Welcome to the Q4 2008 Build-A-Bear Workshop Inc. earnings conference call. My name is [Josh] and I'll be your coordinator for today. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Director of Investor Relations, Molly Salky.

Thank you, operator and good morning everyone and thank you for joining us for a review of our results for the 2008 fiscal fourth quarter and full year. With me this morning are Maxine Clark, Chairman and Chief Executive Bear, Tina Klocke, Chief Financial Bear, and Dory Kruger, Managing Director of Strategic Bear Planning. In a moment, we'll turn the call over to Maxine to provide her comments on the fourth quarter. Tina will follow with additional comments on our financial results, and at the end of our remarks, we'll open the call up for your questions. Members of the media, who may be on the call today, should contact us after this call with their questions. We ask that you limit your questions to one question, this way we can get to everyone's question during this one hour call. Feel free to re-queue if you have further questions. Please know that our call is being recorded and broadcast live via the Internet. The earnings release is available on our investor relations website and a replay of both our call and webcast will be available later today on the investor relations portion of our corporate website. Before we get started, I'll remind everyone that the 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 factor section of our 2007 annual report on Form 10-K filed with the SEC, and we undertake no obligation to update or revise any forward-looking statements. Now I'll turn the call to Maxine Clark for her comments.

Thanks Molly and good morning everyone and thank you for joining us to review our fourth quarter and fiscal 2008 results. Without a doubt, the economy deteriorated in the fourth quarter, impacting our performance and we expect 2009 to continue to be a challenge. Throughout the year and continuing in the fourth quarter, we took a number of actions to allow us to manage through these times. In today's discussion, I want to make a number of points about how we are approaching this year. First, we consider our brand to be the cornerstone of our successful and profitable business model and we'll continue to preserve and build its long-term value by emphasizing our affordable and fun store experience and unique product offering. However, we are equally focused on reducing costs and expenses associated with our business, as well as preserving and maintaining positive cash flow. My discussion today will provide more detail on each of these areas. Financially, we ended the year with a strong balance sheet with $47 million in cash, even as we invested $14 million to repurchase 1.7 million shares during the year. Cash flow remained positive and we have put plans in place to maximize our cash flow position in 2009. In addition, during the year we expanded our credit facility to $40 million, with a seasonal overlying to $50 million, while lowering interest rates. This expanded facility provides us with added financial flexibility, even though we have not borrowed on our credit facility since 2003. We are comfortable with the level and composition of our inventory, as we begin 2009. We will continue to manage our inventory tightly and monitor sales trends closely in order to maintain our lean and clean inventory levels. Recognizing the importance of cash, we will reduce capital spending by…

Thanks, Maxine and good morning everyone. I’ll provide additional details related to our fourth quarter and full year financial performance. The decline in the fourth quarter total revenues of $5.3 million was driven by a 16.8% decrease in North American comp store sales. This decline was partially offset by new stores opened in the last 12 months and a $2.7 million adjustment to the loyalty program deferred revenue. With sales per square foot in our North American stores at $445, we continue to achieve productivity numbers above the averages for the malls in which we operate, demonstrating the enthusiasm for our stores. As Maxine discussed earlier, our European operations delivered a strong performance in the fourth quarter, ending the quarter with 54 stores, and we continue to believe there is the potential to operate 70 to 75 stores in the U.K. and Ireland. Total revenues include international franchise fees, which decreased in the fourth quarter 13% to $1.1 million, due primarily to a decline in store sales reflecting the global economic slow down. During the fourth quarter, franchisees opened four stores and closed two stores, ending the year with 62 stores in 14 countries. For the full year revenue from franchised fees increased 16% to $4.2 million. Today the pace of store expansion in international locations is influenced by the economic health and stability of the franchisee country and the availability of the right real estate location for our stores, which in many countries can take time to identify and negotiate. While we see 2009 being a tough year for several of our franchisees, we continue to work hard to improve their performance. Our oversight and involvement includes real estate decisions, inventory planning, marketing programs, product development, store operations and associate training. We currently anticipate franchisees will open five to…

Thanks, Tina. I'll conclude the call with just a few final comments; 2009 is going to remain a challenge and we are putting our focus on what we can impact, reducing expenses and costs to maximize our cash position while optimizing the value of our brand in terms of affordability and high value experience, both in store and online. We've taken actions to align operating expenses with revenue expectations, slow capital expenditures, while at the same time investing in brand building initiatives and our future growth. We've shown that our business model can generate profits and cash flow, even in a very difficult retail environment. Our debt free balance sheet and $40 million bank credit line provide financial flexibility, liquidity and staying power. We look forward to updating you on our progress in the months ahead, thank you for your participation and now we can take your questions.

