1-800-Flowers.Com Inc (FLWS) 2016 Q4 法說會逐字稿

Good morning, and welcome to the 1-800-Flowers.Com, Inc., FY16 fourth-quarter and full-year results conference call.

(Operator Instructions)

Please note: This event is being recorded.

I would now like to turn the conference over to Joe Pititto, Senior Vice President of Investor Relations. Please go ahead.

Thank you, William. Good morning, and thank you all for joining us today to discuss 1-800-Flowers.com's financial results for our FY16 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 investor.1-800-Flowers.com.

Our call today will begin with brief formal remarks, and then we will open up the call to your questions. Presenting today will be Jim McCann, Chairman; Chris McCann, CEO; 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 supplementary 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.

Thanks, Joe.

We are pleased to report another solid year of top- and bottom-line growth for our Company. These results were achieved despite a number of headwinds that we faced during the year, some anticipated, such as the Sunday placement of the Valentine holiday and lower store counts; and some unforeseen, such as the significant increase in labor costs related to the tight employment market for seasonal workers and a rise in minimum wages.

I believe it is a testament to the focus and execution of our management team, led by Chris and Bill, along with our segment Presidents and our brand leaders across the Company, that they were able to manage through both the anticipated and unanticipated headwinds during the year. And not just deliver another year of solid results, but also position our Company for enhanced top- and bottom-line performance going forward.

Along these lines, during the year we achieved a number of operational milestones. First, during the year we continued to execute our integration program that we began with the acquisition of Harry & David, and has evolved into how we operate our entire Company. Second, we continued to expand our multi-brand customer initiatives, a key ingredient in our strategy to enhance customer engagement and long-term growth.

Third, we continued our focus on being good stewards of our shareholders' capital, further strengthening our balance sheet while continuing to invest in: our business platform, our category-leading mobile and social efforts, and our innovations as a first mover in the fast-evolving areas of artificial intelligence and conversational commerce. Combined with the flexibility of our credit facility and strong relationships we have with our syndicate of bank lenders, this enables us to continue to grow our Business both organically, as well as through strategic acquisitions.

Last, but certainly not least, we completed the transition of Chris to the role of CEO, something that I'm both very proud and excited about. As a result of these factors, combined with the hard work and dedication of our thousands of associates across the Company, we are well positioned to deliver strong and top- and bottom-line growth in FY17.

With that, I will turn the call over to Chris.

Thank you, Jim.

FY16 was a good year for our Company on a number of fronts. We achieved solid revenue growth, and drove increases in our margins and earnings, despite some significant headwinds we faced during the year. Importantly, we also made excellent progress executing on our vision to build what we call our celebratory ecosystem, which includes our all-star collection of gifting brands, and an ever-increasing suite of products and services designed to help our customers deliver smiles to the important people in their lives.

We also continued to make progress in our integration initiatives, which began with our acquisition of Harry & David, and has now evolved into a holistic approach to how we view and operate our entire Company. A key feature of this approach is that we are focused on proactively identifying and sharing best practices across all of our operations and key functional areas. This focus has already provided benefits, enabling us to exceed our original estimates for operating synergies, which is now at $20 million over three years, $10 million of which we have already captured. And we have now begun to pursue numerous revenue synergies in cross-brand marketing and merchandising, through our customer databases and expanded suite of CRM tools, and in business gift services and wholesale channels.

Also during the year, we enhanced our ability to increase multi-brand customers, a key long-term growth strategy, by completing the migration of all of our brands onto the multi-brand website. This enabled us to enhance our cross-brand marketing and merchandising programs, and begin to accelerate our marketing initiatives, including Celebrations Passport, our free shipping program; Celebrations Rewards; and Celebrations Reminders, programs that are all designed to enhance our customers' experience.

In addition to the progress we achieved in these important areas, during the year we saw some positive trends in all three of our business segments. In Consumer Floral, 1-800-Flowers benefited from a strong Mother's Day, which helped drive revenue growth of nearly 5% for the fourth quarter. We also enhanced gross margins for the period, which were up 190 basis points to almost 42%.

These results reflect several factors, including our focus on truly original product designs developed by working directly with our talented local BloomNet florists, our disciplined approach to efficient and effective marketing programs, and our intense focus on always enhancing our customers' experience, from shopping to delivery, which help drive exemplary customer satisfaction metrics. As a result, contribution margin in this segment increased for yet another quarter, up 25% to nearly 13% of total sales for the period.

For the full year, we grew revenues in this segment 2% on a comparable basis, while concurrently growing gross margin 160 basis points and driving another year of increased contribution margin, up nearly 17%. We expect to build on these positive trends going forward, and we are confident that the 1-800-Flowers brand can accelerate its revenue growth and further expand its market leadership position in FY17.

In BloomNet business, while revenues were essentially flat year over year, we continued to drive strong growth in our contribution margin, reaching a record high of 36% of total revenues. This reflects both cost management, as well as BloomNet's focus on being the quality and innovation leader in the wire service space.

During FY16, BloomNet introduced a number of new and enhanced products and services, with more being rolled out this year, including: enhancements to our unique local artisan program, new product line extensions for key everyday gifting occasions, new directory service features, and website hosting and marketing programs, and enhancements to our innovative cloud-based store management technology platform. As a result, BloomNet is poised to increase revenue growth in FY17 while continuing to deliver strong bottom-line contributions.

In our Gourmet Foods segment, revenue growth for the year primarily reflected Harry & David's contributions. Here, we are gradually building momentum as we begin to pursue the revenue synergy opportunities that we have discussed with you in the past. Harry & David's results for FY16, combined with our continued solid growth in our Cheryl's and 1-800-Baskets businesses, more than offset lower performance in our Fannie May brand, which is still working its way back from the fire at its warehouse in FY15.

