1-800-FLOWERS.COM Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 31, 2023

There are 8 speakers on the call.

Operator

Good morning, and welcome to the 1800flowers.com Fiscal 2023 4th Quarter and Year End Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Andy Milavoy, Senior Vice President, Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, and welcome to our fiscal 2023 4th quarter and year end earnings call. Joining us today are Jim McCann, Chairman and CEO Tom Hartnett, President and Bill Shea, CFO. Before we begin, I'd like to remind you that some of the statements we make on Today's call are covered by the Safe Harbor disclaimer contained in our press release and public documents. During this call, we will make forward looking statements with predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission.

Speaker 1

The Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with And now, I'll turn the call over to Jim.

Speaker 2

Thanks, Andy, and good morning, everyone. It's great to be with you today. Many of you know me, and Since our last earnings call, we announced that my brother Chris was stepping down as CEO for personal health reasons. I want to take this opportunity to thank Chris for all of his contributions to our company over the many years that he and I have worked together. Chris played an integral role in overseeing our rapid growth and enhancing our market leading position of the company.

Speaker 2

He always looked beyond the shoreline to see what's next, Where the consumer was going and ensured we always embraced the coming waves of technology, whether it was Chris made sure we were ahead of the curve. We as a company have a rich history of innovation and embracing new technology will continue to play a vital role in solving the relationship needs of millions of customers. We're grateful that Chris who is currently taking a leave of absence Remains on our Board of Directors and after his leave of absence ends, we expect him to return to new capacity to help us navigate the coming waves of innovation. I want to take this opportunity to highlight the depth of our talent bench and the role that Tom Tom, who many of you know, has been with us for over 30 years and was promoted to President of the company just Tom has played a critical role in overseeing the successful execution of our strategic initiatives and leads our talented management team As we collectively continue to execute our strategy to be a top destination for our customers' celebratory and gifting needs. In a moment, I'll turn The call over to Tom, who will provide a business update.

Speaker 2

But before I do that, let's take a moment to look at where we've been and where we are and where we're going. Over the past couple of years, we along with many companies faced numerous challenges beginning with operating the business during the pandemic, then This significantly affected many aspects of our business, but in particular, our gross profit margin and profitability. Over the past fiscal year, we saw an improving macro environment on several fronts, including ocean freight rates that have approached their pre pandemic levels and certain efficiencies, including our automation investments and logistics optimization efforts led to the margin improvement we began to experience in As the pendulum continues to swing back in fiscal 2024, we expect to continue to benefit from the lower ocean freight costs, Commodity costs that continue to revert closer to the mean and our efforts to improve efficiencies. As we look a little further down the road, say the next year 2 or 3, we expect our gross margin to continue to benefit from factors and return to its historical 10 year average of approximately 42%, which we experienced prior to fiscal 'twenty two. This is sort of a story of a reversion to the mean.

Speaker 2

While it is very difficult to predict precisely When we will see more favorable environment for consumer discretionary spend, we believe that with regard to revenue growth and margin It's a question of when, not if. The actions we have taken to enhance the customer experience, improve margins and optimize expenses combined with an improved consumer environment will enable us to achieve our historical sales growth, gross profit margin and EBITDA margin rates. For these reasons, we remain very optimistic about our prospects and are confident that We are positioned well to perform and grow our company while building shareholder value. I'll now turn the call over to Tom for an update on the business.

Speaker 3

Thanks, Jim, and good morning, everyone. Our 4th quarter adjusted EBITDA improved over $10,000,000 From the prior year as we continue to successfully navigate an ever changing and complex consumer environment. We entered fiscal 2023, we anticipated that consumers would be challenged by ongoing inflationary pressures, which was further exacerbated by rising interest rates and increasing fears of a recession. As we move from the holiday period during our fiscal second quarter Into the second half of our fiscal year, we saw consumers pull their purse strings even tighter, especially outside of the They declined 7.9 percent excluding the impact of the 53rd week a year ago. However, we believe it's important to place this in

Speaker 4

the proper

Speaker 3

context. While sales declined 8% for the fiscal year, this was against the backdrop of an almost doubling our sales since fiscal 2019. Despite the challenging macro environment, we are able to retain the majority of That we gained over the last few years. In fiscal 2023, we had revenues of $2,000,000,000 and over 11,000,000 customers More than 25,000,000 gifts. Simply put, we are bigger, better, stronger company today than we were just a By focusing on the frequency and retention of our existing customer base, sales from existing customers represented 70 Nonetheless, added 4,800,000 new customers during fiscal 2023.

