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| FLWS > SEC Filings for FLWS > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
Forward Looking Statements
This "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-Q and in the Company's Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption "Forward-Looking Information" and under Part II Item 1A -- "Risk Factors".
Overview
1-800-FLOWERS.COM, Inc. is the world's leading florist and gift shop. For more than 30 years, 1-800-FLOWERS.COM, Inc. has been providing customers with fresh flowers and the finest selection of plants, gift baskets, gourmet foods, confections, balloons and plush stuffed animals perfect for every occasion. 1-800-FLOWERS.COM(R) (1-800-356-9377 or www.1800flowers.com) was listed as a Top 50 Online Retailer by Internet Retailer in 2006, as well as 2008 Laureate Honoree by the Computerworld Honors Program and the recipient of ICMI's 2006 Global Call Center of the Year Award. 1-800-FLOWERS.COM offers the best of both worlds: exquisite arrangements created by some of the nation's top floral artists and hand-delivered the same day, and spectacular flowers shipped overnight Fresh From Our Growers(R). As always, 100% satisfaction and and freshness are guaranteed. Also, visit 1-800-Flowers en Espanol (www.1800flowersenespanol.com). The Company's BloomNet(R) international floral wire service provides (www.mybloomnet.net) a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably.
The 1-800-FLOWERS.COM, Inc. "Gift Shop" also includes gourmet gifts such as
popcorn and specialty treats from The Popcorn Factory(R) (1-800-541-2676 or
www.thepopcornfactory.com); cookies and baked gifts from Cheryl&Co.(R)
(1-800-443-8124 or www.cherylandco.com); premium chocolates and confections from
Fannie May(R) Confections Brands (www.fanniemay.com and www.harrylondon.com);
wine gifts from Ambrosia(R) (www.ambrosia.com) and Geerlings & Wade
(www.Geerwade.com); gift baskets from 1-800-BASKETS.COM(R) (www.1800baskets.com)
and DesignPacTM Gifts (www.designpac.com); Celebrations(R)
(www.celebrations.com), a new premier online destination for fabulous party
ideas and planning tips; as well as Home Decor and Children's Gifts from Plow &
Hearth(R) (1-800-627-1712 or www.plowandhearth.com), Wind & Weather(R)
(www.windandweather.com), HearthSong(R) (www.hearthsong.com) and Magic Cabin(R)
(www.magiccabin.com).
Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market under ticker symbol FLWS.
Category Information
The Company has segmented its organization to improve execution and customer
focus and to align its resources to meet the demands of the markets it serves.
The following table presents the contribution of net revenues, gross profit and
category contribution margin or category "Adjusted EBITDA" (earnings before
interest, taxes, depreciation and amortization, and goodwill and intangible
impairment) from each of the Company's business categories.
Three Months Ended Nine Months Ended
----------------------------------------- --------------------------------------------
March 29, March 30, March 29, March 30,
2009 2008 % Change 2009 2008 % Change
-------------- -------------- ---------- -------------- ------------- -----------
(in thousands)
Net revenues:
1-800-Flowers.com Consumer Floral $105,326 $141,018 (25.3)% $285,909 $342,687 (16.6)%
BloomNet Wire Service 16,957 15,410 10.0% 47,823 38,033 25.7%
Gourmet Food & Gift Baskets 33,266 39,675 (16.2)% 212,305 173,442 22.4%
Home & Children's Gifts 18,492 24,565 (24.7)% 118,844 147,313 (19.3)%
Corporate (*) 174 371 (53.1)% 975 2,081 (53.1)%
Intercompany eliminations (1,244) (1,472) 15.5% (5,524) (3,977) (38.9)%
-------------- -------------- -------------- -------------
Total net revenues $172,971 $219,567 (21.2)% $660,332 $699,579 (5.6)%
============== ============== ============== =============
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Three Months Ended Nine Months Ended
----------------------------------------- --------------------------------------------
