1-800-FLOWERS.COM Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2024

There are 10 speakers on the call.

Operator

Good morning, and welcome to the 1-eight hundred FLOWERS.com 20 25 First Quarter Fiscal Year Earnings Conference Call. Today, all participants will be in a listen only mode. Please note that today's event is being recorded. I would now like to turn today's event over to Andy Milavoy, Senior Vice President of Investor Relations. Please go ahead.

Speaker 1

Good morning, and welcome to our fiscal 2025 Q1 earnings call. Joining us today are Jim McCann, Chairman and CEO Tom Hartnett, President Bill Shea, CFO and James Langrock, CAO and incoming CFO upon Bill's retirement in December. 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 company disclaims any obligation to update any of the forward looking statements that may be made or discussed during today's call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP. Reconciliations of these non GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. And now, I'll turn

Speaker 2

the call over to Jim. Thanks, Andy, and good morning, everyone. This morning, I'll share my perspective on the current environment of our and our recent performance, and then I'll turn the call over to Bill and Tom, who will provide the business and financial updates. As we announced this morning, our Q1 performance generally came in line with our expectations. We began to see slight improvement in our e commerce revenue trends, our gross profit margin continued to grow and through our work smarter initiatives to operate more efficiently, we reduced our operating expenses.

Speaker 2

Regarding the complexion of our e commerce revenue and benefiting from our relationship innovation initiatives, orders declined 6.5% as compared to an 11.5% decrease in the Q4 of fiscal 'twenty four and a 16.1% decrease from the prior year period. AOV declined 1.5%, reflecting our plan to expand our offerings and broaden our price points. Additionally, several wholesale gift basket orders shifted from Q1 into Q2. This was simply timing and we will ship and record those orders in Q2. We've always viewed and suggested that you view our fiscal year is consisting of 2 halves.

Speaker 2

The first half consists of the inventory build and preparation for the holiday season that occurs during build leading up to the holiday during the Q2. The second half of our fiscal year consists of the important holiday occasions including Valentine's Day, which is in Q3 and Mother's Day in Q4. In just a moment, Tom will review our Q1 performance and share our view for the Q2. As we turn to the holiday quarter, we expect our performance to improve, especially within our Gourmet Foods and Gifts businesses as consumers often see holiday gifting as more than an essential activity rather than a discretionary one. Through the relationship innovation initiatives that we implemented over the last 2 years, we have expanded our offerings and broadened our price points, providing gift givers with more choices at prices that span from budget friendly to premium.

Speaker 2

We look forward to helping our customers connect and express their sentiments with the important people in their lives. And now, Tom, if you'll go over the business update for us.

Speaker 3

Thanks, Jim, and good morning, everyone. This morning I'll review our results, highlight some of our strategic initiatives that we are executing against and discuss some of the recent partnerships that we are excited about. As Jim highlighted, our Q1 performance generally came in line with our expectations. Our consolidated Q1 revenue declined 10%, essentially in line with our recent Q4 trends. More specifically, our e commerce revenue declined 8% as we saw our relationship innovation efforts, which are focused on expanding our offerings and broadening our price points, drive more lower AOV transactions as anticipated.

Speaker 3

This resulted in a 6.5% decline in orders and a 1.5% decline in AOV. Now let's take a moment to discuss our segments, beginning with our Gourmet Food and Gift Baskets business. During Q1, this segment's revenue declined 14.4%, which was slightly higher than the 12.8% decline in Q4. It's important to contextualize this performance. Dollars 3,000,000 of wholesale orders shifted from Q1 to Q2 accounting for 3 percent of the revenue decline.

Speaker 3

These orders will be delivered and recorded during the Q2. Excluding this timing impact, our revenue trends within this segment would have improved over Q4. Turning to our relationship innovation efforts, we continue to leverage our last mile delivery capabilities to expand our same day food related offerings for customers. This perfectly illustrates how we can further leverage one of our primary differentiators and competitive advantages to offer more gifting options for same day delivery. For example, during the quarter, Cheryl's Cookies expanded its selection available for same and next day delivery.

Speaker 3

This positions us to be more competitive in their market on an everyday basis and is highly relevant going into Q2, as this will enable us to expand the shopping season and fulfill orders placed much closer to December 25. We also expanded our 1-eight 100 Basket same day delivery program to more locations offering more options. This is a great solution for customers that are on a short timeframe and don't have the time to pre plan a gift purchase. Whether it's an unexpected sympathy gift, a gift to celebrate a new baby or simply a last minute occasion, we can now help our customers express their sentiments and deliver more gifts on the same day. During Q1, we successfully completed the integration of Sharpenburger, chocolates into Harry and David.

