Good day, and welcome to the Third Quarter Results Conference Call. All participants are in listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Andy Milevoj. Please go ahead.

Good morning, and welcome to our fiscal 2024 third quarter earnings call. Joining us today are Jim McCann, Chairman and CEO; Tom Hartnett, President; and Bill Shea, CFO. Before we begin, I'd like to remind you that some of the statements we make on today's call are covered by the Safe Harbor disclaimer contained in our press release and public documents. During this call, we will make forward-looking statements with predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission. The company disclaims any obligation to update any of the forward-looking statements that may be made or discussed during this call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. And now, I'll turn the call over to Jim.

Thank you, Andy, and good morning, everyone. Thank you for joining us. This morning, I'll begin with a brief overview of our third quarter performance and then turn it over to Tom, who will provide a business update. We will conclude with a financial review from Bill and then we'll open it up to your questions. Over the last few quarters, we have been providing updates on our relationship innovation and work smarter initiatives that are centered on elevating the customer experience and driving efficiencies in all aspects of our business. Our organization continues to relentlessly execute on these initiatives, and you'll hear a number of updates today on how we are actively managing our product portfolio and our pricing elasticity. As we look at our third quarter performance, we continue to see a very complex consumer environment. Consumers are deliberate and discerning with their purchases and are making thoughtful decisions. Although there has been much discussion about the resilient economy, we continue to see a bifurcation between our lower and higher-income consumers. It is not surprising that the lower-income consumer continues to be most pressured by inflationary forces and higher interest rates while at the same time, credit card balances and delinquency rates are on the rise. Our total third quarter revenue declined 9.1%, which includes lower wholesale and BloomNet revenue. As Bill will highlight further, our e-commerce revenue trends continue to improve sequentially. Helping offset our top line softness, fiscal 2024 remains the year of our gross margin recovery. As we updated everyone last quarter, the pace of our margin recovery is occurring at a faster rate than we had originally anticipated at the beginning of the fiscal year. Our gross margin is benefiting from a combination of our Work Smarter initiatives that are largely centered on operating more efficiently and the reversion to the mean of certain commodity costs. As one aspect of Work Smarter, we took action to optimize our workforce during the third quarter. While these decisions are difficult, they were made in response to the current environment and to appropriately allocate resources to the growth opportunities in our business. I want to express our gratitude to every team member who was affected for their contributions to our organization's success. Beyond our cost optimization efforts, we are executing on our strategic initiatives to offer more solutions for our customers' gift-giving needs. Since the founding of the company, we have been at the forefront of innovation. We have expanded our gifting options and made it easier for our customers to stay connected and celebrate with all the important people in their lives. We have a portfolio of brands and offer gifting options for every occasion. Most recently, we further expanded our offerings with the acquisition of Card Isle, which enhances our print-on-demand personalized greeting card offerings and enables us to address a wider range of our customers' expressive needs. The addition of Card Isle allows our customers to pair quality personalized greeting cards with our extensive variety of gifts across our family of brands or as a standalone greeting. We are excited for our expansion in the greeting card category, which further enhances the gifting experience we can provide our customers. Tom, will provide additional information on our strategic initiatives. Before we move on to the business update, I want to celebrate Harry & David's 90th anniversary. It's a truly remarkable milestone to celebrate 90 years of delivering gifts. From the time Harry & David first hand delivered boxes nearly a century ago, sharing has been at the heart of what we do. While much has changed since 1934, Harry & David has been here all along, delivering extraordinary gifts that bring people together for meaningful moments. Now, I'll turn the call over to Tom for our business update.

