Q2 2022 1-800-Flowers.Com Inc Earnings Call
To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Joe Potato Senior Vice President Investor Relations and corporate communications.
Please go ahead.
Good morning, and thank you for joining us today to discuss one 800 flowers dot coms financial results for our fiscal 2022 second quarter.
For those of you who have not received a copy of our press release issued earlier. This morning. The release can be accessed at the Investor Relations section of our corporate website at Www, One 800 flowers, Inc. Dot com.
Our call today will begin with brief formal remarks, and then we will open the call to 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 $19 95.
These statements involve risks and uncertainties that could cause 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 our SEC filings, including the company's annual report on Form 10-K , and quarterly reports on Form 10-Q .
In addition, this morning, we will discuss certain supplemental financial measures that were not prepared in accordance with generally accepted accounting principles.
Reconciliations of these non-GAAP financial measures to 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 any recordings of today's call. The press release issued earlier today.
And any of its SEC filings, except as may be otherwise stated by the company.
I will now turn the call over to Chris Mccann.
Thank you to everyone for joining our call. This morning.
As we reported in this morning's press release, we achieved solid revenue growth of seven 5% for our fiscal second quarter. This was on top of the 45% growth we reported in last year's fiscal second quarter.
And represents growth of more than 55% compared with the fiscal 2022nd quarter.
For the quarter, we achieved topline growth across our three business segments highlighted by an increase of approximately 10% in our gourmet food and gift baskets segment.
Driven by double digit growth at Harry <unk>, David brand.
As we noted in our press release and comments at the end of October we saw a solid double digit growth in September that carried through October .
This continued into mid November driven by the success of our initiatives to drive everyday gifting as well as early ordering by customers for the holiday season.
Consumer demand has slowed however, after the Thanksgiving holiday and did not pick up again until late in the quarter.
As a result total revenue growth for the quarter was below the double digit pace that we had anticipated heading into the period.
Nonetheless, our solid revenue growth on top of last year's tremendous increase reflects our continued focus on engaging with our customers to deepen our relationships with them to.
The continued expansion of our product offering.
Our ability to attract a significant number of new customers.
The growth of our celebrations passport loyalty program.
And our increasing ability to personalize, our customers' experience using AI and machine learning.
Now I'll come back to these topics in just a moment, but first turning to our bottom line results for the quarter Bill will provide more detail in his remarks in a few minutes, but as an overview the macro economy headwinds that we had discussed back in October persisted and escalated significantly throughout the quarter.
These headwinds include an unprecedented disruption to the global supply chain.
Limited availability and higher costs for labor.
And increased costs from third party shippers.
As a result, our gross margins were impacted and our bottom line results came in below our expectations.
While we anticipate that these headwinds will moderate over time, we expect they will not disappear in the quarters ahead.
So we will continue to invest in initiatives to mitigate their impact such as the further automation of our warehouse and distribution facilities, bringing in inventory of products and components that we import earlier.
Pre building inventory of non perishable items and implementing programs that can help us optimize our outbound shipping.
Over the longer term, we anticipate these initiatives will enable us to improve our gross margins and drive enhanced bottom line performance.
Jumping back to a few of the customer centric and topline growth initiatives that I touched on earlier, we continue to lean into our initiatives focused on engaging with our customers to deepen our relationships and create a true community.
As I've said in the past we are a company that aims to inspire people to express themselves and connect with each other and celebrate lifes most important moments.
One way, we measure engagement is with the specific touch points that we have with customers through social channels content influences and video.
Through the first half of fiscal 'twenty, two such programs created more than $55 million engagements two times. The number that we created in the same period last year.
Throughout the holiday season, we worked to integrate content into our shopping experiences.
Launching programs like what I love about the season and.
And our favorite holiday memories that use video and storytelling to reinforce the importance of the holidays is a time to connect express and celebrate.
We also launched a fund holiday recipes series, featuring both celebrity chefs and influences, culminating with our holiday bake off program that attracted more than 1 million views on Facebook.
And as we announced earlier this month.
We added analysis table to our platform.
Featuring fully digital interactive classes for designing floral arrangements, creating charcuterie boards hosting wine casings and other unique experiences.
Since we began offering these classes more than 80000 people have enjoyed the opportunity to celebrate their creative capabilities and have some fun doing so.
Perfect illustrating our engagement strategy.
During the second quarter. We also continued to expand our product offerings with our newest acquisition vital choice further expanding our offerings in a highly on trend better for you gourmet food category.
With the holidays behind US now we will work to fully integrate vital choice into our platform.
We continue to expand our collection of bundled products, putting together some of our great brands to create truly unique gifts such as Harry <unk> Davids signature Royal Riviera pears with shareholders cookies.
And <unk> berries with beautiful holiday bouquets from one 800 flowers.
