1-800-FLOWERS.COM Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 29, 2024

There are 12 speakers on the call.

Operator

Good morning, and welcome to the 1-eight hundred FLOWERS.com Fiscal 20 24 4th Quarter and Year End Earnings Call. All participants will be in a 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 Malavoy, Senior Vice President, Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning and welcome to our fiscal 2020 4 Q4 and year end earnings call. Joining us today are Jim McCann, Chairman and CEO Tom Hartnett, President Bill Shea, Chief Financial Officer and James Landrock, Chief Administrative Officer. 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. Thanks for joining us. Before we dive into our review, I wanted to begin with this morning's announcement that Bill Shea has confirmed his plans to retire this December. 1st and foremost, I'd like to congratulate Bill on his upcoming retirement and to thank him for his 3 decades of tireless commitment to our company. Bill has been a terrific partner to me and a tremendous asset to our company during a period of incredible growth and transformation.

Speaker 2

Bill was instrumental in overseeing our financial operations, fostering great relationships with our lending partners and maintaining a strong balance sheet. During Bill's tenure, our company grew from a multi channel floral retailer with approximately $150,000,000 in revenue to a technology platform for thoughtful gifting comprised of an all star roster of brands with over $1,800,000 in revenue. Bill, thank you for all that you've done for 1800flowers.com and Vermaaten. We wish you all the best on your retirement and hope your retirement is filled with joyous times with your family and friends. Also want to take this opportunity to introduce James Langrock, who joined our company as Chief Administrative Officer earlier this year and will become our CFO upon Bill's retirement.

Speaker 2

James came to us with tremendous industry and financial background, having been CFO of other public companies involved, both in the food and technology industries. We're glad to have James on board to help lead the next chapter of our company's growth. James will get to know many of you in the days ahead. And now let's turn to our performance. As we turn our sights on the fiscal year ahead, we think it's important to begin by reflecting on our performance and execution against our strategic initiatives over the past year and how it sets the stage for fiscal 2025 and beyond.

Speaker 2

This includes a macro consumer environment that's been that we've been navigating, the resilience that we've demonstrated in our results and how we've positioned ourselves for the future. Top line challenges for fiscal 2024 certainly persisted well given anticipated during this year. If we were to rewind the clock back 12 months, broader conversations were focused on how many rate cuts we'd have to receive throughout fiscal 2024. Instead, we're still waiting for the 1st rate cut, and we experienced a macro environment that remained challenging for many, especially lower income households, who are the most impacted by the higher interest rates and persistent inflation. While our revenues declined in the face of those macro conditions, our gross margin was a real story in fiscal 2024, having rebounded significantly.

Speaker 2

This is a testament to our focus on cost management and operational efficiencies, combined with the reversion to the mean of certain commodity costs. Our ability to adapt quickly to changing market conditions has been crucial in this regard. As a result, our year over year EBITDA grew to $93,000,000 As we look to the future, we remain optimistic. Our gross margin recovery is well underway and our efforts to operate more efficiently are now Evergreen. We've also been investing in our business.

Speaker 2

And this morning, you'll hear how we plan to harvest these investments in fiscal 2025 to improve our top line trends. While acknowledging a consumer discretionary spending environment that remains challenging, we believe that our strategic investments in key areas differentiate us and will increase frequency and retention as customers come to us as the gifting destination of choice. We are committed to driving long term growth, pursuing innovation and enhancing shareholder value. And now I'll turn the call over to Tom for a business update to discuss some of the opportunities that we're focused on to improve our revenue trends in fiscal 'twenty five and drive our longer term value creation.

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 our 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. Heading into fiscal 2024, we anticipated that the broader macro environment would improve as the year progressed, in turn improving our top line trends.

Speaker 3

Additionally, we anticipated a sizable improvement in our gross margin. While our expectations for top line improvement have not occurred as quickly as we had anticipated, our gross margin recovery, on the other hand, occurred at a faster pace than initially expected. Our gross margin recovery benefited from our efforts to operate more efficiently combined with the decline of certain commodity costs. As a result, we're able to grow adjusted EBITDA to $93,100,000 despite the decline in revenues. In fiscal 'twenty four, we had over 10,000,000 customers and approximately 1,100,000 celebrations Passport members.

Speaker 3

By focusing on the frequency and retention of our existing customer base, sales from existing customers represented 74% of our revenue in fiscal 2024. We continue to believe there is tremendous opportunity in increasing the lifetime value of our existing customer base by converting them into multi brand customers. Multi brand customers currently represent approximately 13% of our customer base, yet they account for approximately 28% of our revenue. As we discussed in some detail over the past year, we saw a sizable stratification between our lower and higher income consumers, with our lower income consumers being more affected by higher interest rates, higher credit card debt and persistent inflation. In response, we've been leaning into our pricing elasticity efforts to ensure we have gifts for customers throughout the income spectrum.

