Business context and reporting period
1-800-FLOWERS.COM, Inc. operates consumer floral, BloomNet wire service, and gourmet food and gift basket businesses. This Form 10-K covers the 52-week fiscal year ended June 29, 2014, compared primarily with the year ended June 30, 2013; it is not a fiscal 2013 quarterly filing. The filing separately reports unaudited fourth-quarter results for the quarter ended June 29, 2014.
Financial results and position
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $756.3 million | $735.5 million |
| Gross profit / margin | $315.7 million / 41.7% | $305.2 million / 41.5% |
| Operating income | $23.7 million | $25.8 million |
| Continuing-operations income | $13.9 million | $15.7 million |
| Net income attributable to 1-800-FLOWERS.COM | $15.4 million | $12.3 million |
| Diluted EPS | $0.23 ($0.22 from continuing operations) | $0.19 ($0.24 from continuing operations) |
| Adjusted EBITDA from continuing operations, excluding stock compensation | $48.2 million | $48.9 million |
| Cash provided by operating activities | $42.5 million | $34.6 million |
| Cash and working capital at year-end | $5.2 million / $17.5 million | $0.2 million / $16.9 million |
Gross margin improved 20 basis points, but operating income fell about 8% and adjusted EBITDA fell 1.3%. Marketing and sales expense rose 4.4% to $194.8 million (25.8% of revenue), outpacing revenue growth. Investing cash outflow was $31.5 million, including $23.0 million of capital expenditures and $9.0 million for acquisitions, net of cash acquired. Financing cash outflow was $6.0 million, including $8.3 million of share repurchases.
Segment revenue was $421.3 million for Consumer Floral (+2.4%), $84.2 million for BloomNet (+2.9%), and $252.0 million for Gourmet Food & Gift Baskets (+3.6%). Segment contribution margin was $40.3 million for Consumer Floral (-14.7%), $26.7 million for BloomNet (+4.3%), and $27.1 million for Gourmet Food & Gift Baskets (+33.3%).
Material changes versus the prior period
- Revenue increased 2.8%, but management said severe winter weather—especially the Valentine’s Day blizzard—competitive pricing pressure and weak discretionary demand constrained results despite increased marketing.
- Consumer Floral contribution margin declined, offsetting improvements in Gourmet Food & Gift Baskets and BloomNet. iFlorist contributed to reported growth; excluding its acquisition, consolidated revenue growth was approximately 1.8%.
- Fiscal 2014 net income included $0.7 million of income from discontinued operations, including a $0.8 million after-tax gain related to the Winetasting Network sale. FY2013 included a $3.4 million discontinued-operations loss.
- At year-end, the company had no revolving-credit borrowings, but reported $343,000 of current debt assumed with iFlorist. The prior-year-end balance sheet showed no debt; the company’s revolving facility remained available.
For the fourth quarter ended June 29, 2014, revenue was $187.4 million versus $173.0 million in the comparable prior-year quarter; net income attributable to the company was $3.4 million versus a $1.7 million loss.
Outlook, risks and contingencies
For fiscal 2015, management expected mid-single-digit consolidated revenue growth and projected EBITDA and EPS growth rates above revenue growth, citing anticipated gross-margin improvement and operating leverage. It did not provide specific numerical EBITDA or EPS targets. Priorities included returning Consumer Floral to profitable growth, expanding FruitBouquets.com and Cheryl’s capacity, strengthening BloomNet, and launching a consolidated customer database and multi-brand website. These expectations excluded the planned Harry & David acquisition.
On August 30, 2014, after fiscal year-end, the company agreed to acquire Harry & David for $142.5 million. The seller reported approximately $380 million of fiscal 2013 revenue. Committed financing had been secured; closing was expected in October 2014, subject to customary conditions, including regulatory and shareholder approvals. The transaction and its financing were not reflected in FY2014 results.
Principal risks include seasonal demand and working-capital needs, economic weakness, competition and pricing pressure, weather-related disruptions, reliance on independent florists and vendors, product quality and customer refunds, inventory forecasting, shipping and labor costs, cyber and system outages, and acquisition integration. A class-action matter concerning former third-party post-transaction marketing practices remained pending; the company said a possible loss or range of loss was not reasonably estimable. Operating lease commitments totaled $73.5 million and purchase commitments $49.5 million. Management and the auditor concluded that disclosure controls and internal control over financial reporting were effective as of June 29, 2014.
Important facts for investors to verify
- Whether the Consumer Floral segment’s margin and profitability recover, and whether fiscal 2015 margin and operating-leverage expectations are achieved.
- How much reported growth is organic versus acquisition-driven, including iFlorist’s contribution and the integration and financing effects of Harry & David.
- Seasonal liquidity needs, borrowing availability and covenant compliance under the secured revolving facility, especially around holiday inventory builds.
- The outcome and potential exposure of the unresolved class-action litigation, which the filing says cannot currently be estimated.
- Whether severe-weather credits, competitive pricing and higher marketing costs continue to pressure earnings and cash generation.