Build-A-Bear or Build-A-Short-Position?

Build-A-Bear is a fun store if you are a kid and even better for your birthday party when you're turning six. However the company running the show, Build-A-Bear Workshop, Inc (NYSE:BBW) which is a $1.50 away from its 52-week low has got some kids thinking forget painting bears - it's the perfect short candidate.

Build-A-Bear's quarterly earnings growth is down -46% and nearly 39% of their float is short.

Why are so many investors betting that BBW will fall in price?

Besides the negative earnings add the fact that Q2 07 saw a 9.4% drop in same-store sales for North America compared to a decline of 4.4% in the second quarter last year. The downward trend has started and the stock is already down 40% in the last six months.

However Build-A-Bear is gaining popularity overseas, sales from UK operations hit $11 million in the second quarter, up 46% from $7.5 million in the second quarter of last year. Now total revenue for BBW rose 7.2% to $100.4 million but that was short of Wall Street's expectations $104.3 million, so what's a bear to do?

The economy is slowing and the Masters think retail is going to get hit hard, if Sears Holdings (SHLD) is having a tough time do you really think Build-A-Bear is going to set a record breaking quarter? As Whitney Houston said so elegantly on her previous reality show "Ah, hell to the No." BBW is facing yet another rude awakening, it's the desire of the American consumer to spend money at Build-A-Bear. However the one word that could really impact this stock, how about..fad.

In America, the Build-A-Bear 'fad' is ending. Maybe it's going crazy in the UK, but back home, it's dying. Soon Build-A-Bear will go the route of Showbiz Pizza and Chuck E. Cheese, they were great money makers in their day, but the kid birthday specialty place is here one minute, gone the next. Now Chuck E Cheese is still in business, but a growing Fortune 500 company that you are dying to buy stock in? Cue Whitney again please for that answer.

Kids move on, and fast. You think you go through fads quick, any parent will tell you, they have a hard enough time keeping kids interested in anything besides the one holy grail - McDonald's French Fries (MCD).

I'd buy shares of Mickey D's any day of the week before I picked up BBW shares, and traders are betting Build-A-Bear is going to fall. I'm not writing this article to cause panic, besides, the 10 people that actually read this could barley make a dent to the average 590,000+ BBW shares that trade on a daily basis. But I am writing to inform you that before you think of buying Build-A-Bear, consider the bet is against the stock making it in the long run.

Now the tide could quickly turn for BBW, the market is full of surprises, but it's really tough to think of Build-A-Bear as anything more than a fad. Considering shares of BBW were at $32 a year ago, couldn't the short players turn this stock around and drive it up? They can and they will. However the big money investors that control everything don't want to invest in a dying business, all they care about it is growth and Return-On-Investment (ROI).

Build-A-Bear's long-term business model and worldwide expansion plans... - ask Whitney. But don't you think the guys that ran Showbiz Pizza Place had the same dream?

As kids we all have dreams, then we become adults and put our dreams into perspective, and achieve all that we can. Be realistic fellow Masters, just in vision the dream of Build-A-Bear -- still want to buy shares?

Article written by: Eric Cheshier
Article posted on: August 20th, 2007

Disclaimer: The Author does not have any positions in BBW.