Speaker 3

Beyond pricing, we're focused on expanding our product portfolio, both organically through the launch of adjacent products, such as introducing Wolframint's New York Bagels and Sheryl's Ice Cream, as well as through acquisitions such as the Carlyle acquisition that further propelled us into the greeting card category. We now have a thoughtful and personalized greeting card mailed to someone through our platform for essentially the same price as buying a greeting card at a convenience store. As we turn to fiscal 2025, we expect our top line trends to benefit from our relationship innovation efforts and the acquisitions that we have made over the last couple of years that have expanded and enhanced our platform. As an example, we believe there is an opportunity to grow our corporate gifting business through our Smart Gift initiative. Although the consumer environment remains complex and dynamic, we believe we can leverage these investments, which when combined with marketing investments, can contribute to an improvement in our top line trends.

Speaker 3

Additionally, we expect our wholesale revenue to grow based on the orders our partners have placed for the upcoming holiday season. Let's take a moment to discuss some of the revenue driving initiatives in more detail. As I mentioned earlier, in fiscal 2024, we experienced a bifurcation of our customer file by income level. In response, we further examined our pricing elasticity efforts and broadened our price points to ensure we are satisfying our customers' gifting needs. For our customers who are more price sensitive, we are providing more valuable offerings.

Speaker 3

A great example of this is our Bouquet of the Month offering. This new offering features a bouquet of flowers for the all in price of $50 which is inclusive of our shipping fees. This program enables us not only to provide great value for our customers, but also provides a new way for us to partner with our farmers and provide more value to them by further leveraging our supply chain. On the other end of the income spectrum, we will continue to lean into higher value bundles in some of our higher end brands. Since acquiring Things Remembered, we successfully integrated the brand onto our platform and have been building out its product portfolio, which appeals to a more affluent customer.

Speaker 3

With that in place, we plan to accelerate the sales growth that we've experienced since acquisition. To further enhance our product portfolio in July, we acquired Schaffenburger, a producer of high end extraordinary chocolates. This is another great tuck in acquisition for us. We plan to grow Schaffenburger by introducing their legendary brand, which is well known to chocolatiers to our customers by including their chocolate in our gift assortments from our family of brands. Additionally, as I mentioned on our last call, we continue to lean into one of our main differentiators, last mile delivery.

Speaker 3

Beyond flowers and Sherry's Berries, we will continue to expand the availability of additional products from our family of brands, such as Cheryl's Cookies and 100 Baskets to offer more gifting options for those last minute occasions. I look forward to keeping you apprised of these and our other initiatives throughout the fiscal year. Now, I'll turn it over to Bill to provide the financial review.

Speaker 4

Thanks, Tom, and good morning, everyone. Fiscal 2024 proved to be the year of our gross margin recovery. On a fiscal year basis, our gross margin increased 260 basis points, bringing us to 40.1% for fiscal 2024. For the Q4, our gross margin improved to 38.4%, increasing 130 basis points as we began to lap the improvement of

Speaker 5

a year ago. We've now recovered

Speaker 4

a meaningful portion of our gross margin that has been eroded over the last few years due to supply chain challenges and higher ocean freight commodity costs and labor costs. But the job is not done. Over the next few fiscal years, we expect to return to our historical gross margin rate in the low 40% range as certain commodity costs continue to revert to their mean and our evergreen Worksmart initiatives focused on operating more efficiently continues to yield future benefits. Our gross margin recovery helped mitigate the dynamic consumer environment that we have been navigating throughout fiscal 2024. As Jim highlighted, we had expected the broader macro environment to become more supportive as fiscal 2024 progressed, which did not occur and had a disproportionate impact on our lower income customers.

Speaker 4

As a result, our revenues declined 9.5% and 9.2% for the Q4 and fiscal year respectively. As more price sensitive consumers continue to pull back, our higher income customers comprised a greater portion of our revenues and they gravitated towards our higher priced items that led to a 2.9% increase in our AOV for quarter and 2.7% for the fiscal year. As a component of our Work Smarter initiatives, our organization remains steadfast in managing expenses. And despite the inflationary environment we are operating within, we reduced operating expenses by $22,200,000 for the fiscal year when excluding our impairment and other non recurring charges as well as the impact of our non qualified deferred compensation plan in both periods. As a result of our gross margin recovery and expense optimization efforts, our fiscal 'twenty four adjusted EBITDA improved $1,900,000 to $93,100,000 offsetting the decline in revenue.

