Build-A-Bear Workshop, Inc. (BBW) Q1 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the Build-A-Bear Workshop First Quarter 2015 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Ms. Allison Malkin of ICR. Thank you. You may now begin.

Good morning. Thank you for joining us. With me today are Sharon Price John, CEO, and Voin Todorovic, CFO. For today’s call, Sharon will begin with a discussion of our first quarter results and the performance against the key priorities we identified at the start of the year. Voin will review the financials and then we will take your 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. Members of the media who maybe on our call today should contact us after this call with your questions. Please note the 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 hour call and webcast will be available later today on the IR site. Before I turn the call over to management, 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 the Annual Report on Form 10-K, and we undertake no obligation to revise any forward-looking statements. And now, I would like to turn the call over to Sharon John, CEO.

Thanks, Allison. Good morning, everyone. Thank you for joining us today. The first quarter of fiscal 2015 marks our 9th consecutive quarter of improved operating results, driven by an increase in consolidated comparable stores sales of 2%, a 330 basis-point expansion in retail gross margin, a 33% increase in pretax profit to $7.1 million from $5.3 million last year and adjusted diluted EPS of $0.49 compared to $0.29 last year. The quarter’s comparable store sales growth was led by a double-digit increase in Europe balanced by a flat performance in North America. The growth was driven by an increase in both dollars per transaction and unit per transaction countered by composed Valentine’s headwind and overall traffic and conversion primarily in North America. On our call in mid February, we noted all geographies had posted solid positive store sales and from year-to-date buoyed by seasonal gift card redemptions in January and a strong Valentine’s Day performance. Not unlike recent retail reports however, during the post Valentine period and leading up to Easter, adverse weather became a factor in North America. We rebounded to positive comps for the key Easter week, resulting in a flat comp performance for the quarter. Overall, we believe our positive consolidated comparable store sales which were led by areas that were less affected by weather, particularly in Europe as well as our continuing improvement in operating results point toward the ongoing impact we are making with our disciplined management of the business as well as the elevation of our product and marketing campaigns. For example, our Valentine’s Share your Heart marketing campaign resulted in the highest average sales per square foot on a single day since 2006. We leveraged our evolved segmentation strategy to drive business across all of our key consumer groups while enhancing the story with a heart-filled cause marketing tie-ins, specifically our Share your Heart called action paid homage to our iconic and hearty appropriate heart ceremony and emphasized adding a personalized message to your free friends with our popular recorded sound accessory. The dedicated multi-faceted marketing including TV advertising not only helped to increase our total business but drove an increase sounds business by double-digit for the period, contributing to our overall increase in UPT. As a part of the campaign, we expanded our U.S. partnership with the Make-A-Wish foundation to include the UK and Canada. This brand right relationship and enabled our guests to share their hearts and their support for children with life threatening illnesses by making a donation to make a wish. Overall, we facilitated a $0.5 dollars in consumer donations indicating a strong consumer connection to the campaign. We also orcastrated a number of very special Build-A-Bear wishes for these kids in need. As we stated, during 2015, we intend to transition our overall objective form sustained profitability to sustained profitable growth. To do this, we are staying focused on the plan we have outlined to evolve the company that includes continuous improvement in businesses where we are already starting to show success while simultaneously establishing the building blocks for strategic and profitable expansion of the top line from current and new areas of development. As a part of this ongoing disciplined approach, we have articulated our more time score for strategic plan that outlines specific opportunities for both our continuous improvement and strategic expansion initiatives. Progress for the more time score plan includes one, more prices. On the continuous improvement