Speaker 3

As a consumer facing company, Growing our customer base will always be important, but we see tremendous opportunity increasing in increasing the lifetime value of our Customer base by converting them into multi brand customers. Multi brand customers currently represent approximately 13% of our Yes, they account for approximately 28% of our revenue. Additionally, we have over 1,300,000 Celebration's Passport members who are encouraged to use their benefits across our family of brands. We've already implemented several initiatives to increase these metrics. This includes highlighting our family of brands across our websites and enhancing our search function to provide relevant gifting ideas from our portfolio of brands on a single results page And by leveraging our brand agnostic warehouse facilities, we can offer unique bundles for customers to create a truly special one of a kind gift.

Speaker 3

Throughout fiscal 'twenty three, we continue to see strong growth in our higher price point cross brand bundles as customers continue to gravitate Towards these higher value offerings. As a result, our AOV increased approximately 6% for the year. We will continue to expand our price points both lower and higher to provide gifting options for all our customers. This includes providing free digital products to help our customers stay connected with the important people in their lives. Great examples of this include our free mom verse and Dad joke GPT offerings that encouraged customers to use our generative AI powered tools to create a special poem or lyric for their mothers and a hysterical joke for their fathers.

Speaker 3

We are further integrating this generative AI technology into many facets of our customer engagements. For instance, at checkout, we will use this technology to help customers Maybe lost for words, express our sentiments and craft thoughtful messages for the gift recipient. In addition to these initiatives, we also expanded offerings both organically and through acquisitions in fiscal 'twenty three. On the acquisition front, We acquired Things Remembered in January and launched a new website on our platform in April. The perfect example of a tuck in acquisition that enables us to further expand our leadership position and product offerings in the personalization category and the This addition much like Sherry's Berry's demonstrates how our e commerce platform was built for rapid growth as we Seamlessly incorporate complementary brands into our platform by essentially just purchasing their IP.

Speaker 3

Turning to our margins, as we had anticipated, we continue to see our gross margin improve during the 4th quarter And our entire organization did a great job of managing operating expenses that helped to offset the revenue decline. As Bill will discuss in More detail, our 4th quarter gross margin improved significantly. We also continue to manage the business well In this environment, our efforts to operate more efficiently, coupled with our decision to focus more on nurturing our existing customers, enabled us to reduce operating costs by $18,700,000 during the 4th quarter and by $51,700,000 for fiscal year excluding the impairment charge taken in the Q3. As we turn to fiscal 2024, we will continue to leverage our tremendous

Speaker 5

Now, I will turn it over

Speaker 3

to Bill to provide the financial review.

Speaker 5

Thanks, Tom. As Tom highlighted in his discussion, Our 4th quarter adjusted EBITDA came in better than our expectations. Many of the trends that we experienced throughout the fiscal year persisted into the 4th quarter. This included continued pressure on our top line, which was mitigated by our improvement of our gross margin that began in the 2nd quarter and by our continued efforts to optimize And operate more efficiently. Let's take a moment to review each of these.

Speaker 5

Throughout the fiscal year and continuing into the Q4, our top line continued to be By a complex consumer environment. As consumers were challenged by ongoing inflationary pressures, escalating interest rates and higher credit card They reduced their discretionary spending. As a result, our 4th quarter revenue declined 17.9% or 14.8% excluding the impact of the 53rd week in the prior year. We experienced stronger performance during our holiday periods, Principally Christmas, while we saw the pullback in consumer spending impact demand for everyday gifting. Now let's turn to our gross profit margin, which is a much more interesting story for us.

Speaker 5

As we had anticipated, we began to experience Improvement in our gross margin beginning in the second quarter. Gross margin benefited from our strategic pricing initiatives, lower ocean freight costs And during the back half of the year, a decline in certain commodity costs and lower inventory write offs. As a result, our gross margin improved 90 basis points during the Q2, 80 basis points during the 3rd quarter and accelerated to 3 40 basis points during the 4th quarter. For the fiscal year, our gross margin improved 30 basis points to 37.5 percent as this annual number was weighed down by our Q1 results. It It's important to highlight that as we look forward, we expect our gross margin to continue its return to historical levels in the low 40s percent range.

