1-800-Flowers.Com Inc (FLWS) 2016 Q3 法說會逐字稿

Good day. Welcome to the 1-800-Flowers.com Incorporated fiscal 2016 third quarter results conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the call over to Mr. Joseph Pititto, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, Allison. Good morning, and thank you all for joining us today to discuss 1-800-Flowers.com Inc.'s financial results for our fiscal 2016 third quarter. For those of you who have not received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our website at Investor.1-800-Flowers.com. Our call today will begin with brief informal remarks, and then we will open up 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 mention of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties and could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed descriptions 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 Accepting 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 today's call., the press release issued earlier today, or any of its SEC filings, except as may be otherwise stated by the Company. I'll now turn the call over to Jim McCann.

Good morning. We are pleased to report solid results for our fiscal third quarter, particularly in light of some of the headwinds we faced leading into the period. Most notably in our floral business, both the consumer floral and BloomNet segments performed well, despite the impact of the Sunday placement of the Valentine holiday, which typically has a significant impact on demand. Even with this expected headwind we were able to drive better than expected revenues, and increase both gross margins and bottom line contributions compared with last year.

We did this by executing our plans to spend appropriately and effectively on marketing and merchandising programs, and engage our customers, and continue to set us apart as a leading floral brand in this category. In gourmet food and gift baskets we achieved revenue growth of nearly 7%, during what is seasonally a slower period for gourmet gifts. Let me give you a little bit more context here. Our gourmet food and gift basket business is highly seasonal, with our fiscal second quarter accounting for nearly 65% of its annual revenues, and all of its annual profits. While this seasonality results in losses in the periods outside of the big holiday quarter, our strong growth in this area over the past several years, including the addition of Harry & David has significantly increased both our total annual revenues and total annual bottom line metrics of EBITDA, EPS, and free cash flow. Simply put, we are a much larger and much more profitable company than we were only a few short years ago. By expanding our product offering and creating an all-star lineup of iconic gift brands, we are uniquely positioned to solve more of our customers gifting and celebratory needs, and thereby enhance our top and bottom line growth in the years ahead.

The growth we achieved in the seasonally slower third quarter reflects solid performance in our cheryls and our 1-800-Basket brands, as well as in Harry & David, which is up more than 3% net for the first nine months of this year. We are very pleased with the benefits we are driving across our platform, related to the integration of Harry & David, and we continue to be excited by the opportunities we see to further improve its growth rate in the years ahead. Executing on one of these opportunities earlier this month, we completed the move of Harry & David, along with Wolferman's and Stock Yard brands, onto our multi-branded website. We believe this will significantly enhance our cross merchandising and marketing capabilities, and help accelerate growth for all of our businesses across the platform. I will ask Chris to provide additional details on his multi-brand initiatives in his remarks in a few minutes.

As I said, we continue to make good progress in terms of laying the groundwork to become the leading player in a gourmet food gift space. However, during the third quarter, our top and bottom line results in this segment were impacted by the underperformance of our Fannie May brand. Fannie May's business has not yet bounced back to the strong performance it had been showing, prior to the fire that destroyed its warehouse and distribution center a year ago this past Thanksgiving Day. We put in place a number of initiatives in both marketing and merchandising that are designed to improve customer traffic to the Fannie May brand. We are confident that Fannie May will be well-positioned to show significantly improved performance, as we head into the key holiday season in fiscal 2017. Part of our DNA as a company is to listen to our customers, and always be a leading innovator, in terms of adopting new technologies that help us engage with our customers, wherever and however they prefer. Recent announcements highlight this focus, including our partnering with Facebook to develop and deploy the first commerce spot on their messenger platform, and today's announcement of our partnering with Amazon, as one of the first external e-commerce brands on the Alexa platform. We have often told you in the past, innovation is a critical part of our business, and we will continue to be at the forefront of technology, to enhance the customer experience, and help our customers connect and express themselves for all their celebratory occasions. Before I tern the call over to Chris, for him to elaborate on these announcements, I would like to highlight a recent announcement we made, this one regarding our long-term succession plan, and Chris' transition to the role of CEO. As I noted in our press release back in March, we set up the succession plan many years ago, and we did so with the goal of a seamless transition. Chris has been steering over Company's day to day operations as President since 2000, and his contribution as part of our leadership team, have helped us grow past $1 billion in revenue, and become our customer's leading destination for all of their celebratory occasions. Having worked closely with him, I know there is no one better equipped to spearhead the continued growth and innovation of our Company. The Board and I have every confidence in Chris, and our very seasoned management team. We look forward to Chris assuming his expanded responsibilities at the end of the current fiscal year. With that, I'll now turn the call over to Chris.