Speaker 4

For the 4th quarter, the adjusted EBITDA loss increased by $2,200,000 to $8,800,000 Net loss was $20,900,000 or $0.32 per share and $6,100,000 or $0.09 per share for the Q4 and fiscal year respectively. For the quarter, the adjusted net loss was $21,800,000 or $0.34 per share. And the adjusted net income for the fiscal year was $11,600,000 or $0.18 per share. Now let's review our segment results. For the Q4, our Gourmet Food and Gift Bask segment revenues declined 12.8 percent to $105,200,000 Gross profit margin increased 190 basis points to 30%, benefiting from lower freight costs, the company's inventory and labor optimization efforts as well as a decline in certain commodity costs.

Speaker 4

As a result, the segment contribution margin loss was $14,400,000 compared with a loss of $13,400,000 in the prior year period. For the full fiscal year, revenues declined 9.4 percent to $874,300,000 Gross profit margin increased 3 40 basis points to 38.3 percent, once again benefiting from lower freight costs, the company's inventory and labor optimization efforts as well as a decline in certain commodity costs. Adjusted segment contribution margin increased to 85,000,000 compared with $77,500,000 in the prior year. For the Q4, our Consumer Floral and Gift segment revenues declined 6.7% to $231,600,000 dollars Gross profit margin increased 20 basis points to 40.8 percent, improving on lower fulfillment costs and our logistics optimization efforts. As a result, segment contribution margin declined to $25,700,000 compared with $30,700,000 in the prior year.

Speaker 4

For the fiscal year, revenues decreased 7.7 percent to $849,800,000 was profit margin increased 130 basis points to 40.8 percent, benefiting from lower fulfillment costs and our logistic optimization efforts. As a result, segment contribution margin was $87,700,000 compared with $95,500,000 in the prior year. Turning to our BloomNet segment. Revenues for the quarter and fiscal year were impacted by the 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. For the Q4, revenues declined 18.7 percent to $24,400,000 Profit margin increased 7 10 basis points to 49.7%, also benefiting from lower ocean freight costs as well as product mix.

Speaker 4

As a result, segment contribution margin was $7,800,000 compared with $7,400,000 in the prior year period. The fiscal year revenues decreased 19.1 percent to 107,800,000 dollars Gross profit margin increased 5 50 basis points to 48.2 percent, primarily reflecting lower volume of lower margin orders, lower ocean freight costs as well as product mix. Adjusted segment contribution margin was $33,800,000 compared with $37,200,000 in the prior year. Turning to our balance sheet at fiscal year end. Our cash and investment position was $159,400,000 compared with 126 $800,000 a year ago.

Speaker 4

Inventory declined to $176,600,000 compared with inventory of $191,300,000 at the end of last fiscal year. And in terms of debt, we had $190,000,000 in term debt and no borrowings under our revolving credit facility. As a result, our net debt was $30,600,000 compared with $73,200,000 at the end of last year. Now let's turn to our fiscal 'twenty five guidance. Over the last few years, our company has made investment to significantly expand our offerings and improve the customer experience through organic growth and acquisitions.

Speaker 4

Fiscal 'twenty five, we expect our top line trends to benefit from these investments that have expanded and enhanced our platform. While it's difficult to predict when consumers will increase their discretionary spending, we plan to leverage our pricing elasticity to ensure we have gifts to serve each of our customer segments. Additionally, our wholesale business is expected to rebound as our partners have already placed and increased their gift basket holiday season orders as compared to fiscal 2024. Following a significant rebound in fiscal 2024, we expect our gross margin to continue to improve, but at a slowing rate of improvement. We expect the improvement to be in the tens of basis points, which is on top of the 260 basis points improvement in fiscal 2024.

Speaker 4

This reflects the cross currents we are experiencing in the commodities markets. Certain commodity prices have reverted to their mean, while others remain relatively high, including cocoa prices, which have actually increased. Additionally, we plan to increase our marketing spend to further enhance our relationship innovation investments. Lastly, our guidance assumes increased incentive compensation expense in fiscal 2025 as compared to a partial bonus payout in fiscal 2024.

