1-800-FLOWERS.COM, Inc. — Q1 FY2020 Form 10-Q
Reporting period: Three months ended September 29, 2019; comparisons are with the three months ended September 30, 2018. The company sells floral, gourmet food and gift products and operates the BloomNet florist network. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless noted.
Financial performance
| Metric | Q1 FY2020 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $187.3 | $169.5 | +10.5% |
| Gross profit / gross margin | $76.1 / 40.7% | $68.5 / 40.4% | Margin +0.3 percentage points |
| Operating loss | $(20.7) | $(23.0) | Loss narrowed $2.3 |
| Net loss | $(15.3) | $(17.3) | Loss narrowed $2.0 |
| Diluted loss per share | $(0.24) | $(0.27) | Improved $0.03 |
| Adjusted EBITDA (non-GAAP) | $(11.3) | $(13.9) | Loss narrowed 18.6% |
Revenue growth came from all three segments. Consumer Floral revenue rose 6.7% to $90.8 million; BloomNet increased 6.0% to $25.4 million; and Gourmet Food & Gift Baskets grew 17.7% to $71.2 million. The latter’s reported growth included approximately $2.0 million from Shari’s Berries and wholesale shipments shifted into the quarter; excluding those items, management reported comparable growth of approximately 9.4%.
Gross margin improved as pricing and promotional efficiency offset higher seasonal labor and tariff costs. Marketing and sales expense increased 7.3% to $56.8 million, but declined to 30.4% of revenue from 31.2%. Segment contribution margin totaled $10.3 million versus $6.0 million: Consumer Floral contributed $8.5 million, BloomNet $8.4 million, and Gourmet Food & Gift Baskets recorded a $6.6 million loss. Corporate costs and depreciation contributed to the consolidated operating loss.
Cash flow, liquidity and debt
- Operating cash outflow was $112.8 million, compared with $109.4 million a year earlier, primarily reflecting seasonal working-capital needs, including inventory and receivables.
- Investing cash outflow was $24.9 million, including the $20.5 million Shari’s Berries acquisition and $4.4 million of capital expenditures. Financing cash outflow was $1.1 million.
- Cash declined from $172.9 million at June 30, 2019 to $34.2 million at quarter-end. Working capital was $133.0 million, down from $175.7 million.
- Debt carrying value was $95.8 million: $5.0 million current and $90.8 million long-term. No revolving-credit borrowings were outstanding at quarter-end. The company reported compliance with credit covenants.
- The credit facility includes a $200 million revolver, subject to a seasonal reduction to $100 million from January 1 through August 1, and a term loan maturing May 31, 2024. The facility is secured by substantially all company assets.
Material developments, outlook and risks
- Shari’s Berries acquisition: Completed August 14, 2019 for $20.5 million. The preliminary allocation included $12.1 million of goodwill and $7.5 million of intangible assets; the allocation remained subject to finalization.
- Seasonality and outlook: The first quarter is seasonally weaker. Management said the Thanksgiving-to-Christmas second quarter generates nearly 50% of annual revenue and all annual earnings. It expected to draw on the revolver to fund pre-holiday manufacturing and inventory, then repay those borrowings from holiday-season cash generation. Management believed available funding would meet anticipated operating cash needs for at least 12 months. No specific revenue or earnings guidance was provided.
- Leases: The company adopted ASC 842 on July 1, 2019, recognizing operating lease right-of-use assets and liabilities; adoption materially affected the balance sheet but did not affect reported operations or cash flows. Quarter-end right-of-use assets were $75.9 million and operating lease liabilities totaled approximately $78.0 million.
- Commitments and contingencies: Purchase commitments totaled $71.5 million, including $62.8 million due in the remainder of fiscal 2020. Management said pending legal matters were not expected to have a material adverse effect. The company disclosed approximately $0.9 million of unrecognized tax benefits, including interest and penalties, and ongoing tax examinations.
- Principal risks identified: Achieving growth and profitability, managing seasonality, inventory and working capital, acquiring and integrating businesses, customer acquisition and retention, competition, consumer sentiment, and discretionary spending. The company reported no material changes to the risk factors in its prior Form 10-K.
Important facts for investors to verify
- Whether holiday-season sales, cash generation and revolver repayment meet management’s seasonal expectations.
- How much reported Gourmet Food & Gift Baskets growth reflects sustainable demand versus acquired revenue and shifted wholesale shipments.
- The final purchase-price allocation and subsequent performance of Shari’s Berries.
- Working-capital and inventory trends, available liquidity, and compliance with credit-facility covenants.
- The final impact of lease obligations, purchase commitments, and tax examinations or other contingencies.