Q1 2024 1-800-FLOWERS.COM Inc Earnings Call
[music].
Good morning, everyone and welcome to the one 800 flowers Dotcom incorporated 2024 first quarter results conference call.
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And at this time I'd like to turn the floor over to Andy Miller Boy Senior Vice President of Investor Relations. Sir. Please go ahead.
Good morning, and welcome to our fiscal 2024 first quarter earnings call.
Joining us today are Jim Mccann, Chairman and CEO, Tom Hartnett, President and Bill Shea CFO.
Before we begin 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.
Quoting 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.
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 Jim.
Thanks, Andy and good morning, everyone and thank you for joining US. This morning I'll share a few of my thoughts on the current environment and then I'll turn the call over to Tom who will provide a business update.
We will conclude with a financial update from Bill and then we'll open it up for your questions.
As we announced this morning, our first quarter performance came in line with our expectations, most notably our gross margin expanded quite substantially led by our 830 basis point improvement within our gourmet foods and gift baskets segment.
We began to turn the tide last fiscal year.
And are benefiting from certain macro trends there.
It has started to revert to the mean or thoughts along with other favorable trends that bill will discuss in more detail.
Beyond these improvements our organization has been executing on several key initiatives, including our work smarter initiative that is focused on operating more efficiently through the use of technology and automation and also includes our logistics labor and inventory optimization efforts.
Work smarter as an evergreen initiative that we expect to provide benefits and be increasingly effective in the years ahead.
Beyond work smarter, we've made great progress on our relationship innovation efforts, which Tom will highlight to you in a few minutes.
It is important to remember that our fiscal first quarter, which is historically our smallest quarter by far is comprised of everyday gifting occasions with no major holidays as we turned our sights to the holiday period that we are now just beginning we expect our sales trends to improve as our business has historically proven to be more.
During holiday periods quite simply we believe consumers tend to view holiday gifting as being more of a necessity rather than a purely discretionary purchase.
They may trade up or trade down, but we'll look to buy gifts for the holiday periods as Tom will discuss in more detail, we have never been better positioned to serve our customers and help them find the perfect gift for everyone on their list.
We have introduced new product offerings launched new tools to help our customers.
Who maybe lost for words better expressed this sentiment and we have broadened our price points, both lower and higher to serve more budgets.
We've also had a helping hand from mother nature, who provided quite a bit of snow near Medford, Oregon. This last winter, which helped us produce our best pear crops in a row galleys since 2019.
The pairs are number one cell at the season or simply beautiful and delicious.
Royal Riviera Pears are available for sale now and if you haven't already I highly recommend you place your order today.
I'll now turn the call over to Tom Tom Please take us through.
You a business update.
Thanks, Jim and good morning, everyone.
Our first quarter adjusted EBITDA loss improved $5 $5 million over the prior year to a loss of $22 $5 million.
Our results benefited from certain improving macro trends and our work smarter initiatives that led to the 450 basis point points improvement in gross profit margin and lower expenses, which mitigated the 11% sales decline.
Heading into this fiscal year, we anticipated a bifurcation in our sales trends would persist with consumers for moderating their spending on everyday gifting occasions, while continue to shop for the major holiday events.
Our view is informed by our trends over the past fiscal year and the broader macro environment in which consumers continue to remain pressured by persistent inflation higher interest rates and more recently the resumption of student loan repayments.
Knowing this we expected ourselves to be the most challenged during the first quarter as there are no major holiday occasions during the quarter and to begin to improve as we head into the holiday season.
For the quarter, we attracted 680000, new customers existing customers represented 70% of our revenue and our <unk> increased approximately 5%.
It's not surprising that in the current environment, our higher income consumer customers are performing better.
Present, a greater portion of our customer base and revenues, which in part contributed to the increase.
And now I'd like to share an update on some of our relationship innovation developments, which encompasses everything from new or enhanced product offerings, our merchandising efforts as well as user interface enhancements.
We had a number of developments here and I'm excited to share a few of them with you today.
Meet consumers, where they are we are expanding our price points, both higher and lower to accommodate our various customer segments, including those who are attracted to higher value higher price point offerings as well as those who are more price sensitive in the current environment.
