1-800-Flowers.Com Inc (FLWS) 2004 Q1 法說會逐字稿

Good day and welcome everyone to this 1-800-FLOWERS.COM fiscal 2004 first quarter results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Joe Pititto. Please go ahead, sir.

Thank you, Nikkie. Good morning and thank you all for joining us today to discuss 1-800-FLOWERS.COM's financial results for our fiscal 2004 first quarter. My name is Joseph Pititto and I am Vice President of Investor Relations. For those of you who have not received a copy of our press release issued earlier this morning, the realese can be [Inaudible] accessed at the Investor Relations section of our website at 1-800-Flowers.com or you can call Pattie O'Donnah (ph) at 516-237-6113 to receive a copy of the release by e-mail or fax. In terms of structure, our call today will begin with brief formal remarks and then we will open the call to your questions. Presenting today will be Jim McCann, CEO and Bill Shea, CFO. Also joining us today for the Q&A section of our call is Chris McCann, our President.

Before we begin, I need to remind everyone that a number of statements that we will make today may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For detailed description of these risks and uncertainties, please refer to our SEC filings including the company's annual report on Form 10-K and quarterly reports on Form 10-Q. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recording of today's call, the press issued earlier today, or in any of its SEC filings except as may be otherwise stated by the company. I will now turn the call over to Jim McCann.

Thank you, John and good morning everyone. As it's stated in this morning's press release, we are pleased with our operating results for the quarter. Before I pass the call to Bill, who will take you through metrics for the quarter, I would like to cover five key points. First, during the quarter, we successfully tested several new marketing and merchandising campaigns. In particular, we introduced our Summer Celebrations theme, which featured products specifically selected to help our customers with great gift ideas for all of those at backyard barbeques, beach parties, family picnics, and the other events that make up all of our summers. Based on a positive customer response we see into this test, we are looking forward to expanding this Summer Celebrations campaign next year as well as creating similar campaigns for all of the every day's celebratory occasions in our customers' lives. Secondly, we continued to see success in our efforts to drive strong revenue growth, which combined with our ability to further leverage our infrastructure, enabled us to reduce our operating expense ratio by 310 basis points. Third, during the quarter we coursed efficiently attracted almost half a million new customers. 61% of whom came to us online. This reflects the strength of our brand, our expanded gift offering and the effectiveness of our marketing programs. Fourth, we continue to see a deepening of the relationships we have with our existing customers, of the approximate 1.2m customers who placed orders during the period, 58% were repeat customers - 56% in the prior year period.

Well actually during the quarter we continue to expand our corporate gifting sales effort, adding to our sales team and growing our account base in preparation for the current calendar fourth quarter. Traditionally, this is our largest for corporate gift giving. And now I could turn the call over to Bill, so he can take you through the details of our financial results and the key metrics for this first quarter. Bill.

Thank you Jim. Our fiscal first quarter is our lowest in terms of revenue. We continue to see several positive trends in our business. During the quarter, we achieved solid revenue growth, maintained a strong gross profit margins, and further reduced our operating expense ratio. These achievements enabled us to significantly improve our bottom line results and helped position us for a strong fiscal second quarter. Regarding specific financial results and key metrics for the first quarter. Total net revenues reached $95.2m an increase of 6.7% compared with $89.2m in the same period last year. Combined online and telephonic revenues grew 7.2% to $89.3m compared with $83.3m in the same period a year ago. Online revenues grew 19.9% to $48.9m compared with $40.8m in the first quarter last year. These online revenues equaled 54.8% of combined online and telephonic revenues for the first quarter of fiscal 2004, compared with 49% in the same period last year. Sell side revenues were $40.4m, down 5.1% compared with $42.5m in the prior year period. This reflects the continued migration of our customers to the Internet and management's decision to increase its marketing focus on its online channel. Our retail facility revenues were essentially flat compared with the year ago period at $5.9m. During the quarter our combined online and telephonic orders totaled to 1,381,000 compared with 1,309,000 orders in the year ago period. Average order size during the quarter increased slightly to $64.68 compared with $63.68 in the prior year period. During the quarter we added 484,000 new customers, which totaled 95,000 or 61% of them coming to us online. In terms of product mix. The total non-flower gift breakdown was 37% non-floral and 63% floral, compared with a 39% and 61% split in the prior year period. This mix shift to heavier floral gifted volume was planned by management based upon reallocating some of the marketing investments in response to forecasted economic conditions. Specifically, we reduced circulation for some of our non-floral gift catalogs and redirected funds to several summer programs between floral gifts, including a very successful rose promotion in July. As a result to the mix shift, our gross profit margin remained unchanged from the year ago period at 41.1%, which was inline with management's expectations.

