1 800 FLOWERS COM INC

Net revenues

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

Net revenues decreased 9.1% and 9.2% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year, due to lower order volume across all segments, reflecting a continuation of the trends that the Company had experienced throughout the prior fiscal year, as consumer discretionary income remains pressured, and consumers continue to moderate spending. Contributing to this decline was the prudent use of promotional offerings and advertising campaigns, which balance the long-term goals of the Company with strategies to improve gross margins and tightly control operating expenses during this challenging economic environment.

The Company acquired Things Remembered on January 10, 2023 and launched the brand on its e-commerce platform in April 2023. Things Remembered revenues were not significant during the three and nine months ended March 31, 2024.

Revenue by sales channel:

E-commerce revenues (combined online and telephonic) decreased 4.9% and 7.1% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year, primarily due to the decline in demand across all our segments as a result of the macro-economic conditions noted above. These external influences have negatively impacted consumer discretionary spending.

During the three and nine months ended March 31, 2024, the Company fulfilled approximately 4.3 million and 14.8 million orders through its e-commerce sales channel (online and telephonic sales), a decrease of 6.2% and 9.5%, respectively, compared to the same periods of the prior year. During the three and nine months ended March 31, 2024, average order value increased 1.4% and 2.7%, to $79.36 and $87.29, respectively, as a result of product mix trending into higher price point items, including bundles, and customer mix with more affluent consumers buying at a higher rate than less affluent. During the quarter ended March 31, 2024, the Company has introduced a wider selection of more modestly priced items to attract broader segments of our customer base to purchase. This did have some negative impact on our average order value.

Other revenues are comprised of the Company’s BloomNet segment, as well as the wholesale and retail channels of its Consumer Floral & Gifts and Gourmet Foods & Gift Baskets segments.

Other revenues during the three and nine months ended March 31, 2024, decreased 34.5% and 21.5%, respectively. compared to the same periods of the prior year, due to lower volumes in both wholesale and BloomNet services. The decrease in wholesale revenue was primarily due to certain retailers reducing their Easter orders in light of the consumer environment. The lower service revenues were due to lower shop-to-shop volumes.

Revenue by segment:

Consumer Floral & Gifts – this segment, which includes the operations of the 1-800-Flowers.com, PersonalizationMall, and Alice’s Table brands, and the Things Remembered brand, subsequent to its acquisition on January 10, 2023, derives revenue from the sale of consumer floral products and gifts through its e-commerce sales channels (telephonic and online sales), retail stores, and royalties from its franchise operations.

Net revenues within this segment decreased 5.1% and 8.0% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year. The Consumer Floral & Gifts segment experienced an increase in volume trend driven by the Valentine's Day holiday, but due to continued economic pressure, the brands focused their efforts on improving gross margin and operating spend efficiency, in the face of softening demand.

During the three and nine months ended March 31, 2024, Consumer Floral & Gifts orders through its e-commerce sales channel (online and telephonic sales) decreased 5.6% and 10.2%, respectively, compared to the same periods of the prior year. This was partially offset by an increase in average order value of 0.5% and 2.3%, respectively, as a result of product mix into higher price point items, including bundles, and customer mix with more affluent consumers buying at a higher rate than less affluent. During the quarter ended March 31, 2024, the Company has introduced a wider selection of more modestly priced items to attract broader segments of our customer base to purchase. This did have some negative impact on our average order value in the quarter.

BloomNet- revenues in this segment are derived from membership fees, as well as product and service offerings.

Net revenues decreased 26.1% and 19.2% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year. The net revenue decline was due to soft wholesale product revenues, as well as, lower services revenues, attributable to a decline in order volume processed through the network.

Gourmet Foods & Gift Baskets – this segment includes the operations of Harry & David, Wolferman’s, Cheryl’s Cookies, The Popcorn Factory, 1-800-Baskets/DesignPac, Shari’s Berries, and Vital Choice. Revenue is derived from the sale of gourmet fruits, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, gift baskets, dipped berries, prime steaks, chops, and fish, through the Company’s e-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Harry & David and Cheryl’s brand names, as well as wholesale operations.

Net revenues within this segment decreased 11.4% and 8.9% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year, as a result of lower e-commerce and wholesale revenues, primarily due to macro-economic weakness. As such, the brands focused their efforts on improving gross margin and operating spend efficiency in the face of softening demand.

During the three and nine months ended March 31, 2024, Gourmet Foods & Gift Baskets orders through its e-commerce sales channel (online and telephonic sales) decreased 7.3% and 8.7%, respectively, compared to the same periods of the prior year. This was partially offset by an increase in average order value of 3.0% and 2.8%, respectively, as a result of product mix trending into higher price point items, including bundles, and customer mix with more affluent consumers buying at a higher rate than less affluent.