And we expanded our one 800 flowers and sherry's various subscription program providing the.
The ability for customers to tailor their subscription to their needs.
Now the combination of these initiatives and engagement and product expansion helped us add more than one 8 million new customers during the quarter.
And importantly existing customers represented more than 66% of total revenues in the quarter.
More than 400 basis points compared with the prior year period.
And we saw double digit growth in our best performing customer cohort.
They buy from multiple product categories and multiple brands.
This reflects the benefits of our cross merchandising programs and our initiatives using AI and machine learning to provide more personalized experience for customers when they shop on our platform.
We also continue to see strong growth in our celebrations passport loyalty program, which added more than 350000, new members during the quarter and continues to be a key driver of purchase frequency retention and lifetime value.
As we recently announced we have significantly enhanced the celebrations passport program.
Adding a tiered points based system that enables members to unlock additional perks and benefits beyond standard free shipping.
Some of these products include invitations to exclusive special events.
Early access to new products and collections.
Complimentary birthday gifts and order upgrades and discounted membership renewal.
Yes.
These enhancements are designed to reward our best customers with their thoughtfulness.
Develop a sense of community among passport members and capture more first party data to help us offer our customers a more personalized experience.
In addition to these enhancements we have also launched a celebrations passport app. Our first multi brand app that is designed as a destination for members to manage membership details as well as access trending products engaging content helpful tools and much more the celebrations app will serve as a single entry way to <unk>.
Our brands and we are very excited about its ability to significantly enhance customer experience.
Now I'd like to turn the call to Bill.
Thank you, Chris before I get into the details for the quarter I think it is important to reiterate what Chris said about our revenue growth.
Our seven 5% consolidated growth.
On top of the prior year's $44 eight.
Illustrates our ability to drive solid growth on top of the more than 2 billion revenue level that we reached last year.
For the quarter, we were pleased to achieve solid growth across all three of our business segments.
With our gourmet food gift baskets segment, and nearly 10% for the key holiday season.
We faced several challenges in the macro environment.
It impacted topline growth.
<unk> <unk>.
The reopening of some brick and mortar retail stores.
The widely reported lack of seasonal labor, which impacted our ability to assemble certain labor intensive product offerings.
Marketing ways that escalated during the quarter and was significantly higher than planned which impacted effectiveness in driving traffic to our sites.
And the unprecedented disruptions to the global supply chain.
On this last point.
One example of the impact was late delivery of some imported products and components that led to canceled orders from several of our large wholesale customers totaling upwards of $8 million.
Another example, with <unk>.
Product shortages from some of our domestic suppliers due to their inability to find sufficient labor resulted in more than $4 million in sales left on the table.
While revenues could have been even stronger the biggest challenge we faced in the quarter was clearly on the cost side and primarily within the components of gross margin.
The reduction in consolidated gross margin percentage reflected several factors, including.
Ocean freight.
As was widely reported the spot market for ocean freight rates increased 5% to 10 times historical levels.
We were certainly not immune to this despite having contracted rates.
As a result.
Costs in this area during the first half of the year increased more than five times. The prior year level, representing an increase of approximately $28 million much of which was incurred in the holiday quarter, our largest quarter.
Labor.
The lack of availability and the cost with hourly rates, increasing more than 25% compared with the year ago period.
And outbound shipping, including short and long haul trucking and surcharges from third party shippers associated with holiday deliveries and fuel costs, which escalated beyond what we were able to pass along to consumers.
As Chris noted.
We do not expect these headwinds to go away in the near term.
However, we do anticipate that they will moderate over time.
And we are working diligently to mitigate the higher cost through initiatives, including automation, our manufacturing warehouse and distribution facilities with a new Atlanta DC next up a full automation.
Using the strength of our balance sheet and strong cash position rebuild nonperishable inventory as well as bringing imported products and components early and expansion of our strategic pricing programs.
Breaking down some highlights from our second quarter.
As we've already noted total consolidated revenues increased seven 5% or $65 8 million to $943 million compared with $877 3 million in the prior year period.
This included growth across all three of our business segments.
<unk> gross profit margin for the period was 41% a decline of 530 basis points compared with the prior year period, reflecting the aforementioned headwinds.
Operating expenses as a percent of total revenues improved 70 basis points to 27, 9% compared with 28, 6% in the prior year period.
As a result of these factors adjusted EBITDA for the quarter was $133 1 million down 19% compared with adjusted EBITDA of $164 3 million in the prior year period.
Net income for the quarter was $88 5 million or $1 34 per diluted share compared with net income of $113 7 million or $1 71 per diluted share in the prior year period.
Primarily reflecting significant year over year cost increases inbound and outbound shipping labor and digital marketing.
Adjusted net income for the quarter was $88 6 million or $1 34 per diluted share compared with adjusted net income of $114 2 million or $1 72 per diluted share in the prior year period.
