1-800-Flowers.Com Inc (FLWS) 2014 Q2 法說會逐字稿

Good day, everyone, and welcome to the 1-800-FLOWERS.COM, Inc. fiscal 2014 second-quarter results conference call. This call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to the Company's Vice President of Investor Relations, Joseph Pititto. Mr. Pititto, please go ahead, sir.

Thank you, John. Good morning, and thank you, everyone, for joining us today to discuss 1-800-FLOWERS.COM's financial results for our fiscal 2014 second quarter. For those of you who have not received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our website at 1-800-FLOWERS.COM, or you can call Patty Altadonna at 516-237-6113 to receive a copy of the release by email or fax.

In terms of structure, our call today will begin with brief formal remarks, and then we'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 the statements that we will make today may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to our press release issued this morning, as well as our SEC filings, including the Company's Annual Report on Form 10-K, and our Quarterly Reports on Form 10-Q.

In addition, this morning, when we 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, any recordings of today's call, the press release issued earlier today, or any of its SEC filings, except as may be otherwise stated by the Company.

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

Good morning. In our fiscal second-quarter, we achieved a solid top and bottom line growth. This reflects a continuation of the positive trends that we've been seeing in the key areas of our business for the past three years now. Total revenues increased 6%, with solid growth across all three of our business segments. Importantly, we achieved this growth despite the significant headwinds we saw during the year-end holiday season, including the impact of the federal government shutdown in October, and the calendar shift that resulted in six fewer shopping days between Thanksgiving and Christmas.

We are particularly pleased with the performance of our Gourmet Food and Gift Baskets segment, where our gift basket business in the mass-market channel again showed double-digit year-over-year revenue growth, and continuing the strong rebound that started last year. Based on early sales reports, sellthroughs were good, which bodes well for a continuation of this positive trend for next year's holiday season.

In addition, we achieved solid results in our Fannie May Fine Chocolates business, reflecting the effectiveness of the initiatives we implemented to address the operational challenges this business faced a year ago. Fannie May's manufacturing, warehousing and distribution operations ran smoothly throughout the busy holiday season, resulting in increases in gross profit margin and contribution margin for the quarter. Overall, the Gourmet Food and Gift Baskets segment achieved solid growth in revenues and gross margin, while reducing operating expenses as a percent of revenue, and thereby driving a significantly enhanced bottom-line contribution for what is a most important quarter.

In our 1-800-FLOWERS.COM segment, we achieved a 5.8% revenue growth for the quarter, further expanding our market position as the world's leading florist. Results in this segment included the consolidation of our iFlorist business in the UK, which added to revenues but impacted gross profit margin for the quarter. I'll ask Bill to provide a little bit more color on the financials in his financial view on this in a few minutes.

In BloomNet, we grew revenues 6.3% during the quarter, and increased contribution margin by almost 8%. This growth reflects the nice momentum BloomNet has been building, as it increases its market penetration for its expanded suite of innovative products and services. As a result of all these factors, we grew our EBITDA and EPS for the quarter compared with the same period last year. In addition, we finished the quarter with no net debt on our balance sheet, and we continue to buy back shares in our Company, spending approximately $6.5 million on share repurchases since the start of this fiscal year.

We have a very strong balance sheet, and we anticipate growing our cash position during the second half of the fiscal year. To remark on our very flexible credit line, we are well-positioned to invest in our business to drive growth and build shareholder value.

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

Thank you, Jim. During the second quarter, the headwinds that Jim mentioned resulted in uneven sales growth, illustrated by sales in October that were essentially flat year-over-year, due, we believe, to the impact of the federal government shutdown; a rebound from double-digit sales growth in November, albeit compared with a year-ago Storm Sandy impact in November; and concluding with December sales that were impacted by the compressed shopping season. Despite these challenges, we were able to achieve revenue growth in all three of our business segments, overall gross margin improvement despite a very promotional environment, and strong top and bottom line results in our Gourmet Food and Gift Baskets segment, including the turnaround in the operations of our Fannie May business, providing specific financial results and key metrics from continuing operations for the second quarter.

