1-800-Flowers.Com Inc (FLWS) 2018 Q2 法說會逐字稿

Good morning, and welcome to the 1-800-FLOWERS. COM, Inc. 2018 Second Quarter Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Joe Pititto. Please go ahead.

Thank you, John. Good morning, and thank you all for joining us today to discuss 1-800-FLOWERS. COM, Inc.'s financial results for our fiscal 2018 second quarter. For those of you who have not received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our corporate website at 1800flowersinc.com.

Our call today will begin with brief formal remarks, and then, we'll open the call to your questions. Presenting today will be Chris McCann, CEO; and Bill Shea, CFO. Before we begin, I need to remind everyone that some of the statements we will make today may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to our press release issued this morning as well as our SEC filings, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q.

In addition, this morning we will discuss certain supplemental financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, 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 Chris McCann.

Good morning, everyone. Thank you all for joining us. As we noted in our press release this morning, we achieved mixed results in the second quarter. On a positive side, consumer demand was good throughout the holiday season. However, we were not able to take full advantage of the demand due primarily to a temporary disruption in operations at our Cheryl's Cookies brand that arose late in the holiday season. So let me address this first.

As many of you will recall, Cheryl’s Cookies has been a major success story for us since we acquired it more than 10 years ago. In fact, it's consistently been one of our best performing brands. We've nearly tripled the revenue. We've had strong double-digit contribution margins. And our customer loyalty is among the highest of all of our brands in terms of retention and frequency.

To support our outlook for continued strong growth at Cheryl's, 2 years ago we invested to expand the production facility, more than doubling its capacity. To handle this growth, we also needed to invest in technology upgrades for our manufacturing and warehouse management systems. We completed this effort in the fiscal first quarter of this year, in anticipation of the strong holiday season. Unfortunately, during the holiday -- during the holiday push, we ran into challenges adapting to the new system.

As a result, with consumer demand strong, we found ourselves quickly falling behind in terms of producing what our customers wanted and fulfilling their orders in a timely fashion. To ensure that we did not disappoint our customers, we made the difficult decision to stop taking orders for Cheryl's products a full 8 days prior to Christmas. We then directed all of our efforts toward getting the orders that were already placed out and delivered in time for the holiday season.

As a result, we estimate that we had to forgo approximately $4 million in revenue and incurred a similar hit to the bottom line, due to significant incremental costs for our labor, expedited shipping and customer credits to ensure that all our customers were satisfied. Following the holiday, we formed a special cross-functional team from around the enterprise to resolve the operational issue. I'm pleased to report that the challenge we faced at Cheryl's has been addressed and that business has returned to the same solid pace we saw prior to the temporary disruption. Clearly, our customers love Cheryl's unique hand-frosted cookies, and we are committed to fulfilling that growing demand.

As Bill will discuss in a few more detail -- in more detail in a few minutes, we achieved total comparable revenue growth of 2.6% in the Gourmet Food and Gift Baskets segment. Had we not had the temporary challenges, growth would've been closer to 3.6%. Driving the growth in this segment was Harry & David, which grew its e-commerce business by nearly 6%. As we've discussed in past calls, accelerating growth at Harry & David is a key strategic initiative for us, and we are very pleased with our progress in this area.

In addition to the accelerated revenue growth, Harry & David also saw its customer file grow nearly 5% during the quarter. Along with growth in existing customers, new to file customers increased at a double-digit rate, and importantly, reflected the younger demographic that is being attracted to the modernization of the Harry & David brand, from our expanded digital marketing initiatives to innovative new product categories, such as Gourmet Foods, specialty foods and wine. We believe this bodes well for the continued robust growth at Harry & David.

During the quarter, we also saw strong demand at 1-800-Baskets, which achieved double-digit growth in its consumer business and high single-digit growth in wholesale. In terms of innovation, within this segment, we're also pleased with the introduction of our newest brand, Simply Chocolate, a destination for chocolate lovers that features a curated collection of top brands and trending artisanal chocolatiers from around the world.

We launched Simply Chocolate in November, and we are extremely pleased with a great reaction we have received from our customers. Revenue for the holiday season exceeded our expectations despite limited marketing other than cross-brand introductory messaging and exposure to the customers on our platform.

We are exceeded by the opportunity -- we are excited by the opportunity that we see for Simply Chocolate for both the upcoming Valentine holiday and everyday gifting occasions. In our Consumer Floral segment, revenue grew 2.3%, and we continue to extend our market-leading position by focusing on leveraging strength of the 1-800-Flowers brand, focusing on truly original products and delivering a customer experience that is second to none.

During the quarter, we made a decision to step up investments in several initiatives to take advantage of the opportunity we saw in the competitive landscape to further extend our market-leading position as we move forward. While this affected gross margin and contribution for the quarter, these investments will help us to deliver stronger top and bottom line results in the second half of this fiscal year.

Also, during the quarter, 1-800-Flowers continued to build on its reputation as a leading innovator with the launch of voice-enabled ordering capabilities on Google Express and on Google Assistant, making us one of the first brands to provide this transactional feature.

Lastly, our BloomNet segment, while revenue for the quarter was essentially flat, florist demand for BloomNet's unique suite of products and services accelerated during December and has continued to be strong since the start of the current fiscal third quarter. BloomNet has already began to build a book of business for the second half of our fiscal year, and we expect florist demand in our third and fourth quarters will enable us to achieve solid revenue growth for the full fiscal year.