To address Fannie May's performance, and return it to its strong pre-fire top-and bottom-line trends, we've instituted a number of changes. Among these are significant reductions to the brand's cost structure, enhanced product assortments, new packaging designs, and enhanced store merchandising and local marketing programs. We believe these changes will enable Fannie May to grow its top line while enhancing margins and driving improved contributions in FY17.

Lastly, during 2016 we further illustrated a key feature of our corporate culture, our focus on innovation. As I've told you in the past, innovation is part of our DNA. We are intensely focused and committed to being at the forefront of technological innovation and social trends that help shape consumer behavior.

Adding to a long list of industry firsts in our Company, during FY16 we announced the launch of the first commerce spot on Facebook's messenger platform. Our integration is one of the first external commerce brands on the Amazon Alexa voice-enabled platform. The beta launch of GWYN, our own AI-based gift concierge service, partnering with IBM's Watson platform. And the announcement that we will be among the first eCommerce partners to offer Apple Pay on desktop and mobile web.

All of these relationships with Facebook, Amazon, IBM, and Apple illustrate their interest in having our great brands in their ecosystem. Most important, these innovations help position us at the forefront of the fast-evolving changes that we see in customer access, engagement, and experience.

With that, I'd like to turn the call to Bill to cover some of the key financial highlights.

Thank you, Chris.

As Jim and Chris mentioned, we are pleased with our results for our fiscal fourth quarter and full year. For the fourth quarter, we increased revenues 2.7%, driven by the 1-800-Flowers.com Consumer Floral business, which grew 4.6% for the period, reflecting a strong Mother's Day, as well as positive trends across a variety of everyday gifting occasions.

This, combined with 2% revenue growth achieved in our Gourmet Food and Gift Baskets segment, more than offset the 5.2% revenue decline in our BloomNet business. The BloomNet decline reflects the tough comp it faced with the prior year, when it launched several new fee-generating programs.

For the year, total revenues grew 4.6%, reflecting the inclusion of Harry & David's fiscal first-quarter sales, which were not included in FY15, due to the timing of the close of the acquisition on September 30, 2014. Total revenue growth for the year also reflects the impact of several other factors, including the sale of two small non-core businesses, the UK-based iFlorist business and the FineStationery.com brand that had previously rolled up into our Consumer Floral segment; a year-over-year reduction in Harry & David store count; and the Sunday day placement of Valentine's Day. These revenue headwinds were somewhat offset by the 53rd week included in FY16 versus the 52 weeks in FY15.

Gross profit margin for the fourth quarter was down slightly at 42.9% compared with the prior year. This reflects the lower gross profit margin on our Gourmet Food and Gift Baskets segment where the shift of the Easter holiday moved Fannie May's higher-margin retail store revenue into our fiscal third quarter. This impact was largely offset by the very strong margins in our Consumer Floral and BloomNet segments.

For the year, gross profit margin increased 70 basis points to 44.1%, again reflecting the strong margins in our floral segments, particularly the 160-basis-point improvement in Consumer Floral, where we continue to see the benefits of enhanced sourcing and logistics, efficient marketing programs, and strong customer service metrics.

Operating expenses as a percent of total revenues for the quarter were up 30 basis points, primarily reflecting the impact of the Easter shift into the fiscal third quarter. For the year, operating expenses were also up 30 basis points, in this case, reflecting the aforementioned impact of the timing of the Harry & David acquisition in FY15. It is important to note that on a comparable basis, adjusting for the impact of Harry & David's fiscal first-quarter results and several non-recurring items in both periods, operating expenses as a percent of total revenues improved 20 basis points, illustrating the additional leverage we see in our business platforms.

Our adjusted EBITDA loss for the fourth quarter, excluding stock-based compensation, increased year over year to $3 million, compared with $1.8 million, reflecting the impact of the shift of the Easter holiday on our Gourmet Food and Gift Baskets segment. For the quarter, adjusted EBITDA excludes $1.4 million for integration expenses related to the right-sizing of certain functions in our IT operations and in Fannie May, and $1.5 million for the settlement of a lawsuit we had with Edible Arrangements, a positive outcome that allows us to get back to our focus on growing our FruitBouquets.com business. Stock-based compensation for the fourth quarter was $1.5 million compared with $1.6 million in the prior-year period.

For the full year, adjusted EBITDA, excluding stock-based compensation, increased 6.6% to $85.8 million. This reflects the adjustments I just described, as well as an adjustment of $800,000 included in our fiscal first quarter for the final integration consulting fees related to the Harry & David acquisition. Stock-based compensation expense for the year was $6.3 million, compared with $6 million in the prior year.

For the quarter, adjusted EPS, which includes stock-based compensation expense, was a loss of $0.14 per share, compared with a loss of $0.13 a share in the prior-year period. The $0.01 decline year over year, again, reflects the aforementioned shift of the Easter holiday, which represented an impact of $0.02 in the quarter. Adjusted EPS for the quarter excludes the aforementioned costs associated with legal settlement and final integration costs. On a GAAP basis, EPS for the quarter was a loss of $0.17, compared with a loss of $0.16 in the prior-year period.

For the year, adjusted EPS was $0.43 per diluted share compared with $0.34 per diluted share in the prior year. Adjusted EPS for the year excludes the aforementioned adjustments, as well as several other non-recurring items that were reported back in the fiscal first quarter, including: the gain on our insurance recovery related to the Fannie May warehouse fire, the loss on the sale and impairment of our iFlorist UK business, and the impairment of our foreign equity investment in Brazil. On a GAAP basis, EPS for the year was $0.55 per diluted share compared with $0.30 per diluted share in the prior year.

