1-800-Flowers.Com Inc (FLWS) 2006 Q1 法說會逐字稿

Good day and welcome everyone to the 1-800-Flowers.com Fiscal 2006 First Quarter Financial 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.

Good morning and thank you all for joining us today to discuss 1-800-Flowers.com's financial results for our fiscal 2006 first quarter. My name is Joe 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 release can be accessed at the Investor Relation section of our website at 1-800-Flowers.com or you can call Patty Altadonna 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'll open up 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 the 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 a detailed description of these results and uncertainties, these risk 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 recordings of today's call, the press release issued earlier today or any of its SEC filings except this may be otherwise stated by the Company. I'll now turn the call over to Jim McCann.

Thank you Joe and good morning everyone. As we announced in this morning's press release, our fiscal first quarter's revenues were up $112.8 million, an increase of almost 16% from a period a year ago. This is a continuation of the double-digit revenue growth that we achieved in the second half of fiscal 2005. Importantly, we achieved this growth in what is traditionally our lowest revenue quarter due to the lack of any tripping holidays during the summer months. We also improved our gross margin by 20 basis points to 40.8% during the quarter, continuing the trend we saw in our fiscal 2005 fourth quarter. We anticipate the gross margin will continue to improve during or going forward primarily as a result of our enhanced product sourcing, our product mix and operational efficiencies. When it comes to my front, during the quarter, we attracted more than 500,000 new customers, with 66% of them coming to us online, up from approximately 450,000 and 62% (ph) in first quarter of last year.

And additionally, further deepened the relationships we have with our existing customers as evidenced by the 61.1% repeat-order rate achieved during the quarter compared with 60.5% in the period a year ago. From an operating perspective, our fiscal first quarter is a very busy time as we prepare for the upcoming holiday season. During the quarter, we enhanced our efforts in several key areas. First, we continued the strong turnaround begun last year in our home and garden category, marketed Plow & Hearth brands where we achieved sales growth of about 10%. With a significant increase in new product offerings and enhanced creative designs in this catalogs and website, we believe Plow & Hearth is positioned to perform well in the current fiscal second quarter. Traditionally, it's largest.

We fully developed our Bloomnet business, mailing our first directory to our Bloomnet florist's members in September, this was followed by successful advertising sales effort for the second directory, which is scheduled for mailing later this quarter. The directory represents the first in a range of new products and services for our florist members that we plan to introduce going forward.

And third, during the quarter, we made significant progress in the integration of our most recent acquisitions. While the seasonality of the WineTasting Network and Cheryl & Co. impacted our operating results for the first quarter. We anticipate that they will provide significant contributions during the current fiscal second quarter for both our consumer gifting and our fast growing Business Gift Service operations. Combined with The Popcorn Factory and other offerings in candy, gourmet foods, and especially our gift basket collection, we believe that we are very well positioned to be a leading player in the Food, Wine and Gift Basket category this holiday season.

I will now turn the call over to Bill, so that he can take you through the details of our financial results and the key metrics for the first quarter. Bill?

Thank you, Jim. During the fiscal first quarter, we saw the continuation of several positive trends in our business, in particular, solid double-digit revenue growth and an increase in gross profit margin. Importantly, we expect these trends to continue during the current fiscal second quarter and throughout fiscal 2006. Additionally, the higher loss per share in the quarter compared with last year reflects our stepped-up marketing programs, which are helping us drive, accelerate revenue growth. Our Bloomnet initiative, which are progressing nicely and the integration and seasonality of the acquisitions we made last year, the WineTasting Network and Cheryl & Co., which generate the majority of their revenues and profitability during the current quarter. We believe these investments position us well for strong topline growth and significantly faster bottom line growth in the current quarter as well as full-year fiscal 2006.

Regarding specific financial results and key metrics for the quarter, total net revenues reached to $112.8 million, an increase of 15.6% compared with $97.5 million in the same period last year. Online revenues grew 17.3% to $62.3 million compared with $53.1 million in the first quarter last year. These online revenues equal 61.9% of combined online and telephonic revenues for the first quarter of fiscal 2006 compared with 58.5% in the same period last year.

Telephonic revenues were $38.4 million, up 2.1% compared with $37.6 million in the prior year period. Retail fulfillment revenues were $12.1 million compared with $6.8 million in the year-ago period. This increase primarily reflects revenues from Bloomnet and the contributions from the WineTasting Network and the retail stores of Cheryl & Co. and Plow & Hearth.

