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FLWS > SEC Filings for FLWS > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for 1 800 FLOWERS COM INC

Form 10-Q for 1 800 FLOWERS COM INC


9-May-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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 or referred to 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 Factors That May Affect Future Results" and under Part I, Item 1A, of the Company's Annual Report on Form 10-K under the heading "Risk Factors."

Overview

1-800-FLOWERS.COM, Inc. is the world's leading florist and gift shop. For more than 35 years, 1-800-FLOWERS® (1-800-356-9377 or www.1800flowers.com) has been helping deliver smiles for our customers with gifts for every occasion, including fresh flowers and the finest selection of plants, gift baskets, gourmet foods, confections, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee backs every gift. 1-800-FLOWERS.COM has been honored in Internet Retailer's "Hot 500 Guide" for 2013. 1-800-FLOWERS.COM mobile commerce site was recognized with a Gold Award in the Ecommerce/Shopping category of the 2012 Horizon Interactive Awards. 1-800-FLOWERS.COM was also rated number one vs. competitors for customer service by STELLAService and named by the E-Tailing Group as one of only nine online retailers out of 100 benchmarked to meet the criteria for Excellence in Online Customer Service in 2011.

The Company's BloomNet® international floral wire service (www.mybloomnet.net) provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably. The Company's Gourmet Food and Gift Baskets offering includes gifts such as popcorn and specialty treats from: The Popcorn Factory® (1-800-541-2676 or www.thepopcornfactory.com); cookies and baked gifts from Cheryl's® (1-800-443-8124 or www.cheryls.com); premium chocolates and confections from Fannie May® confections (www.fanniemay.com and www.harrylondon.com); gift baskets and towers from 1-800-Baskets.com® (www.1800baskets.com); carved fresh fruit arrangements from FruitBouquets.com (www.fruitbouquets.com); top quality steaks and chops from Stock Yards® (www.stockyards.com). The Company's Celebrations® brand (www.celebrations.com) is a leading online destination for party planning ideas and tips and its FineStationery.com® (www.finestationery.com) brand provides premium branded customizable invitations and personal stationery for all occasions. 1-800-FLOWERS.COM, Inc. is involved in a broad range of corporate social responsibility initiatives including continuous expansion and enhancement of its environmentally-friendly "green" programs as well as various philanthropic and charitable efforts.

During the fourth quarter of fiscal 2013, the Company made the strategic decision to divest the e-commerce and procurement businesses of The Winetasting Network in order to focus on growth opportunities in its Gourmet Foods and Gift Baskets business segment. The Company closed on the sale of its Winetasting Network business on December 31, 2013, at an estimated loss of $1.0 million ($0.6 million, net of tax). The Company had originally estimated a loss of $2.3 million ($1.5 million, net of tax), which was provided for during the fourth quarter of fiscal 2013, but the loss was reduced to $1.0 million, upon finalization of terms and closing on the sale. As a result, the Company reversed $1.3 million ($0.8 million, net of tax) of its accrual for the estimated loss during the nine months ended March 30, 2014. The Company has classified the results of its e-commerce and procurement business of Winetasting Network as a discontinued operation for all periods presented.

Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market, ticker symbol: FLWS.


Segment Information

The following table presents the contribution of net revenues, gross profit and contribution margin from each of the Company's business segments, as well as consolidated EBITDA and EBITDA, excluding stock-based compensation. As noted previously, the Company's e-commerce and procurement businesses of The Winetasting Network, which had previously been included within its Gourmet Foods & Gift Baskets category, have been classified as discontinued operations and therefore excluded from segment information below.