Speaker 3

Since we acquired Sharfenburger, customers have been gravitating towards their baking chocolate in bars and as we head into Q2, we are excited to launch our new boxed chocolate collection that we expect to be a hit for the holidays and beyond. Our Harry and David brand is synonymous with holidays and this year we are thrilled to announce a new partnership with Macy's. We are opening 6 exclusive Harry and David pop up shops in select Macy's stores this holiday season, including their Glendale Galleria and Herald Square locations to meet the growing demand for thoughtful gourmet holiday gifts. These shops will run from October through early January and will provide customers another avenue to engage with the Harry and David brand. And now let's move to our consumer floral and gifts segment.

Speaker 3

Our sequential trends have improved with revenue declining 4.9% as compared with declines of 6.7% during Q4 and 12.3% a year ago. As part of our relationship innovation initiatives, we are actively pursuing and have entered into exciting partnerships to expand our customer reach and our product offerings. During the quarter, we entered into an exciting collaboration with LoveShoc Fancy to launch an exclusive collection of offerings that feature their exquisite floral designs. Lovesac Fancy is known for their vintage inspired hand painted floral prints. Customers' response to this partnership was tremendous and we quickly sold out of this floral offering.

Speaker 3

It also drove a higher percentage of new young and higher income female customers to the brand. Seeing the strong customer response, we've extended the partnership to Cheryl's Cookies and are currently offering a limited time exclusive tin that is decorated in one of their magnificent rose designs. Within our personalization businesses, we experienced good momentum in Q1 from our efforts to improve the shopping experience and to elevate the product assortment that resulted in an increased revenue, gross margin and profit. This performance was driven primarily by Things Remembered, which since acquisition has benefited from its addition to our platform and an expanded product selection that appeals to our higher income customer. Turning to our BloomNet business, revenue declined 20.1 percent or $5,800,000 as compared to a year ago.

Speaker 3

This included an expected decline in orders by one of our business partners who merged with a competitor. We will fully lap this impact by the end of fiscal second quarter and expect to begin to grow BloomNet revenues in the second half of this fiscal year. As we look ahead to the rest of the fiscal year, our strategic plan and priorities have been built to sharpen our customer experiences and industry positioning. While it's difficult to forecast when the consumer environment for discretionary spending will improve, we plan on leveraging our relationship innovation initiatives and increasing our marketing spend to improve our revenue trends during Q2. Additionally, as the orders have already been placed, we know that our wholesale revenues will increase by approximately $20,000,000 over the prior year.

Speaker 3

We have improved the customer shopping experience, expanded our product range and broadened our price points to help consumers find the perfect gift for their important people in their lives. We are confident that our strategic initiatives have positioned us well to serve our customers this holiday season. Now, I will turn it over to Bill for the financial review.

Speaker 4

Thanks, Tom, and good morning, everyone. During the Q1, we experienced an improvement in the undercurrent of our e commerce revenues, which included improving trends in order count and driving sales of our lower priced items that contributed to a lower AOV. Our disciplined approach to managing the controllables combined with our focused execution of strategic initiatives over the past 18 months have enabled us to drive these trends and deliver Q1 results within our expectations. Tom highlighted our relationship innovation and Work Smarter initiatives have expanded and enhanced our offerings and positioned us to operate more efficiently. Today, I want to highlight 2 important work streams within our WorkSmarter efforts to operate more efficiently.

Speaker 4

Our organization has always been at the forefront of innovation and AI is no different. Over the last few years, we implemented AI within our customer service chat tool and we adopted it on our e commerce platform to help customers better express their sentiments when they are at a loss for words. We've now taken AI a step further and implemented a new tool to power our customer care interactions. Our new customer care platform integrates AI to improve the customer experience, increase our efficiency and reduce overall labor costs. This implementation enabled us to consolidate multiple customer care systems into 1, allowing more agents to assist customers across our brands as opposed to being brand specific.

Speaker 4

Most importantly, AI will empower our agents with the customer's order information and history as the call comes in so that the agent is better prepared to help a customer. This will create a better customer experience and enable the agent to become more efficient driving lower labor costs. Turning to our logistics optimization efforts. During Q1, we launched an enhanced back end order management system at Harry and David that enables us to further optimize logistics through optimal lease cost routing. As we move beyond the implementation phase, the new OMS system will enable us to lower fulfillment costs for Harry and David orders.

