Q2 2023 1-800-Flowers.Com Inc Earnings Call
[music].
Good morning, and welcome to the one 800 flowers Dot Com, Inc. Fiscal 2023 second quarter results Conference call all participants will be in a listen only mode.
Is this is pretty typical of a conference specialist by pressing the star keep all about Europe .
After todays presentation, there will be an opportunity to ask questions to ask a question Star then one on your telephone keypad and please note. This event is being recorded I would now like to turn the conference over to Andy Miller Board seat.
Senior Vice President of Investor Relations.
Good morning, and welcome to our fiscal 2023 second quarter earnings call.
Joining us today are Chris Mccann, CEO , Tom Hartnett, President and Bill Shea CFO .
Before we begin the call I'd like to remind you that some of the statements. We make on today's call are covered by the safe Harbor disclaimer contained in our press release and public documents.
During this call we will make forward looking statements with predictions projections and other statements about future events.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission.
The company disclaims any obligation to update any of the forward looking statements that may be made or discussed during this call.
Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release.
And now I'll turn the call over to Chris.
Thank you everyone and good morning.
Second quarter results reflect a successful holiday season and benefited from the strength of our food brands and improving gross margins. We did a good job projecting consumer demand for the quarter, particularly related to trends and sales coach.
On a consolidated basis revenue declined four 8%.
Our gourmet foods and gift baskets business had a solid quarter with revenue being relatively flat.
Revenue within our consumer floral and gift segment decreased 12%.
This is in keeping with past trends in which consumers gravitate towards food gifting options from floral arrangements in challenging macroeconomic environments.
Unlike a year ago, when there was an unprecedented pull forward and holiday demand due to the global supply chain challenges, we had anticipated that customers would revert to the historical shopping patterns and shop much closer to the holidays.
That is what we experienced.
Beginning in October we witnessed a very promotional retail environment and those trends continued throughout the holiday period.
Additionally, with some of our brands that offer a lower price point and appeal to a lower income customer we noticed that customers appeared to be more price sensitive and we're waiting for deals.
We strategically utilized promotional pricing throughout the holiday period to entice customers, while simultaneously reducing other offers such as free shipping that were not as impactful on the current economic environment.
Moving forward to November Black Friday, and cyber Monday, well once again big days for US represented the kickoff to the holiday shopping season in fact personalization mall had its biggest revenue day ever on cyber Monday.
From there we continue to see demand build throughout the month of December with some of the greatest volume days coming during the two weeks before Christmas.
Has traded up to higher value higher price point assortment within our food business with the largest gains coming in at price points that were over $100.
We also saw customers gravitate towards our prepared meal offerings that make their lives and entertaining easier.
Our heat n' serve meals appetizers side dishes.
Our customers to spend less time in the kitchen, and more time with family and friends.
They're not charcuterie and cheese Assortments also saw a nice growth as more customers began to entertain for the holidays once again as compared to the past couple of years.
All told carrying David set New records for this holiday season, including its biggest sales day ever in December breaking a record that was set in the pandemic year of 2020.
Its first $3 million mobile day, as more customers shifted from desktop and tablet intermodal and <unk>.
Sales of our award winning wines, all resulting in a record sales quarter for the brand sustaining the growth that we've seen over the past few years.
Sure we saw strong performance from the holiday assortment, which included the introduction of candy cane Maple syrup, and cinnamon swirl cookies, helping offset softer everyday sales earlier in the quarter.
And Wolfowitz grew its ecommerce business in part benefiting from a 6% increase in new customers.
Turning to our Fluoro business, we continued to leverage our strong assortment of products and brands to meet our customers' needs. We saw strong growth in holiday plants that grew 10% over the prior year period.
Various floral and suites pairings that include offerings from one 800 flowers and cherries berries saw strong double digit growth.
However, as the floral business does not have the large spike at holiday.
Accessories were unable to offset the lower demand for everyday gifting throughout the quarter.
Additionally, while our direct to consumer business across the enterprise remained fairly resilient to macro economic pressures this quarter <unk> business was not immune.
Corporate gifting business saw demand soften.