Speaker 5

In light of the top line challenges, our team has been focused on controlling the variables we can control and has been steadfast in optimizing expenses. We reduced operating expenses by $18,700,000 or 9.8 percent for the quarter as compared to the prior year and $51,700,000 or 6.6 percent for the full year excluding the impairment charge that was recorded during the Q3. As a result, our 4th quarter adjusted EBITDA improved by $10,200,000 to a loss of $6,600,000 as compared to the prior year despite the top line pressure. On a full year basis, our adjusted EBITDA was $91,200,000 representing a decline of $7,800,000 primarily due to the aforementioned revenue However, it should be noted that since the Q1, our year over year adjusted EBITDA has improved by nearly $15,000,000 Net loss for the quarter was $22,500,000 or $0.35 per share compared with a net loss of $22,300,000.34 per share in the prior year period. Adjusted net loss was $17,800,000 or 0 point $21,800,000 or $0.34 per share in the prior year period.

Speaker 5

For the fiscal year 'twenty three, The net loss was $44,700,000 or $0.69 per share, which includes an after tax non cash goodwill and intangible asset impairment charge of 57 $8,000,000 or $0.89 per share compared with net income of $29,600,000 or $0.45 per diluted share in the prior year period. Adjusted net income for the year was $13,400,000 or $0.21 per diluted share, compared with an adjusted net income of $32,900,000 or $0.50 per diluted share in the prior year period. Now let's review our segment results. In our Gourmet Food and Gift Baskets segment, revenue for the quarter was 120,700,000 declining 18.7% compared with $148,400,000 in the prior year period. Gross profit margin improved 490 basis Lower ocean freight costs and improvement in certain commodity costs and lower inventory write offs.

Speaker 5

The aforementioned improvement in gross margin as well as more efficient marketing spend. For the year, revenue in this segment decreased 3.9 percent to $965,200,000 compared with $1,000,000,000 in the prior year. Profit margin for the year was 34.9% We have a 34.2% in the prior year and adjusted segment contribution margin for the year without the 3rd quarter impairment charge was $77,500,000 compared with $64,900,000 in the prior year, in large part due to the results of the 4th quarter. Our Consumer Floral and Gift segment, revenue for the quarter was $248,300,000 declining 17% compared with $299,000,000 in the prior year period. Profit margin improved 260 basis points to 40.6% compared with 38% in the prior year period And segment contribution margin was $30,700,000 compared with segment contribution margin of $26,500,000 in the prior year period.

Speaker 5

For the year, revenues decreased 13.1 percent to $920,000,000 compared with 1.06 In our Bluemeds segment, revenue for the quarter decreased 22.1 percent to $30,000,000 compared with $38,500,000 in the prior year period. Gross profit margin was 42.6 percent compared with 39.6% in the prior year, primarily reflecting ocean shipping costs as well Product mix. Segment contribution margin was $7,400,000 compared with $10,000,000 in the prior year period. The year revenue decreased 8.6 percent to $133,200,000 compared with $145,700,000 in the prior year. Gross profit margin was We generated free cash flow of $70,700,000 an improvement of over $130,000,000 from the prior year.

Speaker 5

This primarily reflects our efforts Before I turn to our balance sheet, I wanted to highlight that we amended and extended our credit agreement on June 27. We entered into a 5 year $425,000,000 credit agreement comprised of a $200,000,000 term loan and $225,000,000 revolving credit which further enhances our strong balance sheet. Turning to our balance sheet. At the end of fiscal 23, our cash and investment position was $126,800,000 compared with $31,500,000 at the end of fiscal 'twenty 2. Inventory declined $56,300,000 to $191,300,000 The increase in cash reflects the working capital benefit of selling through non perishable inventory, the reduction in CapEx and closing the new credit facility.

Speaker 5

As a reminder, in In the prior 2 fiscal years, capital expenditures were elevated to support our investments in automation at our Hebron, Ohio and Atlanta facilities. In terms of debt, we had $196,400,000 in term debt and no borrowings under our revolving credit facility. And our net debt position improved by $61,000,000 to $70,000,000 compared with $131,000,000 a year ago. Regarding guidance for fiscal 2024. As we turn to fiscal 2024, there are several factors that contributed to our guidance.

