1-800-Flowers.Com Inc (FLWS) 2013 Q2 法說會逐字稿

Good day, everyone, and welcome to the 1-800-Flowers.com Inc. Fiscal 2013 Second 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 begin.

Thank you. Good morning and thank you all for joining us today to discuss 1-800-Flowers.com's financial results for our fiscal 2013 second 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 www.1800flowers.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 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. A 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 earlier this morning. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recordings of today's call, the press release issued earlier today, or any of its SEC filings, except as may be otherwise stated by the company.

I will now turn the call over to Jim McCann.

Good morning. Our fiscal second quarter results reflected a continuation of the positive trends that we've seen in our business for two years now. During the period, we grew revenues 5.5% to $253 million, despite a combination of significant headwinds, including the impact of Superstorm Sandy on deliveries and customer demand and the effects of overall weakening consumer confidence, particularly in December, stemming from the worries coming out of Washington over the impending fiscal cliff.

Despite these issues, we achieved growth in all three of our business segments, led by our Gourmet Food and Gift Baskets business, which grew 8.9% to nearly $143 million. Growth in this area was driven by a solid rebound in our wholesale gift basket business, something we had told you we expected to see in our last call back in October. Importantly, the sales improvement in this area came from both an increase in orders from existing mass market customers and from several new customers. Equally important, sell-through on these products was strong, which bodes well for our efforts to expand sales for the next year's holiday season.

Revenues in our Gourmet Food and Gift Baskets business also benefited from strong e-commerce growth in Cheryl's, Fannie May and The Popcorn Factory brands, illustrating our focus on leveraging our e-commerce platforms and online marketing expertise to build national awareness of these iconic food gift brands. Somewhat offsetting the strong e-commerce performance for the quarter were lower results in our Fannie May retail and wholesale channels, which Bill will elaborate on in a few minutes.

In Floral, our 1-800-Flowers.comand BloomNet wire services businesses, achieved enhanced bottom-line contributions on modest revenue growth of 1% and 2.5%, respectively. Revenue in these businesses, particularly in our core 1-800-Flowers.com brand, were most impacted by Superstorm Sandy, which affected customer demand and gift deliveries, as well as wholesale product orders from florists throughout the Northeast where we have a concentration of business.

Despite these issues, we were able to increase gross profit margin percentage and reduce operating expenses as a percent of sales in both business segments, reflecting our continued focus on enhancing the efficiency of our marketing program, even during a very promotional holiday season, while leveraging our operating platform to reduce costs.

As a result of these factors, we grew our EBITDA, EPS and free cash flow for the quarter compared with the same period last year. In addition, we also continued to strengthen our balance sheet, finishing the quarter with $27 million in cash, after spending more than $5 million buying back our stock during the start -- since the start of the fiscal year and less than $22 million of debt. As a result, we have a net cash positive position which we expect to build on during the second half of this fiscal 2013.

As we stated in this morning's press release, we view our stock purchase program as one component of our strategy for cash usage and we expect to continue to be in the market, buying back shares during the second half of the fiscal year. We believe the strength of our balance sheet and the increasing cash flow we are generating provide us with significant flexibility to grow our business and build value for our shareholders.

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

Thank you, Jim. While we were pleased with our results for the fiscal second quarter, we believe growth could have been even stronger, both top and bottom line, were it not for the headwinds that Jim mentioned earlier, as well as the impact of some operational issues we experienced in our Fannie May business, which I will discuss in a moment.

Overall the quarter was characterized by uneven revenue growth. Sales which were up a strong 11% in October were flat in the month of November, coinciding with the impact of Superstorm Sandy, and then picked back up again in December to 5.5% for the month. We believe the uptick we saw in December is more reflective of the positive trend in revenue growth that we have been seeing for some time now and something we can build on going forward.

Regarding specific financial results and key metrics of continuing operations for the second quarter; total net revenues from continuing operations increased 5.5% to $253 million, compared with $239.8 million in the prior year period.

During the quarter, our e-commerce orders increased 6.4% to $3.009 million, compared with $2.829 million in the year-ago period.

Average order size during the quarter was down slightly to $57.37, compared with $58.36 in the prior year period. This primarily reflected the success of our Cheryl's brand inexpensive cookie card greeting, which is proving to be a very effective customer acquisition tool for the brand.

