1-800-Flowers.Com Inc (FLWS) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the 1-800-FLOWERS.COM Incorporated fiscal 2013 first quarter results conference call. This call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the Company's Vice President of Investor Relations, Joseph Pititto. Mr. Pititto, please go ahead, sir.

Thank you, Jamie. Good morning and thank you all for joining us today to discuss 1-800-FLOWERS.COM's financial results for our fiscal 2013 first quarter. 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 Relations section of our website at www.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 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 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 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. Reconciliation 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 expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recording of today's call, the press 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.

The results we achieved in our first quarter, particularly the strong gross margin improvement and enhanced bottom line metrics, reflect the continued positive trends in our business that we've seen now for the past couple of years.

Revenue for the period, typically are smallest due to a lack of gift giving holidays during the summer months, benefitted from continued market penetration in our BloomNet business, where our expanded suite of products and services is enabling us to deepen our relationships with our member florists. In addition, BloomNet's gross margin increased significantly during the quarter, up 350 basis points, compared to the prior year period as we continued to leverage increased order volumes and growing utilization by our florists of our unique digital and print directories.

BloomNet has become the growth and innovation leader in the wire service business by providing florists with exciting incremental sales opportunities, such as our new Fruit Bouquets line, our Send a Gift Basket program, and our exclusive Essentials line of vases and giftware, among others. In addition, BloomNet provides unique industry accredited training seminars through our Floriology Institute. These programs are designed to help florists to increase their customer traffic and enhance their profitability. As a result, BloomNet continues to grow its market position in the wire service business.

During the quarter we also saw continued positive trends in our Consumer Floral business in terms of revenue, gross margin, and contribution margin. Revenues for the quarter benefitted from year-over-year increases in both order volume and average order value. This was driven by a combination of our marketing that encourages customers to send only the very best and to wow their recipients and our enhanced merchandising programs focusing on truly original better and best product offerings, including Signature gifts for everyday occasions, such as a birthday flower cake and our extended Happy Hour collection.

In Gourmet Food and Gift Baskets revenues in our Cheryl's and the Popcorn Factory brands grew nicely while overall revenues for the category were essentially flat year-over-year primarily due to the fact that in the prior year period it included early shipments of wholesale orders for Gift Baskets and chocolate. This year's shipment of these orders shifted into the beginning of the current fiscal second quarter. Importantly, in our wholesale Gift Basket business we've seen a year-over-year increase in orders from key existing and in new customers. As a result, we anticipate a positive year-over-year contribution from this business, both top and bottom line for the current fiscal second quarter and for the full year for the first time since 2009.

Additionally, in our Gourmet Food and Gift Baskets category we are excited by the growth opportunities we see in the expansion of our truly original product offerings, such as the launch this quarter of our new Fannie May Berries line, specially selected gourmet strawberries dipped in real Fannie May fine chocolate, unlike anything in the market today.

As we head into the key holiday season we plan to expand our still evolving cross-brand marketing and merchandising efforts through our multi-brand portal and website. Here we are leveraging the strength of our 1-800-FLOWERS.COM brand, its significant site traffic and deep customer relationships to introduce all of our great gift giving brands, thereby increasing the number of celebratory occasions for which we can help our customers deliver smiles.

I'll now turn the call over to Bill to review our financial and operating metrics for this quarter. Bill?

Thank you, Jim -- [inaudible] our fiscal first quarter results and the continued positive trends in top and bottom line performance, we are particularly pleased with the expansion in gross margin achieved during the quarter. This is a continuation of the trend that we saw throughout the second half of last year and, as we have discussed with you in the past, is a key focus of ours. As such, we believe we will be able to continue to drive year-over-year improvement in gross margin throughout the current fiscal year.

Regarding specific financial results and key metrics from continuing operations for the fiscal first quarter, total net revenues from continuing operations increased 3.1% to $120.9 million compared with $117.2 million in the prior year period. During the quarter our ecommerce orders totaled $1,234,000 compared with $1,204,000 in the year ago period. Average order size during the quarter increased approximately 1%, $66.01 compared with $65.42 in the prior year period.

