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| FLWS > SEC Filings for FLWS > Form 10-Q on 6-Feb-2009 | All Recent SEC Filings |
6-Feb-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), is one of the top
50 online retailers by Internet Retailer, 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 Growerssm." As always, 100% satisfaction and freshness are guaranteed.
The Company's BloomNet(R) 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 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 Confections Brands(R) (www.fanniemay.com and www.harrylondon.com); gourmet foods from Greatfood.com(R) (www.greatfood.com); wine gifts from Ambrosia(R) (www.ambrosia.com); gift baskets from 1-800-BASKETS.COM(R) (www.1800baskets.com) and DesignPac Gifts(TM) (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 "EBITDA" (earnings before interest,
taxes, depreciation and amortization, and goodwill and intangible impairment)
from each of the Company's business categories.
Three Months Ended Six Months Ended
----------------------------------------- --------------------------------------------
December 28, December 30, December 28, December 30,
2008 2007 % Change 2008 2007 % Change
-------------- -------------- ---------- -------------- ------------- -----------
(in thousands)
Net revenues:
1-800-Flowers.com Consumer Floral $97,082 $114,017 (14.9)% $180,583 $201,669 (10.5)%
BloomNet Wire Service 15,151 12,732 19.0% 30,866 22,623 36.4%
Gourmet Food & Gift Baskets 141,855 110,605 28.3% 179,039 133,767 33.8%
Home & Children's Gifts 77,757 98,013 (20.7)% 100,352 122,748 (18.2)%
Corporate (*) 597 585 2.1% 801 1,710 (53.2)%
Intercompany eliminations (3,114) (1,750) (77.9)% (4,280) (2,505) (70.9)%
-------------- -------------- -------------- -------------
Total net revenues $329,328 $334,202 (1.5)% $487,361 $480,012 1.5%
============== ============== ============== =============
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Three Months Ended Six Months Ended
----------------------------------------- --------------------------------------------
December 28, December 30, December 28, December 30,
2008 2007 % Change 2008 2007 % Change
-------------- -------------- ---------- -------------- ------------- -----------
(in thousands)
Gross Profit:
1-800-Flowers.com Consumer Floral $35,918 $44,870 (20.0)% $67,627 $79,020 (14.4)%
37.0% 39.4% 37.4% 39.2%
BloomNet Wire Service 8,766 7,273 20.5% 17,106 12,882 32.8%
57.9% 57.1% 55.4% 56.9%
Gourmet Food & Gift Baskets 56,315 54,298 3.7% 68,328 63,781 7.1%
39.7% 49.1% 38.2% 47.7%
Home & Children's Gifts 37,579 46,591 (19.3)% 47,205 56,797 (16.9)%
48.3% 47.5% 47.0% 46.3%
Corporate (*) 168 256 (34.1)% 325 763 (57.4)%
28.1% 43.8% 40.6% 44.6%
Intercompany eliminations (454) (232) (476) (306)
-------------- -------------- -------------- -------------
Total gross profit $138,292 $153,056 (9.6)% $200,115 $212,937 (6.0)%
============== ============== ============== =============
42.0% 45.8% 41.1% 44.4%
============= ============== ============== ==============
Three Months Ended Six Months Ended
----------------------------------------- --------------------------------------------
December 28, December 30, December 28, December 30,
EBITDA(**) 2008 2007 % Change 2008 2007 % Change
-------------- -------------- ---------- -------------- ------------- -----------
(in thousands)
Category Contribution Margin:
1-800-Flowers.com Consumer Floral $8,851 13,561 (34.7)% $19,593 $25,506 (23.2)%
BloomNet Wire Service 4,839 4,458 8.5% 9,258 7,022 31.8%
Gourmet Food & Gift Baskets 26,107 24,912 4.8% 25,216 23,057 9.4%
Home & Children's Gifts 2,758 8,747 (68.5)% 552 6,451 (91.4)%
------------- -------------- -------------- -------------
Category Contribution Margin Subtotal 42,555 51,678 (17.7)% 54,619 62,036 (12.0)%
Corporate (*) (9,938) (13,083) (24.0)% (24,013) (26,792) (10.4)%
------------- -------------- -------------- -------------
EBITDA $32,617 $38,595 (15.5)% $30,606 $35,244 (13.2)%
============= ============== ============== =============
