1-800-FLOWERS.COM Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 10 speakers on the call.

Operator

Good day, and welcome to the 3rd Quarter Results Conference Call. All participants will be in listen only mode. After today's presentation, will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Antti Milajon.

Operator

Please go ahead.

Speaker 1

Good morning, and welcome to our fiscal 2024 Q3 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 company disclaims any obligation to update any of the forward looking statements that may be made or discussed during this 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 the call over to Jim.

Speaker 2

Thanks, Andy, and good morning, everyone. Thank you for joining us. This morning, I'll begin with a brief overview of our Q3 performance and then turn it over to Tom, who will provide a business update. We will conclude with a financial review from Bill and then we'll open it up for your questions. Over the last few quarters, we have been providing updates on our relationship innovation and work smarter initiatives that are centered on elevating the customer experience and driving efficiencies in all aspects of our business.

Speaker 2

Our organization continues to relentlessly execute on these initiatives and you'll hear a number of updates today on how we are actively managing our product portfolio and our pricing elasticity. As we look at our 3rd quarter performance, we continue to see a very complex consumer environment. Consumers continue to be deliberate and discerning with their purchases and are making thoughtful decisions. And although there has been much discussion about the resilient economy, we continue to see a bifurcation of our lower versus middle and higher income consumers. It's not surprising that the lower income consumer continues to be most pressured by inflationary forces and higher interest rates, while at the same time credit card balances and delinquency rates are on the rise.

Speaker 2

Our total 3rd quarter revenue declined 9.1 percent, which includes lower wholesale and BloomNet revenue. As Bill will highlight further, our e commerce revenue trends continue to improve sequentially. Helping offset our top line softness, fiscal 2024 remains the year of our gross margin recovery. As we updated everyone last quarter, the pace of our margin recovery is occurring at a faster rate than we had originally anticipated at the beginning of the fiscal year. Our gross margin is benefiting from a combination of our work smarter initiatives that are largely centered on operating more efficiently and the reversion to the mean of certain commodity costs.

Speaker 2

As one of the aspects of WorkSmarter, we took further action to optimize our workforce during the Q3. While these decisions are difficult, these changes were made in response to the current environment and to appropriately allocate resources to the growth opportunities in our business. I want to take this opportunity to express our gratitude to every team member who was affected for their personal contributions to our organization's success. Beyond our cost optimization efforts, we are executing on our strategic initiatives to offer more solutions for our customers' gift giving needs. Since the founding of the company, we have been in the forefront of innovation.

Speaker 2

We have expanded our gifting options and made it easier for our customers to stay connected and celebrate with all the important people in their lives. We have a portfolio of brands and offer gifting options for every occasion. Most recently, we further expanded our offerings with the acquisition of Card Aisle, which enhances our print on demand personalized greeting card offerings and enables us to address a wider range of our customers' expressive needs. Greeting card category that further enhances the gifting experience we can provide our customers. Tom will provide additional information on our strategic initiatives.

Speaker 2

Before we move on to the business update, I did now undertake this opportunity to celebrate Harry and David's 90th anniversary. It's a truly remarkable milestone to celebrate of pears nearly a century ago, sharing has been at the heart of what we do. While much has changed since 1934, Harry and David has been here all along delivering extraordinary gifts that bring people together for life's meaningful moments. And now, I'll turn the call over to Tom for our business update.

Speaker 3

Thanks, Jim and good morning everyone. Today, I'll provide an update on our business performance, as well as an update on our relationship innovation developments, which encompasses new or enhanced product offerings, our merchandising efforts, as well as user interface enhancements. Through these initiatives, we continuously evaluate our offerings, pricing and bundling opportunities to ensure we have appropriate price points for each of our customer segments and that we are actively managing the pricing elasticity of our product portfolio. Turning to our performance. During the Q3, we generated an adjusted EBITDA loss of $5,700,000 essentially in line with prior year despite the 9.1% decline in revenue.

Speaker 3

Most notably, our e commerce revenue trends continued to improve sequentially, declining 4.9% for the quarter. As we look at what's driving these trends,

Speaker 4

we continue to see a

Speaker 3

bifurcation between our lower income customers who reduce their purchases the most as compared to our middle and higher income customers. Proof in point was our Valentine's Day selection of premium gifts that appeal to our luxury buyers and included our Sherry's Berry Select offering, which are priced 25 percent to 50% higher than our standard offering and our 100 long stem roses that retailed for $3.99 and sold out. This demonstrates our pricing power and ability to increase AOV. As a result of this ongoing trend, our AOV increased 1.4% as our upper income customers continue to represent a greater portion of our overall population and they continue to gravitate towards our higher price bundle products that provide a great gift and value. We recognize that our higher income customers have not meaningfully changed their behavior and in many cases are trading up in price points, but our lower income customers who are more affected by the macroeconomic environment are being much more deliberate with their buying decisions.

