Greetings, and welcome to the Build-A-Bear Workshop Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allison Malkin of ICR. Thank you. You may 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 fourth quarter and fiscal year 2019 performance and review the progress made on our strategy. After, Voin will review the financials in more detail. We will then open the call to take your questions. [Operator Instructions] Members of the media who may be on our call today should contact us after this conference 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. A replay of both our 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. 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 company's annual report on Form 10-K. We undertake no obligation to revise any forward-looking statements. And now I would like to turn the call over to Sharon.

Thank you, Allison. And good morning, everyone. I'm pleased to have the opportunity to discuss our fiscal 2019 fourth quarter and full year results with you. Although the year did not unfold on a bi-quarter basis as expected, we remained focused on our strategic growth initiatives and ultimately delivered results that met or exceeded our most recent guidance. Overall, 2019 was a solid year of solid progress in which we not only returned to profitability, but we also grew total revenues. We gained momentum across many areas of our business as we progressed our diversified initiatives, including expanding in the digital economy, continuing to evolve and diversify our retail model, better leveraging our robust loyalty club membership and monetizing the awareness, trust and affinity that a broad range of consumers have for our beloved brand. Our results for the quarter and the fiscal year include an increase in both net retail sales and commercial revenue delivering a 3% lift in total revenue for the quarter. These results were positively impacted by our ninth consecutive quarter of double-digit e-commerce growth, a consistent track record since we upgraded our platform in 2017, which contributed to the expansion in total revenue for the year. The top line growth contributed to pretax income of $7.6 million in the quarter, an improvement of over $14 million compared to the prior year's period on a GAAP basis, which was also buoyed by strategic use of promotional activity and disciplined expense management. Importantly, the positive quarter drove a return to profitability in fiscal 2019, an objective that we shared at the beginning of the fiscal year and subsequently achieved. And we finished the year with a solid balance sheet that showed a healthy cash position, again, within our recent guidance range with no borrowings on our credit…

Thanks, Sharon. And good morning, everyone. During fiscal 2019, we delivered on our objective of returning to profitability following a challenging fiscal 2018. Our GAAP pretax results improved over $20 million compared to the prior year or about $8.7 million on an adjusted basis. We also saw a slight increase in total revenues. Including an over 80% expansion in our commercial revenue segment compared to 2018 as well as having a double-digit increase in e-commerce during each quarter of the fiscal year. By geography, total revenues increased 1.3% in North America and declined 5.3% in Europe, which is primarily driven by the United Kingdom operations. Specifically relating to the U.K., while we continue to be mindful that the economic conditions, they remain uncertain following Brexit, we saw some improvement in the overall trend with growth in the online channel. As you may recall, following the implementation of GDPR regulations in 2018, last year, we launched a new registration process for enrollment into our loyalty program, which has led to a significantly larger e-mail database, allowing us to actively market to more consumers. In addition to improving top line trends, we focused on increasing efficiencies and reducing expenses, including our real estate costs with a goal to stabilize the business. Now turning to our fourth quarter results. Total revenues were $104.6 million, an increase of 3% compared to the fourth quarter of fiscal 2018. Retail gross margin expanded approximately 450 basis points to 50.4% compared to the prior year. This expansion was driven by over 300 basis points of improvement related to leverage of our fixed occupancy expenses. This was a result of rent reductions through aggressive real estate portfolio management given the high level of lease optionality that we have maintained. In addition, we also delivered expansion in merchandise margin.…

[Operator Instructions] Our first question comes from the line of Eric Beder with SCC Research.

Two questions here. One is, could you give us a little bit of update on what you're seeing at the Walmart stores for the holiday season? You did a significant ramp of those stores. And where is that going? And I guess, the other piece is in terms of store counts and other pieces, how should we be thinking about that going forward? You've done a good job of reducing the square footage, are we going to see kind of a little more aggressive in the store counts?

Eric, it's Sharon. Yes, on the Walmart relationship, we highly value our relationship with the company, and we have been building out what we believe to be the right model for both of us moving forward. I think as we shared on our last call, we were working with Walmart to assess our current stores and evaluate the right metrics to make predictive -- have predictive analytics on what metrics actually allow us to choose the right locations of the many 3,000-plus locations that they have. We feel very confident that we've isolated some of those specific metrics that allow us to make the best choices because as we shared when we started the process with Walmart what we wanted to do was test a number of different types of locations so that we would have a good comparison contrast to make sure that when we did decide to roll -- when and if we decided to roll that we would roll with great confidence. So we're -- we believe we're at the point right now where we have a good assessment of what specific attributes tend to be more predictive of success and so we're feeling more confident about the potential as we evolve that relationship. Yes, as in many of our stores, we, of course, ramp up in the holiday season. We saw good results from that with Walmart as well as across the organization with our Merry Mission campaign as well as we saw, as I noted in the prepared remarks, some of our movie properties did see -- start to show some better momentum after we completed the third quarter call. So we're really quite positive about where we're headed with Walmart as a total relationship because as you also noted, they are -- inclusive of being a retail partner of ours, they are also our largest licensed partner. So a lot of intersections with the company.

