact, as you are going to see from the bottom line perspective, is going to be in Q2 and Q3, as those are generally our smaller quarters of the year. As we have shared before about from the capital perspective, we're going to spend 75% of our capital on the stores. About 60% of that capital is going to be related to the new stores and the relocations. In those particular cases you won't have as much downtime and impact from the sales perspective.

On the remaining 40% that we are going to spend in capital and remodels, that's going to be throughout the year. But again, Q2 and Q3 is going to be a bigger challenge.

Yes. Jeremy, a little more color on our temporary stores -- when we are able to secure a temporary store within eyeshot of our existing store, like we did with Mall of America, it can have quite an impact on preserving sales. We, in fact, preserved about 80% of our topline in that temporary store.

But recall, even though that, without a doubt, is the right choice to make, that actually adds expense in the quarter because I have to build and break down the temp store as well as building the -- which is more capital, building the permanent store. But, of course, there's expense related to that as well.

As we master this remodeling process, we also believe that we can start to decrease our downtime, limit it by building, by learning to build faster, learning to manage the process better.

So, those two dynamics is what's keeping us from giving you a specific because sometimes we don't know we are going to get the temp store location until weeks before we actually shut the store down.

Okay. As a follow-up to that, then, do you have a sense for what -- in terms of what's possible in terms of temporary store locations for the total amount of remodels? Do you think that that's something that may be 50% this year? Or do you have a kind of a sense on the range of how many you think are even possible? Because I would imagine with some it's just not even a consideration.

You are right. And with some, not only is it not a consideration, it's not worth it. In some cases, particularly the bigger tourist location doors, where 50% of our sales come from people 50 miles away or more, like Myrtle Beach or the Mall of America, having that temp store location preserves us from just lost sales. In some of these more localized mall environments, it's just a delayed sale. So, we think through it that way as well.

But that -- you know what, Jeremy? We don't have the answer to that today. But I think that's a good challenge to try to provide you guys as we get closer to it with some sort of range.

But also, Jeremy, as a reminder, for the year we are still expecting revenue to be up low to mid single-digit range. So still, you know --

It's just the noise in the quarter --

Just in the quarter.

-- that we try to help you manage.

Okay, great. And then one more item related to that -- in terms of Easter and the Easter shift this year, can you give us a sense, maybe arrange on with it being pulled forward into Q1, what type of impact it would have, Q1 versus Q2, just being an earlier date this year?

Yes. It's actually fill in our Q1 because our fiscal is basically a calendar year. We are not a normal -- not an average retail year.

Right. And last year it was in Q2; correct?

No, it was Q1 as well.

Okay, okay.

Yes.

All right, thanks. I'll hop back in the queue.

Howard Tubin, Guggenheim.

This is actually Paula calling in for Howard. We were just wondering if you could just please elaborate a little bit on your outlook strategy just with regard to location and assortment.

Sure, thanks. Our outlets, as we mentioned -- we started opening them in 2015. We opened them in both the UK and the US. And the strategy involved not only taking advantage of the fact that outlets as a category are tending to outperform traditional malls right now but that there are many outlets located in, quote-unquote, tourist destinations, which is where we tend to overperform. On top of that we saw this as an opportunity to create the first value-focused model in the history of Build-A-Bear that, at the end of the day, should allow us to manage our inventory in a more profitable manner, by flushing different product lines through the system without taking up valuable store space and slot space in our higher-end locations so we can hold it at the warehouse and move it to the outlet.

Some examples of those types of locations that we put the outlets in are Hilton Head and Williamsburg. And what we've seen, because we are working through the first year of this experience, we are learning a lot about it. They certainly overperform in the summers.

And we were actually pleasantly surprised how much they overperformed during the holiday time period. We didn't really realize that some of the beach locations would do as well as they did, like Delaware and Hilton Head, during that. So, we are getting a lot of learning under our belt.

But the process is a little bit different. It's a simplified process. It's a bit of service model light, I would call it. And the product is merchandised in collections. So it's an easier, faster shop. The consumers move through the system in the little bit of a different way but it's not as if it's unfamiliar for them. They can still, in most of our outlets, get our primary product that's available and advertised at the time. That will be at the very front of the store. But if they choose to move through the back of the store, they can find some pretty good values. And thus far, particularly in the UK, it has been working very well.

Okay, great. And then just one more question regarding promotions -- in this past fourth quarter, did you stick to your plans with regard to your promotional cadence? In looking forward to the first quarter, could you give us a little bit of color there in terms of what you are planning?

Yes. So when we move into -- every quarter in every year, we have a solid plan that is also inclusive of a number of different options that we can pull triggers on, given what might be going on in the environment or what we think the trend is or whether a property is working. And this past fall, this past fourth quarter, as we have mentioned before even on the last call, we did get out of the gate pretty slowly with Star Wars. And actually, I think, a lot of people did.

There wasn't as much advertising for this film, and I understand that because ultimately, clearly, with the box office it wasn't going to be necessary. But at the end of the day that kept it from being introduced to some of the younger consumers.

