Build-A-Bear Workshop, Inc. (BBW) Q3 2011 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Third Quarter 2011 Build-A-Bear Workshop, Inc., Earnings Conference Call. My name is Carris [ph], and I’ll be your coordinator 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, today’s call is being recorded for replay purposes. And I would now like to hand the call over to your host for today, Ms. Allison Malkin of ICR. Please proceed ma’am.

Thank you. Good morning. Thank you for joining us. With me today are Maxine Clark, Chairman and Chief Executive Bear; and Tina Klocke, Chief Operations and Financial Bear. Before I turn the call over to management, I want 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 and one follow-up, this way we can get to everyone’s questions 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 the Investor Relations portion of our corporate website and a replay of both our call and web cast 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 in 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 2011 results. For our call today, I’ll discuss our third quarter performance and give insight into our product and marketing strategy. Following my remarks Tina Klocke, Chief Operations and Financial Bear, will review our financial results and update you on progress with cost-savings related to our recent consulting project and then we will open the call to take your questions. I am very pleased to report solid profitability of $0.05 per diluted share in the third quarter, a significant improvement over the loss reported in the third quarter last year. In the quarter we grew our total retail sales, our comparable store sales, our e-commerce and our international revenues. We improved our gross margins and real life savings and our expense structure. We believe our results show continued progress towards our number one objective to increase shareholder value by profitably growing sales. Additional highlights of the quarter include delivering another quarter of positive comp growth and increasing our third quarter comp for two consecutive years. We had double-digit growth in our e-commerce business. The size enhancements that we made and continue to make, our marketing initiatives and our social media presence are paying off as both top line and key metric improvements in this channel. We reduced promotional activity and we put an intense focus on product cost and optimization of retail pricing, which led to an increase in our retail gross margins of 160 basis points. We started seeing expense savings from our consulting project and are on target to hit our annual goal. Our international revenues from franchised operations increased 14% in the quarter. To put our full international presence in perspective, when you combine our company owned stores in Canada and Europe with our franchised operations we had 153 stores in 16 countries at quarter end. We continue to see major opportunities to grow internationally in existing countries as well as in new countries. We continue to believe Build-a-Bear Workshop stock is a great value and we invested $5.1 million of our cash to repurchase 934,000 shares of our common stock during the quarter. Now let me talk about some of the key drivers of our sales growth in the quarter. We effectively capitalized on the back-to-school season with strong results in the key traffic months of July and August, which led to a solid quarterly performance. As we mentioned at our second-quarter call our July launch of Smurfs in conjunction with movies release was a great success. The time with the Smurfs enhanced our own marketing and generated lot of buzz and excitement. We will continue to partner with relevant and brand appropriate characters and movies as these tie in and help bring traffic to our stores, which drive sales across all of our products. In August we held our annual bundle promotion where we offer any animal, any outfit, and any pair of shoes for 29.99. We supported this promotion with our full marketing arsenal including TV advertising, direct mail and e-mail, online and in store. This is the third summer we offered the promotion. Our guests responded very positively and we have improved our sales and execution each time we held the event. In September we introduced Snoopy for the first time with a fun movement and musical feature as well as our Halloween launch Hello Kitty. We also eliminated several promotions that ran in 2010 keeping the marketing and operational focus on the excitement of the new product launches and improving our overall profitability for the quarter. Our fabulous [ph] science category, which includes small fries, angry birds and other pickup items continues to be strong. We are building a key business category by offering relevant impulse items that are natural add-ons to core product sales, but are also are easily picked up by casual shoppers or children’s allowance. As you move into the fourth quarter we are very excited with our lineup and expect to maintain our positive comparable store sales trends. Continuing to build on our success with major theatrical releases, we have some exciting tie-ins coming this holiday. Next Tuesday we will launch the Happy Feet collection in advance of the US release of the movie Happy Feet Two. Previously we featured the starring penguin in the original Happy Feet movie and it was an extremely popular launch. On the Friday before Thanksgiving we will introduce our Alvin and the Chipmunks collection ahead of the much anticipated Chipwrecked movie in 3D, which launches in theaters in December. Included in this assortment is the line of apparel featured in the movie and found exclusively at Build-a-Bear Workshop. In mid-November we will bring back Smurfs to capitalize on the release of their DVD. Our assortment will include the return of the highly popular Smurfette and clumsy, and just in time for Christmas we’re adding Papa Smurf. With this launch we expect to gain sales from guests that missed out on the first release as well as collectors that want to complete the trio of characters. Also as you may recall, we began our partnership with Microsoft and their connectables [ph] title now with Bears this October, which will help drive sales of our core items. As you move into the holiday season we will once again promote Build-a-Bear Workshop as the place for gifts this holiday with our Get Your Wish on campaign that promotes gift bears as well as the gifter the experience that comes with the Bear Buck gift card. Our gift cards are sold in our own stores as well as through third parties and we increased the outlets of distribution by over 10%. Gift card redemptions are key to our first-quarter business and we expect our fourth-quarter plan to result in improved sales as we move into 2012. Our store experience remained strong with guest satisfaction levels maintaining at 80% highly satisfied for the quarter. Our brand is unique and that we have a connection with our guests in and out of our store with both kids and moms. Our digital initiatives are a key component of staying connected with both of these segments and put our brand where our customers are spending more and more time. Kids engage with our brand on Bearville resulting in over 3 million hours of online engagement per month and our Facebook community, a prime platform for us to connect with moms continues to grow. We now have approximately 1.6 million fans. To put that in context we are one of only about 150 retail or consumer product companies worldwide to have over 1.5 million fans. To summarize, while we recognize that the economic backdrop continues to be uncertain, we believe our product and marketing strategies position us to deliver the holiday season. We also remain on track to achieve our margin and expense savings objectives. As a result we remain confident in our ability to achieve our sales and profitability goals for the year. Now, I’ll turn the call over to Tina to review our financial results and outlook in more detail.