Free cash flow for the year was $24 million. This includes a negative working capital impact of $19.4 million created by the higher inventory and lower accounts payable balances at year end. The increased inventory reflects the rebuilding of Fannie May inventories, as well as our decision to build forward some inventory for our Gourmet Food and Gift Baskets brands for the upcoming holiday season. This earlier inventory build will enable us to mitigate increased labor costs, as well as recruitment and overtime expenses, in our FY17 first and second quarters. The lower payable balance reflects the impact of our 53rd week in FY16, which pushed our year end past July 1, thereby requiring payment of rents and other costs that are traditionally paid on the first of the month.

Turning to our balance sheet, at year end our cash and investment position was approximately $27.8 million. Our term debt balance was $117.6 million, and we had $0 borrowings outstanding under our revolving credit line within our credit facility. Inventory at year end was $103.3 million, reflecting the aforementioned factors.

In terms of guidance for FY17, we expect total organic revenue growth in the range of 4% to 5%, compared with revenue of $1.17 billion reported for FY16; EBITDA growth in the range of 8% to 10%, compared with adjusted EBITDA of $85.8 million reported for FY16; EPS growth in the range of 5% to 10%, compared with adjusted EPS of $0.43 reported for FY16. Our guidance for EPS in FY17 includes an anticipated normalized effective tax rate of 35% compared with the effective tax rate of approximately 30% that we had in FY16. The lower effective tax rate in FY16 reflects certain one-time benefits associated with research and development credits, and the sale of our non-core UK affiliate.

For free cash flow, we expect to generate approximately $40 million in FY17, compared with free cash flow of $24 million in FY16. This increase reflects our expectation for enhanced operating results, as well as normalized working capital.

I will now turn the call back to Chris for his wrap-up.

Thanks, Bill.

As you've just heard, FY16 was a good year for our Company. We drove increases in revenue, margins, and earnings, despite some headwinds we faced.

We made good progress in a number of key areas, including extending our market-leading position in Consumer Floral; successfully integrating Harry & David, and capturing significant synergies; and completing the migration of all of our brands onto the multi-brand website. Combined with our substantial cash flows and a strong balance sheet, we have an excellent foundation on which to continue building our Business, accelerate our growth, and achieve enhanced results going forward.

We have numerous opportunities available to us that we will seize upon as we move into FY17. We will carry forward and build upon the momentum we have in our 1-800-Flowers, Harry & David, Cheryl's, and 1-800-Baskets brands. We will execute against our initiatives to return Fannie May to its strong pre-fire performance levels. We will further expand our multi-brand strategy to capture more of our customers' gifting purchases and drive lifetime value.

We will continue to invest in and implement innovative customer-centric solutions to enhance our customers' experience. We will further expand best practice initiatives across the Company to drive incremental cost and revenue synergies. And we will continue to differentiate our Company as the leader in providing gifting solutions for all occasions.

By executing against these opportunities, we are confident that we will drive accelerated organic revenue growth, leverage that growth to further expand margins, deliver substantially higher free cash flow, and continue to drive shareholder value.

With that, we would be pleased take your questions. Operator, could you please repeat the instructions for Q&A?

(Operator Instructions)

Dan Kurnos, Benchmark.

Great, thanks. Good morning. I want to dive a little bit into the weeds here because the performance was good and I think that, obviously, you guys are being conservative with the guidance. But the underlying trends might be misleading.

So start with Bill, just to clarify, it seems to us that if we take out Harry & David in the quarter, that GFGB was closer to flattish, which implies that the rest of the GFGB businesses are performing particularly well. So maybe, either Jim or Chris, if you want to address the underlying strength outside of Fannie.

And, Bill, if you can confirm that our math is ballpark. It sounds like Harry & David accelerated a couple percentage points in the quarter.

Dan, as you tried to indicate, the impact of Easter did have an impact on the GFGB segment. It represents probably about $6 million or so on that segment in top line and close to $2 million in bottom line on the quarter. So if you obviously added those numbers back, you would have growth that was more significant and you'd have EBITDA that actually exceeded -- or contribution margin that actually exceeded -- the prior year.

I think overall we see some really good things going on within our gourmet foods segment. I referenced the positive momentum we're seeing with Cheryl's, with 1-800-Baskets.

We're very pleased with the progress we're making with Harry & David. We're very confident that as we get Fannie May back on to its pre-fire trends, that category will be the performing category that we've expected it to be.

Before I get deeper again into Fannie, I do want to switch to consumer floral and ask -- obviously your primary competitor's been challenged and/or struggling. I think their strategy is maybe lacking direction at the moment with the share shift back to lower-margin brands.

You clearly seem to be taking share, but how has that impacted the overall landscape? And if they do get more promotional with the lower-margin brand, how does that possibly change the way that you guys react to the marketplace?

Dan, this is Jim. I think the way we look at the business and we'd encourage you to as well, is that our floral business is a good, solid business. But more than that, it's a business where we cost-effectively acquire customers who buy floral gifts from us once or twice a year. We're pleased that we're able to grow in a category that clearly isn't growing, but we're pleased that we're able to grow.

But more important than that is that over the last few years we've been executing against the strategy of trying to optimize the capture of customers cost effectively that we're able to achieve with the 1-800-Flowers brand. And using a whole suite of tools, including our multi-branded portal, take that customer and service them across more of their gifting needs throughout the year. These are affluent gifting customers who are coming to 1-800-Flowers in the first place. Again, we cost effectively capture them there.

There's not a lot more we're going to expect to achieve in terms of more than a couple times a year on average across the database of customers using us for our floral product. Clearly we'll always innovate. We'll use new products. We'll use our access modality innovations that Chris spoke about, to enhance that.