Regarding our segment results.
Homemade food and gift baskets segment revenues for the quarter increased nine 8% to $599 million, we are at $538 3 million in the prior year period.
Growth in this segment was primarily driven by Harry <unk>, David our largest gourmet brand, which increased more than 10% for the period.
Gross profit margin was 39, 3% a decline of 660 basis points compared with 45, 9% in the prior year period.
Reflecting increased cost for inbound and outbound shipping as well as limited availability and higher costs for labor.
Segment contribution margin was $110 5 million down 18, 5% compared with $135 6 million in the prior year period.
Reflecting the reduced gross margin as well as higher year over year digital marketing rates.
In our consumer floral and gift segment revenues increased three 2% to $315 1 million compared with $305 5 million in the prior year period with the one 800 flowers brand and personalization mall growing at two 8% and four 6% respectively.
Gross profit margin was 41, 3% down 270 basis points compared with 44% in the prior year period.
Reflecting increased cost inbound and outbound shipping as well as labor.
Segment contribution margin was $38 2 million down 16, 4%, we're at $45 7 million in prior year period, primarily reflecting reduced gross margin combined with increased digital marketing rights.
Luna.
Revenues for the quarter increased 11, 4% to $37 9 million compared with $34 1 million in the prior year period.
Italy, reflecting.
Increased wholesale shipments of hard goods.
Gross profit margin was 42, 2% down 720 basis points compared with 49, 4% in the prior year period, primarily reflecting higher inbound shipping costs and product mix, which offset the strong top line growth.
Segment contribution margin was $11 9 million down two 1% compared with $12 1 million in the prior year period, primarily reflecting increased inbound and outbound shipping costs with reduced gross margin.
Turning to our balance sheet.
Our cash and investment position was $271 1 million at the end of the second quarter.
Seasonally up compared with $173 6 million at the end of fiscal 2021, but down nearly $100 million.
Paired with our cash balance at the end of last year's fiscal second quarter.
This primarily reflects our investments in inventory to help offset the headwinds associated with supply chain and labor combined with.
Our stepped up stock repurchases repayment of term debt and our recent acquisition of vital choice.
Inventory was $191 1 million up approximately $90 million compared with the end of last years second quarter, reflecting the investments to help mitigate the headwinds we have discussed.
It's worth noting that the vast majority of our inventory position is in nonperishable ambient product and components that can be used during the second half of the current fiscal year.
In terms of debt, we had $171 8 million in term debt and zero borrowings under our revolving credit facility.
Regarding guidance.
We are updating our guidance for the fiscal 2022 full year.
Based on the results we have reported for the first half of the year as well as our outlook for continued revenue growth and continued cost headwinds.
We anticipate achieving revenue growth in the range of 79% compared with the prior year.
Adjusted EBITDA in the range of $140 million to $150 million in.
And EPS in the range of 90 to $1 per diluted share.
We anticipate free cash flow for the year will be down significantly compared with the prior year based on our bottom line guidance for the year and our plans to use our strong balance sheet to continue to invest in inventory to support our growth plans and address the headwinds we've described.
I will now turn the call back to Chris.
Thanks Bill.
So to sum up we achieved seven 5% revenue growth in our second quarter on top of the nearly 45% growth we had in the prior year period and up more than 55% compared with our fiscal 2022nd quarter prior to the pandemic.
We drove adjusted EBITDA of $133 million, despite unprecedented cost headwinds in the macro economy.
We attracted more than one 8 million new customers and added more than 350000, new members to our celebrations passport loyalty program.
We expanded our engagement initiatives, creating millions of touch points that help us deepen our relationships and build a true community and.
And we continue to expand our product offerings organically and through acquisition, adding hundreds of truly original products designed to help our customers solve for all their connective and expressive needs.
While we are clearly operating in a challenging macro environment, we are well positioned to address these challenges and over the longer term to build on the success that we've achieved over the past several years.
During which we have doubled the size of our business and significantly transformed our company.
Becoming a unique e-commerce platform that inspires and enables our customers to express connect and celebrate.
This is reflected in the unique platform that we've built which includes our all star family of brands, our advanced technology stack.
Manufacturing distribution and logistics capabilities, our digital marketing expertise.
And our expanded customer file.
In closing I'd like to know how very proud I am of all of our associates across the company, who will work together as a team to address the challenges that we have seen and continue to see in the macro environment and drive sustainable revenue growth and solid bottom line performance.
Now I'd like to turn the call back to the operator, so we can take your questions. Thank you.
We will now begin the question and answer session.
I'll ask a question you May press Star then one on your telephone keypad.
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If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from.
Kumar with benchmark company.
Please go ahead.
Good morning haven't gotten that one in a while.
Topline two questions first question when did you guys start trying to pass through pricing and how much do you think price elasticity was an issue.
