1-800-FLOWERS.COM, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended December 27, 2020; comparisons are with the periods ended December 29, 2019. Amounts below are in millions except per-share data and percentages. The company sells floral, gourmet food, gift basket and personalized products through e-commerce, retail, wholesale and florist-network channels.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $877.3; +44.8% | $1,161.0; +46.4% |
| Gross profit / margin | $398.2 / 45.4% (44.4% excluding PersonalizationMall) | $513.7 / 44.2% (43.2% excluding PersonalizationMall) |
| Operating income / margin | $147.6 / 16.8% | $134.1 / 11.6% |
| Net income | $113.7 vs. $74.2; diluted EPS $1.71 vs. $1.12 | $103.9 vs. $58.9; diluted EPS $1.56 vs. $0.89 |
| Adjusted EBITDA (non-GAAP) | $164.3 vs. $110.7 | $167.5 vs. $99.4 |
| Cash from operations | $316.6 vs. $162.2 for the six months |
Second-quarter e-commerce revenue rose 59.7%; other revenue declined 16.1%. E-commerce orders increased 70.7% to about 9.9 million, while average order value fell 6.5% to $78.89, partly reflecting PersonalizationMall’s order mix. Segment revenue for the quarter was $305.4 million in Consumer Floral & Gifts (+163.9%, including the acquisition), $34.1 million in BloomNet (+32.4%), and $538.3 million in Gourmet Foods & Gift Baskets (+15.9%). Excluding PersonalizationMall, company revenue growth was 24.7% for the quarter and 28.4% for the six months on a pro forma basis.
Liquidity, debt and cash flows
At December 27, 2020, cash and equivalents were $370.6 million, working capital was $146.7 million, and total debt net of deferred financing costs was $185.9 million, including $15.0 million current. Term loans had $190.0 million principal outstanding; the $250 million revolving facility was undrawn at quarter-end. Cash was $240.5 million and debt was $92.6 million at June 28, 2020. The company reported compliance with its credit agreement covenants.
Six-month investing cash outflow was $267.9 million, primarily the $250.9 million PersonalizationMall acquisition and $15.7 million of capital expenditures. Financing provided $81.4 million; the company borrowed $265.0 million and repaid $170.0 million of notes and bank borrowings, and spent $12.5 million on treasury stock. Operating cash flow benefited from seasonal increases in accounts payable and accrued expenses and inventory reductions. Management said available cash should cover operating needs until the second quarter of FY2022, when it expects to draw on the revolver for pre-holiday production and inventory.
Material changes and management commentary
The August 3, 2020 acquisition of PersonalizationMall was funded with cash and credit. It contributed $122.2 million of revenue and $24.3 million of operating income in the quarter, and $142.6 million of revenue and $25.4 million of operating income for the six months. The preliminary purchase-price allocation included $133.3 million of goodwill and $76.0 million of identifiable intangibles and remains subject to measurement-period revisions. The related Bed Bath & Beyond litigation was settled; the transaction closed and the litigation was dismissed with prejudice.
Management attributed growth to pandemic-related e-commerce demand, everyday gifting, marketing and merchandising initiatives, and acquisitions. Higher transportation costs, carrier constraints, seasonal labor costs and COVID-related facility safety measures weighed on operations. Wholesale and retail sales also weakened as large retail customers reduced orders; Harry & David permanently closed 38 of 39 stores in FY2020. Management said everyday gifting has reduced, but not eliminated, the business’s seasonality. The holiday quarter historically represents nearly half of annual revenue and all earnings.
Outlook, risks and unusual items
The company did not provide full-year FY2021 guidance, citing pandemic-related uncertainty. For fiscal Q3, it forecast revenue growth of 45%–50% year over year, adjusted EBITDA of $4–$5 million versus a $2.4 million loss, and an EPS loss of $0.09–$0.11 versus a $0.15 loss. Management cited strong e-commerce momentum, while noting Valentine’s Day timing, higher labor and transportation costs, and pandemic-related inefficiencies as headwinds. These are forward-looking estimates, not reported results.
COVID-19’s duration and effects on consumer demand, supply chains, staffing and costs remain uncertain. Other disclosed risks include acquisition integration and growth, customer acquisition and retention, competition, inventory management, seasonality, discretionary spending and variable interest rates. A 50-basis-point rate increase was estimated to raise interest expense by about $0.3 million for the quarter and $0.5 million for the six months. The filing reported no material change to previously disclosed risk factors. The prior-year store closure charge of approximately $5.2 million was recorded in FY2020; current-period adjusted results also exclude PersonalizationMall transaction and litigation costs.
Important facts for investors to verify
- Whether e-commerce growth and order volumes persist beyond pandemic-driven demand, and how average order value and margins evolve.
- PersonalizationMall’s integration, ongoing contribution, acquisition accounting revisions, and debt-funded purchase economics.
- Whether higher shipping, labor and safety costs, and reduced wholesale and retail activity continue to pressure margins.
- Cash generation and working-capital seasonality, planned pre-holiday revolver usage, debt maturities and variable-rate exposure.
- Actual fiscal Q3 performance against management’s revenue, adjusted EBITDA and EPS outlook; adjusted EBITDA is a non-GAAP measure.