During the quarter, our combined online and telephonic orders totaled $1.596 million compared with $1.407 million orders in the year-ago period. Average order size during the quarter was $63.08, down slightly compared with $64.46 in the prior-year period. During the quarter, we added 508,000 new customers compared with 337,000 or 66% of them coming to us online.

Gross profit margin for the fiscal first quarter was 40.8%, up 20 basis points compared with the same period last year, primarily reflecting product mix and pricing initiative. Operating expenses as a percent of revenue increased to 50.7% compared with 45.6% in the prior-year period. This increase contributed primarily to the investment areas that I mentioned earlier, as well as the effect of non-cash, stock-based compensation as calculated under FASB 123 (R). For the quarter, stock-based compensation added $9.037 million to operating expenses. To break this down further, the 500 basis points increase in our operating expense ratio can be attributed 50% to the combination of stock-based compensation and the seasonality of our recent acquisitions and 50% to investments in Bloomnet and stepped-up marketing programs.

As a result of these factors, our pro forma net loss for the quarter was $5.9 million or $0.09 per share compared with $2.7 million or $0.04 per share in the year-ago period. We define pro forma earnings as GAAP as GAAP net income or loss excluding stock-based compensation net of the related tax effect as calculated under FASB 123R. We provide pro forma earnings, which we believe, could offer some more meaningful year-over-year comparison of reduced and corresponding per share amounts to not less than importance of comparable GAAP amounts. Including the after-tax stock-based compensation charge of 727,000, our GAAP net loss for the quarter was $6.6 million or $0.10 per share.

Regarding our balance sheet. Our cash and investment position at the end of the quarter was approximately 11 million. This was in line with the management's expectations in reflect to the investments we've made in preparation for the upcoming holiday season. We anticipate having a cash on investments position of approximately $70 million at the end of the fiscal second quarter and to grow our cash position during the second half of the fiscal year. Inventory at $46 million was also in line with management's expectations and reflects the build up for the holiday shopping period including the requirements for recently acquired companies.

Regarding guidance. As stated in our press release this morning, we have reconfirmed our guidance for fiscal 2006, which calls for revenue growth of 14 to 16% compared with the prior year. We expect the increase of those profit margins by approximately 150 basis points, while operating expense ratio will be in line with the prior year. As a result of these factors, we expect to achieve pro forma earnings per share growth of more than 75% compared with fiscal 2005. In addition, the strong earnings growth and as a result of our relatively low working capital on capital expenditure requirements, we anticipate cash from operations will be more than $40 million during fiscal 2006. Regarding the current fiscal second quarter, which includes the calendar year and holiday period, we expect that period will represent approximately 35 to 37% of full-year revenues.

In summary, we believe we are well positioned to execute against our plans to grow revenues cost effectively and significantly enhance our bottom line results in terms of getting greater EPS and cash flow growth.

I'll now turn the call back to Jim.

Thanks Bill. We are pleased during the first quarter we were able to grow revenues almost 16% continuing the double digit pace we achieved in second half of last year. In addition, during the quarter we cost efficiently attracted more than a half a million new customers, currently increasing our repeat order rate from existing customers to more than 61%. We believe these results reflect the effectiveness of our stepped up marketing efforts and the success of our `Your florist of choice` message, which conveyed our unique ability to divide our customers with choices including Our Florist's Design Gifts, our Fresh From Grower offerings, our exclusive expert designer collections plus all the other great gifts that our customers expect to find in a favorite florist, candy, giftware, bakery gifts, and a broad range of gift baskets and gift sets, all available under our great family of brands.

In terms of operations during the quarter, our Flower operations continues with strongly down with 10% sales growth for the period compared with the prior year. We believe this holds well for the current fiscal second quarter, which is traditionally our largest. During the quarter, we continue to develop BloomNet by expanding our florist membership and introducing our first member directory. Going forward, we plan to introduce a range of new products and services to help our BloomNet members to enhance their productivity and their profitability. Also during the quarter we made significant progress in integrating the Winetasting Network and Cheryl&Co., which we acquired in the last fiscal year. These businesses are poised to deliver a solid contribution during this upcoming holiday period for both our consumer gifting channels and our business gift services group. Combined with our existing offerings in candy, gourmet foods, and gift baskets, we believe we are well positioned to be a significant player and in food, wine, and gift baskets category this holiday season.