Total net revenues from continuing operations increased 6% to $266.3 million compared with $251.4 million in the prior-year period. During the quarter, our eCommerce orders increased 3.5% to 3,258,000 compared with 3,147,000 in the year-ago period. Average order size during the quarter increased approximately 1% to $55.11 compared with $54.58 in the prior-year period. And during the quarter, we added 637,000 new customers. This was achieved while concurrently stimulating repeat orders from existing customers who represent 61% of total revenues, unchanged compared to the prior period.

Gross margin for the quarter was 41.7%, up 10 basis points when compared with 41.6% in the prior-year period. This supports increased gross margins in our BloomNet, our 1-800-FLOWERS.COM eCommerce, and several of our Gourmet Food and Gift Basket brands, including Fannie May, the Popcorn Factory, 1-800-BASKETS, and our wholesale basket business. These increases were somewhat offset by product mix in the period that featured strong growth in our wholesale gift baskets. and drove the impact of the consolidation of the iFlorist business in the UK, which carries a lower gross margin as compared to our US floral business.

Operating expenses as a percent of total revenues, including depreciation and amortization, was 30.9%, consistent with the prior-year period. As a result of these factors, EBITDA, excluding stock-based comp, increased 7% to $34.9 million compared with $32.6 million in the prior-year period. Net income from continuing operations increased 6.2% to $17.5 million or $0.27 per fully diluted share compared with $16.5 million or $0.25 per fully diluted share in the prior-year period. Overall net income, including a gain on the sale of our discontinued operations, increased 12.6% to $18 million or $0.27 per fully diluted share, compared with $16 million or $0.24 per fully diluted share in the prior-year period.

In terms of segment results, in our 1-800-FLOWERS.COM Consumer Floral segment, during the second quarter, revenues in this category increased 5.8% to $97.1 million compared with $91.8 million in the prior-year period. The increase in revenues in this category includes approximately $3.5 million, resulting from the aforementioned consolidation of the results of our iFlorist business in the UK. During the quarter, we increased our ownership position in iFlorist to more than 50%, which resulted in consolidated -- which resulted in the consolidation of its results for the period.

Excluding the revenue contribution from iFlorist, this segment grew revenues 1.9% for the quarter, but [with] lower consumer demand during the holiday period. Gross profit margin for the quarter was 38.8%, down 40 basis points compared with the prior-year period, due to the impact of the lower margins associated with the aforementioned consolidation of the results of the Company's iFlorist UK business. Adjusted for this impact, gross profit margin increased 10 basis points of the enhanced sourcing and distribution logistics, as well as a disciplined approach to promotional marketing.

Category contribution margin was $8.7 million compared with $10.3 million in the prior-year period. The year-over-year decline in contribution margin, plus the impact of higher marketing costs during the second quarter, we did not drive sufficient increases in consumer demand.

In our BloomNet segment, revenues increased 6.3% to $19.9 million compared with $18.7 million in the prior-year period. Gross margin for the quarter increased 180 basis points to 54.1% compared with 52.3% in the prior-year period, primarily due to pricing programs and product and service mix. Segment contribution margin decreased 7.9% to $6.5 million compared with $6 million in the prior-year period, [that means] revenue growth, the strong gross margin and a continued focus on managing operating expenses.

In our Gourmet Food and Gift Baskets segment, revenue increased 6.1% to $149.6 million compared with $141.1 million in the prior-year period. This was driven primarily by the continued rebound in our mass-market gift basket business, as well as strong eCommerce growth, particularly in our Cheryl's Bakery Gift business. Gross margin increased 20 basis points to 41.7% compared with 41.5% in the prior-year period, booking higher gross margins in our gift basket business, the Popcorn Factory, and Fannie May brands.