side using our data driven cohort strategy, we have identified store groupings such as stores and outlet locations that tend to over-index our key metrics. With that insight in mind starting in July, we have plans to add a number of new stores and outlet centers near key tourist destinations including Hilton Head, South Carolina; Williamsburg, Virginia and Rehoboth Beach, Delaware. In addition to the sales growth that should come from added doors, we expect our reinvented merchandising approach which includes an outlet specific value offering to become an important link in our new product lifecycle process designed to improve inventory turns and profitability. Also in July, we expect to open a new store in New York City on the ground floor of the world famous Empire State Building. This high traffic location has been selected in order to continue to service our New York City consumer base and tourist trade in light of the June closure of the Fifth Avenue store. Separately, we recently revealed a new break frame [ph] store design that incorporates evolved branding and is focused on elevating the consumer experience while improving overall store productivity. We are planning to update between 10 and 15 stores in this design in the back half of the year with the first location opening in August. The selection of the size is primarily driven by natural lease activity and includes locations in both the U.S. and the UK. Included in our plan is our multimillion dollar flagship store, in the mall of America with the grand reopening scheduled for October. On the strategic expansion front in more places, we have promising early results for the Tivoli Gardens store in Copenhagen, Denmark which was converted to an owned location from a franchise in February. As a reminder, Tivoli Gardens is one of northern Europe’s popular holiday destinations, making this move consistent with our overall strategy of organic corporate expansion into international markets as well as global development of tourist locations. Two, more people: From a continuous improvement perspective, we have steadily improved our boys segment while maintaining a solid offering of hot property to the first quarter, including Nickelodeon successful Teenage Mutant Ninja Turtles and Toothless from Dreamworks, How to Train Your Dragon film. The Boys business was augmented throughout the first quarter with the introduction of our superhero bears designed for Marvel’s Avengers, Age of Ultron movie. The collection has also benefitted from the studio marketing that led us to the May 1st film review. On the strategic expansion side, our first offering in series of limited edition Disney Princess Bears, Cinderella launched late in the quarter in conjunction with Disney’s mid-March live action movie release. This collectible series appeals to our over 12 affinity consumers as well as younger girls. Supported with an exclusive service model and packaged as complete ensemble including her signature song, gown and heart, [ph] we have sold thousands of Cinderella bears worldwide thus far for $80 each, successfully stretching our previously assumed pricing boundary. Three, more products: As we focused on continuous improvement on the product side by developing and marketing a variety of new stories with enhanced feature, designed to extend the play beyond the plush versus selling individual skews. We believe our expanded product selection and integrated story telling approach to marketing is contributing to the increases in both our units and dollars per transaction, as well as elevating our consumer engagement. For example, following the Easter weekend, we successfully introduced our proprietary Promise Pet collection of adorable puppies and kittens with strong initial consumer response from the targeted segment of older girls and boys. The Promise Pets mobile app virtually brings the new furry friend to life and has delivered over 100,000 unique game sessions in the first month, exceeding our expectations. Initial reads show that the UPTs and the DPTs on transactions including a Promise Pet are above average and specify to remain strong as we deliver a variety of new animals to update the collection in the back half of the year. In terms of strategic expansion and the products beyond the plush, we have recently signed a number of outbound licensing agreements to sell Build-A-Bear branding merchandise in the including fashions, confections, snack food and non-competitive toy categories. We expect to continue to expand the offering with key partners in relevant areas and to realize some limited revenue in the back half of the fiscal year with a more meaningful impact in 2016. Four, more profitability. During the quarter retail gross margin expanded 330 basis points and profitability