1-800-Flowers.Com Inc (FLWS) 2012 Q3 法說會逐字稿

Good day everyone and welcome to the 1-800-FLOWERS.COM Fiscal 2012 Third 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 Company's Vice President of Investor Relations, Joseph Pititto. Mr. Pititto, please go ahead sir.

Thanks, Tom. Good morning and thank you all for joining us today to discuss 1-800-FLOWERS.COM's financial results for fiscal 2012 third quarter. For those of you who have not yet received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations 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 email 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; Chris McCann, President; and Bill Shea, CFO.

Before we begin, I need to remind everybody that a number 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 detailed description of these risks and uncertainties, please refer to our press release issued this morning, as well as our SEC filings including the Company's annual report on Form 10-K and quarterly reports on Form 10-Q.

In addition, this morning we will discuss certain supplemental financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the Company's press release issued this morning. The company especially 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 as may be otherwise stated by the company.

I'll now turn the call over to Jim McCann.

Good morning, everyone. During our fiscal third quarter, we achieved double-digit revenue growth across all three of our business segments. This reflected a continuation of the positive trends that we have seen in our business for more than a year now. Most importantly, our bottom line grew significantly outpaced our strong top line growth, illustrating the effectiveness of our initiatives to achieve enhanced operating leverage. In our Consumer Floral segment, revenues continue to grow at a strong rate, benefiting from the increases in both order volume and average order value. Gross margin for the quarter increased 200 basis points and contribution margin increased nearly 40% to $11 million, showing the leverage that we had told you to expect in our second half.

BloomNet continue to grow with a solid double-digit pace both top and bottom line. We are expanding our market position in the wire service category through increased order volume and further penetration of our expanded suite of products and services. We are also benefiting from our initiatives to deepen our relationships with our florist members through programs such as Florilogy Institute, which will present accredited training programs for our florists. Our BloomNet's leading growth is a testament to the better value proposition we provide for our florist members as well as their recognition of our commitment to helping them grow their businesses profitably.

In our Gourmet Food and Gift Baskets business, we saw double-digit revenue growth for the quarter. This was driven by the shift in the Easter -- the shift in the Easter holiday to early in the fiscal fourth quarter.

In terms of our balance sheet, we finished the quarter with $25 million in cash and a net debt position of less than $10 million. Combined with our proven ability to generate increased cash flows, the strength of our balance sheet provides us with significant flexibility to grow our business going forward.

Before I turn the call over to Bill for his review about third quarter metrics, I'd like to touch on our strong performance for the Valentine holiday. We've recorded very strong year-over-year growth in the Valentine holiday period driven by our enhanced merchandising and marketing initiatives and aided by better day placement for the holiday this year. These effects along with our multichannel focus had helped position us as our customers' destination florist and gift shop, the one brand that they can depend on to help them to live smiles.

I'll ask Chris to touch on some of our merchandising initiatives in a few minutes. In terms of our marketing initiatives, customers are clearly responding well to our efforts to engage with them directly, particularly through social and mobile channels where we remind them to wow their recipients and never settle for less. As a result, we achieved solid growth in both order volume and average order value during the holiday period.

Importantly, for the quarter, we increased our gross profit margin by 200 basis points avoiding the earlier aggressive promotional activities that we often see during the Valentine season. We expect to build on these efforts for the upcoming Mother's Day holiday and thereby further extend our market leading position in the floral gifting space.

I will now turn the call over to Bill for a review of the financial and operating metrics for this past quarter. Bill?

Thank you, Jim. As indicated in Jim's comments and in our press release issued this morning, our fiscal 2012 third quarter was characterized by strong double-digit revenue growth in all three of our business segments. Most important, our bottom line metric, EBITDA and EPS, grew at significantly faster rates illustrating the improvements in gross margin and enhanced leverage in our business model that we discussed in our earlier calls this year.

Regarding specific financial results and key metrics from continuing operations in the third quarter, total net revenues increased 13.1% to $179.7 million compared with $158.8 million in the prior year period. During the quarter, our e-commerce orders increased 9.7% to $2,039,000 compared with $1,859,000 in the year ago period.

Average order size during the quarter increased 2.6% to $64.84 compared with $63.21 in the prior year period. During the quarter, we added 613,000 new customers. This was achieved while concurrently stimulating repeat orders from existing customers who represented 61.5% of total revenues compared with 57.8% in the prior year period. Gross margin for the quarter increased 100 basis points to 40.7% compared with 39.7% in the prior year period.

Operating expenses improved 120 basis points as a percent of total revenues to 40.6% compared with 41.8% in the prior year period. This improvement reflects the revenue growth in the quarter as well as a continued focus on leveraging our business platform. Total operating expenses was $72.9 million compared with $66.4 million in the prior year period, reflecting the operating costs associated with three small business we acquired over the past year as well as investments in strategic initiatives we described to you in the past including franchising, BloomNet, and the mobile and social commerce areas.

