Good day, ladies and gentlemen, and welcome to the Third Quarter 2010 Build-A-Bear Workshop Inc.’s results conference call. My name is Marcella and I will be your operator for today. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Allison Malkin of ICR. Please proceed.

Good morning and thank you for joining us. With me this morning are Maxine Clark, Chairman and Chief Executive Bear; John Haugh, our President Bear; and Tina Klocke, Chief Operations and Financial Bear. Before I turn the call over to management I would like to remind members of the media who may be on our call today to contact us after this conference call with their questions. We ask that you limit your questions to one question at a time. This way we can get to everyone's question during this one hour call. Feel free to re-queue if you have further questions. Please note that our call is being recorded and broadcast live via the internet. The earnings release is available on our Investor Relations portion of our corporate website and a replay of both our call and webcast will be available later today on the IR site. Before we get started, I will remind everyone that forward-looking statements are inherently subject to risks and uncertainties. Our actual results could differ materially from those currently anticipated due to a number of factors including those set forth in the risk factors section and our annual report on Form 10-K and we undertake no obligation to update or revise any forward-looking statements. Now I would like to turn the call over to Maxine Clark. Maxine?

Thank you, Allison, and good morning, everyone. Thank you for joining us to discuss our third quarter fiscal 2010 results. For our call this morning I will begin with comments on our third quarter and update you on our progress towards achieving the priorities we set at the start of the year. John Haugh, our President, will provide additional insight into our product and marketing strategy and then Tina Klocke, Chief Operating and Financial Bear, will review our financial results and outlook. Following my closing comments we will open the call to take your questions. We are pleased with our third quarter progress which demonstrates solid steps towards achieving our primary goal of increasing shareholder value by profitably growing our sales. We delivered positive comparable store sales up 5.3% in North America and up 3.4% on a consolidated basis as well as strong double digit growth in ecommerce sale. Retail gross profit margin increased 210 basis points and we drove a significant improvement in our loss per share versus the third quarter last year with disciplined expense management. As we plan this year's business we are mindful of consumer’s preference to stock up on school essentials versus discretionary products during the key back to school season primarily in August and shifted the timing of promotions appropriately to maximize sales. Overall, our performance reflects stronger new product introduction supported with powerful store visuals, marketing and promotions. By providing either new products for promotions approximately every two weeks we had relevant news to communicate to our guests throughout the quarter. As we told you on the last call, July got us off to a strong start with a double digit sales increase in North America driven by our highly successful Ice Cream bears collection and the movement of our 29.99 bundle promotion…

Thank you Maxine. As indicated we are pleased with the positive direction of our business and believe we are well positioned to continue to deliver improved year-over-year operating performance in the fourth quarter. I will discuss the plans we have in place to continue to move forward on our key objectives. First, product innovation continues to focus on introducing larger merchandise stories and limited edition products. Key merchandise that is (inaudible) is a bridge month into the fourth quarter includes our push to Halloween featuring candy, corn, teddy as well as an expanded line of Star Wars merchandise as a center piece of our Halloween costume collection. In November we will launch our Rudolph the Red-nosed Reindeer story, one of our most beloved and requested collectibles. We have updated Rudolph inquiries with an engaging dialogue feature and added Bumble, the lovable, abominable snowman from the story. We will operate fun, gift with purchase to kick off the introduction as well as strong integrated marketing across multi media. In December we will introduce the Speakers Stars Bear collection. These animals allow guests to attach an MP3 player and listen to their favorite music through a speaker in the bear’s paw. Music coming from the bears is one of the most requested features from kids. We now have the technology to deliver high quality sound through the animals plus paw. Each Speaker Stars Bear comes with free Build-A-Bear Workshop songs to download. Finally to capitalize on gift car redemptions we will launch the Darlene Doggies collection right after Christmas. Also we are very excited about the merchandise line up we have in place for this holiday shopping period. Second, we continue to successfully execute on the coordination of our products, marketing and store operations with exciting promotional offers, store visuals and events.…