Speaker 4

And now let's dive into the Q1 results. As Jim and Tom highlighted, our first quarter revenue declined 10% from the prior year period. This included the previously discussed timing of certain wholesale orders that shifted into the 2nd quarter. Our e commerce revenue declined 8% in Q1 with order count down 6.5% and AOV down 1.5% as anticipated. For perspective, this compares to year over year order counts declining 11.5% and 16.1% during the Q4 and Q1 of last year respectively.

Speaker 4

This was offset by slightly stronger gross margin rate of 38.1% and our disciplined approach to operate more efficiently that led to a $4,300,000 decline in operating expenses when excluding non recurring charges associated with the system implementations as well as the impact of the company's non qualified deferred compensation plan in both periods. Altogether, the adjusted EBITDA loss was $27,900,000 Now let's review our segment results. Our Gourmet Food and Gift Basket revenues declined 14.4% from the prior period to 84,000,000 This decline reflects the timing of approximately $3,000,000 of wholesale orders, which shifted from the Q1 into the Q2. Revenues were also impacted by the implementation of the new order management system. Gross profit margin increased 50 basis points to 32%, benefiting from the company's inventory optimization efforts and a decline in certain commodity costs.

Speaker 4

As a result, the adjusted segment contribution margin loss was $11,300,000 as compared to a loss of $11,000,000 in the prior year period. In our Consumer Floral and Gift segment, revenues declined 4.9% from the prior year period to 135 $200,000 Gross profit margin increased 30 basis points to 39.9%. This quarter, we strategically invested in a range of marketing channels to test different aspects of sales funnel in preparation for the holiday season. Altogether, this resulted in segment contribution margin of $4,900,000 compared with $8,800,000 in the prior year period. In our Bluemeds segment, revenues declined 20.1 percent to $23,100,000 As Tom mentioned, this included an expected decline in orders by one of our business partners who merged with a competitor.

Speaker 4

We will fully lap this impact at the end of the fiscal second quarter and expect BloomNet revenues to begin to grow in the second half of the fiscal year. Gross profit margin decreased 20 basis points to 50% due to deleveraging on the lower sales volume. As a result, segment contribution margin was $6,800,000 compared with $9,400,000 in the prior year period. Turning to our balance sheet. Our cash and investment position was $8,400,000 at the end of the Q1, which is seasonally low as we prepare for the holiday period.

Speaker 4

Inventory was $275,300,000 compared with inventory of $280,600,000 at the end of the same time last year, benefiting from a component of the Work Smarter initiative that is focused on operating more efficiently with lower inventory. Our total debt was $232,500,000 essentially flat as compared with the prior year. We had $187,500,000 in term debt and borrowings of $45,000,000 under our revolving credit facility in preparation for the upcoming holiday season. We expect borrowings under the revolver to be fully repaid during the fiscal Q2. Regarding guidance for fiscal 2025, continue to expect total revenues on a percentage basis to be in a range of flat to a decline in the mid single digits as compared to the prior year.

Speaker 4

Adjusted EBITDA to be in a range of $85,000,000 to $95,000,000 and free cash flow to be in the range of $45,000,000 to 55,000,000 Now, I'll turn the call back to Jim for his closing comments before we open it up for Q and A.

Speaker 2

Thanks, Bill. In summary, our Q1 performance generally came in line with our expectations. In this still uncertain this still uncertain consumer environment, we are encouraged by the undercurrents in our e commerce trends as we move closer to the holiday season and the orders for our wholesale business are higher than they were a year ago, which will be booked during this Q2. Q2. Customers generally view holiday gifting as more of a necessity, and we have expanded our breadth of products and our price points to offer them an even greater array of thoughtful gifts for everyone on the holiday list.

Speaker 2

Before we move to the Q and A session, I want to take a moment acknowledge and celebrate our incredible team members whose hard work and dedication have been instrumental in earning us the recognition as one of America's most admired workplaces by Newsweek. This prestigious accolade reflects not only our commitment to fostering a supportive and innovative workplace, but also the incredible dedication of our team members. Being named among the top companies in this category is a testament to the culture we have built together. Thank you for being an essential part of our journey and helping us deliver smiles every day. And now for your Q and A.

Speaker 2

Operator, please?

Operator

Thank you. We will now begin the question and answer session. And today's first question comes from Alex Fuhrman with Craig Hallum. Please proceed.

