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 2017 second quarter performance and review our strategies for the year. Voin will review the financials and guidance, and then we will 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. Finally, as previously announced, the Company continues its exploration of a range of strategic alternatives. As you are aware, this could take many directions, and there is no assurance that this exploration will result in any strategic alternatives being announced or executed. We continue to be limited as to any additional comments on this topic, as the process unfolds, unless and until our Board of Directors determines that further disclosure is appropriate. And now I would like to turn the call over to Sharon.

Thanks, Allison. Good morning, everyone. In the second quarter, we continued to make progress with our strategy to evolve and accelerate the execution of our retail diversification initiative as well as the plans to leverage the power of the Build-A-Bear brand to deliver a profitable growth. Specifically, in the quarter, total revenues increased by 2.8% as alternative revenue streams and volume from new retail locations not included in the comparable store base, more than offset the marginal decline in consolidated comparable sales. Retail gross margin improved by 150 basis points to 43.7% of total revenues. And we narrowed pretax loss to $2.6 million, which is a $3.6 million improvement over the prior year. We believe that the strategy that is in place to extend and monetize the inherent value of the Build-A-Bear brand into new avenue streams while evolving our retail channel to have multiple dimensions and increased flexibility, we'll continue to move the Company forward toward our goal to sustained, more profitable growth as demonstrated this quarter despite the comp headwind. Specifically, consolidated comparable sales for the quarter showed a 0.9% decrease, which was primarily driven by an overall decline in store traffic. While traffic at Build-A-Bear Workshop stores delivered against our historical norm of outpacing the national trend and we achieved increases in other controllable metrics, including conversion, units per transaction and dollars per transaction, it did not offset the macro traffic declines that continue to challenge traditional mall-based retail. And while consolidated comparable sales were positive in the U.K. in the quarter at plus 2.2%, the trend took a negative double-digit turn when multiple unfortunate terrorism incidents occurred in the months of May and June. It is important to reiterate that the ongoing changes in our real estate footprint are expected to continue to cause choppiness in…

Thanks, Sharon, and good morning, everyone. We delivered a solid second quarter with an increase in total revenue, expansion in gross margin and a $3.6 million pretax improvement versus the second quarter last year. We believe this performance in what continues to be a difficult mall traffic environment, clearly demonstrate the success of our strategies. We continue to transform this company to capitalize on the power of the Build-A-Bear brand by opening more productive store formats, developing new higher margin revenue streams and offering desirable product selection while lowering promotional activity versus a year ago. The second quarter typically represents a loss period for the company; however, we have delivered a profitable first half of the year. This morning's press release includes details of our second quarter performance that I will now selectively highlight in my discussion. Total revenues were $77.2 million, an increase of 2.8% compared to the second quarter of fiscal 2016. Net retail sales grew to $74.4 million, an increase of 2.6%, excluding the impact of foreign exchange. Consolidated comparable sales declined 0.9%, with North America down 1.5% and Europe up 2.2%. We achieved increases in the metrics that are typically more within our control: conversion, units per transaction and average units retail. This was more than offset by a decrease in transactions, primarily due to a decline in store traffic. We remain pleased with the performance of Discovery format stores. The locations in their first year of operation continued to achieve a double-digit increase over heritage locations, and stores in their second year are performing in line with the company average. We are also encouraged by the opportunities that the concourse shops bring. In approximately 200 square feet, these locations are projected to average $2,500 to $3,000 in sales per square foot on an annual basis…

[Operator Instructions] Our first question is coming from the line of Jeremy Hamblin with Dougherty & Company.

I wanted to just follow up first actually on your operating expenses on your SG&A costs and get some clarity. So it looks like year-to-date, you're down about $3 million. And in terms of thinking about the back half of the year, the uptick, is that primarily just incentive compensation? Or there are other items that are going to push it? I think what you guided to is just that it's going to be up on an absolute basis above the $157 million from last year. Should we be thinking it could be up above like the $160 million that you saw in 2015?

First of all, as I explained in our prepared remarks, we talked about -- there is some timing shift between first half and second half of the year in SG&A. Primarily, we focused a lot of our marketing activities in the second half of the year to take advantage of some missteps that we took last year, in particularly, December in Q4 of last year. So that's probably one of the bigger shifts. In addition, as I mentioned, last year, we had a reversal of our performance-based comp in the second half of the year, so this year this is expected to be at a more normalized level. That's why we are guiding back to 2015 levels. As well as I mentioned that some of the investments that we are making in business from the IT infrastructure perspective and some of these costs are continued to be headwinds for us. Also, FX is one of those things with the fluctuation and strengthening of British pound versus second half of the last year, assuming current levels, our expenses will be higher. So that's what we are guided to and that's all contemplated within our guidance on a full year basis between $12 million and $14 million on a GAAP basis.

And then it's pretty exciting the numbers that you guys are showing with the concourse shops and as we look at your, particularly your North American footprint, I think you've mentioned, you've got a 130 locations coming up for at least over the next three years. Is this something where maybe a significantly higher portion of your store base could be in that format of stores simply, because the economics dictated along with the flexibility it provides? What's the average kind of lease term structure look like on a concourse location? Is it just a year or 2? How does that work?