rose over 30% as we continued to improve our process in areas including value engineering and supply chain management. We are currently updating some key systems including a new merchandise planning tool which we expect to help improve our product forecasting accuracy as well as provide support for our consumer segment and store cohort strategies. On the strategic expansion front, we expect to further improve profitability by prioritizing the incremental growth initiatives that I’ve just discussed while leveraging our ecommerce business to target the gifting, affinity and collector consumer segments. In 2015, our plans are to upgrade our POS system, moving us one-step closer to having an omnichannel solution. This upgrade will allow us to integrate our growing and profitable web business with our retail model to systematically complete ecommerce transaction in our stores, as well as online and through mobile platform. Looking forward to second quarter and beyond, we are pleased to share some insights on a few best-in-class entertainment licenses. As we’ve highlighted, these powerful partnerships with organizations like Disney are an important part of our overall strategy, as they provide Build-A-Bear with an opportunity to broaden our consumer base, stay fresh and relevant in a dynamic media driven marketplace, leverage built and awareness of intellectual property and marketing spend for blockbuster films, market stories to drive add-on purchases and enjoy premium pricing on select products. In addition to providing our make-your-own versions of popular characters like Toothless from How to Train Your Dragon, in many cases, we collaborate with our partners to create uniquely Build-A-Bear interpretations of characters, such as our highly successful Elsa and Anna Bear from Disney’s Frozen film. Additionally, we generally benefit from the broader story that also includes fashions and other accessories to drive up the total transactional value. For example, in 2014, average value of a transaction that including Anna Bear with over $85, which is more than twice the average transaction value for our stores overall. With that in mind, we would like to update you on a few license collections we will be launching in the next few months. First, prior to the July 10th, U.S. premiere Minions, a spin-off of the hit Despicable Me franchise from Universal Pictures, we will launch three Minion characters. We expect these characters to have wide appeal across all of our consumer segments and geographies. Second, we are partnering with MGA Entertainment to introduce a very special collection of Lalaloopsy plush dolls, targeting our younger girls. As the popular TV show notes, Lalaloopsy characters magically come to life when the last stitch is sewn, which of course is the perfect fit for the Build-A-Bear workshop experience. Our launch will be in June to coincide with MGA’s multi-faceted celebration of Lalaloopsy’s fifth birthday. Finally, we recently returned from the Star Wars celebration 2015 event, where we received great feedback on our upcoming Star Wars classic lines based on the original film series. For the first time, Build-A-Bear is offering a make-your-own version of Chewbacca, as well as signature Star Wars bear. This fall, we will offer a compelling collection of new products inspired by the eagerly anticipated film Star Wars, The Force Awakens. On a final note in April, we named Chris Hurt, as our new Chief Operations Officer, overseeing our global company-owned retail operations. Chris has over 20 years of retail experience and most recently served as senior Vice President of North America for American Eagle Outfitters where he was responsible for over a 1,000 retail locations in the U.S., Canada and Mexico. Chris is a strong leader and is passionate about retail. And we believe his first 10 retail operations experience will be instrumental for us as we work toward achieving our long term adjectives. Overall, our year-to-date consolidated comp is flat and trending positive post the anniversary of last year’s Easter on April 20th. This is consistent with our expectations that May and June are the larger months of the second quarter when Easter falls in the first quarter. We believe we have an exciting cadence of launches planned for the balance of 2015. These include a number of new proprietary stories as well as products associated with some of this year’s most anticipated movie events. This line up combined with disciplined execution should position us to deliver on our stated objective of sustain profitability while we continue to establish the groundwork to evolve our adjective to sustain profitable growth. Now, I would like to turn the call over to Voin to review our first quarter financials in more detail.

