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| FLWS > SEC Filings for FLWS > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-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 or referred to 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 freshness are guaranteed. 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.
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&WadeSM
(www.geerwade.com); gift baskets from 1-800-BASKETS.COM(R) (www.1800baskets.com)
and DesignPac Gifts(TM) (www.designpac.com) and Celebrations(R)
(www.celebrations.com), a new premier online destination for fabulous party
ideas and planning tips.
During the fourth quarter of fiscal 2009, the Company made the strategic
decision to divest its Home & Children's Gifts business segment to focus on its
core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets
categories. The Company has classified the results of operations of its Home &
Children's Gifts segment, which includes 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), as discontinued operations for all periods presented.
Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market, ticker symbol: FLWS.
Category Information
The following table presents the contribution of net revenues, gross profit and
category contribution margin or category "EBITDA" (earnings before interest,
taxes, depreciation and amortization) from each of the Company's business
categories. (As noted previously, the Company's Home & Children's Gifts segment
has been classified as discontinued operations and therefore excluded from
category information below).
Three Months Ended
-----------------------------------------
September 27, September 28,
2009 2008 % Change
-------------- ------------- ----------
(in thousands)
Net Revenues from continuing
operations:
1-800-Flowers.com Consumer Floral $70,003 $83,482 (16.1%)
BloomNet Wire Service 13,785 15,381 (10.4%)
Gourmet Food & Gift Baskets 24,740 36,762 (32.7%)
Corporate (*) 126 204 (38.2%)
Intercompany eliminations (338) (391) 13.6%
-------------- -------------
Total net revenues from continuing
operations $108,316 $135,438 (20.0%)
============== =============
|
Three Months Ended
-----------------------------------------
September 27, September 28,
2009 2008 % Change
-------------- ------------- ----------
(in thousands)
Gross Profit from continuing
operations:
1-800-Flowers.com Consumer Floral $25,847 $31,690 (18.4%)
36.9% 38.0%
BloomNet Wire Service 8,022 8,340 (3.8%)
58.2% 54.2%
Gourmet Food & Gift Baskets 9,791 12,032 (18.6%)
39.6% 32.7%
Corporate (*) 94 157 (40.1%)
74.6% 77.0%
Intercompany eliminations - (23)
-------------- -------------
Total gross profit from continuing
operations $43,754 $52,196 (16.2%)
============== =============
40.4% 38.5%
============== =============
|
Three Months Ended
------------------------------------------
September 27, September 28,
2009 2008 % Change
-------------- ------------- -----------
EBITDA (**) from continuing operations: (in thousands)
Category Contribution Margin:
1-800-Flowers.com Consumer Floral $7,673 $10,587 (27.5%)
BloomNet Wire Service 4,105 4,340 (5.4%)
Gourmet Food & Gift Baskets (3,210) (940) (241.5%)
-------------- -------------
Category Contribution Margin Subtotal 8,568 13,987 (38.7%)
Corporate (*) (11,380) (12,982) 12.3%
-------------- -------------
EBITDA from continuing operations ($2,812) $1,005 (379.8%)
============== ==============
|
Three Months Ended
-----------------------------------------
September 27, September 28,
2009 2008 % Change
-------------- ------------- ----------
Discounted operations: (in thousands)
Net Revenues from discontinued
operations $17,354 $22,595 (23.2%)
Gross profit from discontinued operations 7,548 9,626 (21.6%)
EBITDA from discontinued operations (2,119) (3,016) 29.7%
|
(**) Performance is measured based on category contribution margin or category 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, 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 from Continuing Operations to EBITDA from Continuing
Operations:
Three Months Ended
-------------------------------
September 27, September 28,
2009 2008
--------------- ---------------
(in thousands)
Net loss from continuing operations ($5,666) ($3,118)
Add:
Interest expense 1,546 1,158
Depreciation and amortization 4,946 5,075
Less:
Income tax benefit 3,622 2,017
Interest income 14 89
Other income 2 4
--------------- ---------------
EBITDA from continuing operations ($2,812) $1,005
=============== ===============
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Results of Operations
Net Revenues
Three Months Ended
-----------------------------------------------
September 27, September 28,
2009 2008 % Change
--------------- ---------------- --------------
(in thousands)
Net revenues:
E-Commerce $74,840 $87,896 (14.9%)
Other 33,476 47,542 (29.6%)
--------------- ----------------
Total net revenues $108,316 $135,438 (20.0%)
=============== ================
|
The Company fulfilled approximately 1,232,100 orders through its E-commerce sales channels (online and telephonic sales) during the three months ended September 27, 2009, a decrease of 10.5% over the prior year period, reflecting a continued decline in consumer spending, primarily within the 1-800-Flowers.com Consumer Floral category. The Company's E-commerce average order value of $60.74 decreased 4.8% over the prior year period.
