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. and its subsidiaries (collectively, the “Company”) is a leading provider of gifts for all celebratory occasions. For the past 40 years, 1-800-Flowers.com® has been helping deliver smiles to customers with a 100% Smile Guarantee® backing every gift. In addition to the 1-800-Flowers.com brand, which offers fresh flowers, plants, fruit and gift baskets, as well as balloons, plush and keepsake gifts, the Company’s BloomNet® international floral wire service (www.mybloomnet.net) and Napco floral gifts and décor brands provide 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. family of brands also offers everyday gifting and entertaining products such as premium, gift-quality fruits and other gourmet items from Harry & David® (1-877-322-1200 or www.harryanddavid.com), 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); gift baskets and towers from 1-800-Baskets.com® (www.1800baskets.com) and DesignPac Gifts; premium English muffins and other breakfast treats from Wolferman’s (1-800-999-1910 or www.wolfermans.com); artisanal and specialty chocolates from Simply Chocolate
SM
(www.simplychocolate.com), carved fresh fruit arrangements from FruitBouquets.com (www.fruitbouquets.com); top quality steaks and chops from Stock Yards® (www.stockyards.com), and personalized gifts from Personalization Universe® (www.personalizationuniverse.com).
Service offerings such as Celebrations Passport®, Celebrations Rewards® and Celebrations Reminders® are designed to deepen relationships with customers across all brands. 1-800-FLOWERS.COM, Inc. was named to the Stores® 2017 Hot 100 Retailers List by the National Retail Federation and also received the Gold award in the “Best Artificial Intelligence” category at the Data & Marketing Association’s 2017 International ECHO Awards.
Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market, ticker symbol: FLWS.
On May 30, 2017, the Company completed the sale of the outstanding equity of Fannie May Confections Brands, Inc., including its subsidiaries, Fannie May Confections, Inc. and Harry London Candies, Inc. (“Fannie May”) to Ferrero International S.A., a Luxembourg corporation (“Ferrero”), for a total consideration of $115.0 million in cash, subject to adjustment for seasonal working capital. The working capital adjustment was finalized in August 2017, resulting in an $11.4 million reduction to the purchase price. The resulting gain on sale of $14.6 million, is included within “Other (income) expense, net” in the Company’s consolidated statements of income in the fourth quarter of fiscal year 2017.
The Company and Ferrero also entered into a transition services agreement whereby the Company will provide certain post-closing services to Ferrero and Fannie May for a period of approximately 18 months, related to the business of Fannie May, and a commercial agreement with respect to the distribution of certain Ferrero and Fannie May products.
Operating results of Fannie May are reflected in the Company’s consolidated financial statements through May 30, 2017, the date of its disposition, within its Gourmet Food & Gift Baskets segment. See
Segment Information
and
Results of Operations
below for a comparison of fiscal 2018 results to fiscal 2017, adjusted to exclude the operations of Fannie May.
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, as these terms are used interchangeably.
Adjusted revenues
Adjusted revenues measure GAAP revenues adjusted for the effects of acquisitions, dispositions, and other items affecting period to period comparability. See
Segment Information
for details on how adjusted revenues were calculated for each period presented.
We believe that this measure provides management and investors with a more complete understanding of underlying revenue trends of established, ongoing operations by excluding the effect of activities which are subject to volatility and can obscure underlying trends.
Management recognizes that the term "adjusted revenues" may be interpreted differently by other companies and under different circumstances. Although this may influence comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the Company and its segments, and may therefore be a useful tool in assessing period-to-period performance trends.
Adjusted gross profit and adjusted gross profit percentage
Adjusted gross profit measures GAAP revenues less cost of revenues, adjusted for the effects of acquisitions, dispositions, and other items affecting period to period comparability. Adjusted gross profit percentage measures adjusted gross profit divided by adjusted revenues. See
Segment Information
for details on how adjusted gross profit and adjusted gross profit percentage were calculated for each period presented.
We believe that this measure provides management and investors with a more complete understanding of underlying gross profit trends of established, ongoing operations by excluding the effect of activities which are subject to volatility and can obscure underlying trends.
Management recognizes that the term "adjusted gross profit" or “adjusted gross profit percentage” may be interpreted differently by other companies and under different circumstances. Although this interpretation may vary from company to company, we believe that these consistently applied measures are useful in assessing trends of the Company and its segments, and may therefore be a useful tool in assessing period-to-period performance trends.
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 certain items affecting period to period comparability. See
Segment Information
or details on how EBITDA and adjusted EBITDA were calculated for each period presented.
The Company presents 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 used 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 segment contribution margin adjusted for certain items affecting period to period comparability. See
Segment Information
for details on how segment contribution margin and comparable segment contribution margin were calculated for each period presented.
When viewed together with our GAAP results, we believe segment contribution margin and comparable segment contribution margin provide management and users of the financial statements information about the performance of our business segments.
Segment contribution margin and comparable 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 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 and adjusted net income per common share
We define adjusted net income and adjusted net income per common share as net income and net income per common share adjusted for certain items affecting period to period comparability. See
Segment Information
below for details on how adjusted net income and adjusted net income per common share were calculated for each period presented.
