1-800-FLOWERS.COM Inc. Q3 2023 Earnings Call

Speaker 2: And welcome to the 1-800-Flowers.com, third quarter 2023 results conference call.

Speaker 2: If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Andy Mulemoy, Senior Vice President of Ambassador Relations. Please go ahead. Good morning and welcome to our fiscal 2023 third quarter earnings call.

Speaker 3: Joining us today are Chris McCann, CEO , Tom Hartnett, President, and Bill Shea, CFO .

Speaker 3: 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. Thank you for your attention.

Speaker 3: 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. Contribution of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release.

Speaker 3: And now I'd like to turn the call over to Chris McKin.

Speaker 4: Thank you everyone and good morning. Our third quarter performance reflects a continuation of the three trends that we have experienced throughout this fiscal year. One, we continue to see a cautious consumer that's facing a number of macroeconomic pressures, including ongoing inflationary pressures.

Speaker 4: rising interest rates, and of course, fears of a recession.

Speaker 4: In response, consumers continue to moderate their spending on discretionary items and, in our case, everyday gifting occasions.

Speaker 4: It's important to note that consumer behavior remains complex in the current environment.

Speaker 4: Consumers remain pressured by higher prices on non-discretionary items. They continue to increase their spending on post-pandemic travel and experiences, while reducing their spending in other discretionary areas.

Speaker 4: Our approach is to ensure that we have many options at key price points across our brands.

Speaker 4: to maximize conversion and customer value no matter the occasion or budget.

Speaker 4: Second, our gross margin continues to gradually improve.

Speaker 4: With our third quarter margin benefiting from our strategic pricing initiatives and lower ocean freight cost.

Speaker 4: And three, we are managing the business well in this environment. As a company we have and we will continue to focus our efforts on being strong stewards of our shareholders capital.

Speaker 4: As a result of our expense optimization efforts, we were able to improve our adjusted EBITDA performance despite the softer top line. Now let's take a closer look at our third quarter. Anticipating this year's demand compression into a couple of days for the Valentine's Day holiday, our team was well prepared to manage the last-minute surge in demand with a variety of product offerings. In addition to our traditional floral offerings, Valentine's Day customers gravitated towards our one-of-a-kind gifts that only we can offer through our family and friends.

Speaker 4: Popular bundles included flowers and cherries berries which sold out early.

Speaker 4: Our confection bundles that pair cheesecake bites with cake pops

Speaker 4: Laurel paired with Concessions.

Speaker 4: and our newest pairing, Shari's Burries with Harry and David Wine.

Speaker 4: We will be leaning further into these pairings from Mother's Day as we think they are truly special gifts to celebrate moms and recognize all the hard work they do every day. Fundals help increase our price points and provide customers with great value. We continue to see our customers trade up in price points to unlock that additional value with our ALV increasing 3.8% over last year.

Speaker 4: diving deeper into our food businesses.

Speaker 4: Sherries' berries were a popular choice and had a strong performance for Valentine's Day. Their offerings resonated with our customers and provided a great gifting option for our value-oriented customers.

Speaker 4: Going from February into March, we focused on continuing that momentum by creating additional holiday-related celebratory moments.

Speaker 4: A great example of this was the success we had at Sherrill's for St. Patrick's Day with its Shamrock-Frosted Cookies.

Speaker 4: We have begun to benefit from lower ocean freight costs and expect to see continual gross margin improvement during the fourth quarter and into our next fiscal year. Over time, we expect our food group margins to recover as we benefit from our automation initiatives and as commodity costs decline. And as Bill will discuss in further detail, we are being prudent with our promotional and advertising expenses as well as our labor costs. As we look beyond the current horizon, we remain very optimistic about our long-term prospects. We expect to emerge from the post-pandemic downturn.

Speaker 4: as a stronger company and we continue to see tremendous opportunities to grow our business both organically and through strategic acquisitions.

Speaker 4: Recent examples of our initiatives to support organics growth include expanding the Sheryl's cookies brand into cupcakes.

Speaker 4: which builds on the brand's equity and expands our product line.

Speaker 4: The introduction of our gifts and more online marketplace, which features curated items from local sellers across more than 15 new categories.

Speaker 4: including home decor, spa gifts, and party baskets. And we re-launched our Smile Farms collection with an expanded assortment of everyday gifting products. We have also been big believers in testing and adopting emerging technologies that enhance our platform and the customer experience.

