1-800-Flowers.Com Inc (FLWS) 2013 Q4 法說會逐字稿

Good day, everyone, and welcome to the 1-800-FLOWERS.COM, Inc. fiscal 2013 fourth quarter results conference call. This call is being recorded. At this time, for opening remarks and introduction, I would like to turn the call over to the Company's Vice President, Investor Relations, Joseph Pititto. Mr. Pititto, please go ahead, sir.

Thank you, Kevin. Good morning, and thank you all for joining us today to discuss 1-800-FLOWERS.COM's financial results for our fiscal 2013 fourth quarter and full year. 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 1-800-FLOWERS.COM, or you can call Patty Altadonna at 516-237-6113, to receive a copy of the release by e-mail or fax. In terms of structure, our call today will begin with brief formal remarks and then we'll open 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 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 your press release issued earlier 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 expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, or in recording of today's call, the press release issued earlier today, or in 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. [There's part of] the top and bottom line growth that we achieved in fiscal 2013 reflects a continuation of the positive trends that we have seen in our business for several years now. We achieved these results, despite our lackluster consumer environment that was buffeted throughout the year by headwinds from things like Superstorm Sandy, the distraction of the national elections, the concern over the fiscal cliff stalemate in Washington, et al. In addition to solid revenue growth, we also increased our gross profit margin through a combination of enhanced merchandising and sourcing initiatives. And we further reduced our operating expenses as a percent of revenue by leveraging our operating platform and driving more efficient marketing programs, such as our industry-leading initiatives in social and mobile. We are particularly pleased with our strong performance of our flagship 1-800-FLOWERS.COM business, where our e-commerce sales increased 4% for the year through a combination of both higher unit and average order value.

Also in the category, we again increased our gross margin, adding another 90 basis points on top of last year's significant gains, for a full year gross margin of 39.8%. Category contribution margin in this area increased more than 20% for the year to $47.2 million. The strong performance of our consumer floral business over the past several years illustrates the effectiveness of our focus on maintaining those aspects of our business that we can exert control and drive improved performance, including our enhanced merchandising programs featuring truly original product designs, and our marketing programs that are designed to engage directly with our customers to deepen our relationships with them and help them deliver smiles. We believe these results, coupled with the past two years' strong results, have enabled us to further extend our market leadership in the consumer floral category.

During fiscal '13, our BloomNet business continued to establish itself as the industry's go-to wire service for unsurpassed quality, service, and innovation. In addition to a number of enhancements to its unique digital directory, BloomNet also expanded its suite of online marketing services designed to help florists grow their business, and introduced the industry's first iPad application for its proprietary point-of-sale store management system. BloomNet also further deepened its relationship with professional florists through community building programs, including a new digital version of the popular Floriology magazine, featuring profiles of florists from around the country, and the new Fresh Forum On the Road seminar program, which builds on the success of our Floriology Institute based in Jacksonville, Florida, by taking its educational programs directly to florists in markets across the country. Our BloomNet's revenues were essentially flat for the year. Gross margin improved 400 basis points to 50.9%, primarily related to product mix and service mix. Combined with effective operating cost controls, BloomNet achieved a nearly 15% increase in category contribution margin to $25.6 million for the year. We believe BloomNet is poised to increase its market penetration and drive solid top and bottom line growth in this current fiscal year.

In our Gourmet Food and Gift Basket businesses, we increased total revenue for the year, reflecting strong e-commerce growth, particularly in our Cheryl and the Popcorn Factory brands. Revenues also benefited from year over year growth in our wholesale Gift Basket division, which showed a solid turnaround after several years of declining sales. In addition, sell throughs by our mass market customers were strong during the key holiday period last year. This has led to higher demand for the upcoming holiday season. As such, we're confident that our wholesale Gift Basket division will continue to rebound nicely in this fiscal 2014.

As we announced after our second quarter back in January, our Fannie May business did not perform up to our expectations during fiscal '13, due primarily to operational issues. During the second half of the year we implemented a number of initiatives to address these issues. We changed out several members of the senior management team. We realigned reporting lines throughout the Company. And we added new personnel focused on upgrading operating processes at both the factory and distribution center.

The costs associated with these issues, combined with the investments we have made to address them, resulted in impacts to both gross margin and category contribution margin for the overall Gourmet Food and Gift Basket segments. However, we are confident that the efforts that we now have under way will enable Fannie May to bounce back and perform well from both a top and bottom line perspective this fiscal 2014. Also within the category, we made the decision during the fourth quarter to divest of our Winetasting.com business, which has proven to be difficult to grow at an acceptable rate, due primarily to the many conflicting interstate shipping regulations that apply to wine. Going forward, we expect to continue to offer wine in gift baskets using external resources.

