Online Sales Weakness
Q: What's causing the online sales weakness?
A: Sharon John explained that while online sales have softened, this is part of a multiyear process to integrate their omnichannel strategy. They are shifting some online exclusives to stores in response to customer requests, and their website continues to drive significant traffic, supporting store sales. Although they haven't fully mastered the integration, they are making progress every day.

Guidance and Holiday Trends
Q: Can you provide more detail on guidance and holiday trends?
A: Sharon John noted that Black Friday was important but not a major predictor for their holiday season. They were pleased with the performance but acknowledged that the late Thanksgiving creates a shorter holiday season, making predictions harder. Vojin added that while stores continue to perform well, softness in web sales led to a slight narrowing of revenue guidance, but they still expect to beat the prior year.

Increased Store Count Growth
Q: What's driving the increased store count growth to 65?
A: Sharon John stated that the increase is driven by strong performance in international partner-operated locations, especially in Italy, where stores have been very successful. The company has new partnerships in multiple countries, and partners are opening stores at a faster rate due to positive results. Vojin added that the new stores vary in format and size, including shop-in-shops and traditional stores, each with different revenue projections.

International Expansion Plans
Q: How are you approaching international expansion without saturating markets?
A: Sharon John explained that they are far from saturating any global market, with only 10 stores in Italy spread across cities like Rome and Milan. Some stores are shop-in-shops, and they are mindful of leveraging tourist locations. They share metrics with partners to optimize store locations. Vojin added that finding the right partners and locations takes time, and they are protective of the brand, focusing on key markets and prime real estate.

Traffic Trends and Lease Negotiations
Q: Does strong traffic provide leverage in lease negotiations?
A: Sharon John acknowledged that Build-A-Bear often outperforms mall traffic, driving their own foot traffic, which can be leveraged in lease negotiations. However, as the company performs well, there is also pressure from landlords who are aware of their success. They negotiate to reach favorable terms, often utilizing shorter-term leases for flexibility. Vojin added that their ability to operate profitably in various formats gives them leverage to avoid premium rents.

Inventory Levels and Tariffs
Q: How are tariffs impacting inventory levels?
A: Vojin Todorovic explained that due to potential tariff changes, they strategically pulled forward inventory, especially for core products that sell year-round. As a result, inventory levels are elevated, with a significant portion in transit. Sharon John added that diversifying geographically has been a long-term strategy, and leveraging their strong cash position allows them to shift inventory flows to mitigate impacts like tariffs.

SG&A Expense Guidance
Q: Can you clarify guidance on SG&A expenses as a percentage of sales?
A: Vojin Todorovic stated that total SG&A expenses as a percentage of total revenue will be slightly up versus last year, due to additional cost increases from medical insurance and continued minimum wage pressures. Previously, they expected SG&A to be flat to slightly down.

Trends in Key Metrics
Q: Can you provide more color on trends in traffic, conversion, units per transaction, and size?
A: Vojin Todorovic reported that all four key metrics were positive, with traffic up 3% against a national traffic decline of 3%. They saw higher average unit retail, increased conversion in stores, and customers buying more units per transaction. Strong Halloween performance contributed to these results, reflecting effective marketing and customer engagement.

Wholesale Timing Shift
Q: Is the wholesale decline a pull-forward or delay?
A: Vojin Todorovic explained that the timing of shipments to partners can fluctuate based on store openings and replenishment schedules, especially with more international business. Some wholesale shipments were recognized in the third quarter, causing a sequential decline in the fourth quarter, but they remain confident in the business and its growth prospects.

Sanrio Collaboration
Q: Will the Sanrio collaboration be more permanent or expanded?
A: Sharon John noted that the collaboration with Sanrio has been an incredible experience, with strong performance in the Westfield location in L.A. While any expansion decisions are partnership-based, they are exploring opportunities to open additional locations. This success also opens possibilities for other collaborations.