Thank you, Jim. I went into great deal working along Jim over the past 30-plus years, as we've grown the business from one retail flower shop on the upper east side of Manhattan, to today's multi-brand Omni channel gifting leader. One of the most important lessons I have learned is that listening to our customers, and always focusing on innovations to enhance their experience, is vital to our growth and success. In a moment, I'll cover the exciting announcements regarding Facebook Messenger and Amazon's Alexa platform, but first, a few comments about our third quarter.

We were very pleased with the performance of our 1-800-Flowers.com and BloomNet businesses, particularly in light of the Sunday Valentine's day headwind. During the quarter we successfully executed our Valentine's holiday plans, to drive revenues while enhancing margins. Our efforts in these areas benefited from our focus on efficient marketing programs, that emphasized customer engagement and customer satisfaction, our truly original product designs, including our exclusive local artisan program, featuring the unique creativity of our BloomNet florists, and the enhanced operating leverage that we continue to drive across our business platform. These results illustrate the expansion of the 1-800-Flowers.com brands market leading position, as well as BloomNet's growing market position versus the legacy wire services. I think it is appropriate here to offer kudos to Tom Hartnett, President of the 1-800-Flowers brand, and Mark Nance, President of BloomNet, and their respective teams, for the great planning and execution that drove our strong performance during the quarter. I am pleased to report that both businesses are well-positioned to drive continued strong performance for the upcoming Mother's Day holiday, and into our next fiscal year.

In the gourmet food and gift basket segment, earlier this month we finalized the transition of Harry & David to the multi-brand website. I am happy to report that our website now also features a Harry & David, Wolferman's, and Stock Yard brands, with their own tabs on the site. Customers who previously navigated to those individual websites, are now directed to the multi-branded site, where they can discover our entire family of brand offerings.

Importantly, we can now expose all of the customer traffic across all of our brands to our Celebrations suite of services, including Celebrations passport, our free shipping program, Celebrations Rewards, our points based loyalty program, and Celebration's reminders, helping our customers to remember all of their gifting occasions. These programs are designed to engage with our customers, and deepen the relationships we have with them as, their one-stop destination for all of their celebratory and gifting needs. Our goal is to increase the number of customers who buy from multiple brands across our platform.

While we are still early in the early stages of rolling out these programs, we are excited by the results we are seeing, in terms of enhanced retention, average spend, and lifetime value, when customers become multi-brand. Having all of our brands now on the same platform, enhances our ability to market Celebration's, passport, rewards and reminders, and as we grow membership in these programs, we can begin to accelerate the growth of multi-brand customers. With respect to our Fannie May brand, as Jim mentioned, the performance of this business has been impacted by the reduced customer traffic, particularly in our stores, as well as some retail based wholesale customers. We know that some of this is related to customers not being able to find their traditional Fannie May products in the period after the warehouse fire that destroyed inventories. While we were made whole by our insurance carriers for the losses incurred due to the fire, demand levels have not yet bounced back to the strong same store growth levels Fannie May was experiencing prior to the fire.

We have put initiatives in place to enhance our online and local marketing, product innovation, package design, and store merchandising, all to enhance the results and to attract a greater traffic flow of customers. We are intentionally focused on addressing the performance of Fannie May, and we are confident that the initiatives we have in place will enable us to improve the traffic and overall performance, as we head into the key holiday season in fiscal 2017. We are also confident that all of the brands in our all-star lineup will benefit from the key revenue synergies that I have mentioned to you in the past.

