1-800-Flowers.Com Inc (FLWS) 2014 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the 1-800-FLOWERS.COM, Incorporated FY14 fourth-quarter and full-year results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Joe Pititto, Vice President of Investor Relations. You may begin.

Thank you, Nicole. Good morning, and thank you all for joining us today to discuss 1-800-FLOWERS.COM's financial results for our FY14 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 1-800flowers.com, or you can call Patty Altadonna at 516-237-6113 to receive your copy of the release by e-mail or fax. In terms of structure, our call today will begin with brief formal remarks and then we will open the call to your questions. Presenting today will be Jim McCann, CEO; Chris McCann, President; and Bill Shea, CFO.

Before we begin, I need to remind everyone that a number of the statements that we will make today may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to our press release issued this morning, as well as our SEC filings including the Company's annual report on form 10-K and quarterly reports on form 10-Q.

In addition, this morning we will discuss certain supplemental financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. 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 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. And before we jump into a discussion of our results for the FY14 fourth quarter and full year, I think it's appropriate for me to touch on the announcement we made early last week regarding the signing of a definitive agreement to acquire Harry & David Holdings. As we stated on last week's release, we are very excited about adding this iconic Harry & David name to our expanded family of gifting brands. This combination will increase our total revenues to more than $1.1 billion, and add to our EBITDA, EPS, and free cash flow in FY15, this fiscal year. This acquisition is consistent with the strategy we have outlined to you in the past to extend our position as a leading destination for all of our customers' celebratory and gifting occasions. It is also consistent with the disciplined approach that we have always taken in leveraging our assets, including our strong balance sheet and cash flows, to grow our top and bottom lines through a combination of investments in our existing businesses, as well as accretive acquisitions. We are moving forward with the acquisition process and we anticipate closing next month in time to capture the key holiday season, and we look forward to providing you with more information on Harry & David in the months ahead.

Now, onto our FY14 results. For the fourth quarter and the full year, we grew revenues across all three of our business segments. That's despite the continued uneven consumer economy and the impact of the unusually severe winter weather across most of the country which had its impact on Valentine's Day. In terms of our bottom line, we achieved solid year-over-year performance in our BloomNet wire service business and strong improvements in contribution margin in our Gourmet Food and Gift Baskets segment. This was offset by lower contribution margin in our Consumer Floral segment, resulting from the lower returns on our marketing (technical difficulty) due to the aforementioned consumer environment, and more specifically the Valentine holiday snow and ice storm. We have a number of initiatives underway, including enhanced marketing and merchandising programs, designed to drive improved top- and bottom-line performance in this business for our FY15. I will ask Chris to touch on a few these initiatives in his remarks in just a few minutes.

In our BloomNet business, we continue to expand our market position through increased penetration for all of our expanded suite of products and services. In our Gourmet Foods and Gift Baskets segment, we achieved strong bottom-line results in both fourth quarter and full year, primarily reflecting the effectiveness of the measures we implemented to enhance our operations at Fannie May Fine Chocolates business. Importantly, the changes we made have positioned Fannie May for accelerated growth and profitability in the years ahead. We also invested to expand our Cheryl Bakery facility in Westerville, Ohio where we have doubled the physical space, and more than doubled our production capacity in response to continued strong growth for the Cheryl's brand.

Last year in terms of cash generation, during the FY14 we grew our free cash flow 34% to $19.6 million and finished the year debt-free. Overall, the top- and bottom-line results we achieved in FY14 fourth quarter and full year reflect our continued focus on managing those aspects of our business that we can control and where we can effectively affect positive improvements. This focus, combined with our strong balance sheet, growing cash flows positions us to grow our business and enhance shareholder value through a combination of internal investment and strategic accretive acquisitions, such as the exciting addition of Harry & David. I'll 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 FY14 fourth quarter results include the benefit of the shift of the Easter holiday into the period compared with the prior year when the holiday fell in the fiscal third quarter. This shift primarily benefited our Gourmet Food and Gift Basket business compared with the prior-year period. Providing specific financial results and key metrics from continuing operations. For the fiscal fourth quarter, total net revenues increased 8.3% or $187.4 million compared with $173 million in the prior-year period. The increase primarily reflects the shift of the Easter holiday into period compared with the prior year when it fell in third our quarter, as well as contributions from solid growth in BloomNet and our Gourmet Food and Gift Basket segments. Gross profit margin increase 160 basis points to 42.6% compared with 41% in the prior year period. This reflects strong growth in e-commerce and retail revenues in our Gourmet Food and Gift Basket brands, including the benefit of the aforementioned Easter shift. Operating expense ratio for the quarter improved 70 basis points to 40% of total net sales compared with 40.7% in the prior-year period, reflecting higher revenues in the period and our continued focus on leveraging our operating platform. As a result of these factors, EBITDA for the quarter, excluding stock-based compensation expense, increased 80% to $11.3 million compared with $6.3 million in the prior-year period.

Net income from continuing operations for the quarter increased to $3.1 million, or $0.05 per fully diluted share, compared with $538,000, or $0.01 per fully diluted share, in the prior-year period. Consolidated net income for the quarter, including the results of discontinued operations, was $3.4 million, or $0.05 per fully diluted share, compared with a loss of $1.7 million, or a loss of $0.03 per share, in the prior-year period.

