There’s a big sale occurring in the toy aisle: Build-A-Bear, with a market value of around $200 million, says it is mulling strategic alternatives – typically corporate lingo indicating a firm is on the block.
Investors cheered the news, sending shares of toy maker, which operates around 400 stores globally, up more than 8% on Tuesday.
Specifically, Build-A-Bear’s (BBW) board is weighing “an exploration of a full range of strategic alternatives.” It has retained Guggenheim Securities as a financial adviser.
A deal for Build-A-Bear would represent a rare acquisition in the toy sector, which is dominated by three major players: Mattel (MAT), Denmark-based Lego and Hasbro (HAS). Though there have been rumored merger talks between Mattel and Hasbro, official word of such a deal hasn’t yet been made public. And there are only a handful of toy makers that are publicly traded. One other, electronics toy maker LeapFrog, was recently acquired for just $72 million.
A potential acquisition for Build-A-Bear would also come as the company’s shares have struggled of late. The stock traded near $35 back in 2005 at its peak, but trades at just below $14 today.
Revenue for the brand – known for its “make your own stuffed animal” premise – peaked at $468 million in 2008 and has steadily declined in the subsequent years, hitting $378 million in 2015. Encouragingly for any buyers, Build-A-Bear has managed to improve the bottom line. After five years of losses, the company has reported two annual profits, including a $27.3 million in net income last year.
Sharon Price John, Build-A-Bear Workshop President and Chief Executive Officer, touted some of that success on Tuesday when the company reported first-quarter results. She said Build-A-Bear has reported three consecutive years of positive comparable sales and profit growth, helped by better margins and higher average transactions.
Though sales have slowed, Build-A-Bear has had some success in carving out licensing deals and building other internal properties. Still, it remains a minnow in the broader U.S. toy industry, which is worth nearly $20 billion. More problematically, as Build-A-Bear’s toy sales have slowed, the industry is overall growing on the strength of Lego’s higher sales, as well as greater interest in Disney Princess dolls, superheros and Star Wars figures.
No timetable has been set for the company’s review process. And Build-A-Bear cautioned there is no assurance that this exploration will result in any strategic alternatives being announced or executed.