Looking ahead, while we remain cautious regarding the potential impact of higher energy costs on consumer spending as well as the impact of the severe weather we are seeing in major markets in the Gulf Coast, Texas, and now Florida, we believe we have effective margin growth in place that leverage our large and growing customer base, the strength of the 1-800-FLOWERS.COM brand and our growing family of brands and the expanded range of choices, we offer our customers in terms of products and services. We believe these factors will enable us to achieve our targeting guidance for the current fiscal second quarter and for the full fiscal 2006 year, which calls for top line growth of 14 to 16%. At the same time, we will be increasing our bottom line by 75% or about five times our top line growth rate. This illustrates a significant leverage in our business.

And that concludes our formal remarks. We will now ask Glenn (ph). She would turn the call over to you for your questions. Glenn, would you please open the call to Q&A, now.

[OPERATOR INSTRUCTIONS]. Jeff Stein, KeyBanc Capital Markets.

Got a couple of questions on your B2B initiatives. Over the course of the last six months, you guys have done a pretty good job of signing up new florets to become members of your network and I'm just kind of wondering what the timeline is for actually adding and selling products and services to the florets that you have recently added.

We looked at the range of different products and services that we can offer to the florets. We prioritized both based on the need of the florets on our network and our ability to package and deliver those. Our collection of products and services that we will be introducing two or three more of this fiscal year and then probably a half a dozen or more products and services in the next fiscal year and beyond. So, we aren't in a position that we want to lay out a timeline for each of those products and services, based on the combination of our ability to package and deliver and our analysis of the cut florets needs that are determined how and when we introduce our services.

Yes, Jeff, and as evidence of that, we did have our first directory that we issued in the first quarter and now we have had a successful sales effort to the second directory that will go out at the latter part of this quarter.

And Bill, a question for you. You guys have kind of bumped your service charge by a buck and under normal conditions, it would seem that most of that were dropped to the bottom line. But I'm wondering incrementally with the increase we have seen in shipping charges, how much of that dollar increased in shipping charges do you think you will be able to capture this year?

Yes, we have been, Jeff, we have been testing different pricing initiatives, the dollar above in service charges, some shipping items, all to help kind of offset as we have other costs from third party carriers and others. So, we are using it right now to offset that and as we implement other operating efficiencies, we hope that it helps contribute to our gross margin increase this year.

But we did reaffirm our gross margin targets for this year. So, we think the combination is different. Efficiencies we are achieving different pricing schemes. We are experimenting with different assistance we are providing to our florets as well as product mix will mitigate those obvious increase in costs. We will still reaffirm our guidance for the year.

Mark Mahaney, Citigroup.

Could you just talk about the underlying unit growth in consumer floral business? I asked that just looking at some of the other companies in the space. For the last couple of quarters, it looks like there has been actually a year-over-year decline in consumer floral orders. Is there any way you could comment on what kind of growth you have seen year-to-date, calendar year-to-date and what you would expect going forward?

What we have said is that, we have expected for the full year that we have seen double-digit revenue growth in our floral business. I think we are certainly on pace with that for the -- as a result of the first quarter. So, we are not seeing that. I frankly think that we are not seeing a decline in the quarter growth in the category. I think it is increasing (indiscernible) those companies that report public.

As we look at -- this is Chris, as we look at it, certainly we are very pleased with the growth in consumer business -- consumer floral that we are experiencing as we look at what we see from our competitors. We believe we are outpacing the growth of our competitors on the consumer side. So, we see everybody growing, but our pace is growing faster.

Heath Terry, Credit Suisse First Boston.

If you could just talk a little bit more about the sales and marketing spend. I mean we saw as a percent of revenue, looks like it's heading to the highest level we have seen since 2001. How much of that is an increase in the amount of advertising that you are doing versus the price that you are having to pay for, particularly the on-line advertising and search-based advertising that you are doing?