Lastly, we are very excited by the growth opportunities we see in our expanding line of fruit gifts, specifically our FruitBouquets.com and new Fannie Mae berry lines. Fruit Bouquets during fiscal 2013 we continue to leverage our floral franchise and BloomNet network to increase delivery coverage around the country. Feedback from the Fruit Bouquets line from both customers and the florists fulfilling the products for us has been very positive and we are excited by the long-term opportunity to capture share in a growing market that is already more than $0.5 billion in sales in the US alone. Equally exciting has been the launch of the new Fannie May Berries lines. And Fruit Bouquets during fiscal 2013, we continued to leverage our floral franchise and BloomNet network to increase delivery coverage around the country. Feedback on the Fruit Bouquets line from both customers and the florists who are filling the products for us has been very positive, and we are excited by the long term opportunity to capture share in a growing market that is already more than $0.5 billion in sales in the US alone.

Equally exciting has been the launch of the new Fannie May Berries line -- incredible strawberries, especially selected for their size and freshness, that are dipped in real Fannie May chocolate We launched Fannie May Berries in time for the Valentine's holiday this past year, and customer reaction has been excellent. Throughout fiscal 2014, we will be working to scale our production and distribution capabilities for this new line, and developing marketing campaigns to help drive brand awareness nationwide. Here again, we believe we are well positioned to capture share in an already large and growing market for strawberries as well as other fruits, dipped in real chocolate, products our customers are increasingly embracing as great gifts and a great way to deliver a smile. I will now turn the call over to Bill for a review of the financial and operating metrics for the quarter.

Thank you, Jim. As we noted in our press release this morning, our fiscal '13 fourth quarter results include the impact of the shift of the Easter holiday into our fiscal third quarter. This shift reduced fourth quarter revenues compared with the prior year, particularly in our Gourmet Food and Gift Baskets segment. We have provided revenue results for the quarter on a comparable non-GAAP basis, adjusting for the Easter shift, as well as providing results on an as reported basis. We believe that additional information provides a clearer picture of our performance for the fiscal fourth quarter compared with the respective prior year period. In addition, during the fourth quarter we made the strategic decision to divest of our Winetasting.com business to better focus on the significant growth opportunities we see elsewhere in our Gourmet Food and Gift Basket segment. Therefore, our Winetasting.com business is presented herein as a discontinued operation.

Regarding specific financial results and key metrics for continuing operations. For the full year, revenues grew 4% to $735.5 million, compared with $707.5 million in the prior year. Gross profit margin increased 10 basis points to 41.5%, compared with 41.4% in the prior year. Operating expense ratio improved 50 basis points to 38% of total net revenues, compared with 38.5% in the prior year period. Operating expenses for the year increased 2.5% to $279.4 million, compared with $272.6 million in the prior year. As a result, adjusted EBITDA for the year, which excludes stock-based compensation expense of $4.3 million, and a pretax gain of $3.8 million in fiscal 2012 from the sale of 17 Fannie May Company-owned stores, increased $4.5 million, or 10.2%, to $48.9 million, compared with $44.3 million in the prior year. Including the impact of stock-based compensation, adjusted EBITDA for the year increased $5.1 million, or 12.9%, to $44.6 million, compared with $39.5 million in the prior year.

Adjusted net income from continuing operations grew 43.9% to $15.7 million, or $0.24 per diluted -- per fully diluted share, compared with $10.9 million, or $0.16, per fully diluted share in the prior year. Free cash flow for the year was $14.6 million, and reflects additional investments of $5.3 million made during the second half of the year. Adjusting for this, free cash flow would have been approximately $20 million. The additional investments included approximately $2.3 million for the purchase of certain technology licenses, and approximately $3 million for increased inventory related to several factors associated with growth in our Gourmet Food and Gift Basket segment, including incremental order for gift baskets that required early delivery for the upcoming holiday season, and an early build of inventories for the upcoming holiday season at our Cheryl's brand, where very strong customer demand is beginning to push up against production capacity at our baking facility in Ohio. As a result of this demand, we will be breaking ground on a plant expansion project in the second half of fiscal 2014.

For the fiscal fourth quarter, total net revenues increased 1.4% to $173 million on a comparable non-GAAP basis, adjusted for the shift of the Easter holiday. On a reported basis, revenues for the quarter declined 2.5% to $173 million, compared with $177.3 million in the prior year period. Gross profit margin was 41%, compared with 41.6% in the prior year period. The decline in gross profit margin for the quarter reflects higher gross profit margin in our Consumer Floral and BloomNet businesses, offset by lower gross profit margin in our Gourmet Food and Gift Basket business, related to both the aforementioned Easter shift and the operational issues at Fannie May. Operating expense ratio was 40.7% of total net revenues, compared with 40.1% in the prior year period, again, primarily related to the aforementioned Easter shift and the operational issues at Fannie May. As a result of these factors, EBITDA for the quarter, excluding stock-based compensation expense, was $6.3 million, compared with $8.6 million in the prior year period.