Thanks, Sharon and good morning everyone. We are pleased to report positive comparable store sales, expanded retail gross margin and increased net income for the first quarter of 2015, demonstrating the ongoing effective execution of our strategy. Before I review the results this morning, I would like to discuss two items that impacted our performance in the first quarter. First, there was a one week calendar shift in the quarter due to the addition of a 53rd week in fiscal 2014. Comparable store sales were not impacted as we adjusted for the shift and used an equal number of weeks to the calculation. That said it did create a tougher comparison for us from a total revenue perspective. The second item relates to currency losses due to the strengthening of the U.S. dollar versus the British pound and Canadian dollar. On the one hand, we saw gains and losses as we translated the sales, cost of goods and SG&A of our international operations back into dollars. This lowered first quarter net retail sales by $1.9 million but was not material to our bottom line. We also saw an impact from the re-measurement of the balance sheet based on the end of the quarter exchange rate. This has a negative impact of $1.3 million on net income or $0.08 per diluted share. Turning to our first quarter results. Net retail sales were $92 million compared to $97 million in the fiscal 2014 first quarter. The lower sales are primarily due to the shift in the fiscal calendar and the foreign currency impact. Consolidated comparable stores sales increased 2%, driven by a 9% increase in dollars per transaction and the 3% increase in unit per transaction, partially offset by a decrease in traffic and conversion. By geography, comparable store sales were flat in North America and increased 13% in Europe. Our ecommerce business increased by 9% excluding the impact of foreign exchange, it delivered the continued improvement in profitability. Retail gross margin improved by 330 basis points to 46.8% with the majority of the expansion coming from enhanced merchandise margin, supply chain and reduced discounts, which offset the deleverage of fixed occupancy expenses due to the lower sales volume. The strengthening of the U.S. dollar negatively impacted gross margin by 10 basis points. SG&A was $37.2 million or 39.9% of total revenues and included $1.5 million currency loss. This compares to SG&A of $37.8 million or 38.6% of total revenues including a $200,000 currency gain in the first quarter last year. Pretax income improved to $7.1 million compared to $5.3 million in the first quarter last year and increased $3.5 million excluding the impact of currency gains and losses. Income tax expense was $230,000 for an effective tax rate of 3.3%. As mentioned on our fourth quarter call, our tax expense and effective tax rate reflect a reversal of the U.S. valuation allowance. We continue to expect to record a reversal of the remaining U.S. valuation allowance in fiscal 2015 which would result in an overall tax benefit for the year. For modeling purposes, we are suggesting to use no tax expense or benefit this year. Net income per diluted share improved to $0.40; adjusted net income per diluted share improved to $0.49 compared to adjusted net income per diluted share of $0.29 last year. Turning to the balance sheet, at quarter end, consolidated cash was $55 million up $13 million from last year. This is primarily attributable to improved operating performance and our decreased capital spend, partially offset by share repurchases. We have no borrowings on our credit facility. During the first quarter, we repurchased 154,000 shares of our common stock for $3 million which left approximately $7 million of availability under the current stock repurchase program. Consolidated inventories at quarter-end, totaled $51 million compared to $44 million last year. The $7 million increase is primarily due to a combination of the impact of lower sales due to adverse weather in North America, the timing of receipts and the arrival of new proprietary product stories to drive post Easter sales. We feel good about the composition and quality of our inventory as we enter the second quarter. Capital expenditures were $3 million in the first quarter. For fiscal 2015, we continue to expect capital expenditures to be $20 million to $25 million. These expenditures will support our previously discussed store refresh program and the ongoing investments in IT infrastructure. Depreciation and amortization is expected to be $16 million to $18 million. In the quarter, we delivered our ninth consecutive quarter of improved operating results, based on our continued disciplined execution of our stated strategies. I am pleased with these results in light of headwinds within the quarter including adverse weather impact in North America, the one week calendar shift due to the addition of a 53rd week in fiscal 2014 and negative impact of foreign currency. Looking forward, the second quarter has historically been the smallest quarter of the year. However, we believe we are positioned to continue our improved operating performance for the balance of the year. And now, I would like to turn the call over to the operator to begin the question-and-answer portion of the call.