These improvements more than offset the impact of product mix that include the aforementioned significant growth in wholesale gift baskets. And category contribution margin increased 12.5% to $31 million compared with $27.6 million in the prior-year period. This reflects a solid revenue growth during the quarter, combined with high gross margins and enhanced operating efficiencies.

In terms of corporate expense, as I stated earlier, category contribution margin results exclude 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 cost services to the entire organization. For the second quarter, corporate expense from continuing operations, including stock-based compensation, was $12.5 million, compared with $12.7 million in the prior-year period.

Turning to our balance sheet. At the end of the second quarter, we had no net debt on our balance sheet. A cash position of approximately $3 million reflected a more than six-point -- reflects the more than $6.5 million was spent buying back stock (technical difficulty) since the beginning of the fiscal year. Our receivable position of $38 million reflects our revenue growth during the second quarter, and in particular, the growth we saw in our Gourmet Food and Gift Baskets mass-market channels. These receivables will be converted into cash during the current quarter, and we anticipate building up cash position during the second half of the fiscal year.

Inventory of $57.9 million was in line with management's expectations. And we expect to reduce inventories during the second half of the fiscal year.

Regarding guidance, based on the continued positive trends we are seeing in our business, including the 5% revenue growth, increased gross margin, and stable operating expense ratio achieved in the first half of the year, we are reiterating our top and bottom line guidance for fiscal 2014. We expect to achieve revenue growth in all three of our business segments. The consolidated revenue growth for the full year in the mid-single-digit range. In terms of our online results, we expect to grow EBITDA and EPS at rates in excess of our revenue growth, while generating free cash flow of approximately $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 as other spring gifting occasions. As a result, both quarters are dominated by our core 1-800-FLOWERS.COM Consumer Floral and BloomNet Wire Service segments. This year's second half, we expect the majority of our revenues and profitability will be in our fiscal fourth-quarter, reflecting the shift of the Easter holiday to late April this year versus last year, when Easter fell in March during our fiscal third-quarter.

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

Thanks, Bill. Overall, we are pleased with the results of our second quarter and the first half of our fiscal year. We continue to drive solid revenue growth across all three of our business segments in what remains a challenging consumer environment. We addressed the operational issues that impacted Fannie May's performance in last year's second quarter, and achieved improved gross margins and contribution in this business.

Our Gift Baskets business in the mass-market channel continued its rebound, showing double-digit growth for the second year in a row, as well as improved gross margins and contribution margins. Our Gourmet Food and Gift Baskets brands continued to show a solid eCommerce growth, led by our Cheryl's brand. BloomNet is growing its topline and is building momentum as we head into the second half of our fiscal year.

Importantly, BloomNet has established itself as the go-to wire service for innovative products and services, such as our cloud-based BMS store management system; Oreology's partnership with Udemy's state-of-the-art educational network; and our new iPad in-store sales app designed to help florists engage with their customers and drive sales. As a result of these and other innovative offerings, BloomNet continues to grow its market position versus the legacy wire services.

As we enter the second half of our fiscal year -- which is much more floral in nature due to Valentines, Easter, and Mother's Day holidays, and the spring gifting occasions -- we are focused on improving performance of our 1-800-FLOWERS.COM business. In this area during the fiscal second-quarter, we were able to maintain the gains we have achieved over the past several years in terms of improved gross margin, despite the always highly promotional nature of the holiday season. However, revenue growth for the quarter did not meet our targets, resulting in reduced leverage on our overall marketing spend.

With that said, we believe the marketing and merchandising programs, that we have invested in through the first half of the year, position us well for the spring holiday season, when 1-800-FLOWERS is much more of a destination brand. We kick the second-half off with the Valentine holiday, only two weeks away. Once again, we are focused on engaging with our customers and helping them deliver smiles. We do this through our merchandising programs that focus on truly original products, and our marketing messaging that emphasizes our better, best, and wow offerings, such as our new Marquis by Waterford crystal vase, featuring long stem roses, available in every color, and fulfilled by our professional local florists.