These include our multi-brand customer strategy which I just spoke about, business gift services, where we bring all of our iconic gift brands under one unified corporate sales structure, expansion in wholesale, including introducing Harry & David branded product to our mass channel customers, where we are already seeing positive reception from our early presentations. And the benefits we expect from having a consolidated customer database. We are excited by what we believe all of these programs can offer, in terms of deepening our customer relationships and accelerating growth. We are also very excited by the announcements we made earlier this month, as well as this morning. As Jim mentioned, we are intensely focused and committed to being at the forefront of technological innovation and social trends that help shape consumer behavior. Adding to our list of industry firsts we now have the launch of our commerce spot on Facebook messenger platform, and our integration as one of the first external commerce brands on the Amazon Alexa platform. Chatbox is fast becoming the preferred mode of communications with Facebook's hundreds of millions of users. This new technology is advancing at such an incredible speed, that many are saying that bots are the new apps, or soon will be. Bots are hot, and we are thrilled to have been able to leverage our strong and long-standing relationship with Facebook, to launch the first commerce bot on the messenger platform.

On a personal level, I could tell you it was extremely gratifying to be sitting in the audience at the F8 Conference two weeks ago, alongside several other members of our team, when Mark Zuckerberg featured 1-800-Flowers.com in his keynote address. It was a nice crowning moment for all of the hard work the team did to get us to that point. Beginning with the 1-800-Flowers.com brand, and soon extending to all of our brands, our customers will be able to chat with customer service through messenger, as well as receive order and shipping information, and most important, placing the order to create a smile using our new bot technology.

We are also one of the first e-commerce companies to enable our customers to place orders by voice commands on Amazon's Alexa. Our customers will able to get a smile delivered simply by saying Alexa, send flowers from 1-800-Flowers. These relationships on Facebook and Amazon, speak to their interest in having our great brands in their ecosystem, and of course having our gifts available to a global community of connected customers, is an extraordinary opportunity for us. Not surprisingly, every initiative which I have outlined today is based upon our laser focus on enhancing the customer experience. It also illustrates the skill of our internal teams, who keep us on the forefront of technology innovations, which enable our customers to conduct business with us anytime on any device, for any brand in our portfolio. With that, I would like to turn the call over to Bill for some financial highlights.

Good morning everyone. I will touch upon the high level results for the quarter, address the performance of our business segments, and close with a discussion of our financial position and full-year guidance. The increase in net revenues this period was driven by gourmet food and gift basket segment, which recorded a year-over-year increase of 6.6%. As Jim mentioned, the consumer floral and BloomNet business segments were both ahead of our expectations, given the impact of Valentine's Day falling on a Sunday. So in total, revenue came in at more than $234 million, gross profit margin for the quarter increased 30 basis points to 41.3%, compared with 41% in the prior-year period. This affected strong margins in the consumer floral segment which benefited from efficient marketing programs, our best-ever customer satisfaction metrics, and enhanced sourcing and logistics. Operating expenses improved 110 basis points to 46.9% of total net revenues, compared with 48% in the prior-year period, as we continue to focus on rigorous cost control throughout our organization. EBITDA, excluding stock-based compensation improved $2.8 million, to a loss of $4 million, compared with loss of $6.8 million in the prior-year period. The loss for the quarter improved slightly, as compared with the prior years adjusted EBITDA loss of $4.1 million. The reduced EBITDA loss for the period reflects the strong performance in our consumer floral and BloomNet businesses, somewhat offset by the increased loss in our gourmet food and gift basket segment. Net income material to the Company improved $1.6 million, to a loss of $8.9 million, or $0.14 per share. Compared with a loss of $10.5 million, or $0.16 per share in the prior year period. On an adjusted basis, the prior year period's net loss was $8.7 million, or $0.13 per share.

Now I'll touch on some highlights from each of the three business segments as well as corporate expense. First the gourmet food and gift basket segment. Revenue in this segment rose 6.6% on reported basis, and 2.9% on an adjusted basis. Gross margin for the quarter declined 120 basis points, primarily reflecting continued weak customer traffic in our Fannie May stores, as well as higher promotional pricing programs. Segment contribution was a loss of $6.8 million. On an adjusted basis the prior year loss was $4.5 million. The increased loss reflects the lower gross margin in the period, and higher marketing expenses that were only partially offset by revenue growth.