Speaker 3

As a result, not only are we expanding our price points higher for luxury oriented customers, but we also flexed lower for our lower income consumers to ensure that we have gifts for every occasion at appropriate price points. Our focus on the customer journey, providing thoughtful gifting options and having the appropriate price points at each end of the spectrum from value to luxury has never been greater. During the quarter, we introduced new product offerings, utilized innovative technology to extend the life of our world famous pairs, extending their selling season and increasing revenue. We amplified our marketing efforts to evoke greater emotions with our brands and we expanded our lineup of gift products available for same day delivery. Let me take a moment to touch on each of these.

Speaker 3

In January, we launched Cheryl's ice cream, which can also be paired with Cheryl's cookies to make a great gift set. We continue to grow our Cheryl's assortment to layer on complementary categories as we did with the introduction of cupcakes a year ago. At Harry and David, we had our longest Royal Riviera selling season on record. We accomplished this by using technology that enabled us to extend the selling season of our pears and offer them longer than we ever had into the spring. This enabled us to grow pair sales for the quarter as our customers responded to the extended offering period.

Speaker 3

This technology will yield an even greater benefit in fiscal 2025 as we are anticipating strong pear crop due to the favorable weather conditions our orchards have experienced this past winter. And we continue to see our higher income customers gravitate towards our higher value, higher priced gift bundles that combine gifts from our family of brands into a bundled set. For Valentine's Day, we reintroduced our Trios bundles that featured 100 Flowers, Harry and David Wine and Sherry's Berries, which exceeded our expectations with great sell through. To differentiate our offerings from that of our competitors, we are able to leverage our family of brands and the supply chain investments we have made to send these bundles as one extraordinary and elegant gift. This not only provides for a much better and more memorable gifting experience, but it also reduces shipping costs by sending all the products in a single delivery.

Speaker 3

Turning to our marketing efforts, we are strategically incorporating storytelling to elevate our brands and make a meaningful impact on our customers. Effective storytelling evokes emotions, creates a stronger bond with our customers and ultimately generates action. A great example of this was within our health and wellness brand with the launch of the Vital Choices featured Catch on our website, blog, social and external channels. Vital Choice provides customers with hundreds of healthy or better for you options and we saw an opportunity to foster a stronger relationship with our customers who are interested in food that is healthy, natural and convenient. Beyond providing customers with useful product such as nutrition facts and serving suggestions, we dive deeper to share the story of the fishermen who are responsible for the catch, the differences between wild caught fish and farmed fish, their sustainability efforts and how they help bring it from the ocean

Speaker 5

to our customers' plate.

Speaker 3

Same day delivery for gifts has become increasingly important in today's fast paced world and customers come to expect convenience and speed. As a component of our strategic initiatives, our management team has been focused on expanding the number of products available for same day delivery. By leveraging our BloomNet network, we have expanded the number of products available for same day delivery to help customers celebrate special occasions, whether it's a last minute gift or a sudden celebration. As part of this effort, we recently launched our Sheryl's Same Day Delivery program that features our best selling cookies and the option for a cookie add on to select 1-eight 100 Flowers Bouquets. We expect this to build over time, but most importantly, this is a great illustration of how we are differentiating sales in the marketplace by leveraging our e commerce platform, our family of brands and our fulfillment capabilities to offer customers an expanded array of products, convenience and speed to be their gifting destination of choice.

Speaker 3

And now I'll turn it over to Bill to provide the financial review.

Speaker 4

Thanks, Tom, and good morning. As Jim and Tom highlighted, we continue to operate in a complex consumer environment, which consumers continue to spend on certain categories, while curtailing their spend in others. We also continue to see the divergence in customer file, in which our higher income customers continue to spend and gravitate towards our higher priced offerings. As a result, our 3rd quarter revenue declined 9.1% as compared to a year ago. This includes lower wholesale volume with our retail partners this past Easter, as well as lower BloomNet revenue.