We believe that adjusted net income and adjusted net income per common share 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 and net income 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, Adjusted EBITDA and adjusted net income.
|
|
Three Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
Exclude Operating Results of Fannie May
|
|
|
Severance Costs
|
|
|
As Adjusted
(non-GAAP)
April 2, 2017
|
|
|
As Adjusted
(non-GAAP)
% Change
|
|
|
|
(in thousands, unaudited)
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-800-Flowers.com Consumer Floral
|
|
$
|
135,782
|
|
|
$
|
124,684
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
124,684
|
|
|
|
8.9
|
%
|
BloomNet Wire Service
|
|
|
24,498
|
|
|
|
24,091
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,091
|
|
|
|
1.7
|
%
|
Gourmet Food & Gift Baskets
|
|
|
78,458
|
|
|
|
85,611
|
|
|
|
(17,700
|
)
|
|
|
-
|
|
|
|
67,911
|
|
|
|
15.5
|
%
|
Corporate
|
|
|
264
|
|
|
|
260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
260
|
|
|
|
1.5
|
%
|
Intercompany eliminations
|
|
|
(457
|
)
|
|
|
(931
|
)
|
|
|
537
|
|
|
|
-
|
|
|
|
(394
|
)
|
|
|
-16.0
|
%
|
Total net revenues
|
|
$
|
238,545
|
|
|
$
|
233,715
|
|
|
$
|
(17,163
|
)
|
|
$
|
-
|
|
|
$
|
216,552
|
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-800-Flowers.com Consumer Floral
|
|
$
|
53,744
|
|
|
$
|
50,584
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
50,584
|
|
|
|
6.2
|
%
|
|
|
|
39.6
|
%
|
|
|
40.6
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
40.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BloomNet Wire Service
|
|
|
12,931
|
|
|
|
12,915
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,915
|
|
|
|
0.1
|
%
|
|
|
|
52.8
|
%
|
|
|
53.6
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
53.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gourmet Food & Gift Baskets
|
|
|
26,532
|
|
|
|
29,780
|
|
|
|
(7,134
|
)
|
|
|
-
|
|
|
|
22,646
|
|
|
|
17.2
|
%
|
|
|
|
33.8
|
%
|
|
|
34.8
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
33.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate (a)
|
|
|
248
|
|
|
|
302
|
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
|
|
-17.9
|
%
|
|
|
|
93.9
|
%
|
|
|
116.2
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
116.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
93,455
|
|
|
$
|
93,581
|
|
|
$
|
(7,134
|
)
|
|
$
|
-
|
|
|
$
|
86,447
|
|
|
|
8.1
|
%
|
|
|
|
39.2
|
%
|
|
|
40.0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
39.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Contribution Margin (non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-800-Flowers.com Consumer Floral
|
|
$
|
16,226
|
|
|
$
|
15,863
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,863
|
|
|
|
2.3
|
%
|
BloomNet Wire Service
|
|
|
8,439
|
|
|
|
8,245
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,245
|
|
|
|
2.4
|
%
|
Gourmet Food & Gift Baskets
|
|
|
(8,811
|
)
|
|
|
(10,776
|
)
|
|
|
225
|
|
|
|
439
|
|
|
|
(10,112
|
)
|
|
|
12.9
|
%
|
Segment Contribution Margin Subtotal
|
|
|
15,854
|
|
|
|
13,332
|
|
|
|
225
|
|
|
|
439
|
|
|
|
13,996
|
|
|
|
13.3
|
%
|
Corporate (a)
|
|
|
(20,408
|
)
|
|
|
(21,125
|
)
|
|
|
324
|
|
|
|
-
|
|
|
|
(20,801
|
)
|
|
|
1.9
|
%
|
EBITDA (non-GAAP)
|
|
|
(4,554
|
)
|
|
|
(7,793
|
)
|
|
|
549
|
|
|
|
439
|
|
|
|
(6,805
|
)
|
|
|
33.1
|
%
|
Add: Stock-based compensation
|
|
|
933
|
|
|
|
1,286
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,286
|
|
|
|
27.4
|
%
|
Add: Comp charge related to NQ Plan Investment Appreciation
|
|
|
30
|
|
|
|
404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
404
|
|
|
|
92.6
|
%
|
Adjusted EBITDA (non-GAAP)
|
|
$
|
(3,591
|
)
|
|
$
|
(6,103
|
)
|
|
$
|
549
|
|
|
$
|
439
|
|
|
$
|
(5,115
|
)
|
|
|
29.8
|
%
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
Exclude Operating Results of Fannie May
|
|
|
Severance Costs
|
|
|
As Adjusted
(non-GAAP)
April 2, 2017
|
|
|
As Adjusted
(non-GAAP)
% Change
|
|
|
|
(in thousands, unaudited)
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-800-Flowers.com Consumer Floral
|
|
$
|
312,456
|
|
|
$
|
297,707
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
297,707
|
|
|
|
5.0
|
%
|
BloomNet Wire Service
|
|
|
64,637
|
|
|
|
65,557
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,557
|
|
|
|
-1.4
|
%
|
Gourmet Food & Gift Baskets
|
|
|
545,408
|
|
|
|
592,295
|
|
|
|
(70,273
|
)
|
|
|
-
|
|
|
|
522,022
|
|
|
|
4.5
|
%
|
Corporate
|
|
|
851
|
|
|
|
839
|
|
|
|
-
|
|
|
|
-
|
|
|
|
839
|
|
|
|
1.4
|
%
|
Intercompany eliminations
|
|
|
(1,365
|
)
|
|
|
(2,301
|
)
|
|
|
1,051
|
|
|
|
-
|
|
|
|
(1,250
|
)
|
|
|
-9.2
|
%
|
Total net revenues
|
|
$
|
921,987
|
|
|
$
|
954,097
|
|
|
$
|
(69,222
|
)
|
|
$
|
-
|
|
|
$
|
884,875
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-800-Flowers.com Consumer Floral
|
|
$
|
123,322
|
|
|
$
|
121,383
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
121,383
|
|
|
|
1.6
|
%
|
|
|
|
39.5
|
%
|
|
|
40.8
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
40.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BloomNet Wire Service