So to sum up our second quarter, we saw good customer demand, but were not able to take full advantage, primarily because of the operational interruption at Cheryl's. We've addressed this issue, and we anticipate a quick return to the solid top and bottom line performance that we have come to expect from this brand.

We successfully launched our Simply Chocolate brand, which performed well right out of the gate. We had solid growth in our 1-800-Baskets consumer and wholesale businesses. And most important, we saw the positive return in customer growth trends in Harry & David that began in our third quarter last year, accelerate, culminating in strong e-commerce performance for the key holiday season.

I'd now like to turn the call over to Bill for a more detailed review of our results for the quarter. Bill?

Thank you, Chris. Breaking down our second quarter results. In terms of revenues, comparable consolidated revenues adjusted for the sale of Fannie May grew 2.4% to $526.1 million. The growth was driven by our Gourmet Food and Gift Baskets, and Consumer Floral segments, which more than offset essentially flat revenues in our BloomNet business. If not for the impact of the operational issue at Cheryl's, total revenue growth for the quarter would've been approximately 3.2%. Comparable gross profit margin for the quarter declined 220 basis points to 44.7% compared with 46.9% in the prior year period.

Comparable operating expenses as a percent of total revenues improved 40 basis points to 28.7% compared with 29.1% in the prior year period. The combination of these -- a combination of these factors resulted in adjusted EBITDA of $94.5 million compared with a comparable adjusted EBITDA of $101.7 million in the prior year period. The lower comparable gross profit margin and adjusted EBITDA primarily reflect the combination of the impact of Cheryl's operational issue; higher transportation costs, primarily in trucking and expedited shipping in Harry & David and wholesale baskets; and lower contribution margin in our Consumer Floral segment.

Net income was $70.7 million or $1.06 per diluted share. On a comparable basis, net income was $58.5 million or $0.88 per diluted share, unchanged compared with the prior year period. Regarding the impact of the Tax Cuts and Jobs Act, which among other things, lowered the federal corporate rate from 35% to 21%. This affects our results in the second quarter as follows: because the new legislation was signed into effect at the end of December, and because our company has a June fiscal year-end, our federal tax rate for fiscal 2018 will be a transitional rate of 28%. As a result, we recorded a tax benefit of $3.7 million or $0.06 per diluted share, reflecting this transitional rate.

Additionally, we received a onetime net tax benefit of $12.2 million or $0.18 per share associated with deferred tax liabilities that were carried on our books at a higher effective rate due to the previous federal corporate tax rate of 35%. These has now been revalued using the new lower federal tax rate. Reflecting the combination of these items, our net income for the second quarter includes a total tax benefit of $15.9 million or $0.24 per diluted share.

Finally, in fiscal 2019 and subsequent years, based on the new lower federal tax rate, combined with state and local taxes and other factors, we anticipate having an effective tax rate of approximately 26%.

Now in terms of category results. In our Gourmet Food and Gift Baskets segment, comparable revenues adjusted for the sale of Fannie May increased $10.3 million or 2.6% to $406 million. This reflects total revenue growth of approximately 4% at Harry & David, which achieved e-commerce growth of 5.7%, partially offset by lower wholesale business. Additionally, we achieved nearly double-digit growth in 1-800-Baskets consumer and wholesale business combined.

However, total comparable growth for the segment was impacted by the lower revenues at Cheryl's. While demand at Cheryl's was strong throughout the holiday season, as previously mentioned, we incurred an operational issue with the newly implemented manufacturing warehouse management system that caused us to fall behind on production and order fulfillment during the quarter. This led to the decision to stop taking customer orders immediately prior to the key final week leading up to Christmas resulting in a loss of approximately $4 million in revenues. Were it not for this issue, revenue in this segment would've been up approximately 3.6%.

As Chris noted in his comments, we have addressed the issue at Cheryl's. Production and inventory management are stable and operating well, and Cheryl's is on track for the upcoming Valentines holiday. We anticipate that Cheryl's, along with the rest of the Gourmet Foods and Gift Baskets brands will continue to see increasing growth in the everyday gifting business and drive solid year-over-year revenue growth and improve bottom line contributions during the second half of the year. In addition, we have enhanced the wholesale management team at Harry & David and see good results for the growing book of business for the second half of the year.

Comparable gross profit margin for the quarter was down 220 basis points to 45.4% compared with 47.6% with the prior year period, primarily reflecting operational issue at Cheryl's. But we've also incurred higher transportation costs, primarily for trucking, following the hurricanes that hit Texas and Florida during the first quarter. This impacted Harry & David and our wholesale basket business. As a result of these factors, comparable segment contribution was $93.5 million, down 5.1% compared with $98.5 million in the prior year period.

In Consumer Floral, revenues grew 2.3% to $100.1 million compared with $97.8 million in the prior year period. Gross profit margin for the quarter declined 240 basis points to 38.8% compared with 41.2% in the prior year period. This reflected increased cost and investments associated with the initiatives that Chris mentioned earlier designed to expand our market leadership for the 1-800-Flowers brand.

While these initiatives impacted segment contribution for the second quarter, which was $10.8 million compared with $13.1 million in the prior year period. We believe they help position the 1-800-Flowers brand to accelerate its top line growth and deliver segment contribution margin increases in both the third and fourth quarter, and for the full fiscal year.