For the full year, revenues grew 2.8% to $756.30 compared with $735.50 in the prior year. Gross profit margin increased 20 basis points to 41.7% compared with 41.5% in the prior year. Operating expense ratio for the year was 38.6% of net revenues compared with 38% in the prior-year period. Operating expenses for the year increased 4.5% to $292 million compared with $279.4 million in the prior year. The higher operating expense ratio for the year resulted from a planned increase in marketing spending to support the solid growth we've been seen in our Consumer Floral segment for the past several years. In the fiscal third quarter, these marketing investments were derailed by the Valentines holiday's snow and ice storm. In Q4, consumer demand did not recover as we had anticipated, and our increased marketing spend for the period did not produce the growth we had expected. As a result, adjusted EBITDA for the year, which excludes stock-based compensation expense of $4.7 million, was $48.2 million compared with $48.9 million in the prior year.

Net income from continuing operations was $14.6 million, or $0.22 per fully diluted share, compared with $15.7 million, or $0.24 per fully diluted share, in the prior year. The slightly lower EBITDA and net income for the year is primarily attributable to the impact of the aforementioned severe winter weather, particularly the winter weather that occurred during the key Valentine holiday in our fiscal third quarter. Adjusted for the weather impact, EBITDA net income would have been up for the year. Consolidated net income for the year, including results from discontinued operations, was $15.4 million, or $0.23 per fully diluted share, compared with $12.3 million, or $0.19 per fully diluted share, in the prior year. Free cash flow for the year increased 34% to $19.6 million compared with $14.6 million in the prior year. This primarily reflected our focus on managing working capital, which more than offset the additional $3 million in capital expenditures that we incurred during the year for the expansion of our Cheryl's bakery facility, where we have more than doubled production capacity in response to the continued strong e-commerce growth of the Cheryl's brand.

In terms of the customer metrics from continuing operations. For the quarter, e-commerce orders increased 10.4% to 2.388 million compared with 2.163 million in the prior-year period. For the year, e-commerce orders increased 3% to 9.123 million compared with 8.856 million in the prior year. Average order value for the quarter was $62.01 compared with $64.32 in the prior-year period, and average order value for the year was $60.09 compared with $60.59 in FY13. The slightly lower AOB for the quarter and for the year primarily reflects the market shift in the GF/GB category, including the growth of our popular Cheryl's Cookie Card, without which our AOB -- our AOB would d have increased for the quarter and for the year. During the fourth quarter we added 675,000 new customers, up 4.3% year over year, while concurrently stimulating repeat orders from existing customers who represented 60.2% of total customers. And for the year, we added 2.4 million new customers, representing an increase of 1% compared with the prior year with repeat orders represented 52% of total customers.

In terms of category results. In our 1-800-FLOWERS.COM Consumer Floral business, fourth-quarter revenues grew 3.6% to $130.4 million and full-year revenues grew 2.4% to $421.3 million compared with $125.9 million and 411.5 million in their respective prior-year periods. Gross profit margin was 39.6% for the quarter and 39.1% for the full year, compared with 40.5% and 39.8% in the respective prior-year periods. While down slightly, they are still near historic highs. With that said, the lower gross margin results were probably attributable to the consolidation of the operating results of our iFlorist, our UK-based floral and gift provider, in which we increased our investment to a majority position in December 2013. Additionally, the lower gross margin results for the full year reflect the aforementioned impact of the severe winter weather, particularly the effect of the Valentine's Day holiday winter storm. Category contribution margin was $14 million for the quarter and $40.3 million for the full year compared with $16.1 million and 47.2 million in the respective prior-year periods. The lower contributions for both the quarter and the year reflect the aforementioned lower gross margin for the periods, as well as the increased marketing investments, particularly during the second half, that did not generate sufficient revenue growth. The Company defines category contribution margin as earnings before interest, taxes, depreciation, and amortization and before the allocation of corporate overhead expenses.

In our BloomNet wire service business, fourth-quarter revenues increased 4.2% to $21.4 million and full-year revenues increased 2.9% to $84.2 million compared with $20.5 million and $81.8 million in the respective prior-year periods. Gross profit margin increased 80 basis points to 53% in the fourth quarter and 240 basis points to 53.3% for the year compared with 52.2% and 50.9% in the respective prior-year periods, primarily reflecting product mix. Contribution margin was $6.7 million in the fourth quarter and $26.7 million for the full year compared with $6.8 million and $25.6 million in the respective prior-year periods.

In Gourmet Food and Gift Baskets segment, fourth-quarter revenues increased 34% to $35.8 million and full-year revenues grew 3.6% to $252 million compared with $26.7 million and $243.2 million in the respective prior-year periods. Revenue growth for the quarter primarily reflected the aforementioned shift of the Easter holiday into the fourth quarter. In addition, full-year revenue growth benefited from increased gift basket sales into the mass channel for both fourth quarter and the year revenues benefited from the continued strong e-commerce growth in our Cheryl's brand. Gross profit margin for the quarter increased 1,390 basis points to 46.8% and 110 basis points to 41.7% for the year compared with 32.9% and 40.6% in the respective prior-year periods. The significant increase in the fourth quarter primarily reflected the increase revenues associated with the aforementioned shift of the Easter holiday, as well as the benefits from the improved performance at Fannie May, which also benefited full-year gross margin. Reflecting the revenue growth, gross margin improvements contribution margin was $1.3 million for the quarter and $27.1 million for the full year compared with a loss of $6.6 million and a gain of $20.3 million in the respective prior-year periods.

