Last Updated on December 18, 2025 by Jason Andrew
Which stock has outperformed Palantir and NVIDIA over the past 5 years?
It’s not a technology company…
It’s not even a new business…
It’s Build-A-Bear Workshop.
In 2021, their business was completely written off by investors, trading for <$20m.
Today, the business is closer to A$1bn in market cap and ripping in the public markets.
Let’s break down how a focus on exceptional operations, brand, and financial discipline has led to venture-like returns for everyone’s favourite teddy bear company.
COVID Disaster
Before we talk about why the business is doing well, we need to talk about what went wrong during COVID.
Well, in 2021, Build-A-Bear was in the bin, so to speak.
The business had been absolutely crushed by COVID.
Revenue was down by ~$80m, gross margins fell from ~43% to ~25% in only a quarter, as the business was forced to halt much of its in-person operations.
Losing 25% of your business overnight is rough — but it’s even worse when this revenue drop is paired with a huge decline in operating margins.
Roughly ~90% of Build-A-Bear’s business comes from in-store sales, so the lockdowns smashed topline sales as fewer people were out and about shopping.
Investors thought exactly the same thing.
In the span of ~2 months, the stock price fell from $4.50 to $1.50, reducing the value of the business by over 2/3.
But all hope was not lost.
Fortunately, the business was very well capitalised, with no debt on the balance sheet, providing a significant cushion.
Turnaround Story
So how did Sharon Price John turn the business around?
She realised what many of the great consumer brands do: all of the value is in building an ecosystem.
What Disney, Lego, Marvel, and other consumer brands all do incredibly well is that they build experiences to create a universe.
New products. New theme parks. Merchandising. Licensing. They build a world so that everyone can taste a little bit of the magic.
Because there’s a child inside all of us.
In the words of the CEO:
“The Build-A-Bear brand was still very strong. But we had a business problem.
In many ways, a business problem is much easier to fix than a brand problem.”
— Sharon Price John, CEO of Build-A-Bear Workshop
So she used the Build-A-Bear Workshop IP — the joy of creating and building your own creation — and aggressively scaled the business through intellectual property partnerships, stores in new geographies, franchising and partner stores, and an online segment.
Expansion Strategy
One of the key pillars of the expansion strategy was partnerships.
Similar to Lego, Build-A-Bear has very few direct competitors in its market. Their experience is one of one.
But if you can make your own stuffed bear, why can’t you also make a Harry Potter toy or a Toy Story character?
You get the picture. Thinking about the opportunity to partner with other brands through licensing products was a huge unlock for collectors.
For the brands, it helps build awareness by partnering with a best-in-class retail operator, providing an experience they would be unable to deliver on their own. And sell they did.
Build-A-Bear launched collaborations with:
- Marvel
- Star Wars
- Harry Potter
- Pokémon
- Hello Kitty
- Swarovski
- Barbie
- Kung Fu Panda
- Marvel
… and the list goes on.
Diversify, Diversify, Diversify
One of the core pillars of Build-A-Bear’s strategy has been diversification.
This is because the core business was working — stuffed toy workshops where children could build their own bears.
But they were heavily concentrated in a consumer discretionary category with a relatively narrow customer base.
So the business needed to diversify.
In practice, this diversification took the form of:
- Diversifying by customer type
- Diversifying by geography
- Diversifying by sales channel
- Diversifying by customer type
Like many astute CEOs, Sharon realised that COVID presented an opportunity to accelerate their online segment.
So Build-A-Bear pushed aggressively into ecommerce.
“What can we do if our entire retail strategy shuts down?
We focused entirely on ecommerce and other omnichannel strategies that most retailers don’t get to.
This pulled forward progress by 3 years or so.”
— Sharon Price John, CEO of Build-A-Bear Workshop
This helped accelerate their online sales, offsetting the over 5–6 years of declining foot traffic in malls up to 2022.
On top of ecommerce, they also expanded into a “nostalgic” category to target teens and adults.
Today, 40% of sales are now accounted for by this older demographic, and it helps create a stickier customer who is unlikely to get bored with their bear as they grow up.
Another underrated aspect of the business model is that up to 80% of store visits are planned, showing the value of having deeper relationships with customers.
Retail Store Positioning
One of the most interesting aspects of Build-A-Bear is its ability to find value in places most people aren’t looking.
One of these was their store-placement strategy.
When the CEO inherited the business back in 2013–2014 from the previous Founder, nearly ~20% of stores were unprofitable.