During the quarter we added 355,000 new customers. This was achieved while currently stimulating repeat orders from existing customers who represented 64.2% of total revenues compared with 65.7% in the prior year period.

Gross margin for the quarter was 41.1%, up 140 basis points compared with 39.7% in the prior year period. This was driven by 80 and 350 basis point increases, respectively, in our Consumer Floral and BloomNet categories.

Operating expense ratio, including depreciation and amortization was essentially unchanged at 46.4% of total revenues.

For the quarter depreciation and amortization was $4.5 million compared with $4.9 million in the prior year period.

As a result of these factors, EBITDA loss from continuing operations for the quarter, excluding stock based compensation, improved $700,000 to a loss of $1 million compared with a loss of $1.7 million in the prior year period. Including the impact of stock based compensation EBITDA loss for the quarter was $2 million compared with a loss of $2.8 million in the prior year period. Net loss from continuing operations was $4.6 million or $0.07 per share compared with $5.1 million or $0.08 per share in the prior year period.

In terms of category results, in our 1-800-FLOWERS.COM Consumer Floral business, during the first quarter revenues in this category increased 3.8% to $72.8 million compared with $70.1 million in the prior year period. Gross margin for the quarter increased 80 basis points to 38.9% compared with 38.1% in the prior year period. And category contribution margin increased 15% or approximately $900,000 to $6.9 million compared with $6 million in the prior year period. This reflected a combination of revenue growth, the strong gross margin increase, and effective management of operating expenses. The Company defines category contribution margin as earnings before interest, taxes, depreciation and amortization and before the allocation of corporate overhead expenses.

In BloomNet revenues increased 6.8% to $19.8 million compared with $18.5 million in the prior year period. Gross margin increased 350 basis points to 49.6% compared with 46.1% in the prior year period. The strong increase primarily reflected enhanced monetization of increased order volumes, as well as increased utilization by florists of our digital and print directories. For the quarter category contribution margin increased 26.1% to $5.8 million compared with $4.6 million in the prior year period.

And our Gourmet Food and Gift Basket segment, revenues were essentially unchanged at $28.4 million compared with $28.6 million in the prior year period. This reflects increased revenues in our Cheryl's and Popcorn Factory brands, offset by a shift of full sale order shipments in our Gift Basket and Fannie May businesses from the first quarter last year to early in our second quarter this year. As Jim noted, we expect an increase in total wholesale Gift Basket orders for both the current fiscal second quarter and the full year as order volumes in this business have increased this year from both existing and new customer accounts.

Gross margin for the fiscal 2013 first quarter was up slightly to 39.4% compared with 39.2% in the prior year period. And category contribution margin was a loss of $2.5 million compared with a loss of $1.9 million reflecting the timing, the shift in timing of wholesale order shipments which moved into the second fiscal quarter this year.

In terms of corporate expense, as I stated earlier our category contribution margin results exclude costs associated with the Company's enterprise services platform, 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 first quarter corporate expense from continuing operations including stock based compensation was $12.2 million compared with $11.5 million in the prior year period.

Turning to our balance sheet, at the end of the first quarter our cash and investments position was approximately $5.8 million. Our borrowings under our credit facility were approximately $25 million in term loan debt and $37 million outstanding under our revolving credit line. The borrowings under the revolving credit line reflects the seasonality of our business, specifically the increased investment in inventory for the upcoming holiday period. Inventory from continuing operations was approximately $85.2 million, was slightly above our expectations due to the aforementioned shift in timing of some wholesale order shipments into the second quarter, and reflects our usual seasonal build-up for the yearend holiday period. We anticipate that we will finish the current fiscal second quarter with significantly reduced inventories, zero borrowings under our revolving credit line, and a strong cash position.

Regarding guidance, we are reiterating our top and bottom line guidance for fiscal 2013, which calls for anticipated revenue growth across all three of our business segments, with consolidated revenue growth for the year expected to be in the mid single-digit range. Also, based on the expectation of continued improvements in gross profit margin and operating leverage we anticipate achieving double-digit year-over-year increases in EBITDA and EPS.