Speaker 4

When we zoom in a little closer and look at our core consumer, our quarter over quarter e commerce revenue trends continue to improve declining 4.9% in the 3rd quarter as compared to 6 0.6% in the prior quarter. The improvement was partly due to the shift of Easter. Helping mitigate the revenue decline, our gross margin is continuing its reversion to the mean, improving 300 basis points to 36.6%. The improvement was led by lower freight costs, our inventory optimization efforts, labor efficiencies, as well as a decline in certain commodity costs. I want to take a moment to discuss a couple of external factors that had captured investors' attentions over the past few months, including the Red Sea issues that impacted supply chains extraordinary rise in cocoa prices.

Speaker 4

Beginning with the supply chain, we are happy to report that our logistics team recently completed negotiations with our fiscal 2025 inbound freight costs and successfully negotiated lower rates for the fiscal year ahead, despite the geopolitical issues in the Middle East. In terms of cocoa prices, we were fortunate to have locked in a fiscal 2024 and fiscal 2025 cocoa purchases with moderate price increases prior to the recent and much more dramatic increase in pricing. We will look to offset these moderate price increases in other areas. As Jim mentioned, we made the decision to initiate a reduction of our full time workforce in response to the current business environment and to appropriately allocate resources to the growth opportunities within our business. This action is expected to yield annual savings of more than $10,000,000 In conjunction with this action, the company incurred a $2,400,000 of severance and related charges during the quarter.

Speaker 4

3rd quarter operating expenses were 43.9 percent of sales, which includes the severance related charges as compared to 53.9 percent in the prior year period, which includes a goodwill and intangible assets impairment charge. Operating expenses, excluding the impact of the severance related charges, the appreciation or depreciation of investments in our company's non qualified compensation plan and the impairment charge recorded in the prior year period were 42.4 percent of sales as compared with 38.8% in the prior year period. Operating expenses, excluding the same items just noted, declined $1,200,000 as compared to the prior year period to 160 $7,000,000 Net loss for the quarter was $16,900,000 or $0.26 per share, which includes severance and related charges of $2,400,000 or $0.02 per share, as well as a tax benefit of $0.04 per share related to the fiscal Q2 trademark impairment charge. In the prior year, net loss was $71,000,000 or $1.10 per share, which included an after tax non cash goodwill and intangible asset impairment charge of $53,100,000 dollars The adjusted net loss was $18,000,000 or $0.28 per share compared with an adjusted net loss of $17,800,000 or $0.27 per share in the prior year period. Our 3rd quarter adjusted EBITDA loss was $5,700,000 essentially flat as compared with an adjusted EBITDA loss of $5,500,000 a year ago as the gross margin recovery and our efforts to operate more efficiently helped mitigate the top line decline.

Speaker 4

Now let's review our segment results. Our Gourmet Foods and Gift Baskets segment revenues declined 11.4 percent to $131,000,000 compared with 147,900,000 in the prior year period. A large contributor to this decline was our wholesale business, which declined approximately $10,000,000 as several retailers had reduced their orders for Easter in light of the consumer environment. This segment's e commerce revenues declined 4.5%. Gross profit margin expanded 5 30 basis points to 29.9% compared with 24.6 percent in the prior year period, benefiting from lower freight costs, the company's inventory and labor optimization efforts, as well as a decline in certain commodity costs.

Speaker 4

Excluding the impact of the severance charge in the current period and the impairment charge a year ago, the adjusted segment contribution margin loss improved 6.3 $6,000,000 compared with an adjusted segment contribution margin loss of $13,900,000 in the prior year period. In our Consumer Flor and Gift segments, revenue decreased 5.1 percent to $221,200,000 compared with $233,000,000 a year ago. Gross profit margin expanded 140 basis points to 39.3 percent compared with 37.9% in the prior year period, improving on lower fulfillment costs and our logistics optimization efforts. Segment contribution margin was $22,800,000 excluding the severance charge compared with segment contribution margin of $26,100,000 in the prior year period. In our BloomNet segment, revenues for the quarter decreased 26.1 percent to $27,300,000 dollars.

Speaker 4

Vermuz were impacted by lower order volume processed by BloomNet, which included an expected decline in orders by one of our business partners following their merger with a competitor. Gross profit margin was 45.4% compared with 42.5 percent in the prior year period, primarily reflecting higher margin product mix and lower freight costs. Segment contribution margin was $7,600,000 excluding the severance charge compared with $11,000,000 in the prior year period. Turning to our balance sheet. Our cash and investment position was $184,000,000 at the end of the 3rd quarter.