Today, 100% of Build-A-Bear owned and operated stores are profitable.
What did they identify?
Initially, they weren’t able to easily identify what separated the great stores from the underperforming ones. The issue wasn’t regional.
So they ran a customer segmentation study using internal data scientists.
One of the non-obvious trends was that all of the profitable stores were in tourist locations.
Tada.
So they made the strategic decision to enter into permanent locations with more tourists.
Places like:
- Theme parks
- Carnival Cruise Lines
- Great Wolf Lodge
- Theme parks
Products are then specifically procured for the area where they are going to be located.
If you want to understand how your business stacks up against companies like this:
👉Arrange a call with SBO to unpack your margins, unit economics, and capital allocation decisions.
Aggressive Store Rollout
Once they had identified where to put the stores, the next step was scaling aggressively.
Fixing store unit economics lays the foundation for aggressive store expansion because it ensures strong returns on capital outlays.
In fact, the business has very strong ROICs, exceeding 30%.
This rollout has been through fully owned and operated stores, as well as a range of franchises and partner stores.
The advantage of growing partner stores is that it enables Build-A-Bear to place stores in exotic locations with higher foot traffic (like cruise ships), while also reducing the capex outlays required to finance growth.
Having more stores is incredibly important, as the 1:1 relationship with the customer is what drives loyalty and keeps them coming back online or buying gifts for friends.
Margins
Margins are the hallmark of any great business. For a retailer like Build-A-Bear, 55%+ gross margins are very solid.
Gross margins were only 43% in 2019, up over 10% in the last 6 years.
This is a masterclass in operational efficiency.
The business has shown margin improvement every quarter over this period (excluding COVID impacts).
This was driven by a sustained focus on continuous improvement, finding value through:
- Reducing freight costs
- Working directly with manufacturers on sourcing
- Scouring the entire supply chain
- Reducing freight costs
It’s always difficult to pinpoint exactly where these advantages come from in investor presentations, but you can hear in the way the CFO speaks that they fought tooth and nail for every basis point.
Financials
Let’s talk numbers. Apart from the red blip in FY21, these financials are very clean.
Despite a big drop in FY21, revenue growth more than recovered in FY22, growing 61% YoY (and up 21% relative to FY20 levels).
While topline growth has slowed in FY24, improving margins across EBITDA, EBIT, and free cash flow have allowed the business to deliver record profits for three years running, with FY25 on track to be its best year yet.
Build-A-Bear’s capital markets strategy has also been excellent.
With no debt (excluding lease liabilities) and sufficient free cash flow to fund store expansion, they chose to return capital to investors through dividends and buybacks.
This included:
- Authorising $25m of buybacks in August 2021
- Authorising another $50m in August 2022 (with $44m utilised as of September 2024)
- Authorising another $100m in September 2024 (with $20m used so far)
- Authorising $25m of buybacks in August 2021
Since 2021, the company has returned $115m to shareholders through buybacks and dividends.
Beautiful.
This was enabled by a strong balance sheet and solid free cash margins.
Why were buybacks the right choice? Because the stock was trading at a discount to intrinsic value.
In the words of Buffett:
“If you do it at the right price, there’s nothing better than buying in your own business.”
For Build-A-Bear, this was certainly the case.
In August 2021, prior to the first buyback decision approved by the board, the business was trading at an enterprise value of ~$180m on ~$47.5m of EBITDA — an EV/EBITDA multiple of 3.8x on a six-month forward basis.
Cheap as chips.
By August 2022, the market cap and EV had only risen to $280m and $265m respectively, with an EV/EBITDA multiple of 3.9x (six months forward). Still very low.
What is Wall St Missing?
Despite four years of consistently improving financials, a debt-free balance sheet, and a solid expansion strategy, Build-A-Bear trades at only ~10.0x LTM EBITDA and remains relatively overlooked by many Wall Street analysts.
Why?
Maybe Wall Street just doesn’t care enough about teddy bears…
But seriously, what’s going on here?
In the words of the CEO:
“We aren’t the type of business that you can easily fit into a box. We are an experiential retailer. Now that we’re omnichannel, there isn’t one consumer or one idea you can hone in on.”
I don’t think we’ll see a teddy bear retailer trading on a Palantir multiple anytime soon.
Still, I know a well-run business when I see one — and Build-A-Bear has it in spades.
If you’re running, scaling, or investing in a consumer or retail business and want to understand what great really looks like:
👉Book a confidential call with SBO to analyse your margins, growth levers, and long-term value creation.
