Build-A-Bear Workshop, Inc. Investment Thesis

Build-A-Bear Workshop, Inc. (NYSE: BBW) is positioned as a unique experiential retail brand in the toy industry, offering customizable stuffed animals combined with interactive retail experiences. The company's strategic partnerships, undervalued brand equity, and focus on customer experience contribute to its investment attractiveness. With a projected revenue growth and new partnerships, Build-A-Bear presents a compelling equity investment opportunity with significant upside potential. The company's successful business model, strong brand recognition, and expansion plans further support a positive outlook.

• Build-A-Bear Workshop
• Investment Thesis
• NYSE: BBW
• Experiential Retail
• Strategic Partnerships

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1. Build A Bear Workshop, Inc. (NYSE: BBW) NDIC February 20th, 2020 Zach Margovskiy, Alejandro Perez Elorza Arce, Chris Clinton

2. Which Company Does Not Belong? 2

3. Investment Thesis Recommendation: Given Build a Bear s (NYSE:BBW) unique experience in the toy industry, their potential for strategic partnerships, and their undervalued brand equity, it offers a very attractive equity investment opportunity with substantial 3 year upside; we recommend a buy at this time Rationale Given Build a Bear s experiential retail, they are well poised to survive the retail apocalypse, with their future strategic partnerships, and their undervalued brand equity, we believe that the market is discounting them too negatively--BBW offers a very attractive equity investment opportunity with substantial multiyear upside, they are therefore we recommend a buy at this time 1 Retail as an experience: More than a product 2 Exploiting strategic partnerships 3 Strong brand equity & high customer awareness Final Price Target: $5.57 Upside: 26.59% The Brands Moms Trust and Kids Love You don t go to build a bear just for a stuffed animal, you go for an experience - Anonymous 3

4. Build A Bear Overview Formed in 1997 by Maxine Clark Specialty retailer in make customizable stuffed animal, in an interactive retail experience 371 corporately managed locations (315 U.S., 60 Canada) 1,000 full time employees, 3,300 regular part time employees Total of 104 international locations, with 59 in Europe Ownership Breakdown Build-a-Bear ( NYSE: BBW) 2019 Revenue: 2020 Projected Revenue: 335 Million 337 Million Sharon John Price Director, President and CEO CEO since 2013, worked at Hasbro for 13 years Key News 12% Key parentship with Baby Yoda 28% New Sonic The Hedge Hog Partnership 60% Shareholder Breakdown Shareholders % Float Opening new locations in partnership with Walmart Individual Stakeholders Other Mutual Funds Pacifica Capital Investments LLC 5.49% Projected 2020 Revenue (MM) Solas Capital Management LLC 4.89% New products being created Q4 $103 The Vanguard Group, Inc 3.98% Q3 $70 Q2 $79 Strong 2019 Q3 Sales Renaissance Technologies LLC 3.96% Q1 $84 0 50 100 150 4 Cap IQ, Bloomberg, BBW 10k/10q

5. Company Overview Ctd. Business Model Equity Value: $66.97M Gross Margin: 42.97% Creates value through its ability to sell a physical product and an experience 361 company-leased retail stores worldwide and 102 franchise retail stores Primary Revenue comes from Direct-to-Consumer sales 84% of Revenue comes from North America 15% of Revenue comes from Europe Much more ability to expand in Europe, most of the region hasn t experienced BBW yet Enterprise Value: $196.8M 50 Day Trading Avg: $4.18 Analyst Rating: BUY Price Target $7.25 TEV/EBITDA 25.97x Beta: .75 EBITDA: 8.54M Short % :~10% Total Debt: $160M Experience: Priceless Total Bears Sold/Mkt Cap: 2.993x Current Partnerships BBW website, 10k

6. Industry Overview Parents' Way of Finding Out About New Toys Key Economic Drivers Per Capita Disposable Income Number of children 2-9 Global fads & Hollywood Advice in store Websites for parents Online research Decrease in American Birth Rates Rise of E-commerce Increased desire for technological products Recommendations from friends Disruptors Special offers / discount sales Advertising Consumer Behavior The child/children talk about it Parents want to maximize each dollar spent of child s entertainment Rise of millennial digitally competent - parents 0 10 20 30 40 50 60 70 Percent Share of Respondents Main Competitors Total Toy Industry Market Size in $BN - Largest Toy Market: Europe - Fastest Growing Market: Asia $90.4 $89.7 $86.9 - Overall Market is dominated by 7 overall players, with no one company having a competitive advantage $82.8 $79.3 $77.0 - $21 billion in revenue - $1.2 billion in profit 2013 2014 2015 2016 2017 2018 Source: IBISWorld; Statista; Toy Association