But the big opportunity is in capturing more of their gifting dollars that they're already spending with our Harry & David brand, with our Fannie May brand, et cetera. Floral category, we've had good, solid growth in, in what otherwise is clearly not a growth category. And we expect that growth to continue but we expect the outsize growth to come with the other product initiatives that we've been able to introduce.

I would just add that we're very proud and very happy with the performance of the Flowers brand management team. They've stayed focused on the customer experience; they've stayed focused on continuing to differentiate our brand.

1-800-Flowers brand is not, and never will be, a price competitor. It really is a class of the mass brand in the floral category, driven by our truly original product designs. We're very happy with the results we're having there, that feeds our longer-term growth strategy that Jim just demonstrated.

So, Chris, look, so let's take -- so consumer floral grows some low single-digit number next year. Then that means embedded within the guidance, I'm just trying to get a sense of what you guys are expecting for Fannie May. And to drill down a little bit there, you gave some good color on some of the initiatives that you're doing to right-size Fannie.

I get the cost aspect of it. But could you talk about trying to accelerate the e-commerce aspects, given that foot traffic has been a challenging topic and certainly is relevant, in so much as the retail story is concerned, but getting more e-com without worrying about cross-sell opportunities or multi-brand.

Sure, Dan, as we look at Fannie May, I think you're right. First and foremost, the first thing we're doing is mitigating risk and taking risk out of the model by really addressing its cost structure as we move into this year. But more importantly it's our omni-channel approach to the marketplace, and again, how we return it to those pre-fire trends that we had, which we're seeing good trends on e-commerce and then also good trends of retail store sales prior to that fire.

What we've seen so far, and I think we even referenced this in our last quarter, we've seen the return on the e-commerce business. We're building our customer file there now. We're getting good growth.

And we're starting to see, very slightly, you will see it more as we move into the fall and into the holiday season, improvements in the retail stores. We're seeing improvements in our margins. We're seeing improvements in some traffic and we're seeing -- those improvements are being driven by good results we're seeing in feedback from our customers on the product innovations.

Again, one of the new product introductions we had was this, what we call, the Chicago line. It's good product and then packaging in Chicago skyline tins and wraps and things like that. Getting great response in the consumer marketplace. Adjusting our merchandising mix in the stores.

This summer I spent some time in the stores and speaking to our store managers and going through and speaking to customers coming in. I think we have made a shift, and we referenced this previously, of trying to introduce too much new product and took away some of the product of the core product line that the traditional customer of Fannie May is always looking for.

As we've made those adjustments, we're seeing that response. We think those responses will benefit and manifest themselves as we move forward into Q2. So reduce the risk, introduce the products to customers want, merchandise in the stores appropriately and make sure we're delivering a good customer experience all throughout each channel.

So would it be fair to say that if Fannie was performing as you were expecting, that is somewhat weighing at least on your initial guidance for 2017?

Yes.

Yes, that's a true statement.

All right. Thanks, guys.

Thank you, Dan.

Eric Bader, Wunderlich.

This is Bryan Caronia on for Eric. Our first question is looking into the holiday season, which we're quickly approaching here, what are your thoughts on the initial trends you've seen in terms of which brands and types of products overall that will really be driving your business in the latter half of the calendar year during the peak season there?

Bryan, this is Jim. What you've seen from our performance in the past, our fourth calendar quarter, our second fiscal quarter, very, very important for us as a Company. And that's because of our emphasis on food gift products during the important Christmas holiday.

Floral, it's a good quarter for floral, but not an outstanding opportunity for sales gains there. Although I will tell you the merchandising line for holiday for baskets and flowers and for fruit bouquets all look very exciting. I think our customers will respond well to it.

But the fourth quarter is all about GFGB, our gift food category. In particular, Harry & David. Harry & David does, I would say, about 70% of their sales of the year in that quarter and about 100 -- Bill, 100% and what of bottom line?

More than 100% (laughter)

It does more than all of its profits. So obviously the Harry & David brand being, let's call it a $400 million or so brand. It does 70% of sales and more than all of their profits for the year in the fourth quarter. So that's an important quarter for us.

And if you dig down below that, the trends in Harry & David are quite good. The trends are a couple of things. For the first time in a dozen years it's had two years of positive growth now -- of growth in the last two years. The first year we owned -- this is the first year we're responsible for its operating budget.

The other trends we see there are the good customer feedback we're getting, the product introductions, lots of innovation at Harry & David. The new products are really high-quality products and the overall trend around food gifts is very positive and we have one of the leading brands and leading businesses in the whole gourmet food gift category.

In addition, they have a lot of incubator kinds of tests and projects going on. So while their trends are positive on the sales line, innovation is coming, broader assortments, great feedback from the customers on those. And they also have half a dozen or so incubator tests, that if any of them show any real promise, we'll put some weight behind it and that will further enhance its category.

So for the fourth quarter for us it's Harry & David and the great trends we've been seeing in Cheryl's and in 1-800-Baskets. That will make the quarter and that's where we're focused and, frankly, excited about it.

Great. And as an extension of that, you had alluded to it, I believe, right at the beginning of your prepared comments. But what are your thoughts moving toward the end of the summer here, about the progress and the expectations for the wholesale gift baskets business for that holiday season as well? Similar trends to the traditional direct-to-consumer? Or just overall thoughts there.

Bryan, I'll ask Bill to comment on that.

We do have some insights into where the wholesale gift basket business is. We had a very strong year last year where we had double-digit growth in that category. We're going to see some growth this year but not at that level.