|
|
|
35,682
|
|
|
|
37,019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,019
|
|
|
|
-3.6
|
%
|
|
|
|
55.2
|
%
|
|
|
56.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
56.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gourmet Food & Gift Baskets
|
|
|
236,152
|
|
|
|
262,716
|
|
|
|
(27,559
|
)
|
|
|
-
|
|
|
|
235,157
|
|
|
|
0.4
|
%
|
|
|
|
43.3
|
%
|
|
|
44.4
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
45.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate (a)
|
|
|
836
|
|
|
|
844
|
|
|
|
-
|
|
|
|
-
|
|
|
|
844
|
|
|
|
-0.9
|
%
|
|
|
|
98.2
|
%
|
|
|
100.6
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
100.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
395,992
|
|
|
$
|
421,962
|
|
|
$
|
(27,559
|
)
|
|
$
|
-
|
|
|
$
|
394,403
|
|
|
|
0.4
|
%
|
|
|
|
42.9
|
%
|
|
|
44.2
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
44.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Contribution Margin (non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-800-Flowers.com Consumer Floral
|
|
$
|
33,988
|
|
|
$
|
37,172
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
37,172
|
|
|
|
-8.6
|
%
|
BloomNet Wire Service
|
|
|
22,832
|
|
|
|
23,713
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,713
|
|
|
|
-3.7
|
%
|
Gourmet Food & Gift Baskets
|
|
|
79,698
|
|
|
|
84,544
|
|
|
|
(2,793
|
)
|
|
|
542
|
|
|
|
82,293
|
|
|
|
-3.2
|
%
|
Segment Contribution Margin Subtotal
|
|
|
136,518
|
|
|
|
145,429
|
|
|
|
(2,793
|
)
|
|
|
542
|
|
|
|
143,178
|
|
|
|
-4.7
|
%
|
Corporate (a)
|
|
|
(59,448
|
)
|
|
|
(62,616
|
)
|
|
|
1,087
|
|
|
|
|
|
|
|
(61,529
|
)
|
|
|
3.4
|
%
|
EBITDA (non-GAAP)
|
|
|
77,070
|
|
|
|
82,813
|
|
|
|
(1,706
|
)
|
|
|
542
|
|
|
|
81,649
|
|
|
|
-5.6
|
%
|
Add: Stock-based compensation
|
|
|
3,002
|
|
|
|
4,784
|
|
|
|
|
|
|
|
|
|
|
|
4,784
|
|
|
|
-37.2
|
%
|
Add: Comp charge related to NQ Plan Investment Appreciation
|
|
|
669
|
|
|
|
686
|
|
|
|
-
|
|
|
|
-
|
|
|
|
686
|
|
|
|
2.5
|
%
|
Adjusted EBITDA (non-GAAP)
|
|
$
|
80,741
|
|
|
$
|
88,283
|
|
|
$
|
(1,706
|
)
|
|
$
|
542
|
|
|
$
|
87,119
|
|
|
|
-7.3
|
%
|
Reconciliation of net income (loss) to adjusted net income (loss) (non-GAAP):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
|
(in thousands, unaudited)
|
|
Net income (loss)
|
|
$
|
(8,463
|
)
|
|
$
|
(11,130
|
)
|
|
$
|
49,014
|
|
|
$
|
36,028
|
|
Adjustments to reconcile net income (loss) to adjusted net income (loss) (non-GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct: Fannie May operating results
|
|
|
|
|
|
|
(1,361
|
)
|
|
|
|
|
|
|
(731
|
)
|
Deduct: U.S. tax reform impact on deferred taxes (b)
|
|
|
|
|
|
|
|
|
|
|
12,158
|
|
|
|
|
|
Add back: Severance costs
|
|
|
|
|
|
|
439
|
|
|
|
|
|
|
|
542
|
|
Add back: Income tax expense impact on Fannie May operating results and severance costs
|
|
|
|
|
|
|
(625
|
)
|
|
|
|
|
|
|
(406
|
)
|
Adjusted net income (loss) (non-GAAP)
|
|
$
|
(8,463
|
)
|
|
$
|
(9,955
|
)
|
|
$
|
36,856
|
|
|
$
|
36,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.13
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
0.76
|
|
|
$
|
0.55
|
|
Diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
0.73
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted adjusted net income (loss) per common share (non-GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.13
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
0.57
|
|
|
$
|
0.57
|
|
Diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
0.55
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in the calculation of net income (loss) and adjusted net income (loss) (non-GAAP) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
64,527
|
|
|
|
65,199
|
|
|
|
64,694
|
|
|
|
65,169
|
|
Diluted
|
|
|
64,527
|
|
|
|
65,199
|
|
|
|
66,949
|
|
|
|
67,747
|
|
Reconciliation of net income (loss) to adjusted EBITDA (non-GAAP) (c):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
|
(in thousands, unaudited)
|
|
Net income (loss)
|
|
$
|
(8,463
|
)
|
|
$
|
(11,130
|
)
|
|
$
|
49,014
|
|
|
$
|
36,028
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and other, net
|
|
|
693
|
|
|
|
770
|
|
|
|
2,604
|
|
|
|
4,226
|
|
Depreciation and amortization
|
|
|
7,885
|
|
|
|
8,492
|
|
|
|
24,646
|
|
|
|
25,656
|
|
Income tax expense (benefit)
|
|
|
(4,669
|
)
|
|
|
(5,925
|
)
|
|
|
806
|
|
|
|
16,903
|
|
EBITDA (non-GAAP)
|
|
|
(4,554
|
)
|
|
|
(7,793
|
)
|
|
|
77,070
|
|
|
|
82,813
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
|
-
|
|
|
|
439
|
|
|
|
-
|
|
|
|
542
|
|
Compensation charge related to NQ plan investment appreciation
|
|
|
30
|
|
|
|
404
|
|
|
|
669
|
|
|
|
686
|
|
Stock-based compensation
|
|
|
933
|
|
|
|
1,286
|
|
|
|
3,002
|
|
|
|
4,784
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie May EBITDA
|
|
|
-
|
|
|
|
(549
|
)
|
|
|
-
|
|
|
|
1,706
|
|
Adjusted EBITDA (non-GAAP)
|
|
$
|
(3,591
|
)
|
|
$
|
(5,115
|
)
|
|
$
|
80,741
|
|
|
$
|
87,119
|
|
|
(a)
|
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 categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.