Going forward, you can see with respect to our gross profit margin for the year to increase by approximately 50 basis points to 43%. Operating expenses for the quarter in terms of absolute dollars were essentially flat, compared with the prior year period at $44m. As a result of this and the aforementioned revenue growth, our operating expense ratio for the quarter improved by 310 basis points to 46.2% of total revenues compared with 49.3% in last year's first quarter. Also due to the solid revenue growth strong gross profit margin and improved operating expense ration, we reduced our net loss for the period by 29.4% to $5.1m or $0.08 per share compared with $7.3m or $0.11 per share in the first quarter last year. Regarding our balance sheet, our cash and investments position at the end of the quarter was approximately $58m this was in line with management expectation and reflects the investments we've made in preparation for the upcoming holiday season. We anticipate having a cash and investments position of approximately $90m at the end of the current fiscal second quarter and to grow our cash position during the second half of the year. Inventory of $29m was also in line with management expectations and reflects to build up for the holiday shopping period. Regarding guidance, as stated in our press release this morning we confirmed our guidance for fiscal 2004, which cause for full year revenue growth of between 7% and 10% and EPS growth in excess of 75%, in addition we expect our free cash flow to grow by approximately 150% to $30m.This reflects our confidence and our ability to deliver solid top-line growth and strong gross profit margins while continuing to leverage our operating infrastructure and thereby enhancing bottom line results. We anticipate that our fiscal second quarter will represent approximately 34%to 37% of full year revenues. In summary, we believe we're well positioned to execute against our plan to grow revenues cost effectively and improve our operating margins throughout fiscal 2004. I will now turn the call back to Jim.

In summary during our fiscal first quarter we achieved solid top-line growth driven by strong growth in our online revenues. As I told in the past this is important to us, because as customers increasingly come to us online we have a few advantages. One, we have lower order processing cost another is that we have the opportunity to introduce customers to our expanded range of gifts including higher margin non-foil gifts, which helps us to increase the number of [Inaudible] that they would come to us for. They could possibly see these products in the telephonic environment. Then we have the opportunity for our customers to use our rich service offerings such as our enhanced giftingreminder service, Gift search, Address book features all of which make the shopping experience more convenient and thereby increase customer loyalty and frequency. And probably when customers come to us online we have the opportunity to engage them in an electronic dialogue via cost effective e-marketing programs, using such programs we can stimulate everyday gifting as well as develop additional gifting occasions such as next weeks Halloween holiday, which by the way is fast becoming a very nice little holiday for us with our posh Pumpkin Bears, Colorful Popcorn tins and great assortment of Candy Gift for kids and all the kinds enough.

On the customer relationship front, we continue to deepen the relationships we have with more then ten million customer as evidenced by more than the 58% repeat customer rate achieved during, in terms of customer acquisition, we continue to cost effectively require a significant number of new customers who are attracted to the convenience in quality and reliability that our collection of brands has come to stand for as well as our unique same date delivery capabilities in our expanded gift offer. To increase our share of the corporate gifting market, we have added resources to our sales team and are aggressively growing our account base. We believe we will position to increase sales in this area, as this business economy seems to be improving. As we enter the important holiday shopping season, our fiscal second quarter we believe we are beginning to see some signs of improving retail economy. Throughout this quarter, we will continue to focus on marketing and merchandizing programs on deepening the relationships that we have with our existing customers. Concurrently, we expect to attract a significant number of new customers with our convenient multi-channel access of our great collection of gift range including home and garden decor gifts from Plow & Hearth, children's' gifts from HearthSong and Magic Cabin, bakery gifts from Mama Moore's and fun candy and popcorn tins from the Popcorn Factory. In addition, we have expanded our relationships with the growing list of great gift brands that our customers are responding to including, Lenox, Waterford, Godiva, Yankee Candle, Madame Alexander, Billroy and Bosch, Swarovski, and Crystal Ricto (ph) among others. As a result we are well positioned for what we believe will be will be a wrecky quarter for us in both terms of both top line and our bottom line results. And that concludes the formal remarks portion of our program, and now I like to open the call for your questions. Vicky, would you please restate the instructions that our caller can present their questions.

