1-800-Flowers.Com Inc (FLWS) 2017 Q4 法說會逐字稿

Good morning, and welcome to the 1-800-FLOWERS. COM, Inc. Fiscal Year 2017 Fourth 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, Senior Vice President, Investor Relations. Please go ahead.

Thanks, Gary. Good morning, and thank you all for joining us today to discuss 1-800-FLOWERS. COM, Inc.'s financial results for our fiscal 2017 fourth quarter and full year. For those of you who have not received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our website at 1-800-flowers.com.

Our call today will begin with brief formal remarks and then we'll open the call to your questions. Presenting today will be Jim McCann, Chairman; Chris McCann, CEO; and Bill Shea, CFO.

Before we begin, I need to remind everyone that certain 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 included in 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. Definitions of these non-GAAP financial measures can be found in the Definitions section of the company's press release issued this morning. Also, where applicable, reconciliations of certain non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the tables accompanying this morning's press release.

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

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

Good morning, everyone. We are pleased to report our results for the fourth quarter and full year of fiscal 2017. Before we dive into the details, I'd like to take a moment to reflect more broadly on the fiscal year which just ended.

Last year at this time when I commented on our results for fiscal 2016, I noted that our management team led by Chris and Bill, along with our segment presidents and brand leaders, had successfully managed through a year of both anticipated and unanticipated headwinds to deliver strong financial and operating results. Most important, they successfully laid the groundwork for enhanced top and bottom line performance in fiscal 2017.

Now a year later, I'm pleased to report that the team did indeed deliver enhanced top and bottom line results for the year. In terms of revenue, our comparable growth rate of more than 3%, while below our original target, represents an acceleration compared with the past 2 years, something we expect to build on going forward.

In terms of our bottom line, we continue to grow EBITDA, EPS and free cash flow. In addition, we further strengthened our balance sheet, adding more than $100 million in cash from the sale of the Fannie May business. As a result, we finished the fiscal year solidly net cash positive. The strength of our balance sheet and our growing cash flows provides us with significant flexibility to invest and enhance our growth both organically as well as through potential acquisitions.

As I step back and view the business we are building, I am both pleased with our progress, although we're always looking to go faster, and excited by the opportunities that I see ahead.

On the product front, we continue to expand our offerings along what we call the gifting continuum. Our entry-level gifts such as our Wolferman's breakfast treats, to unique inexpensive greetings such as our personalized message in a bottle and photo enhanced Cheryl's Cookie cards, to luxury items such as Stock Yards prime steaks and our 4-foot tall premium roses. And you will see us expand our offering further in the months ahead as we unveil an exciting new chocolate marketplace and add the PERSONALIZATION UNIVERSE brand to our multi-brand website.

We have continued to invest in key areas that provide us with leverage to accelerate our growth, including our operating capabilities such as manufacturing, distribution and product development, and our technology platforms, including our robust website and our industry-leading mobile sites. We've also continued to build our reputation as an innovator and early adopter of new technologies that can enhance our customer engagement. This was illustrated by our initiatives in conversational commerce, including our industry-first applications of Facebook Messenger platform, our voice-enabled skill on Amazon's Alexa platform and our own AI-powered gift concierge GWYN which leverages IBM's Watson platform to help us engage customers in a natural language conversation to help guide them to the perfect gift across all of our brands.

As always, these initiatives are designed to make it easier for our customers to act on their thoughtfulness and help them connect and express themselves with the important people in their lives.

As I have noted in past calls, we have focused on executing our business plans by leveraging the unique set of assets that we have assembled. They include our all-star collection of brands, our large and growing customer base, our operating platform, that we call BOLT, or business operations, logistics and technology and our very strong balance sheet.

Through the combination of these assets and our deepening customer relationships, we are well positioned to deliver strong top and bottom line growth in the current fiscal year and we are excited about the opportunities which lay ahead.

With that, I'll turn the call over to Chris to summarize our results and to discuss our outlook for fiscal 2018. Chris?

Great. Thank you, Jim. During the fiscal fourth quarter, we achieved solid revenue growth across all 3 of our business segments. In our floral businesses, we continued to extend 1-800-Flowers brand's market leadership position, growing approximately 3% on a comparable basis. BloomNet also continued to its recent trend of revenue growth up nearly 2% for the quarter. Revenue growth in these segments was driven by strong everyday gifting demand combined with solid growth for the Mother's Day holiday period. For the 1-800-Flowers brand, revenue growth from Mother's Day was consistent with that of the overall quarter at approximately 3%.

With that said, we have planned for and we spent against higher growth for the holiday period. The increased investments we made in marketing and customer service combined with somewhat softer-than-anticipated consumer demand resulted in lower year-over-year contribution margin for the quarter. We are confident that this decline, the first we've had in this segment in 3 years, was an anomaly. And that the investments we have made in marketing will provide benefits through 1-800-Flowers brand equity and further enhance its market leadership position going forward.

In terms of our increased investments in customer service, we are already seeing the benefits in the form of historically high customer satisfaction metrics. This helps us deepen the relationships we have with our customers and increases their frequency and retention rates. For the full fiscal year, Consumer Floral achieved 5.7% comparable revenue growth, an increased contribution margin 2.1% to nearly $52 million. This represents a strong contribution margin of 12% for this segment. We did this by focusing on the key attributes of the 1-800-Flowers brand, our truly original gifts that help our customers express themselves perfectly, a caring team that is obsessed with service and a customer experience that is always being enhanced to make it easy to deliver smile.

We are pleased that we have extended the 1-800-Flowers brand's market leadership during fiscal 2017. We are confident that we can build on this while achieving both top and bottom line growth in this segment in fiscal 2018.

In BloomNet, fourth quarter revenues benefited from increased product sales in both its traditional florist channel and new channels such as garden centers and nurseries. In addition, we saw positive results in directory ad sales and early acceptance of our new digital marketing services. For the full fiscal year, BloomNet increased its top line by 2.6% and grew its already strong contribution margin by 5.7% to $32.4 million.