Thanks, Jim, and good morning, everyone. Today, I'll provide an update on our business performance as well as on our relationship innovation development, which encompasses new or enhanced product offerings, merchandising efforts, and user interface enhancements. Through these initiatives, we continuously evaluate our offerings, pricing, and bundling opportunities to ensure we have appropriate price points for each of our customer segments, and that we are actively managing the pricing elasticity of our product portfolio. Turning to our performance. During the third quarter, we generated an adjusted EBITDA loss of $5.7 million, essentially in line with the prior year, despite the 9.1% decline in revenue. Most notably, our e-commerce revenue trends continued to improve sequentially, declining 4.9% for the quarter. We continue to see a bifurcation between our lower-income customers, who are reducing their purchases the most compared to our middle and higher-income customers. Proof in point was our Valentine's Day selection of premium gifts that appealed to our luxury buyers, which included our Shari's Berries select offering, priced 25% to 50% higher than our standard offering, and our 100 long stem roses that retail for $399 and sold out. This demonstrates our pricing power and the ability to increase AOV. Our AOV increased 1.4% as our upper-income customers continued to represent a greater portion of our overall population and continue to gravitate towards our higher-priced bundled products that provide great value. We recognize that our higher-income customers have not meaningfully changed their behavior, and in many cases are trading up in price points. But our lower-income customers, who are more affected by the macroeconomic environment, are being much more deliberate with their buying decisions. Accordingly, we're expanding our price points higher for luxury-oriented customers while flexing lower for our lower-income consumers to ensure that we have gifts for every occasion at appropriate price points. Our focus on the customer journey, providing thoughtful gifting options, and having the appropriate price points from value to luxury has never been greater. During the quarter, we introduced new product offerings, utilizing innovative technology to extend the life of our world-famous pears, extending their selling season and increasing revenue. We amplified our marketing efforts to evoke greater emotions with our brands and expanded our lineup of gift products available for same-day delivery. Let me take a moment to touch on each of these. In January, we launched Cheryl's ice cream, which can also be paired with Cheryl’s cookies to create a great gift set. We continue to grow our Cheryl's assortment, layering on complementary categories, as we did with the introduction of cupcakes a year ago. At Harry & David, we had our longest Royal Riviera selling season on record. We accomplished this by using technology that enabled us to extend the selling season of our pears and offer them longer than ever into the spring. This enabled us to grow pear sales for the quarter, as our customers responded positively to the extended offering period. This technology will yield greater benefits in fiscal 2025, as we anticipate a strong pear crop due to favorable weather conditions our orchards have experienced this past winter. We continue to see our higher-income customers gravitate towards our higher-value, higher-priced gift bundles that combine gifts from our family of brands into a bundled set. For Valentine's Day, we reintroduced our trios bundles that featured 100 flowers, Harry & David wine, and Shari's Berries, which exceeded our expectations with great sell-through. To differentiate our offerings from those of our competitors, we leverage our family of brands and the supply chain investments made to send these bundles as one extraordinary and elegant gift. This not only provides for a much better and memorable gifting experience but also reduces shipping costs by sending all the products in a single delivery. Turning to our marketing efforts, we are strategically incorporating storytelling to elevate our brands and make a meaningful impact on our customers. Effective storytelling evokes emotions, creates a stronger bond with our customers, and generates action. A great example of this was within our health and wellness brand with the launch of Vital Choice, featured on our website, blog, social, and external channels. Vital Choice provides customers with hundreds of healthy or better-for-you options, and we saw an opportunity to foster a stronger relationship with customers interested in healthy, natural, and convenient food. Beyond providing customers with useful product information, such as nutrition facts and serving suggestions, we dove deeper into the stories of the fishermen responsible for the catch, the differences between wild-caught and farmed fish, sustainability efforts, and how they help bring it from the ocean to our customers' plates. Same-day delivery for gifts has become increasingly important in today's fast-paced world, with customers coming to expect convenience and speed. As part of our strategic initiatives, our management team has focused on expanding the number of products available for same-day delivery. By leveraging our BloomNet network, we have expanded the number of products available for same-day delivery to help customers celebrate special occasions, whether it's a last-minute gift or a sudden celebration. Recently, we launched our Cheryl's Same Day Delivery Program, featuring our best-selling cookies and the option for a cookie add-on to select 1-800-Flowers bouquets. We expect this to build over time, but this is also a great illustration of how we are differentiating ourselves in the marketplace by leveraging our e-commerce platform, family of brands, and fulfillment capabilities to offer customers an expanded array of products, convenience, and speed, making us their gifting destination of choice. Now I'll turn it over to Bill to provide the financial review.

