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Feb. 5, 2021, 12:12 p.m. EST

10-Q: 1 800 FLOWERS COM INC

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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, for the year ended June 28, 2020 . 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," under Part I, Item 1A, of the Company's Annual Report on Form 10-K, for the year ended June 28, 2020 under the heading "Risk Factors" and Part II-Other Information, Item 1A in this Form 10-Q.

Overview

1-800-FLOWERS.COM, Inc. and its subsidiaries (collectively, the "Company") is a leading provider of gifts designed to help customers express, connect and celebrate. The Company's business platform features our all-star family of brands, including: 1-800-Flowers.com(R), 1-800-Baskets.com(R), Cheryl's Cookies(R), Harry & David(R), PersonalizationMall.com(R), Shari's Berries(R), FruitBouquets.com(R), Moose Munch(R), The Popcorn Factory(R), Wolferman's Bakery(R) and Simply Chocolate(R). We also offer top-quality steaks and chops from Stock Yards(R). Through the Celebrations Passport(R) loyalty program, which provides members with free standard shipping and no service charge across our portfolio of brands, 1-800-FLOWERS.COM, Inc. strives to deepen relationships with customers. The Company also operates BloomNet(R), an international floral service provider offering a broad-range of products and services designed to help professional florists grow their businesses profitably; Napco?, a resource for floral gifts and seasonal decor; and DesignPac Gifts, LLC, a manufacturer of gift baskets and towers.

1-800-FLOWERS.COM, Inc. was named in the Forbes 2021 Best Small Companies List.

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

For additional information, see Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" of our Annual Report on Form 10-K for the year ended June 28, 2020.

Acquisition of PersonalizationMall

On August 3, 2020, the Company completed its acquisition of PersonalizationMall.com LLC ("PersonalizationMall"), a leading ecommerce provider of personalized products. The extensive offerings of PersonalizationMall include a wide variety of personalization processes such as sublimation, embroidery, digital printing, engraving and sandblasting, while providing an industry-leading customer experience based on a fully integrated business platform that includes a highly automated personalization process and rapid order fulfillment.

The Company used a combination of cash on its balance sheet and its existing credit facility to fund the $245.0 million purchase (subject to certain working capital and other adjustments), which included its newly renovated, leased 360,000 square foot, state-of-the-art production and distribution facility, as well as customer database, tradenames and website. PersonalizationMall's revenues were approximately $171.2 million in its fiscal year 2020.

Amended Credit Agreement

Subsequent to, but in contemplation of the acquisition, on August 20, 2020, the Company entered into a First Amendment to its 2019 Credit Agreement to: (i) increase the aggregate principal amount of the existing Revolver commitments from $200.0 million to $250.0 million, (ii) establish a new tranche of term A-1 loans in an aggregate principal amount of $100.0 million (the "New Term Loan"),

COVID-19 Impact

In response to the global pandemic, the Company has taken actions to promote 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 communication and coordination throughout the business, designing workstream teams to promote workforce protection and supply chain management, and dedicating resources to support customers, vendors, franchisees, and our BloomNet member florists.

The COVID-19 pandemic has affected, and will continue to affect, our operations and financial results for the foreseeable future. While there is significant uncertainty in the overall consumer environment due to the COVID-19 crisis, through the first four weeks of our third quarter of fiscal year 2021, we continue to see strong e-commerce demand for gourmet foods and gift baskets and our floral and personalized products. With that said, there are also headwinds (and resulting increased costs) that have been, and will continue to impact our operations during the foreseeable future, including the following:

? Retail store closures - on March 20, 2020, in response to government actions, and for the safety of its employees, the Company temporarily closed its Cheryl's and Harry & David retail stores. Affected employees were provided with Company-paid special COVID leave pay through April 3rd, as the nation and the Company worked to understand the extent and potential length of the crisis. On April 14th, the difficult decision was made to permanently close 38 of our 39 Harry & David retail stores. As a result, the Company incurred a charge of approximately $5.2 million in our fourth quarter of fiscal year 2020 for lease obligations, employee costs and other store closure costs. Annual revenues attributable to the closed locations was approximately $33.0 million.