(Operator instructions). Your first question comes from Paul LeJuez – Credit Suisse. Paul LeJuez – Credit Suisse: Just a couple of housekeeping questions, can you share with us the, what you got in the extra week in both sales and earnings and then maybe explain that U.K. impairment charge it seems larger than the overall company charge I think because it was internal, just trying to understand that? What was free cash flow for the year and your expectations for '09 and the comp that you're reporting in the European business, is that constant currency or is that in dollars?

Okay Paul, what we identified was that the 53rd week was the last week of the year and just as a reminder in our, we're a calendar year-end, so that week is the last week of December and it is usually between Christmas and New Years and this week is always included in our fiscal year and it's an important revenue week for our kids as they're out of school and gift card redemptions are high. So it is meaningful, but we're not going to break it out separately because it would be difficult to isolate or extract this week from our results since it occurs every year. The cash flow, while we're not completed with our cash flow analysis and we typically do not include the cash flow statement in our earnings release, but based upon preliminary results we looked at that are cash flow from operations is positive for the year. And when you look at the U.K., the U.K. the other charges that we talked about in our release totaled $3 million and it includes some impairment and it also includes a intercompany charge related to royalty from the U.K. to the U.S. from a tax perspective. So it's not all active impairment, just to be clear about that.

And the comp in Europe, the dollars account.

The comps in Europe are computed based on constant currency. Paul LeJuez – Credit Suisse: Got you, do you have that number what it is in dollars?

Well it would be the same because you'd convert, if you looked at it in pounds, it's the number and then if you convert it, you convert it at the current year rate so it would be consistent. Paul LeJuez – Credit Suisse: Okay and do you foresee having to borrow on your credit facility this year?

Well again a lot is going to depend upon our current economic condition and I would probably tell you that every year I expect that we might borrow in the end of the third quarter to the fourth quarter as we start to build our inventories and for the holiday season. But as you know, we haven’t borrowed on our line of credit in the last several years so hopefully we'll continue that pattern. Paul LeJuez – Credit Suisse: Right, and just to go back on that comp for a second; you're saying that the comp that you reported in the European business that's in local currency?

Yes.

(Operator Instructions). And our next question comes from Sean McGowan – Needham & Company. Sean McGowan – Needham & Company: I have a question regarding Europe as well. Sales look like they're holding up pretty well there, an overall increase and seems too a sales increase. So could you talk a little bit more about the operating cost factors that are, other than the one time charges that are depressing the margin there?

Well one of the things that – when we look at Europe, we are looking at it not only the U.K. but we're also looking at France, and remember France is in the start up phase and there's only three stores, and in 2007 we had them for about three months, the stores opened in the latter part of, I guess in the beginning actually of fourth quarter and in this year they're in there for a full year. So remember it is in a start up phase, so it has costs associated with that and it's combined with the U.K. operations. Sean McGowan – Needham & Company: That makes sense, so then when you're in '09 you would be comping full-year against full-year for those stores anyway, a little bit less pressure on that.

Correct. Sean McGowan – Needham & Company: If there isn't time, I'd like to ask another question later. Thanks.

Sean, go ahead. Sean McGowan – Needham & Company: Oh okay, regarding the cost savings – the plan to put in place for 2009 to cut costs. It's pretty substantial relative to the overall pre-tax income that you've shown in not only in '08 but in '07. So does that give you confidence that knowing that we're in a challenging environment and it's going to probably stay that way all year? Does it at least give you some confidence that these cost savings can offset that pressure, so that we could actually wind up with an increase in the bottom line in '09?

