Q3 2021 1-800-Flowers.Com Inc Earnings Call
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Okay.
Good morning, and welcome to the one 800 flowers the conference call.
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After today's presentation, the will be an opportunity to ask questions.
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Two of school your question Keith Dan then too.
Please note this event is being recorded.
I'd like to turn the conference over to Joseph Potato. Please go ahead.
Thank you Kevin.
Good morning, and thank you all for joining us today to discuss one of other flowers on top of page financial results for our fiscal 2021 third quarter.
For those of you who have not yet received the copy of our press release issued earlier. This morning, the lease can be accessed at the Investor Relations section of our corporate website one of those.
The flowers, Inc. Dot com.
Our call today will begin with brief formal remarks, and then we will open up the call for your questions presenting today will be Chris Mccann, CEO and Bill Shea CFO.
Before we begin I need to remind everyone that some of the statements. We will make today maybe forward looking within the meaning of the private Securities Litigation Reform Act of mine.
95.
These statements involve risks and uncertainties and critical of the actual results to differ materially from those expressed or implied in the applicable statements.
For a detailed description of these risks and uncertainties. Please refer to our press release issued this morning as well as all of our SEC filings, including the company's annual report on form 10-K quarterly reports on form 10-Q.
In addition, this morning, we will discuss certain supplemental financial measures are not prepared in accordance with generally accepted accounting principles reconciliation of these non-GAAP financial measures for the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning.
The company expressly disclaims any intent or obligation to update any of the forward looking statements made in today's call. The recording of today's call. The press release issued earlier today or in any of the SEC filings, except as may be otherwise stated by the company.
I'll now turn the call over the course Mccann.
Thank you Joe and thank you to everyone who has joined our call. This morning today, we're pleased to reported another quarter of of record top and bottom line results. Our revenue growth of 17% driven by e-commerce growth of more than 80% reflects continued strong growth across all three business segments. The.
The growth momentum that we have in our business today has been building for several years and accelerated further since the start of the COVID-19 pandemic other than a year ago.
What's more we expect to continue to grow even at the country begins to emerge from the pandemic.
Consumer behavior has changed and the shift to ecommerce, which was dramatically accelerated during the pandemic is not likely to revert back.
As a company that has evolved out of business to an ecommerce platform built for growth, we are well positioned to benefit from this tectonic shift now and in the future.
In addition, our company has a singular mission to help inspire more human expression connection and celebration.
These the sentiments that are more important than ever today, but we don't uniquely positioned with a broad and continually expanding suite of products specifically designed to help our customers deliver smiles for the important people in their lives.
Today, one of the bigger better stronger company than we were the one year ago over the past several years, we've invested in the key elements of our E Commerce platform <unk>.
Our all star family of trusted brands in particular, a signature of Harry <unk>, David and one 800 flowers brands and most recently our newest brand personalization mall.
We've continued to invest in our advanced technology stack.
Digital marketing programs.
Customer care platform, and a large and fast growing customer file.
As a result, we've grown out of market share expanding our leadership position in the floral space, becoming a leader in the gourmet foods and gift baskets category.
And extending our platform.
With the addition of personalization mall of lead them in the fast growing area of personalized gifts.
Hence the technology stack leveraging of our culture of innovation, we have built an advanced micro services platform that resides in the cloud, providing us with enhanced performance flexibility and scalability.
We've leaned into the effective digital marketing programs and search display video and social channels, expanding our reach and building the brand recognition.
Always with the focus on analysis drove in the optimization for enhanced results.
We've enhanced our customer care platform to provide an exemplary customer experience within the AI with an integrated AI powered virtual assistant.
So active two way SMS program, and we recently released a new cognitive skill total online and Apple business chat functionality that for.
And by the customers with the personal lines of conversational experience with chat bots that have specific skills, such as understanding the reasoning and learning and can adapt on the fly.
In terms of our customer file we have continued to see tremendous growth as well the enhanced customer behavior metrics.
Most of active customer file now exceeds 12 million total customers and in the first nine months of the current fiscal year, we've already added nearly 5 million new customers.
Even with the tremendous growth in new customers demand from existing customers represented approximately 65 per cent of total revenues for the past nine months.