These began looking for more opportunities to cut expenses and as more employers shifted to hybrid work environments over the past year companies began hosting holiday parties once again in lieu of corporate gifting.
Our corporate gifting remains under pressure today. It is a focus of ours, and we see growth opportunities and market share gains in the future.
Yeah.
Our second quarter performance also benefited from our marketing efforts, we are transforming our company from being a purely transactional e-commerce company towards developing deeper relationships with customers through content and community.
<unk> is an inspiring our customers to give more and to build better and more meaningful relationships in their lives.
We built a company on knowing that people will naturally compelled to get and it's no coincidence that we found the best customers to be the ones, who enjoy giving the most.
Our initiatives include a weekly celebrations pulse E mail newsletters.
Our experiential programs, such as floral design classes and expanded content development across multiple social channels.
Through these initiatives, we are focused on nurturing our relationship with existing customers growing our multi category customer cohort to increase their purchase frequency and defining our company as the preferred destination for all of our customers' gifting needs.
Would be expected.
Net sales per customer are highest amongst our multi category customers followed by a $1 4 million celebrations passport members.
Turning to our margins during the second quarter as we anticipated our margins improved on lower inbound freight costs and strategic pricing initiatives.
As Bill will discuss further we expect this trend to continue in the second half of this year and into next year.
As these costs continue to moderate we anticipate that our margins will return to the historical levels over the next few years.
As such we expect to see a substantial recovery in EBITDA.
In summary, we anticipate that certain macro trends would help us and indeed they have.
Well they have now reverted to the pre COVID-19 levels certain cost inputs continue to be favorable which gives us confidence in our ability to improve margins in the future.
Based on our second quarter performance and in particular, our gross margin improvement and reduction in operating expenses.
We are increasing our fiscal 'twenty adjusted EBITDA guidance to be in a range of $80 million to $85 million.
As we look to the balance of the year, we are focused on executing for the upcoming holiday period, we expect the consumer to remain cautious in this environment and reduce their spend on everyday gifting occasions, while continuing to spend for the major holidays.
Even in an uncertain environment, we are confident that customers see value in a unique and one of a kind gifts that make the perfect solution no matter, who you are shopping for.
As we look beyond Valentines day to the spring we're focused on are giving us the gift campaign.
Friends family teachers and caregivers. This is a great time to remind those in your life. You. Appreciate all they do for you and your family or business.
Before I turn it over to Bill for the financial review I wanted to take a moment to highlight the newest addition to our family of brands.
We are excited to welcome things remembered to our all star roster. This is a perfect example of a tuck in acquisition that enables us to further expand our leadership position and product offerings in the personalization category.
Things remembered as very complementary to personalization mall and significantly grows the number and variety of personalized products that we can offer to our customers to help celebrate every occasion with personalised masterpieces.
We acquired the things, we've been with brand and related IP.
Including their customer listen to certain assets for approximately $5 million shortly.
Shortly after the second quarter ended.
This addition perfectly illustrates how our E. Commerce platform was built for rapid growth as we seamlessly incorporate complementary brands onto our platform and grow them profitably.
Now I will turn the call over to Bill for his financial review.
Thank you Chris.
Chris highlighted our second quarter performance was solid.
Fitting from the resiliency of our gourmet foods and gift basket business, we were able to generate adjusted EBITDA of $131 4 million and offset a four 8% revenue decline by improving gross margins by managing our cost structure.
Gross margin improvement was led by a 170 basis point increase.
Within our gourmet food and gift basket business, which benefited from our strategic pricing initiatives.
Lower year over year Ocean freight costs that continue to trend favorably.
A more stable labor market, which enabled us to reduce overtime pay and all.
Logistics optimization efforts that Leverages, our full distribution network to reduce shipping zones and deliver products closer to the recipients.
Yeah.
Furthermore, our warehouse automation efforts have enabled us to meaningfully improve efficiencies.
Our Hebron, Ohio facility is in the second year since we installed automation.
And we processed over $1 8 million packages in December increasing throughput by 8% over last year, while reducing expenses.