|
|
(b)
|
The adjustment to deduct the impact of the U.S. tax reform from net income, for the nine months ended April 1, 2018, includes the impact of the re-valuation of the Company's deferred tax liability of $12.2mm or $0.18 per diluted share, but does not include the ongoing impact of the lower federal corporate tax rate.
|
|
(c)
|
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.
|
Results of Operation
s
Net Revenues
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E-Commerce
|
|
$
|
196,866
|
|
|
$
|
177,729
|
|
|
|
10.8
|
%
|
|
$
|
729,769
|
|
|
$
|
705,407
|
|
|
|
3.5
|
%
|
Other
|
|
|
41,679
|
|
|
|
55,986
|
|
|
|
-25.6
|
%
|
|
|
192,218
|
|
|
|
248,690
|
|
|
|
-22.7
|
%
|
Total net revenues
|
|
$
|
238,545
|
|
|
$
|
233,715
|
|
|
|
2.1
|
%
|
|
$
|
921,987
|
|
|
$
|
954,097
|
|
|
|
-3.4
|
%
|
Net revenues consist primarily of the selling price of the merchandise, service or outbound shipping charges, less discounts, returns and credits.
Net revenues increased 2.1% during the three months ended April 1, 2018, and decreased 3.4% during the nine months ended April 1, 2018. On a comparable basis, adjusting fiscal 2017 net revenues to reflect the May 30, 2017 disposition of Fannie May, net revenues increased 10.2% and 4.2% during the three and nine months ended April 1, 2018, respectively, compared to the same periods of the prior year. These increases were attributable to growth within the Consumer Floral segment, which accelerated during the Valentine’s Day holiday, as well as the Gourmet Foods & Gift Baskets segments, reflecting year-over-year growth in most of its food gift brands, particularly Harry & David. Comparable revenue growth also benefited from the shift of the Easter holiday from the fourth quarter in fiscal 2017 to the third quarter in fiscal 2018. Adjusting for both the Easter shift, as well as the disposition of Fannie May, revenue growth was approximately 6.1% and 3.3% during the three and nine months ended April 1, 2018, respectively, compared to the same periods of the prior year.
E-commerce revenues (combined online and telephonic) increased by 10.8% and 3.5% during the three and nine months ended April 1, 2018, respectively, compared to the same periods of the prior year, as a result of growth within the Consumer Floral and Gourmet Foods & Gift Baskets segments. On a comparable basis, adjusting fiscal 2017 e-commerce revenues to exclude the revenues of Fannie May, e-commerce revenues increased 11.8% and 5.2% during the three and nine months ended April 1, 2018, respectively, compared to the same periods of the prior year. During the three months ended April 1, 2018, the Company fulfilled approximately 3,107,000 orders through its e-commerce sales channels (online and telephonic sales), at an average order value of $63.31, compared to approximately 2,703,000, at an average order value of $65.75 (2,660,000 orders and $66.22 average order value, adjusted to exclude Fannie May orders in fiscal 2017), during the same period of the prior year. During the nine months ended April 1, 2018, the Company fulfilled approximately 9,754,000 orders, through its e-commerce sales channels (online and telephonic sales), at an average order value of $74.77, compared to approximately 9,395,000 orders, at an average order value of $75.08 (9,097,000 orders and $76.29 average order value, adjusted to exclude Fannie May orders in fiscal 2017), during the same period of the prior year.
Other revenues are derived from the Company’s BloomNet Wire Service segment, as well as the wholesale and retail channels of the 1-800-Flowers.com Consumer Floral and Gourmet Food and Gift Baskets segments. Other revenues decreased by 25.6% and 22.7% during the three and nine months ended April 1, 2018, respectively, compared to the same periods of the prior year, primarily as a result of the Fannie May disposition during May 2017. On a comparable basis, adjusting fiscal 2017 other revenues to exclude the revenues of Fannie May, other revenues increased 4.5% and 1.3% during the three and nine months ended April 1, 2018, respectively, compared to the same periods of the prior year.
The 1-800-Flowers.com Consumer Floral segment includes the operations of the 1-800-Flowers.com brand, which derives revenue from the sale of consumer floral products through its e-commerce sales channels (telephonic and online sales), retail stores, and royalties from its franchise operations. Net revenues increased 8.9% and 5.0%, during the three and nine months ended April 1, 2018, in comparison to the same periods of the prior year, due to increased demand, especially during the key Valentine holiday, driven by merchandising and marketing efforts, an increase in promotional activity in order to expand market share, as well as the impact of the Easter holiday, which shifted approximately $2.2 million of revenues into the Company's fiscal third quarter of Fiscal 2018, compared to Fiscal 2017, when Easter was in the Company's fiscal fourth quarter. Revenues during the nine months ended April 1, 2018 were negatively impacted, by approximately $0.8 million, due to hurricanes Harvey and Irma.
The BloomNet Wire Service segment includes revenues from membership fees as well as other product and service offerings to florists. Net revenues increased 1.7% and decreased 1.4% during the three and nine months ended April 1, 2018, respectively, compared to the same periods of the prior year. The increase during the three months ended April 1, 2018 was primarily due to increased wholesale product sales volume and higher transaction fees due to price increases. The decrease during the nine months ended April 1, 2018 was primarily due to lower membership, transaction fees and ancillary revenues resulting from a decline in network shop count, partially offset by higher wholesale product revenues. During the nine months ended April 1, 2018, these decreases were exacerbated by the impact of hurricanes Harvey and Irma, as BloomNet provided financial aid to florists in the affected areas, and waived approximately $0.2 million of membership fees.
