Build-A-Bear's Q3 2026 Earnings Call: Contradictions Emerge on Tariff Impact, Mini Beans, Movie Tie-Ins, and E-Commerce Strategy

Date of Call: December 4, 2025

Financials Results

• Revenue: $122.7M, an increase of 2.7% YOY
• EPS: $0.62 per share, compared to $0.73 in the prior year
• Gross Margin: 53.7%, down 40 bps YOY (primarily due to tariffs)

Guidance:

• Reaffirmed full-year fiscal 2025 guidance; expect revenue of over $0.5 billion for the first time.
• Q4 midpoint implies ~2% revenue growth; December remains the most significant month.
• Commercial segment expected to grow >20% for the year (implies at least ~30% growth in Q4).
• Q4 pretax midpoint implies ~ $20M pretax income; remaining tariff impact expected to be < $6M.
• Pretax guidance includes ~ $5M in additional medical/labor costs; collective costs represent ~ $60M headwind for the year.

Business Commentary:

* Record Revenue and Financial Performance: - Build-A-Bear Workshop reported the highest revenue in its history for Q3, reaching $122.7 million, up 2.7% from the previous year. - The first nine months also saw a more than 8% increase in revenue to over $375 million. - The growth was driven by the company's evolved and diversified business model, strategic initiatives, and resilient fundamentals despite a challenging macro environment.

• International Expansion and Store Footprint:
• The company added 24 net new experience locations in Q3, with 70% of these openings outside the United States, bringing the total locations to 651 in 33 countries.
• This expansion underscores the global appeal of the Build-A-Bear brand and includes the return to markets like Germany and the opening of new Hello Kitty and Friends workshops in the United States.

• The international growth is part of the company's strategy to monetize its brand equity and expand its reach through partner-operated locations.

  

• Digital Transformation and E-commerce:

• Build-A-Bear appointed Carmen Flores as the Senior Vice President of E-commerce and Digital Experiences to strengthen consumer engagement and drive digital business growth.

• Despite a 10.8% decline in e-commerce demand in Q3, the focus remains on leveraging technology and AI for personalized, seamless interactions and expanding the digital infrastructure.

• Tariff Challenges and Mitigation Efforts:

• Tariffs and related costs reduced gross profit by about $4 million in Q3, impacting gross margin by 40 basis points.
• The company is working to mitigate the impact of tariffs by reducing costs through partnerships in Asia, selective pricing strategies, and managing promotions and discounts.
• Efforts have helped the company maintain profitability despite the negative financial impact.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly cited record results: "highest revenue in the company's history for both the third quarter and the first 9 months," "best Black Friday in company's history," and reaffirmed full-year guidance while noting tariff headwinds and mitigation actions; commentary emphasized expansion, digital transformation and returning capital to shareholders.

Q&A:

• Question from Eric Beder (Small Cap Consumer Research, LLC): I'd like to button up on the tariff piece a little bit... When we think about next year, what are the opportunities to reduce this? How should we be thinking about this going forward and your ability to start mitigating this even further?
  Response: Tariffs will persist into 2026 but management is mitigating via supplier cost reductions, selective price increases, tighter promotion/discount discipline and expects some relief as Chinese rates fall from 30% to 20%.

• Question from Eric Beder (Small Cap Consumer Research, LLC): Where are you seeing gains from diversified pricing (Mini Beans, Giant Furry Friends, limited editions like Glisten)? Is this bringing different customers to the business and how should we think about it going forward?
  Response: Diversified price tiers expand the addressable market—Mini Beans drive multi-unit collectible buys while licensed and premium items provide pricing latitude and attract teens/adults, increasing occasions and AUR.

• Question from Gregory Gibas (Northland Capital Markets, Research Division): Could you speak to your promotional activity in the quarter? Was it something that you leaned into more compared to last year?
  Response: Promotional activity was tightened; discount rates are lower and the focus is on upselling and enhancing the in-store experience to drive dollars per transaction and margins.

• Question from Gregory Gibas (Northland Capital Markets, Research Division): Any more color on Mini Beans trends, demand, and new SKU introductions?
  Response: Mini Beans grew ~60% in Q3 and are approaching 3 million units sold; new seasonal/licensed SKUs and expansion into wholesale/partner retailers are underway.

• Question from Steven Silver (Argus Research Company): For movie tie-ins (e.g., Wicked), are sales concentrated at launch or is there a durable tail?
  Response: Tails are highly variable; sequels or known franchises (like Wicked) can provide multi‑year lift, but performance is case‑by‑case and hard to predict.