The celebrations passport loyalty program continues to grow at a rapid way.
Helping to drive increased frequency retention and multi category multi brand purchasing behavior.
Passport membership has now achieved a significant milestone hitting 1 billion members and continues to grow with the strong double digit pace.
The combination of all of these assets and positive trends that we see the cross out business give us confidence in our outlook for continued strong growth. Despite the challenging comparisons that we have going forward.
As such we provided guidance today in a press release with double digit revenue growth in our current fiscal fourth quarter and it's important to note that this anticipated double digit growth is on top of the 61% revenue growth that we achieved in the fourth quarter last year, which was driven by the pandemic induced spike of nearly 80 per.
And the ecommerce demand.
Well at this double digit growth in the fourth quarter, we anticipate achieving more than 2 billion in total revenues for the current fiscal year.
And based on our expectation for the fourth quarter and what we've seen looking forward. We believe this momentum will continue enabling us to achieve double digit growth in our next fiscal year of as well.
As I've stated in the past, our highly scalable and Leverages. Both E. Commerce platform is built for growth now and in the future.
Now I'd like to turn the call over to Bill.
Thank you Chris.
The remarkable results for the fiscal third quarter were achieved despite several headwinds including the <unk>.
The placement of the Valentine holiday, which usually reduces demand by more than 20%.
Severe weather during the Valentine period, including the complete shutdown of of third party carriers main hub to the freezing conditions and higher shipping costs from third party providers, which unfortunately appears to be he used day.
Despite these headwinds our signature of one 800 flowers brand continued to far outpace the competition at Valentines day and throughout the quarter.
Further extending our significant market leadership position.
During the quarter. We also saw continued strong performance in our newest brand personalization mall.
This reflected a combination of factors, including a broad product offering with thousands of items from wine glasses, the picture frames, which can be customized using more than a dozen different personalization technologies.
Our industry, leading operational excellence.
<unk> has the ability to go from order entry to a finished the personalized product ready to ship and as little as 24 hours or less and our ability to leverage our enterprise customer files and digital marketing expertise to enhance the marketing programs and reach more new customers effectively and efficiently.
We also saw triple digit e-commerce growth gourmet food and gift basket segment led by our iconic Harry <unk>, David brand, which continues to leverage digital marketing programs to reach a younger demographic and drive gifting for everyday occasions.
These drivers and our record results for the quarter reflect the strength and flexibility of the E Commerce platform that we've built.
They are also a testament to the hard work and perseverance of our thousands of associates, who continue to overcome the challenging environment to drive operational excellence across our company.
Now breaking down a few highlights from the quarter.
Our adjusted EBITDA of $15 4 million, an increase of nearly $18 million compared to the prior year period.
Our fourth consecutive quarter of positive adjusted EBITDA.
This includes the three non holiday quarters, reflecting continued strong growth in everyday gifting, particularly in our gourmet food and gift basket brands.
As well as the significant shift from the past years, when we were the only EBITDA positive in the calendar year and cooler.
Our strong Q3, adjusted EBITDA was driven by a combination of.
Total revenue growth of more than 70 per cent with e-commerce growth of more than 80 per cent.
Higher gross profit margin, despite rising costs and operating leverage improvement of more than 400 basis points on an adjusted basis.
Turns of our segment results.
As I mentioned earlier, you know gourmet food gift baskets segment, we achieved triple digit e-commerce growth along with the gross profit margin improvement of 500 basis points.
The strong performance reflected the combination of enhanced operating leverage leading to the strong revenue growth and reduced promotional marketing programs.
Partially offset by increased labor and shipping costs.
As a result of the strong revenue growth higher gross profit margin and increased operating leverage contribution margin in the segment increased more than $18 million compared to the prior year period.
The consumer floral and gift segment, which includes our signature one 800 flowers brand and personalization mall, we achieved revenue growth of more than 70 per cent and segment contribution margin increase of 46%.
This was achieved despite lower gross profit margin per cent due to the higher shipping costs and the weather related costs incurred during the Valentine holiday period.
You know of Bloom that business revenue increased nearly 28 per cent and segment contribution margin increased 20%. Despite a lower gross profit margin in the period, which primarily reflected product mix.