As a result of these factors, EBITDA for the period more than doubled, increasing 176.3% or $3.2 million to $5 million compared with $1.8 million in the prior year period. Excluding the impact of stock-based compensation, EBITDA increased 120.7% or $3.5 million to $6.4 million compared with $2.9 million in the prior year period. Income from continuing operations increased to $51,000 or breakeven per share compared with a loss of $2.2 million or $0.04 per share in the prior-year period.

In terms of category results, in our 1-800-FLOWERS.COM consumer floral business, during the third quarter, revenues in this category increased 12.6% to $113 million compared with $100.3 million in the prior-year period. This was driven by solid e-commerce growth for the 1-800-FLOWERS.COM brand, as well as the contributions from two small businesses added at the end of last year and early this year. Excluding these contributions, revenues in this category grew approximately 9% compared with the prior year period.

Gross margin for the quarter increased 200 basis points to 39% compared with 37% in the prior-year period. And category contribution margin increased 37.2% or $2.9 million to $10.9 million compared with $7.9 million in the prior-year period. This reflected the strong revenue and margin growth in the quarter as well as effective management of operating expenses. The company defines category contributions margin as earnings before interest, taxes, depreciation, and amortization, and before the allocation of corporate overhead expenses.

In BloomNet, revenues increased 15.9% to $24.1 million compared with $20.8 million in the prior-year period. This growth reflected a combination of increased shop-to-shop order volume and wholesale products sales. Gross margin was 44.6% compared with 47.3% in the prior-year period, primarily reflecting product mix. Gross margin also reflects the fact that we anniversaried the increase in shop-to-shop order volume in the third quarter. As such, the gross margin percent is now coming in line with prior year. Category contribution margin increased 17.1% to $6.3 million compared with $5.3 million in the prior-year period.

In our Gourmet Food and Gift Baskets segment, revenues increased 13.6% to $43.1 million compared with $37.9 million in the prior-year period. This primarily reflected a shift in the Easter holiday to early in our fiscal fourth quarter this year as well as growth within our Fannie May and Cheryl's brands. Gross margin was 42% compared with 42.2% in the prior-year period. Category contribution margin increased 61.2% to $900,000 compared with $600,000 in the prior-year period, reflecting the higher revenues in the quarter.

In terms of corporate expense, as I stated earlier, our category contribution margin results exclude costs associated with the company's enterprise shared services platforms, which includes among other services IT, HR, finance, legal and executive. These functions are operated under a centralized management platform, providing support services to the entire organization. For the fiscal second quarter, corporate expense from continuing operations including stock-based compensation expense was $13.1 million compared with $12.1 million in the prior year period.

Turning to our balance sheet. At the end of the second quarter, our cash and investments position was $24.9 million. Our borrowings under our credit facility were $33 million in term loan debt, and zero outstanding under our revolving credit line. Inventory of $59.4 million was in line with management's expectations and reflects the increase in wholesale operations as well as our recent acquisitions and positioning for the upcoming Mother's Day holiday. We anticipate finishing the fiscal fourth quarter with lower inventory.

Regarding guidance, we are reaffirming our guidance for the full year of mid-to-upper single-digit revenue growth. This is based on the 9.7% growth that we achieved in the first three quarters of fiscal 2012 combined with our anticipation for solid growth in our current fiscal fourth quarter, adjusted for the shift of the Easter holiday and the extra week of business that we had in the last year's fourth quarter. [As you know] we operate on a retail calendar that includes 52 weeks of business this year compared with 53 weeks last year, with the extra week in last year's fourth quarter.

Based on the enhanced leverage in our business model that we have previously discussed, we expect our full year bottom line results, EBITDA, EPS, and free cash flow will grow at rates in excess of our anticipated revenue growth.

In summary, as we enter our fiscal fourth quarter, we plan to build on the positive trends that we have seen since last year and since last year. We remain focused on cost-efficiently stimulating consumer demand across all of our businesses while improving gross margin and managing our operating costs by leveraging our business platform.

I'll now turn the call over to our President, Chris McCann.

Thanks, Bill. The fiscal second quarter marked our fifth consecutive quarter of top and bottom line growth, driven primarily by the positive trends we have seen in our 1-800-FLOWERS.COM consumer floral business. In this area, during the third quarter, we achieved strong double-digit revenue growth with solid increases in both order volume and AOV. In addition, we grew our gross margin 200 basis points, reflecting our disciplined approach to marketing programs during what is typically a very promotional Valentine holiday period. These results illustrate the initiatives that we put in place to enhance our merchandising programs where we are working directly with our BloomNet florists to emphasize our truly original product designs and our marketing programs where we are engaging directly with our customers and deepening our relationships with them through our industry leading efforts in the social and mobile areas.

