Q3 2022 1-800-Flowers.Com Inc Earnings Call
Good morning, and welcome to the one 800 flowers Dot Com, Inc. First fiscal year 2022 third quarter conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask question to ask a question you May Press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Joseph to Tito SVP Investor Relations. Please go ahead.
Okay.
Good morning, Thank you for joining us today to discuss one of them to flowers that Toms and the actual results for fiscal 2022.
Sure.
So those are if you 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.
One 800 flowers, Inc. Dotcom.
Our call today will begin with brief formal remarks, and then we'll open the call to your questions as they can.
Today will be Chris Mccann CEO .
That's right.
And Bill Shea CFO .
Before we begin I need to remind everyone that some of the statements that we hold as they do today, maybe forward looking within the meaning of the private Securities Litigation Reform Act.
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 earlier this morning, as well as the 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 or any of its SEC filings, except as may be otherwise stated by the company.
I'll now turn the call over to Chris Mccann.
Thank you everyone for joining our call this morning.
Before we jump into the results for the third quarter I'd like to take a moment to level set our view of the significant changes or stages that our company has seen over the past several years Sn.
Essentially we see our business in the macro economy that we operate in four stages pre COVID-19 during COVID-19 .
Current environment, which I will optimistically called late Covid.
In the fourth stage our outlook for the future.
Prior to Covid, our company had set a goal to accelerate revenue growth, while continuing to grow EBITDA and free cash flow.
For the second half of fiscal 2018.
First three quarters of fiscal 'twenty, we significantly accelerated our growth rate from low single digits to high single digits with a forward looking guidance at the time, calling for double digit growth.
We did this by leveraging the strength of our all star family of brands and evolving our business platform into a highly scalable and Leverages <unk> E. Commerce platform that is built for growth.
The world's changed dramatically in the spring of 2020 with the advent of the Covid pandemic and we all had to adapt to Lockdowns work from home social distancing masks and so much more that we've all had to live through.
From a business standpoint, we had to pivot quickly to address dramatically increasing demand from consumers stuck at home will be sure to protect our associates across the across the company.
Once again, the resourcefulness and dedication of our team helped our customers stay connected with the important people in their lives and we saw our revenues our bottom line results in our customer file accelerates significantly.
Today as we are entering what we hope are the late last stages of the pandemic.
And the macro economy has changed dramatically once again.
Disruptions in the global supply chain geopolitical turmoil and an unprecedented rapid rise in price inflation have combined to deliver a broad range of challenges to the macroeconomic environment for rising cost to slowing consumer demand as.
As we look ahead to the future we know that we need to address the challenges we face in the near term, while continuing to invest in our business in the long term.
That has been our business philosophy from day, one and it has enabled us with the talented team an experienced team that we've assembled and the unique business platform that we've built to weather the challenging periods in the past and emerge as a bigger stronger and better company that we are today.
That said, let's turn our attention to the most recent quarters results, which as we stated in this morning's press release well below our expectations.
During the quarter, we saw a solid growth for the Valentine's day holiday and a one 800 flowers brand and based on the industry data that we've seen we continue to extend our market leading position in the floral category.
However, the holiday periods strength was offset during the quarter by the slower consumer demand across all categories for everyday gifting occasions, reflecting growing consumer concerns with rapidly rising inflation and geopolitical unrest.
In terms of the bottom line our results for the quarter reflected a continuation and in some areas such as fuel prices and escalation of the inflationary pressures that we discussed back in January .
While we expect these challenges to persist in the near term we are beginning to see early improvements in certain areas, including some softening in ocean freight rates.
Port disruption and improved outbound shipping efficiency trends that we certainly hope will continue.
More importantly, we're taking proactive steps to address these issues and we are well positioned because of the scale of our business and the strength of our unique business platform to weather the current macroeconomic environment and as we emerge as we have in the past a bigger stronger and better company.
To provide some perspective on a scale of revenue in the third quarter, while essentially flat with the prior year period was up more than 68% compared with our fiscal 2023rd quarter.
In fact over the past three years, we have essentially doubled the size of our company with revenues now exceeding $2 billion while.
While macro market conditions have slowed consumer demand in the near term, we anticipate driving growth on top of last years more than 42% increase for a full fiscal 'twenty two year.
We will continue to leverage the unique assets that we've assembled on our platform, including our all star lineup of market, leading brands in floral gourmet foods and personalized gifts.
And we continue to expand our product offerings to accretive acquisitions that our customers are embracing such as share as various personalization mall and our most recent acquisition vital choice.
Our large customer base, which also has more than doubled in size over the past few years and includes extensive and increasingly valuable first party data.
Here, we are combining behavioral and demographic data with machine learning technology to create highly personalized campaigns and experience for our customers on our sites and throughout our communications touch points.
Our celebrations passport loyalty program, which continues to grow at a strong pace.
With membership up more than 40% year over year.
Shortly as we always point out the behavior of our passport customer continues to be strong in terms of frequency retention and average spending all well above non passport customers and passport continues to feed our very best customer cohort.
Those who purchase for multiple product categories or brands.
Those that have a highest frequency retention and average spend.
We've also been improving the user experience on the new celebrations passport App that we launched in January .
Some of the new features we've added include the ability to search for any product across our family of brands on the app, including wine.
And we have deployed new ways to connect with our customers directly through the App, we provided help finding gifts and advice on how to celebrate we present custom app specific promotions and events and we pushed tailor notifications based on past experiences.
Along with the passport App, we continue to view the overall celebrations passport loyalty program is a key element in our strategic focus on customer engagement and enhancing the total customer experience.
Along that line. We also continue to expand our initiatives to create a true community through a broad range of non transactional engagement experiences and content.
