Business context and reporting period
1-800-FLOWERS.COM, Inc. operates e-commerce, retail and wholesale gifting businesses, including Consumer Floral & Gifts, BloomNet, and Gourmet Foods & Gift Baskets. This unaudited Form 10-Q covers the third quarter and first nine months of fiscal 2023, ended April 2, 2023; comparisons are with periods ended March 27, 2022. Dollar amounts below are in millions unless noted.
Financial performance and position
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $417.6 | $469.6 | $1,619.0 | $1,722.0 |
| Gross profit / margin | $140.4 / 33.6% | $154.1 / 32.8% | $609.7 / 37.7% | $658.1 / 38.2% |
| Operating income (loss) | $(84.6) | $(26.3) | $(10.9) | $69.1 |
| Net income (loss) | $(71.0) | $(23.4) | $(22.2) | $51.9 |
| Diluted EPS | $(1.10) | $(0.36) | $(0.34) | $0.79 |
| Adjusted EBITDA (non-GAAP) | $(5.5) | $(12.0) | $97.8 | $115.8 |
- Quarterly revenue fell 11.1%; nine-month revenue fell 6.0%. E-commerce revenue declined 12.7% and 7.6%, respectively. Management attributed weakness mainly to lower everyday-gifting demand, cautious consumer spending and reduced promotional and advertising activity.
- Quarterly gross margin improved 80 basis points, reflecting pricing and lower inbound freight; nine-month gross margin declined 50 basis points, reflecting earlier higher freight, labor and commodity costs and perishable inventory write-offs.
- Quarterly results include a $64.6 million goodwill and intangible impairment charge: $62.3 million against Gourmet Foods & Gift Baskets goodwill and $2.3 million against certain tradenames. Excluding specified items, adjusted net loss was $17.8 million for the quarter; adjusted nine-month net income was $31.3 million.
- Operating cash flow was $73.1 million for the first nine months, versus $38.7 million a year earlier. Investing cash use was $36.4 million, including $31.4 million of capital expenditures and the Things Remembered acquisition; financing cash use was $16.6 million. Cash increased to $51.6 million from $31.5 million at July 3, 2022.
- At April 2, 2023, working capital was $114.4 million. Debt was $148.1 million net of deferred financing costs, including $20.0 million current and $128.1 million long-term; the revolver had no balance outstanding. The company reported compliance with credit covenants.
- Total assets were $998.8 million, versus $1,094.9 million at July 3, 2022; stockholders’ equity was $492.0 million, versus $509.4 million.
Material changes, outlook and risks
- Management reduced fiscal 2023 guidance to revenue declining approximately 8% year over year, adjusted EBITDA of $85–$90 million, and free cash flow above $75 million. These are non-GAAP measures; the company did not provide reconciliations to GAAP guidance, citing uncertainty around components needed to prepare them.
- Management expected consumer caution to continue, while pricing, automation, expense controls and easing ocean freight costs were expected to support margin improvement in the fourth quarter. The business is highly seasonal: management expects the Thanksgiving-to-Christmas quarter to generate over 40% of annual revenue and all annual earnings.
- The company acquired selected Things Remembered assets for $5.0 million in January 2023; its online launch occurred in April, with immaterial revenue in the reported periods. The acquisition did not include retail stores.
- The credit agreement matures in May 2024, and the company said it was pursuing refinancing. Management stated available funding should cover operating needs for at least the next 12 months, while cautioning that cash-flow projections are uncertain. The company expects seasonal revolver borrowing for pre-holiday inventory and manufacturing.
- Management cited inflation, interest-rate increases, geopolitical events, recession concerns, shipping and labor costs, weaker discretionary demand, competition, acquisition integration, and seasonality as risks. A $2.9 million call-center worker settlement was paid in November 2022; management said other pending claims were not expected to have a material adverse effect.
- Disclosure controls were deemed ineffective at April 2, 2023 because of an unremediated material weakness involving logical access and segregation of duties in certain IT environments. Management reported remediation efforts underway and said additional procedures found no unauthorized actions; it stated the financial statements fairly present the company’s position and results.
Important facts for investors to verify
- Whether the revenue, adjusted EBITDA and free-cash-flow guidance is achieved, and how the non-GAAP measures compare with eventual GAAP results.
- Whether demand and gross margins stabilize, particularly in everyday gifting and Gourmet Foods & Gift Baskets, and whether impairment assumptions remain supportable.
- Progress and terms of refinancing before the May 2024 credit-agreement maturity, including covenant requirements and seasonal borrowing needs.
- Whether the IT access and segregation-of-duties weakness is remediated and independently tested.
- How seasonal cash generation, inventory commitments and consumer conditions affect liquidity through the next holiday cycle.