The Gourmet Food & Gift Baskets segment includes the operations of Harry & David, Wolferman’s, Stockyards, Cheryl’s, Fannie May (through the date of its disposition on May 30, 2017), The Popcorn Factory, and 1-800-Baskets/DesignPac Gifts. Revenue is derived from the sale of gourmet fruits, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, gift baskets, and prime steaks and chops through the Company’s e-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Harry & David, Cheryl’s and Fannie May (through the date of its disposition) brand names, as well as wholesale operations. Net revenues decreased 8.4% and 7.9% during the three and nine months ended April 1, 2018, respectively, compared to the same periods of the prior year, due to the disposition of Fannie May on May 30, 2017. On a comparable basis, adjusting fiscal year 2017 revenues to exclude Fannie May, net revenues increased 15.5% and 4.5% during the three and nine months ended April 1, 2018, respectively, compared to the same periods of the prior year due to the shift of approximately $6.6 million of Easter holiday volume into the quarter, as well as growth in everyday gifting, particularly in the the Harry & David, Cheryl’s and 1-800-Baskets.com brands. Comparable segment growth was attributable to several initiatives implemented during the second half of fiscal 2017, including: (i) the Company’s successful efforts to grow the “everyday” volume of its Gourmet Foods & Gift Baskets brands through expanded birthday and sympathy merchandise, (ii) the modernization of the Harry & David brand, which focused on developing merchandising assortments and digital marketing programs that helped to broaden the demographic reach of the brand, and, (ii) the launch of the Simply Chocolates product line, which is managed by 1-800-Baskets. Comparable revenue growth during the nine months ended April 1, 2018 was negatively impacted by a temporary disruption in operations at our Cheryl’s brand, related to the implementation of a new production and warehouse management system, which, in turn, led to the brand’s decision to stop taking orders eight days prior to the Christmas holiday. As a result, the Company estimates that it had to forego approximately $4.0 million in holiday revenues during its second quarter of Fiscal 2018. The operational issues at Cheryl’s have been addressed and business has returned to its normal pace during the current quarter. In addition, revenues during the nine months ended April 1, 2018 were negatively impacted, by approximately $0.2 million, due to hurricanes Harvey and Irma.
Gross Profit
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
93,455
|
|
|
$
|
93,581
|
|
|
|
-0.1
|
%
|
|
$
|
395,992
|
|
|
$
|
421,962
|
|
|
|
-6.2
|
%
|
Gross margin %
|
|
|
39.2
|
%
|
|
|
40.0
|
%
|
|
|
|
|
|
|
42.9
|
%
|
|
|
44.2
|
%
|
|
|
|
|
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 include labor and facility costs related to direct-to-consumer and wholesale production operations.
Gross profit decreased 0.1% and 6.2% during the three and nine months ended April 1, 2018, respectively, in comparison to the same periods of the prior year, while gross profit percentage decreased 80 and 130 basis points, during the three and nine months ended April 1, 2018, respectively, in comparison to the same periods of the prior year. On a comparable basis, adjusting prior year gross profit to exclude Fannie May, which was disposed of on May 30, 2017, gross profit increased 8.1% and 0.4% during the three and nine months ended April 1, 2018, respectively, in comparison to the same periods of the prior year, while gross profit percentage decreased 70 and 170 basis points, during the same periods. The higher comparable gross profit is due to the increase in comparable revenues noted above, partially offset by lower gross profit percentages, primarily reflecting the growth of the Company’s Passport free-shipping program, an increase in the promotional nature of the Valentine holiday this year, and continued higher transportation and hourly labor costs. Gross profit during the nine months ended April 1, 2018 was also negatively impacted by the operational issue at Cheryl’s during the Christmas holiday season.
The 1-800-Flowers.com Consumer Floral segment gross profit increased by 6.2% and 1.6% during the three and nine months ended April 1, 2018, respectively, in comparison to the same period of the prior year, due to the aforementioned revenue growth, partially offset by a decrease in gross profit percentage of 100 and 130 basis points to 39.6% and 39.5%, respectively. The lower gross profit percentages reflect increased promotional activity within the Consumer Floral segment in order to increase market share, especially during the critical Valentine holiday, and the growth of the Company’s Passport free-shipping program, which has been driving improved customer loyalty and purchase frequency.
BloomNet Wire Service segment’s gross profit during the three months ended April 1, 2018 was consistent with the same period of the prior year, as the increase in revenues noted above were offset by an 80 basis point decrease in gross profit percentage, to 52.8%, as a result of the aforementioned shift in product mix. Gross profit decreased 3.6% during the nine months ended April 1, 2018, in comparison to the same period of the prior year, due to the decreases in revenues, noted above, and gross profit percentage which declined 130 basis points to 55.2%. The lower gross profit percentages are due to sales mix, with a decline in higher margin membership and related services, offset by an increase in lower margin wholesale product sales.
