Business context and reporting period
1-800-FLOWERS.COM, Inc. filed this unaudited Form 10-Q for the quarter and six months ended December 29, 2019, its fiscal 2020 second quarter. The company operates consumer floral, BloomNet Wire Service, and Gourmet Food & Gift Baskets businesses. The holiday quarter is highly seasonal: management says Thanksgiving through Christmas generates nearly half of annual revenue and all annual earnings.
Financial results
Amounts below are in millions of dollars except per-share data. Comparisons are with the corresponding prior-year period.
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $605.6; +6.0% | $792.9; +7.0% |
| Gross profit / margin | $269.2 / 44.4% (44.6% prior year) | $345.3 / 43.6% (43.7% prior year) |
| Operating income | $99.6 (prior year $94.7) | $78.9 (prior year $71.7) |
| Net income | $74.2 (prior year $68.6) | $58.9 (prior year $51.3) |
| Diluted earnings per share | $1.12 (prior year $1.04) | $0.89 (prior year $0.77) |
| Operating cash flow | Not presented separately for the quarter | $162.2 (prior year $139.6) |
| Capital expenditures | Not presented separately for the quarter | $10.7 |
| Adjusted EBITDA, non-GAAP | $110.7 (prior year $103.1) | $99.4 (prior year $89.2) |
At December 29, 2019, cash was $295.6 million, working capital was $204.9 million, and total debt carrying value was $94.7 million, including $5.0 million current and $89.7 million long-term. The term loan principal was $97.5 million before unamortized financing costs; there were no revolver borrowings at quarter-end. Operating lease liabilities totaled $75.3 million. The company reported $74.3 million of purchase commitments.
Material changes versus the prior comparable period
- Quarterly revenue increased across all three segments: Consumer Floral +7.0%, BloomNet +9.8%, and Gourmet Food & Gift Baskets +5.6%. Six-month increases were 6.9%, 7.9%, and 7.0%, respectively.
- Quarterly e-commerce revenue rose 6.2%; the company fulfilled approximately 5.8 million orders, up 4.8%, and average order value increased 1.3% to $84.53.
- Gross margin edged down 20 basis points for the quarter and 10 basis points for the six-month period. Management cited product mix, labor and transportation costs, tariffs, and a highly promotional holiday, partly offset by pricing, marketing, and productivity actions.
- Cash from operations increased year over year, supported in part by seasonal working-capital movements. Cash and cash equivalents rose from $172.9 million at June 30, 2019 to $295.6 million at December 29, 2019.
- Investing cash outflow included the $20.5 million Shari’s Berries acquisition, completed August 14, 2019, and $10.7 million of capital expenditures. Financing cash outflow included $5.0 million of share repurchases and net bank repayments of $2.5 million.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance is provided in the supplied filing text. Management said projected cash balances were expected to meet operating needs through fiscal 2021 and that funding was expected to cover anticipated operating cash needs for at least the next 12 months; projections remain subject to uncertainty.
- Management attributed growth to marketing and product initiatives, Harry & David’s digital transformation and expanded offerings, BloomNet service and wholesale growth, and Shari’s Berries. The late Thanksgiving/Cyber Monday shortened the holiday shopping season by six days compared with the prior year.
- Shari’s Berries was acquired for $20.5 million. The preliminary allocation included $12.1 million of goodwill and $7.5 million of identifiable intangible assets; the allocation remained subject to finalization. Pro forma results were not presented because management considered the impact immaterial.
- The company adopted lease accounting standard ASC 842 on July 1, 2019, recording operating lease liabilities and right-of-use assets on the balance sheet. Management reported no impact to income or cash-flow statements from adoption.
- Key disclosed risks include seasonality, consumer demand and economic conditions, competition, customer acquisition and retention, inventory and working-capital management, costs and promotional intensity, and integrating acquisitions. Management reported no material change to the risk factors in its prior Form 10-K.
- The company was in compliance with credit-agreement covenants at quarter-end. Management said pending claims and lawsuits were not expected to have a material adverse effect. Unrecognized tax benefits, including interest and penalties, were approximately $0.9 million; $0.2 million was expected to be resolved within 12 months.
Important facts for investors to verify
- Whether holiday-season growth and order economics continue, including the effects of the shortened shopping calendar, promotions, and customer acquisition costs.
- How much reported growth reflects underlying performance versus the Shari’s Berries acquisition, and whether its preliminary purchase-price allocation changes.
- Whether gross-margin pressure from labor, shipping, tariffs, product mix, and promotions persists.
- How seasonal working-capital changes affect cash generation outside the holiday quarter, and the company’s cash and borrowing needs through the fiscal year.
- The terms and repayment schedule of the term loan, available revolver capacity, lease obligations, and remaining share-repurchase authorization.