Gross profit

Gross profit consists of net revenues less cost of revenues, which is comprised primarily of florist fulfillment costs (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 includes labor and facility costs related to direct-to-consumer and wholesale production operations, as well as payments made to sending florists related to order volume referred through the Company’s BloomNet network.

Gross profit decreased 1.2% and 2.2% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year, due to lower revenues as noted above, principally offset by a favorable gross profit percentage.

Gross profit percentage increased 300 and 290 basis points during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year, driven by lower florist fulfillment and rebate costs, as well as lower freight costs, a decline in certain commodity costs, reduced labor costs in our Gourmet Foods & Gift Baskets segment, and better inventory management.

Gross profit by segment follows:

Consumer Floral & Gifts segment - Gross profit decreased by 1.5% and 3.8% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year, due to the impact of the lower revenues noted above, partially offset by favorable gross profit percentage attributable to lower florist fulfillment costs and lower freight costs in both the three and nine months ended March 31, 2024, and labor efficiencies for the nine months ended March 31, 2024.

BloomNet **segment -**Gross profit decreased by 21.0% and 9.5% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year, due to the decrease in revenues noted above, partially offset by improved gross profit percentage. Gross profit percentage increased in comparison to the prior year primarily due to improvements in wholesale margins, lower freight costs and lower florist rebates due to lower volume.

Gourmet Foods & Gift Baskets segment – Gross profit increased by 7.7% and 0.1% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year despite the revenue decrease noted above, as the brands delivered improved gross profit percentage. Gross profit percentage increased 530 and 350 basis points during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year. The increased gross profit percentage was attributable to lower freight costs, a decline in certain commodity prices, labor efficiencies, and better inventory management.

Marketing and sales expense

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 decreased 0.6% and 3.4% during the three and nine months ended March 31, 2024, respectively, compared to the same periods of the prior year, due to variable components associated with lower revenues, combined with planned reductions in advertising spend focused on driving profitable volume during a period when consumer discretionary purchases are under pressure.

Technology and development expense

Technology and development expense consists primarily of payroll and operating expenses of the Company’s information technology group, costs associated with its websites, including hosting, design, content development and maintenance and support costs related to the Company’s order entry, customer service, fulfillment, and database systems.

Technology and development expense increased by 3.1% and 2.0% during the three and nine-month periods ended March 31, 2024, compared to the same periods of the prior year, primarily due to higher maintenance and support for the Company's technology platform enhancements, partially offset by lower web hosting costs in the quarter ended March 31, 2024, and reduced labor and consulting costs for the nine months ended March 31, 2024.

General and administrative expense

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 expenses increased 24.6% and 8.5% during the three and nine-month periods ended March 31, 2024, respectively, compared to the same period of the prior year, primarily due to increases in labor costs driven by changes in the value of the Company’s NQDC plan investments (offset in Other Income below), as well as a severance charge taken during the quarter ended March 31, 2024, related to an enterprise reduction in workforce, partially offset by favorable bad debt expense and lower insurance and professional fees.

Depreciation and amortization expense

Depreciation and amortization expense decreased 0.3% during the three months ended March 31, 2024 , compared to the same period of the prior year, due to the timing of certain assets becoming fully depreciated, offset in part by distribution facility automation projects and IT-related ecommerce/platform enhancements. Depreciation and amortization expense increased 0.7% during the nine months ended March 31, 2024 compared to the same period of the prior year, due to distribution facility automation projects and IT-related ecommerce/platform enhancements.

Goodwill and Intangible impairment

During the quarter ended December 31, 2023, the Company recorded a non-cash impairment charge of $19.8 million related to its PersonalizationMall trademark, due to a decline in the actual and projected revenue, combined with a higher discount rate resulting from the higher interest rate environment. See Note 5 - Goodwill and Intangible Assets, Net, in Item 1 for further information.

During the quarter ended April 2, 2023, the Company recorded a non-cash impairment charge of $64.6 million related to its Gourmet Foods & Gift Baskets reporting unit. The Company fully impaired the related goodwill and partially impaired certain tradenames within the reporting unit.

Interest expense, net

Interest expense, net consists primarily of interest expense and amortization of deferred financing costs attributable to the Company’s credit facility (See Note 7 - Debt, Net in Item 1 for details), net of income earned on the Company’s available cash balances.

Interest expense, net decreased 48.5% during the three months ended March 31, 2024 compared to the same period of the prior year, primarily due to interest earned on available cash balances, partially offset by higher interest rates on the Company's credit facility. Interest expense, net increased 3.4% during the nine months ended March 31, 2024, compared to the same period of the prior year, due to higher interest rates on the Company's credit facility, partially offset by favorable interest earned on available cash balances.

Other expense (income), net

Other (income) expense consists primarily of investment losses (gains) on the Company’s NQDC Plan investments.