Speaker 5

Based on

Speaker 4

these assumptions, we expect total revenue on a percentage basis to be in the range of flat to a low single digit decline as compared with the prior year. We expect our revenue trends to improve as the year progresses with some minor sequential improvement in Q1 of fiscal 'twenty five that accelerates as the year progresses. Adjusted EBITDA is expected to be in the range of $85,000,000 to $95,000,000 and free cash flow will continue to be strong in an expected range of $45,000,000 to 55,000,000

Speaker 2

Before I

Speaker 4

turn the call back to Jim for his closing remarks and Q and A and to follow-up on Jim's comments earlier on this call, I'd like to take a moment to say thank you to everyone at 1-eight 100 Flowers for so many great years and memories. I'd also like to thank many of you who I've come to know quite well over the many years that we have worked together. It's been an absolute honor to work for such a great company whose mission is to bring people together and deliver smiles. Also like to take this moment to welcome James on board. James is a tremendous addition who brings a wealth of experience to 1-eight 100 Flowers' leadership team.

Speaker 4

I'll be partnering with James over the next 4 months to ensure a seamless transition as he takes over the CFO role upon my retirement at the end of December. Now, I'll turn the call back to Jim for his closing remarks before we open it up for Q and A.

Speaker 2

Thank you, Bill, and thanks again for the great partnership over these several decades now. But before I turn the call over for our Q and A, I'd like to briefly ask James if you take this opportunity to introduce yourself to our investor community. James?

Speaker 6

Thanks, Jim, and good morning, everyone. I'd like to start by saying how excited I am to be part of the team. I look forward to meeting many of you in the months ahead, as well as reconnecting with those whom I know from my prior roles. The entire 1-eight 100 Flowers organization has been incredibly welcoming since my arrival. I look forward to partnering with Bill and the rest of our management team as I transition into the CFO role.

Speaker 6

Since joining this organization, I observed the growth oriented mindset of the entire enterprise, providing our customers with a growing number of opportunities to express their sentiments and stay connected with the most important people in their lives. Over the last few months, I've been visiting our various facilities to get a much deeper appreciation of the scope of our businesses, including how we harvest pears and peaches from our own orchards, take many of our own goods, create personalized products within hours of an order being received and partner with thousands of florists to help deliver smiles. Through these visits, I quickly saw how our market leading family of brands combined with our cutting edge technology positions us very well to be the gifting destination of choice for our customers and for continued long term growth. I look forward to keeping all of you apprised on our performance and progress. Now back to Jim.

Speaker 2

Thanks, James. It's great to have you on board. As we go through this transition period, Bill and James will both be on the next earnings call toward the end of October, and then James will lead the following earnings call that we host toward the end of January. And with that, I'll open the call up for questions and invite the operator to please give instructions now.

Operator

We will now begin the question and answer session. The first question today comes from Anthony Lebiedzinski with Sidoti. Please go ahead.

Speaker 7

Good morning, everyone. And Bill, congratulations on your pending retirement. Certainly enjoyed working with you for many years. And James, I look forward to working with you as well. So I guess, first, just looking at the quarter here.

Speaker 7

So, GFGB revenue decline of 13% was most surprising to us. And Harry and David is the largest brand within that segment, which generally targets a higher income consumer. So you guys talked about seeing weakness in lower income consumers, which is understandable. But just wanted to kind of like as you look at the different brands, maybe could you just talk more a little bit as far as where you're seeing the biggest kind of weakness and then where you seeing some signs of strength?

Speaker 2

Good morning, Anthony. Thanks for your question. It's Jim. By the way, the best pronunciation of your last name we've ever heard.

Speaker 7

Great.

Speaker 2

I'll ask Tom to start the answer and Bill will want to contribute to it.

Speaker 3

Yes, I think part of it Anthony was just the shift in the Easter placement. So Q3 was stronger with just the Easter placement and with the

Speaker 2

Remember that Easter was the last, the Easter itself was the 1st day of Q4, so all of the sales that happened in GFGB or Easter happened in the Q3, so that will skew it some of the time.

Speaker 3

And I think the other part of it as we were moving into the holiday, I mean moving into the Q4, we were seeing a lot of our advertising efforts not be formative and working as well as we liked on the GFGB side and so we chose to make certain adjustments in our marketing schedule in order to focus there on the bottom line there. Anthony, I think if

Speaker 5

you take a bigger picture of where our revenue trends are, pretty comfortable year over year down about 9% both years, but if you pull out wholesale, with wholesale, we had a very good year in Which is disproportionately in GXG. Yes, right. But wholesale was strong year in 'twenty three, a down year in 'twenty four and then we have it bouncing back in the upcoming 'twenty five year. If you look at e com pull out wholesale and you look at kind of just the e commerce trends, we were down 9.8% in 'twenty three percent. We were down 7.5% this past year.

Speaker 5

And if you break up and we've talked about this a lot, you got to always look at us as 2 different halves of the year, the first half of the year and the second half of the year. E commerce in the first half of the year was down 7.9%. E commerce actually overall in the second half of the year was down 6.8%. So wholesale kind of distorts the numbers a little bit, but the e commerce trend is actually improving in the second half of the year versus the first half of the year.