As we mentioned last January, since we reiterated on our call in August, that we were going to continue to invest and step up our marketing spend in that area. But we are also seeing in that sales and marketing line; the fact is there was a lion's share of the stock-based compensation charge that hits that line item. So, that's a new year-over-year item, so you can do that or if you look at as we said last year when we stepped up our efforts in that line, come this next January when that increase starts to anniversaring (ph), you will see that normalize itself. Two, question on cost versus, simply increased cost over the advertise and search marketing versus stepped up impressions etc., most of it is in stepped up impressions. While we're seeing cost rise in the online world, especially on portals as an example, we also have seen our efficiencies in portals decrease and that's been causing us to migrate our advertising to other areas, whether it be other areas online or as we stated in the past couple of quarters, more offline spending that is getting as effectiveness, so overall what that equals to is more marketing impressions that we are gaining, not simply increase in cost of marketing.

Yes and additionally because the seasonality of our business and the acquisitions that we made in the first quarter, the operating expenses as a percentage of revenue will be up as a result of that as well, because those businesses have the lion's share of that profitability in the quarter that we are in now.

Okay, great, thank you.

Do we have the next question Gwen (ph)?

Anthony Noto, Goldman Sachs.

Good morning gentlemen. Can you talk about the B2B business in a little of bit more detail. Do you expect to see a tack in development expenses that continue to accelerate year-over-year as you continue to build out that network and if you can comment on the types of fees that you are getting there. And then second question relates to the acceleration year-over-year growth in the online and retail business, did Cheryl and Company or Wine Tasting contribute more to the top line than you previously anticipated and if so, what would have been the drivers?

I will answer the second part first Anthony. Wine Tasting Network and Cheryl and Company are very, very small contributors during this quarter. Their expenses obviously impact our operating results for this quarter, which contribute about half of the increase in our EPS lost for the quarter because of fourth quarter business. So, yes we have the expenses associated with those businesses. No, they didn't contribute more to topline than we anticipated, but yes, we expect them to contribute mildly during this current second fiscal quarter, the holiday quarter. As regards, BloomNet, no, I don't think we'll see an increase in the expense rate, for example the one program and service we introduced during this fiscal first quarter. We mailed offers directly. 100% of the expense related to that were at a loss, because there is no revenue to offset the printing of that book, the mailing of that book to personnel and the systems that we developed to introduce that. It was one of the more expensive efforts in terms of our product or service that you might say is introduced because of those factors. But we anticipate that there will be at least a breakeven, probably a profitable contributor beginning in the first calendar quarter or the third fiscal quarter because we are (indiscernible) now at the end of this quarter, there is revenue from advertising network by design. No revenue from advertising in the first quarter. So I think that the entries know you wouldn't expect a ratch it up in our development expenses for those product and services. We anticipate that the directive will be among the most expensive and we now already going to turn profitable on that effort.

Last year, across the e-commerce world, my understanding was that their grant and demand had started a little bit later, slower than everyone had anticipated and it sounds like a lot of companies that are going into this holiday season that are focused on any form of gifting are doing something a little bit differently about their marketing plans to make sure that they combat if that happens again. Could you comment a little bit on what you're seeing in the ramp of demand this year versus last year and what you're doing differently on the marketing front?

Sure Anthony, this is Chris, I'll take that one. Yes, I think we all continue to see that demand come later and later, in each of the holiday season, I think we saw that in this current season of Halloween. I think we're well positioned and the company will care of that because of our delivery capabilities and the type of delivery network or delivery networks that we have and the flexibility that we have. So -- it is always a nerve racking issue, we're well positioned to take advantage of it. From a marketing point of view, yes, we have adjusted in different areas, several of our different brands are mailing away the catalog, we're doing some of our online advertising a little bit later to make sure that we're fishing where the fish are. So we're adjusting to the consumer demands and again, while its nerve racking, we think we're well positioned to take advantage of it.

And Anthony with Christmas falling on a Sunday this year and with actually -- that is falling on December 26, which is after the Christmas holiday. There is -- we do feel that there is going to be an awful lot of consumers that wake up, kind of the Monday before Christmas, the week is that, but they had a whole week to take care of things that there is going to be a greater push that last week of the holiday season.

I will tell you Anthony, this is Jim, that it seems to me that every year for the 30 years that we have been florists, it hard to imagine, but anecdotally it seems that way.

Rebecca Jones Kujawa, Stanford Group.

If I could, I want to lodge three questions, I have got some background noise here and I might be very disruptive on the call if I can?

But first of all, I'll ask you a question, I assume everything is okay in Florida?