AOVs were actually up in most of our other Gourmet Food and Gift Basket brands, as well as the 1-800-Flowers.com business.

During the quarter we added 642,000 new customers. This was achieved while concurrently stimulating repeat orders from existing customers, who represented 61% of total revenues, unchanged from the prior year period.

Gross margins for the quarter was 41.3%, down 50 basis points compared with 41.8% in the prior year period. This primarily reflected product mix associated with the strong sales growth in lower margin wholesale gift baskets, somewhat offset the by strong gross profit margins in our BloomNet wire service business.

Operating expenses as a percent of total revenues improved 60 basis points, to 31% compared with 31.6% in the prior year period. This improvement reflected the revenue growth in the quarter as well as our continued focus on leveraging our business platform.

As a result of these factors, EBITDA excluding stock-based compensation and the $3.8 million gain on the sale of 17 Fannie May stores in the prior year period, increased 3.6% to $31.8 million, compared with $30.7 million the prior year period.

Net income and EPS from continuing operations increased 12% and 9% respectively, to $16 million and $0.24 per diluted share, compared with adjusted net income of $14.3 million or $0.22 per diluted share in the prior year period.

In terms of category results; in our 1-800-Flowers.com consumer floral business, during the second quarter, revenues in this category increased 1% to $91.8 million compared with $91 million in the prior year period. In this business we saw the biggest impact of Superstorm Sandy, which affected floral gift deliveries as well as customer ordering capabilities throughout the Northeast, where the 1-800-Flowers.com brand has a significant concentration of business.

Gross margin for the fiscal second quarter increased 20 basis points to 39.2% compared with 39% in last year's second quarter. And category contribution margin increased 3% to $10.3 million, compared with $10 million in the prior year period.

In BloomNet, revenues increased 2.5% to $18.7 million, compared with $18.3 million in the prior year period, also reflecting the impact of Superstorm Sandy on wholesale product orders from florists whose retail locations were either closed or suffered damage from the storm.

Gross margin for the quarter increased 310 basis points to 52.3% compared with 49.2% in the prior year period, primarily reflecting product and service mix, including strong growth in such high margin offerings as our directory and new web marketing services for florists.

Category contribution margin increased 19.2% to $6 million, compared with $5.1 million in the prior year period, reflecting revenue growth, the strong gross margin and continued focus on managing operating expenses.

In our Gourmet Food and Gift Basket segment, revenues increased 8.9% to $142.7 million, compared with $131 million in the prior year period. This was driven primarily by a rebound in our wholesale gift basket business after several years of decline in this area.

As Jim mentioned in his earlier remarks, we had discussed our expectations for improvement in wholesale baskets in previous conference calls. This was based on an increase in orders we had received from our existing big box customers as well as several new customers that we opened -- new customer accounts that we opened over the past year. Sell-throughs were strong throughout the holiday season, providing good momentum as we commence the key selling period for next year's holiday season.

In addition to the improvement in the wholesale baskets, e-commerce revenues also showed strong growth in the quarter, particularly in our Cheryl's, Fannie May and The Popcorn Factory brands, each of which saw double-digit increases online. The strong e-commerce growth, however, was somewhat offset by lower sales in our Fannie May retail stores and wholesale channels, reflecting lower customer foot traffic during the quarter.

Gross margin was 41% compared with 42.4% down 140 basis points, reflecting -- primarily product mix related to the increase in wholesale gift baskets, as well as some operational issues associated with the relocation of a warehouse and distribution facility prior to the holiday season, which led to higher than expected labor costs. Subsequent to the holiday, we've implemented initiatives to reengineer the facility and expect significant improvement in operating efficiency, going forward.

Category contribution margin increased 1.9% to $26.9 million, compared with $26.4 million in the prior year period. This reflects a solid revenue growth during the quarter somewhat offset by the aforementioned lower gross margin and higher operating costs associated with operational issues.

In terms of corporate expenses; for the fiscal second quarter, corporate expenses from continuing operations includes -- including stock-based compensation, was $12.7 million, compared with $11.9 million in the prior year period.