In the consumer floral segment, revenues decreased 3% reflecting the impact of the Sunday placement of the Valentine holiday, partially offset by the shift of the Easter holiday into the quarter. This performance significantly exceeded our expectations, as we were able to largely mitigate the impact of Sunday Valentine's day through effective marketing and merchandising programs. Adding back the impact of the two small non-core businesses that we sold earlier, consumer flow or revenue for the quarter was flat compared with the prior year period.

Gross margin increased 140 basis points, reflecting the aforementioned benefits from enhanced sourcing and logistics, and strong customer service action metrics. As a result, category contribution margin increased $1.2 million, to $13.7 million for the quarter. In BloomNet, revenues decreased 1.9%, reflecting the impact of the Sunday placement of the Valentine holiday. Gross margin for the quarter increased 20 basis points to 55%. Combined with enhanced operating cost leverage, category contribution margin increased $500,000 to $7.8 million for the quarter. Corporate expense of $20.4 million, which includes stock based compensation decreased $2.3 million compared with prior year period, primarily due to one-time integration costs incurred in the prior year. On an adjusted basis corporate expense still declined $700,000 compared with the prior year period. Turning to our balance sheet, at the end of our third quarter, our cash and investment position was $61.7 million. Our term debt balance was $121.1 million, and we had zero borrowings outstanding under the working capital line within our revolving credit facility. Inventory at the end of the quarter was $95.4 million. Regarding guidance, reflecting the results for the first nine months of the fiscal year, the Company is reiterating its guidance for revenue growth, and updating its guidance and bottom line results as follows. Consolidated revenue growth for the year in a range of 4% to 5%, compared with revenues of $1.12 billion reported for fiscal 2015. EBITDA growth in a range of 5% to 7%, and EPS growth in the range of 25% to 30%, compared with pro forma fiscal 2015 adjusted EBITDA of $80.5 million, and pro forma fiscal 2015 adjusted EPS of $0.33 per diluted share respectively. As we noted last quarter the Company raised its expectation of synergy cost savings to $20 million over three years, related to its integration of the Harry & David business. Today we are also reiterating our guidance of free cash flow for the year of approximately $35 million. I will now turn the call back to Jim for his wrap up.

Thanks Bill. As you just heard we have a lot of exciting things going on. We have new technology innovations. We have new partnerships in platforms, strong execution in our consumer floral and BloomNet businesses, continued progress on our gourmet food and gift basket segment, in terms of driving costs and operating cost synergies through the integration of our platform, and new initiatives that we are just beginning to kick off after the multiple opportunities we see across all of the brands and businesses to accelerate revenue growth in the years ahead. Third quarter results illustrate how 1-800-Flowers brand continues to extend its market leadership, while BloomNet continues to grow its market position. Our culture of experimentation and our history of industry firsts, combined with great internal teams that we have assembled continues to set us apart as a leading innovator in the gifting space. As a company, we have always been willing to be a disrupter of our own business. This enables us to stay ahead of the curve in terms of emerging technology and social trends, so that we can better serve our customers. In gourmet foods and gift baskets we are building a company like no other, with our all-star lineup of brands representing a uniquely broad product offering, and an omni channel approach, designed to help our customers act on their thoughtfulness, whenever and wherever it is convenient for them.

As we move into our fiscal fourth quarter with the Mother's Day and Father's Day holidays among our spring and early summer occasions, we are focused on finishing up a solid year, while laying the groundwork for a strong top and bottom line performance in fiscal 2017. Allison, would you please repeat the instructions for the Q&A portion of this call?

Certainly. (Operator Instructions). At this time we will pause momentarily to assemble our roster. Our first question will come from Jeff Stein of Northcoast Research. Please go ahead.

Okay. Good morning guys. Couple of questions. First of all, Chris, I'm wondering if you could talk a little bit about some of the new things that you're testing to try to drive cross brand penetration? Referring primarily to dynamic pricing at check out, and what kind of attach rates early on you're seeing there for passport, and if it's the kind of, are you getting the results that you expected? Thank you.