[And net] income from continuing operations for the quarter was $538,000, or $0.01 per fully diluted share, compared with $1.7 million, or $0.03 per fully diluted share, in the prior year period. Net loss from discontinued operations for the year was $3.4 million, or $0.05 per share, including a loss of $1.5 million, or $0.02 per share, related to the anticipated loss on divestiture of the Winetasting.com business. This compared with a gain of $4.3 million, or $0.07 per share, in the prior year, which included a gain of $4.5 million resulting from the sale of our winery services business during fiscal 2012. For the quarter, results from discontinued operations were a loss of $2.3 million, or $0.04 per share, including the aforementioned loss of $1.5 million, or $0.02 per share, related to the anticipated loss on divestiture of the Winetasting.com business, compared with a gain of $100,000, or breakeven per share, in the prior year period.

Consolidated net income for the year, including results from discontinued operations, was $12.3 million, or $0.19 per share, compared with net income of $17.6 million, or $0.27 per share, in the prior year. For the quarter, net loss, including discontinued operations, was $1.7 million, or $0.03 per share, compared with a net income of $1.8 million, or $0.03 per share, in the prior year period. In terms of customer metrics from continuing operations, for the year, e-commerce orders increased 5.9% to $8.71 million, compared with $8.228 million in the prior year. For the quarter, e-commerce orders were $2.163 million, essentially flat compared with the year-ago period.

Average order value for the year was $61.60, compared with $62.26 in fiscal 2012. The lower AOV reflects growth in our popular Cheryl's Cookie Card, without which our AOV increased for the year. Average order value for the fourth quarter was $64.31 compared with $63.61 in the prior year period. For the year, we added 2.3 million new customers, representing an increase of 14.1% compared with the prior year, with repeat orders representing 52.3% of total customers. During the fourth quarter we added 650,000 new customers, up 12.7% year over year, while concurrently stimulating repeat orders from existing customers, who represented 60.2% of total customers.

Now in terms of category results. In our 1-800-FLOWERS.COM consumer floral business, full year revenues grew $13.3 million, or 3.4%, to $411.5 million, and fourth quarter revenues grew approximately $1.9 million, or 1.5%, to $125.9 million, compared with $398.2 million and $124 million in the respective prior year periods. Gross profit margin increased 90 basis points to 39.8% for the year, and 130 basis points to 40.5% for the fourth quarter, compared with 38.9% and 39.2% in the respective prior year periods. The significant improvement in gross profit margin reflects enhanced product mix, sourcing, improved logistics and the effectiveness of our marketing and merchandising programs, which focus on customer engagement and feature reduced promotional activities. Category contribution margin for the year grew 20.6% to $47.2 million, and 31.6% to $16.1 million for the fourth quarter, compared with $39.1 million, and $12.2 million in the respective prior year periods. This reflected the growth in revenues combined with higher gross margins and enhanced marketing efficiencies. The Company defines category contribution margin as earnings before interest, taxes, depreciation, and amortization, and before the allocation of corporate overhead expenses.

In terms of our BloomNet wire service business. Full year revenues were $81.8 million, down 0.9%, and fourth quarter revenues were $20.5 million, down 5.7%, compared with $82.6 million and $21.7 million in the respective prior year periods. The lower revenues for the fourth quarter reflect the impact of the aforementioned shift of the Easter holiday, and for the quarter and the year, revenues also reflect product mix, including a reduction in lower margin shop-to-shop orders and wholesale product sales, somewhat offset by growth in high margin products and services, including our web marketing services, directory advertising, and the florist selection guide. As a result of the product mix, gross profit margin increased 400 basis points for both the year and the quarter to 50.9% and 52.2%, respectively, compared with 46.9% and 48.2% in the respective prior year periods. And category contribution margin increased 14.6% to $25.6 million for the year, and 6.2% to $6.8 million for the fourth quarter, compared with $22.3 million and $6.4 million in the respective prior year periods, reflecting the higher gross margins and effective operating cost controls.

In Gourmet Foods and Gift Baskets, full year revenues increased 6.7% to $243.2 million, while fourth quarter revenues declined 15.7% to $26.7 million, reflecting the shift of the Easter holiday, compared with $228 million and $31.7 million in the respective prior year periods. Revenue growth for the year was driven primarily by strong e-commerce demand in our Cheryl's and Popcorn Factory brands, combined with increased orders for our wholesale gift baskets, somewhat offset by lower wholesale volumes in our Fannie May brand. Gross profit margin for the year was 40.6% and 32.9% for the fourth quarter, compared with 43.1% and 45.6% in the respective prior year periods. For the fourth quarter, gross profit margin was impacted by product mix associated with the aforementioned shift of the Easter holiday, as well as operational issues at our Fannie May production and distribution facilities, which we've discussed with you in previous quarters. And for the year, gross profit margin was impacted by these operational issues as well as product mix, particularly higher growth in wholesale gift baskets.