From the consumer demand perspective.
Sure Dan Thank you and good morning.
I think we started fairly early in the season looking at where we could get strategic price increases and again, if you just keep in mind that as we went through the holiday season.
And as we talked about in our October call, we were seeing strong demand in September .
It took into October .
<unk> into November and it was really right up until the Black Friday, Cyber Monday weekend, where we was strong going into it and then we saw some slowness coming after that.
The dynamic pricing throughout that time period, and we saw that.
The ability to do dynamic pricing gives us the capability to turn it on and turn it off depending on what we've seen on consumer demand Bill you want to.
Yes, Dan the overall pricing the overall growth during the quarter really was all driven by.
Average order.
Comprised of really two components, one the dynamic pricing and the price increases that we did put through as well as.
Really a kind of a shift in product mix, we were featuring more higher priced items. Some of the labor challenges that that we had new the number of patent we knew the number of packages. We could we could process was going to be it was going to be limited. So we've kind of suppressed some of the lower price point items and featured some of the higher price items. Some of us would have impacted our overall.
<unk> conversion and impacted.
Our top line.
The reason the reason I asked the question is.
Understanding that there are a lot of dynamics in the holiday quarter.
The out two quarter guidance is now for basically an average blended average of 8% growth versus double digit growth and I think the obvious question.
Everyone's asking today is you guys have been pretty confident in.
Our long term double digit growth outlook now I know that your comps are rather difficult, but this has been an issue with all the ecommerce companies right. So what kind of like why are we looking at reduced revenue guide in the out two quarters and what gives you guys confidence in sort of your long.
Your term sustainable double digit forecast.
So I think as we look at the guidance I think we've taken into consideration what we saw during the holiday period, we saw that slowdown late in the quarter.
The consumer pulled back a bit we saw retail sales report come out recently.
Down, 2%, so recognizing that and looking forward. It is still the cost challenges that we had it gives us the.
The comfort level to provide the guidance of the 7% to 9% growth that were seeing.
Go ahead.
Yes, Dan.
Basically the first half of the year, we grew just around 8% and our guidance implies that.
We're going to have a similar growth rate in the in the second half of the year, we do believe it's going to skew.
A little bit more towards Q4, we have the Easter shift, which favors Q4 versus Q3.
We had a decrease in our deferred revenue at the end of Q2, which is going to impact a little bit of that.
<unk>.
In January but we do believe that with all the challenges that the macro environment and with the consumer when the consumer comes back we will rebound back to.
To that double digit growth.
And we think overall kind.
Kind of that high single digit growth in this environment is still it's still pretty positive and I think that.
As we look beyond that Dan.
The things that continue to give us optimism.
We took some challenges this quarter, we still delivered good growth as bill just pointed out.
And so many things are still going positive with the company that does not reduce our optimism going forward, whether we look at the celebrations passport customer cohort growth. We added 350000, new members there continue.
Continuing to see the performance of those customers.
Purchase frequency of two to three times out of the average customer we grew our multi brand multi category customers double digits during the quarter, we enhanced approach.
We're enhancing our personalization capabilities, we just enhanced the celebrations passport program with the new tiered points based membership.
System, the new App that we laid out so all of these things really continue and give us the optimism going forward. What we see is some short term challenges as bill pointed out with the consumer the inflationary costs et cetera.
And our ability to manage through that and get back to where we want it and we also saw.
A little unexpected the sharp rise in digital marketing rates that happened as we get further and further into the into the quarter. If you recall, we've talked about marketing rates that we knew we had a challenge in the June quarter, and the September quarter, because a year ago marketing rates were at historic lows because so many companies were not in the mall.
We saw them self correct a year ago in October when the national campaigns came on around the presidential elections, and so we had a more normalized comp.
Against our marketing rates this year, yes, what we ultimately saw as we got.
Well into the holiday season in the month of December digital marketing.
Rising at 25% to 30%.
Backwaters, although whereby supplies caused us to kind of pull back on on some of the marketing and some of the new customer acquisition.
Targets that we had.
So that's why our new customer acquisition of $1 8 million.
Eight number.
Was down compared to prior year. So some of the softness that we saw late in the quarter was on the new customer front and then you just got to cut cost per acquisition just got beyond the point, where we felt it was prudent to invest especially considering the pressures we had on gross margin.
Got it that's that's helpful. Additional color last one nine just on margin guide.
Guide at the midpoint.
Is.
400.
40 basis points year over year, lower now at 400 basis points year over year lower on EBITDA I am just trying to get a sense of how much.
How much of that is incremental investment on your part to future proof against these things understanding you can't address things like digital marketing rates, but how.
How much is incremental investment versus how much is just unexpected cost just kind of running out the December cost levels through the balance of the year.
Yeah, a lot of it is the continuation of the headwinds that we saw.
Ocean.
Freight.