I think quite honestly Sean based upon the current economy I don’t think anybody knows, I think we're doing everything in our power to try to minimize that and that's why we started right away with putting as many initiatives as we could at this point in time and we're going to continue to look at it throughout the year, to try to offset any economic pressures on the top line. Sean McGowan – Needham & Company: Okay and then which kind of loops back to another question I had regarding gross margin. So you put a value enhancement initiative in place to kind of get the message out that these products are more affordable. Do you think that will be stepped up in '09, should we look for stability on the gross margin line or further pressure?

I'd say that in last year obviously, we – I think we talked about this program, we tested it in July and it was really it told us that the customer was very responsive, and so we moved forward the way that, and used inventory that we had on order and negotiated some prices, but now that we see how strong it is, we've been able to develop our line, the products that we're bringing into the assortment for this year, into our normal mark-ups on these products at lower retail. That's still – while the margin may be fine, the margin percent is fine, it's still – you have to sell a lot more of these items to get to the margin dollars of the higher priced item, and there are some pressures that will be there no matter how you look at it, but I think we have put a higher emphasis on it and we're negotiating and working really hard with our suppliers. And now we know that we would continue this program into the fourth quarter, particularly with even new products that would come in at $10 and $12 price points, so we've worked really hard on that end, I think we'll be in much better shape from a mark-up perspective going in with a plan than we were last year mid-year changing a strategy and sort of chasing it.

And our next question comes from Brad Leonard – BMO Capital Management. Brad Leonard – BMO Capital Management: Just to be clear on the European comps, so the EU comps were local currency and then the total revenue for the EU was below the comp number and that's due to the stronger dollar?

Brad, can you repeat your comment again, because I just want to make sure that I have the right answer. Brad Leonard – BMO Capital Market: Well, your comps for the fourth quarter for the Europe were up 6.8, your total revenue was up 5.7 – or 6.7 I guess you're up in the comp and your revenue is up 5.8 and you've got 7% more square footage or something like that, so I'm assuming it's a dollar, is that what, or am I missing something else there?

The impact of the dollar, yes. Brad Leonard – BMO Capital Market: Okay, so that's why you're, I mean, you're reporting the comp in a local currency, so normally your total revenue as long as you're not shrinking, your total revenue should have been higher.

Right, correct. Brad Leonard – BMO Capital Market: Okay, okay, and then also, on the merchandise margin, did you guys say how much that was down in the fourth quarter?

We don't normally [tease] that merchandise margins. Brad Leonard – BMO Capital Market: Okay, was it all then due to the decline in merchandise margin, would it have been all due to your kind of implementing a side program I'm assuming, and that was basically the hit to it?

Right, the biggest driver to it was the value pricing of our products in the fourth quarter. Brad Leonard – BMO Capital Market: Okay, and so, if I heard Maxine correctly, that will not be as big of a problem going forward as you've re-tooled some of this merchandise and bought it for that purpose, versus taking animals and just marking them off $4 or whatever you did?

Correct, we also worked with our vendors last year, but we've done it from the get-go, and it's planned into our assortment. The negative, the uncertainty there, though, is that while we have a plan to sell a certain amount of products under $15 and a certain amount of products over $15. As the customer feels more pressure, and they find they come to Build-A-Bear, and they decide instead of a $15 animal they're going to buy a $12 animal, you may have to take your higher priced animals and move them down into prices just to move them through, but we're hopefully, we'll be able to keep that balance because we buy so close to time of need. But there is pressure from the customer on higher price points and we know in general, and we know they're looking for great value every single day, so. And there are other things in the business like last year, Hannah Montana was new and fresh, and huge business in the toy business, and this year, less – it's up against itself, but not nearly as big as it was a year ago, so that kind of product where you made really great margins at high retail is under pressure.

(Operator Instructions). Your next question comes from Tom Filandro – Susquehanna Financial Group. Thomas Filandro – Susquehanna Financial Group: Hey ladies, it's actually Tom Filandro, just a couple of questions really related to marketing. If you could possibly dig a little deeper, give us a sense of where you're pulling back. I believe you said it was $8 million in terms of dollars. Is it television? Is it direct mail? Is it new to file shoppers that you are targeting less, and can you give us a sense of how we should view marketing as a percent of sales in 2009? Thank you very much.