Yes, thank you very much. The question and answer session will be conducted electronically today and anyone wishing to ask a question may signal by pressing the star key followed by the digit on your touchtone telephone. And once again, that is star one to ask a question and we will pause for just a moment. And our first question today comes from Bob Labick with CJS Securities. Please go ahead, sir.

Thank you, good morning. Question, could you just expand on your celebration theme and you said work well for the summer season, could you give us an idea your promotions maybe running for that holiday or winter season, speak that a little more please?

Overall, what we are trying to do with our celebration theme is to extend our both our range of product and services that we can bring to our customers for a course of traditional four holidays and increasingly for those other holidays that floral didn't usually play big mind position role, like Halloween, like Father's Day, so we continue to do that. You will also see us do things in terms of our customer engagement strategy that help to both a bring new information and new ideas and at a toil kinds of contents to our customers in the celebratory theme kind of realm, in addition to seeking they are important, they are involvement into development of that content, and that dialogue. So in general you will see us doing increasingly quarter-to-quarter, day-to-day, year-to-year has increased the kind of dialogues that we have with our customers expand the range of products and services we bring to them, so that our brands, collection of brands increasingly playing a more important role in our customers lives on all of celebratory moments whether it's a back yard barbeque in the summer time, 5 or 6 neighbors that they might engage during this summer, celebration's theme, or it might be how they plan a party for their kids for their three young one for Halloween, so it's a combination, a better toil content a whole strategy would on dialogue with customers in expansion of both the products and services so they were relevant to our customers everyday.

Okay. And then just one another quick question, in terms of corporate gifting, how is that looking at or how are sales cracking versus a year ago, and what specifically are you doing to drive that area?

I'll turn it to - maybe ask Chris to handle that.

Sure. I think because the gifting is an area where we kind have put some emphasis on [Inaudible] off-season going to summer and we told the division a little bit; we think we are well positioned to take advantage of the opportunities that may present themselves as we move into the holiday season. So we have added additional sales people and are going to the market in an enterprise-wide fashion. That, by that I mean we are going to the market with a broad range of gift solutions from all of our brands, which helps to overcome some of the issues that competitors run into when they are trying to sell when they only really one to one product line. So we re-tooled our focus on it, we reallocated what verticals we were going after, where the best potential is and we continue to look at it. But again, we are hopeful that we have a strong holiday season that recovers from what it has been in the past two years.

Great, I'll get back in queue. Thanks very much.

Thank you.

And our next question will come from Peter Benedict with CIBC Worldmarkets.

Hi, guys. A couple of questions. First, can you expand a little bit more on the thought process behind the shift in the circulation plans, I guess during the quarter for, of the non-floral catalogues, talk a little bit about where you see non-floral versus floral mix going over the balance of the year? And then, two questions on the second quarter. Can you talk a little bit about the pricing strategies, marketing strategies for the second quarter and holiday, and any initial guidance from the bottom line expectations for the second quarter? Thanks.

I will start the, with the first part of your question and ask Bill to give you the detail on that Peter. Well, as we looked at this summer quarter, and what was going on generally in the catalogue marketplace, and saw the breadth of options we have because of the multiple-brand, multiple-channel strategy that we are fortune enough to have. We realized that it was, we started to shift our emphasis in terms of growth of our catalogue business through increased mailings and said, let's harvest more our relationship with our customers here. And as they increasingly had identified themselves as being online customers as well through e-mail addresses they gave us in access or online channels, we could afford then to cut back on our contact rates to catalogue and shift more those contact experiences to the online world. And because we had good summer promotional things around the floral content, we could push those ideas easier. Although the overall categories have not being growing, clearly all floral businesses have been growing and we thought we could emphasize that in this quarter with the two promotions we had running. Bill, maybe you could give some of the ...