So because of the advance lead on that, we have some good insights to what it looks like, not completely baked yet. We still have to manufacture and deliver, but we have a good idea what the book business looks like with some adjustments at the end. So as Bill said, terrific year last year, another strong year this year.

Great. And then lastly, taking a step back for the long-term view in the food and gift baskets, what are your thoughts on and have you had conversations and long-term expectations about adding more brands to the gifting segment? And on a more overall basis, both financially and operationally where you could see different segments fitting in as well as how it relates to your long-term capital allocation strategy and capital structure.

Chris, let me ask you to answer first the question Bryan has about our brands, the brands we have that can be developed and our intention to add new ones. I'll talk about the capital piece.

I think for the most part, our long-term view is that in a short amount of time we've built a leadership position in the gourmet food gifting category and we think there's good opportunity and good growth opportunity for us there, in both the build and buy mechanisms that we've deployed in the past. So first and foremost, we start looking at the businesses we are in the categories. Jim started to reference some of the incubation tests that we have within the Harry & David family that we're very excited about.

We've reorganized and restructured a little bit to put more focus behind a couple of other brands in the family, specifically Wolferman's, which we think is a good baked goods brand and we think there's good long-term growth opportunities behind Wolferman's. Moose Munch, we said this in the past, and we have a new focus on how to go to market with our Moose Munch brand, and we have good long-term growth prospects there.

And then we're looking at our Stock Yards and what we call protein or prepared meals category. We may even do some different things there post holiday. But that's been a good growth category for the Harry & David brand itself. and now coupled -- and if you remember, we've moved Stock Yards into that management team. So we're making some changes to that category.

So that's more of in the build which we think will provide us some significant opportunity. And of course, we'll always be looking for the appropriate acquisitions that can add to our ability to solve our customers' gifting needs.

We're very pleased with where our balance sheet is. We see our debt at $117 million, our net debt at about $90 million versus the EBITDA we just reported which is in the upper $80 millions. So we're just about a 1:1 leverage ratio. We have great relationships with our bank lenders, so we have the ability to execute if an opportunity were to arise.

I think it would be fair to say, Bryan, in closing on this topic, if we're looked at as 5 and 10 kind of Company, that is 5% organic growth rate and 10% growth across our bottom line metrics, that's an attractive profile in this day and age. But with our ability to jazz it, everyone just went wild, both from an organic birthing opportunity of a new business or through the use of our balance sheet to append another product or service or company that will enhance our offering to customers, we're uniquely well positioned to do that.

Fantastic. That's all I had. Congratulations on a great end of the fiscal year and good luck moving forward.

Thank you, Bryan.

Alex Fuhrman, Craig-Hallum.

Thank you for taking my question and I will certainly add my congratulations on the strong year. I did want to ask about your Passport-free shipping program. Curious to the sign-up rate you've seen on that.

And more specifically, if you could talk to perhaps some of the customer spending patterns you've seen from people who have signed onto Passport. Are they shopping across the multiple brands as you'd hoped they would?

And curious to who is really signing up for Passport? Is it the customers who you would have logically expected to, based on how much they were purchasing in the past and how much they could stand to save in the future based on those patterns on shipping?

Or is it a different customer or perhaps someone who might have been shopping with some of your competitors for those occasions? Just curious what your learnings have really been with that program.

Alex, it's Jim. I'll ask Chris to answer that question. In fact, I'll ask you not to answer it at all. The best you can, Chris.

I think, first off, Passport is one of our marketing initiatives underneath our multi-brand customer strategy which combines with all of our brand marketing initiatives. And all things are contributing to our confidence in our ability to accelerate our growth rate going forward.

As we looked at the Passport program specifically, Alex, and to your point, we tested Passport extensively for a rather long period of time. I forget, probably 18 to 24 months, really within just the Flowers brand before we started introducing it to our other food brands to make sure that we had an appropriate percentage mix of customers signing up for it.

By that I mean, we knew we'd get some of our most frequent customers to buy anyway and it necessarily wouldn't modify their behavior. We knew we'd get certain ones at the low end that might purchase, and again, not modify behavior.

On balance we are seeing it does modify behavior to both increase frequency and to increase cross-brand shopping. So we're very pleased. Again, keep in mind, very early stages with our Passport program. So we're very comfortable with that.

From looking at the multi-brand customer strategy overall, we're continuing to see it make good progress. We're very happy with the progress we've made from a technology effort point of view, getting Harry & David, Wolferman's, Stock Yards, on to our multi-brand portal, which now enables us to bring Passport to them. To bring Celebrations Rewards to those customers, those business, Celebrations Reminders. All of these programs are really focused at enhancing the long-term lifetime value of our customer.

All early indicators that we see from these multi-brand customer initiatives, Passport among them, are showing us that as we migrate more and more customers into seeing us as a total gifting solution, their frequently, their average spend per year and their lifetime value increases. So it's a long-term growth strategy for us.

We're very excited, even with the early results we're seeing from the additions to the multi-brand e-commerce stack that we did in April, with those three brands that I just mentioned. It all continues to make us focus on constantly enhancing that customer experience that drives them to be a multi-branded customer.

That's really helpful. Thanks, Chris.

Thank you.

Linda Bolton Weiser, B. Riley.

Good morning, Linda.

Hi, hi. To delve in a little bit more on the numbers on the GFGB segment, can you say -- if you had to split it up between Harry & David versus the rest of the business, would the contribution margin, the loss in the quarter, have gotten bigger for each of the two pieces?

Bill?

I would say less for Harry & David than the rest of GFGB. I think that the highest margin impact of Easter is Fannie May because we're pulling forward the actual brick-and-mortar retail, which is 75% margins, and those got pushed into the third quarter. That's why the impact on both gross margin and the biggest impact on contribution margin in the quarter or the timing of Easter.