7. Key Catalysts Strategic Partnerships eCommerce Growth Recently entered into an agreement with Disney whereas Build a Bear would have rights to sell a Baby Yoda plush across their stores, sending their stock surging The toy has yet to come out in store, but with the right branding, like their 2018 promotion of allowing people to pay their age for a toy, expect a nice headline boost Seeing how well this deal was received, Build a Bear likely will engage in further strategic partnerships to further push the brand like a potential deal with Planter s Baby Nut Mentioned that eCommerce prevalence was a priority for them going forward with the decline in mall shopping Cash from operations has and will emphasize ongoing strategic initiatives including eCommerce and digital platforms 9 consecutive quarter of double-digit ecommerce growth Their business has been predominantly brick and mortar so far, but they see a need to adapt and grow with the times to compete with companies like Amazon and Walmart, beyond Hasbro and Mattel Geographic Expansion Undervalued Brand Equity Build-A-Bear is a brand that Moms Trust and Kids Love 90% brand awareness of US Moms of Kids ages 2- 12 Market cap of ~68M, their brand has to have more value than that, just need to unlock the value in it through various marketing and reinvention campaigns Currently operating in the U.K, Canada, Ireland, Denmark, and China, with an predominant focus in the US Much more room for growth in areas like South America, where, with enough discretionary income, consumers could add a lot of growth in BBW revenue Spreads their brand even further they re not a hard company/product to understand, people will be drawn to a cuddly teddy bear you make yourself 7

8. Advantages to firm/undervalued brand They re a safe company in the prevailing doom of retail BBW doesn t sell you just a bear, you can get that anywhere the message is that they allow you to build something with your own hands with your kid They re taking steps to monetize their brand assets through their excess cash through more advertising Since they have no long-term debt all just short term leases, if they see an emerging trend or future growth in a sector, they can capitalize on it immediately Their goal is to deliver long-term sustainable profitable growth 90% of mom s know about it--just need to incentivize them to come to the stores Better promotions like 2018 pay your age 8

9. The Build A Bear Experience Build a Bear Offers More Than A Toy 7 Step Experience 1. Ability to choose your new friend 1. Options range from superhero to mascot to animal 2. Ability to add sound effects 3. Ability to customize you new friend 1. Option to choose their sounds, scents, stuffing, and special hear First Hug 1. Have the opportunity to hug your friend for the first time to make sure his stuffing in just right 5. Ability to dress your new friend 1. Choose from a variety of outfits and accessories Name your new friend 1. The first time you build a personal connection with your furry friend Take your new friend home 1. Make memories forever Why this Matters Build A Bear differentiates itself from competitors Competitors merely offer a product, Build A Bear offers an experience in addition to a product Retail is an area where customer experience and expectations significantly differ 73% of people believe customer experience as an important factor 65% of people believe positive experience is more influential than great advertising You cannot offer an experience via e-commerce 4. 6. 7. 9

10. How to tap into brand potential Focus on leveraging experience through digital commerce growth Focus on expansion in 3rd party retail as well as management of corporate portfolio to optimize profitability; improve conversion and dollars per transaction while further investing in the on-going evolution of marketing spend to social and digital media to drive store visits and enhance and add programs to drive store traffic. Diversify revenue through outbound licensing and entertainment Management knows that their brand equity is very undervalued and have a plan to enhance and grow it steadily 10

11. eCommerce and Digital plan Opportunity to grow with third party marketplaces (e.g. Amazon) as well as primary store shopping segment (families with children) Prime certified, branded shopfront on Amazon.com starting to deliver revenue growth Opportunity to add innovative digital shopping experiences to engage consumers seeking experience (over convenience) Expect to leverage rich data from engaged Bonus Club membership to drive incremental purchases Over 7 million total Bonus Club members and 8 million opted-in email accounts for marketing Opportunity to further develop segmentation and consumer journey models Implementation of enhanced site features to personalize offers and drive traffic and productivity Expect to leverage trends to online shopping as well as our own current momentum to continue to fuel growth Focus on secondary store segments of gift givers and affinity that prefer to shop online has driven growth without cannibalizing traditional retail Opportunity to expand adult gifting merchandise categories Affinity segments connect with limited and web-exclusive products Expect to expand omni-channel model Continue to refine digital marketing 11