Now turning to our balance sheet. At the end of the second quarter, our cash and investments position was $27 million. This reflects the free cash flow we generated during the period, offset the more than $5 million we spent buying back our stock since the beginning of the fiscal year, as well as pay down of debt.

Borrowings under our credit facility were $21.8 million, and we had zero outstanding under our revolving credit line. As a result, we finished the quarter net cash positive and we anticipate generating additional cash and building on this position during the second half of fiscal 2013.

Inventory of $58.4 million was inline with management's expectations and below the corresponding prior year period levels, this despite our 5.5% revenue growth for the quarter.

Providing guidance -- based on the continued positive trends we are seeing in our business, we are reiterating our top and bottom-line guidance for fiscal 2013. We expect to achieve revenue growth in all three of our business segments, with consolidated revenue growth for the full year in the mid-single digit range. In terms of bottom-line results, we expect to grow our EBITDA and EPS at double-digit rates, while generating free cash flow in excess of $20 million.

As we enter the second half of our fiscal year, it is important to note the seasonality of our business. Our fiscal third and fourth quarters are more floral in nature due to the Valentine, Easter and Mother's Day holidays, as well the other Spring gifting occasions. As a result, the year-over-year growth in revenues, gross margins and contribution margin that we expect to achieve during the second half will be driven primarily by our core 1-800-Flowers.com consumer floral and BloomNet wire service businesses. In addition, we expect the majority of this to occur during our current fiscal third quarter, reflecting the shift of the Easter holiday to late March this year, within our third quarter, versus last year when Easter fell in April, during our fiscal fourth quarter.

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

Thanks, Bill. The fiscal second quarter marked our eighth consecutive quarter of top and bottom-line growth, driven by the positive trends we have seen in all three of our business segments. We were particularly pleased by the strong e-commerce revenue growth that we saw in our Gourmet Food and Gift Basket businesses during the period, the largest and most important of the year.

The increases that we saw in traffic and conversion for our Cheryl's, The Popcorn Factory and Fannie May brands illustrate the early success we are having with our new e-commerce platform and our multi-brand strategy. This is enabling us to introduce the millions of customers who come to the 1-800-Flowers.com site each year to our gourmet food gift offerings, and over time, increase national awareness of these iconic brands.

In this area, we have also continued to expand our offerings. Last year, we added prime steaks and other soup and premium meats to our Stockyards.com brand. And we made it even better this past holiday season by providing the unique ability to pair steaks with the perfect wine selection and ship them together as a complete gourmet gift.

During the second quarter, we also added to our fresh fruit gift offering, through the introduction of Fannie May Berries. The new line of fresh giant strawberries stands out from the competition by being dipped in real chocolate and even features some of Fannie May's iconic flavor profiles, such as Pixies, Trinidads and Mint Meltaway Strawberries. We will be giving Fannie May Strawberries increased exposure for the upcoming Valentine holiday by featuring them on the 1-800-Flowers.com site and in our special Valentine gift centers across all of our brand's websites.

As Bill mentioned earlier, the second half of our fiscal year is predominantly floral and it kicks off this quarter with the important Valentine holiday, during which we plan to build on the success we have had over the past two years, in terms of deepening our relationships with our customers. We do this through our enhanced merchandising programs, focusing on truly original products and our marketing messaging that emphasizes the better, best and wow offerings which continue to resonate with our customers.

In addition, we continue to expand our use of social channels to deliver our message, and most importantly, to engage directly with our customers. As an example, we are, once again, asking our customers to share their wow moments of the day and to vote on the best wow moments posted on our Facebook page.

On the mobile front, we continue to distance ourselves from the competition in this fast growing channel, which we view as a key element driving our evolution from e-commerce to social commerce. In this area, we are leveraging the experience and learnings that we have gleaned from our award winning 1-800-Flowers.com mobile site by rolling out mobile commerce sites for our Gourmet Food and Gift Basket brands this quarter.

Looking ahead at the second half of our fiscal year, I believe we are well positioned to build on the positive trends we have been seeing in our business and deliver on our goals of top and bottom-line growth across the enterprise.

I will now turn the call back to Jim.

