1-800-Flowers.Com Inc (FLWS) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the 1-800-FLOWERS.COM incorporated Fiscal 2015 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]

As a reminder, this conference is being recorded. I would now like to hand the conference over to Joseph Pititto, Senior Vice President of Investor Relations. Please go ahead.

Thanks, Karen. Good morning and thank you all for joining us today to discuss 1-800-FLOWERS.COM's financial results for our fiscal 2015 third quarter. For those of you who have not received the copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our website at 1800flowers.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 quarterly reports on Form 10-Q. In addition, this morning we will discuss certain supplemental financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, or any recordings of today's call, the press release issued earlier today or any of its SEC filings, except as maybe be otherwise stated by the company.

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

Good morning everyone. We had a solid performance in our fiscal third quarter. And we achieved better than anticipated revenue growth and bottom-line results for the period. This was accomplished even with the headwinds we faced during the period, which included the significant seasonality of the Harry & David business, the Saturday placement of Valentine's Day, and our lingering impacts of the Thanksgiving Day Fire at our Fannie May Fine Chocolates business.

We grew revenues approximately 29% or more than $52 million for the quarter reflecting contributions from Harry & David, which we acquired at the end of September. In terms of our bottom line, the loss for the quarter reflects the highly seasonal nature of Harry & David business. Excluding this we grew our bottom line significantly during the quarter with solid contributions from all three business segments.

Regarding Harry & David, we are pleased to see positive year-over-year improvements of both top and bottom line results. We've planned to build on these positive results by capturing significant revenue in operating synergies as we continue our integration of the business. We'll do this by leveraging our technology platform, our database, our suite of marketing programs, and the relationships we have with the millions of customers we serve across all of our brands and channels.

It's worth noting that excluding Harry & David, our Gourmet Food and Gift Basket brands performed very well during the third quarter with solid top and bottom line growth even with the lingering impacts from the Fannie May warehouse fire that occurred back in November. The continued growth in this segment illustrates how our customers are embracing our expanded product offering for a growing range of their gifting and celebratory occasions.

We believe our collection of iconic brands combined with our new multi-brand website and our omni-channel strategy positions us well to accelerate our growth as a leader in the gourmet food and gift space. Before I turn the call over to Bill for his review of the financial and operating metrics for the quarter, I'd like to highlight the performance of our customer -- of our consumer floral business where we've achieved top and bottom line results ahead of our expectations during the quarter. Revenues in this segment declined less than 5%, this is despite the Saturday placement of the Valentine holiday, which historically has had a more significant impact on demand. Frankly, the Valentine holiday was always challenging because of its varying day placement and even unpredictable winter weather. With that said, we achieved year-over-year growth in our gross profit margin and bottom-line contribution.

For the quarter, we increased gross margins in this business by 30 basis points to more than 39%. We've reduced our operating expenses in both dollar terms and as a percentage of total sales. As a result, we grew contribution margin in this segment by more than 12% to $12.5 million. We believe these results reflect the strength of the 1-800-FLOWERS.COM brand and the expansion of our leadership position in the floral gifting space.

Chris will provide more color on the Valentine holiday performance, and in particular, our strong customer service metrics in his remarks in a few minutes.

As (inaudible) in this morning's press release, we've raised our guidance for bottom-line results for the full fiscal year. This is based on the several positive factors and they include the benefits of the Harry & David acquisition, the positive top and bottom line trends we've seen across all of our business segments throughout the first nine months of this year, and our positive outlook for the current fiscal fourth quarter. Most important, we are increasingly excited about the opportunities we see ahead of us to drive and increase shareholder value. I'll now let Bill, who would run through the metrics for the quarter?