Thank you. We will now be conducting a question-and-answer session. We ask that all callers limit themselves to one question and one follow-up. [Operator Instructions]. Our first question comes from Steph Wissink with Piper Jaffray. Please proceed with your question.

Just a question for you Sharon and maybe Voin as a follow-up on the outlicensing opportunities. As you said to evaluate some of those, can you help us prioritize where we should start to look for some of those opportunities in the marketplace? And then separately with respect to the financial impact, should we assume that there is some sort of upfront in cash received that is some sort of guarantee around the licenses or the royalty stream and then how should we think about that over time in terms of just the financial or the P&L effect of outlicensing? Thank you.

We wanted to share today some of the things that we are doing on the outlicensing front; we do have some exciting news that we shared in the script about some key categories that we’re moving into. We’ll share a little more detail at the end of second quarter. A lot of these are actually verticals to sell, if I share where they’re going to show up, you’ll actually know who the deal is with and we’re not quite ready to express some of that, so particularly on fashion. A lot of the confections will begin to show up actually at Build-A-Bear which is pretty exciting as well; we also see some of the confection as an opportunity to enhance our party solution. And then the non-competitive toy area will be a mass merch, as a part of a bigger offering that a company has but we are just one SKU and a bigger sort of toy category that they have which is exciting. And we’ll be sharing some more specifics again at the end of second quarter. On the financial impact side, there is not many material significant guarantees with these particular deals, not that there couldn’t be in the future. I would think about it as it flows from a normal royalty base where we get that income usually the quarter after you see the retail sales.

Our next question comes from Alex Fuhrman with Craig-Hallum. Please proceed with your question.

I wanted to talk little bit about the international business and specifically your plan to look at bringing some more of your franchisee operated stores in-house. I am curious of the 70 odd stores that are currently franchisee run, how many of them are in locations that you would want; is it 10 or 20 that we might be talking about or potentially the whole lot their? And can you give us some insight into how the franchisees have been comping over the last year or so in 2014 and specifically that in Q4 and Q1 as they have been roughly comping in line with your international business or any insight there would be helpful?

As we mentioned, I believe last year, we’ve been pretty consistent with it. Our international franchise business just as it is in a lot of companies, tend to follow what we sometime to refer to as the mother shift The North American business has – we’re now gone through the beginning and we are getting on the other side of a retail turnaround where we met from 22% of our doors being unprofitable to now less than 2% of our doors being unprofitable. We have a very specific strategy that we follow to do that. Now as we are on stable ground, if you might say in the North American area, the franchisees are following suite with a lot of this retail approach to the improvement of our profitability and their store health. So we have worked very closely with them. And you are going to see some churn in those doors as we start to stabilize and move them to more desirable locations. That being said, even though we do have some locations that are more tourist driven, that’s not the overarching strategy; those are doors that tend to as we mentioned over-perform but the core of your business must remain. And just like in the North American malls with our B malls and our A malls, to do the everyday business that happens where people live and not just visit. So, there will be a balanced approach to the way we think about the real estate model in these franchises. And we do expect after the stabilization occurs and we look at how we want to franchise, we’re looking at a number of different strategic approaches as we mentioned and especially start to see some store growth in some of these markets as well as additional franchise partners being signed on over the next year or two. On the comp, same situation, right? It varies by market because the ability in those -- economics in those market as well some of the ability of the franchise partners has varied over the course of time. And as we mentioned last year during -- I believe it was the third quarter call we had, we’d resigned a new partner in Germany for those very reasons and now we are with a best in class partner in Germany and we’re starting to see some improvements in those areas. So, it’s a market by market approach that we look at and we have some that are in negative comps and some that are in positive comps. And we’re working to get us all moving in the right direction. But I think that the model that we’ve created, the successful model that we’ve created in North America now gives us franchise partners something to look at on how to move this business forward. And we’re creating some pretty powerful relationships. I’m excited about the international business frankly.

And can you give us an update on your New York City store in terms of the profitability there and your thoughts as that lease comes up for renewal?

Well as I mentioned in the call, the store does close in June. So the Fifth Avenue store will be closed in June, end of June, first of July; we close at the last of June. And in conjunction with that closure we’re opening a store in the Empire State Building on the ground floor and that’s going to be a percent deal. The top line volumes will vary clearly. The store on Fifth Avenue is a over 20,000 square foot store and the Empire State Building floor is much more traditional 3,000 square foot type location. But we by definition, I believe being a percent business will probably show the more profitability.

Our next question comes from Greg McKinley - Dougherty & Company. Please proceed with your question.

Sharon, I wonder if you could talk to us a little bit about how your key brands performed. I guess in the latter part of the quarter you mentioned some weather headwinds but anything notable around consumer response to your most important license brands. And then Voin, I think you had indicated your same store sales included a 9% dollar per transaction plus 3% units but then maybe some lower conversion, which I guess you suggested has probably continued a little bit here in the second quarter. Maybe just some color on why you think that’s occurring and the be extent you think that’s a concern or risk or how you feel about that?