Speaker 5

Hey guys, thanks very much for taking my question. Wanted to ask about same day delivery. It seems like this is something you guys have been investing quite a bit in ahead of this holiday season. Can you talk about how much of your business in the past during peaks have been same day delivery? And what are you expecting this holiday season, I guess, in terms of same day delivery utilization and what that could do to your margin?

Speaker 2

Thanks, Alex. Thanks for your question. The answer is on the floral side, it's always been an important part of our business and depending on the seasonal range, 30% to 40% of our business will be the same day on the flower side. On the non floral side, almost none of our business historically has been same day. So what we're doing is leveraging the infrastructure that we've built over the years on the flower side of the business to on a slow but sure pace to introduce more and more of the products that we have that are great gifting products for example our Cheryl's cookie products which are a great gift at the right price point and just put smiles on faces every day.

Speaker 2

We've introduced a limited collection of those products into a portion of our same day network. Tom, would you want to give a little bit more color on what the plan is in terms of rolling out the products you mentioned in your remarks the same day having a gift basket.

Speaker 3

Yes, so Alex, good morning. We're continuing to look at products within the food groups portfolio that we can leverage for same day delivery. You mentioned Cheryl's cookies and we're expanding the products there. We introduced several of the Harry and David's gift baskets lines and we're rolling those out kind of across the country as we have the capabilities in market. So this will be something that we'll be after for this is a program.

Speaker 3

This is something that we'll be after for the next couple of years as we continue to build out our capabilities on replenishment and expand many of those products from our food brand. This is what we're saying is we've seen the success of this on our floral side and we see there's ample opportunity for same day for the rest of our business.

Speaker 2

And it's a way to leverage to unique fulfillment we have, Alex, with our retail floral partners. So giving them the opportunity to up their capabilities in terms of refrigeration capacity, freezer capacity. And so in select markets as we predict the demand would be strongest, we've been introducing these products and it's been really well received by our floral partners and of course by our consumers.

Speaker 4

And it's already been successful with us on our chocolate covered strawberries through Sherry's Berries as well.

Speaker 2

And our fruit bouquets, yes.

Speaker 5

Okay. That's really helpful, guys. Appreciate the thorough explanation. And then if I could just ask one more, it sounds like you're expecting revenue trends to improve as you start to spend a little bit more on marketing going into the holidays. Can you talk about where those dollars are going to go?

Speaker 5

Is it pretty similar to what you've done for past holiday marketing campaigns?

Speaker 2

I'll start and ask Tom to give you some of the specifics there, Alex. But in general, 2 things. 1 is, we kept some powder dry to make sure we had it available for this important holiday season, number 1. Number 2, as Bill mentioned in his remarks, we think the spend in this quarter, which is all around Thanksgiving and Christmas, is a little less discretionary than everyday business because people feel like they have to and want to buy a gift, whereas if they had a choice to buy something on a spur of the moment non holiday, they might have in this past couple of years passed on that. We think less discretionary when there's a specific calendar gift occasion.

Speaker 2

Tom, a little color on the Yeah,

Speaker 3

I mean I think it will be similar to prior years. I mean obviously we are deploying dollars in top, mid and bottom of the funnel activities and I think the most important thing we focus on is making sure those dollars are relatively flexible, so that within the period we can redeploy ship dollars pretty quickly. So we're constantly looking at the returns on those efforts. And Alex and also just

Speaker 4

to get on Jim's point of discretionary holiday time versus every day. Sequentially, we always move better from Q1 into Q2. Like a year ago, our e commerce numbers in Q1 were down 12%, in Q2 they were down 6 percent. So it just naturally improves as we get towards the holidays.

Speaker 5

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

Speaker 2

Thanks, John.

Operator

And the next question comes from Andy Lebiedzinski with Sidoti and Company. Please proceed.

Speaker 6

Good morning and thank you for taking the questions. So I just first, I just wanted to follow-up on the same day delivery markets. So I said, can you just maybe go over like how many markets or what percentage of your markets you're able to actually deliver non floral gifts and kind of what's the expectation for the holiday season whether that's going to change much from where it is right now? And then I have a couple of other questions if I could.

Speaker 2

Thanks, Anthony. Your answer to this question, it's a very small percentage of our non floral packaged gifts business, Cheryl's, Harry and David, Pop corn, chocolates, very small percentage is available now for same day. We're rolling it on markets, as Tom said, based on our capabilities, our partners' capabilities to do the last mile fulfillment and anticipated demand. This is something we'll be doing, as Bill said, for the next few years rolling this out, but it's already beginning to make an impact because the Sheryl's business is doing better because up until this past year they didn't have same availability. But with all the different infrastructure options we've developed to do exactly that at the last day, it's had the biggest impact so far on that brand.

