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Greetings, and welcome to the Build-A-Bear Workshop, Inc. Fourth Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Anyone who would require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Now, it is my pleasure to turn the call over to Gary Schnierow, Build-A-Bear Workshop, Inc. Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Build-A-Bear Workshop, Inc.'s fourth quarter 2024 earnings conference call. With us today are Sharon Price John, Build-A-Bear's Chief Executive Officer, Chris Hurt, Chief Operating Officer, and Voin Todorovic, Chief Financial Officer. During this call, we will refer to forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially. Please refer to our Forms 10-K and 10-Q, including the risk factor section. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website. And now, I turn the call over to Sharon Price John.

Thank you, Gary. Good morning, and thanks for joining us for Build-A-Bear Workshop, Inc.'s fourth quarter and fiscal 2024 earnings call. Before we get started today, I would like to welcome new board director Dick Johnson. Formerly the Chair and CEO of Foot Locker, Dick brings a wealth of global retail and operations experience, and we are delighted to have him as part of the Build-A-Bear family. Now today, we are pleased to share that the systematic execution of our strategy based on the monetization of the power of the Build-A-Bear brand has enabled us to report record results, which exceeded our most recent guidance for the year. Given our solid corporate comparative store performance and continued expansion of our retail footprint on a global basis, 2024 is now in the books as the most successful year in the history of the company from both a total revenue and pretax income perspective, all while continuing to return value directly to our shareholders, invest in the future, and maintain a solid balance sheet. Additionally, our most valued asset, the Build-A-Bear brand, proved to be as strong as ever as we successfully expanded our consumer segment, categories, channels, and countries. This further supports our belief in the stretchability of the memorable impact and subsequent halo effect created by Build-A-Bear's unique experiential retail model and the premise that a teddy bear hug is understood in every language. In fact, fiscal 2024 marks the fourth consecutive year of record results for Build-A-Bear Workshop, Inc. We currently expect to harness that momentum to deliver a fifth straight year of record-breaking revenue in fiscal 2025, although we are cautiously optimistic on pretax income results largely due to tariff concerns as we highlighted in this morning's press release. Voin Todorovic will provide additional details in his remarks. Before I review our strategic initiatives, please note the full year of this fiscal 2024 results showed both revenue and profit expansion inclusive of the additional week in 2023. However, the following results have been adjusted to exclude the fifty-third week for improved comparative purposes. Revenues increased 3.6% to more than $496 million. Pretax income grew 5.1% to more than $67 million, and we also returned $42 million in capital to shareholders. We attribute Build-A-Bear's record revenue and meaningful margin expansion over the past several years to the dedication and successful execution of our multiyear strategy, which includes the diversification of our business model that in many ways is summarized by focusing on and making investments in opportunities to drive repeat purchase and extend the brand's reach to more people, in more places, with more types of products, for more purposes. This consistency, despite various economic and geopolitical headwinds over the years, stems mainly from the company's commitment to three key initiatives aimed at driving long-term profitable growth. One, the evolution and expansion of our experiential retail footprint; two, the advancement of our comprehensive digital transformation; and three, continued incremental investments to leverage the strength of the brand across multiple fronts while returning capital to shareholders. The first strategic initiative is to evolve and expand globally through Build-A-Bear's three experience location models: corporately operated, partner operated, and franchising. It is important to note that the significant improvements in profitability and cash flow from our retail businesses were not achieved overnight. In fact, it has been through a disciplined approach and relentless focus that began over a decade ago that has enabled us to enhance our corporately operated store contribution margins to at least 25%, a best-in-class rate, which we have maintained for four consecutive years. With a fleet that is essentially 100% profitable, the combined effort across all three store models has extended Build-A-Bear's global footprint by over 100 additional locations in the past two years, most of which are partner operated. To review this strategic initiative in more detail, I would like to turn the call over to Chris Hurt, our Chief Operations Officer. Chris has been an exceptional executive for the company since 2015 and has been instrumental in driving store fleet profitability and growth by evolving the retail footprint, format, lease deals, service model, and operations, as well as overseeing multiple improvements through the years, including the important implementation of our warehouse management system and recent point of sale upgrades. Chris spearheads our partner-operated and franchise portions of our three-pronged retail model, even as his responsibilities have expanded to now include merchandising, product, and marketing. Therefore, while Chris will touch on our total new location expansion, he will focus on the partner-operated and franchise growth, which is largely international. Plus, he will note some exciting news you may have already seen in the press this morning that has been in the works for multiple years. Chris?