Speaker 7

Got it. All right. That's very helpful. And just a follow-up on the wholesale side. So glad to hear that you expect that component of your revenue to be up in fiscal 'twenty five.

Speaker 7

As far as timing of that, I know that can fluctuate between 1Q and 2Q. What is your general sense as to when you'll see that pickup in revenue, whether it's going to be more 1Q or 2Q or is it too early to say for sure?

Speaker 5

Yes, it would definitely be Q2. There is always the timing at the end of Q1 into Q2, so we are still and that's sometimes dictated by the big box guys, but the growth will all be in Q2. The large majority of those revenues are in Q2 anyway.

Speaker 2

So the good news is we know it's coming because we've already booked the business. It's just a question of shipping dates that they request and that's right around the end of the Q1. So as Bill says, you're going to see the improvement that we budgeted for planned and now have come in the Q2.

Speaker 7

Got you. Okay. And then just overall in terms of the different initiatives that you've laid out, I mean, I guess, how would you rank them as far as being the middle most impactful for you guys as far as how revenue will improve as the year progresses? Maybe you could just kind of walk us through on prior like give us a sense as to like which of the initiatives will be the most impactful and so on?

Speaker 2

Overall, I'd say that the things that the initiatives that we have the most promise and betting behind the most are all around our relationship innovation efforts. The ways that we interact with our customers, the way they interact with us, a lot of it on the direct marketing side, so that's the engagement efforts we have, it's the tools we're introducing throughout this fiscal year to give them more and more sophisticated tools in terms of managing relationships in the life. So I would say primarily the improvements that we see going forward will be relationship innovation side. Of course, we're always focused and Bill will touch more on some of the operating efficiency efforts we have, our Work Smarter initiatives. Work Smarter initiatives is as we described in the opening remarks, we now consider Evergreen and Bill will be focusing a lot of his time leading up to his retirement on really revving up our WorkSmart initiatives.

Speaker 2

I want to touch on some of those.

Speaker 5

Yes, but even with back on the revenue side, just the pricing elasticity that we've been efforting both on the high end, but also on the value oriented, Tom made some comments in his formal remarks about the $50 kind of all floral bundles, but we have a lot of more products to address kind of the value of consumer that's out there that has struggled the most. With respect to you know work smarter, we are continuing to implement initiatives, automation initiatives in our distribution centers using AI on both the front end of the website for to create a better customer journey and really on the back end with our customer service platform to reduce labor and be more efficient. But that's as Jim and Tom have indicated, those are kind of evergreen initiatives that will continue to generate savings for us going forward.

Speaker 7

Got you. Okay. And then lastly for me before I pass it on to others. So you made a small acquisition of a high end chocolate company. Can you comment as far as like how to think about the impact of that and plus also what is your appetite for additional acquisitions?

Speaker 2

Sure, Anthony. Our appetite, I'll start with. Our appetite is kind of robust and the buffet is getting nicer. What I mean is because of the capital environment we're in, companies that have struggled to find a bottom line and don't have very close prospects of turning profitable, as you would well imagine, are struggling to find capital. That's made the inbound efforts to us quite robust of late.

Speaker 2

So I think there'll be some opportunities. I'm certain there'll be some opportunities. We always have to manage our efforts there to see if they really do pay off for us. There's always integration risk. There's obviously the capital side of things, but I think there's going to be a robust set of opportunities.

Speaker 2

What we've done in the last year and a half or so on the acquisition side is buy things that really do rev up our primary initiatives, our Work Smarter initiatives and our platform, they lever our platform. So let me turn to the one you mentioned, Schopenberger. It's a brand frankly I looked at 15 years ago because of its terrific brand position, its uniqueness, its high quality product offerings, another company beat us to the punch there and bought that company. Fortunately for us it came back around. So it's very small, but everything about the story, everything about the brand, everything about its recipes, its unique product are still intact, has great people there and coincidentally it's only 10 minutes away from our facilities in Medford, Oregon where it was most recently located.

Speaker 2

So very easy for us to tuck in. And what do they need? They need the things that we have, our huge customer base, our e commerce marketing capability, our what we call house media, Anthony. So what I mean by that is inexpensive marketing opportunities that we have that are already a part of what we do, including them in our email communications, on our other websites, putting their products in our packaging that we're already working on where it's needed and necessary. So our gift baskets when they need a component of a high end chocolate product, guess who it's going to be.