In BloomNet, revenues for the quarter were $20.4 million, essentially flat compared with $20.5 million in the prior year period. Gross margin for the quarter was 57.4% compared with 60% in the prior year period, primarily reflecting product mix. Segment contribution margin was $7.7 million, down 6.1% compared with $8.2 million in the prior year period.

Similar to our outlook for Consumer Floral, we expect BloomNet's revenue growth to accelerate during the second half of the year and for its segment contribution to increase as well.

In terms of corporate expense, our segment 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 second quarter, comparable corporate expense, including stock-based compensation, was $18.8 million compared with $19.9 million in the prior year period.

Turning to our balance sheet. At the end of the second quarter, our cash and investment position was $232.6 million. Our term debt balance, net of deferred financing cost, was $106.2 million, and we had 0 borrowings outstanding under our working capital line within our revolving credit facility. As a result, total cash, net of debt, at the end of the quarter was $126.4 million, up $123.4 million compared with the end of the second quarter last year. Inventory of approximately $60.6 million was down $32.8 million compared with the year-ago period, primarily reflecting the sale of Fannie May.

Regarding guidance. The company's provided guidance for fiscal 2018 includes the following factors: the results for the first half of the fiscal year; the impact of the Tax Cuts and Jobs Act legislation; and the company's expectation that its comparable revenue growth rate will accelerate to more than 5% during the second half of the fiscal year. Based on these factors, the company is providing revised guidance for fiscal 2018 as follows: consolidated comparable revenue in the range of $1.13 billion to $1.15 billion; EPS in the range of $0.62 to $0.64 per diluted share; comparable adjusted EBITDA in the range of $82 million to $85 million; and free cash flow for the year in the range of $30 million to $40 million.

As a reminder, results for the second half of the fiscal year will reflect the shift of the Easter holiday, which is on April 1 this year, into our fiscal third quarter compared with the prior year, when it fell in our fiscal fourth quarter.

I will now turn the call back to Chris.

Thank you, Bill. As we enter the second half of our fiscal year, we have several tailwinds that will help drive accelerated revenue and enhanced bottom line results across all 3 of our business segments. The second half is dominated by our floral businesses, and both the 1-800-Flowers brand and BloomNet are well-positioned to accelerate top and bottom line performance going forward.

We have the benefit of the Valentine holiday moving to a Wednesday this year compared with falling on a Tuesday last year, providing an additional day for sales and for fulfillment. We're already seeing some leading indicators, with strong performance in our BloomNet business in December and a solid book of wholesale orders from florists for the second half. We also continued to see strong growth in everyday gifting, not just in our floral brands, but also in our Gourmet Food and Gift Baskets brands, in particular, Harry & David, Cheryl's and 1-800-Baskets, are growing their businesses for birthday, anniversary, sympathy and other everyday occasions.

As I mentioned earlier, our new Simply Chocolate business is off to a strong start, with consumers discovering our exciting and expanding new offerings, such as Norman Love, Neuhaus, Max Brenner, among others. All uniquely available in one curated collection. And our digital marketing strategy is continuing to attract new customers, accelerate and achieve cross-brand adoption and increased customer loyalty. When you add these factors together, we are confident that we will achieve top line growth of more than 5% in the back half of this fiscal year. And as Bill discussed, we expect improvements in our year-over-year profitability in all 3 of our business segments during the second half of the year.

So in summary, we see expanding market positions in all 3 of our business segments. We see growth in everyday gifting, particularly in our Gourmet Food brands. We see good early indications of wholesale growth across our brands. And we see good continued progress in Harry & David's modernization and growth acceleration.

So I thank you, and I'd now turn the call back to Chad, our operator, to open the call for any questions that you may have.

(Operator Instructions) Our first question comes from Kara Szafraniec with Northcoast Research

I had a couple of questions on the Consumer Floral segment performance this quarter. Just wanted to start out with the heightened level of investments that you guys made. Is there any other driver of the lower-than-expected gross margin in the segment in the quarter? And then, how should we think about your investment cadence or promotional activity kind of heading into the third quarter and the Valentine's Day period?

Sure, Kara. Thank you for the question. So as we look at the floral business during Q2, I think you've got to step back and keep in mind that during the holiday season, it's a very big competitive season and floral is really a secondary gift during the holiday season. So we lead with our gourmet food category, which as you know is more than half of our business and that's a strong season. And when you compare, really, the 2 businesses, Gourmet Foods revenue is probably 4x that of floral during that time period. And it's probably 9x that of floral on the contribution margin side. So just to put it in scale. So therefore, as we went -- we're going through the holiday and (inaudible) spring seasons, the next 2 quarters, we made the decision to do some investing and some testing. It really falls into 3 areas: pricing, promotion, and passport for us. So if we look at some of the pricing things we did. We wanted to test around pricing elasticity a little bit, see what would happen to conversion rates if we were to change pricing of some products, either lower or higher, get some good readings on that. On -- looked at testing different promotions. What kind of promotions in a very competitive environment like a holiday season. What kind of promotions might help us attract more new customers. What kind of promotions might help us to stimulate our existing customer base for more frequency. So we're looking at those types of things and putting some money behind that. And then, I think you look at passport. Passport impacted gross margin because as passport continues to grow, it will impact gross margin percentage. But clearly, there's a long-term benefit for that based on the results that we're seeing of increased usage of passport and the continued behavioral metrics that we see with passport members. So all of these things combined, I think, really helped us to make sure that -- help give us confidence that we're moving into the second half of the season, we'll get the benefits of this testing and continue to grow. And what we're expecting is the 1-800-Flowers brand will achieve year-over-year increases in both top and bottom line during the fiscal third quarter, and quite frankly, for the full year.