Thanks, Sharon. I'd like to begin by highlighting some of the next nine new corporately operated stores that we added in 2024. Starting with a first-of-its-kind Hello Kitty and Friends Build-A-Bear Workshop, which we opened late in the year in the popular Century City Mall in Los Angeles to tremendous fanfare. We also opened three tourist destinations in England during the year, including a workshop in Windsor, right across from the famed Windsor Castle, featuring a unique assortment of tourist-inspired products. A location in Stratford, England, in a highly trafficked Stratford Westfield Mall adjacent to Olympic Park and the West Ham Football Stadium of London. In the US, we opened key tourist destinations in Chicago, in the famous Ridley Building on Michigan Avenue, in Irvine, California, the popular Irvine Spectrum, and the famous tourist destination of Hershey, Pennsylvania. All these new locations represent our continued focus on places where our guests go for fun and entertainment. Regarding our partner-operated asset-light model, we added a total of 30 new locations internationally, representing ten new countries. Our largest unit expansion occurred in Italy, where we now have 13 partner-operated locations. Mexico, Norway, and Colombia opened four units each, and a new Build-A-Bear Workshop also opened at Copenhagen Airport in Denmark. Our franchise model units expanded as well, with new stores in Fiji, Kuwait, and the UAE. In summary, we believe our experience location expansion across more than 25 countries with three models—corporately operated, partner operated, and franchise operated—clearly demonstrates the global power of the Build-A-Bear brand. Separately, we announced in a press release this morning exciting plans to introduce a new retail experience in ICON Park located in Orlando, Florida, one of the largest tourist destinations in the world. Again, this supports our multiyear strategic evolution and expansion of our footprint, particularly in tourist and hospitality destinations. This location is designed to benefit from natural consumer traffic driven by Walt Disney World, SeaWorld, Universal Studios, and the highly anticipated opening this summer of Universal's new theme park, Epic Universe, with very close proximity to ICON Park. Plans include a new creative interpretation of Build-A-Bear's famous make-your-own-teddy-bear retail concept and is lined up to be a must-visit attraction for a wide array of fans. We look forward to continuing to create memorable moments for our guests in this one-of-a-kind location, which we expect to open in the first half of 2026. In summary, I'd like to thank all the teams and partners across the globe that helped to bring our 24 net new locations this year to fruition. We have plans for the continued expansion of our experienced locations in 2025, with an expectation to open at least 50 new net locations during the fiscal year, with the majority being partner-operated as we continue to bring our brand to more places and more people. With that, I want to turn the call back over to Sharon Price John. Thank you, Chris.

Our second initiative is our multi-year comprehensive digital transformation across the entire company, including the omnichannel focus of unlocking value with new capabilities to drive incremental opportunities like same-day delivery, gifting, and personalization programs. We have discussed our progress on this initiative for several quarters, last quarter highlighting Build-A-Bear's new Chief Revenue Officer, Dave Henderson, who leads our first-time cross-company omnichannel consolidation effort. This is designed to integrate and scale our corporately operated retail model and our digital e-commerce model. I am pleased to report that we have taken yet another important step in the company's omnichannel evolution with significant improvements across the warehouse and stores. This allows order fulfillment to be faster and more accurate, the extension of order cutoff windows, and the provision of even more flexibility for our growing buy online, ship from store, or pick up from store capabilities, all positively enhancing the guest experience. For example, this improved omnichannel capability has extended our cutoff windows, allowing guests more time to shop at buildabear.com before holidays such as Christmas and Valentine's Day. It also was a key enabler to successfully execute a same-day shipping initiative with Uber, increasing same-day shipped orders over the past few months tenfold versus the entirety of 2024. While admittedly a small base, it's a directionally positive indicator of this potential demand. Finally, we successfully simplified and digitized our online record-your-voice offering to be completed right from our e-commerce site, so the personalized audible message can be executed during the online checkout process without the need for a callback. While this may seem like a minor change, Build-A-Bear's unique record-your-voice offering is a big part of our promise to guests as it allows consumers to add their very own special message to any furry friend, turning an already special gift into a timeless keepsake. Because the record-your-voice element, when placed in a Build-A-Bear plush, is used to capture countless special moments from the sweet voices of young children sending happy Mother's Day wishes to a heartfelt request of "Will you marry me?" to announcing a new baby by sharing the infant's actual ultrasound heartbeat with the family, it's easy to understand how this is Build-A-Bear's number one selling SKU in unit volume across the company. Since the online digitization made it much easier for the consumer to order, this change has already driven record-your-voice online sales up double digits. The third initiative is our increased investment to drive profitable growth while continuing to return value to our shareholders. Build-A-Bear's improved and more consistent cash flow has allowed us to make longer-term investments in products, infrastructure, content, and people. Regarding products, we are expanding our audience with new offerings as we continue to broaden Build-A-Bear's consumer base by taking advantage of our significant multi-generational "adulting" appeal, representing 40% of sales through collectibles, trends, licensing, and gifting, as well as new plush segments. One example from this Valentine's season was the Cougar Bear, which was launched as a part of our popular After Dark collection and available only through our age-dated microsite, bear k dot com, which drove over a billion media impressions, including a hit on TM