Speaker 2

So we have a number of ways of growing their brand. So we take a kernel that is a great brand, great recipes, great history. We have they have a good facility, but it can't handle much more volume than the couple of $1,000,000 that they do now. We happen to have a 1,000,000 square foot facility down the road with state of the art, very highly automated equipment that can take their very unique recipes and do it in a high scale volume with no additional capital cost to us. So we have the things that they need and in terms of scale that was the first part of your question, that will be double or triple right out of the gate in terms of top line, but it's inconsequential when you think about our size.

Speaker 2

But in the 3 to 5 years from now, that will become a substantial business and be done capital efficiently with very little in marketing spend because we're able to lever things we already do. That's a perfect example of the kind of things that are coming in more frequency to us now and makes us very excited because they are low risk, great extensions for our consumer, our existing customer base wants a product like that and we have the wherewithal to make it grow very efficiently and grow it into a substantial business. If we don't see a path to get a business on our platform to $50,000,000 to $100,000,000 business in a 5 year timeframe, then we probably wouldn't spend any time on it, but I think that brand has the opportunity to grow over time to be a substantial contributor.

Speaker 5

Yes, so Anthony, this year it's going to be introduced to a lot of our customers you know via inclusion in the gift baskets that we that we sell, so kind of modest this year, but then growing as Jim indicated, we believe substantially over the future.

Speaker 7

Thank you very much and best of luck.

Speaker 2

Thanks, Jeff.

Operator

The next question comes from Michael Kupinski with NOBLE Capital Markets. Please go ahead.

Speaker 8

Thank you and good morning everyone. And Bill, let me offer my congratulations on your retirement. I can tell you that it's been a tremendous pleasure working with you over the years, and I'm going to miss you. And I want to welcome James as well. I look forward to working with you more closely, James.

Speaker 8

A couple of questions. In terms of your guidance for 2025, consumer confidence has always been a metric that we've always looked at in terms of revenue growth. And if you look at the consumer confidence has most recently been improving. And at the same time, your revenue growth or at least your initial guidance was pretty positive and constructive on looking for rate decreases. And it now appears that we're going to have rate decreases a little bit more timely now.

Speaker 8

It looks like the timetable has been set, relatively set. I was wondering in terms of what gives you pause in terms of your revenue outlook for 2025, given those metrics that we've more closely watched in the past?

Speaker 2

Thanks, Michael. It's Jim. I think the main thing that gives us pause is we were feeling pretty good until the last 3 weeks when we heard everybody else be so cautious about the 4th calendar quarter, our 2nd fiscal quarter. So just psychologically, it caused us to say, should we feel as good as we do? And but Bill, why don't you give Michael a little more color what went into the recipe for our guidance?

Speaker 5

Yes. So our guidance is really based upon all the initiatives that we've been outlining and discussing over the last year or so that we think start coming to fruition this year. It is not based on an improvement in the macro economy. Certainly, when consumer confidence is high, companies like us that sell discretionary products do better. But we have not built that into our guidance.

Speaker 5

It really is based on our initiatives.

Speaker 3

Yes, just to layer on there, Michael, it's Tom. Again, I think our focus here in our what we put forth is based upon our relationship innovation efforts. Those things that we were within our control, our category expansion, our broadening price points, our increase in same day delivery of products, our user experience, all those things are what is giving us you know confidence where we're portraying and putting forth you know our for this forthcoming year.

Speaker 5

But we do believe Michael that this is going to build as the year goes on. The trend lines and we're not expecting much change in the trend lines in Q1 versus what we saw in the second half of last year. But as we build towards holiday, and we always do better at holiday and then to the second half of the year, we feel the trend lines will be much better.

Speaker 8

Got you. And then regarding margins, obviously, you're expecting some improvement even though not as much as what we've had more recently. But some of the commodity prices, as you mentioned, have been kind of stubbornly high, cocoa, milk, eggs and so forth. And I was just wondering in terms of commodity prices specifically, what are your thoughts in terms of how that goes into 2025?

Speaker 5

Yes. I mean certain commodity costs as you mentioned have reverted back to their mean. Wheat, corn, actually eggs, even sugar has come down and reverted back to their mean. But you also mentioned cocoa. Cocoa is at all time highs or was at all time highs.

Speaker 5

We luckily did lock in some pricing. It's an increase year over year, but we've locked in pricing for the next two holiday seasons at more modest increases, but it is an increase. Fuel continues to be high and inbound and outbound freight continue to be cost us more year over year. The inbound freight, again, we've locked in pricing that are competitive, but the spot market is very high now. So it's hard if you go outside your contractual volumes in a particular month not to have increases on the inbound volumes.