On the key brands, we were -- from a balance perspective, we were quite pleased with the first quarter sales in-house in terms of the balance between proprietary products and the license product including Frozen and Marvel. On the license question specifically, Frozen continued to perform; we anticipated that it would; we bought long into it but because we believed it was continuing to perform after the holiday season and we’ve been able to take advantage of that momentum. Marvel also has been a nice movie for us as a new introduction. In the first quarter of course it started it really gain momentum as the movie advertising and marketing started to hit and right the movie came out in May 1st, as you know. So we’re continuing to actually gaining momentum through the first part of the second quarter with the Marvel story. But the key licenses that we had for the end of the fourth quarter inclusive of Frozen, Toothless and Turtles continued to perform. On the proprietary front, the vast majority of what we sell through the Valentine’s time period which is a core holiday for us is our proprietary products; it’s all about our Valentine story. And that Valentine story as I mentioned was about adding a build your own sound, which really drove up our dollars per transaction and unit per transaction because all of the products -- many of the products went out would be with the sound. And then our Easter product which is also a key holiday time period for us, key sales period is proprietary. So, as well as our license business did, our proprietary business did equally as well. And when you look how the mix is compared to the fourth quarter, we actually have an increase in proprietary products versus license product as a composition of the sales in the first quarter. On your comp question, I’ll let Voin answer the first part of that and then I’ll add some color to it.

Like as we mentioned, we had some strong impact from the dollar per transactions, 9%; our units per transaction were up 3% during the quarter. We are seeing the similar results across all geographies. What’s offsetting that is slower traffic compared to the last year as well as we are still having some conversion challenges. And I’ll let Sharon speak about some of the more detail around the things that we are working on to really solve that challenge for us currently.

We started to see some slight conversion impact at the tail end of fourth quarter; I think we mentioned this and started to dig in. And usually when you look at conversion situation where you have your DPTs and your UPTs going up, some of the first hypotheses are as you’re pricing too high, particularly since you’ve taken some recent pricing increases, are you labor models right, how’s your consumer satisfaction. And so we’ve dug deep into those areas. We actually did intercept interviews on the pricing question and now included that as a natural question in our research, in our -- that we do with consumers on a regular basis. And that is not the issue. There are -- we do see immaterial impact on the fact that some of our pricing strategies have flowed through, particularly on the license product are more high value proprietary products where we offer free app or even on increase from a price spending perspective, the increase on entry level price point from $10 to $12, that has not been a negative consumer impact. We on the labor model front, we do feel like we have some opportunities to be a little bit more fine-tuned on labor model. When you overlay our payroll and labor and stores with our sales, we’re not exactly aligned; we believe that we’re probably leaving some unserviced opportunity, particularly on the weekend and we are going to fine-tune those labor models using data as we move into the second quarter. And clearly we want to have that mastered by the time we move into the high traffic sales period of the fourth quarter. Interestingly, what another thing that makes us feel like that that is definitely one of our opportunities is our consumer satisfaction CSAT scores, also follow that same cadence. They are less satisfied on the weekends than they are in middle of the week, implying they might not be serviced as comprehensively. And those are kind of the natural things you look at when you see some conversion impact. One of the things that we had a hypothesis about that actually turned out to be true is as we mentioned, we’ve had this much more robust segmentation strategy where we’re now targeting consumers that we hadn’t targeted in the past including the over 12 consumer being a little more assertive with the boy business and uses the pro and the con, the marketing is working. So we’re having consumers come in to Build-A-Bear that have not been into Build-A-Bear before. And in many cases our bear builders which is what we call the people that service -- are really much more accustomed to servicing consumers that are very familiar with Build-A-Bear, the repeat consumers. We have to expand beyond the repeat consumers if we’re going to grow this business. So, we got one end of the equation really right and drove the -- created the product and drove the traffic and now we just have to push that all the way through to the service model on teaching our bear builders how to assess, who is the new consumer and who the repeat guest and how you treat them differently.

[Operator Instructions]. Our next question comes from James Fronda with Sidoti & Company. Please proceed with your question.