Speaker 4: With the emergence of generative AI capabilities, we moved quickly to create a fun and playful way to enter trying the emerging AI technology without gift giving experience.

Speaker 4: Just in time from other day we launched the 1-800-Flowers Momverse.

Speaker 4: Now, a mom versus an AI composer, powered by Chatchy PT, that enables customers to create original one-of-a-kind versus, including personalized poems and songs for their moms.

Speaker 4: We've seen our customers engage, have fun, and create some great poems and lyrics for their special moms. We plan to further leverage this technology to empower our customers.

Speaker 4: to use AI to help them create thoughtful notes for their recipients across our gift-giving platform.

Speaker 4: In addition to our organic efforts, as many of you know, we also believe in further fueling our growth through acquisitions.

Speaker 4: In January , we announced the acquisition of the Things Remembered brand. We have spent the last few months developing a new Things Remembered website on our ReCommerce platform and recently launched that site in mid-April. I encourage you all to visit it.

Speaker 4: This was a perfect example of a Taukian acquisition whose brand will benefit from our e-commerce platform and will enable us to further expand our leadership position and product offerings in the personalization category and the B2B gifting space.

Speaker 4: To further bolster our B2B gifting capabilities, we more recently completed the acquisition of SmartGift, a leading technology platform that facilitates easy and thoughtful gifting and recognition experiences.

Speaker 4: Corporate gifting represents less than 10% of our total sales today, and we believe there is a significant opportunity for us to grow our B2B sales.

Speaker 4: We plan to leverage smart gifts technology platform to accomplish this. That platform provides innovative, thoughtful, and convenient gift-giving experiences, allowing users to send, track, and to manage gifts and recognition campaigns from employees and clients quickly and efficiently.

Speaker 4: This is a great example of how we are investing in our technology platform to expand and innovate our gifting capabilities.

Speaker 4: We are offering more ways to build and maintain meaningful relationships, celebrate important milestones and create even more impact all through the power of gifting.

Speaker 4: Before I turn it over to Bill for the financial review, I wanted to highlight something that is near and dear to us.

Speaker 4: March was developmental disabilities awareness month.

Speaker 4: And it provides an opportunity to show allyship for people in the disabled community. And for us it's an opportunity to share how proud we are to support Smile Farms, our signature philanthropic partner.

Speaker 4: The mission of smile farms is to create meaningful work opportunities for people with disabilities in agriculture and hospitality.

Speaker 4: Their work generates purpose and pride, enhances life skills, and forces socialization. This year we relaunched an expanded smile farms collection that features an assortment of everyday gifting products. Smile farms is working every day to shape a better future where people with special needs are valued for their real contributions they make in their workplaces and communities and we are extremely proud to work closely with them. Now let me turn the call over to Bill for his financial review.

Speaker 5: Thank you, Chris. Before I get into the results of the quarter, I want to address the impairment charge we took on the Fru Group's Goodwill and Intangible Assets. As many of you know, accounting standards require us to periodically review the value of Goodwill and Intangible Assets. Over the past year and a half, our Fru Group gross margins have been challenged by unprecedented headwinds, including the availability and cost of labor, historically high commodity costs.

Speaker 5: high ocean and now found transportation costs, a promotional environment, and inventory challenges. While we have addressed several of these factors, and a number of these matters are improving based on macro trends, the reality is that gross margins in the segment have not improved at the pace we had originally anticipated.

Speaker 5: This factor, as well as the ongoing macro-environment and its impact on the consumer, requires us to re-evaluate the value of the intangibles on a balance sheet.

Speaker 5: and we recorded a $64 million pre-tax non-cash charge in the quarter. The last time we took a charge of this nature was 14 years ago in 2009.

Speaker 5: We expect our Fruit Group gross margins to improve going forward both in the short term and the long term.

Speaker 5: So, at that point, we have already seen ocean freight return to pre-pandemic levels.

Speaker 5: Labor is now available and rates have stabilized, and certain commodity costs have come off their highs, including fuel, eggs, and butter. With that, we'll turn to our financial review. Our third quarter revenues declined 11.1% as compared to a year ago, as consumers continue to be pressured by several macroeconomic challenges and in turn moderated their spending. The third quarter revenues declined 11.1% as compared to a year ago, as consumers continue to be pressured by several macroeconomic challenges and in turn moderated their spending.