Overall, we achieved exceptional top and bottom line results across all three business segments and solid momentum as we head into our fiscal fourth quarter.
Turning to our balance sheet.
Reflecting the significant cash flow of business is generating off.
Cash and investments position at the end of the quarter was $257 million.
It represents an increase of 25 million over the year ago period, and includes having used more than $150 million of cash on hand earlier this year to finance our acquisition of personalization mall.
Inventory was 122 million of parking both of our acquisition of personalization mall and our initiatives to build inventory to service the strong e-commerce demand we are seeing.
In terms of debt, we had 184 million in debt and zero of borrowings under our revolving credit facility.
As we noted in the past the strength of our balance sheet with strong cash position and minimal debt combined with the untapped revolving line of credit gives us significant flexibility to continue to invest in our business platform and add accretive acquisitions.
In addition, as we noted in our press release this morning.
Board of directors of increased the authorization for stock buybacks the $40 million.
The new authorization Replenishes and increases our previous authorization under which we had returned to approximate 26 millions of shareholders.
By repurchasing shares over the past two years.
We believe our stock is a very compelling investment and that repurchasing of shares enables us to return additional value to our shareholders.
Regarding guidance.
The unique confluence of events that occurred in our fourth quarter last year created a very challenging comparison for us.
In the prior year period, we saw the explosion of e-commerce growth at the start of the pandemic that drove triple digit growth in our gourmet food gift baskets segment, and a record mother's day holiday and a flow of business.
This resulted in ecommerce growth of more than 80 per cent compared with the prior year period.
In addition, we saw a dramatic increase in our adjusted EBITDA with growth of $35 million over the prior year period.
This reflected both the record revenue growth and historically low digital marketing cost as many advertisers pulled back.
Despite this challenging comparison, we anticipate driving double digit revenue growth and strong bottom line performance in this year's fiscal fourth quarter.
For the quarter, we anticipate achieving total consolidated revenue growth in the range of 10 to 15 per cent compared with last year's record quarter.
Based on this revenue growth and considering the higher year over year digital marketing costs, we anticipate achieving adjusted EBITDA for the quarter in the range of $25 million to $30 million.
And EPS in the range of 18 to 20 cents per share.
Combined with our record results for the first three quarters of the year, we anticipate achieving the following results for the full 2021 fiscal year.
Revenue growth of more than 40% to total revenue for the year of approximately $2 1 billion compared with $1 four 9 billion in the prior year adjusted.
Adjusted EBITDA in the range of $208 million to $213 million compared with $129 5 million in the prior year.
EPS in the range of $1 75 to $1 80, compared with EPS of <unk> 98 cents in the prior year and free cash flow of more than $100 million.
And as we stated in this morning's release, we also anticipate driving double digit revenue growth you know of.
2022 fiscal year.
I'll now turn the call back to Chris Thanks.
Thanks Bill.
As Bill just shared with you of third quarter results clearly demonstrate the strong and continuing the momentum in our business.
Growth in other businesses driven by several factors.
First the addition of millions of new customers added to a file.
And the increasing penetration of our existing customer base, along with enhanced behavior metrics, including frequency and retention.
Third the strong growth in the number of customers, who are purchasing for multiple product categories, resulting filled our cross brand merchandising and marketing programs and the continued expansion of new product categories, such as the addition of the personalization mall.
For the continued expansion of our passport loyalty program with over 1 million doing the 1 million members.
<unk> increased frequency and retention.
Gross category of cross brand purchasing and enhance lifetime value.
In addition, our outlook for continued strong growth reflects both the secular shift to increased online purchasing as well as the increased the need of consumers to connect and express themselves sentiments that are at the very core of our business.
As we look towards the final quarter of our current fiscal year, we anticipate driving double digit topline growth on top of what was an extraordinary fourth quarter last year.
We expect to close this fiscal year with more than 2 billion of revenue and all of the $200 million and adjusted EBITDA.
We have built a highly scalable e-commerce platform for growth and we are very excited for what the future brands.
With that I'd like now to turn the call over to Italian and we can take your questions.