While I think the.
Experts believe that over over time, they're going to kind of moderate probably never go back to where they were.
Two years ago.
But I think they're going to moderate over time, but the timing of that is still very much unknown and we're still seeing the spot market.
At very at very high rates.
Labor and some of the challenges with access to labor and labor rates I think we're at a new normal.
So there is.
It's $18 an hour that's that's up 25% over what we paid last year, and probably up 3% to 40% over what we paid three pre pandemic. So there are some ongoing challenges that we have we have initiatives in place to help offset these we've talked about the automation of our Hopewell.
Facility, we did 30% more volume on peak days out of that facility with 40% less labor on that facility, while continuing to invest in our other facilities to continue to automate manufacturing and.
And distribution, we're going to continue to use our strong balance sheet to bring in inventory early and we're going to use that that you see some of the investments. We've made in working capital were going to continue that as we will as we sell through that inventory, we're going to replenish.
Inventory to have that to make sure. We're ahead of the supply the supply chain, we're going to rebuild some inventory to use our core staff and be less reliant on.
On that on the seating.
On the seasonal labor and as Chris mentioned, we're going to continue to.
Play with our dynamic pricing.
During the holiday period is a very competitive market as we get into everyday.
Occasions in maybe the back half of the year some of the fall holidays, we're going to continue to test our dynamic pricing within the cabinet within those categories to help offset some of those some of those challenges, but we know in the in the short term anyway. Some of the margin pressures, we are still going to continue to exist.
Okay I was taking up enough of your guys time I appreciate it I guess, Chris just I'll leave you with just to be clear. There is no change in your long term messaging here, but the short term is really where most of the issues are is that fair.
Yes, Yes, that's fair then our long term optimism remains the same.
Great. Thanks, guys. Thank you.
The next question comes from Michael Kaplinsky with Noble capital markets. Please go ahead.
Thank you I know Dan asked most of my questions, but I have a couple of a couple of questions on the marketing side, you mentioned that marketing was less effective but I was just.
Obviously, you talked about the digital I know that you have an omni channel approach to marketing.
But I did notice that it seemed like maybe you've stepped up a little bit of that.
Television advertising with your everyday gifting could you just talk a little bit about the effectiveness of the channels that you were using in marketing and whether or not you feel that maybe the shift in marketing.
With an effective and maybe if you could just give us a sense of.
How do you plan to look at your marketing.
Going forward, whether it's content or whether it's different types of content or maybe a shift in how you look at marketing.
Michael Thank you for that question.
As we looked at the marketing spend during the quarter one of the strategies, we had going in was suspended more especially on the food brands, especially Harry <unk>, David to spend more top of funnel marketing and we did spend and allocate some more into TV, both OTT and linear capabilities linear TV.
We were pleased with the return there, but as we said as we got deeper into the holiday season.
Marketing costs overall, even in those channels increased but also as the consumers start to pull back and as we saw industry wide. During December the consumer got softer right. Following following black Friday weekend. So therefore, some of the effectiveness of that TV weakened as well.
Thank you.
Youre hitting on the point as we look going forward in our go to market strategy. So much is about how we engage with our customers differently. It's Hal.
We really use content and that's why in my formal remarks, I highlighted how we are measuring engagement and we know we had 222 times $55 million engagement contacts during the first half of this year utilizing content videos classes workshops redefining how we go to market.
This is a program that we had started but as we've been pointing out for the past two years.
Celebrated our capabilities as we really moved into the pandemic sending out the celebrations pulse newsletter that we send out on the weekends, which is not about selling its just about engaging with our customers and how we build relationships with them. So going forward. While we really will have a multichannel as you pointed out an omnichannel approach to <unk>.
Marketing at the core at its basis is how do we deepening engagement, we have with our customers because as we deepen the engagement.
Become those customer cohorts that we often speak about the multi product category purchases they joined celebrations passport.
And then we get the use of frequency and retention that we're looking for so that all comes together and I think you hit the nail on the head. It's all you know we're a company that looks to inspire expression connection and celebration. How we do that is through more engaging ways with our customers and not simply just product and promotional pricing.
Advertising.
Thank you Dan asked most of my questions. So that's all I have thanks.
The next question comes from Linda Bolton Weiser with D. A Davidson. Please go ahead.
Okay.
Yes, hi, good morning.
So can we just go back to.
The pricing because I'm not sure I understood you kind of mentioned that you kind of highlighted higher price point items that point to me that that was intentional.
Intentional mix driver toward higher average price point, but did you actually raise price on a like for like item. So just an apples to apples item did you raise price and can you give us some idea and if you did that what's the average percentage increase in price.
What percentage of the Skus or just give us some idea about about what Tyler pricing did take place. Thanks, guys. Linda I think you're right on both accounts, we did position in merchandize higher price of orders higher price items to drive the <unk> as we knew certain capacity constraints would be there we wanted to make sure we optimize the avi.