Yes. I think overall, Jeff, we continue to see traction with everything that we're testing, some better than others. And again it's so early to be able to project. We are happy with the progress that we are making as I stated in my formal remarks. Some things test better than others, of course, and we're not getting into breaking out each component, but specifically as you're referring to some dynamic pricing, that's something that we're testing, very early stages still, only a couple of weeks in, so hard to really comment on something like that. But with all of the programs that drive membership and rewards, membership and passport, and then more importantly, I think or equally as important, is now having the Harry & David, Stock Yards, and Wolferman's tab on the site, really gives us a whole new traffic base to work with, and introduce those customers to the multi-brand platform. We're pretty excited that we're now all on that one platform, and can leverage all of these different marketing components.

Wondering if you could talk about some of the initiatives that you're working on at Fannie May, and what your expectation is when you might begin to see some year-on-year improvement in results there? In other words, where are you with the initiative? Have they been launched yet?

I think a couple of the initiatives have been launched. Quite frankly with Fannie May, some of these things were beginning prior to the fire. And then was even accelerated due to the fire. And that was some new product innovations and new package designs. I think we're very happy with what we're seeing, but when you make a new switch like that, I think it takes time. And what we're learning is it's taking a little longer to resonate with the customer base than anticipated. So again, some things that we planned, but accelerated when we had to rebuild inventory as well after the fire. In addition, working on our community based marketing programs, bringing people into the stores, running classes and programs in the stores, going after catering business, trying to get chocolate as wedding favors, and things like that, we are getting some good traction on. So we're really kind of building that customer engagement from the store out. And it really always starts with the product, making sure that we have the traditional products that our customers are looking for, which we think is taking longer than expected, when they weren't able to find those traditional flavors and products for a while following the fire. As well as new product innovations.

I think I could round that out a little bit, Jeff, this is Jim. We did come back some from the fire, that is if you look at it, we had many months including last Valentine's Day and last Easter where we didn't have the packaging or inventory that we would have liked for those seasons as a result of the fire. We came back about halfway to what the norm was, and we would expect, we expected to come back all of the way in the first year and we didn't. I think it will take us into the holiday selling period, the fall, September, October, November, before you see the fruits of the programs that we're putting in place now that Chris just mentioned. Now that we are fully inventoried again, we have all of our packaging, our traditional products and our new products, our innovative products. I think we're happy that they're in place now, but I think in reality based on the sales levels over the course of the summertime, it will be the fall before you see those programs really start to bear fruit.

Great. And one quick one for Bill. I noticed that your inventories at the end of the quarter were up about 16% year-on-year, wondering what might have accounted for that? And are inventories in line with your expectation?

Jeff, I think we started to talk a little bit about at the end of the second quarter some of the issues that we were facing, some of the headwinds that we are facing with regard to kind of the seasonal workforces, and hiring of the hourly kind of employee base that we have. So we have initiatives in place to kind of buy and build inventory a little earlier this year. Certainly for next holiday season to start it in this fiscal year and then to pull everything back for every day occasions, to pull it forward a little bit. Inventory is going to be a little higher than we originally planned. That will put less pressure on the seasonal workforce and the productions that we have, as we start heading into next fiscal year.

Got it. Okay. Thank you.

Our next question will come from Michael Kupinski of Noble Financial. Please go ahead.

Thank you, and good morning. At one point Harry & David had as much as $100 million in revenue from the wholesale channel, which declined I think you said to about $28 million. What was the reason for the decline, and I know that the Company is planning on pushing on wholesale revenues for Harry & David. How much of the $100 million in revenues do you anticipate you can achieve, and in what time frame is that achievable? And then finally, what would be the gross margins in that channel?

The first part of that question I don't think it came through.

No, you're saying one time $100 million in the wholesale channel at Harry & David. No, that's incorrect. So the wholesale revenue at Harry & David is in the 20s, and it is clearly an area we've identified as a growth opportunity for us. And we'll be going after that. And as I mentioned, based on some of our early presentations we're getting some good receptions, and good traction in this early sales cycle right now. Margin will differ a little bit as we expand into the wholesale channel, different channels carry a different margin in the wholesale. Bill, do you want to expand on that a little bit?

The mass channel is traditionally a, in the big box stores have traditionally lower margin than some of the other channels. As we move into the various components, whether it be food, drug, and mass department store, or the big box players, that can influence margins, but margins are lower than e-commerce or retail.