Thank you Sir we will now begin the question and answer session to ask a question you may push the Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question piece price.
One thing too at the.
This time, we will pause momentarily to assemble our roster.
The first question comes from Alex Fuhrman from Craig Hallum. Please go ahead.
Great. Thanks, very much for taking my question and congratulations on another really strong quarter.
It sounds like you're really firing on all cylinders with both new customers and existing customers and I think you'd mentioned in credit in the prepared remarks that existing customers have been about 65 per cent of your business a year to date, yeah, how does that compare to a normal year for you and what does that suggest for you about the.
Unity heading into next year to both continue acquiring new customers and end to really capitalize.
Capitalize on on the new customers that you've acquired this year right.
Right, Alex and thank you for that question and thanks for the recognition of the strong performance we've been having.
So the 60 for sort of the existing customers representing 65 per cent of our revenue in the first nine months I would say it is up slightly from what it has been previously as we're seeing more penetration into our passport program more customers buying for more than one category. Both the increasing their frequency of their average spend so so the spend of an existing customer is higher.
Naturally the and the new customer adds.
We look forward.
That's why we wanted to share some of that information with you we see our customer base. The large file that we have which is the significant significantly grown over the last couple of years again growing the file nicely prior to the pandemic and accelerating into the pandemic, it's become one of our greatest assets and the the main asset that we look at.
And predictability for future sustained growth. So it's that coupled with what we see in Q4 of coupled with how we can read the tea leaves going forward. It gives us the confidence in that guidance of double digit growth.
Yeah, but Alex is the bill.
But.
Where do I get the point of course that still.
Strong new customer growth as well and new customers of performing better than new customers performed pre pandemic and all of existing customers are performing better now than on the pre pandemic basis.
Yeah.
Great. That's really helpful guys. Thank you both very much thank you Alex.
Thank you. The next question comes from Michal Krupinski from Noble capital markets. Please go ahead Michael.
Thank you and I would like to add my congratulations as well a couple of quick questions here.
Can you just talk a little bit about the potential shifts in consumer buying patterns versus last year. Obviously during the pandemic are you seeing customers starting to ship more towards higher larger ticket items for instance, certain category specific products I kind of give us a flavor of what consumers are buying these days.
Sure Michael you know the first and foremost the secular shift that we're seeing right is the movement of them just offline to online which has been a tremendous movement.
From the product kind of point of view, what we've seen is during the pandemic well actually some of this is pre pandemic as well and again just accelerated as we've seen the pandemic basically accelerated change in many different areas of our lives behavior. So what we saw was plants.
As an example of one product category, we had good growth going in and it's taken off since then and continues to grow and we continue to expand out playing at the offerings.
The gourmet the gourmet line on the Harry <unk>, David has had tremendous growth. This past year and again that continues as people were recognizing the ability for Harry <unk>, David to help with them at the attaining and celebrating in the whole needs et cetera.
And then what we saw of prior to and why we made the acquisition of personalization mall, the growing product category that we that we define as personalized products.
And as Bill pointed out in his comments the very broad assortment of products that we have that can be personalized and the number of different ways. So those of a couple of key shifts that we've seen but they started really before the pandemic that have just been accelerated since.
Can you give us a little color on your digital marketing spend for the upcoming quarter is this related to any particular segment like personalization mall for instance, or is it related to interest increased prices for key words, or just kind of give us a flavor of what the marketing spend the score.
Yeah. So when we look at the marketing spend Michael in the.
The what we see is obviously this is a flow quarter for us with the mother's day holiday. So a lot of the marketing spend that we looked at right now is focused on the floral brand but.
But we see good good growth coming from personalization mall as well as some of our gourmet food categories.
And when we look at the digital marketing space, what we're doing and we've said this previously we're not playing as aggressively in the bottom of the funnel of part of the game, where many of our competitors play from the discounting point of view.
So it really kind of moving made in the upper funnel of tactics as well, which is working very well for us in the in the marketing costs have gotten more expensive.
You've seen that with.
This quarter last year of marketing costs were extremely low of probably about a 50% reduction from normal that'd be turned to normal really beginning back in August September so we've been dealing with that increased cost but.
But we've been managing of managing it effectively.