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

Thanks, Bill.

The positive trends that we've seen in our business for the past two years reflect a combination of the successes of our initiatives to enhance our marketing and merchandising programs across all of our brands, and the benefits that we are seeing from our focus on investing and innovating for the future, particularly in the areas of social and mobile.

On the social front we were very pleased to be mentioned as a launch partner in Facebook's recent announcement regarding its gifts platform. We believe our integration in the program illustrates the strength of the 1-800-FLOWERS brand and our family of great gourmet gift brands, as well as our relevance to Facebook users as a leading gift destination. While this is an early stage development program, we are excited about the longer term potential to build brand awareness and deepen our relationships with Facebook users and there many millions of friends.

On the mobile front we continue to build on the leadership position that the 1-800-FLOWERS.COM brand has in mobile commerce, adding new functionality and features designed to enhance our customers' experience as mobile traffic continues to grow significantly. We're using our learnings in this area to expand our mobile footprint across our enterprise, rolling out enhanced mobile sites for our Gourmet Food and Gift Basket brands over the next several quarters.

Also, in terms of enhancing our customers' experience we are working with a number of payment system providers to provide our customers with the lowest friction checkout experience as illustrated by the recent announcement of our integration of V.me by Visa.

As always, we remain focused on investing in innovating for the future, particularly in the new technologies and modes of communication that can enhance engagement and enable us to deepen our relationship with our customers.

And now I'll turn the call back to Jim for wrap-up.

As you can see from our solid first quarter results, the positive trends we have experienced for two years are continuing and, as a result, we are on track to deliver our guidance for fiscal 2013. To wrap-up, we are pleased with our first quarter results and the positive trends we are seeing in all of our businesses. While we are honored by the improvements we have seen, reported lately in the consumer confidence index, we remain cognizant of the challenges in the current economic environment, not to mention the distraction of the upcoming Presidential Election.

As such, we will continue to focus on managing those aspects of our business that we can control, like our operating costs, our relationship with our customers, and our financial flexibility while we continue to invest in the future, our development programs for truly original gift products, our new Fruit Bouquets and Fannie May Berries initiatives, our records in social and mobile, our BloomNet initiatives to expand the product and services we provide to help our florists grow, and our growing local retail presence through Fannie May and 1-800-FLOWERS franchising programs. We believe these and our other efforts will enable us to create additional leverage within our business and provide long-term top and bottom line growth opportunities.

Now that concludes our formal remarks, and I'll ask Jamie if she'd -- our Moderator, to give us the instructions for the Q&A.

(Operator Instructions)

Our first question comes from Jeff Stein from North Coast Research.

A couple questions, first, for Bill, and then I have a question for Jim. With regard to the profit and loss statement, Bill, I was wondering if you could go through three line items specifically and maybe talk us through why we saw growth in technology and development expenditures, also G&A, and conversely why depreciation and amortization dropped year-over-year? And as we look ahead are these trends in each of these three line items most likely going to be sustainable over the balance of the year?

Hey, Jeff. First, with technology and development, I think we have an overall kind of technology and development spend that's up slightly year-over-year in our plan. What happened in Q1 sometimes part of our technology and development is working on capitalized projects, that was less this quarter but will pick-up as projects pick-up, so there'll be a shift from what's running through the operating expenses to actually what gets capitalized as part of our fixed assets or PP&E additions on that. So that will even out, that was just, it was high in Q1, it will not be year-over-year nearly as high in Q2, Q3 and Q4.

With regard to, you know, G&A, again, we have certain increases in G&A and other expenses to support the growth of the overall business, but we will be demonstrating operating leverage throughout the year, we've guided to the operating leverage that we have.

And depreciation and amortization really is the result of the last couple of years, where we've seen a reduction in our overall CapEx, we've brought it down to that $17 million, $18 million range from over $20 million in years past, so we've seen a reduction, a slow reduction in depreciation and amortization.

Got it, got it. And when you were discussing segment results, Bill, and you were talking about the Gourmet Food and Gift category you did call out the fact that Cheryl's and Popcorn Factory saw revenue growth year-over-year. You did not mention Fannie May, and I'm wondering is that because you've seen a shift in revenues from company owned to franchise locations or were there other factors involved that caused Fannie May revenues not to be up?