Great. And then, just kind of touching on that promotion and the passport elements of those investments. Can you provide us with some color, maybe, on the customers that you are acquiring through those promotions? Do you have any way of quantifying or maybe giving us some commentary on how loyal or profitable those customers that are acquired through promotion kind of end up being in the long term? And then, maybe any sort of commentary on growth that you saw in passport subscribers or cross-brand penetration as a result of those promotions would be great.

So on the first part of that is the analysis around the types of customers we acquire, with different types of -- it really does -- it's hard for me to give a specific answer, because it really does differ by, whether a promotional offer or promotional partner that we work with. So we're always looking at that balance, which ones give us a higher percentage of new customers, and then, we look at the behavior metrics of those new customers to determine are those repeat relationships, repeat marketing partnerships we want to go back to? So it really varies by partner and by promotional type. And that's why we continue to test the different types. So the only thing I could really say is that, as we go through that testing process, we weed out the ones that we don't think are productive and profitable on a long-term basis, and therefore, put our dollars towards the ones that are, and thus, our confidence as we go forward. So we get that learning and go forward. So to your second part of the question. As we look at our customer file, we're very happy that we're continuing to see good growth in the customer file. This year, we grew new customers to file by about 5%, keeping in mind on the Harry & David business, we grew new to file customers at double-digit percentage. And as we look at this new customers, especially in the case of Harry & David, I have a lot of specifics there. We're seeing the new customers acquired, a large percentage of them, be of a younger demographic. I think being really attracted to the modernization of the Harry & David brands that we're seeing. And those are being attracted to the new product categories that we're developing and offering in the areas of specialty food, wine, kind of fruit and cheese platters and to pasta offerings, things like that. So we're seeing good results there. And underlying all this, really, is the continued growth in passport and continued growth in multi-brand customers where we're seeing that. So for example, passport yes had an impact on the gross margin percentage of the floral brand this quarter. But we're very confident that the behavior metrics bode well for the long-term.

The next question will come from Dan Kurnos of Benchmark.

So let's just -- let me just focus a little bit on Harry & David, just to start. I don't know, Bill, maybe, just since you mentioned wholesale down just a little bit. I'm assuming Harry & David though was still up, maybe, a little north of 4% in the quarter. Is that accurate when you factor in the wholesale?

Yes, Dan. We mentioned in the release that e-commerce growth was about 5.7%. But overall, the brand was up around 4%.

Yes. Okay. So just 2 things then. One, can you just -- you talk about the margin profile, Harry & David. You didn't talk a lot about that. Obviously, I'd like to hear, Chris, you gave a lot of good color on reinvigorating the brand, especially the demographic changes, the benefits in multi-branded portal. Are you guys seeing some organic leverage in the business model? I know that was some of the thought process. Clearly, you're seeing in the corporate line, but that was also some of the thought process, probably, when you acquired this thing for dirt cheap way back in the day. And then, on the non-Harry & David, if I strip out Cheryl and Fannie, it seems like kind of the remaining brands, even with some of the upside you saw in baskets was up low single, kind of like 3-ish-percent or so. That's been a pretty consistent trend lately. There've been puts and takes. I know Cheryl was an all-star up until this most recent unfortunate event. Is there any way to kind of reaccelerate your core brands even if they're not really more -- as scalable without making an acquisition?

Well, the first part on gross margins, with Harry & David and leveraging overall Harry & David. Harry & David, obviously, has been a focus of ours and getting that accelerated growth. And with that top line growth, we are clearly getting bottom line contribution margin improvement, specifically, on the gross margin line. In addition to the operational issue we had at Cheryl's, we did see the impact of certain transportation costs. We talked a little bit about this at the end of the first quarter last year that right after the hurricanes, we saw the trucking industry head down to both states of Florida and Texas to help the government with the cleanup and get paid handsomely to do that. Probably it cost us a couple hundred thousand dollars in the first quarter. Prices never normalized. There was shortages of trucking because of that. The trucking industry took advantage of that and so both our Harry & David brand, which impacts their margin, and wholesale basket brand, which both rely on kind of the trucking industry. Harry & David uses long haul to move product from Medford, Oregon to its main distribution center in Southern Ohio, and to its seasonal distribution centers around the country as well as moving product to the FedEx hubs, and wholesale basket business because of the nature of their products and the bulk products that they ship out use the trucking industry. It probably cost us about $1.5 million in the quarter in increased trucking cost, above what the increase we had built into our plan. We also saw, with the movement of the day, the day placement of Christmas moving from a Sunday to a Monday, while it gave us a little bump in late demand, it really wasn't an extra shipping day. So we had a more concentration of shipments going out that last week, that week leading up to Christmas. And thus we had to expedite some shipping. So that costs us on the margin side. Getting back to the original Harry & David, clearly, great to see the top line growth that we're experiencing. We're clearly leveraging that, and driving significant bottom line improvement for Harry & David.