During the year, BloomNet laid the groundwork for further top and bottom line growth. We opened a West Coast distribution center, which is housed on Harry & David's campus where we leveraged the available space and capabilities of the very talented team we have in Medford, Oregon. We finalized plans to open a new showroom at the Las Vegas vendor mart, which will give us added exposure to West Coast customers. And we continued to innovate BloomNet's product offering, adding the new Bayberry Road line of jewelry and accessories, the unique product line that helps our customers expand their offerings and grow their businesses. We believe these initiatives will enable BloomNet to build on the positive trends we are seeing in its business during fiscal '18.

In our Gourmet Food and Gift Basket segments, revenue for the quarter grew 3.4% on a comparable basis. The growth in this segment reflected increasing sales for everyday gifting occasions.

In our Cheryl’s Cookies, the Popcorn Factory and 1-800-BASKETS brands, we saw strong growth for birthday, thank you, new baby and sympathy occasions. This is being driven by an increased focus across all of our gourmet food brands on innovative new products designed specifically to help our customers send smiles for everyday celebrations, such as our celebrations boxes from our Cheryl’s Cookies brand. This is a birthday party in a box. It includes cookies, treats, a mini cake with candles all wrapped up with customizable message ribbons.

While the Popcorn Factory's Baby Blocks Tower, a 3-tiered collection of colorful alphabet boxes filled with popcorn and all sorts of wonderful treats, or from 1-800-BASKETS our Caring Thoughts sweet and savory fruits and nuts tray. Everyday occasions were also the drive of strong growth in consumer demand for Harry & David, particularly for sympathy and birthday occasions with shareable food gift items such as their Royal -- I'm sorry, their signature Royal Verano Pears Sympathy box, Wolferman's Birthday Breakfast Banquet box and Moose Munch's Multi-Flavor Thank You tins. As we have told you in the past, increasing customers' awareness of our everyday gifting offerings is a key focus of our gourmet food gift brands, and we are pleased with the progress we are making in this area.

For the full year, comparable growth in our gourmet food gift segment was 1.6%. While this was below our original expectations for the year, it primarily reflects the underperformance of Harry & David during the calendar year-end holiday season, which we discussed with you back in our January call. Since that time, I am pleased to report we have seen Harry & David's consumer demand and customer file growing at a healthy rate, reflecting the benefits of some of the changes we told you we were implementing after the holiday season. These include: the consolidation of digital marketing responsibilities for Harry & David under our enterprise digital marketing team; an increase in digital advertising programs, in display video affiliates, social and mobile; increased use of new software tools in our consolidated customer database to enhance targeting and to streamline catalog circulation; and numerous enhancements to our multi-brand website, specifically to improve navigation for Harry & David's gift list functionality, a favorite customer feature that they are now ever increasingly using online. Harry & David also continued to enhance its product offering with the successful rebranding of its Moose Munch line. We've added hip new iconography to appeal to a younger customer demographic. And we are adding new snack size packaging to take advantage of the growth in the sales of premium popcorn treats. As a result, you should be seeing more and more Moose Munch products showing up on the shelves of convenience stores and other local retailers throughout the country.

In terms of Fannie May, as previously announced, we closed our sale of this business to Ferrero International at the end of May, netting more than $100 million in cash. The deal with Ferrero also includes a strategic commercial partnership that provides us access to Fannie May and Harry London products as well as Ferrero's world renowned chocolate confectionery brands. These brands will be part of a broad product offering in the exciting new chocolate marketplace that Jim alluded to in his earlier remarks. We plan to launch this marketplace during the upcoming holiday season and we're confident that it will help us expand our position as a leader in the multibillion-dollar gourmet food gift industry.

So looking ahead, we are focused on building on the positive trends we are seeing in our business, we have initiatives underway to enhance performance across all 3 of our business segments and we have a very experienced and proven management team, combined with our talented and hard-working associates across the company, who are focused on executing our plan to drive solid top and bottom line growth in fiscal 2018.

I'd like to just take a moment to thank every member of our team for their commitment to constantly improving our customers' experience and helping them to deliver smiles to the important people in their lives.

I'll now turn the call over to Bill to cover the metrics for the quarter and the year in more detail. Bill?

Thank you, Chris. As we indicated in this morning's press release, we had several timing issues that impacted results for both the quarter and the year. First, the Easter holiday moved into the fourth quarter during fiscal '17 compared with the prior year when it fell in the third quarter. This provided a benefit to our results of the quarter, particularly in our Gourmet Food and Gift Baskets segment. Second, the sale of Fannie May, which closed at the end of May, resulting in an after-tax gain of $15.4 million or $0.23 a share. Based on the timing of this transaction, we recorded only 2 months and 11 months of Fannie May results for the fourth quarter and full year, respectively. Third, the company's fiscal fourth quarter and full year results include the normal 13-week and 52-week time periods, respectively, compared with fiscal 2016 which included 14 weeks and 53 weeks, respectively, due to our retail calendar. Also impacting results for the fourth quarter and full year was the timing of the Harry & David's Fruit of the Month Club cherry shipments, which move to the first quarter of 2018 due to a late harvest.

As such, we had 1 fewer Fruit of the Month Club shipments in the fourth quarter than was originally expected and only 11 shipments in fiscal 2017 compared with the usual 12 shipments. As we noted in our press release this morning, we computed our comparable revenue growth for the quarter and the year by adjusting the prior year periods to account for the aforementioned timing issues. This resulted in comparable revenue growth of 2.9% for the fiscal 2017 fourth quarter and 3.1% for the full fiscal year. Additionally, our adjusted EPS for the quarter and the full year reflected the removal of the gain on the sale of Fannie May.

We believe providing comparable revenue and adjusted EPS for the fiscal fourth quarter and full year presents a better measurement of our performance.