                                          Three Months Ended                             Nine Months Ended
                               March 30,       March 31,                      March 30,       March 31,
                                  2014            2013         % Change          2014            2013         % Change
                                (dollars in thousands)                         (dollars in thousands)
Net revenues from
continuing operations:
1-800-Flowers.com Consumer
Floral                        $    122,256     $  121,006            1.0 %   $    290,938     $  285,608            1.9 %
BloomNet Wire Service               22,571         22,819           -1.1 %         62,829         61,320            2.5 %
Gourmet Food & Gift Baskets         35,330         48,298          -26.8 %        216,193        216,509           -0.1 %
Corporate (*)                          202            200            1.0 %            600            594            1.0 %
Intercompany eliminations             (768 )         (741 )         -3.6 %         (1,584 )       (1,497 )         -5.8 %
Total net revenues from
continuing operations         $    179,591     $  191,582           -6.3 %   $    568,976     $  562,534            1.1 %




                                        Three Months Ended                          Nine Months Ended
                               March 30,       March 31,         %        March 30,      March 31,         %
                                 2014            2013         Change         2014           2013        Change

Gross profit from
continuing operations:
1-800-Flowers.com Consumer
Floral                        $    47,565     $    48,455        -1.8 %   $  113,166     $  112,701         0.4 %
                                     38.9 %          40.0 %                     38.9 %         39.5 %
BloomNet Wire Service              12,019          11,382         5.6 %       33,566         30,974         8.4 %
                                     53.2 %          49.9 %                     53.4 %         50.5 %
Gourmet Food & Gift Baskets        13,686          20,472       -33.1 %       88,328         90,039        -1.9 %
                                     38.7 %          42.4 %                     40.9 %         41.6 %
Corporate (*)                         273             148        84.5 %          757            649        16.6 %
                                    135.1 %          74.0 %                    126.2 %        109.3 %
Total gross profit from
continuing operations         $    73,543     $    80,457        -8.6 %   $  235,817     $  234,363         0.6 %
                                     41.0 %          42.0 %                     41.4 %         41.7 %




                                        Three Months Ended                         Nine Months Ended
                              March 30,      March 31,         %         March 30,      March 31,         %
                                 2014           2013         Change         2014           2013        Change

EBITDA from continuing
operations, excluding
stock-based compensation:
Segment Contribution Margin
(**)
1-800-Flowers.com Consumer
Floral                        $   11,165     $   13,902        -19.7 %   $   26,274     $   31,074       -15.4 %
BloomNet Wire Service              7,079          6,952          1.8 %       20,043         18,797         6.6 %
Gourmet Food & Gift Baskets       (3,180 )        1,605       -298.1 %       25,817         26,926        -4.1 %
Category Contribution
Margin Subtotal                   15,064         22,459        -32.9 %       72,134         76,797        -6.1 %
Corporate (*)                    (13,012 )      (12,811 )       -1.6 %      (38,739 )      (37,623 )      -3.0 %
EBITDA from continuing
operations                    $    2,052     $    9,648        -78.7 %   $   33,395     $   39,174       -14.8 %
Add: Stock-based
compensation                       1,279          1,093         17.1 %        3,491          3,397         2.8 %
EBITDA from continuing
operations, excluding
stock-based compensation      $    3,331     $   10,741        -69.0 %   $   36,886     $   42,571       -13.4 %


                                               Three Months Ended               Nine Months Ended
                                            March 30,       March 31,       March 30,       March 31,
                                              2014            2013            2014            2013
Reconciliation of income (loss) from                             (in thousands)
continuing operations to income (loss)
from continuing operations attributable
to 1-800-FLOWERS.COM, Inc.:
Income (loss) from continuing operations   $    (1,738 )   $     3,120     $    11,189     $    15,183
Less: Net loss attributable to
noncontrolling interest                           (300 )             -            (341 )             -
Income (loss) from continuing operations
attributable to 1-800-FLOWERS.COM, Inc.    $    (1,438 )   $     3,120     $    11,530     $    15,183