For our customers looking for higher value offerings, we're offering new product bundles that combine a variety of products from our family of brands and delivering them in one gift box for the recipient.
Our continued focus on enhancing the customer experience led us to streamline the process to create a better experience for both the gift giver and gift recipient.
Customers can select from an increased selection of multi brand bundles that will be sent to their gift recipient and one shipment.
This is possible due to the investments we have made in our systems and our multi brand distribution centers over the last few years.
And by leveraging our fulfillment network, we expanded our last mile delivery capabilities to offer our customers same day delivery of not only floral but also certain confection bundles.
Customers can now order a beautiful one 800 flowers bouquet and bundle it with our sherry's various cheesecake bites or birthday cakes that can be delivered on the same day to help them celebrate a special occasion.
Furthermore, we continue to add more options to our assortments.
One that has been a standout is providing our customers with the option to choose one or two bottles of wine to go with some of our key gifts.
Yeah.
Making it simple for our customers to add a second bottle wine with their order has resulted in our customers, adding a second bottle nearly 50% of the time.
Speaking of making things simpler for our customers just in time for the holidays, we are launching a new feature within our checkout process to make it easier for gift givers to express themselves.
We were very innovative in our use of AI to offer customers free gifting tools to help them express themselves with their moms and dads during the mother's day and father's day.
He has taken that a step further and now empowering customers with who may be loss for words with generative AI to help them craft the perfect message to be set with their gift.
Incorporating seamlessly within the checkout process customers can respond to intuitive prompts including recipient details the occasion and desired tone to provide just the right message for their recipient.
It's truly gets up to the heart of who we are a company that helps people express themselves improve their relationships and stay connected with the most important people in their lives.
This effort is part of our ongoing AI road map to increase the use of this technology throughout our platform and enhance the user experience.
For our corporate gifting partners, we're excited to leverage our acquisition of smart gift and launched market for business.
This new offering revolutionize the way organizations can build more and better relationships with their key stakeholders.
The market for business provides an all in one system that tracks campaigns measure success and provides recommendations for future efforts to help organizations maximize their business relationships.
We are excited about the opportunities. These enhancements present as we continue to grow our offerings and provide customers with a unique experience that they can only get from our family of brands.
As you can see our work smarter and relationship innovation efforts are having a clear and beneficial impact on our business. They are the driving principles of our business and we look forward to providing future updates on our progress in these areas.
Now I'll turn it over to bill to provide the financial review.
Thanks, Bob and good morning, everyone.
On our last call, we discussed our long term historical trends and our expectation for sales gross profit margin and adjusted EBITDA metrics to revert to the mean over time.
This includes returning to organic revenue growth and our gross profit margin in the low 40% range.
Part of this reversion will be led by the external macro forces such as the broader consumer environment and commodity prices and Paul will be led by our own work smarter and relationship innovation efforts that.
That we expected low sales increased margins and tightly manage expenses.
As Jim and Tom highlighted our first quarter performed according to our expectations and we saw improving revenue trends a significant improvement in gross margin and a reduction of expenses that led to a $5 $5 million improvement in adjusted EBITDA.
Let's take a moment to review each of these.
Our quarter over quarter revenue trends improved with revenues declining 11, 4% for the first quarter as compared to 48% during the fourth quarter of fiscal 2023, excluding the impact of the 50 <unk> week in the fourth quarter of fiscal 2022.
Gross profit margin, which was a real standout this quarter increased 450 basis points over the last year to 37, 9%.
This was led by 830 basis point improvement in our gourmet food gift baskets segment.
Gross margin benefited from several factors.
Excluding lower ocean freight costs, our strategic pricing initiatives the.
The decline in certain commodity costs.
Automation efforts to operate more efficiently and better inventory management.
We expect these variables to continue to be a tailwind throughout the fiscal year.
Even as we cycle against the gross profit margin improvement that we began to realize in the second quarter of last year and to a greater extent in the second half of the year.
For a million dollars or 2.3% for the quarter.
We remain steadfast and managing what is in our control and reducing expenses, despite higher labor costs, an inflationary increases.
As a result.
My first quarter, adjusted EBITDA loss improve $5.5 million to $22.5 million as compared to the prior year. Despite the top line pressure.