Well, Jeff, that does impact this quarter because we didn't sell -- we did that deal with Bridgeman Givens to sell off 17 Fannie May stores in November of last year, so for the first five months of this year we do have that negative comp because we don't have those stores this year.

But the big reason, without mentioning it, and why GF GB was flat overall was really we referenced the shift in the wholesale orders. We had a very strong Q1 in GF GB growth a year ago because certain of those wholesale orders actually were shipped in the month of September, or the latter part of the month of September, and those shifted to early October this year and actually have already been shipped out. So that's just shifting from Q1 to Q2.

So that was -- so the wholesale reference was in relation to Fannie May and not to the Gift Basket business?

It was both, it was both.

Both, got it, got it. Okay, and, Jim, just a question for you, I mean relative to where you finished the fiscal year back in June or so, are you more or less optimistic about the outlook for holiday today than you were let's say three months ago?

Well, I'd have to come down on the side of more, Jeff, more optimistic because a bunch of things have happened in this first quarter in terms of our operating leverage, of seeing our plans start to take affect for the quarter. From a macro point of view nothing horrible has happened. The Elections soon will be behind us so those distractions will be gone. And, as you know, we track the consumer confidence index and you see slight improvement to that month-over-month each of the last several months. So I think as you read good news about the UK coming out of recession, you know, there's more little good news nuggets than there are bad, and the bad macro things don't seem to have affected us that much.

But then when I turn internally I look at the initiatives, I look at our franchising initiatives and how they're deliberate and sure to add to our future growth and the leverage we have in our brands there, with the 1-800-FLOWERS franchisees and now the Fannie May franchisees, and they're doing very, very well.

We had a very successful franchise conference, convention last month, which was just a love fest in terms of our franchisees from all accounts being really upbeat about how strong their businesses are locally, about how the programs we've introduced are really benefitting their business, how connected they feel to the brand, and how the stores that have converted and put the 1-800-FLOWERS brand on their store with the new improved deco package and a new merchandising plan, they're seeing very robust and significant local store cash-and-carry business, local market business improving very dramatically, anywhere from 10% to 40% reports from all of the franchisees that have converted in that program.

We knew that their business would be up, we had no idea that it would be so impactful on their local businesses, as well. The standing joke among us at the convention was, jeez, maybe national brands do matter.

And then when you look at the wholesale basket business, Jeff, we struggled with that business for three years, and now we have the first year turnaround, both top and bottom line improvements there, so that's been an anchor on us that has now been cut and we're on our way to growth across the GF GB brands.

And then the launch of FruitBouquets.com, which is a -- I think is going to be a big contributor in the years ahead. The customers love the product, as we get our market up and certified and trained. Without any marketing behind it franchisees are reporting really robust interest on our customers' part, sales, and delight with the product. So I think that's going to become a very important part of our products mix going forward.

And then the last thing I'll mention is Chris talked about in terms of the launch of the Fannie May Berries project. There's -- it's a cross-platform initiative that we've just introduced, and we think helps to deepen the Fannie May brand, helps to give some hint of what that terrific brand can become, even broader and bigger and more national in the months and years ahead.

So when you take a look at the exterior things and the internal initiatives that we've launched, the cost controls that we've been able to demonstrate, I would say with another quarter under our belts we feel more confident, more optimistic.

And, Jim, your multi-brand technology platform evolution, can you kind of tell us where you are with that and is that potentially a needle mover this holiday season or is that still more of a longer term initiative?

I'll pass that question and, Chris, he works with it day-to-day, Jeff, let me ask him to?

So, Jeff, I think we continue to be very pleased with our progress there and, most importantly, as we look at our consumer facing businesses with this initiative our customers are really turning to us and seeing us as a gift destination. So it's a long-term play. I wouldn't say it's a needle mover, game changer in any short-term perspective, but it is on a long-term perspective.

I think the Fannie May initiative, Chris, is -- the Fannie May Berries program is a good indicator of how that might work going forward.