? Wholesale volume reductions - we have seen a reduction in our wholesale business as a result of COVID-19, which impacted our first and second quarter results within our Gourmet Foods and Gift Baskets segment, as many of our large wholesale customers took a cautious approach to the holiday season due to the uncertainty surrounding COVID-19 and its potential impact on brick and mortar retail store traffic.

? Increased operating costs - we have seen third-party carrier capacity constraints and an associated increase in transportation costs, increases in seasonal labor wage rates, as well as operating inefficiencies and costs associated with the changes we have made, and continue to make, to our manufacturing, warehouse and distribution facilities to provide for the safety and wellbeing of our associates, including: required social distancing, enhanced facility cleaning and sanitizing schedules, and staggered production shifts.

The scale and overall economic impact of the COVID-19 crisis is still very difficult to assess. However, the Company believes that the operating platform it has built over the years, combined with its diversified product line, and ability to engage with its customers will allow it to successfully navigate this challenging environment. We remain focused on three key elements of our business strategy:

? Taking care of the health and safety of our associates, our BloomNet florists, our vendors and our customers,

? Maintaining our financial strength and flexibility, and

? Continuing to invest in areas of our business that can help drive future growth.

Table of Contents

Company Guidance

Due to the significant uncertainty in the overall economy related to the ongoing COVID-19 pandemic, the Company is not providing guidance for its full fiscal 2021 year at this time.

Regarding the fiscal third quarter:

o Based on the continued strong ecommerce growth momentum that has carried into January 2021, the Company expects to achieve total consolidated revenue growth for its third fiscal quarter, including contributions from PersonalizationMall, in a range of 45-to-50 percent, compared with the prior year period.

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. See below for definitions and the reasons why we use these non-GAAP financial measures. Where applicable, see the Segment Information and Results of Operations sections below for reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures. These non-GAAP financial measures are referred to as "adjusted" or "on a comparable basis" below.

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, NQDC Plan investment appreciation/depreciation, and for certain items affecting period to period comparability. See Segment 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 measure compliance with covenants such as interest coverage and debt incurrence. 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 should only be used on a supplemental basis combined with GAAP results when evaluating the Company's performance.

Segment contribution margin and adjusted segment contribution margin

We define segment contribution margin as earnings before interest, taxes, depreciation and amortization, before the allocation of corporate overhead expenses. Adjusted segment contribution margin is defined as contribution margin adjusted for certain items affecting period-to-period comparability. See Segment 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 and adjusted segment contribution margin provide management and users of the financial statements meaningful information about the performance of our business segments.

Segment contribution margin and adjusted segment contribution margin are 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 and adjusted segment contribution margin is that they are an incomplete measure of profitability as they do 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

We believe that adjusted net income (loss) and adjusted or comparable net income

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.

Segment Information

The following table presents the net revenues, gross profit and segment contribution margin from each of the Company's business segments, as well as consolidated EBITDA, and adjusted EBITDA.

