Q2 2024 1-800-FLOWERS.COM Inc Earnings Call
Yeah.
Good morning, and welcome to the one 800 flowers dot com fiscal 2020 for second quarter and year end earnings call.
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I would now like to turn the conference over to Eddy minimum voice Senior Vice President Investor Relations. Please go ahead.
And welcome to our fiscal 'twenty 'twenty four second quarter earnings call joining.
Joining us today are Jim Mccann, Chairman and CEO, Tom Hartnett, President and Bill Shea our 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.
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 Jim.
Andy and good morning, everyone. Thank you for joining us. This morning, I'll begin with a brief overview of our second quarter performance and then turn it over to Tom who will provide a business update.
We will conclude with financial review from Bill and then we'll open the call for your questions.
Heading into the second quarter, we expected our sales trends to improve our gross profit margin recovery to continue.
And our operating expenses to decline.
Our performance was essentially in line with our expectations as our gross profit margin recovery and expense optimization habits helped offset what turned out to be a softer than anticipated consumer environment.
Most notably our gross profit margin expanded nicely and as Bill will highlight Florida outpace of module recoveries happening at a good rate.
This was our fifth consecutive quarter of year over year margin expansion and.
And we are well on our path to returning to our stock will mean annual gross margin rate in the low 40, <unk> et cetera.
Our gross profit margin is benefiting from a combination of a reversion to the mean of certain commodity costs and I'll work smaller initiatives.
Centered on operating more efficiently.
As Tom will highlight further we are regularly evaluating opportunities to improve our top line through a relationship innovation initiatives and this performance will only further be buoyed by the improvements we are seeing in our gross and operating margins.
Before I ask Todd to provide the business update I did want to take this opportunity to highlight a new organization that we are very proud to partner with this holiday season.
As many of you know smile farms is our signature philanthropic partner.
Whose mission is to create meaningful work opportunities for people with disabilities.
Their work generates purpose and pride enhances life skills and posted socialization.
This holiday season, we are proud to partner with another organization, whose mission is closely aligns with that small box.
During this past holiday season, we partnered with the nonprofit called the first step staffing to employ approximately.
350 individuals in our Atlanta distribution facility.
First step staffing is an organization that provides employment opportunities and resources to homeless individuals who want to reenter the workforce and improve their lives.
They not only provide employment opportunities, but they also provide additional support services, such as providing sand transportation to and from work to position. These individuals' for success. There are terrific organization that does great work and we are glad to be able to partner with that now I'll turn the call over to Tom for the business update.
Thanks, Jim and good morning, everyone.
Today I'll provide an update on our business performance as well as an update on our relationship innovation developments, which encompasses new or enhanced product offerings, our merchandising efforts as well as user interface enhancements.
During the second quarter, we generated $130 1 million and adjusted EBITDA as a work smarter efficiency initiatives combined with improving macroeconomic factors contributed to a 230 basis point improvement in our gross profit margin.
Operator: Good morning, and welcome to the 1-800-FLOWERS.COM Fiscal 2024 Second Quarter End Year End Earnings Conference. All participants will be in listen-only mode. 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 1 on your touch-tone phone.
Our quarter over quarter revenue trends continued to improve we encountered a softer consumer environment, especially amongst our lower income tier customers as.
As lower income customers continue to be most impacted by the macroeconomic pressures we continue to see this customer cohort reduced purchases the most.
Operator: To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Andy Milivoje, Senior Vice President, Investor Relations. Please go ahead.
Conversely.
<unk> increased approximately 3% as our upper income customers continued to represent a greater portion of our overall population and they continue to gravitate towards our higher priced bundled products that provide a great gift and value.
Andy Milivoje: Good morning, and welcome to our fiscal 2024 second quarter earnings call. Joining us today are Jim McCann, Chairman and CEO, Tom Hartnett, President, and Bill Shea, our 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 document. During this call, we will make forward-looking statements, including 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.
During the first half of our fiscal year, we have been prudent with our marketing spend and a challenging consumer environment in which we didn't see an adequate return on investment as.
As Jim mentioned under our relationship innovation efforts, we are regularly evaluating our offerings pricing and bundling opportunities to ensure we have appropriate price points for each of our customer segments.
We are actively managing the pricing elasticity of our product portfolio.
I'll focus on the customer journey, providing thoughtful gifting options and having the appropriate pricing at all ends of the spectrum.
<unk> two luxury has never been greater.
During the second quarter, we introduced lower price points and emphasize gifts that are in our lower price ranges to attract customers who may be more price sensitive.
Andy Milivoje: Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. Now, I'll turn the call over to Jim. Thanks, Andy, and good morning, everyone. Thank you for joining us. This morning, I'll begin with a brief overview of our second quarter performance and then turn it over to Tom, who will provide a business update. We will conclude with a financial review from Bill, and then we'll open the call to your questions. Heading into the second quarter, we expected our sales trends to improve, our gross profit margin recovery to continue, and our operating expenses to decline. Our performance was essentially in line with our expectations as our gross profit margin recovery and expense optimization efforts helped offset what turned out to be a softer than anticipated consumer environment. Most notably, our gross profit margin expanded nicely, and as Bill will highlight further, our pace of margin recovery is happening at a good rate. This was our fifth consecutive quarter of year-over-year margin expansion.
This includes providing new value offerings, such as our flowers and feels collection at 100 flowers that features custom crafted bouquets that match, an array of sentiments and provide great value beginning at $39 99.
And we continue to lean into new products and bundling offerings for customers.
We're looking to while they are recipients.
Bundles allow us to feature products from our different brands and conveniently ship them to the recipient in the same package.
This is also a great way to introduce introduced our customers to our family of brands and give us a competitive advantage by marketing these bundles across multiple brand websites.
These get bundles provide great value to our customers and we continue to see customers trade up in price points for these wonderful gifts.
As an example, deleverage personalization mall to launch a set of food gifts with a personalized item such as our Harry <unk>, David Charcuterie get bundled with a personalized maple cutting board.
James Francis McCann: And we are well on our path to returning to our historical mean annual gross margin rate in the low 40s percenture. Our gross profit margin is benefiting from the combination of a reversion to the mean of certain commodity costs and our work smarter initiatives that are centered on operating more efficiently. As Tom will highlight further, we are regularly evaluating opportunities to improve our top line through our relationship innovation initiatives, and this performance will only be further buoyed by the improvements we are seeing in our gross and operating margins. Before I ask Tom to provide the business update, I did want to take this opportunity to highlight a new organization that we are very proud to partner with this holiday season. As many of you know, Smile Farms is our signature philanthropic partner whose mission is to create meaningful work opportunities for people with disabilities.
This program was launched as a test and it has exceeded our expectations.
Believe there's a lot of opportunity here and once again demonstrates how our brands can complement one another and give our customers an elevated experience compared to others in the market.