That's why we always encourage you to look at the two quarters together. An early holiday pulls it forward and also retards business a little bit. The later holiday puts the margins back in the fourth quarter and it's usually a better holiday when Easter's moved back more because people aren't surprised by it sneaking up on them as easily when it's in March or early April, if it's back further in mid-April, like it normally is.

So next year the entire Easter holiday will be in the fourth quarter.

It sounds like Harry & David's revenue in the quarter was down a little bit year over year. Is that accurate?

No, that's not accurate. Harry & David's revenue was up in the quarter.

Okay. So they had up revenue but higher marketing spending and a slightly higher loss.

Yes, but really because you had some of Harry & David pull forward into the third quarter. On an apples-to-apples basis, if you were just to compare it, Harry & David would have been up both top and bottom line for the quarter.

Okay. And then on Fannie May, it sounds like you're not expecting revenue to be up in the December quarter, or you are? I'm a little unclear about the timing of when you expect the turnaround to show up in the results, in terms of returning to growth for Fannie May.

We have built into our guidance an improvement from both a top and bottom line for Fannie May this year.

But you won't really see much of that until the fourth quarter because that's when the biggest percentage of sales increases come in the holiday quarter.

Okay. You mean the fiscal second quarter we should see --

Fiscal second, fourth calendar, yes.

Okay. And then in terms of the sales cadence through the quarter for the next year, in the first fiscal quarter starting out the September quarter, we should start right out seeing 4% revenue growth in the first quarter? Is that how we should think about it?

Or are you going to have that big growth in the big quarter, the second fiscal quarter and that's where you're going to have the higher growth to drive the year? How should we think about that?

I think there's opportunities always. The first quarter is always a tough quarter. It represents such a small percent of our overall revenues and there's always timing issues on the wholesale piece of the businesses between September and October. So it's hard to pin down Q1's exact growth rate.

The opportunities are for the second quarter, certainly the third quarter, as we have a better day placement for Valentine's Day and the impact of that. And then in the fourth quarter have Easter shifting back to the fourth quarter.

That's why we always encourage people, A, because of the disproportionate amount of sales we have, Linda, as you know so well, in the second fiscal, fourth calendar quarter, around the Christmas holiday, we encourage everyone to look at it as an annual Company. And then to break down further, because of the vagaries around the first and second quarter beginning and start and the third and fourth quarter with the Easter shift, look at us not only as an annual Company but then as two halves, because you'll see some peculiarities at the end of the first quarter, depending on shipments of our wholesale product to our customers. When they want it, that will change.

And this year you saw it, frankly, at year-end when we moved, essentially, cash that would have been on our free cash flow line, into inventory to mitigate some of the challenges we would anticipate from seasonal labor by being able to pre-produce and pre-manufacture. So you had a little bit of an overlap at the year-end too.

Okay. And then, finally, on your new SCI partnership, FTD actually mentioned on their guidance for the second half that it would reduce their sales by about 1%. So I guess that's about $4 million to $5 million of sales loss. Is that going to be your benefit? Is that what you're going to get from that new partnership in terms of incremental revenue? So would that be $8 million to $10 million annual revenue lift from that?

The SCI contract is one component of a multi-pronged sympathy approach that we've been pursuing. We're very, very happy to have partnered with SCI because not only is it the sales revenue that exists from their channels that comes to us now, but it's also the bigger relationship that could help us really optimize our service to our customers around the sympathy events. That's what we're really excited about.

Yes, indeed, there's a lot of business that's in the SCI channel. I wouldn't want to quantify it. If others have, that's fine. But we see that opportunity and more.

It's a bigger opportunity for us to really enhance our offering for our customers, to help them properly express themselves. SCI is just one component of that, but a very important component because of the relationships and capabilities beyond the actual sales numbers they had with their previous vendor before.

Okay. Thanks a lot.

Thank you, Linda.

Jeff Stein, Northcoast Research.

Good morning, guys, and great job in the fourth quarter and particularly in floral. Just a great job.

Thank you, Jeff.

My question relates to the guidance. I know you're trying to be conservative but when I add up all of the pluses and try to take a look at all the puts and takes, I just got many more pluses than minuses.

You've got a better day placement on Valentine's Day. You've got momentum in floral coming out of the fourth quarter, gaining share. You've got the SCI contract.

You've got easy compares at Fannie May. You've got Harry & David on the multi-brand portal. You've got synergies, incremental synergy cost savings. I know there's some labor cost increases but net-net, still looks like you've got some synergy savings.

So what am I missing that only gets you to 10% EBITDA growth on the top end? It just looks like you're setting a very, very low bar for yourselves.

As you went through that list, Jeff, I think we just agreed, we're going to redo the whole thing. (laughter) It's a compelling story.

There are couple of things that do cause us to be more cautious that are fairly obvious. I don't want to be -- okay, you gave us all the good news, Bill, give us some of the bad news. (laughter) Tax-wise, for example.

Certainly from an EPS perspective and from the guidance on EPS, we're still giving guidance to at the high end of basically doubling our top-line growth rate. But FY16 clearly had a benefit in our tax rate. We had some one-time tax credits related to R&D credits and related to our iflorist subsidiary and divesting of that, which brought our effective tax rate down to 30%.

We go back to a normalized tax rate next year. So that's the --

of 35%?

Of 35%. That does have an impact on the EPS growth rate.

But with respect to EBITDA, some of the headwinds we do face is the continual -- we're mitigating some of that with the early build of some inventory. But the seasonal workforce, that cost us several million dollars on top of what we expected in FY16 and that's not going away. The minimum wages and the seasonal workforce and the lower employment, the lower unemployment rate, is causing incremental costs associated with that.

