1-800-FLOWERS.COM, Inc. (NASDAQ: FLWS), a leading provider of gifts designed to help customers express, connect and celebrate, today reported results for its Fiscal 2020 third quarter ended March 29, 2020.
Chris McCann, CEO of 1-800-FLOWERS.COM, Inc., said, “Our solid results for the fiscal third quarter reflect the continuation of the momentum we saw throughout the first half of our fiscal year. Strong consolidated revenue growth of 12.2 percent was driven by increases across all three of our business segments. In our Gourmet Foods and Gift Baskets segment, revenues increased 27.1 percent, reflecting continuing positive trends in everyday gifting occasions and increased self-consumption as well as contributions from Shari’s Berries, which we acquired in August 2019.
“In our Consumer Floral segment, the 1-800-Flowers.com brand further extended its market leading position with revenue growth of 5.4 percent, driven by double-digit revenue growth during the Valentine’s Day holiday period. Our BloomNet business also continued to increase its market share position with revenues growing 7.9 percent in the quarter. In both Consumer Floral and BloomNet, top and bottom-line results for the quarter would have been even stronger were it not for softer consumer demand in the last few weeks of March related to the impact of the Covid-19 crisis. We saw this pattern reverse as we entered our current fiscal fourth quarter and demand has increased significantly as consumers are increasingly turning to the 1-800-Flowers brand to help them express themselves and stay connected.”
McCann added, “As we navigate these trying and uncertain times, the health and safety of our associates, our BloomNet florists, our vendors and our customers is paramount to us. In accordance with CDC and other health agency guidelines we continue to make the necessary changes across our operations, including manufacturing, warehouse and distribution, to ensure the safety and wellbeing of our associates while maintaining our business continuity. As always, our mission is to engage with our customers to help them express and connect – sentiments that are increasingly important during this difficult time.”
Fiscal 2020 Third Quarter Results:
For the third quarter of 2020, total net revenues increased 12.2 percent to $278.8 million compared with $248.4 million in the prior year period. The strong performance was driven by net revenue growth in all three business segments, with Gourmet Foods and Gift Baskets up 27.1 percent, Consumer Floral up 5.4 percent, and BloomNet up 7.9 percent compared to the prior year period.
Gross profit margin for the quarter was 38.5 percent, a decrease of 80 basis points compared with gross profit margin of 39.3 percent in the prior year period. Operating expenses as a percent of total revenues were 42.4 percent, an improvement of 270 basis points compared with 45.1 percent in the prior year period. Excluding the impacts of the Company’s non-qualified deferred 401k compensation plan and costs associated with its planned acquisition of PersonalizationMall.com, operating expenses, as a percentage of total revenues, were 43.1% compared with 44.6% in the prior year.
Strong top-line growth and improved operating efficiency resulted in an Adjusted EBITDA1 loss of $2.4 million compared with an Adjusted EBITDA1 loss of $4.4 million in the prior year period. Net loss for the quarter was $9.7 million, or loss of $0.15 per share. Excluding certain transaction costs, net loss for the quarter was $9.0 million, or a loss of $0.14 per share, compared with a net loss of $8.2 million, or loss of $0.13 per share, in the prior year period.
SEGMENT RESULTS:
The Company provides fiscal 2020 third quarter selected financial results for its Gourmet Foods and Gift Baskets, Consumer Floral and BloomNet segments in the tables attached to this release and as follows:
- Gourmet Foods and Gift Baskets: Revenues for the quarter were $95.9 million, an increase of 27.1 percent compared with revenues of $75.4 million in the prior year period reflecting continued growth in everyday gifting occasions and self-consumption as well as contributions from the Shari’s Berries brand, which the Company acquired in August 2019. Gross profit margin was 34.4 percent, compared with 35.6 percent in the prior year period. As a result of these factors, segment contribution margin1 loss improved 12.9 percent to a loss of $6.3 million, compared with a segment contribution margin loss of $7.2 million in the prior year period.
- Consumer Floral: Revenues increased 5.4 percent to $152.6 million, compared with $144.8 million in the prior year period. This primarily reflects double-digit growth for the Valentine’s Day holiday period partially offset by softer demand in the last few weeks of the quarter resulting from the impact of the Covid-19 crisis. Gross margin was 39.3 percent, compared with 38.9 percent in the prior year period. Segment contribution margin1 was $15.4 million, unchanged compared with the prior year period.
- BloomNet Wire Service: Revenues for the quarter increased 7.9 percent to $30.4 million, compared with $28.2 million in the prior year period. Gross profit margin was 47.3 percent, compared with 49.9 percent in the prior year period. Segment contribution margin1 increased 5.7 percent to $10 million, compared with $9.5 million in the prior year period.