Thank you, Sharon, and good morning, everyone. It's good to speak with you again today and share our fiscal fourth quarter and full year 2024 results. Before I touch on our financials from the past year, I want to recap a few highlights. First, we are pleased that we exceeded our guidance and delivered our fourth consecutive year of record results. We grew across all segments, expanded gross profit margin, and increased pretax income compared to last year. We also continue to return capital to shareholders. For the year, we returned $42 million through our quarterly dividends and share repurchases. Of note, we repurchased one million shares, which is over 6% of our outstanding share count. Over the past four years, we have returned over $130 million to shareholders. To put this in perspective, this return of capital to shareholders represents more than 100% of our market cap from four years ago. Additionally, yesterday, our board of directors increased the quarterly dividend by 10% to $0.22 per share. Quarter to date, we have used nearly $4 million to repurchase shares, with $85 million remaining under our stock repurchase program. Now moving to a more detailed review of our financial results. As you may recall, 2023's fourth quarter included an extra week that generated approximately an estimated 35% flow through to EBITDA. I will provide growth rates on a 13-week comparable basis. For the fourth quarter, total revenues were $150.4 million and increased 5.7%. Net retail sales were $139.5 million and increased 4.7%. Stores delivered strong performance, offsetting an anticipated slowdown in e-commerce demand. Our store traffic was up 3%, significantly outpacing US national traffic, which declined almost 1%. We also had a positive contribution from dollars per transaction. Commercial revenue, which primarily represents wholesale sales to our partner operators and international franchise revenue, rose a combined 20.5% versus the prior year. Gross margin was 56.6%, an improvement of 20 basis points compared to last year. Gross margin was driven by a slight expansion of our retail gross margin plus expansion of our commercial gross margin. SG&A expenses were 38.4% of total revenues, compared to 39.2% of total revenues in 2023's fourth quarter. More efficient marketing spend and leverage of corporate-level costs drove the 80 basis point improvement. Our pretax income of $27.5 million was 18.3% of total revenues, representing growth of 15.8% year over year. Adjusted EPS was $1.59, an increase of 18.7%, reflecting higher pretax income, a lower tax rate, and a reduced share count. Now moving to select full-year results on a 52-week comparable basis. 2024 was a record year with $496.4 million in total revenues, which increased 3.6%. Pretax income of $67.1 million was also a record and grew 5.1% year over year. Finally, adjusted EPS was $3.77 and grew 10.2% for the year. With respect to the balance sheet, at year-end, we had cash and cash equivalents of $27.8 million, a decrease of $16.6 million compared to year-end 2023. Again, this was after spending $42 million between dividends and share repurchase during the year. I'd like to call out two other drivers of this change in cash. An increase in accounts receivable and a decline in accrued expenses. Both were uses of cash in 2024, and we expect them to be sources of cash this year. The change in cash balance was also driven by higher inventory investment, reflecting an increase of almost 10% from the end of last year. The inventory increase was due to an accelerated purchase of 2025 core products to help mitigate potential tariff impact. Turning to the outlook, the full details of our guidance are included in our press release, but I will highlight a few key metrics. We currently expect total revenue to grow on a mid-single-digit basis. This growth is partially driven by the addition of at least 50 net new experienced locations, the majority of which are expected to be international partner operated. We expect our commercial segment revenue to grow at least 20% for the year, which will be significantly back-half weighted. We expect pretax income to range from a low single-digit decline to low single-digit growth. Pretax income growth is expected to lag revenue growth due to inflationary pressures largely from tariffs, but also including medical costs, minimum wage increases, and investments for future growth. We expect the combination of these pressures to negatively impact results by upwards of $10 million in expenses for the year. We are estimating that about one-half of this headwind will be related to expected sales of inventory that will be impacted by the current level of tariffs and believe our guidance is appropriately measured based on the most recent announcements. For context regarding the announced tariffs, international trade is critically important to us, and we have made significant strides to diversify our supply chain over the past several years. In 2018, we sourced nearly all of our products from China. We have since reduced our dependency, and we expect China to be the source of less than 50% of our inventory shipped to North America in 2025. Even with these macro challenges, during fiscal 2025, our objective is to stay focused on our strategy to grow the number of global locations, continue our digital transformation, and invest in our company to drive another year of record revenues and deliver solid pretax income margins while returning capital to shareholders. I would like to thank all of our store and warehouse associates and corporate team members for contributing to our 2024 record results, which have positioned us for our fifth consecutive successful year. This concludes our prepared remarks. We will now turn the call back over to the operator for questions. Operator,