Speaker 5: Despite the top line pressure, a third quarter adjusted EBITDA loss improves the 5.5 million as compared with an adjusted EBITDA loss of 12 million a year ago, benefiting from higher growth margins and our efforts to operate more efficiently.

Speaker 5: Our gross margins improved 80 basis points from 32.8% to 33.6% led by our consumer flow and gifts and blue net segments. Our margins improved on our strategic pricing initiatives combined with lower ocean freight costs.

Speaker 5: And as Chris highlighted earlier, our entire company is focused on expense optimization efforts, which enabled us to reduce operating expenses.

Speaker 5: Operating expenses, excluding the impairment charge, stock-based compensation, appreciation of deep appreciation of investments in the company's non-qualified compensation plan, and the course associated with a legal settlement in the prior year period, where 38.1% of total sales will flat with the prior year period. As lower advertising and labor costs will offset by higher depreciation and amortization.

Speaker 5: due to our capital investments in technology and automation. On a dollar basis, excluding the aforementioned items, we reduced adjusted operating expenses by 19.5 million.

Speaker 5: Excluding depreciation and amazement, operating expense ratio improved 40 basis points, and as a reminder, this was on lower revenue base.

Speaker 5: That loss for the quarter was 71 million or $10 per share, which includes an after tax non-cash goodwill and intangible asset in parent charge of 53.1 million or 82 cents per share.

Speaker 5: The adjusted net loss was 17.8 million or 27 cents per share compared with an adjusted net loss of 21 million or 32 cents a share in the prior year period. Now let's review our segment results.

Speaker 5: Our bromide fluid and gift basket segment revenue is decreased 11.7% to 147.9 million, compared with 167.4 million in the prior year.

Speaker 5: Goose-profit margin was 24.6% to be able to 25.3% in the prior period. The clienting on continued higher commodity costs increased from emotional activity and overhead cost de-leveraging.

Speaker 5: As I just noted, we have begun to see commodity costs such as eggs and butter begin to improve and we expect to see year-over-year gross margin improvement in our fourth quarter. The second contribution margin without the impairment charge was a loss of 13.9 million over the adjusted loss of 14.2 million a year ago.

Speaker 5: In our consumer flaw and gift segment, Remy used decreased 11.8% to 233 million, compared to 264.2 million in the prior year period.

Speaker 5: Growth's profit margin increased to 37.9% compared to 36.7% in the prior year period, benefiting from our strategic pricing initiatives and lower ocean freight costs.

Speaker 5: The Plagum contribution margin was 26.1 million compared with 20.5 million.

Speaker 5: was 26.1 million compared with 20.5 million the prior year.

Speaker 5: In our blue net segment revenues for the quarter decreased 3.8% to 37 million compared to 38.4 million in the prior year period. Cost profit margin of 42.5% improved 280 basis points as compared to 38.7% in the prior year. Again, benefiting from our strategic pricing initiatives to apply with lower ocean freight costs.

Speaker 5: Second contribution margin was $11 million compared to $9.8 million in the prior year period. Now turning to our balance sheet.

Speaker 5: Our cash and investment position was 51.6 million at the end of the third quarter. Immentory was 191.9 million compared with inventory of 214.4 million at the end of last year's third quarter. As a reminder, one of our key initiatives for the fiscal year is to significantly reduce immendory levels and we are on track to accomplish that.

Speaker 5: In terms of debt, we had 148.1 million in term debt and no borrowing under our revolving credit facility. Now regarding guidance of fiscal 2023.

This morning we updated our fiscal 2023 guidance based on a year-to-date performance. We now expect our fiscal 2023 revenues to decline approximately 8%. As a reminder, this includes the impact of one less week in fiscal 2023 as compared to fiscal 2022, which was a 53-week year for us.

However, as a result of our cost optimization efforts and the margin improvement we've experienced since the second quarter.

We have been able to mitigate the sales decline and are raising our fiscal 2023 adjusted EBITDA guidance.

We now expect adjusted EBITDA to be in the range of $85 to $90 million. We expect to generate more than $75 million in pre-cash flow in the current year, representing an improvement of more than $135 million as compared to a year ago. I'll now turn the call back to Chris.

Thanks Bill. To recap our performance for this quarter, we were able to offset softer top line performance with improved margins and through our expense management efforts.

Consumers remain cautious in the face of several macroeconomic pressures, including the ongoing inflationary pressures, rising interest rates, and fears of a recession. Our goal is to ensure that we have options at key price points across our brands to maximize conversion and customer value, no matter the occasion or budget.

