Bullish for Bears -- Toy Ones, That Is

Build-A-Bear Workshop (BBW), a retail chain that lets children construct and customize plush toys, has a puffed-up stock. It reached a 52-week high of $32.90 at the end of April, after climbing 69.5% since September. The rise has come as the company looks to expand overseas and install its "interactive" shopping experience to "wherever families go to have fun," according to the outfit's founder and chief executive bear (really) Maxine Clark.

Since opening its first store in 1997, Build-A-Bear has added more then 200 outlets in the U.S. and overseas. Shoppers pick a plush hide, then have it plugged into a stuffer, a machine that looks like an old-fashioned popcorn popper with stuffing inside, to fill it with fluff. Once the animals are filled, they can choose clothing and accessories. All told, Clark says, the average purchase price of a kitted-out animal is around $35.

Adults who might not be as enthralled with the in-store experience can buy them online for graduations, newborns, and other occasions when one might give a teddy bear. Since its founding, the St. Louis-based company says it has sold more than 37 million stuffed animals. Clark, who was formerly president of Payless ShoeSource (PSS), is a retail veteran who says the loss of a childhood teddy bear inspired her to form the company.


  The bulk of Build-A-Bear's colorful shops are in malls but it has adapted the concept to stores at Disneyland (DIS), the St. Louis Zoo, and major league baseball stadiums that are -- naturally -- stocked with teddy bear sized home team jerseys. A truck mounted mobile Build-A-Bear store appears at festivals and NASCAR races, where fans find bears in their favorite driver's racing gear.

Who knew there was such an untapped desire to accessorize your own stuffed animal? Lots of people, apparently. Build-A-Bear didn't even invent the idea, but it has made the concept its own. The company emphasizes the experience of customers creating their own bears in eight steps from "choose me" to "take me home." They include the "hear me" station where, perhaps to parents' dismay, a sound can be added to the bear.

The idea is to create an experience around a familiar product. Build-A Bear achieves this with the eight step process and colorful stores filled with signs that use words like "beary" and "pawfect," ad nauseum. Clearly, having a distinct look is crucial. "Howard Schultz didn't invent coffee shops and Ray Kroc didn't invent hamburgers," Clark says, referring to Starbucks (SBUX) and McDonald's (MCD), two instantly recognizable outfits. This summer, the company will gain more exposure from distributing mini-bears in McDonald's Happy Meals.


  Analysts give the company a pretty strong assessment and its numbers are solid. In 2005, Build-A-Bear boosted its net income 36.6%, to $27.3 million, as it increased revenues by 19.9%, to $361.8 million. And a centralized distribution facility opening later this year could reduce costs. Amy Ryan, an Oppenheimer analyst, says the workshops have "a lot of growth in front of them."

In an April report, she rated the stock a buy with a $44 price target, though among the risks factors she included KGOY, industry-speak for Kids Getting Older Younger. However, some investors are much more, well, bearish.

As of Apr. 10, 5.05 million shares, or about a quarter of its total shares outstanding, were being sold short (a bet that the price will fall). This is an extraordinarily high figure. Says Ryan: "Some people believe it's a fad."


  While the company remains convinced that building teddy bears is a concept with staying power, it is also branching out. It has opened a handful of Friends 2B Made outlets where young girls can customize their own dolls. Plus, the company is developing an undisclosed boy-focused program that will also include toy customization.

Even so, for the moment Build-A-Bear is pretty happy with teddy bears, which have a proven record of charming children. Says Chief Bear Clark: "We're not the ones introducing stuffed animals to the modern world."

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