Thank you. We will now be conducting a question and answer session. Our first question is coming from Michael Baker from D.A. Davidson. Your line is now live.

Great. Thanks. Two questions. One, just your view on the overall consumer environment. A lot of consumer companies are seeing a slowdown in early 2025, but it does not seem like you are seeing that, at least through Valentine's Day and Easter. Things seem good. But what is your view for 2025? How does your business typically react in a consumer slowdown? So that is one question. Second question, if you could just talk a little bit more about the progress you are making in e-commerce. It looks like the year-over-year decline was, well, last quarter, I think, was up slightly. So not as good performance, at least in the short term there. But talk about the progress that you are making towards improving that business longer term. Thank you.

Yeah. Thanks a lot. Well, concerning your first question, we are seeing positive quarter-to-date results. And as I noted in the remarks, our traffic is outpacing national traffic. We have been fairly pleased with both the Valentine's portion that actually occurs and the fiscal year 2025, which is only a couple of weeks there. But even just the set of Easter and spring, some positive results to that. Now the question concerning the outlook, you are getting a sense of our outlook from a revenue side. We have provided some guidance. But in general, the toy industry seems to be, over time, recession-resistant. I do not even want to say the recession word, but you know, you do have to imagine some of those scenarios. And we know that, you know, when a third of our business is birthdays and 40% of our sales are to collectors, it bodes well for us to be in a good position. And that speaks to the ongoing strategy of diversifying not only from a consumer perspective but a reasons for purchase perspective, but also for globally. For us to be able to better maneuver more macro, excuse me, more micro impacts. On the website, we wholly acknowledge that we still have a lot of opportunity. We believe in our buildabear.com as a real driver for us from a business perspective, particularly on the collector side, the more adult-driven side, the giftables business. And we have been doing a lot of work behind the scenes, both strategically and from an implementation of different applications and infrastructure as well as bringing on new team members to access, integrate, and elevate that entire omnichannel space. The key, I think, to understand is that we are not just trying to drive, quote, unquote, buildabear.com. We are trying to build a complete integrated omnichannel organization where we understand how and when the consumer is shopping between the brick-and-mortar and the e-commerce site. That is one of the reasons why we have now brought on Dave Henderson, which I mentioned in the call, to integrate that business. We have so many great partners and so many great applications that we have put in that we have yet to optimize. From partners with our partnerships with Salesforce, to our Journeys program, to our email systems, to putting in our entirely new POS system last year, which you might recall, that is designed to also plug into that entire omnichannel ecosystem. The key, I think, to understand is that we are not just trying to drive, quote, unquote, buildabear.com. We are trying to build a complete integrated omnichannel organization where we understand how and when the consumer is shopping between the brick-and-mortar and the e-commerce site. That's one of the reasons why we have now brought on Dave Henderson, which I mentioned in the call, to integrate that business. We have so many great partners and so many great applications that we have put in that we have yet to optimize. From partnerships with Salesforce, to our journeys program, to our email systems, to putting in our entirely new POS system last year, which you might recall, that is designed to also plug into that entire omnichannel ecosystem. So it's a long-term initiative, and I think that we are on the right road.