Thanks, Chris. We are pleased with our results for the first half of the fiscal year, particularly in light of the various headwinds we have discussed. Most important, we are excited about the multiple opportunities we see to grow our business by deepening our relationships with our customers through a growing suite of products and services designed to help them deliver smiles. That is the business we are in; helping them connect and express themselves and express themselves through all their celebratory occasions.

The positive trends that we are seeing -- that we have seen now for the last two years, attest to the fact that our customers are responding to our focus on our ever expanding offering of truly original products with a broadening range of price points that make it easy to celebrate and connect for any occasion, big or small; our multiple channel go to market strategy with an emphasis on e-commerce that is fast becoming social commerce, while also including retail and wholesale, where appropriate; our effective use of social and mobile channels to energize directly -- to engage directly with them, inviting them behind the curtain to work with us on the design of the products and services that we need to help them connect and express themselves; and our investments in a database and new tools to help us personalize and thereby enhance our customers' experience, whether it be online, on the phone or in one of our stores.

To wrap up, we are conscious of the continuing uncertainty in the economy. With that said, we will continue to focus on managing those aspects of our business that we can control, including our relationship with our customers, our operating expenses, and our financial strength and flexibility. Combined with the initiatives that we have described to you today and more that are on the way, we believe this focus will enable us to build on the positive trends in our business and continue to grow our top and bottom-line results.

That concludes the formal remarks for today and we will now open the call for your questions. Sonya, can you please give the instructions for how people can signal they would like to answer a -- ask a question.

Certainly. (Operator Instructions). Our first question comes from Christopher Ferris of Noble Financial. Your line is now open.

Hi, guys. Thank you for taking the questions.

Sure.

I was wondering if you could address BloomNet for a moment? And perhaps I don't understand the business that well, but the growth in revenue clearly slowed over the past couple of quarters. You were doing double-digit topline growth for the last two years and now you're sort of on a pace for mid-single digits, at best, this year. Help us understand the dynamics there and how we should be looking at the growth of that business, going forward.

This is Jim. I'm not certain I completely understand your question there, but we will give it a shot and give you a broad overview of BloomNet. BloomNet, as you know, is the wire services, we call it, organization that has, as its members, retail florists from around the country who fulfill our orders for us and buy products and services from us that help them to enhance and grow their businesses in their local communities.

The growth of that business is driven by, primarily, an increasing depth of the relationship with the flower shops that have been approved members of that organization. We have competitors in that space who have been suffering a bit from the overall contraction in number of retail flower shops that exist, still good and profitable businesses. While we have been growing our business -- because I think the florists are voting that we have a unique proposition and a unique value proposition that we bring to the market. We will continue to grow our business in BloomNet by expansioning of the products and services that we offer and a deepening of the relationship that we have with the florists who are members of our BloomNet network.

In terms of growth rates -- growth rates we anticipate will continue. In fact, we think that BloomNet is one of the key growth areas for our company that we have within our organic capability to continue to develop. So we expect margins to stay in that mid to high 40% range. We expect growth to continue and we expect margin enhancement.

Now, the margin will vary from quarter to quarter depending on the types of products and services we are introducing, in terms of if it is a product -- a wholesale product kind of introduction, that will have a lower margin. If it is more of a digital product, it will have a higher margin.

Bill, is there anything you would like to add there, color wise?

We saw margins this quarter 52%, very strong margins because of the mix of revenues that we had. We saw lower wholesale revenues during the quarter, that was some what impacted by Sandy, in that florists really were not buying out on the wholesale products or buying for both Christmas -- they bought less for Christmas and for Valentine's Day, which a lot of times they do in the second quarter. That impacted the revenue number within BloomNet. We will get some of that back in our third quarter. But we had very strong high margin revenue offerings, our directory is going very strong -- and some other products we are having that are very strong, which is why we are seeing the higher margins there and the expanding operating margins that we are seeing there.

Right. I mean all of that make sense and the margins look good. I'm just trying to understand the deceleration in the revenue in this business over the past three quarters and maybe I'm missing something. I would have thought this would have been -- after the growth [you guys] talked about [and stated] I thought it would be accelerating rather than decelerating.

I think the -- as I said, the revenue growth within BloomNet is going to be a function of the depth of relationship and the expansion of product and services that help our florists to compete in the local market. Yes, we have growth in membership, but it is small compared to the overall revenue of it. I think you would expect a modest revenue growth in BloomNet going forward, with increasing dollar and percentage margin contributions.

