Operator
Good morning, and welcome to the 1-800-Flowers.com Fiscal 2025 Fourth Quarter Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Andy Millivoy, Senior Vice President, Investor Relations. Please go ahead.
Good morning, and welcome to our fiscal 2025 fourth quarter and year-end earnings call. Joining us on today's call are Rodolfo Villagomez, Chief Executive Officer, and James Langrock, Chief Financial Officer. 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 GATT. Reconciliations of these non-GATT financial measures to the most directly comparable GATT measures can be found in the tables in our earnings release. And now, I'll turn the call over to Adolfo.
Thanks, Andy, and good morning, everyone. I'm honored to step into the CEO role at such an important time for our future. I want to start by thanking Jim for his support and the autonomy he has given me during this transition. Since joining in May, I have focused on gaining a deep understanding of our business by engaging with employees with valuable insight into where we stand today, what's working, and what we need to change. And identify both the immediate and long-term actions needed to set us on the road. 100flowers.com of being part of our customers' most meaningful moments. Tensions are evolving. Technology's advancing question is intensifying. It's designed to change that. It's a fundamental shift. By leaning into this approach, we intend to address financial performance by becoming a leaner, more agile, and retain customer reach beyond our e-commerce site. At the same time, we are building greater operations. I will share more of my thoughts in just a moment to James to review our fiscal 2025 fourth quarter and year end.
Good morning everyone. This morning I will review our fiscal 2025 fourth quarter and year end performance. Please note that all comparisons are made to the prior year period and represent adjusted results unless otherwise stated. Challenges we experienced throughout fiscal 2025 persisted during the fourth quarter. Our top line remained pressured and we continued to navigate an evolving customer acquisition landscape. Traditional SEO continued to decline and our bottom of the funnel marketing investments did not yield their expected results. As a result, our consolidated fourth quarter revenue declined 6.7%. This was comprised of an 8.8% decline in our consumer floral and gift segment, a 3.6% decline in our gourmet foods and gift baskets segment, and a 0.6% decline in our bloom net segment. This is due to a 5.6% decrease in transactions, and to a lesser extent, a 1.6% decrease in AOV. This was partly mitigated by the Easter shift from Q3 a year ago into Q4 this year. At the fiscal year end, our consolidated revenue declined 8%. This included an 8.2% decline in transactions and a 1.1% decline in AOV, which was partially offset by gains in our wholesale business. At the end of fiscal 2025, we had 9.5 million customers. Over 900,000 pastors, 74% of our revenue came from existing customers at a greater rate. Multi-branded customers and Passport members continue to represent our best-performing customers. Multi-branded customers represented 13% of our customers and 29% of our revenues, while Passport members represented 9% of our customer base and 19% of our revenues. As Adopo will touch on in just a few moments, we clearly recognize the affinity of these customers. We are reviewing opportunities to improve our loyalty program, along with the overall shopping experience, to increase membership and promote multi-branded selling. Turning to gross margin, our fourth quarter gross margin declined 290 basis points to 35.5%, compared with 38.4% in the prior year period. primarily due to a highly promotional sales environment and deleveraging on the sales decline. On a full-year basis, excluding costs associated with the OMS system implementation challenges, our gross margin declined 100 basis points to 39.1%. Let's review our fourth quarter operating margins, excluding non-recurring charges and the impact of the company's non-qualified deferred compensation plan in both periods, Operating expenses declined $3.7 million to $159.7 million. On a full-year basis, our adjusted operating expenses declined $10.9 million to $695.2 million. On fiscal 25, we invested in marketing that did not yield the top-line results we were targeting. We've begun to optimize our marketing spend during the fourth quarter, And as Adafo will discuss in more detail, we see significant opportunities to become more efficient and effective with our marketing efforts going forward. Based on these factors, our fourth quarter adjusted EBITDA loss was $24.2 million as compared with a loss of $8.8 million in the prior year period. On a full year basis, adjusted EBITDA was $29.2 million compared with $93.1 million in the prior year period. We reported the initiation of a cost reduction plan aimed at achieving approximately $40 million in annualized savings, which included $17 million in reductions that already have been implemented. As ADALFA will expand on, we recently engaged an external consultant to assist in identifying and prioritizing additional efficiency opportunities. At fiscal year end, net debt was $114 million compared with $31 million a year ago. Our cash balance was $47 million. Inventory was $177 million, in line with a year ago. In terms of our debt, we had $160 million in term debt and no borrowings under our revolving credit facility, as compared with $190 million in term debt a year ago. Looking ahead to fiscal 2026, we are approaching the year as a pivotal period of foundation setting. As we discussed, our last is a multi-year strategy, and our strategic priorities are focused on positioning the company for long-term growth. These priorities include driving cost savings and organizational efficiency. System-centric and data-driven organization, broadening our reach beyond our e-commerce sites into new channels, and strengthening our team through enhanced talent and accountability. Due commitment to agility and customer centricity, we believe these foundational steps will set the stage for sustainable revenue in the years to come. I'll turn a call back to Adolfo.