And I think, Peter, we have always said, we have a lot of flexibility with our marketing and what we see is, the various marketing strategies that we have whether it is online spend, whether it is catalogue sort, and during different times of year, maybe there is the ability to shift that around. So, what we did during the first quarter, it means some out of the catalogue sort featuring some of our non-floral gifts and focus it more on, on the online world, which features more, today the floral-gifting that's a more matured business, online for us. As we move into Q2, that shift goes back towards a heavier spend, a heavy marketing spend in the non-floral area, where in the second quarter over two-thirds of our product mix is non-floral. So we can seasonally kind of adjust that. With respect to pricing strategies, there is no real change in our pricing strategies. We are not, we have not increased our pricing at all, any change in average ticket really results more from -- just a product mix.

Joe, something you wanted to say.

Just something I wanted to add on the pricing strategies Peter, we continually have what we call a pricing optimization program that, again it is a continuous program that takes place specifically in our catalogues but then again elsewhere where we were constantly monitoring each of the product category and specially our top-selling moving SKUs to make sure that they are priced appropriately to produce the best bottom line. So, sometimes that means adjusting the price up if it doesn't impact demand or adjusting the price downward if demand increases enough to overcome and thus price reduction and thus produce a better bottom line.

And Peter, just the last point with regard to guidance for Q2. We are giving guidance that Q2 will be in a range of 34% to 37% of overall yearly revenues. We have also given guidance that this is our largest in terms of top line as well as gross margins. We expect EPS to grow in excess of 75% and free cash flow to grow in excess of 150% for the year. And with that, our strongest quarters Q2 and Q4 being the lion's share of that, both the growth as well as the bottom line.

Okay, great. Just one quick follow-up, Bill. It sounds like you do expect non-floral to be more than two-thirds of your business in the second quarter. So, you should probably expect gross margins to be up year-over-year as opposed to flat like they were in the first quarter, is that right?

That's correct.

Great, thanks guys.

Our next question comes from Anthony Noto with Goldman Sachs.

Thank you very much. Hi, Jim and Bill. As you guys go into this holiday season, I noticed that you have sent out a holiday catalog already in the mail and I was wondering, is that coming at an earlier point in time than a year ago, and if so, is that based on a some lesson learned about the lead time about the catalog relative to the holiday season that you want to get out as soon as the merchandising seems a little bit higher quality, higher price point? Is that also a lesson learned and if so, are there any other lessons from last year that you are applying this year? And then, I have two other follow-up questions after that, thanks.

Well, I would go at it, but Chris would like to handle that, but I will tell you first I hope you ordered something Anthony and help us give those numbers for this catalog drop, Chris go ahead.

Yeah, Anthony, to answer the timing, the timing is no. There is no difference in timing of the catalog drop. It is approximately at the same time. I believe you are asking specifically to 1-800-FLOWERS gift catalog, there was a change in strategy from a merchandise point of view to skew the catalog much more towards the non-flower gifts. And thus with that, it comes to targeting, and it comes to circulation adjustments on learnings from previous year. We are targeting much more of the customer in our existing customer base who models as a catalog buyer.

And obviously, Anthony, they are very intelligent, articulate, handsome people that we targeted with that catalog drop.

And I think, overall with all our, covering all our brands, what we have seen as trends over the last couple of years is people buying closer and closer to the holidays. So, our circulation plans overall do follow that trend to some degree. So, if anything you will see larger amount of circulation is closer to the holidays. The timing is about the same but weighted heavier towards the back end. .

We would like any; seriously we would like any other thoughts about that catalog, if you can ship some of those out later. That's very much a change in direction for us with a 1-800-FLOWERS gift catalog. Our merchants are very excited about it. They are giddy about what's happened in the first few days of that drop. You will see a change in mix on product days, a shift in price points, frankly, you see a broadening of the price points because they tell me that they have also introduced a lot of lower price points in that catalog. So, it's interesting that you, just as a, a focus group of one observations on the price point mix. But they are very excited about this retooled direction for the 1-800-FLOWERS gift catalog, and there will be several drops after that decision. You just got one of the earlier ones.

Great. And the other area I wanted to explore was the trend in telephonic revenue and how you think about that as a percent of your total business over the longer term, say the next three years? It is obviously declined on a year-over-year basis for the last two quarters now. Do you think that that business could be in a [Inaudible] decline because of the amount of penetration we have today with online shoppers, the advent of broadband making our mind shopping even more convenient and how should we think about telephonic as a percent of your total? And one underlying, just wondering if you can give us, is how many of your consumers are actually shopping just the online channel as opposed to telephonic and online - -?