Speaker 5

So we factored all those items into the guidance for margin improvement, but much more modest than we saw last year. Again, last year, we increased 260 basis points well ahead of our original plan. So we already achieved over 40% gross margin.

Speaker 2

So we said it wouldn't be a linear march to return to our historical gross margins. We had a big jump last year. We'll have a small improvement in gross margin this year and Bill gave you the factors on the commodity impacts. In addition, we're going to spend more money on marketing this year because we think the opportunity there is to improve our overall revenue trends and that's going to be at the expense of more marketing spend.

Speaker 8

Got you. Those were my major questions. I appreciate it. Thank you.

Speaker 2

Thank you, Michael.

Operator

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

Speaker 9

Hey guys, thanks very much for taking my questions. Bill, congratulations on your retirement. It's been great getting to know you over the last decade or so. Wanted to ask you guys, what have you been seeing in terms of customer acquisition costs? Obviously, there's been a lot going on this year with the Olympics and now the election.

Speaker 9

Curious if you think there might be an opportunity to accelerate efforts to go after new customers after the election?

Speaker 2

I think that's very much the case. We've looking historically, we've been at this for a long time. Elections especially when they're very contentious and I can't remember the last one that wasn't, are distraction. They're distraction from a public attention point of view and there's so much money pouring into the markets to buy media space in radio, TV and certainly in every online media. So we're not expecting much of a change in our trend lines before the election, but we do think there's a significant opportunity post election for us to step into the market more meaningfully.

Speaker 2

The overall, I think as we said, our marketing spend is budgeted to be up this year and we think there's real good reason and real opportunity there. Continue to gain market share in our core businesses and I think the cost of acquisition of customers is one of the reasons for that because it is historically high and likely to stay there.

Speaker 9

I mean that's really helpful. Yeah,

Speaker 3

we see, Alex, we see it moderating, but it will be universally moderating. We, I mean obviously we have a tremendous amount of lines in the water all the time and we're measuring each one of those activities. So we have a pretty good idea what our playbook is going to be post election year.

Speaker 9

That's really helpful. Thank you both.

Operator

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

Speaker 10

Yes. Hi, good morning everybody and congratulations Bill on the retirement. Just want to drill down on guidance here a little bit. The wholesale orders are encouraging for the December quarter. It's important for that quarter.

Speaker 10

And you mentioned the Q1, the September quarter is likely to be sort of continuing the trends in the second half of the last fiscal year. So that implies we'll see hopefully positive signs in front of some sales numbers in the last three quarters of this fiscal year. Do you think it could be as soon as the December quarter?

Speaker 5

Yes, we expect that the trend lines will start to improve in the Q2, yes.

Speaker 10

Actually, they have positive sales growth or is that more of a back half phenomenon?

Speaker 5

Yes, we don't really break it down. I think it could be a meaningful improvement in the trend. We're not ready to declare victory yet though.

Speaker 10

No, no, I get it. There's still a very uncertain environment out there. And also on the margins, I think it was asked earlier about commodity costs. And certainly in the June quarter, the margins in the gourmet food and gift baskets were below what I was expecting. I just wondered how much of that was because the sales were lower than expected or how much of that is because of some sort of a rise in the input cost front that you were not expecting?

Speaker 5

Yes, well, again, I would say margins came in where we were expecting. I think the top line was softer than we hoped for, but margins for the year came in very nicely. We're comping against in the Q4, already nicely improved margins a year ago in the Q4. So the moderation of the improvement was expected on our side. Certainly as with greater sales, there's some leverage of fixed costs that help margins, but much more the impacts of margins or everything from commodity costs, inbound and outbound, freight, labor, etcetera.

Speaker 10

Okay. And then looking at the 'twenty five guidance with sales flat to down and your EBITDA at or below this year's number, it seems like you're not really expecting much EBITDA margin improvement this year, maybe even some degradation despite modest gross margin improvement. So am I reading this right that there's going to be an increase in marketing expenses over and above what you're going to gain from the gross profit margin improvement?

Speaker 2

I think it's fair to say, Doug, that's fluid. We have given our guidance and we've been broadened our range because we think there's some opportunity for growth. We're not able to exactly book the gain from that increased marketing spend, so you don't see much of that in there at all. So there is upside to what we're saying. It all depends on what the yield from that increased marketing spend will be.

Speaker 10

Okay, fair enough. That's helpful. Yes, yes, that makes sense. And then you haven't really talked about personalization mall. That was a big acquisition for you.

Speaker 10

Maybe it hasn't worked out quite as well as you anticipated, but still a big business. Can you just comment maybe Tom on how personalization mall is going, what your outlook is there for fiscal 'twenty five?