Through the third quarter, we reached more than 80 million consumer engagements driven by our content and social campaigns and a growing number of influencer campaigns.
We are now fast approaching our target of more than 120 million consumer engagements for the full fiscal 'twenty two year now these engagements really help us to build relationships with our customers beyond the transaction and give us the opportunity to really deepen that relationship.
We believe the combination of these unique assets and initiatives position us well to manage our business and drive long term revenue growth.
In terms of bottom line results, while we anticipate facing continued cost headwinds in the near term our strong balance sheet enables us to invest in our operating platform to address these issues and build for the future.
These investments include initiatives to automate our warehouse and distribution facilities, which reduces our exposure on the labor front to utilize our strong balance sheet to build and bring in inventory early to get ahead of the ongoing global supply chain issues and to optimize programs to enhance our outbound shoe.
Shipping operations and manage rising third party shipping costs over the long term. We anticipate these initiatives will enable us to improve our gross margins and drive enhanced bottom line performance now I would like to turn the call over to Bill for his review of some of the key metrics from the third quarter.
Thank you Chris.
Results for the fiscal third quarter, both top and bottom line well below our expectations.
Revenue in the quarter were down 1% compared with the prior year period, reflecting.
Solid growth of approximately 5% for the Valentine's day holiday in our consumer floral business and contributions from vital choice, which we acquired back in October .
These positives were offset by the shift of Easter to later in our fiscal fourth quarter. This year compared with last year when most of the holiday sales fell in our third quarter.
Lower deferred revenues coming into the quarter compared with the prior year when customers, particularly at our Harry <unk>, David brand, we're willing to accept delivery of holiday season gifts well into January .
And.
Slower e-commerce demand for everyday occasions throughout the quarter, reflecting growing consumer concerns.
With rising inflation and geopolitical unrest.
But as a reminder.
Q3 revenues were up 68% over Q3 of fiscal 2020, the final quarter prior to the pandemic and up 52% on an organic basis.
If we exclude PMO and vital choice revenues.
In terms of our bottom line results.
Gross margins in the quarter were impacted by several factors, including.
The continued disruptions in our global supply chain, the escalation of commodity costs.
Increased cost for inbound and outbound shipping, including an acceleration in fuel surcharges related to rising oil prices.
Increased year over year labor rates across the company.
And the write off of certain inventories of expired perishable products, reflecting soft softer than anticipated.
Main levels.
In addition, during the quarter, we continued to see digital marketing rates up more than 30% compared with the prior year period levels, which impacted effectiveness in driving traffic to our sites.
As Chris noted, we do not expect these headwinds to go away in the near term.
However, as we enter our fiscal fourth quarter, we do see some opportunities for improved performance, including the benefit of the Easter shift into the period.
A strong inventory position.
And the spring season, as key holidays, including mother's day father's day, graduations and wedding season, where we anticipate stronger consumer demand as we saw in the past two quarters for key holiday occasions.
In addition, we are continuing to work diligently to mitigate higher costs through the investments in our business platform that Chris described as.
As well as through our strategic pricing initiatives.
Now breaking down some key metrics from our third quarter.
As we've already noted total consolidated revenues were $469 6 million down, 1% compared with $474 2 million in the prior year period.
Validated gross profit margin for the period was 32, 8% a decline of 610 basis points compared with the prior year period, reflecting the aforementioned cost headwinds.
Operating expenses as a percent of total revenues improved 60 basis points to 38, 4% of total sales compared with 39% in the prior year period.
Operating expenses, excluding stock based compensation.
Costs associated with the onetime employee class action legal settlement and the appreciation or depreciation of investments in the company's nonqualified compensation plan.
<unk> 10 basis points to 38, 1% of total sales compared with 38, 2% in the prior year period.
Combination of these factors resulted in a net loss for the quarter of $23 4 million or 36 per share compared with net income of $1 4 million or <unk> <unk> per diluted share in the prior year period.
Adjusted net loss for the quarter was $21 million or 32 per share compared with adjusted net income of $1 5 million or <unk> <unk> per diluted share in the prior year period.
Adjusted EBITDA for the quarter was a loss of $12 million compared with adjusted EBITDA of $15 4 million in the prior year period.
Regarding our segment results.
Gourmet food gift baskets segment revenues for the quarter were $167 4 million down four 5% compared with $175 2 million in the prior year period.
This primarily reflected softer consumer demand throughout the quarter combined with the shift at the Easter holiday and lower deferred revenue entering the quarter compared with the prior year period.
This was partially offset by higher year over year wholesale revenues and revenues associated with vital choice.
Gross profit margin was 25, 3% a decline of 1400 10 basis points compared with 39, 4% in the prior year period.
This primarily reflected increased costs of labor inbound and outbound shipping fuel and charges associated with the write off of expiring inventories.
Segment contribution margin was a loss of $17 1 million compared with segment contribution margin of $12 1 million in the prior year period.
The reduced revenues and gross margin as well as the higher year over year digital marketing costs.
Adjusted segment contribution margin for the quarter was a loss of $14 2 million, excluding one time costs associated with the settlement of an employee class action compared with segment contribution margin.
$12 1 million in the prior year period.
In consumer floral and gifts total revenues were $264 2 million, an increase of one 5% compared with $260 4 million in the prior year period, primarily reflecting solid growth for the Valentine's day holiday, partly offset by softer everyday gifting sales.
Gross profit margin was 36, 7% down 110 basis points compared with 37, 8% in the prior year period, primarily reflecting increased shipping cost and <unk>.
Segment contribution margin was $25 million down eight 9% compared with $22 5 million in the prior year period, primarily reflecting the reduced gross margin and higher year over year digital marketing costs.
