1-800-Flowers.Com Inc (FLWS) 2017 Q3 法說會逐字稿

Good day, and welcome to the 1-800-FLOWERS. COM, Inc. Fiscal Year 2017 Third Quarter Results Conference Call. (Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Joseph Pititto. Sir, please go ahead.

Thanks, Steven. Good morning, and thank you all for joining us today to discuss 1-800-FLOWERS. COM's financial results for our fiscal 2017 third quarter. For those of you who have not yet received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our website at 1-800-flowers.com, or you can call Patty Altadonna at (516) 237-6113 to receive a copy of the release by email.

In terms of structure, our call today will begin with brief formal remarks, and then we will open the call to your questions.

Presenting today will be Jim McCann, Chairman; Chris McCann, CEO; and Bill Shea, CFO.

Before we begin, I need to remind everyone that several 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 earlier this morning as well as our SEC filings, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q.

In addition, this morning, we will discuss certain supplemental financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning.

The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recording of today's call, the press release issued earlier today or in any of its SEC filings except as may be otherwise stated by the company.

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

Good morning, everyone. We are pleased to share with you the results of our fiscal third quarter and our outlook for the remainder of the fiscal year.

Results of the third quarter were in line with our expectations, and we are confident about the current fiscal fourth quarter as well as our outlook for delivering solid top and bottom line results for the full fiscal year.

As we have been discussing for some time now, both Valentine's Day and Easter shifted in timing this year compared with last year. The Valentine holiday shift to Tuesday this year compared with Sunday placement last year worked in our favor for the third quarter. Conversely, the shift of Easter into the fourth quarter this year impacted overall third quarter results.

This seasonal timing anomaly are among the reasons why we have often suggested that it's best to look at our results based on the first half and second half of the -- our fiscal year. We believe this provides a more comparative view of our year-over-year performance and a better measure of the progress we are making toward our annual fiscal targets.

In the third quarter, our Consumer Floral and BloomNet businesses continued their strong performance trends. Our 1-800-FLOWERS. COM brand achieved double-digit top and bottom line growth, driven by a combination of strong everyday gifting combined with a very strong Valentine holiday. As a result, we further extended our market-leading position in the Consumer Floral category. BloomNet also achieved solid top and bottom line growth, reflecting another quarter of strong performance for this business.

In our Gourmet Food and Gift Baskets segment, results were demonstrably impacted by the Easter shift, which will conversely benefit the current fourth quarter. During the third quarter, we also are pleased to announce the signing of a definitive agreement with Ferrero International, one of the premier confectionery companies in the world, in which Ferrero will acquire our Fannie May Confections business for approximately $115 million in cash. The deal, which is on pace to close this quarter, will also include a strategic commercial partnership with Ferrero that will provide us with access to Fannie May products as well as some of Ferrero's world-renowned chocolate confectionery brands, including Nutella and Ferrero Rocher. The combination of the Fannie May sale and the commercial partnership agreement will enable us to concurrently expand our product offering, further strengthen our balance sheet, drive increased EBITDA margin and enhance our position in the highly fragmented, $22 billion gourmet food gift market, where we are already a leading player.

Having wrapped up the third quarter and already recaptured the Easter revenues at the start of this fourth quarter, we are confident in our ability to deliver solid top and bottom line growth for the full fiscal year. Our management team, led by Chris, is focused on executing our business plans by leveraging the unique set of assets we have assembled, including our all-star collection of brands, our large and growing customer base with attractive demographics and deepening relationships, our unique operating platform, which we call BOLT, and our strong balance sheet, which is getting even stronger, enabling us to invest in key internal growth areas as well as look for new business partnerships and potential acquisitions that can accelerate our growth. By leveraging these assets, we expect to build on the positive trends we are seeing in our business. Looking ahead, I believe we have never been better positioned to grow our business and drive enhanced shareholder value.

With that, I'll turn the call over to Chris

Thank you. As Jim noted, our fiscal third quarter was characterized by strong top and bottom line performance in our Consumer Floral and BloomNet businesses. This was offset by the impact of the Easter holiday shift on our Gourmet Food and Gift Baskets segment. Adjusting for the Easter shift, we are pleased with our overall results for the quarter.

In our floral businesses, we more than offset the impact of the Easter shift by leveraging 1-800-Flowers' leadership in everyday gifting. This is the engine driving the continued positive trends we are seeing in Consumer Floral. In addition, during the quarter, we maximized the benefit of having Valentine's Day fall on a weekday this year. We did this by being laser focused on delivering an enhanced customer experience. This can be seen in our innovative approach to customer engagement, including our category-leading initiatives in mobile, social and the emerging world of conversational commerce and also in our innovative, truly original product designs, such as the hit Flirty Feline floral arrangement, which captured the hearts of thousands of cat lovers on Valentine's Day, and then our expertise in designing and deploying cost-efficient marketing and merchandising programs. We also benefited from our obsession with customer service. This is a very important area where we continue to distance ourselves from the competition. This was illustrated by the Gold Stevie award that we won during the quarter, the top honor in the e-Commerce Customer Service category.

In BloomNet, we leveraged the increased order volumes from both 1-800-Flowers and from growing shop-to-shop orders sent by our BloomNet florists. BloomNet also continued to innovate its product offering, adding the new Bayberry Road line of jewelry and accessories, a very unique product line that helps our customers expand their offerings and grow their businesses.

Illustrating the leverage in our business model, the strong revenue growth in both 1-800-Flowers and BloomNet drove increased bottom line contributions. In Consumer Floral, contribution margin increased for the 11th consecutive quarter, up more than 15% compared to the prior year period. And BloomNet grew its already strong contribution margin more than 6% in the period.

