Earnings Call Transcript - BBW Q2 2022

Operator, Operator

Greetings, and welcome to the Build-A-Bear Workshop Second Quarter and First Half 2022 Earnings Conference Call. Please note that this conference is being recorded.

Allison Malkin, Host

Good morning. Thank you for joining us. With me today are Sharon Price John, CEO, and Voin Todorovic, CFO. Sharon will start by discussing our second quarter and first half fiscal 2022 performance and the progress we've made on our key priorities. Following that, Voin will go over the financials and guidance in more detail. We will then open the call for your questions. Members of the media on the call today should reach out to us after this conference call with any questions. Please note that this call is being recorded and broadcast live online. The earnings release can be found on the Investor Relations section of our corporate website. A replay of the call and webcast will be available later today on the IR site. I would like to remind everyone that forward-looking statements are subject to risks and uncertainties. Actual results could differ significantly from those currently anticipated due to various factors outlined in the Risk Factors section of the company's annual report on Form 10-K. We have no obligation to update any forward-looking statements. Now, I will turn the call over to Sharon.

Sharon Price John, CEO

Thank you, Allison. Good morning, and thanks for joining us today. We are pleased to announce another strong quarterly performance for Build-A-Bear. Following the most profitable year in our company's history, we have built on that performance to deliver an all-time high for total revenues and profitability for the fiscal first half of 2022. We believe that our strategic plan, which capitalizes on our powerful brand executed with discipline and agility is the primary driver of our results. This morning, I will begin with some highlights of our second quarter, followed by an update on the progress of our strategy that focuses on continuing our digital transformation, accelerating our store evolution and leveraging expanded omnichannel capabilities while utilizing our solid balance sheet and free cash flow to support key business initiatives intended to drive further profitable growth. Combined as noted, these initiatives led to a solid second quarter and record-breaking first half even as we navigated continued freight cost pressures and supply chain disruptions. Our overall sales trends and traffic patterns at retail have continued to be positive as we start the third quarter. And while we are mindful of the macroeconomic uncertainties, we have demonstrated an ability to remain nimble and adapt our more diversified business model to navigate challenging circumstances and had already anticipated these supply chain issues and inflationary pressures. Therefore, we are reaffirming our annual guidance. Now let me turn to some highlights of the second quarter and first half. Total revenues were $100.7 million, an increase over our strong top line results in last year's period. For the first half, total revenues were $218.3 million, a record-setting performance for our company's first half, representing a 17% increase over the prior year. Pretax income was $7.6 million for the fiscal 2022 second quarter and includes the impact of approximately $4 million of incremental freight expense. For the first half of fiscal 2022, pretax income was $25.8 million, an increase over the record-setting results of 2021. EBITDA was $10.7 million for the fiscal 2022 second quarter, again, including the impact of incremental freight expense. For the first half of fiscal 2022, EBITDA exceeded $32 million. And subsequent to the end of the second quarter, we completed the $25 million share repurchase authorized by our Board of Directors in November 2021. And as announced yesterday, the Board has authorized a new program, which Voin will cover in more detail. Let me now turn the discussion to our pillars for growth, which include: one, accelerating a broad-reaching and comprehensive digital transformation; two, continuing to evolve our retail experience and footprint while taking advantage of our expanded omnichannel capabilities; and three, leveraging our solid financial position to invest in initiatives intended to drive growth and return value to our shareholders. First, we are confident that our multiyear comprehensive digital transformation is providing benefits to our entire organization and driving positive results. A key to our success has been to bifurcate our digital shopping options and our retail store experience. Rather than solely focusing on digitizing the store experience that families love, a strategic and disciplined shift to diversify the consumer base has contributed to strong e-commerce demand, which is up triple digits compared to 2019 prior to the implementation of some of these initiatives. Online, we over-index with teen and adult consumers, many of whom grew up with our brand. We drive engagement with this segment by offering a curated merchandise assortment that features licensed affinity products, adult-centric fashion and accessories and broad-based gifting programs. Our store experience remains the entertaining hands-on step-by-step process that we're famous for and over-indexes with kids and their families and often leaves lasting memories that become a basis for a lifetime of engagement with our brand. Interestingly, as we've continued to refine our communications and product assortment for older consumers, we've seen this demographic also return to our stores for the experience they know and love at increasing rates. We feel this evolved business model is creating synergy across channels, which is providing stability and resilience for all of our business. The initiatives to diversify our consumer base have contributed to growth in guest acquisition and retention and have positively impacted our database of first-party contacts. As you know, we gained