So, once the film hit we saw double-digit comping on Star Wars. But up until that point, we felt that we wanted to pull the trigger on some of our tried and true approaches to driving sales, particularly one that is when you buy multiple units of a product it tends to drive our DPTs up in the 70s and 80s. So, you don't get the -- you get the discount on the skin but you don't get to discount all the accessories.

So we tend to try to create those promotions around product where you really wanted to have the add-ons, whether it's the outfits or the music or any other element of it that might be helping you tell the story.

So, all of this is really enabled by the fact that we now have some clear promotional processing cadence where we already have tested, which we did this time as well, in specific markets how the promotion is going to respond. Ultimately, we focus on telling stories which then drives the DPTs and the UPTs. And at the end of the day, even with some promotions that we had in our back pocket that we wouldn't have used if we didn't need to, we preserved our profitability.

Okay. Sorry. So then, for Star Wars, a promotion that you had used would have included buy two units for a set price? I'm just a little unclear as to what -- (multiple speakers).

Yes.

Okay.

That's usually the way -- those are the types of promotions that we have done in the past that have worked well for us. And as I said, we kept to that in some markets and saw the type of reaction that we would get and how much it preserved the process because, ultimately, they still would buy all the things that went on to -- a Chewbacca, for example. They would still get his bow caster and his sound.

Okay, great.

But also like the pricing that we have on those particular products is much higher than our typical pricing.

Right.

So, from the initial margin perspective, we are commanding higher price points on those and we do have more flexibility if we choose to run some of those promotions that Sharon is talking about.

Right. And that feeds into being more conscious at the very front of the process of value engineering, building in the margin, building in -- thinking of things through a product lifecycle perspective, which feeds right into your first question about what are you doing with the outlets, what's the strategy with outlets. These are macro, long-horizon constructs, which is inclusive of the fact that occasionally you need to pull a promotion out of your back pocket.

The question on whether you are profitable or not is what promotion do you pull.

Okay, great. Thank you.

Stephanie Wissink, Piper Jaffray.

This is actually Lauren Wolfe, calling in for Steph. Just a couple of quick questions for you guys about [their launch]. If you have any color, could provide any additional color regarding either own brand plans for (technical difficulty) sets or Honey Girls or anything else in particular? I know you mentioned a couple of items with the Easter launch that may also be impactful. And then, secondarily, any partnership plans just around integrated media content or mobile sets? Do you have anything slated?

Yes, thanks. So for our owned and operated brands, our proprietary brands, our Play Beyond The Plush construct that we introduced in fall of 2014 has been working for us. It creates a balanced offering for the consumer and we have also been able to successfully develop products and concepts against key consumer groups where we look at, for example, out on the horizon of our licensed properties, where there might be a hole in the offering. Honey Girls was a great example of that.

We also want to create things that not only are long-term, that have legs under them where we can take them in two different directions if they get traction with our consumers but things that are -- create more predictability in key time frames like Merry Mission that's repeatable. So, that just decreases risk for us because I have a place to go back to each year.

By amping up Glisten this year on top of a known entity at that juncture with Merry Mission, just -- we've started out in a great place because the consumer was already familiar with the basic concept. And adding Glisten helped buoy that business.

As we mentioned, Glisten became our number-one units and dollar per transaction SKU for the year or for the fourth quarter, rather.

So, we will continue this. And I did speak about that we have 10 million digital interfaces, which -- it's hard -- that's part of the challenge with some of these avenues. But it's hard to directly link those to sales. But when you look at it in a macro that the three properties that we have delivered thus far, which is Merry Mission, Honey Girls and Promise Pets, has actually contributed over $60 million of sales during their lifetime. You have to believe that there is some correlation there.

Independently, when we launch these products like a Promise Pets that we launched second quarter of last year, it popped up to 10% of our sales within a number of weeks. And then they buoy back down. But you can see that with these types of approaches we really are making an impact with the consumers and they are coming in to see what we're doing.

So, we will continue to upgrade the play. The Honey Girls will be out with a new character as well as a new music video. They are going to Paris now, they are on tour. It's exciting.

We will be launching new characters for Merry Mission in the fourth quarter of next year. And as I mentioned earlier, and I'm very excited about this, we are launching a property called Horses and Hearts for our slightly older girl, our equestrian girl, which is a little more realistic than some of the things that we've had in the past that are horselike. And we think that, just given that overlapping interest for little girls with horses and just Build-A-Bear overall, that that should have, excuse the pun, a lot of legs.

Great, thanks.

(Operator Instructions) [Greg Pandy], Sidoti.

My question -- just wondering on [Spinmaster] if it's hitting in the fall, how we should think about 2016 and when that revenue will be hit because I believe it should be coming on a lagging basis. So, is that going to be more of a 2017 event?

It does lag. You are exactly right, Greg; it lags. And this is a holiday offering, fourth-quarter offering. It's a classic fourth-quarter set for the majors, and the revenue will be lagging into the first quarter of 2017, the royalty (technical difficulty) [paced] revenue. Yes.

Okay, thank you.

Ms. John, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thanks again for joining us today. And we look forward to speaking to you when we have our first-quarter results in May.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.