Speaker 5

First, we expect consumers to continue to moderate their spending in the current environment, impacted by higher interest rates, higher credit card balances and and the resumption of student loan repayments. We expect revenues to remain pressured during the first half of the fiscal year and begin to rebound during the holiday period and into the second half. 2nd, we expect our gross margins to continue to improve as we benefit As a result, we expect our fiscal 2024 margins to be just north of 39%, compared with 37.5% in fiscal 2023. Just as a reminder, there are seasonal variations on our quarterly gross margin due to sales mix. 3rd, our guidance assumes increased compensation expense, which includes a full bonus payout in fiscal 2024 compared with a partial bonus payout in fiscal 'twenty three.

Speaker 5

This amounts to approximately $13,000,000 increase. Based on these assumptions, we expect Total revenues on a percentage basis to decline in the mid single digits as compared to the prior year. Adjusted EBITDA to be in a range of $95,000,000 to 100,000,000 And free cash flow to be in the range of $60,000,000 to $65,000,000

Speaker 2

Phil, let me ask you to do something here. When we were prepping for this, You had an interesting summary of where we were last year as compared to this year. Maybe it would help if you ran through that again briefly.

Speaker 5

Sure, Jim. As we began to prepare for today, it was really striking to me to reflect on where we were just a year ago and where we are today. The supply chain challenges and labor issues that we discussed a year ago have dissipated. We were able to manage our operations We generated positive free cash flow of $70,700,000 this year as compared to a negative $61,200,000 last year. Our gross margin trend inflected during the 2nd quarter And its improvement continued throughout fiscal 'twenty three, which will continue in fiscal 'twenty four and beyond.

Speaker 5

We were able to efficiently operate our business and reduce operating costs by over $50,000,000 and we secured a new 5 year credit facility that further enhances our already strong balance sheet, a critical accomplishment in these complicated times. While the consumer environment remains challenging, our company has never been better positioned to serve them when they are ready to shop. And we are well positioned to achieve our historical revenue growth, gross margin and adjusted EBITDA margin rates over the longer term. With that, I'll turn the call back to you, Jim.

Speaker 2

Thanks, Bill. I think that summary paints a picture. Sometimes you need to step back a little bit to see What you've been able to accomplish in the year and the tonality last year was obviously very different. So I think you can get a picture from Bill summary there from Tom's comments about why we have confidence that the year or 2 or 3 ahead, barring the unforeseen and there is always the unforeseen, Looked quite attractive for us because of the steps we've taken and because of the benefits of the macro environment reverting more to the mean. I think it's appropriate now that we open the call for questions.

Speaker 2

So I'll ask the operator if you could please restate the instructions for those interested in asking a question.

Operator

We will now begin the question and answer session. The first question comes from Michael Kupinski with Noble Capital Markets. Please go ahead.

Speaker 4

Thank you and good morning everyone. A couple of questions here. You talked a little bit about your labor and I was just wondering if you can give us A little bit more color on maybe the pricing for labor. I know that there has been some significant increases in years prior. And then also the ability to fill the spots that you have.

Speaker 4

And given your improvement in production and distribution facilities, I was wondering if you can talk a little bit about How many people you needed this year versus years past? And I just have a couple of quick follow ups.

Speaker 2

Good morning, Michael. It's Jim here. To tackle your questions, on the labor front, Bill will give you details, but just from a broader Two factors. One is costs have gone up on labor. So let's focus first on entry level, logistic and warehouse kind of labor.

Speaker 2

So 2 years ago our costs there were about $12 an hour and now they're closer to $20 an hour. Last year, not only do we have the cost delay, but we had availability issues. When I say last year, a year ago. So this past Christmas of 'twenty two, we were able to fill all of our temporary holiday positions. The year before, we weren't able to.

Speaker 2

The benefit this year was, yes, we had the higher labor costs, but by being able to fill every position, we didn't run the real high Over time costs that we when we had asked people to work extra. Bill, Michael also asked about efficiencies and you have An example there in terms of the automation and number of packages we could ship out maybe in particular talk about our Ohio distribution

Speaker 5

Yes, Michael, if you recall, we automated our Ohio facility 2 years ago, But it was late because of supply chain challenges to getting the steel in. So we moved about 125,000 packages on our peak day This past Christmas out of that facility versus a year prior we were in like about 80,000, 85,000 And we did it with less labor.

Speaker 2

And we did it 1st. So 100 used to be the peak before that would be one day. And I think this year we did 6 days in a row of over 1,000 packages. So, and we did that, Bill, was it a third less labor?

