Build-A-Bear Workshop (Build-A-Bear Workshop (BBW)) had a rough Thursday. The company reported fiscal second-quarter 2026 results that missed on revenue, cut its full-year outlook, and admitted that traffic is softer than it would like. Investors responded by sending shares down more than 25%.
Here's the rundown: Revenue fell 7.2% year over year to $115.291 million, coming in below the $121.067 million analysts were expecting. Adjusted diluted earnings per share of 70 cents matched estimates, but that's still down from 94 cents a year earlier on a GAAP basis.
The market's reaction makes sense when you look at the details. Net income dropped to $8.76 million from $12.37 million, and pre-tax income fell to $11.6 million from $15.3 million. Pre-tax margin narrowed to 10.1% from 12.3%, and EBITDA slipped to $15.2 million from $18.8 million.
Digging into the sales breakdown, net retail sales were down 7.1% to $106.5 million, with e-commerce demand falling 15.6%. Commercial and international franchise revenue also took a hit, declining 9% to a combined $8.8 million. Gross margin contracted 340 basis points to 54.2%, thanks to occupancy deleverage and more promotional activity. Tariffs and related costs were about $1 million in both periods.
On the balance sheet side, Build-A-Bear added five net new experience locations during the quarter, bringing its total to 674. Cash and equivalents fell to $14 million from $39.1 million a year earlier, while capital expenditures jumped to $8.6 million from $3.4 million. The company spent $5.6 million to buy back 155,118 shares and paid $2.9 million in dividends, leaving $43.2 million under its $100 million repurchase authorization.
The big headline, though, was the guidance cut. Build-A-Bear now expects fiscal 2026 revenue of $500 million to $525 million, down from its previous range of $530 million to $550 million and below the $539.349 million consensus. Pre-tax income is expected to be $60 million to $68 million. That outlook includes $13 million in IEEPA tariff refunds and $10 million to $11 million in tariffs and related costs. Excluding about $7 million tied to prior-year costs, adjusted pre-tax income is expected to be $53 million to $61 million.
During the earnings call, management shed some light on what's going wrong. They said weaker traffic and summer products that strayed too far from Build-A-Bear's core customization experience weighed on results. Early third-quarter traffic and sales improved after the Halloween launch but still came in slightly below expectations.
There's also the Walmart factor. Last year's multimillion-dollar program with the retail giant won't be repeated, and other wholesale opportunities are developing more slowly than expected. As a result, Build-A-Bear now expects commercial revenue to be flat versus fiscal 2025.
Looking ahead, the company is sticking with its targets of at least 50 net new experience locations, about $25 million in capital expenditures, $17 million in depreciation and amortization, and an approximately 24% tax rate, excluding discrete items.
Shares were trading down 25.83% at $29 at the time of publication Thursday. It's a tough day for a company that's usually associated with birthday parties and stuffed animals, but the numbers tell a story of a business facing real headwinds.