Everything is okay down here, but we've gone back to the Stone Age. We've got generators and limited phone and what not, so, it's quite fun. First, if you could give us an update, you've mentioned a couple of times the catalog, could you give us a sense for perhaps the penetration of florists that are now advertising in the next draft that will happen in this quarter, because we are trying to get a sense for obviously how receptive florists are to being a member and being an active member in Bloomnet versus Teleflora and FTD. And then second question and third question are more on the financial side, second question is on inventory, obviously as you mentioned in your prepared comments that you are comfortable with it, but could you describe why it is more significant increase this year than last and what new acquisition might be contributing to that? And then the third question on stock-based compensation, I believe you guys had been for a run rate about 3.5 million for fiscal year '06 and I think you may be running a little bit ahead of that if assuming that that guidance was for pretax number? Is that 3.5 still the target or has that changed a little bit?

Let us go in reverse order, Bill would you handle the stock compensation.

Stock compensation, it has been basically $900,000 gross and 700,000 net. So if that were to straight line, it would be 3.6 and about 3 million. So I think it's in line with the guidance that we gave, which is 3 to $4 million at that time. With regard to inventory, inventory is up and we expect to be up, it does show the increase in seasonality of the business, the acquisitions that we made that have inventories. Some of the changes that we made as we are looking to enhance our gross margins, we have changed some of the sourcing that we have. So, bringing on some, including more of our products from overseas that has longer lead times. So, we are taking on some inventory with respect to that. All those contribute to that inventory, that will always return back to cash in Q2.

I will let Chris handle the Bloomnet question, but just as a follow up on the inventory. Each time that we look at the inventory position, we are always asking ourselves the question. Does the increased exposure to inventory, which is still for us as a Company very light, it's around 4% of our sales with our peak inventory period. So we still have good returns in inventory. So we always have that sort of question, will the increased inventory exposure being more than offset by the enhanced margin opportunity and then the two instances that Bill spoke about are increased Asian sourcing which gives us improved margin opportunity and the increased range of products and services with those higher gross margins, particularly in the Cheryl and Company and TWN acquisitions, both more than offset the carrying cost and the risk cost associated with inventory by the gross margin improvement. Chris, if you would handle this portion of BloomNet?

Regarding BloomNet, as we look at BloomNet, it's early stages here, we don't want breaking up specific metrics within BloomNet while it is in these early stages. From the receptivity point of view, I think we can look at the numbers on the macro basis and see that we are continuing to get to the membership number that we want. We are continuing, we will be able to enhance the product and service offerings now as we spoke about our directory moving into second piece of it. The sell through that we have had has been a little bit above what our expectations were, again in the early stages we are not looking for rocket fuel here in the first directory that we get out there, but we are very pleased with the acceptance rate that we are getting to that as well as other products and services that we sell in through our purchase net. People buying the products that we are looking for them to buy and to support 1-800-FLOWERS business and their receptivity to BloomNet is very encouraging.

Glen Trevalyn, Glenhill Capital (ph)

Couple of things. One is your estimate for capital spending for the current fiscal year, I don't know if you gave it or not, what is that looking like?

We had given it out back in August, it was in the 14 to $16 million range.

Okay, so no change there.

No.

And your cash flow from ops is before CapEx?

Yes it is. Cash flow from ops is 40, and excellent 40 million before CapEx.

I will sure make sure I get the right definition, and can you talk about in terms of the B2B network here, any objectives you have in terms of size to grow it by, by the end of this year? Whether you think the existing florists are taking you on as the third or second provider or knocking someone out. I guess that's the sort of color you might be able to talk about.

Glenn, this is Jim. We are not going to give a lot of color on it as we haven't at all and as we said in this first year, we wouldn't. What we said is that we plan on increasing our membership network from the 3000 or so at the start of the year, where we did gradually introduce products and services like we had begun with our credit card clearing effort with our directory efforts. So, no, we are not going to give the specific target ranges. In terms of the anecdotal information was a little bit better than the (indiscernible) information would give you. I think we have a pretty good proposition for the small number of florists that we have chosen to work with. That is we have good directable orders and we have good products and services that will help them. It's no secret that florists are under some pressure in the greater marketplace in the US, all of North America frankly. We have seen the number of shops come down pretty dramatically according to the Society of American Florists over the last five or six years. Frankly I think that trend is continuing, which speaks well for the fact that we have a good product offering and a good profitable relationship to offer to a subset of the florists that exist in this country out there. So, we are very pleased with the reception we have gotten. As to whether or not they are choosing us over another wire service or if they are choosing Bloomnet to enhance themselves, I think the evidence is that they are choosing Bloomnet as an additional service in the early stages.

