Build-A-Bear Workshop is stepping up its number of promotions to help steer more sales to its stuffed-animal stores after a disappointing second quarter in which the Overland retailer reported a loss of $8.5 million.
Company executives also said today that the roll-out of Zhu Zhu Pets into Build-A-Bear stores has not been going as well as hoped and that it does not plan to continue its partnership with Clayton-based Cepia LLC, which makes Zhu Zhu. The company will reduce the prices on the pets in order to move the rest of its inventory.
The robotic hamsters tested well in Build-A-Bear stores in December and January, so the company decided to quickly roll them out to all of stores, said John Haugh, a company executive. But the market became saturated with the toys, leading to a lot of discounting, he said.
"The line overall is under significant competitive pricing pressures that is somewhat unprecedented for a hot toy so early in its life cycle," he said this morning during a conference call with investors.
He added that the company hopes to offset the costs of discounting Zhu Zhu Pets with the profits from other Build-A-Bear products. The company hopes to exit from the Zhu Zhu line by the end of the year and does not plan to buy into the line again.
"From our perspective, it has been a good complementary business that we will work to exit profitably," he said.
While it is pulling out of Zhu Zhu, Build-A-Bear continues to add other new products to its mix. In September, the company will launch a new "smallfrys" line of smaller already-stuffed animals. The animals will retail for $12, and can be dressed in outfits that will sell for $7. It will initially be a limited-edition two-month run that they hope will increase impulse buying, Haugh said.
Maxine Clark, the company's chief executive, said Build-A-Bear will have a new promotion or product in its stores every two weeks to help lure more shoppers into its stores during the back-to-school season.
"We are not a promotional business, but we do have to be cognizant of what is going on in the world," Haugh said. "When we are in malls, and you walk up and down the lease lines and everybody has got a lot of promotional signage, we're not going to go toe-to-toe on big discounting. But we do need to be able to offer the consumer a reason to make a purchase with us that day."
He said recent promotions have led to higher average transactions and to an uptick in customer traffic.
Company executives blamed the company's lower-than-expected second-quarter results in part on the shift of Easter to the first quarter.
The company had a net loss of $8.5 million, or 45 cents a share, for the quarter ended July 3, compared to a loss of $6 million, 32 cents a share, a year earlier. Net sales fell 10.5 percent to $74.1 million.