                                               Three Months Ended              Nine Months Ended
                                           March 30,       March 31,       March 30,       March 31,
                                              2014           2013            2014            2013
Reconciliation of income (loss) from                             (in thousands)
continuing operations attributable to
1-800-FLOWERS.COM, Inc. to EBITDA from
continuing operations, excluding
stock-based compensation (**):
Income (loss) from continuing operations
attributable to 1-800-Flowers.com, Inc.    $   (1,438 )   $     3,120     $    11,530     $    15,183
Add:
Interest expense, net                             249             199             959           1,024
Depreciation and amortization                   4,932           4,838          14,657          13,806
Income tax expense                                  -           1,491           6,590           9,161
Less:
Income tax benefit                              1,391               -               -               -
Net loss attributable to noncontrolling
interest                                          300               -             341               -
EBITDA from continuing operations          $    2,052     $     9,648     $    33,395     $    39,174
Add: Stock-based compensation                   1,279           1,093           3,491           3,397
EBITDA from continuing operations,
excluding stock-based compensation         $    3,331     $    10,741     $    36,886     $    42,571

(*) Corporate expenses consist of the Company's enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company's infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above segments based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.

(**) Performance is measured based on segment contribution margin or segment Adjusted EBITDA, reflecting only the direct controllable revenue and operating expenses of the segments. As such, management's measure of profitability for these segments does not include the effect of corporate overhead, described above, depreciation and amortization, other income
(net), nor does it include one-time charges. Management utilizes EBITDA, and adjusted financial information, 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 and adjusted financial information 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 and adjusted financial information to measure compliance with covenants such as interest coverage and debt incurrence. EBITDA and adjusted financial information is also used by the Company to evaluate and price potential acquisition candidates. EBITDA and adjusted financial information have 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.


Results of Operations



Net Revenues



                                   Three Months Ended                           Nine Months Ended
                        March 30,      March 31,                     March 30,      March 31,
                           2014           2013         % Change         2014           2013         % Change
                                                       (dollars in thousands)
Net revenues:
E-Commerce              $  139,918     $  144,555          (3.2% )   $  400,893     $  397,441            0.9 %
Other                       39,673         47,027         (15.6% )      168,083        165,093            1.8 %
Total net revenues      $  179,591     $  191,582          (6.3% )      568,976        562,534            1.1 %

Net revenues consist primarily of the selling price of the merchandise, service or outbound shipping charges, less discounts, returns and credits.

During the three months ended March 30, 2014, revenues decreased by 6.3%, in comparison to the same period of the prior year as a result of the shift of the Easter holiday into its fiscal fourth quarter, compared with the prior year when the holiday fell in the Company's fiscal third quarter, as well as the impact of severe winter weather beginning in January, culminating with the winter storm that effected much of the country during the key Valentine holiday. Adjusting for the pro-forma impact of the shift in the Easter Holiday, as well as the revenue associated with the acquisition of a majority interest of iFlorist, revenue declined approximately 2.5% during the three months ended March 30, 2014.

During the nine months ended March 30, 2014, revenue increased 1.1%, in comparison to the same period of the prior year. This improvement was led by a number of factors, including: i) a combination of new product initiatives, focused advertising, and "everyday" campaigns such as the "Just Because" marketing efforts, ii) incremental revenue within the Consumer Floral segment from the acquisition of a majority interest of iFlorist and favorable comparisons due to the impact of Hurricane Sandy in the prior year, iii) continued improvements within the BloomNet segment as a result of additional market penetration, and iv) improvements within the Gourmet Food & Gift Baskets segment as a result of the continued rebound of DesignPac's wholesale gift basket products, and solid ecommerce growth within Cheryl's bakery gifts product line. These growth drivers were partially offset by: i) the Easter holiday shift, ii) the severe winter weather mentioned above, and iii) the calendar shift that resulted in six fewer shopping days between Thanksgiving and Christmas, compounded by, iv) the continuation of a difficult macro-economic climate. Adjusting for the pro-forma impact of the shift in the Easter Holiday, as well as the revenue associated with the acquisition of a majority interest of iFlorist, revenue increased approximately 1.9% during the nine months ended March 30, 2014.