COMPANY GUIDANCE
Based on the continued strong growth momentum that the Company has experienced through the first three quarters of its fiscal year, combined with the positive trends it has seen through the first four weeks of the current fiscal fourth quarter, the Company is reaffirming its growth guidance for fiscal 2020 as follows:
- Total consolidated revenue growth of 8-9 percent compared with the prior year, including approximately 6-to-7 percent organic revenue growth combined with contributions from the Shari’s Berries brand, which the Company acquired in August 2019;
- EPS growth in a range of 15-to-17 percent, compared with the prior year;
- Adjusted EBITDA1 growth in a range of 13-to-15 percent, compared with the prior year, and;
- Free Cash Flow for the year in a range of $45-to-$50 million.
Note: The Company’s guidance for Fiscal Year 2020 EPS and Adjusted EBITDA1 excludes certain one-time costs, expected to be recognized in the fourth quarter, associated with the closing of its Harry & David retail stores and costs associated with its planned acquisition of PersonalizationMall.com.
RESPONSE TO COVID-19
In response to the global pandemic, 1-800-FLOWERS.COM, Inc. has taken necessary actions to ensure employee safety and business continuity, informed by the guidelines set forth by local, state and federal government and health officials. These initiatives include developing a “Pandemic Preparedness and Response Plan,” establishing an internal “nerve center” to allow for unobstructed communication and coordination throughout the business, designing workstream teams to promote workforce protection and supply chain management, and dedicating resources to support customers, franchisees, and florists.
Definitions of non-GAAP Financial Measures:
We sometimes use financial measures derived from consolidated financial information, but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain of these are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission rules. Non-GAAP financial measures referred to in this document are either labeled as “non-GAAP” or designated as such with a “1”. See below for definitions and the reasons why we use these non-GAAP financial measures. Where applicable, see the Selected Financial Information below for reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures.
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss) before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for the impact of stock-based compensation, Non-Qualified Plan Investment appreciation/depreciation, and for certain items affecting period-to-period comparability. See Selected Financial Information for details on how EBITDA and Adjusted EBITDA were calculated for each period presented. The Company presents EBITDA and Adjusted EBITDA because it considers such information meaningful supplemental measures of its performance and believes such information is frequently used by the investment community in the evaluation of similarly situated companies. The Company uses EBITDA and Adjusted EBITDA as factors to determine the total amount of incentive compensation available to be awarded to executive officers and other employees. The Company’s credit agreement uses EBITDA and Adjusted EBITDA to determine its interest rate and to measure compliance with certain covenants. EBITDA and Adjusted EBITDA are also used by the Company to evaluate and price potential acquisition candidates. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. Some of the limitations are: (a) EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, the Company’s working capital needs; (b) EBITDA and Adjusted EBITDA do 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. EBITDA and Adjusted EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company’s performance.
Segment Contribution Margin
We define Segment Contribution Margin as earnings before interest, taxes, depreciation and amortization, before the allocation of corporate overhead expenses. See Selected Financial Information for details on how Segment Contribution Margin was calculated for each period presented. When viewed together with our GAAP results, we believe Segment Contribution Margin provides management and users of the financial statements meaningful information about the performance of our business segments. Segment Contribution Margin is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. The material limitation associated with the use of the Segment Contribution Margin is that it is an incomplete measure of profitability as it does not include all operating expenses or non-operating income and expenses. Management compensates for these limitations when using this measure by looking at other GAAP measures, such as Operating Income and Net Income.
Adjusted Net Income (Loss) and Adjusted or Comparable Net Income (Loss) Per Common Share:
We define Adjusted Net Income (Loss) and Adjusted or Comparable Net Income (Loss) Per Common Share as Net Income (Loss) and Net Income (Loss) Per Common Share adjusted for certain items affecting period to period comparability. See Selected Financial Information below for details on how Adjusted Net Income (Loss) and Adjusted or Comparable Net Income (Loss) Per Common Share were calculated for each period presented. We believe that Adjusted Net Income (Loss) and Adjusted or Comparable EPS are meaningful measures because they increase the comparability of period to period results. Since these are not measures of performance calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, GAAP Net Income (Loss) and Net Income (Loss) Per Common share, as indicators of operating performance and they may not be comparable to similarly titled measures employed by other companies.
Free Cash Flow
We define Free Cash Flow as net cash provided by operating activities less capital expenditures. The Company considers Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of fixed assets, which can then be used to, among other things, invest in the Company’s business, make strategic acquisitions, strengthen the balance sheet and repurchase stock or retire debt. Free Cash Flow is a liquidity measure that is frequently used by the investment community in the evaluation of similarly situated companies. Since Free Cash Flow is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. A limitation of the utility of Free Cash Flow as a measure of financial performance is that it does not represent the total increase or decrease in the Company’s cash balance for the period.