Speaker 4

Inventory declined to $159,500,000 compared with the inventory of $191,900,000 at the end of last year's Q3. In terms of debt, we had $192,500,000 in term debt and no borrowings under our revolving credit facility. As a result, our net debt was $8,500,000 compared with $98,400,000 at the end of last year's Q3. We continue to execute on our stock buyback program and repurchased $9,200,000 of our stock through the 1st 3 quarters of the fiscal year. This amounts to approximately 948,000 shares that we repurchased at an average cost of $9.68 per share.

Speaker 4

Now let's turn to our fiscal 2024 guidance. We are reaffirming our guidance and continue to expect total revenues to decline in the 7% to 9% range as compared with the prior year. Our adjusted EBITDA to be in the range of $95,000,000 to $100,000,000 and our free cash flow to be in the range of $60,000,000 to $65,000,000 I will now turn the call back to Jim for his closing comments before we open it up for Q and A.

Speaker 2

Thanks, Bill. Before we open it up for your questions, I to tell you that I'm incredibly proud to share that 1800flowers.com has been recognized as one of America's most trustworthy companies by News Week. I want to take this opportunity to congratulate and thank everyone in our organization for their hard work that contributed to this recognition. It's an

Speaker 5

honor to

Speaker 4

have such a Trusting

Speaker 2

a company matters and we look forward to continuing to Trusting a company matters and we look forward to continuing to build on this momentum. Now, operator, if you would, let's open it up for any questions.

Operator

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

Speaker 6

Thank you for taking the questions and congratulations on managing those costs. I was just wondering if you can talk a little bit about the commodity prices and you obviously continue to weaken in the quarter. Can you give us a sense of those commodities that were weak that were impact karate prices are looking like and trending, particularly not just cocoa, which obviously you talked about, but maybe some of those commodities that might be a little stubborn and offer future prospects for lower prices going forward?

Speaker 2

Michael, thank you for your question. This is Jim. Commodity prices have been all over the place and I would tell you just in the last week the change in cocoa prices has been extraordinary. We plan for next year to have cocoa prices up quite a bit and what the impact on us would be, as Bill mentioned though, we're fortunate that we have locked in our availability and our pricing on Cocoa through next year. So we're a little bit protected from those wild swings, but still very conscious of it because it's going to impact the overall market and impact our pricing in the future.

Speaker 2

But we're very pleased to see in the last couple of days, it's over 20% decline in cocoa prices. But Bill, what other commodities? I know eggs and butter are 2 big components. When you're a baker and a chocolate maker, you're very conscious of those prices and we've seen some wild swings there. A little color on where we are now and what impacts that might have on our overall cost going forward.

Speaker 4

Jim, as you mentioned, the eggs and butter ones that have come down significantly off their highs and we're getting the benefit some benefit this year on those commodities. But other items like fuel, we were getting a benefit for most of this fiscal year and we kind of crossed over where fuel has risen. And it's a combination of both the fuel side, combination of both, what's happening in the markets. But the third point of carriers continue to that's a surcharge that they had and they continue to play with the model. That's gone from a significant headwind to a tailwind this past year.

Speaker 4

And right now, it's a slight headwind as we head into fiscal 2025.

Speaker 2

And to answer to Michael's question, overall commodity prices, fuel being the biggest, it's still a negative headwind overall on commodity costs because fuel is such a disproportionate part of our commodity mix.

Speaker 4

As we move forward, I think fuel has been a benefit to us in fiscal 'twenty four, but as we move forward, fuel will be a headwind again.

Speaker 6

Yes. Thank you for that color. Can you give me a sense of the decrease in shipping costs that surprisingly negotiated lower rates going forward. I was just wondering can you give us a sense of the shipping costs including ocean freight costs?

Speaker 2

Michael, we found that very surprising. I would never have predicted that we'd lock in rates going forward that were lower. Who knew that we'd be talking and thinking about the Red Sea and Houthis 6 months ago, a year ago. It's certainly a surprise to me, but Bill, you just finished

Speaker 5

a week or week and a

Speaker 2

half ago those contract negotiations. A little color there for Michael.