Thanks Maxine and good morning, everyone. Let me start by giving additional details about our third quarter results. For the quarter, our total revenues were $97.4 million, an increase of 2.3% excluding the impact of foreign currency and last year’s single wholesale transaction of $5.8 million, which had no gross profit. Consolidated net retail sales increased 3.1% excluding the impact of foreign currency. This increase was driven by comp store sales growth across geography, specifically a seven tenth increase in North America and a 3% increase in our European operation. We increased our average transaction value by 4.5%. This was partially offset by a 3.4% decline in transaction as we reduced promotional activity significantly improving our profitability. International franchise revenue increased 14% to 872,000. During the quarter our franchisees opened six locations. We ended the quarter with 76 international franchise stores versus 58 last year demonstrating our progress in our strategy to aggressively grow our international operations. Retail gross margin was $38.4 million, an increase of $3.1 million or 8.4%. Our retail gross margin percentage was 40.2% and represented 160 basis points increase over last year. This increase was primarily driven by a 70 basis point improvement in warehouse and distribution cost and 60 basis points in leverage of fixed occupancy costs. Total SG&A in the quarter was $37.8 million or 38.8% of total revenues excluding the prior year wholesale transaction represented a 270 basis points improvement. This was driven by a 160 basis points reduction in marketing related expenses, 50 basis points in store operations expense and a 40 basis point decline in corporate depreciation expense. For the quarter, we recorded a tax expense of $1 million which compares to a tax benefit of 524,000 in the third quarter of 2010. For the full year we expect our tax rate to be approximately 35%. Net income in the quarter was $900,000 or $0.05 per diluted share compared to a net loss of $1.4 million or $0.05 per share last year. Net loss for the third quarter fiscal of 2010 included $0.03 per share cost related to the decision to close our operations in France. Turning now to our first nine months results, total revenues were $275.2 million, an increase of 1% over last year, excluding the impact of foreign currency and the $5.8 million wholesale transaction that had no gross margin. On a consolidated basis our comp store sales declined slightly, nine tenths. We had 1.1% decrease in North America and a flat result in Europe. Net loss for the first nine months of 2011 was $8.1 million or $0.45 per share compared to a net loss of $8.2 million or $0.44 per share in the first nine months last year. Net loss this year included $0.11 per share in consulting. Net loss in 2010 included $0.05 per share in costs associated with the decision to close our operations in France. Regarding our cash flow we ended the quarter with a strong consolidated cash balance of $25.1 million. We have no debt and we did not make any borrowings against our credit facility. During the quarter we invested $5.1 million to repurchase 934,000 shares. Through the first nine months we have repurchased 1.7 million shares for $10.2 million and now have $13.6 million available under our share repurchase program. Depreciation and amortization for the quarter was $5.9 million compared to $6.7 million in 2010. We expect depreciation and amortization for the full year to be approximately $25 million. Capital expenditures in the third quarter were $3.8 million primarily for infrastructure and new stores. We expect capital expenditures for the full year to be approximately $12 million. For the year, we are on track to open 6 stores across geographies. We expect to close 6 stores this year in accordance with natural lease expiration and kick out clauses. This reflects our ongoing refinement of our real estate portfolio as we work to optimize our store locations. At the end of the quarter consolidated inventories totaled $56.3 million compared to $54.7 million at the end of the third quarter 2010. Inventory per square foot increased approximately 2.9% in line with our plans and puts us in a good position to respond to top sellers and new trends. Turning now to our progress on our expense savings initiatives, we generated 700,000 in savings in the third quarter of which 400,000 was in SG&A areas as we reduced store payroll and other store expenses. The remaining 300,000 represented a reduction of cost of goods sold primarily through freight and sourcing cost improvements. We expect cost savings to be approximately $4 million or approximately $0.14 per diluted share in 2011. On an annualized basis we continue to expect savings in the range of $10 million to $15 million inclusive of the reductions that we expect to achieve this year. As we begin the fourth quarter we are pleased with our positioning for the holiday season. We are focused on continuing to reduce our expenses and improve our cost structure and we are committed to our goal of increasing shareholder value by profitably growing our sales. Now, I’ll turn the call back to Maxine.