Yes. And let me address the wholesale aspect, specifically, because that was a little bit of a drag on the Harry & David business. As we came out of last year, we looked at our wholesale business that hadn't grown the way we really wanted it to and made a determination to make some changes to wholesale business. We made some changes to some personnel in our wholesale business, but also, how we go to market. We really stepped back and evaluated the channels we were in as well as the accounts we were in. And there was a number of accounts where we made the decision to walk away from because they just were not profitable. So we did that. We hired a new person to lead that business and strategically what we're doing now is starting to turn our focus more towards, first and foremost, taking care of our core traditional retailers, but making sure it's those where we can be profitable. So making those changes there. Now when we see opportunity for growth now, in both -- and this is new for us in the c store category as well as in the grocery category, especially with our Moose Munch product line. So in wholesale, while wholesale was down, Moose Munch, as the product line within that, was actually up. So seeing some good signs there and we think we can get behind that. So we're pretty happy with what we see. We have some good early books of, again, smaller levels in this upcoming spring season, but more business than we've had in the past in the spring season for our wholesale food businesses, especially Harry & David. So we're pretty comfortable there. And as we look at the sales revenue overall, Dan, I look at -- and we're very happy with the accelerating -- the acceleration of growth in that core business of Harry & David. I mean that's something that we worked hard at this year and really happy to see that. We were looking for that 4% to 5% growth on e-commerce and to get it up close to 6%. We're pretty happy with that. And the underlying factors there, the new customer growth, double-digit new customer growth that I talked about, the response we saw to the gift list functionality that we had. The response to some of the new product categories that we -- that I just mentioned a minute ago. So just seeing a lot of good things, B2B sales up nicely, especially during the holiday season. Up nice for the first half of the year, but really strong for the holiday season. It gives us a lot of encouragement. So we're looking at continuing that acceleration. Cheryl's, we had that hit. Cheryl's will be back to best -- one of our best performing brands. Again, from a growth rate profile and has a wonderful contribution margin for us. Our 1-800-Baskets business performed well on both the consumer and on the wholesale side, and we expect that to continue for a while. Now we move into the floral side of the business. 1-800-Flowers, we're expecting good holiday season from. Keep in mind the tailwind. Last year, when business moved from a Sunday to a Tuesday, it produced like a 15%, 16% growth for us for the holiday. We won't get that same bump now moving from a Tuesday to a Wednesday, but we get a bump, and that will help things. And again, BloomNet looks like it's positioned well. So I think we got the brands in a good spot, seeing good early signs of accelerated growth in a couple of them. We have to get over this bump we had with Cheryl's. As far as we're concerned, we're over it. As far as the consumer's concerned, it seems like they're over it. Even though we are going to go out with a little bit more of a win-back program to the customers that we know did get impacted during this, and thank them for their patience, thank them for their business. Give them a little incentive to come back and order. So that could give us an even little bit more of a bump in sales as we move into the Valentine holiday at Cheryl's.

Okay. Good. That's helpful. I'm not trying to be nitpicky, Chris. I'm just trying to understand based on the guidance revision. I know you're probably just being conservative just kind of on the outlook how it all plays in, and clearly you've jumped that hurdle for Harry & David in the holiday period that I don't think anybody really expected from an overall growth number. Just quickly, let me ask this real 2 quick ones then. Not to beat the horse here on the Consumer Floral side. You kind of skirted it as best you can. So I don't know how much you'll say, specifically. So I'll just say it. FTD is a complete mess right now, and clearly, you're going to try to take share from them. On the loyalty question, have you guys thought of things? I'm assuming you have of basically giving away a year's worth of passport to FTD customers, or trying to be overtly aggressive in pushing that channel. I don't know if you'll answer that. And then, just which channels are you particularly pressing from an advertising perspective? Are you going to the channels where they've advertised. They've been pretty heavy SEO. So I'm just curious how you're trying to attack that opportunity, and how big that window is?

Sure, Dan. I think that's a great question, and it does speak to some of the things I spoke about, even some of the testing we were doing in the second quarter to influence now as we move into the third quarter. So we see opportunities in the competitive landscape to gain more share. Again, we have some of those tailwinds in place. We think our loyalty program, specifically the passport program, is resonating well. We do different promotional testing with passport from time to time. So passport is generally a $29.99 a year product. Sometimes we'll pulse that down to $19.99. Sometimes we'll give it off as a 3 months program for $9.99 to incent more usage and incent more trial. So we're doing that with our loyalty program. We'll promote people with our celebrations, rewards, points-based program. And always, as we do these things, we're always looking at how it's positioned in the competitive marketplace. So we're always taking a look at that. When you talk about different channels that we'll be pressing. I mean a channel that's been doing really well for us. For example, on the flowers brand, specifically, is mobile. Now mobile is growing for all of our brands, but 1-800-Flowers has been the leader in the brand, and was recently recognized by Google as a mobile-first website. Now what that means is that, more than half of our traffic now on an everyday basis requested this number at holiday times in the past, but on an everyday basis now, more than half of 1-800-Flowers traffic is going to its mobile site. So what that means is that we're focused on AMP, Accelerated Mobile Pages, Progressive Web Apps pages. Really making the experience a rich and mobile experience for our customers, and by being designated mobile first by Google, which means we will be showing up higher in the rankings, on their search rankings, because they want to serve up the best mobile experience to the Google customers. So that's one of the channels that we're really looking at. And then, just continuing to be an early innovator in making sure that we're moving into the world of conversational commerce. Again, early stage. But making sure that we're following our process that we call ELAC: engage, learn, adapt, commercialize. So we just launched the new ones I mentioned on Google Assistant and Google Express voice-enabled capabilities. We just re-upped or reintroduced a new enhanced skill set on Alexa. We've just reintroduced a new enhanced version of GWYN. So constantly taking the learnings and adapting in to those products. But as we look at it, I think the marketing plan are focused on the mobile channel, where our competitors, overall competitors, are still a step behind, is a good area for us to pay attention to.