Speaker 4

Yes. So several months ago, the spot market for ocean rates jumped dramatically, probably doubled the contractual rates that everybody had. The good news is that the carriers did honor several back in March, we were concerned where rates would go for fiscal 'twenty five. We were able to successfully negotiate of course our the 4 carriers that we use, a slight decrease in our ocean rates as we head into for fiscal 2025. So those actually rates went into effect yesterday, May 1, and they run through May 30 1 of next year.

Speaker 4

On the FedEx side, on the outbound shipping side, we always have modest contractual rates. We talked a little bit about fuel and there are other surcharges that are outside of those rates. But we've been in between we've talked under our Work Smarter initiative with inventory optimization, logistics initiatives. We've been able to offset those rate increases this past year. So through the 9 months ended at the end of the Q3, our actual cost per packages is flat slightly lower on a year over year basis.

Speaker 6

That's great. And what

Speaker 2

we've done, Michael, to mitigate those inbound freight costs, I'll ask Tom to comment on this, is that where we purchase, where we manufacture.

Speaker 3

Yes. Michael, as we over time and still feeling the sting from the pandemic, we have shifted some of our volume to the states etcetera from a supply chain. So you know just a raw number of containers we're bringing in is less than it was even sands where we've been in sales.

Speaker 6

Got you. Thanks for that color. And just final question, if I may. You implemented cost cutting actions in your workforce in the quarter. How much of those actions could be viewed as permanent?

Speaker 2

Michael, this is Jim. Yes, we reduced our workforce, our salaried workforce in this quarter. Painful thing to do, but appropriate under our ongoing work smarter initiatives where we'll continue to look to say how can we operate more efficiently, how can we be more productive and that's going to result in us having a constant eye on our cost and part of our cost structure is obviously our talent. So they it didn't have any impact on last quarter because in the same quarter we also have the related severance costs that go along with that. So we didn't have any benefit in the last quarter.

Speaker 2

On an ongoing basis, we're estimating about $10,000,000 in reduced operating costs at the payroll level and that is all permanent.

Speaker 6

Got you. That's all I have. Thank you.

Operator

Our next question comes from Alex Skouman with Craig Hallum. Please go ahead.

Speaker 7

Hi, guys. Thanks very much for taking my question. Wanted to ask about same day delivery. Certainly, it seems like in many ways that's where the industry is heading. What are the economics on your orders look like compared to the rest of your business?

Speaker 7

And what do you think happens to your cost structure if this becomes table stakes over time?

Speaker 2

Thanks, Alex. I think the last thing you said is absolutely the case. That is, it is going to be table stakes. And we've been saying that in these forums for a couple of years now. So it's something we're working toward and we're looking forward to more of that.

Speaker 2

Tom will give you a little color on what the impact of the costs are for us, but the unique model that we've become gives us a real leg up there. And in particular Tom if you would talk about what we're doing now with other products across our portfolio and putting them in the same day program what we're seeing in its very early stages. But same day is as you say Alex increasingly table stakes and we think we're particularly well positioned to serve our customer better and benefit our community, particularly our last mile fulfillment which is anchored by our BloomNet network. Tom?

Speaker 3

Good morning, Alex. So on this, obviously same day is something we've been at a long time and we are very involved just in our floral with our floral partners in helping them manage delivery costs. So that's something we're at all the time for same day. So we're leveraging a lot of that learning as we move further and further into other gifting items that we can push into the local markets. So we've seen success, you know early success with Cheryl's Cookies.

Speaker 3

We've had confection products with the Sherry's Berries brand where we've been able to bundle those products are obviously our Sherry's Berries products, our fruit bouquet products. So we have a pretty wide swath of products. There will always be different economics based upon the speed in which a customer chooses to get delivery. Obviously, if somebody wants something in 2 weeks, we probably can be more economical in the way we provide that item to the customer and how we ship it than the same day. We think that as we continue to grow our volume and we learn into you know the better ways for deploying product and really about those rings of fulfillment etcetera we can leverage our BlueNet network that much greater.

Speaker 7

Okay. Thank you so much both. We really appreciate the thorough answer there.

Operator

Our next question comes from Linda Bolton Weiser with D. A. Davidson. Please go ahead.

Speaker 8

Yes. Hi. So I was wondering about well, you mentioned the on the wholesale side that some retailers pulled back a little bit on ordering for Easter. I'm just curious if you're getting any early read about what retailers are thinking for Christmas. And going along with that, I know that the club programs are kind of an important part of things.

Speaker 8

Do you anticipate a decline in sort of your sales from those club programs this Christmas? Thanks.

