1-800-FLOWERS.COM, Inc. — Form 10-Q Summary
Business context and reporting period
Fiscal third quarter ended March 31, 2013, with comparisons to the quarter ended April 1, 2012; year-to-date figures cover the nine months ended March 31, 2013. The company sells floral and gift products through e-commerce, retail, wholesale, and florist wire-service businesses. Results are seasonal, and Easter fell in the third quarter this year versus the fourth quarter last year.
Key financial results
| Metric | Three months ended Mar. 31, 2013 | Three months ended Apr. 1, 2012 | Nine months ended Mar. 31, 2013 | Nine months ended Apr. 1, 2012 |
|---|---|---|---|---|
| Revenue | $192.6 million | $179.7 million | $566.5 million | $536.7 million |
| Gross profit / margin | $80.4 million / 41.7% | $73.0 million / 40.7% | $234.5 million / 41.4% | $219.9 million / 41.0% |
| Operating income | $4.1 million | $0.2 million | $23.6 million | $20.8 million |
| Net income (loss) | $2.6 million | $(0.1) million | $14.0 million | $15.8 million |
| Adjusted EBITDA from continuing operations | $10.0 million | $6.4 million | $40.9 million | $35.5 million |
Quarterly revenue rose 7.2%, and gross margin expanded 100 basis points. Nine-month revenue increased 5.6%. Nine-month net income declined year over year because the prior-year period included gains from the sale of discontinued wine-fulfillment operations and Fannie May stores; continuing-operations income increased to $14.0 million from $11.5 million. Adjusted EBITDA is a non-GAAP measure.
For the nine months, operating cash flow was $26.7 million, compared with $22.9 million. Investing activities used $18.4 million, including capital spending; financing activities used $20.2 million, including debt repayments and $8.9 million of treasury-stock purchases. Cash was $17.0 million at March 31, 2013, down from $28.9 million at July 1, 2012. Working capital was $20.2 million, versus $29.7 million at fiscal year-end.
At March 31, debt was $18.0 million, all classified as current. On April 10, 2013, the company entered a new revolving credit facility with seasonal availability of $150 million to $200 million, maturing April 10, 2018, and borrowed approximately $19 million to repay the term loan and related financing costs. Management said operating cash flow and facility availability should provide sufficient liquidity. Operating lease obligations were $53.6 million and purchase commitments were $38.7 million.
Material changes and management commentary
- Quarterly segment revenue increased in Consumer Floral (7.1%) and Gourmet Food & Gift Baskets (14.5%); BloomNet Wire Service revenue declined 5.2%. Management attributed growth partly to a strong Valentine’s Day, Easter’s timing, and the Fannie May Berries launch.
- E-commerce revenue increased 9.6% in the quarter, while average order value fell 3.6% to $62.50. Order volume rose 13.7%.
- Gourmet Food & Gift Baskets margins were affected by warehouse relocation issues and a mix shift toward lower-margin wholesale gift baskets.
- Management expects fiscal 2013 consolidated revenue growth in the mid-single-digit range, growth across all business segments, and improved gross margin versus fiscal 2012, supported by sourcing, supply-chain, and manufacturing efficiencies.
- In March 2013, the board added $20 million to the share-repurchase authorization; $19.6 million remained unused at quarter-end. The company also acquired European rights to 1-800-Flowers trademarks and related assets for $4.0 million, payable over three years.
Risks, contingencies, and unusual items
- Purported class actions relating to former post-transaction marketing practices remain pending. Plaintiffs seek damages, including claims stated to exceed $5 million; the company said a possible loss or range cannot currently be reasonably estimated and intends to defend the actions.
- Revenue and cash needs are seasonal; management cautioned that interim results are not necessarily indicative of full-year results. Risks include customer demand and economic conditions, customer acquisition costs, competition, inventory management, integration of acquisitions, and execution of growth and cost initiatives.
- The company was under IRS examination for fiscal 2011; it reported approximately $0.8 million of unrecognized tax positions, including interest and penalties.
- A warehouse relocation affected Gourmet segment margins. Goodwill and indefinite-lived intangible assets remain subject to impairment testing; no material impairment was reported in the provided filing text.
Important facts for investors to verify
- Whether reported growth and the fiscal-year outlook persist after adjusting for Easter timing and other seasonal effects.
- Whether gross-margin improvement continues and warehouse-related operating issues are resolved.
- Liquidity, seasonal borrowing needs, and compliance with the new credit facility’s financial covenants.
- Potential financial exposure from the marketing-practices litigation and the outcome of tax examinations.
- Capital allocation, including share repurchases, capital expenditures, and the cash cost of the trademark acquisition.