Thank you, Jim. During our fiscal third quarter, we achieved top and bottom line results that exceeded our expectations as we were able to launch the offset some of the headwinds that Jim mentioned in his remarks. These include the Saturday day placement of the Valentine holiday and the lingering impacts of Fannie May warehouse fire that occurred back in November. I would add to this list, a highly promotional nature of the competitive landscape around Valentine holiday. Regarding the [floral], while the Saturday placement of Valentine's Day reduced order volumes for the 1-800-FLOWERS.COM brand, the impact was significantly less than we had anticipated. In addition, due to a combination of our efficient marketing programs and strong customer service metrics, we were able to enhance our operating expense ratio while growing our gross profit margin resulting in solid year-over-year bottom line growth. As for the lingering impacts of the Fannie Mae warehouse fire, inventories lost in the fire included heart-shaped valentine's boxes resulted in some product shortages in both our retail and wholesale channels. As a result, revenues during the quarter were impacted by an estimated $3.4 million. Despite this challenge, Fannie Mae performed well, as it shows several of our other Gourmet gift brands, all of which benefited from the shift of these to holiday to the first Sunday in April, which pulled some sales into the fiscal third quarter. Before I jump to our specific financial operating metrics in the quarter, I think it is important to note that in today's press release we've provided our top and bottom line results both as reported and on an adjusted basis with the accompanying tables at the back of the release to explain the various adjustments. We believe these adjusted results provide a more comparable view of our business performance in the third quarter by adding back one-time costs associated with the Harry & David integration adjusting for the bottom-line impact of lost revenues associated with the Fannie May fire, and looking at the business with and without Harry & David, [regarding] adjustments related to Harry & David integration. During the third quarter, we incurred $1.7 million of integration-related cost primarily related to severance and third-party services retained that helped us achieve the operating cost synergies outlined on our prior call. In terms of adjustments for the impact of the Fannie May warehouse fire, we estimate the impact on our reported revenues during the quarter was $3.4 million. The impact of these lost revenues on our EBITDA for the quarter was an estimated $1 million.

Now regarding specific financial results and key metrics from continuing operations for the second quarter. Total net revenues from continuing operations increased 29.3% to $232.2 million compared with $179.6 million in the prior-year period.

During the quarter, our e-commerce orders increased 23.1% to $2,722 million compared with $2,211 million in the year-ago period. Average order size during the quarter increased 3.3% to $65.37 compared with $63.27 in the prior-year period.

During the quarter, we added 815,000 new customers. This was achieved by concurrently stimulating repeat orders from existing customers who represented 56.4% of total customers in the quarter.

Gross margin for the quarter was 41% consistent with the prior year. Operating expense as a percent of total revenues including depreciation and amortization was 48%, up 540 basis points compared with 42.6% in the prior-year period. This primarily reflects the added operating expenses associated with Harry & David. As a result of these factors, reported EBITDA loss, excluding stock-based compensation, was $6.8 million compared with a gain of $3.3 million in the prior-year period.

Adjusted EBITDA for the quarter, excluding stock-based compensation as well as the one-time cost associated with the integration of Harry & David and the impact of the aforementioned Fannie May warehouse fire, was a loss of $4.1 million compared with a gain of $3.3 million in the prior-year period.

Reported net loss from continuing operations attributable to the company was $10.5 million or $0.16 per share compared with a net loss of $1.4 million or $0.02 per share in the prior-year period.

Adjusted net loss from continuing operations attributable to the company was $8.6 million or $0.13 per share compared with a net loss of $1.4 million or $0.02 per share in the prior-year period. The EBITDA, adjusted EBITDA net loss and adjusted net loss all reflect the seasonality of Harry & David. Excluding Harry & David, adjusted EBITDA excluding stock-based compensation increased 95.3% to $6.5 million reflecting contributions from our gourmet food and gift basket segment and continued strong year-over-year performance in our consumer floral segment.

Additionally, adjusted net income from continuing operations excluding Harry & David was $342,000 or $0.01 per diluted share compared with the aforementioned net loss of $1.4 million or $0.02 per share in the prior-year period.