That makes sense. I was wondering if you could talk about how the trial with Facebook Gifts is going? And if you could give us a little bit more of a drill down on your social media efforts and how you feel they are driving growth?

I think we continue to be very pleased with the relationship that we have with Facebook, where we are very often a beta or an alpha beta test partner with them, as we have been with Facebook Gifts. We think Facebook Gifts is a good example, when we talked about social commerce, and how we and the consumer is evolving into social commerce. So it continues to develop for us. It's still in the roll-out phase. They are still adding to it and we are still working with them on innovating different things with the Valentine's holiday, as an example.

But then we look to see, how do we take learnings from those capabilities and apply them off-platform into our own e-commerce capabilities. So you've seen us do things like that, where clearly, some of the plug-in integrations that we done with Facebook, some of the things we are doing with Twitter, et cetera; just constantly looking to how we are working with our customers, how we are researching with our customers, how their behavior is being changed by social media capabilities and applying that to our business model.

Christopher, this is Jim. A point I would add there is, by working with Facebook in a very early stage like this, being able to look over their shoulder, collaborate with them, it is helping us, as you heard us mention a couple of times now that we're looking to broaden the range of products we have from our price point of view and from an occasion point of view, because we want to be more and more relevant with a variety of brands and products that we have to our customers for all of the celebratory events in their lives, big and small, And so Facebook gives us a good opportunity for learning -- a buttress on learning in that direction.

One last question. Facebook mentioned on their earnings results the other day that they are now seeing more users on mobile than on the desktop. I was wondering if you could quantify or give us some sense of what percentage of your buys are coming from mobile versus the desktop, as it relates to e-commerce order.

I don't break that out. Clearly, there is not more than on desktop. But the traffic from mobile is a growing percentage of our traffic on an every day basis. And we are continuing to see that growth accelerate. That is why we talk about kind of the leading efforts. We have been involved in mobile early; we continue to evolve; we are extending that now to our food brands. We are very pleased with the position we have in mobile, and again, it is like social. We are following where the consumer is going and hopefully staying on the forefront of that.

As an example, too, Christopher, of -- even though we have emerged now for two years from what a couple of years before that were tough times, we said that we were going to do things like maintain our fiscal flexibility and balance sheet strength, that we get closer to our customer and we control our expenses, all at the same time while investing for the future. And we have been investing quite a bit of money in our social and mobile efforts for the last several years, only because we see the trend lines and we know where it is going. While we are not going to break out exactly what the percentages are, clearly we think it is an important ingredient in the future and it is why we have been investing for the last several years.

Thanks very much.

Thank you, Christopher.

Thank you. Our next question comes from Danielle McCoy of Brean Capital. Your line is now open.

Hi, guys.

Good morning, Danielle. How are you?

Good. Not bad. Just a few questions. First, is there -- can you guys quantify the effects of Sandy on the consumer business?

It would be difficult. I can see the computer in Bill's mind is racing ahead of me here. It had a couple of different impacts. Obviously, on the flower side of the business in particular, because we originated in the New York area, we are going to have a heavier concentration in the New England and the Mid-Atlantic area, which was most impacted by the storm. The fact that our offices were out of power for eight days, the fact that our primary web hosting facility, Third Party, was out of commission for more than a week --it caused disruption.

Even when we had our power back from our generators on -- it was just extremely disruptive for people to try and work in the semi-dark and climb many levels of staircases to get to their offices, unable to get gas to get to work. So you had all of that disruption. And, of course, you had hundreds of flower shops who were damaged, destroyed or certainly closed with no power, and you had hundreds of thousands of consumers then and many still had their lifestyles completely rocked. So they were not customers, nor were they delivering, et cetera.

You had the wholesale impact on BloomNet, you had the retail impact on all of our consumer brands, but most especially on 1-800-FLOWERS. Certainly, its in the several millions of dollars, but I don't think we are comfortable quantifying it beyond that.

One other metric, Danielle, and why we broke out the revenue by quarter that we saw during this period, that we had 11% growth in the month of October. Our fiscal -- we run a 4-4-5 fiscal calendar. Sandy hit the first day of our fiscal November. For the month of November, as an enterprise, we did not grow at all and then we rebounded in December to 5.5% growth. It obviously had a big impact on our November results.