Thanks, Tom, and good morning. As Jim and Tom highlighted, we continue to operate in a complex consumer environment in which consumers are spending on certain categories while curtailing spend in others. We continue to see the divergence in our customer file, with our higher-income customers continuing to spend and gravitating towards our higher-priced offerings. Our third quarter revenue declined 9.1% compared to a year ago. This includes lower wholesale volume with our retail partners for the past Easter, as well as lower BloomNet revenue. When we zoom in closer to our core consumer, our quarter-over-quarter e-commerce revenue trends continued to improve, declining 4.9% in the third quarter compared to 6.6% in the prior quarter. The improvement was partly due to the shift of Easter. Helping mitigate the revenue decline, our gross margin is continuing its reversion to the mean, improving 300 basis points to 36.6%. This improvement was led by lower freight costs, inventory optimization efforts, labor efficiencies, as well as a decline in certain commodity costs. I want to discuss a couple of external factors that have captured investor attention in recent months, including the Red Sea issues that impacted supply chains and the extraordinary rise in cocoa prices. Regarding supply chain, we're happy to report that our logistics team recently completed negotiations for our fiscal 2025 inbound freight costs and successfully negotiated lower rates for the upcoming fiscal year, despite geopolitical issues in the Middle East. In terms of cocoa prices, we were fortunate to have locked in our fiscal 2024 and fiscal 2025 cocoa purchases with moderate price increases prior to the recent and much more dramatic increase in pricing. We will look to offset these moderate price increases in other areas. As Jim mentioned, we made the decision to initiate a reduction of our full-time workforce in response to the current business environment and to appropriately allocate resources to growth opportunities within our business. This action is expected to yield annual savings of over $10 million. The company incurred $2.4 million in severance and related charges during the quarter. Third quarter operating expenses were 43.9% of sales, which includes severance-related charges compared to 53.9% in the prior-year period, which included a goodwill and intangible asset impairment charge. Operating expenses, excluding the impact of the severance-related charges, the appreciation or depreciation of investments in our company's nonqualified compensation plan, and the impairment charge recorded in the prior year period, were 42.4% of sales compared to 38.8% in the prior-year period. Operating expenses, excluding the same items just noted, declined $1.2 million compared to the prior year to $160.7 million. The net loss for the quarter was $16.9 million or $0.26 per share, which includes severance and related charges of $2.4 million or $0.02 per share, along with a tax benefit of $0.04 per share related to the fiscal second quarter trademark impairment charge. In the prior year, net loss was $71 million or $1.10 per share, which included a non-cash goodwill and intangible asset impairment charge of $53.1 million. The adjusted net loss was $18 million or $0.28 per share compared with an adjusted net loss of $17.8 million or $0.27 per share in the prior year. Our third quarter adjusted EBITDA loss was $5.7 million, essentially flat compared to an adjusted EBITDA loss of $5.5 million a year ago, as our gross margin recovery and our efforts to operate more efficiently helped mitigate the top line decline. Now, let's review our segment results. Our Gourmet Food and Gift Baskets segment revenues declined 11.4% to $131 million compared with $147.9 million in the prior-year period, primarily due to our wholesale business, which declined approximately $10 million as several retailers reduced their orders for Easter in light of the consumer environment. The segment e-commerce revenues declined 4.5%. Gross profit margin expanded 530 basis points to 29.9% compared with 24.6% in the prior-year period, benefiting from lower freight costs, inventory, and labor optimization efforts, as well as the decline in certain commodity costs. Excluding the impact of the severance charge in the current period and the impairment charge from the prior year, the adjusted segment contribution margin loss improved $6.3 million to a loss of $7.6 million compared with an adjusted income segment contribution margin loss of $13.9 million in the prior year. In our Consumer Floral and Gifts segments, revenue decreased 5.1% to $221.2 million compared with $233 million a year ago. Gross profit margin expanded 140 basis points to 39.3% compared with 37.9% in the prior year, improving on lower fulfillment costs and logistics optimization efforts. The segment contribution margin was $22.8 million, excluding the severance charge, compared to $26.1 million in the prior year. In our BloomNet segment, revenues for the quarter decreased 26.1% to $27.3 million, impacted by lower order volume processed by BloomNet, including an expected decline in orders by one of our business partners following their merger with a competitor. Gross profit margin was 45.4% compared with 42.5% in the prior year, primarily reflecting higher margin product mix and lower freight costs. Segment contribution margin was $7.6 million, excluding the severance charge, compared with $11 million in the prior year. Turning to our balance sheet, our cash and investment position was $184 million at the end of the third quarter. Inventory declined to $159.5 million compared with $191.9 million at the end of last year's third quarter. In terms of debt, we had $192.5 million in term debt and no borrowings under our revolving credit facility. As a result, our net debt was $8.5 million compared with $98.4 million at the end of last year's third quarter. We continued to execute on our stock buyback program and repurchased $9.2 million of our stock through the first three quarters of the fiscal year. This amounts to approximately 948,000 shares repurchased at an average cost of $9.68 per share. Now let's turn to our fiscal 2024 guidance. We are reaffirming our guidance and continue to expect total revenues to decline in the 7% to 9% range compared with the prior year. We expect our adjusted EBITDA to be in the range of $95 million to $100 million and our free cash flow to be in the range of $60 million to $65 million. I will now turn the call back to Jim for his closing comments before we open it for Q&A.