Thanks Tina. In conclusion, we are confident in our strategy and our ability to continue to achieve improvement in our sales, and margin and profitability as we enter the final quarter of the year. Build-A-Bear Workshop is a powerful global brand, kids love us and moms trust us worldwide. We are in a strong financial position to drive growth both domestic and international. Along with our Board of Directors, who will continue to evaluate all potential uses of our capital, including the repurchase of shares and invest as opportunities arrive in strategic initiatives for the benefit of Build-A-Bear Workshop’s stakeholders. With that, I’d like to turn the call over to the operator to begin the question-and-answer portion of the call.

(Operator instructions) And our first question comes from the line of Sean McGowan with Needham and Company. Please proceed. Sean McGowan – Needham & Company: Hi, I have two questions probably more directed at Tina. First, you have a loss through the first nine months of the year. So kind of curious where did tax [ph], would that result in an effective rate in the fourth quarter needing to be quite a bit below that 35% in order to get the full year to 35%?

Yes, I mean, I think that’s what you have to do. You have to back into the 35% number. Sean McGowan – Needham & Company: And I know that’s a function of how profitable it would be and you know, give that estimate but that’s the adjustment you had to make right?

Right, and it also depends on profitability in each jurisdiction. Sean McGowan – Needham & Company: Right.

Because Europe has a different tax rate than the United States. Sean McGowan – Needham & Company: Right, okay and then secondly if you could review again the year to date savings and you know, where you think those savings in the fourth quarter are going to you know, for the full year of $4 million where do you think you’ll see the impact in the fourth quarter?