And our balloon business revenues for the quarter were $38 4 million down, 1% compared with $38 8 million in the prior year period.
Profit margin was 38, 7% down 560 basis points compared with 44, 3% in the prior year period, primarily reflecting product mix and higher inbound shipping costs.
As a result segment contribution margin was $9 8 million down 18, 8% compared with $12 million in the prior year period.
Turning to our balance sheet.
Cash and investment position was $93 million at the end of the third quarter compared with $173 6 million at the end of fiscal 2021.
Lower cash balance primarily reflects our investments in inventory to help offset the headwinds associated with supply chain and labor combined with a higher capex spend primarily related to automation efforts and our investments in our audits.
An increase in our stock repurchases amounted to $35 million year to date and repayment of term debt.
Inventory was $214 4 million up $60 million compared with the end of fiscal 2021, primarily reflecting our decision to use our strong balance sheet to invest in inventory and help mitigate the continuing challenges in the supply chain.
In terms of debt, we had $167 2 million in term debt and zero borrowings under our revolving credit facility.
Regarding guidance.
We are updating our guidance for fiscal 2022 full year based on the results. We have reported for the first three quarters of the year as well as our outlook for our current fiscal fourth quarter.
We anticipate achieving total revenue growth in a range of 3% to 5% compared with the prior year.
Adjusted EBITDA in the range of $110 million to $115 million.
And adjusted EPS in the range of 55 to <unk> 60 per diluted share.
We anticipate that free cash flow for the year will be down significantly compared with the prior year based on our updated guidance and our efforts to use our strong balance sheet to invest in inventory to support our growth plans and to address the continuing headwinds we see in the macro economy.
I'll now turn the call back to Chris.
Thanks, Bill to sum up our results for the fiscal third quarter were below our expectations. Despite the solid growth that we saw for the Valentine's day holiday.
We continue to see significant cost increases as well as softer consumer demand for everyday occasions, reflecting the macroeconomic conditions.
We are proactively addressing these challenges by using our strong balance sheet to invest in initiatives that will help us mitigate rising costs and implementing innovative marketing and merchandising programs designed to engage and build deeper relationships with our customers to help drive improved growth.
During the quarter, we attracted nearly one 5 million new customers and added more than 225000, new members to our celebrations passport loyalty program.
And we continue to expand our cross category and cross branded merchandise programs fully integrating our new vital choice brand onto our platform.
As we enter our fiscal fourth quarter, we have several innovative marketing and merchandising initiatives that we are very excited about including a new partnership with global Superstar Dalai part, which we kicked off to celebrate international Women's day in April .
<unk> collaborated with our team to curate several exclusive floral arrangements she.
Dropped our newest album run Rose run along with the companion novel.
That was available for our customers to buy digitally on the one 800 flowers site.
She also promoted her collaboration with us on her social channels, reaching millions of how loyal fans.
And we have a new partnership with famed Iron Chef Geoffrey Zakarian, who is now serving as our culinary ambassador for Harry <unk> David.
So Carrie and work with our team to create special collection of Harry <unk>, David products, including items from a wolfman bakery and new vital choice brands and just in time for mother's day staying at the forefront of innovation. We've launched two exclusive collections of Ftes featuring unique artwork that celebrate.
Months.
Looking ahead. The current macro economy is highly unpredictable with that said it's important to note that we have faced challenging macro market conditions in the past.
Because of the strength of our unique business platform combined with our talented and experienced team we have emerged a bigger better and stronger company.
As a company we are continuously evolving through compelling messaging and unique gift offerings for every emotion we.
Our dedicated to helping inspire our community of customers to give more connect more and build more embedded relationships. We are confident that we will continue to grow our company and build shareholder value over the long term.
Closing as in my past calls I'd like to give a shout out to all of our associates across the company.
We have a tremendously talented team that continues to work diligently to address the challenges that we are seeing in the macro environment and drive long term growth.
I thank them for their hard work their innovative thinking and their laser focus on our community of customers.
Now I'd like to introduce you to Tom partner.
Tom was promoted to president of the company earlier. This week, having previously served as group president for our consumer floral and gift segment.
Since joining our company and 1991, Tom has held a number of physicians are increasingly responsibility.
Many significant contributions to our business not the least of which has been a tremendous growth and expanded market leadership in our one 800 flowers brand, which he has overseen.
<unk> also been instrumental in building, our company's digital marketing expertise championing Cross brand cross category product innovation to provide more gifting solutions for our customers and driving initiatives that further our commitment to customer service excellence Tom.
Tom and I have worked very closely over the years and I look forward to many many more years of partnership as he takes on this new role.
I am confident that his appointment will serve our stakeholders well as we further integrate our brands and our operating platforms.
Okay. We can now open the call for questions. Please thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing that Q2 with Jonathan a question. Please press Star then two.
Our first question comes from Anthony.
Rather than ski at Sidoti. Please go ahead.
Yes, good morning, and thank you for taking the questions I guess first just a quick housekeeping item.
Can you give us a sense as to pricing versus volume just for the quarter. If you have that available.
Sure. Good morning, Anthony Thanks for the question Bill you want to take that Joanne.
Sure Anthony.
<unk> was up 10 plus percent.
Offset by a decline in.
In units, it's kind of a combination of both the strategic pricing initiatives that we have that we've put in place but also.
Product mix as we are selling more and more bundled products and kind of.
Featuring more higher priced items on the site and I think it is important to note. We always look as you think you're familiar.
To make sure we have a broad range of products at all price points, So as bill pointed out.
We see the higher price point items growing will push those a little bit more but especially in this macro macro environment that we're working on it's important to have a good selection of entry level price points as well.