And we completed our next phase of automation in our Atlanta, Georgia facility that enabled us to fulfill orders for multiple food brands and increased throughput by 42%.
The month of December over last year.
Longer term, we believe that we will gradually restore our gross margins to their historical levels and leverage the significant top line growth over the past few years to drive bottom line results.
You may recall that the gourmet food gift basket business was the most impacted by the negative macro cost inputs for the past 18 months.
Consumer floral and gift segment was less impacted and as this recovery is subject to certain macro trends that are not yet improved.
Now, let's review our key metrics for the second quarter.
Total net revenues declined four 8% to $897 9 million as compared to revenues of $943 million in the prior year.
Gross profit margin for the quarter improved 90 basis points from 41% to 41% driven by the aforementioned improvements in our gourmet food and gift basket business.
Operating expenses were 28, 1% of total sales as compared to 27, 9% in the prior year period.
On a dollar basis operating expenses declined $10 $1 million, primarily reflecting lower marketing costs as we shifted our advertising investments to lower costs higher return on investment areas of the marketing funnel.
As a result, our second quarter adjusted EBITDA was $131 4 million as compared with adjusted EBITDA of $133 1 million a year ago.
Net income was $82 5 million or $1 27 per share and adjusted net income was $82 7 million or $1 28 per share compared with net income of $88 5 million $1 34 per share and adjusted net income of $88 6 million or $1 34 per share in the prior year period.
Yes.
Regarding our segment results.
Our gourmet food and gift baskets segment revenues decreased 4% to $588 4 million compared with $590 9 million in the prior year.
Revenue benefited from the resiliency of our consumers food gifting businesses, which helped mitigate some of the softness in our corporate gift business.
This segment's gross profit margin increased 170 basis points to 41% from 39, 3% benefiting from our strategic pricing initiatives lower inbound transportation costs improved labor availability and our automation efforts.
This segment's contribution margin was $123 5 million.
Compared with $110 5 million a year ago.
In our consumer floral and gift segment revenue decreased 12, 1% to $277 million compared with $315 1 million in the prior year period.
This decline.
This is reflective of the softness we've been experiencing in everyday gifting and a shift by our customers our floral gifts towards our gourmet food gifts during the holiday period.
Gross profit margin decreased to 45% compared with 41, 3% in the prior year period, primarily due to higher fulfillment costs and outbound transportation costs.
Segment contribution margin was $27 9 million compared with $38 2 million in the prior year period.
Now Bloom that segment revenues for the quarter decreased 13, 4% to $32 9 million compared with $37 9 million in the prior year period.
Profit margin of 42, 2% was flat with the prior year.
Segment contribution margin was $9 3 million compared with $11 9 million in the prior year period.
Turning to our balance sheet.
Cash and investment position was $189 7 million at the end of the second quarter.
Inventory was $201 1 million and with inventory of $191 1 million at the end of last year's second quarter.
In terms of debt, we had $152 8 million in term debt and no borrowings under our revolving credit facility.
Regarding guidance for fiscal 2023.
This morning, we increased our fiscal 2023 guidance based on our second quarter performance.
Before I share our views. It is important to note that the current macro economy is so highly unpredictable, making it difficult to forecast consumer behavior with any certainty in this environment.
After growing revenues, 77% over the last three fiscal years, we expect revenues to decline in the mid single digit range in fiscal 2023 on cautious consumer behavior.
We expect to mitigate the impact of the revenue decline on our earnings through.
Our strategic pricing programs, a moderation of certain cost inputs and the investments we have and continue to make in our business platform.
As a result, we expect to continue to gradually improve gross margins and bottom line results during the latter half of the current fiscal year.
Based on these assumptions and our year to date performance. We now expect adjusted EBITDA to be in the range of $80 million to $85 million.
We expect to generate more than $75 million in free cash flow in the current year.
Representing an improvement of more than $135 million as compared to a year ago has continued to sell through our inventory balance.
I will now turn the call back to Chris.
Thanks, Bill to recap our performance this quarter, we had a successful holiday season, however, consumers continue to be challenged by inflationary pressures.
We believe that the macro environment will remain challenging throughout the remainder of our fiscal year.