So we have – to date we saved approximately $700,000 which was primarily in the SG&A category related to store operation. We believe that on fiscal 2011 we’ll save about $4 million, and it will be split primarily between SG&A expenses and cost of goods sold looking at freight and transportation being the primary drivers of that. On an annualized basis so for 12 months, inclusive of the $4 million we believe that we’ll save $10 million to $15 million. Sean McGowan – Needham & Company: No, when you say annualized you mean taking the year-to-date and assuming that it was four months like you know, for the quarter multiplied by four. Is that what you mean?

No, so for instance if we say for 4 months $4 million in 2011 we’ll save $6 million to $11 million in 2012. Sean McGowan – Needham & Company: Okay. Got you. Okay, thank you.

And your next question comes from the line of Janet Kloppenburg with JJK Research. Please proceed. Janet Kloppenburg – JJK Research: Hi it’s Janet Kloppenburg. How are you guys?

Good, Janet. Janet Kloppenburg – JJK Research: Hi. Just a couple of questions. I think your [inaudible] was stronger in July and August. At least you talked about it on your last call, then it turned out to be and I think that had to do with the promotional activity being paired back in September. I’m just wondering how successful you thought that was and if you are going to continue to use that policy going forward, or if you think that you know, the customer needs those promos to keep you know, visiting the stores and the website.

We think it was a successful strategy because I think we got out of balance. We had so many promotions that was hard to get a customer to come into buy anything at regular price, and in a year that we have such good launches that are supported by outside media such as a movie launch of the Smurfs or earlier in the year of EB or coming up this holiday season, we really can allow those to stand on their own and drive traffic at full price versus at sale price, and we want to use our promotional dollars or our marked down dollars to help making sure that we are clean at the end of the season where our inventories are in very, very good shape, very fresh and we don’t have to give it away all the time. Build-a-Bear, we’re only going to buy so many bears a year and I think that we are you know, don’t want them to, they are going to come in to buy for you. They’re going to buy and stock up. We see that over the course of history. We haven’t seen any change. We offer a sale and we have that regular price. How many bears people put into their homes? So how do we optimize our retail, and our emphasis in the other part of it is our emphasis has been on the must win months of July and August and November, December, and you know, February and March and the Easter, wherever Easter falls, and so we want to make sure that we’re driving those times because and it’s the other – we have to rob from Peter to pay Paul, take out marked down dollars in some months to drive the geese are flying so to speak that we’re going to do it, and it has worked out for us in all the quarters that we pulled back on that, those promotional techniques that we were using. Janet Kloppenburg – JJK Research: And so then when we look into the fourth quarter I know you have several different you know, benefits from movie launches like Happy Feet and DVD, et cetera, et cetera, but is that an improved schedule of movie releases and collaborations versus the fourth quarter last year or is it about the same?

Well, it is much improved, last year our holiday animal is Rudolph the Red-Nosed Reindeer, which while he was successful it was one theme. You know, we had Rudolph inquiries and we didn’t have a movie because that’s a classic. So you know, while children watch it on television, it’s not something new. These are both new and the Smurfs DVD is new. Now you won’t have this next year. Those are the challenges that you have you know, looking forward but right now this is a plus and is a very positive plus at least as our history has taken us that we look back on all of these events that we tied into in the past Build-a-Bear goes after it in a very meaningful way and we’re able to get out ahead of it. So we launched the movie HAPPY FEET Two on Tuesday right after the day after Halloween, and the movie doesn’t come out for a few weeks. So we get ahead of it just like we did for Smurfs and then on Thanksgiving we’ll launch the Chipwrecked and that comes out in December and then in between the both of those in the middle of November we will have the Smurfette hit the store again, and we actually have a lot of customers waiting for those to come back in. So we’re excited about their relaunch. Janet Kloppenburg – JJK Research: Okay and my last question is it seemed like a big part of your SG&A reduction was the 160 basis point reduction in marketing. Is that a trend that we should look forward to continuing?