Now breaking down our fourth quarter and full year results. Total consolidated revenues for the quarter grew 2.2% to $239.5 million compared with $234.4 million in the prior-year period. On a comparable basis, growth for the quarter was 2.9%. Total consolidated revenue for the year was $1.9 billion compared with $1.17 billion in the prior year, reflecting growth of 1.8%. On a comparable basis, growth for the year was 3.1%. Gross margin for the quarter declined 190 basis points to 41% compared with 42.9% in the prior-year period. This primarily reflected a combination of product mix, the impact of the promotional environment at Mother’s Day and increased shipping expenses. Gross margin for the year was 43.6%, down 50 basis points compared with 44.1% in the prior-year period. We anticipate consolidated gross profit margin will be up in fiscal 2018 based upon initiatives we are implementing in manufacturing and supply chain as well as reducing expenses associated with promotional programs and shipping.

Operating expenses for the quarter improved 400 basis points to 45.6% of total revenues compared with 49.6% in the prior-year period. For the year, operating expenses improved 70 basis points to 39.7% compared with 40.4% in the prior year.

The improvement in operating expenses reflects our focus on leveraging our business platform to enable us to offset the normal cost increases we incur each year in areas such as raw materials, labor and health insurance. Additionally, the prior year included several nonrecurring charges.

The combination of these factors resulted in an EBITDA loss for the quarter, excluding stock-based compensation of $2.2 million compared with a loss of $6 million in the prior-year period. Adjusted EBITDA, excluding stock-based compensation for the quarter, was a loss of $1.7 million compared with a loss of $2.9 million in the prior-year period. The year-over-year improvement in EBITDA and adjusted EBITDA reflect the aforementioned benefit of the Easter shift, offset in part by the timing of the close of the Fannie May sale and the Harry & David Fruit of the Month Club cherry shipment.

EBITDA, excluding stock-based compensation for the year -- for the full year, was $85.4 million compared with $82 million in the prior year. And adjusted EBITDA, excluding stock-based compensation, was $87.2 million compared with $85.7 million in the prior year.

Net income attributable to the company for the quarter was $8 million or $0.12 per share compared with a net loss of $11.1 million or a loss of $0.17 per share in the prior-year period. Adjusted net loss for the quarter, excluding the gain on the sale of Fannie May, was $7.2 million or a loss of $0.11 per share compared with an adjusted net loss of $9 million or a loss of $0.14 per share in the prior-year period.

Net income for the full fiscal year was $44 million or $0.65 per share compared with $36.9 million or $0.55 per share in the prior year. And adjusted net income for the year was $29.2 million or $0.43 per share compared with $28.5 million of $0.43 per share in the prior year.

It is worth noting that our results for the quarter and the year include only 11 months of Fannie May contributions and 11 Harry & David Fruit of the Month Club shipments.

In terms of category results. In our Gourmet Food and Gift Baskets segment, fourth quarter revenues increased 3.9% to $78.4 million compared with $75.4 million in the prior-year period. On a comparable basis, revenues for the period increased 3.4%. For the year, revenues in this segment were essentially flat year-over-year at $670.7 million. And on a comparable basis, revenues for the year increased 1.6%. Gross profit margin for the quarter was 37.6% compared with 39.9% in the prior-year period, reflecting product mix and increased shipping costs. Gross profit margin for the year was 43.6% compared with 44.4% in the prior-year period. We expect gross profit margin in this segment to increase in fiscal 2018 based on initiatives we have underway in our manufacturing, warehousing and distribution operations.

Adjusted contribution margin for the quarter improved 23.9% to a loss of $7 million compared with a loss of $9.2 million in the prior-year period. And adjusted contribution margin for the year was $78.1 million compared with $79.4 million in the prior year. Once again, the contribution margin for the quarter and full year were impacted by the timing of the Fannie May sale and the Fruit of the Month Club cherry shipments.

In Consumer Floral, fourth revenues grew 1.4% to $139.4 million compared with $137.5 million in the prior-year period. On a comparable basis, revenues grew 2.9% for the quarter. Full year revenues increased 4.5% to $437.1 million compared with $418.5 million in prior-year period. On a comparable basis, revenues grew 5.7% for the year. Gross profit margin was 40.2% for the quarter and 40.6% for the full year compared with 41.9% and 40.8% in the respective prior-year periods. Gross profit margin in the quarter was impacted by the promotional nature of the Mother’s Day holiday, combined with higher shipping expenses.

We are confident that we can mitigate these factors going forward and maintain a strong gross profit margin in this segment in fiscal 2018. Contribution margin was $14.7 million for the quarter and $51.9 million for the year compared with $17.7 million and $50.8 million in the respective prior-year periods. Fiscal fourth quarter results in this segment reflect the shift of Easter holiday into the period, offset by a 13-week quarter versus a 14-week quarter in the prior-year period. Full year results reflect a 52-week year in fiscal 2017 versus a 53-week year in 2016.

In our BloomNet business, fourth quarter revenues increased 1.8% to $22.1 million compared with $21.7 million in the prior-year period. Full year revenues increased 2.6% to $87.7 million compared with $85.5 million in the prior-year period. Gross profit margin was 56.6% for the quarter and 56.5% for the full year compared with 58.9% and 56.3% in the respective prior-year periods. And contribution margin was $8.7 million in the fourth quarter and $32.4 million for the full year compared with $8.6 million and $30.6 million in the respective prior-year periods.

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 fourth quarter corporate expense, including stock-based compensation, was $19.2 million compared with $24.6 million in the prior-year period. And for the full year, corporate expense, including stock-based compensation, was $81.8 million compared with $85.1 million in the prior period.

The decrease in corporate expense for the quarter and full year reflects the combination of factors, including 1 fewer week of operations in both periods compared with the prior year, our ability to leverage our business platform to reduce costs and several nonrecurring charges in the prior-year period.

Turning to our balance sheet. At the end of the year, our cash and investment position was $149.7 million compared with $27.8 million at the end of the prior year.