Table of Contents







                                                                            Three Months Ended
                                                                             Harry &
                                                                              David          As Adjusted
                                                   PersonalizationMall        Store          (non-GAAP)
                                   December          Litigation and          Closure        December 27,        December
                                   27, 2020         Transaction Costs         Costs             2020            29, 2019        % Change
        Net revenues:
        Consumer Floral & Gifts   $   305,357     $                   -     $        -     $       305,357     $   115,716          163.9 %
        BloomNet                       34,051                         -              -              34,051          25,722           32.4 %
        Gourmet Foods & Gift
        Baskets                       538,265                         -              -             538,265         464,584           15.9 %
        Corporate                         135                         -              -                 135             165          -18.2 %
        Intercompany
        eliminations                     (552 )                       -              -                (552 )          (545 )         -1.3 %
        Total net revenues        $   877,256     $                   -     $        -     $       877,256     $   605,642           44.8 %
        Gross profit:
        Consumer Floral & Gifts   $   134,474     $                   -     $        -     $       134,474     $    44,544          201.9 %
                                         44.0 %                                                       44.0 %          38.5 %
        BloomNet                       16,820                         -              -              16,820          13,161           27.8 %
                                         49.4 %                                                       49.4 %          51.2 %
        Gourmet Foods & Gift
        Baskets                       246,890                         -              -             246,890         211,362           16.8 %
                                         45.9 %                                                       45.9 %          45.5 %
        Corporate                          62                         -              -                  62             105          -41.0 %
                                         45.9 %                                                       45.9 %          63.6 %
        Total gross profit        $   398,246     $                   -     $        -     $       398,246     $   269,172           48.0 %
                                         45.4 %                       -              -                45.4 %          44.4 %
        EBITDA (non-GAAP):
        Segment Contribution
        Margin (non-GAAP) (a):
        Consumer Floral & Gifts   $    45,657     $                   -     $        -     $        45,657     $    10,890          319.3 %
        BloomNet                       12,141                         -              -              12,141           9,134           32.9 %
        Gourmet Foods & Gift
        Baskets                       135,621                         -            (78 )           135,543         113,387           19.5 %
        Segment Contribution
        Margin Subtotal               193,419                         -            (78 )           193,341         133,411           44.9 %
        Corporate (b)                 (34,757 )                     513              -             (34,244 )       (26,010 )        -31.7 %
        EBITDA (non-GAAP)             158,662                       513            (78 )           159,097     $   107,401           48.1 %
        Add: Stock-based
        compensation                    2,965                                                        2,965           2,280           30.0 %
        Add: Compensation
        charge related to NQDC
        Plan Investment
        Appreciation                    2,227                         -              -               2,227           1,002          122.2 %
        Adjusted EBITDA
        (non-GAAP)                $   163,854     $                 513     $      (78 )   $       164,289     $   110,683           48.4 %
                                                                                   Six Months Ended
                                                                                                        As Adjusted
                                                       PersonalizationMall          Harry & David        (non-GAAP)
                                   December 27,     Litigation and Transaction      Store Closure       December 27,       December
                                       2020                   Costs                     Costs               2020           29, 2019        % Change
        Net revenues:
        Consumer Floral & Gifts    $    466,903     $                        -     $             -     $      466,903     $   206,484          126.1 %
        BloomNet                         66,789                              -                   -             66,789          51,162           30.5 %
        Gourmet Foods & Gift
        Baskets                         628,194                              -                   -            628,194         535,799           17.2 %
        Corporate                           241                              -                   -                241             360          -33.1 %
        Intercompany
        eliminations                     (1,099 )                            -                   -             (1,099 )          (900 )        -22.1 %
        Total net revenues         $  1,161,028     $                        -     $             -     $    1,161,028     $   792,905           46.4 %
        Gross profit:
        Consumer Floral & Gifts    $    200,060     $                        -     $             -     $      200,060     $    80,594          148.2 %
                                           42.8 %                                                                42.8 %          39.0 %
        BloomNet                         31,658                              -                   -             31,658          26,119           21.2 %
                                           47.4 %                                                                47.4 %          51.1 %
        Gourmet Foods & Gift
        Baskets                         281,897                              -                   -            281,897         238,404           18.2 %
                                           44.9 %                                                                44.9 %          44.5 %
        Corporate                           111                              -                   -                111             201          -44.8 %
                                           46.1 %                                                                46.1 %          55.8 %
        Total gross profit         $    513,726     $                        -     $             -     $      513,726     $   345,318           48.8 %
                                           44.2 %                            -                   -               44.2 %          43.6 %
        EBITDA (non-GAAP):
        Segment Contribution
        Margin (non-GAAP) (a):
        Consumer Floral & Gifts    $     64,893     $                        -     $             -     $       64,893     $    19,414          234.3 %
        BloomNet                         22,562                              -                   -             22,562          17,491           29.0 %
        Gourmet Foods & Gift
        Baskets                         133,040                              -                (483 )          132,557         106,787           24.1 %
        Segment Contribution
        Margin Subtotal                 220,495                              -                (483 )          220,012         143,692           53.1 %
        Corporate (b)                   (66,454 )                        5,403                   -            (61,051 )       (49,309 )        -23.8 %
        EBITDA (non-GAAP)               154,041     $                    5,403     $          (483 )   $      158,961          94,383           68.4 %
        Add: Stock-based
        compensation                      5,358                                                                 5,358           4,045           32.5 %
        Add: Compensation charge
        related to NQDC Plan
        Investment Appreciation           3,207                              -                   -              3,207             958          234.8 %
        Adjusted EBITDA
        (non-GAAP)                 $    162,606     $                    5,403     $          (483 )   $      167,526     $    99,386           68.6 %
        