Thank you for those detailed comments. That helps. Appreciate it.

Thank you. Our next question today is coming from Eric Beder from SEC Research. Your line is now live.

Good morning. Congratulations on a great quarter.

Thank you, Eric.

Well, you know, where should we think about in terms of the tariffs and your ability to continue to reduce the dependence on China? And I guess, no longer from the ability to potentially have to set some of the tariffs with that higher pricing.

So Eric, you know, we have been very proactive as an organization in our thinking and in anticipation of potential tariff impact. As a result, we have been talking on the last couple of conference calls that we are going to be pulling forward our inventory purchases, especially of our core product, to help mitigate some of those potential impacts. As we have some visibility and stability on what the rates may be, we can manage through that challenge. If we are having multiple hits of different increases from the tariff perspective, it becomes increasingly more difficult in the spur of the moment to manage those. I firmly believe that over time, we are going to be working with our partners, with our vendors, and like to become more efficient to help mitigate some of those things. And, you know, like, the last resort is really to continue to raise prices. But, again, we need to have a little bit more stability, understand where these things may land so that we can really manage our business. In addition to that, the first time in 2017-2018, when there was a threat of tariffs, as I mentioned in my prepared remarks, nearly all of our products were coming out of China. We have since reduced our dependency, and we expect China to be the source of less than 50% of our inventory shipped to North America in 2025. Even with these macro challenges, during fiscal 2025, our objective is to stay focused on our strategy to grow the number of global locations, continue our digital transformation, and invest in our company to drive another year of record revenues and deliver solid pretax income margins while returning capital to shareholders. I would like to thank all of our store and warehouse associates and corporate team members for contributing to our 2024 record results, which have positioned us for our fifth consecutive successful year. This concludes our prepared remarks. We will now turn the call back over to the operator for questions. Operator,

Thank you. We will now be conducting a question and answer session. Our first question is coming from Michael Baker from D.A. Davidson. Your line is now live.

Great. Thanks. Two questions. One, just your view on the overall consumer environment. A lot of consumer companies are seeing a slowdown in early 2025, but it does not seem like you are seeing that, at least through Valentine's Day and Easter. Things seem good. But what's your view for 2025? How does your business typically react in a consumer slowdown? So that's one question. Second question, if you could just talk a little bit more about the progress you are making in e-commerce. It looks like the year-over-year decline was, well, last quarter, I think, was up slightly. So not as good performance, at least in the short term there. But talk about the progress that you are making towards improving that business longer term. Thank you.

Yeah. Thanks a lot. Well, concerning your first question, we are seeing positive quarter-to-date results. And as I noted in the remarks, our traffic is outpacing national traffic. We've been fairly pleased with both the Valentine's portion that actually occurs and the fiscal year 2025, which is only a couple of weeks there. But even just the set of Easter and spring, some positive results to that. Now the question concerning the outlook, you're getting a sense of our outlook from a rep side. We've provided some guidance. But in general, the toy industry seems to be, over time, recession-resistant. I do not even want to say the recession word, but you know, you do have to imagine some of those scenarios. And we know that, you know, when a third of our business is birthdays and 40% of our sales are to collectors, it bodes well for us to be in a good position. And that speaks to the ongoing strategy of diversifying not only from a consumer perspective, but a reasons for purchase perspective, but also globally. For us to be able to better maneuver more macro, excuse me, more micro impacts. On the website, we wholly acknowledge that we still have a lot of opportunity. We believe in our buildabear.com as a real driver for us from a business perspective, particularly on the collector side, the more adult-driven side, the giftables business. And we've been doing a lot of work behind the scenes, both strategically and from an implementation of different applications and infrastructure as well as bringing on new team members to access, integrate, and elevate that entire omnichannel space. The key, I think, to understand is that we're not just trying to drive, quote, unquote, buildabear.com. We're trying to build a complete integrated omnichannel organization where we understand how and when the consumer is shopping between the brick-and-mortar and the e-commerce site. That's one of the reasons why we've now brought on Dave Henderson, which I mentioned in the call, to integrate that business. We have so many great partners and so many great applications that we've put in that we have yet to optimize. From partnerships with Salesforce, to our journeys program, to our email systems, to putting in our entirely new POS system last year, which you might recall, that is designed to also plug into that entire omnichannel ecosystem. So it's a long-term initiative, and I think that we're on the right road.