Okay, I will stop on that one. On Plow & Hearth's new management there, how do you assess it at this point, how are they doing?

We have tuned the management over the past year and a half there by a couple of additions and a couple of changes there. (indiscernible) is a gentleman we brought into lead just the Plow & Hearth brand in the last week. I think he had a good day on Tuesday, long lunch on Wednesday.

And where is he from?

He was most recently at Gardeners Eden. Before that he was at Eddie Bauer, and he was the founder of Garden Botanical. He is just one of the several additions we have made during the last year and he is a fellow who is very pleased to have joined us.

Glenn, as we have spoken about on previous calls as well, where we saw Plow & Hearth have comp negative in the first quarter last year, down 6% and then we saw the team to turn as we had implemented a number of the initiatives that we had in the plus 2 to 3% in Q2, plus 7% in Q3 last year, plus 13% in Q4 and now this year plus 10% in Q1 of this year. We are pleased with the progress and the turnaround that we have had.

So, clearly the management team that we had in place and that we had enhanced over the last year are those that initiated those changes. So we are very pleased with the job they have done.

And then lastly on Cheryl, how is the integration going there in terms of the Web offering for holiday product etc?

We think the integration is going very well and we have a good product offering under the 1-800 FLOWERS.COM brand of the Cheryl and Company product line as well as our marketing efforts by utilizing some of our assets such as our customer base. Our interactive marketing team is integrating well from an operational point of view. All the call center platforms are integrated. The distribution aspects of it are integrated as well our corporate sales efforts are integrated. We have moved their website into ours -- we haven't made any changes to their website. We moved it into our infrastructure so we can provide increased capacity. Functional design changes will come later but so far we are very pleased with the overall integration plan.

And this will be my last, how many shares did you buy back in the quarter?

A little bit less than $2 million in the quarter in stock repurchase.

How many shares?

We don't have the number, the share price throughout the quarter probably averaged 20,000 shares.

And what you have left on the authorization?

about $8 million

Okay, I will let someone else ask something.

Thanks.

Thank you. Eric Beder, Brean Murray.

Good morning.

Good morning, Eric.

Could you give me a fill in the floral, non-floral mix of the quarter, I am sorry. Maybe I missed this?

Eric, the floral and non-floral was about 55, 45. It is almost exactly the same that it was last year. It was around 60, 40 to take that Eric. About 60, 40 during this year.

Let us talk a little about Wine. Last year you sold, for Christmas you had some Wine.com. Now are you doing it through Wine Tasting, your own network? What are you going to be offering in terms of Christmas, in terms of gift baskets, Christmas (indiscernible) either in terms of volume or pieces for even integrating Wine?

Last year, although it was our first test effort -- even our first test effort, but our ramped up test effort was from previous years. And we were able to introduce several thousand gift baskets during the early part of the holiday selling season. Frankly, we don't have the volume capacities that we would have liked to try this year, because some of our vendors who we had cooperated with last year don't have the capacities available to them this year, even if they had last year. So, while we have a lot more of our gift-basket offerings on (indiscernible) wine this year, it will be the number that we think the potentialities on us. So, we are a step above last year, but not really where we like to be.

And at the combination of where we used the Wine Tasting in our internal resources to fill in states that we can fill in and we will continue to use wine.com to fill in other states.

And all of the partners, have been on the other line.

This is the next question. Where for this quarter -- where how much is Wine Tasting that were going to -- how many states can Wine Tasting Network would be sending mail to send wine to -- are you forecasting that they --?

That has a change. Retailers can still only ship to about 16 states direction. More states have opened up for Wineries to send directly to consumers. The next step and most of the states have legislation in place and are trying to move it forward. The next step is to open up for interstate wine retailers to send directly to the consumers.

So, legal auditing is pretty clear. It is discriminatory to exclude out of the state Wineries. Clearly it is discriminatory to exclude out of the state retailers as well. But, you do have to fight that regulatory battles each and every state that prohibited and that is ongoing.