That's good news from a macro point of view because more and more people are working, but it does put challenges with its natural wage pressure. Bill?

Commodity costs with regard to cocoa, we do a good job with managing our cocoa and we've locked in our cocoa pricing for this year and it's below where current market is, but it's above last year. And then you just have normal contractual increases that you have.

As well as we negotiate our contracts for, whether it be our print contracts or whether it be our carrier contracts, we have built in 3% increases into those. So there are general cost increases that we have to manage through.

But there's no denying, guys, that the things that Jeff enumerated are the positives that we see in there. And you're saying some of the things that cause us to be cautious and assuming that everything will go well. Chris?

I was going to say, in Jim's opening remarks he was very kind to give the management team some nice compliments of how we managed 2016. I think we did a great job in managing 2016 through some of those headwinds and to really position the Company where we are now.

So keep in mind, what we've been saying throughout the year is that we're trying to position the Company to accelerate top-line growth. Organically we're going to do that from about a 1.5% organic growth rate up into the 4% to 5% range. We're very proud of that.

Coupled with the fact that we're guiding to grow EBITDA by 2X to top-line growth. We're very proud of that position that we're in as a Company.

What kind of growth did Harry & David show from a revenue standpoint for the fiscal year? I think you were around 3% for the nine months. Where did you come in for the year?

Bill.

In that same range.

3%? Okay.

Yes.

And the one thing -- okay, I will call out one negative thing, at least my perception. When I look at your consumer metrics here, you did attract many more new customers in the fourth quarter than you did compared to the prior year.

But when you look at some of the other metrics, such as percent of repeat customers, the number of new customers you attracted, the number of customers placing e-commerce orders, some of those metrics were down (technical difficulty). Are you getting the kind of traction with the multi-brand portal that you had hoped for?

So the answer to the question of the multi-brand portal, are we getting the traction that we hoped for, the answer is yes. But again, I'll keep reminding, that's a slow, long-term build. We are seeing the benefits of it.

As we look at the customer metrics, I think clearly we've had some businesses that have not performed well in their customer file, Fannie May specifically. I'm proud to see we're getting a recovery in the e-commerce business there.

A lot of that recovery in e-commerce business, Jeff, is a result of it now being on the multi-branded portal.

Correct.

Right.

So I think overall, we see good customer metrics going forward. And again, that and as well as other things, are helping to contribute to the guidance of accelerated top-line growth.

Okay. And when you look at your wholesale business, I'm wondering if you could be any more specific in terms of is the gift basket business for this year and the business that you have via Fannie May with your Harry London brand, do you see that being up on a year-on-year basis? And do you see it being in line, below or above the trend line that you're looking for, for the entire Company?

Bill, correct me if I'm wrong here, but I think, just to point out on the wholesale business, wholesale business is a way for us to extend our brand. It's a way for us to optimize our manufacturing distribution capabilities, build other relationships.

So yes, we anticipate growth this year in that business. It's not a big focus of ours. But good news is, it will continue to grow.

But our wholesale business will not be growing at the pace of our retail businesses, primarily e-commerce. That will be a better growth rate than our wholesale growth rate will be. To some degree, by design.

Got it. And finally, on the SCI agreement, my understanding is that one of the main reasons why they have moved over to you is that you've got a much broader product offering. So the annualized benefit of, let's call it, $10 million is primarily coming over from floral. You should see some incremental benefit above and beyond that from your food gift. Would that be your expectation?

Chris?

Yes, with the SCI business, it's been really with the prior competitor, a floral business. So first and foremost, as we migrate that business over, it is floral and remains floral.

One of the benefits that we bring to the table and that we also see as a positive for our partner SCI, and also see really as a positive trend in the industry, is the trend of more sympathy gifts to the home, which are more and more sympathy gifts to the home of gourmet food gifts. So we believe that is a growth area for us.

How much of that we'll get in the first year, I think, will be somewhat limited. It will take time to constantly introduce those products and educate that customer base that we have that product offering. But you're right, Jeff, that is a growth category for us.

The early anecdotal feedback from our SCI partners is that the funeral directors are finding that to be a real positive because it's something they knew they were missing in the past. That's anecdotal. We're only in our first several weeks of our relationship with them, but it's good to hear.

Just anecdotally, I actually -- there's a local funeral home here that is part of the SCI network. And I clicked on their website and actually you guys are leading with food gifts. And I don't know if it's uniform across all of the funeral homes that SCI serves, but that's the first thing that pops up. So it would seem to me that you might even get a bigger uptake from food gifts than you're anticipating.

It may be. It's not universal. Clearly it's a marketing effort. That's what Chris just talked about.

It will take us a full year to get this program rolled out (technical difficulty) and our growth initiatives sold into the community. But we're excited about that because we're uniquely positioned to deliver and help the customer in their expressive needs there.

Okay. And one final question for Bill. Bill, can you tell us what your annualized cost reductions are at Fannie May for the upcoming fiscal year?

Jeff, we've taken out several million dollars in overhead costs out of the Fannie May business, again, as Chris was alluding to earlier. So first thing was to make sure we're comfortable that we can deliver on the bottom line for Fannie May. We're taking certain costs out. But the opportunity here really is to get it back on track and get it growing back to its pre-fire levels.

Sure. Okay. Thanks a lot, guys.

Thank you, Jeff.

Anthony Lebiedzinski, Sidoti.

Yes, good morning. Thank you for taking the questions.

First just a quick follow-up on the SCI deal. Is that a five-year contract? Or if you could just provide the length of time for that, that would be great.

I think it's a three-year contract, Anthony.