While we more than offset the Easter shift's impact on our floral business, the revenue shift was significantly larger in our Gourmet Food and Gift Baskets segments. The lower revenue has resulted in declines in both gross margin and contribution margin for the quarter in this segment. With Easter now behind us, I'm pleased to report that all of our gourmet brands performed well for the holiday period, and we have fully recaptured the revenues that shifted out of the third quarter.

Aside from the effects of the Easter shift, we are encouraged by the steady growth in everyday gifting that we are seeing in our gourmet food brands. Here, customers are embracing products that have been specifically designed for birthday, thank you, new baby, sympathy, get well, among other occasions. We continue to see a tremendous opportunity to leverage 1-800-Flowers brand's everyday gifting leadership to drive growth for our gourmet food brands for everyday occasions.

Looking ahead for the fourth quarter, we expect to benefit from the shift of Easter into the quarter as well as the continued positive trends we are seeing in 1-800-Flowers and BloomNet. As a result, we anticipate achieving top and bottom line growth in all 3 of our business segments for the quarter and delivering solid results for the full fiscal year.

I'd now like to turn the call to Bill to cover the Q3 metrics in more detail.

Thank you. As Jim noted in his opening remarks, the seasonality of our business, including such anomalies as the timing of wholesale orders in our first half and the changing Easter date in our second half, is such that we believe it is better for investors to view our results on a first and second half basis.

In terms of second half for the fiscal year, the movement of the Easter holiday represented a shift of more than $13 million in revenues and approximately $3.5 million in EBITDA from Q3 to Q4. The larger share of this impact occurs in our Gourmet Food and Gift Basket businesses, hence the year-over-year decline you saw in this segment in the third quarter.

As Chris stated, we are pleased to report that we had a solid Easter holiday and have recaptured the revenues and contribution that shifted out of the third quarter.

Now breaking down our third quarter results. In terms of revenues, total consolidated revenues were $233.7 million, essentially flat compared with $234.2 million in the prior year period. Adjusting for the Easter shift, revenues would have been -- would have grown nearly 6% for the quarter. Total revenues for the quarter reflects growth of 10.2% in Consumer Floral and 7% growth in BloomNet, offset by a decline of 13.6% in Gourmet Food and Gift Baskets.

Gross margin for the quarter declined 130 basis points to 40% compared with 41.3% in the prior year period. This reflected flat gross margin in Consumer Floral combined with declines of 360 basis points and 140 basis points in the Gourmet Food and Gift Baskets and BloomNet segments, respectively. The gross margin decline in Gourmet Food and Gift Baskets was primarily attributable to the impact of the Easter shift, while BloomNet's gross margins primarily reflected product mix in the period.

Operating expenses for the quarter, excluding depreciation and amortization, improved 30 basis points to 43.4% of total revenues, compared with 43.7% in the prior year period.

The combination of these factors resulted in an EBITDA loss for the quarter, excluding stock-based compensation, of $6.5 million, compared with a loss of $4 million in the prior year period.

Our GAAP EPS for the quarter was a loss of $0.17, compared with a loss of $0.14 in the prior year period.

Again, EBITDA and EPS results for the quarter reflect the impact of having Easter shift out of the period.

In terms of category results. In our Gourmet Food and Gift Baskets segment, revenues declined 13.6% to $85.6 million, compared with $99.1 million in the prior year period. This primarily reflects the shift of Easter holiday as well as the timing of some Harry & David revenues related to the brand's Fruit-of-the-Month Club shipments and some post-holiday sales, which fell on the company's fiscal second quarter this year.

Gross margin for the quarter declined 360 basis points to 34.8%, compared with 38.4% in the prior year period. And segment contribution margin loss was $10.8 million, compared with a loss of $6.8 million in the prior year period. The decline in gross margin and contribution margin primarily reflected the lower revenue in the period related to the Easter shift as well as the timing of some Harry & David revenues.

In Consumer Floral, revenues increased 10.2% to $124.7 million, compared with $113.2 million in the prior year period. Gross profit margin for the quarter was unchanged at 40.6%. As a result, segment contribution margin increased for the 11th consecutive quarter, up 15.4% to $15.9 million, compared with $13.7 million in the prior year period. As Jim and Chris have noted, 1-800-Flowers has built some nice momentum, and we expect to build on this going forward, particularly for the upcoming Mother's Day holiday.

In BloomNet, revenues for the quarter increased 7% to $24.1 million, compared with $22.5 million in the prior year period. BloomNet's positive revenue growth trend is benefiting from a combination of increased order volumes and an expanded offering of innovative digital marketing and advertising programs.

Gross margin for the quarter declined 140 basis points to 53.6%, compared with 55% in the prior year period, primarily reflecting product mix. And segment contribution margin increased 6.4% to $8.2 million, compared with $7.7 million in the prior year period.

In terms of corporate expense. Our category contribution margin results exclude costs associated with the company's enterprise shared services platform, which includes, among other services, IT, HR, finance, legal and executive. These functions are operated under a centralized management platform, providing support services to the entire organization. For the fiscal third quarter, corporate expense, including stock-based compensation, was $21.1 million, compared with $20.4 million in the prior year period.

Turning to our balance sheet. At the end of the third quarter, our cash and investments position was $56.8 million.

Our term debt balance was $109.8 million, net of deferred financing costs, and we had 0 borrowings outstanding under our working capital line within our revolving credit facility.