Category contribution margin was $20.3 million for the year, compared with $26.4 million in fiscal '12, excluding the one-time gain of $3.8 million from the sale of the 17 Fannie May Company-owned stores in the prior year. For the fourth quarter, category contribution margin was a loss of $6.6 million, compared with a gain of $760,000 in the prior year period. Fourth quarter category contribution margin reflected the aforementioned Easter shift, both the quarter and full year were impacted by costs associated with the aforementioned Fannie May operational issues and subsequent investments we've made to address those issues and investment costs associated with the launch of the new Fannie May Berries line during the second half of the year.

In terms of corporate expenses, our category contribution margin excludes costs associated with the Company's enterprise shared 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 full fiscal year, corporate expenses from continuing operations, including stock-based compensation, was $48.6 million, compared with $48.4 million in the prior year. For the fiscal fourth quarter, corporate expense from continuing operations, including stock-based compensation, was $10.9 million, compared with $12 million in the prior year period.

Turning to our balance sheet. At year-end, our balance sheet was debt-free, with cash and investments of $154,000, and no borrowings under our new revolving bank credit facility, which I will describe for you in a few moments. It is worth noting that during the fourth quarter, we made the final payment of $18 million on our term debt, for a total of $29.3 million paid during fiscal 2013, and more than $130 million paid since 2008. We accomplished this through solid cash flows, even through an unprecedented recessionary economy, combined with proceeds from divesting nonstrategic assets, all while continuing to invest in our core business platform, as well as a broad range of initiatives designed to drive long-term growth. During fiscal '13 we also used nearly $10 million in cash, buying back approximately 2.5 million shares of our stock. Our new credit facility, which we closed on back in April, provides us with considerable flexibility to grow our business growing forward. It is comprised entirely of a $200 million revolving line of credit, and features an advantageous interest rate of LIBOR plus a range of 150 to 225 basis points.

Jumping back to the balance sheet. Inventory at our fiscal year-end was $55.8 million, compared with $53.9 million in fiscal 2012. This includes the aforementioned inventory prebuild in our Gourmet Food and Gift Basket segment for the upcoming holiday season. Adjusting for this earlier-than-usual prebuild, our inventory would have been down year over year, even with our revenue growth. We anticipate inventory will grow at a significantly slower rate versus our expectations for revenue growth during the current fiscal year.

Providing guidance. For fiscal 2014 we expect to achieve revenue growth across all three of our business segments, with consolidated revenue growth for the year in the mid single-digit range. We also expect to grow EBITDA and EPS at rates in excess of the expected revenue growth, reflecting our anticipation for continued improvements in gross profit margin and operating leverage across the Company. In terms of free cash flow, we expect to generate approximately $20 million during fiscal 2014. This, despite an expected increase in our capital expenditures for the year, to approximately $23 million for the start of a plant expansion for our fast growing Cheryl's brand, which I mentioned earlier. I'll now turn the call to our President, Chris McCann.

Thanks, Bill. As Jim and Bill have noted, our fiscal '13 results reflect the positive trends that we've been seeing in our business for the past several years. This has been driven by solid performance across all of our key brands and businesses. In our Floral category, our core 1-800-FLOWERS brand has continued to expand its market leadership position with solid e-commerce growth in a highly competitive marketplace. This was illustrated in the fourth quarter by our strong performance over the Mother's Day holiday, which I'll come back to in a moment. In BloomNet, we have become the leading innovator in the wire service industry, with an expanded suite of products and services designed to help our florists grow in a difficult economy. BloomNet continues to manage its business exceptionally well, driving strong year over year growth in contribution margin on essentially flat revenues.

In Gourmet Food and Gift Baskets, we're seeing strong e-commerce growth from Cheryl's, the Popcorn Factory, 1-800-BASKETS.COM, and Fannie May, and we're building national awareness for these brands through our new multi-branded website and our diverse marketing programs. The wholesale division of our Gift Basket business is bouncing back nicely after several challenging years, as mass market customers react to the strong sell throughs they saw in last year's holiday season, and increasingly embrace our lineup of new product designs for this upcoming holiday season. We are also confident that the initiatives we have under way to address the operational issues we faced at Fannie May this past year will result in significantly improved performance during fiscal '14.