Thanks, Bill. Before we open it up to your questions, I want to express my pride in sharing that 1-800-Flowers.Com has been recognized as one of America's most trustworthy companies by Newsweek. I want to take this opportunity to congratulate and thank everyone in our organization for the hard work that contributed to this recognition. It's an honor to have such a strong community of customers who trust us to help them build better relationships, and we look forward to continuing to build on this momentum. Now operator, if you would, let's open it up for any questions.

We will now begin the question and answer session. Our first question comes from Michael Kupinski with NOBLE Capital Markets. Please go ahead.

Thank you for taking the questions, and congratulations on managing those costs. I was just wondering if you could talk a little bit about the commodity prices which have obviously continued to weaken in the quarter. Can you give us a sense of those commodities that were weak that were impactful in the quarter, what commodity prices are looking like and trending particularly, not just the cocoa, which you talked about, but maybe some of those commodities that might be a little stubborn and offer future prospects for lower prices going forward?

Michael, thank you for your question. Your commodity prices have been all over the place, and I would tell you just in the last week, the change in cocoa prices has been extraordinary. We plan for next year to have cocoa prices up quite a bit and what the impact on us would be. As Bill mentioned, we're fortunate that we have locked in our availability and pricing on cocoa through next year, so we're a little protected from those wild swings. We're also conscious of it because it is going to impact the overall market and affect our pricing in the future. But we're pleased to see that recently there has been over a 20% decline in cocoa prices. Bill, what about other commodities? I know eggs and butter are two big components from your bakery and chocolate maker. You're conscious of those prices and we've seen some wild swings there. Could you provide some insights on where we are now and what impacts that might have on our overall costs going forward?

Jim, as you mentioned, eggs and butter are ones that have come down significantly from their highs, and we're starting to benefit from those commodities this year. However, items like fuel, we were receiving benefits for most of this fiscal year and are now seeing a crossover where fuel has risen alongside the combination of what’s happening in the market, while the third-party charges continue to apply as a slight headwind as we head into fiscal 2025.

To answer Michael's question overall, commodity prices, particularly fuel, remain a negative headwind overall because fuel is such a disproportionate part of our commodity mix.

As we move forward, fuel has been a benefit to us in fiscal '24. But as we progress forward, fuel will be a headwind against these trends.

Thank you for that color. Can you provide some insight into the decrease in shipping costs that you managed to negotiate lower rates for going forward? Could you give us a sense of the shipping costs, including ocean freight costs?