In terms of the segment results, in our 1-800-Flowers.com Consumer Floral segment, during the fiscal 2015 third quarter, revenues in this segment were $116.7 million, down 4.5% compared with $122.3 million in the prior-year period, reflecting the Saturday day placement of the Valentine holiday during the quarter.

Gross margin increased 30 basis points to 39.2% compared with 38.9% in the prior-year period. Gross margin benefited from enhanced sourcing and logistics as well as strong customer service metrics. Combined with efficient marketing programs, these factors resulted in contribution margin increase of 12.5% to $12.6 million compared with $11.2 million in the prior-year period.

In our BloomNet segment revenues for the quarter were $23 million, up 1.7% compared with $22.6 million in the prior-year period. Gross margin for the quarter increased 150 basis points to 54.8%, compared with 53.3% in the prior-year period. This primarily reflected revenue mix, which included growth and sales of higher margin services such as web marketing and directly advertising programs as well as some pricing initiatives.

As a result of these factors, segment contribution margin increased to $7.3 million compared with $7.1 million in the prior-year period. In our gourmet food and gift baskets segment, revenues for the fiscal third quarter were $93 million compared with $35.3 million in the prior-year period. The significant increase primarily reflects the contributions from Harry & David. Excluding Harry & David, revenues grew 18% reflecting the benefits of Easter holiday day placement, which were in part offset by the lost revenues associated with the Fannie May fire.

Gross margin for the quarter increased 90 basis points to 39.6% compared with 38.7% in the prior-year period. And segment contribution margin was a loss of $5.4 million compared with a loss of $3.2 million in the prior-year period, reflecting the seasonality of Harry & David. Excluding Harry & David, and adjusted the impact of the Fannie May warehouse fire on Thanksgiving Day. Segment contribution margin grew to $400,000 compared with the aforementioned loss of $3.2 million in the prior-year period.

In terms of corporate expense, our segment contribution margin results exclude cost associated with the Company's enterprise shared services platform, which includes, among other services, IT, HR, finance, legal and executive. These functions are operated under a centralized management platform providing support services to the entire organization.

For the fiscal second quarter, corporate expense from the continuing operations including stock-based compensation was $22.8 million compared with $13 million in the prior-year period, reflecting the addition of the Harry & David overhead expenses in the quarter as well as one-time integration costs.

Turning to our balance sheet. At the end of the third quarter, we had $52.7 million in cash and equivalents on our balance sheet. Long-term debt was a $135.6 million reflecting our quarterly payments on the original $142.5 million term loan associated with the Harry & David acquisition. Additionally, there are no borrowings under our revolving credit line.

Inventory of $82.4 million reflects the incremental inventories associated with the Harry & David business and is within management's expectations, it's worth noting that excluding the inventories associated with the Harry & David, our inventory was down more than $10 million year-over-year.

Regarding guidance, we continue to anticipate generating revenues from continuing operations in excess of $1.1 billion. In terms of bottom-line results, we are raising our guidance for adjusted EBITDA, excluding stock-based compensation, and adjusted EPS reflecting our results for the first nine months of the fiscal year.

Fiscal 2015, we now expect adjusted EBITDA will exceed $90 million and adjusted EPS will exceed the high end of our previous guidance range of $0.45 per diluted share to $0.50 per diluted share.

As an important reminder, our fiscal 2015 guidance for top and bottom line results do not include Harry & David's results for the fiscal first quarter of the year reflecting the September 30, 2014, close of the acquisition. The fiscal first quarter, which includes the slower summer months, is Harry & David's lowest in terms of revenues and includes a substantial bottom-line loss.

Lastly as we announced back in January, we have launched a comprehensive integration program involving Harry & David across our entire business platform. This equity is designed to identify and pursue synergistic opportunities both revenue growth and operating efficiencies. In terms of the latter, we believe our initiatives can generate operating cost efficiencies in excess of $15 million with the full benefits to be realized over a three-year period beginning in fiscal 2016. I'll now turn the call over to our President, Chris.