Jumping back to Mother's Day holiday, as I mentioned a moment ago, we achieved strong performance for this key holiday period. Our order volume increased more than 5%, reflecting the effectiveness of our marketing programs, online and offline. Average order value and gross margin also showed year over year increases, reflecting our customers' enthusiastic response to our truly original products and our disciplined approach to promotion. And, in what has to be one of the best complements a brand can receive, 1-800-FLOWERS.COM's place in America's cultural fabric was confirmed when Saturday Night Live alumni, Kristin Wiig, kicked off her highly touted return to the show by featuring 1-800-FLOWERS in a great spoof of Mother's Day family relations. If you haven't already seen it, I encourage you to go to YouTube and watch it. I can guarantee it will deliver a smile to you. On that note, I'll turn the call back to Jim.

Thanks, Chris. About that Saturday Night Live skit, it was a great and very funny compliment for our brand. And we're still hearing about it from our customers and friends. This illustrates the strength of the 1-800-FLOWERS.COM brand, something we've built our business on for more than 35 years now. The same strength that has enabled us to achieve the positive trends in our business that we've seen for the past several years. As you saw from our press release this morning and our remarks here today, fiscal 2013 was another good year for 1-800-FLOWERS.COM, during which we achieved solid revenue growth in a lackluster consumer economy, increased gross margin and reduced operating expense ratio, double-digit growth in adjusted EBITDA and EPS, a debt-free balance sheet, significantly enhanced financial flexibility through a new credit facility, and we bought back nearly $10 million worth of our stock, while continuing to innovate and invest for the future in key areas, including new product development programs, our technology platform, and our social and mobile initiatives, among others. Most important, we continue to deepen our relationships we have with our customers by engaging directly with them to help them deliver smiles.

That concludes our formal remarks. We'll now ask Kevin to -- our moderator to please restate the instructions for the Q&A portion. Kevin?

(Operator Instructions). Dan Kurnos, The Benchmark.

Just a couple -- few questions from me here. First on the consumer floral side, we heard from other people in the industry that Mother's Day was extremely competitive from a promotional standpoint. You guys did pretty well to still grow in the quarter. A little bit better than we were expecting. Could you just give us your thoughts on the promotional environment in general? Do you think it continues to get more aggressive from here, or has it stabilized?

I think, Dan, we work in a highly competitive industry, and I think holidays we see our competitors be highly promotional. With that said, I think what you're seeing from us, we've been able to leverage the strength of our 1-800-FLOWERS brand, focus on our marketing efforts on balancing promotional programs, with messaging that reminds our customers to wow their recipients. I think that's enabled us to drive solid growth in both units and average order value, while also increasing our gross margin. I think what you're seeing is us demonstrating an ability to continue to manage our brand, position it into the American culture, and make sure that we can deliver the results without having to resort to being overly promotional.

And I'm not sure if I missed it. I know you talked about total results ex-Easter. What would your consumer floral have been ex-Easter in revenue?

You have it two ways -- you have the Mother's Day period and then the quarter overall, Bill.

Yes, the quarter overall consumer floral would have been growth of about 3.5%.

Great, thanks. On BloomNet, I think this might be the second quarter in a row that we've seen some declines in the wholesale channel. Is there any competitive issue there, or could you give us a little more color what's going on with BloomNet from that regard?

No, I don't think it's necessarily a competitive issue. What we had seen earlier was that the wholesale business had suffered a little bit really starting back in Q2.

Right after Sandy.

Yes, right after Sandy, and some delays there. But then I think what we're seeing is pick-ups on some of the higher margin parts of our products and service offerings -- our web marketing services, our digital directory, our florist selection guide. We're seeing pick-ups there, which is helping to drive the improved gross margin.

This is Jim. We're confident for the year, as you've heard us state in our forecast, that we'll grow the top line for BloomNet this year and the bottom line. And of course, we intend to grow the bottom line disproportionate to the growth of the top line. And I think one of the things that I put on a light on there, Chris just mentioned, was that we introduced a first in-category iPad application for our florists to use to replace the old point of sale systems, and is a front end of the whole business management software programs that we're selling into our florists, with great acclaim. The florists really like it. It gives them the ability to participate, like everyone else does, in the modern era, in terms of how they communicate with their customers, show them their capabilities for weddings and funeral presentations, all of which they can do on these iPad devices. So you see, again, us taking a leadership position there. You'll see that the category BloomNet is well positioned. It's clearly the go-to leader, and I think in spite of the issues we had with Sandy, et al. throughout the year, we're very confident in our forecast that we'll grow both top and bottom line this year.

That's helpful color, Jim. Thanks. One more, if I could. On the Gourmet Foods side. If you could give us a sense of how you feel now about your brand portfolio, where you are in the process of scaling some your larger names. You spun off wines, and just how we should think about the investment process going forward. Thank you.