March 29, March 30, March 29, March 30,
2009 2008 % Change 2009 2008 % Change
-------------- -------------- ---------- -------------- ------------- -----------
(in thousands)
Gross profit:
1-800-Flowers.com Consumer Floral $37,291 $53,520 (30.3)% $104,918 $132,540 (20.8)%
35.4% 38.0% 36.7% 38.7%
BloomNet Wire Service 9,382 8,419 11.4% 26,488 21,301 24.4%
55.3% 54.6% 55.4% 56.0%
Gourmet Food & Gift Baskets 15,171 18,221 (16.7)% 83,499 82,002 1.8%
45.6% 45.9% 39.3% 47.3%
Home & Children's Gifts 7,865 9,544 (17.6)% 55,070 66,341 (17.0)%
42.5% 38.9% 46.3% 45.0%
Corporate (*) (86) 79 (208.9)% 239 842 (71.6)%
(49.4)% 21.3% 24.5% 40.5%
Intercompany eliminations (47) (278) (523) (584)
------------- -------------- -------------- --------------
Total gross profit $69,576 $89,505 (22.3)% $269,691 $302,442 (10.8)%
============= ============== ============== ==============
40.2% 40.8% 40.8% 43.2%
============= ============== ============== ==============
Three Months Ended Nine Months Ended
----------------------------------------- --------------------------------------------
March 29, March 30, March 29, March 30,
Adjusted EBITDA(**) 2009 2008 % Change 2009 2008 % Change
-------------- -------------- ---------- -------------- ------------- -----------
(in thousands)
Category Contribution Margin:
1-800-Flowers.com Consumer Floral $7,753 $17,221 (55.0)% $27,346 $42,727 (36.0)%
BloomNet Wire Service 5,542 5,561 (0.3)% 14,800 12,583 17.6%
Gourmet Food & Gift Baskets 918 3,281 (72.0)% 26,134 26,338 (0.8)%
Home & Children's Gifts (2,074) (3,239) 36.0% (1,522) 3,212 (147.4)%
------------- -------------- -------------- --------------
Category Contribution Margin Subtotal 12,139 22,824 (46.8)% 66,758 84,860 (21.3)%
Corporate (*) (13,683) (12,572) (8.8)% (37,696) (39,364) 4.2%
------------- -------------- -------------- --------------
Adjusted EBITDA $(1,544) $10,252 (115.0)% $29,062 $45,496 (36.1)%
============= ============== ============== ==============
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(**) Performance is measured based on category contribution margin or category
Adjusted EBITDA, reflecting only the direct controllable revenue and
operating expenses of the categories. As such, management's measure of
profitability for these categories does not include the effect of corporate
overhead, described above, nor does it include depreciation and
amortization, goodwill and intangible impairment, other income (net), and
income taxes. Management utilizes EBITDA as a performance measurement tool
because it considers such information a meaningful supplemental measure of
its performance and believes it is frequently used by the investment
community in the evaluation of companies with comparable market
capitalization. The Company also uses EBITDA as one of the factors used to
determine the total amount of bonuses available to be awarded to executive
officers and other employees. The Company's credit agreement uses EBITDA
(with additional adjustments) to measure compliance with covenants such as
the interest coverage ratio and consolidated leverage ratio. EBITDA is also
used by the Company to evaluate and price potential acquisition candidates.
EBITDA has limitations as an analytical tool, and should not be considered
in isolation or as a substitute for analysis of the Company's results as
reported under GAAP. Some of these limitations are: (a) EBITDA does not
reflect changes in, or cash requirements for, the Company's working capital
needs; (b) EBITDA does not reflect the significant interest expense, or the
cash requirements necessary to service interest or principal payments, on
the Company's debts; and (c) although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized may have to be
replaced in the future, and EBITDA does not reflect any cash requirements
for such capital expenditures. Because of these limitations, EBITDA should
only be used on a supplemental basis combined with GAAP results when
evaluating the Company's performance.