Our term debt balance, net of deferred financing costs, was $108.6 million, and we had 0 borrowings outstanding under our working capital line within our revolving credit facility.

Importantly, our net cash position at the end of the fiscal year was $41.1 million compared with a net debt position of $84.3 million at the end of the prior year. This represents a year-over-year improvement of $125.4 million or nearly $2 per share in cash.

Inventory of $75.9 million is down from $103.3 million at the end of the prior year. The strengthening of our balance sheet reflects our free cash flow from operations as well as the sale of Fannie May.

Regarding guidance. For fiscal 2018, the company is providing guidance for revenue and bottom line results as follows: Consolidated revenue in the range of $1.14 billion to $1.16 billion; EBITDA in the range of $90 million to $93 million; EPS in the range of $0.46 to $0.48, this includes an anticipated normalized effective tax rate of 35%; and free cash flow for the year in the range of $30 million to $40 million. Our guidance for top and bottom line results reflects the sale of Fannie May in fiscal '17.

I will now turn the call back to Chris.

So to sum up, we are well positioned to drive top and bottom line growth across all 3 of our business segments in fiscal 2018: We have momentum in our Consumer Floral business where the 1-800-Flowers brand continues to extend its market leading position; we have momentum in our BloomNet business where our unique offerings of innovative products and services and unsurpassed quality continues to separate BloomNet from the legacy wire services; and we have positive trends in our Gourmet Food and Gift Baskets business, including growing customer demand for Harry & David, increasing traction in everyday gifting across all of the brands and solid growth in our gift baskets business in both direct-to-consumer and our wholesale channel. And a very important asset that we manage is our customer file. Here, we are also seeing positive trends. We are growing the active customer file across the company, and we are increasing the lifetime value metrics within the file, including their purchase frequency, retention and average spend.

We're doing this by being laser focused on constantly enhancing our customers experience by introducing them to our brands, all of our all-star family of brands, by providing them with value added loyalty programs, including Celebrations Rewards, reminders and of course, our Passport program. And by always investing and innovating on how and where we engage with our customers. So we are excited about the year ahead of us. We have a solid plan in place to drive top and bottom line growth across the company and to build shareholder value.

With that, let me turn the call over to Gary, so that we may take any questions you may have. Gary?

(Operator Instructions) The first question come from Jeff Stein with Northcoast Research.

So a couple of questions here. First of all, with respect to Consumer Floral, why do you believe that your performance during the quarter was an anomaly? I mean, if you look at your competitor's performance, it was absolutely abysmal. And clearly, you are taking market share from them. But is the market for floral slowing because -- I mean, your competitor's results were down about 12% revenue. And this would suggest between the 2 of you, there may be a contraction going on. So can you address that? And then I have a couple of follow-ups.

So as I look at the market, Jeff, we don't see any real change in the consumer floral market. What we see is a good stable market that's been growing around 1% and that's been consistent now for the past several years. I think if you look at our results -- I mean, if you look at Consumer Floral for the year, we grew about 6% for the year. So as the category leader, we are growing about 6x that of the industry average. So we think that puts us in a very strong position. And then if you just step back and look at the quarter and where we spent our dollars, we spent our dollars into marketing and customer service. And when you look at where we spent them in marketing, where we spent them in customer service, the results that we got, growing 3%, and then also the highest customer satisfaction metrics we've ever had, all give us strong confidence that we'll be able to continue this trend of top and bottom line growth into fiscal '18.

Okay. But where did you fall short? Where did you miss, I guess, because it was disappointing, as you indicated in your prepared remarks?

Jeff, let me first break it down a little bit. First on kind of the gross margin. So gross margin was down 170 basis points during the quarter. We mentioned there is some impact of product mix and shipping expenses. And it is -- it was a promotional environment. And we are competing against some competitors that are very promotional. But let me dig into that a little bit. We mentioned we invested incremental marketing dollars to drive market share and to drive growth. This was based on the success we had at Mother’s Day a year ago, we had a phenomenal Mother's Day a year ago, and the success we had at Valentine's Day this past year where we grew 16% at Valentine's Day, we had the tailwind of the day placement. But the 16% number was a wild number. And we still grew 3%, but we expected more. As a result of expecting more, we invested in some inventory to support the higher growth. When demand came in a little lower than that, we had to adjust our pricing and price our products appropriately and took a little bit less margin on those sales. The good news of that is we sold through all that inventory and we have no hangover of that. And then 1 final point that I just touched on. Mother's Day that we're -- the fourth quarter for the Consumer Floral that we're comping against was a phenomenal quarter. You see the 41.9% gross margins a year ago. Remember, talking with this group over the years that we are looking to achieve get the Consumer Floral margins up to 40%, and we're consistently delivering over 40% gross margins in this category now. Even this quarter, we're at 40.2% and for the year we're at 40.6%. But we're comping against the 41.9%, historically high, never achieved that before, haven't achieved it since. I think we're very confident that we can -- going forward we can grow our overall gross margins and deliver consistent margins above 40%.

Chris, if you might want -- on the types of advertising in the category.

Right. As we look at the category and we see what different types of advertising is coming into the categories from the competitive set, we look at 2 types of advertising. There's the type of advertising that draws people's attention to your products, to your brands, to the reasons to give. Ultimately, it attracts new customers to you and the category. And that's the type of advertising that we welcome. And as a category leader, we will always get our fair share of the benefit of that type of advertising. But then you have other advertising that's just highly promotional, discount, discount, discount advertising. That we think is detrimental to -- it can be detrimental to the industry and it's certainly detrimental to the brands that do that.

Okay. Couple of follow-up questions. Can you address the issue of organic growth expectations and maybe help us a little bit understand how Fannie May impacted each of the quarters in fiscal 2017? And how we should be looking at things kind of on an apples-to-apples comparison by quarter?

Bill?