Next question comes from Alex Fuhrman of Craig-Hallum Capital Group.

I was wondering if you could share a little bit of what you learned from some of the different testing you were doing around pricing? If there were, perhaps, opportunities to raise price or lower prices or if there were any kind of consistent learnings? Or curious if it was more of a sort of item by item or category by category response? And then, I would also love, as a follow-up, to ask for a little bit more color around the younger customers. You mentioned you're getting, at Harry & David, if you could give us a little sense of the age of the Harry & David customer compared to some of your other brands going into this year's holiday season, and how that might have changed, and was it specific items? I think you mentioned wine and some of the other, more entertainment-type items that the younger customers were grabbing -- gravitating towards. And was it more of that sort of merchandising that brought the younger customers in? Or was there also a concerted marketing effort to go after younger customers?

Okay. So there's a lot there, but let me just try and jump in first on what we've learned from some of the testing. Obviously, for competitive reasons, we have to be somewhat careful here. But as we look at price testing, whether it will be price elasticity testing, looking at where we can move a price of a certain product and still maintain the appropriate conversion rate and pull-through. Those are things that we naturally would just apply on a go forward basis. We look at testing into higher price points as well, especially as we move into a holiday season like a Valentine. It can very often be a price competitive holiday like we've seen in the past in the floral category. And that's not the game that we want to play in. Yes, we'll have promotional products to have some attraction. But the game we want to play in is moving more up the line. So we have a whole bunch of different rose offerings, for example, that move from $39.99 to $59 to $99, up to $400, or really if you want to go to our ultimate wow gift, a year of Amore for $10,000. You can get a gift that comes with 50 roses in this diamond studded vase from Waterford to start, with a 70-piece of artisanal chocolates out of the Simply Chocolate brand, and then 2 -- twice a month for the remainder of the year, you get all these different gifts from our family of brands. So really bringing that capability to the table. So we'll sign you up for 3 or 4 of those $10,000 gifts just to make sure you're taken care of. Then, I look at different promotional testing, and what we did there was what kind of promotional pricing helps to attract new customers in a very competitive environment like Christmas. So we'll take the learning there and apply that to the Valentine holiday. Again, looking to grab share, looking to grow our customer file, looking to set our business up for good future growth. As we look at some of the things on the younger demographics that we're bringing in, kind of both, I would say, both at the Flowers brand, but really, this quarter was highlighted at the Harry & David brand. Again, more than double digit, new-to-file growth rate, and a good majority of them being a younger demographic than our core base. We're seeing them attracted to -- first of all, attracted by the increase in digital marketing that we put in place this past year. So I don't think that's by coincidence, right? We're going where they are, and we reduced our catalogs a little bit, but put more and more money into the digital marketing effort. Search, social display marketing, video marketing, et cetera. And I think, you always have to -- you can't just attract new customers with marketing. You have to have products that they're going to want to buy. So if you remember a year or so ago, we really started developing this whole gourmet product line and this gourmet specialty food product line. So it uses some of our core products like fruit, but you combine it with the fruit and cheese platter or cheese and antipasto platter. Or else you get into certain other products like prepared meals. Things that you use for entertainment. What we find is the younger demographic likes to do a lot of in-house entertaining, and these products are wonderful for that. And nothing helps with a little entertaining like a good bottle of Harry & David Cabernet, but I will tell you that I think I bought the last case of their 2014 Cabernet. So we'll have to wait until next year.

Our next question comes from Linda Bolton-Weiser with D.A. Davidson.

So at FTD's Analyst Meeting recently, they kind of talk about the idea that they see a lot of market share opportunity. And it's not necessarily from you and them combating each other. It's more from the smaller upstarts. So I was wondering if you could kind of update us on how you perceive the market share trends are going for those smaller upstarts, like Boots.com and some of these other ones. And also, can you just refresh us on what you're doing with Amazon? Because I do see, like, FTDs, ProFlowers will have bouquets on Amazon, but I don't think I see much from you guys on Amazon. So can you just refresh us on kind of what you're doing with them?

Sure, Linda. I'll take those. This is Chris, and thanks for the question. I think as we look at the market share, we see a good opportunity for us to continue to grow market share. We've been extending our leadership position, whether it be against the larger competitors or whether it be against some of the startups that we've seen. I think as we look at some of the startup community, most of them have disappeared by now, I think. We're not hearing as much of them anymore. So that's kind of dissipated to some degree. There will always be out of a class of 10, I think there will always be one or 2 that makes it to the next level. And the way we always focus on this, Linda, you know us, focus on the #1 product, our customer experience. Focus on enhancing our brand. Focus on delivering truly original products to the table. Focus on driving digital innovation on how we access our customers. So it used to be in the world where startups kind of could move faster than the bigger entrenched competitors. I don't think that's the case with us and our other larger competitors. We're moving pretty fast. And when you have the ability to come up with the product development and product designs like we do. We're very confident that we can maintain and continue to gain in our leadership position in this category. As far as Amazon is concerned, Amazon is a wonderful, wonderful company. And many of us worked with Amazon in different ways. As you know, we've worked with them in a number of ways over the years, when we used to supply flowers to the AmazonFresh program way back when. We sell flowers on their marketplace from time to time. It's not a big business for us. But we go in and go out of the marketplace on floral. Some of our food brands are starting to establish a bigger relationship on the Amazon marketplace, as they see opportunities to put a differentiated product line out there. Again, if we're going to work on a third-party marketplace like that. I don't want it to be our core products that get discounted over there and undercut our core site. So it's really how we manage those third-party marketplaces is extremely important. But then, again, with Amazon, there are other ways for us to work with them. We worked with them on the Alexa platform. I just mentioned we continue to develop that, recently enhanced the skill on Alexa. We work in their advertising platform with display ads. So Amazon is a beast, for certain, and it's in many ways a beast that presents lots of opportunities for us to work with.