Reconciliation of Net (Loss) Income to Adjusted EBITDA:
Three Months Ended Nine Months Ended
------------------------ -------------------------
March 29, March 30, March 29, March 30,
2009 2008 2009 2008
----------- ------------ ---------- -------------
(in thousands)
----------- -------------------------- -------------
Net (loss) income ($65,775) $3,290 ($76,190) $16,756
Add:
Interest expense 1,103 1,073 4,769 4,355
Depreciation and amortization 6,144 5.011 17,629 14,848
Income tax expense (19,362 1,266 (13,329) 10,428
Goodwill and intangible impairment 76,460 - 96,496 -
Less:
Interest income 56 363 228 836
Other expense (income) 58 25 85 55
----------- ------------ ---------- -------------
Adjusted EBITDA ($1,544) $10,252 $29,062 $45,496
=========== ============ ========== =============
Results of Operations
Net Revenues
Three Months Ended Nine Months Ended
----------------------------------------- --------------------------------------------
March 29, March 30, March 29, March 30,
2009 2008 % Change 2009 2008 % Change
-------------- -------------- ---------- -------------- ------------- -----------
(in thousands)
Net revenues:
E-Commerce $131,946 $177,476 (25.7)% $469,818 $566,147 (17.0)%
Other 41,025 42,091 (2.5)% 190,514 133,432 42.8%
-------------- -------------- -------------- ------------- -----------
Total net revenues $172,971 $219,567 (21.2)% $660,332 $699,579 (5.6)%
============== ============== ============== =============
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During the three and nine months ended March 29, 2009, revenues declined by 21.2% and 5.6% in comparison to the respective prior year periods, resulting from continued weakness in the retail economy, and, to a lesser extent, the shift in the Easter holiday, which fell in the third quarter during the prior fiscal year and accounted for approximately $7.0 million in net revenue, as well as the date placement of Valentines Day, which fell on a Saturday this year, rather than a weekday, which is historically much better for the Company's online business. The decline was partially offset by growth in the Company's BloomNet Wire Service category, which increased during the three and nine months ended March 29, 2009 by 10.0% and 25.7% over the respective prior year periods due to the acquisition of Napco, a wholesaler of floral hardgoods, in July 2008. Organic revenue, excluding the revenue associated with the acquisitions of DesignPac, Napco, and Geerlings & Wade, declined approximately 23.2% and 15.5% respectively, during the three and nine months ended March 29, 2009. Geerlings & Wade, acquired on March 25, 2009, contributed an insignificant amount of revenues during the quarter.
The Company fulfilled approximately 2,096,000 and 7,413,000 orders through its E-commerce sales channels (online and telephonic sales) during the three and nine months ended March 29, 2009, respectively, decreasing by 23.5% and 15.7%, over the respective prior year periods, reflecting the continued decline in consumer spending, as well as the shift in the timing of the Easter Holiday. The Company's E-commerce average order values during the three and nine months ended March 29, 2009, of $62.96 and $63.38, decreased 2.8% and 1.5% in comparison to the respective prior year periods.
Other revenues for the three months ended March 29, 2009, decreased over the prior year as a result of lower retail store sales, which were negatively impacted by the overall weakness of the economy, whereas other revenues for the nine months ended March 29, 2009 increased in comparison to the same period of the prior year as a result of the Company's recent acquisitions of Napco and DesignPac.
The 1-800-Flowers.com Consumer Floral category includes the operations of the 1-800-Flowers brand which derives revenue from the sale of consumer floral products through its E-Commerce sales channels (telephonic and online sales) and company-owned and operated retail floral stores, as well as royalties from its franchise operations. Net revenues during the three and nine months ended March 29, 2009 decreased 25.3% and 16.6%, respectively, over the prior year periods
due to lower order volume as a result of continued decline in demand throughout the consumer sector, caused by as a result of the weak economy, combined with the shift in the Easter Holiday, and Valentines Day falling on a Saturday this year compared to Thursday of the prior year. 1-800-Flowers e-commerce business has historically performed better when Valentine's Day falls on a weekday, rather than a weekend.
The BloomNet Wire Service category includes revenues from membership fees as well as other product and service offerings to florists. Net revenues during the three and nine months ended March 29, 2009 increased 10.0% and 25.7%, respectively, over the prior year periods, primarily as a result of the incremental revenue generated by the acquisition of Napco in July 2008, and continued growth within the category as a result of market share improvements, as well as expanded service offerings and pricing initiatives, which offset declines in wholesale product sales.
The Gourmet Food & Gift Baskets category includes the revenues of Cheryl & Co., Fannie May (including Harry London), Popcorn Factory, The Winetasting Network (including Geerlings & Wade) and DesignPac brands. Revenue is derived from the sale of cookies, baked gifts, premium chocolates and confections, gourmet popcorn, wine gifts and gift baskets through its E-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Cheryl & Co. and Fannie May brands, as well as wholesale operations. During the three months ended March 29, 2009, net revenue decreased 16.2% compared to the prior year period, reflecting overall weakness in the retail environment and the shift of the Easter holiday into the fourth quarter. Net revenue during the nine months ended March 29, 2009, increased by 22.4% over the prior year period as a result of incremental wholesales revenue generated by DesignPac, acquired in April 2008, but was partially offset by decreased net revenue from the category's E-Commerce and retail stores channels as a result of reduced consumer spending and the shift of the Easter holiday.