Just last question you mentioned the severe weather in Texas in the quarter can you talk a little bit about of your experience I know it happened right. After Valentine's day, but can you talk a little bit about your experience. There. What you have there been any particular the lasting benefits that you may have had a result as a result, maybe of your competition not faring as well can you just kind of give us the flavor of.
Maybe what even the impact of you might've seen in terms of dollar wise, what if that might've been.
The impact of the weather and it did it start happening actually Valentines week, and then lastly, really for the week. After Valentines weekend. We saw you know parts of the country like Texas, the northwest and any of the right through the center of the country with you know with major freezes and some of the.
The third party.
Shipping companies of all had the closed down their hubs as they couldnt get employees into the into work so that did create some delays and packages getting there.
Getting to consumers and created a higher level of credits, which impacted on the gross margin for.
For the Valentine's day holiday and for the third quarter, you saw that in the consumer floral.
Consumer pull and gift segment.
It's been turned back to the more normalized.
What's the new normal is at least right you know right now the.
The third party carriers of not delivering packages as timely as they did historically pre pandemic and dealing with the.
With the overall e-commerce demand exceeding.
The ability for them to fulfill on it you know on.
On a timely basis, but it's back to that more normalized level. So we don't see any long term implications of what happened to the weather at Valentines day, and one of the things Michael the keep in mind too while the weather was an impact as bill just pointed out. We also saw the benefit of our distribution network and our fulfillment network not being one channel focus.
Most of the challenges.
And the third party carriers and the the hubs et cetera that were frozen during that time period, we were able to utilize our florist network not in every area of Texas, obviously was challenged but utilize our florist network to a greater degree so having the flexibility between those multiple channels is the real benefit to our company.
Great. Thank you that's all I have thanks, Thank you Michael.
Thank you. The next question comes from Linda Bolton Weiser from D. A Davidson. Please go ahead Linda.
Yes, hi, congratulations great quarter and great outlook can can you talk about the.
The online floral gifting industry was kind of one of the first ones to kind of shift to online can you give us some estimate as to what percentage of the floral industry is now offline versus online and maybe what that was a couple of years ago. Thanks.
Thank you Linda and then Dan. Thank you for the congratulations we appreciate that the online.
Flow of category really has been one of the early wants to move online and we started that back in 1991, when we moved out the coffee surf so you're right with the the.
Industry has been represented online for a long time.
Well I'm not sure it really if I can't quantify for you how much of the business is online versus offline, but if we really look at it.
Some of the best generalization I can say is that it's about a two of the gifting business.
About a $9 billion category offline in about two and a half billion dollar category online, there's probably a very broad estimation of.
Well, we see the opportunity and we continue to see the opportunity working with our florists working with Loopnet.
To continue to migrate and we're seeing the more customers migrating all of mine, but still having that local component of without blowing their flowers serves us very very well.
We're extremely well positioned again as we've seen this overall shift and we saw every day now flow of business as well this past year as the overall shift from offline to online that we saw in all of our product categories, which is very well positioned to benefit from that shift.
Thanks, and then can I ask you I'm kind of of longer term question I do get this from from investors, sometimes the questions over a year of EBITDA margin targets long term, you've always talked about you know having to share the profit with Flores on the floral side.
But I imagine there's more of an upside maybe margin potential on the gifts of on the food side. So can you talk about that and you've talked about your 10% EBITDA margin target goal, but it seems like that's the goal that you should be targeting higher so can you talk about that thanks.
All of you want to address that please.
Yeah Linda for.
The number of years, we always had the target out there of the 10% EBITDA margin check that box with we're doing that we're doing that this year.
We're going to continue to look as you know.
To drive greater EBITDA margins, you know going forward you know we look at our margins our gross margins. We look at our operating expenses, we know there's headwinds associated with both with we've been operating in higher cost environment with labor with the.
The shipping cost and we've been managing debt and we continue to look to automate a number of processes to offset those those.
Of those cost increases and to drive increased margins. So we are going to continue to drive improved margins.
Going forward, we haven't set of new target, yet and what that what that will be but just like we've achieved the 10% margins that we had set out before we'll set of new target and we'll we'll.