The Gourmet Food & Gift Baskets segment gross profit decreased by 10.9% and 10.1% during the three and nine months ended April 1, 2018, respectively, in comparison to the same periods of the prior year, while gross profit percentage decreased 100 and 110 basis points to 33.8% and 43.3%, over the same respective periods. On a comparable basis, adjusting prior year gross profit to exclude Fannie May, which was disposed of on May 30, 2017, gross profit increased 17.2% and 0.4% during the three and nine months ended April 1, 2018, respectively, in comparison to the same periods of the prior year, while gross profit percentage increased 50 and decreased 170 basis points to 33.8% and 43.3%, over the same respective periods. The increase in comparable gross profit during the three months ended April 1, 2018 was primarily due to the increased revenues noted above, combined with an improved gross profit percentage due to product/channel mix and production efficiency gains, partially offset by lower margins at Cheryl’s associated with “win-back” marketing programs and the sale of excess holiday inventory at lower than standard margins, as well as higher transportation and labor costs. While gross profit increased 0.4% on a comparable basis during the nine months ended April 1, 2018, the lower comparable gross profit percentage during this period primarily reflects the impact of the operational issue at the Company’s Cheryl’s Cookies brand, which negatively impacted gross profit by approximately $4.0 million during the second quarter of the current fiscal year, as a result of increased labor and expedited shipping, but also had a lingering effect in the third quarter due to the sale of excess holiday inventory at lower than standard margins and customer “win-back” promotional programs. In addition, although revenue growth provided for improved gross profit at Harry & David, higher transportation costs at Harry & David and our wholesale 1-800-Baskets brand negatively impacted gross profit percentage.
Marketing and Sales Expense
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
$
|
68,215
|
|
|
$
|
70,158
|
|
|
|
-2.8
|
%
|
|
$
|
231,708
|
|
|
$
|
245,112
|
|
|
|
-5.5
|
%
|
Percentage of net revenues
|
|
|
28.6
|
%
|
|
|
30.0
|
%
|
|
|
|
|
|
|
25.1
|
%
|
|
|
25.7
|
%
|
|
|
|
|
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 2.8% and 5.5% during the three and nine months ended April 1, 2018, compared to the same periods of the prior year, due to the disposition of Fannie May on May 30, 2017. On a comparable basis, adjusting prior year marketing and sales expense to exclude Fannie May’s expenditures, marketing and sales expense increased 6.0% and 3.0% during the three and nine months ended April 1, 2018, but decreased, as a percentage of net revenue, to 28.6% and 25.1%, compared to 29.7% and 25.4% during the comparative three and nine months ended April 2, 2017. On a comparable basis, the increase in spend came from the Consumer Floral and Gourmet Foods & Gift Baskets segments, commensurate with revenue growth, as a result of the Company’s incremental marketing efforts designed to accelerate revenue growth and capture market share during a highly competitive and promotional Valentine’s Day holiday. This increased marketing spend was partially offset by a reduction in performance based bonuses, resulting in an overall reduction in total marketing and sales spend ratios, as a percentage of net revenues.
Technology and Development Expense
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
$
|
10,241
|
|
|
$
|
10,254
|
|
|
|
-0.1
|
%
|
|
$
|
29,086
|
|
|
$
|
29,591
|
|
|
|
-1.7
|
%
|
Percentage of net revenues
|
|
|
4.3
|
%
|
|
|
4.4
|
%
|
|
|
|
|
|
|
3.2
|
%
|
|
|
3.1
|
%
|
|
|
|
|
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 expenses was unchanged and decreased 1.7% during the three and nine months ended April 1, 2018, compared to the same period of the prior year, primarily due to favorable hosting costs due to closing certain data centers and moving to cloud based solutions, lower labor expenses resulting from a reduction in headcount and performance based bonuses, partially offset by increased license and maintenance costs related to security and order processing platforms.
General and Administrative Expense
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
19,553
|
|
|
$
|
20,962
|
|
|
|
-6.7
|
%
|
|
$
|
58,128
|
|
|
$
|
64,446
|
|
|
|
-9.8
|
%
|
Percentage of net revenues
|
|
|
8.2
|
%
|
|
|
9.0
|
%
|
|
|
|
|
|
|
6.3
|
%
|
|
|
6.8
|
%
|
|
|
|
|
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 expense decreased 6.7% and 9.8% during the three and nine months ended April 1, 2018, compared to the same period of the prior year, primarily due to the disposition of Fannie May on May 30, 2017. On a comparable basis, adjusting prior year general and administrative expense to exclude Fannie May’s expenditures, general and administrative expense increased 2.1% and decreased 1.3% during the respective three and nine months ended April 1, 2018, in comparison to the same periods of the prior year. The increase during the three months ended April 1, 2018 is due primarily to higher health insurance costs due to unfavorable medical claims experience, as well as an increase in legal fees and bad debt expense, due to the bankruptcy of a wholesale customer, partially offset by a larger increase in the value of Non-Qualified Deferred Compensation Plan investments in the prior year (increase offset in Other (income) expense net line item on the financials statement – see below), and lower labor due to a reduction in performance based bonuses. The decrease during the nine months ended April 1, 2018 is due to reductions in travel and labor resulting from a reduction in performance based bonuses, partially offset by higher health insurance costs and increased professional fees.
Depreciation and Amortization Expense
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
7,885
|
|
|
$
|
8,492
|
|
|
|
-7.1
|
%
|
|
$
|
24,646
|
|
|
$
|
25,656
|
|
|
|
-3.9
|
%
|
Percentage of net revenues
|
|
|
3.3
|
%
|
|
|
3.6
|
%
|
|
|
|
|
|
|
2.7
|
%
|
|
|
2.7
|
%
|
|
|
|
|
Depreciation and amortization expense for the three months ended April 1, 2018 decreased 7.1% and 3.9%, in comparison to the same period of the prior year, due to the disposition of Fannie May. On a comparable basis, adjusting prior year depreciation and amortization expense to exclude Fannie May, depreciation and amortization expense increased 2.7% and 6.2% during the respective three and nine months ended April 1, 2018, in comparison to the same periods of the prior year as a result of recent shorter-lived IT capital expenditures.
Interest Expense, net
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
662
|
|
|
$
|
1,191
|
|
|
|
-44.4
|
%
|
|
$
|
2,919
|
|
|
$
|
4,796
|
|
|
|
-39.1
|
%
|
Interest expense, net consists primarily of interest expense and amortization of deferred financing costs attributable to the Company’s credit facility (See
Note 8 - Debt
, in Item 1 for details regarding the 2016 Amended Credit Facility), net of income earned on the Company’s available cash balances.