Proactively addressing these trends with compelling high value bundle assortments that appeal to a wide variety of customers. Nonetheless, we remain very bullish about our long term prospects.
A foundation built on our all star family of brands is strong and positions us to perform well as the macro environment improves.
The diversification of our portfolio helps mitigate and provides resiliency to seasonality.
Our core customer remains loyal and we continue to deepen our relationships with them through our innovative marketing and engagement.
This is what distinguishes us in the marketplace, because we care about nurturing relationships with our customers and as I noted earlier, we built the company on knowing that people are naturally compelled to give and it's no coincidence that we found our best customers to be the ones, who enjoy giving the most.
A single thread running through all the giving.
It brings joy to everyone involved and that's why we say, giving us the gift.
I'd like to open the call for any questions that you may have thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the key.
To withdraw your question. Please press Star then two.
And our first question today will come from Dan <unk> with the benchmark company. Please go ahead.
Great. Thanks, good morning.
Nice job on the bottom line guidance in the quarter.
Couple things for me, maybe just on some of the noise around the mix here.
You did talk about Tmall, having a strong cyber Monday, you just talk how it did overall in the quarter and I think.
In the past, we've kind of talked about.
Some pricing elasticity within T mall on.
The gifting fabrics with each separate for now.
Price uplift, but just in general like either consumer floral T mall, how are you thinking about on a pricing and promotional activity given kind of the consumer backdrop right now as we go into Q1 with a bunch of excess inventory built up kind of all throughout E. Com how are you thinking about that backdrop.
Thanks, Dan good to hear from you.
We're very happy with the quarter and the performance that we had especially on how we manage the cost structure of the company throughout the quarter. So thank you for that.
As we look forward.
A few more perspective, we were thrilled to see that cyber Monday would be a record day for people.
And Bill overall P more performance.
Yes <unk>.
Down that mid single digit kind of range from a from a topline perspective again it's.
It is seeing the same kind of trends, we're seeing throughout the business and that everyday is soft it had a strong cyber Monday.
Softness in the early part of December and then a very strong and then a very strong finish.
What are we looking at really from our pricing initiatives from our PMO and <unk>.
Consumer floral point of view as we look forward now.
Good morning, Dan.
Certainly we talked about our strategic pricing initiatives on some of the.
Our lower price point products, whether it be personalization mall.
Sure.
Shareowners cookies, those consumers, where they are household incomes are a little bit more challenged in this environment, we have seen.
Need to be promotional but as Chris mentioned in his remarks, we've been able to pull away from some of the shipping.
Discounts, we have done in the past.
We've been able to maintain margins pretty well on that I mean.
And with with flowers and we're <unk>.
Certainly less.
Blessed with our largest brands Harry <unk>, David flowers, where we have a broad range of consumers. So many of them are in higher household demographic incomes and that allows us to move customers up on value and pricing.
And take advantage of.
The bundles and create your own products that we have.
Total <unk> increased prices to those consumers and I think and when you look at this past quarter I think it's a good example, there were through pricing initiatives strategic pricing initiatives as well as just merchandising mix featuring more bundles and higher price point items, we were able to lift <unk> by 6%.
Average order was about $90 of around 6% probably half of that was due to the strategic pricing initiatives that we've put in place and about half of it is due to.
Kind of mix and seeing the more affluent consumer buying up and some of our bundles and higher price items being very attractive.
Got it that's really helpful funding isn't it how we are going into recession.
Tumors now willing to pay for shipping and returns.
Things they wanted most free when things are better.
Alternatively, you guys talked about record for Harry <unk> David.
Got it.
Really important obviously, it's been a great brand for you guys in the vast majority upside in the quarter came from <unk>. So.
Bill just any incremental color on sort of Harry D. The outperformance relative to the rest of the year you'd be and then.
You guys did this kind of exercise before and Bill you touched on it a little bit in your prepared remarks, but it would be really helpful to understand.
How much of the early action you guys talked to avoid sort of a repeat of last year drove the margin upside versus how much what's sort of your organic improvement from whether its optimization.
Sure.