Net loss for the quarter improved to $31.2 million or 48 cents per share as compared to a net loss of $33.7 million or 52 cents per share in the prior year.
Now, let's review our segment adults.
A gourmet food and gift basket segment revenues declined 9.3% to $98.1 million compared with $108 $2 million in the prior year.
Ah wholesale revenue component was roughly flat.
Compared with a year ago.
The segments gross profit margin expand at 830 basis points to 31.5% compared with 23.2% in the prior year period.
Moving on low motion for a course at the client in certain commodity prices.
And the company's strategic pricing initiatives and better inventory management.
Second contribution margin loss improved by 7.7 million to $11 million compared with a segment contribution margin loss of $18.7 million in the prior year period.
This improvement primarily reflects that was profit margin improvement combined with more efficient marketing spend.
Consumer flow and gift segment.
Revenues decreased 12.3% to $142.2 million compared with $162 2 million a year ago.
Profit margin expand at 140 basis points to 39.6% compared with 38.2% in the prior year period.
Moving on strategic pricing initiatives and Lola Ocean freight costs.
[noise] segment contribution margin was $8 $8 million compared with segment contribution margin and $10.8 million in the prior year period, reflecting the lower revenue.
No Blue Med segment revenue.
Revenue for the quarter decreased 13.5% to $28.9 million.
Most profit margin increased to 52% improvement 680 basis points compared with 43.4% in the part of your period, primarily reflecting strategic pricing initiatives Lola Ocean freight costs and product mix.
Segment contribution margin was $9.4 million cause I have a $9.5 million in the part of your period is a gross margin improvement helped offset revenue decline.
Turning to our balance sheet.
Okay. It's an investment position was $8.4 million at the end of the first quarter, She's really low as we prepare for the holiday period.
Inventory was $286 million bet with inventory of 342.6 million at the end of the same time last year benefiting from this component of our work smarter initiatives and is focused on the operating more efficiently with lower inventory.
Terms of death.
The total outstanding debt by $67.5 million as compared to last year.
We had 197.5 million in term debt and borrowing some $35 million under a revolving credit facility in preparation for the upcoming holiday season.
This compares the total outstanding debt of $300 million at the same time a year ago.
We expect borrowing under the revolver to be fully paid during the fiscal second quarter.
Right and guidance for fiscal 2024, we continue to expect.
Total revenues on a percentage basis to decline in the mid single digits as compared with the prior year.
Adjusted EBITDA to be in the range of $95 million to $100 million.
And free cash flow to be in the range of $60 million to $65 million.
I'll turn the call back to gym was closing comments before we open it up for Q&A.
Thanks, Bill that was a good review.
The main take away from the first quarter was that so far this year essentially it's unfolding as we expected and we were on a path of multiyear reversion to the mean journey.
While everyone's crystal ball on consumer behavior for the holiday period is a bit cloudy right now with the enhancements we have made going into the holiday period, we have never been better positioned to help our customers celebrate the holidays.
With the important people in their lives as.
As Tom highlighted we are providing consumers with a broader array of gifting options and price points to help them find the perfect gift for anyone on their list.
We look forward to helping them noticed their relationships. After all we know that the greatest gift the ball is having more and better and more meaningful relationships and.
Now we'd be happy to open a call for your questions.
Ladies and gentlemen at this time will begin the question and answer session.
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Once again that is star and then one to ask a question.
Our first question today comes from Michal Kaminski from Noble capital markets. Please go ahead with your question.
Thank you and congratulations you actually did better than what I was looking for in the quarter. It looks like revenue turns we're a little bit better in the theater.
Duck, even better so congratulations on that I have a couple of questions how many new customer.
The new customers that you gained in the corner you mentioned that the higher income customers were actually performing better.
You cannot give us a sense of those new customers that you're adding or are they are they the higher income customers that you were seeing.
Hi, Michael This is Jim Thanks, Thanks for your question.
The questions the.
I I'm I'm pleased that you're pleased but we're not we would like to have done a better on the top line. This quarter everything else seems to be going as planned in terms of new customers. We're not sure Ah Ah Ah Ah I was talking to a computer data here, we're not sure if it's at the existing customers who are tend to be.