Table of Contents







        Reconciliation of net income to adjusted
        net income (non-GAAP):                          Three Months Ended               Six Months Ended
                                                   December 27,      December        December        December
                                                       2020          29, 2019        27, 2020        29, 2019
        Net income                                 $    113,677     $    74,152     $   103,915     $    58,881
        Adjustments to reconcile net income to
        adjusted net income (non-GAAP)
        Add: Personalization Mall litigation and
        transaction costs                                   513               -           5,403               -
        Deduct: Harry & David store closure cost
        adjustment                                          (78 )             -            (483 )             -
        Deduct: Income tax (benefit) on
        adjustments                                         125               -          (1,117 )             -
        Adjusted net income (non-GAAP)             $    114,237     $    74,152     $   107,718     $    58,881
        Basic and diluted net income per common
        share
        Basic                                      $       1.76     $      1.15     $      1.61     $      0.91
        Diluted                                    $       1.71     $      1.12     $      1.56     $      0.89
        Basic and diluted adjusted net income
        per common share (non-GAAP)
        Basic                                      $       1.76     $      1.15     $      1.67     $      0.91
        Diluted                                    $       1.72     $      1.12     $      1.62     $      0.89
        Weighted average shares used in the
        calculation of net income and adjusted
        net income per common share
        Basic                                            64,728          64,687          64,524          64,595
        Diluted                                          66,543          66,401          66,593          66,486
        Reconciliation of net income to adjusted
        EBITDA (non-GAAP):                                     Three Months Ended                                Six Months Ended
                                                        December                December                December                 December
                                                        27, 2020                29, 2019                27, 2020                 29, 2019
        Net income                                      $ 113,677               $  74,152               $ 103,915               $   58,881
        Add: Interest expense, net                           (330 )                    10                    (289 )                    689
        Add: Depreciation and amortization                 11,060                   7,830                  19,900                   15,465
        Add: Income tax expense                            34,255                  25,409                  30,515                   19,348
        EBITDA                                            158,662                 107,401                 154,041                   94,383
        Add: Stock-based compensation                       2,965                   2,280                   5,358                    4,045
        Add: Compensation charge related to NQDC
        plan investment appreciation                        2,227                   1,002                   3,207                      958
        Add: Personalization Mall litigation and
        transaction costs                                     513                       -                   5,403                        -
        Deduct: Harry & David store closure cost
        adjustment                                            (78 )                     -                    (483 )                      -
        Adjusted EBITDA                                 $ 164,289               $ 110,683               $ 167,526               $   99,386
        


(a) 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, both of which are non-GAAP measurements. 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), and other items that we do not consider indicative of our core operating performance.

(b) 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 . . .

Feb 05, 2021

COMTEX_380270071/2041/2021-02-05T12:11:57

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