In terms of our truly original product offerings, in addition to the great success that we continue to see from our expanded line of a-DOG-able arrangements, we are also seeing enthusiastic customer reaction to our new exclusive offering called Vase Expressions. Simply by uploading a photo, customers can create a one of a kind personalized vase to which they can add their favorite floral arrangement. We are seeing some really unique uses of this capability including a customer who uploaded a sonogram photo to send a birthday smile to her mom with a very special message. We are seeing quite a bit of interest from our service men and women around the world who are using this unique personalization capability to stay in touch with their loved ones and deliver incredible smiles. This product and capability is a perfect example of how we continue to develop products that help our customers express themselves perfectly.

On the social and mobile front, repeating the success we had with our Valentine outreach on Facebook, once again we've been asking our customers to vote with their likes for the best gifts for Mother's Day, allowing our customers to socially curate our gift offerings for a key holiday while simultaneously expanding our brand awareness and deepening our customer relationship.

We've also launched the Make Your Mom Proud photo contest asking customers to post photos to our site where our fans can vote for the best shots and those with the most votes win prizes. With two winners everyday who receive a Vase Expression product and of course a fabulous grand prize trip at the end of the contest for the grand prize winner. Looking ahead, we were excited about the momentum that we have built this year in terms of positive growth trends particularly in consumer floral. And as a result, we believe, we are well positioned to deliver strong top and bottom line performance this year and beyond.

I will now turn the call back to Jim.

As, Chris just noted, our customers comes to us to help them deliver smiles. Our initiatives across all of our businesses are designed to help us engage with our customers so that we can help them connect and express themselves perfectly.

The strong top and bottom line results that we've achieved in our third quarter and throughout the first nine months of fiscal 2012, illustrate the effectiveness of these efforts and in fact that our marketing messages and enhanced merchandising offers, are resonating with our customers.

The positive trends we are seeing in our revenue growth, improving margins and hence operating leverage has continued for more than a year now, enabling us to build momentum in our business and expand our market leadership as our customers' florist and gift shop.

To wrap up, we are pleased with our third quarter and our year-to-date results. Looking ahead, we remain cognizant of the uncertainties in a global economic environment. As such, we will continue to focus on managing those aspects of our business that we can control, including -- our relationships with our customers, where we are expanding our initiatives and our marketing leadership in a social and mobile spaces; our operating expenses, where we are leveraging our infrastructure to reduce expenses and working to enhance the efficiency of our marketing investments across all of our advertising and media channels; and our financial strength and flexibility where we are strengthening our balance sheet, while continuing to invest for the future.

We believe this focus enables us to serve our customers with a great value proposition and thereby grow our top and bottom line results. It's simple. If we continue to invest and provide great products and services that begets us growth and if we manage our expenses properly that growth turns into profitability and of course that equals improved shareholder value equation. That concludes our formal remarks and we'll now open the call up to your questions.

Tyler, would you please give the instructions for the Q&A portion?

Thank you. (Operator Instructions). We have a question from Eric Beder of Brean Murray. Your line is open.

Could you talk about some of your -- what's happened to your franchising operations in terms of both the floral business and in terms of I guess the chocolate business, too, in May?

Eric, this is Jim. To give you just a brief update, I think at the end of the fiscal year we'll be a little bit more comprehensive in terms of how we talk about this. But what we've said to you in the past and I will reiterate today is that we view ourselves as our customers' florist and gift shop and we see our efforts as multi-channel. When I say multichannel, clearly, we're an e-commerce player and clearly we have a lot of expertise and capabilities there. But we think that the local component of that is very, very important. And we have chosen to focus our local activities in our chocolate business, in our floral businesses around the franchising model.

We think that these businesses are best run by individual operators and local operators and we think that from a capital -- fiscal capital and human capital point of view that's the best model for us to pursue. We've said that we are going to be very sure and deliberate about how we expanded that retail footprint with that franchising model and we are pursuing that both as you pointed out in the chocolate business under the Fannie May brand and in the floral business under the 1-800-FLOWERS brand.

So the flowers business continues to pace an enormous interest on the part of the floral community to partner with us because clearly we are growing. We offer great products and services and we are looking to marry great local brands with the preeminent national and global brand that 1-800-FLOWERS is fortunate enough to become. So, we are considering many of the applicants that are coming our away and that's a slow and deliberate process and we are very pleased with that and how that's going and we will give you more color on that at the end of the fiscal year.

In terms of the chocolate category, we did announce at the end of the calendar year that we had struck a deal with a great operator in the franchise space who is a very experienced restaurant operator, in fact, considered one of the best operators in the two primary chains that they are involved in in the country. We note that because it was such a large deal and that we were selling 17 of our company-owned stores and they were committing to open 45 new stores in that upper Midwest region. So that's the only reason why we announced that because of its scale and size of the impact that was having on us, and that's area two. We're going about it quite deliberately and we have done additional deals. And I will summarize where we are at the year-end on that so that you have some perspective and be able to anticipate what it will look like in the years ahead. But, we've done deals 3-, 4-, 5-, 12-store deals in 10 or 12 other markets around the country, but not many of those stores have come online yet. So at the end of the fiscal year, I will give you an update on the numbers on where we see going in the year ahead.