Speaker 5

Not quite that, but we certainly did it with less labor. And now What we implemented last year, so we'll have this upcoming year will be the 3rd year of that facility, so we'll get more efficiency out of that facility. It will be the 2nd year of our Atlanta That came on late, the automation. Last year in November, again, because of supply chain challenges. So we'll have that as the 2nd year and we also put some automation efforts into our Medford facility which went live last year as well.

Speaker 5

We'll hit the 2nd year of that. So our efficiency will continue to improve in fiscal 'twenty four because just having more experience and having it kind of Laid in for a full year on 2 new facilities.

Speaker 3

And Michael, it's Tom. Just to Add on, just I think where your question is partially going is what are we seeing going forward for the holiday season and a ramp. And right now We're seeing a pretty good environment. We think we'll be fine in getting the folks we need and talking to our partners. And also while we don't expect rates to diminish, we don't expect them to rise either.

Speaker 3

So we think we're in good shape here At least where we stand today.

Speaker 2

So when we talk about a reversion to the mean, we have no illusion, Michael, about the fact that labor rates aren't going to return to pre pandemic levels. Those are permanent. So we're very glad we made the investments over the last 3, now 4 years on the automation side of things where That brings the benefit of needing less people and being more productive with those you have.

Speaker 4

Thanks for the color. And Is there a way to determine how much of the revenue impact it was due maybe to a shift in lower priced products?

Speaker 2

So we didn't see much The shift to lower price products as Tom pointed out in his comments, we actually had an increase on our average order size. So we think The lower end of the funnel shopper just wasn't there on those everyday occasions like they might have been during the pandemic. So it wasn't a result of selling lower priced items. In fact, Tom mentioned in his comments too That we both want to increase our average ticket in terms of the range of products that we offer. So we have plans to introduce some more lower priced items.

Speaker 2

At the same time, we're beginning to think that we have the opportunity to increase some higher priced items too. So you'll see our range expand.

Speaker 3

Yes, Michael, I think the lower end, the customers on the lower end of the income scale is where we saw

Speaker 4

Thank you. And finally thanks, Bill. And finally, the company has been successful in making acquisitions during periods of economic Some of your best acquisitions, I think, were during those periods. I was wondering, in this environment. Are there acquisitions in the pipeline?

Speaker 4

Can you just talk about the acquisition M and A environment?

Speaker 2

Michael, Jim again. On the M and A side of things, yes, you have seen us in the past when times get tougher, more opportunities present themselves. That's why we are pleased and a little lucky that Bill and team secured the financing with our long term banking relationships because we are told that we did our deal at the very end of June and we are told that even the Syndication market is having some tightness in it now, quite a bit of tightness in it now, which doesn't bode well for companies that aren't profitable, don't have The history don't have relationships that we are fortunate enough to have. So yes, that might create some opportunities. We've only done it's hard to even call them So what we have done, but what you see there is low risk, done with cash, Acquisitions primarily of intellectual property and capabilities.

Speaker 2

SmartGift, we think will become a terrific addition For us it helps individuals, but mostly businesses plan their gifting and access to our portfolio of products. So that's Just a few people, very talented engineers that came with that and a company we've been working with for a few years on a contract So we knew it well. The second one was things remembered and there again we got the intellectual property, URLs and the 2,000,000 person customer list that came with that. We put that on top of our platform Personalization capabilities, which is really, really state of the art and really well done. And We have 3 different doors into that capability now.

Speaker 2

We have Personalization Mall, which was an acquisition. We have Personalization universe which was a de novo startup that we did ourselves and now with the addition of Things Remembered which we are particularly excited about, we just did Brand review out in Chicago with the team at Personalization Mall with the Things Remembered team and we can really Grow that business nicely and there's a perfect example Michael where we see the range of price points, the quality of the products that we can bring to Suma under Things Remembered brand with its history, I was shocked to learn that one time they had 1400 stores at Which was striking to me. So what we did was we picked up IP that we could sit on top of infrastructure We already have and grow it out in a very deliberate fashion appealing to a broader range of customers, especially in that wedding and new baby Space and of course holiday as well.

Speaker 4

Terrific. Thanks for taking my questions.

Speaker 2

Thanks for your interest, Michael.

Operator

The next question comes from Alex Fuhrman with Craig Hallum. Please go ahead.