capabilities, which allowed us to accelerate our business makeshift to more efficiently reach an expanded addressable market as we enhanced resources, evolved our talent and improved our digital proficiency. This includes the implementation of select Salesforce products, and I think it's notable that Salesforce has chosen to recognize Build-A-Bear as the marquee Dreamforce customer at their upcoming conference, one of the largest global tech events of the year, indicating the scale of what we've achieved in this space. We are proud of our team and its accomplishments, which has also been recognized as one of America's fastest-growing online shops 2022 and America's best trending online shops 2021 by Newsweek and Statista. In addition to the accomplishments in e-commerce, we believe that our digital marketing campaigns are contributing to sales growth in our retail stores by reaching more consumers and driving traffic in brick-and-mortar stores that continues to be positive and is outpacing reported national retail traffic. We have also seen increased website traffic and engagement related to Build-A-Bear shopping trips, including our plan to visit and find the store pages. These two areas combined represent the second highest entry point to our site, only behind our homepage. In addition, traffic to the section to book a party and get details on our Count Your Candles birthday treat program, which is only offered in stores is also significantly up over the period of the prior year. To be clear, we have been building a diversified yet integrated business model of continuous engagement where each consumer interface with our brand is designed to support, enhance and drive sales through another consumer interface. For example, as noted, our website is designed primarily to drive e-commerce sales through exploration of our core products, gifting and collectible selection, but also while encouraging users to plan a store visit or an in-store party. Store visits and the memory-making engagement and role our talented bar builders play is designed primarily to drive store conversion and dollars per transaction while also encouraging a visit to the website or a suggestion to watch Sayer Honey Girls film on Netflix. Our expanded digital content, including films, social media, TikTok, digital marketing, and our Build-A-Bear Radio is designed primarily to engage consumers while also driving yet another visit to the store or to our website. We've also been adding other digital capabilities to enhance testing to allow us to improve user experiences, more efficiently manage product information, improve site analytics and track users across applications and other sites, all with the goal of driving profitable growth. In addition, we have expanded our e-commerce reach internationally through a relationship with Global-e currently focused on the markets of Canada and Mexico with plans to add other areas in the future. Separately, as we previously reported, we have been in the process of planning for an update to our website for nearly a year, which remains on track for a third quarter release with redesigned site components that are expected to phase in on a cadence basis. With the support of Deloitte Digital, these upgrades are intended to modernize the site, gain efficiency and optimize traffic through improved interfaces to ultimately drive conversion and sales. Given the vast majority of traffic to our site comes through a mobile device, a mobile-first design has been a priority during this development process. Activity has included behind-the-scenes testing as well as the recent upgrade to new tools such as Google Analytics and intelligence modules that provide consumer tracking across applications, software, and websites, providing data to improve conversion. Given that it takes time to feed the intelligence, algorithms, it is not uncommon to see some bumpy e-commerce sales during the learning cycle. This process, along with some challenging comparisons to the prior year, which benefited from the strong launch of a key licensed product collection, negatively impacted our year-over-year e-commerce trend for the quarter, which we anticipated. On an annual basis, digital commerce is still expected to deliver growth, which is reflected in our reaffirmed annual guidance. I do think it's worth noting that our first half e-commerce sales were up 180% compared to the 2019 period, which, as noted, was prior to the implementation of key digital initiatives. Also notable, penetration of digital demand and our net retail sales, which includes e-commerce, has more than doubled for the year's first half compared to 2019. We also are elevating our consumer retention initiatives and believe the recent launch of the Salesforce loyalty module gives us tools that can advance our efforts to increase average annual purchases from the millions of members in our robust and growing Bonus Club as well as leverage our tens of millions of first-party data contacts. Turning to our second pillar, which is continuing to evolve our retail experience and footprint while leveraging our expanded omnichannel capabilities. Year-to-date, 12 new Build-A-Bear retail workshops have been opened, demonstrating the progress we are making to reach our previously announced goal of opening approximately 20 new locations through a combination of corporately managed and third-party retail this fiscal year. We expect to finish fiscal 2022 with a net increase in the number of stores in North America, inclusive of third-party retail sites and have fewer locations in Europe. Combined across geographies and business models, we plan to have more total locations at the end of this fiscal year compared to the end of 2021. We have made a concerted effort to shift to non-traditional locations, including family-centric tourist sites, and now have approximately 35% of total retail locations in non-traditional settings. As consumers have embraced their return to physical and in-person experiences in