What have you versus kind of the lower input costs that are out of your control like shipping.
To parse that out for us.
Super helpful.
Well first off what drove the quarter certainly was the performance of our food brands are relatively flat from a top line perspective, having David is the biggest brand in Harry <unk>, David performed the best of all from a certainly from a top line perspective kind of low single digit growth.
Your year over year.
We did make the investments.
And inventory to offset the supply chain challenges that we experienced last year. It certainly made for more operational efficiencies.
Yes, we had goodwill both having.
Having inventory on hand.
And having access to labor labor availability was there.
Allowed us to.
A much more efficient operation so that helped certainly helped.
Was a component of the 170 basis point improvement in gross margins that we saw in the food brands.
Okay I'll follow up with you more on that offline and last one for me and I'll step away and I always ask units grip.
Just kind of looking out ahead at understanding it.
Sumer uncertainty.
But the way the heap oriented everything the pricing initiatives.
Confidence on the margin side, just from a revenue perspective.
If things were more stable I mean, how would you kind of view.
Tangible for topline progress do you want to parse it out between sort of consumer floral versus.
Yeah.
Sure.
Hey.
We have a lot of confidence as we look forward with our business as I mentioned in our remarks.
The platform that we've built providing the operating leverage that <unk>.
We're showing.
The benefits and the improvement we're seeing in Opex spend coupled with the gross margin improvement really gives us some confidence as we go forward and what we're doing is we're building off of the strength that we've built over the last couple of years as Bill mentioned in his comments that over the last two or three years, we've gone like 77% with double the size of our customer base.
We're leveraging that capability to product catalog that we continue to expand and certainly with our newest acquisition moving deeper into the personalization category. So as we look even in a challenging environment going forward.
We see customers as we stated we see softness still in the everyday business and that's where customers are still pulling back a bit but we have the Valentine's day holiday next week to week.
10 days whatever it might be at this point.
And.
So we're seeing the consumers still come back to the holiday periods like that and then we move into the spring holidays of graduations and mother's day et cetera. So we think we're in a really good position to finish out the year, where we anticipated we would.
Alright, great. Thanks for all the color I appreciate it and congrats again.
Okay.
And our next question will come from Michael could pinsky with noble capital markets.
Thanks.
Thank you and congrats on your solid quarter couple of questions can you talk about the tone of the market for Valentine's day.
Is it more competitive than years past are your competitors being more rational less promotional or has the economic conditions warranted being promotional at this time can you just kind of give me a tone of the market.
I'll turn it to Tom to see if you could give your tone of the market keep in mind.
Valentine's is a last minute holiday and just as we saw customers referred back in during the Christmas holiday to pre pandemic shopping trends and curves we expect to see the same thing. So the holiday is still in front of us, but Tom what are we seeing in the market.
It is early I think.
Cases, we are seeing.
Hey, it's always a competitive environment, but it's the same players so it's.
I think the same rules apply.
Playing playing this out for many years.
I'd say.
Just the uncertainty of the consumer I would say there is more focus on bottom of the funnel tactics.
What we will do.
Expected et cetera, So obviously, our overall marketing strategies are taking that into account.
Got you and can you talk a little bit about things remembered I know, it's a relatively small acquisition, but it seems reminiscent of sherri's berries.
And that acquisition, which was very successful can you talk about the revenue opportunity you have there what type of margins you anticipate going forward.
Well give you as much color as we can Michael you're right. It's a relatively small acquisition, but one that really demonstrates how we have the leverage of the platform that we've built and can bring acquisitions like that that may be why aren't working as a standalone business with a put them on our platform injection growth into them and manage them appropriately with the gross margin.
<unk> that we have as well as our opex capabilities.
It's a good example of how we can do these tuck in acquisitions as we move along Tom Let me talk a little bit just about the market positioning of things remembered versus personalization.
Yes, certainly from a from a product price point.
Things remembered is at a different tier of pricing.
And then personalization mall.
And then I think it is.
Focus right now we're looking at brand positioning very closely around so many of life's important occasions.
Whether it be weddings anniversaries religious milestones graduations, so it fit the whole.