Income Taxes

The Company recorded income tax benefit of $8.3 million and income tax expense of $7.8 million during the three and nine months ended March 31, 2024, respectively, compared to an income tax benefit of $16.8 million and income tax expense of $0.1 million, during the three and nine months ended April 2, 2023, respectively. The Company’s effective tax rate for the three and nine months ended March 31, 2024, was 33.0% and 34.7%, respectively, compared to 19.1% and -0.6% in the same periods of the prior year. The Company’s effective tax rate for fiscal 2024 and fiscal 2023 differed from the U.S. federal statutory rate of 21.0% primarily due to impairment charges within the respective periods, thus reducing the amount of income reflected in the Company’s estimated annual effective tax rate. Further impacting the effective tax rate for fiscal 2024 and fiscal 2023 were tax deficiencies (shortfalls) from stock-based compensation, state income taxes and non-deductible executive compensation, partially offset by tax credits.

Liquidity and Capital Resources

Liquidity and borrowings

The Company's principal sources of liquidity are cash on hand, cash flows generated from operations, and borrowings available under the Company’s credit agreement (see Note 7 - Debt, Net in Item 1 for details). At March 31, 2024, the Company had working capital of $186.4 million, including cash and cash equivalents of $184.0 million, compared to working capital of $152.9 million, including cash and cash equivalents of $126.8 million, at July 2, 2023.

Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, is expected to generate over 40% of the Company’s annual revenues, and all of its earnings. Due to the number of major floral gifting occasions, including Mother’s Day, Valentine’s Day, Easter, and Administrative Professionals Week, revenues also have historically risen during the Company’s fiscal third and fourth quarters in comparison to its fiscal first quarter.

During the first two quarters of fiscal 2024, the Company borrowed under its revolving credit agreement to fund pre-holiday manufacturing and inventory procurement requirements, with borrowings peaking at $82.0 million in November 2023. Cash generated from operations during the Christmas holiday shopping season enabled the Company to repay the borrowings under the Revolver in December 2023. Based on current projected cash flows, the Company believes that available cash balances will be sufficient to provide for the Company’s operating needs through the remainder of fiscal 2024, at which time the Company would again expect to borrow against its Revolver to fund pre-holiday manufacturing and inventory purchases. The Company had no amounts outstanding under its Revolver as of March 31, 2024.

While we believe that our sources of funding will be sufficient to meet our anticipated operating cash needs for at least the next twelve months, any projections of future cash needs and cash flows are subject to substantial uncertainty. We continually evaluate, and will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to require additional financing.

Cash Flows

Net cash provided by operating activities of $100.1 million, for the nine months ended March 31, 2024, was primarily attributable to the Company’s net income during the period, adjusted by non-cash charges related to the intangible impairment, depreciation and amortization, stock-based compensation and changes in deferred income taxes, combined with seasonal changes in net working capital, driven by a decrease in inventories.

Net cash used in investing activities of $26.5 million, for the nine months ended March 31, 2024, was attributable to capital expenditures primarily related to the Company's technology and automation initiatives.

Net cash used in financing activities of $16.4 million, for the nine months ended March 31, 2024, related primarily to net repayment of bank borrowings under the Company’s working capital line of credit and the repurchase of common stock.

Free Cash Flow

Free cash flow was $73.6 million for the nine months ended March 31, 2024, compared with free cash flow of $41.7 million for the nine months ended April 2, 2023, an increase of $31.9 million primarily driven by an increase in cash flows from operations. Refer to "Definitions of non-GAAP Financial Measures" for reconciliation of non-GAAP results to applicable GAAP results.

Stock Repurchase Program

See Item 2 in Part II below for details.

Contractual Obligations

At March 31, 2024, the Company’s contractual obligations consist of:

Critical Accounting Estimates

As disclosed in the Company’s Annual Report on Form 10-K, for the fiscal year ended July 2, 2023, the discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, and management evaluates its estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. The Company’s most critical accounting policies relate to goodwill, other intangible assets and income taxes. There have been no significant changes to the assumptions and estimates related to the Company’s critical accounting policies since July 2, 2023.

Recently Issued Accounting Pronouncements

See Note 1 - Accounting Policies in Item 1 for details regarding the impact of accounting standards that were recently issued on our consolidated financial statements.

Forward Looking Information and Factors that May Affect Future Results

Our disclosure and analysis in this report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s current expectations or beliefs concerning future events and can generally be identified by the use of statements that include words such as “estimate,” “expects,” “project,” “believe,” “anticipate,” “intend,” “plan,” “foresee,” “forecast,” “likely,” “will,” “goal,” “target” or similar words or phrases. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control that could cause actual results to differ materially from the results expressed or implied in the forward-looking statements, including:

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties, and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated, or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Annual Report on Form 10-K for the fiscal year ended July 2, 2023 listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Cautionary Statements Under the Private Securities Litigation Reform Act of 1995”. We incorporate that section of that Form 10-K in this filing and investors should refer to it. In addition, please refer to any additional risk factors in Part II, Item 1A in this Form 10-Q.