I guess just on the revenue decline, what’s causing such improvement on the gross margin side, is that still streamlining efforts from you guys?

So, as we previously discussed, we continue to see expansion in gross margins; we are seeing benefits of those pricing strategies and supply chain and value engineering that we started last year. We expected to see some of those things throughout the year, but again, it’s going to be more of a modest improvement. As we previously said, first quarter is one that we are going to see a little bit more and it is going to scale down for the rest of the year.

Our next question comes from Greg McKinley with Dougherty & Company. Please proceed with your question.

Sorry, I didn’t realize I was back in queue so quickly. So, could you give us a little more color on new franchised markets; when might we expect to see some of those surface and where? And then I’m wondering if you can talk a little bit about your point of sales system. What the main initiatives with that system adoption is enabling ecommerce transactions from the store or maybe help us understand the benefits you expect to achieve with that?

I’m actually glad that you are back in the queue because I wanted to just also mention on the last question that you had about conversion that it -- we’re really excited to have Chris Hurt on board who is our new head of -- our Chief Operating Officer. He really is a master of the four levers. He understands how to drive and build the business, particularly on -- and dissect what some of our opportunities are. And I think that that’s going to be a key part of us being able to get that conversion going in the right direction. But on your second set of questions on the franchise market, we have a number of franchise markets in the works; we are in negotiations and it would be really premature of me to mention those particular markets right now. And we’re talking them as I’ve alluded to in a number of different ways, one is more of the traditional franchise model; there is one that’s more of a shop in shop model in a market that’s more difficult to enter. Just looking at the market specific dynamics, understanding whether the consumer would be open to and ready for a Build-A-Bear, recognizing our ability from a physicality perspective to move into those markets, from a legal perspective, so there is a lot of things that clearly would be the case in the number in any company looking at international franchises. So, we’re considering when we’re moving into these markets. So, I certainly hope to be able to share some news with you but for the end of the year and hopefully by the second quarter or third quarter call. The PLS system, the upgrades for 2015, the underlying driver for this upgrade is compliance with Chip and PIN but in the construct of that compliance, we are also adding some capabilities that will improve our ability for us to have ecommerce transactions on-site. Having ecommerce transactions and the ability on site at retail gives you a much more dynamic way to manage your inventory, particularly -- but when you have let’s say there is not just the ability, when you don’t have the product in store but you have in some stores, our bigger stores, we might set up a kiosk for example for the consumer who is interested in some of our sports licensing to find the exact license they want of a Chicago Club’s outfit when they are actually in Miami. Of course we wouldn’t shift that to Miami from a physical perspective but we would have that capability with IL concept of ecommerce. I had also mentioned when I first -- back in 2013, we have been resistant to be actively growing our ecommerce until we return to profitability and improve our fulfillment model. So we have achieved those objectives and now we feel that we are ready to really provide the opportunity for the consumers to engage with us across the number of different interfaces and as we mentioned in the note, moving one step closer to an omnichannel model which will be helpful for us as we drive that business with the collectible and infinity groups that we’ve identified.

And wondering if you could just help us understand as we go to your store opening plans; I know in your press release you commented on securing sites for four stores around outlet centers and your tourist destinations and you’ve got 10 to 15 remodels later this year. When all is said and done, how many store openings do you expect; how many closure might you expect so that we’re on the same page on square footage?

So Greg, as we look in the future, there is going to be a lot of activity as we are starting to refresh our chain in the second half of the year. As we get closer to the year-end, our store count is going to be relatively flat, maybe slightly up from where we were at the end of 2014. So there is going to be some closures, there is going to be some openings but our focus is going to be on refreshing our existing store fleet and in now tiers we are going to be expecting to further grow our store count.

[Operator Instructions]. There are no further questions in queue at this time. I would like to turn the call back over to Ms. Sharon John for closing comments.

Thank you for joining us today. We really appreciate your interest in Build-A-Bear and look forward to updating you on our progress when we report our second quarter 2015 results. Have a great day.