It’s a timing thing again. When we made some decisions not to run some promotions we move those marketing dollars that would have supported that promotion into different things in the fourth quarter. So we expect this and use the marketing dollars in the year but not necessarily in that quarter and we look to save wherever we can but we had you know, reserved some marketing for promotion should we need them, but again we’re trying to optimize our retail sales and use the marketing dollars on more branding, more gift cards, more high value retails and low promotional pricing. Janet Kloppenburg – JJK Research: Okay, thank you very much.

You’re welcome Janet. Thank you. Janet Kloppenburg – JJK Research: Good luck for the fourth quarter.

Thank you.

(Operator instructions) And your next question comes from a line of Berke Bakay with BBS Capital Fund. Please proceed. Berke Bakay – BBS Capital Fund: Good morning. Hi Maxine and hi Tina. First of all I have a comment on a couple of questions, but I’d like to congratulate you on cost of same-store sales and positive EPS number, and more importantly the aggressiveness that you’re showing on the buyback plan and as one of the larger outside shareholders of the company, I want to encourage you to keeping the aggressive pace, especially with the recent trends and the valuations that the stock has. So that’s my comment and what I’d like to know is how do you feel about your in stock position going into the fourth quarter, for some of the popular items and when we look at the second question, when we look at the expense saving plan that you identified there is a significant difference between what you have achieved in the third quarter and what do you expect to achieve in the fourth quarter. So what’s your comfort level there, how quantifiable in terms of timing that we should expect for the fourth quarter and the first half of next year because we are talking about fairly significant numbers here, and then I like to also ask you about your comfort level and visibility on positive same-store sales, which you have already commented for the fourth quarter.

Okay, great. Thanks for that multi-questions. We appreciate it. I will answer the one about the stock position and then Tina will talk to you about the savings and how that is going to look as it rolls out. So we feel like we have a really good stock position. We’ve been very clean all year long. In fact, we felt we were you know, almost too clean in some places and repositioned our inventory. So we are in stock on the things that the customer wants, all of our holiday goods are in transit and are in the warehouse, and flowing out to the stores as we launch our holiday floor set next Tuesday. We always launch the day after a holiday for the holiday season and that our mailer will hit our holiday catalog and mailer will hit next week too to our customers so all the merchandise when they come in there will be fresh and new, and exciting. The other thing that we did earlier in the year when we are so successful in these movie launches because we do benefit from the marketing that the studio does, and if you recall earlier in the spring we had EB the movie that was about the Easter Bunny and we sold out of that really quickly. When that success made us go back in and look at the Smurfs inventory that we launched in July and we doubled our buy on Smurfs at that point in time, and that wasn’t enough. So when we had the Smurfs success in summer we went back in and not only bought more Smurfs but also looked at our plans around the other characters that we had to make sure that we were in stock on all of those things and that we are calling attention to that, to the right characters and the right quantities in the right percentages as we thought we had, but we upped the ante. So we feel like we are really in good shape to maximize this holiday season with what the customer is going to be looking for and what will be in the popular culture. We happen to see lot of it here in St. Louis but all across the world series they’ve been advertising the Happy Feet Two movie, which I think is good exposure you know, for some, for that, and it’s already started. So we feel really excited about how the media will be supported not from Build-a-Bear’s budget but from the budget of our business partners. We also have the connectables which tie in with Microsoft which I mentioned which is a really fantastic partnership. We didn’t really you know, there is nothing core key about our products. They’re just our regular teddy bears but they come to life when you buy the connectables game and we started to see those animals really pick up pretty dramatically in the last several weeks as connectables was launched on October 11. So we are very excited about that because those are 4 core animals that are in that game and we’ve seen them pick up and I think as kids get back for holiday and again it’s their marketing. It’s their efforts to promote their game that’s going to help drive customers to the Build-a-Bear store. So really looking at a one plus one equals you know, 10 kind of marketing plan there, and then I’ll answer your comp store question I think we commented on already. We feel really positively about the plans for the quarter just based on just what I just told you, things that are just a total plus to last year, a multiple story, a multiple faceted story, not just a one story like we have with Rudolph and Clarice last year which was a very strong classic story, but this is a much more contemporary for Christmas and we believe that that alongside of our gift cards, which kids are going to want is going to be a very successful holiday season for us.