Thank you, James. Our performance this quarter is disappointing, and it is clear that we need to fund this role. I did so with the belief that 1-800-Flowers.com is an iconic company with a unique place in their most meaningful celebration. That belief has only grown stronger in my first few months as CEO. At the same time, some issues can be addressed quickly, while others will. I want to share my early partnership team and I are for five years, followed by significant internal challenges also contributed. Customer retention approach was in effect, was inefficient, and expenses did not come down in line with revenue. We are transforming 1-800-Flowers.com into a customer and ROI in four key areas, an organizational reach beyond e-commerce into new channels, and enhancing talent and accountability. The company has not sufficiently adjusted expensive review of our structure, simplified how we work, eliminate redundancy. Procurement is one clear example of improvement. Today, by centralizing it on the customer side, our focus is to simplify and modernize the digital experience, enhance our data infrastructure, and transform marketing into a full funnel engine that balances our retention. Historically, our brands operated independently and streamlined intuitive experience, algorithm-driven merchandising customer needs in reality. Improving marketing efficiency and retention is central to this effort. in key channels, and it was primarily focused on bottom of funnel spend, that builds focus on growth margin to emphasizing and its direct impact on the bottom line, also a major opportunity. It functions primarily for position opportunity in broadening, while gifting with many of our products expanding into occasions with new growth. Our e-commerce sites were in the place of our team with the company's strategic goals and staying talent. Accountability and integration strategy that multi-year transform other channels, improving market technology to create as we work towards what we have seen and learned so far. I am energized and optimistic about our company's future. While the transformation will take time, I'm confident that the actions we're taking will return 1-800-Flowers.com to grow and create meaningful long-term value for our shareholders. I look forward to sharing more in the quarters ahead. We'll now open the call for Q&A.
Operator
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Our first question will come from Michael Kupinski with Noble Capital Markets. Please go ahead. Thank you.
A couple of questions regarding your marketing. I know that you said that some of it has been ineffective. And I was just wondering, is it a change in the use of technology that's causing that? For instance, I know that there's been a decline in search traffic on the likes of Google and so forth. And I was just wondering if there was a dynamic shift in the use of the way that people use technology, given, you know, AI-driven and voice-type search use. And I was just wondering if that's what you're referring to in terms of the ineffective marketing.
This is Adolfo. Let me put it like this. It's two things. Number one, and in the short term, in the past, we would spend marketing to drive revenues. and we were not fully conscious of the variable contribution margin that that transaction would generate. So the cost of acquiring customers in some cases was higher than the margin that that transaction was generating. That led to very, I mean, instead of increasing bottom line, you actually were decreasing the more you spend marketing. So in the short tuition margin, at the expense of of revenues to focus on bottom line increases. So your second question, I mean, as technology shifts, I think overall what you see, I mean, these days it's all about AI and LLMs to step back and think about where customers are buying products today. And let's just say that not everybody goes into the search engines to look for product. Our strategy historically has been focused on bottom of the funnel, and it has led us to spend a significant amount of our marketing spend on search engines, and in a way, we didn't spend in other areas. We're also changing that. So to summarize, it's the focus on variable contribution margin dollars for every transaction we have, and as I mentioned in the call, expanding our marketing strategy from bottom of the funnel into a full funnel approach where we actually generate awareness and drive.
Gotcha. Thanks for that color. And can you talk a little bit about the competitive dynamic and consumer floral? Is there like a bad actor there or is it just general competition? I'm just wondering if you could just kind of add some color there.