But it speaks to, Mike, the things that Jim was talking about relative to inventory and labor. Even though it's a very small business where we have third party sales through wholesale like that, it gives us an opportunity to balance the workforce better, it gives us an opportunity to buy better, it gives us an opportunity to smooth out our manufacturing cycles, and the final and most important benefit, is it exposed our brands to a broader set of customers, and a marketing environment that frankly we don't have to pay for. So those lower margins are appropriate, and something we're very comfortable with.

Thanks for the clarification. I guess the question would, the roughly $20 million range or whatever for the wholesale channel, was that growing prior to you owning Harry and David?

No, it hadn't been growing for some years. Harry & David itself hasn't grown in probably a dozen years, and now we have two-years of growth. So like we've seen in the third quarter, the GFGB group, our gift food and gift basket group has continued to grow and do well. Harry & David now has two years of growth, which we're very pleased with. So trend lines are in good shape. And the only place that we struggle is we wanted to put appropriate transparency on it, was the only area of GFGB, our gift food business that didn't do well this quarter, was Fannie May chocolates. But Harry & David continued to grow, and again the wholesale piece had a very small contributor.

I got it. And then on the marketing spend, which was a little higher than expected, was that all due to Fannie May, or are there other components in there that caused that to be higher?

Yes, that was within the group itself. Fannie May was a piece of it, but it was also with respect to Harry & David, and the other food brands.

Okay. And can you give us thoughts on how long you anticipate the elevated marketing spend for Fannie May, and I guess when you are budgeting the marketing spend, how do you look at that? Is it a percent of revenues, or how do you budget the marketing spend?

It really isn't a percent of revenue, Mike, we look at it on a brand by brand basis. Where are you going to get the best return for your dollar. Harry & David is a brand that has a heavy direct marketing component to it, so that's a fixed cost. We're always evaluating the shift in that cost, from say catalog production to social media. So that's a trend we look at on a longer term basis, particularly with a larger spending brand like Harry & David. In cheryls, where we have seen outsized growth over the last several years, we have had a more modest increase in our spending, because we have such a good line of, vein of good direct marketing opportunities that are less expensive to pursue. Fannie May, you will see us having an accelerated spend that you saw last quarter, through the next couple of quarters to return it to its solid same-store sales growth that we saw leading right up to the fire.

So kind of like the run rate that we saw in the last quarter we should expect the next couple of quarters, is that right?

Yes, as we go into fiscal 2017, we will be giving more guidance with regard to, and at the August time frame, we're going to continue to look to drive down our operating costs, and whether that impacts marketing or not, that's one we try and stay away from, we try to be more efficient in our marketing spend, because we're looking to drive growth. We're always looking to drive down our operating costs.

I think you can look to what happened this quarter in marketing spend to the flowers brand. You saw marketing spend because we knew we would be challenged on the top line, because Sunday is historically the worst placement day for Valentine's Day. We know that for all of the years we've been doing that. What I'm happy to point out is we did better, and part of the reason we did better we were able to manage our margins to have improved margins in a very difficult period, and to have a much more efficient marketing spend, because you didn't have to reach as hard, and we managed those costs, and of course, having the outsized and record breaking customer satisfaction scores that we had this Valentines Day, all contributes to the more measured marketing spend, having a much better effect overall on the bottom line.

Okay. Great. Thank you so much.

Our next question will come from Linda Bolton Weiser of B. Riley. Please go ahead.

Hi. Just another question on Fannie May. Just so I understand can you remind us, is really the vast majority of Fannie May sales in your own retail stores, what percentage is to other retailers in Fannie May?

Very small percentage of Fannie May sales through other retailers. Do you want to give some color?

The Fannie May retail stores represents probably between 50% and 60% of overall revenues but there is a big wholesale component to Fanny May and the Harry London.

But not in the Fannie May brand.

But in the Harry London chocolate business that we have. The e-commerce is a smaller piece.

Okay. Much of your commentary has been focused around improving the traffic and the same-store sales in the Fannie May stores, but there is nothing, have you lost any wholesale customers in Harry London? Are there any lost customers that you have to regain back?

I think overall wholesale yield year-over-year is growing within Fannie May, and we think we have opportunities, we believe we have opportunities to really accelerate the growth in wholesale. The reason we talked about the Fannie May retail stores is because the high gross margin dollars, the higher gross margin percent that the retail stores generate. They have gross margins in the 70% range. So when you miss on the top line with Fanny May retail, it has a disproportionate impact on the bottom line.