Speaker 3

Yes. So certainly the personalization mall brand was more impacted than many of our brands by the stratification of customers where you know we did have we do have you know a higher portion of customers who are you know in that lower household income who are for customers of personalization. We've been started to see that you know gain traction and I think the introduction of things remembered in the product portfolio where both brands and even though we go to market with both brands as separate brands, the product line is pretty fluid between those brands and that's where we've also seen a nice pickup here. So it provides some more aspirational products for the personalization wall customer and then like we said, we're seeing a great, great promise for the Things Remembered brand and products in general.

Speaker 2

So we go to market with the personalization business with a few different brands. Things Remembered being the most recent addition that Doug and it's very much like Schulkenberger. All we got was the IP, the intellectual property, the brand, the URL, the database of past customers and a couple of terrific people who came over to us. The Personalization Mall brand and business that we acquired, yes, a larger acquisition that we did, that struggled, as Tom said, a little bit more than the rest of the house brands because of its focus on a more modest income customer. But with the introduction of things, remember Tom and his team have positioned that as a more aspirational higher end brand.

Speaker 2

And so what we have is we got the box, the facility, the high-tech, very well run facility and we were able to take intellectual property acquisition, bolted on the front of that and as we've had time now to source the inventory, get it into stock, use that same efficient very well run machine, we're able to grow that. So Tom and all of us are optimistic about our personalization businesses this year, but it's a multi brand strategy using one core asset and facility to grow those businesses inexpensively in the same way we do in Schopenberger and with differentiation between brands.

Speaker 10

Okay, fair enough. Thank you.

Speaker 2

Thanks Doug.

Operator

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

Speaker 11

Yes. Hi. So Bill, congratulations on your great career and I certainly will miss you as well. And welcome to James in the new role. So I was curious about just two questions for me.

Speaker 11

On BloomNet, can you remind us kind of when that impact of the loss of that customer or partnership or whatever, when does that anniversary, like what's the timeframe when that will be anniversaried? And then my second question is what your outlook is for kind of like the holiday labor situation this year, both in terms of rates and availability? Thanks.

Speaker 5

Okay. Linda, on the first one, basically January 1, the contract ended December of last year. So we expect so the first two quarters, BloomNet will be down because of the lower orders. We're building more flow orders into BloomNet, and we think second half of the year, BloomNet will grow. With respect to the labor situation, we've had last year, it's been it was strong and we're anticipating it being strong again.

Speaker 5

Early signs are that it is that seasonal labor force will be readily available for us.

Speaker 2

We've already begun our harvest just about 8 days ago now on our pear crop. Peaches are coming to an end. So we already have our labor in place and it seems as good as last year.

Speaker 3

And with steady economics, I guess is the other piece of that. That's right. The question you're asking.

Speaker 11

Okay. Thank you.

Speaker 2

Thank you, Linda.

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 folks and any additional questions we're here to engage with you and help you in any way we can. I just want to add my thanks again. I appreciate all of you expressing your congratulations to Bill on his retirement, but enough about Bill. Seriously, Bill has been my partner now for more than 3 decades. He's been a terrific partner and he's done a terrific job of helping us source his replacement, reenergize and reorganize our finance team.

Speaker 2

So we're in ultra good shape. James, you come into an easy role because everything is already set up for you. So you can coast in your 1st year in the role because Bill's put us in terrific shape. So thank you, Bill. Congratulations and welcome, James.

Speaker 2

Thank you. Thank you all again. We look forward to engaging with you on any questions or follow-up you may have.

Operator

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

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Key Takeaways

  • Leadership Transition: CFO Bill Shea will retire in December, with Chief Administrative Officer James Landrock named as his successor.
  • FY 2024 Performance: Revenues declined about 9% amid a tough consumer backdrop, but gross margin rebounded 260 basis points to 40.1% and adjusted EBITDA grew to $93.1 million.
  • Strategic Initiatives: The company is driving relationship innovation through refined pricing elasticity, expanded price points (including a $50 all-in Bouquet of the Month) and efforts to convert customers into multi-brand buyers.
  • Portfolio Expansion: Recent tuck-in acquisitions (Things Remembered, Carlyle greeting cards, Schaffenberger chocolates) and last-mile delivery enhancements aim to broaden gifting options and leverage scale.
  • FY 2025 Outlook: Management expects flat to low-single-digit revenue changes, adjusted EBITDA of $85 million–$95 million and free cash flow of $45 million–$55 million, with modest gross margin improvements and increased marketing spend.
AI Generated. May Contain Errors.
Earnings Conference Call
1-800-FLOWERS.COM Q4 2024
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