I think that you can count on us being -- I think we've demonstrated good evidence that we're good stewards of the assets that we have. That will involve two things here in the Gift Food category, Dan. One is, if we have a brand like we did with wine tasting, we've taken two steps there. We realized it wasn't important for us to be in the services end of the business, so last year we divested the biggest part of the wine business, which was the services part of the business. We did that very well. It's a good, successful business for the Company that acquired it. And then we kept the direct-to-the-consumer piece.

But as we realized, it's from a human capital point of view and from a fiscal capital point of view, it's too small a business to earn our attention, and it's not a big enough growth opportunity with all the others that we have for it to [suffer] attention and resources when we have brands like Cheryl's that are on fire. When we have a brand like Fannie May that's a strong brand, saw some operational difficulties, but can really accelerate its growth rate this year. And when you see 1-800-BASKETS with its retail and wholesale divisions really starting to improve on the wholesale side and gain ever more attraction on the retail side, it just makes sense for us to continue to invest in that portfolio. And by the way, the Popcorn Factory, although a smaller brand, doing very, very well, too. So we'll continue to prune when it's appropriate. I think we're done with the pruning now. So that we can invest both the unit capital and fiscal capital behind those really good growth engines. And we have others in the portfolio that as they warrant the attention, we have the capital resources available to help fire up their growth, as well.

Great. Thank you very much.

Eric Beder, Brean Capital.

Congratulations on a solid year.

Thank you.

Could you talk a little about the -- I know you've been updating your website now with the multi-tabs and the single card. How has that affected cross shopping between your customer base online?

I'll ask Chris to go into the detail on that. I'll just tell you that you should always expect that we're trying to do two things, Eric. With our product selection, with our price points, with our truly innovative products that we're bringing to market, we're trying to do two things. We're trying to grow the size of the wallet, that is how much customers think about using our products to express themselves and connect the important people in their lives with a good range of products, good breadth of products, and a variety of price points. And second, we're trying to grow our share of that wallet. So I think you'll see from the color that Chris can give you, that the multi-branded portal opportunities and efforts are giving us increased opportunity to do both those things -- grow the wallet and our share of it.

I think Eric, we've begun that experiment, so to say a year or plus ago, and the early results we had then warranted us to therefore make the decision to further invest in that strategy, in that direction. So while we did that from a multi-[rated part]. We put it up there, [tracked some] experimentation, saw some encouraging results from cross-brand shopping and exposure of the other brands to our customer base. We're now in the phase where we then come back and said okay, now let's invest in the technology architecture really underlying that. We're in the midst of doing that now. We'll be coming out of that during the fall season and then I think you could expect to see us start to put more attention then onto the marketing efforts behind that, both on platform and then through our direct marketing efforts to drive more multi-branded usage, really positioning us as our customers' go-to destination for all of their gifting needs to help them deliver smiles.

In terms of the fresh fruit initiative, the fresh fruit basket initiative, is the holdup here the permitting process, which is taking this and making this all longer than you expected, or is it something else?

Eric, it's not so much necessarily the permitting process. It's just that, as we're expanding what we're very pleased with the traction that we're getting in expanding Fruit Bouquets through our florists, primarily our franchise florists, select BloomNet florists. So we're continuing to increase our penetration there. We're continuing to increase our coverage, and I think what you'll see is when we get to the point of where we're at a little bit more, it's going to take us a little more time to get to a point of critical mass that will enable us to put more marketing effort behind that product line. What we're seeing so far is in markets where we have established, let's say last year where we had the capability, and all we're really doing so far is merchandising the product, we're seeing nice, what we call same zip code sales increases. It's kind of a same store sale comparison where we had the product last year, and then this year we're seeing nice increases, just through merchandising initiatives. So as we get to that critical mass of distribution, we'll be able to put more marketing effort behind it.

I'll give you a little color on one shop that I'm familiar with, in particular, one of our franchisees who introduced the Fruit Bouquet program, Eric. He tells me that now about a third of his sales, or the one-third gross sales increase in his business, comes from his introduction of Fruit Bouquet program just over a year ago. To Chris' point, not only are we seeing our business expand as we add new zip code coverage, but even within the zip codes that have been open for a year or more now, they're seeing great same store sales increase within the product. Here's a guy who's telling me it's such a good thing for him because he has a one-third increase in his sales and he has no increase in his rent, and he has no increase in his other expenses, other than more delivery expense because he has more units going out the door. That's a wonderful profile. And that's why our florists are so excited about the program. But as Chris mentioned, it's a yin-yang kind of thing that we have to -- as we increase our distribution, once we get to the point that we can turn the marketing guns on and not just do it through merchandising, you can expect that to ramp up. That's why we feel Fruit Bouquets, our other dip fruit businesses and our Fruit Bouquets program, all will be very big businesses for us in the future.