travel, key metrics in our non-traditional sites have continued to outpace traditional retail locations. As a reminder, our third-party model in which our other companies operate Build-A-Bear Workshop stores, including providing labor and purchasing inventory on a wholesale basis, is heavily weighted to the hospitality industry, primarily in amusement parks, resorts, and with multiunit partners such as Carnival Cruise Lines, Great Wolf Lodge, and Landry. This model is capital-light for Build-A-Bear and an efficient way to leverage our partner's real estate positioning to expand in diverse areas and associate with other premium brands. Third, we remain intent on leveraging our solid financial position to invest in growth while generating sustained profitability. We continue to take advantage of our financial stability to make strategic investments with the goal of driving further profitable growth and directly enhancing shareholder value through the recent completion of our previous buyback program and with plans to buy back additional shares through a newly authorized purchase program announced yesterday, which demonstrates the confidence our Board of Directors continues to have in our strategy and our future. We remain energized as we look forward to the balance of the year and the all-important holiday season with exciting plans, including an early launch of Halloween and seasonal products as consumer demand has continued to lean into these purchases earlier in these categories. The celebration of our 25th anniversary in October, which has been highlighted all year long to drive interest, engagement, and revenue while shining a spotlight on the Build-A-Bear Foundation and the difference it makes in the lives of kids in need. In addition to the release of a nostalgic collection of Furry Friends, we've seen positive reaction to licensed collectible 25th-anniversary products and are highly anticipating the release of upcoming anniversary versions of Fighter Man and Hello Kitty. We also plan to launch a bear to support childhood literacy in September as a part of our National Teddy Bear Day activities. A portion of the sales of each of these bears known as Reed Teddy will support Build-A-Bear Foundation to reach its declared anniversary goal of donating at least 125,000 books through First Book, an organization committed to providing equal access to quality education for kids in underserved communities. Build-A-Bear has plans to enter the metaverse with the introduction of our first NFTs as part of our 25th-anniversary celebration, leveraging our brand strength in a totally new way. This launch is supported by a relationship with a Web3 firm suite, which specializes in global brand NFT experiences, and we believe it further positions our plan in the cultural zeitgeist and allows us to capture the interest of our expanded and passionate Gen-Z and millennial consumer segments who have grown up with Build-A-Bear. Speaking of the Metaverse, we are also pleased to announce that we recently engaged with a digital game development firm to bring a Build-A-Bear experience to a leading gaming platform. Video and online games have been successful for us in the past, and we expect expansion in this highly popular space to give us another key consumer interface to drive engagement with kids and bring brand awareness to the forefront, which can in turn lift our retail store and online sales. Separately, as previously highlighted, we plan to launch products tied to a number of films and series, including Lord of the Rings. In addition, as we advance our new innovative gifting options, we plan to introduce a new product line of family matching pajamas that will be sold online in the soon-to-be-launched Build-A-Bear Pajama shop. Matching family pajamas are on trend, particularly around the holidays, and as a trusted, high-quality brand, we believe this category is a natural extension, especially since our teddy bears often are in the arms of children as they fall asleep. Finally, we are also excited to announce the first-ever Build-A-Bear Pet toy product line, which is planned to be released through a licensed agreement with a leading industry manufacturer for the holiday season. The pet products are scheduled to be featured in over 1,600 PetSmart store locations and through their e-commerce site. In summary, we are proud of our strong second quarter and exceptional first half performance and the progress we are making to maximize the opportunities ahead of us. We believe that we have become a fundamentally different and evolved company with multiple competitive advantages, starting with a strong balance sheet, a powerful and leverageable brand, enhanced digital capabilities, and a business model that features expanded consumer segments and product categories, including toys and gifts that have historically shown resilience through uncertain economic periods. Lastly, I want to acknowledge and offer gratitude to our associates, suppliers, and other business partners that work with us to forge ahead on this successful path. I would also like to congratulate Build-A-Bear Entertainment and the entire cast and crew of the music-driven live-action film Honey Girl for recently winning three 2022 Leo Awards from the British Columbia film industry. We are also looking forward to the silver celebration fundraiser Gala that the Build-A-Bear Foundation is planning to commemorate our 25th anniversary and honor our founder, Maxine Clark, in late October. Again, we want to thank our many sponsors that are supporting that event. In closing, we believe we are in a strong position to achieve further growth and increase value for our stakeholders as we take our first steps into our next 25 years as a more diverse, digitally-focused company that is poised to leverage and profitably monetize our iconic and powerful brand going forward. Now I would like to turn the call over to Voin to provide more details on our year-to-date performance and outlook for the fiscal year.