Thank you for those detailed comments. That helps. Appreciate it.

Thank you. Next question today is coming from Eric Beder from SEC Research. Your line is now live.

Good morning. Congratulations on a great quarter.

Thank you, Eric.

Well, you know, where should we think about in terms of the tariffs and your ability to continue to reduce the dependence on China? And I guess, no longer from the ability to potentially have to set some of the tariffs with that higher pricing.

So Eric, you know, we have been very proactive as the organization in our thinking and in anticipation of potential tariff impact. As a result, we've been talking on the last couple of conference calls that we are going to be pulling forward our inventory purchases, especially of our core product, to help mitigate some of those potential impacts. As we have some visibility and stability on what the rates may be, we can manage through that challenge. If we are having multiple hits of different increases from the tariff perspective, it becomes increasingly more difficult in the spur of the moment to manage those. I firmly believe that over time, we are going to be working with our partners, with our vendors, and like to become more efficient to help mitigate some of those things. And, you know, like, the last resort is really to continue to raise prices. But, again, we need to have a little bit more stability, understand where these things may land so that we can really manage our business. In addition to that, the first time in 2017-2018, when there was a threat of tariffs, as I mentioned in my prepared remarks, nearly all of our products were coming out of China. We have since reduced our dependency, and we expect China to be the source of less than 50% of our inventory shipped to North America in 2025. Even with these macro challenges, during fiscal 2025, our objective is to stay focused on our strategy to grow the number of global locations, continue our digital transformation, and invest in our company to drive another year of record revenues and deliver solid pretax income margins while returning capital to shareholders. I would like to thank all of our store and warehouse associates and corporate team members for contributing to our 2024 record results, which have positioned us for our fifth consecutive successful year. This concludes our prepared remarks. We will now turn the call back over to the operator for questions. Operator,

Thank you. We will now be conducting a question and answer session. Our first question is coming from Michael Baker from D.A. Davidson. Your line is now live.

Great. Thanks. Two questions. One, just your view on the overall consumer environment. A lot of consumer companies are seeing a slowdown in early 2025, but it does not seem like you are seeing that, at least through Valentine's Day and Easter. Things seem good. But what's your view for 2025? How does your business typically react in a consumer slowdown? So that's one question. Second question, if you could just talk a little bit more about the progress you're making in e-commerce. It looks like the year-over-year decline was, well, last quarter, I think, was up slightly. So not as good performance, at least in the short term there. But talk about the progress that you're making towards improving that business longer term. Thank you.

Yeah. Thanks a lot. Well, concerning your first question, we are seeing positive quarter-to-date results. And as I noted in the remarks, our traffic is outpacing national traffic. We've been fairly pleased with both the Valentine's portion that actually occurs and the fiscal year 2025, which is only a couple of weeks there. But even just the set of Easter and spring, some positive results to that. Now the question concerning the outlook, you're getting a sense of our outlook from a revenue side. We've provided some guidance. But in general, the toy industry seems to be, over time, recession-resistant. I do not even want to say the recession word, but you know, you do have to imagine some of those scenarios. And we know that, you know, when a third of our business is birthdays and 40% of our sales are to collectors, it bodes well for us to be in a good position. And that speaks to the ongoing strategy of diversifying not only from a consumer perspective, but a reasons for purchase perspective, but also for globally. For us to be able to better maneuver more macro, excuse me, more micro impacts. On the website, we wholly acknowledge that we still have a lot of opportunity. We believe in our buildabear.com as a real driver for us from a business perspective, particularly on the collector side, the more adult-driven side, the giftables business. And we've been doing a lot of work behind the scenes, both strategically and from an implementation of different applications and infrastructure as well as bringing on new team members to access, integrate, and elevate that entire omnichannel space. The key, I think, to understand is that we're not just trying to drive, quote, unquote, buildabear.com. We're trying to build a complete integrated omnichannel organization where we understand how and when the consumer's shopping, the between the brick and mortar and the ecommerce site. That's one of the reasons why we've now brought on Dave Henderson, which I mentioned in the call, to integrate that business. We have so many great partners and so many great applications that we've put in that we have yet to optimize. From partnerships with Salesforce, to our Journeys program, to our email systems, to putting in our entirely new POS system last year, which you might recall, that is designed to also plug into that entire omnichannel ecosystem. So it's a long-term initiative, and I think that we're on the right road.