Speaker 2

Hi Linda, how are you? In answer to your question, the wholesale is a piece of our business that gives us an excuse and coverage for infrastructure. So it's not something we wanted to do well and do better, but it's not something we're going to be very reliant on other than to help us offset operating expenses that we'd have with or without it. So it's only important in that respect. What we saw last year is that sell throughs during the Christmas holiday in calendar 'twenty two weren't as strong as the big boxes we're hoping for.

Speaker 2

So they cut back dramatically on their buy for calendar 'twenty 3 holiday period. So that was something we had as a headwind going into this that we knew about because as you indicated in your question, we have a good line of sight as to what that would look like several months out before the holiday season. Then Easter was a complication because we had a good Easter a year ago and then this Easter the big box guys I think because Easter moved up and that always has a depressing impact on sales for Easter when it's early cycle tends to sneak up on people, they cut way back on the Easter order. So we knew that coming in. And answer to the important underlying question of what you asked, I'll ask Bill to talk about what line of sight do we have for this year and will it continue as Linda asked in our question to be a headwind for us.

Speaker 4

Yes, so Andrew, as we talked about at the end of the second quarter, we took about a $20,000,000 reduction in those big box wholesale orders back in Q2 and about $10,000,000 hit this year because of the reduction in Easter. We do have some line of sight into holiday next year and orders will be up next year. So it will not be a headwind. It will be a tailwind. Those orders have not been finalized yet.

Speaker 4

So to the extent of the increase that we'll get next year, we don't have that locked in yet, but it will be a tailwind, not a headwind.

Speaker 2

But we don't anticipate it getting back to its high of pandemic high?

Speaker 4

No. We expect it to be up, but not to recapture. Maybe the fully recover from the high.

Speaker 8

Okay. And then on the personalization side, I was wondering, given your commentary about the bifurcated consumer, high versus low, has there been a big difference low. Is there been a

Speaker 5

big difference between PMOL and I think it's the other line, I think it's called Things Remembered or something like that. Has there been a big

Speaker 8

difference in the performance of those two lines? And can you kind of comment on how that area is doing in general? Thanks.

Speaker 2

Good insights there, Linda, of course, But I'll ask Tom to give you color. I think the answer is yes. But Tom?

Speaker 3

Yes. I think that is true, Linda, as the personalization of mall business tends to have a consumer with a lower household income. We have seen a little bit more of the impact there on that personalization business. But on, say right now because Things Remembered is still so new. If you remember we acquired that a year back and it was just the IP and we're just starting to get our sea legs under us.

Speaker 3

We have seen growth in that we're very pleased with there in our that is appealing to a different demographic and we see a pretty big delta in average or AOV for Things Remembered.

Speaker 2

So we're very pleased with how Things Remembered is getting started. It takes a couple of years to get legs under, as Tom said, on that business because you have to select inventory, manufacture it, import it, get it into stock. So it will take us through next holiday season to really get a feel how it's going, but we're really pleased with how it's doing coming out of the gate. Tom, what is that what is the big selling item we have at Things Remembered?

Speaker 3

It's a year long base that sells very well. It's $180 as an example.

Speaker 2

Beautiful item, but that's a strong, strong seller for us and continues to gain strength and that's $180 ticket. So I think that goes to the heart of your question.

Speaker 8

Linda. And would the contribution margin for Things Remembered be higher than for PMOL?

Speaker 3

The contribution margin is about the same. The labor component of some of the items that we make on things remembered can be higher with a little bit less automation. So we're still working through those things. There's opportunity there in the future, but even though we have a higher ticket on the Things Remembered product, it is less about in the Things Remembered brand it's more about the product and the personalization and vice versa on the personalization wall side.

Speaker 8

Okay. And then, I'm just curious about your workforce reduction. I mean, I applaud you for taking action on that front, but I don't company? Maybe you could comment on that.

Speaker 2

Linda, it's Jim. I'll start there. The answer is it's always tough to do. And yes, you're right, we haven't done historically, we haven't done that often. I think this is only the second time in my memory that we've had to do a significant ramp.