As we look ahead to Valentine's day. This year, we have a slightly better day placement and we had a year ago as it's mid week and a few days past the Super Bowl, which should be favorable to us.
We are excited about our new trio bundle that features our one 800 flowers Roses, Harry <unk>, David wine and cherries berries to create a magnificent gift.
This trio bundle combines guests from three of our brands and ship them in a single box that can be delivered overnight.
The shorter provide an extraordinary experience for the recipient and is a great last minute gift idea.
James Francis McCann: Their work generates purpose and pride, enhances life skills, and fosters socialization. This holiday season, we are proud to partner with another organization whose mission is closely aligned with that of Smilebox. During this past holiday season, we partnered with a non-profit called First Step Staffing to employ approximately 350 individuals in our Atlanta distribution facility. First Step Staffing is an organization that provides employment opportunities and resources to homeless individuals who want to re-enter the workforce and improve their lives.
Drew up yet and more marketplace, which features curated items from local sellers, we can offer customers a broader assortment of gifts across a number of categories, including jewelry spa gardening and home decor to name a few.
Providing customers with a variety of gifting options is a core strength of ours and we have an amazing family of brands and products that we can leverage to help our customers Express every sentiment.
Now I'll turn it over to bill to provide the financial review.
Thanks, Tom.
James Francis McCann: They not only provide employment opportunities, but they also provide additional support services, such as providing transportation to and from work, to position these individuals for success. They are a terrific organization that does great work, and we are glad to be able to partner with them. Now, I'll turn the call over to Tom for the business update. Thanks, Jim. Good morning, everyone.
Good morning, everyone.
Given Tom highlighted we continued to see significant improvements in our gross profit margin.
I mean steadfast and it works in a lot of initiatives and a focus on operating more efficiently with the use of technology and automation also includes our logistics labor and inventory optimization efforts.
This enabled us to offset what's turned out to be a softer than expected second quarter topline performance.
Tom Hartnett: Today I'll provide an update on our business performance, as well as an update on our relationship innovation development, which encompasses new or enhanced product offerings, our merchandising efforts, as well as user interface enhancements. During the second quarter, we generated $130.1 million in adjusted EBITDA as our Work Smarter efficiency initiatives, combined with improving macroeconomic factors, contributed to a $230 basis point improvement in our gross profit margin. Our quarter-over-quarter revenue trends continued to improve, but we encountered a softer consumer environment, especially amongst our lower-income-tier customers. As lower income customers continue to be most affected by macroeconomic pressures, we continue to see this customer cohort reduce purchases the most.
Going into the second quarter.
<unk>, the consumer environment with discretionary spending to remain pressured.
To improve as compared to the past few quarters.
Quarter over quarter sales trends did improve without total revenue declined eight 4% and our E Commerce revenue declined six 6%.
But we had anticipated the patient improvement to occur at a faster rate.
Our gross margin improvement helped to offset the softer top line.
Patient improvement is better than we anticipated.
Second quarter gross margin improved 230 basis points to 43, 3% and this was on top of the 90 basis point improvement a year ago.
This represents our fifth consecutive quarter of year over year improvement.
Tom Hartnett: Conversely, AOV increased approximately 3% as our upper-income customers continue to represent a greater portion of our overall population, and they continue to gravitate toward our higher-priced bundle products that provide a great gift and value. During the first half of our fiscal year, we have been prudent with our marketing spend in a challenging consumer environment in which we didn't see an adequate return on investment. As Jim mentioned, as part of our Relationship Innovation efforts, we are regularly evaluating our offerings, pricing, and bundling opportunities to ensure we have appropriate price points for each of our customer segments. We are actively managing the pricing elasticity of our product portfolio. Our focus on the customer journey, providing thoughtful gifting options, and having the appropriate pricing at all ends of the spectrum, from value to luxury, has never been greater. During the second quarter, we introduced lower price points and emphasized gifts that are in our lower price ranges to attract customers who may be more price sensitive. This includes providing new value offerings, such as our Flowers and Fields collection at 100 Flowers that features custom-crafted bouquets that match an array of sentiments and provide great value beginning at $39.99.
As Jim said, we are well on our path to returning to our historical gross profit margin rate and by the end of this fiscal year, we now expect to be at approximately 40%.
Our gross margin benefited from lower inbound freight costs, a decline in certain commodity costs lower labor costs and I'll work smart initiatives that are driving operational efficiencies.
A great example of these efficiencies include the latest savings we've been able to produce through our automation efforts.
Main distribution facilities in Medford, Oklahoma Atlanta, all in their second third you have automation and we continue to achieve further productivity gains.
Reduce the labor cost per package at these facilities by approximately 4% for the month of December and the first half of the current fiscal year as compared to a year ago.
Additionally, due to our inventory optimization efforts, our inventory levels were in good shape heading into and out of the holiday season, leading to fewer inventory write offs.
We also had a helping hand from mother nature has provided us with good weather this holiday season, leading to fewer shipping delays and related customer credits.
These factors helped offset a more promotional environment as well as a new fuel shipping surcharge that was introduced later in the holiday period.
Tom Hartnett: And we continue to lean into new products and bundling offerings for customers. We're looking to wow them with our reception. Bundles allow us to feature products from our different brands and conveniently ship them to the recipient in the same package.
We also continued to optimize expenses and excluding the impairment charge and the accounting impact of the nonqualified compensation plan on our P&L.
We reduced our operating expenses by $10 8 million as compared to a year ago.
Tom Hartnett: This is also a great way to introduce our customers to our family of brands and give us a competitive advantage by marketing these bundles across multiple brand websites. These gift bundles provide great value to our customers, and we continue to see customers trade up in price points for these wonderful gifts.
As a result of these factors our second quarter adjusted EBITDA was $130 1 million as compared to $131 4 million in the prior year.
Before we review net income for the quarter I want to address the noncash impairment charge, we took in the consumer flow and gifts group segment related to the personalization mall trademark.
Tom Hartnett: We leveraged Personalization Mall to launch a set of food gifts with a personalized item, such as our Harry and David charcuterie gift bundled with a personalized maple cutting. This program was launched as a test, and it has exceeded our expectations. We believe there is a lot of opportunity here, and it once again demonstrates how our brands can complement one another and give our customers an elevated experience compared to others in the market. As we look ahead to Valentine's Day, this year we have a slightly better day placement than we had a year ago, as it's midweek and a few days past the Super Bowl, which should be favorable to us. We are excited about our new trio bundle that features our 1-800-Flowers-Roses, Harry & David Wine, and Sherry's Berries to create a magnificent gift. This trio bundle combines gifts from three of our brands and ships them in a single box that can be delivered overnight. Be sure to provide an extraordinary experience for the recipient, and it is a great last-minute gift idea.
As many of you know we periodically review the value of our intangible assets.
Our revenue forecast for personalization mall combined with a higher discount rate, resulting from the higher interest rate environment required us to reevaluate the value of the intangibles on our balance sheet.