In addition, we did raise prices on Teradata is bill I would say its color yeah, I would say, it's pretty evenly split at a seven 5% growth was it was pretty evenly split between <unk>.
Higher higher pricing and and the repositioning of higher priced items, what we saw and again, we can we.
We can monitor this real time.
With.
With our dynamic pricing and we saw on some of the food brands and in particular, having David some of the pricing stuff.
In other areas, we did have to pull back as we saw the consumer and as liquid as the.
Holiday went on as the consumer pull back we did have to play with pricing and reduced pricing back to make sure.
We were getting the orders and the conversion rates. So we saw it in particular example was personalization mall.
It was very.
Competitive marketplace out there a very promotional marketplace out there so while we try to increase pricing.
We wound up having to pull back pricing in the month of December because we werent getting the conversion rates that we wanted and another example, there and kind of on the flip side of that Linda is in the Harry <unk> David business. For example, one of the lessons learned coming out of the holiday for US is we clearly have an ability to expand our product offerings into 149 to <unk>.
$500 price point items.
Merchandise, they're sold and sold very well and it tells US we have the ability to scale that at that price point category up higher.
Okay, I mean, I guess kind of just following that Brad.
No Wonder you know a lot of us consumer analysts are a little bit concerned about.
You know the consumer led stimulus et cetera versus comparisons last year. So I mean, how do you kind of marry that higher idea of higher price point more expensive items in the hundreds of dollars with this idea that the.
Humira is not getting the stimulus benefit.
Yes, I think what we did during the holiday season, though the other factor was some of the labor challenges, we had with access without access to labor. So we knew we had.
The capacity is only.
Final through X number of units so we scaled back on more.
More labor intensive product offering so some of the create your own products that we have that are very popular but they're labor intensive. So we pulled back on we pulled back on.
On those and we pulled back on the lower price points, because we are featuring the higher price points, because we knew we only we had capacity for.
X number of.
Units. So we know some of the things we did.
Would have.
Held back on the overall demand.
That we were achieving but we think we optimize we tried to optimize what we can get from <unk>.
Our throughput perspective, which will drive the best.
First top and Bottomline results for us and as our strategy remains the same we want to make sure we have a broad enough offering.
With broad enough price points to attract a large demographic of the customer base.
There's always the old adage is always 10% of your customers you don't care about price, but there is 90% of your customers, who do and we're making sure that we have offerings for all of our customers and as we.
As we move away from the holiday season, and have less constraints on that we will have a broad offering of price points for for the consumer.
Okay and then.
Just another question kind of on the cost side.
You are very well aware and you've been talking for many months about all these cost pressures anything giving a quantification of the increase in labor and you even said the Fedex surcharges were known.
So that's something like September October so you could actually lyanne.
<unk> kind of tried to offset so when you talk about what came in different than what you had in your plan like what was the one area that was most different what does the aesthetic surcharges wise, it's a labor wasn't the shipping like what what was what becomes your gross margin is really very.
Very significantly different from what the street expected yet so.
I wish I could point to one.
But.
Certainly several impacts.
Significant headwinds and we're talking about.
Ocean freight outbound shipping labor all of which we built in buffers into our into our plan on Ocean. We had contracted contracted rates. We were choking on the increases that we had the contracted rates and they were basically ignored and everything had to go to the spot market spot market wound up being 5% to 10 times what his.
The Oracle wastewater and it escalated throughout the holiday season, so even in the October call. We have one set of cost in mind, and then exceeded that dramatic <unk>.
<unk> <unk>.
<unk> kept going up so yes, we have contracted rates with our third party carriers.
Relatively low single digit increases year over year, but between yes, the holiday surcharges, we knew about fuel surcharges.
Residential surcharges all these surcharges added up so that we wind up paying double digit increase in.
Cost part cost per package and labor.
And access to labor and the cost of labor just kept rising I mean, we went from.
A few years ago, we were concerned about the federal minimum wage going up to $15. Because we were well below that right now we are paying $18 and going into the end of year ago, we were paying well under $15.
So those numbers just escalated significantly.
Significantly.
And with some of the delays in the supply.
<unk> chain, we mentioned in our formal remarks that had an impact we got inventory in after the due dates for some of the big box guys that we deliver wholesale products too we had to write that inventory off. So we had about a $6 million incremental write off on inventory because we've got the inventory in after that.
The deadlines for the Big box guys and they canceled orders on us. So it's both impacted both topline and margin. So we had built in a number of these buffers and we were very confident at the end of October with where the trend lines, where from a top line perspective, obviously greater topline would absorb some of these some of these costs, but we had just come off of two consecutive.
<unk> months of double digit double digit growth and we were feeling good about where the.
Where the holiday with <unk>.