-- a building recovery.

Okay, great. That helps a lot. And how do you guys view the competitive market in consumer floral at this point?

Well, I think in the fourth quarter, Danielle -- it is a very, very promotional quarter; not only within the flower space and not only within the gift business, but we are competing with every possible retailer online and off for a share of wallet.

I think what you see is that -- and from time to time within the flower and gift space, there will be different eruptions of high promotional activity from one player or another who has different motivations, in terms of trying to do what they can to drive topline for whatever individualized motivations they have. Overall it is a very promotional quarter. I suspect it will always be an extremely promotional quarter and -- somebody -- one of the things I'm pleased with, though, is that not only did we experience all that but we grew through that. And we actually saw margin enhancement on our direct to consumer businesses, so that worked out nicely for us. It is promotional, yes, it always will be.

The third point I'd make is -- that the flower business is late in the quarter and is always going to be very promotional. And I think that contributes to the good fortune we had of making the decision several years ago, that we are going expand our product offering in our flower and gift shops by expanding into our Gourmet Food and Gift Basket businesses. That gives us a product that is relevant earlier in the quarter, throughout the Thanksgiving period and early December, with our gift baskets and our chocolate gift products.

You really have to look at our business as our consumer facing business as you would with our competitors, who have all the same products now that we have. They are obviously going to mimic everything that we do. So we all have all the same products. Just from a segment point of view, we break out our Gourmet Food and Gift Basket business as separate from our floral business, but actually we acquired and created those businesses so that we had the right suite of products to compete during the Christmas holiday quarter.

Just two more quick ones. Historically -- Valentine is falling on a Thursday this year, how has that been an impact? I know Mondays usually aren't the best days for Valentine's day. How is Thursday?

We are looking forward to this year. Thursday is a great day placement for us, especially from our floral brand, but as well as from our chocolate brand in addition. We think Thursday is a good placement and we are looking forward to it.

Oh, great. And this is just a housekeeping question. How much remains on the stock repurchase program?

Bill, what do we have left on that?

We have about $4 million before we would have to go back to our Board to get authorization on that.

And authorization is a simple board meeting, and obviously, they are frequent.

Okay. Great. Thank you, guys. Good luck.

Thank you.

Thank you. Our next question comes from Anthony Lebiedzinski of Sidoti & Company. Your line is now open.

Good morning. Just wanted to touch base on the distribution center issues that you guys talked about in your press release. So is it safe to say that now -- that all these issues are over and done with?

Short answer, yes. A little bit more on that is that -- resulting from a good name, our Cheryl's brand continues to grow. As a result of that, we used to share, on the e-commerce side, a distribution center between our Cheryl's brand and the Fannie May brand. To free up more space for our Cheryl brand, we moved our Fannie May e-commerce over to a new facility this past year and we did experience some growing pains with that during the holiday. But we have -- but we have been efforting the recovery of that. And we are very confident that we will show significant operating improvements in that facility going forward.

Okay. That's helpful. And Jim, you mentioned that in the BloomNet you will be rolling out some new additional products on the wholesale side, so that that could result in some variation in the gross margins on BloomNet. Could you give us some sense or some color as to what type of products are you looking for to introduce to BloomNet?

Sure, Anthony. In BloomNet, we are always looking and working with our florists, our franchisees, our premiere florists, our BloomNet florists to say, what can we lever of things that we already do to improve the experience and the product for our customers and to improve your ability to go to market and grow and your business, both top and bottom line, as our retail floral partners. Bill mentioned a couple of things we are doing on the digital side, in terms of helping them with their web hosting and our directory business and their advertising services. Those will tend to be better margin businesses because they are digital in nature.

In addition, we are increasingly leveraging our sourcing, manufacturing and buying capacities for products that they use in the business, both every day and on holiday occasions with the products that we produce. If we would introduce, like we did a year or two ago, a new line of glass products to drive down their costs so that they could have a better value for a customer, at the same time improving their own margins, we did that at a very small margin. For the first couple quarters of the introduction of the glass line, you saw the margins come back from 50% to high 40s for a quarter or two, as that burst into the marketplace with big topline sales. So that will continue to happen.