Speaker 6

Hey guys, thanks very much for taking my question. And first of all, I just want to say, Chris, it's been such a pleasure getting to know you over the years. Really hope you are back at 1-eight 100 FLOWERS soon. Wanted to ask you guys about revenue growth obviously has Been challenging here. What gives you confidence that it is a matter When and not if you get to revenue growth, are there any kind of You know, kind of product launches or marketing campaigns, I know you mentioned, you know, a big uptick in kind of multi branded gifting, but would love to just get a sense of where that confidence comes from that revenue growth will resume at some point in the future?

Speaker 2

Well, we didn't mean to sound confident, Alex. Just kidding. The things that we point to internally are the challenge has been in the everyday business and I'll ask Tom to give The everyday business where it's purely discretionary, we think and we've seen historically That when it comes to the important milestone holidays like Thanksgiving and Christmas at the end of this second fiscal quarter for us, it's Not really discretionary. There's a discretionary element, but people you want to buy gifts were going to be there all the time. With the range of products we have, With the behavior of our Passport customer which has become a very big and important part of our mix and historical patterns that we can go back to.

Speaker 2

So I think what as Bill mentioned in his summary there, if you look back pre pandemic, we had 10 years of CAGR compounded growth rate obviously of 12%. That was a combination of organic growth and some of the small acquisition tuck ins that we've done. As we look back over that time, we also had a 42% gross margin during that same period, give or take 50 basis points year to year without it being So those are the 2 metrics we're looking to get back to, but from a sales point of view that will be an important Tom, why don't you touch on where you think we've anchored our forecast for the future and why we have

Speaker 5

Yes. So first, I mean as

Speaker 3

we look into this 2024 year, we are expecting Our sales to begin to rebound during the holiday period as we have seen better results during the holiday periods and in the everyday As Jim mentioned, we believe the user experience investments we've made, The increasing visibility of our family of brands, our extended array of products that Jim had mentioned earlier, that includes marketplace products and Organic products we continue to build beyond the acquisitions. And what we're seeing is a deeper relationship with our existing customers and we're seeing Good results and focus there and we think we have a lot more opportunity. As well Bill mentioned that in the second half of the year we will we do have plans that we will be Increasing our marketing expense in order to drive more demand, again as appropriate and prudent in the management. We've all been here for many years. We've seen pullbacks in the economy etcetera And we think history is a great guide for us.

Speaker 3

So that gives us confidence that we can't predict when exactly the We do see a lot of indications in other means where the consumers habits have returned you know from pre pandemic levels and so that along with many other factors gives us confidence that the consumer will return.

Speaker 6

Okay. That's really helpful. Thank you guys very much.

Speaker 2

Thank you, Alex.

Operator

The next question comes from Anthony Loviedzinski with Sidoti and Company. Please go ahead.

Speaker 7

Good morning and thank you for taking the questions and welcome back Jim and best wishes to Chris, for a speedy recovery.

Speaker 2

Thank you, Anthony.

Speaker 7

So, yes, so I guess, just a follow-up on the Previous question, as far as the everyday gifting business obviously has been challenged. As far as main demand levers that you're looking to put in place to get that business to be To do better, I know you mentioned some multi branded bundles. I mean, As far as your comment about increasing marketing spending in the back half of the year, Is there maybe perhaps a reason why you're waiting until the back half to do that? Or I know there's a fine line that You're looking to navigate there, but I mean if you can see if you can actually pull off better Revenue with better and more spending, why not do it sooner?

Speaker 2

I think Bill will comment on that, but As we look at marketing efficiencies, Tom and his team are working on that all the time. We see veins of opportunity And frankly, during this period, it's let's be prudent, let's keep our powder dry, let's continue to manage our costs as best we can. The one place that we now have the ability to step on the gas pedal frankly is in marketing and those plans take some time to build and their materials. Plus there are some capabilities we have that we think we can build on top of that will come more fully online as we get closer to the end of this calendar year. So It's a question of timing.

Speaker 2

When do you fire your guns when you have the best opportunity? And frankly, by overspending now as we've seen some competitors All different categories doing, we see themselves spending themselves into oblivion and frankly we are quite happy to see them

Speaker 7

Okay. All right. That makes sense. Okay. Anthony, maybe

Speaker 2

Joe, you want to add something to that?

Speaker 5

I just think the consumer is going to tell us a little bit more too as we get through the holiday period. This is our slow season to begin with. A lot of messages in the marketplace that consumers are still struggling at this point in time. We always do better at the holiday and we believe coming off The success that we'll have this holiday that will be the time for us to invest. But we'll continue to monitor and operate this business Efficiently based on what the macro trends are.