Jess, the way we gave you the guidance and we gave a revenue range, we thought that was the best way to present it. We were nearly $1.2 billion this year, $1,194,000,000, but that included Fannie May for 11 months. Fannie May was about $85 million or $86 million. So we had to kind of back out that amount and then project what our growth rate was. And we have about 3% to 5% in our guidance built in for next year that gets us to that $1,140,000,000 to $1,160,000,000. Fannie May was also -- generated several million dollars of EBITDA for the 11 months. So that has to be backed out of the $87 million we reported this year. And then we build off that to get to the $90 million to $93 million. When you break down Fannie May by quarter, it is a very -- it's a seasonal business like many of our food businesses. So we do around 15% of its revenue in Q1, almost 50% of its revenue in Q2, 20% in Q3 and then probably about 15% in Q4. It normally does, in Q4, more than that, but we only had it for 2 months. So it was about 15% this past year. That's the seasonality of it. From of an EBITDA perspective, it makes all of its money and then some in Q2. So it loses a fair amount of money in Q1, makes money in Q2, loses a little bit of money in Q3 and about breakeven in Q4. And, Jeff, we will work -- Joe and I will work with you on the models.

Sure. Okay. Just in general, do you believe you're getting the benefits from the portal, because when you look at all of the growth initiatives that you just discussed in your prepared remarks and then you consider the fact that this is kind of year 3 going into the portal and you really should be starting to see some traction from cross marketing and so forth, is 3% to 5% really a -- I mean, is it indicative of the benefits you're getting from the portal? Or are you just not seeing it?

So, Jeff, I think there's a couple of things there. First, when you state the portal, I think you really mean the full multi-brand customer strategy and the portal was one aspect of it. But let me start there and peel back a little bit. We continue to see a good amount of cross-brand exploration, cross-brand awareness coming out of people, coming to 1 shop and jumping over and looking the other. It's always -- it's a low percentage number, but that just continues on a steady basis. Then we start to layer in our cross-brand merchandising capabilities and marketing capabilities, and we start to move that awareness and brand interaction further. Then we layer in the loyalty programs, the rewards programs, the Reminder programs, the Passport program, et cetera to continue to drive that. So I think that the results that we're seeing here, while still early, is what has helped us contribute to the acceleration of growth that we have had, going from where we were a year or so ago to now 3% growth range. So all things contributing. I think we are also seeing that reflected and why I referenced in my remarks, the -- what we're seeing in the customer file. We're seeing growth in the customer file overall, and we're seeing growth in the retention lifetime value metrics of the customer file. And part of that is being -- is the benefit of still a small percentage of that file having the great lifetime value metrics that we've attributed in the past to whether it be the Passport customers or the multi-brand customers. So we're seeing the benefits of it. It's moving in the right direction. We've always said, this is not a rocket ship. It's more of an evolution as we move forward. But I think we're seeing the benefits of that.

When I look at Passport, we continue to get good robust sign-ups into our Passport program. The customers in Passport continue to really show the same type of behavior metrics that we've been seeing for a while in their increased frequency, increased spend, increased retention rates. All of that is still holding up. The challenge for us is always, okay, how do we grow it faster. One of the programs that we were really excited about was -- in July now there is another company out there that has created a new e-commerce holiday, called Prime Day. And I was thrilled to see our team really rally up, coordinate across our brands and work together in a coordinated go-to-market strategy to promote Passport Day, piggybacking on the tailwinds of Prime Day. In fact, I was thrilled that Internet Retailer and NerdWallet both reported on us as being one of the few companies to jump on early on this new holiday in the middle of July, which all retailers welcome. And we had really good results. We saw enrollments to Passport up over 300% that week. Conversion rate of our Passport offerings up over 250% to 300% range. Revenue from our Passport customers up about 150% that week. So with things like that, that gives us the opportunity -- that was a kind of a test to show us there are other types of campaigns that we can and will run throughout the year to try and accelerate our growth in Passport.

The next question comes from Dan Kurnos with The Benchmark Company.

Just a quick follow-up in Consumer Floral. Yes, it's clear, you're taking share. I just want to be clear on your comments though as it relates to margins. And I know Joe and I were talking a little bit about this earlier. But just want to make sure that the spending ramp at FTD is not going to permanently -- or you don't think will permanently depress margins in the Consumer Floral space. Because obviously, they have a desperate need to return to growth. And they've got a lot of back-end investment to make. And I'm wondering if you guys are going to have to defend your market share gains? Or if you think spending will kind of normalize over time given that they clearly got no return on their investment spend this past holiday period?

So -- yes, when we look at competitive spend and I think there, from time to time, there's always somebody kind of jumping into the fray, looking to try and buy market share. And we have to be a cognizant of that, understand the impact it'd have in the marketplace. But when we look at that, I think and if you look historically as we performed in the phase of higher spend in the past and still always growing in that 3%, 4% range even in the phase of higher spend, the reasons why is because we continue to manage our business by focusing on our strengths, our brand, our obsession with the customer experience, our truly original products that where we're constantly bringing to the forefront and introducing to our customers. Our innovation, innovation in product, innovation in how we engage with our customers and most importantly, I think it is our team, Dan. We have a very experienced team in all areas of the company. One of those areas is marketing. And in marketing, when we are faced with an increased competitive spend, I'm very happy that our marketing team is always experimenting, testing new things, always on the forefront of engaging and testing new technologies in marketing, but always with a very disciplined and data-driven approach. And that's how we plan on competing in an increased competitive market with the similar results that we've produced in the past.