• Question from Steven Silver (Argus Research Company): Does adding a second Build‑A‑Bear location in major destination malls help with lease leverage given existing presence?
  Response: Multiple locations strengthen our position by driving incremental foot traffic and making Build‑A‑Bear a destination partner—this creates bargaining leverage and value for mall partners.

• Question from Keegan Tierney Cox (D.A. Davidson & Co., Research Division): During the government shutdown slowdown did you see trade‑down to lower price items like Mini Beans, and how did spend split between kids and adult customers?
  Response: October slowdown was driven by the shutdown and tougher comps; November rebounded (best Black Friday); no clear trade‑down—both low‑price Mini Beans and >$100 items sold, with dollars per transaction up.

• Question from Keegan Tierney Cox (D.A. Davidson & Co., Research Division): Why expand Mini Beans into other retailers despite competition in plush?
  Response: Mini Beans extend the brand beyond workshops into thousands of new doors; approaching 3M units sold and early wholesale placements highlight white‑space opportunity and branded differentiation versus competitors.

Contradiction Point 1

Tariff Impact and Mitigation Strategies

It involves differing perspectives on the impact and mitigation strategies related to tariffs, which directly affect financial performance and cost management.

Can you discuss the tariff situation and opportunities to reduce its impact next year? - Eric Beder (Small Cap Consumer Research, LLC)

2026Q3: We've experienced tariffs for about 7 months this year, and we expect less than $11 million total impact this year. Next year, we'll continue to find ways to mitigate tariff-related challenges. - [Vojin Todorovic](CFO)

Can you explain the impact of tariffs on the updated outlook? - Greg Gibas (Northland Securities)

2025Q1: The updated outlook reflects a less than $10 million impact of tariffs and associated costs. The company is working on mitigations and is confident in its revenue guidance. - [Vojin Todorovic](CFO)

Contradiction Point 2

Mini Beans Sales and Impact on Customer Behavior

It involves differences in the company's assessment of the role of Mini Beans in driving sales and customer behavior, which could influence strategic decisions and investor perceptions.

Can you elaborate on Mini Bean sales trends and new SKUs? - Gregory Gibas (Northland Capital Markets, Research Division)

2026Q3: Mini Beans have been extremely successful, with $3 million in sales and a 60% increase in Q3. We're expanding distribution beyond workshops, selling in various retailers and partner locations. - [Sharon John](CEO)

Can you provide more details on the Mini Beans expansion and future plans for growth? - Greg Gibas (Northland Securities)

2025Q1: Mini Beans are being placed in partner toy stores outside the US and select locations in the US like Applegreen and with Hudson. Expansion plans include wholesaling Mini Beans in partner locations. - [Sharon Price John](CEO)

Contradiction Point 3

Movie Tie-ins and Their Impact on Sales

It highlights differing views on the impact of movie tie-ins on sales, which could influence strategic partnerships and promotional strategies.

How do high-profile movie tie-ins impact sales, and how long does the effect last? - Steven Silver (Argus Research Company)

2026Q3: Tie-ins like Wicked influence specific periods but are not the primary driver for trends like Black Friday or overall sales. Their impact is not predictable, depending on the movie's success. - [Sharon John](CEO)

Can you share your plans to leverage future movie events like Stitch? - Eric Beder (SCC Research)

2025Q1: Build-A-Bear maintains strong relationships with film creators. Stitch has evolved into a broader collectible brand, beyond children's films. While past movie tie-ins were crucial, the strategic focus now is on organic growth and internal product control. - [Sharon Price John](CEO)

Contradiction Point 4

E-commerce Performance and Strategy

It shows differing views on the company's e-commerce performance and strategy, impacting investor confidence in the company's digital capabilities and growth potential.

What was the promotional activity during the quarter, and how does it compare year-over-year? - Gregory Gibas (Northland Capital Markets, Research Division)

2026Q3: We acknowledge the need for improvement in e-commerce. Our focus is on integrating brick-and-mortar and digital channels to create a seamless omnichannel experience. Investments in new team members, applications, and infrastructure aim to optimize our digital capabilities and drive collector and giftable sales. - [Sharon John](CEO)

How do high-profile movie tie-ins, such as Wicked, impact sales and their duration? - Sharon John

2026Q3: We've managed our discounts and promotional activity more stringently, resulting in a lower discount rate. - [Vojin Todorovic](CFO)