As a management team, we are focusing our efforts on the areas that are within our control and have mostly mitigated these top line challenges through gross margin improvement and our expense management efforts. Our margins are improving and are benefiting from lower inbound freight costs. We expect margins to continue to improve as commodities cost, which have remained stubbornly high, revert to their mean over time.

As we look beyond the current horizon, we remain very optimistic about our long-term prospects.

We expect to emerge from the post-pandemic downturn as a stronger company and may continue to see tremendous opportunities to grow our business both organically and through acquisitions.

And now we'll open the call for questions. Thank you. If you would like to ask a question, please press start on the one on your telephone keypad.

If your question has already been addressed and you'd like to remove yourself from Q, please press start of the tube.

Today's first question comes from Dan Kueros with the best work company. Please go ahead.

Great, thanks. Good morning. Man, Chris, we've come a long way. I can't say I foresaw the day we'd be talking about generative AI on this call, but kudos to you for getting involved in a much faster fashion than the company probably would have been able to do years ago. On a more serious note, I know the history of this company, but I'm going to ask this in any way because this is very topical right now.

There's been a general right sizing of offerings this year, and even if we kind of all assume the consumer pressure will eventually be transitory. So there you go.

The question I want to ask you is kind of two parts. One, how are you looking at the entire portfolio of your offerings as you try to gain share but stay mindful of efficiencies. And two, on the tougher part of the question, on promotional activity, you've been raising price although I know that's not a blanket statement, but AOVs come up.

Jordan, thanks for the questions and thanks for your recognition on our quick movements with the ChatGPT product. The teams have a lot of fun with that right now. But as we look at what's happening in the marketplace, we think there's an opportunity to actually lean in a little bit here. So when we look at what we bring to the table, for our customers and what we always cautious of introducing too much complexity, but at the same time, look to leverage our platform wherever we can to increase our product offerings in a smooth fashion.

I think a great example of that is what we've done recently with the tuck-in acquisition of things we remembered. Because it's such an easy tuck-in onto the platform that we've already built in the personalization space, we're able to do something like that and make it easy. Now the challenge then comes, okay, how do we merchandise that in front of the customer and put that in front of the customer? So that's constant improvements we're making in search, in the navigational flow on the customer.

Cross merchandising things, Tom, is there anything specific? Yeah, just our efforts not on product personalization, but on customer personalization being more relevant. We recognize we have this huge portfolio of different products to meet all kinds of different budgets and occasions. But the most important thing is putting the most relevant products in front of our customers at the right time. So we're very focused on that.

Right, and then I look at the ALV, and I think the ALV is a combination of a couple of things here then. The strategic pricing that we continually look at and optimize, some of the reduction in some of the cost, the ocean freight, etc. But also just merchandise mix, and again recognizing this time point out.

Our customer base is broad and it covers many different ages and many different demographics of how sold them, how sold income, etc. So it's our objective to make sure we have a broad assortment at key price points, including entry level price points. So again, I'll come back and I'll finish this comment on the chat GPT. That's giving customers an opportunity to do something like that that's fun and creative.

and Tom sort of alluded to it, but I mean, having the strong customer file that you have that you've built over all these years, you know, in this environment telling people, hey, you know, we'll cover, I saw you just ordered this, we'll cover, you know, all your other gifting options with birthdays coming up for the next three months, 10% off, just, you know, incrementally creative ways to, in a challenge consumer environment, get either more...

subscription-like consumers and then cross-pollinate. Just if you could touch on any efforts you have in those areas I think would be helpful.

So that's where we're really driving and getting the benefit and seeing the results from them. Today over 20 plus percent of our revenue every day is coming from passport members and that's continuing to grow. Tom, what do you say? Yeah, I mean, you touched on it Dan, the subscriptions is a focus of ours and continue to move forward and still working on.

providing what we think is a great opportunity, you know, cross brand subscription. So, you know, customer can really mix that product, this sort of up. I think we're very focused on continuing to engage with, you know, our most valuable customers. We're very, you know, we're continuing to augment the analytics and, and frankly machine learning around how we...

look at long-term value of customers and those that we think we can drive more value out of. Yeah, when you talk about subscription-like capabilities, you know one of the best we've talked about this in the past, one of the best performing marketing programs we have is what you alluded to Dan, the reminder capabilities, the reminder programs.