This is Jim. Dan, I'd point out -- underscore a couple of point that Chris made now and earlier that if you look at our spend in the quarter, the 2 areas that Bill talked about that we increased our spend on, in marketing and in customer service. At those peak holiday period times, we're cognizant of the kind of experience we want to deliver to our customers. And I think our focus on the everyday business is starting to bear real fruit for us, and that's a good thing across the board. But the spend we made in that quarter are on marketing and on customer service. So we were the best-in-class customer service provider in what is a very difficult customer service category. We're not just popping a brown box into the mail and it shows up on your doorstep. This is a hand-delivered gift and not just something dropped at the mailroom. So it's a difficult category. We were the best-in-class to begin with. The investments that Chris and Bill and the teams made in customer service over the last 6 months will bear fruit well beyond the quarter. It improves your customer experience, the customer retention efforts, the third-party recognition that you see in the press release that we've gotten for being best-in-class and always improving in customer service and the type of marketing that Chris mentioned that we did in the quarter will have benefits well beyond the quarter. So you see, in spite of a competitor is talking about increasing their spend and decreasing their budgets for the technology upgrades that they so desperately need, they say, we don't have that comparison because we've made those investments. So our spends aren't on catch-up. Our spends are on leap ahead in terms of the innovations we can introduce in terms of our technology. And so I think that puts us in awfully good shape. And you see last year, our growth rate accelerating in the floral category over the year before, we'd expect, as Chris said, that to continue.

Yes. I was just going to add, Dan, I think it's all of those reasons and what we saw in Q4 that really gives us the confidence to be able to say that we're going to grow both top and bottom line in this segment in fiscal '18.

Okay. No, it's helpful. I get it. I mean, I think you're certainly positioned well competitively. Just trying to get a sense of margin trends over time.

So then just let me shift, sort of since you brought up Prime Day, obviously, the other thing that Amazon is, unfortunately or fortunately depending on which side of the equation you're on, driving is retail footprint reduction. So I'm wondering if there is any impact to the gifting space, whether it's through less shelf space or sort up your push to go more e-comm centric? I'm just trying to get a sense of how kind of this retail footprint compression is impacting the way that you guys are trying to feature products, particularly Harry & David and the wholesale business?

The impact that Amazon is having on the world is obvious to us all. We spend a good part of all of our days, whether it's your day, Dan, or ours thinking about it, talking about it and anticipate -- trying to anticipate what the impacts will be. Clearly, we were able, as Chris mentioned, to piggyback on their Prime promotion during July. That was a good thing we were able to do. We work with Amazon in many ways. We certainly respect and admire them. And as we watch the most recent big acquisition with Whole Foods. Whole Foods was a good floral provider and one that we've done some promotions with in the past. Our multi-tiered relationship with Amazon, I think, should stand us in very well -- in very good position and give us some opportunity as they integrate that business.

In terms of shelf space, yes, we're conscious of the fact that what's happening in retail. It was a contributing factor, not a big one, but a contributing factor when we decided to take Ferrero up on their offer to acquire the Fannie May assets. We had 85 retail stores there which had suffered from the fire experience we had and the lack of inventory through a whole holiday season or a full inventory through a whole holiday season. And those stores need constant upgrading, and it's one of the contributing factors when we analyze that opportunity, that made us decide there. So we have very little retail exposure any place else. And yes, we are an e-commerce centric kind of business. And I think it just emphasizes that where we've been going over the last several years positions us well, not just to be defensive in the category, but to use our now muscle in the technology area to leap ahead. And I think a couple of those examples you should watch are 2 that were pointed out earlier: One is as we move what is an organic business that we -- marketplace-type business that we have been nurturing and now we'll put on our platform in -- by November, that is PERSONALIZATION UNIVERSE; and then the other one we'll be launching around the same time, which is broadening our chocolate offering to not just Harry & David -- Harry London and Fannie May and Harry & David chocolates, but also to include the other bands that consumers might be interested in a marketplace kind of environment. So taking all that in, we're conscious of what's happening in retail. We're certainly watching closely what goes on in the general e-commerce space. I think we're uniquely well positioned with our large database, our BOLT platform, our technology capabilities to take advantage of those trends. And that's exactly what we feel we are charged with doing as a management team is to watch, anticipate, plan and take advantage of the larger macro trends.

Okay, great. And then just, I guess, 2 real quick housekeeping questions since you brought up PERSONALIZATION UNIVERSE. Obviously, I think it's no secret you guys would like to use the cash to purchase something probably food space or something around there. Obviously, your stock is not expensive and clearly there is a call for -- from investors to buy back significant amounts of stock at these levels. So just kind of give us a sense of sort of what you're thinking on that balance and sort of what you might be willing to pay.

And then I don't know, Bill, if you'll break this out. But if you could give us a sense of what the Harry & David EBITDA loss was in the quarter? I'm just trying to get a sense of kind of the efficiencies you're getting or not getting based on the initial acquisition targets at this point?

I'll take the first part of that question, Dan, which is -- and I'll reinterpret as what do we do with the good position we're in, in terms of having good cash on our balance sheet, net cash positive and a great deal of leverage there. Not only do we have that, but the other assets, the large database we have, the BOLT platform, our technology capabilities. When you put those all together, I think we have really good flexibility.

In terms of growth, we're excited to have the -- be in a position that we're in and have the flexibility that we have look. So we look at growth in 2 ways. What organic things can we do, things like creating PERSONALIZATION UNIVERSE, creating the chocolate marketplace, growing the other businesses. We're in a position that we have the wherewithal to do that and we're pleased with that. So we'll be looking to grow our business by investing in organic efforts or birthing new efforts like we are with PERSONALIZATION UNIVERSE. And yes, we have the flexibility and the capability to do acquisition should we find the right opportunities that we think help us accelerate our path into the gifting continuum that Chris describes in the whole celebratory ecosystem that we live. So we have the flexibility.

In terms of buybacks, we -- that's -- we maintain that flexibility. We've been buying stock over the last couple of years. We'll continue to do that. And should the circumstances dictate that we rev that up, we have the flexibility to do that as well. So we're maintaining our flexibility. We like the position we're in. We've developed the team of people that are helping us develop, analyze and execute against the business strategy opportunities we have with our strategy and business development opportunities, which include those internal efforts and our possibility of some acquisitions.

So we have the wherewithal to do the organic, to do acquisition should we find the opportunities. And clearly, we've been disciplined and good stewards of our balance sheet and our cash that we have. And then finally, being able to have the opportunity to accelerated the buyback should we determine that to be a good and prudent way for us to proceed.