Higher economic performers are doing better or just at the lower end customers customers that are more economically challenged are just not their forest. Tom how would you interpret there yeah I might go don't have exact figures on our new customers for this this quarter, but are targeting efforts are you know more and more refined to go after.
There are.
Better cohorts, so I would expect that that our new customers continue to evolve towards you know a higher demographic. If you will hire household income.
Yeah.
It introduced new product offerings woke with a high end and at and at the low end, but with no R.
<unk> being up a lot of that is driven by you know more more customers buying the higher end products. So the question that I guess at Michael's asking use it just that they're buying more high end products or there's fewer customers for the entry level price points.
Correct, probably a little combination of all yeah mhm.
Mhm and then it seems like you stepped up your marketing can you talk a little bit about pricing for marketing are you seeing weakness in the pricing is that another reason why you're stepping that up or can you give us a sense of your marketing campaigns.
Michael I don't think we really stepped up marketing this quarter in fact, I think we're keeping our powder dry because the CAC the cost of acquiring customers still pretty stiff basilica.
Yeah, I I think it it certainly is moderated from where it once was and you know depending on the platform and we use a ton of them and a ton of different ways. We we market. There's some that are higher it from you know.
G P M et cetera basis, and some are a little lower so you know think overall <unk>.
Environment is certainly not what it was you know a year or two back as far as being that level of efficient. So it's more expensive now where it's more expensive now.
Step up a marketing this quarter do we.
No.
Okay, Great. That's all I have thank you.
Thank you Michael.
Our next question comes from Anthony.
Lip iwinski from Sedona. Please go ahead with your question.
Alright. Good morning, how are you guys doing good Anthony.
This is day by the way <unk>, sorry about that.
I guess my first question is where's commodity cause of you've seen the most declines and which ones are still pressure on your cost.
Bill will have the actual data, but when we talk about a reversion to the mean Stefan.
So hopefully a multi year reversion Ah the we've gotten some benefits. This this quarter and actually for the last couple of quarters from a macro point of view some things have reverted comfortably.
And Ocean trait, which was kicked in the head for US a year ago, it's actually come back to almost almost pre pandemic levels.
So that that one is almost come back completely so it's reverted hopefully it stays there.
Commodities piece is one that Ah Ah took off after the.
The Ocean freight thing hit Us and we do a lot of baking and we make a lot of Ah Ah baked goods chocolate products all of our food products require a lot of cookies. For example require a lot of Ah Ah butter and eggs and those commodity costs went through the roof. They moderated some but they're not back there.
Haven't reverted back to their more traditional me now.
No Alex build a color your actual data.
Yeah, So as Jim was alluding to things like butter and eggs, even we'd come off their their significant highs egg drives me back down to.
Norms, others are working their way down commodities.
Commodities like sugar and cocoa.
Big ingredients and some of them quite a fine I still value are still very high and obviously a big one.
As fuel and while fuel has moderated a little bit over where it's.
Hi is Y a year ago, obviously, we all read about fuel and it's.
It it is still very high prices historical norms.
Mmm. Thank you for the <unk> for my second question is in the past cause you have broken optimizing logistics, you're sleeping partners, mostly Fedex. So as you prepare for the busy holiday Susan how should we think about potential benefits from this initiative.
Well I think we have a program that we've referred to a few times. This morning Cold all work smarter program, which bill has been quarterbacking with a team of people across the enterprise and you'll see them, you'll see that they've done lots of things for example reopened R.
East Coast large distribution center for a multi brand operations, we opened that in Georgia.
A year and a half ago.
We spent a great deal of time and money on an automation project there and the last in.
And the last year and we're seeing the fruits of that now. So that's one example, so Ah freaked out of all finished goods will come from that facility, which might've either come from Ah, Ohio facility, which covers the Midwest or west coast facilities in Oregon.
So there is a significant frayed savings by having Ah Ah by having a national footprint of major distribution centers and we've also coordinated.
And distributed all products on a on a raw ingredients spaces into a finished goods facilities across the country as well. So we have deep freezer space and and now in Ohio and in Georgia, and we've had it for a long time in Oregon, but bill give us a little bit more Colorado, what I'll work smarter initiatives yoga.