Thanks John and good morning everyone. Overall we are pleased with the progress we made in the third quarter which included improved comparable store sales, improved retail margin and decreased SG&A expenses both in dollars and as a percent of sales. For the third quarter, total revenues increased $100.1 million from 92.3 million last year, an increase of 2.1% excluding the single wholesale transaction. Consolidated net retail sales increased 3.8% excluding the impact of foreign currency. The increase in sales was driven by a 5.3% increase in North American comp store sales partially offset by a 6.6% decrease in European comp store sales. Consolidated comparable store sales rose 3.1% and included a 1.8% increase in transactions and a 1.3% increase in average transaction value. Total retail sales from our European operations decreased 3.7% excluding the impact of foreign currency which compares to a 7.1% increase last year. Commercial revenue which we have previously referred to as licensing revenue increased 10% in the third quarter excluding the single wholesale transaction reflecting the new partnerships with Michaels and Borders. As we mentioned last quarter our 2009 licensing revenue reflects an amateur reclassification of cost of sales that previously had been netted to licensing revenue. There was no impact on the company's 2009 net loss. International franchise revenue was 767,000 in the quarter and 2.1 million year-to-date essentially flat to last year. We ended the quarter with 58 international franchise stores versus 61 at the end of last year's third quarter. Retail gross margin increased 210 basis points to 38.6% from 36.5% in the third quarter last year. The increase in retail gross margin was driven by a 190 basis points of leverage in occupancy, cost and 20 basis point improvement in merchandise margin and distribution cost. SG&A as a percent of sales…

Thank you Tina. I will conclude the call with just a few final comments. As I mentioned we are pleased with the solid progress we achieved in the third quarter. While the consumer environment remains uncertain we believe we are well positioned for the upcoming holiday season, our largest volume quarter in terms of our product, our marketing and our operational plans. We will now open the lines for your questions.

(Operator Instructions). And your first question comes from the line of Sean McGowan with Needham. Please proceed.

I was wondering if you could talk a little bit more about this one time wholesale sale what is that, and what should we be looking for in the future regarding that kind of transaction.

It was about $5.8 million and last quarter we talked about needing to move some inventory out so this is a one time transaction for which we got cash and some advertising credit that we will use in the next several years, probably not a lot of this going forward might be a little bit as we have just a little inventory left but not something that we would expect to see on an ongoing basis.

So it’s essentially closer.

It was essentially a way to move some inventory out of our system that we didn't think we could move to our stores.

Okay so that's not related to the Borders or anything like that.

No not Borders, not Michael. So it’s a great healthy good margin licensing businesses.

And any comment on October comps so far.

Well October is the smallest month of the quarter and also it’s the smallest month of the year so we hesitate to use it as a proxy for good of the quarter or bad of the quarter. Last year it just continues to be the smallest, smallest month so November-December (inaudible) and we are very excited about the momentum moving into those quarters, that's the positive part.

(Operator Instructions). And your next question comes from the line of Janet Kloppenburg with JJK Research. Please proceed.

I was just wondering if you could talk a little bit about your strategies for promotions and in the holiday quarter. It seems that you took a tactical approach in the third quarter. The way you shifted to higher traffic periods and I am wondering if we should think that you will be spending more in the Christmas period maybe from Black Friday Maxine as opposed to spending here in October and maybe pre-Thanksgiving and also if you could talk a little bit about the flow of product this year in the fourth quarter versus last year and I am just maybe to help me understand the flow of product more newness and if the promotional events will be a lot different than last year as they were in the third quarter.