There are a couple of questions in there. First, what will our portfolio look like? So yes, we do have 130 leases coming up over the next three years. And we've created a very robust decision tree to help us through the complications of the leases that are coming up to include the type of mall that it is in and the lease structure that we're getting, the terms that we're getting. But also included in that is the concept of keeping the store that's fully depreciated and kind of just kicking it down the road another two or three years. So there may be ways to just optimize that location without moving it to a concourse shop. So that's got -- you have to get that into your consideration set while you're also considering potential remodels in some of the mall locations that are actually not incurring some of these really, really difficult double-digit traffic trends, which you see in some places. That it's valuable for us to remodel those stores. So it's a case-by-case basis. Net-net, though, yes, I think you can expect to see if concourse shops continue to perform the way they are performing right now, little caveat, still early stages. They got first one opened in September, October of last year, but we're getting enough data under our belt here to feel like that this -- in a number of different locations, these are like -- these are not -- there's not an anomaly, there really is a game changer here. So with that in mind, certainly, you can expect to see a greater percentage of our stores to become concourse shops in the future. It's a great tool for us. It creates flexibility and leverage. And so to your second question, yes, the average lease terms are shorter. They are clearly just more flexible. And the construct is for some reason after those three years, there is really no leasehold improvements. We just pick them up and move them to another location. And the occupancy is lower because there's no charges associated with things that you generally don't think about when you're running a real estate entity, like HVAC and cleaning, you're not cleaning windows every night. And all that stuff adds up. And we're also out in the middle of the traffic. And so even when the traffic is decreasing, we're placed in a position where it's harder to avoid. What we know is the consumer demand for Build-A-Bear, particularly from kids. So hard to walk around the Build-A-Bear when it's right in the middle of them -- of the causeway.

Well, we applaud you on the creativity and thoughtfulness and looking at different ways and nontraditional ways to drive profitability. Good luck in the second half of the year.

[Operator Instructions] Our next question is coming from the line of Alex Fuhrman with Craig-Hallum Capital Group.

I wanted to ask a little bit about gross margin. It sounds like you're looking for gross -- merchandise margins to be up in the back half of the year, looks like they were strong in the second quarter as well. Can you give us a sense, just in terms of your buying and occupancy costs. I mean, how much should we expect to see that potentially delever if you were to have a low single-digit comp-store sales decline in the back half of the year? And do you think that when you put everything together, you would still expect merchandise margins to be up enough to offset the total gross margin improvement in the back half of the year as well?

Yes. Thanks, Alex. Merchandise margin continues to be like one of the strong points. It's still a focal point for us. We are laser-like focused on the expansion of merchandise margin through variety of different initiatives. This is a continuing effort as we talked about all the way from sourcing to pricing and even more recently very scaffolded approach to managing our promotional cadence. That's primarily resulted in a really strong merchandise margin performance in the second quarter of this year, but it's not new to us. We expect to continue to see expansion in merchandise margin for the rest of the year as we guided at the beginning of the year. As we talk about the occupancy, the leverage when we talk about retail gross margin, I still think we expect to have positive growth in retail gross margin, but again, within the constraints of that guidance that we provided on the top line flat to basically slightly down comp. So that's one of those things. Things, as we said, that we believe that are within our control are really helping both retail gross margin and merchandise gross margins. As you know, some of the offsets of traffic and its impact on sales, it's a little bit harder to predict.

And, Alex, I am just going of take this opportunity to repeat something that I said in my prepared remarks. It relates to this and this will vary as the year rolls on. But when we're talking about comp sales, right now, what's calculated in our comp sales is 84%, 85% of our total retail base. So there is 15-or-so percent of our stores that tend to be our stronger stores, almost by definition because they are new, their concourse shops that aren't calculated in the comp. That will vary as the year rolls out, but it's still going to -- there will be some subset of what is our total retail base. So as we have (inaudible) and we talked about this all the way back couple of years now when we started this process of what we knew needed to be a complete total evolution of our retail footprint that it would be really choppy and hard to track, unfortunately. And -- but it does put a little less of a focus and less reliance on just being overly focused on comp specifically and only comp, but trying to take a little more balanced approach to the way we think about the metrics that we should be delivering against.

Now I'll just add one more point. Also what we are working diligently on is to further continue to reduce our occupancy costs that are going to help offset the impact of that deleverage. And like a concourse shop, that Sharon talked about, is one of those tools that really helps us in that process.

Great, that's very helpful. And then thinking about the strategic review of alternatives, obviously, that's been going on for quite a while. I'm wondering if you can share with us how much of an impact that had on the Q2 numbers in terms of any costs that might have been involved in that. And then thinking about your guidance in terms of pretax income for the full year, can you give us a sense of the cost in dollars of the strategic review in the back half of last year? And you expect that to go up or down? And does that factor into the calculation for the back half of this year?

We really can't speak about that, Alex. I mean, you know that I can't really speak about that. So it is ongoing as you noted. And we -- when the board -- unless and until the board believes there is something that we need to share, we will maintain our position that we are just in the strategic alternative process. But I appreciate the thought.

Thank you. It appears there are no further questions at this time. So I would like to pass the floor back over to Sharon John for any additional concluding comments.

Yes, thank you, and we appreciate everybody joining us today. We look forward to speaking with you when we report third quarter.

Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.