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…

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…

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…

[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…

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.