Inventory of approximately $63.7 million was within management's expectations. It should be noted that our inventory balance at the end of the third quarter does not include the inventory for our Fannie May business, which has been classified as assets held for sale.

Regarding guidance. We are reiterating our guidance for fiscal 2017, which includes: revenue growth in the range of 3% to 4%, compared with revenues of $1.17 billion in the prior year period, EBITDA growth in the range of 8% to 10%, compared with adjusted EBITDA of $85.8 million reported for fiscal 2016; and EPS growth in the range of 5% to 10%, compared with adjusted EPS of $0.43 for fiscal 2016. We are also reiterating our expectation for free cash flow to be approximately $40 million for the full year, compared with $24 million in fiscal 2016.

As noted in our press release this morning, our guidance does not reflect the pending sale of the Fannie May business to Ferrero International. For those of you who may not have seen our press release on March 15, 2017, we announced then that we had signed a definitive agreement to sell our Fannie May Confections business to Ferrero International for approximately $115 million. Closing for the transaction is anticipated to be at the end of May, and depending upon the final closing date, our results will differ from the guidance we have provided.

I will now turn the call back to Chris.

Thank you.

So to sum up, we are well positioned as we enter the fourth quarter of our fiscal year. We have strong momentum in our Consumer Floral and BloomNet segments. We are gaining traction in everyday gifting for our gourmet food brands. And we are beginning to see the benefits of our multi-brand customer strategy from our website to our growing multi-brand marketing and merchandising programs.

In this key focus area, we continue to make good progress as the number of multi-brand customers is growing at a strong year-over-year rate. Sign-ups for our Celebrations Passport program are growing at an even faster rate, and we find Passport customers show a very high propensity to become multi-brand customers. And we are seeing customers increasingly embrace our Celebrations Rewards and Celebrations Reminders programs, among our best drivers of customer conversion.

Most important, the behavior of these customers continues to bode well for our future growth. Multi-brand customers' purchase frequency is nearly 3x that of single-brand customers, and this continues to increase. Passport customers are spending at rates of 3 to 4x that of non-passport customers. Retention rates, annual spending and customer sat metrics are also strong and getting stronger, leading to significantly enhanced lifetime customer value.

And as we've noted on past calls, we've only scratched the surface. Multi-brand customers still represent less than 10% of our total customer base, giving us plenty of opportunity to ramp up growth. We're pleased with the progress we have made, and we are always pushing for more. We are excited about what the future holds for our company, and we remain focused on driving accelerated growth and building shareholder value.

With that, let me turn the call over to Steven now, so that we can then take your questions. Steven?

(Operator Instructions) And our first question comes from Jeff Stein with Northcoast Research.

Nice results. Sounds like you've got some good momentum heading into Q4 here. But wondering, it seems that if you hit your 3% to 4% revenue growth target for the full year, that implies about 6%-or-better revenue growth in the fourth quarter. So I just want to make certain that we're looking at it the right way and you do feel comfortable with that at this point. And also wondering, with Easter behind you, what percent of the quarter has already been captured from a revenue standpoint?

Jeff, I'll ask Bill to start with that and give you some quantification, and then I'll add a little color.

Yes, Jeff, as mentioned in the press release, we have about $13 million-plus in Easter revenue that shifted from Q3 into Q4. So if you look back at Q3, where we're relatively flat, Q3 would have gone almost 6% if Easter was in the same period, and our year-to-date revenues would be -- would have grown about 3.1%. So as you mentioned, we have a fair amount of momentum going into Q4, and we are comfortable with the numbers that you ascribe to Q4.

Yes. And I think that, again, the Easter shift being behind us, we know what that is. The momentum we have in Consumer Floral and the progress that we're making on the everyday gifting business also bodes well for us, so -- not just for the quarter but moving into the next year as well.

Chris, with regards to everyday gifting, can you give us a little bit more detail in terms of what is working for you that perhaps was not working for you previously? And are there any specific occasions that suddenly have really begun to take hold and resonate with your customers?

So I think one of the first things, Jeff, was that we needed to really step back and make sure that, especially from the food brand's perspectives, that we had the right product available for the everyday occasions. So some lead time was necessary to go into the product development cycle, and we've done that. Some great products, for example, from the Cheryl's company that I think of, the Sentiment Collection, which is a nice tin of cookies with a wraparound that expresses all different kinds of sentiments, thank you, birthday, sympathy, et cetera. The Harry & David business as well, a good product development happening there in positioning themselves. So all of our brands. So I think that the occasions we're seeing are the thank you occasions, the birthday occasions, of course sympathy. And we made a big move into the sympathy category last year, as you know, with the relationship that we developed with the Flowers brand and then leading our food brands into it. So it's different products with different brands, but I would say the top ones -- the top occasions we're seeing are sympathy, birthday, get well and thank you.

Great. And I know that during the fourth quarter, you put Harry & David's marketing under the corporate umbrella. And I'm wondering, now that you have Easter behind you, do you believe that some of the changes that you've made in marketing are beginning to yield positive results there?

A little clarification, Jeff, on what we've done there is we took a team that had been running the digital marketing for several of our food brands and gave them the additional responsibility of Harry & David. So not all of Harry & David marketing under a corporate umbrella. Really focused on the digital way, we need that digital expertise and learning and knowledge base amongst the core team. So that's going well. Overall, we're happy with some of the progress that we're making on Harry & David with some additional personnel that we brought into Harry & David in the marketing team, the formation of adding them into this digital marketing team. We're seeing good early results. Keep in mind fiscal Q3, calendar Q1 is a relatively slow time for Harry & David. So on the digital side, right now it's all about testing and learning and preparing for the upcoming holiday season where we can ramp up those digital capabilities.