I will answer to the last part first and Chris might add some more color on that. What we are finding is that over two-thirds of our customers shop both ways with us. I think the implication would be that less than a third or probably something in the 20% range have just been exclusively online, but Chris, do you have any more than that?

The color of today, you know, again we are just coming out of the -- still coming out of the summer where we tend to do lot of our research, a lot of our customer research during the slow time and even amongst our best customers, we identify, electronic customers, want to get into dialogue with them, you find they very often rely on the telephone as well, not necessarily for placing orders, but sometimes the reassurances that they are making the right gift decision and they want to be assured when they leave it on the customer service side as well. So it plays an increasingly important part of our overall approach to the marketplace even with those customers who identify themselves as electronic customers.

And in fact, we know that about on our, just our telephone side, that about 30% of our telephonic customers are ordering viewing the website while they are placing a telephonic order. So, the lines are blurred for us and in terms what's purely online and purely telephonic you have this back as they confuse both ways, then the secondary packages, even a large percentage telephonic customers are customers that are using website or catalogue tool while they are placing the order.

And I think, you know, with respect to what we clearly continue to see migration of our customer online and some of them, you know, as Jim was mentioning they've -- they shop us on line, they order telephonically and then they make, they - make that transition actually to shop, you know, shopping and ordering online.

And be more comfortable with that.

And be more comfortable that, I think our, you know, our best guidance that we can give is we believe that telephonic channel for this year will continue to be, will be relatively flat. We know it was down in the first quarter. As we head into our second quarter, which is no -- which has some of our strong core, for some our other brands, which are still heavily telephonically, like Plow & Hearth brand, which is still maybe one-third online, two-thirds telephonic versus the other flowers brand which is the inverse, which is two-thirds online, one-third telephonic. We'll see that, evening out, the telephonic will be flat, will not be down year-over-year. While that was the case and just all - just a migration going online would be happy to regard as well.

Great thank you guys.

And next is Heath Terry with Credit Suisse First Boston

Hi guys, wonder if you'd give a little color behind the increase in average order size. How much of that would you attribute to the greater mix of floral this quarter versus just an increase in customer orders on the non-flower business as well?

Heath, this is Pititto, we said in the past that we don't have a very strong focus on average ticket size, crept up here, $1, it was up slightly, heads up little bit to do with the mix shift, but on average for the full year, we would expect our average ticket to remain in the low 60 or so.

60 is almost...

And relatively flat.

Okay, thanks.

We now go to Kristine Koerber with W.R. Hambrech.

Yes, I have a couple of questions. First of all can you just talk about, give us a little more detail on the corporate (ph) business that you've mentioned you added sales people. How many sales people did you add? Currently what is -- how big a business is it for you and what is potential size of the business, do you think going forward? And then I follow up with some other questions?

Okay, Kristine this is Christopher. Over the past summer, we've added six to ten sales people and changed a couple of people and bought in some new management in that area as well. And again we are going to mark from an enterprise approach, we think there is great opportunity, it is not necessarily a large percentage of our business today, especially if you look at it from a pure gifting component. There are also the marketing benefits we get out of corporate relationships, marketing into the customer base, which is an ever-increasing opportunity for us. We also see opportunities in the marketplace which has been spoken about for a couple of years, but just really started to take hold in it and that is some of the electronic marketplaces that corporations are using more and more for their business purchasing for their employees to use for their business purchasing needs. So, while we've been working in those areas for the past two years, we are just starting to see the benefits, so again, we're very optimistic about the potential of that, but yet it remains to be seen as to how that proves out this quarter.

Right now, in terms of size, Kristine, this time it's less than 5% of our business, there is a bigger benefit that Chris alluded to which is the marketing (ph) relationship we developed with these companies and [Inaudible] with their employee basis, that is actually consumer business but a benefit from the corporate relationships, but we would hope to be able to in very near term a year or two, double the size of that business with the increased emphasis on the enterprise voice solutions that come with the electronic marketplaces as well as the increased human power -- man power devotion that we've had with the expansion of the sales staff and the reemphasized retail management infrastructure.