Luxury treasure trove collections priced at $500 up to $1000 for the ultimate wow, featuring long stem roses, Swarovski jewelry, message in a bottle, luxury plus, and much more. Magnificent roses, really long-stemmed roses standing more than 3 feet tall. And for a really big wow, our new 4-foot-tall Handsome Henry Luxury Plus Teddy Bear. We will also be featuring our newest Gourmet Food hit, Fannie May Chocolate-dipped Berries. Fannie May Berries stand out from the competition because they are uniquely dipped in real chocolate, and even feature some of Fannie May's iconic flavor profiles, such as Pixies, Trinidads, and Mint Meltaways.

Also, for the Valentine holiday, throughout the second half of the year, we will continue to leverage our industry-leading initiatives in social and mobile. On the mobile front. we are excited to be rolling out a new tablet application for the 1-800-FLOWERS.COM site. While most retailers are still serving up a desktop experience to their increasingly mobile customers, 1-800-FLOWERS.COM is introducing a unique mobile-optimized tablet experience, once again taking a leadership position in our industry for customer engagement.

Based on these initiatives and many others in the queue, we expect to drive enhanced revenue growth for our 1-800-FLOWERS.COM business during the second half of fiscal 2014. This, combined with positive trends across our enterprise, position us well to deliver on our targets for fiscal 2014.

I'll now turn the call back to Jim.

As Chris noted, we are pleased with the results we achieved in our fiscal second-quarter and the first half of the year, particularly in light of the various headwinds we've discussed. With that said, we will continue to focus on managing those aspects of our business that we can control, and where we can make incremental improvements to drive top and bottom line growth.

While the macroeconomy remains uneven, we believe that we are well-positioned to build on the positive trends that we've seen in our business for more than three years now. Frankly, we are excited about the many opportunities we see to accelerate growth over this time, as we deepen our relationship with our customers through new product offerings like our fruit bouquets and Fannie May Chocolate Dipped Berries, where we are positioned to both take market share as well as participate in growing customer demand for these products. Also, through our expanding line of connected gifts, featuring a broad range of price points that make it easy to celebrate any occasion big or small, such as our Cheryl's $5.00 cookie cards.

Our multichannel go-to-market strategy that includes retail and wholesale, where appropriate, that focuses on eCommerce where we have taken a leadership position in the evolution of our social and mobile commerce. And investments in our multibrand platform and enterprisewide customer database, along with new tools designed to help us enhance personalization for all of our marketing messages online, on the phones, and in our stores.

To wrap up, while we are conscious of the continuing uncertainty in the economy, we believe that the initiatives we are describing to you today, and more underway, will enable us to build on the positive trends in our business, and continue building shareholder value.

That concludes our formal remarks. I'll ask Jonathan if you could please tell us the instructions for the Q&A portion.

(Operator Instructions) Dan Kurnos, Benchmark Company.

Thanks for taking my questions. Just a couple of housekeeping questions first. Maybe, Bill, you could answer this. Could you just maybe quantify the impact of the calendar shift on the Gourmet Food side of the business in December, due to those shortened holiday period from a monetary standpoint? And also the benefit to EBITDA from the iFlorist consolidation?

Why don't you do the second first, Bill?

Yes. we mentioned in our release as well that the iFlorist consolidation that was concluded on December 2, was about $3.5 million in revenues.

And no impact (multiple speakers) on --

And no impact on the bottom line. It did impact margins, as we discussed, that their margins are lower than ours -- than the US in floral. With regard to kind of the six less shopping days in the compressed holiday season, I think what, from our standpoint, we just -- we still had some very nice days in the month of December; some strong days in the month of December. But we didn't hit -- as we got closer to the holiday, we just didn't exceed the peak days that we had planned for high enough to offset those six less shopping days. I think it impacted more than just the Gourmet Food and Gift Baskets channel; it impacted the 1-800-FLOWERS channel as well.