We will strive to achieve that.
Thanks, and then finally.
You talked about your higher shipping costs and everything can you talk about other inflationary pressures and also just are you actually having trouble getting actual of components or materials like from Asia.
Are there any areas, where you're just not getting what you need thanks.
Thank you Linda.
Well, what we're saying as far as getting suppliers from Asia or all of the international destinations are Fortunately most of them of hard good point of view, while we do source product from Asia, and it's not a significant part of our business.
So we were able to manage that effectively and have for the last couple of years as those challenges have been with us for for a while now and.
Certainly the most recent challenge was the blockage in the Suez Canal of the blockage of the sum of the parts.
Been able to manage our way through that effectively bill anything to add on that as far as the other inflationary costs.
Yeah again, we've been dealing with labor and shipping cost increases for the last several years again, we continue to look to offset those costs through operational efficiencies through automation, whether it be in our distribution centers, whether it be in a call center of operations two to offset those of you know to offset those cost great. Thank you.
Thank you thank you Linda.
Yeah.
Thank you. The next question comes from Dan <unk> from the benchmark of company. Please go ahead Dan.
Great. Thanks.
Morning, obviously, a nice quarter and guide.
Well really just kind of a follow up first on the margin question, because it's not always linear.
You know obviously, there was weather in the quarter, but just with cash.
Copying some of the pandemic benefits are you basically saying that you know even though.
You had incredibly easy sort of marketing, let's call it back in.
The June quarter of 'twenty as we look out maybe over the next 12 to 24 months that you're you've found ways to continue and granted you'll have P mall.
You know driving some mix benefit there as well, but you can kind of keep margins improving.
And as you lap some of the the.
For the pandemic benefits.
Well, Dan we're very pleased to be giving not only low double digit top line growth guidance for Q4.
But also being able to extend that into fiscal 2022, you know in August call, we're going to give more details as to guidance going forward and that would include guidance on both gross margin and up and operating and operating leverage but over the longer term.
We believe we can drive.
The margins.
Did you give the number in the quarter for gross X T mall and in the June quarter, obviously, it's hard to handicap. Since you guys just crushed Q2 with tmall relative to expectations.
If you run of normalized trajectory of the guidance would imply that youre pretty darn close to organic growth.
X team all of the June quarter. My guess is Tmall is doing a little better than I thought but is there any way you can give some color around that.
Well back in the in the third quarter P Mall, you did about $40 million of sell in revenue so the consumer floral and gift segment.
Showed 70% loans still grew at 44%. Despite the challenges of Valentines day. So the one of them on the flowers brand grew nicely and grew over 50% in January and March and overall the company we grew over 55% of.
<unk> in the in the third quarter.
<unk> going to be a nice growth contributed to the.
Two of the fourth quarter, but again coming off of it.
Incredible quarter that we had a year ago, we're very pleased to be giving guidance to the double digit growth in the fourth quarter and that is inclusive of BMO.
Yeah, I think the I think the point of making them that you're close to organic growth off of the 60% comp I mean, youre not quite there probably the T mall is doing better and Theres. Some theres got to be some sequential improvement, but I mean, that's just staggeringly high.
And then maybe for.
For Chris just to include you I guess.
You, obviously want to get deeper into the personalization of lot of opportunities, we actually heard interestingly ebay talking last night about getting into some of the customization categories, although they sound like they're competing more with etsy on that front.
I am curious I know you guys would like to buy something but in the meantime.
There are plenty of companies out there that might be able to provide the ancillary opportunities. How are you thinking about partnerships. If you can't scale. It deeper are there areas that you can attack right away with tuck ins just help us think about how quickly you can expand sort of your breath of within the personalization category.
Dan Thank you.
You're right there is lots of opportunity for us and we look at when we approach the opportunity and the number of different ways across our categories, but then I'll come back to personalization as we look at the business, we look to constantly expand our product offerings and whether we do that through our kind of internal development or working with different partners around the world.
Around the country around the world.
And more of a marketplace model that we've spoken about in the past so we've been adding capabilities there, especially within the flowers brand right. Now if you broke out the debt gifts and accessories channel you've seen the product offerings grow more and more of that as we look at personalization space. What we said from the very beginning was at personalization mall was a great platform.