12. What is the Market missing? Build a Bear is not a typical brick and mortar toy retailer they re different and it offers them a path for survival unlike Macy s or JC Penny Believe in the experience, buying a toy in a plastic box off of a shelf is no replacement for building it with your own hands with your children this is a product that can t really be replicated because it s so well known They have options for turning around or looking for strategic alternatives, their brand has more embedded value in it than the market prices in, they just really need to tap into it They have no immediate competitor there is no prevailing Nordstrom out there This store is Amazon impervious, the value of BBW is not the goods, it s the experience and Amazon can t take that away, plus they have no real competitors in the space Analysts have been so negative on the company for so long that all they have to do is mildly surprise and their stock should have a relief rally Plus, even just their name and logo is worth more than ~$68 Million, they ve completely penetrated and dominated the market There is a have turnaround plan in place; management has talked about an aggressive digital first approach including: Shifting to Bonus club activation, personalized gifting, and much more licensed products 95% of managed stores have positive four- wall contribution, they re doing okay overall With 70% of their stores having options for leases in the next three years, changes to more profitable locations can and will easily be had BBW does not deserve to be relegated to the dog house with the rest of retail 12

13. Plan for Customer Retention 13

14. Key Risks and Mitigants Risks Mitigants Not a large concern as their products aren t priced in a luxury line, plus economic conditions right now are very easy, with low interest rates and a fed that has showed it is willing to act Decline in global economic conditions, leading to reduced global spending on discretionary goods Leading to reduced global spending on discretionary goods Decline in BBW s key source of revenue They believe their capital structure and credit facilities will provide much more than sufficient liquidity Have been trying to mitigate this through increased investment in their eCommerce platform, with steady growth in that space Depend on shopping malls and tourist locations that have been slowly but steadily declining in consumer traffic due to the rise of online shopping 70% of their leases have options in the next three years, could move onto more successful malls and real estate Build A Bear is also more of a destination retailer than some other stores, meaning people often come to the mall just for them, leading to them being less hurt by decreased consumer traffic Inability to get or maintain strategic partnerships Part of their future path to growth involves signing deals like the one they did with Disney They have anticipated agreements with Chuck E Cheese s and Wyndom Resorts coming Future growth in the brand depends a lot on trendy partnerships with other companies like Disney, Warner Bros, and more This is not seemingly an issue as management has shown that they re willing and have been able to get deals and partnerships done, as seen by the recent Baby Yoda deal that they signed with Disney Rapidly changing consumer interests A risk is that perhaps with the decline in malls, Build A Bear will become less of a destination spot for shoppers, their eCommerce arm will have to spin up if this were to occur With a traditional toy business, this would be more of an issue, but Build A Bear keeps very low inventory at their stores, allowing them to adjust their product offerings quickly as long as they have their strategic partnerships secured 14

15. WACC Calculation 15

16. Comparable Companies 16

17. DCF Base Valuation 17

18. Final Recommendation We recommend a BUY for Build-A-Bear, with the expectation that the company will capitalize on their brand equity and digital growth to contribute positive, steady, and market exceeding growing returns The firm will be able to move their underperforming stores in the upcoming 3 years given their lease options, putting them in more profitable locations BBW has a competitive advantage over its competitors driven by their focus on experience instead of product protecting them from the Amazon effect they re not traditional brick and mortar retail With a focus on digital, BBW is creating a flywheel effect whereas if brick and mortar sales keep falling, they can focus on the experience of customizing their product online, isolating themselves from more pain As more partnerships are announced and implemented, BBW will have more offerings and due to their business model can quickly cycle through changing trends and give the consumer what they want Final Price Target: $5.57 Upside: 26.59% 18

19. Appendix 19

20. DCF Operating Build out/Assumptions 20

21. DCF Bull Valuation Price Target: $6.37 Upside: 44.77% 21

22. DCF Bear Valuation Price Target: $4.79 Upside: 8.86% 22

23. Questions? 23