Great. Thanks for the color there. So let me ask you a couple of broader questions here. First on the marketing side, I know you guys called out some reasons why Consumer Floral EBITDA was a little bit lower. I'm just wondering if, from an environmental standpoint, if marketing has gotten more aggressive earlier, or if this is -- we know historically you guys have begun marketing for Valentines around this time, so if this is just more along the normal lines, or if you're pressing any additional channels harder than you have in the past?

No. This is Jim, Dan. I would say that, overall, we're pleased with how the quarter came out in spite of the issues we had to confront. I would tell you that we are very pleased that, over the last several years, we made the decision to deepen our involvement in the gift food categories. And the reason for that is, Floral is moving later and later in the holiday cycle for Christmas in particular. And with our baskets, our chocolate covered berries, our gifting offerings, and all of our gift food offerings, that we can be more competitive.

So I think you'll see that the growth in this second quarter, the holiday quarter, will move more pronounced, in a more pronounced fashion, to our Gourmet Gift Food Baskets, because we have the right product mix that customers will want earlier in the selling cycle. So I think the move we made into the Gourmet Food category, and as deeply as we've done being vertically integrated where it's appropriate in those categories, has served us well. So that's a decision that we made.

The Floral category, it's been competitive for as long as we can remember. It continues to be competitive, but we don't see anything in particular for the Valentine period that is different than we expected.

And, in fact, again, we're very proud of the fact that in that highly promotional environment where floral is not a primary category, we are still able to maintain our average order value and our gross margin percentage points.

Great. That's very helpful. In terms of the website, I know that you guys have been talking about making a few additional backend changes. Now that we are past the initial holiday period, I know we've got Valentine's Day, so I wouldn't expect anything probably this quarter. But maybe if you could give us an update on the timing of when we might see 100% full functionality front-and Back-end? And I know that we're still maybe testing on 2% of pages here, and that we still have full front-end functionality. But just an update there would be helpful.

So again, I think again we continue -- we have all brands now on various versions of WebSphere Commerce basically. And, you know, doing it -- you're right -- between now and Valentine's Day. you won't see any other migration. And then we'll do a little bit more as we move into the spring holidays. But by the summer, I think by the end of our fiscal year, we expect to be complete and have all sites on our latest version of our new platform. (multiple speakers)

This summer. (multiple speakers)

And we'll be able to move forward from there.

Terrific. And then just lastly for me, you did have a nice healthy margin expansion in GFGB. I think that's been key to the story. Could you just give us a sense of how that might continue and where your opportunities are in that segment?

Well, it's Jim, Dan. On the biggest hit that we took in that area last year was in Fannie May, where we had operational warehouse and logistics issues. I'm happy to report that all of those went well this year. With the changes that the management in that area implemented throughout the year, we were able to recover from those mistakes, and have performed quite well throughout this holiday season. But I'd say further we continue to enhance management. We brought in, in December or so, a new President for the Fannie May division. So we are expecting to continue those enhancements and improvements, and we're looking, over the next year or two or three, to accelerate our growth in our Gourmet Food and Gift Basket businesses.

All right, guys. Great. Thanks for all the color.

Eric Beder, Brean Capital.

Good morning and congratulations. When you talked a little bit about, in a little more real detail, I know you did the Cheryl and Co. cookie card for about $5.00. You were rolling that out to other divisions. I'd like to know how that went? And did that help you get new customers?

Eric, you'll see us do that, and Chris has initiatives underway in all of our brands to broaden the price ranges, and you've heard both higher and lower. Because we want to be appropriate and in the consideration set of any of our customers who want to express themselves for holiday occasions, everyday occasions or just because. So you'll continue to see us do that. We like the impact in all of our product categories where we've introduced lower price points. I expect our competition will continue to follow us and mimic us as we do that, because we want to be relevant to all of our customers, regardless of their price tolerance or regardless of the occasion.