Other revenues decreased as a result of the aforementioned decline within the Gourmet Food & Gifts business, primarily related to DesignPac, approximately $8.0 million of which was due to the movement of several large shipments into the Company's second quarter, as well as lower revenue from floral product sales within the Company's BloomNet Wire Service category.
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 months ended September 27, 2009 decreased by 16.1% over the prior year period, as a result of lower order volume and average order value as a result of the continued decline in demand throughout the consumer sector caused by the weak economy.
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 months ended September 27, 2009 decreased by 10.4% over the prior year period, primarily as a result of decreased wholesale product revenues as florists scaled back and delayed purchases.
The Gourmet Food & Gift Basket category includes the operations of the Cheryl & Co., Fannie May, The Popcorn Factory, The Winetasting Network and DesignPac businesses. 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. Net revenue during the three months ended September 27, 2009 decreased by 32.7% over the prior year period, primarily reflecting reduced orders from DesignPac wholesale customers, including the shift of approximately $8.0 million of wholesale orders into the Company's second fiscal quarter.
The Company expects economic conditions for consumers will continue to be very challenging. Based on this outlook, the Company anticipates that revenues for fiscal year 2010 will be consistent to down approximately 5 percent compared with the prior year.
Gross Profit
Three Months Ended
---------------------------------------------
September 27, September 28,
2009 2008 % Change
-------------- --------------- -------------
(in thousands)
Gross profit $43,754 $52,196 (16.2%)
Gross margin % 40.4% 38.5%
|
Gross profit consists of net revenues less cost of revenues, which is comprised primarily of florist fulfillment costs (primarily fees paid directly to florists), the cost of floral and non-floral merchandise sold from inventory or through third parties, and associated costs including inbound and outbound shipping charges. Additionally, cost of revenues include labor and facility costs related to direct-to-consumer and wholesale production operations.
Gross profit decreased during the three months ended September 27, 2009, due primarily to the decline in revenues described above, while gross margin percentage increased 190 basis points as a result of product mix, primarily reflecting the impact of lower wholesale revenues from DesignPac.
The 1-800-Flowers.com Consumer Floral category gross profit and gross profit margin percentage decreased by 18.4% and 110 basis points, respectively, as a result of a lower sales volume and increased promotional pricing during the early part of the quarter. During the latter part of the quarter, initiatives to reduce promotional pricing and shipping costs began to take hold, and the Company expects to see the benefits of these efforts, in the form of improved gross profit margins, beginning in the second quarter and throughout the remainder of fiscal 2010.
The BloomNet Wire Service category gross profit decreased by 3.8% over the prior year period as a result of the aforementioned decline of wholesale product revenue, while gross profit margins increased by 400 basis points, reflecting the impact of product mix and pricing initiatives.
The Gourmet Food & Gift Basket category gross profit decreased by 18.6% over the prior year period as a result of the lower wholesale revenue from DesignPac. Gross margin percentage increased by 690 basis points, reflecting the impact of the decline in lower margin DesignPac sales volume, as well as improved margins resulting from reduced promotional pricing and manufacturing efficiencies across all other businesses within the category.
During the remainder of fiscal 2010, the Company expects its gross margin percentage will improve slightly in comparison to fiscal 2009 as a result of a positive shift in product mix and anticipated gross margin improvements in most of its businesses resulting from product sourcing and supply chain initiatives, which are expected to reduce reliance on promotional activity.