In terms of corporate expenses. As I stated earlier, our category contribution margin excludes costs associated with the Company's enterprise shared services platform, which includes among other services IT, human resources, finance, legal, and executive. These functions are operated under a centralized management platform providing services to the entire organization. For the fiscal fourth quarter, corporate expense from continuing operations including stock-based compensation was $11.8 million compared with $10.9 million in the prior-year period. And for the full year, corporate expense from continuing operations including stock-based compensation was $50.5 million compared with $48.6 million in the prior year.

Turning to our balance sheet. At year end our balance sheet was debt-free with cash and cash equivalents of $5.2 million no borrowings under our revolving bank credit facility. During FY14 we also used approximately $8.3 million in cash, buying back approximately 1.6 million shares of our stock. Inventory at year end was $58.5 million compared with $55.8 million in FY13. This includes inventory pre-build in our Gourmet Food and Gift Basket segment for the upcoming holiday season. Capital expense for the year was approximately $23 million, including aforementioned spend for the expansion of our Cheryl facility. We anticipate CapEx for FY15 will return to historical levels of the $17 million to $20 million range.

Now regarding other guidance. For FY15 we expect to grow revenues across all three of our business segments, with consolidated revenue growth for the year in the mid-single-digit range. We expect to grow EBITDA and EPS at rates in excess of expected revenue growth, reflecting anticipated continuing improvement in gross profit margin and operating leverage. We also anticipate generating free cash flow for the year of approximately $25 million. Importantly, this guidance does not include any benefits from the recently announced planned acquisition of Harry & David. We plan to provide additional guidance for the combined businesses after we close that acquisition. I'll now turn the call over to our President, Chris McCann.

Thanks, Bill. During FY14 we saw solid top- and bottom-line performance in our BloomNet wire service business where we (inaudible) continued to expand our market position versus the legacy competitors. Through an uncompromising focus on quality and a continual stream of new products and services all designed to help our florists grow their businesses profitably, BloomNet has established itself as the industry's leading innovator. A perfect example of this commitment is our Local Exclusive Program, a unique showcase for our florist that enables them to shine a huge spotlight on their shops and reach an audience of millions of customers by featuring their exclusive product designs on the 1-800-FLOWERS.COM website. We are very excited by the reaction we have seen, both from a local florists, and most importantly from our customers for this program. Through initiatives like the Local Exclusive Program, BloomNet is positioned to further extend its market position, particularly in light of some of the recent changes in the competitive landscape that frankly help illustrate BloomNet's unique commitment to our florists.

We also saw solid growth and strong bottom-line improvements in our Gourmet Food and Gift Baskets category where our Cheryl's brand continues to build on its reputation with customers as a truly one-of-a-kind bakery gift company. The expansion of our production facility, increasing capacity more than twofold to address growing customer demand positions us to double Cheryl's sales yet again in the years ahead. In our Fannie May Fine Chocolates business, the changes we implemented last year to improve operating performance have proven very effective, as illustrated by a significantly enhanced bottom-line results in FY14. Fannie May is now positioned to increase its focus on accelerating revenue growth as it rolls out some innovative marketing and merchandising programs online in the mobile and social arenas, in it's retail stores, and for its wholesale customers.

As Jim mentioned earlier, we've also developed a number of new marketing and merchandising initiative designed to enhance the performance in our 1-800-FLOWERS.COM consumer business. On the merchandising front we expect to benefit from the aforementioned Local Exclusive Program, which taps into the growing trend for locally produced artisanal products; our exclusive partnerships with Real Simple, Isaac Mizrahi, and Sandra Magsamen, great, highly relevant brands that resonate with our customers; the expansion of our Fruit Bouquets product offering, including new party-size arrangements, milestone birthday designs, and keepsake containers; and continued expansion of our specialty and personalized gifts, including our hit message-in-a-bottle, as well as exclusive gifts from Waterford, Lennox, Gund, and Yankee Candle.

On the marketing front we expect to benefit from new marketing initiatives for Fruit Bouquets business leveraging our expanded geographic coverage for this great product line. Enhancements to our mobile commerce platform, including our new tablet applications, expansion of our social commerce efforts partnering with Instagram, Facebook, Google and others to increase customers engagement, and enhancements to our loyalty and reminder programs where we have seen very positive customer response. Based on these initiatives and others we have underway, we are confident that we can enhance revenue growth for everyday and holiday gifting and mitigate the expected impact of the Saturday placement of the Valentine holiday in 2015.

As we head into the key holiday season, we are very excited about the introduction of our new multi-branded website. This unique gifting website unites our growing family of great gift brands on one unified platform with a shared shopping cart, shared address book, shared rewards program, and much more and provides our customers with a single destination where they can truly find original gifts for all of their celebratory occasions. We believe the multi-branded website is a true game changer in terms of enhancing our cross-brand marketing and merchandising efforts and expanding national awareness for all of our great gifting brands. In addition, we believe this strategy will help enhance the effectiveness and efficiency of our marketing investments across all brands and channels by driving customer traffic to one website, creating a network effect that will benefit all of our brands. As we roll out the multi-branded site this holiday season, we expect to gain valuable learnings about what works and what perhaps doesn't work as well, and we will make adjustments accordingly along the way. We are also looking forward to gaining valuable insights into our customers' behaviors and interest, which will help us tailor our marketing and merchandising programs going forward.