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(**) 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,
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 EBITDA:
Three Months Ended Six Months Ended
--------------------------- ------------------------------
December 28, December 30, December 28, December 30,
2008 2007 2008 2007
------------- ------------ -------------- --------------
(in thousands)
Net (loss) income ($5,111) $19,256 ($10,415) $13,466
Add:
Interest expense 2,507 1,737 3,666 3,282
Depreciation and amortization 5,797 4,967 11,485 9,837
Income tax expense 9,482 12,942 6,033 9,162
Goodwill and intangible impairment 20,036 - 20,036 -
Less:
Interest income 76 295 172 473
Other expense (income) 18 12 27 30
------------- -------------- -------------- --------------
EBITDA $32,617 $38,595 $30,606 $35,244
============= ============== ============== ==============
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Results of Operations
Net Revenues
Three Months Ended Six Months Ended
----------------------------------------- ------------------------------------------
December 28, December 30, December 28, December 30,
2008 2007 % Change 2008 2007 % Change
-------------- -------------- ---------- -------------- ------------- ---------
(in thousands)
Net revenues:
E-Commerce $230,123 $274,168 (16.1)% $337,872 $388,671 (13.1)%
Other 99,205 60,034 65.2% 149,489 91,341 63.7%
-------------- -------------- -------------- -------------
Total net revenues $329,328 $334,202 (1.5)% $487,361 $480,012 1.5%
============== ============== ============== ==============
|
During the three months ended December 28, 2008, revenue declined by 1.5% in comparison to the prior year period, resulting from significantly reduced consumer spending during the key holiday period due to the overall weakness in the economy, which impacted the Company's Home & Children's Gift and Consumer Floral businesses particularly hard. The decline was offset in part by growth in the Company's BloomNet Wire Service category, which increased 19.0% over the prior year period due, in part, to the acquisition of Napco Marketing Corp. (Napco), a wholesaler of floral hardgoods, in July 2008, and the Gourmet Food & Gift Baskets category, which increased 28.3% over the prior year period due to the acquisition of DesignPac Gifts LLC (DesignPac), a wholesaler of gift baskets, in April 2008.
During the six months ended December 28, 2008, the Company's revenues increased by 1.5% over the prior year period as a result of: (i) growth within the BloomNet Wire Service category, which increased 36.4% over the prior year period due, in part, to the acquisition of Napco, a wholesaler of floral hardgoods, in July 2008, and (ii) Gourmet Food & Gift Baskets category, which increased 33.8% over the prior year period, due to the acquisition of DesignPac, a wholesaler of gift baskets, in April 2008. Organic revenue, including post acquisition growth of DesignPac and Napco, and adjusted for the transition of Company-owned retail stores to franchise operations, declined approximately 14.1% and 10.7% during the three and six months ended December 28, 2008, reflecting the challenging economic environment and its impact on consumer spending.
The Company fulfilled approximately 3,762,000 and 5,317,000 orders through its E-commerce sales channels (online and telephonic sales) during the three and six months ended December 28, 2008, respectively, a decrease of 14.6% and 12.2%, over the respective prior year periods, reflecting a decline in consumer spending during the key holiday period. The Company's E-commerce average order values during the three and six months ended December 28, 2008, of $61.16 and $63.54, decreased 1.8% and 1.0 % in comparison to the respective prior year
periods. Other revenues, for the three and six months ended December 28, 2008, increased in comparison to the same periods of the prior year, as a result of the Company's recent acquisitions of Napco and DesignPac, and through the growth of BloomNet.