Got it thanks for that and then.
Just in terms of the gross margin pressure that you guys saw in the quarter. So you know why.
Quite a bit more than what we had expected.
Because the first time, you guys called out called out specifically a write off of expiring inventories.
As the magnitude of that.
Yes, so there was a number of factors that impacted.
Gross margins, we mentioned them in our formal remarks, both inbound and outbound shipping in the outbound shipping being influenced by fuel surcharges, certainly labor and commodity cost increases with inflationary as.
As well as just availability of.
Sure.
Some.
Supply such as such as wheat and eggs with the shortage of the shortage.
Hans.
But additionally.
The write off of some perishable inventory.
The large majority of the investments we've made in inventory is a non perishable items, however, coming out of the holiday season, we did expect stronger.
<unk> demand we maintained.
The labor some of the seasonal labor that we had at the holiday time as once you. Let go of that Labor you don't get it back and we built we built some inventory with some perishable pilots in theyre expecting higher demand, but that did not come.
We did have some write offs probably amounted to about $5 million to $6 million during the quarter, which is probably.
130 basis points of the six 600 or so points that were down in margin.
Got it Okay, and then you guys talked about the Easter shift just wondering how significant that was and.
And as far as the lower deferred revenue.
Wanted to get a sense of what the impact of that was that I have one more question after that.
The bill cover that and Thats important to hit that lower deferred income point as well. So we went into the quarter with about $10 million of lower deferred revenue again from Harry <unk>, David a year ago.
Customers were willing to accept order in December but accepted in January when we were light on light on inventory. That's one of the reasons, we've been making investments in inventory. So we went into the quarter about $10 million less in deferred revenue the Easter shift on on the other side, probably about $6 million or so 6 million plus moving out of Q3 into Q4.
Overall, the Easter holiday was up slightly.
Year over year between March and April the combination, but about $6 million moved into.
The month of the fourth quarter.
Gotcha, Okay, and then just kind of a bigger picture so.
You know, Chris you talked about some of the initiatives that youre working on to improve the cost issues, whether it's automation or other things so kind of.
Whats the timing of that and what could we see some tangible improvement you know in terms of your cost I know you don't have a crystal ball exactly but if you just get a sense can you give us a sense as to when we could actually see some perpetual improvements from these initiatives.
To try to offset the.
Cost headwinds that you guys are seeing.
Sure Anthony Thank you.
Then as we look at it the biggest challenge that we've been having and we're getting our hands around is the gross margin impact.
With that said, we do we did show improvements in our Opex ratio as we look at some of the investments that we're making automation of our warehouse and distribution centers as an example, and we talked about the benefit and the impact we're seeing from that early on again. The example, we gave him back in the Christmas holiday was.
Last year out of that largest DC and Ohio, we were able to ship 80000 packages a peak day.
This year, we were able to do several days I think like six days over 100000 peak day with 30% less staff. So we're seeing the benefits of that and thats continuing to roll through <unk>.
Automating more of our facilities and met with our debating our facilities in Atlanta et cetera.
More recent example of where we're seeing the benefits of that start to come in is from Valentines day were on a peak day, we were able to handle 30000 customer interactions completely automated because of our AI engine utilizing powering.
The VR and AR chatbot capabilities. So it was 30000 customer interactions completely automated we would've needed 1000 more people just for that one day to handle that if we werent.
Testing in this automation capabilities, so you're starting to see that rollout. It's hard for me to put a timeline on it because it's iterative process and it's happening every day.
Yes, I think Anthony if we if we breakdown the components of where the cost pressures are and where the margin pressures are you have inbound ocean freight.
That obviously is up dramatically over.
12 months ago 18 months ago.
The experts do believe that that's going to over time self correct, probably not for this holiday season, but over the longer term, we will self correct, maybe not back to 18 months ago rates, but certainly significantly drop off of what.
Current current rates are when you look at.
Outbound outbound freight.
Those rates are rates, we're going to continue to be high but they are influenced by fuel and fuel has spiked during the quarter so probably.
Outbound rates will probably paying 15% more per package youre right now than we were a year ago, probably 40% of that is just tied to fuel and ultimately fuel at cyclical and fuel.
We will self will self correct.
Often perishable products, we got to readjust that so that's a.
That's an item that we can that we can self correct labor law.
Labor rates, probably are going to remain high we are not expecting relief.
On that standpoint, but as Chris mentioned.
That's where a lot of the automation projects, we have both on the warehouse distribution, where a lot of our employees as well as.
Sir.
The service center on outbound rates, what our initiatives are is that while rates are higher were working with Fedex.
Our internal logistics team, so just to kind of improve and our manufacturing just to improve our operations. So that we can get products out the door faster that we can forward deploy product and inventory closer to the consumer so we can ultimately almost skipped down.
Sure.
Our level of service with Fedex. So you can move overnight deliveries to ground deliveries you can move ground at standard ground deliveries.
To ground economy delivery. So it's a it's a cheaper service.
Fedex, yet still meeting customers' expectations. So I think the two areas where.
It will self correct by themselves labor and Alpha outbound shipping we have initiatives in place to help offset those costs going forward and build on that last point that you just hit working with Fedex as an example to optimize our capabilities. We've seen good results recently.
On time delivery rates with Fedex, which then improves the customer experience cuts down on customer service contacts et cetera, So really improves the whole operating capability and our operating costs. It's a good point, Chris I mean, what we used to see prior to the pandemic was 98% on time delivery throughout the pandemic we were seeing.
Is that were in the mid <unk> in some cases low low as we've seen a rebound back over 90% on time deliveries and we continue to work with.
Fedex impression Fedex to continue to get those on time deliveries back up to historical levels.