So when you have a product that starts at $5.00 delivered, like we do with the Cheryl's card and other products like that coming online, you are not at all blocked by the filter of, "can I afford that?" when they see that they have a friend with a birthday coming up next week. So, we are pleased with the progress. We think it helps us grow our list, and it's an attractive way to attract new customers.

When you look at -- I know you've done major changes to the net, and one of the things you've done is that you can now order across the lines the multiple tabs. Have you seen customers use that to do kind of different occasions now, they can kind of very easily go onto the site and order from the different divisions and seeing one basket?

Yes, Eric, kind of part of my answer that I gave to Dan really on the pure technology aspect of it, it's still early, but what we have done so far continues to show good progress and good metrics. We continue to see as we move the sites onto the one platform, and we gain development leverage, right? And we're also able to drive some increasing conversion rates. We're driving increase of exposure of our food brands to the national to the economy traffic that 1-800-FLOWERS.COM has.

So what we're seeing is, over time, we are increasing our relevancy with our customer base for all of their gifting occasions, and moving from -- moving up in the consideration set, right? So when a consumer decides they need to send a gift to someone, they make their product choice, it comes to one of our destinations. But what our intent is to move up in that consideration set. I need to send a gift to someone; they let me go to 1-800-FLOWERS.COM, Fannie May, et cetera, because they have all those solutions, and then I'll decide on my gift. So we're beginning to see the early signs of that.

And finally, you have a lot of free cash flow. I know you're buying back stock. What's your thought on potentially doing an acquisition kind of criteria? What would you look for there? Thank you.

Thanks for the question, Eric. This is Jim. We're pleased that we have a really strong balance sheet now. We paid off the $130 million in debt since the beginning of the Recession. We have a pristine balance sheet. We have a great deal of flexibility in our lending facilities with the bank, so we have plenty of capacity. We are actively looking, as we have been. And if and when we find the right target that will enhance the offering we bring to our customers, we'll certainly pursue it. But it has to be at the right price at the right time, and lever the assets we already have.

So, we have the capacity. We're interested, but we won't do something unless we think it's absolutely right.

Jonathan, go to our next question, please.

Michael Kupinski, Noble Financial.

Thanks for taking the question. Congratulations on the quarter. I know it was a tough quarter. Revenues were a little bit lighter than what we were looking for. But I was pleased to see that the margin improvement -- even if you -- I guess despite the fact that you consolidated the UK operations there. I was just wondering, is Fannie May now completely behind us? I mean, all the challenges? Or you kind of indicated that there might be some additional investments there. Can you just kind of give us a framework of what your thoughts are? Are we out of the woods with Fannie May? And just kind of going over the next few quarters.

Bill, you might have some specific color, but as a topline, what I would say is, I think, yes. The issues are behind us. The opportunities, though, are in front of us. So, you'll see, from an operational point of view reported as warehousing logistics, that all worked out quite well. We are continuing with the good management team we have in place there and the additions we've made there. We are focused now on growth.

Operational issues we feel we have our hands around those, and performed well through the holiday. So, yes, the negative issues we hope are behind us, Bill, and we think we'll get more excited about the opportunities there as we look forward. When we look at Fannie May, not only do you have the core brand product available there, but the introduction of the Fannie May Berries with genuine real chocolate is an important ingredient there. Introduction of our Fruit Bouquets program benefits Fannie May going forward, and the other products and services that they are developing, particularly those lower and entry-level price points.

So, the summary that I would give, Bill, and you can add any color there for you to give after that, but the issue is behind us and the opportunities are in front of us.

