1-800-FLOWERS.COM, Inc. — Form 10-Q Summary
Reporting-period note: The supplied filing is for the quarter ended April 1, 2012, the third quarter of fiscal 2012—not 2011 Q3. Unless otherwise noted, amounts below are in U.S. dollars.
Business context and reporting period
The company sells flowers, gourmet foods, gifts and related services through e-commerce, retail, wholesale and florist-network operations. Its three continuing-operation categories are Consumer Floral, BloomNet Wire Service, and Gourmet Food & Gift Baskets. The filing reports unaudited results for the three and nine months ended April 1, 2012, compared with the periods ended March 27, 2011.
Financial performance and liquidity
| Metric | Three months ended Apr. 1, 2012 | Nine months ended Apr. 1, 2012 |
|---|---|---|
| Revenue | $179.7 million; up 13.1% | $536.7 million; up 9.7% |
| Gross profit / margin | $73.0 million / 40.7%; margin up 1.0 percentage point | $219.9 million / 41.0%; margin down 0.5 percentage point |
| Operating income | $0.2 million, versus a $3.2 million loss | $20.8 million, versus $13.1 million |
| Income from continuing operations | $0.1 million, versus a $2.2 million loss | $11.5 million, versus $5.9 million |
| Net income (loss) | $(0.1) million, versus $(2.7) million | $15.8 million, versus $5.7 million |
| Net income (loss) per diluted share | $0.00, versus $(0.04) | $0.24, versus $0.09 |
For the nine months, operating cash flow was $22.9 million, compared with $11.8 million. Investing activities used $4.9 million, including $12.0 million of capital expenditures, partly offset by business-sale proceeds. Financing activities used $14.6 million, primarily for debt repayments and $1.9 million of share repurchases. Cash rose to $24.9 million from $21.4 million at July 3, 2011.
At April 1, 2012, working capital was $35.4 million. Total debt and capital lease obligations were $33.1 million, including $15.1 million of current maturities; the term loan was $33.0 million and there were no revolver borrowings outstanding. The term loan matures March 30, 2014. The company reported $125.4 million of contractual obligations, including $55.0 million due within one year; this total includes operating leases, purchase commitments and debt obligations.
Changes versus the prior comparable periods
- Quarterly revenue growth was broad-based: Consumer Floral rose 12.6%, BloomNet 15.9%, and Gourmet Food & Gift Baskets 13.6%. Management attributed growth to order volume and average order value, acquisitions, and the earlier Easter timing.
- E-commerce revenue increased 12.5% for the quarter; average order value rose 2.6% to $64.84 and order volume rose 9.7%.
- Quarterly gross margin improved, principally due to Consumer Floral pricing, sourcing and supply-chain improvements. Nine-month gross margin declined amid product mix, lower-margin BloomNet and wholesale activity, and higher commodity and shipping costs.
- Net interest expense declined to $0.3 million for the quarter and $2.0 million for nine months, reflecting lower debt balances and borrowing rates.
- Nine-month net income includes a $4.3 million after-tax gain on the sale of the wine fulfillment services business. Continuing operating income also includes a $3.8 million gain on the sale of 17 Fannie May stores.
Outlook, commentary, risks and unusual items
- Management expected fiscal 2012 total revenue growth in the mid-to-upper single digits and expected full-year gross margin to improve versus fiscal 2011, citing reduced promotions and sourcing, supply-chain and manufacturing efficiencies. These are expectations, not guarantees.
- The company sold certain wine fulfillment services assets in September 2011 for $12.0 million, with potential additional proceeds of up to $1.5 million tied to revenue targets. The business is presented as discontinued operations; the quarter included a $0.1 million after-tax loss on disposal and the nine-month period a $4.3 million after-tax gain.
- Fannie May sold 17 stores for $5.6 million and entered an agreement for a franchisee to develop at least 45 additional stores by December 2014. Fees are generally recognized as stores open or the agreement terminates.
- Management cited seasonality, discretionary consumer spending, competition, customer acquisition and retention, inventory and working-capital management, and integration of acquisitions as risks. Results to date are not necessarily indicative of the full fiscal year.
- Several purported class actions relate to former third-party post-transaction marketing practices. Plaintiffs seek damages in excess of $5.0 million in each action; the company intends to defend the cases and says a possible loss range cannot currently be estimated.
- The company stated that disclosure controls were effective at April 1, 2012 and reported no material changes in internal control over financial reporting. It reported no material changes to the risk factors in its prior Form 10-K.
Important facts for investors to verify
- Confirm the fiscal-period labeling: this filing covers fiscal 2012 Q3, ended April 1, 2012.
- Assess how much reported earnings growth reflects the wine-business disposal and Fannie May store-sale gain versus recurring operations.
- Track whether management achieved its fiscal 2012 revenue and gross-margin expectations, particularly given seasonality and holiday timing.
- Review debt repayment needs, seasonal borrowing capacity, contractual obligations, and working-capital demands.
- Monitor the class-action proceedings and any change in the company’s ability to estimate potential losses.