And as we embarked on our cost savings initiatives this year, we knew that we were going to recognize most of the benefits in the fourth quarter because first of all it’s our largest quarter and we knew that some of the things that we would be doing such as looking at the our operational payroll would be more effected in the fourth quarter. Again as I said this is our largest quarter. We started recognizing savings on our freight in late June and that will carry through again, again more of cost savings in the fourth quarter because we are shipping a lot more product and bringing in a lot more products. So we feel comfortable with how we have it laid out throughout the next 12 months, and how we will achieve between $10 million and $15 million. Berke Bakay – BBS Capital Fund: That’s very helpful. Thank you very much.

You’re welcome.

(Operator instructions) And your next question comes from the line of Tom Filandro with Susquehanna Investments. Please proceed. Tom Filandro – Susquehanna Investments: Hi thank you and congratulations. Nice quarter.

Thank you.

Thanks Tom. Tom Filandro – Susquehanna Investments: Can you guys, can you update us a little bit on your pricing strategy as you enter holiday both for light items and just give us a sense if there is any mix changes that we could, that we might see in the holiday season and then I have a follow up question please.

So the pricing you know, because obviously we have – every holiday season we go into a licensing mode and we are, whether it’s a holiday animal like Rudolph or Clarice, or it is these movie tie-ins and those are usually top of our line. So the key characters this holiday season are $23, which is our price point for licensed characters that have light up features and we’ve been successful with that price point so far. So that part is, so a good percentage of our focus is on those kinds of animals. On the other hand, the connectables animals, which are part of that story and there are four of those are $18 and $20, and there are really much more core price points and that we still of course have our value proposition, our value items that are you know, always strong for us are $10 to $15 animals. And then for Christmas if you would recall last year on after Thanksgiving, we – couple of years ago we started adding a promotion and this year we were able to buy into it. So we bought it very opportunistically. We will have a really great value for our customers on the two days after Christmas. That’s a collectible, and I mean to days after Thanksgiving excuse me there is a connectables and great value, and good news is the way it is organized it is the same day as we launch Alvin and the chipmunks. So they can come in and get the new hot item and also get great value of a tremendous you know, tremendous value for Christmas. And then later in the month of December we also have a promotion that we had last year. We been running in the UK for the last five years which is you know, when you spend a certain amount of money you get an animal at a great savings and then we have our you know, Bear Buck up sell that we do every year. That’s a great value. Our line overall though is you know, up slightly. I would say that some of our you know, closing items that maybe used to be 10 or 10.50 you know, we’ve added some oomph to our products to you know, make them more to the next price point, but it’s not up dramatically. You know, it’s not up you know, like 20%, 30%. It’s just in some selected places and we worked really hard to keep our price points in the middle. We do see a resistance from customers. You know, when it is not licensed over $23 you know, it becomes harder, but we just had a you know, really good launch of our German Shepherd, which is you know, our Bearemy’s Kennel Pals price point which is $22, not licensed but that we make those always $22 and our [inaudible] earlier in the year was really successful. So you know, I think we’re seeing a strong acceptance of you know, our better products. Those products that have more details, that have novelty fur that have a reason for being and our lower priced animals, which are core animals continue to be the core. They continue to be there not as don’t get as much promotion but in holiday with so many fashions coming out those become the items that really kids dress up and doll up because they’re more modestly priced and you can put all the clothes on them that you want. The Smurfs usually come dressed. So it’s a tremendous value. When you buy and so is Alvin and Britney, they come with a little outfit on them. Now thank goodness, people buy more outfits for them but when you buy that for $23 that already come with a little dress or little shirt if it is Alvin, and that is another way the parents get a great value from us. Tom Filandro – Susquehanna Investments: So Maxine, can I just sort of get a more direct answer to this question. Do you guys think that the trend in transactions will remain negative and your view is as you have become less promotional and balance your assortment through some of your better goods, slightly better goods that we should see ATV, or average transaction value, and AUR, offsetting what might be a slower transaction environment, or am I misreading that?