And then, can I also ask, FTD also announced in their meeting that they are looking at strategic options for their personal creations business. So I assume that imagines a sale is possible. You didn't really comment on your new personalization website. You made comments on the chocolate site. How is your new personalization site going so far, in the early days? And then, would you be interested in acquiring Personal Creations?

So PERSONALIZATION UNIVERSE is off to a good start. I didn't highlight it so much just because we were talking mainly about the gourmet food category. But we're very pleased with the results we're seeing there. And I think if you look at our business, what we've been building is a celebratory ecosystem. Really started with the leadership position in floral category, now we've built a leadership position in the gourmet food category. If you look under the celebratory umbrella of where we can go to help our customers with all of their celebratory occasions to help them deliver smiles in their life, what other product categories make sense for us to go into? So personalized products was one of those categories we clearly recognized as one for us to be in. And we have personalization capabilities in all of our brands, but then, also launched PERSONALIZATION UNIVERSE. So we're happy with the early launch of that. And that's a product category we will continue to grow into as well as add other categories as we round out our assortment and go deeper into the celebratory ecosystem, to help our customer solve more and more of their gifting needs, not just their floral needs.

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

So kind of switching gears. You did mention that you've had good success with the sales of everyday gifting type of products. Can you give us a sense as to what percentage of your sales is now coming from those everyday gifting occasions and maybe give us some perspective how that has trended over the last couple of years, please?

Anthony, this is Chris. I don't think we can answer your question specifically, because I don't think we have that data or actually across the brands. But I'll ask Bill if he's got any color on that. But I'll start off first. If we look at some of the brands and some of the data points I'm familiar with. In the food brands, the everyday occasion start small but we've been seeing nice growth. In the Harry & David business, an example, I think for the first half the year, we're growing about 30% on our everyday gifting occasions, but on a small base. So it'll take some time for it to be meaningful. Now you flip over to the Flowers business, and it's a much larger percentage. It's...

Yes. I think we've always said, Anthony, that while a little bit more top of mind with the flowers brand at Valentine's Day and Mother's Day, everyday gifting is really the core of what 1-800-Flowers is. It's the serving birthdays, anniversaries, sympathy, just because. And that's why, we felt, with the multi-branded portal we'd be successful because we had leveraged that everyday traffic, the ability to -- the fact that 1-800-Flowers makes money every single day of the year, and drives significant traffic to its site every single day of the year that we could leverage that traffic to drive the everyday business of our food brands. We've also discussed, over the years, that the Gourmet Food and Gift Baskets segment and the food side of our business is heavily, heavily weighted. And you saw Chris made some reference to some numbers that the Gourmet Food is -- segment, is 4x the size of our floral brand in terms of revenue and 9x times the size on a contribution margin in the second quarter. That's where we are today. Our goal, and we now have the channel to do that, with the multi-branded portal, is to grow that everyday gifting. It's growing within all of our food brands, but the examples we gave and we tracked, Harry & David, last year. Chris talked about specific events of everyday gifting. But when we talk about overall consumer demand growth, we talked about last year, coming off of the holiday season last year. The first quarter last year were -- through Easter, we were up a little over about 2%, 2.5% with Harry & David. Then it grew to 4% for the second half of the year. Then it grew to mid-single digits in our first quarter of this year. And that continued through the holiday season. And Chris' reference to everyday gifting of 30% was during the month of December. Everyday gifting was up 30%. It's a small percent of the overall Harry & David business because of the holiday gifting that happens at that point in time, but we're seeing significant growth and opportunity for continued expansion of our food brand on an everyday occasion basis.

All right. That's very helpful color. And also, just wondering if you could provide us with an update, as far as your outlook, for acquisitions? Obviously, you have a very strong balance sheet, and certainly, post the Fannie May, with the added cash. So I'm just wondering if you could give us an update and any color on that, that'll be very helpful.

