Business context and reporting period
1-800-FLOWERS.COM, Inc. filed this unaudited Form 10-Q for its fiscal first quarter ended September 26, 2021. The company sells floral, gift, gourmet-food and personalized products through e-commerce, retail and wholesale channels, and provides services to florists through BloomNet. The quarter is seasonally weaker; historically, Thanksgiving through Christmas generated nearly half of annual revenue and all annual earnings, though everyday gifting has reduced seasonality.
Financial performance
Amounts below are in U.S. dollars; figures are rounded to millions unless stated otherwise.
| Metric | Quarter ended Sep. 26, 2021 | Prior comparable quarter | Change |
|---|---|---|---|
| Revenue | $309.4m | $283.8m | +9.0% |
| Gross profit / margin | $125.5m / 40.6% | $115.5m / 40.7% | Profit +8.7%; margin -0.1 pp |
| Operating loss | $(20.3)m | $(13.5)m | Loss widened |
| Net loss / diluted EPS | $(13.2)m / $(0.20) | $(9.8)m / $(0.15) | Loss widened |
| Adjusted EBITDA (non-GAAP) | $(5.3)m | $3.2m | Declined |
| Net cash used in operations | $(150.2)m | $(90.7)m | Cash use increased |
| Capital expenditures | $11.1m | $7.0m | Increased |
Free cash flow, defined by the company as operating cash flow less capital expenditures, was approximately negative $161.3m for the quarter (derived from reported figures). Operating cash use primarily reflected seasonal working-capital investment, especially a $128.6m increase in inventory. Inventory rose to $282.4m from $153.9m at June 27, 2021.
Cash and equivalents fell to $3.8m from $173.6m at fiscal year-end; working capital was $110.7m versus $134.1m. Debt, net of deferred financing costs, was $181.8m, including $25.0m current maturities; there were no revolver borrowings at quarter-end. The company reported covenant compliance. It repurchased 288,026 shares for $9.1m during the quarter.
Changes versus the prior comparable period
- Revenue increased 9.0%; excluding the non-comparable contribution from PersonalizationMall, acquired in August 2020, consolidated growth was 4.3%.
- E-commerce revenue grew 10.3%. The company fulfilled approximately 3.7m e-commerce orders, up 5.9%, while average order value rose 4.1% to $70.95.
- Consumer Floral & Gifts revenue increased 12.2% (3.9% on a pro forma basis excluding PersonalizationMall); Gourmet Foods & Gift Baskets revenue grew 8.4%; BloomNet revenue declined 5.8%.
- Gross margin was nearly flat overall, but segment trends diverged: Consumer Floral & Gifts improved to 41.9%, BloomNet to 50.0%, and Gourmet Foods & Gift Baskets fell to 35.0%.
- Marketing and sales expense increased 17.6% to $94.4m, and technology and development expense rose 15.7% to $13.4m. Depreciation and amortization increased 24.1% to $11.0m. These costs, along with weaker Gourmet Foods segment contribution, contributed to the larger operating loss.
Outlook, commentary, risks and unusual items
Management reaffirmed fiscal 2022 guidance: revenue growth of 10%–12%, adjusted EBITDA growth of 5%–8%, EPS in line with fiscal 2021, and free cash flow above $100m. Management expects improved EBITDA to be offset in EPS by higher depreciation and a higher effective tax rate. The company did not provide reconciliations of adjusted EBITDA or free-cash-flow guidance to GAAP measures, citing uncertainty and unreasonable effort.
Management cited strong e-commerce demand, everyday gifting, an expanded product range and the Celebrations Passport loyalty program as growth supports. It also described higher labor and facility costs, labor shortages, carrier capacity constraints, delayed inbound supply and higher transportation costs. Planned responses included strategic pricing, building inventory ahead of the holiday period, and warehouse automation. Management said its funding sources should meet anticipated operating cash needs for at least 12 months, while noting uncertainty in cash projections and potential acquisition or investment needs.
On October 27, 2021, after quarter-end, the company acquired Vital Choice Seafood for $20.0m, subject to working-capital adjustments, using its existing credit facility. Vital Choice reported approximately $27.8m of revenue for 2020. The prior PersonalizationMall-related litigation was dismissed with prejudice after settlement and closing of that acquisition. Other ordinary-course claims were not expected by management to materially affect the company. COVID-19 impacts, supply-chain and labor constraints, consumer demand, seasonality, customer acquisition and retention, and integration of acquisitions remain relevant risks.
Investor verification priorities
- Track holiday-season sales, margins and fulfillment performance against reaffirmed fiscal 2022 guidance, particularly given the quarter’s operating loss and adjusted EBITDA loss.
- Assess whether inventory levels, working-capital needs and holiday cash generation support the stated free-cash-flow target and liquidity outlook.
- Monitor labor, shipping and sourcing costs, and whether pricing and automation can protect gross margins, especially in Gourmet Foods & Gift Baskets.
- Review debt, revolver use, scheduled principal repayments and the effect of the Vital Choice purchase on liquidity and leverage.
- Evaluate comparable growth excluding acquisitions and the continued performance of BloomNet, alongside customer activity and the economics of marketing spend.