Build-A-Bear isn't just a store anymore

* Build-A-Bear turnaround gains momentum
* Company plans to expand in tourist markets
* Will also license its own products

It's sort of like a favorite old teddy bear—well-loved, but in need of a refresh.

Just two years into her tenure as chief executive officer of Build-A-Bear, Sharon Price John is already leaving her mark on the plush toy company, which after catapulting to popularity nearly 20 years ago, saw its sales slide as consumers grew bored with the concept.

She's off to a pretty good start. By focusing on high-volume stores in tourist markets, taking a more proactive approach to major movie licenses and—perhaps the biggest change—thinking up ways to extend the brand beyond its own stores, Price John has already returned the company to profitability.

Build-A-Bear Workshop new store design
Source: Build-A-Bear
Build-A-Bear Workshop new store design

"My conclusion in deciding whether to join the company or not was based on, despite the fact that the company had lost $50 million in [2012] ... there's a difference between a broken business and a broken brand," she said. "We had a broken business, but that didn't mean that the brand was broken."

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One of Price John's biggest initiatives is doubling down on stores in locations that cater to its best customers—tourists. When the CEO first started digging through data on her top-performing stores, she noticed the shops that were overindexing on dollars and units per transaction had one thing in common: They all had more than 50 percent of their visitors coming from more than 50 miles away.

"We're really romancing the parts that the consumer considers to be really integral." -Sharon Price John, Build-A-Bear CEO

To play into its sweet spot as a destination for souvenirs, the company is opening up shops in more tourist-friendly locations—for example, moving its New York City store from Fifth Avenue to the Empire State Building—and beefing up themed accessories in these spots. When its updated Mall of America store opens later this summer, for example, it will feature a moose with the "Mall of America" stamp on his hoof.

"Tourists have a different mindset about how much they're going to spend, how much time they're going to spend, what they're looking for," she said.

There will also be changes inside the stores. In addition to a refreshed, more colorful logo, the shop's iconic toy stuffer will be transformed from an understated rectangular machine to a seven-foot-tall contraption that churns filling "like cotton candy." It will also be placed more prominently near the store's entrance, where it can be seen by passersby—a form of "front-of-store theater," Price John said. The first location to receive this makeover will open in Utah next month, followed by the Mall of America flagship in August.

"We're really romancing the parts that the consumer considers to be really integral," she said.

Part of revamping the brand's store fleet also includes closing down unprofitable locations—something the previous management team had been hesitant to do. Although the dynamics of real estate have dramatically changed after the financial crisis, in the pre-2008 environment, "It was looked upon more as a failure to close doors," Price John said.

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Since taking the helm, she's trimmed the company's fleet from 442 owned and franchised stores to 395. But she's also reworked their format. Whereas Build-A-Bear once only operated stores at traditional suburban malls, its shops are now also found at outlet centers, within department stores and at theme parks.

Another notable change within the stores has been a sharper focus on licensed properties, which tend to drive repeat business and carry a higher price tag. This includes dedicated storefronts for "Despicable Me'"s minions, and bear versions of "Frozen'"s Elsa and Anna characters. Although licenses still represent only about 30 percent of the company's revenue, sales in these products rose an impressive 170 percent year over year in the first quarter.

Piper Jaffray analyst Steph Wissink attributed Build-A-Bear's growth in that category to Price John's ability to identify future licensing opportunities as well as her experience working with the consumer products teams at Disney and Marvel during her eight-year tenure at Hasbro. Unlike Mattel, which drives its revenue off steady properties such as Barbie, Hasbro is known to tap into hot movie franchises to boost sales.

"She achieved the holy grail of retail," said Gerrick Johnson, a toy analyst at BMO Capital Markets. "She got people to buy more and buy more at a higher price."

Price John took over the helm from founder Maxine Clark in 2013, a move Wissink said "was a very obvious reason to be constructive on the shares." Though Build-A-Bear hadn't made any profound mistakes in its operations, it had begun to suffer from the same issue that plagues many founder-run companies—as the firm evolves, it gets to a place where his or her skill set is no longer enough, Wissink said.

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Johnson said one of the biggest challenges the firm faced under Clark's leadership was that she was hesitant to make changes. That caused Build-A-Bear to have too few products catering to boys, and left a hole where it could have been capitalizing on hot media properties.

"Let's not take anything away from [Maxine Clark]. It was revolutionary at the time," Johnson said. "But it never evolved."

Johnson called Price John's arrival at the firm "a breath of fresh air." In addition to the minions and "Frozen" dolls, she's also included more boy-friendly options in the assortment, including Teenage Mutant Ninja Turtles and the Avengers. Looking ahead, Johnson said there's a "tremendous amount of upside" to the brand from the forthcoming "Minions," "Star Wars" and "Lalaloopsy" properties.

"If there's a challenge to trump what you did last year [with 'Frozen'] well jeez, they've got the lineup this year to do it," he said.

Build-A-Bear
Source: Build-A-Bear

But Price John is not only tapping into the power of external brands. A key part of her strategy is expanding the brand beyond the workshop and into its own licensed products, including cookies and backpacks. Piper Jaffray's Wissink envisions a future when the brand doubles as a media property, and has recurring episodes on YouTube or a cable channel. It could also produce backstories for its own licensed animals that are made into books or DVDs.

The company got its feet wet with this concept over the holiday season, when it created stories for Santa's eight reindeer— four of whom it decided were girls—and built an app about how they saved Christmas. It was downloaded 500,000 times and proved that the brand could tell a story using its own intellectual property. These strategies could eventually represent 10 to 15 percent of revenue, or $40 million to $50 million, going forward, Wissink said.

"What I know about Sharon is that she's incredibly crafty when it comes to brand equity," she said.

Price John's impact on the company has already been profound. She took it from a loss of $49 million in 2012 to a profit of $14 million last year. And on Wednesday, Build-A-Bear said it expects to report its 10th straight quarter of improved operating performance in the second quarter.

Still, challenges remain. Though the company's shares are up 14 percent over the past year, the stock has been "incredibly volatile," Wissink said. That's because many of its holders are traditional retail investors, who look at two milestones—comparable-store sales and productivity—which haven't yet leveled out. Price John, in contrast, has taken a mentality more commonly seen in the toy industry, which focuses more on potential of the brand.

BMO's Johnson, who has an "outperform" rating and $23 price target on the stock, said it's inevitable that investors are going to take profits from its quick run, adding that a lot of the "low-hanging fruit has been picked."

"The stock had such an amazing run and now the momentum feels like it's slowing a bit," said Wissink, who has a $25 price target and "overweight" rating on the company. "I think there's a question mark on the investor side."