Sure. I think as -- we are always in a very -- thank you for recognizing the enviable position that we have with our balance sheet right now. It's something that we take a lot of pride in. And we look, first and foremost, to allocate our capital to help drive organic growth across our business, whether it be enhanced marketing programs in digital or in mobile like I just spoke about. Or introducing new product categories, like with Simply Chocolate or PERSONALIZATION UNIVERSE. And historically, we want to make sure, and we have been very good stewards of our brands of our balance sheet. We've made investments in areas that are highly complementary to our business, to our core business. The most recent transaction a couple of years ago now, was to add the iconic Harry & David brand. We also are always looking at the portfolio to say what fits? What doesn't? What has changed and last year we divested Fannie May, because we felt that there was a change that took place there. So what we're looking to do, our goal was to put our cash in an our under-leveraged balance sheet to really -- to work for our shareholders through acquisitions that can help us accelerate our top line and accelerate our bottom line. But really focused on the top line there. And I think, again, if you come back and look at it, are there opportunities in the floral category for us? There might be. But there hasn't been really anything of significance for us there. We've done a good job, and I think there is more opportunity for us in the gourmet food category as we built a leading position there. And we can continue to add that and leverage that position. And then, I think as we continue to round out this celebratory ecosystem. So PERSONALIZATION UNIVERSE is one of our first moves into kind of non-floral, non-gourmet food product categories. But I think you'll see us looking at that category more and more. Again, we step back and look at our customers. What are our customers utilizing in their everyday celebratory lives? What are they utilizing to deliver smiles to customers? They will lead our strategy as far as product expansion is concerned. So that's what we're trying to build out.

And Anthony, just a few other comments on the balance sheet. Yes, we're very pleased with the strength of our balance sheet. Our increased cash position of $118 million over a year ago at this point in time, our increased net cash position. Cash less debt of $123 million over a year ago at this point in time. I got that from a combination of the proceeds from the Fannie May sale that Chris mentioned, as well as our growing free cash flows. That would be net of, though, debt payback and stock buybacks. Back in September, we -- you saw we released a press release on the new authorization from our board that increased our buyback capabilities up to $30 million. We spent about $11 million the first half of this year, in buying back 1.1 million shares of stock. We have the flexibility to continue to be aggressive in our stock buyback program going forward. So we're very pleased with the health of our balance sheet. It gives us a lot of opportunity to help build shareholder value in the future.

(Operator Instructions) The next question comes from Michael Kupinski with NOBLE Capital Markets.

And congrats on the accelerated revenue growth at Harry & David. First of all, how much of the variance in revenues in wholesale was from the corporate decision not to have products distributed into the likes of Macy's or other third-party distributors? I'm just trying to determine how significant that decision may have been in terms of revenue contribution.

Michael, actually, our Macy's program was very successful this year. While store counts were down, the sell-through was great. In fact, they sold out of our Moose Munch product line at Macy's. Really, more of the decision was certain other retailers that as we evaluated the programs, we weren't making enough contribution on, and we decided to move away from those customers. We have made some investments into our wholesale infrastructure and the management team of wholesale out at Harry & David. We have a renewed focus on some new channels. Whether it be the supermarket channel or kind of some specialty retail channel, and we think we have some momentum going into the second half of the year that we'll be able to drive increased growth in wholesale for the second half of the year.

Got you. In terms of the operational issues at Cheryl's. I hate to center on this. But typically in the past, when you had some disruptions in business, whether it's from a fire, whatever, it's taken a couple of quarters to get things back on track. And you indicated that Cheryl's looks like it's bouncing back pretty nicely and -- but you are putting some marketing dollars behind that. I was just wondering, can you give us some color on how receptive these efforts so far have been received? And can you -- your thoughts in terms of how we should model the revenue opportunity in the coming quarters for Cheryl's?

Yes, Michael. I think as we look at the challenge at Cheryl's, again, it had to do with the implementation of a major technology project. And while the technology worked, we all know that, when you're doing major technology implementations, nothing ever seems to work as planned, and there's always some challenges that you run into. In our case, when we implemented this product back in early August, we knew right away, we made some changes. But then, as I mentioned, we've seen -- we thought we had it under control and we're used to operating it through the Halloween holiday. As we went into the rest of the holiday though, the volume showed some other challenges that we had. And it really is just a matter of the team there getting used to working with the new system. So that was the challenge, and a couple of customizations that we needed to make to it. So coming out of the holiday or even through that process, making the notes of it, but coming out of the holiday, bringing in some people from elsewhere in the team that really worked with these types of systems in the past. Cheryl's was not. Cheryl's used to run their production -- run it efficiently, but it was a manual process. So implementing a new system to them was really foreign, and we probably didn't do a good enough job of putting the right coaching and the right support staff behind them. We've done that now. Things are really working well. The inventory management is where it's supposed to be on a day in, day out basis right now. We're really confident with the position we have going into Valentines Day. And we think it's behind us. So I think as far as forecasting Cheryl's out now going to the second half of the year, you can get right back to what we previously would deliver.

Got you. Going back to the M&A question. I was just wondering, can you score for us the likelihood of a possible transaction in the near-term? And are you looking at more tuck-in acquisitions? Or more transformational acquisitions like Harry & David?

Well, I certainly couldn't score it because you never know what happens out of conversations that we always have in place. We're always trying to build a pipeline, and I don't even think we're good enough at scoring that to share with you. But I would say, we look at a combination of both. We really would like another Harry & David type transformational acquisition. That's what we need -- would move the needle the most. However, if the appropriate tuck-in comes along, and it is a real tuck-in and it's an easy enough acquisition, we'll do that. There's been several that we've said no to, because we realized the tuck-in just gets a little too complex to pay for the value that you can potentially get out of the process. But we'll evaluate both. I think it's healthy to evaluate it from both perspectives.

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

So thank you all for joining us for the -- for your questions and answers. I urge you all to consider that $10,000 a year of Amore Valentine gift. I'm sure your loved ones will absolutely be thrilled with it. And it'll be there all year long, twice a month. So don't forget to wow all your loved ones this Valentine's Day.

Thank you, again, for joining us on the call.

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