Build-A-Bear's Q2 2025: Contradictions Emerge on Tariff-Driven Pricing, International Expansion, E-Commerce Strategy, and Inventory Management

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: $124.2M, up 11.1% YOY
• EPS: $0.94, up 46.9% YOY
• Gross Margin: 57.6%, up 340 bps YOY

Guidance:

• Raised FY2025 revenue growth outlook to mid- to high single digits after double-digit 1H growth and a strong Q3 start.
• Increased FY2025 pretax income guidance to $62–$70M, assuming current tariff rates remain through the fiscal year.
• Lifted net new unit growth target to at least 60 (from 50), with most additions partner-operated and international.
• Tariff headwind expected to be < $11M in FY2025 (~$1M in Q2); U.S. 30% China tariffs extended to Nov 10; Vietnam tariffs now 20%; NA impacted, non-NA retail not directly.
• Additional ~+$5M medical and labor costs included; total FY headwinds ~+$16M.
• Expect record results for the fifth consecutive year; 2H faces tougher comps (record Halloween last year).

Business Commentary:

* Record Financial Performance: - Build-A-Bear Workshop reported record revenue of over $124 million in Q2 2025, with a 11% increase, and record pretax income of over $15 million, showing a 33% increase. - The growth was attributed to a long-term focus on scaling the business, innovative initiatives across strategic pillars, and international expansion.

• Strategic Initiatives and Retail Expansion:
• The company opened 14 net new experience locations in Q2, of which 86% were international, expanding the brand to 32 countries.

• This expansion was driven by the successful implementation of a partner-operated retail model and the introduction of new product lines like Mini Beans, which contributed to an 80% year-on-year revenue increase.

• Digital Transformation and Social Media Impact:

• Online demand increased by 15.1%, driven by strong consumer response to key product launches and social media initiatives.

• The effective use of social media platforms and user-generated content contributed to significant brand awareness and sales, particularly for the Mini Beans collection.

• Tariff Challenges and Pricing Strategy:

• The company is facing a potential $11 million tariff impact on fiscal 2025, with an immediate impact of $1 million in Q2 due to increased tariffs on imports from Vietnam and China.
• Despite selective price increases to mitigate tariff costs, Build-A-Bear maintained transaction growth, driven by reduced promotional activity and higher average unit retail.

Sentiment Analysis:

• Management reported the most profitable Q2 and first half in company history, with record revenue and EPS, expanded gross margins, and raised full-year revenue and pretax income guidance. They expect record results for the fifth consecutive year, cited strong traffic (+3% vs a -3% benchmark), +15% e-commerce demand, and growing partner-operated footprint. Despite tariff and cost headwinds, they forecast mid- to high single-digit revenue growth and $62–$70M pretax income.

Q&A:

• Question from Eric Martin Beder (Small Cap Consumer Research, LLC): How are consumers responding to selective price increases amid tariffs?
  Response: Price hikes are surgical (tied to resets) while protecting entry values (Count Your Candles); no material demand impact—traffic and conversion rose and tickets grew via storytelling and collectibles.

• Question from Eric Martin Beder (Small Cap Consumer Research, LLC): How should we think about partner-operated store maturation and impact?
  Response: Strong runway with partners adding locations, often as shop-in-shops; comps improve as units mature; capital-light model accelerates international expansion and brand reach.

• Question from Gregory Thomas Gibas (Northland Securities): Update on Mini Beans growth and wholesale distribution progress?
  Response: Mini Beans revenue rose ~80% YOY at ~$10 price; wholesale placement expanding (Hudson airports, Applegreen, international toy partners) with first licensed Sanrio Mini Beans launching.

• Question from Gregory Thomas Gibas (Northland Securities): What drove stronger e-commerce demand this quarter?
  Response: Launch timing shifted into Q2, lower promotions, and ongoing digital investments boosted demand ~15%; web supports omnichannel traffic and last-mile via stores.

• Question from Keegan Tierney Cox (D.A. Davidson): The midpoint implies a 2H slowdown—does this mean weaker margins, and why?
  Response: 2H faces tougher comps and rising tariff headwinds (~$11M FY, more in 2H) plus ~$5M labor/medical; despite ~$16M headwinds, guidance still targets mid-to-high single-digit sales and pretax near/slightly above last year.

• Question from Keegan Tierney Cox (D.A. Davidson): Momentum with new partners and differences vs U.S. corporate-store customers?
  Response: Momentum is strong (e.g., Inner Stores adding Germany); the experience is replicated locally with partner-led marketing and robust UGC; customer enthusiasm is consistent globally.

• Question from Steven Silver (Argus Research): With a solid balance sheet, will you expand company-operated stores outside the U.S.?
  Response: Open to case-by-case investments, but prefer partner-operated for local expertise and ROI; company-operated currently in Canada and the U.K., with broad partner-led global runway.