Particularly in theory that Stefan is asking us about it in terms of logistics well first off you know.
We have a great working relationship with them you know without carriers and we we do have contracted longterm contracted rates I do have my modest increases.
Every year, but there are certain components of the rates that are in caps get variable and so they're a little more variable fuel is one of the one of the bigger ones. So we've embarked on a number of initiatives logistic initiatives to help offset those you know those those rate increases Jim was alluding to the opening.
You know all the gland to it not that not that long ago, but a lot of it is the placement of inventory around the country, making sure. We're with is closer to the consumer as we can be so we can use a lower priced serviced and still meet customer expectations on on on <unk>.
<unk>, but what smart as much Florida, then just go off on the logistics standpoint really is you know a number of work screens that we have all about working more efficiently through the use of technology automation. It includes the logistics that we talked about labour inventory and inventory manager and we can't go much further in the call without mentioning a.
Hi, So there's a consistent with every other company on the planet [laughter] good absolutely.
So certainly from Ah Ah manufacturing and distribution from an automation standpoint, we've talked about these and that you know you know in the past.
The deal with a capital efforts that we've done Apple R, Ohio make food and method, Oregon and Atlanta no facilities.
Invest it within our service on a platform I'm gonna automation standpoint, using some AI, but certainly from a from a cat I'm a chat standpoint, using thoughts up on the cell surface portal they'll get include the customer experience.
With you know if I'm at work smarter standpoint inventory management, bringing our inventory you know that you know down to you know more in line with where Ah Ah Ah current demand is is saved us money from both are working capital standpoint, as well as from an inventory right off why don't why don't you touch on that inventory pointed it might.
[noise] helped Stefan to understand that what what we did.
Treatments, we've already had their last year at this time.
Inventory levels versus this year and how we've spread the inventory out to meet where we anticipate demand to be which gives us afraid savings and enables us to lower our overall inventory investment, yes, rheumatoid down around 60 million ourselves a little more than 60 million at the end of the first quarter of this year, but it was.
A year ago, and we have a better place around the country. While we think we do [laughter] and we am producing it in a more efficient manner closer closer to the holidays. So let's say, we're saving on labor Ah what ultimately saving on quake caused by having any better placed around the country.
That helped me to step on.
Yeah. Thank you and I guess that leads to my last question can you talk about seasonal labor availability in labor rates with the current how're you big water and how to about compared to last year sure. It's a it's a it's a good story for us Stefan and that's two years ago. So Christmas of 21, we really struggled we.
We wound up the season with 2000 physicians, we never filled and that just kicked us in the head from Ah Ah labor cost point of view because it requires so much overtime last year, we filled those spots better and we just got reports as recently as Monday. This week that we're really not having a problem with labor anywhere in the country now.
[noise] I will caution you that when we talk about reversion to the mean, we have no illusion.
Got on the cost of labor side that there was a reversion to the mean to get back to pre COVID-19 levels. We were pre COVID-19 12 to $13 an hour bill.
For entry level seasonal holiday help and now it's much 20th so that that's not going back that gene he's not going back in the bottle. So are planning anticipates that labor costs overall will be a constant I will say, though the asteroid there is it's not higher than it was last year for us that's right.
Well. Thank you so much I was going back in the queue. Thanks.
Thanks to a.
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Our next question comes from Al experiment from Craig Hallum Capital Group. Please go ahead with your question.
Great. Thanks, guys for taking my question, Jim It sounds like you're pretty optimistic about your positioning for the holidays can you talk about what you're doing to attract consumers. This holiday season that might be watching their spending a little more than in prior years.
Well.
I I don't mean to betray optimism, but [laughter], but.
There were hopeful maybe that's a better term.
<unk>, we're doing at all it it's not I won't be the only answer on this question I'll ask Tom and build a contribute but Tom.
Tom mentioned in his remarks, Alex about how we're broadening the range of our price points on products I I think that we have a lot of opportunity on the high side to offer Ah Ah Ah Ah more attractive products that that the average consumer wouldn't Gulf War, but.