Voin Todorovic, CFO

Thanks, Sharon, and good morning, everyone. As Sharon noted, we are pleased to have delivered a strong second quarter in fiscal 2022, which contributed to a record-setting first half for total revenues and profitability. In the second quarter, we delivered solid gross margin even with the impact of much higher freight costs and other inflationary pressures as we leverage our SG&A. This brought pretax income for the quarter to $7.6 million, inclusive of incremental freight expense of approximately $3.8 million. Overall, for the first half of the year, we had total revenues of $218.3 million and pretax income of $25.8 million, which, as noted, were all-time highs in the history of our company. As shared in this morning's press release, we have continued to see positive momentum in our business with growth in overall sales and increased retail traffic levels. The combination of a strong first half, ongoing momentum, and a strategy that has led us to sustain profitability gives us confidence that we will achieve our financial goals for the year and are reiterating our annual guidance. Moving now to a review of second quarter results. Total revenues were $100.7 million, a 6.3% increase compared to $94.7 million in the fiscal 2021 second quarter. Our revenue growth was led by retail stores and our commercial and international franchise segment, which expanded over 40% compared to the prior year. Web demand declined 8.4% compared to the fiscal 2021 second quarter as growth in Europe was offset by a decline in North America. As Sharon noted, we believe the decline was driven by a challenging comparative prior year period, which benefited from the introduction of key products that over-indexed in North America as well as the current transition process in advance of the launch of our redesigned website. Compared to fiscal 2019 second quarter, digital demand increased by almost 150%. We expect e-commerce sales for the year to increase for fiscal 2022 compared to fiscal 2021. Gross profit margin was 49.6% compared to our record-setting gross profit margin of 53.2% in our fiscal 2021 second quarter and noteworthy result in factoring in significant macro freight and product cost inflation that we have experienced. While this year's gross profit margin contracted by 360 basis points versus last year's second quarter, when compared to the fiscal 2019 second quarter, gross profit margin improved by 550 basis points. The 2022 results reflect a reduction of approximately 400 basis points in merchandise margin, partially offset by leverage in occupancy and distribution costs as well as lower promotional activity. We expect our ongoing mitigation efforts, along with some moderation in freight costs to improve gross margin in the second half of the year versus the first half of the year. SG&A was $42.3 million, up $1.4 million from the second quarter of fiscal 2021, an improvement of 120 basis points as a percentage of total revenues. As noted, we have plans to continue to make calculated investments to advance our strategy with the goal of driving long-term incremental profitable revenue. We delivered pretax income of $7.6 million despite the incremental $3.8 million in freight expense as compared to record pretax income of $9.5 million in the 2021 second quarter. As a further comparison, our second-quarter pretax income is greater than the full year of fiscal 2019. And EBITDA was $10.7 million, a $1.8 million decrease from $12.5 million in the 2021 second quarter. For the first half of the year, total revenues were $218.3 million, representing the highest first half in the company's history, with growth of 17.1% compared to the fiscal 2021 first half. Pretax income also reached a record-setting level at $25.8 million compared to our previous record of $22.7 million in the fiscal 2021 first half. This is particularly impressive when taking into account that we had over $8 million of incremental freight expenses and still delivered record-setting profitability. Net income was $20 million or $1.27 per diluted share compared to net income of $17.2 million or $1.08 per diluted share in the fiscal 2021 first half. EBITDA was $32.1 million, an increase of $3.3 million versus the fiscal 2021 first half. Subsequent to the quarter end, we completed the stock buyback program that was approved by the Board of Directors in November of 2021, repurchasing over 1.5 million shares. Our robust execution of the buyback plan resulted in repurchasing nearly 10% of the shares outstanding at the end of the fiscal 2021 third quarter. And as previously mentioned, our Board of Directors has now authorized a new share repurchase program of up to $50 million effective through August 31, 2025. We believe this is further validation of the business outlook and belief in our strategy, reflecting the confidence the Board has for our future performance and ability to drive sustained profitable growth while continuing to deliver value to shareholders. Turning to the balance sheet. We ended the second quarter with cash and cash equivalents of $14.4 million compared to $51.1 million at the end of the second quarter last year. The reduced cash position at quarter end compared to the prior year reflects the share repurchases of common stock, payment of a special dividend, and a higher investment in working capital to support strategic initiatives intended to drive further growth, inclusive of the pull forward of inventory receipts. At quarter end, we had no borrowings under our revolving credit facility. We ended the quarter with $87.7 million in inventory, an increase of $40.4 million from the end of fiscal 2021 second quarter. As I just noted, we proactively and strategically accelerated the timing of our order placements, giving us increased quantities of core products, in-demand holiday offerings, and evergreen merchandise collections to support our business momentum as part of our efforts to mitigate ongoing supply chain challenges. In addition to the planned higher unit levels, the inventory balance reflects both higher transportation and product costs. We remain comfortable with the level and composition of our inventory and continue to expect our ending year inventory to be below the fiscal 2021 year-end level. While mindful of the overall macro environment, based on our strong first-half performance and positive trends and outlook, we are reaffirming our fiscal 2022 guidance, which includes total revenues in the range of $440 million to $460 million as compared to $411.5 million in fiscal 2021. Pretax income in the range of $52 million to $62 million as compared to $50.7 million in fiscal 2021. EBITDA in the range of $65 million to $75 million as compared to $63 million in the fiscal 2021. Income tax rate in the range of 24% to 25%; capital expenditures in the range of $10 million to $15 million and depreciation and amortization of approximately $13 million. Please keep in mind that our guidance for growth and profitability takes into account anticipated ongoing inflationary pressures as well as our plans to minimize the impact on margins. Also notable, our outlook assumes no further material changes in the operations of our supply chain, including the ability to receive a strip product on a timely basis, the macroeconomic environment, inflationary pressures, or relevant foreign currency exchange rates. In closing, I am proud of the hard work and accomplishments of our team to deliver a record-setting first half of 2022 on the heels of a previous all-time high annual profitability in 2021 with a strong first half in fiscal 2022 and momentum as we enter the all-important back half of the year, including the holiday season. We look forward to continuing to deliver further success, which would top the record set in 2021.