Great. In terms of the floral business, I mean, you guys have generated significant growth in the floral business. Do you see that as a function that the category is coming back? Or do you see that as taking share? Where are we in terms of floral industry growth right now?

Well, I will start it, Eric -- Jim again and then Chris if he would add any color specifically from the floral category. But I think it's probably two things. I don't see any robust exciting growth sparking the category. I do see that the specific products that we've introduced -- I will ask Chris to touch on that -- are sparking an interest in our customers. Chris mentioned the Vase Expressions part that we just introduced which is really popular and our a-DOG-ables collection. There are others like our Happy Hour collection we rolled that are just continuing to grow. Frankly, even our birthday collections, which is more than a dozen years old in the birthday flower cake continue to grow. So when you have clever, fun, put a smile on your face products, customers are clearly responding to them.

Overall, I think there might some growth in the category now, as a result of the at least stabilized economic environment. We are not counting on a roaring return of the consumer to fuel our growth. So I would expect based on the information that's available [and frankly there's very little], there is only one other company that publicly reports any indication what's going on in the floral business. I would say it's a combination of the two, with customer feeling more comfortable and I think that sparked a lot by our own efforts in merchandising and in fact that we are probably taking share as well.

I'll just add to that, do think the best lead we get in the marketplace and there is no really consolidated number that we believe we are taking market share. As Jim pointed out, we do think that's evident by the only other company that does report publicly and you see, but we have significant growth this quarter and they did not. So, I think we are doing a good job there and I think it is because our customers really are resonating to the value proposition that we offer our customers. We are looking to make sure we bring truly regional products to the table that give them good value for their money and that's resonating, as well as our marketing initiatives reaching out engaging with our customers. We've been on this track now for a year and half, two years and five quarters of good growth, good results, I think it's proving out that we are connecting with our customers.

Great. And finally on BloomNet, you have -- when you look at BloomNet right now, is all of that really organic growth? Is there still opportunity to add more florists and actually you're kind of happy with the mix you are in terms of the amount of florists you have at BloomNet? Thank you.

In terms of BloomNet, Eric, I would say that we are very happy with the size of the network. We are not looking to grow the network, we've had it the same size now for a while. It seems to be the optimum size in terms of how we can have a significant relationship with a number of shops and give us the coverage we need to satisfy our consumers' needs. So the size isn't going to change, our whole focus is on deepening the relationship with our customers, in this case our customers are retail florists, giving them a variety of entry points. And you asked about franchising. Franchising is at the top of that pyramid in terms of depth of relationship that we can have with the select group of qualified florists. So I think we are excited about the growth opportunities. But, all of the growth will come from the deepening relationship we have at our several different levels with those BloomNet members.

Great. Thank you, and good luck for the rest of the year.

Thanks, Eric.

Thank you. Our next question is from Christopher Ferris of Nobel Financial. Your line is open.

Hi, guys, great quarter. Thanks for taking the questions.

Sure, Chris.

Question, consumer floral gross margin is hitting 39%, when was the last time you saw that kind of segment gross margin in the quarter? Can you do better and what could it possibly grow to over time?

We have not been at 39% probably since 2008. We still think we can continue to grow our gross margins. We anticipate in Q4 that our gross margins will improve year-over-year. We have a nice trend line where consumer floral margins have been up each of the four quarters it is -- each of the three quarters so far this fiscal year and we are seeing overall BloomNet actually -- getting back in line with prior years, overall from a company perspective and overall from the Consumer Floral segment we think we continue to move margins going.

So, my qualify there, Chris this is Jim, is I think gross margins can improve and will improve, but the primary focus now is to keep a great value proposition in front of your customer that will attract growth and that can give you the enhanced profitability with or without margin improvement.

Got it. And what's the leverage you are seeing in your business synergy continue to drive Consumer Floral results and hopefully back to a peak number at some point, you should start to see even stronger free cash flow. Can you talk about your priorities for cash going forward?

Well, I think what we've evidenced and said in the past Chris, and I will reiterate now is that, for the first time in this company's history, we had debt and it was Bill's idea to have that debt, and we didn't anticipate the recession that started in 2008. So, our first priority was to pay down that debt. We've done that and done that very effectively. I give Bill a hard time about that but that's our inside landscape here.

So, our focus has been on making sure we have the flexibility in our balance sheet to survive a tough period which we've done, to have the flexibility even during a tough period to continue to invest in the future which we've done and are doing. And so then you turn to uses of free cash flow beyond retirement of debt and those would be return to the shareholder and secondly give us the opportunity to -- continue development activities that we think will enhance our position as our consumers' floral and gift shop.