Consequently, we recorded a $19 8 million noncash impairment charge for our personalization mall business during the quarter.
Net income for the quarter was $62 9 million were <unk> 97 per share, including the noncash impairment charge of $19 8 million or <unk> <unk> per share.
Adjusted net income was $82 7 million or $1 27 per share compared with adjusted net income of $82 7 million or $1 28 per share in the prior year period.
Let's review segment results.
Our gourmet food and gift baskets segment revenues declined eight 2% to $540 million compared with $588 4 million in the prior year period.
Tom Hartnett: Through our Gift and More Marketplace, which features curated items from local sellers, we can offer customers a broader assortment of gifts across a number of categories, including jewelry, spa, gardening, and home decor, to name a few. Providing customers with a variety of gifting options is a core strength of ours. We have an amazing family of brands and products that we can leverage to help our customers express every, Now I'll turn it over to Bill to provide the financial. Thanks, Tom. Good morning, everybody, and Tom Pilate.
Contributed to this decline was our wholesale business, which declined $18 7 million at several retailers have reduced their orders last spring for the holiday season in light of the consumer environment.
This segment's gross profit margin expanded 220 basis points to 43, 2% compared with 41% in the prior year period.
Getting from lower freight costs, a decline in certain commodity costs, lower labor costs and lower inventory write offs.
Segment contribution margin declined $5 4 million to $118 2 million David segment contribution margin of $123 5 million in the prior year period, primarily due to the revenue decline.
William E. Shea: We continue to see significant improvements in gross profit. Stay fast, and I'll work tomorrow. The use of technology and automation also includes logistics, labor, and inventory optimization. This enabled us to offset what turned out to be a softer-than-expected second quarter topspin. Coming into the second quarter, we expected the consumer environment for discretionary spending to remain prescient, prove as compared to the past.
In our consumer floral and gift segment revenues decreased 8% to $254 8 million compared with $277 million a year ago.
Profit margin expanded 230 basis points to 42, 8% compared with 45% in the prior year period, improving on lower freight and labor costs.
Segment contribution margin, excluding the impairment charge was $30 4 million compared with segment contribution margin of $27 9 million in the prior year period.
William E. Shea: Quarter-over-quarter sales trends did improve, with our total revenue declining 8.4% and our e-commerce revenue declining 6.7%, but we had anticipated the pace of improvement to occur at a faster rate, as margin improvement helped offset the softer top. The pace of improvement is better than we anticipated. Second quarter gross margin improved 230 basis points to 43.3%, and this was on top of the 90 basis points a year ago. This represents our 5th consecutive quarter of year-over-year improvement.
Our <unk> segment.
Revenues for the quarter decreased 17, 1% to $27 2 million.
Revenues were impacted by the lower order volume processed by balloon it which included the expected decline in orders by one of our business partners. Following the merger with a competitor.
Gross profit margin was 47, 6% compared with 42, 2% in the prior year period, primarily reflecting lower freight costs as well as product mix.
William E. Shea: As you said, we are well on our path to returning to our historical gross profit margin rate, and by the end of this fiscal year, we now expect to be at approximately 45%. Our gross margin has benefited from lower inbound freight costs, a decline in certain commodity costs, lower labor costs, and our Work Smarter initiatives for the driving operational effect. A great example of these efficiencies is the labor savings we have been able to produce through our automation efforts.
Segment contribution margin was $9 1 million compared with $9 3 million in the prior year period.
Turning to our balance sheet.
Our cash and investment position was $312 million at the end of the second quarter.
Inventory declined to $161 3 million of inventory of $201 1 million at the end of last year's second quarter.
In terms of debt, we had $195 million in term debt.
William E. Shea: Our main distribution facilities in Medford, Hopewell, and Atlanta are all in their second or third year of automation, and we continue to achieve further productivity gains. We reduced the labor cost per package at these facilities by approximately 4% for the month of December and the first half of the current fiscal year, as compared to a year ago. Additionally, due to our inventory optimization efforts, our inventory levels were in good shape heading into and out of the holiday season, leading to fewer inventory write-offs. We also had a helping hand from Mother Nature, who provided us with good weather this holiday season, leading to fewer shipping delays and related customer credit. These factors helped offset a more promotional environment, as well as a new fuel shipping surcharge that was introduced later in the holiday period. We also continue to optimize expenses by excluding the impairment charge and the accounting impact of the non-qualified compensation plan on our P&L. We reduced our operating expenses by $10.8 million as compared to a year ago.
And no borrowings under our revolving credit facility.
As a result, our net cash was $117 million compared with $34 7 million at the end of last year's second quarter.
During the quarter, we entered into a <unk>, one stock repurchase plan and repurchased $5 $4 million of our stock under this plan as of last Friday.
This amounts to approximately 550000 shares that were repurchased at an average cost of $9 73 per share.
Let's turn to our guidance.
We are lowering our fiscal 2020 for revenue guidance, while maintaining our adjusted EBITDA guidance as we expect our gross margin improvement.
And with our expense optimization efforts to offset the softer revenue outlook.
Fiscal 2024, we now expect total revenues on a percentage basis the decline in the 7% to 9% range as compared with the prior year.
We are affirming our adjusted EBITDA guidance to be in the range of $95 million to $100 million and our free cash flow to be in the range of $60 million to $65 million.
Now I'll turn the call back to Jim for his closing comments before we open it up for Q&A.
Thanks, Bill as we look back on the first half of the year and forward to the second half our quarter over quarter sales trends continue to move in the right direction, albeit at a slower pace.
William E. Shea: As a result of these factors, our second quarter adjusted EBITDA was $130.1 million, as compared to $131.4 million in the prior year. Before we review net income for the quarter, I want to address the non-cash impairment charge we took in the Consumer Law and Gifts Group segment related to the personalization moral trade. As many of you know, we periodically review the value of our intangible assets. Our revenue forecast for personalization is higher, combined with a higher discount rate resulting from the higher interest rate environment. And it required us to re-evaluate the value of the intangibles on our balance sheet. Consequently, we recorded a $19.8 million non-cash payment charge for our personalization mall business during the pandemic. And income for the quarter was $62.9 million, or $0.97 per share, including the non-cash and payment charge of $19.8 million, or $0.30 per share.
We expect this to be offset by the gross profit margin recovery, which is now recurring at a faster pace than we expected.
Combined with our relationship innovation and work smarter initiatives, we are having a clear and direct impact on our business.
We expect these factors to further fuel.
Our performance in a quarter consumer discretionary environment improves.
It's difficult to predict when the consumer environment and in particular for the lower income consumer is going to become more favorable. We believe our results will only be further buoyed by a relationship innovation and work smaller initiatives that are evergreen and well underway.
Before I open the call to your questions a public service announcement.
Outbound holiday is only a couple of weeks away and we suggest you place your orders for all of those special people in your life today.