Speaker 2

Harry and David has been much newer, but with a large customer base of that brand and the terrific set of products they have, particularly around people wanting to express themselves on holiday occasions and on sympathy occasions, we expect it will have a big impact on Harry and David's business in the next year or 2.

Speaker 6

That's very helpful color, Jim. And then in terms of the AOV, so you guys have talked a lot over the last few quarters about offering more multi branded bundles. Obviously, This quarter, the AOV came down because of a broader price point. But as far as the bundles themselves, are you still seeing customers gravitate towards those? And whether anything has changed from your thinking about those?

Speaker 3

No, we haven't seen anything change, Anthony. The excitement we have around when we create bundles in the product assortment, you know we see the efficiency of those products, the conversion of those products and it is a big focus of the team, the merchandising team to create more bundles and the logistics around that, so it gets delivered as one complete gift package.

Speaker 6

Got you. Okay. And then lastly for me, in terms of the system implementation costs that you guys talked about impacting the quarter here. Was this isolated to the September quarter? Or do you think some of this may spill over to future quarters?

Speaker 6

Just wanted to get a sense of that.

Speaker 4

Yes, there were 2 kind of large implementations we've been working on. The new order management system for Harry and David that is behind us. Those implementation costs are behind us. On the service center platform where we've combined all the systems into 1, ultimately we're going to save money and we are saving money on some licenses as we're moving, as we're eliminating those other platforms. But we still have a double up for the 1st 6 months of the year.

Speaker 4

So we have one more quarter of a double up of license fees. With that said, it's going to lead to more efficient, enable the agents to be more efficient which is going to save dollars on labor going forward and ultimately

Speaker 2

we and as Bill said, with the new technology in place and trust me cutting over systems that have been developed over decades has been painful and fatiguing in terms of all the time that's been put into it. But the outcome, we're already quite happy to see the benefit in terms of how we are able to serve our customers and to do it more efficiently.

Speaker 6

That all sounds great. Well, thank you very much and best of luck.

Speaker 2

Thank you. Thanks Anthony.

Operator

Our next question is from Michael Kupinski with Noble Capital Markets. Please proceed.

Speaker 7

Thank you and thanks for taking my questions.

Speaker 3

Just a couple here. As you kind

Speaker 7

of head into the holiday season and I noted that you made comments about your higher end customers in the past. And I was wondering if your higher end customers continue to spend, are they still the key revenue driver versus the lower end customers? And then with your I guess, your shift towards lower end price points, can you talk a little bit about how the lower end customers are influencing your revenue going forward? And in terms of your guidance, do you believe that the biggest risk to your full year revenue guidance, would that be persistent inflation or what do you think is affecting the inflation or what do you think is affecting the consumer buying behavior overall?

Speaker 2

Bill, do you want to start?

Speaker 4

Yes, Michael, I mean we have talked about the affluent consumer and kind of the upper end of our customer file continuing to perform well. And as Tom was describing those bundled products and to continue to offer a broader selection of higher priced items that affluent consumer is going to continue to want and will continue to buy. What we saw in the Q1 and what we've been efforting is also coordinating the offerings at the lower price point items to stimulate the less affluent consumer that has been sitting on the sidelines and we've seen some success holiday season. From inflation and everything, obviously the economy was operating in a difficult macro environment for several years now. I mean the good news is the most recent data whether it's the jobs data, inflation data or consumer confidence that's come out just this week, all positives as we're heading into the holiday season.

Speaker 4

So hopefully and gas prices are lower. All those things are positives as we head towards that holiday season.

Speaker 7

Got you.

Speaker 2

Michael just to add, it's Tom.

Speaker 3

As we're expanding our price points, I'm not saying this a perfect execution here, but we are very much targeting different customer segments with different price points. So it isn't just like we're expanding everything across the board. It is a targeted approach.

Speaker 7

Got you. And on the commodity side, any updates on the cocoa cost outlook? And are there any particular other commodity costs that are a little stubborn right now that you believe could wane and provide some lift to your gross margins?

Speaker 4

Yes. As we've mentioned in the past with cocoa, we've kind of locked in pricing not only for this holiday season, but also through actually next holiday season at prices that are above what we historically paid for, but well below where the overall market has been. The market has been coming down in the cocoa market, but it's still higher than historical norms.