On the development front, you've been seeing, we've been active there. These are -- we've done activation in terms of the Vase Expressions line that Chris talked about. So we'll our capital for internal and external development where we see good opportunities to enhance our product mix, to enhance our geographic coverage and our capabilities to serve our customers.

In terms of the last of the three points, internal development activities, external development activities or development in general pay down debt, improving balance sheet is number two and number three, return to shareholders. We've just started to become active, in the last short period of time we've purchased $2 million in stock in the market, we would expect that we continue to be active in that regard on a stock buyback basis going forward.

Great. And one more question on the social media side, you've really seemed you had a surge in users recently as of today you have over 429,000 Facebook followers and that's up from about 360,000, just a few weeks ago. And you've added significantly more on an absolute and percentage basis than your key competitor over the same period. Can you talk about some of the special initiatives you are doing? What you may be doing leading up to Mother's Day on -- with Facebook? And what do you think has caused some of these recent increases that you are seeing and how is it driving results?

Hi, this is Jim. Chris (technical difficulty) talk about this. It's an area we've been spending a lot of time and attention on for a long time and I'd encourage you to go our site today and just take a look. I think the Mother's Day site, the [post] on Mother's Day for our front page is terrific. And I think you will see several social engagement activities right there on our homepage, it really seems to be resonating with our customers. Chris, would you give a little color on what those are and then general talk, how are you focusing on social media?

Yes so, Jim just hit on one key aspect, is that we look at it very holistically, platform on Facebook or other platforms and it's got it on-site as well. And the integration of the social grab across both our site as well as on social platforms. I think to point of the growth of the fan base we are very encouraged by that. We will always see a growth of fan base, during a holiday period when our marketing activity picks up on those platforms specifically on Facebook right here. So, we will see natural growth but we also think we are seeing really -- a real good response with our customers, on the conversation calendar that we have in place. I think the newly designed pages and the Timeline capability of Facebook account that we adopted earlier on back in February, January timeframe is giving us and added more in depth capability to have more meaningful dialogue about customers. We are learning what they are responding to, the photos of products and integration of pictures quite frankly also is really working for both of us. So we are seeing nice crosspollination between platforms and between pictures in Facebook. So, we are thinking that's helping to spur the fan base. And we are very proud of the fact that not only are larger than any of our competitors, but our growth of the fan base is far outpacing the competitors -- the competitive landscape.

Great to see you guys do something with Instagram given how photogenic Flowers can be.

Agree.

Thank you for taking the questions.

Sure, Chris thanks.

Our next question is from Jeff Stein of Northcoast Research. Your line is open.

Hi, good morning guys. Question regarding your technology platform, maybe you could give us an update in terms of where you stand. The technology platform; bring us up-to-date in terms of where you are at migrating all of the brands to one platform and how you hope to leverage that over the upcoming holiday season?

Well I'll ask Chris to give you the specifics, but just to give the context, what we've been saying for the last couple of years is that we are pleased that even though we went through a tough period -- a couple of years -- over the last few years emerged from the last couple doing well and seeing growth again. Throughout that period of time we made it an effort to make sure that we were able to continue to invest in our technology and to give us the platforms that we anticipate we will need in the future.

And I think the question that Chris just answered, Chris is from mobile speaks to that -- the fact that we've been able to make investments in mobile when it doesn't have a payback, yes and we're going to continue to invest and focus our efforts around the social space, particularly around Facebook and Chris does have a set of glasses that says everything has to be looked out through a Facebook lens, speaks to the fact that we are pleased that we've been able to continue to invest quite aggressively and continuously throughout this whole period in the platform sort of future. So Chris give Jeff some update on the Timeline the way you on.

So, I think specifically Jeff you are hitting on some of the migration on our e-commerce platform that we've been involved in, making good progress every quarter, good number of brands right now our onto our new First Digital 2 platform just last week actually we had an upgrade on to that that's performing very well for us. Post Mother's Day because now we are kind of in a lock out, in a freeze period we will migrate some more business on to that platform and then you will see continued migration on -- we will have a continued migration and development effort throughout the summer with time when we do a lot of heavy lifting in the technology area to kind of move on into September timeframe. So, we are on track, it's moving well, we are very pleased with the results that we are seeing and that's just one component as Jim mentioned. We are confident looking at all components of our technology platform on where we can provide enhanced value and mostly how we can deepen and engage our relationship and activity with our customer base.

Chris are you intending to kind of marry that technology initiative with any marketing initiative to try to improve the cross-brand marketing as we approach the holiday selling season? And I guess, are you going to complete this soon enough and have programs in place soon enough, so that it might be able to move the needle this coming holiday season and get more customers to buy multiple brands?