For us to add into our platform. So we look to be able to grow personalization mall as we expand the kind of the that land and expand the strategy that we've talked about.
And it's a small example of that is we recently launched a personalized candy product on personalization mall and that's what the third with us.
Part of that we're working with that has that capability, we didn't need to bring that capability in house. So that's just the small example, but we see we've identified and see several key cash.
<unk> growth opportunities within the personalization space, the personalization mall, because it's a great platform to build upon.
Alright fair enough. Thank you guys I appreciate the coloring. The obviously congratulations great cause for the momentum continuing and thanks Dan.
Thank you again, if you have a question Keith.
The next question comes from Anthony <unk> from Sidoti and company. Please go ahead Anthony.
Hi, Yes, good morning, and thank you for taking the questions and you know certainly very impressive results. So you know great job with everything so.
Just the one thing as far as you know are the the passport the.
Especially you provided.
Certainly nice to see that share of quantifying that as far as.
If you could give us some of some sense of it so the order of frequency that youre seeing from passport members along with the just overall retention they all the metrics.
Perhaps quantify any of any of that that'd be very helpful. Thank you.
Thank you Anthony Yes, we wanted to share of a little bit of color on the passport gross because it's been phenomenal, it's really helping to drive trial of you know the increase behavior metrics that we're seeing in our file so.
So we wanted to let people know it's its growth to a significant number of per passing the 1 million membership Mark and what we see from passport customers and all of our customers that buy for more than one category one of more than one product category is their frequency of generally starts to increase by two to two and a half times, what the average customer is and the retention rates.
Increased by about 40% to 50% so significantly enhancing the lifetime value and again, we see that from customers who of passport who stay single threaded the single product category of threaded or more importantly, we see them just because of our communications for them start to migrate to more than one category and when you have a customer who's passed.
For it and buying for more than one category those numbers I just referenced increase even further.
So it's a very valuable program for us and as we continue to expand the platform with more product categories.
The partnerships like we just talked about or was that just can't the company as an example.
Or through acquisitions as we did in a major way with personalization mall.
More of a more products more and more solutions to help our customers Express connect and celebrate the value of that passport membership gets greater and greater all the time.
Got it Okay and then in terms of the a O V for of passport member versus a non members. The noticeably the friends are consistent with the the spin the average.
Oh the IDE.
Pretty consistent with the average.
Overall the way Anthony.
Overall, Anthony <unk> for the.
For the quarter was basically flat, we see it rising a little bit on the food side, especially with how Harry <unk>, David PMO always the lower ticket so as of the enterprise on a blended basis of our AOE is relatively flat. So basically the growth is all of unit growth.
Got it okay. Thanks for that and then.
Just wondering you know so as far as your.
Cash flow priorities of I know you talked a little bit about the you had a separate press release about the buyback of you mentioned that as well of so I'm just wondering as far as your main capital allocation priorities and maybe if you want to just touch on your appetite for additional M&A activity.
Alright, Thanks, Anthony and recognizing as you see our results we're generating good very good amounts of cash.
Balance sheet is extremely strong and it's one of our core great. One of our greatest assets really as we look at the platform that we built and more importantly, the platform that we will continue to build so we will continue to invest in our core business invest in the platform and all the elements of the platform the technology side right through the distribution of manufacturing.
Abilities that we have.
As Bill referenced we continue to enhance with the automation et cetera.
And then as well through acquisitions like you've seen us in the last two years of quiet Schervish berries, and personalization mall will continue to look at that and what's the.
Thrilled that our board gave us this new authorization as we believe the stock has a compelling value and this gives us that added flexibility to return value to shareholders in a different way.
Got it Okay, and then last question more of a more of that's kind of of housekeeping here. So as far as the tax rate the for embedded in the Q4 guidance is that does that imply.
More normalized the tax rate versus what we saw here in the third quarter.
Yes, Anthony overall, our effective tax rate for the year is <unk> 21 per se in 'twenty between 'twenty, one and 22% and that's what should be factored into the you know the fourth you know the <unk>.
Fourth quarter the benefit we got in the in the third quarter again, as we continue to make more money.