Speaker 2

I think what you'll see from us going forward is that we have a new sense of talent management and I think frankly it's not unique to us. I think you're seeing when a company like Google which really never had large layoffs or layoffs of any kind in their history are now telling their people that talent management is going to be a regular part of how they think about their cost and how they manage their company going forward. So to us, that is you can have growth areas in the company where you're going to be stepping up and even in the last couple of weeks we've had a couple of really significant hires in our management ranks that we've just initiated to continue to step up the areas where there is growth, where there is opportunity and sometimes an area that you are not emphasizing as much as it used to will require us to move people or in some cases remove some folks. So I think we have a different ongoing attitude about talent management. I don't anticipate that we'd have to do other risks of any size going forward, but we will always from a worksmarter point of view be managing our talent in a very proactive way to make sure we're stepping the growth opportunities and minimizing our exposure and our expenses on the areas that aren't growing or don't have the same promise going forward.

Speaker 4

And Lindgren, work smarter and we've talked about this for several years now is really a much broader than just labor management, right? It is all about operating more efficiently and driven down driven down our course in our production areas. We've talked about logistics, inventory management to drive down our cost per package, which incorporates vendor negotiations, marketing efficiency moving from some bottom of the funnel where digital rates have continued to rise to more efficient marketing spend. So it is a much broader area of ultimately continuing to look at how we can operate this business more efficiently

Speaker 3

and drive cost out of the business.

Speaker 8

Okay. Well, thanks for everything and good luck.

Speaker 2

Thank you, Linda.

Operator

Our next question comes from Anthony Lebiedzinski with Sidoti. Please go ahead.

Speaker 5

Good morning, guys. Can you hear me?

Speaker 2

Yes.

Speaker 5

Hi. This is Stefan Guilm on for Anthony. How much was average order value in the quarter? And are you seeing success with doing more multi branded bundles?

Speaker 2

Well, it's a short question, but a couple of pieces to it. Bill will touch on what the average order was. I'll tell you the average order is increasing and we're not thrilled with that. It evidences and supports the theory that our better higher income customers are weathering this period better than our lower income customers, number 1. Number 2, when I say we're not thrilled with the rise in average order value that causes a build to have a hard palpitations, but that's the reason I say we're not thrilled with that is because I'd rather see us have a broader range of price points, many more accessible price points and you'll see and have seen our efforts to do that.

Speaker 2

And then the 3rd piece of your question is around bundles. So I ask Bill to start with the average order value and then Tom to talk about the success we've seen with bundles, which goes back to a question that Alex asked earlier about what we're seeing with our last mile delivery capabilities, how that's benefiting our bundles, which is a collection of more than one of our brands.

Speaker 4

So the average ticket during the quarter was $79 It's up about 1.5% year over year. To Jim's point, a lot of that is driven by these bundles and ultimately the pricing elasticity that we have. So we have been introducing more higher priced items that feed the affluent consumer that continuing to buy. Part of that is the bundles that Tom will describe. But we've also introduced a number of lower price point items as well to generate interest and orders from less affluent consumer.

Speaker 2

Tom, do you want to?

Speaker 3

Yes. So, slide light again on the part of this is so I don't think we answered your specific question. We rose AOV was $79 or we didn't say, I apologize. So our bundles continue to do great. We're exceeding our expectations.

Speaker 3

We recently for the holiday season we're continuing this with launched a new bundle series between our personalization mall business and our Harry and David business and to give you a good example of our charcuterie board where we have cutting board that is delivered together as one discrete gift. And the board The board is personalized as an example. So just like we were talking about with the you know the Cheryl's cookies, we have bundles that are doing great now and bundling those with floral gifts. Some of the others we talked about is our wine gifts that we're bundling with a whole assortment of different products throughout the different brands. We have this wonderful gift for Mother's Day, which is Harry and David prepared meal, which is prime rib, but we're also bundling with Sherry's Berries in a floral arrangement.

Speaker 3

We think that's going to be have great appeal. It's selling for $6.99 I think that's going to have a great appeal for some of our affluent customers. So we continue to push heavily into the bundles model and our merchants have done a great job of being very creative and coming up with great ideas that our consumers are gravitating towards. So happy to see.

Speaker 5

Thank you for the color,

Operator

Our next question comes from Doug Lane with Water Tower Research. Please go ahead.

Speaker 9

Yes. Hi. Good morning, everybody.

Speaker 2

I just have a couple

Speaker 9

of things here. I look at the 3rd quarter EBITDA loss of $5,700,000 and that's not really too far from where that quarter was pre COVID. And through 9 months, your gross margin is 40%, 41%, again, not too far from where you were pre COVID. So I guess my question is, how close are you with regards to reverting to the mean on your cost structure?