Well they will be different, but they will also a traditional cycle because there are the Veterans Day and the Thanksgiving holidays in there. But traditionally we start and I will let John elaborate on this in more detail. Traditionally we start our holiday season the day after Halloween which is next Monday with the kick off of our holiday mailer which will be in the homes of family sometimes until late next week and that has all of our products in there but we are starting differently this year with gift with purchase, there's one that starts for the first two weeks of the month and one that takes us up to Thanksgiving and then right after Cyber Monday we have a very special promotion which is our special bear that we actually used to do this in the UK and we've brought that concept to the United States where if you spend $30 you get this bear for $5 which is bought very opportunistically from a profit perspective and its been a very effective means of traffic driving in the UK. So that's what we are to do here and then we have new products. We always have launched new products down the line towards the Christmas holiday dates because we know that we open our doors on December 26 kids have, each of them have lots and lots of gift cards in their hands and we always have new products to give them that they may not have even seen before Christmas. So that's pretty traditional, its just really the bigger differences in the promotional, the gift purchases that we are doing to help make mom say yes, so reason that's going to get hurt to come to Build-A-Bear over some other store, something that shall be why not do this, we are going to go there anyway kind of ideas and staying in top of our, making sure that we are giving the kids what they want the shin kicking but also the value that she needs because there's no doubt that value is more and more important to mom even as it relates to Build-A-Bear products. John why don't you add some color to that.

Sure if I can, let me just start with product. Rudolph and Clarice and Bumble will break on 11/1. They compare really to our new story last year was Frosty and we have brought those three characters Rudolph, Clarice and Bumble significantly bigger, we really, really believe in them. There's an interactive element between Rudolph and Clarice where they recite the four key lines from the TV show and Bumble who is lovable, abominable, snowman if you remember is having kind of a tough showing so until the guys just had a bad tooth and then he is happy. Normal we would have bought him as a mini. He was so cute, we are buying him as a full size animal. So we believe we will get a $20 plus dress up purchase instead of $7 so if you look at the core product, we bought it bigger and stronger, Holly and Hal will be on TV so they will make an appearance back in our store and we feel good about that. When we look at our products that debuts in kind of mid-December last year was Elvin, and he tied into the movie. It was very successful for us. We have had for years kids saying I want to play music through my bear and we were never comfortable designing a product that had our already and plus and comfort and squeeze ability and hug ability. We have it this year so we have some call the Speakers Stars bear, there are two of them and the sound is really good and you can plug whether you've got the fancy Apple iPod or you have the less expensive generic mp3 player. The sound is very good. So that will come in, in mid-December and then we always have…

The two things I want to this because I think they are important, you know everybody always focuses on the bears and those are all obviously our key drivers but we have a couple of other really good things that have shown up in our inventory in the last quarter. One of them was our furniture. We introduced a line of bedding for bears which has been really successful and its only sheets and computer, that is also a part of our license program meaning, you can buy it in the adult sites as well. It blew out of our stores along with the bed in early back to school period. We are able to get back and start with that and we are going to have that for Christmas and I think its going to be a very, very strong seller for Christmas, there's a version for boys with the sports (inaudible) and there's of course the pink version for girls. And this has always been strong. The PJs have always been a very popular part of our business but it’s all coordinated so it really is a potentially very high ticket and also very cute and adds to the lifestyle of your bear and the other thing is that for a long, long time it had a relationship with Skechers. We've always been a licensee of Skechers since like 2000 and very successful and they have a hot brand right now called Twinkle Toes and we have Twinkle Toes for bears that we expect that that is going to be also a very, very strong addition for the fourth quarter and the whole line the concept of shoes that are sparkly and light up kids, which translated for Build-A-Bear and kids recognize it immediately as soon as it…

You have a follow-up question from the line of Sean McGowan with Needham. Please proceed.

Is there impact in your SG&A and that litigation with Cepia.

No there's shouldn't be.

Has that been resolved?

It hasn't been resolved. Sean we obviously can't talk about it for kind of obvious reasons. We don't, we are optimistic it will be resolved amicably and don't see it to be a real big thing.

Okay. I think earlier, I am not sure if it was Maxine or Charles, that something was up double digits in your North America and Europe, do you mind repeating that.

To our ecommerce sales.

Ecommerce okay.

For web sales we've really put a lot of efforts behind that this year and it’s absolutely paying off.

Okay and Tina any comment on the outlook for gross margin in the fourth quarter.

Sean as you know we don't give guidance on margin or anything but I will say that we have worked really hard to help maintain the costs from our products from China and distribution costs and as well as when we get positive comps for sales we are able to leverage the fixed charges in retail gross margin. So we hope to be able to continue that trend.

Okay any comment on how the stores are performing and that you used to give about, how the stores are performing by age class.