In fact that <unk> got.
Well I think that's definitely very helpful color.
Thanks, a lot and best of luck going forward.
Thanks Anthony.
The next question is from Alex Fuhrman of Craig Hallum. Please go ahead.
Great. Thanks, very much for taking my question here it sounds like Valentine's day was pretty strong, whereas everyday gifting is really where we are the company struggled in the quarter can you unpack that a little bit more for us to be can we interpret that at January and early.
February were a little bit stronger before some of these macroeconomic headwinds really started to weigh on consumer demand or is it really more the story.
Consumers are continuing to spend around key events like Valentine's day, and mother's day, and then really just pulling back on Dell consumption and everyday occasion.
Thank you Alex So I think first off we just step back and look at the quarter to your point I mean, what we've seen during the quarter as rising inflation.
The geopolitical unrest all of that certainly the price of gas going up impacting the consumer with all of that said and the points that you made we continue to see us growing market share in the environment. Tom why don't you speak a little bit too is while we saw for Valentines day, and what that portends for us as we go forward into the spring holiday season.
Mother's day et cetera.
Alex.
Yes.
As mentioned in our formal remarks, we grew Valentine's by five.
5% in.
We are continuing to think see from our data that we're taking market share in the category.
As we said it does look like the everyday occasions are getting a little softer for us, but we have seen as bill mentioned.
Good response for Easter and we're expecting a solid mother's day.
And I think also as we look at every day every day motions Alex.
Keep in mind last year, our comp you against those everyday occasions last year, we're seeing significant growth and thats why its important as bill pointed out that during the.
During the quarter, which grew 68% over two year ago.
Flowers brand grew over 50% to two year ago.
And David grew at about 75% to two year ago, most of that growth that we've seen last year was really the majority of the accelerated growth within those everyday occasions. So we're seeing that come back to more tomorrow pre COVID-19 levels I would say I think.
Harry <unk>, David was a proxy for the entire field group. It was also up around 75% over two years ago.
<unk>.
Okay. That's really helpful. Thanks, and then it sounds like the passport program continues to show nice growth year to date, the slowdown you've seen in demand over the past couple of weeks and months I mean has that been seen more or less equally.
Your passport members and your multi brand customers as well as your maybe just kind of once or twice a year type customers.
Go ahead, Tom wanted to cover so yes, we are.
Still we remain very pleased with our passport results and how we've grown we said we'd grow membership for the quarter.
40% plus we've added 225000 passport members.
In the quarter and.
So continue to see good residents there and we've also continued to make strides in our checkout flow and how we market to customers.
In order to make our existing customers or new customers more aware, we're also seeing.
Good growth in converting new customers to the passport program. So so.
So we have continued to see good results, there and obviously that that portends well for for US on these customers are great for multi brand customer buying which is our strongest cohort Alex as we look at our customer file as Tom pointed out we are continuing to see strength in our multi brand multi category.
Customers are passport customers.
The softness year over year.
I want to point out because it's not exactly software year over year is more of a new customer acquisition than it is and what we're seeing from our existing file.
So with that said even with.
Digital advertising rates, increasing about 30% as we said.
And the market's increasing were still required one 5 million new customers during the quarter, so that shouldnt be understated.
So we're looking at that opportunity and one of the things we've talked about in the past.
Double check this recently just to make sure. This data is holding up the new customers that we've been acquiring since the pandemic.
Are actually still performing better than the new customers acquired pre pandemic, we're seeing slightly still higher retention rates doing that so that's the thing one of the components that really gives us confidence as we can move look forward to say, we're getting we'll get back to normal growth rates here is the size of our customer file, which again has doubled over the last couple of years.
As we've doubled the size of our business over the last three years or so the brands are platform. We built so the call that youre getting to all of those customer metrics and thats, what really drives our confidence going forward.
Great. Thank you very much.
The next question is from Linda Bolton Weiser of D. A Davidson. Please go ahead.
Hi, Thank you.
So I was just curious about.
<unk>.
Looking ahead, I know you don't want to get into giving guidance yet for the next fiscal year, but.
I guess initially maybe analysts would have thought you would have some cost comparison, the lethal little bit in the upcoming December 2022 quarter.
Because you had such a hard time with.
The past year, but now im thinking that even if cost and fuel and labor just stay where they are.
You may have unfavorable comparisons coming up on the cost side and surcharges and things like that.
Yes.
Holiday can you kind of just generally comment on whether that's a correct assumption.
I mean Linda.
Our policy is not to give guidance on fiscal 'twenty three we will do that in the.
In the August call.
I think what.
We will see by.
Generally speaking with this holiday season, we have efforts to help offset some of these costs and we're going to.
<unk> to invest behind those efforts to help offset some of these costs as I mentioned in my.
My earlier comments.
Some of these cost pressures that we have will ultimately will self correct by themselves the timing of which is tough to predict and Todd.
Some of these will not go away by by the holiday time, but I think we have certain initiatives in place that we're going to continue to effort to try and offset these costs to mitigate some of these cost increases and we continue to test.
Strategic pricing initiatives to help offset some of these costs as well, yes, I think that's an important fact that bill so I think that.
The assumption is exactly accurate Linda because that would assume that we're not getting any benefit from the efforts that we're putting in and I think we're getting tremendous benefit from the efforts, we're putting in to make sure that we get our hands around the cost. So if the external pressure to remain the same I think our internal mitigation efforts will give us improvements and I think as we look forward overall.
What we're seeing is again the benefits that we'll get as we come out to some better comps as we see going forward the growth rates that we're seeing from the customer file again seeing that earned growth from our customer file is giving us extreme confidence.