Thanks, Bill. As mentioned, we are pleased with our third quarter results. Most notably, we achieved top and bottom line results exceeding our expectations in our 1-800-Flowers.com business. Our solid results of both the holiday and the quarter reflect a number of factors. Our merchandising programs featuring our Rose Authority collection in offering 80 brand new truly original flower arrangements, from those plants in our exclusive mosaic container to four foot tall red roses to roses bundled with exclusive Swarovski jewelry.

Our focus on efficient marketing programs across all of our channels, they told our customers to wow her and don't settle for less with an emphasis on better and best product offerings that are designed and fulfilled by our BloomNet local florist. The effectiveness of these programs is reflected in both the better than anticipated order volumes and the year-over-year reduction in our operating expenses. Similarly, our improved gross margin reflects our focus on providing exceptional customer service, something that we are particularly proud of. We have a customer service team literally obsessed with service, that obsession has resulted in numerous awards and certifications including a recent top performer rating from J.D. Powers. In fact, the 1-800-FLOWERS.COM brand is consistently among the leaders in customer service surveys across the retail landscape. We deliver millions of gifts beautiful, intricately designed, highly perishable gifts; many of them same day anywhere in the country. We do this by working with the very best professional local florists who are extremely proud of their artistry and their dedication to helping deliver smiles even in the middle of yet another Boston snowstorm when no sane person would be out on the roads.

We also partner with FedEx and UPS, the premier names in package delivery, and we benchmark ourselves against their high customer service standards. I'm proud to say that our customer service metrics are second to none. You can see this in our gross margin, which continues to expand, as we drive customer issues down to an ever diminishing factor of total orders. Even though we successfully deliver millions of perishable gifts with a customer issue rate that we believe is by far the lowest in the industry. It's those few smiles that do not get delivered properly that keep us working every day to get even better at what we do.

I'll now turn the call over to Joseph.

As we get ready for Mother's Day, Father's Day, and all the spring holidays of fiscal fourth quarter, we believe we are uniquely positioned to build on the positive trends we see on our business. In our 1-800-FLOWERS.COM brand, we continue to expand our leadership position in the floral gifting space. In Gourmet Food and Gift Baskets, we see solid growth and enhance contributions from our growing collection of brands. We are now positioned to accelerate our growth in this gifting space with the recent completion of our expanded Cheryl's facility, our Fannie Mae's enhanced operations and our acquisition of Harry & David. (inaudible) Our growing initiatives improve both mobile and social commerce and our new multi-brand website, and you can see why we're so excited about the opportunities ahead. Karen. If I ask you now to please instruct our listeners in terms of, how they participate in Q&A portion of the call.

(Operator Instructions) Jeff Stein, Northcoast Research.

Good morning guys, a great quarter. Couple of questions here, first of all to Bill, you talked a little bit about the fact that in the first quarter you're going to be up against a large deficit at Harry & David, so maybe you could talk, number one, about how much they lost in the first quarter last year, so we have a better idea in terms of what we're up against. And number two, if you can talk a little bit about the synergy cost savings that you see for next year. And what are kind of biggest buckets of cost saves? Thank you.

Jeff. Thank you for the comments. With respect to the first quarter, Harry & David's EBITDA loss was close to $15 million, $14.8 million, so that's what we're up against, you know, comping against that number, as we've discussed in the past trying to achieve integration savings as well as growth in the overall business trying to offset as much of that first quarter loss as possible. Some of the areas of the operating synergies, that we have certainly[ph] sourcing and procurement, IT, and other shared services that we have, you know, leveraging both West Coast and Mid-West distribution facility and manufacturing facilities, and combining our buying power in a number of different - in a number of different areas. We'll start to see some of those benefits in fiscal 2016, and we believe we'll be able to achieve the $15 million we've identified across the enterprise and savings by fiscal 2018.