And then the second question that you asked, Eric, about the store count. We haven't provided a specific guidance as we continue to be very aggressive as we continue to negotiate our leases. We do have, as we mentioned, over 70% of our leases coming up for a natural lease event over the next 3 years. We continue to work on mitigating and reducing our rent expense in those particular locations. Our goal is, as we have stated before, to exit unprofitable stores during those times. But at the same time as we think about the store count and the number of occasions, we got to expand our horizon and think about the number of locations Build-A-Bear brand is present. We also shared that in our third-party retail locations, we grew that number by 50%, so from 40 to 60 locations. So we do want to have our brand present in a variety of different places. And we are looking for more of these asset-light models, if we can achieve them. But at the same time, we do want to make sure that we continue to run and operate a profitable portfolio stores.

Yes, just to add. Sorry, Eric, I just wanted to say, to add on to Voin's comment. We are in the business of expanding the consumer accessibility to have this memorable experience. That's -- as I noted in the remarks, that is a tenant of our overarching strategy as we expand the brand into other categories into broader consumer bases. So we also, as we are evolving, and you may have noticed, we dropped a Salesforce press release this morning announcing the partnership that I also mentioned in the remarks. As we start to expand and drive into the digital economy, we're seeing a strong intersection between consumers that shop in our stores and online and feel like that having that much more robust view to our consumers and being able to create those journeys will -- has the potential to build both our in-store and online business. And we started to see some of that type of momentum in the fourth quarter.

Our next question comes from the line of Stephanie Wissink with Jefferies.

This is Ashley Helgans on for Steph. The profit results were better than we had modeled. Can you talk about the biggest contributing factors to that improvement? And then year-to-date comments around the business being up were a positive. Are you seeing the home entertainment window for Frozen driving uptick in demand, or is that related to some owned brand initiatives?

So I'll take the first question regarding the profit improvement. So Ashley, as you know, from the last year -- from the beginning of last fiscal year, we provided guidance that we expect to return back to profitability, and we will deliver on that objective. It was the team effort throughout the year that helped deliver those results. And it came in several different arenas. So like as we talked about diversification of our revenue streams. We have seen some really nice growth in our commercial revenue. We have seen double-digit growth in our e-comm business. We continue to put a lot of focus on the rent reductions and really leverage our occupancy cost that we were able to leverage with a small increase in total revenue for the year. We did expand our merchandise margin that talks about really disciplined that we are in still in the business and managing controllables that we talk about on a regular basis. So this is one of those things managing promotions, managing cost. We continue to do that stuff across the organization. And we are seeing things that are helping us deliver these results. In addition to these things that I mentioned, disciplined expense management was the key, so the whole year, the whole organization was focused to return back to the profitability, and I'm very pleased that we were able to achieve that goal.

Concerning your second question, Ashley. Yes, we are -- we have seen positive year-to-date results. It's actually a number of things that have contributed to that. We have a very strong Valentine's on top of a strong Valentine's prior year. As we've expanded not just for our -- what we would call our traditional type of consumer or family consumer that focuses mainly on a younger child, we are expanding that Valentine's offering into adult-to-adult gifting and it's seeing a lot of success there. We have seen early success for our Easter offering, so that's also contributing. We -- also to your question about the home entertainment. We've seen some of these properties, particularly ones that we launched in later in the year, they have -- they are very strong properties with long tails. So yes, there we have continued to see some sales contribute to the overall increase associated with our movie properties. And finally, I have mentioned that although it's not direct sales, the impact of The Child and the announcement of The Child, also known as Baby Yoda associated with Star Wars Mandalorian series on Disney+, has increased interest in the brand. We've seen increased levels of retail traffic, online traffic, sign-ups for the child and generated quite a few impressions when during that launch.

[Operator Instructions] Our next question comes from the line of Hamed Khorsand with BWS Financial.

First off, I just wanted to follow-up on your comments right now. The increase that you've seen in Valentine and Easter so far, is that mostly or predominantly coming from online? Or is that in store?

It's both. We're seeing increases in both, but of course, the majority of the sales are still in our stores.

And is there an update as to when The Child would be released?

Of course, we have not shared the specific date of the release of The Child.

And my final question is, are you seeing any impact in your supply chain as far as inventory goes? And are you able to meet all the demand with everything that's going on in the supply chain?

I'll let -- Voin can add some color to this, but I'll start. I do want to note that you might have noticed in our remarks that we have seen a decrease in inventory. I want to note that, that was a planned decrease in inventory, and that is not related to anything with the supply chain. As we're going forward, I'm sure you're aware that we have diversified our factory base, but we still have a significant portion of our product that is manufactured and shipped from China, so the Chinese manufacturing facilities did not reopen until a few weeks after, what would have been a natural closure during the Chinese New Year's period. So there are some delays. Although we -- right now, particularly as it relates to The Child, we've reconfigured a lot of our supply chain to move more into some of our Vietnam areas, and we feel like that we are starting to -- well, actually know, we started to see some flow. Whether it impacts us going forward, it really is more related to how long this persists.

There are no further questions at this time. I'd like to turn the call back over to Sharon for any closing remarks.

So thank you for joining us on today's call, and we look forward to updating you on our first quarter results at the next earnings call.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.