Terrific, okay. And one final question just in relation to acquisitions. Obviously, the sale of Fannie May is going to create a big hole from a revenue standpoint till you redeploy those -- that cash. And I'm wondering if you can just talk a little bit about some of the criteria that you're using to consider future acquisitions. Are you looking -- for example, will you -- is it going to be primarily in the food gift area? Would you consider making a dilutive acquisition? Just some of the broad requirements you're looking at when you consider acquisitions.

Jeff, this is Jim and I'll answer that question. The -- please don't spend the money until the check clears. And -- but in serious answer to your question, I think the discipline criteria that we've used in the past in terms of the companies that can leverage off our BOLT platform, companies that can broaden our offering, that are attracted to our customers, that are best done by us rather than through partnership relationships, those are the kinds of filters that we use as we look at acquisition opportunities. It'd be hard to say without any specifics to answer your questions about will we do it. It all depends on how it sits on our platform. So in the case of Harry & David, for example, we felt confident that we could achieve synergy numbers there on the cost side, and we've already done that and that's in the bank now. We feel confident that they would sit nicely on our multi-branded portal. And after we were able to integrate that, we started to demonstrate the benefit of that. So we'll take to market those kinds of considerations. If you looked at Harry & David on a stand-alone basis, it wouldn't have been as attractive. But when you look at it as part of the overall company with the knowledge that we could, over time, put it on the multi-branded platform, achieve the synergies and find different growth synergies to work on together going forward, made that an attractive investment. So we have a team of people who are working in that area. The transaction hasn't closed yet. We're excited about the commercial partnership we'll have with Ferrero after we transfer the bulk of the assets of Fannie May over to them where they'll be better stewards of the assets in terms of the kind of business capabilities they have. So I think we achieved a really strong win-win proposition there, and that's what we will look to achieve with any further acquisition activity.

Our next question comes from Eric Beder with Wunderlich.

Could you talk a little about the competitive environment you saw for Valentine's Day? And what is the competitive environment you're seeing in general on the floral space?

Eric, I think the competitive environment is a -- one, that's always there. In the holiday time, it heats up. We saw that at Valentine's Day, whether it be from the usual place, whether it be from some start-up companies or whether it be from some of our primary competitors starting to invest money again back into the holiday. With that said, with all of that, we're very happy with what we had during the holiday period, and I think that shows in our quarterly numbers as well. And I think if you look at it, we were able to maximize the day placement, understanding what the Tuesday capabilities would allow us to do. But then really, as we look at how we compete from the -- in the past and certainly how we'll compete going forward, it really comes down to a number of things. It comes down to making sure that we're constantly investing in our brand, a brand that has really woven itself into the fabric of American culture; our product, truly original product we're bringing into the table on a regular basis; constant innovation around how we engage with our customers and around developing those processes. Customer service, I mentioned earlier, is just so critical and constantly helping on gaining the customer service area. And standard everyday execution, leveraging and executing on that operating platform that Jim just spoke to that we look to leverage in acquisitions, it's just executing on it. It's a matter of managing the full customer experience. So we look at whether it's Valentine's Day or a promotional holiday. And beyond that, we think we're very well positioned from a competitive point of view.

Bill?

Yes. And Eric, just to understand the numbers and why we're so pleased, obviously we report a 10.2% growth for the quarter. Obviously, Easter shifted into Q4. If you pulled Easter back into Q3, we'd be over 13% growth in the Consumer Floral brand, and we were in the mid-teens for both at the Valentine's Day holiday. So just very strong numbers in Consumer Floral.

Okay. And in terms of the -- how increasingly are you integrating the florists even more in this business in terms of driving this? Could you talk a little about that.

So BloomNet is a very important aspect of our business, and I think our focus is to make sure we're constantly bringing products and services to them to make them healthier in their local communities, whether it be the florists or some of the greenhouses that -- garden centers that we operate with. What are the products like the Bayberry Road collection, what are the products like marketing services that we're bringing to the table? The healthier they are, the healthier they are for our distribution to the 1-800-Flowers deliveries, to the 1-800-Flowers customers. So a very integral part of our business.

And again, we're -- you see the 7% growth that we had during the quarter. BloomNet was a segment that wasn't growing for a couple of years, and we got it to grow in the second quarter. Now it's growing again in the third quarter, the 7%. We're up to 3% growth for the year-to-date for BloomNet. So we're very happy with BloomNet.

And the other aspect, and it's integral into being differentiated in the product offerings we bring to the table, evidenced by the Flirty Feline at Valentine's Day, our customers aren't simply looking for a flower. They're looking for a design. And really, one of the great growing programs that we have is a local artisan collection. Again, giving us the ability to harness the creativity of these florists throughout the country really gives us a competitive advantage.

It's a great point. Finally, product. What -- when -- after the sale of Fannie May, what -- will you have the ability to do with the Fannie May name that's on the product? And how do you envision kind of Nutella or Rocher fitting into your product offerings?