Speaker 4

So from a margin perspective, Doug, if you look at our 10 year history from 2012 to 2021, you saw us in that 42% range, give or take, 50 basis points. We had a low point of 37.2 percent a few years ago and we've been climbing back. And this year, we've obviously made great progress on that. At the beginning of the year, we had guided that we'd be in the low 39% for the year, and we upped that after the Q2 and now anticipate that our margins will exceed 40% this year and be in the low 40s, 40.1%. So we are climbing back, but we are not all the way there yet.

Speaker 4

And we do think there is still opportunity for us and that we are going to kind of revert back to our historical mean of 42% over the next couple of years.

Speaker 9

Now you're getting pretty close. Anyway, I'm looking at the balance sheet here and I have to ask, what's the acquisition front look like? Are you still prioritizing acquisitions in your growth strategy and what's the environment like these days?

Speaker 2

Well, I think Doug, this is Jim. The overall the overall book environment I'd say is that a lot of smaller companies particularly earlier stage companies are really having a hard time finding capital if they don't have profitability or a clear short term path to profitability. So it's a target rich environment. We're being very judicious about what things we give real consideration to. So we announced an acquisition just we talked about an acquisition just a few weeks ago.

Speaker 2

There we don't even really look at that as an acquisition. We see that as a talent acquisition. We see that as a capabilities acquisition. It comes with very little revenue, but very talented technology team that's fitted very nicely with our existing team. We're using that to improve our capabilities.

Speaker 2

We're spending a lot of effort in terms of portfolio of products that we have. So I don't think we need to do any acquisitions to achieve our near term objectives. We will be opportunistic if we find something that really does fit our portfolio well and we'll continue to do these tuck in kind of talent acquisitions that really buttress our capabilities of providing a full experience for our consumers, helping them to have more and better relationships and provide them with a different blend of services. So when I think it's a good environment, but we're being very judicious about what kind of a company do we want to be, what capabilities do we need to really serve our customers. We already have an enormous database.

Speaker 2

How else can we serve those customers in that database is our primary objective. And Bill or Tom, any color?

Speaker 4

Yes, I was going to say, I mean you've seen us do big acquisitions over the years with Harry and David in Personalization Mall. You've seen us do tuck in acquisitions with the Sherry's Berries and Things Remembered type of items. And you've seen us almost like aqua hires over the last year or so with Smart Gift and now with Cardial to kind of bring capabilities to the company that will help enhance the offerings that we have for our customers. And with Carlyle, it does give us an offering that come with the greeting cards that are at the low price points that our consumers can interact with us. And we want our customers to come and visit us and interact with us more frequently.

Speaker 4

Great. That's very helpful. Thanks, guys.

Speaker 2

Thanks, Doug.

Operator

Ladies and gentlemen, this was our last question.

Speaker 2

Well, thank you all. Thanks for your interest and for your good questions. Any other follow-up you have, we'll be happy to chat with you 1 on 1. We'll be happy to do that today, tomorrow, anytime in the future. Reminder, we're at the beginning of the Mother's Day push here.

Speaker 2

So all the wonderful moms in your life, we're here with a beautiful selection of gifts from all of our portfolio brands to help you express yourself in just the right way to the women in your life who are moms or had a very mom like influence on you and the people around you. So enjoy the upcoming Mother's Day holiday and thanks for your interest and your time today.

Operator

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Despite a 9.1% revenue decline in Q3 and a complex consumer environment, gross margin expanded by 300 bps to 36.6%, driven by efficiency measures and commodity cost mean reversion.
  • E-commerce sales improved sequentially, down 4.9% in Q3, as higher-income shoppers traded up into premium bundles (AOV + 1.4%) while lower-income consumers reduced discretionary spend.
  • The WorkSmarter initiative, including a workforce reduction that incurred $2.4 M in severance expenses, is projected to deliver over $10 M in annualized savings and helped keep Q3 adjusted EBITDA loss flat at $5.7 M year-over-year.
  • The company is broadening its gifting portfolio through the acquisition of Card Aisle, expansion of bundled offerings like the Valentine’s Day “Trios,” and technology that extended the Royal Riviera pear season, plus a new same-day delivery program leveraging the BloomNet network.
  • Proactive supply chain management led to lower inbound freight rates for fiscal 2025 despite Red Sea disruptions and pre-locked cocoa prices for 2024–2025, supporting ongoing margin recovery.
AI Generated. May Contain Errors.
Earnings Conference Call
1-800-FLOWERS.COM Q3 2024
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