Okay, great. And then as far as the LFCs, how many are you operating now and can you talk about the products that will be available in the LFCs for the holiday season, you know, some of the non-floral anyway for same day delivery? And also -- as far as repeat rate, you guys continue to do a great job of driving repeat customer rate. How hard do you think that can go and then how do you define your repeat customer rate? Thanks.

Joe, why don't you handle the first part on repeat rates?

On the repeat rates, the way we define it is simply within the quarter. We don't -- will give you the measure of how many customers -- new customers that we've attracted. We don't jot down the customers ordered, so anybody else is a repeat customer, and within an inter-quarter we've been in that better than 55% range. We would expect that number to continue to increase as we go forward but we will always be working very diligently to attract a significant number of new customers each quarter.

I guess, I think, I have to review those in parallel.

Is that customers that have purchased within the last 12 months?

Yes.

Okay, thanks.

Our next question comes from Anthony..........

Hold on, before we get there, I want to answer the other parts of Kristine's question.

Oh! I'm sorry sir.

As far as the LFCs, [Inaudible] stands at 64. That model continues to work very well for us. We expect that to increase slightly throughout the year, and as far as other products that you'll start to see introduced is you know reflective of the brands that we mentioned earlier, some of the products from Linux [Inaudible] , you know, our top moving SKUs, you'll to start to see introduced throughout this quarter and throughout the rest of this year. Jewelry SKU's that we'll have for Valentine's Day and you'll see [Inaudible] , short key and plush products that we will be introducing in the first and second quarters of the calendar year.

Thank you.

And we'll now go to Anthony Lebiedzinski with Sidoti and Company.

Good morning. I have a couple of questions. On your P&L, your marketing and sales as well as your technology and development expenses went down in dollar terms on a year-over-year basis. Is it safe to assume that for the rest of fiscal fourth, it will see a continuation of this or should we see a pick up in the expenses, if you could just elaborate on that?

I think from a standpoint of -- you should expect marketing and selling expenses to go back up. We were -- as a percent of -- you know, as a percent of revenues, we'll continue to leverage the operating infrastructure that we have and a big piece of that sits within the marketing and selling line. Whole dollars, it will go up, percentage it is down, consistent with the guidance we've given for the year.

Okay. And how much do you expect these expenses to go up in percentage terms?

Again Anthony, as a percent of revenues, we're going to be driving these down by about -- the marketing and selling by about a 150 basis points this year. So, you could kind of run it along with last year's numbers and then you could see where that would be.

Okay and the same thing for the technology and development expenses?

The technology development, because it is a much smaller expense again as a percent of revenues will come down but not any -- but only slightly.

Okay. Also, as far as the corporate gifts you mentioned that's 5% of your annualized sales. What about for the December quarter alone? How much as a percent of sales would that be?

It is in the -- between 5% and 10% for the quarter.

Okay. And lastly on you balance sheet, your PP&E line that went down form June, is this because of any store closures or if --?

No, really the reason for it is, just if you look at our depreciation line, our depreciation line is approximately $4m, $3.9m, and if you look at cash flow savings, you will see that the CAPEX in the first quarter was about $2.5m, so it has really been net additions, you know net of depreciation.

Okay. And lastly what was your CAPEX forecast for fiscal '04?

$10m to $12m.

Okay. Thank you very much.

Next is Eric Beder with Northeast Securities.

Good morning guys.

Good morning Eric.

One quick house key question. What was the split between telephonic and online for the orders? You had 1m whatever it was orders, what's the split between the two?

52 was it?

No, no it was 54.

Do you want the absolute numbers?

The actual number of orders.

The actual number of orders, we have a total [Inaudible] .

Unable to respond at this time due to technical difficulty. But we will get it worked.

Next year, Valentine's Day is on Saturday, how much of a difference does that make for you, and how much of a difference does that make for your competitors that deal with UPS and Federal Express as their delivery vehicles?

Well, I think our technical difficulties are resolved; let me ask Will to answer the first part of that question for you now.

It was 800. I am just going back to the orders; it was about 800,000 online, out of the 1,380,000. And I apologize for the brain freeze on that.