Right. That's helpful. So then just thinking about I know you don't want to get into detail about FY 2017, but I guess conceptually I'm thinking that the tone sounds like Fannie May issues may still impact the September quarter, but it sounds like maybe the December quarter things will start looking a little better. Can I think of kind of the Fannie May maybe issues being offset by the positive Valentine's placement next year, and so net/net, you're still going to kind of drive for that 10% EBITDA growth that you normally target? Is that the right way generally to think about next year?

I think in broad terms, our guidance has historically the last few years been towards 10% EBITDA growth, and we would be targeting something in that range. We'll get into more details of that in our August call. We do believe that Fannie May can be a contributor as we head into the holiday season next year though.

I think all of those things, the wholesale business not really being, we completely recovered in the wholesale business as Bill said, we're expecting that Harry London brand, which is a wholesale brand to continue to grow. We expect because of the vertical integration that we have as a manufacturer of our product, that the high margin store business we have will recover beginning in the September October, November, time frame, as we head into the holiday season with Halloween, and other occasions, Thanksgiving, sort of coming in the fall for us. And with the favorable day placement next year for Valentine's Day, it should help us to recover even further in our confectionary brands.

Okay. And then can I just ask about Harry & David a little more specifically? I don't know, you probably don't want to give the sales performance in the quarter. Can you give Harry & David in the first half, and then through the nine months, just I'm trying to get a sense of whether it got better or worse or something in the third quarter?

So for Harry & David we're happy with as Jim mentioned they had not been growing prior to our taking over the business, and merging it in with our enterprise efforts. So for the first nine months of the business, we're growing slightly over 3%. Keep in mind in the last net, that is after you back out a couple of stores that we closed, as well and still growing 3.2%. And keep in mind that the first quarter is a very small quarter percentage-wise. That was really driven by the first six months, but carrying it through into Q3 for us.

So then the growth remained the same is what you're saying?

I think the growth trend in Harry & David has remained consistent throughout the first three quarters.

Okay. And then let's see, the floral profitability was good, it's been trending good and it was very impressive in the quarter. So is this again sort of just an example of kind of the rational behavior within the industry? Can you just give a little more color on the profitability there?

Well, I can't give more color in the industry, we are the only people who are public, to this date publicly disclosed how the quarter went. I think yes, I think you are seeing in the floral side of our business, I think you are seeing more rationality being applied to the marketing spends and the different categories, so I think that's contributing to the consumer's benefit. I think it's contributing to the companies who play in this sector being able to market more of the differentiated product, and less on the cheap product kind of message, which I think was damaging to the category. I think it has had a benefit, but I think the work that Tom Hartnett and his crew did on the retail side, and Mark Nance and his team did on the BloomNet side, speaks to good management, good execution, good direct marketing programs, and all in the face of the very, very tough day placement. So it's hard to beat your chest about 3% growth, but overall for the Company, but when you have a floral category that we expected was going to be down $10 million, and to see it down less than half of that, we're thrilled.

Right. And then consumer confidence kind of remains generally quite high. But it's just down a little bit in recent months, and kind of year-over-year basis if you look at miss again consumer sentiment is actually down year-over-year now. Are you concerned about that, or do you still feel that the consumer is quite healthy and just how do you think about that environment right now?

Linda we look at the consumer confidence index all of the time, and I think on a macro level maybe jumping back to a 20,000-foot level, clearly we can see how it impacts our business. At this generally pretty good level, we haven't seen an impact. We did see that the revision this morning about the April number being down a little bit, but it's not changing our thinking about the consumer, at least the consumers that we have, which are fairly affluent consumers. I think that it doesn't, we wouldn't want to see that trend line continue for a long time, but in the near-term it doesn't give us pause.

Okay. Great. Thanks very much.

Thank you, Linda.

(Operator Instructions). Our next question will come from Anthony Lebiedzinski from Sidoti & Company. Please go ahead.

Good morning. Thank you for taking the question. So Chris you just mentioned that at Harry & David you closed a couple of stores. Do you have any updated thoughts overall on the Harry & David store base? How are you thinking about that?