Yes, so a couple of things to that Jeff. I think one is the underlying technology platform, which gives us enhanced capability, scalability etcetera. But really that is not impeding our progress on kind of our multi-brand, cross-brand approach. So, as you've seen we've been moving into that direction with our multi branded -- multi tenant site on our current platform. So, we will be migrating that. And we continue to experiment, we continue to learn from our customers on how to merchandize a multi-branded site like that appropriately, how to work with our customers from a marketing perspective and a navigation flow perspective within the site. So, those learnings are continuing. We do hope that the new platform will enhance those capabilities. And then once we are on that new platform, I do think it will give us enhanced capability from a CRM perspective of managing customers across brands. As I said all along that is a somewhat slow steady growth. You can't automatically dictate changes in consumer behavior, but we can try and lead them down that path in all the time and that's what we're seeing so far all the time that we can implement that behavior.

Okay. And one last question, wondering if you could just talk a little bit your fruit bouquets initiative and what you've learned from that? And if that's going to be expanded over the next 12 months?

On the fruit bouquets, we began that program late in the fall at the end of the calendar year. We think fruit bouquets and the different food products that we are in become a very important part of our mix this year and in the years ahead. So we are investing a great deal now. We think it's a good investment. Our early read on that is that we were right in anticipating that the customers would really like this product and that there is a role for us to play in the marketplace. So we are going to continue to invest, it's going to be a big investment, and we think it's going to be a big payoff for us.

We continue to expand our capabilities within our BloomNet franchise launch network there and we also see that, we get -- the florists are seeing tremendous impact for their business. And as you know, we firmly believe in helping our BloomNet florists to be more profitable and compete better in their local space and fruit bouquets gives them a great capability to do that.

What we are doing is Jeff is just leveraging the infrastructure we already have in terms of our delivery capability, our florists' unique capability and market the same and next day delivery. So we think this is a great product category. It's one that we will continue to jump into deliberately and certainly over the quarters and years ahead. We think it becomes a big business for us and, as Chris just mentioned, more importantly, our customers love it and our other customers, our florists, really love it and benefit from it and it helps them to grow their businesses and to grow it quite profitably, satisfying the needs of our customers.

And just one last comment on this when we say fruit bouquets, it's an extended line, right. So one of the great benefits that our florists -- whoever in the food bouquet business already realize at Valentine's Day, it's a great opportunity they had on a local basis in chocolate-covered strawberries. So the add-on of a box of six strawberries up to twelve strawberries show it's a great market opportunity for our florists in that category.

Got it. Thank you.

Thank you. Our next question is from David Kanen of Williams Financial. Your line is open.

First question is what was the average price paid for stock that you brought back?

I am not sure. Bill, do you know?

I think we typically don't break that out for you, but I can certainly find that out. We have been active in the market since the beginning of the fiscal -- of the calendar year and so you've seen the average prices and where we generate the market since January on and off.

If I am going to take a guess, it's clearly a guess is $2.50, $2.60 in that range.

Okay. And then on -- a follow-up on the fruit bouquet business. Can you tell me based on your market research, what is the size of that total addressable market? And then if you can quantify the number of shops that currently are equipped within your network and then how much room is there to grow in your total network to equip them or retrofit them for fruit bouquets?

David, it's difficult to say how big the market is because there is only one significant real big player in the fruit bouquet side of business, there are a couple of other people around the fringes of the business. So, I think anyone else enjoying the market, bringing marketing dollars, bringing a huge customer base to market is going to grow that market and grow it quite substantially. So, if this is a case where [all marketing] in the category will create more business for all us. So I think it's probably a $0.5 billion to $1 billion business today. If you look at all the different players in the marketplace, somewhere in that range, I think our entry will grow that category. I think the new products that we have in the queue to bring into that space will grow the category further. So that's an answer to the size of the market. I think it's a multi-billion dollar market and I think we can have our fair share a bit. And I think every player that enters will grow that market.

Certainly I think that we are early into the game. We have, as Chris mentioned, a group of our franchisees have already entered into the fulfillment side of this business. As I mentioned on the last phone call, it takes a while to get this done there. I think there is an opportunity for several hundred, perhaps a thousand of our shops to equip and be in that marketplace. In addition to the fact that our Fannie May shops are also in that fulfillment business, so that could be another several hundred plus shops fulfilling those products. It's all about how big the market grows and our ability to service our customer on a same- and next-capability, leveraging our Fannie May shops and our 1-800-FLOWERS and franchise and BloomNet shops along the way.

So, at this point, though, the number of shops that can deliver fruit bouquets is small or it's expanding? Can you give me some quantitative sense?

It's small and expanding.

Okay. So there is definitely room for growth there? Okay.

A lot.

And then, I was surprised by the strength in consumer floral the year-over-year growth, is that --

It's that because you thought that Chris and his team couldn't do that, David?