Overall, we believe the initiatives we have in place, including the new multi-brand website, positions us well to deepen our customer relationships and drive top- and bottom-line growth in our key fiscal second quarter and throughout the year. I'll now turn the call back to Jim.

I just want to second Chris' excitement regarding the rollout of our multi-branded website for this holiday season. In particular what we are most excited about is the enhanced ability to introduce our customers to our growing family of gift brands as well as our innovative features designed to help make it easier for them to act on their thoughtfulness for all of the celebratory and gifting occasions they have. To sum up, in addition to the new website we have a number of initiatives in place that we believe will enable us to drive enhanced top- and bottom-line growth for the year. Now these include our growing FruitBouquets.com business, which we are building momentum and continuing to see tremendous customer reception to our great product design and quality. Our growing market position for BloomNet through its innovative products, services, and technology offerings that continues to outpace the competition. Our expanded production capacity at Cheryl's that will enable us to build on what is already a strong growth trend in that business. And our reinvigorated Fannie May operations where we have focused on driving growth.

While we are excited about the planned addition of the iconic Harry & David name to our family of gifting brands and a very talented Harry & David team of employees, which we think will enhance our overall management and team capabilities. As I noted earlier, this combination will increase our total annual revenues to over $1 billion, and add to our EBITDA, EPS, and free cash flows for this FY15. In addition we see some significant synergies in terms of both operations and growth that will further enhance the value of the combined business in the years ahead. Most important, the addition of Harry & David will further extend our position as a leading destination of all of our customers' celebratory and gifting occasions. That concludes our formal remarks. Nicole, we will now ask you to please restate the instructions for the Q&A portion of our call. Nicole?

Thank you.

(Operator Instructions)

Jeff Stein, Northcoast Research.

Good morning, guys. A couple of questions for you. First of all on the multi-brand portal, wondering if you could talk a little bit about where your cross-brand penetration has been historically? And any thoughts in terms of what you might expect in terms of what kind of an increase you might see in the first season?

Jeff, I'll ask Chris to answer the question. We've only been working on this multi-branded portal for a couple of weeks now. So it's a long time in coming. Chris?

First of all, the back-end efforts that we've done on creating multi-brand customers have yielded somewhat average results. What we seen, really, from it historically, we've talked about this in the past, with for example, the combination of the 1-800-baskets and 1-800-flowers website together that we first launched a couple of years ago. When we do that, we see significantly enhanced customer retention and frequently metrics are ultimately in a higher average spend per year and higher lifetime value of the customers.

Would be fair to say that there's also been no cannibalization? So if someone buys our flowers, customer sees that we have a gift basket. They've got to buy the gift basket? Because the of number of flower orders hasn't gone down at all.

No, no. It's hard to say exactly if there's cannibalization in there but if you just measure by the average spend per year you see incremental value. So we're excited about that. We are where we expected to be, Jeff, in terms of development of the site right now. We're on plan. We've begun migrating our brands and traffic onto the new platform. And that will continue throughout this next upcoming few months. We're very excited by the holiday season, where we expected gain valuable insights as we test different marketing and merchandising strategies to enhance that multi-brand customer value.

So Chris, what are we going to -- when I go to Cheryl's, when I go to Fannie May, what are we going to be able to actually, as consumers see the new platform? Will it be this month, or where are we there?

Yes, it should be right in the next 30 or so days, really. Some of the brands, again, are on the new code base already. And now as we migrate them onto existing into the combined effort, we are doing so in a very diligent fashion. We have to make sure we manage SEO implications as we move forward on that, so.

So it's already in progress.

It's in progress, and I expect you'll see more and more of it during the next, let's say, 30 days or so.

Okay. Just a couple of questions on the gift brands, specifically Cheryl's. Is the new baking line up and running? And I'm little confused. Have you actually doubled your capacity, or is that a multi-year process to double the capacity?

Well, we've doubled the facility, Jeff. This is Jim. We've doubled the facility, and over the next two or three years we will more than double its capacity as we add lines as needed. So it didn't make sense to put all the lines in until you need them. They're about $1 million a line. So yes. You see we spent $3 million. That is for the building, and that's coming on shortly. And then we'll add capacity in a regimented fashion over the next couple of years to more than double its overall capacity.

That's right. So the timing of that will be as needed. We add about $20 million of capacity for each baking line. So the current structure is, we expanded the facility, we added one baking line, and then we'll the second and third baking line to double the capacity of the facility as needed as we grow into that demand.

And Bill, can you -- wondering if you could talk a little bit about commodity prices? I know price of butter is up, price of coca is up. What, if any, impact do you see from those commodity price increase on the current holiday season, and then looking beyond holiday?

