BBW

Build A Bear Workshop

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-$4.51 -25.37%
Our Interview With Strat Becker on Build-a-Bear

Today we released our interview with @strat on $BBW. This is a fascinating value play trading a single digits earnings multiple with a brand that has some rabid fans and now has some activist investors trying to help management steer the ship a bit more aggressively

Listen to the show for FREE on:

Manufacturing PMIs, Earnings: Daily Contrarian (Free Today!)
Good morning CommonStock! Stock futures are pointing to a fifth straight day of losses as September trading gets underway…

Earnings before the open include $BBW, $CPB, $HRL, and $OLLI. After the close it’s $AVGO and $LVLU.

Today’s briefing and podcast are free for all, so check it out!
I had been on holiday for about 2 weeks--and took a break from my portfolio too--and was a little dismayed when I got back last weekend to see so. much. red. in my portfolio. Hang in there, everybody!
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Strat Becker's avatar
$19.3m follower assets
$BBW Thesis and Discussion
I collaborated with @paulcerro to publish a piece on the investment thesis of $BBW and actions that can increase shareholder value. We’ll be on Twitter Spaces at 7pm tonight to discuss and would love to have you there to ask questions! https://twitter.com/i/spaces/1MnGnkPPyzOJO

Key points of the thesis are:

1) The physical footprint of the company has evolved away from malls and will continue to do so

2) E-commerce is 20% of sales from 4% in 2015. It’s a strong growth driver and spreads the age-base of customers to adults without harming the in-store value proposition

3) 70% of e-commerce orders being filled in store locations and up selling throughout the transaction process create significant operating leverage with further opportunities to spread out fixed overhead and incremental labor costs

4) Growth opportunities from vending machines, wholesale distribution agreements, online gifting and subscription services, website/CRM upgrades, and new store locations are all capital light with 2022 CapEx including maintenance of exiting operations being at most 3.25% of sales
Paul Cerro's avatar
$36.4m follower assets
$BBW: Stuffed With Unrecognized Value
My first research collaboration ever and it's with @strat

Heard him pitch $BBW back in January and came back to revisit it in July

Build-A-Bear $BBW has been hiding in the shadows of the public markets and not getting the recognition it deserves

Since bottoming out in 2020, the stock is up >1,600%

Yes, you read that right

Join our Twitter spaces tonight where we'll talk about our research, and why it's a prime LBO target w/ great returns


Take a look at our post beforehand and make sure to subscribe to both our newsletters if you like what you read
Strat Becker's avatar
$19.3m follower assets
$BBW Channel Check
As a part of my research process I love to visit physical locations of companies I’m looking into and talk with employees to understand my business or update my priors on a company I already know. I got to visit a Build-A-Bear Workshop today and here are some of my takeaways

1) Staff turnover is low at this store, good news as well-trained staff are essential for upselling customers

2) Business has been accelerating in recent weeks, notable as Q3 is seasonally weakest for the company and there are no major film releases or holidays at this time. Commentary on my visit is that there were over 10 customer groups in-store when I arrived which is a lot when they need about 10 transactions an hour to hit revenue targets (though it is a weekend).

3) Customer demographics are involving more adults. This location gets 4-5 online orders a day despite its smaller size limiting its accessory availability which will mostly be for adult end-customers. There were also multiple teen/adult customer groups in-store.

4) New summer products introduced by the company, particularly color patterned and rainbow products are selling very strong, as are all licensed items.

5) Some of the newest product announcements like the pink frog are not in this location yet.

Overall takeaways are that the business is doing surprisingly strong at this spot, though I think any prioritization to get their new and best selling original IP items in store could be a plus. Great info gathering session!
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Spectator Sport
I’m not much for short term action but I do watch daily just to see if I can add anything on bigger dips. Funny to see how the market acts to whatever catalysts it may be driving any particular action. My retail holdings all went like this today:

$BKE +4%

$SCVL +7% (my buy the dip candidate, up 20.6% since purchase)

$DDS +8%

$BBW +6%

$DKS +4%

$WSM +5%

$LULU was flat, held in kids’ custodial account (I’m a value investor)

My picks are value positions and mostly for the swing trade/shorter-term part of my portfolio; not one of my core holdings like Google or Microsoft. Positions I buy to hold, not forever, but until they reach a price closer to fair value and providing a sufficient ROI. I figure after tax Buffet numbers are a nice goal to shoot for. I always intend to hold for 1-3 years, until market sees the value, but sometimes it happens a little quicker than I expect. These positions are all up 20%-28% since purchase in May, June, and July, however, $WSM is the only retail I intend to hold long term currently, the rest I will be watching closely to sell the position at a nice gain. I’d rather be early than late, that’s usually one of the weaknesses of value investors. But I always remembered the quote I read early on that ends with “pigs get slaughtered”. I’d rather take a 28% gain in 40 days than wait on 40% or some other arbitrary number that I thought I should see.

Keeping this journal after the Covid rebound and subsequent correction will be a great tool for the future me. Knowing what I was thinking and when will be priceless.

It is fun to be a spectator and watch the market swing prices wildly up & down every quarter based on fears of recession, the joy of no recession after all, inflation, wars, etc.; all problems the market has faced before and things I don’t let affect my investment decisions. Watching entire industries swing almost 10% in a day shows the irrationality of the market; whether there are legitimate macro fears or not. History has proven problems are short term for excellent businesses. This is what makes it easier, IMO, to take advantage of. It seems the algorithmic bot trading and rise of day trading EVERYwhere, has made it easier for broad (longer-term) swing trading, driving the price irrationally high or low, creating a feedback loop of retail investors and bots chasing each other up or down.

I’ll continue to spectate most days rather than participate in the folly. I said my goal was Buffet returns; Buffet gained ~20% annually, I assume 28%-40% pre-tax gains should be sufficient to come close to that. I look at each position to meet that goal; if it happens in 2 months, it just gives me time to find another under valued position to compound my returns.

As for $WSM they will be in the Berkshire Hathaway wing of my portfolio. Excellent businesses I collect with impressive track records and long histories of execution, that I just occasionally check in on.
Paul Cerro's avatar
$36.4m follower assets
Excited to launch our first "Consumer & Retail" Weekly Recap!
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My Peter Lynch Buy of the Week
I was already starting to like $BBW when I came across their metrics a couple weeks ago. Then read a good write up here and liked it even better. I thought it was a dying store in dying malls. Then my niece came home the other night with a tie-dye unicorn m, from a $BBW birthday party she’d attended. I sat her on my lap and had this 9 year old explain to me why Build A Bear parties are so great; she didn’t shut up for 20 minutes. I didn’t know they “catered” parties. I ignored my kids when they were that age and told me to buy Apple and Starbucks; I won’t ignore another child that knows more than me about said product.

Already being sold on buying the stock based on my analysis was #1, but the child’s conviction is what pushed me to want to actually buy.
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