Great. And in terms of the strawberries, is that also as big an opportunity, and what's the next step for the strawberries? Thank you.

I think the next step in strawberries is similar. We introduced it this year, so we ran the expenses of building the facility, of introducing the product line, all the packaging, the initial merchandising that we had to do there, and the people we had to put against it. So we did that. We had it out for the Valentine's Day, [the take regularly store]. The customer feedback was even better. So we're very excited.

Everything we hoped to prove with the introduction has been proven. I'm not sure if it's a bigger opportunity than Fruit Bouquets overall. I don't know. But I think our portfolio of Fruit Bouquets, dipped fruits, strawberries, and others, are segments, that as I mentioned, I think are going to be very good for us this year. But every year you'll see them grow, not only from the spread of our distribution capabilities, but within the -- with the same store sales growth, wherever we have them, the take rate is just enormous.

Great. Thank you.

Michael Kupinksi, Noble Financial.

Just a couple of quick housekeeping questions here. In terms of the restatement of gift baskets, that was solely due to the Winetasting.com going into discontinued operations. There is nothing else in those numbers; right?

That is correct.

Okay. And in terms of your capital expenditures for next fiscal year, have you guys -- maybe I missed this. Could you just remind me what that might be?

You remember -- I'll ask Bill to give you the specifics. But you remember for the last two or three years, we've been around $17 million in CapEx.

Right.

So we're still projecting to do $20 million in CapEx. But this year we're increasing our CapEx spend to --

CapEx this past year, as we just reported, was about $20 million, up over the $17 million or $18 million that Jim just related to. Due to -- kind of late in the year we made an investment in technology licenses that we thought were important for the Company. So that brought this year's up to $20 million. Next year we expect it to be higher than that, about $23 million, which is incremental to, again, our normal steady $17 million to $18 million, because we're going to be expanding in the second half of the year our Cheryl facility. Our Cheryl facility -- we've talked about Cheryl's over the last couple years -- has grown significantly, and we anticipate it to continue to grow very nicely. We're breaking ground on expansion of that facility in January of this year. The result of that would be that we'll -- at the end of that, we'll be to double the size of the production (multiple speakers).

Double our capacity.

Capacity of -- the baking capacity of that facility.

As we look into your guidance for fiscal 2014, you indicated that you expect some improvement from Fannie May, and then also, obviously, I would assume that you have Cheryl's picking up some contributions there, as well. Can you just give us a little bit more color on what your expectations are, might be embedded into the guidance related to Fannie May?

Fannie May had a tough year, as we have described in multiple quarters now. We do expect a significant turnaround within the Fannie May operation. We've spent dollars this year to address those operational issues that we had both within the --

-- operations.

-- the facility and the distribution facility, as well as changing over management and bringing on some operational consultants to work with that. So we do expect a big rebound in Fannie May. We do expect Cheryl's to continue to perform very nicely, and as we alluded to in our comments, we expect our wholesale gift baskets to continue to perform, so --

And popcorn. We expect all the businesses that are doing well to continue to do well in an increasing fashion, and we expect that we should be able to turn around Fannie May this year, based on things we've already done.

In terms of the Fruit Bouquets, it seems like a great opportunity, a growth opportunity for you guys. I was just wondering, what are the take rates, I suppose, on -- in terms of the number of florists that have upgraded their facilities to offer Fruit Bouquets? And would you have any specific guidance in terms of what your expectations are for fiscal 2014?

Michael, we commented, we're very pleased with the progress that we're making in the distribution coverage so far. We don't have a specifically -- numbers of shops on that or percentage of coverage. It's increasing nicely. We expect within a short time frame that we'll be getting to that point of critical mass, where we should start putting the marketing effort behind that we mentioned before. It continues to grow. It continues to grow within market, where, like I had mentioned before, same zip code sales. And we're excited about the prospects.

Can you remind me, do you have any authorization left on your existing share repurchase authorization? Or maybe you might want to just talk a little about what are the best uses of cash at this point.

From an authorization standpoint, we had gotten a reauthorization of $20 million back early this fiscal year, and we have about $19 million of that remaining. So we have plenty of opportunity there.

As you can see, Michael, in terms of cash, we're in a good position, we're generating good excess free cash flow. We've used about $10 million in the last fiscal year toward a stock repurchase program. We're happy to have begun that, and we'll continue our stock repurchase program. We've cleaned up our balance sheet so that we're pristine now, with zero debt and a great credit facility in place to give us great flexibility, give us great opportunity. So in terms of uses of cash, we'll continue to grow our business organically. We invested cash behind the Fruit Bouquet business this year, we invested cash behind the Berries program this year, we invested cash against the fixes we needed to make and are now underway at Fannie May. And we've invested -- we will be investing cash this year behind the expansion of our bakery facility in Columbus.

