1-800-FLOWERS.COM, Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 29, 2020, with nine-month results for the period then ended. This is fiscal 2020 Q3, despite the request metadata referring to 2019 Q3. Unless stated otherwise, amounts are in USD millions.
Business context
The company sells flowers, gourmet foods, gift baskets and other gifts through e-commerce, retail, wholesale and florist-network services. Its segments are Consumer Floral, BloomNet Wire Service, and Gourmet Foods & Gift Baskets. Results are seasonal; the holiday quarter typically generates nearly half of annual revenue and all annual earnings.
Financial results and changes versus prior year
| Metric | Three months ended Mar. 29, 2020 | Prior-year quarter | Nine months ended Mar. 29, 2020 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $278.8 (+12.2%) | $248.4 | $1,071.7 (+8.3%) | $989.2 |
| Gross profit / margin | $107.5 / 38.5% | $97.5 / 39.3% | $452.8 / 42.2% | $420.9 / 42.5% |
| Operating income (loss) | $(10.9) | $(14.6) | $68.0 | $57.1 |
| Net income (loss) | $(9.7) | $(8.2) | $49.2 | $43.1 |
| Diluted EPS | $(0.15) | $(0.13) | $0.74 | $0.65 |
| Operating cash flow | Not reported separately for quarter | Not reported separately for quarter | $117.3 | $97.0 |
Quarterly revenue growth reflected gains across all segments, with Gourmet Foods & Gift Baskets up 27.1%, Consumer Floral up 5.4% and BloomNet up 7.9%. E-commerce revenue increased 13.5%; quarterly orders rose 13.6% to approximately 3.5 million, while average order value was essentially flat at $66.98. Shari’s Berries, acquired in August 2019, contributed about 4.1% of consolidated revenue growth.
For the nine-month period, gross profit increased, but gross margin contracted 30 basis points. Management cited product mix, labor and transportation costs, tariffs, and COVID-related facility safety expenses. Marketing and sales costs rose, although declined as a share of revenue; quarterly G&A declined, partly due to lower deferred-compensation plan investment-related compensation charges. Quarterly other expense of $2.6 million primarily reflected losses on those plan investments, versus investment income in the prior-year quarter.
Quarterly GAAP operating and net losses persisted despite revenue growth. Nine-month operating income, net income and diluted EPS improved year over year. The quarterly net loss widened to $9.7 million from $8.2 million.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $232.1 million at March 29, 2020, versus $172.9 million at June 30, 2019. Working capital was $185.0 million, up from $175.7 million.
- Debt, net of financing costs, was $93.6 million, including $5.0 million current and $88.6 million long-term; the company had no revolver borrowings at period-end. Cash exceeded reported debt by approximately $138.5 million.
- The $200 million revolving facility is seasonally reduced to $100 million from January 1 through August 1. The term loan matures May 31, 2024; the company reported compliance with debt covenants.
- Nine-month cash flow: $117.3 million provided by operations, $44.0 million used in investing and $14.2 million used in financing. Investing included the $20.5 million Shari’s Berries acquisition and $22.3 million in capital expenditures. Financing included $10.7 million of share repurchases and net bank debt repayments.
- ASC 842 adoption added $70.3 million of operating lease right-of-use assets and $73.8 million of lease liabilities at March 29, 2020; it materially changed the balance sheet but did not affect reported income or cash flows.
Outlook, risks and notable items
- COVID-19: Management reported strong e-commerce demand for gourmet foods, gift baskets and floral products, with demand accelerating during Easter and continuing through April. It expected strong demand for the balance of fiscal Q4, while warning that the pandemic’s ultimate effects were uncertain. Management said demand was expected to offset wholesale revenue reductions and added operating costs, but provided no numerical earnings or revenue guidance.
- Operational pressures: Retail closures, reduced wholesale orders, waived BloomNet member fees for April, higher facility safety costs, and possible supply-chain and workforce disruption. Management expected wholesale weakness to continue through fiscal Q2 2021.
- Store closures: The company decided to permanently close 38 of 39 Harry & David stores. It expected a $4–$5 million Q4 charge; those locations generated approximately $33 million in annual revenue.
- PersonalizationMall litigation: After the company sought a delay in closing its planned acquisition due to COVID-19, Bed Bath & Beyond sued seeking specific performance and related costs. The company intended to defend itself; it could not estimate a possible loss or range. The case was in early stages, with a trial set for late September.
- Seasonality and commitments: Management said available cash was expected to support operating needs through fiscal 2021, while noting projections were subject to substantial uncertainty. Purchase commitments totaled $74.6 million.
- Other items: Shari’s Berries was acquired for $20.5 million; purchase-price allocation remained preliminary. The company repurchased 753,804 shares during the nine months for $10.7 million, with $19.3 million remaining authorized. No material COVID-19 impact on the reported quarter’s financial statements was identified, but future impairment, credit-loss or other financial effects remained possible.
Most important facts for investors to verify
- Whether post-quarter e-commerce demand persisted and compensated for wholesale softness, store closures and pandemic-related cost increases.
- The final outcome and financial consequences of the PersonalizationMall transaction dispute.
- Actual Q4 store-closure charges and revenue impact from the Harry & David retail closures.
- Gross-margin trends, especially labor, shipping, tariffs, product mix and pandemic-related costs.
- Cash conversion and liquidity through the next seasonal cycle, including debt covenants, lease obligations and purchase commitments.