When we make an introduction in (inaudible), you will see the gross dollars go up and the margins contract a little bit. And that will go from quarter to quarter, year to year for the next several years. As Bill told you, we continue to target a mid to high 40s gross margin on a yearly basis. You might see, from quarter-to-quarter, variations.

But we should see, for the second half of this year, we should see strong year-over-year margins within BloomNet.

Okay, good. And then can you give us an update on the Fruit Bouquets? How is that tracking along? And also if you could give us an update on the Fannie May franchising program?

Sure, Anthony. We continue to be very pleased with the introduction of the new product categories like that. And I think that really demonstrates how we view our business, as Jim was referencing earlier. We play at working with our customers to find out what products and capabilities make sense for us to add to help them deliver smiles.

So Fruit Bouquets -- we continue to grow that. It is continuing to move along throughout the company. And then a good example of that then is extending that into the Fannie May Berries line, and we have high expectations for that as well. And then when you look at the Fruit Bouquets website, for example, you see a whole suite of offerings there of different kinds of dipped fruits, dipped jalapeno peppers and things like that. You continue to see us extend our product capabilities, where our consumers give us permission to go.

I think it is just representative of what we -- were stated many times in the past, we are going to continue to invest for our future, whether it be on the technology side, and the mobile front, on the social front, or whether it be on product innovations and new product offerings.

Okay. And on the Fannie May program? The franchising?

Oh, Fannie May franchising. It is continuing to grow for us. We are pleased with the results. We have opened that up. And it is just continuing to grow. It is a good example of how we continue to look to be part of the multichannel approach to the marketplace, and these stores are going well. They continue to open up. And are helping us to increase Fannie May's national presence.

All right. Thank you very much.

You bet, Anthony. Thank you.

Thank you. (Operator Instructions). Our next question comes from David Kanen of Aegis Capital. Your line is now open.

Good morning, guys. Congratulations on another solid quarter.

Thank you, David.

Thank you, David.

Most of my questions really have been answered. The only lingering question was in regards to the relocation of the warehouse and the negative impact --if you could quantify it? It was a $1 million impact or just a few hundred thousand?

David -- I mean it was more significant. We mentioned it, so it was relatively significant. We are not in a position to quantify it for you.

I would say it was over $1 million issue. It was mostly related to labor and the timing that came with that. I would say it was in that range.

Okay. And then, let's see -- on the wholesale component of the Gourmet Food and Gift Basket business, could you give me a little more detail on what the increase was? I know it had a degratory effect on the gross margin due to the growth year-over-year. Was it 20% growth year-over-year? Can you give me a little more color?

David, it was certainly in that range.

I can give you a little background on that. We've been experiencing, unfortunately we had to beat ourselves here to death the last three years reporting declines in that business. So this year we were able to signal you because we had indications last quarter and the quarter before, that we would see a turnaround in this business, so we have. We saw a nice turnaround in the business, and what Bill said further was that, not only did the turnaround come from sales to existing mass merchant customers which, we did, but also they had very strong sell-throughs, that bodes well for next year. And we also increased our customer base in the past year. We are in position to accelerate that turnaround and accelerate that growth rate. So we are happy that the downside of that is behind us. And the good news in -- the fact that there was a slight deterioration of margin, as you mentioned -- the good news is it came from increased sales in our wholesale business, which, obviously, carries a smaller margin than our direct to the consumer business does.

Got it. Okay. And since pretty much all of my other questions have been answered, I have a comment, and I would like to get your take on it. And this is more theoretical -- in light of the new changes to the tax law -- I'm kind of putting myself in your shoes, Jim, but also would benefit as a shareholder. In theory, let's say you were to reduce your salary by $1.5 million, that would put you -- that would prevent you from going into that 40% federal bracket, which here on Long Island is over 50%, by staying under the $450,000 threshold. If I were in your shoes, I would start paying a dividend which could be taxed at 23.8%, inclusive of that Obamacare surcharge. I think the other benefit would be, now we all of a sudden open ourselves up to a whole new slew of investors that are yield hungry and looking for income, given low interest rates for the foreseeable future. So I would just like to, from a tax perspective, it seems more efficient. And I would like to kind of get your commentary and thoughts on that.