Operator, Operator

Our first question comes from Eric Beder with SCC Research. Please proceed with your question.

Eric Beder, Analyst

Congratulations on a strong Q2 and the guidance. Could you talk a little bit about your ability to pass along the inflationary pressures you are seeing and your ability to pass them along to consumers and to offset them? What are you seeing in terms of your ability to do that now?

Voin Todorovic, CFO

Thanks, Eric. So Eric, as we think about inflationary pressures, we started to phase those in early last year in the second quarter, we started by selectively increasing our prices and that made some of our comparisons from the margin perspective a little bit more challenging in this quarter, but we continue to stay focused on things that are within our control. We are seeing some unprecedented levels of trade increases caused by supply chain disruptions over the last 12 months. Those are starting to slow down, but as we continue to look at our overall business, we continue to deliver these strong results. And we are trying to find the right balance to make sure that we are passing some of those costs through to higher price increases. But at the same time, we are cognizant of the fact, with the overall macro environment challenges and inflationary pressures and maybe changes in consumer discretionary income levels. So we are still driving the strong business. Our transactions are up, our traffic is high. So we believe that the overall results that we are sharing on a year-to-date basis that are at record level results from last year, continue to show the strong execution that the team has to really support this ongoing challenge and to support our strategy. That’s reaffirming our annual guidance.