Yes, I think it's a great indicator, right? Because all brands will be supporting it, plus just as we've introduced it we've changed the Fannie May tab on our gift destination site to be Fannie May Berries, just to highlight that product launch. Our launch of our Cookie Bouquets line is really resonating well with our customers. Fruit bouquets, that Jim mentioned already, is really putting a good spotlight on our consumer facing business. In addition to the great merchandising of truly original products that we continue to launch within brands within the Flowers brand, the [inaudible] line, the Happy Hour collection, our personalization efforts with vase expressions, just launching a multi -- a major league baseball licensing program this week on that.

Boutiques, too.

And then, of course, this week also a kind of a relaunch of our Platinum collection on the 1-800-FLOWERS brand. So as you go through the site and look at all the great gift opportunities for all of your gifting occasions I think it really positions us well on a long-term basis to be the gifting destination for our customers.

Great. Thank you very much.

Thank you, Jeff.

The next question comes from Christopher Ferris from Noble Capital.

Good morning, gentlemen, thank you for taking the questions.

Sure, Chris, how are you?

Good, good, thank you. First question, average order value increased only 1% in the quarter and I believe this is one of the smallest increases in awhile, could you talk about some of the factors there and how you expect that to trend in Q2 and the rest of the year?

Yes, I'll take that, Chris. Yes, I think, first of all, again, it's a slow quarter, there's no real [inaudible] in the quarter so I think that will drive [AOB] to be relatively flat during the quarter, and I think overall it's just a reflection of our merchandising programs, right? So what we've seen is that we do offer a good, better, best strategy and in the everyday occasions, you know, a lot of times we're looking to sell lower priced items on the everyday occasions to increase that frequency. So that's been successful with our customers. But then when you really hit the core occasions that's when you'll see us focus on our better and best and our wow product offerings that have historically moved the needle and I think will continue to do so on AOB as we go forward.

Yes, I think it's important to note the improvement in transactions that we had during the quarter.

That's right.

And we've been over the last two years as we've been moving the revenues up a lot of it has been driven by the AOB and not by the transaction counts and showing that 2.5% to 3% improvement in transaction counts I think is an important metric.

Yes.

And how do you look for that to trend over the next quarter or so?

I don't think we're projecting any great growth in the average ticket value, the average order value, Christopher.

I think we've seen continuously positive trends in the transactions and our customer accounts and we believe that with our merchandising efforts we should see that continue.

Yes, which is why we restated our guidance that we believe we will have mid single-digit growth for the year.

Don't say restated, reaffirmed, reaffirmed, that's a whole different meaning.

And another question, just on the numbers, new Consumer Floral growth to 4% in the quarter, a seventh straight quarter of growth, how do you compare that with the number you had in Q4 where you had a number of special impacts there, the Easter holiday shifts, one last week, and then this quarter you had a really tough comp, like a 12% comp -- but taking that all into account do you think revenue accelerated this quarter on a normalized basis or was it comparable or just trying to get a sense of how the floral business is trending. I realize it's a small quarter for you, but still.

I think -- this is Jim, Chris -- I think what you can discern from what we've said is that we feel like we're on track to deliver the year as we expected. The year-over-year comparison is getting a little tough. We really look at our business as two halves, and the reason for that is because of the wholesale businesses and our chocolate and our Gift Basket businesses, that's always going to impact that shift date, is it the last week of the quarter or is it the first week of next quarter. So when you combine those, when you look at the two quarters combined, the first and second fiscal quarters you get a better picture.

Just like, as you mentioned, in the third and fourth fiscal quarters, Easter is the big variable, depending on where it's placed at the end of the third quarter, beginning of the fourth quarter, how deep into the quarter it goes, it has an impact on revenue shifts, particularly in our floral and our consumer brands, in our floral and in our food brands, depending on its placement. So we look at the business as two halves, and as we do, as we stated earlier, we're confident that we're right on track. We see the indices in terms of growth in the floral and all of our consumer facing businesses getting better.

One final question, if I may? Can you drill down a little bit on Facebook gifts and how you're participating? And then I'm sure there's some sort of revenue sharing component, can you talk about how this might affect margins?