The Home & Children's Gifts category includes revenues from Plow & Hearth, Wind & Weather, HearthSong and Magic Cabin brands. Revenue is derived from the sale of home decor and children's gifts through its E-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Plow & Hearth brand. During the three and nine months ended March 29, 2009, net revenue decreased by 24.7% and 19.3%, respectively, over the prior year periods primarily as a result of lower order volume from its E-commerce sales channel, due to a combination of significantly reduced consumer spending, particularly in the home decor product category, and a planned reduction in catalog circulation designed to improve category contribution. Further contributing to the revenue decline were lower retail store sales, compared to the same period of the prior year, due to a decline in customer traffic. As a result of this weak performance, the Company has implemented a plan to downsize the operations of its Home & Children's Gift category, including a reduction in catalog marketing, resizing the business to align its infrastructure with the expectation of continued weakness in the home decor retail sector.
The Company expects economic conditions for consumers will continue to be very challenging. Based on this outlook, and combined with its results for the nine months ended March 29, 2009, the Company anticipates that revenues for the full fiscal year 2009 will be down approximately 5-to-10 percent compared with the prior year. In order to mitigate the impact of the revenue decline, the Company plans to continue its operating expense reduction programs which, from fiscal 2006 through fiscal 2008, reduced its operating expense ratio by 290 basis points.
Gross Profit
Three Months Ended Nine Months Ended
----------------------------------------- --------------------------------------------
March 29, March 30, March 29, March 30,
2009 2008 % Change 2009 2008 % Change
-------------- -------------- ---------- -------------- ------------- -----------
(in thousands)
Gross profit $69,576 $89,505 (22.3)% $269,691 $302,442 (10.8)%
Gross margin % 40.2% 40.8% 40.8% 43.2%
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Gross profit decreased during the three and nine months ended March 29, 2009, primarily as a result of the decline in revenues described above, offset in part by the incremental gross profit generated by the DesignPac and Napco acquisitions. Gross margin percentage during the three and nine months ended March 29, 2009, decreased by 60 and 240 basis points, respectively, primarily reflecting a combination of product mix associated with revenues from the Company's most recent acquisitions, which are primarily wholesale businesses, as well as increased promotional activity to improve sales.
The 1-800-Flowers.com Consumer Floral category gross profit and gross profit margin percentage decreased during the three and nine months ended March 29, 2009 by 30.3% and 260 basis points, and 20.8% and 200 basis points, over the
respective prior year periods, as a result of decreased sales volume and promotional pricing, which characterized the retail sector, including the Valentine's Day holiday.
The BloomNet Wire Service category gross profit increased during the three and nine months ended March 29, 2009, by 11.4% and 24.4%, respectively, compared to the prior year periods, as a result of the aforementioned revenue contribution from the Napco acquisition in July 2008, as well as increased revenue resulting from expanded service offerings and pricing initiatives. Gross profit margins during the three months ended March 29, 2009, increased by 70 basis points in comparison to the prior year as a result of product mix, whereas gross profit margins decreased by 60 basis points during the nine months ended March 29, 2009, reflecting the impact of the wholesale margins associated with the Napco product line during its heavy selling period which falls within the Company's first fiscal quarter.
The Gourmet Food & Gift Baskets category gross margin percentages during the three months ended March 29, 2009 were consistent with the prior year, however, gross profit decreased by 16.7% as a result of the decline in sales volume, due in part to the shift in the Easter holiday, as well as the soft consumer demand associated with the weakened economy. During the nine months ended March 29, 2009, gross profit increased by 1.8% over the prior year period as a result of the incremental gross profit generated by DesignPac, acquired in April 2008, which also had the effect of decreasing the gross margin percentage as DesignPac products carry lower wholesale margins. Further negatively impacting the decreased gross profit margins during the nine months ended March 29, 2009 was the increased promotional activity during the key holiday periods within the category's E-Commerce and retail store sales channels, in comparison to the prior year.
The Home & Children's Gifts category gross profit during the three and nine months ended March 29, 2009, decreased by 17.6% and 17.0%, respectively, over the prior year periods as a result of the aforementioned revenue declines, offset in part by a higher gross margin percentage, which increased 360 basis points to 42.5% and 130 basis points to 46.3%, respectively, benefiting from enhanced product sourcing and shipping initiatives.
During the remainder of fiscal year 2009, the Company expects its gross margin percentage will remain relatively unchanged in comparison to the prior year as a shift in product mix, and anticipated gross margin improvements in most of its existing businesses through a combination of product sourcing, fulfillment improvements, fuel cost reductions and pricing initiatives, will offset the reduced margin percentage in the 1-800-Flowers Consumer Floral Category caused by ongoing promotional activity.
Marketing and Sales Expense
Three Months Ended Nine Months Ended
----------------------------------------- --------------------------------------------
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