Sharon Price John, CEO

Yes, Eric, I think too, it’s usually important to understand some color around that as well, that when we do go in and increase prices, it’s very specific, very scaffold. We don’t just use that term peanut butter, our price increases, because of our diversification strategy to different consumers, with different types of products; those giftable products of collectible products have a lot more elasticity. So we’re able to increase the sale and increase those prices of some of those bundles of these big license collectibles, while keeping some of our core products more approachable, particularly our birthday treat that still remains a Pay Your Age product from the Count Your Candles program. So we do want to have accessibility to a broad range of consumers from adults to kids, but also different socioeconomic strata. And we believe that we’re well positioned because of some of that thinking and strategy if indeed we do see continued economic strains.

Eric Beder, Analyst

Great. And I know that you guys have been rolling out in-store parties. What has been the response to that? And what are the learnings for that going forward?

Sharon Price John, CEO

Yes, we rolled those out in April of this year, because we had been dormant on those from a COVID-related perspective for quite some time. We’re still in the ramp-up and rollout period, and we’re seeing increases in parties on a week-to-week basis, but we have not achieved our pre-pandemic levels yet.

Eric Beder, Analyst

Do you think that’s positive? Is that a goal?

Sharon Price John, CEO

Oh, sure. Yes, it’s certainly a goal. And we are excited about that goal. Parties are an important part of our strategy. They are not only large transactions because they usually involve multiple units. In many ways, the party business serves as a great opportunity to introduce kids to Build-A-Bear that otherwise hadn’t been to Build-A-Bear. We love providing that memory for kids for the rest of their lives too.

Eric Beder, Analyst

Great. And just a quick housekeeping question, in terms of the share buybacks, assuming no more share buybacks, and I’m not assuming that, what is the share count going forward?

Voin Todorovic, CFO

Just Eric, maybe like probably is, we are going to have a little bit more detail in the queue, but I would use around $15 million approximate current share count assuming no buybacks at this point.

Eric Beder, Analyst

Right. And that assumes nothing incremental from the new $15 million.

Voin Todorovic, CFO

Correct. Just announced.

Operator, Operator

Our next question comes from the line of David Kanen with Kanen Wealth Management.

David Kanen, Analyst

Congratulations. And just a quick comment for you and the board. I appreciate you guys listening to the shareholders in particular, large follow-on buyback, getting them to Pet Toys and then, sort of dipping your toe in with the NFT. So I appreciate you guys listening to the shareholders. So just 2 questions, one of them follow-up. The first one is on this deal. This Pet Toys deal, did you say it was PetSmart and PetCo and then is there an exclusivity to it or do you have the flexibility to expand upon it in the future?

Sharon Price John, CEO

Yes, we mentioned that it’s 1,600 PetSmart store locations that we expect to feature our Pet Toys. If you could help me with your question on, what do you mean by expanding?

David Kanen, Analyst

Yes. Is there an exclusivity to it? Could you then move on to PetCo or Peto stores plus or different online venues? Are you limited to selling product to them only?

Sharon Price John, CEO

Well, as a reminder, it is a licensed relationship. So it is our licensed partner that is selling this to PetSmart. And this is a, I believe for the season, it is exclusive, but that does not mean that it is exclusive forever to my understanding. But for this season, there is some exclusivity to it. So when you create relationships like that, there’s usually some benefit that comes with it. I know that there’s going to be some, it’ll be a featured product line for them. We were fully in their distribution.

David Kanen, Analyst

Okay. So when you say Christmas, it’ll be in stores probably in by November, correct?

Sharon Price John, CEO

And I think the usual set for a big box is at mid to late October.

David Kanen, Analyst

Okay. And then going on transportation costs that was sort of the Delta, between last year’s EBITDA and this one and then some, so you alluded to the second half of the year for transportation and freight costs coming down. Could you give us a little more detail quantify it? I think year-over-year we were up what, $3.8 million incrementally. How much of that do you think we’ll get back in the second half of the year?

Voin Todorovic, CFO

Yes, David. We have been facing elevated freight costs throughout Q4 of last year, Q1, and most of Q2. We are beginning to see freight rates decline. The extent of this decrease will depend on timing and the rate of inventory sell-through. We still have some inventory that carries higher freight costs. Therefore, I anticipate that freight costs in Q3 will remain higher than what we expect in Q4. While these rates are dropping, it's uncertain if they will stabilize at these levels. Nonetheless, assuming the current rates, we expect to see improved figures sequentially in Q3 compared to the first half of the year, and again in Q4.

