1-800-FLOWERS.COM, Inc. — FY2020 Form 10-K
Period note: The filing is an annual report for the fiscal year ended June 28, 2020, not a standalone 2019 Q4 filing. It also reports unaudited results for the quarter ended June 28, 2020, which is FY2020 Q4.
Business context and reporting period
The company sells flowers, gourmet foods, gift baskets and related products through e-commerce, retail, wholesale and florist-network services. Its three segments are Consumer Floral, Gourmet Foods & Gift Baskets, and BloomNet. FY2020 and FY2019 each comprised 52 weeks. COVID-19 drove a sharp increase in e-commerce and everyday gifting demand during FY2020 Q4.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1,489.6 million | $1,248.6 million |
| Gross profit / gross margin | $622.2 million / 41.8% | $526.1 million / 42.1% |
| Operating income | $80.4 million | $45.1 million |
| Net income | $59.0 million | $34.8 million |
| Diluted earnings per share | $0.89 | $0.52 |
| Adjusted EBITDA, non-GAAP | $129.5 million | $82.1 million |
| Operating cash flow | $139.4 million | $78.1 million |
FY2020 operating and net margins were approximately 5.4% and 4.0%, respectively. Revenue rose 19.3%, net income 69.7%, and adjusted EBITDA 57.8%. E-commerce revenue increased 23.2%; the company fulfilled approximately 16.4 million e-commerce orders, up 24.1%, while average order value declined 0.7% to $74.94.
FY2020 Q4 revenue was $418.0 million, versus $259.4 million in the prior-year quarter; operating income was $12.3 million versus an $12.0 million operating loss, and net income was $9.8 million versus an $8.3 million loss.
At June 28, 2020, cash and cash equivalents were $240.5 million, working capital was $198.3 million, and there were no revolver borrowings. Term-loan principal was $95.0 million; reported debt net of deferred financing costs was $92.6 million, including $5.0 million current. The company generated $139.4 million from operations, used $56.4 million in investing activities and $15.5 million in financing activities, and spent $34.7 million on capital expenditures. Operating lease liabilities totaled $70.2 million at year-end following adoption of the new lease standard.
Material changes versus the prior comparable period
- Revenue growth accelerated markedly: management reported approximately 8.3% growth in the first nine months, followed by 61.0% growth in Q4 amid pandemic-related demand.
- All three segments grew: Consumer Floral revenue rose 19.2%, BloomNet 8.6%, and Gourmet Foods & Gift Baskets 21.1%.
- Gross margin declined 30 basis points to 41.8%, reflecting Shari’s Berries’ lower margins and higher labor, transportation, tariff and COVID-19 safety costs. Marketing expense as a share of revenue improved to 24.4% from 25.6%.
- Cash increased by $67.6 million. The company repurchased $10.7 million of shares, compared with $14.8 million in FY2019.
- FY2020 included Shari’s Berries, acquired in August 2019 for $20.5 million. PersonalizationMall was acquired after year-end, on August 3, 2020, for $245.0 million, subject to adjustments; its FY2020 revenue was approximately $171.2 million.
Outlook, management commentary, risks and unusual items
- The company did not provide full-year FY2021 guidance because of COVID-19 uncertainty. For FY2021 Q1, it expected revenue growth of 40%–45% (30%–35% organic) and adjusted EBITDA at break-even or slightly positive, versus an $11.3 million loss in the prior-year quarter.
- For FY2021 Q2, management expected strong e-commerce demand and PersonalizationMall contributions to support the holiday season, while citing higher pandemic-related costs, weaker wholesale orders, third-party shipping capacity constraints and election-related uncertainty.
- Management said strong e-commerce demand was expected to offset wholesale weakness and increased operating costs, but emphasized that the pandemic’s duration and financial effects remained difficult to predict. Wholesale weakness and BloomNet fee waivers affected FY2020 Q4; management expected lower wholesale volume to continue into FY2021 Q2.
- The company permanently closed 38 of 39 Harry & David retail stores in April 2020. It recorded approximately $5.2 million in closure costs; the closed stores had annual revenue of approximately $33.0 million.
- PersonalizationMall litigation with Bed Bath & Beyond over the acquisition agreement was settled in July 2020; the acquisition closed in August. FY2020 included $2.7 million of related litigation and transaction costs.
- On August 20, 2020, the credit agreement was amended to increase revolver commitments from $200 million to $250 million and add a $100 million term-loan tranche. These post-year-end financings supported liquidity and the acquisition; the company stated that funding sources were expected to cover operating needs for at least 12 months.
- Principal risks include COVID-19 demand and supply-chain disruption, intense competition and margin pressure, seasonal working-capital needs, reliance on florists and other vendors, cybersecurity and privacy threats, and integration of acquisitions. The filing reported no goodwill impairment in FY2020. FY2020 adoption of lease accounting materially increased balance-sheet assets and liabilities but did not affect the income or cash-flow statements.
Important facts for investors to verify
- Whether pandemic-driven e-commerce and everyday-gifting demand persists, and how it compares with the unusually strong FY2020 Q4 period.
- Whether wholesale weakness, delivery capacity constraints and added labor, shipping and safety costs affect FY2021 revenue and margins.
- PersonalizationMall’s post-acquisition performance, integration costs and contribution to profit and cash generation relative to its $245.0 million purchase price.
- Debt and liquidity after the acquisition and credit-agreement amendment, including borrowing levels, repayment requirements and covenant compliance.
- The sustainability of reported adjusted EBITDA growth; adjusted EBITDA is a non-GAAP measure and excludes specified costs, including store-closure and acquisition-related expenses.