So, we will be changing CFOs this afternoon , but in terms of Valentine's Day, Eric it makes a very substantial impact to us. And a terrible one in the expressive gift category. As it has been happening, it will be exaggerated this year, obviously we've talked [Inaudible] because we have calendars is too, and we could see where the holiday was going to fall. So, the good news is, for us was the significant impact it will have a top line challenge. It might not necessarily have same bottom line challenge, that goes on our top line because the indication is this, if about, Valentine's Day is on a Saturday, usually try and get alternate delivery dates for Valentine's Day, because they will cost your business. Now, you are forced to get two delivery addresses if it is posted on a Friday or it is posted on a Saturday, because most people want their deliveries to the workplace. So you will see our emphasis on getting those deliveries earlier to the workplace from on marketing, communications point view with our customers, plus you are out of the express delivery capability that UPS or a FedEx might provide where we as an industry become increasingly relied. The good news for us is that the maturity and development in such a rapid pace of our LOC (ph) program gives us some insulation from that impact. The overall detriment to sales that will occur is mostly on the day itself, the 14th, which is not the biggest sales day for us. But it will have a very detrimental impact on people who are reliant exclusively or heavily on express delivery channel because FedEx doesn't want that business, UPS doesn't want that business, they don't want home deliveries, they are perishable products sitting on those trucks later and later in the day is very bad for the product, giving customer service and customers don't want it. So, it is a very negative impact on the breadth of industry, not it will be a negative impact on top line for us, but not a negative impact on the bottom line, particularly because the LOC concept gives us a great deal of benefit, and that's a phenomenon now that you can expect, Eric, will have a detrimental effect on all of our competitors for the next several years, because it gets worse next year when it is on Sunday, and then it is as bad if not worse the next year when it is on a Monday, because they can't ship products in any of the three days before Valentine's Day. With our program we can. So, its something

I don't think next year it is on a Sunday, because it is a leap year. But, [Inaudible] .

Yes. Thank God we have someone who knows numbers around here.

That's what they pay me to do. Talk to you later.

Thank you.

And at this time there is one name remaining on the roster, so if there are any additional questions, please press star one at this time. We will now go to Arnold Breef, with Goldsmith and Harass.

Could you give us some idea or your plans to expand your gift offerings on a longer-term basis, both in terms of your own brands and the, for lack of a better term, I will call the outside brands like Waterford, Godiva, and Lenox. And also how important are those outside brands today in terms of your annual mix? And then finally, could you discuss as you get involved in holidays like Halloween, how you approach markdown problems in terms of that's like what's hot this week kind of holiday in terms certain items and how you get rid of them if they don't sell? And what would be for Halloween or Father's Day over there?

I'll invite everyone to jump in here, there is a bunch of questions in your [Inaudible] , first in terms of long-term mix let me paint a picture for you this way. As a florist we come to market with products that you'd expect us to have - flowers, plants, balloons, candy, gift bags, gifts, stuffed animals. You will see us increasingly emphasis those other products beyond flowers and plants, the gift basket category in particular. When I say gift baskets, it is not always [Inaudible] a range of products from the gift party packs to gift sets to party-in-a-box concept, all the things that are aggregated put together attractive gifts. So for example on Father's Day, we had a weather grill, which served as a vessel that hide into the other products, so while we call that a gift pack, gift set, or a gift basket, obviously not in a basket. So very successful for us and we have had, and you will see us emphasis those gift party sets, gift pack sets, gift baskets, so the gift basket collection. In addition the food gifts, very, very important growth category for us, it is a multi-billion dollar category and it is a category that for us is grown from $3m two years ago to $55m to $60m category today, and we will increasingly press side both with outside brands, like Godiva that we mentioned and our internal brands like the Mama Moore's, a brand that we own, which is a line of bakery products. So the food gifts, the Plush and inexpensive connective gifts like our greetings product and our Plus product, our inexpensive candy and popcorn products. So you will see us push Plush, food, gift packs, and gift sets as our primary growth vehicles. Now as to the percentage of those brand name products in our mix, it is in the tens of millions dollars category now, we will expect that to increase. It is going to be hard for you to distinguish because of it is a Lenox product, that's a part of our ways or if it is a Godiva product, that's part of a gift basket, it is hard to distinguish where they came from. But it will be an increasingly important ingredient in our overall mix as we go to market.

Yes, I think it is important, you know with respect to your question on Halloween and inventory, and inventory write-downs. Again we are inventory light in our model. And while, you know some of these holidays, some of these dates that come up in celebratory occasions like Halloween that we are making like small holidays for, our inventory commitments are still relatively minimal [Inaudible] .