Speaker 2

And keep in mind, Michael, the big usage of those commodities are in the first half of the year because they are so heavily used in our holiday gift assortment at Herring David, Cheryl's eggs for example have been something that have moderated some but still higher than traditionally. So we think that the trend is in all of those categories So we think that the trend is in all of those categories moderating and the benefits won't be seen till next fiscal year because we've already done our big spend. But as Bill said, we feel comfortable that we're locked in on the Cocoa side of things through the next holiday season. But we hope in that time that the overall price situation moderates so that when we're renewing, it's at attractive rates.

Speaker 7

Thanks for that color. And just my final question is on BloomNet. I know in the past you managed the number of floral shops in your network. Can you kind of provide some color in the trends of that? I know you've been affected by a merger with your competitor, but I'm seeing just generally how we should look for the number of whether or not shops will be increasing, especially as you lap that merger with the competitor?

Speaker 2

The number of shops, Tom, I'll give you more color on this, but the number of shops have stayed steady for us. The depth of the relationship is improving that is as we offer more opportunities for more involvement across the breadth of gift product offerings. We always lead with let's give the opportunity to our retail floral part as first. I think that's recognized and appreciated and now having especially with us adding the Harry and David product, the Sherry's Berries product, keep in mind when we bought the Sherry's Berries intellectual property a few years ago, none of that business was fulfilled by florist. When we bought it, we converted it to our model and all of that business is fulfilled in market, not in our own company owned facilities.

Speaker 2

So that boosted our relationship with our retail floral partners and our gourmet network partners. So the number stays steady. The relationship is developing. Anything else?

Speaker 3

No, I think just to layer on that, the number is stable. You know we continue to think just like our card aisle program which has been a huge hit with our local floor. So they can print you know gifting cards locally now and obviously those are attached to our orders, but also for the benefit of their shops. So we just continue to add value to those relationships which keeps that number steady and we do expect as we lap the year we probably will see a little bit of a bump up as we move forward in membership. Just a reminder Michael

Speaker 2

Our goal isn't to grow the network, it's to always be investing in the quality of our partners.

Speaker 4

Right. But just as a reminder Michael, we do lap that lost volume from a competitor at the end of the second quarter. So 3rd Q4 of this year will be on kind of a steady stream and we do expect BloomNet to grow in the second half of the year. Great.

Speaker 7

That's all I have. Thank you.

Speaker 2

Thank you, Michael.

Operator

The next question comes from Linda Bolton Weiser with D. A. Davidson.

Speaker 2

Good morning, Linda.

Speaker 8

Yes. Hi. Good morning. Hi. So I was wondering just a little bit more on the cadence of revenue performance through the year.

Speaker 8

Being that second quarter is your big seasonal quarter, I would expect that the year over year revenue would have to be at least in line with the guidance for the year of flat to down low single digit. Would that be a fair assumption then for Q2 on revenue?

Speaker 4

Yes, Linda. We expect continuing improving trends from a revenue standpoint. So as I mentioned before, we're seeing some momentum in better trends on the e commerce side of the business. You saw the transaction counts were down 6.5% in the Q1. That's an improvement over 11.5% in the Q4 of last year and 16% in the Q1 last year.

Speaker 4

Generally speaking sequentially we improve as we get closer to the holiday. Again e commerce revenues last year went from 12% down in the Q1 to 6% down in the Q2. Wholesale last year was a tailwind in the Q2. We were down $20,000,000 year over year in the Q2 last year. This year we're going to be up $20,000,000 right?

Speaker 4

So that's going to be a natural tailwind for us. So we feel comfortable that there will be significant improvement in the revenue trends in the Q2.

Speaker 8

Okay. And then I was curious too about what you're seeing with media rate. I know you do mostly digital, but just in general with the election situation, are you seeing elevated media rates in the December quarter?

Speaker 2

Linda, it's Jim. Yes, media is more expensive. The election does have a big, big impact on what we pay for things both digitally and in traditional media lines. Tom anything? No,

Speaker 3

As you would expect Linda, we are seeing that in the environment. We've seen that for the last month. We are expecting that some of that will moderate as we get past the election.

Speaker 8

Okay.

Speaker 4

With the second quarter, so much of the demand for the Q2 does come from that Thanksgiving through Christmas holiday. So there is some time to recover from the election timeframe to the big demand days.

Speaker 8

Right. Got you. And then finally, my question about the Harry and David pop up at Macy's. Just curious, are you flirting with the idea of getting back into brick and mortar retail from the company owned perspective? Or is the company owned perspective?

Speaker 8

Or is just this purely this pop up idea and it's not going to expand into anything else brick and mortar? Just curious about that. Thanks.