Well heeled customers, who really wants to make a splash will find attractive, but frankly, we just always surprised ourselves. All these years later about what the elasticity in demand would be at the higher price points and so we're making an effort to go after that on the other hand as we look at we were just chatting before we started this morning.
About the comments, Brian Cornell from target had made on on C. N. B C. This morning about what they are experiencing and it's very similar to us and that the the the the title wallet consumers struggling right now and you can see that I was reading in the Wall Street Journal.
Article by a great gift about how to use the university of Michigan long running consumer sentiment index is a recession like levels and it just it just seems to me I I told everyone here. The story that when I was in a L. A a couple of weeks ago I was running around a lot night ubered everywhere.
And I had maybe 14 12 to 15 different luba rides over the course of the four days I was running around L. A and every single driver that I had all of them nice experience was good in every case every single one of them chatted about how they were under pressure cost of fuel they pointed frequently to the gasoline prices.
Lines on the roadway, we run Lincoln Boulevard, a lot and and it started with a seven and they talked about the cost of fuel they talked about the cost of housing rent for them and they talked about food cost and not consumer 62% I read in the Wall Street Journal piece, 62% of consumers are working paycheck to paycheck.
62% of Americans and that's they're not they don't have the discretionary dollars just say Oh, let me go buy a birthday gift for $50 from one of our branch, but all Florida is when it comes to Thanksgiving when it came to Halloween and especially when it comes to Christmas They moved from disk discretionary items too.
You need to buy items and Tom I think you would add that that we we've added a lot more price points I'd be affordable and attractive to a consumer who's struggling a bit.
Yeah, Alex is Tom you know, we definitely doubled down in in the the lower price points, we we on the herring and David brand we have.
A number of new products at a 29 99 price point, we've we.
None of them are 100 flowers brand we've also entertained.
Have a number of lower price points and we've we've ever had on the site and especially around our other brands where are they are start off at lower price points or were in Ah 15 to 19 dollar price. We don't the bottom line is is you know.
And really reinforcing the ability to price shop by price et cetera, and those and those brand so.
We understand that you know a certain segment of our customer base is under pressure, we Wanna meet them, where they are in it for so they can convey their expressions for the holidays. So.
Really focused on that but we have also introduced some higher price point items and some bundled products that combine some of the things that are more affluent consumer customer wants to buy it and we've seen and we've seen there's some positive.
Sponsors to those to those items, Tom monitored shine a little light on both the the bundled product that bill reference that will be seen some good traction yeah. We mentioned wine on the call earlier, we you know we have you know we.
New products for with Harry and David Christmas Party products that are you know 700 799 dollar products, we have ultimate hearthside gift basket, that's $500. So we've kind of seeing consumers gravitate a segment of our consumers gravitate towards these higher prices and and you know so we're.
Continuing to advance some of that catalog.
The wine is a category, we'd mentioned, especially Alex.
Thomas mentioned in a couple of times now, we really only sell where winery.
Grow grapes, we make one and so that's Ah, it's a decent margin product business right now, we really only sell it as an add on and what we discovered Tom mentioned that earlier on in his opening remarks, what we discovered whose customers like the idea of being able to add a bottle of wine onto the food basket gift or onto there.
The bakery gift collection and increasingly when we make it available to them and a portable they're going for the second bottle to make it a really nice package. So the bundles of where we are seeing some really good traction.
That's terrific I. Thank you all three always always good to hear your your perspective on the consumer, especially heading into the holiday season.
Thanks, Thanks, Alex.
And ladies and gentlemen at this time and showing no additional questions I'd like to turn the floor back over to management for any closing remarks.
Well, thanks, everyone for joining us today, we want to wish everyone a wonderful holiday season.
Mentioned, we are hopeful that it's the consumer will will will be there and we have the right mix of products and services for them you've heard all the things we've done to invest in all logistics and our capabilities to give them really good product realy fresh in a very inexpensive way to them just when they wanted so if you have any additional.
Questions. Please don't hesitate to get in touch with US we were ready to.
Engage with you and answer any questions. You may have so have a wonderful and healthy holiday season.
Ladies and gentlemen, with that will conclude today's conference call them presentation. We thank you for joining you.
You may now disconnect your lines lines.