E-Commerce revenues decreased 3.2% during the three months ended March 30, 2014, in comparison to the same periods of the prior year, as a result of the Easter shift and severe winter weather which impacted all of the Company's brands, partially offset by an increase in the Consumer Floral segment due to the acquisition of iFlorist. E-Commerce revenues increased 0.9% during the nine months ended March 30, 2014, in comparison to the same period of the prior year, as a result of increases in the Consumer Floral segment, primarily due to the acquisition of iFlorist, partially offset by the Easter shift, and severe weather which impacted all of the Company's brands, especially during the 2014 Valentine holiday.

The Company fulfilled approximately 2,211,000 and 6,735,000 orders through its e-commerce sales channels (online and telephonic sales) during the three and nine months ended March 30, 2014, representing a decrease of 4.5% and an increase of 0.6% compared to the respective periods of the prior year. The average order value increased 1.3% to $63.27 during the three months ended March 30, 2014, and remained relatively flat at $59.41 during the nine months ended March 30, 2014.

Other revenues are comprised of the Company's BloomNet Wire Service segment, as well as the wholesale and retail channels of its 1-800-Flowers.com Consumer Floral and Gourmet Food and Gift Baskets segments. Other revenues decreased 15.6%, during the three months ended March 30, 2014 in comparison to the same period of the prior year, primarily as a result of the severe weather and the Easter shift on the Company's retail operations, as well as lower Fannie May wholesale volume. Other revenues increased 1.8%, during the nine months ended March 30, 2014 in comparison to the same period of the prior year, primarily as a result growth in the DesignPac's wholesale gift products, partially offset by the shift of the Easter Holiday and a decline in Fannie May wholesale volume which appears to be a repercussion of prior year's operational issues.


The 1-800-Flowers.com Consumer Floral segment includes the operations of the 1-800-Flowers and iFlorist brands, which derive revenue from the sale of consumer floral products through its e-commerce sales channels (telephonic and online sales), royalties from its franchise operations, as well as the operations of Fine Stationery, an e-commerce retailer of personalized stationery, invitations and announcements. Net revenues increased 1.0% and 1.9% during the three and nine months ended March 30, 2014 over the same period of the prior year, primarily as a result of the acquisition of iFlorist, partially offset by the shift of the Easter holiday into the Company's fiscal fourth quarter this year, compared with the prior year period when the holiday fell in the Company's fiscal third quarter, as well as the impact of the severe winter weather during the period The increase in revenues during the three and nine months ended March 30, 2014 includes approximately $2.7 million and $6.2 million of revenues from iFlorist, a UK direct-to-consumer marketer of floral and gift-related products sold and delivered throughout Europe, in which the Company acquired a majority ownership interest on December 3, 2013.

The BloomNet Wire Service segment includes revenues from membership fees as well as other product and service offerings to florists. Net revenues decreased 1.1% during the three months ended March 30, 2014 compared to the same period of the prior year, reflecting a shift in the Easter Holiday, while net revenues increased 2.5% during the nine months ended March 30, 2014, reflecting continued increases in market penetration for the Company's expanded suite of products and services for its member florists.

The Gourmet Food & Gift Baskets segment includes the operations of 1-800-Baskets, Cheryl's (which includes Mrs. Beasley's), Fannie May Confections, The Popcorn Factory, Stockyards.com and DesignPac. Revenue is derived from the sale of gift baskets, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, and prime steaks and chops through its e-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Cheryl's and Fannie May brand names, royalties from Fannie May franchise operations, as well as wholesale operations. Net revenue during the three months ended March 30, 2014 decreased by 26.8%, in comparison to the same period of the prior year, driven primarily by the aforementioned shift of the Easter holiday into the Company's fiscal fourth quarter, as well as the severe winter weather during the period, and lower Fannie May wholesale volume. Net revenues during the nine months ended March 30, 2014 were relatively flat, in comparison to the same period of the prior year as revenue growth from the continued rebound in DesignPac gift basket sales and Cheryl's e-commerce growth was offset by the Easter Holiday shift and the impact of the severe weather during the current quarter.