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 six months ended December 28, 2008 decreased 14.9% and 10.5%, respectively, over the prior year periods, due to lower order volume as a result of the decline in demand throughout the consumer sector, combined with the continued transition of Company owned retail stores to franchise operations, and a decline in average order value in comparison to the prior year periods.
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 six months ended December 28, 2008 increased 19.0% and 36.4%, respectively, over the prior year period, 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 product and service offerings and pricing initiatives.
The Gourmet Food & Gift Baskets category includes the revenues of Cheryl & Co., Fannie May, Popcorn Factory, The Winetasting Network 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. Net revenue during the three and six months ended December 28, 2008 increased by 28.3% and 33.8%, respectively, over the prior year periods as a result of incremental wholesales revenue generated by DesignPac, acquired in April 2008, offset in part by decreased net revenue from the category's E-Commerce and retail stores channels as a result of reduced consumer spending during the key holiday period.
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. Net revenue during the three and six months ended December 28, 2008 decreased by 20.7% and 18.2%, respectively, over the prior year periods as a result of: (i) 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, (ii) as well as lower retail store sales due to a decline in customer traffic during the holiday. As a result of this weak performance, the Company is implementing 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 to continue to be very challenging. Based on this outlook, and combined with its first half results, the Company now 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 Six Months Ended
--------------------------------------------- ------------------------------------------------
December 28, December 30, December 28, December 30,
2008 2007 % Change 2008 2007 % Change
-------------- --------------- ------------- --------------- --------------- ---------------
(in thousands)
Gross profit $138,292 $153,056 (9.6)% $200,115 $212,937 (6.0)%
Gross margin % 42.0% 45.8% 41.1% 44.4%
|
Gross profit decreased during the three and six months ended December 28, 2008, 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 six months ended December 28, 2008, decreased by 380 and 330 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 during the holiday period to improve sales.
The 1-800-Flowers.com Consumer Floral category gross profit and gross profit margin percentage decreased during the three and six months ended December 28, 2008 by 20.0% and 240 basis points, and 14.4% and 180 basis points, respectively, over the prior year periods, as a result of decreased sales volume and promotional pricing, which characterized the retail sector during this past holiday period.
The BloomNet Wire Service category gross profit increased during the three and six months ended December 28, 2008, by 20.5% and 32.8%, respectively, as compared to the prior year periods, as a result of the aforementioned revenue from the Napco acquisition in July 2008, as well as increased revenue resulting from market share gains and expanded products and service offerings and pricing initiatives. Gross profit margins during the three months ended December 28, 2008, increased by 80 basis points in comparison to the prior year as a result of product mix, whereas gross profit margins decreased by 150 basis points during the six months ended December 28, 2008, 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 Basket category gross profit increased during the three and six months ended December 28, 2008, by 3.7% and 7.1%, respectively, over the prior year periods, primarily as a result of the incremental gross profit generated by DesignPac, acquired in April 2008, which also had the effect of decreasing gross margin percentage as DesignPac products carry lower wholesale margins. Further negatively impacting the decreased gross profit margins during the three and six months ended December 28, 2008 was the increased promotional activity during the key holiday shopping period within the category's E-Commerce and retail store sales channels, in comparison to the prior year periods.
The Home & Children's Gifts category gross profit during the three and six months ended December 28, 2008, decreased by 19.3% and 16.9%, 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 80 basis points to 48.3% and 70 basis points to 47.0%, respectively, benefiting from enhanced product sourcing.
During the remainder of fiscal year 2009, the Company expects its gross margin percentage will improve slightly in comparison to the prior year from 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, partially offset by reduced margin percentage contribution from DesignPac, which carries a lower wholesale gross margin, but a strong overall contribution margin due to its efficient high volume packaging and distribution operations.
Marketing and Sales Expense
Three Months Ended Six Months Ended
--------------------------------------------- ------------------------------------------------
December 28, December 30, December 28, December 30,
2008 2007 % Change 2008 2007 % Change
-------------- --------------- ------------- --------------- --------------- ---------------
(in thousands)
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