You know, I don't even know why I'm pretty much bullish. But, if you could give me a sense as to how much this franchisee model is responsible for that growth and the stores that have converted to this co-branded or franchisee model? Can you give me a sense as to what kind of same-store sales growth you're seeing if any?

I don't know what impact that the few stores that we have allowed into the franchise program are having to the overall businesses. It's too early for us to get an accurate measurement. Clearly, we have our thumb on the polls, trying to get a read of that and clearly I think it's a win-win proposition, a win for the consumer, a win for our local franchisees, they get to carry that national banner into their marketplace and clearly I think it's beneficial to 1-800-FLOWERS as a company as well.

I think that all we have is anecdotal information so far in terms of the impact it's having on the shops and it's 100% positive. Every shop, much to my surprise frankly, you will be surprised about that -- Chris and his team's great performance in the floral brand, I'm surprised at how much of a positive impact the rebranding or remerchandising, the site improvement plans that all these shops go through as had on their local business, their cash and carry business. That's been a delight for us to see.

We just had some conversions of some shops in the Midwest this last week and we had a team out for about eight different grand openings of our shops that were converted to the 1-800-FLOWERS franchise co-brand. And as we said, the reception in the town is terrific. It just -- it gives them a great shot of adrenaline and it gets fun and excitement in their communities. It draws the people's attention and that the people have been so complimentary about the fact that they brought this national brand to their communities is creating a great deal of pride.

So anecdotally every single shop that's converted and done the site improvement plans as prescribed has reported not only their top line going up in the aggregate, but significantly on a cash and carry and local basis and that's just been a pure delight for us to see.

Okay. Very good. And let's see, on BloomNet, just analyzing it carefully, I know gross margin dollars were up almost $1 million year-over-year. However, the percentage was lower. Do you see at some point later this calendar year or over the next 12 to 24 months for opportunities to grow the gross margin within BloomNet and further enhance the gross margin dollar contribution?

Well, I'll ask Bill to give you the specifics on that, but again these are our intentions. We have the right number of shops servicing our customers in this country. If we grow the number of shops it will probably just be because we're expanding our footprint into other countries. We don't want to grow the top line. There are just X number of shops that we think are qualified to be part of BloomNet and as a subset of them that we'll be able to get to a qualified state to be part of our franchise programs.

So our focus is on how can we have great shops with great products and services to help them grow their local businesses. And at some times when we have -- bring products to the table that will look like they're compressing the margin in BloomNet and then we'll introduce new service opportunities which are by definition going to be a bigger margin percentages, because it's not a specific good as a part of that cost of goods there. So, Bill, would you give maybe some color in terms of where you think -- go over the next year or so?

Yes. So David, I think as we've explained in prior quarters, our focus is not necessarily on the gross margin percentages. It's on growing both the top line and the gross margin dollars which helped contribute to the contribution margin of the business. So we're -- as you mentioned gross margin dollars were up over $1 million even though the percentages were down 270 basis points.

If you look back over where the trend line has been over the last five quarters, the year-over-year spread between margins is much closer and that will continue. But BloomNet margins will always be as, Jim, was describing, as we introduce new products, as we create greater penetration of our products and services into BloomNet, depending upon what the mix of product and services are, those margins can change. But our focus is driving gross margin dollars and ultimately contribution margin.

Okay and then on the wholesale basket business, I recall, in the December quarter it was very weak which, I guess, we are getting close to out annualizing here. Based on your sort of early order book indications do you think we are going to comp positively this year, do you have any indication? You can even answer that. Thank you.

This is Jim, David. We've been disappointed and had a drag for the last couple of years now on the wholesale side of our basket business. Frankly that's been offset by the good news and the good performance we've had on our retail side under the 1-800-FLOWERS basket brands and that goes back in some ways to Jeff Stein's question about what kind of success we are seeing here in terms of our cross-pollination, cross-branding efforts.

So the consumer side continues to grow strong and we see that as being every bit the business that we thought it would be over time and we are very pleased with that. The wholesale side has been a disappointment for the last couple years. We are in the throes of the marketing period now. I would expect that by in the next 30 to 60 days, we will have a real good indication of what that business will look like in the next fiscal year. So, I would expect to be able to report to you at the time of fiscal year end call what we will see in the wholesale side of the gift basket business for the next calendar year.

I will tell you that my anticipation is that it will not be a drag and I hope that the trends we're seeing will turn in a positive direction and I will be able to tell you or give you some good color on the yearend call as to whether not the case, that's my anticipation. It's my expectation that it will no longer be a drag from the declining sales and we will able to report to you that it will stop to be accretive from the sales point of view.

Okay thanks. This is my final question. I will let someone else ask after this. Social media and mobility what kind of growth, I know it's a small number but in percentages, what kind of growth did you see this quarter if you can answer that and how big of an opportunity do you see that as in the like in future, let's say, over the next 12 to 24 months?

I assume you are speaking specifically about mobile efforts there?