Yes. I think we are looking to grow that brand across its multiple channels. It plays in the brick and mortar retail space. It plays in the wholesale between with both Fannie May and Harry London and it plays in the eCommerce channel. We have the operational issues behind us, both in the warehouse and distribution end that we talked about last year, as well as in the operation of the factory, and we're looking to put more throughput through that.

In terms of the increased costs and marketing costs in the floral business, is there anything related to the FTD spinoff or anything that you're seeing there, in terms of strategic changes or what they might be doing in terms of the marketplace? Just kind of give us the lay of the land in terms of the competitive landscape.

Michael, I think really what we are specifically referring to is a holiday quarter where we are competing against the world. So we don't really see anything specific to that or any major change from our competition. As we said, our competition has been highly promotional, especially if you just look at FTD is an example, really hitting hard on an annual basis with Groupon deals, et cetera, aggressively discounting the consumer business there.

But we've been doing that for a while, and we're very proud of the fact that our brand and the investments we continue to make in our brand, and our truly original products that help our customers express themselves perfectly, continue to differentiate ourselves from that price commodity position, and give us the gross margins that we've been achieving in the average order value. So, we don't see any major change and we think we are well-positioned to compete.

So just to clarify, so you haven't seen any changes in behavior with FTD at this point?

No.

No.

Okay, perfect. Okay, that's all I have. Thank you.

Jeff Stein, Northcoast Research.

Good morning, Jim, and nice quarter. A question for you on the Gourmet Foods Gift brands. What is it going to take, in your opinion, to really begin to accelerate the topline and bottom-line growth of those brands? You've got such a small slice of the food gift business overall, and these are still pretty much, I think, viewed as regional brands. What does it take to get them to the next level and really accelerate the fast line?

I think, Jeff, that's the area we are most focused on. As I said, the holiday quarter, the lessons learned this holiday quarter is we have a lot more opportunity to grow those brands. They are regional brands. I think the exposure they are getting at the 1-800-FLOWERS level, the increased marketing leverage we'll put on them, the direct marketing capability we have with all the new enhancements to our database, are some of the things that will contribute to our being able to grow those to national brands and accelerate their growth.

We think we have the opportunity to do that. Lessons learned this quarter reinforce that. I think the eCommerce area is one that we clearly can grow. Our retail footprint, our stores do very well. And if we are going to look at that as a growth area, I think we can, both on a same-store basis and on a new unit basis. But no determination there yet of how fast we can go. But we think we can accelerate that growth in eCommerce and wholesale, on cross-platform sales, on direct-to-consumer sales, as we grow our brand. And frankly, the investments we've been making in mobile I think will contribute disproportionately to the growth in our gift food businesses versus our flower business.

And where do you stand on expanding fruit bouquet's footprint nationally, what percent of the country now can deliver that product?

I'd expect that this is the calendar year -- this calendar year is the year that we can begin to step on the gas on the marketing as our coverage catches up. It's been going steady and deliberate, and I would expect that sometime midyear we'll cross the threshold that we feel comfortable enough that we have sufficient coverage to put a marketing push behind it. This is going very well. Customer satisfaction is very high. Our price points are good. The margins are good. Our portfolio partners are really enjoying the business we bring to them, both within our BloomNet network and without. So I would say this is the year, later in this year, where you see us step on the gas there.

Okay. And final question would be relating to Cheryl's Cookies. What is -- I understand that you guys are going to be expanding that business now that the holiday season is over. And are you confident that you can accomplish this without incurring similar problems to what you saw at Fannie May last year?

Well, surely we have good news there. The good news is that the Cheryl's brand continues to do very well, Jeff. Management there has done a nice job -- the broadening of the product range, the introduction of our core programs, the focus that they have on the products that we just have a really differentiated product in. And as we make that more and more of a national brand versus a regional brand, we get excited about the growth we are already achieving and what we think we can ramp it up to.