Yes, actually that continues. The older stores still are doing better than the newer stores so there are some of those were basically flattish for the year getting close to flat for the year. They are slightly ahead and those stores are more so than the others. So it absolutely is following the same pattern it’s always followed.

(Operator Instructions). And your next question comes from the line of Brad Leonard with BML Capital Management. Please proceed. Brad Leonard – BML Capital Management: Hi, can you guys, two questions for you, one the store closings, you closed two and then also bonus accruals for the year in the third quarter.

So what do you want to know about the store closings, we actually closed two. Brad Leonard – BML Capital Management: You closed two so you think your charges are going to be more than it closed or I have not heard of the store closings before. So is it just the two are we are going to have more closings in Q4.

We closed two in Q3 and in the release we said that we anticipated closing a small number of stores by fiscal year end and that was part of the, that was the $500,000 charge we called out separately. Brad Leonard – BML Capital Management: Okay but you are not going to detail how many you are going to close. It’s undecided.

Yes, its undecided and there's a difference between what you might close and what you might impair because you might impair stores that don't look like they are going to be going forward that aren't, that's a difference so we may impair more stores than we close but we will possibly close a few stores based on a lease arrangements with the landlord going towards the end of the year but we are in final negotiations on some of those and you wouldn't want to call our hand on them, in particular yet. Brad Leonard – BML Capital Management: Okay and then what about the bonus accruals for Q3 I know you guys accrued in one and two, what about three.

We are continuing the accrued in quarter three. Brad Leonard – BML Capital Management: And then lastly what about advertising spend, Q3 and year-to-date versus last year.

Where we are overall? Brad Leonard – BML Capital Management: Yeah.

Overall, we have taken advertising spend down. By the end of fiscal 2010 we will spend less in advertising than we did in fiscal 2009. But there have been some shifts. So we have actually put a little bit more into store signage and point of purchase because we feel that that is working pretty hard for us. We put a little bit more into the gifts with purchases. We are as we mentioned going on TV modestly in the UK. So we've done some shifting around but net-net when the year is said and done we will spend less year-over-year in advertising and if you look at in either A-to-S we are continuing to make improvement on that. A-to-S meaning advertising to sales. Brad Leonard – BML Capital Management: Sure and then what about Q4, what do you expect, is Q4 going to be up or down versus last year.

I think we are relatively flat, down slightly but relatively flat. Its about, what we tried to do is, if you think of the year, Maxine mentioned someone asked, I think Sean had asked about October, October is a small month for us, May is a small month so what we really try to do when we think about our marketing dollars and advertising dollars is put them in a key months for us, right that's June, July, August, its November, December, its Valentine’s Day, its Easter. So in a month like October we won't spend, we will hold our powder so to speak and spend it in November-December. So if we look at Q4, Q4 we are relatively flat over last year a little bit, making a little bit of improvement but relatively flat.

And you have a follow-up question from the line of Sean McGowan with Needham. Please proceed.

A couple of questions. Franchises down, is there a bigger story there or is it one guy closed a couple of stores.

Yeah a lot of its just timing of store openings compared to last year and so I think its what we've looked at is on a year to year basis relatively flat to last year, even with decline in stores.

Are you expecting any further franchise decline, stores to be closed.

At this point Sean we don't really talk about future but again what I would say is I would go back to we are basically flat on a year-over-year basis even with a decline in stores.

And in the foreign markets too franchise can take shorter term stores, open and close them, move them around, it’s a much more fluid than it maybe traditionally in the United States. So it just depends on the market but it’s possible that some will open, some will close, we shift as we decide we need a smaller store, or bigger store whatever happens it’s much more volatile leasing arrangement status than in the United States for sure.

Yeah and we anticipate that our franchises will open a number of stores in the fourth quarter.

And then one other clarification just making sure I got this, so the entire one time wholesale sale, that entire amount is in commercial revenue.

Yeah.

Thank you.

Well, thank you for joining us today. We look forward to speaking with you when we report our fourth quarter and fiscal year end results in February. Have a great holiday season.

Ladies and gentlemen that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.