And Bill, the Harry & David question?

Yes. So, Dan, with Harry & David, and Harry & David had a tough year. But we spoke about a lot of this in our Q2 call, we're really late into that holiday season, the second half of the year...

The second half of the fiscal year, the first half of this calendar year.

Yes, correction. We've been encouraged by the consumer demand for the Harry & David product. On our last call, we spoke to the Easter holiday, Harry & David consumer demand was up 2.2%. Through the second half of the year through June, consumer demand for Harry & David was up 4%. So obviously, there's an acceleration in our fourth quarter.

And what's nice, Bill, with that is the customer file was moving right along in step with that, so.

With respect to some of the targets that you mentioned if you're talking about the synergies that we've -- that we announced $20 million in synergies that we guided to. Did we achieve those? Yes, we did. We've achieved those and then some. And let me give a little color on that. We just reported the revenues are just under $1.2 billion. We have costs, whether it be operating costs or cost of goods that are well over $1 billion, just with normal inflationary rate increases. We're facing every year a $30 million bogey to achieve -- to address. I think we've done a good job over the years and kind of proven that we have the ability to drive costs out of our operating platform and drive down our operating costs as a percent of revenues, which you saw once again this year. So from a -- also from a bottom line standpoint, the Harry & David transaction has been a huge success for us. It helped us drive significant synergies, some of which sit on the Harry & David brand P&L and some go across the enterprise because we drive enterprise savings.

So it's convinced not only that we achieved the $20 million, but when you consider that over the last 3 years, it will be 3 years soon that we own Harry & David. That's a $90 million headwind we've had to face, offset and then some. So yes, achieved all that. It's also taught us that scale does matter. And we're very happy that we doubled our size over the last couple of years through organic growth and with the 1 acquisition, even with the disposition of Fannie May. So scale those matter here and help us to achieve those synergies.

The next question comes from Eric Peter (sic) [Eric Beder] with FBR & Company.

Could you talk a little about the gift basket business and what are you seeing for holiday in terms of demand for gift basket?

Sure. So taking our gift basket business, we've been seeing, as I mentioned, some good trends in both the direct-to-consumer through the past fiscal year especially the last 2 quarters. And then really on to the wholesale side I think kind of look to Bill to give a little visibility. We're seeing some good trends there, and we have some good early insight into how the year is shaping up. Bill?

Yes. So this holiday quarter looks to be a very good quarter for us with regards to the wholesale gift baskets. As you know, that, that process starts in the early spring and runs through now as we're getting all those orders finalized, and we're very encouraged with the year-over-year growth on that.

And that's on top of what was a strong year in that channel last year as well. So we're very happy to...

Great. In terms of Harry & David, you mentioned the chocolate piece, you mentioned PERSONALIZATION UNIVERSE. What do you see as the key new products for Harry & David for the holiday season to help drive traffic?

Yes. So on Harry & David, I think we're always looking at newly innovative products. One of the things that we're seeing now is some good early response to our food sales and we're seeing some good progress there. Again, staying consistent with the good consumer demand we've been seeing since January, so we're happy with that. We also look at it, as we move forward part of the driver now and certainly will be for the next couple of months, is the everyday gifting occasions that we're seeing. And good products being designed for sympathy, good products being designed for birthday occasions. That's where we're getting the most traction on the everyday occasions with Harry & David. We have some really great products, I'm trying to recall, and just not recalling some of the names of them that I reviewed for this upcoming holiday season. Our wine business is a growing category for us. Moose Munch is a growing category. We're doing pretty well on the Moose Munch side. The prepared foods, this -- the line that we talked to you about last year, continuing to grow well for us. So that's a combination of our protein business as well as things like turkeys, chicken pot pies, lobster pot pies, et cetera that people buy to use for entertaining. We're seeing good growth there. And importantly, we've also good growth in the car business. You heard us talk about the clubs a little bit and clubs give us move around sometimes from one quarter to another. But we're a big business in clubs and we see good growth opportunities in clubs going forward as well.

The next question comes from Alex Fuhrman with Craig-Hallum Capital Group.

I wanted to ask a little bit more about the ecosystem of different brands and categories that you're rolling into your multi-brand site. It sounds like, correct me if I misheard you here, but it sounds like you're adding a personalization business this year. Can give us a little bit more color on, are you partnering with an existing company out there? Is it something that you're starting in-house? And when perhaps we could expect to see that up and running?

And then, similarly for the chocolate marketplace, I'd curious what you can share with us in terms of which brands will be on there? And if you expect the assortment to be as big, bigger or not quite as big? And how we should think about that assortment as comparing to what you used to have through the Fannie May product line? And I think you've said that chocolate marketplace should be up some time around the holiday season. Is it your intention to have that fully up and running and live prior to Thanksgiving? Or is that something that will kind of be phased in throughout the season?

Okay. So a couple of things there, Alex, and thanks for the question. And yes, it's an area we're pretty excited about, and I'll break it into 2 and get started. So first is PERSONALIZATION UNIVERSE. Personalized products is something that we've been growing in our portfolio of brands now for a couple of years. So each of our brands, whether it be Harry & David, flowers, whether it be Cheryl's, have been increasing their ability to add personalization to their existing product lines. And that's helping to spur some of the growth we're seeing there especially in the everyday occasions. So for example, the Celebrations boxes for the Cheryl's brand I talked about, and you can put a personalized message on it; the cookie cards, you can put a personalized message on it. So we've been doing that. In addition, we're seeing there's a whole category of personalizable products out there that our customers have told us they will buy from us. So we looked at the landscape and was there any acquisitions for us to do at the time? And at the time, they weren't. So about 18 to 24 months ago, we launched personalizationuniverse.com. But we launched it kind of off grid, not on our e-commerce stack, because we wanted to just get it off. It was more an R&D effort focused on getting the merchandising selection right and getting the vendor network, the marketplace network in place. So that we knew when we brought it to Main Street, so to say, into our multi-brand platform, we'd be ready to go and really feel comfortable and confident in introducing those products and those vendors into our customer base. So we're ready to do that. We're pretty excited and we'll be launching that some time at the end of October, early November time frame. That time frame will be the same for the chocolate marketplace, the reason being is because of very similar technology development for the 2. So they go hand-in-hand.