And what is the tax rate you are going to be inducing for the year? I guess that is one without the options or with the options? What is the tax rate without the options expense there?

Without the option, it is about 41%.

Okay, thank you.

Robert Labick, CJS Securities.

Well, this is actually Casey sitting in for Robert. I have a question on your bloomnet, if you are taking members from FTD or Teleflora, or are they just in amount incremental increase?

Well, we don't have specific audit evidence about what's happening with other providers to service them in category that would be information that they would give in. No, I am not currently familiar with what their numbers are. But, I would say that our proposition is independent upon them being a member or not being a member of another service provider or in this case what you call wire service. So, we don't know whether or not we are -- any of those Flowers are choosing to be members of us and not them, we only know those that are choosing to be members of our service. And as we reported, we are very pleased with the membership increase that we have experienced. We want to do it at a steady pace. We clearly had no intention of becoming a 20,000 plus member network. We don't think that there are -- that many folks qualified enough to be into our network. So, it is not the material choice whether or not they belong to another choice. Our success is independent on another providers lack of success. And so, it doesn't matter to us whether or not it belonged to another network. Initially it is all of matters -- if we are the right florist and I choose to be comfortable working with.

Okay, great. Thank you. And then, in regards to mailing your first directory in September. What is the general frequency of your sending of directories? Have you tried -- ?

We anticipate that it would be quarterly mailing of our directory.

Okay. Thank you.

Ryan Randall (ph), Canal Capital

Hi, good morning. Thanks for taking my questions. I just wanted to follow up again the buy back. You have got $8 million of standing only by 2 million, is that due to volume constraints?

Well, there are a number of factors that would influence our buyback there. One is the cash availability versus operational means of cash, another would be our borrowing capacity, whether or not we choose to be involved in a borrowing for that purpose. Another is blackout periods and windows and we are kind of restricted for our windows, the first to be in the marketplace. So, all of those contribute to our decisions and we consult with our Board regularly on how aggressive they will allow us to be in terms of repurchasing our stock.

And then volume restrictions would have the biggest impact on us during the first quarter when typically, historically our trading volumes are significantly lower than they are year around.

Okay. So, but in light of what Jim just said, in the next quarter if you guys give more volume, are you going to have the ability to purchase more or are you going to be hamstrung by those other considerations?

We generally have the ability to purchase more.

Okay. Last couple of questions. Can you talk a little bit more about your vendor issues on the wine side, they are not going to allow you to sell in a timely fashion, is this from the wine in themselves, or what -- speak specifically as to what you were talking about?

What I was talking about was -- the wine gift baskets that have (indiscernible), you have to have the physical locale flows and we have a combination of our own facilities that do that as well as third-party contract facilities. Some of those third-party contract facilities that we started to use last year don't have those same capacities available this year because of their own internal issues. So, that will retard our ability to offer the volume of baskets that we would like to offer this year.

So, they have already been booked for the holiday season, or--.

Or they have gone out of business or severely retarded their abilities in all the areas.

Okay. Have you talked at all about kind of what you expect from the Wine and Cheryl &Co. on the revenue side and the gift basket that we talked about, that what you expect for the next quarter?

Only on a full-year basis, we don't break out individual, on a full-year basis we believe that we will generate and we said this a number of times and it is in our written pieces, at the Food, Wine and Gift Basket category for us this year will generate something in excess of $100 million in sales, which clearly positions us as a leading player in that category.

Okay, and then, if I may just one last question here. On Plow & Hearth, what was the genesis of the management change?

Well, we have been making changes, the management team there -- two years ago when we first saw less than a stellar performance from that category, we did an analysis, reflective analysis on what the contributing factors were. So, as a result of that, there have been some changes in the management there that we have made evolutionarily over that year long time period plus the leader of that division who led those changes and diagnosed the issues, Peter Rice, who has been with us, who started the company, he has been with us now for six years after the acquisition, had delayed his retirement at my request two or three times, especially to see us through this change period, where we diagnosed issues and identified the changes we have made. So, we asked him to go one more period with us. That has expired in June and then we asked him to stay through the holiday season, because we thought the plan was so solid, we wanted him to see it through, which he has agreed to do, and now he will retire. So, five years after his stated intent to retire at 55, he is now going to a pop time status with us. At 60, he has done a terrific job, has been a terrific leader there and executed all of the changes and the personnel changes that we have seen take place there. And now with the new leadership we brought in there and that transition gone through successfully in the last several weeks, thanks to Peter and thanks to Mike. And Mike has a very heavy background on merchandising, which were the core of the issues that we saw that needed enhancement and change in Plow & Hearth that have already been effectuated. So anything Mike will be able to bring to the table in terms of his expertise and merchandising should be added to the changes we have already made.