No, I think that is certainly what we are working on. We want to make sure that you know Tom, we want to make sure that we do get as much value out of our pricing as we can. Because we are working really hard to keep our prices low or the same as they have been without taking cost increases. So then if we just cost increase and then have to give it away on a sale, we really haven’t accomplished anything for our customers. But we do know that sales drive traffic and we have them more planned. And we also have sort of planned into them like I told you about the Thanksgiving animal, last year we just sort of took it out of our hide, but this year we have planned it into the margins. So we can give the customer a balanced assortment of really good day in and day out pricing, as well as great licenses that come in that are worth the top of the line pricing. And we do expect that transactions will be less. I think it is just slightly less. It depends on really when we added Smurfs, they weren’t less. You know, so I think it is what you have got drives people in, but overall we know that those promotional ones. We literally eliminated a clearance event in the month of October that we didn’t need because we didn’t have a clearance to mark down. So yes, we had less, the transactions were lower on that weekend than we expected but way more profitable. So I think we are trying to balance that and kind of wean ourselves off of these things that are diminished the value of the product and the experience, but might give you some transactions, but it takes you a really long time to get the – you’ve got to sell a lot more of them to make up for the lower retail. So I think we have got a balance now. We’re watching it closely. We have reserved money. We have reserved ideas. We have signs designed and ready to go should we need to be, offering promotions to our customers, but we are not doing it every single month, every single weekend. It is just more than we can handle. Now there are some great promotions on the web and if a customer wants to shop on the web. But of course they have to add on the freight to do that as well. So we’re kind of balancing all those things to see how it works and it has been working, and if we see that it isn’t working, we will do some other things. But we think we have a good balance right now. Tom Filandro – Susquehanna Investments: And I applaud you focusing on profitability. Are you guys currently testing any complimentary toy or experience based products, and can you kind of update us on your longer-term view as it relates to potentially offering maybe a broader assortment other than what you currently have?

So, you mean broader than like the Angry Birds? Tom Filandro – Susquehanna Investments: Yes, I mean I don’t want to bring up a sore point, but like the Zhu Zhu pets, have you…

We continue to test things all the time. Some things are more successful than others. Tom Filandro – Susquehanna Investments: Sorry to bring that up?

That is all right. No, we continue to test products and we want to be where our customers want us to be. So we have several tests going on. Some work, some don’t. We found that the angry birds has really continued as they have even brought out new things for the fourth quarter and that continues. We’re just feeding it if the customer wants it. They also know that these character friendships and the things that we have, every fourth quarter we come out with these friends of the characters that we promote. And those are just hitting the stores and will be hitting next week, and I think those are going to be really good, and that is sort of part of those pick up items. But yes, we are in fact working on several programs that we think can be in addition to the hunter cub [ph], which is you may have seen it in our stores, which is sort of beginnings of a lion that when a child comes into our store with the mom, who has gotten older sibling, you know they pick up something for the baby and we have seen that in the test stores be an interesting beginning to what we think can be a bigger strategy. And we have some other things that you will see next year. again some we might decide to test, some we might decide to go full boat on depending on what the pop culture is around that idea. Tom Filandro – Susquehanna Investments: Okay, thank you. And one final one and I will let you go, do you guys plan on filling the former president role?

We are looking at all that, and evaluating it and we will keep you posted if something is worth conversing about. Tom Filandro – Susquehanna Investments: Thank you very much. Best of luck over the holiday.

Thank you.

Thanks Tom.

And at this time there are no further questions in queue. And I would now like to hand the call back over to Maxine Clark for closing remarks.

We thank you and we hope that you will be shopping for the holidays at Build-a-Bear Workshop. We have lots of great gifts and we will talk to you soon. Thanks. Have a great holiday season.

Ladies and gentlemen this concludes today’s conference. Thank you for your participation. You may now disconnect. Have a wonderful day.