Jeff, we've been dealing with commodity price increases in a number of areas. You mentioned some of them. Our biggest commodity is cocoa, and we're covered through this holiday season. So that's comforting. But we have been facing increases in butter and other ingredients. These are the kind of operational issues we deal with all the time, just like fuel price swings that we have to deal with as an add-on or a surcharge from our third-party carriers. We're dealing with the bottleneck issues of the ports around the country that have -- many of you have been reading about. So this is part of what we do quarter in, quarter out. We do what we can to mitigate the impact of that. We think we'll be able to get through this holiday season without much impact on it, but we continue to monitor these type of items.

It's all the things that make life interesting, Jeff.

Okay. Thanks a lot, guys.

Thank you.

Thank you, Jeff.

Dan Kurnos, Benchmark Company.

Great, thanks. Good morning. I have a whole slew of questions, but for everyone's sake I'll ask a few high-level ones and step back in the queue here. First let me just congratulate you guys on the Harry & David acquisition, very sound strategically. But let me just dig down first a bit on guidance. Bill, I know you talk a lot about the weather impact from Valentine's Day, and I think a lot of people are trying to, looking at FY15 where you guys have given your typical vague, it will be better than top-line growth guidance, although you can kind of back into a from the cash flow number. Just give us a sense of where margins would have panned out for that year? I know you said EBITDA would have been up, but where it would have panned out for the year if you exclude the weather impact? And maybe some of the areas that you think that you still have some operating leverage going forward. Thanks.

Without being too specific, it certainly cost us several million dollars across the multiple of that on the top line. As we spent dollars behind the consumer, particularly the Consumer Floral brand, and demand was actually very strong leading up to the Valentine's Day holiday. And then obviously the storm on the 13 created a host of issues from a demand standpoint. We had to turn off the demand cycle for that period, and then there was parts of the country where we had taken orders that we had difficulties delivering them and had to take the margin hits -- it was several million dollars, and if again, if we were to add those back, our overall, our EBITDA and our EPS would be up for the year.

I think we've talked about this in the past with respect to our view of operating expenses. We think it is in our DNA to continue to drive costs out of our business. We saw the OpEx ratio go up slightly this year. That was the result of a planned increase in spend on marketing. We saw the momentum we were building behind the Consumer Floral brand for several years now, and we decided we were going to invest behind that growth. That got derailed at Valentine's Day because of the storm.

It was on track right up until then.

That's right. It got derailed. Then We just did not see the demand pick-up in the fourth quarter and around the Mother's Day holiday that we spent behind that, and that is what created some of the margin pressure.

So if you give color for next year, Bill, to Dan's questions. Without that impact, going forward we have, we think we can manage our operating expenses lower. We think that the --

Lower as a percent of revenues.

Lower as a percentage of revenues. We don't think -- we're not planning on having a catastrophically storm like we do then. We do have Valentine's Day moving to Saturday next year, Dan which will retard demand. It always does on the weekend. So we built that into our plan, but we do anticipate having a better bottom-line performance during the holiday with the marketing scheme that we have in place for Valentine's Day. So we think we can control our expenses and reduce them as a percentage of our revenue. We think that if there is some retardation on the growth side of Valentine's Day because of day placement, we anticipate that, it's in our plan, and we expect to have even better than a normal Valentine period from a bottom-line point of view.

Great, that's really helpful color. And then sticking with guidance. Again I know you just answered a question about the multi-branded platform, but are you assuming any accelerated growth, particularly in GF/GB from the launch of the multi-brand in your guidance?

No, we aren't. The multi-branded, we have anticipations to what the multi-branded platform will do for customer penetration for share. While we've tested into that. That's why we've spent quite a bit of capital to get to the point where we're introducing it now, but in our plan nothing is baked in in terms of an improved performance on a per customer basis, on an average order volume, we're expecting the same. So anything that improves performance will give us some upside potential.

Great. And Chris, you mentioned a change in the landscape. I would be curious to hear if you guys are actually -- what you guys are seeing, or maybe some color from florists that you've been hearing since FTD acquired Provide?

Right. So I think, as we discussed, since that combination has come into play, I think (inaudible) are concerned. I think here is some element of concern. I think you continued to shine a light on BloomNet, and BloomNet is positioned as the wire service for (inaudible). So we believe the combination really of those two serves to highlight the benefits of our planned combination, quite frankly, with Harry & David and combining the two leaders in the floral and gourmet food and gift basket categories where we see significant growth opportunities. So we see -- shines a light, I think, on our strategy, and it also shines a light on BloomNet's position in the marketplace as the wire service to benefit the florist.

And then speaking of Harry & David, last one from me and I'll step aside. Jim, you did talk a little bit about synergies. I know you guys are going to go into numbers now, but could you just maybe elaborate on where you see both revenue and cost synergies coming into play, and how quickly you might be able to recognize them?

Well, I'll ask Bill to give a little bit more color on that, but we are excited about the growth possibilities here. Harry & David is a company we've been obviously watching for a long time, interested in for a long time, and our interest was piqued recently because we think that the management team there in place, the employee base led by a really good management team have done a good job since they emerged from their experience in 2011 to really put the company on the right path. We think that the team, a good team is in place for us to come together, now is the right timing for us and for them. When we get together, which we have done a lot over the last many months, is that we get excited about the opportunities for growth together. The things we can do from a database point of view. So obviously we think there's operating efficiencies we can achieve working together, and more importantly we think there are growth synergies. Bill, what would you add?