So we have the good cash wherewithal to do it. In terms of other growth, we think there are other organic initiatives that we can use. We've been fairly successful over the last few years on small bolt-on acquisitions, and should we find the right M&A opportunity that will help our business and help our portfolio of brands, mostly by helping our customers to express themselves and connect to the important people in their lives in creative and new ways. We have the wherewithal to do that, as well. I think you see the mix of our uses of cash being consistent, except that we've not done anything significant in the M&A arena for the last couple of years.

Great. Thank you.

You bet, Michael.

(Operator Instructions) Anthony Lebiedzinski, Sidoti and Company.

Jim, you just mentioned that you are potentially looking at some bolt-on acquisitions, so if you could just further expand on that. Are you actually seeing interest from companies looking to sell themselves, or can you just talk about potential pipelines for such acquisitions?

Well, I don't want to mislead you there, Anthony. I didn't say that we have a great potential there. I think what I've said is that we've done that successfully over the last few years, where there's an area to buttress something that we do add a technology, perhaps. And we'll continue to look at those. There's no great pipeline of those. But yes, we're seeing -- the fact that we've continued to do well through this environment, that we have the cash resources that we have, that we've been good stewards of our cash. Yes, we attract inquiries, and frankly, we look at a lot of them. But we're very disciplined about exactly what we'll do in terms of how it would fit with our portfolio or expand the portfolio, what its financial characteristics are from an inventory, from a leverage point of view, in terms of leveraging and things that we could bring to the table. So we're active. We have a strat/dev team that works on these issues all the time. But nothing that we're prepared to report on now, because it's just a continuing effort for us to do organic growth, bolt-ons to help that organic growth, and we're active and interested in the marketplace for things that will help our Company grow. But they have to meet our profile and our criteria, and we've been very, very disciplined about that.

Okay, well thanks for that clarification. And also, you've done a good job with improving your gross margins. When I look specifically at the Consumer Floral segment, you've done less promotions, you've improved your product mix. Now going forward, do you see further incremental opportunities to improve the gross margin within the Consumer Floral segment?

Chris, do you want to cover specifically the consumer floral? Because the answer is yes, we see marketing expansion opportunity on ratio improvement opportunity across the board. But Chris, specifically to Consumer Floral, or Bill?

I'll just comment. I think Bill can add a little bit more color, too. I think, seeing our disciplined approach, certainly the balance between managing the brand and increasing the brand awareness, the relevancy of the brand, it helps us increase AOV, gets the right product, the truly original designs out there, that has helped us to move our marks enough, not only in the floral, but across the board, businesses that are performing well.

From a standpoint of Consumer Floral, I think to be -- to assess it, it improved 90 basis points this year. We have gotten our Consumer Floral margins up to almost 40 basis points, which is a very strong --

Very important points, on basis points.

Yes, 40 -- Which is very strong margins, it's probably the highest we've had in the Company's history. So we've done a very good job of getting those margins. We think there's really greater opportunity across the enterprise to improve margins.

So I don't think we're looking to push margins much more in the floral side, but yes, we think we have gross margin opportunity across the enterprise, as Bill and Chris just said, in our GF/GB brands. And where we have operating expense ratio leverage, that any growth gives us good leverage return, which is why we're able to forecast each -- and achieve each of the last few years -- double-digit increases in our bottom line.

Okay. And what is your outlook for commodity costs, including cocoa?

I'll let Bill give you the specifics, but we all read the newspapers every day, and commodity costs are something as a Company we have to address all the time. Certainly, fuel costs are at a recent high, and cocoa, Bill, would you address specifically how we've handled cocoa.

I think we've done a really good job with that overall from a commodity standpoint. Certainly, cocoa was our biggest commodity that we've had and we've locked in very favorable pricing on cocoa that will cover us through this fiscal year. In the past we've employed strategies where we've actually taken possession and bought butter when we saw butter on a dip, we bought butter prior to high spikes in butter. I think we do a good job on the food commodities that we deal with. As Jim references, as we're entering fiscal '14, we're already seeing higher oil prices, and with all the unrest in the Middle East, that is something we have to monitor. And ultimately we look for ways to offset that.

Okay. Thank you very much.

I'm not showing any further questions at this time. I'd like to turn the conference over to Jim McCann for closing remarks.

Thank you, Kevin. Thank you all for your questions and your interest today. If you have any additional questions, please try to get in touch with us. Enjoy the Labor Day weekend, and don't forget to visit our website to join in on our Summer of a Million Smiles program that is now growing across the country. It is a great way for you to help deliver a smile to someone deserving in your community, and in communities all around the country. Thank you again for your participation today.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.