Speaker 5

We are always in market

Speaker 3

and iterating based upon Where we see customer acquisition costs, segments, etcetera. So if there are veins, as Jim said, we will be taking advantage of those opportunities.

Speaker 2

Anthony, I think you've reported on and we've seen ourselves that for consumer facing businesses, particularly those who are in the e commerce arena, But not just. The CAC, the customer acquisition cost has gone through the roof for most companies. So we're able to pull in our horns on an advertising basis when it is very expensive or make it more expensive for others And rely on our existing customer base, our Passport customers and our ability to stimulate the existing base is beyond our primary brand of introduction. So that's why we're able to you've seen our costs come down so much. So we're sort of continuing that rope And that's when people are more in market for gifting occasions at Halloween, Thanksgiving and Christmas.

Speaker 7

All right. That makes a lot of sense. Yes. So as far as Passport members, are you still seeing them spend 2 or 3 times more than non members, has that trend more or less continued?

Speaker 3

It has continued, Anthony, we have seen that stable and in fact multi brand customers, passport customers were Seeing the AOB tick up a little bit with those customers too for the year.

Speaker 7

Got you. Okay. And then you also Talked about seeing lower costs for certain commodities. So where have you seen the most relief and where are you seeing the most pressure points?

Speaker 2

Bill is our expert on commodities. He spent a lot of time on the farm with the chickens. We bake and make a lot of product, Anthony, Cheryl's, Harry and David Wolferman's and there we use lots of eggs and lots of butter And those have been stubborn, but we are starting to see the trends improve there. They tripled in cost within 4 or 5, 6 months. You had the whole chicken shortage from a flu that went through, cocoa costs for all our chocolates, All of those commodities were high.

Speaker 2

Bill, did they peak at almost triple and where are we trending now?

Speaker 5

Yes, so Exit from all the way back and exit back to their kind of historic mean as butter and all types of Cashews, almonds that we use a lot of. The ones that haven't are wheat, a lot of due to Some of the macro and geopolitical issues, corn continues to be high, sugar and cocoa continue to Extremely high. So we have a mix of commodities that some have already reverted back to their historical means from a cost All this is still at very high levels.

Speaker 2

On the other side of the cost kicking ahead we got last year, We pointed out the team Chris and Bill and Tom pointed out that ocean freight was the real shocker. Now We use Ocean Freight both in BloomNet and in our food brands particularly. We're bringing in packing materials, containers, shipping Materials, non perishable stuff. And Bill, what was our increased unbudgeted costs there last year were $60,000,000

Speaker 5

Willen? So we've historically spent around $10,000,000 kind of the pre rise and that raised up at its peak to about 50,000,000 50, okay. We're back down to those historical levels now.

Speaker 2

That's because we told you, Anthony, that we don't think Labor will revert. We think the inflation in labor is stalling, but we don't think we certainly aren't Backwards on our labor rate, which is a good thing for people and good thing that we've been able to adjust. But ocean freight has now come back to just very close to pre pandemic level. So we went from a high of a container or something in a $25,000 range back down to 5,000 Maybe the low with pre pandemic was 4. So we're very close to pre pandemic levels there.

Speaker 2

But on the labor side, we're not expecting huge There, but we're not expecting it to come down either. So that's why automation being able to fill the jobs and not incurring Big overtime cost as we prep for the holiday to burden us any this year.

Speaker 7

Understood. And my last question I guess for Bill. What's the CapEx outlook for fiscal 2024?

Speaker 5

Yes, we think CapEx will be at or below last year's level. So if you remember because of all the automation efforts and some of the Technology spend fiscal 2021 2022 we had elevated CapEx of $55,000,000 $65,000,000 respectively. This past year We brought it back down to about $45,000,000 and for fiscal 'twenty four we expect to be in that $40,000,000 range.

Speaker 2

But it was good prudent spending obviously because CapEx on automation really helped the throughput And helped us where labor was really challenged.

Speaker 7

Okay. Well, thank you very much and best of luck.

Speaker 2

Thank you, Anthony.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Jim McCann for any closing remarks.

Speaker 2

Thank you and thank you for your interest and your time today. I appreciate all the good questions. We're getting ready for a holiday weekend, the end of summer, so I hope it's Good and fun one for you and your families. If you have any other questions, please don't hesitate to reach out to us. And Bill and Andy and Tom are

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
1-800-FLOWERS.COM Q4 2023
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