Dan, I think we're one to get into a lot more detail after we close the deal next month on it, but Jim has stated we believe it's twofold. There are growth synergies that we can realize, both on the e-commerce side of the business as well of the wholesale side of the business as we bring these entities together, and we think there's operating cost synergies.

This benefits our operating platform for the combined entity going forward, really on several different fronts. But first and foremost, I think with any merger of two companies, the first thing you do is make sure we don't mess up the existing businesses. And our focus here is to leave the plan in place for this holiday season that Harry & David has, which we are very confident in. This holiday season we'll run as is, and then we'll start making some implementation on the growth side beyond that.

Got it. Very helpful. Thanks, guys. I'll jump back in the queue.

Thank you, Dan.

Michael Kupinksi, Noble Financial.

Hi, good morning. This is actually Juan Bejarano in for Michael Kupinski, and thank you for taking our questions. Just in terms of Fruit Bouquets, I know you discussed it a little bit, but can you maybe update us on the coverage there? And can you maybe leverage some of the retail stores from Harry & David that you're going to acquire? And I know you've used some Fannie May stores to do that. And how soon will you be ready to advertise on a national level?

So I think, Juan, in terms of Fruit Bouquets we are making good steady progress in terms of expanding availability across the country. Today we're in approximately 50% coverage of where our deliveries go. So we can now begin to targeted geographic marketing tests to help drive sales and increase coverage. We continue to be buoyed by our customers in markets where Fruit Bouquets' available. They've had an overwhelming response, a positive response to the product. We continue to believe there is a significant opportunity for incremental sales and growth in this category, and we're excited about the early response we're getting from our florists and customers. Looking to integrate this with Harry & David, I think we'll take a look at whether the stores have the capability to do that or not. And overall, I think Harry & could be a good sales channel, a good sales outlet for the Fruit Bouquet product. It's natural fit.

Great, thank you. And then we've been seeing a few retailers, their showing some softness and they're cutting back on advertising. What are you seeing in terms of trends for the bulk of the calendar year? Are you seeing softness or something similar to last year?

I think while we are retailer, we're primarily an e-commerce retailer. We're certainly sensitive to, Juan, the Consumer Confidence Index. The good news is we've seen a slight uptick recently, which we think is beneficial for all of us, but we're not quite subject to the normal winds that impact retail operators, particularly in the fashion space. So we're seen pretty much different from that. So we have not seen that challenge. We feel very comfortable to give the guidance that we did, and we feel very optimistic about this holiday season.

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

Thank you, Juan.

Thank you.

(Operator Instructions)

Anthony Lebiedzinski, Sidoti & Company.

Good morning. First had a couple of questions about the quarter, and then a couple of other questions about the forward-looking commentary. So as far as the Easter shift, can you just quantify and remind us how much that was in the quarter?

That's about $10 million or so of revenues.

Got it, okay. And also looking at the gross margin, you mentioned that the gross margin Consumer Floral was down, primarily because of iFlorist. Can you give us a sense, if you were to exclude that, how much was that a drag on your margin?

I don't think Bill said that it was the primary reason, but (inaudible).

Yes, it was really twofold. I think we said it was probably due to the iFlorist, but iFlorist is still a very small revenue contributor in the quarter. It does have a lower revenue -- it does have a lower margin base. It really does impact more the holiday quarter Q2 as part of the mix. And then I think for the full year where Consumer Floral, we felt the impact of higher credits as a result of the Valentine's Day holiday, and a continued promotional environment that we all play in. I think we're better than most in dealing with that, but it does impact us to some degree. But I think we feel very comfortable we're going to be able to achieve gross margin improvement as we move into FY15.

And Anthony, even with those factors, the holiday storm, (inaudible) we still have solid margins, near all-time highs. So we feel very comfortable that we can get right back to them.

That's good to hear. And I think Chris, you had mentioned in your prepared remarks about the Fannie May, some merchandising programs that are new. Can you just give us some examples of those?

Just overall at Fannie May, I think the changes, you see the benefit of the operating performance that we've done and now with the continued enhancement of the team there, bringing in some visual merchants, some new marketing people focused on the store performance. So we're continue to roll out marketing and merchandising programs. Nothing specific that I can point to that you'd see today, but as we roll into the holiday, I think you'll see the performance of those efforts.

Okay, great.

Just one more color piece on Fannie May, Anthony. We stated in the last quarter and this quarter, there still a hangover affect in terms of how it impacts Fannie May, the poor operational results we had during that second half of last year. So they're fixed, but I think you can count not only on improvement this year but into next year too as we get ourselves out of the penalty box with some of the third parties we prepare chocolate for.

Okay, great. And I know as far as Harry & David, they under their present management team, they shrunk the store base from, I believe about 150 locations. I believe it's 47 now. Do have any thoughts as to the store base now? Do you expect to keep as is, or possibly expand or possibly shrink? Any early thoughts on that? That would be helpful.

When we close we'll be happy to give you more color on that. Just to point out, I think the management team there has done a good job of rationalizing their store count and shrinking down the store count from over 150 to the 48 or so that they have now. I think there's some interesting options that we're excited about, talking to them about. I don't think the management team there doesn't have any growth plans for the stores, but they do have an enhancement plan to improve the performance of the stores, and our teams are very excited about the things they've begun to discuss on how we can work together with the breadth of all of our brands now to make that current store complement even better for us. More color when we close, but our teams are very excited about what that they can do with the existing store footprint.