So I think with any new initiatives, Facebook is, again, as I mentioned very early stages. What we're happy with is based on our past experience with them they turned to us to be a launch partner with them. So we're in the experimentation and learning phase. Out of that will come the appropriate revenue share, but as with any marketing program, any channel, and this is somewhat of a new channel, there's a marketing expense. The fact that the marketing expenses in this channel is on a performance basis is very attractive to us, so I don't think it will have any significant impact on margin.

Thank you.

Thanks, Chris.

The next question comes from Danielle McCoy from Green Capital.

Hi, guys. Thanks for taking the call. As far as market share do you guys feel like you're taking market share in the floral segment and, if so, is there any way to quantify it, and what items are driving it?

Well, clearly, what you see is, Danielle, is that in all of our consumer facing businesses because it's difficult to separate them out because our products are sold back and forth on all the websites, we're seeing very solid growth improvements now for coming up on a few years. We think that trend continues.

Whether the category is growing, it's very difficult in our categories to find good macro inputs, but it would seem to me that there's not been a lot of growth in a floral category. We are growing, both on the consumer facing side and on the BloomNet side, so if those indications tell you we're getting market share, then we are, and it seems -- that would seem to be the case.

And we're doing it in a way where we're improving our margins over time, gross margins are bottom line margins, outstripping our growth on the top line, so we're doing it with good products, good merchandising efforts, controlled marketing efforts. And I suspect that as we continue to grow, our competitors who have different motivations will become more promotional, but then again that always happens.

All right, great. And then I guess acquisitions, are you guys actively looking, if so, what type of companies, brands?

Well, I'll give you the list of the companies we're about to buy -- I think we're in an awfully good spot, Danielle, that is we've come through a difficult period, at the same time with the difficult period we've improved all our operating metrics, we've paid-down over $100 million in debt, we have a pristine balance sheet now with essentially no debt, we're in a good cash position, good assets to capital and, frankly, improving access to capital. So I think we're in a good place there. So then the challenge comes at us how can we best create value for our shareholders?

And the best way to do that plain and simply is to grow, and we're going to grow organically, from time to time you've seen us do some select bolt-on kinds of acquisitions, very small, risk light, and frankly you've also seen us do some pruning. Now after a couple of years we've sold-off our Plow and Hearth Division, we sold-off our Hawaiian Services Division, we sold those off because they had different performance characteristics than the rest of our business.

So I think we have optionality in front of us in terms of using that financial flexibility for acquisitions that will help us grow. You'll see us using our capital to accelerate our organic growth rate and launch some really exciting initiatives, like Cookie Bouquets, that Chris mentioned, our Fannie May Berries line, our FruitBouquets.com line, our franchising efforts. And we've sold-off some retail stores that were terrific performers as part of our franchising efforts to stimulate the pipeline of good partnership that will help us grow those businesses.

So we're happy with the flexibility we have, we're likely to be interested in growing our business, both organically and through business development efforts and M&A kinds of efforts, but we'll, as you've seen in the past, be very judicious about how we use that great financial position we're in to leverage us to achieve growth, both organically and through acquisitions.

All right, great. Thanks, guys, good luck.

Thank you.

The next question comes from David Kanen from Williams Financial.

Morning.

Morning, David.

First question is on BloomNet, there was I guess about a 350 basis point increase in gross margin, is that trend sustainable for the balance of the year? Do you think we could potentially go north of 50% or I should model out similar for the balance of the year? And then also comment on total gross margin dollars year-over-year, what your expectation is for that segment?

David, BloomNet has been an area that's, you know, we have the two pieces of the business, we have the consumer facing brands and we have BloomNet, which is focused on our retail floral members, and that business is continuing to do well. It's a tough environment, but we continue to grow, we continue to deepen our relationships with our florists and we continue to see enhanced bottom line results as part of that.