Now to your questions.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
William E. Shea: Adjusted net income was $82.7 million, or $1.27 per share, compared with adjusted net income of $82.7 million, or $1.28 per share, in the prior year. Now, let's review a segment. In the gourmet food and gift basket segment, revenues declined 8.2% to $540 million, compared with $588.4 million in the prior year. Added to this decline was our wholesale business. This year's sales climbed $18.7 million as several retailers had reduced their orders last spring for the holiday season in light of the consumer environment. This segment, called Profit Margin, expanded 220 basis points to 43.2%, covering 41% in the prior year period, benefiting from lower freight costs, a decline in certain commodity costs, lower labor costs, and lower inventory write-offs. However, segment contribution margin declined $5.4 million to $118.2 million.
To withdraw your question. Please press Star then two.
Today's first question comes from Anthony <unk> with Sidoti <unk> Company. Please go ahead.
Good morning, this is Alex on for Anthony.
My first question is regarding the celebrations passport members could you share a little bit more about spending of those members during the holiday season.
Non members and give a little bit of color around.
Passport membership and order frequency and what has that changed much from the prior year.
Good morning, Alex This is Jim.
Too bad entities in here that was the best pronunciation of his name we've heard so far and it missed that.
But to your question Alex.
Tom will give you.
The details on your question, but I would say overall the passport customers behaving as it has and as it continues now for quite a number of years.
You'll hear about later on that we are have a lot of program programmatic.
<unk> to enhance the passport program, it's gradually moving from just a free shipping capabilities in our loyalty program Special offers so this is a special group of people and we're trying to treat them in a special way that we should so we have a stream of programs that youll see introduced throughout the course of this year, but Tom as to the specifics of Alex's question.
William E. Shea: Favorite segment contribution margin of $123.5 million in the prior year period, primarily due to the revenue. Now consumer flaw on gift segment, revenues decreased 8% to $254.8 million compared with $277 million a year ago. Profit margin expanded 230 basis points to 42.8%, compared with 40.5% in the prior year period, improving on lower freight and labor costs. Segment Contribution Margin, excluding the impairment charge, was $30.4 million compared with $27.9 million in the prior year. I'll be with you in a sec. Revenues for the quarter decreased 17.1% to $27.2 million.
Yes, so anything pattern. So yes, it's a trend lines.
Year over year.
<unk> are the same as a year ago as we continue to see that passport customer purchasing two to three times more than our average customer and so all.
Although signs of continuing to move in the same direction. So.
On the passport customer represents about 20% above revenues right.
I appreciate the color. Thank you guys.
Okay.
I think you you commented that commodity costs are.
Normalizing to the mean curious about one other costs.
Guarding ocean freight given some of the food the attacks in the Red Sea are you seeing any significant freight cost increases.
William E. Shea: Revenues were impacted by the lower order volume processed by, which included the expected decline in orders by one of our business partners following their merger with Accenture. Profit margin was 47.6% compared with 42.2% in the prior year period, primarily reflecting lower freight costs as well as lower. Segment contribution margin was $9.1 million compared with $9.3 million in the prior year. Now, turning to our balance. Our cash and investment position was $312 million at the end of the second quarter. Inventory declined to $161.3 million, with inventory of $201.1 million at the end of last year's second quarter.
Alex Bill will give you the color on that but who would have thought a year ago that we'd be talking about duties, but we are.
We are anticipating some impact, but we haven't yet built specifically, what's going on with ocean freight costs.
Due to the tax and they might see certainly the spot market jumped up pretty dramatically on ocean on ocean freight we have contracted rates.
Basically carriers at the end of the fiscal year and so far the carriers are on it.
If those rates particular unknown.
How long the issues of etsy persist and whether that affects.
Future negotiations and next year's solid next year's holiday season.
We begin negotiations for those rates.
Few months and a lot will depend on what.
What happens though.
William E. Shea: In terms of debt, we had $195 million in term debt and no borrowings under our revolving credit. As a result, our net cash was $117 million, compared to over $34.7 million at the end of last year's second quarter. During the quarter, we entered into a 10-B-5-1 stock repurchase plan, and we purchased $5.4 million of our stock under this plan as of last Friday. This amounts to approximately 550,000 shares that will be purchased at an average cost of $9.73 per share. Let's turn to our guide. We are lowering our fiscal 2024 revenue guidance while maintaining our adjusted EBITDA guidance as we expect our gross margin improvement, combined with our expense optimization efforts, to offset the softer revenue outlook. In fiscal 2024, we now expect total revenues, on a percentage basis, to decline in the seven to nine percent range.
That area.
So Alex.
Overall color on that too is like so many companies that are U S based.
We're taking the steps we can longer range.
Lessen our dependency for those commodity items that we do import so that we can source them domestically I think pretty much every company in the U S has started a program like that will continue to pursue that but if.
The tensions in the Red Sea area continue into the summer time, we would anticipate that they would have an impact on our holiday imports.
Primarily arrive in the summertime, but where as bill said through the end of the fiscal year. The June fiscal year end, we don't anticipate a hit.
I appreciate the color there and last question for me.
How you guys are thinking about acquisition opportunities for for 'twenty four 'twenty five.
Well I'd say, we're always in the market looking to see if there's a way that we can flush out the offerings, we have to work for our customers or find a.
Service that would be beneficial to our service offerings suite of service offerings, we have for our customers and the third area that we look for acquisitions to help us as with talent acquisitions I would say, there's a lot available right now because I think the cost of capital, which has changed so dramatically in the lab.
William E. Shea: We are affirming our adjusted EBITDA guidance of between 95 and 100 million and our free cash flow of between $60 million and $65 million. Now I'll turn the call back to Jim for his closing comments before we open it up for Q&A. Thanks, Bill. As we look back on the first half of the year and forward to the second half, our quarter over quarter sales trends continue to move in the right direction, albeit at a slower pace. We expect this to be offset by the gross profit margin recovery, which is now recurring at a faster pace than we expect. Combined with our relationship innovation and work smarter initiatives, we are having a clear and direct impact on our business.
<unk> <unk>.
12 months 24 months has really put the bird hurt on so many companies. So there's lots available, but we're being very judicious about what we look at and really being disciplined about does it genuinely help us as a genuinely make us a better company does it improve our service offering for our customers. So we're active.
There's a lot available, but I wouldn't I wouldn't expect that was going to be doing anything too dramatic.
I appreciate all the context here and thanks for taking questions.
And our next question comes from Michael Kaplinsky with Noble capital markets. Please go ahead. Thank.
Thank you and thank you for taking my questions. A couple of them can you talk about maybe I'm going to parse the commodity price opportunity. There can you talk about how commodity prices and where they are relative to the mean in terms of maybe a percent. So.