With the number -- this is Jim, Jeff. The number that Bill and the team laid out early on was accumulating $5 million per year savings. So $5 million, $10 million, $15 million total in that three year period. But I'll tell you that the closer we get to the operations at Harry & David the more excited we get, not only about the talent in the management team there, but the leverageable resources and Bill mentioned several times to you including our west coast, our logistics and freight opportunities, and leveraging our IT and other shared services.

Right. Maybe Jim and Chris, perhaps maybe you could just talk a little bit about some of the learnings you had in terms of the multi-brand portal and the benefits, and are you beginning to derive any? And also, I'm sure you've been running some marketing tests with respect to Harry & David in terms of trying to maintain a database of their business, and see how relevant it is to the core 1800 Flowers business and conversely, can it go the other way as well. Are you seeing any early signs of synergies that will produce that accelerate the top line?

Yeah, you are right Jeff. I think, you know, in addition to the operating synergies that Jim and Bill have referred, we really get -- continue to get more and more excited about the growth opportunities that lie ahead of us here. We are looking at areas such as our B2B business gifting opportunity, growth opportunity, wholesale growth opportunity, and most importantly as you were just mentioning the customer database letters that we have. I think what we've seen so far is really good customer reception to our cross-brand, the things like our cross-brand emails that we've tested, our cross-brand merchandising tests, where we're featuring Harry &David products on the 1-800-FLOWERS. As noted an example there, in the sympathy collection, we've added some Harry & David products that have quickly moved up into the top rankings of the non-floral sales from this sympathy collection of 1-800-FLOWERS. So (inaudible) positive results.

We really haven't tested yet the reverse of that in the flowers products in the Harry & David business too much, so that's yet to come. As far as the multi-brand portal - that's an important aspect of our strategy and as evidenced by the early results, we continue to see in that area. And as we look at the integration at work, the [Wall Street] is working on that, marketing, merchandise teams and certainly the IT teams. We are continuing lay out the plans and lay out the strategy that we are achieving our ultimate goals integrating Harry & David into that. But again based on all the other results we're very encouraged by the growth opportunities in front of us.

Great, thank you.

Thanks, Jeff.

Dan Kurnos, Benchmark Company.

Great. Good morning, thanks for taking my questions. Obviously, good quarter, good execution from you guys just got a few housekeeping questions really, since you touched on a little bit anyway the revenue synergies, we would love to hear more on that. Bill, can you just give us a sense of what Valentine's Day was from an organic perspective, just so we have a comparison tool, and then if you could just -- since I missed a couple of them, can you just run over again what the numbers were for Gourmet Food ex Harry & David from top to bottom line?

So first from a consumer's perspective, consumer [floral] Valentine's Day, we had, I think that we will be down as much as 15%. I had (inaudible) came in less than 10%. So, I think, it was less 10% down year-over-year. We knew the Saturday day placement was going to be an impact on demand. We obviously reduce a lot of expenses in marketing. As a result of that, as a part of our planning, we achieved a year-over-year bottom-line results where consumer floral was strong, were up 30 basis points, the bottom line was up $1.4 million.

With regard to - Gourmet Food and Gift baskets without Harry & David, we mentioned that the growth is about 18% during the quarter, we had some benefits from the pull-forward of Easter, but that was offset by lost revenues of the Fannie Mae fire, without Harry & David, we saw the Gourmet Food and Gift Baskets up. It was positive about $400,000 in contribution margin versus a year-ago, they were down $3.2 million, so, about $3.5 million to $3.6 million improvement in that segment without Harry & David.

So all together, the consumer products, Gift baskets and floral would have been -

Up $5 million between the two on a contribution margin basis without Harry & David.

And top line?

And top line would have been positive, so the Gourmet food growth would have of about $6 million or $7 million with offset be the 4.5% or we were down in consumer floral for the quarter.