Speaker 2

Thanks, Linda. This is Jim. I spent some time at the Holiday store we opened in Herald Square at Macy's yesterday. It looks fantastic. It had a good buzz about it.

Speaker 2

It's on the 8th floor which sounds like it's off the beaten path which of course it is, but that Macy's store is a marvel And it was good traffic in the store yesterday, excited customers. And then in a couple of weeks when they open up the Santa's workshop, you almost have to walk through our Holiday store to get to Santa's workshop. It's great positioning. So it was good yesterday. It was busy.

Speaker 2

I love the way it looks. So I'm going to tell you that in answer to the second part of your question, I'm a retailer. I've always liked retail. I think it plays a role in our mix, whether we do that company owned, whether we do with franchisees. This is a good first step to get back into the holiday store business, which used to be quite important to us.

Speaker 2

And these 6 stores that we've opened up now, 3 in California, 3 in New York, in partnership with Macy's, I'm very excited about. I'd expect that will continue to grow. We had some dialogue yesterday with other store managers who were in town, who asked if could they get in the queue for us to open in their stores. It was I was all buzzed yesterday about how good the store looks, how the traffic was, how the interaction with customers was going. So the answer is, we're not sure.

Speaker 2

It's always on the table for us. And yesterday, it got me excited about those prospects.

Speaker 4

These are 3 or these are 6 great stores, right? And obviously, we got to evaluate the results of that, but we're very encouraged.

Speaker 2

I'm encouraged just from the marketing benefit of those stores, customers coming in excited about seeing the brand. So you can hear you might hear that I got jazzed yesterday, how that influences things, how a bill beats the heck out of me in the next couple of weeks and brings me back to reality, all to be determined.

Speaker 8

Okay. Sounds good. Thank you.

Speaker 2

And

Operator

the next question comes from Doug Lane with Water Tower Research. Please proceed.

Speaker 9

Yes. Hi. Thank you. Good morning, everybody. Bill, can we go back to that shift in wholesale orders from the September to December quarter?

Speaker 9

Can you reiterate what the dollar amount was and the reasoning behind that shift?

Speaker 4

Yes, it's about $3,000,000 on the food wholesale side of the business. And the reason is we are these are gift baskets for Costco and Sam's. They dictate when they want the orders. Sometimes it comes in at the end of September or starts at the end of September. Other times it starts in the beginning of October.

Speaker 4

So clearly just a shift. As we've talked about even in our August call, we have a strong book of business in kind of the food wholesale business this year. It's going to be a great tailwind for us. It's all the large majority of it happens in the Q2 anyway and it just happened to shift some of those dollars just shifted from Q1 to Q2. And to add

Speaker 2

to that, the Q1, the 1st fiscal quarter of the summertime is when we're getting the majority of our inventory in for those pre sold items. We're assembling, infecting those baskets and then they're ready to ship and then we're they'll notify us it could be a 5 or 6 or 7 day swing, but that's right over the quarter's end. So all of that's now shipped.

Speaker 9

Got it. That makes sense. And then to your point about looking at 2 halves of the year for 800 Flowers, you talked a little bit about the cost trends in Cocoa, but can you just give us any update? Has there been any significant shift in your cost trends anywhere else, energy, shipping, labor costs? Can you talk about your seasonal labor hiring this year versus prior years?

Speaker 9

Just try to touch base on the cost front a little bit if you would.

Speaker 2

I'll start on the labor side, Bill and Tom will give you more color on the other components. But on the labor side of things, 2 years ago it was very tough. We couldn't find people to work those seasonal jobs, our logistics jobs, our shipping warehouse jobs, couldn't find enough people. So we were 2,000 positions short of where we would have liked to have been. The consequence of that was that we had to pay a lot more overtime, which impacted us.

Speaker 2

Labor rates have been steady now last year in this. The fill rate has been very good. We have a program we have distribution centers around the country to optimize our shipping costs, which Bill gives some more color on, but then 2 years ago, we had real difficulty with our newest facility in the Atlanta area. Last year and this year that's gone really well. We have a terrific labor partner in Atlanta, an agency called First Step Staffing, which is not for profit, which is a staffing company that wraps a social services component around it.

Speaker 2

So that's really helped us. We have good quality labor force there and we feel really good about giving 3.50 or so people an opportunity to get back into the workforce. So that's it's helped us and we're happy to be helping them. Bill, I know let me tell you, you asked about like fuel costs. We haven't seen the benefit yet of this decline in fuel costs in terms of our shipping costs, have we though?