William E. Shea: We expect these factors to further fuel How Performance in a Porter-Consumer Discretionary Environment Improved. While it's difficult to predict when the consumer environment, and in particular for the lower-income consumer, is going to become more favorable, we believe our results will only be further buoyed by our relationship innovation and WorkSmarter initiatives, which are evergreen and well underway. And before I open the call to your questions, a public service announcement. Valentine's Day is only a couple of weeks away, and we suggest you place your orders for all those special people in your life today.
Give us a sense of what are the opportunities left yet from where we are right now in terms of commodity prices relative to the means.
Well I would say this Jim Michael I would say two years ago. It was a peak in terms of how we got hit with commodity prices. It started of course with fuel when it went to well over $100 a barrel surcharges why we did bill already mentioned that we did have a surcharge.
That came at the very beginning of December this year that cost us a few million dollars this year.
James Francis McCann: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone.
The other commodities that are important to us we baked a lot we prepare a lot of food so butter flour.
Operator: After using the speakerphone, we ask that you please pick up your handset. To withdraw your question, please press star. Today's first question comes from Anthony Lebiedzinski with Sudoti. Good morning. This is Alex on behalf of Anthony.
Eggs are all commodities.
We use a lot of bill where would you say we are in asking I know, we're not back to the two.
2019 kind of levels, where labor by the way is one it's not a commodity but it's and it's a cost ingredient and that's <unk>.
James Francis McCann: My first question is regarding the Celebrations Passport members. Could you share a little bit more about spending by those members during the holiday season versus non-members and give a little bit of color around Passport membership and order frequency and whether that changed much from the prior year? Good morning Alex, this is Jim. Tibet Anthony isn't here. That was the best pronunciation of his name we've heard so far, and he missed it.
That's not going to come back whenever we did in terms of increases are going to stay but the pressure. There is alleviated where are we on actual commodities now bill yes, it's split.
Certain commodities you mentioned Butter-and-eggs those are certainly back to more of their historical means but there are others like sugar and Coco that is still is still very high ticket has taken a step back.
Gross margin standpoint, we're actually exceeding where our expectations were 230 basis points for the quarter up 280 basis points.
Tom Hartnett: But to your question, Alex, Tom will give you the details on your question, but I would say overall, the Passport Customer is behaving as it has and as it continues now for quite a number of years. I think you'll hear later on that we have a lot of programmatic plans to enhance the Passport Program. It's gradually moving from just a free shipping capability to now a loyalty program, and a special office. So this is a special group of people, and we're trying to treat them in the special way that we should.
Year to date.
Two quarters of the year, you can kind of split.
Those gains into two buckets, the kind of some of the macro.
Items Ocean freight some of those commodity costs.
You know that you mentioned labor availability and having labor availability.
Just gives us.
A lot of flexibility so allows us automation efforts operational efficiencies our logistics initiatives.
Tom Hartnett: So we have a stream of programs that you'll see introduced throughout the course of this year. But Tom, as to the specifics of Alex's question, the trending patterns of it?
We're planning inventory, both in and out of the quarter was that.
Profit levels that we needed to be at which led to.
Less inventory.
But last year on the on the inventory side like so many companies we inventory up because of the logistic challenges. So we were sure we had the product. This year, we didn't have to we didn't have to buy so much. So early that's right. So again as a result of maybe some of the macro trends in the global supply chain being more secure at the time.
Tom Hartnett: So trend lines, year over year, are the same as a year ago. We continue to see that Passport Customer purchasing two to three times more than our average customer. You know, all those signs are continuing to move in the same direction. I'm here for a customer representative. I appreciate the color.
Us being able to manage inventory.
At the appropriate level, which led to less inventory write offs will add to.
Improved margins, so really a combination of both macro so lot of internal work smart initiatives that we have so overall commodity costs are still higher than the mean, we talked about but have been improving.
James Francis McCann: Thank you, guys. And I think you commented that commodity costs are, you know, normalizing to the mean. Curious about one other cost regarding ocean freight: given some of the FOTI attacks in the Red Sea, are you seeing any significant freight cost increases? Alex, Bill will give you more color on that.
That's correct, Okay, certainly certain components of commodity costs have come back to the mean, but others are still at it that way.
High levels.
Okay, and when do we when do we begin to comp against a substantial portion of the work smarter initiatives you've implemented.
William E. Shea: But who would have thought a year ago that we'd be talking about this? But we are, and we're anticipating some impact, but we haven't yet. Bill, specifically, what's going on with ocean freight costs? Due to the tax on the Red Sea, certainly the spot markets have jumped up. We have contracted. You know, that basically carries.
Yeah.
Gross margins and ongoing.
So we continue to add.
Add to that but certainly.
An example is.
Our automation efforts were in many of our distribution facilities. We're now in the second year in one facility when the third year of those automation efforts labor.
William E. Shea: The Bigger One known, how long and whether that affects future negotiations, next year's holiday. We begin negotiations for those rates. Thanks for watching. Bye.
<unk> are down and our labor cost per package are down like 4%. This year over last year, our efficiencies are up a labor efficiencies robot our labor costs on average are down because of the automation exactly right and we will continue Michael with those automation efforts. So as Bill mentioned, we're at a third or second year, depending on it.
James Francis McCann: So Alex, overall color on that too is like so many companies that are U.S. based. We're taking the steps we can, in the longer run, to lessen our dependency on those commodity items that we do import so that we can source them domestically. I think pretty much every company in the U.S. has started a program like that and will continue to pursue it. But if the tensions in the Red Sea area continue into the summertime, we would anticipate that they would have an impact on our holiday imports, which primarily arrive in the summertime. As Bill said, through the end of the fiscal year, the June fiscal year end, we don't anticipate it. But appreciate the color there.
Facility, and we will implement a new programs on top of that now.
So this is Michael.
Michael we're going to continue to get savings in the future got.
Got you and then can you talk a little bit about personalization mall then in terms of its performance and how you are looking at personalization mall for the balance of this year.
Patients you might have there.
Well, there's a combination of things that have happened with personalization mall, Tom Tom will give you the full color on that.
James Francis McCann: And last question for me, curious how you guys are thinking about acquisition opportunities for 24, 25. Well, I'd say we're always in the market looking to see if there's a way that we can flesh out the offerings we have for our customers or find a service that would be beneficial to our service offerings, a suite of service offerings we have for our customers. And the third area that we look for acquisitions to help us is with talent acquisitions. I would say there's a lot available right now because I think the cost of capital, which has changed so dramatically in the last 12 months, 24 months, has really put a hurt on so many companies.
Yeah Michael.
The personalization mall business was roughly in line with the segment, maybe a little bit better performance than than the segment for the quarter and we're expecting.
Just like our other segments that.
The rate of.
The sales trend and for the court for the second half of the year, we'll be in a better direction than they were in the first half of the year.
I Wouldnt program introduced there and and personalization mall.
We launched the very rechristened IP around things remembered so thats, a new brand with a new product line.