David Kanen, Analyst

Okay. I’m going to be greedy. I’ve got one more quick question. On the buyback, obviously in the pre-market there was weakness, which I view as an opportunity, given the growth we have in front of us with some of these new initiatives, are you blacked out for 48 hours, due to the earnings or are you covered under your 10b5-1, where you could potentially even be in the market today?

Voin Todorovic, CFO

So David, as we think…

Sharon Price John, CEO

Oh, sorry, David. Yes, there’s generally a cooling-off period. And post that we’ll assess the opportunity and as we have done in the past, take advantage where it makes sense to buy back appropriately.

Operator, Operator

Our next question comes from Gary Schnierow with RiverPark Capital. Please proceed with your question.

Gary Schnierow, Analyst

So first a quick housekeeping question, for the second half of the year. Is it still fair to assume that free cash flow is equal to your net income? And then we should adjust that for the inventory adjustment?

Voin Todorovic, CFO

That’s probably fair to assume.

Gary Schnierow, Analyst

Can you help us understand the revenue seasonality from the second quarter to the third quarter? The last few years have made it difficult to analyze trends. Last year, revenue was relatively flat from the second to the third quarter, and I’m not sure if that’s normal. Could you clarify what the typical pattern looks like? Additionally, I expect there might be some positive effects from the ongoing parties ramping up and new store openings. What is the general seasonality?

Voin Todorovic, CFO

Well, when we think about seasonality, quarterly seasonality, clearly as we always said, like Q4 and Q1 are the top two quarters. Q2 and Q3 typically are lower revenue quarters. Some of the based on how they are going to be compared to each other may depend on the promotional activity and different type of product launches that we may have. We haven’t, we are not providing specific guidance for Q3, but like everything is within the full-year guidance that we haven’t changed on the full-year basis. Still that $440 million to $460 million we still expect the second half of the year as historically has been the case to be higher than the first half of the year. As we said, we are entering Q3 with strong momentum and we are pleased with our performance on a year-to-date basis that gave us that confidence to reiterate our guidance. But that’s probably the best I can do at this time from giving you a little bit additional color.

Operator, Operator

Our next question comes from Jeff Feinberg with Feinberg Investments.

Jeff Feinberg, Analyst

Can you guys please talk a little bit about some of the new launches and new products that you’re most excited about?

Sharon Price John, CEO

Absolutely. We have quite a nice pipeline of products that we’re looking forward to as we look out onto Halloween and Christmas and Black Friday. And as I mentioned in the remarks, we are pre-launching some of our holiday products. In fact, you can go online and look in there right now. We’ve gotten a new pumpkin spice assortment that actually got quite a bit of online pickup. So you never know with Build-A-Bear. It’s really interesting how much impact we can make with some of these unique and interesting gifting concepts that aren’t just always for kids. But as we look into forward in the year, we mentioned some of the 25th anniversary, Silver Celebration products that we partnered with key licensors we’ve had, for example, the silver toothless from How to Train Your Dragon. We’ve had Silver Darth Vader Bear and now we have coming up very highly anticipated Hello Kitty, Silver Anniversary Hello Kitty, as well as the Silver Anniversary Spider-Man Bear. We will be finishing our collection of historic favorites from Build-A-Bear as we finish out the year towards this 25th anniversary. Mentioned a few, one of the movie properties that will be reintroducing is Lord of the Rings. We’re also bringing out the second version of Puss in Boots. And of course, a lot of course, is usually driven around our Merry Mission product line. That's been historically our best-selling product line during the holiday period, particularly Glisten, which is our key, our own intellectual property product, which is a white reindeer that is our best-selling product generally in the December time period. So a lot of excitement as we look forward.

Jeff Feinberg, Analyst

Wonderful. And would you expect the new product mix to have on average the same or a little higher price points?

Sharon Price John, CEO

On average, we expect to have slightly higher price points. Regarding the pricing strategy, we have a framework that guides our approach, and we generally take a careful approach when adjusting prices. However, we've had to adopt a broader pricing strategy to address some of the increased freight costs, similar to what many other retailers are experiencing.

Jeff Feinberg, Analyst

Okay. But this should budget and really assist in the second half?

Sharon Price John, CEO

That’s right.

Operator, Operator

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Sharon Price John, CEO

Thank you so much for joining us today. We look forward to updating you further on our next call.

Operator, Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.