I think the overall picture for BloomNet is quite bright. We're very excited about it. It's a business now that we continue to find new opportunities. And the good news is the opportunities we find all benefit our member florists in terms of the products and services that help them in their local businesses to grow their profitability, to grow their top line, which many of them have not seen in some time. And, in particular, our franchisees, which are part of our BloomNet network are seeing very robust growth, and that's just exciting and turns us all on.

In terms of the specific question you had about margin, I'd ask Bill to touch on that, and while we're very pleased with that 350 basis point improvement this quarter, Bill, about the sustainability?

I think a couple of points to your question. One, gross margin overall is an area we're particularly proud of. We took 140 basis points improvement overall on margins this quarter, that's a trend line that really started two quarters ago, back in Q3, we had 100 basis point improvement in Q3 and 100 basis point improvement in Q4. And we grew margins at all three of our business segments, so we think margin is very strong for us across the enterprise.

Looking at the wow number, with the plus 350, I think we've given guidance in the past that BloomNet will be between 45% and 50% margins. It could shift quarter to quarter depending upon the mix of products. This quarter we had some growth in some high margin areas, like our digital and our paper directories, some web marketing service in monetizing the orders that we have. So the 350 basis points is going to be a hard one to maintain, but we're comfortable and continue to drive BloomNet's margins north on a year-over-year basis.

The other, you know, segment that grew very nicely was Consumer Floral, another wow number, 80 basis points on a much larger base of revenues. We saw increased margins across both our floral and our express products, so we're very proud of overall margins.

Okay, and the question about Facebook, with the unveiling of their gift giving feature, is that fully deployed for Facebook and have you seen any kind of uptick or can you give me some sense of the results that you're seeing, that there's an acceleration or it's pretty much the same?

We're very proud of the relationship we have with the different social entities in the marketplace. We think it's -- you know what we are is an ecommerce company that has a multichannel approach to the market. The bottom of that pyramid, the foundation of that pyramid is our retail channel, and that we choose to do through a franchising model. But increasingly we're trying to move this ecommerce capability that we have, that's wrapped in this bowl and gift business to a social commerce company.

And Chris and his team particularly have stayed close to the evolution of the different social aspects of the business, as we have a terrific respect and relationship with Facebook, in particular, and we're doing some exciting things with them and the learning is a very steep curve for us because it's a whole new world for us all. And Chris and his team have stayed very close to that and will.

As far as David's specific question about what percentage of roll-out, obviously, we're not going to give numbers on the performance, but what color could you give David on that?

Yes, so I think it's still very early and in the experimental stage as us, as the retailers, and Facebook work and figure out what's the best markets, what is getting the best response from their users, when it's positioned, the wording, et cetera. So the results are good so far. It's not rolled out. It is available to a small percentage of their user base. They don't tell us what percentage it's rolled out to now other than it's still in the experimental stage, and they'll ramp it up as you've seen Facebook do with all of their product introductions. They start it out small and they just ramp it up with learnings.

Okay, and then along that -- in that same vein, the Visa E-Wallet deal, is that meaningful or is that just sort of a small startup, if you will?

Well, we certainly hope it will be meaningful, right? It's still in the introduction stages, and it's just, again, consistent with our focus on how do we make it easy for consumers to transact with us and the way if we can make, take away steps in the checkout process it certainly is good on desktop and it should be meaningful in the mobile commerce sector.

I think, David, you see so many new things going on in the whole payment space. Clearly, it behooves us to stay on top of them and to make the decisions as to which ones we put energy behind, which ones we put partnership behind, and our marketing efforts. The good news is a lot of the people in the new payment world approach us because we have a reputation for being interested in pioneering, interested in experimentation, good partners to work with, and of course we have this terrific platform with 30 plus million customers to help them test into their new rollout. So I think a partnership with Visa is one that Chris just mentioned we're proud of, but it's in its very early stages, but we have about probably half a dozen other payment discussions and experiments in the queue.

Okay, and if you can answer this one, as well, can you give me a sense exiting this year the increase in Fruit Bouquet enabled shops versus a year ago, and then what should we expect for this current year?