Thank you for those detailed comments. That helps. Appreciate it.

Thank you. Our next question is coming from Eric Beder from SEC Research. Your line is now live.

Good morning. Congratulations on a great quarter.

Thank you, Eric.

Well, you know, where should we think about in terms of the tariffs and your ability to continue to reduce the dependence on China? And I guess, no longer from the ability to potentially have to set some of the tariffs with that higher pricing.

So Eric, you know, we have been very proactive as the organization in our thinking and in anticipation of potential tariff impact. As a result, we've been talking on the last couple of conference calls that we are going to be pulling forward our inventory purchases, especially of our core product, to help mitigate some of those potential impacts. As we have some visibility and stability on what the rates may be, we can manage through that challenge. If we are having multiple hits of different increases from the tariff perspective, it becomes increasingly more difficult in the spur of the moment to manage those. I firmly believe that over time, we are going to be working with our partners, with our vendors, and like to become more efficient to help mitigate some of those things. And, you know, the last resort is really to continue to raise prices. But, again, we need to have a little bit more stability, understand where these things may land so that we can really manage our business. In addition to that, the first time in 2017-2018, when there was a threat of tariffs, as I mentioned in my prepared remarks, nearly all of our products were coming out of China. We have since reduced our dependency, and we expect China to be the source of less than 50% of our inventory shipped to North America in 2025. Even with these macro challenges, during fiscal 2025, our objective is to stay focused on our strategy to grow the number of global locations, continue our digital transformation, and invest in our company to drive another year of record revenues and deliver solid pre tax income margins while returning capital to shareholders. I would like to thank all of our store and warehouse associates and corporate team members for contributing to our 2024 record results, which have positioned us for our fifth consecutive successful year. This concludes our prepared remarks. We will now turn the call back over to the operator for questions. Operator,

Thank you. We will now be conducting a question and answer session. Our first question is coming from Michael Baker from D.A. Davidson. Your line is now live.

Great. Thanks. Two questions. One, just your view on the overall consumer environment. A lot of consumer companies are seeing a slowdown in early 2025, but it does not seem like you are seeing that, at least through Valentine's Day and Easter. Things seem good. But what's your view for 2025? How does your business typically react in a consumer slowdown? So that's one question. Second question, if you could just talk a little bit more about the progress you're making in e-commerce. It looks like the year-over-year decline was, well, last quarter, I think, was up slightly. So not as good performance, at least in the short term there. But talk about the progress that you're making towards improving that business longer term. Thank you.

Yeah. Thanks a lot. Well, concerning your first question, we are seeing positive quarter-to-date results. And as I noted in the remarks, our traffic is outpacing national traffic. We've been fairly pleased with both the Valentine's portion that actually occurs and the fiscal year 2025, which is only a couple of weeks there. But even just the set of Easter and spring, some positive results to that. Now the question concerning the outlook, you're getting a sense of our outlook from a revenue side. We've provided some guidance. But in general, the toy industry seems to be, over time, recession-resistant. I do not even want to say the recession word, but you know, you do have to imagine some of those scenarios. And we know that, you know, when a third of our business is birthdays and 40% of our sales are to collectors, it bodes well for us to be in a good position. And that speaks to the ongoing strategy of diversifying not only from a consumer perspective, but a reasons for purchase perspective, but also for globally. For us to be able to better maneuver more macro, excuse me, more micro impacts. On the website, we wholly acknowledge that we still have a lot of opportunity. We believe in our buildabear.com as a real driver for us from a business perspective, particularly on the collector side, the more adult-driven side, the giftables business. And we've been doing a lot of work behind the scenes, both strategically and from an implementation of different applications and infrastructure as well as bringing on new team members to access, integrate, and elevate that entire omnichannel space. The key, I think, to understand is that we're not just trying to drive, quote, unquote, buildabear.com. We're trying to build a complete integrated omnichannel organization where we understand how and when the consumer is shopping between the brick-and-mortar and the e-commerce site. That's one of the reasons why we've now brought on Dave Henderson, which I mentioned in the call, to integrate that business. We have so many great partners and so many great applications that we've put in that we have yet to optimize. From partnerships with Salesforce, to our Journeys program, to our email systems, to putting in our entirely new POS system last year, which you might recall, that is designed to also plug into that entire omnichannel ecosystem. So it's a long-term initiative, and I think that we're on the right road.

