Novice Investing - Building A Bear Portfolio

Date: Thursday 28th 2008f August 2008 01:04:27 AM

Building A Bear Portfolio - 06/22/2008

By: Hari Wibowo

		Build-A-Bear Workshop Inc. 1954 Innerbelt Center Drive St Louis, MO 631114 United States

In this tough environment we are currently in, it is best to look at both sides of the spectrum. We have looked at the prospect of owning 99 Cents Only Stores as a way for lower income individuals to survive the rising cost of commodity. On the other spectrum is a discretionary retailer where consumer would reduce their spending behavior. Whether such notion is true or not, remains to be seen. One such company that fits may be: Build-A-Bear Workshop (BBW). Build-A-Bear Workshop operates specialty retailer of plush animals where one can make his own teddy bear stuffed animals. Build-A-Bear website describes the experience as follows: Choose from more than 30 bears who would be your companion Record your message or choose a pre-recorded sounds/songs Stuff the bears where one can give a warm feeling of it Stitch the bears Brush the bear fur Name and personalize the bear which is given a unique Find-A-Bear ID Dress your bear with plenty of fashion and accessories available Bring your own stuffed teddy bear home
Estimated Cost for this whole experience is as follows: $10-$25 $3-$8 $0 $0 $0 $0 $1-15 $0

Total: $14 - $ 48 per bear. That is just the starting cost of becoming a bear citizens. Just as with your personal belongings, you have the option of dressing your bear differently on different occasions, even on different days This range at around $ 10-$12 per outfit. Further, as you interact with others, you can throw a bear parties with cost of $ 10 per guest.

Despite the fun, let's look at Build-A-Bear annual report and its financial statement, shall we? The company has gone one step further to cement its user base by creating an interactive website: buildabearville.com where 2 million characters has been created in the first three months of going live. One can register for free by typing your Bear Birth Certificate created when you bought your first animal at Build-A-Bear stores. Buildabearville would ensure additional revenue from past bear purchasers by encouraging online purchase for its virtual characters.

There is a good chance that Build-A-Bear will reported lower revenue and net income for 2008 and 2009 as the economy slows down. Entertainment and toys are usually one of the first thing consumers cut in the face of higher energy cost. Analysts expect $ 0.91 and $ 1.00 of earning per share for year 2008 and 2009 respectively. This assumes revenue of $ 495 Million and $ 515.8 Million, which is higher than $ 474 Million revenue booked in 2007. During economic tough times such as the one we experienced in 2008, I don't think it is wise for investor to assume positive revenue growth from discretionary retailer such as Build-A-Bear. Granted, Build-A-Bear is founded with an excellent vision, which will enable it to grow even bigger during the next phase of economic growth.

Regardless, Build-A-Bear is solidly flushed with cash, with latest positive net cash balance of $ 41.1 Million ($ 2.09 per share), meanwhile share price is trading at $ 7.75 per share lately. This implies that cash alone represents 27% of Build-A-Bear market value. The company is not accounting its profit aggressively. With a total of $ 187 Million depreciable assets in 2007, Build-A-Bear depreciated $ 27 Million of those in a year. This gives it a depreciation rate of seven years. While there are some technology companies that depreciate its asset faster than Build-A-Bear, many other companies have done worse, with depreciation rate of more than ten years.

Thus, overall while we expect Build-A-Bear to experience a big bump on the road if the economic stagnation continues, Build-A-Bear is built to last during a bear market. You would seldom find a positive net cash of 27% of its total market value in a business that is still expected to generate positive net income.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Build-A-Bear Workshop Inc. (BBW) or any other securities.

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