James Francis McCann: There's lots available, but we're being very judicious about what we look at and really being disciplined about whether it genuinely helps us, does it genuinely make us a better company, does it improve our service offering for our customers. So we're active, there's a lot available, but I wouldn't expect that we're going to be doing anything too dramatic.
A different range of product.
That brand is a well known brand and it gives us the opportunity to be in a broader range of products. So.
Higher price points really fancy items like the vase, we have tweaked.
I think Tom Michael about that yes. So that's one of our better sellers every day I mean, it's a.
The values that I think retail is for over $150 and obviously, it's personalized and it's a wonderful beautiful beautiful item. So are <unk> and again, we're just kind of getting started there because when we.
Operator: Thanks for taking questions. And our next question comes from Michael Kupinski with Novo Capital Markets. Thank you. And thank you for taking my questions, a couple of them.
James Francis McCann: Can you talk about? Maybe I'm going to parse the commodity price opportunity there. Can you talk about commodity prices and where they are relative to the mean in terms of, maybe, a percent? So can you kind of give us a sense of what the opportunities left yet from where we are right now in terms of commodity prices relative to the mean? Well, I would say this, Jim, Michael, I would say two years ago was a peak in terms of how we got hit with commodity prices. It started, of course, with fuel when it went to well over $100 a barrel. Surcharges were high, and we did, Bill already mentioned that we did have a surcharge hit that came at the very beginning of December this year, that cost us a few million dollars this year. The other commodities that are important to us, you know, we bake a lot, we prepare a lot of food, so butter, flour, and eggs are all commodities that we use a lot of.
We acquired the IP is taking some time to build up the inventory in their best sellers. So.
You got to a portion of that this holiday season.
The average ticket is.
175 basis points higher or 175.
<unk>.
The personalization mall.
So it's.
Good good price point, great gifts dealing and addressing a different cohort of customers, whether it be weddings or retirements.
Or special moments in People's lives, so, but all leveraging off the same fixed cost saving six facility that we have there personalization mall Michael.
Okay. One last question.
In terms of your revenue guidance for the year, what expectations are baked into your guidance in terms of the general economy are you can you kind of give us some sense of what those expectations are.
Bill.
Well, Michael we revise our.
Our revenue guidance.
You can be down 7% to 9% with the first half of the year, you'll be down around 9%, so implying a slightly better trend.
William E. Shea: Bill, where would you say we are on that scheme? Now, I know we're not back to the 2019 kind of levels, where labor, by the way, is one cost ingredient that's not going to come back. Whatever we did in terms of increases are going to stay, but the pressure there is alleviated. Where are we on actual commodities now, Bill? Yeah, it's split.
Going into the second into the second half of the year I think we've modified our guidance I think at the.
Beginning of the year.
We were hopeful.
That the improvements that we're seeing would be even be more accelerated both through the second quarter and into the second half of the year.
So it is improving at a slower pace than what we originally anticipated and some and that is tied to the to the macro environment not being as.
William E. Shea: You know, when there's certain commodities to mention, you know, butter and eggs, those are certainly back, from a gross margin standpoint. We're actually exceeding where our expectations were. Weiser, Michael Kupinski, Eric Beder, Douglas Lane, Daniel Kurnos, Joseph Pititto, Joseph, labor availability and having labor availability, a lot of flexibility, so it allows us to do automation efforts. I'll adjust.
Robust as we had hoped so baked into that as the trend continues to improve just not at the pace we were hoping for.
Got you Okay. That's all I had thank you. Thank you Michael.
And our next question today comes from Linda Bolton Weiser with D. A Davidson. Please go ahead.
Yes Hello.
Hi, So I was wondering.
No just your comments about the consumer environment.
I mean consumer sentiment, Michigan consumer sentiment has been below 70 now for like two years.
So it just seems like we're stuck in this.
William E. Shea: We're going to talk a little bit about inventory planning. Inventory goes both in and out of the quarter with that, at the proper levels that we needed it to be at, which led... Last year on the inventory side, like so many companies, we increased inventory up because of the logistic challenges so we were sure we had the product. This year, we didn't have to buy so much so early. That's right.
This low consumer sentiment, which is not good for your business, obviously, but it is at 6%, let's say for another year, what would you do different in your business is there is there anything additional you could do in terms of cost structure.
Or like how would you think about things. If this just continue down like this with <unk>.
Revenue declines like this for another year, how would you think about what would you think about doing differently.
William E. Shea: So again, as a result of maybe some of the macro trends and the global supply chain being more secure at the time, you know, us being able to manage inventory at the pool left him with a wide-angle head. Douglas Weinstein, CFP®, Financial Planner & Investment Advisor. So overall, commodity costs are still higher than the mean we talked about, but they have been improving. That's correct.
Oh, Thanks for your question, Linda we missed it last quarter.
Really good question and when we talked a lot about over the last month or two.
The answer is a couple of things one is we're still recovering from that.
The Covid bounce.
So many of our ecommerce kinds of companies like us experienced so we're still in that back end of a wave of that.
William E. Shea: Certain components of commodity forex have come back to the mean, but others have still had a very... Okay, and when do we when do we begin to comp against the substantial portion of the work smarter initiatives you implemented? WorkSmart is an ongoing effort, so we continue to add to that, but certainly, an example is our automation efforts. In many of our distribution facilities, we're now in the second year. In one facility, we're in the third year of those automation efforts, and yet our labor efficiencies are down, and our labor costs per package are down 4% this year over the last year.
The second thing is that.
I think the consumer sentiment generally is pretty good but its bifurcated and and there are categories like ours is saying it we look very hard at the competitive data that we have that we buy and there's good news Bad news Bad news is everyone. In all categories has gotten hit with the back end of this.
Covid wave the good news is that we're holding share or gaining share.
So.
So good in bed and what we think would if this trend.
Continue on the pace of it is the recovery.
And it went the other way we have several levers that we could pull to make sure that we.
William E. Shea: So our efficiencies are up, our labor efficiencies are up, but our labor costs per package are down because of the automation. And we'll continue, Michael, with those automation efforts. So, as Bill mentioned, we're in the third or second year, depending on the facility, and we're implementing new programs on top of that now. So this is an ongoing effort, Michael, and we're going to continue to get saved. Gotcha. And then can you talk a little bit about Personalization Mall then in terms of its performance and how you are looking at Personalization Mall for the balance of this year and what expectations you might have there? There's a combination of things that have happened with personalization; Tom will give you the full color on that.
We continued on our profitability trend that we're on.
Is quite healthy, but we think could be if the consumer trend continues on this space and maybe improve a little bit that it's really good if we can.
The declines from the trend we're on it gets worse, then we have quite a bit of leverage in our operating model to make that.
To make up for that and to make sure our bottom line continues to be strong.
What else would you add to that just from a.
A top line perspective.
Continuous continuously evaluate.