I wouldn't say there is a bad actor. I think I would go towards more general competition. We need to become more agile. And as I mentioned in the call, I think today we are in an environment in which managed products and we are trying to sell them on our website, on our e-commerce property. And as I mentioned before, everything starts with the customer, and the customers are buying now in different channels. So you need to have your products where the customers are, and that is impacting our business in the short term because we were not agile to go into these other channels. But as we speak, we're expanding into other channels to actually drive sales. We're in the process to other delivery platforms, to marketplaces, and other opportunity areas. You're talking about flowers and some of our other brands. Physical retail is also important, and we are moving there. It doesn't mean that they need to be the same, but you have products that can be sold using different brands and products that can be sold through different channels. So we're looking at this end-to-end. I think the number one focus here is let's offer our products wherever the customers are already buying them.
Gotcha. And my final question, I know I'm going to let others ask questions. To what degree have commodity prices normalized? I mean, I know that in the past you talked a little bit about where we are in that journey towards getting towards more normalized commodity prices. And I know that focal prices have been exceptionally high. I was just wondering if you see, you know, the prospect for continued improvement, at least on the commodity price side.
So, Michael, this is James. So, yes, as you mentioned, you know, the cocoa remains elevated, but a lot of our other commodities have started to kind of revert closer to their mean. But the one headwind that we're still dealing with, it's obviously a lot better. You know, we spoke three months ago, you know, the tariffs, right? We have a $15 million headwind with tariffs based on the current, you know, tariff structure that is out there. Now, that's down significantly from the $55 million, you know, when tariffs first came out back in when we spoke in May. But, again, we have that headwind. But, overall, the commodities are, you know, are starting to revert to their mean.
Okay, great. That's all I have.
Operator
And your next question will come from Anthony Liebizinski with the Sidoti and Company. Please go ahead.
Good morning, and thank you for taking the questions. So first question, just in terms of the quarter here, can you comment on sales for the major holidays, like Easter and Mother's Day versus everyday gifting? Did you see the same kind of bifurcation between the two? Just wondering if you can comment on that.
So on the Mother's Day holiday, that came in line with what we were forecasting. It was obviously down on a year-over-year basis, but that, you know, one of the things that we did, as you recall, back in Valentine's Day, Anthony, we were investing heavily in marketing to try to drive top line. So from a Mother's Day perspective, you know, we pulled back on, you know, getting back to what Adolfa mentioned on the variable contribution margin. We were more focused on variable contribution margin and not driving, you know, unprofitable sales. So Mother's Day was down year over year and came in line with our expectations.
Thank you, James. And then, you know, thinking about the different strategies, Adolfo, that you mentioned, can you give us maybe a sense as to the timing of some of these initiatives? And, you know, what's kind of like the low-hanging fruit, so to speak, and which of these strategies that you talked about will take more time to come to fruition?
Anthony, as James said, we are seeing this year as a pivotal year to set the foundation for future growth. If you step back for a moment and just say, hey, what was driving the EBITDA decline on this company? I can point you to three factors. Volume decline combined with fixed overhead, the OMS issue we had back during the holidays, and then unproductive increases in marketing spend. In the short term, we're addressing those issues to change the trajectory of the business, where we start planting seeds to drive future growth. And the future growth will come from two sources. Fixing the core business, as we have been talking about it, is everything starts with products, so you need to make sure you know a lot about the customer. And I want to emphasize that the marketing strategy related to the customer, It is going to be less about the initial transaction and just capturing these customers at the bottom of the funnel, and it's more about how we're capturing these customers, what is the retention strategy to minimize the marketing fee as we acquire these customers, and therefore increase the customer lifetime value over time. That's what we are calling the customer flywheel. And the third component is related to, I call it the product discoverability, but it's helping the customer find our product. It's a combination of bringing AI to our websites, modernizing the navigation, serve recommendations. So the way to think about it is, in the short term, we're stabilizing the business, trying to change the trajectory, focus on the three things I mentioned is, okay, if your volume is declining, then your cost needs to change, and we're working on that. The OMS issue, I think we are, the way to think about it is, it's a combination of two things. The systems performance with, then once the customer and we were not ready for those, confident that we solved all of the systems performance issues that we know of, actually the system today is performing better than before we implemented versus the previous system. And from a customer care perspective, we're building redundancies just in case something So we're very confident about that. And then marketing, as I said in the short term, is focusing on the variable contribution margin. Parallel to that, we are planting seeds and making targeted investments on the future growth, which, as I mentioned, is the product assortment's valuable proposition, the customer flywheel, and the product discoverability on our platforms. So it's a transition year followed with a couple with investments to drive future growth.