Perfect. That's obviously a lot better than your competitors. So, thanks for clarifying that. And then, just in terms of the warehouse fire, we finally through all this now and is there going to be any impact on the Easter holiday, are done with that?

I think for the most part, there should be no longer any impact on the top line with the fire. We incurred losses between - lost inventory equipment and incremental cost associated with the fire over $30 million. We collected in advances from the insurance carrier $30 million, $15 million back in the second quarter, another $15 million back now in the third quarter. We now are fully stocked back in our inventory. So, we should see no further impact on revenues going forward in fourth quarter.

This is Jim. I would say that the impacts that you'll see on the Fannie May confections brands and their businesses going forward, are likely to swing to be pretty positive now. That's because when that team confronted a tragedy like they did, they rallied as a team in an amazing way, (inaudible) we are all here very proud of. And I think that their commitments that when there's - when that event, Thanksgiving Fire Anniversary, so it will be a bigger, stronger, better company and they are showing every indication that they are well on their way to achieving that early.

Great. Thanks. And then, just one last one from me. I guess maybe for you, Jim. And just thoughts on BloomNet, obviously the growth hasn't been stellar, but it's still continuing to sort of improve a little bit here, just your thoughts on accelerating that if that's part of -- if that's going to come as part of the Harry & David integration efforts or just how you really get the wire service accelerated from a growth perspective?

Well, I think - I think that from an overall point - (inaudible) to give you a little bit more color that I have just set the table. I think that BloomNet has been a good solid steady distributor, management has done a good job there. I think it's clear that the competition that BloomNet faces have been - have bigger businesses, but their businesses had been declining for a long time, and BloomNet continues to grow both on a top line and a bottom line. I think there are opportunities in front of them that they can accelerate that growth. Now I'll ask Chris to give you a little color on.

I think overall, I mean, we expect BloomNet to continue to grow both top and bottom line this fiscal year. And while top line growth has been slower than we had hoped, BloomNet continues to do an excellent job of managing its operating expenses, deepening its relationships to Flowers and providing unique suite of products and services that we believe will help the Flowers grow and also help that business grow. As a result, BloomNet will continue to grow steadily gaining market share in a very competitive market.

All right, great. Thanks, guys and nice job.

Linda Bolton Weiser, B. Riley & Company

Hi, just kind of looking forward into FY2016. I know you probably don't want to get into too many details, but you've posted really nice EBITDA margin expansion in your base business even excluding Harry & David in really all of your segments for the last few quarters. Is there anything that you see coming up in FY2016 that would be like special investment you would have to do or any marketing strategies that would require higher spending or can we expect to see this nice improvement continue on EBITDA margins in those businesses? Thanks.

Well I will certainly leave it to Chris or Bill to chime in with their thoughts, but from an overall point of view, we think the trend lines have looked good for us last three quarters, top and bottom line expansion in the all three of our business segments. We expect -- our goal would be to continue that trend. And in terms of Harry & David and its contribution, clearly it is a seasonal business. We knew that it's going in, it is one of the reasons why it took us 12 years to pull the trigger on the acquisition. But now that we've gotten comfortable with it, we think there are opportunities on the seasonal side of business to grow their business, to grow their contribution in that very important for holiday quarter (inaudible) calendar, second fiscal quarter. So from a big point of view, yes we think CapEx will be a continuing ingredient to our mix. But nothing extraordinary Bill and Chris, I think trend lines continue, the bump in a road for comparison purposes, the overall Linda, is what Jeff Stein was mentioning earlier, that is Harry & David -- pointed out, Harry & David had improved top and bottom line results in this fiscal third quarter. But last year, they had a $15 million, $14.8 million loss in the summer quarter. And because (inaudible), it's not part of our number. So that's the bump in a road that we have to get along rather than - in our year-end call, give you some guidance and colors of what we expect that to be reduced to and offset by other savings. But other than that.