Eric, Jim here. I would say that, well, one of the things we wanted to achieve was the ability to continue to sell the Fannie May brands to our customers who've become accustomed to them, so the 1-800-Flowers customers and the other brands, and also for our florists who've become used to those products in their communities. And so, well, with our agreement, we'll be able to do that. We'll also -- this dialogue started with the Ferrero folks coming to us asking what we might do together in the e-commerce space. As we engaged in those conversations over the course of a couple of months, they became more excited about their plans for the U.S. and how our brand might fit in with that when we talked about our fire experience, so what happened there and how long it had taken us to recover. And now that we thought, well, geez, we're going to have to increase our spend on the hard side of the business, on the wholesale distribution side, manufacturing and warehousing side, and their point to us was, that's what we do every day. We have more scale to do that. So they got excited and -- which -- in the discussion about -- that resulted in this acquisition. But the part that we started on, that is us providing them with e-commerce services and alternative distribution services for their brands, although we remain excited about because we'll still have the e-commerce capabilities around the Fannie May products, but now in Nutella -- a couple of billion-dollar brand worldwide, Ferrero Rocher, another billion-dollar brand, we'll have access to these products to include them in our gift baskets and to sell them to our e-commerce customers. I'd expect now we'd also consider in the fall adding more and more chocolate brands. You know that we always had the brands like Godiva available for our customers who wanted them. I think we'll start to shift our thinking to be much more of a curator of different chocolate gifting products and self-consumption products for our customers, and this arrangement helps us down that path.

Our next question comes from Dan Kurnos with Benchmark.

I really just want to focus more on GFGB. I think it's hard to argue that you guys aren't crushing it in Consumer Floral. You're clearly continuing to take market share, and it doesn't seem like your primary competitor has yet adopted a game plan there. So on the GFGB side, I really just want to kind of drill down on a couple things. One, there wasn't a lot of color this quarter, understanding that there's the Easter shift, so maybe if we can think about it relevant to the front half of this year. Just how the ancillary brands are doing outside of Harry & David. And then secondarily, I know it's -- sometimes you get early orders for holiday on wholesale. I'm just curious kind of how that's starting to shape up from sort of a product demand standpoint.

Well, Dan, let me start. First off, you saw the results for the third quarter, GFGB down $13 million. The lion's share of that is that Harry & David, and I'll speak to Harry & David in a minute. So the rest of GFGB was down a couple of million dollars. The Easter shift is -- most of the Easter shift that we mentioned, $13-plus million, is on GFGB. So let's say $11 million of that is on GFGB, half of it Harry & David, half of it the rest of GFGB. If you added back that component to the rest of GFGB, the GFGB brands would have grown mid to upper single digits for the quarter. So they're performing well. Now breaking down Harry & David. So Harry & David was down on the reported numbers $10 million to $11 million during the quarter. If you look at it from a demand standpoint -- there's a lot of timing issues with respect to Harry & David. If you look at it from a demand standpoint, if we go from the period January 1 to April 16, Easter, so we capture kind of pears to pears, a true comparison, Harry & David demand was up 2% for kind of consumer e-commerce. So not where we want it to be, but showing growth. All right? So I think we're pleased with that. The timing issues that we see with Harry & David is when I mentioned Easter. $5 million shifts from Q3 to Q4. We already captured that. Fruit-of-the-Month Club, several million dollars shifted from Q3 to Q4. We recaptured that already. So a lot of it, the negative revenue variance, was -- really was timing. We had some timing at the beginning of the quarter that we don't recapture. But the large majority of it is timing at the end of the quarter we recapture in Q4.

I think that's an important point you made, Bill, when you went back and looked at it from January 1 through Easter Sunday, that we did have growth with all those timing shifts there. And when you look at it historically, they hadn't had growth for a few years until last couple of years. So 2%, not -- good growth --...

Progress.

Progress. Not where we'd ultimately like it to be, but you have to put it in context. Good point.

And then the follow-on just on the wholesale and if you're starting to see any incremental orders and how you're kind of thinking about the product lineup kind of with an eye towards this -- obviously, it's early in the year, but the upcoming holiday season?

Yes, it's still kind of early to really be -- to have a good read on the wholesale. Orders are just starting to come in, so we couldn't really forecast. I'd say early in quarter 3, but it is very early, Dan. It would be hard for us to comment at this point in time.

Dan, this is Jim. I'd like to add some color on a sub-part of your question earlier on in terms of the other brands around the Harry & David. You'll remember we acquired a couple of other brands with the -- in the Harry & David portfolio, and I'm very excited about the potential of those. They're small brands, but there's good and interesting things going on and very good leadership. Steve Lightman, who is the President of Harry & David, has appointed brand leaders for brands such as Wolferman's and for Moose Munch. And I just had a call with them in the last 1.5 weeks, getting their regular updates from them on the progress they're making. I just love to see that good sense of our entrepreneurial spirit existing in those brands. They're in the -- they're $20 million, $30 million brands, but their -- the product is fantastic. Moose Munch product is great. The packaging is good. The brand attributes are terrific. Wolferman's, the product, I think, is fantastic and over a 100-year-old brand. Good things going on there. I think the good, young leadership we have in those brands will deliver some very positive performance and some -- put some smiles on our face in the months and years ahead there.

And just to add a little color to that, with the Moose Munch, we did a bunch of repackaging design. I know that got very favorable reception at some of the food shows starting back in January and through the spring. The Wolferman's product, it was really the first time we brought that product into these food shows. So we did it in January. We have it coming again soon in the snacks show and in the New York Fancy Food Show. So again, good response there. And then some of the things the DesignPac team -- (inaudible) -- the DesignPac team licensing other brands. We developed a great product line with Jack Link's sauce...

Beef jerky.

Beef jerky, thank you, and developed a really good product line. That's just starting to sell into the -- into our retailers now. So really good things. Product development, good response back. A little early on the results.