Michael, we found that very surprising. I would never have predicted that we’d lock in rates going forward that are lower, especially considering what we were facing six months to a year ago. It's certainly a surprise to me, but we're going to have to navigate through those contract negotiations carefully.

Yes. Several months ago, the spot market for ocean rates jumped dramatically, probably doubling at the contractual rates that everyone had. The good news is that the carriers honored our contractual rates, so we didn’t feel the impact of those spot market spikes. We entered into negotiations in March, concerned where rates would go for fiscal '25. Fortunately, we successfully negotiated a decrease in our ocean rates as we head into fiscal 25. These rates went into effect yesterday, and they will run through May 31st of next year. On the FedEx side, we have always maintained modest contractual rates, but we have been able to offset rate increases through our successful inventory optimization and logistics initiatives. So, for the nine months ending at the third quarter, our actual cost per package remains flat to slightly lower year-over-year. We’ve done well to mitigate those inbound freight costs.

As Michael asked, while we are still feeling the impacts from the pandemic, we've shifted some of our volume back to the states, which has benefited our supply chain management. In terms of the raw number of containers we're bringing in, it's lower than it was. However, we've been able to sustain sales.

Got it. Thanks for that color. Just a final question. You implemented cost-cutting actions in your workforce during the quarter. How much of those actions could be viewed as permanent?

Michael, this is Jim. Yes, we reduced our salaried workforce in this quarter. It was painful but appropriate under our ongoing Work Smarter initiatives, as we continuously look at how we can operate more efficiently. This will lead to a constant eye on our costs, especially regarding our talent budget. We didn’t see an immediate impact last quarter since we had severance costs. We estimate about $10 million in reduced operating costs from payroll level on an ongoing basis, and that is considered permanent.

Our next question comes from Alex Fuhrman with Craig-Hallum. Please go ahead.

Thanks very much for taking my question. I wanted to ask about same-day delivery. It certainly seems like that is where the industry is heading. What do the economics on your orders look like compared to the rest of your business? What do you think happens to your cost structure if it becomes table stakes over time?

Thanks, Alex. I think the last thing you said is absolutely the case—it is becoming table stakes. We've recognized this for a couple of years now, and we're working toward that goal. We’re focusing on optimizing our last-mile fulfillment, particularly through our BloomNet network. We’re excited about the potential this has for positioning ourselves in serving our customers better as we grow our same-day offerings.

Good morning, Alex. In the floral business, we've been actively helping our floral partners manage delivery costs. We're leveraging the learnings from our same-day delivery experiences and expanding our offerings to other gifting items. We've already seen early success with Cheryl's Cookies and Shari's Berries, packaging those products together. The economics will vary depending on delivery speed, but we believe as we grow our volume and refine our processes, we'll optimize our fulfillment capabilities and logistics.

Our next question comes from Linda Bolton Weiser with D.A. Davidson. Please go ahead.

Yes, hi. I was wondering if you could provide an update about the wholesale side, specifically if you’re getting any early read on how retailers are thinking for Christmas? Also, do you anticipate a decline in your sales from the club programs this Christmas?

Hi Linda, how are you? The wholesale segment offers us coverage for infrastructure, but we don’t want to rely on that too heavily. Last year, sell-throughs during the Christmas holiday weren't as strong as the big boxes expected, leading to significant cuts in their purchases for this year. In terms of insights for next year, we anticipate that orders will increase and become a tailwind, although we won’t fully recapture the high levels seen during the pandemic.

Yes, so, Linda. As we mentioned at the end of the second quarter, we took about a $20 million reduction in those big box wholesale orders on the backend. This year we are expecting an increase, which will serve as a tailwind, although the exact dollar amount is not yet locked in.

Okay, thanks. And regarding personalization, is there a noticeable difference in performance between Personalization Mall and Things Remembered? I was curious how that area is performing in general.