I would say, we are very comfortable with each of our different business segments as we reported, continuing to see positive trends, we don't see anything that we can see that would derail that progress. I'd specifically call out the improvement on the contribution margin of the 1-800 Flowers' consumer floral business, it's growing double-digit in the last three quarters, we are very proud of that. It was a very competitive market we are able to do that, so that should build well for the future, so (inaudible) that coupled with the growth opportunities that Jim is referencing with Harry & David business, we feel pretty comfortable.

Yeah, I think just to summarize. I think we expect the core EBITDA margins to continue to improve and we expect to grow Harry & David and improve their results.

Great. And then, can I just ask in your floral business for next year, I guess if we're looking at the calendar Valentine's Day, I think falls on a Sunday then next year. So, my understanding is that -- that's all a little better than Saturday, is it or do you expect -- so the growth rate then I would think would be normalized because you already took the hit kind of this year. Am I thinking of that the right way for next year?

No, Linda. Sunday is actually a worst day placement than Saturday, but I think what we've done this year is (inaudible) we've been able to mitigate the impact on the top line, we'll have a broader product offering that will help us to mitigate that further, and see even in the face of a top line challenge, our bottom line results continued to improve. So we are much more focused on delivering a better experience to our customer and improving our margins.

Got it. Thanks. And then, just finally on your cash flow performance. I don't know If I have these numbers right, but it look like, maybe your operating cash flow was somewhat negative in the quarter like maybe negative $40 million versus positive last year, was there anything strange in the quarter in operating cash flow?

No if you look at -- obviously the cash flow for the year, it's a significant number -- it's over $100 million for the nine months, so that's obviously impacted by the timing of the Harry & David transaction. So what you have is, the second quarter showed a tremendous cash flow, because we bought Harry & David as on September 30, when a lot of the working capital is high, and then we worked that down (multiple speaker) [to cash], so it had a tremendous impact on positive cash flow in the quarter and now just starting to normalize throughout the rest of the fiscal year.

So for the year, what we gave is -- guidance on cash flow was?

Yes. So, it is an unusual year because of the acquisition, so we're going to have -- and the timing of the acquisition, so we're going to have a cash flow for this year around like close to $100 million, because of the timing. But normalized, it's really more in the -- north of $40 million.

Anthony Lebiedzinski, Sidoti & Company

Good morning. Just wanted to follow up on the BloomNet, in your prepared remarks, you mentioned that the revenue from that segment benefited from some pricing initiatives. Can you just expand on that a little bit please?

Well, I think what Bill talked about was the mix impact, and in some quarters when it looks like the margins are going down, that might be an emphasis on our product that we might introduce into the network, a container program or a new vase program. This quarter is mostly an impact of the [software] as a service kind of programs that we sell that appear to have a higher margin because front-end loading the expenses of introducing the product.

Okay. So, it's still early to say.

I'll ask Chris to cover that for you.

I think your first -- we're an Omni-channel retailer. We believe there is growth opportunities across all of our channels. So, we will continue to evaluate the Harry & David store model as part of our overall operating plan, looking at what works, what doesn't and you can make -- we will just accordingly to improve that channel.

Okay. So, it's still early to say.

Well, there is a lot of things we're looking at there. Yes, I think you're right on the store count 48 stores. As leases come up, we'll make decisions on an individual store basis and on an overall program, it has not been an area that frankly that Harry & David team has spent a lot of time and attention on. So we brought in some new players. Steve Lightman who is the new president of Harry & David, has a lot of multi-channel experience and he has a lot of in particular retail experience, so he is putting together a team that's really diving deep into, the retail performance, and has a variety of stores in that mix. So from a macro point of view we are looking at the whole thing and looking for what opportunities that are there. And then on a store-by-store basis you'd apply your normal analysis to it as leases come up to make an individual determination. But that would be done in the context of our overall plan. On a seasonal side of things, where we had some seasonal stores last year, there is some interesting results there that cause us to say this could be an interesting opportunity for us to expand that.