Perfect. So let me just ask one more, if I can, and kind of tie this all together because look, we've talked about sort of Harry & David getting to where you want it to be. It sounds like you guys have a ton of irons in the fire here. You're sort of looking at product expansion. You're going to get benefit from the Fannie May sell-through. So you get their Ferrero product coming onboard. You've got minimal penetration on the multi-brand. You've got limited penetration on Passport even though that's obviously a newer initiative. So I'm just trying to get a sense from you guys, and obviously thinking about reinvesting the capital from the Fannie May sale. So how do you kind of balance all of these things to get growth where you want it to be? I mean, is there a way to sort of think high level about the investment in either customer acquisition, focus on conversion rates? Do you feel like there's a right product mix or level that you need to get to or optimize? I guess I'm just trying to get a sense for investors of where and how we start to see that acceleration and where the buckets come from your vantage point over the next several months as we head into the next important holiday period.

Dan, as we look at ourselves, as we look at our business, we kind of start and say we're a multichannel business and we lead with e-commerce. So as we look at that, we think, okay, we look at our operating platform, we look at the all-star lineup of brands that we have assembled to really solve our customers' gifting solutions. We start by looking at what's the health of the customer file, how are we driving that customer file, which brands are getting the best customer acquisition rates for us and, of course, the corresponding LTV so that we know where then to go and invest our marketing dollars more appropriately. Yes, we'd like to grow all brands in double digits. But we'll put the money where the growth is in the LTV, as appropriately. Having the right product assortment there is so critical. And even when I spoke earlier, I think we're seeing good early traction on our moves into everyday gifting for our food brands and the product development efforts that went into that for the past 1.5, 2 years to start hitting market now really in the past 6 months.

So that's where we're starting to put our investments in understanding what is needed to make sure that we're solving more and more of our customers' gifting needs, putting efforts behind introducing our customers to all of those brands. And the multi-brand customer strategy is very critical for us. And we're seeing the signs of that. As I mentioned, some of the metrics that we see, while the numbers are still early, if you look at our overall results, we're increasing our revenue. And at the same time, we're increasing our revenue rate -- a little slower than we'd like, but we hope to pick that up shortly. And we're increasing margins at the same time. Clearly, the multi-brand customer strategy is playing a contributing role to that. So we're very happy with that. Then we look at the products that we have and the manufacturing capabilities we have and the ability to extend those products out through the wholesale channels and just generate more and more brand awareness.

So it's a -- you're right, there's a lot of irons in the fire with a well-rounded strategy and constantly leveraging off of that operating platform. So the operating platform is where we need to make sure we're pushing the needle. Are we not only innovating around the customer experience, which you've seen us do a tremendous amount of work on that early lead into conversational commerce? Not only innovating around the products that we bring to the market but innovating around how we deliver those products now. And you'll see -- as we've been doing a lot of experimentation around delivery and looking at how the world of delivery and distribution is emerging, you'll see us more active on that front in the year ahead as well, as we need to make sure that we look at the full customer experience.

So Chris, and I don't mean to belabor the point, I guess really, just the question is, because you brought it up, on brand awareness. I don't know that you guys -- I guess I'd be interested to hear if you guys feel like you're at an appropriate level with customer on what the company has become, rather than where it was, because it seems like that might be one of the challenges. And understanding that you guys obviously do an excellent job with costs, do you think there's an opportunity to try to accelerate brand awareness now to understand that there's a different lineup? Are you at a good place from a product perspective? Because ultimately, it's going to be customer uptake, customer conversion on multi-brand that's going to probably drive the acceleration in growth, right?

The beauty is, we start with one brand and then we've added another iconic brand, 1-800-Flowers. As I mentioned, clearly one of the best well-known brands in the country, kind of woven into the American cultural fabric. When we're mentioned on Saturday Night Live, when we're mentioned at F8 or featured in television commercials from IBM, Amazon, that helps to continue to drive the awareness of that brand. Harry & David is known as a great, iconic brand. Our strategy is to leverage those brands to really introduce our other brands, rather than put an expensive and maybe not as effective marketing program in front of the smaller brands that would be necessary to lift their awareness in a shorter amount of time. What we're looking to do really is leverage those. And again, we're seeing evidence of that. As we look at the multi-brand customer website, the smaller brands are benefiting, smaller brands being Cheryl's, Popcorn Factory, Fruit Bouquet, 1-800-BASKETS, are really benefiting from the exposure that they're getting through that traffic from 1-800-Flowers and Harry & David. So in all of our brands' marketing efforts, we're constantly focused on increasing the brand awareness, specifically driving Harry & David and 1-800-Flowers.

Our next question comes from Michael Kupinski with NOBLE Financial Group.

I have a couple of quick questions here. I know that you've tested personalization products. How has that effort gone? Anything that you have learned from the tests so far?

Yes, personalization is a key component that we continue to drive throughout our company. So we have personalized products under the 1-800-Flowers brand on to -- on to all of our brands. You have different products that have personalization capabilities. Those products are some of our fastest-growing products. To that point at Harry & David, I know we're happy to add. In Harry & David, we do some embroidery and a couple of other personalization functions. We're adding to capacity there based on the demand this past year. Similar at Cheryl's, where you can personalize the Cheryl's cookie card, as an example. In some other products, we've had to add on our capabilities and capacities there. So we're doing that and continuing. We also have a very small business that's really been in the R&D space for us, called personalizationuniverse.com. And that's been in the R&D space. We're learning a lot. We're now looking to -- forward to bringing that more in front of our customers than we have in the past. It's been kind of off-platform, developing its merchandising assortment, finding out what works, what resonates with our customers there. We'll start to introduce that in different fashions to the enterprise customer base this coming year.