So in the chocolate marketplace, we're going to be building on the relationship that we have with the Ferrero International, which gives us access to have Fannie May, Harry London and the Ferrero Rocher confectionery brands. But in addition to that, we'll expand and bring on other brands. And I think in the beginning there is going to have to be some trial and error to really find out what are all the chocolate brands that the consumer is looking for. We want to give them a very robust selection. And we'll probably do it a little overkill maybe in the beginning to really find out what they respond to, so then it fine-tunes our merchandising strategy. But in the past, because consumer will come to us and we basically be offering them Fannie May, Harry London or Harry & David, now they're going to have a much broader selection. And staying consistent with what we always do really in a good, better, best merchandising strategy. So there will be a representation of high-end chocolate brands, kind of mid-range chocolate brands for both gifting and self-consumption as well as more entry-level brands as well. We want to make sure we're providing a spectrum of price points along that gifting continuum for our chocolate buyers.

(Operator Instructions) The next question comes from Anthony Lebiedzinski with Sidoti & Company.

So I guess, first just clarifying more of a modeling type of question. So looking at the fiscal '18, are there any sort of timing issues that we should be aware of looking at the quarters? Obviously, there were a lot of noise with the just reported fourth fiscal quarter of fiscal '17. So anything there that we should be aware of, so looking at fiscal '18?

Anthony, this is Bill. And thank you for the question. Yes, Easter shifts back to Q3 next year. Easter is on April 1. So -- and our fiscal year-end is -- will be Easter Sunday. So that will result in the shift back from Q4 to Q3. I think, Jim has mentioned and I have mentioned in the past that second half of the year, you almost have to look at on a combined basis because of the shift of the Easter. We seem to be jumping back and forth between Q3 and Q4 over the last couple of years.

And we get another impact, Valentine's Day. The day placement improves a little bit this year, but later in a week it gets better. And we always encourage you to look at us as 2 halves. The things that can impact the quarter at the -- between 3 and 4 is primarily Easter. And the thing that could impact the first half is our third-party sales that will shift sometimes from the summer quarter to the second quarter, holiday quarter in terms of when we're shipping that product out at the request of our customers and also in the first quarter, us building inventory earlier and earlier to meet that increasing demand from third-party sales. So that's why we encourage you to always look at us as 2 halves.

Got it. Okay. And then, you've spoken a lot about the traction that you're getting in everyday gifting. Could you perhaps give us a sense of the growth trends that you have been seeing in everyday gifting versus growth around the major holidays?

So it's somewhat difficult to do that, Anthony. But if I look at it -- and the reason I say that is because there's different growth rates for different occasions by the different brands, right? So Harry & David, as I said, is doing really well on sympathy, birthday; Cheryl's is doing really well on...

Sympathy and birthday is not one item.

Sympathy and birthday. Cheryl's is doing really well in the Thank You category, as an example. But if I just take a look at the Gourmet Food results from the Q4, their growth was driven primarily by the everyday occasions in Q4, more so than the Mother's Day holiday. So that's very encouraging for us. A little bit different with the flowers business. Flowers business, yes, always performs well with the everyday occasions, but also performed well at the Mother's Day holiday too.

And there you'd probably shine a light on sympathy being a -- sympathy and birthday, are the two big everyday occasions that we're seeing the most growth in.

Correct, yes.

Okay. And -- so as far as the reasoning for your increasing traction, is it better marketing or more traction with the multi-brand portal, anything else that you would like to add?

Sure. I would step back a little bit first and why this even took a little more time to get to as we said in the past, in the Food brands, we really need to do a round, a cycle of product development. We didn't have the right products for these everyday occasions previously. So that took a while. But that's now started to come to fruition this year and why we're starting to see the results. In addition to then taking those products, putting them in the right places and merchandising them right. And the cross-brand website, the multi-brand website certainly helps that. And if someone comes on to birthday and they can jump over and then look at birthday products from Cheryl's or look at birthday products from Harry & David. A year ago, you really didn't have that ability. So all of those things are contributing to is good traction and we'll just look to continue to grind the wheel and how we can expose our customers to more and more solutions for their everyday celebratory needs.

Got it. Okay. And lastly, taking a step back now that you have divested Fannie May and if you look at the business now, I mean, what are your long-term expectations for your operating margins? And what level of revenue do you need to achieve to get to that target operating margin?

Yes. I think we've always spoke about achieving a 10% EBITDA margin. That's our goal. We're also looking to get to a 5% consistent organic growth rate, and I think we've made some progress this year moving it up to 3.1% and our guidance for next year has it going beyond that. So I think those are consistent. I think the sale of Fannie May helps us achieve those. Fannie May was a low-margin business for us. And as a result, our EBITDA margins....

And capital-intensive.

And capital-intensive. So our EBITDA margins do take a step up about 50 basis points with the -- with that sale.

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

So first of all, thank you all for joining us today for the call and for your questions. And I'll leave you with these 3 thoughts really. As we look at the year going forward, there are certain -- several things that give us confidence, the 3 primary things give us confidence as we move into fiscal '18. It's the multiyear momentum we have in the Consumer Floral, BloomNet's continued solid performance and the really positive trends we're seeing in our Gourmet Food category that we've spoken with you about today. So I thank you for your time. And for those of you who are looking to try some truly original gifts from our Gourmet Food categories, Harry & David recently completed the harvest of their unique Oregold Peaches. The Oregold Peaches are some of the best the summer has to offer. They're shipping now, and they always sell out quickly. So please visit our site today. Thank you.

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