Product catalog as we bring this to bear will benefit our personalization space. It also fits really well in our overall enterprise assortment and our customers. So we feel good about that and we have such a strong operations team at personalization mall to be able to take.
<unk>.
All of the operations that existed in things remembered and bring that into their facilities.
And lever that up I guess, just some color.
With the transaction.
Getting over 1 million active E mail.
Commerce customers. So we think thats going to be very <unk>.
<unk>.
Yeah.
It's early days, but we're bullish that we're going to be able to grow this.
This revenue nicely, but as we're starting we're creating.
Brand New E Commerce site, which will be leveraging obviously are our platforms.
So we're looking into next couple of months to launch.
Launch the brand again and the key factor here Michael.
As I mentioned.
Similar to what we did was as you pointed out similar to what we did with share is very similar to what we did with.
Food staying in the fluid space with final choice. This gives us the ability to kind of land and expand and the and the.
Personalization category, so as we built <unk>.
Pending the personalization capabilities to our platform now we're able to leverage that part of the platform and expand as well and I think it's just consistent with our overall growth strategy continue to get.
Gannett growth, where we can affordably cost.
And complemented with good M&A opportunities as we see these tuck in opportunities and when we see a larger opportunity like we did last with personalization mall, we're in a position to do that as well based on the strength of the business and the strength of the balance sheet that we have thanks.
Thanks for the color.
The automation of their distribution facilities is that all behind the company now or is that fully reflected in this last quarter.
Michael there'll always be automation opportunities for us, but the big spend.
Is behind Us as we've discussed.
In the past with our capital.
Two years ago, we were at about $55 million last year, we were at $65 million and those are those were higher than our historical averages.
We're bringing it back down to about $45 million in that $45 million. During the first half of this year. There was still the completion of our Atlanta, Georgia.
Kind of May.
Major phase of automate automation there.
So, but there'll always be projects that we have to continue to automate and improve our operations whether it be in our distribution centers, whether it be in our service center.
But just ways to improve our operations.
And then just regarding capital allocation, where we see share buybacks or is the focus still debt reduction or both or can you give us a flavor of what the capital allocation.
Acacia is there.
Yes, I think first and foremost we always looked at how we can bring the best shareholder value but.
As we've been discussing and we have had just the smaller acquisitions in the last couple of years, but strategic M&A is our first priority, we think the best way to bring shareholder value.
It is to grow this area is to grow this business. So M&A capex, where we see investments in the business that we believe can either drive up.
Operating performance are all helped us drive performance.
Debt repayments and then stock buybacks are always a component.
Our capital allocation.
Great. Thanks, that's all I had thank you. Thank you Michael.
And our next question will come from Alex Fuhrman with Craig Hallum. Please go ahead.
Great. Thanks, very much for taking my question and congratulations on a nice holiday season, I wanted to ask about the trajectory of getting gross margin back to historical level over the longer term as you think about kind of what your gross margin will be in the future.
How is that going to compare to historical levels in terms of the components within that things like product margin freight labor.
Dissipated being a similar mix to what you had historically or is there going to be kind of a different way to get to the same number.
When things start to normalize for you.
Alex Thanks for the question first of all I do think we've hit an inflection point with respect to gross gross margins.
We anticipated that we would see stabilization of our margins in the in the second quarter.
And we achieved that we got the 90 basis points improvement overall.
170 basis points improvement.
From a food brands that was a combination of strategic pricing initiatives.
<unk> and inbound freight costs, which continues to trend favorably for us the improvement in labor availability and as I mentioned before.
Dan just that just allowed for operating efficiency.
And automate and certainly automation.
That we have I think.
Over the.
We expect the second half of this year, we're going to continue to show improvement in gross margins year over year, certainly thats going to.
Continue into fiscal 'twenty, four and beyond.
Sure.
As you pointed out I think over the long term, we expect to get back to gross margins. If you look over the 10 years prior to last year give or take 50 basis points and we were in that 42% gross margin range, and we anticipate getting getting back to that and that's going to be.