Excellent insights, Linda. Yes, as you mentioned, the personalization side does see some impacts, particularly on lower-income customers. However, we’ve observed growth in Things Remembered, which is still in its initial stages since we acquired it a year back. We're pleased with its progress and anticipate it will show strength as we can establish its inventory and other offerings better.

The initial response has been positive from Things Remembered, especially the Hero base, which sells well at $180. We're confident that this will show greater strength as we continue to expand the product lines.

Would the contribution margin for Things Remembered be higher than for Personalization Mall?

The contribution margins are about the same. However, the labor component on items produced at Things Remembered can be higher due to less automation, so we are still working through those challenges. But overall, the market response is promising.

On the workforce reduction you implemented, how has it affected morale within your company?

Linda, it’s always tough to make these decisions. Historically, we haven’t done significant workforce reductions. However, we felt a strategic need for a shift. The situation is challenging, but managing talent is essential, and our ongoing cost management will reflect how we approach growth areas versus other segments within the company.

As we've mentioned, our Work Smarter initiative is a broader strategy that goes beyond just labor management. It encompasses various facets from operational efficiency to marketing spend, reducing costs across the business comprehensively.

Our next question comes from Anthony Lebiedzinski with Sidoti. Please go ahead.

Hi. Good morning, guys. Can you hear me?

Yep.

Hi. This is Stephan Guillaume on for Anthony. How much was average order value in the quarter, and are you seeing success with multi-branded bundles?

Bill will provide details on the average order value. Overall, the average order value is increasing, indicating that our higher-income customers are doing better through this period. However, we have also introduced lower-priced options to cater to other segments. Tom will touch on the bundles. Their performance remains strong, exceeding our expectations. Bundles are a fantastic way to introduce personalized products. We launched new offerings for the upcoming holiday season, and we believe they will appeal broadly to our customer base.

Yes, the average ticket during the quarter was $79, up about 1.5% year-over-year. Much of this is driven by bundles and the pricing elasticity we have created. We've also introduced lower-priced items to generate interest from less affluent consumers.

To clarify, our bundles are doing exceptionally well. We launched a new bundle series between our personalization mall business and Harry & David, for instance, a personalized cutting board delivered along with various items. Our consumers are gravitating towards these multi-branded offerings, and we believe this will have great appeal going forward.

Our next question comes from Doug Lane with Water Tower Research. Please go ahead.

Yeah, hi. Good morning, everybody. I just have a couple of things here. The third quarter EBITDA loss of $5.7 million is not too far from where that quarter was pre-COVID. Your gross margin is 40%-41%, also not too far from where you were pre-COVID. So how close are we to reverting to the mean on your cost structure?

If you look at a 10-year history from 2012 to 2021, we were in that 42% margin range. We hit a low point of 37.2 a few years ago, but we're climbing back. At the beginning of the year, we had guided our margins to be in the low 39% range but now anticipate that our margins will exceed 40%, converging towards the low 40s. So we’re making progress but not fully there yet, although we think we will revert back to our historical mean of 42% over the next couple of years.

That's helpful. And on your acquisition fund, are you still prioritizing acquisitions as part of your growth strategy? What does the current environment look like?

Overall, I’d say many smaller companies, especially those with profitability challenges, find it hard to secure capital currently. We're very judicious about the acquisitions we consider. Recently, we discussed an acquisition that we saw primarily as talent acquisition rather than revenue-driven. We have an enormous database, and we're focusing on how to serve our customer base better without the need for immediate larger acquisitions.

To add, our major acquisitions have included Harry & David and Personalization Mall, while smaller tuck-in acquisitions like Shari's Berries and Things Remembered helped enhance our offerings. Recently, the SmartGift and Card Isle acquisitions have bolstered our capability to meet customer needs.

Great. That's helpful. Thanks, guys.

Thank you, Doug.

Ladies and gentlemen, this was our last question.

Thank you all for your interest and thoughtful questions. If you have further inquiries, we’re available for one-on-one discussions. We’re also at the beginning of the Mother’s Day push, so we have a beautiful selection of gifts from our portfolio brands to assist you in expressing your sentiments this holiday.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.