I appreciate your insights there and just your global perspective on the situation. The good news, David, is we have options. We have options because we have managed our expenses. We have managed our balance sheet. We have paid down our debt. We have accumulated cash. So we find ourselves in a good position of having these kinds of options, like the one you mentioned, before us. We take it seriously.

And frankly, the credit markets being what they are, the good credit rating we have, the great relationship we have with our banks; so we have a plethora of options in front of us, and dividends are one of those that we are regularly considering. I think you have seen us both at the most cost efficient and expedient thing that we could do last quarter was to repurchase the stock that we began. We signaled in our comments today that we expect to continue that. The good news, as you point out, is that we have lots of other options. And trust that we will be good stewards of our assets here and explore all of them.

Okay. Well, thanks very much, guys. And good luck in the March quarter.

Thank you.

Thank you.

Thank you. Our next question comes from Dan Kurnos of The Benchmark Company. Your line is now open.

Good morning, guys. Sorry I had to hop on a little bit late, so I apologize if these questions have been asked, but just two very quick ones for me. I want to know where you guys are at, in terms of the back-end development of your tech initiatives? And then secondarily, if you could just give us a quick update on how cross sell from your sites has been adding to growth? And sort of what kind of future growth you are expecting from all of the tech initiatives that you have been developing? Thanks.

Chris, would you cover the tech question?

I think as we [look at that] we are very pleased with our progress that we are making, on both the front end and back end of our tech initiatives. It is an ongoing process, right. As you finish up one part of the plan, you move on to the next phase of it. We are pleased with the progress. I think we are seeing the results, as we mentioned earlier, especially on the front end, on the e-commerce platform, as we move the food brands on to that. We are now moving the food brands onto the mobile commerce platform as well and we continue to enhance the back end. So we are pleased with that.

From the multi-brand approach to the marketplace -- Jim referenced this earlier -- it is a decision we made a long time ago, and we continue to see our customers respond to that. It's very difficult for us, at this early stage still, to kind of put any forecast to that. But it is just evidence of our are focus on deepening the relationships with our customers, bringing the products to the table that we know and they tell us, more and more through social interactions, what products they like to help deliver smiles to the important people in their lives. We are very pleased with the strategy. We are very pleased with the progress we are making. Very difficult to really put any forecast to that, at this point, other than what you see in our continued results.

I'll give you two points of color on that, Dan. One is we want each of our brands to have a discrete brand look and feel, and have their own website that reflects that. So that will continue. And you will see us refer to other websites, that would be more inline with your question around the cross brand multi-portal kind of -- multi-channel kind of marketing. So we want each of our brands to have its own website with its own discrete brand characteristics.

On the other hand, when you look at the 1-800-FLOWERS site, where we have most of our traffic, you see that we are birthing new brands. We birthed 1-800-BASKETS and now birthing Fruit Bouquet -- and now the most recent investment we've made is in the Fannie May Berries program, and that is getting significant exposure on the 1-800-FLOWERS site. So I think you can expect three things; each of our brands will have their own discrete websites for brand and for search benefit. Second is, we will cross-market brands that are appropriate on the lead site -- the 1-800-FLOWERS site to birth new brands. And third, we'll cross market products like we are doing with products like Fannie May Berries on several different sites, where we think it is appropriate.

Any thoughts on the timing of the development of the new discrete look and feel to each of your brands?

Chris, you just moved a few of our food brands onto the new platform.

Right, yes. There is no timing of a new discrete look and feel -- they have a discrete look and feel today. We always continue to evolve that and reiterate it. But the key is we are moving it onto one platform, which allows for more integration and cross brand pollination that we are doing. That will continue. We will finish that up in fiscal 2014.

Thanks, guys.

Thank you, Dan.

Thank you. At this time I am not showing any further questions on the phone lines. I would like to turn the call back to management for any further remarks.

Thank you, Sonya, and thank you all for your questions and interest today. If you have additional questions, please don't hesitate to contact us. As a reminder, though, the Valentine week is fast approaching -- in fact, it's only about a week away. Don't wait to call, click or come in to see the multitude of ways that we can help you deliver smiles and really wow your loved ones. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's presentation. You may all disconnect. Everyone, have a great day.