Gotcha. Thanks for that. And so I guess my last question before I pass it on to others. So as you look to execute your strategy, how do we think about CapEx spending for this It does sound like you're also looking to perhaps bring back some physical retail stores. I know a few years ago, you guys closed pretty much all of your Harry and David stores. I don't know if you would be looking to reconsider that decision. But just maybe help us understand, how do you guys think about CapEx spending as you look to execute this strategy here?
And it's James. So, from a CapEx perspective, we had the big implementation of OMS last year. So, right now, we're not giving guidance, but we believe CapEx will be slightly down this year from last year. But included in that is our investment in some of the physical retail locations. So, that's already included in that. So, we do have CapEx set aside for the expansion into some Harry and David and things remembered locations.
Got it. well thank you very much and best of luck thank you again if you have a question please press star then one your next question will come from Doug Lane with water tower research please go ahead yes hi good morning everybody I'm staying on the retail stores you did open that Long Island store earlier this year can you give us an update of what you've learned there and how that's going to impact your strategy going forward and maybe opening additional retail stores?
So let me separate the question from two perspectives. Like, number one, as I mentioned, I think in the midterm, we believe that expanding our channels is fundamental for strategy, and that includes physical retail. This year, as you probably We're going to have three pop-up stores at Macy's, five in malls for Harry and David and one for things remembered. The way to think about those is we're experimenting and trying to find out what is the right assortment for those stores. The Huntington store combines, I would say, the best assortment we have within our brands. Harry and David goes beyond baskets into a lot of products that are of everyday consumption. And if you were to walk that store, you find those products there. And those products actually drive conversion when you get the traffic and drive transactions. That store, given our expectations, keep in mind it's a lower traffic store. It's not located in general. You want to be learning a lot from that store. If things go well, our intention is to continue expanding. This year, it's all about experimentation. We are learning and preparing for growth.
So the way I understand it, then, there could be two paths here as you expand beyond e-commerce. One is Harry and David and things remembered, branded stores, whether they're standalone like in Long Island or whether they're in the mall. Or would you also pursue, on a parallel track, permanent placement in Macy's and other department stores? Would you go to mass merchants? Just a little bit more granularity on where in retail you think the brand can go.
I would say all of the above, and that's what we're experimenting. And I would go beyond physical retail into also digital, including marketplaces and on-demand delivery. The way we're thinking about it is, wherever the customer is, we have products for them. We, as I mentioned, it's, I think, beyond gifting. We're also focusing on self-consumption. And we have a lot of products experimenting our way to grow. So all of the things you mentioned, Doc, are options. We are fact-based. We are data-driven. So whatever delivers the best performance, that's where we are going to invest our capital. I think number one priority for me and for the team is let's make sure that we drive profitable growth to shareholders. It's above their expectations.
Your comment about self-consumption makes a lot of sense to me. I know that you're positioned as a gifting platform, but certainly a lot of that product would be ripe for self-consumption. Do you have any data yet on what you think your current percentage of sales are that go to self-consumption versus gifting?
I would say it varies, Brian David, lower in flowers and lower in PMO. Honestly, though, part of this is self-inflicted. One of the things the merchants are working on on wanting home the flowers is to tailor the assortment for self-consumption, e.g. something as simple as selling flowers without the vase. If you're buying flowers for your house, you are not buying vases. You just want the flowers. Launching a subscription model. We're experimenting with all of these things. But today, naturally, the products and the brands that we have acquired over the years that are sitting under the umbrella of Harry and David are tailored for self-consumption. We have cookies. We have coffee. We have chocolate. We're about to launch olive oil and vinegar. I mean, we have a lot of things that you can find on your average retail store. And as I said also, we're planning to have our own stores. So that's what we're unlocking here. I think in the past we had this, oh, it's our brand and it needs to be sold on our website. We're basically saying, no, separate the brand from the product on our website. I'll give you an example, cookies. I can sell cookies on the Chero's brand. I can sell cookies on the Harry & David. I can sell private label cookies. I can sell all of those on the Harry & David website. I can sell all of that on the 100 Flowers website. I can sell that on marketplaces. I can sell that on physical retail. The sky is the limit, and we're testing our way to find out what drives the most profitable growth for the company in the short term.
That's a good call. Thanks, Adolfo.
Operator
With no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Adolfo Villagomez for any closing remarks.
Thank you all once again for taking the time to join us on today's call and for your continued support of 1-800-Flowers.com. I am very excited to leave this company during such a transformational period in its history, and I look forward to keeping you updated on our progress in the course ahead. Thank you.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