Interest expense, net decreased 44.4% and 39.1% during the three and nine months ended April 1, 2018 in comparison to the same periods of the prior year, as a result of scheduled repayment of term loan borrowings, as well higher interest income on the Company’s outstanding cash balances (associated with cash received from the sale of Fannie May in the prior year). Interest expense, net during the nine months ended April 1, 2018 also benefited from the funding of Christmas holiday working capital requirements primarily through the use of cash on hand from the sale of Fannie May, in comparison to fiscal 2017, when the Company funded working capital requirements through its revolving credit facility,
Other (income) expense, net
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
April 1, 2018
|
|
|
April 2, 2017
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
$
|
31
|
|
|
$
|
(421
|
)
|
|
|
-107.4
|
%
|
|
$
|
(315
|
)
|
|
$
|
(570
|
)
|
|
|
-44.7
|
%
|
Other (income) expense, net for the three and nine months ended April 1, 2018 consists primarily of investment earnings of the Company’s Non-Qualified Deferred Compensation Plan assets, which for the nine months ended April 1, 2018 was partially offset by a $0.2 million impairment related to the Company’s equity method investment in Flores Online (see
Note 7 - Investments
above).
Other (income) expense, net for the three and nine months ended April 2, 2017 consists primarily of investment earnings of the Company's Non-Qualified Deferred Compensation Plan investments, partially offset by a decrease in the Company's equity interest in Flores Online.
Income Taxes
The Company recorded an income tax benefit of $4.7 million and $5.9 million, respectively during the three months ended April 1, 2018 and April 2, 2017, and income tax expense of $0.8 million and $16.9 million, respectively during the nine months ended April 1, 2018 and April 2, 2017. The Company’s effective tax rate from operations for the three and nine months ended April 1, 2018 was 35.6% and 1.6% respectively, compared to 34.7% and 31.9% in the same periods of the prior year. The effective rates for fiscal 2018 were impacted by changes associated with the Tax Act (see
Note 1 -
Accounting Policies
in Item 1 above). The Tax Act was enacted on December 22, 2017, however, since the Company has a July 1 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending on July 1, 2018, and 21% for subsequent fiscal years. While the rate reduction associated with the Tax Act reduced the Company’s tax benefit during the quarter ended April 1, 2018, this impact was offset by various tax credits and return to provision adjustments related to the filing of the Company’s Fiscal 2017 tax return. In addition to the impact of the lower transitional rate, during the quarter ended December 31, 2017, the Company recognized a discrete tax benefit of $12.2 million, or $0.18 per diluted share, reflecting a revaluation of deferred tax liabilities at the lower U.S. federal statutory rate of 21%. The effective rates for fiscal 2017 differed from the U.S. federal statutory rate due to various permanent differences and tax credits, including excess tax benefits on stock based compensation as a result of the Company's early adoption of ASU 2016-09, domestic production deductions and research and development credits, partially offset by state income taxes. At April 1, 2018, the Company has an unrecognized tax benefit, including an immaterial amount of accrued interest and penalties, of approximately $0.5 million. The Company believes that no significant unrecognized tax positions will be resolved over the next twelve months.
Liquidity and Capital Resources
Liquidity and borrowings
The Company's principal sources of liquidity are cash on hand, cash flows generated from operations and the borrowings available under the 2016 Credit Facility (see
Note 8 - Debt
in Item 1 for details). At April 1, 2018, the Company had working capital of $162.0 million, including cash and cash equivalents of $173.1 million, compared to working capital of $132.2 million, including cash and cash equivalents of $149.7 million, at July 2, 2017. As of April 1, 2018, there were no borrowings outstanding under its working capital Revolver. 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, typically generates nearly 50% of the Company’s annual revenues, and all of its earnings. As a result, cash generated during its second quarter is expected to be sufficient to provide for operating needs until the second quarter of fiscal 2019, when the Company expects to borrow against its Revolver to fund pre-holiday manufacturing and inventory purchases.
We believe that our sources of funding will be sufficient to meet our anticipated operating cash needs for at least the next 12 months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. We continually evaluate opportunities to repurchase common stock and we 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 $64.6 million for the nine months ended April 1, 2018, was primarily attributable to the Company’s net income during the period, adjusted by non-cash charges for depreciation/amortization, deferred income taxes (including the impact of the Tax Act – see
Note 1 -
Accounting Policies
and
Note 11 – Income taxes
in Item 1 above) and stock based compensation, as well as seasonal changes in working capital, including decreases in inventory and accounts payable/accrued expenses, partially offset by increases in receivables.
Net cash used in investing activities of $24.3 million for the nine months ended April 1, 2018, was primarily attributable to the working capital adjustment related to the sale of Fannie May, of which $8.5 million was still due to Ferrero at July 2, 2017, and to capital expenditures related to the Company's technology initiatives and Gourmet Foods & Gift Basket segment manufacturing production and orchard planting equipment.
Net cash used in financing activities of $16.9 million for the nine months ended April 1, 2018 was primarily due to Term Loan repayments of $5.0 million and the acquisition of $12.1 million of treasury stock. All borrowings under the Company's revolving credit facility were repaid by the end of the fiscal second quarter.
Stock Repurchase Program
The Company has a stock repurchase plan through which purchases can be made from time to time in the open market and through privately negotiated transactions, subject to general market conditions. The repurchase program is financed utilizing available cash. On August 30, 2017, the Company’s Board of Directors authorized an increase to its stock repurchase plan of up to $30.0 million. As of April 1, 2018, $20.1 million remained authorized under the plan.