Got you. And was there anything specific related to the growth in BloomNet? Any certain products or possible new offerings that may have accounted for the acceleration in growth in that line?

Yes, no, not in this quarter really. Clearly, they benefited from the Valentines holiday shift onto Tuesday. More orders come from 1-800-Flowers. Growing orders in the shop-to-shop sector. So really, it was that. We did have additional product offerings I mentioned, but it's primarily from the holiday benefit.

Got you. And I know that there's been a lot of talk about FTD and the competition there. But can you talk a little bit more about potential competition in the floral space? I'm looking at Sam's, and they're offering floral arrangements now. They moved away from just bulk. And your floral arrangements for weddings with -- have pretty compelling packages with arranged bouquets, boutonnieres and table flowers and so forth. And I look at your offerings and the offerings on the wedding side there, it has a lot to be desired, it seems. Just shopping by color, there's only 2 offerings, white and purple, it seems. And then there's really no packages or arranged packages. Are you seeing competition evolve or from other places, certainly as we head into what is arguably the wedding season, so to speak? What are your thoughts there?

I'm really not seeing competition evolve dramatically in the floral business. It's a -- we see some new entries into the business, but nobody with anything different. Kind of doing a lot of the same of what we've all been doing for a while. You have some people out there saying that they're changing the supply chain, but it's pretty much the same supply chain us and many others are running as well. Weddings for us, especially in the online sector, is not a big category for us. We represent weddings really only as a lead generation tool for our florists. We believe that's best handled at the local market. And we have some of our florists, our BloomNet florists, our franchise florists, that are fantastic at weddings, where some of the weddings represent half of their business. So that's a different category that, we believe, is much better handled at the local levels. But most importantly, we just look to focus on driving our brand, bringing truly original product innovations to the table on a constant basis, looking to make sure we're innovating. It's making sure we're providing a differentiated customer experience. So competition comes and goes. As long as we continue to execute on what we know works with our customers, we think we're in a good position.

Would there be any reason why you would not own the whole floral brand, so to speak, by offering both flowers and other types of things like that? It would seem like to me, why would you want competition evolve like this that would have the ability to do arranged bouquets and things like that? It just sends customers to Sam's, for instance, and not to the florist. Why wouldn't you want to just own the whole category?

I'm not too sure what you mean by bulk flowers specifically.

Well, just bulk and offering -- and expanding their offering for weddings, for instance. I'm just saying why -- if I was like, we'll just say, 1-800-Flowers, and I'm like, okay, then I want to get flowers, if I want the option to order bulk flowers or the option to order a complete arrangement or something like that from weddings, it seems like why wouldn't I want to go to you. I'm just trying to understand the -- I know that you're concentrating on arranged florals, but why wouldn't you want to just own the whole...

Michael, I think what's most important, I think we always really try and understand who our customer is and focus on the business that our customers are looking for us today. Always with -- and of course, pushing the edges on adjacencies or what other categories we could get into. I don't think 1-800-Flowers, or any one of our brands can be everything to all customers. Wedding is an example. It's something that we've tested into from time to time, and we just don't find that the online bulk ordering of wedding flowers, that, that market is appropriate for our customer base. It may be for customers that want to go into Sam's to get their wedding flowers, but that is not really for the 1-800-Flowers. So things like that, we've tested, we've looked at. And new things -- I think you see that. It's in our DNA. We will test and look at other categories, other line extensions. And if appropriate, we'll invest behind them. But sometimes, it's just not always appropriate.

Got you. And if you were looking -- and you talked a little bit about the M&A environment. If you're looking at M&A, is there any prospects or timetables that you would like to have an acquisition? Or -- I understand that you really -- your timing of an acquisition is always kind of tough to say, but I would think that, as your previous question about the whole, it's going to be from Fannie May, that you would think that you would want to kind of replace that with something. Do you have any thoughts in terms of something that you have a target now that you would to look at? Or any particular areas that look attractive to you that you would like to fill in terms of feature sets or suites of products that you might have? Any additional color that you can add there?

Michael, we have -- this is Jim. We have a very detailed road map in terms of capabilities, services, products that we would like to add to our suite as we think about our construct as an organization going forward. So you can be assured that we have a team of people, half a dozen people now -- we've just bulked that up some -- who are following that -- who are developing a road map and are following in terms of our pursuit and dialogue. We chat with a lot of folks. I will tell you there's not a lot in the floral category that is truly differentiated that would attract us. We look at everything. We certainly want to have a point of view about our competitors' -- emerging competitors' plans. But we've been doing this for quite a while and we've seen different classes of competitors emerge and go away, frankly. We have made some acquisitions in the floral space in the past and we might in the future, but I just don't see anything very attractive there. But we have a disciplined team of a half a dozen folks who are working with outside advisers on our pursuit of the things that will help -- that we think will help us shape this company to best serve our customers in the future. And that would likely be a little different than what you've seen from us in the past. So that's as specific as I want of get in terms of what we're doing, but I assure you that we have a team of talented people who are hot in pursuit of the services, capabilities and products that we think help shape us for the future.

Our next question comes from Anthony Lebiedzinski with Sidoti & Company.

So I guess, first, just wanted to clarify. As far as the -- there's been a lot of chatter and, I guess, noise with respect to the Easter shift. So when you look at the second fiscal half as a whole, I mean, is a later Easter generally better than an earlier Easter, such as we had last year?

Generally, it's slightly better.

Okay. Got it. Okay. And then as far as...

When Easter is early, it sort of sneaks up on people. When it moves back into April, people -- there are -- other retailers, other promotions are in the marketplace. I think people are more aware of it. So as Bill said, it is a little bit better when it's later.

