Build-A-Bear's Q2 2026: Contradictions Emerge on E-commerce Strategy, Tariff Mitigation, and Partner Stores

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

Date of Call: None provided

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:

• FY25 revenue growth raised to mid- to high-single digits; tougher 2H comps expected.
• FY25 pretax income guided to $62M–$70M, assuming current tariffs remain.
• Net new unit growth increased to at least 60 locations (from 50), largely partner-operated and international.
• FY25 tariff impact expected to be < $11M (about $1M hit already in Q2) plus ~$5M medical/labor cost headwind.
• Solid start to Q3; inventory positioned to support demand.

Business Commentary:

* Record Financial Performance: - Build A Bear Workshop reported record revenue of $124 million for Q2 and $252 million for the first half of fiscal 2025, with growth of 11% and over 11% respectively. - The increase was attributed to a long-term focus on monetizing the brand's unique position, digital transformation, and international expansion.

• Pretax Income and Earnings Growth:
• Pretax income increased by 33% to $15 million in Q2 and over 31% for the first half, while earnings per share rose by 47% to $0.94.

• This growth was driven by improved store contribution margins and increased commercial segment sales.

• Global Expansion and Partner Operated Locations:

• The company opened 14 net new experience locations in Q2, with 86% internationally, expanding to 32 countries.

• This expansion was primarily driven by the partner operated model, which allows for efficient global growth without substantial capital investment.

• Digital Transformation and Social Media Initiatives:

• Social media initiatives, including effective marketing campaigns like the fruit stand assortment, contributed significantly to Q2 performance.
• These efforts led to a 15.1% increase in e-commerce demand and significant growth in media impressions.

Sentiment Analysis:

• Management reported the most profitable Q2 and first half in company history, with revenue +11.1% YOY, gross margin +340 bps, and EPS +46.9% YOY. They raised FY25 revenue and pretax income guidance and increased net new unit growth targets, citing strong momentum, improved traffic and conversion, and a solid start to Q3.

Q&A:

• Question from Eric Beder (SCC Research): What consumer response are you seeing to selective price increases amid tariffs?
  Response: Selective, strategic price hikes with maintained entry-level offers and loyalty acquisition have not hurt demand; traffic and conversion rose, supported by stronger storytelling and product mix.

• Question from Eric Beder (SCC Research): How should we think about maturation and impact of partner-operated (third-party) stores?
  Response: The capital-light partner-operated model is accelerating international expansion via shop-in-shops, with strong partner demand and significant runway across many countries.

• Question from Greg Gibas (Northland Securities): Update on Mini Beans sales, units, and broader wholesale distribution progress?
  Response: Mini Beans revenue grew ~80% YOY; wholesale placements expanding (e.g., Hudson airports, Applegreen), international partner toy stores, and first licensed Sanrio Mini Beans launching.

• Question from Greg Gibas (Northland Securities): Drivers of improved e-commerce demand this quarter?
  Response: E-commerce demand rose 15.1% on better timing of launches and lower discounting; ongoing investments and talent adds aim to further strengthen digital and gifting.

• Question from Keegan Cox (D.A. Davidson): The midpoint implies a 2H slowdown—are margins weaker in the back half, and why?
  Response: Raised revenue guide but 2H faces tougher comps; margins pressured by increased tariffs (Vietnam 20%) and ~$5M medical/labor costs—~$16M total headwind—yet aiming to be near/slightly above last year’s profitability.

• Question from Keegan Cox (D.A. Davidson): Momentum with new partners for partner-operated stores, and is the customer different vs. U.S. corporates?
  Response: Expansion includes Germany via existing partner Intersource; brand resonates globally with consistent experience; social/user-generated content fuels awareness; customer dynamics broadly similar.

• Question from Steve Silver (Argus Research): With a strong balance sheet, would you expand company-operated stores internationally versus partners?
  Response: Open to case-by-case investments where ROI warrants, but prefer partner model for local expertise; currently operate in Canada/UK and will prioritize highest-return approaches.