Couple that with what we've done with the <unk> the platform that we continue to expand on the M&A capabilities, we've done with businesses like cherries berries like personalization mall, our newest acquisition vital choice, putting which we just integrated onto our platform.
All of this has been successful for us and we will continue to be successful as we get our hands around the cost structure.
Okay and just.
Your comment about using the strength of your balance sheet too.
Continue to build inventory.
Okay.
To me that seems odd because at the same time, you are making a statement about consumers being pinched more because of.
Price inflation so.
I'm just kind of wondering like are you building inventory in the T mall type items, which you need to have ready for the holiday or what is it specifically that you feel like you need to build more inventory in.
While a lot of it is addressing kind of the supply chain issues. So to make sure we have the inventory what we what we faced.
Uh huh.
Our holiday plus ago was a lack of inventory what we faced this past year was the timing of inventory with all the supply chain challenges that we had so we didn't have the inventory in play.
When we when we needed it so inventory delays were happening we had labor that we hired we couldnt produce on time. So it was very disruptive to our to the operations so having inventory in play.
No.
So that we can build and plan our operations.
<unk> is clearly a benefit.
In the upcoming year versus versus the past build plan the operations and manage the inventory.
The labor appropriately.
Okay.
And then finally I was just curious.
In terms of.
Hard net experience within the company as he spent all of his he is pretty much on the floral side or has he ever had a stent kind of working or managing within the CFPB business.
Yes, Tom Tom has been involved in just about every area of the business in the 30 years that he's been with the company. So he has been involved in the food businesses to share his various business. Most recently you quarterback that acquisition and.
And obviously the service beverage business to fruit bouquets business overseas.
Overseas Personalization mall.
Move to the non food category.
As a guy who started.
And sitting here looking at Tom giving them this prices here.
Our it and finance for US is basically had every role you could conceive and the company over the over time and what has changed though is really for US is really brings all the operating business units under one leader it really helps us drive the enterprise growth in the cross brand capabilities that we've been looking at moving forward on that allow us to.
More dynamic P&L management being able to quickly adjust on the fly where we're putting investments where we're seeing opportunities for me. It allows me more time Linda to spend more focused on it as I have throughout my career on innovation on customer Centricity strategy work, our M&A development capabilities and overall.
Growth focus for the company. So Tom is extremely well deserving news position I Couldnt think of anybody better suited Florida.
Okay sounds good thank you very much excellent.
The next question is from Michal Krupinski of Noble capital markets. Please go ahead.
Hello, Michael Your line is open.
Great we'll move on to Dan <unk> of the benchmark company. Please go ahead.
Thanks, Good morning.
Two short term questions, Chris can we go back to your comments around marketing.
We know that performance marketing and digital channels and social in particular are a converting the rates are extremely high right now.
Yes, you added a lot of new customers you did talk about a little bit more challenged coming from those new customers rather than from your existing base. So how do we think about.
Is there any contemplation in the near term on either a pullback in spend or how are you thinking.
In terms of LTV, given this environment and I know you're trying to think.
Several years out, but just maybe help us think through that.
The way that Youre assessing your.
Marketing or customer acquisition strategy right now.
Thank you.
Great question.
I think as we look at is as we look at the environment and as we look at really from an LTV perspective, and looking at the long term as you pointed out it really helps guide our decisions day to day, we pointed out in our last quarter, how once we hit the.
While challenging consumer period of the month of December and the advertising costs going up we intentionally pulled back on some of our customer acquisition efforts as it was just getting too expensive.
Even in this quarter when I talked about the softness again, the $1 5 billion of new customers is a great number it's less than we acquired last year, where we saw more opportunity. So we turned the dial back where we saw the customer acquisition cost being effective for us from a long term LTV I can tell you. We know our competitors are not able to compete in this.
Market at least at this CAC level that we're working at so again.
Part of that is because of the platform and the brands that we have and the ability to drive LTV as we drive this passport capability in the multi brand capabilities. So we're really looking at what's the CAC, we're willing to spend on the long term scenario for us as we continue to see the development of the file and the cohorts, yes, Dan.
The only other thing I'd add is we.
As you mentioned, we continue to see our performance marketing costs rise.
Aware of that.
It has forced us and just be better market is around better targeting opportunities to work were doing better in targeting those those new customers that we believe have the rite aid LTV or <unk> for the future.
That allows us.
To spend our dollars more effectively.
Got it that's helpful I'll get back to sort of the.
General question Tonight in a second and just ask.
I have one here on Tmall. Obviously this is not really a great environment for T Mall and are you guys looking to.
Essentially beef up your <unk>.
Personalization.
Vertical perhaps this market continues to be Matthew we'll offer some more opportunities out there for multiple compression.
And your competitors, but just curious a.
How that process is going and b, how you're evaluating sort of T mall under the current <unk>.
Environment online.
Okay.
As Tom has been closer to cream off certainly, but I look at it.
Still extremely pleased with how <unk> fit into the platform and how it's performing in its future Tom specific comments on what we've seen at <unk> mall now, especially for the upcoming season than we say, yes, I mean again it's.
It's similar similar to what we're seeing for the rest of the organization.
<unk>.
We are seeing a little softness on the everyday occasions good performance on.
The major holidays.
We are focused on the PMO customer it is.
A little bit lower household income generally speaking so we're taking a lot of steps to to attract a higher household demographic and that and add to our product assortment there as well as look at it.
Other potential targets in the marketplace.
Two more skewed keep in mind as I mentioned upcoming holidays, a wedding season father's day June as PMO strongest month, so well see a good opportunity there as we look forward to your point on potential M&A targets, whether in the personalization category.