Got it. Okay. And as far as the multi-branded portal, I understand that's fairly small as far as customer base. I think only 10% of your orders come through multi-branded customers. So -- but can you perhaps share some metrics as far as the order frequency of your multi-branded customers and perhaps maybe average ticket, how that is versus the customers that are not multi-branded customers?

Well, I think what we've been seeing with the multi-brand strategy, and especially if I look at the multi-brand website, really is that they play safe. The customers begin to engage with that. We continue to see good progress. We continue to see cross-site exploration, people coming just seeing the tips, some of our cross-merchandising gets them back and forth. So we see nice exploration take place. Then we apply our marketing tools to that, our cross-brand marketing and merchandising tools, which are really -- start with our loyalty programs. So whether it's a Celebrations Rewards program, the Reminder program or our Passport program that we spoke so highly of. In the case of multi-brand customers, the metrics I shared earlier really are that the Passport customers tend to purchase at a rate of about 3 to 4x that of non-Passport customers. When a customer becomes multi-brand, whether you're Passport or not, you generally tend to purchase about 3x that of single brand. So you see why those customers are so important. And they're a growing percentage of our customer base. As I mentioned, still under 10%. So while those numbers continue to be encouraging, they're even more encouraging when we look on a go-forward basis because of their growth rate. So we're very happy with the progress we're making there, thank you.

Right. And the average order value of those multi-branded customers? Anything you can share?

No, we don't break that out. Generally, it would be consistent with what we see across the customer basis, yes.

Got it, got it. Okay. And do you think there is sufficient consumer awareness of your Celebrations Passport program? Because my perception is it's -- I don't think that as many customers know about the program. So if that's the case, I mean, will you do perhaps some marketing programs to make people aware of that?

Yes, we're constantly looking at how we can enhance the awareness of that. Well, I think we've done a good job this year. And really, what we wanted to do this year is to take it to a certain level, and we're on track to meet the goals that we did. With that, and with the confidence underneath that, that we're seeing in the performance metrics that I just told you about, the customer behavior, we're now in the process of looking at, okay, how can we ramp up our efforts to drive that? I'd love to get to 80 million households being Passport members.

I'm sure. And lastly, I guess, can you comment on how you're thinking about the Harry & David catalog circulation and how you're trying to balance that with doing more digital advertising for that brand?

Anthony, as you know, as we've spoken, that is a delicate balance. With that said, clearly we want to continue to drive more into the digital marketing arena where we think we can get more returns. Exactly how fast we can do that will be something that we move forward on very cautiously because we've seen companies -- and in fact, we've made the mistake in the past. If you try and do that too quickly, you can lose your core catalog customer. So we're in the process of that now, really going through our cert planning. We are ramping up our digital marketing capabilities and some other marketing strategies for Harry & David, trying to make the catalog much more efficient than it was this past year. But the balance between the 2 is going to be an evolution, not a revolution.

(Operator Instructions) And our next question comes from Alex Fuhrman with Craig-Hallum.

We wanted to ask a little bit more about the buying pattern of some of your Passport users. It sounds like that was a nice little bit of a bump for you guys here in the Valentine's Day quarter. Curious, the customers you do have that were ordering through the Passport program, when were most of them signing up? Are these people who typically signed up last year around Mother's Day or around the Christmas season? Or did most of these people sign up for the first time when placing their order this year for Valentine's Day?

Alex, I'm just trying to think of that question. I'm not really sure of the specifics on that. But if I just look at some of the data points that I'm familiar with, clearly the majority would not be just from this Valentine's Day. What we do see is when they sign up and it starts to increase their frequency, that's where we start to see them coming back for the other holidays and the other occasions, which are tremendous. So yes, we get bumps of sign-ups around the Christmas holiday or Valentine's holiday naturally just with the bump of business. But it really is the build of that file, and then the increase of frequency, our marketing capabilities to them reminding them of their -- the ability to use Passport. So we're seeing that. What we also watch on a regular basis is -- on a kind of daily, weekly, monthly basis, what percent of the active customers of any given brand are coming -- are Rassport or rewards members. And we're seeing that sea continue to rise. So I think of it more from that perspective on an everyday growing business, how -- what percent of my customers are active Passport or rewards multi-brand customers. And that's the way we're looking at it more than any seasonal spike.

Okay. That's helpful, Chris. And then I apologize if you guys said this and I might have missed it earlier in the prepared remarks, but could you give us a little of a sense of how much revenue and EBITDA was being generated by the Fannie May assets? And then obviously, the food business for you is a tremendously seasonal business. Would it be fair to assume that Fannie May probably had a little bit more weighting towards the Valentine's Day and Mother's Day quarters, just given the assortment there?

Go ahead, Bill? Bill?

Yes, I think we described this in the past, that Fannie May is north of $90 million in top line, and it's in that kind of $4 million-or-so contribution margin basis. So that's what ultimately goes away as part of the transaction. Fannie May is like the rest of our food brands. It's still heavily weighted towards the Christmas holiday. It certainly has little bumps at Valentine's Day and Mother's Day, but the Christmas holiday is its key holiday.

And this concludes our question-and-answer session. I would like to turn the conference back over to Chris McCann for any closing remarks.

Well, thank you, everyone. I appreciate the time you've given us. I appreciate your questions. I'd like to remind everyone that we have the Mother's Day holiday coming up, and I'd like to remind everyone that there are more than one mom in your life. And so we know a family of brands that you can reach out to, to help celebrate all the moms in your life, and we look forward to speaking with you in the future. Thank you.

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