From a top line perspective, and a cost levels, where at certain levels NHS escalated dramatically over the over.
From November into December and as Bill mentioned some of that also impacted the top line of business.
We said we saw a good good strong double digit growth rate for Black Friday, cyber Monday, and then it tailed off after that but during that time period because of some of the inventory challenges. The labor challenges, we had to pull back on revenue as well we had canceled orders.
He left a significant amount of demand on the table I'm going to guess bill probably at least two percentage points.
So.
Yes.
That caused challenges on the top line as well.
Okay, just one more just kind of a housekeeping things just on the Easter shift.
I actually thought it was fairly big.
Revenue might even be down a bit sort of organic at least in the third quarter, and then double digit or I don't know pretty strong in the fourth quarter can you quantify the shift at all so we can get it right in our model.
Yes, I mean Easter holiday is.
Sure.
As.
An incremental $15 million or so.
Revenue it doesn't fully go into from Q3 to Q4, because some of the.
Some of the food brands will still capture some of that revenue in Q3, but the bigger piece of the Easter shift goes into.
It goes into Q4, I mean, we do think it is the <unk>.
Growth in the second half of the year again as we the guidance implies kind of similar to what we have in the first half of the year will be more heavily weighted towards <unk>.
Q4 than Q3, but we will grow in Q3 as well.
Okay, and just one last one I promise.
Is it possible for me I didn't run my model through yet, but is it possible to free cash flow for the year could be negative slightly negative.
Yes.
So <unk> guidance, we gave on free cash free cash flow is that it's going to be down significantly year over year is obviously from a top line perspective, I mean from a bottom line perspective.
In the revised guidance that will impact free cash flow the big unknown is.
Our investment in working capital, we want to use our strong balance sheet, we want to use our strong cash position to put us in the best possible position for next year, So where we see opportunities to get inventory early we're going to take advantage of it and take advantage of that and obviously to the extent that we're investing in working capital that impacts that impacts free cash flow. So really does that.
And on where where the inventory.
Inventory.
Ends up but any any sort of detriment as associated with that is really a positive for us because it puts us in a better position for next year.
Yeah, Okay, well, thanks, a lot guys excellent.
The next question comes from Alex Fuhrman with Craig Hallum Capital Group.
Please go ahead.
Hey, guys. Thanks for taking my question.
If you talk about what youre seeing in terms of labor and supply chain pressures that as you get stuck.
Dr gearing up for the Big Ballantyne day, and mother's day holiday is obviously from a big picture it sounds like the headwind volume really going away, but at least for Valentine's day, and mother's day youre not necessarily competing against every other E Commerce company for seasonal workers and for shipping capacity just curious how you think about.
The major holiday season versus all of your other important holiday the men.
More towards kind of the everyday gifting component.
Did those pressures ease up a little bit just kind of wondering how we think about those pressures during the holiday season versus the rest of the year.
Well.
Alex the second half of the year is more floral centric.
Then then obviously the first half of the year.
While Florida is not immune to these to the cost pressures that we've discussed.
The distribution model that we have for floor with a floor.
With the flowers fulfilling a large part of the floor product theyre not theyre not as susceptible at least it doesn't impact us as much from that standpoint, so some of the challenges with ocean freight.
Higher labor, while it will continue into the second half of the year, our sales mix changes in the second half of the ESL.
The impacts on gross margin consolidated gross margin will not be will not be as great. I think from a standpoint of access to flawless supply we feel based upon our size in the context that we've made over the many years in this industry that we're in a good position from a flow of supply standpoint, as we head into the.
<unk> floor holidays in the second half of the year.
Okay, that's great. Thanks Bill.
The next question comes from Doug Lane with Lane Research. Please go ahead.
Yes, hi, good morning, everybody.
Can you talk forward looking.
What specific price increases you have.
In the works.
Maybe go through the businesses.
And give us a feel with some granularity on where you can.
Can't really take pricing in the March and June quarters.
I think Doug. Thank you for the question as we look at the pricing I think really it is a dynamic environment that we move into as Bill pointed out earlier, we were able to take some more we are able to be more successful with price increases on some of the higher priced items at Harry <unk>. David for example than we were at personalization more where you get into a lower price point, but real.
The dynamic point of view on where we see price elasticity elasticity opportunity for us as we move into the second half of the year, which.
Which is driven more by everyday business, its a less competitive environment, but the way we manage it really is by.
Constant <unk> testing and we have tests going throughout the day and if we see a price increase decrement in conversion rate.
This decrement in gross margin dollars will pull that back so it's a kind of it's a real time effort that we're working with the customers on our pricing initiatives as opposed to set it and forget it and see what happens to it.
Well that makes sense.
Im sorry, if I missed this but I think you talked about your pricing actions. The personalization mall did I hear you that you implemented pricing and ended up pulling them back at the end of the quarter can you just go over that again for me.