Yes, I'll give you just an overview and possibly we can talk more about it offline and we'll get more specifics for you, but we are cutting pretty much across the board, but television will have the most impact, and we're looking at it really holding our advertising for the really key shopping periods, making sure we don't decrease in the fourth quarter substantially. So it's coming a lot from that. We are re-allocating dollars because the Mom TV campaign that we ran with value pricing was very successful and we want to make sure that we can run that throughout the year and mother TV, TV for Moms costs more than Children's TV. We're also going to leverage Build-A-Bearville because you get as many, you get so many millions of kids on Build-A-Bearville and we are able to use that as a marketing tool to announce launches, to announce promotions, to gain access that is really targeting; at least it's targeting very engaged existing guests. We're also looking at our direct mail, and now we have so much history in our Stuff Fur Stuff and our best shoppers and how they shop and when they shop, and when their children's birthdays are, and we can target our – we're working much harder at targeting and making sure that we're getting the mileage there. And we're targeting that the advertising will be slightly below last year levels as a percent to total, assuming that the sales stay on target and don't deteriorate anymore dramatically because we don't have as much advertising as we've had in the past. That is a risk, but it is a risk that I think is worth doing at this point. Customers are very much into appointment shopping, that's what I call it, which is, it's my child's birthday, they made good grades on their report card, it's Valentine's day, and on those peak times, like Valentine's day, was incredibly busy in our stores, and we know that customers shop and we have to be able to move with those flexibilities and move the marketing accordingly.

And our next question comes from the line of Mike Smith – Kansas City Capital. Mike Smith – Kansas City Capital: Well good morning, and nobody said good job, but good job guys; it's tough out there I think. I wonder if you could give us a little bit more detail about how you're using Build-A-Bearville and how important do you think that is to you in terms of a long-term basis. And then I have a follow up after that.

Okay, Mike again, thank you for the compliment. It is tough out there, and we have a great team of people working very hard at the business every day. Build-A-Bearville, we are very excited about Build-A-Bearville and encouraged by it, especially as we see it so dramatically impacting children's play, not just Build-A-Bearville, but other virtual worlds as well. And one important thing is that, as mom doesn't use recreational shopping as something to do with the children anymore, or not as frequently as she used to for sure, one thing the kids are, is home and they're on their computers, and they're playing, and we can actually visualize them playing now. We can see them and we can interact with them, and we can see the kinds of things that they want to do and the things they want to be involved with, and it's a great way for us and it's so easy to change something. I mean if you want to move around something in Build-A-Bearville, it's just a computer system, not changing every store across the country, so you're able to have an impact pretty quickly and at a relatively low cost, and we see it much more impacting our business. It also is the engagement of our brand. One thing that is really hard to replicate in television or any other way, is the engagement that a customer has when they come into a real Build-A-Bear Workshop store, and the one great thing about virtual worlds is that it is a way for children who love Build-A-Bear and the interaction in our stores, to stay engaged and connect with our brand outside of the store, and then the other thing that we're very encouraged by is the monetization opportunity. Of course our whole business is…

Right, well we have about 7.8 million registered avatars, but children can register multiple avatars, and they do, but for the most part, it's probably less than, I think it's still under two per avatar – two per child per email address, but remember also, children also have multiple addresses, email addresses as well. They're very much into these things and for many, it's a full time hobby, but it's really on visits and we see that our visits are up and that our customers – we' don't share that information because we think it's competitive information, but our unique visits, the time that they're per visits points to a real engagement. They stay on the site a long time, and they come back frequently during the month. So I might look at unique since they say okay, that’s with them coming one time a month, but they have come back and that really is what the key is and that, for us, is significant. And they would never come back to our store that frequently, in a given month come back three, four, or five times and they come back multiple times in a week. We would never be able to get that engagement so it really is a great, when I think about it as an invention. We didn’t invent virtual worlds, but I think about it as an invention to keep your customers engaged with you non-stop. It’s a full-time job keeping ahead of the kids of what they like and what they want, and we have a very strong communication plan with them which, I think is another thing that keeps them engaged. We really speak to them one-on-one and answer their questions and share their ideas. We have contests for them to participate, and there is one right now and there will be another one later on in the year where they get to be the star, the hero and that’s one of the things that really plays to them. So we are a very – this has been a great first year for our virtual world and we continue to see growth for it, dramatic growth especially on how we use it to market and monetize itself and expand the usability of Build-A-Bearville to be more of a lifestyle, even more of a lifestyle choice. It also is for older kids. It keeps the kids at the upper age of the spectrum, which I think is also important for Build-A-Bear.