Speaker 4

No, we've seen some. Our year over year fuel surcharge is lower now than it's been and we've been able to negotiate with FedEx caps on certain of the fuel surcharges. So overall, Doug, if you recall, 2024 was kind of the year of the gross margin recovery. We were up 260 basis points last year and climbed back over 40 percent. And this year our guidance for the year is to be up modestly.

Speaker 4

This year as we always have various offsetting fouls, while we're continuing to move margins forward. The 20 basis points we improved in the Q1 was actually slightly above where we expected. We knew later in the year the margins would improve even more. From a commodity standpoint there's always puts and calls. We talked a little bit about cocoa and Jim mentioned eggs and we got pluses and minuses.

Speaker 4

Fuel is a positive for us and should be through the holiday season for us. And as we the OMS implementation that we have, we're able to automate some of our lease cost routing. That is ultimately our ability to optimize the shipping methods that we use. We always have cost increases from the 3rd party carriers and that's a significant cost to us. So we have been doing a good job and we continue to do a good job of coming up with ways to offset those actual cost increases that we have and that's going to be should be a slight benefit to us this year as well.

Speaker 9

Okay, that's very helpful. And just lastly, I've heard you talk about favorable pair crop this year. Can you elaborate on that and how that impacts your business plans this year?

Speaker 2

We all learned in the last decade of owning Harry and David that we have more reasons to lose sleep than we did even prior to that acquisition. We grow our own food product there in Southwest Oregon, in the Rogue Valley and Medford, Oregon, and we've suffered through some real tough natural weather patterns in the last several years, which caused us to really have struggles on the quality and the quantity of our product. And then we had a big fire 2 years ago, which really disrupted the repair. This year, weather was more favorable, the snowpack was good, our ag team there has done a terrific job, the crop is frankly terrific this year. Not the biggest we've ever had, but more than double last year's crop size.

Speaker 2

So we have inventory enough to fill what we anticipate will be demand and then a little bit more.

Speaker 3

I would say, you know, so give you a little dimension, probably increase it 20%, 25% more crop there. And a higher quality. High quality and as you can imagine, the infrastructure we have whether the crop is extra wise is really the same cost. So when we have a better crop those products we don't have to go out and purchase 3rd party products. We utilize our pads which is our marquee product anyway.

Speaker 3

We want to use that product. So we're pretty excited about the quality of the product this year and the abundance.

Speaker 2

And it wasn't just the pears. Pears are our key crop as Tom mentioned, but our peach harvest this year was fantastic. Apples, all of our products were good. The pears are what Harry and David is most known for and we've been eating them around here for the last couple of weeks. So we can attest to the fact that there is good as they've ever been.

Speaker 4

And we've continued to work on extending the life of the pears and so we have the pears now that historically took us through holiday and into maybe the January timeframe. Last year we were able to extend that into the March April timeframe. We think this year we're going to actually be able to extend that even further and maybe even get to Mother's Day with our payers. Again, as Tom was referencing, by having the ability to do that, we don't have to source 3rd party payers during that time of the year and it saves us money.

Speaker 2

So two things here. Good crop this year, quantity and especially quality and the second thing is the capital expenditures we've made on our storage facilities to optimize our ripening capabilities gives us a little bit of extension in the season as Bill mentioned.

Speaker 9

Great. That's good color. Thank you.

Speaker 2

Thank you, Doug.

Operator

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

Speaker 2

Well, happy Halloween, everyone. I hope those of you who can get away with some little ones enjoy it today whether it's your children or your grandkids or just fun in the office place. As we mentioned in our Q and A session, if you're near one of our one of the 6 Macy's stores that we have holiday shops in, 3 here in the New York area, Roselle Field, Queen Center Mall and of course the Herald Square Marquis flagship store for Macy's and 3 great locations in California, stop in and take a look. You'll see the breadth of our product offerings. But even though it's very intimate and proximate to us, when you see it all beautifully merchandised like it is, you get a sense of how we really do help people celebrate the holiday.

Speaker 2

We have a great assortment of product there. So go take a look. Hopefully, we all get out and vote in the next few days and we know by this time next week who the next President is and we can get on to making people happy and satisfying their gifting and celebratory needs for this exciting upcoming holiday season. So thank you for your time, your interest, your questions and we stand by to further answer any questions and engage with you as we go out through the next couple of days. So thank you and happy holidays.

Operator

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

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Earnings Conference Call
1-800-FLOWERS.COM Q1 2025
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