Yes, we did.
Just like we were doing throughout.
All of our business segments, we were playing with with pricing and trying to optimize.
Our pricing versus conversion.
To optimize revenue.
From that perspective, so in that category. It was a very competitive and promotional environment, especially in the month of in the month of December So some pricing that we were playing with and.
And.
And putting in we did have to pull back.
Okay and then the other businesses you have where you have catalogs isn't that make it difficult to raise prices and is there an opportunity there when you re print catalogs to take some pricing.
So what we've done with the catalog marketing specifically, we have been able to adjust the pricing mechanism. So that we can still have dynamic pricing on the web, but we have the ability to know.
If you recall, if you are calling from a catalog or accessing us from a catalog and give us the catalog number the published price will always be honored no matter what would what we're testing on the web so to make sure that we're in compliance and being being fair with our customers. So as we look forward, we'll take the learnings that we saw.
From the dynamic online pricing and apply that into our catalog pricing as we plan the next holiday season.
Okay great.
Thank you.
Thank you Doug.
The next question comes from Tim <unk> with Northcoast Research. Please go ahead.
Yes.
Thank you for taking my question.
So.
Been answered, but I was wondering if you could.
Bill specifically, if you could spend.
Just a little bit more time explaining.
Some of the supply chain pressures specifically coming from.
Aviary Ocean freight you called out some delays for the gourmet food gift baskets.
I was wondering if anything specific.
Also impacted the PMO.
Or.
Similar floral segment I think that was the biggest surprise in terms of revenues. So just wondering if theres any.
Okay.
And forcing delays there.
We've called this cause the shortfall.
Thank you.
Yeah, so from an ocean freight standpoint, two aspects of it one.
Tremendous increase in.
And price.
That we had normally when you contract for Ocean freight it's door to door you get it from from Asia right right to your facilities.
Those rates went up dramatically the spot markets went up dramatically, but then as you still see today and if you if you follow it.
140 tankers outside of the port of La So a lot of the delays that.
That had been created because of the port the port congestion, we wound up having in a number of cases, having to bring our own trucks in and grab the product.
At the dock and incur those incremental costs as well and Thats why we saw this.
Unexpected significant increase in our costs, where we are.
We're spending 2000 $830 million more.
On that component of the business.
And we did.
Empire prior years, but delays caused by the delay it did cause us problems because we got the product in late that had an impact on <unk>.
Our ability to assemble.
Products. So the labor challenges that we had and everything got kind of pushed back to.
Later in the year, so we had to pick and choose the types of products. We wanted to we wanted to.
We wanted to build on the consumer side and on the wholesale side, we talked about and Chris mentioned.
In the formal remarks.
That we wound up having canceled canceled orders.
On the wholesale side that really was all within the food the food side of our business on the floor.
In <unk>, we didn't really have we had delays in getting product and getting product in.
But it didn't it didn't impact ultimately impact the demand like it did on the on the.
<unk>.
On the <unk> on the fruits of the business.
Okay, sorry, yes, so just to clarify I guess I was just looking at it as a true clean kind of demand falloff in the PMO consumer floral segment as opposed to maybe some noise with the.
That capacity.
Fulfillment.
Right.
Correct, Yes, yes, I think on <unk> was a very competitive environment. They have a tough comp that grew over 50% in the year ago period, and they were comping against that.
Just under 5%.
And this holiday.
This holiday time in a very competitive and promotional.
Market for that product category that kind of lower price point product category I think it's important to point out, though whether it be in the personalization category, whether it be the floor or quite frankly across all of our product.
Product categories from the data that we see in our best estimates as we gained share in all major categories.
Even with the challenging environment that we operated in the macro environment and the headwinds that we faced.
Our best view that we still gained shares in our key product categories, including personalization.
We remain very optimistic and very bullish on the future growth of people.
Alright. Thank you I guess lastly, do you see.
Are there new competitors that maybe haven't yet that are driving that increased competition.
Or is it just the really just the established players being more promotional. Thank you, yes, certainly the latter more of the established players being more promotional I think most a lot of retailers and E. Tailers went into this holiday season expecting that we would not have to be as promotional as it turned out to be.
Because I think we saw some pull forward early customers.
Purchasing early so as we hit the key holiday season, it became a very competitive environment and as bill pointed out in the personalization category for us, especially.
Alright, Thank you, Chris and Bill.
This concludes our question and answer session I would like to turn the conference back over to Chris Mccann for any closing remarks.
Great well. Thank you all for joining us this morning.
Right the opportunity as you can see we remain extremely optimistic on the future of the business.
<unk> said, we've had the platform that we have to inspire people to express connect and celebrate and the opportunity that gives us going forward.
Right around the corner is Valentine's day, So I urge you all to remember to please place your orders early Valentine's. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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