Yes. Both social media as well as mobile.

I will touch on the mobile and I will ask Chris to touch on the social. I will tell you that we've been investing in mobile for the last couple of few years and it's been a significant investment. I am glad that we are in a position that we can continue to do that. There is not a return on that investment yet. It's just our long-term point of view that mobile increasingly will be important to us both domestically and internationally. The whole world is going mobile and as the price difference between smartphones and the regular mobile telephones decreases and as you are seeing in different developing markets now where it had previously been illegal for carriers to subsidize the purchase of the equipment because of service fines in China just a week before last that rule has changed now. Now service providers can underwrite the cost of handsets, customers are going to migrate to a smart platform -- we, to service our customers as their florist and gift shop, need to be very be convenient for them to be accessible to help them act on their thoughtfulness. So we will continue to invest and invest quite aggressively in the mobile space but we just think from a macro point of view, from a domestic and international point of view that mobile will be the platform of the future.

But you are right, I am not going to get into specific in terms of what we are seeing in growth on the mobile platform. I will ask Chris to talk about the impacts on social.

I think the mobile platform, as we kind of look at social mobile, social local mobile is really a consumer-changing behavior, behavior changing platform, technology driven by technology. And so we don't really look at it --

-- say that mobile accelerates people's adoption of the social tech --

No question. We see that all the data, statistics side, all the industry statistics. I think really we don't look at it so much as channels, right. We look at as part of our marketing mix, part of our interaction with consumers. So, as you see, we are doing lots of things from a marketing perspective in social. It's hard to track exactly what channel those sales ultimately come in. So, we couldn't report to you any kind of percentage increase in social mobile, it's not really how we manage it.

We looked at it in holistic way.

Okay, all right well, FYI this Mother's Day I am going to thegift.com, I'm looking forward to enhancements on that site even though you haven't spoken about it today. I think it's a great site because generally around the holidays I have no idea what to buy and I find it very helpful. Thanks.

That's music to our ears that you are one of those people who have no idea, so you will wind up with us. Thank you, David.

Okay. Good luck guys.

Thank you again. (Operator Instructions) Our next question is from Anthony Lebiedzinski of Sidoti & Company. Your line is open.

Good morning. Earlier in the year and also late in the fiscal 2011, you made a couple of small acquisitions. Just I was wondering if you have an appetite for additional acquisitions and if so, which areas of the business would you be looking at?

I mentioned in response to Chris's question earlier about use of our excess free cash flow that we are able to generate Anthony that we look to use that money in three ways; grow our balance sheet to get it forward that's been paying down debt, development efforts and now in returning some of that cash to our shareholders. So the middle point your question around the development area, we continue to be active in looking for opportunities to expand our product line, expand our geographic footprint and deepen and enrich the services that help us to connect with our customers helping them to connect with the important people in their lives.

So, I will say we are always active in the development area. I don't think there are -- I think that the deals that we do you will see that they are risk light, not risk free, but risk light, they help enhance our product line, they help us enhance the capability. It doesn't always have to be that we are acquiring something. Sometimes we're just doing a license to broaden the range of products and services. I think the things that David just mentioned in terms of our celebrations efforts, in terms of our stationery product offerings, in terms of our gift search services, are all examples of how we use our development efforts to deepen and enrich the services we provide to our customers. So, yes, we will stay active there, and I think you will see it both in terms of internal development efforts and periodically something that we think is worth acquiring that deepens our capability.

Okay, that's helpful. Thank you. And then, within the Gourmet Food Basket segment, your gross margin percentage was down slightly. What drove that?

Bill?

Yes. Again, there is three multiple channels to our Gourmet Food and Gift Basket. They have e-commerce -- e-commerce, but they have fairly significant wholesale as well as retail. So, it really is just mix between -- the sales mix between those channels. The margins on retail are significant in the 60% plus range, on e-commerce they are in the mid 40% range and on wholesale they are in the 20% to 30% range. So really it's a matter of mix.

Got it. Okay. All right. Thank you very much.

Thank you, Anthony.

Thank you. There are no further questions at this time. I would like to turn the call over to management for any closing remarks.

Well, thank you all for your time and attention. Clearly, we are pleased with the results of this quarter. We are pleased with how we have done in the first nine months of this fiscal year. We are in the throes of a very busy and important period of time, and we are helping our customers for Mother's Day to express themselves perfectly to the moms in their life. And I encourage you to visit our website. As I mentioned earlier, I think the team has done a terrific job. It's really well done. The product offering is good. We are sharp as we can be on the pencil to make sure that we have the right prices and the right product and if we continue to serve our customers well, they will reward us with increased wallet share of theirs and that will allow us to grow the value opportunity for our shareholders.

So, I thank you for your time and attention today and I look forward to seeing you -- express yourself to the moms in your life perfectly with 1-800-FLOWERS. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.