Now the challenge of that is we're going to -- our forecast is that we'll grow through our capacity in the next year or two, if we hadn't decided to shift some of our capital expenditures toward the development of the capacity there. So we have a good plan in place. We are monitoring it closely. We'll make an announcement in Ohio with the Governor about the expansion of that facility in the next few weeks. Plans are well underway there. And no expansion is without risk. But we think the management team is proving their ability to manage projects like this.

Frankly, the learnings we have, having gone through the issues we did it Fannie May last year, help us to really tighten the screws, and make sure that we keep our controls on what happens there. But the overall good news is, the brand is doing real well; we think it can do even better. But we want higher capacity in the years ahead to handle what we think is a business that has the opportunity to increase in size substantially.

Great. Thank you.

You bet. Thanks, Jeff.

Anthony Lebiedzinski, Sidoti & Company.

Just a follow-up on the previous question. So as you look to expand your capacity for Cheryl's, what kind of CapEx is going to be involved with that, please?

Yes. I think the overall guidance that we gave that we would be adding about $5 million in capital for this fiscal year as we build out that business. But probably over a three-year period, about $8 million as we are looking to expand. They have three bakery lines now, and we'd be able to add three additional bakery lines with the expanded facilities. So the overall price tag is $8 million over three years, but this year is $5 million.

Got it, all right. Thank you. And as far as the GFGB segment, can you give us a sense to how the segment did if you exclude the wholesale baskets?

Bill?

Well, the topline growth is driven heavily by the wholesale. That performed well. But Cheryl's, as we were discussing before, Cheryl's eCommerce did extremely well and grew nearly double digits from that standpoint.

So all the eCommerce did; wholesale was flattish except for the basket business, where it really popped.

That's right. And as we discussed before, (technical difficulty) Consumer flow and on GFGB overall, sales in both retail and eCommerce were impacted by the compressed shopping period during the season.

But on a personal basis, quite good.

Okay. And also, how should we think about the revenue and margin contributions from iFlorist on a go-forward basis?

Bill, you can talk to this -- but iFlorist is a business we started to invest in a few years ago. It's a small business. We were working to support their growth. We got to the point now where we wanted to consolidate it, so they could properly draw on the synergies and benefits that 1-800-FLOWERS.COM could bring to the table.

But it's still, Bill -- right? -- a very small business.

You know it is, Jim. What we really have done here is we've partnered with kind of a team of young energetic guys that we think is giving them access to a little more capital, as well as our eCommerce expertise can help grow that business. But right now, it's still a very small business.

Got it. Okay. And lastly, how much, as of now, do you have left on your share repurchase authorization?

We have a 20 million authorization, and we're about 5 million, 6 million into it, Bill?

Yes, it's a little more than that. But we still have about 12 million left on it -- 12 million or 13 million left on it.

Okay, thank you very much.

(Operator Instructions) [Juan Beherano], The Bull Financial.

Thank you for taking my questions. Many of them have been asked, but just as a follow-up on the iFlorist question -- how much do you own? And do have plans to expand that to 100%? Maybe also what's the total annual revenue run rate for the Company and the cash flow contribution?

Well, this is Jim. In terms of iFlorist, we own just over 50%. We have a pathway to go to 100% if that's appropriate, and we'll play the balancing act because we want to keep these young talented fellows that run the business, that Bill mentioned to you, we want to keep them engaged, excited and looking to grow the business -- and accelerate its growth off a small base because of the extra asset -- extra access they have to our assets now. But overall, it's a small business. I think it's about $8 million or so. And there isn't -- there hasn't been any contribution. Well, I wouldn't expect any contribution until next year or so because we're going to be focused on growing the topline now.

Okay, thank you. That's it for me.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

Thank you all for your questions and your interest. If you have any additional questions, please get in touch with us. And as a reminder, as Chris mentioned, the Valentine holiday is right around the corner, so don't wait. Call, click or come in to see the multitude of ways that we have to help you express yourself for this Valentine's Day and deliver the smiles, and a wow to your loved ones. Thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.