Sorry, could you repeat that?

I heard it. He was asking about overall thoughts on the Harry & David store piece. Harry & David when we acquired the Company had around 50 stores. We're down this year probably another three stores, I think. So that's a couple of million bucks, a little bit more, in revenue headwinds there. Overall, we're an Omni channel retailer. Anthony, we like all of the different vehicles that we can go to market with. We have some retail stores that do very well. We have some retail stores that were struggling, where we thought that they couldn't be changed. We've taken advantage of leases to exit those stores. But overall we think that retail will not be a big contributor to the overall mix, and not likely to become a very big contributors, we still think it plays a role with us in the future. We have some things that are really interesting that are going on within retail, and where we have opportunities to press on those and grow them, we will. But overall I would expect to see another few stores come out of the mix as we ready ourself for some future possible retail growth in the years ahead, but near-term I would expect some more shrinkage in store count, as leases come up on less well performing stores, but we have some stores that are doing really well. So it will be part of our mix, not a huge part of our mix, and for the next year or so I would expect a little bit more contraction there, before we make the determination as to whether or not we have things we want to invest capital behind in the retail area that we think give us growth opportunities.

Okay. Thanks for that. And also, you talked a lot about the decreased traffic at the Fannie May stores. Just wondering once those customers are inside the stores, what are you seeing as far as the average ticket? Are they spending also less, or spending more? About the same? Just wanted to get a better sense about the average transaction size at the Fannie May stores?

The average transaction value has been flat to slightly up, which is good. Our conversion rates are relatively good in the stores. The challenge has been getting people to return back to the store, to find the products that they loved. That's why we've gone back as I mentioned first and foremost, product and line up looking at the portfolio, understanding the traditional needs we have, in addition to more forward thinking trend product lines that we have developed, and then really looking at the community marketing strategies to get people into the stores. Some of the community engagement programs I referenced before, as well as some of our marketing plans geared around the holiday. Understanding and digging in and analyzing what really was driving the customer foot traffic prior and was the different marketing programs driving in foot traffic with an appropriate return on investment. So really analyzing that whole mix, and as mentioned before, pretty confident that we'll see those trends pick up as we move into the holiday season.

If you look at the three components, if you look at the third party sales like the Harry London brand, recovered and doing well, real good sell through with our customers. If you look at the e-commerce side, okay. If you look at the retail side as Bill mentioned, the store side of things for us is where the margins are best, because we are the manufacturer, as well. And there when we pulled all of those community programs last year because we didn't have the appropriate inventory in the store, we didn't realize how long it would take to reinstitute those programs that Chris just talked about, to regenerate the traffic. We have average order up. We have conversion up. What we're missing is traffic, and that's what we're implementing now is traffic building programs, because we see the evidence that once our customers come back into our store, it's as good as ever, maybe better.

Got it. Okay. And lastly, I may have missed this, but did you quantify the impact of the Easter shift?

Bill, would you cover that?

Anthony it's about a $5 million pull forward from Q4 into Q3 from a top line perspective.

And remember Anthony when you're looking at that, as Bill always says you should look at the two quarters combined, because Easter straddles a quarter and has a different impact. On the food side of the business it's a bigger impact. When Easter is in the third quarter, Bill. You know how gourmet food business this?

So this year with it moving from April 5th a year ago to March 27th this year, we had a week last year in the fourth quarter. That impacted really both consumer flow and the gourmet food and gift basket, but gourmet food and gift basket had more revenues last year. And next year it moves to the end, the latter part of April, so all the of way to the fourth quarter.

And it's also better when it's later overall.

Got it. Okay. Thanks very much.

Having no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Jim McCann for any closing remarks.

Thank you all, and thank you for your interest. A reminder this week, this current week, and tomorrow in particular, Administrate Professionals week. I would like to remind you to come to multi-branded website, give you an opportunity to express yourself to all of those professionals in your life, around your office who keep you running and working and effective every day, and of course, next week is an important week for us all, as well. It's Mother's Day week. I'm just saying, you ought to come visit a multi-branded portal you might know. We have a terrific assortment of gifts, that will make all of the Moms in your life have a big smile on their face. Thanks for your time today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.