Dan or actually we look at it is kind of across the board in any of our categories or Adjacencies. We do think the awareness strong position as a company right now to watch what happens during the market what happens to valuations. We do think that the M&A M&A market could present opportunities for us as we go through the sloppiness.
What we're seeing in the market today.
Got it that's helpful. And then just lastly for me.
We've seen this before you guys have been through this before.
Always difficult to predict how the economy is going to react.
The wide ranging recession calls what have you even though we're at record low unemployment and there's still two years' worth of savings out there, but regardless not.
Ask about specifically 23, but just in general you guys are kind of post the more modest, albeit it's still really strong two year stack growth. So you'll have technically easier comps as you go into next year I'm. Just wondering if you have any alternative views on the longer term sustainable.
<unk> growth outlook for the business based on what Youre seeing now.
So I think it's in us long term outlook.
Stays consistent.
We're extremely proud of what we've built with the capabilities. We have we have high confidence in our ability to return to the growth rates that we want as we move forward here, we have the right products. We have the right brands. We have an extended customer file we are a great experienced team in place as you pointed out we've done this before.
We've been in business for 46 years now we've been through some ups and downs what are the key things about attic hour per hour category.
Never really participate in the high highs of a robust economy, but nor do we then participate in the very lows of any kind of recessionary economy, either and then as we've expanded our product categories food generally tends to do better in a tougher economy as people consumers put more value on something you can eat but with all the things that.
We look at the platform the customer file the brands that we have.
<unk> and <unk> we've made.
Our outlook our confidence in the future is not diminished at all.
Yes, Dan just.
Go back to.
Two years ago.
Or.
Four years ago, we started to initiate a higher growth rate.
Second half of fiscal 2018 through the start of the pandemic, we were increasing our organic growth rate, we had gotten it up to high single digits, we had guided prior to the pandemic to double digit growth in the third quarter of our fiscal 2000 and for the second half of fiscal 'twenty for the fourth quarter, we achieved that in the March quarter of fiscal 'twenty.
Posted 12%.
The growth rate.
And we've got again guided for for the fourth quarter to be to be a double digits, we're a bigger better stronger company today.
Based on a lot of the initiatives Chris is.
Has outlined so we view this as a <unk>.
Consumer certainly has pulled back.
Due to the.
Geopolitical unrest in some of the macro economy issues that have happened.
But we're there to take advantage of the opportunities going forward and in this current year, we're still growing over last year, which was a 42% growth rate.
I tend to agree with all of that especially what you said Bill thing that's missing now as Chris go push your brother for name change. Thanks, everyone. I appreciate the color.
Thank you Dan.
Again, if you have a question. Please press Star then one the next question comes from Michal Krupinski of Noble capital markets. Please go ahead.
Thank you and I got dropped right when you when they will produce sorry about that.
Just a couple of classic one.
Corporate private for roughly 6 million revenue in the quarter I just wanted to clarify that.
So the question was did you say 6 million shifted.
Yes, yes.
For the Easter impact, yes from Q3.
Yes.
Way to quantify the amount of savings that you might be able to get from the heightened capex spending plan.
Costco cohort is there any way to quantify that.
Yeah.
Yes, Michael I mean I'd say.
This is a long term investment that we have we've automated the.
The Hopewell facility.
I think.
We've described this in the past that we did.
30, plus percent more volume out of that facility on peak days with 30% to 40% less.
Less labor.
Clearly being offset by labor rates.
At this point so it's hard to put just a straight dollar amount we are investing in our Atlanta facility to do very much to do many of the similar things to automate that facility into significantly increase the amount of capacity that we.
That we have with less with less labor and then a number of the initiatives that we have on this.
Service Center platform, so hard to quantify that at.
At the current time, but I think all of these initiatives are.
Okay.
They had to basically help offset the higher labor rates that we're seeing significantly higher labor rates, which we don't believe the hourly labor rates are going up.
Go down.
Much.
Alright.
Obviously, you had seasonal.
No.
Things going on it every quarter.
And out in terms of performance among your brands.
Wolfram and popcorn.
Good outcome that performed better than what you thought.
I think most importantly, because of the quarter because of the holidays Valentine's day flowers brand.
Really the standout brands during the quarter.
Again because of stimulated by the Valentines holiday.
That's why again really has us very optimistic as we now move into as we are in the middle of mother's day currently in the spring holiday seasons, and then moving into the father's day.
Capabilities that we have a personalization mall the wedding season et cetera.
So for this quarter was it was really the floral business Valentine's day that really encourages us as well as now as we look going forward. Some of the other product lines coming into play is the only one I would add to that would be <unk>.
Kind of aligned itself with kind of the floor holidays as well as the chocolate covered strawberries good product for the Valentine's day mother's day in both the both for last year and this year. The date placement of Valentine's was not exactly great being on a Monday doesn't doesn't help things that we're looking forward to to date placement helped.
Next four years to five years.
Gotcha.
But like Dan May have that portion of the question.
Apologize if I am asking the same question.
The company has been opportunistic and making acquisitions and typically.
Sure.
Where.
You had to be.
Looking forward obviously.
So cool.
Early at this point for <unk>.
<unk> acquisition, given that maybe some of the sellers are inclined to sell currently just because we haven't really seen.
Those approved.
Quicker and headwinds like you might be seeing or do you think that you would still look at acquisitions, even in this environment given that you probably maybe more focused on managing the business and.
Kind of offsetting some of the headwinds youre seeing.
Okay. Thank you Michael I think we're always looking in the market, where there's the right opportunity from an M&A point of view I think we've proven over time to be very diligent and very deliberate in our decision, making that I do think we're starting to see the beginnings of people really kind of realize they're not going to sell that business off the call with bumping.
