1-800-FLOWERS.COM, Inc. — Q1 FY2024 Form 10-Q
Business context and period. This unaudited filing covers the three months ended October 1, 2023, compared with the three months ended October 2, 2022. The company operates Consumer Floral & Gifts, BloomNet, and Gourmet Foods & Gift Baskets. Results are seasonal: management expects the Thanksgiving–Christmas quarter to generate more than 40% of annual revenue and all annual earnings.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Net revenue | $269.1 million | $303.6 million | Down 11.4% |
| Gross profit / margin | $101.9 million / 37.9% | $101.5 million / 33.4% | Profit up 0.5%; margin up 450 bps |
| Operating loss | $37.6 million | $41.4 million | Loss narrowed |
| Net loss | $31.2 million | $33.7 million | Loss narrowed |
| Diluted loss per share | $0.48 | $0.52 | Improved |
| Adjusted EBITDA (non-GAAP) | $(22.5) million | $(28.0) million | Improved 19.6% |
Segment revenue: Consumer Floral & Gifts revenue was $142.2 million, down 12.3%; BloomNet was $28.9 million, down 13.5%; and Gourmet Foods & Gift Baskets was $98.1 million, down 9.3%. Segment contribution margin was $7.2 million overall, versus $1.6 million a year earlier. This non-GAAP measure excludes corporate overhead and other items.
Cash flow and liquidity: Operating cash flow was a use of $143.9 million, versus a use of $146.3 million. Capital expenditures were $7.0 million, making free cash flow approximately negative $150.9 million under the company’s definition. Financing activities provided $32.4 million, primarily from borrowings. Cash fell to $8.4 million from $126.8 million at July 2, 2023. Working capital was $127.5 million, down from $152.9 million.
Debt: Total debt, net of deferred financing costs, was $229.1 million, including $35.0 million drawn on the revolver and $197.5 million in term loans. The company reported $45.0 million as current maturities. Its credit agreement matures June 27, 2028; the company was in compliance with its covenants at quarter-end. Borrowings bear variable rates, and management estimated a 50-basis-point rate increase would add about $0.3 million to quarterly interest expense.
Changes, outlook, and risks
- Revenue declined as order volumes weakened across segments amid inflation, higher interest rates, resumed student-loan repayments, and reduced discretionary spending on everyday gifting. E-commerce revenue fell 12.1%; orders declined 16.1%, partly offset by a 4.8% increase in average order value to $79.46.
- Gross margin improved on lower ocean freight and certain commodity costs, strategic pricing, and better inventory management. Marketing and sales expense fell 7.4%, partly reflecting planned advertising reductions; general and administrative expense rose 8.6%, and net interest expense rose 23.4%.
- Inventory increased to $280.6 million from $191.3 million, reflecting seasonal preparation. The company had $35.0 million outstanding on its revolver to fund pre-holiday manufacturing and inventory needs; borrowings typically peak in November and are expected to be repaid from holiday-season operating cash flow.
- Things Remembered, acquired in January 2023 for $5.0 million and integrated into PersonalizationMall.com, contributed revenue that was not significant in the quarter. The purchase-price allocation remained preliminary.
- FY2024 guidance was maintained: revenue expected to decline by a mid-single-digit percentage year over year; adjusted EBITDA of $95–$100 million; and free cash flow of $60–$65 million. Management expects sales trends to improve over the holiday period and second half, with continued gross-margin improvement. Forward-looking non-GAAP guidance was not reconciled to GAAP because the company said the required estimates were not reasonably available.
- Management said available funding should meet anticipated operating cash needs for at least 12 months, while noting uncertainty around cash needs and projections. Key risks include consumer demand, seasonality, customer acquisition and retention, competition, supply-chain costs and capacity, execution of cost reductions, and integration of acquired businesses.
- Various ordinary-course legal claims are pending; management, after consultation with counsel, does not expect their resolution to materially affect financial position, results, or liquidity. The company reported no material change to previously disclosed risk factors, and management concluded disclosure controls were effective.
Investor facts to verify
- Whether holiday-period demand and cash generation support management’s full-year revenue, adjusted EBITDA, and free-cash-flow guidance.
- Whether margin gains from pricing, freight, commodities, and inventory management can persist despite lower order volumes and planned advertising reductions.
- Inventory conversion, seasonal revolver peak and repayment, and compliance with credit-agreement covenants; cash was only $8.4 million at quarter-end.
- The final purchase-price allocation and subsequent performance of Things Remembered.
- Exposure to variable interest rates, debt amortization and maturity requirements, and the company’s ability to manage substantial seasonal working-capital needs.