Thank you for those detailed comments. That helps. Appreciate it.

Thank you. Our next question is coming from Steven Silver from Argus Research. Your line is now live.

Thanks, operator, and thanks for taking my questions. First, Voin, I have a question about inventory. I know you guys have mentioned that you've accelerated some of your purchases of some of the core products trying to get ahead of some of the tariff kind of situations. And I think the prepared remarks had also mentioned that you remain comfortable with the overall inventory levels. Thinking about 2025, given the new store expansion that you guys expect, should we expect inventories to stay near current levels or would we expect inventory levels to rise a little bit more over the course of the year to accommodate the expansion of the footprint?

So great. Thanks for the question. Good question. When we think about inventory and growth, there are multiple things that may be impacting this stuff from that units that we are buying and purchasing. Definitely, there is going to be growth as we are supporting some of the expansion, especially as we just talked about the international. We expect to grow our store count, so there is just that natural increase in buy. When we think about timing year over year, how where the inventory is going to end up, you know, throughout the year, we'll see spikes, but I wouldn't think, you know, at least from that perspective, that this has been a significantly grow from the unit perspective even though we are going to be supporting by the end of the year new businesses. Now there is going to be some of the unique things that we are talking about, especially for next year. As we announced earlier today that in the first half of 2026, we are going to be opening our Orlando location. And, you know, with some of the stuff and some of the things, you know, there will be some timing of inventory receipts and flow. And another piece from the total cost perspective, what we will need also to contemplate if you guys from the modeling perspective, you know, there is going to be a higher cost of inventory if tariffs stay at the same level as they are currently enacted or go up, which would make those numbers go up more.

Great. Thanks for the color. And one more if I may. So a lot of the prepared remarks and discussion so far have focused on really the positive trends and the resilience of the business as traffic continues to outpace the national averages. Revenues per transaction are in a healthy place. The store count of fifty for 2025 is expected, which is still very healthy growth. Not to mention some of the other initiatives. So those are all positives. And with guidance for the year being in the mid-single-digit range, curious to know what maybe what some of those offsets might be to a more constructive outlook for revenues, whether it's just macro-level kind of headwinds or just anything else you think about in terms of keeping revenue guidance a little bit more on the conservative side?

Well, here is the thing. I wouldn't consider revenue conservative or a great again, we are providing guidance in mid-single digits to account for some of those things. So clearly, if you are at the higher end of that mid-single-digit range, you know, the results would be better. There is some of the stuff as we talked about 20% growth from the commercial segment driven by growth of our international partner-operated locations. We believe there is, you know, some room for improvement in our web business. Our store performance has been very solid, and, you know, that some of the trends and initiatives that we are putting in place we feel strong about the we've seen strong results so far and gives us, you know, a certain level of confidence how consumers are reacting to some of the new product and some of the new stories that Sharon highlighted in her prepared remarks. So there are things that, you know, definitely are positive. At the same time, you know, we are not immune to everything that's happening around us. And what the macro environment will do. And how the impact of tariffs both directly on that product cost as well as indirectly on the overall inflationary side will impact the economy. And, you know, those things that are outside of our control. But, you know, considering what's within our control, we feel good about the trajectory that our businesses are. But, also, just note

too, we have been enjoying some positive macro trends that we also don't control, which are consumers returning to physical retail, wanting to invest in experiences and memory making, and, you know, a lot of the personalization as I mentioned before, but also consulting, which has been a rising trend. And we're in the good crosshairs of all of those things. So that's a part of what helping our business. Now we're leaning into that with the right type of product, the right types of licensing, the right types of offers, some of the technology, as I mentioned, or even just being aware of the kinds of things that those what consumers are looking for very beneficial for us. Thus far. We can't predict what, you know, how the consumer will continue to trend in that regard. But thus far, you know, from having on-site birthdays to teams coming in for trend animals and even adults wanting to come in to Build-A-Bear has been on the rise for us.

Great. Thanks for all the color. I appreciate it, and congratulations on the results and the expansion of the dividend.

Thanks so much, everyone, for joining us today, and we really appreciate you joining us for the call and to hear some more details regarding this year's record-breaking fiscal 2024 results. We look forward to sharing more information with you in the first quarter of 2025. Have a wonderful day.