Our offerings are pricing or bundling opportunities to ensure we have the appropriate price points for each of our consumer segments and segments and we have some pricing elasticity.
James Francis McCann: Yeah, Michael, the personalization of all business was roughly in line with the segment, maybe a little bit better performance than the segment for the quarter. And we're expecting, just like our other segments, that the rate of, the sales trend for the second half of the year will be in a better direction than they were in the first half of the year. One program you introduced there in personalization models; we launched the rechristened IP around Things Remembered.
And that's why we ask.
Consumer.
Focus trying to improve the consumer experience.
On that.
Ultimately.
Two.
But against some of those macro trends. So when you talk about the elasticity you mean price points, both with a high rate and a lower.
From a cost perspective.
Our trend lines on our gross margin are moving at an accelerated pace back towards our.
Tom Hartnett: So that's a new brand with a new product line and a different range of products. That brand is a well-known brand, and it gives us the opportunity to be in a broader range of products. So higher price points, really fancy items, like the Vaas we have, if you could tell Michael about that. Yeah, so that's one of our better sellers every day. I mean, it's a Vaas that I think retails for over $150.
The mean of the kind of the low low 40. So we continue to expect that gross margins will improve and our expense optimization, you've seen that for the last.
The last year and a half and we're going to continue those efforts.
To offset any softness in the top line. So in summary, we hope it doesn't happen, but we do have the capability and plans that if the trend would return negative that we'd be we'd have.
Tom Hartnett: It's a wonderful item. We're just getting started with our AOVs. We acquired the IPs, and it took us some time to build up the inventory and their best sellers. We got to a portion of that this holiday season. The average ticket is... 175 basis points higher, or 175. times.
The ability to respond to it appropriately.
Hi, Thanks.
Tom Hartnett: The Personalization Mall of AOD, so a good price point, great gifts for addressing a different cohort of customers, whether it be weddings or retirements or special moments in people's lives, so. But all leveraging off the same fixed cost, same fixed facility that we have there at Personalization Mall, Michael. One last question, if you don't mind. In terms of your revenue guidance for the year, what expectations are baked into your guidance in terms of the general economy? Can you kind of give us some sense of what those expectations are? Go to Beadaholique.com for all of your beading supplies needs!
Can I ask one more about <unk>.
The Google I think they've made some additional changes with regard to their blast email marketing that someone like consumer companies have mentioned.
They're trying to figure out what that means for them have you analyzed what those changes mean for your marketing processes.
We have Linda.
Lots of changes and this both the changes Google is implementing or talk to you about implemented what they have implemented and there is also a big macro trends that are happening in the marketplace that we feel we're in awfully good position to weather and respond to them and frankly some of the some of these things we experienced during the last quarter give.
Hope that we're going to be less dependent on the big search engines in the future than we were one of the big assets, we've accumulated through the Covid burst.
William E. Shea: You know, Michael, we revised our, you know, our revenue guidance, down 7% to 9% with the first half, down around, you know, nine, applying a slightly better trend. I think we've modified our games. I think at the beginning of the year, we were at 2-0. We were hopeful that the improvements that we're seeing would be more accelerated both in the second quarter and into the second half. So it is improving at a slower pace than what we originally anticipated, and that is tight and Adam Goldberg. So baked into that is the trend continues to improve, just not at the pace we were hoping. Gotcha. Okay, that's all I have.
It was a huge increase in our database and that gives us some flexibility and less dependency on search engine activity, but Tom you know really well.
Pacific lenders.
I think we are chalking up lenders just another.
Another change for Google, which is a very dynamic business and always has.
Changes going on certainly we also saw some significant changes in the in just the serp and.
Our.
The landing pages for Google showed up this year, which.
We're always reacting to.
Overall this was.
Competitive environment, there cpm's in CPA.
We're up.
Et cetera.
We kind of expected that to occur.
And if you're if you all of your marketing budget or a substantial part of your marketing budget is that debt.
William E. Shea: Thank you. Thank you, Michael. And our next question today comes from Linda Bolton Weiser with the ADM. Yes, hello.
Bottom of the funnel kind of activity there, it's going to have a big ramifications on new Fortunately for us that's not the case.
James Francis McCann: Hi. So I was wondering, you know, just your comments about the consumer environment. I mean, consumer sentiment in Michigan has been below 70 for like two years now. So it just seems like we're stuck in this low consumer sentiment thing, which is not good for your business, obviously. But if it does persist, let's say for another year, what would you do differently in your business? Is there anything additional you could do in terms of cost structure? Or like, how would you think about things if this just continued on like this with revenue declines like this for another year? What would you think about? What would you think about doing differently? Thanks for your question, Linda; we missed you in the last quarter. A really good question.
Thank you very much I appreciate it thanks Linda.
And as a reminder, if you'd like to ask a question. Please press Star then one today's next question comes from Alex Fuhrman Craig Hallum. Please go ahead.
Hey, guys. Thanks, very much for taking my question and congratulations on the strong bottom line results in the quarter.
I was wondering if you could unpack the lower revenue guidance, a little bit more it seems like the Q2 results were not very far off from from what we were all.
<unk>, but the the change to the full year revenue guidance is is not insignificant. So is it is it something maybe you're seeing in kind of the lull period between Christmas and Valentines day that would maybe be a little bit disappointing or just curious if youre seeing any kind of early trend lines as Valentine's day, now or if that may be too early.
James Francis McCann: And one we have talked a lot about over the last month or two. And the answer is a couple of things. One is, we're still recovering from the COVID bounce that so many e-commerce kinds of companies like us experienced. So we're still in that back end of the wave of that. The second thing is that I think consumer sentiment generally is pretty good, but it's bifurcated. And, and there are categories like ours that are seeing it. We look very hard at the competitive data that we have, that we buy.
Well, it's I would say definitely too early.
<unk> is a real pain in the neck, because it's very very busy for several days.
Mother's day is.
Two week ramp up the.
James Francis McCann: And the good news, the bad news, the bad news is that everyone in our categories has gotten hit with the back end of this COVID wave. The good news is that we're holding share or gaining share. So, so good and bad.
The holiday quarter its from Thanksgiving on that's maybe a week or two before Thanksgiving, but Valentine's day, it's a big burst of business customer dynamic changes. It goes from majority of women to majority of men.
James Francis McCann: And what we think would happen if this trend didn't continue at the pace that it is the recovery and it went the other way, we have several levers that we could pull to make sure that we continued on the profitability trend that we're on, which is quite healthy, but we think could be, if the consumer trend continued at this pace and maybe improved a little bit, then it's really good. If it can, if it declines from the trend we're on and gets worse, then we have quite a bit of leverage in our operating model to make that, to make up for that, and to make sure our bottom line continues to be strong. Phil, what else would you add to that?
Our wonderful customers, but they don't come back as regularly and frequently.