Well, we just, in terms of calendar years, we just began the program at the beginning of this calendar year, so it's a slow rollout, it takes awhile for the people to get physically enabled to be in the product and then trained, which is the easiest part for us frankly because we have three training centers around the country now where we're training our franchisees in this product. Those that we've rolled out to have had 100% delight in terms of the impact it's had on their business and the impact, the feedback from the customers about the product line, but I think you could expect that it'll take two to three years to have full coverage of the country.

And as we get further into this fiscal year and certainly the beginning of the next fiscal year we start to, you can start to expect that we'd start to be able to put marketing campaigns behind it. Right now it's just organic. If we have it available in the zip code that a customer is interested or interested in sending a gift we'll offer the product up to them, and that's the extent of our marketing efforts to date. Some of our franchisees who have introduced the program do some local marketing around it and that's having very, very strong results.

Excellent. And then, Bill, in regards to the wholesale Gift Basket business you said that you were going to see year-over-year increases, is it consistent with the guidance you gave for the year or will it be more like low double-digit growth year-over-year?

Consistent with the guidance. We don't want to change the guidance that we gave for the year. As we gave guidance back in August we had a good sense at that point in time what the impact would be for the full year. The one change is that we were expecting some of those sales to happen in the end, at the end of the first quarter, and those shifted into the second quarter.

But overall guidance remains the same. That's a business that really only happens once a year, the wholesale Gift Basket business, it really is only a fourth quarter sales business, and the revenues, as you can see, crosses that first and second fiscal quarters end.

Okay, so will it be a double-digit increase year-over-year for the entire year?

Oh, for just the basket business?

Yes, just the wholesale basket business?

Yes, we haven't given specific guidance on what the increase would be.

Okay.

Basically reversed the trend over since 2009 we've kind of had a headwind and that has turned around and [inaudible] this year in that category.

Okay, and I know this quarter you're coming into your strong billing season so you have a lot more inventory, but for the year, for most of the year you'll be probably in a net cash position. Would you say you're more inclined or will be skewed towards buying back stock for capital allocation or acquisitions?

I think it's -- this is Jim, David -- I think it's a difficult either or kind of question. I think what you can expect from us that we think our great value right now is our stock, so that you'll see us as soon as the window opens we have the opportunity to be back in the marketplace to buy our stock, we said a quarter ago we would be, and I'll affirm to you today that we will be, so we'd like to do that.

We have plenty of opportunity to do both, and that would be our intention if we find the right opportunities in the development space. Without them you have our forecasted growth with no M&A activity, and you have our forecast for our stock buyback program, as we stated in the last quarterly call. But we have plenty of opportunity to accelerate our buyback program and to accelerate our development efforts. We can do both at the same time.

Okay, thanks, guys. Good luck in the December quarter.

Thank you, David.

(Operator Instructions)

The next question comes from [Jamie Eckle] from [MOAB Partners].

And I'm wondering how many shares were repurchased in the quarter and at what average price?

During the first quarter, if that's what you're referring to, the question got cut-off -- but in the first quarter I think it's several hundred thousand. We had a very short window because our earnings were released at the end of August and our blackout period started in the middle of September, so there was only about a two, two-and-a-half week period in the first quarter where we were able to be in the marketplace. So there's several hundred thousand shares, and they were bought at the prevailing market rates at the time in probably the [inaudible].

So this is the toughest period for us to be active in the stock buyback program. Obviously, we think we have a longer window now, and we're also addressing with appropriate counsel different ways that we can mitigate the -- our inability to be in the marketplace during blackout periods, it's very long, and so we have a number of options that we're considering and we'll talk to you about during the weeks and quarter ahead.

All right, great. Thanks.

You bet.

At this time I am showing no further questions. I would now like to turn the call back over to Jim McCann.

Well, thank you for your time and attention today. We're very happy with the first quarter. The big quarter is in front of us now, this holiday quarter. We remain confident about our ability to deliver great smiles for our customers, and I'd like to remind you and encourage you to visit us online or on your Smartphone or tablet or in one of our stores to see the great gift ideas we have at our Halloween Headquarters, as well as our expanded offering of truly original gifts for this yearend holiday period. Thanks for your time today. We look forward to chatting with you.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation, and you may all disconnect. Have a great day.