Great, terrific. Thank you very much.

You bet you.

Thank you. (Operator Instructions)

Dan Kurnos, the Benchmark Company.

Thanks. I guess I'll ask my follow-up. So I will try to keep them brief for you guys. On the Consumer Floral front, I know we have the Valentine's storm, but then it looks like we have some persistent weakness. I don't know if you quantified how Mother's Day did, but what gives you confidence that there's going to be a recovery or an uptick in Consumer Floral going forward, and what you think that sustainable growth this?

I think as we look overall for the year, we still had good growth in the Consumer Floral space, especially vis-a-vis what we've seen from the competitors. Again, the Valentine's (multiple speakers)

It was (multiple speakers)

The quarter was 3.6% growth. I think it was, ballpark, 2.5% for the year. So based on that, based on our customer metrics and our continued performance of our customer metrics, and as I mentioned previously, based on the marketing and merchandising initiatives that we have in place we're very confident that the Consumer Floral comeback will -- this next year will perform as it has successfully for the past several years.

If you look at the combined Company for the last, let's call it five years now, we've been (inaudible) mid-single digits with double-digit bottom-line growth, and we have every confidence that that will continue, and the main driver of that has been the Floral brand.

And then Jim, you talked a little bit about Fannie. Some additional color would be helpful, how did e-commerce growth pace in the quarter, and what it's looking like heading into the holiday period, if you have any visibility on that?

I think overall, the whole -- Gourmet Food and Gift Basket channel performed very well in the fourth quarter. It grew 34%. Obviously a big factor of that was the shift in Easter.

And that's primarily the e-commerce.

But e-commerce and the retail stores, both benefited from the shifting Easter, but we did see very nice comp store growth in the retail stores, as well as nice growth in e-commerce. So again, with the new management team that we have, some of the new members of the management team that we have within Fannie May we're very bullish Fannie May going into FY15.

We're bullish, Dan, on the whole -- the Gift Food and Gift Basket area had a very good, strong year. Recovering on the Fannie May issues from a year ago, Cheryl continuing to be strong, popcorn strong, gift basket business growing at 1-800-baskets, and even the wholesale side. So all of it seems to be working. Now you add the additional capacities for Cheryl, you add the improved store performance that we're seeing on the Fannie May side where they still have retail stores, e-commerce improvement. So it seems that (inaudible) hitting on all cylinders. It's been driving our growth. We've mentioned in the past how we thought that the food, gift area would continue to be a growth engine for us, and now you combine that with the wonderful assets and management and employee teams at Harry & David with the Wolfermans brand, with the (inaudible). We just feel like the timing is so good for us because of the good solid brick-on-brick kind of performance that we've seen developing in the gift food area. You get Harry & David (inaudible) the right time with them having gotten their act together and done really well over the last two or three years. It just seems like the stars are aligning for us.

Certainly with the addition of the multi-branded platform, we would expect all of the to improve. And then Bill, just a quick question, on gross margins for GF/GB what would they have been if you exclude the Easter benefit? Do you know?

You can't really exclude it because you have the expense in one quarter and the revenue in another.

Again, it still would have been nicely up from a revenue perspective and profitability would have still been very strong in the fourth quarter, even without the Easter benefit.

I think that's evidenced by the increase in the annual, on the annual number for gross margin.

Okay.

I'm sorry, Dan. If you look at the second half of the year you would see that the contribution margin from the Gourmet Food and Gift Basket category's up $3 million in the second half of the year. So that eliminates the Easter shift.

$7 million for the year.

That's helpful. And then just two more quick ones. On the Fruit Bouquets side, are you guys willing to maybe quantify a little bit the impact that you're expecting for the top-line in 2015 from Fruit Bouquets, or at least give us some directional sense of that?

I don't think we are, Dan. It's still not a very big business for us, but it's all dependent on coverage, and as Chris said as we approach this 50% coverage mark now, now we can start that targeted testing on a direct marketing basis where we can really delve into our customer base. What we hear from the customers who have had opportunity to try product, love the products. High grades in terms of design, high grades in terms of quality. Our florists that are participating in this new program, this new channel are seeing great increases in their business with outsized margin contribution because they already have the fixed overhead, they already have their delivery expense and the personnel. So it's training, it's some additional facilities, but they're having great experience with this. So we're frustrated that we aren't able to tell you more than that, but I think you'll see as we roll into the second half of this fiscal year after we get the big holiday period behind us that this, we'll be able to put more light on it. But we think -- we keep mentioning it because we think and know that it's going to be important part of our business going forward, and it's complementary to we're likely to do in terms of the growth synergies with Harry & David.

Yes, that makes sense. Just very last from me. Maybe a bit too granular, but since you guys brought this up on the call, you talked about optimizing for SEO. Just curious how you've been managing through the algorithm changes that we've seen, and particularly as it relates to doorway pages and whether or not you've had to spend additional to improve content before you launched the multi-branded? Thanks.