And one of our efforts now also is seeing large numbers of customers proactively enter other dates besides what they're buying for today that we would always remind you of next year. But now they're entering into our database other dates for us to remind them of. So again, showing us another level of engagement. If they're proactively doing that, this is...

The next question is very comfortable Anthony and Levin Zinsky with Sadoean Company. Please go ahead. Yes, good morning and thank you for taking the questions. Again, also nice to see the margin improvement as well. So as far as passport membership, can you comment a little bit? I know you guys don't give out specific numbers on a quarterly basis, but just...

you know, revenue-contexting customers with our passport. So about 20% of our revenue today is with our passport customers. And we're seeing those customers hold up much better than our overall customer trends, both our passport customers and our multi-brand customers.

As far as the strategic pricing initiatives, I'm just wondering which areas of the business have you seen the most success with?

Just curious about that. Yeah, for the most part I think what we've seen is we've seen the most success really on the food side of things and again on higher price point items.

As we mentioned in the past, getting pricing increases on some of the lower price point items like personalization models is more difficult, but whether it be floral or food side, when you move up over $7,500, that's where you're able to get a couple of dollars and more price more strategically. And again, those are going to be your cost.

the demographics of your cohorts by and there are going to be those less infected by the inflationary prices. So those are your higher household income customers that are driving that mix. But at an age of so are the consumer flaw and gifts and blue net segments that increase margins during the quarter and part of that was this.

are going to be those less affected by the inflationary prices. So those are your higher household income customers that are driving that mix. But as you saw, the consumer flaw and gifts and Bluenet segments both had increased margins during the quarter and part of that was the strategic pricing that we had.

Yeah, thanks for that. And then, you know, in terms of your balance sheet, you guys have some debt that's coming up. I think I believe the term loan is maturing next May, you know, with everything going on within the banking world. Just wondering about your confidence level about your ability to refinance that.

Yes, we're going through, we've been in discussions with our syndicate group and with JP Morgan who leads our syndicate group and we're in the process of working through that right now.

Okay, terrific. Okay, well thank you very much and best of luck. I'll pass it on. Thank you, Anthony. I have a question for Michael. If you've been to see you in Noble Capital markets, please go ahead. Thank you. I offer my congratulations on the margins as well. I have a couple of questions here. How much of the improvement in gross margins was pricing versus...

break costs? Yeah, I think, you know, Michael, probably about half or so is, you know, pricing. We're able to, you know, move some pricing on BlueNet on some of the wholesale products that, you know, that we had and on fall, we made some, you know, some adjustments. What we have is, we call it strategic because it is somewhat surgical in what we're, you know, what we're doing there.

But I would say about half of that from that and then from ocean. We are starting to get the benefit of much lower ocean pricing. Although that has not fully flown through our P&L yet, we're going to get much more benefit in fiscal 24 on...

on ocean because we're still selling through inventory that was bought with higher ocean price. So we're getting some benefit from ocean but not the full benefit yet. But just for clarity there, Bill, we are expecting to improve gross margin in Q4 as well. Without question.

because we're still selling through inventory that was bought with higher ocean price. So we're getting some benefit from ocean but not the full benefit yet. But just to clarify that we are expecting to improve gross margining too far as well. Without question. Thank you. To floor and going for it.

Gotcha. And then what is the revenue impact from the extra week? Yeah, it probably impacts the year about a little more than 1% and for the quarter probably around 4% or so. It's a 20, 25 million dollar impact. Gotcha. So the guidance for Q4, which is implied given your

but yeah, the trend lines would be very similar. Gotcha. And then can you talk a little bit about the commodity price outlook, commodity cost.

maybe the prospect of moderation. What would be more relevant to you and impactful in terms of optimizing your margins? What type of commodities should we look for in monitor?

Yeah, there are certain, you know, our food groups are impacted by, you know, a lot of different commodities. What we've indicated in the release was that, you know, we have started to see a break in liquid eggs or eggs and butter. Also, fuel has come off a tie. We didn't get the benefit of fuel in Q3. We will start getting the benefit of...

fuel being lower. If you remember a year ago at this point in time fuel was, you know, fuel was going up. You know, now it is, is that a lower level? So fuel will be lower, you know, eggs and butter will be lower. Things like cocoa and sugar which are big commodities that we use are, are, you know, remaining at a store or a whole house. And even with respect to, you know, eggs and butter, they're certainly down with their highs.

but they're not back to historical norms yet. Gotcha. That's all I have. Thank you.

