Wall Street Grizzlies Split Over Build-A-Bear's Future

NEW YORK – Build-A-Bear Workshop Inc. (BBW), the make-your-own stuffed animal company that has hordes of young customers, has also attracted a pack of investors betting against the company.

Indeed, short-sellers, who profit from stocks falling, have pounced on shares of Build-A-Bear, with 1.05 million, or 14 percent of the company's 7.5 million publicly traded shares sold short in the 30 days ended Dec. 15. That was up more than 800 percent from the previous period, although the company has only been publicly traded for less than two months.

Short-sellers borrow shares and sell them, hoping to return them later at a lower price and pocket the difference.

These bearish investors are probably skeptical of the company's unique concept, and assume it may end up like other failed toy companies or other specialty retailers who started out with a bang and quickly sputtered.

Build-A-Bear, the St. Louis-based company that went public on Oct. 27, lets customers choose their stuffed animal style, clothing, shoes and accessories. Toy prices range from $10 to $50, depending on the accessories. As of Oct. 12, the company operated 165 stores in 39 states and Canada, including one in New York's Rockefeller Center across from the famous Christmas tree.

And while the concept of a publicly traded company specializing in build-your-own teddy bear may sound funny to some, most analysts aren't laughing. Several analysts are bullish about Build-A-Bear and lavish praise on CEO Maxine Clark (search), with A.G. Edwards calling her one of the five best retailing executives in the industry.

"It's a hot retail concept, a new stock and it's done extremely well," said Sean McGowan, toy analyst at Harris Nesbitt. "If you didn't do any homework on the company and just felt it was a new retail concept in the toy industry, given the record of the industry, you might bet against it."

Among the risks that analysts cite is the possibility of Build-A-Bear growing too fast, and losing its "specialty" appeal, an issue that has plagued other retailers.

"It's a concept that could become saturated, but I think it's going to be a stable business that has a lot of appeal," said Chris Byrne, a toy expert known as "The Toy Guy."

A spokeswoman for the company did not return a phone call seeking comment.

The toy industry has struggled in recent years with slack sales and severe price cutting. Big discounters like Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) slashed prices to attract shoppers. Other major players followed.

What makes the Build-A-Bear concept compelling for consumers is its ability to give shoppers a unique experience, industry watchers say.

Other toy stores have seen success with a specialty model.

Mattel Inc.'s (MAT) American Girl stores in Chicago and New York City have pricey popular merchandise that lures droves of families with museum-like displays, a swanky cafe and a musical revue.

The revamped FAO Schwarz store in Manhattan, which has received strong reviews, also gives shoppers unique merchandise and the ability to "breed" their own plush dogs.

Despite its skeptics, shares of Build-A-Bear have impressed Wall Street. The company went public on Oct. 27 at $20 a share, at the top of its upward revised filing range of $18 to $20 a share. The next day, Build-A-Bear shares opened at $27, hit a high at $27.15, and closed its first day of trading at $25.05 -- up 25.3 percent from its initial offering price.

On Thursday, just in time for Santa Claus, Build-A-Bear's stock jumped to $35, its highest level since its IPO, in New York Stock Exchange trading.

"They've done very well with birthday parties, but when you compare it to an item from Animal Alley (the stuffed animal section of Toys R Us), it still is an expensive stuffed toy," Byrne said. "People are buying an experience and experience is a good place to be in this market."