Okay, so the reality is that people who fixed the most previous problem are still there. They are going to be around to transition.

And Peter who led those changes will still be involved with the company on a part time basis, not just in Plow & Hearth but in a variety of other things we do and across the company. He is a talent we do not want to lose.

Okay, that is very helpful. Thanks very much.

[OPERATOR INSTRUCTIONS]. Craig Bibb, W.R. Hambrecht.

The 727,000 on stock-based compensation, can you ballpark how we spread that around on the line items?

Sure, Bill?

Yes, it is. You mean between G&A, sales and marketing and technology?

Yes.

Yes, it's probably 50% plus on the G&A line, 10 to 15% on the Tech and development line and the rest in sales and marketing.

The acquisitions year-over-year, it's Cheryl and Company and Wine Tasting network, their revenues in Q1 a year ago and how does that split between the consumer line from the retail?

It was a just a few million dollar contribution to our overall, a few points contribution in the overall growth.

Like 2 million --?

Yes, if you are talking about in the -- if you are talking about Q1, a year ago we did not own Cheryl and Company.

Right. I appreciate it, but you know the revenues -- or you can give me the revenues in the current quarter? I am just trying to get to organic.

Well, I think you from a perspective of what they have contributed this quarter, we still have -- kind of like low double digit organic growth this quarter and the rest of it was to Cheryl and Company. So, two or three points.

Two or three points. Obviously Bloomnet was huge in the quarter, what else was driving retail fulfillment growth?

When we acquired Cheryl and Company, they came with eight retail stores, so that would go on to that line.

And WTN -- and for the most part WTN was?

WTN is on the retail and fulfillment line as well.

So again, that's like a couple of million bucks and that's all in that line?

Yes.

Okay. It looks like you are implying 277 million in revenue in Q2 was a ballpark..

We gave a split for the quarter.

Right, we gave guidance for the year -- the growth guidance for the year and then just what the seasonality of the quarter would be.

Okay. And then the CapEx is here, the 14 to $15 million, that's almost all IT?

It comes about 70% IT growth.

That's right.

And that's a full-year write off on all that, for the most part as well?

Our range is based on it, but it really from three to five -- so four is a good average, yes.

And then that's directed towards increasing purchase frequency or what's the objective with those dollars?

We are constantly investing in the infrastructure capabilities and the software capabilities, the data mining capabilities, so it would be -- across the enterprise and then some of the technology and most of the non-technology would be under fulfillment side of our capabilities.

Okay, great. Thanks.

Okay.

And we have no further questions at this time. Mr. Pititto, I would like to turn the conference back over to you for any closing remarks.

I will imitate Joe and I will begin. Thanks for your questions and your interest today and if you have any additional questions, please don't hesitate to contact us. In the mean time, Halloween is just a few days away. But, it's not too late to send a perfect trick or treat with an emphasis on treats of course from our Blue Funtail (ph) from the popcorn factory, complete with loads of fun flavored popcorn candy to our witches hat from Cheryl and Company. It's a great collection of iced -- those iced pumpkin cookies that Cheryl is famous for. We also have an elegant flower mass from Jane Carroll and a Happy Jack Bouquet with a genie jack-o-lantern vase. We have everything you need to help make Halloween fun for ghosts and goblins of all ages. Send now, now is the time start planning for the holiday season business gifting needs. Our business gift services team is ready to help you find the perfect gifts to help you enhance your professional relationships, everything from delicious towers of cookies and cakes from Cheryl and Company to decorated tins of popcorns from the popcorn factory emblazoned with your corporate logo and a tremendous selection of gift baskets called gourmet treat and even wine. You can reach our business gift services group at 1-888-755-7474. So, this holiday season call, click or come in to one of our stores to see all of the great ways that we can help you connect and celebrate with all the important people in your lives. Thank you and have a great Halloween.

Thank you everyone that does conclude today's conference and you may now disconnect.