Thank you. And ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star then one. Today's next question comes from Linda Bolton-Wiser with the A-Davidson. Please go ahead. Yes, hello. So I was just wondering, you had mentioned in your comments a little bit of higher promotional activity in the food business. That's how it is like a little bit of pricing competition.

Can you elaborate on what that was that was going on exactly? Thank you. Yeah Linda, as we've discussed in even previous calls, probably really more related to a movement of inventory. Looking at the consumer, when you look workflows you can have a saliva exchange between yourcember Broker and PROTAG key.

While the large majority of our inventory is non-perishable, we do have certain commitments that we made on perishable products that we had to move through. So we were more promotional on that to move through that inventory to obviously avoid taking inventory right off. It is a tough consumer environment. So as time was alluding to, we had price points at all levels for all consumers and at various times we do have to be a little more promotional. But really the larger...

I was referring to really related to the movement of inventory. Okay. And then you mentioned, I think you mentioned lower advertising cost year over year. That's kind of an interesting comment. Is that regarding like digital advertising or can you give more color?

making sure we're focused on acquiring the customers that we think are going to have the longest life, the best lifetime value for us.

Hey Linda, this is Bill. Just getting back on the inventory, just wanted to emphasize that this year one of our big strategic initiatives was to drive down our inventory. A year ago we were buying inventory heavy because a lot of the supply chain has improved. If you look at the end of the third quarter, our inventory was 191 million versus 215 million times further.

through this quarter and at the end of the fiscal year starting fiscal 24 than we were a year ago.

the end of the fiscal year and starting fiscal 24 then where are you going? Okay.

And then finally, I think you sort of gave a differentiation between things remembered and PMOL, how they're kind of positioned differently, but I'm wondering are there still items that they each sell that somehow you can leverage procurement or something because you're buying similar items and it's going to give you a higher...

The average amount of things remembered ALV is more like 20 to 25 dollars higher than personalization while product. However, we are already seeing, you know, and we just as a matter of practicality as we acquired the brand, we were left in a pretty shallow inventory.

that we do have in stock, we are merchandising some of those on the personalization wall. And as we're bringing things together, all of product assortment is being brought live in the enterprise portfolio. So we're selling it across the appropriate brands in our enterprise.

Yeah, so while there's that cross Merchandising capability between those two brands on this time says across the platform clearly we see the opportunity for things remembered to play in a little bit of a higher category than personalization wall.

It just leverages the operating platform that we've built. Okay, thank you. Then just one final thing. Can you clarify, I know that P-Mall had shown up on the creditors list for Bed Bath and Beyond and you indicated that it might be an erroneous representation or something. Is there any way to explain, because it was an $11 million amount, it was quite a bit on the list?

and beyond after that. So we have no exposure at all with Tibet Bath and Beyond.

Okay, great. Thank you very much. Great, thank you, London. Thank you, and our next question is a follow-up for Michael Tapinski with Novo Capital Markets. Please go ahead. Thank you. You've provided guidance in terms of free cash flow. It's just warning if you can just talk a little bit about capital allocation at this point.

I think we continue to really focus on the opportunities to grow our business, Michael. I think what you've been seeing is making the investments in our business that really put us in the position we're in today, which I think is an extremely strong position to make sure that we excel now as the consumer starts to get into a better position themselves. So we look at investing in the business. We look at M&A activity to...

In addition to that, we continue to look at what else is appropriate for shareholder return, and right now we think the best place is the growth of the business.

Gotcha. Can you just talk a little bit about the M&A environment? Are there things out there that are looking attractive?

We're always staying active so there's always a list of companies on our discussion list, our target list, and seem attractive from a strategic point of view. And I guess you've got to figure out what we'll have to see as we get into it whether or not it's attractive from a valuation point of view.

Gotcha. Okay. Thank you. Okay. Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the management team for your final remarks. Thank you, Vaco. Thank you all for joining us this morning.

We encourage you to all take care of your moms and all the moms in your life. They're very well deserving of it. And I also encourage you to take Dan's point from the top. Go try our mom-verse product. It's a lot of fun and send some moms in your life a little song or a poem or a limbic of some sort and have some fun with the product. It's mom-verse by 1-800-Flowers. Thank you. This includes today's conference call. We thank you all for attending today's conference call.