The Company expects to achieve annual revenue growth in Fiscal 2014 across all of its business segments, with consolidated revenue growth in the low-to-mid-single-digit range.

Gross Profit



                              Three Months Ended                            Nine Months Ended
                   March 30,       March 31,                     March 30,      March 31,
                     2014            2013          % Change         2014           2013         % Change
                                                  (dollars in thousands)

Gross profit      $    73,543     $    80,457          (8.6% )   $  235,817     $  234,363            0.6 %

Gross margin % 41.0 % 42.0 % 41.4 % 41.7 %

Gross profit consists of net revenues less cost of revenues, which is comprised primarily of florist fulfillment costs (mainly 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 during the three months ended March 30, 2014 decreased by 8.6%, in comparison to the same period of the prior year, primarily as a result of the aforementioned revenue decline during the period, while gross profit during the nine months ended March 30, 2014 increased by 0.6%, in comparison to the same period of the prior year, as a result of the aforementioned revenue increase. Gross margin percentage decreased 100 and 30 basis points, to 41.0% and 41.4%, during the respective three and nine months ended March 30, 2014, in comparison to the same periods of the prior year, reflecting: i) product mix, resulting primarily from the shift of the Easter Holiday, which disproportionately shifted higher margin e-commerce and retail revenues into the Company's fiscal fourth quarter, and ii) higher customer credits caused by the severe weather during the Valentine holiday.


The 1-800-Flowers.com Consumer Floral segment gross profit decreased by 1.8%, during the three months ended March 30, 2014, in comparison to the same period of the prior year, due to the aforementioned decrease in revenue, while gross margin percentage declined 110 basis points due to the lower margins associated with the newly acquired iFlorist business, as well as higher customer credits issued during the period as a result of the severe weather during the Valentine holiday. Gross profit increased by 0.4% during the nine months ended March 30, 2014, in comparison to the same period of the prior year, due to the aforementioned increase in revenue, while gross margin percentage declined 60 basis points due to the lower margins associated with the newly acquired iFlorist business, as well as higher customer credits issued during the period as a result of the severe weather during the Valentine holiday.

The BloomNet Wire Service segment gross profit increased by 5.6% and 8.4%, respectively, during the three and nine months ended March 30, 2014, in comparison to the same periods of the prior year, primarily due to revenue mix, which included growth in sales of higher-margin services, such as web-marketing and directory advertising programs as well as pricing initiatives.

The Gourmet Food & Gift Baskets segment gross profit decreased by 33.1% and 1.9%, respectively, during the three and nine months ended March 30, 2014, in comparison to the same periods of the prior year, due to the aforementioned revenue declines associated with the shift in the Easter Holiday, the severe weather experienced during the current quarter, as well as product mix. During the nine months ended March 30, 2014, the negative impact associated with the Easter shift and the severe weather during the third quarter was offset by the continued rebound in DesignPac gift basket sales and Cheryl's e-commerce growth, combined with operational improvements in the Fannie May business.

The Company expects its gross margin percentage will improve slightly in comparison to fiscal 2013 as a result of continued improvements in product sourcing, supply chain and manufacturing efficiencies.

Marketing and Sales Expense



                           Three Months Ended                             Nine Months Ended
                 March 30,       March 31,                     March 30,      March 31,
                   2014            2013          % Change         2014           2013         % Change
                                                (dollars in thousands)

Marketing and
sales           $    51,581     $    51,439            0.3 %   $  143,716     $  138,645            3.7 %
Percentage of

net revenues 28.7 % 26.8 % 25.3 % 24.6 %

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.

Marketing and sales expense increased by 0.3% and 3.7%, respectively, during the . . .

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