So, do you mean like kiosks, is that what you meant by some of the seasonal stores?

Kiosk would be one component of the seasonal store concept. Yes.

Got it. Okay. Well, thanks very much.

(Operator Instructions) Juan Bejarano - Noble Financial

Hi. Good morning and thank you for taking my questions. Great quarter. I know there has been a few new start-ups that have entered the floral market like BloomNet and [Brooks]. What are your thoughts on this area of growing competition and have you seen any of them as compelling, maybe one that you can partner with or even acquire? And then, on that same line, I know your current focus is on integrating Harry & David. But are you seeing any other compelling acquisitions out there?

Yes, Juan. I'll start with that and will invite Chris, Bill jump in. On the new entrants into the marketplace, of course this is our business, we live and breathe it. So we are going to try and stay current with anyone who is entering either our market directly or adjacent markets. And we find some interesting things going on there, some might be interesting features that we should include, some are existing features that we've been doing for years, for example, our program that BloomNet introduced probably three years ago now, is called our Local Artisan Program, and there the local artisans [either] it is our retail flower shops has the opportunity to merchandise our website for our customers that are looking for products in those florists home markets. So, they get to show specific products, they get to celebrate the really talented design skills, that their local artisans have, that could features local product is only available in that market from a seasonality point of view. So, that's a program we again introduced a few years ago that other upstarts are mimicking saying that this is revolutionary and it's interesting, but it's a feature that we've had for a while and continue to grow as the florists excitedly embrace it. So we keep an eye on all the upstart potential competitors. And when there is something appropriate for us to acquire, we would be able to close to that, and if it's a feature that we already have, it's not likely, but every category. We're excited frankly that people are excited about our category and starting to re-invest dollars in it.

In adjacent categories, we see frankly some more interesting things going on that keep our attention, so we are always going to be looking at it. In terms of acquisitions, we've had a very steady program of doing the best we can to improve our operating performance over the years, which frankly, we're pleased that we've had such success at, which gives us a terrific balance sheet, which gives us optionality. The options for us are how do we return that created value and the cash to our customers, and to our shareholders efficiently, and that's been primarily through stock buybacks about $25 million over the last few years. And we'll continue to have that as an option, and we will continue to execute against our stock buyback program. And when acquisitions that help us flesh out our portfolio, deepen our relationship with our existing customers, and given our ability to leverage the platform of customers in IT et cetera, that we have we'd be in a good position to execute against those, but we have nothing to announce today.

Great, thank you. And then maybe if you can provide us with an update on how the Fruit Bouquets business is going, what does their coverage look like, and what are some of the things you're doing to continue that expansion?

So, I think, as we continue the Fruit Bouquets, we are very pleased with the progress that we're making there. We continue - continued steady progress, quite frankly there's double-digit growth in that business right now. On the coverage, we reported a while ago that we crossed that 50% line and as we get to other significant numbers, we'll let you know that, but just count on continued steady growth. We like the size of this market, we believe, we can capture a meaningful piece of market share over time in what's still a growing category. So we look at Fruit Bouquets as we have for a while put steady double-digit growth.

When would you consider advertising on a national level as far as coverage, how much do you need to cover before you can advertise on a national level?

Yeah, I think it's a combination things, a combination of coverage, is a combination of what we're looking at from an investment across our family of brands and where we're putting that investment for growth. So really couldn't correlate an answer with coverage and national advertising.

Thank you. And that concludes our question-and-answer session. I would like to turn the conference back over to management for any closing comments.

Thank you for all your interest and time today. We look forward to answering any other further questions or engaging any doubt that you feel appropriate. Bill and Joe, the rest of us are available and you know how to get in touch with us. And I remind you that this is a very important season for us, we have Mother's Day a week from Sunday, Father's day soon after, all the spring holiday, so it's a busy time for us, and we're here to help you connect with all those special people in your lives. Thanks for your time today.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. And you may now disconnect. Everyone, have a good day.