Marketing and Sales Expense
Three Months Ended
---------------------------------------------
September 27, September 28,
2009 2008 % Change
------------------ --------------- ----------
(in thousands)
Marketing and sales $29,476 $32,074 (8.1%)
Percentage of net revenues 27.2% 23.7%
|
Marketing and sales expense consists primarily of advertising and promotional expenditures, catalog costs, online portal and search costs, retail store and fulfillment operations (other than costs included in cost of revenues) and customer service center expenses, as well as the operating expenses of the Company's departments engaged in marketing, selling and merchandising activities.
During the three months ended September 27, 2009, marketing and sales expense decreased by 8.1% as a result of a number of cost-reduction initiatives, including savings in catalog printing and co-mailing costs, planned reductions in customer prospecting, as well as overall reductions in advertising programs as their efficacy declines during periods of soft consumer demand and the reduction in variable costs associated with the decline in revenue. During the three months ended September 27, 2009 the Company added approximately 392,000 new E-commerce customers. Of the 625,000 total customers who placed E-commerce orders during the three months ended September 27, 2009, approximately 61.5% were repeat customers, compared to 63.0% during the prior year.
During the remainder of fiscal 2010, the Company expects that marketing and sales expense will continue to decrease in comparison to the prior year, and while varying from quarter to quarter due to the seasonal nature of the Company's business, will be consistent as a percentage of net revenues during fiscal 2010 due to the expectation of a slight decline in sales resulting from anticipated weakness in the economy through the fiscal 2010 holiday season.
Technology and Development Expense
Three Months Ended
---------------------------------------------
September 27, September 28,
2009 2008 % Change
------------------ --------------- ----------
(in thousands)
Technology and development $4,556 $5,063 (10.0%)
Percentage of net revenues 4.2% 3.7%
|
Technology and development expense consists primarily of payroll and operating expenses of the Company's information technology group, costs associated with its web sites, including hosting, design, content development and maintenance and support costs related to the Company's order entry, customer service, fulfillment and database systems.
During the three months ended September 27, 2009, technology and development expense decreased by 10% in comparison to the prior year period as a result of decreased labor/consulting costs as a result of re-sizing initiatives, as well
as a reduction in the number of hosting sites and footprint. During the three months ended September 27, 2009 and September 28, 2008, the Company expended $6.3 million and $10.6 million, respectively, on technology and development, of which $1.7 million and $5.6 million, respectively, has been capitalized.
The Company believes that continued investment in technology and development is critical to attaining its strategic objectives, and expects that its spending for the remainder of fiscal 2010 will decrease both in terms of dollars spent, and as a percentage of net revenues, in comparison to the prior year.
General and Administrative Expense
Three Months Ended
---------------------------------------------
September 27, September 28,
2009 2008 % Change
------------------ --------------- ----------
(in thousands)
General and administrative $12,534 $14,054 (10.8%)
Percentage of net revenues 11.6% 10.4%
|
General and administrative expense consists of payroll and other expenses in support of the Company's executive, finance and accounting, legal, human resources and other administrative functions, as well as professional fees and other general corporate expenses.
General and administrative expense decreased by 10.8% during the three months ended September 27, 2009 in comparison to the prior year period as result of decreased labor costs related to the Company's re-sizing initiatives implemented during fiscal 2009.
As a result of cost reduction initiatives, the Company expects that its general and administrative expenses for fiscal 2010 will decrease slightly as a percentage of net revenues in comparison to the prior year.
Depreciation and Amortization Expense
Three Months Ended
---------------------------------------------
September 27, September 28,
2009 2008 % Change
------------------ --------------- ----------
(in thousands)
Depreciation and amortization $4,946 $5,075 (2.5%)
Percentage of net revenues 4.6% 3.7%
|
Depreciation and amortization expense decreased by 2.5% during the three months ended September 27, 2009 in comparison to the prior year as a result of a reduction in capital spending and reduced amortization associated with amortizable intangibles that were written down in the prior year.
The Company believes that continued investment in its infrastructure, primarily in the areas of technology and development, including the improvement of the technology platforms, are critical to attaining its strategic objectives. However, the Company is committed to reducing its capital expenditures and expects that depreciation and amortization for fiscal 2010 will decrease in comparison to the prior year.
Other Income (Expense)
Three Months Ended
---------------------------------------------
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