(Operator Instructions) Your next question comes from Brad Leonard – BMO Capital Market. Brad Leonard – BMO Capital Market: Maxine, can you just talk a little bit about the calendar shift this year again and how it may impact the quarterly flow with the Easter shift and then also, did you get any benefit from having Valentine’s Day on a Saturday versus a week day this year?

Yes, Valentine’s Day is always better when it’s on a Saturday, because you get the days leading up to it and then you get the day off that people are off to last minute shopping. We had a really, really strong weekend, again pointing to the value of the brand and the great gift ability of it. Quite frankly, it was one of the strongest days we’ve ever had, so we are very positive about that. I’ll let Tina talk to you about Easter.

And Brad, again as a calendar year-end, for us when Easter falls in April, it’s going to move out of the first quarter, which last year it was in March. It’s in the second quarter this year and so again, our business fluctuates based upon when kids are out of school and the corresponding spring break. So there will be some shift to the second quarter this year. Brad Leonard – BMO Capital Market: Okay and Maxine, just back on Valentine’s Day a little bit. We did some checks around the country and the lines were like two hours to get in the store, two one-half hours was reported in one region, can you just talk a little bit about trends year-to-date? We’re half way through the first quarter here can you give us any color on anything?

No we don’t do that, but I would say that, again, pointing to the appointment shopping, Valentine’s Day was very strong. We also launched the promotion with David Archuleta and the song, which was very appropriate for the timing. We had great values. You can buy a bear as a gift for your Mom or for your girlfriend for under $25 fully dressed and we featured those kinds of things in our mailer which made it great. It’s also a strong experience of going to the store with that someone that you love and making a bear, whether it’s a child or your girlfriend. A strong teenager experience as well. There were waits. Always on a busy Saturday, there are waits, but it was an extraordinarily good day and I think that when children have money and a real reason, Build-A-Bear is the place they come and we were, in all the malls that we were in here locally, it was incredibly busy and we were the busiest store in the mall. So I think that points to our brand’s stability and the power of the experience and just managing through these tough times and trying to create as much awareness of special occasions, individual special occasions. You’re not going to get that kind of traffic for St. Patrick’s Day, even though we have bears and clothes and outfits for St. Patrick’s Day as you get for Valentine’s Day. It is a very strong – it always has been incredibly strong for us. It’s also President’s weekend which allows another, kids are out of school and they have their Bear Bucks to spend and we were able to maximize it very, very strongly this year.

And our next question comes from the line of Mike Smith – Kansas City Capital. Mike Smith – Kansas City Capital: Just one other thing, Maxine, your comps were down about 16% in the quarter. Not surprising, but how much of that was price, how much of that was traffic?

In the fourth quarter, or at least closer to Christmas anyway, transactions were much stronger and that came from the value pricing. We saw a lot more transactions, so it was a much stronger negative impact from the value of the transaction, but overall it really was both. We had less mall traffic and much less traffic overall the whole course of the year, and then prior to the fourth quarter, our average transaction was about the same, but our strategy definitely impacted the customer and it did impact our – it changed the traffic trends more positively, but it lowered the average transaction.

And at this time, we are showing no more further questions. Molly Salky, you may proceed.

Thank you operator and thanks to everyone for your participation today. If you have any follow up questions from today’s presentation, please feel free to give me a call or send me an email. Thanks again. Bye-bye.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a great day.