A combination of commodity costs coming back into their more normalized range Theres still very high inbound freight we are already seeing significant drops in inbound freight we haven't gotten the full benefit of that yet because we are we bought that at higher levels that still have to flush through.
P&L, but we've got some benefit on that.
Pricing initiatives, we have certain pricing initiatives that we've been able to put through but as the economy improves.
And as the consumer comes back we'll be able to do some of that.
Labor, we're driving we're spending capital to drive labor out of our labor hours out of our.
Out of our model, but labor rates are high and they're not coming back. So there will be a little bit of a mix shift because I think labor is high.
And labor rates, adjusted 50% higher than they were a few years ago.
Commodity costs are high today, those will come back come back down inbound freight will come back down outbound freight will not come back down outbound freight will still be high so.
So we have to drive other efficiencies too.
Our operations to drive margins and.
As well as some pricing initiatives to offset some of the components that will not come back down to historical levels Alright. So as you can see we expect our gross margin as Bill just said, we expect our gross margin to improve all the time back to historical levels, and then that coupled with our Opex management puts us in a strong position going forward.
Great. That's really helpful. Thank you both.
And our next question will come from Linda Bolton Weiser with D. A Davidson. Please go ahead.
Yes, hi, Thank you just on that point with the freight.
Can you just I think you had said.
That freight costs were lower in the food business.
Floral and gift so I guess, that's the difference between inbound and outbound freight can you just clarify that and also just with gasoline oil and gasoline prices the costs being lower why wouldn't that kind of make the outbound freight.
Lower as well.
Okay. Let me see if you could break that down a little bit.
Inbound freight is.
Down dramatically and what we're paying on containers today is significantly below what we were paying a.
A year ago that hasnt fully flushed through the P&L, yes, we saw certainly saw some benefit of that in Q2, we'll see more of that in the second year and certainly as we head into fiscal 'twenty four as we replenish inventory.
It will be when it will be even lower it just impacts.
The food side of the business more inbound freight because on floor is not as impacted as much by inbound freight as the food brands are outbound freight effects everybody. It affects the food brands.
It affects our personalization mall and it affects.
One 800 flowers.
From a from a fuel perspective, we're still paying a higher.
Fuel is off its high.
But fuel surcharges in the second quarter was still higher than they were a year ago.
So again off their highs of maybe March April , but certainly still significantly higher than where they were in December and.
November and December of a year ago. So that was still a headwind as we went through the second as we went through the second quarter.
Okay. Thank you that's helpful and then.
I'm just curious about.
<unk>.
Like.
Some of these competitors that have been out there and I know, they're all small, but some of the small up and coming.
I guess, mostly in the floor outside that venture capital backed type operation have you seen any of them kind of go away because of the softness and just everyday gifting I like what have you seen that kind of.
Competitive landscape out there.
So Linda I think.
Over time as you've seen with us in the floral industry over time, if we go back a number of years that seems to always be a few new entrants that come in and wind up fading away and we've seen that with a couple of businesses.
Some of the startups out there now.
The current status.
Any business that's out there right now that needs to raise cash I think is in trouble.
And if youre going to need to raise cash right now youre going to pay dearly for it so.
So I think that could that could I am not saying we have seen in Europe that could help with some of the competition, we see on the Florida side or on the food side as well.
Even in the personalization space for that matter, it's just kind of across cross category for us. So we're not seeing it as Tom said Valentine's day continues to be competitive.
Scenario, it's the same players we've seen in the last year Nobody's come are gone really new.
Past year so.
No real change on the competitive landscape, but I question. Their go forward viability in this environment.
Okay.
Okay. Thank you very much I appreciate it.
Thank you Linda.
And this will conclude our question and answer session I would like to turn the conference back over to Chris Mccann for any closing remarks.
Thank you and thank you all for your time and participation. This morning, as we stated we had a very successful holiday season.
We're well positioned as we've been saying well positioned to a bigger better stronger company than we were pre pandemic and we're very bullish on the future outlook of the company.
So thank you for your time.
Again a reminder.
It's not too early to already Valentine's orders and we all have many Valentine's and allies. So so we're here to help you. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Okay.
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