Contractual Obligations
There have been no material changes outside the ordinary course of business related to the Company’s contractual obligations as discussed in the Annual Report on Form 10-K for the year ended July 2, 2017.
Critical Accounting Policies and Estimates
As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2017, the discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements of 1-800-FLOWERS.COM, Inc., 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 revenue recognition, accounts receivable, inventory, goodwill, other intangible assets and long-lived 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, 2017, except for the enactment of the Tax Act (see
Note 1 -
Accounting Policies
and
Note 11 – Income taxes
in Item 1 above for details).
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This amended guidance will enhance the comparability of revenue recognition practices and will be applied to all contracts with customers. Expanded disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized are requirements under the amended guidance. As we continue to evaluate the impact of this ASU, we have determined that the new standard will impact the following areas: the costs of producing and distributing the Company’s catalogs will be expensed upon mailing, instead of being capitalized and amortized in direct proportion to the actual sales; gift card breakage will be estimated based on the historical pattern of gift card redemption, rather than when redemption is considered remote; the Company will defer revenue at the time the Celebrations Reward loyalty points are earned using a relative fair value approach, rather than accruing a liability equal to the incremental cost of fulfilling its obligations. We have further identified the timing of revenue recognition for e-commerce orders (shipping point versus destination) as a potential issue in our analysis, which is not expected to change the total amount of revenue recognized, but could accelerate the timing of when revenue is recognized. We plan to adopt this guidance beginning with the first quarter in the fiscal year ending June 30, 2019, on a retrospective basis, with a cumulative adjustment to retained earnings. We are continuing to evaluate the impact that this ASU, and related amendments and interpretive guidance, will have on our consolidated financial statements, including the related disclosures.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330).” The pronouncement was issued to simplify the measurement of inventory and changes the measurement from lower of cost or market to lower of cost and net realizable value. The Company adopted this standard effective July 3, 2017. The adoption of ASU 2015-11 did not have a significant impact on the Company’s consolidated financial position or results of operations.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The pronouncement requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This guidance will become effective for the Company's fiscal year ending June 30, 2019. The adoption is not expected to have a significant impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for the Company’s fiscal year ending June 28, 2020. We are currently evaluating the impact and expect the ASU will have a material impact on our consolidated financial statements, primarily to the consolidated balance sheets and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09 affects all entities that issue share-based payment awards to their employees. ASU No. 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company elected to early adopt the amendments in ASU 2016-09, in fiscal 2017. As a result, stock-based compensation excess tax benefits are reflected in the Consolidated Statements of Income as a component of the provision for income taxes, whereas they were previously recognized in equity. This change resulted in the recognition of excess tax benefits against income tax expenses, rather than additional paid-in capital, of $1.0 million for the year ended July 2, 2017. There was no impact on earnings per share since approximately 700,000 tax benefit shares for the year ended July 2, 2017, previously associated with the APIC pool calculation, are no longer considered in the diluted share computation. Additionally, our Consolidated Statements of Cash Flows now present excess tax benefits as an operating activity. This change has been applied prospectively in accordance with the ASU and prior periods have not been adjusted. Further, the Company has elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The cumulative effect of this change, which was recorded as compensation expense in fiscal 2017, was not material to the financial statements. In addition, this ASU allows entities to withhold an amount up to an employees’ maximum individual statutory tax rate in the relevant jurisdiction, up from the minimum statutory requirement, without resulting in liability classification of the award. We adopted this change on a modified retrospective basis, with no impact to our consolidated financial statements. Finally, this ASU clarified that the cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. This change does not have an impact on the Company’s consolidated financials as it conforms with its current practice.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces a new forward-looking “expected loss” approach, to estimate credit losses on most financial assets and certain other instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. ASU 2016-13 is effective for the Company’s fiscal year ending July 4, 2021, and the guidance is to be applied using the modified-retrospective approach. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), a consensus of the FASB’s Emerging Issues Task Force.” ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The ASU is effective for the Company’s fiscal year ending June 30, 2019, and interim periods within those fiscal years. Early adoption is permitted, including interim periods within those fiscal years. An entity that elects early adoption must adopt all of the amendments in the same period. The guidance requires application using a retrospective transition method. The adoption is not expected to have a significant impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01)," which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. ASU 2017-01 is effective for the Company's fiscal year ending June 30, 2019, with early adoption permitted, and should be applied prospectively. We do not expect the standard to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance is effective for the Company’s fiscal year ending July 4, 2021, with early adoption permitted, and should be applied prospectively. We do not expect the standard to have a material impact on our consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets.” This update clarifies the scope of accounting for the derecognition or partial sale of nonfinancial assets to exclude all businesses and nonprofit activities. ASU 2017-05 also provides a definition for in-substance nonfinancial assets and additional guidance on partial sales of nonfinancial assets. This guidance will be effective for the Company’s fiscal year ending June 30, 2019 and may be applied retrospectively. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
In May 2017, the FASB issued ASU No 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. An entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. ASU 2017-09 is effective for the Company's fiscal year ending June 30, 2019, with early adoption permitted, and should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the potential impact of adopting this guidance 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,” “project,” “believe,” “anticipate,” “intend,” “plan,” “foresee,” “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:
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to achieve revenue and profitability;
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to leverage its operating platform and reduce operating expenses;
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to manage the increased seasonality of its business;
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to cost effectively acquire and retain customers;
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to effectively integrate and grow acquired companies;
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to reduce working capital requirements and capital expenditures;
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to compete against existing and new competitors;
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to manage expenses associated with sales and marketing and necessary general and administrative and technology investments; and
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to cost efficiently manage inventories;
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the outcome of contingencies, including legal proceedings in the normal course of business; and
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general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company’s products.
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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 filing for the fiscal year ended July 2, 2017 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.