I think the good news is we're very diligent. It does require a good diligent focus on the algorithm changes and staying in pace with that. We have a good team that's been managing that well. We're seeing that in our in our results. If you look at some of the keywords, you see where flower shows up, as an example. We're doing a good job there. We haven't had to increase expense related to the multi-brand portal because we've already put those capabilities in place across the brands. What we do just have to manage is as we increase this different tab structure is that we don't break anything, and we make sure we maintain our SEO positions. So it's more from a technical point of view than from a content point of view.

All right. Thanks for bearing with me, guys.

Not at all. Thanks, Dan.

Wolfe Joffe, RC Management.

Gentlemen, how are you?

Good. How are you doing?

Just fine. A couple quick questions on Harry & David. In looking at the financials that are out there for this business, it looks like CapEx was actually brought up to around $10 million, which is roughly in line with the DNA at that company. So I guess given the restructurings that have been taking place there and the direction of CapEx, I guess what do you perceive to be the likely CapEx level for that business? And will there be further cash needs beyond the $10 million that were spent for continued restructurings?

It'd be very difficult for us right now, Wolfe, to give you that. That'd be too granular. Just generally speaking, I think they've done a very good job of managing their CapEx spend. The team has been disciplined and balanced there. And frankly, they've spent some on the store base, which they don't have in the current -- in the go-forward plan to do. So without really having put a firm grip on it myself, I don't think we give you any further color than I expect that it's in the -- we don't expect it to increase significantly, or increase at all, frankly, if and when we come together.

Okay. A question about pretax flow-through. Do you think their business has a similar pretax flow-through profile to the core flowers business? Or rather not maybe not the core flowers business, but your business in total?

You can look at their (inaudible) financial statement, you can see the trend lines from their EBITDA, what they've had. Their EBITDA percentages are in a similar range to ours. We think there's opportunities for them to be enhanced from a cash flow standpoint because they've had to pay off certain obligations with regard to an old pension plan, with regard to their reorganization proceedings, stuff like that. That's impacted their cash flow impact. That will obviously -- those are behind them now. So their cash flows will materialize from a performance standpoint.

But we think that the two businesses are complementary. The challenge to the Harry & David business often has been in the past the fact that they make more than 100% of their profits in the fourth calendar quarter, second fiscal quarter. But we are looking forward to staff utilization capabilities, a mix of different holidays where we have different complements. All of those things we'll get into in more detail when we close the transaction. But we think that, as Bill said, if you look at their EBITDA performance, if you look at the things they've gotten behind them, they are complimentary and we think that one plus one could equal something more than two here.

Along those lines, when you think about over the next two years or three years, do you perceive the revenue synergies to be three to four times greater than the cost synergies, or is this five to six times greater?

We're not at all in a position to quantify that now. We're excited about the acquisition. We're excited about the possibilities that we've identified in the process leading up to announcing this transaction. And even since then, just in the last couple of weeks, a lot more work has been done and a ton more to do for us to really be able to quantify the growth synergies, but we're, with what we've done in our work up to this point, I can just label it as we're very excited.

Okay. And one more question on this, if I may. Clearly some folks have been talking about savings on the logistics side on a combined basis. The companies obviously both use third-party logistics providers in some circumstances. Is that opportunity sort of a 4% to 5% savings, or is that in the 8% to 10% neighborhood? How you think about that?

I think as we look at it we said we see operational synergies and we see growth synergies. Operational synergies would include all of the things that you mentioned. They have a very big facility in the greater Columbus, Ohio area. So do we. So we're excited about our teams working together there. We have distribution logistics around the country. So do they. So from a growth perspective, we think we have assets in place that will sustain our growth without really having to add to that, about just by optimizing the footprint we already have. But after we close, we'll be happy to give you our best color estimates then, and that's exactly what's coming together as we speak.

Okay, great. And on the Fruit Bouquets, did I correctly understand that you have reached the 50% coverage mark, or you're still working toward that? I felt like it was expressed two ways on the call.

That's right. We're trying around that 50%. So let's call it 50%, right around that 50% market penetration point of view from a coverage, delivery coverage point of view. And that enables us now to start doing, I referenced, Jim referenced, some real geographic targeted marketing. We've utilized on a direct marketing capability, e-mail to start test to see how we can start to influence the business, the growth rate from those markets where we have coverage, and that will help us on a go-forward basis as we continue to expand our coverage capabilities.

That's fantastic. I know you guys have been looking forward to being able to do that. And then on the --

Frankly, Wolfe, those efforts can be leveraged now with the additional assets we have in play. It give us increased flexibility.

Can you expand on that?

Well, if we have Fruit Bouquets available from our Fruit Bouquets program, and now we have Fannie May Fruit Bouquets available, it's not inconceivable that the Harry & David team would want to have Fruit Bouquets available as well. The same infrastructure can be leveraged.

Got you. Interesting. Okay, thanks so much.

Thank you, Wolfe.

Thank you. I am showing no further questions at this time.

Thank you for your time and your interest today. As you hear, we're pleased on all the circumstances with the fourth quarter. We're pleased with how the year came out, especially on a relative basis. We're positive on the existing business and we're happy to give the guidance we have for the upcoming fiscal year, which we've already began, FY15. And we're very excited to be partnering with the very talented team at Harry & David. So we're pleased with what we've been able to deliver and very excited about what we hope to deliver. So thank you for your time and interest, and we look forward to you visiting that multi-branded portal over the weeks and months ahead and becoming a more frequent customer. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.