Valuations that may be starting to come into play a little bit we might need a little bit more time, but I think we're seeing the beginning of that and I think it's important to step back and look again at what we've done from an M&A point of view.
Again, if you look at what we've done with Sherry's berries, we took a business that was failing there.
It was kind of resize that business when we were when we integrated into our platform, which complete integration of all we took was the urls in the customer file we're really the only asset we took there and completely had put it on our operating platform and have grown that business significantly I think you could expect we're looking to do the same thing with the small acquisition we did this.
Passenger with vital choice, where we just now just recently integrated that onto our platform and now we'll begin the capabilities to grow that business similar to how we've gone.
<unk> berries and then in between those two we acquired personalization mall, which was an appendage to the platform, giving us all the capable all the capabilities in the personalization space that we didn't have and as Dan pointed out we have mentioned in the past. That's an area. We think there is a separate part of our platform that we can look to grow again through organic.
Business development capabilities or through M&A. So.
<unk>.
We are a strong company and we will continue to come at it is stronger and better and we have just like we have in the past and M&A will be part of that equation for sure yes.
Youre climbing on acquisitions has been good.
I mean going back to even Harry <unk> David.
Thats all I have thank you thanks Michael.
The next question is from Doug Lane of Lane Research. Please go ahead.
Yes, hi, good morning, everybody.
We've talked about a lot here, so I'd just like to focus on the gross margin.
The gourmet food and gift baskets segment.
The 25% gross margin is well below anything you are seeing quarterly going back at least five years, So there's something going on there.
So I wanted to try to drill down on is this reset of the gross margin in gourmet food gift baskets permanent or are there sort of cross currents going on here that will go away in the next quarter or two.
Yeah, Doug this is Scott.
Clearly low the lowest margin where we are.
Seen in.
Most of the items that we talked about with regard to the overall gross margins all of those impact the <unk>.
Food brands.
Greater than it does on the.
The floral side of the business.
So again inbound shipping is.
Hi, and it's not going to go away and in the next quarter or two but I think eventually it will.
Self correct to some degree its not going to go back to <unk>.
<unk> $3000 of containers, but it's not going to be at 25000.
<unk>.
Container, we're seeing a little bit of relief on that right now.
In the off season, and we hope that that continues.
Hard to predict what the spot market will be.
And whether the carriers will honor contractual rates, but right now we are seeing a little softness in.
Over where we were we spent and what we incurred last year.
Outbound shipping rates are up and there's a lot of surcharges associated the biggest surcharge right now as fuel so as I.
<unk>.
Probably 40% of our increase in <unk>.
Outbound shipping rates is related to as it related to fuel eventually that will sell that will correct. I mean fuel is not going to OSB at $5 $5 a gallon.
So that will self correct, but the timing of which is.
This is Tom.
Labor, we are seeing higher labor, we've talked about that last quarter and this quarter that our labor rates are.
Are significantly up year over year over year, they probably are not going to go down significantly we have seen a little bit of relief.
And one of our markets in the Chicago market, but where we have a bulk of our hourly labor.
In Ohio, and in Oregon, we have not seen much relief there. So our efforts are focused there on.
On automation and basically doing more with doing more with less we need to utilize.
Utilized less labor.
Manufacturing and distribution re reconfiguring, how we do some of our product development et cetera. So all of those capabilities focused on how do we mitigate the labor.
Commodity cost increases of cyclical we're seeing it right now we're seeing double digit mid teen increases in lot of the commodities. We know there is a witch shortage.
Part of that is the geopolitical issues that that we have we know theres, an AG shortage because of a shortage of.
Hence we see other commodities that are up but those will over time self correct again not necessarily in the next quarter or two timing is hard to predict but those will will self correct and again back to even the outbound shipping and I mentioned this earlier, while rates will be higher.
On a same level of service, we are working with Fedex, we all working internally on our operations. So that we can utilize less expensive services from Fedex to still meet customer expectations, but lower.
Lower our rates, although our correctable actions clearly our focus is on the ones that.
Without bound rates and with labor rates that we don't think will self correct. So that we need we need to initiatives in place to mitigate those.
Those costs all the ones will self correct, it's just a matter of the timing.
Okay. That's very helpful. Thank you.
Lastly on inventories.
They are up 75% year over year and your sales are down 1%. So where are you building inventories and what is the risk of future inventory write offs, because you have such a big perishable component of your business.
So most of the inventory that we're investing about $60 million over where our year end number.
It was we were about 150 something million at June last year of about $2 14, right now.
<unk> inventory, so well most of the investments are really in hard goods nonperishable nonperishable items I think the the write off that we took the write offs that we took on inventory on the perishable items was coming out of kind of coming out of the holiday thinking demand was going to be stronger than it was in <unk>.
Maintaining some of the seasonal labor because we were concerned if we lost the labor we would not get it back so we built some.
Some products using some of the perishable.
Products that we the inventory that we had and the demand wasn't there on that so I think that is correctable.
From our standpoint, but I think the investment in inventory really is to address.
They're all going to continue to be supply chain challenges and disruptions in the market. We all felt many companies felt it we felt that last year. We wanted to have the inventory in place. So we can manage our operations and manage our labor better.
Inventory strategy, along with many others has moved from a just in time inventory through kind of a.
Just in case inventory.
Okay. That's helpful. Thank you guys. Thanks, Doug.
This concludes our question and answer session I would like to turn the conference back over to Chris Mccann for closing remarks.
Thank you Kay and thank you for everyone for joining US today as you can see we have a lot of opportunity and a lot of optimism in the future of our business.
Right now our focus is on the mother's day holiday as it has all of our focus should be moms rule the world.
<unk> had a pleasure of mothers day orders early thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.