What would our inventory commitment for Halloween be, dollars?

In the hundreds of thousands.

Yes, and as we look at a holiday like Halloween as Bill talked about or an inventory like Mama Moore's very flexible in that manner. So we will only really step in and take inventory positions once we know we have the proven commodity, so that protects us from the kind of, you know, the fad of the day type of product. In that case very often we are working with the fad not taking inventory on those kinds of fade products, until it becomes a proven staple for us. That means if we can increase margins, we will step into an inventory position.

Finally, I remind you that one of these [Inaudible] that we have been fortune enough to be able to develop is of a [Inaudible] infrastructure, typified our LSC component of our overall Bloomnet Performance system. And what I mean by that is, this year Halloween, while it is going to be a 40,000 plus unit holiday for us is still primarily fulfilled through third party express vendors. But, now this is the third year now that we have been in the Halloween business and now we have some proven predictable models of demand and marketing responses. So, next year, you will see us move some of our best selling SKUs that are proving to us into our LSC and into our Bloomnet Performance system, which gives us two things. One, the ability to bring good product and good value to our fulfillment partners, but secondly more importantly it gives the opportunity to maximize the selling opportunity, because we are out of the business three or four days before Halloween and as you can imagine the best selling days are the days leading right up to an improved Halloween. So, next year we will be in a better position to maximize the marketing effort with no increase in cost, but a better yield on marketing and our inventory dollar.

And similar with Valentine's Day next year [Inaudible] following a move to a Sunday, so then again we cannot be dependent on the overnight carriers, we will move it into our same day distribution capabilities, which again provides us a great competitive advantage.

The LSC gives us a program to go to market and emphasize that last same day delivery capability that no one else, no one in the industry out there has the ability to respond to.

Would you expect your average ticket to rise over time as you expand it to non-floral?

I think what you are saying is our average ticket moved in that $60 price point range, season-to-season. So this quarter it went up a little bit, next quarter it might go down a little bit because we are adding both higher price points and lower price points. We want a better breadth of products so that we are more relevant and we are helping our customers act on their thoughtfulness. So, around a backyard barbeque it might be, or around a office birthday party, it might be a $24, $10 plush one that they sent, which obviously is a lower average ticket, but then at Christmas time when you are thinking about their five key customers, they might be thinking of [Inaudible] Sleigh built with all kinds of gourmet goodies, that's $500 from our [Inaudible] gift basket collection.

And again as we look at the expansion in each of the product categories our purpose is two fold. Primarily to increase share of volume with our existing customer base and then it also provides greater margin opportunity for us as we move into the non-floral, even if the price point doesn't move, but also it is a category that does allow us opportunity to attract new customers for the first time that might be looking for that Plush, that candy, or that gourmet food gift baskets.

Thank you.

Every question answered?

Yes. Very good. Thank you.

Thank you.

And there are no further questions. I would like to turn the call back to Mr. Jim McCann for any additional or closing remarks.

Thanks Vikki (ph) and thanks for all your questions and your interest. If you have any additional questions please don't hesitate to contact us. And in closing as we have done our custom on these calls, I would like to offer these public service announcements too. First, Halloween as we just discussed is only eight days away and I am sure quite a few people in your lives are to whom you'd like to send a trick-or-treat, here at 1-800-FLOWERS we specialize in the treats. From cuddly pumpkin teddy bears complete with candy treats, to [Inaudible] and much more. All designed to help you put a smile on the faces of the people you care about in your lives. Second, it is not too early to start planning for the holiday season. Especially the business gifting needs of your holiday season and Eric [Inaudible] one of the aforementioned additions to the terrific management team we have assembled in our corporate sales area is standing by to help you, our special friends with any of the perfect gifts that you would want to send to people in your professional lives. And his direct dial number is 516-237-4593, that's 516-237-4593. He is standing by with his team to help you with any of your holiday gift-giving needs, both of Thanksgiving, Halloween and Christmas. So, this holiday season visit us online, by telephone, through our catalogues or in our stores to see how with great ways we can help you show how much you care. And thanks for caring enough to sit in on our phone call today and we look forward to further dialog. Thanks again.

Thank you very much. That does conclude our conference for today.