Some of the.
Discrete items or permanent items at the that we have to get.
Have less of an impact until the effective tax rate has gone up throughout the throughout the year and we had the.
Get the annual tax rate.
You think of 21% to 22% and therefore, we got the benefit in the third quarter.
Got it alright, well, thank you and best of luck. Thank you.
The.
Thank you. The next question comes from Doug Lane from Lane Research. Please go ahead Dan.
Yes, hi, good morning, everybody I just wanted to stay on the on the acquisition topic. Here can you give I know you can't say anything until you announce something but could you give us just a quality of qualitative assessment all of the M&A front and are there properties that you're looking at actively now.
Okay. Thank you, Doug and things kind of.
You for the question.
We're always actively looking and we spend a lot of time, making sure the with networking in the space that we want to be in the spaces that we're currently in the maybe adjacency categories. We might one of the move into so we're always actively looking I would say the landscape right. Now you see companies that are looking to sell based on the real it is phenomenal year that they had last year, which with the <unk>.
Certainly always that needs to be normalized when you look of valuations so that presents a challenge.
So it's an act of its an active market today I think of with some challenges in it as I just mentioned in the scenario, where we continue to look all of the tuck ins like we had with Sharon's berries all of the platform additions like we did with personalization mall and why do all of the capabilities the tools and capabilities.
Customers are looking for to help them express connect and to celebrate yes, I think the Christmas.
Christmas of last point, you know that kind of shows over the last 18 to 20 months of hungry.
Two bookends of the type of acquisitions, we can buy whether it's like cherries berries, where it's truly of kind of a tuck in.
Not buying really any of the hard assets, just buying kind of the IP and placing it on our platform and having it grow and grow very profitably that way or whether it is a standalone operation of bigger acquisition and the Standalone operation with people all of that brings is a new product category that we can get into and then leverage as Chris mentioned earlier that shows that kind of the debt.
The two sides of the of the spectrum of types of companies. We would look for and then that I think that shows our capabilities. We're very proud of the teams that we've put out the being.
Being very judicious on the diligence front as well as debt being very focused on the integration front and we've been building some great capabilities. There. So that's the strength of ours, we look at and how do we leverage that going forward.
Okay that makes sense, thanks and.
Bill.
Obviously, you mentioned labor costs, you mentioned shipping costs, but inflation is a ramp here, so where else should we be thinking about inflationary pressures as we model fiscal 'twenty two.
Well those are the big ones because those of the big.
Of course drivers if you look at our P&L you see the kind of the cost of goods and.
In shipping costs of a big a big piece of a big piece of that and labor loans into both of.
Cost of goods, that's the major part as well as some down in the of operating expenses. We obviously continue to look at.
Marketing costs, and we're marketing cost digital marketing, which will be the normalized <unk>.
After the.
The big.
The drop last year, and then a surge as the.
During the November during the you know the national elections, and during the holiday period, and then the more normalized now, but we continue to monitor where we're marketing you know rates are those of the kind of the big the big categories. What we have as you know as offsets to that is our continual investment in autumn.
<unk> the helped drive down Yo Yo labor cost, what we think what we've experienced with the pull back significantly on promotions as a result.
Offset these costs and not throughout this whole year, we've been able to drive gross margin improvement. Despite these operating but despite these cost increases.
Okay. That's helpful. Thanks.
Thanks, guys. Thanks, Doug.
Thank you.
Can you do question and answer session I would like to turn the conference back over to Chris Mccann for closing remarks.
Thank you Kelly and thank you all thanks for joining us on the call today as always please don't hesitate to call or email us with any additional questions. You may have about our outlook for continued strong growth.
And lastly don't forget mother's day is just around the corner and you can visit our special love. It makes the family and hashtag no limits on websites to pose you of heartfelt videos celebrating all of the important moms in your life that I really urge you to do that and see the wonderful content that the teams of bringing to market of really telling the story and engaging with all of <unk>.
Customers in a much deeper fashion.
I think you'll be very pleased with what you see.
Thank you and we look forward to talking for them.
Thank you the conference is now computed. Thank you for attending today's presentation you may now disconnect.
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