1-800-FLOWERS.COM, Inc. — Form 10-Q Summary
Period clarification: The filing covers the quarter and nine months ended March 30, 2014 (fiscal 2014 third quarter), compared with periods ended March 31, 2013. This differs from the request metadata’s “2013 Q3.” Financial amounts below are in millions unless otherwise noted.
Business context and reporting period
The company operates consumer floral, BloomNet wire-service, and gourmet food and gift-basket businesses. It acquired a 56.2% controlling interest in UK-based iFlorist on December 3, 2013; results are consolidated from that date. The company also completed the sale of The Winetasting Network’s e-commerce and procurement businesses on December 31, 2013, and reports them as discontinued operations.
Results are seasonal. The filing attributes the quarter’s comparison in part to Easter falling in the fourth quarter of fiscal 2014 rather than the third quarter as in the prior year, and to severe winter weather, including a storm affecting Valentine’s Day.
Financial results and liquidity
| Metric | Three months ended March 30, 2014 | Prior-year quarter | Nine months ended March 30, 2014 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $179.6 | $191.6 | $569.0 | $562.5 |
| Gross profit / margin | $73.5 / 41.0% | $80.5 / 42.0% | $235.8 / 41.4% | $234.4 / 41.7% |
| Operating income (loss) | $(2.9) | $4.8 | $18.7 | $25.4 |
| Net income (loss) attributable to 1-800-FLOWERS.COM | $(1.4) | $2.6 | $12.0 | $14.0 |
| Diluted earnings (loss) per share | $(0.02) | $0.04 | $0.18 | $0.21 |
| EBITDA excluding stock-based compensation (non-GAAP) | $3.3 | $10.7 | $36.9 | $42.6 |
- Quarter revenue fell 6.3%; management estimated a decline of about 2.5% after adjusting for the Easter timing and iFlorist acquisition. Nine-month revenue rose 1.1%; management estimated growth of about 1.9% on the same adjusted basis.
- Quarter gross profit declined 8.6%, with gross margin down 100 basis points. Management cited product mix and increased customer credits related to severe weather. Nine-month gross profit rose 0.6%, while margin declined 30 basis points.
- Quarter operating performance moved to a loss as lower gross profit coincided with higher operating expenses. Nine-month operating income declined 26.1% from the prior year.
- Operating cash flow was $23.6 million for the nine months, versus $26.7 million a year earlier. Investing cash outflow was $15.3 million, including $14.5 million of capital expenditures; financing cash outflow was $7.1 million, including $7.4 million of share repurchases. Cash increased to $1.3 million from $0.2 million at June 30, 2013.
- Working capital was $20.0 million at March 30, 2014, compared with $16.9 million at June 30, 2013. Total assets were $261.0 million and total liabilities $80.2 million.
- Debt was $0.4 million, consisting of a bank loan assumed with iFlorist; no revolving-credit borrowings remained at quarter-end. The revolving facility has a seasonally adjusted limit of $150–$200 million and matures April 10, 2018. The company reported compliance with its covenants.
Material changes versus prior comparable periods
- Consumer Floral revenue increased 1.0% for the quarter and 1.9% for nine months; iFlorist contributed $2.7 million and $6.2 million, respectively. Consumer Floral contribution margin fell to $11.2 million for the quarter from $13.9 million.
- BloomNet revenue declined 1.1% for the quarter but increased 2.5% for nine months. Its contribution margin increased in both periods.
- Gourmet Food and Gift Baskets revenue declined 26.8% for the quarter and was nearly flat for nine months. Quarterly contribution margin was a loss of $3.2 million versus income of $1.6 million a year earlier.
- Marketing and sales expense increased 3.7% for nine months, while technology and development expense rose 2.4% and general and administrative expense rose 4.4%.
- The company repurchased $7.4 million of stock during the nine-month period; $11.5 million remained authorized under the repurchase plan at March 30, 2014.
Outlook, commentary, risks, and unusual items
- Management expected fiscal 2014 revenue growth in the low-to-mid-single-digit range, with growth across all business segments, and anticipated a slight gross-margin improvement versus fiscal 2013. No earnings guidance was provided in the filing.
- Management cited customer acquisition and retention, seasonality and working-capital needs, integration and growth of acquisitions, inventory management, competition, discretionary consumer demand, and expense management as risks to results.
- The Winetasting Network sale resulted in a final estimated loss of $1.0 million before tax. The company reversed $1.3 million of its prior loss accrual during the nine months, a $0.8 million after-tax benefit.
- Purported class actions relating to former post-transaction marketing practices remained pending. The company said the possible loss or range of loss was not reasonably estimable; plaintiffs sought damages in excess of $5 million in each of certain actions. The company stated it would defend the actions.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It also stated there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the intended reporting period: the filing is for fiscal 2014 Q3, not 2013 Q3.
- Assess whether the full-year revenue and gross-margin outlook remained achievable given weather, Easter timing, segment trends, and the sharp quarterly decline in Gourmet Food and Gift Baskets.
- Review the quality and sustainability of operating cash flow, seasonal inventory and receivables needs, planned capital spending, and the very low quarter-end cash balance.
- Track iFlorist’s operating performance, integration, preliminary purchase-price allocation, and the effect of its noncontrolling interest.
- Monitor the unresolved class-action litigation and any developments that could make a potential loss estimable.