1-800-FLOWERS.COM, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2018; comparative quarter ended October 1, 2017. Financial statements are unaudited. Dollar amounts below are in millions unless stated otherwise.
Business context and results
The company sells floral, gourmet food, gift-basket and other celebration products through e-commerce, retail and wholesale channels, and operates the BloomNet florist wire service. Results are highly seasonal: management says the Thanksgiving-to-Christmas quarter generates nearly half of annual revenue and all annual earnings.
| Metric | Q1 FY2019 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $169.5 | $157.3 | +7.7% |
| Gross profit / gross margin | $68.5 / 40.4% | $67.3 / 42.8% | Profit +1.9%; margin -2.4 percentage points |
| Operating loss | $(23.0) | $(19.6) | Loss widened |
| Net loss / diluted loss per share | $(17.3) / $(0.27) | $(13.2) / $(0.20) | Loss widened |
| Adjusted EBITDA (non-GAAP) | $(13.9) | $(10.1) | Loss widened 36.9% |
| Cash used in operating activities | $(109.4) | $(122.3) | Outflow decreased |
Revenue, margins and segment performance
- E-commerce revenue rose 8.2% to $117.7 million. The company fulfilled about 1.705 million online and telephone orders versus 1.569 million; average order value was $69.04 versus $69.24.
- Consumer Floral revenue grew 11.1% to $85.1 million; BloomNet revenue grew 21.4% to $24.0 million. Gourmet Food & Gift Baskets revenue declined 0.8% to $60.5 million, which management attributed mainly to shipment and product timing.
- Gross margin fell across each major segment: Consumer Floral to 39.1% from 40.1%, BloomNet to 49.6% from 56.0%, and Gourmet Food & Gift Baskets to 38.1% from 41.2%. Management cited product, shipping, transportation and labor costs, as well as changes in sales mix.
- Segment contribution margin, a non-GAAP measure, was $6.0 million versus $8.7 million. Gourmet Food & Gift Baskets’ contribution loss widened to $9.1 million from $5.0 million; Consumer Floral and BloomNet contribution increased to $7.5 million and $7.6 million, respectively.
Cash, debt and liquidity
- Cash was $27.0 million at September 30, down from $147.2 million at July 1, 2018. The cash decline primarily reflected seasonal working-capital investment, including inventory and receivables for the holiday season.
- Working capital was $129.6 million. Current assets were $244.4 million and current liabilities were $114.9 million.
- Term-loan principal was $102.8 million; the balance-sheet debt carrying amount, net of deferred financing costs, was $100.4 million. No revolver borrowings were outstanding. The $200 million revolver is seasonally reduced to $100 million from January 1 through August 1.
- Operating cash outflow was $109.4 million; capital expenditures were $4.9 million. Financing cash outflow was $5.9 million, including $4.0 million of treasury-stock purchases and $2.2 million of debt repayments.
- The company reported compliance with its credit-agreement covenants and said funding sources should meet anticipated operating cash needs for at least 12 months.
Material changes, outlook and risks
- Revenue grew, but gross margin contracted and operating and net losses increased. Marketing and sales expense rose 6.5%, primarily from higher advertising and the accounting change for catalog costs; technology and development expense rose 6.3%, including higher platform license and maintenance costs.
- The company adopted ASC 606 on July 2, 2018 using the modified retrospective approach, increasing retained earnings by $1.1 million. For this quarter, marketing and sales expense would have been about $1.6 million lower, and net loss about $1.2 million lower after tax, absent adoption. Comparative-period figures were not restated.
- Management expects substantial operating cash generation during the holiday quarter, followed by use of cash for later-quarter operations and revolver borrowing for fiscal 2020 pre-holiday manufacturing and inventory purchases. It expects holiday-season cash generation to enable repayment of working-capital borrowings before December ends. No specific revenue or earnings guidance was provided.
- Management noted that Easter falls on April 21, 2019, shifting most related revenue and EBITDA from fiscal Q3 to fiscal Q4. Results are seasonal and the current quarter is not necessarily indicative of full-year results.
- Risks highlighted include achieving revenue and profitability, managing seasonality and inventory, customer acquisition and retention costs, competition, discretionary consumer demand, interest-rate changes, and ordinary-course legal contingencies. Management said pending claims are not expected to materially affect financial position, results or liquidity; it reported no material change to previously disclosed risk factors.
- The company repurchased 345,600 shares during the quarter at an average $11.66 per share; $16.0 million remained authorized under its repurchase plan at quarter-end.
Important facts for investors to verify
- Whether holiday-quarter sales and cash generation are sufficient to support the company’s highly seasonal working-capital needs and planned fiscal 2020 inventory build.
- Whether the gross-margin decline, particularly in BloomNet and Gourmet Food & Gift Baskets, persists beyond the quarter’s product-mix and timing effects.
- How much of the reported year-over-year loss deterioration reflects ASC 606 catalog-cost timing versus underlying operating performance.
- Debt repayment requirements, revolver availability and covenant headroom as seasonal borrowings rise; the filing states the company was covenant-compliant at quarter-end.
- The filing’s adjusted EBITDA reconciliation uses $0.716 million of net interest expense after netting other income, while the statement of operations presents $0.990 million of interest expense and $0.274 million of other income; confirm the net presentation when comparing non-GAAP results.