Three-year. Okay, got it, okay.

And want to touch on BloomNet. I may have missed this. But revenue there was down about 5%. Anything to call out there specifically what happened?

Anthony, I think it really relates to -- if you remember, we had a very, very strong fourth quarter results last year, as we introduced some new fee programs to the network and got the benefit --

Fourth quarter was a tough comp.

-- And got the benefit of that. So it was a tough comp in the quarter. For the year we're flat.

We're looking to introduce new initiatives to stimulate growth for BloomNet. BloomNet has always been very good at delivering its bottom line and will continue to grow its contribution margin, but we do have some initiatives in place to help stimulate some top-line growth.

For the quarter, tough comp. For the year, flat. Bottom line improved. Programs coming that should even rev up the top line.

Can you share with us what some of those new initiatives are?

You'll see them as they're rolled out, Anthony.

It was some of the things that I mentioned earlier, some new product line extensions, especially, again, into the sympathy category, some products we're adding there. Memorial garden-type products that we're adding into that category.

Technology enhancements, some delivery capabilities for our BloomNet business management system. New directory service features, Google ask banner-type advertising. So this constant group of initiatives that we believe will help grow the top line in BloomNet.

Okay, that's helpful. And also --

I think it's good to point out what Chris did there, Anthony. The sympathy category is critically important to a florist because on the floral side it's not something you can ship in a box, so the competitors are in the artist community of our florists.

So our big push on the sympathy business will clearly benefit our partner florists which will have a blow-back benefit to BloomNet in general. And allowing them to access the food initiatives for their customer base will be a good opportunity when we roll that out as well. So the sympathy push, our partnership with SCI, very, very good for the BloomNet florist.

Got it, okay. Just wanted to touch base on Valentine's Day. This past Valentine's Day your revenue was essentially flat for that, even with the Sunday day placement. Now with the holiday moving to a Tuesday, how much of a revenue pick-up will that be, you think?

Bill, I'll give that to you to answer. But just to clarify, we were flat for the quarter. We're still down a little bit for Valentine's Day.

Much better than we anticipated we could do based on historical information available to us about the Sunday day placement. But we were flat for the quarter because the everyday business was up. Bill, any more?

Yes, we're going through some modeling with respect to when Valentine's Day moves from a Sunday to a Tuesday. We do expect a lift and a tailwind within the consumer floral brand by that change. We're estimating it in the $7 million to $8 million range.

Okay, got it. Lastly, quick housekeeping question. What is your CapEx expectation for FY17?

Should be down slightly from where you saw you the numbers for this year. This year we incurred about $34 million for CapEx. We're targeting $32 million to $33 million.

Okay, thank you very much.

Thank you, Anthony.

(Operator Instructions)

Michael Kupinski, Noble Financial.

First, I want to add my congratulations.

Thank you, Michael.

Thanks. In terms of a couple of things, and please pardon me if you already addressed this, but did you buy back stock in the quarter? And what is left on your share repurchase authorization?

We did buy -- this is Jim, Michael. We did continue, as we did all year long, to buy stock at a very judicious pace. We have an authorization of $25 million. Bill, I think we're $15 million into it now?

That's correct. For the year we used $15 million and we bought back 1.7 million shares for the quarter. We bought back about 300,000 shares and $2.3 million.

Okay. And then in terms of your consumer floral, I wanted to follow up on that. If I monitor your website over the course of the last quarter, it seemed to me that the pricing had increased like in the range between 5% and 10%, and the lower price items may have dropped off. That might be a seasonal thing. I'm not sure. Can you comment whether or not you saw consumer floral a little pricing built in there, which may have accounted for maybe some improved margins in that business?

No, Michael. We look at consumer floral just making sure that we're delivering good value. There's no real price increase strategy there.

We haven't really had any price increases.

No. And I'm not sure what you're seeing there, because we are focused also on enhancing the lower price items that we offer to the consumer. Again, some of it might be in floral; some of it might be in our gift category as well. Again, helping us to deepen the relationship with the customer. So no, no price increase.

Could it may have been just a seasonal thing where the florals are -- maybe your price points were a little. It's possible. Like I said, I just monitored it over the last couple months. So it might be just a seasonal thing.

In terms of Fannie May, I know that you guys were looking at updating Chicago-based stores, maybe a potential concept store. Do you have any thoughts on what you've done there? What you might potentially roll out?

The redesign of our Wabash store?

The Michigan store. So our flagship store there is our Michigan Avenue store. We are going to do a redesign of that store. It's in process right now, we're just waiting on some permits.

We don't even have the construction scheduled on that yet. We are doing a redesign of that store to show off some of our new product designs that we have, some of the new merchandising that we have.

But also as I said earlier, recognizing what we've learned from the customer base, that we need to also make sure we're delivering the traditional product, the traditional Fannie May products they're used to. That's still to come as we move forward.

Do you have when that might open or when you at least have the plans or thoughts when it might open?

The plans are done; we're in the permitting process. As soon as we have our permits we'll build the construction cycle so it doesn't have any impact on our holiday sales.

Got you. Okay, that's all I have. Congratulations again.

Thanks, Michael.

(Operator Instructions)

I'm seeing no further questions at this time, so this will conclude our question-and-answer session. I would you now like to turn the conference back over to CEO, Chris McCann, for any closing remarks.

Thank you, everyone, for your questions and your interest in our Company. If you have any additional questions, please don't hesitate to contact us.

And for those of you who are registered for our Investor Day in Columbus, Ohio next week, we're looking forward to seeing you at dinner Monday evening. And if any others of you are interested in joining us, please contact Joe Pititto directly by e-mail or phone. We'd love to see you there. Thank you very much.

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