Female customers do so it's something we its expenses to prepare for our cost of goods jumps way up and we have this big burst of business.
So yes, it's a little difficult for us to project exactly what will happen in Valentine's day, but as Tom mentioned day placement is critical for for Valentine's Day, and last year for the first time the Super Bowl was right before Valentine's day, So Valentine's day, It was Tuesday last year.
And the Super Bowl.
Sunday they moved it back a week and it's from its normal schedule to allow more time for the extra.
Regular season game and still have two weeks from the divisional playoffs till the Super Bowl. So we think that we're still going to have that this year. So still close to Valentine's day, but now you have three selling days Monday, Tuesday, and Wednesday with people in their normal work routines and not having the distraction of.
William E. Shea: Yeah, just from a, you know, a top line perspective, we continue to continuously evaluate our, you know, our offerings, our pricing, our bundling up, and Mark Zuckerberg. Thank you. Thank you, focus on trying to improve the consumer experience on that, openly, you know. So when you talk about elasticity, do you mean price points both at the higher end and the lower end?
The superbowl, just 48 hours before comprehensive so we're expecting all of those things will inure to our benefit also we have to watch the weather carefully because that's a big variable so nothing where we.
We're excited about is coming it's a pain in the deck as I've mentioned I've been through a few of these but we don't see anything trend wise that would give us any concern or or frankly, any recently hit a particular hills, but Alex.
While our sales trends did improve.
In the second quarter it didn't move.
At the pace of recovery.
We had anticipated.
William E. Shea: You know, from a costing perspective, our trend lines on our gross margin are moving at an accelerated pace back towards our mean of the low 40s, so we continue to expect that close margins will emerge and our expense optimization. You've seen that for the last year and a half, and we're going to continue those efforts.
So a little softer than we wanted it to be.
So as a result, our second half of the year, which would be yet.
Originally thought to be.
Yes.
At a faster improvement in that regard.
Okay.
That's why we changed our guidance.
Okay. That's very helpful. Thank you both.
And ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Jim Mccann for any closing remarks.
William E. Shea: So, in summary, we hope it doesn't happen, but we do have the capability and plans that if the trend were to turn negative, we'd have the ability to respond to it appropriately. Thanks. Can I ask one more about Google? I think they've made some additional changes with regard to their blast email marketing that some of my consumer companies have mentioned. You know, they're trying to figure out what that means for them. Have you analyzed what those changes mean for your marketing processes? We have been there. There's lots of changes, and there are both the changes that Google is implementing or talking about implementing, what they have implemented, and there are also big macro trends that are happening in the marketplace that we feel we're in an awfully good position to weather and respond to, and frankly, some of the things we experienced during the last quarter give us hope that we're going to be less dependent on the big search engines in the future than we One of the big assets we've accumulated through the COVID burst was a huge increase in our database, and that gives us some flexibility and less dependency on search engine activity. But Tom, you know really well the specifics of Linda's question.
Well, thanks, so much for your time.
Interest today, please let us know having other questions. We're available to answer them for you. Please reach out and do remember is as Alex just mentioned Valentines day is fast approaching today's February one.
<unk> de as a 14th Valentine's weekend begins around the eighth or ninth so make sure. The people in your life that you care about know how much you care for them. Thanks for your time today.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation.
May now disconnect your lines and have a wonderful day.
[music].
Tom Hartnett: Yeah, I mean, I think we're chalking up Linda's just another change for Google, which is a very dynamic business and always has changes going on. Certainly, we also saw some significant changes in just the SERP and how the landing pages for Google showed up this year, which we're always reacting to. Overall, this was a competitive environment.
Tom Hartnett: Our CPMs and CPAs were up, et cetera, and we kind of expected that to occur. And if all of your marketing budget or a substantial part of your marketing budget is on that bottom of the funnel kind of activity there, it's going to have big ramifications for you. Fortunately, for us, that's not the case.
Operator: Thank you very much. I appreciate it. And as a reminder, if you'd like to ask a question, please press star then 1. This next question comes from Alex Fuhrman with Craig Elm. Please go ahead.
James Francis McCann: Hey guys, thanks very much for taking my question and congratulations on the strong bottom-line results in the quarter. Bill, I was wondering if you could unpack the lower revenue guidance a little bit more. It seems like the Q2 results were not very far off from what we were all expecting, but the, you know, change to the full-year revenue guidance is, you know, not insignificant. So, is it something maybe you're seeing in kind of the lull period between Christmas and Valentine's Day that was maybe a little bit disappointing, or just curious if you're seeing any kind of early trend lines into Valentine's Day now, or Well, it's I would say definitely too early Valentine's Day is a real pain in the neck because it's very, very busy for several days Mother's Day, it's, it's a two-week ramp-up, but the holiday quarter.
James Francis McCann: It's from Thanksgiving on That's maybe a week or two before Thanksgiving, but Valentine's Day. It's a big burst of business Customer dynamic changes it goes from majority women to majority men Which are wonderful customers, but they don't come back as regularly and frequently as Female customers do so it's something we it's expensive to prepare for our cost of goods jumps way up and we have this big burst of business So yes, it's a little difficult for us to project exactly what will happen at Valentine's Day But as Tom mentioned day placement is critical for for Valentine's Day and last year for the first time The Super Bowl was right before Valentine's Day, so Valentine's Day was Tuesday last year and The Super Bowl was at Sunday And it moved it back a week and it's from its normal schedule to allow more time for the extra regular season game and it had still have two weeks from the Regional playoffs until the Super Bowl so we think that we're still going to have that this year So it's still close to Valentine's Day but now you have three selling days Monday Tuesday and Wednesday with people in their normal work routines and not having the distraction of the Super Bowl just 48 hours before Okay, so we're expecting all of those things will endure to our benefit Also, we have to watch the weather carefully because that's a big variable.
James Francis McCann: So nothing. We're excited that Valentine's Day is coming It's a pain in the neck as I've mentioned I've been through a few of these But we don't see anything trend wise that would give us any concern or or frankly any Reason to get up and kick on heels You know, I mean, well sales trend did improve in the in the second quarter It didn't move, you know at the pace of recovery that you know that we had to anticipate Still a little softer than we wanted it to be You know as a result, you know our second half of the year which we had, you know originally thought to be, at a faster improvement than we currently have. That's where we...
William E. Shea: Okay, that's very helpful. Thank you both. Thanks for tuning in. And ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to Jim McCann for any closing remarks.
James Francis McCann: Well, thanks so much for your time and interest today. Please let us know if you have any other questions. We're available to answer them for you.
James Francis McCann: Please reach out. And do remember, as Alex just mentioned, Valentine's Day is fast approaching. Today is February 1st. Valentine's Day is the 14th. Valentine's Weekend begins around the 8th or 9th.
Operator: So make sure the people in your life that you care about know how much you care for them. Thanks for your time today. Thank you. This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a, Thank you for watching!