1 800 Flowers Com Inc (FLWS) Q3 2026 Earnings Call Transcript

Good day, and welcome to the 1-800-Flowers.com, Inc. Fiscal Year 2026 Third Quarter Earnings Conference Call. All participants will be in 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 1 on a touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Andy Millahoy, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to our fiscal 2026 third quarter earnings call. Joining us on today's call are Adolfo Villagomez, Chief Executive Officer, and James Landrock, 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 GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the table of our earnings release. And now, I'll turn the call over to Adolfo.

Thanks, Andy, and good morning, everyone. As we move through fiscal 2026, we remain focused on stabilizing the business and building a stronger foundation for future growth. In the third quarter, we continue to make progress on the key initiatives we outlined earlier to see early signs and the overall cost. I want to start with our Valentine's important indicator of that progress. This year, we delivered a significantly improved customer experience with strong gains across our key service metrics. These results reflect better execution and a clear focus across the organization on delivering a high-quality experience. Importantly, these progress changes we have been implementing. We are now beginning to see tangible evidence that these actions are improving performance across key areas of the business. While there is still work to do, these results, and goods and gifts baskets, and gifts, as As James will discuss in more detail, this reflects the Easter timing shift of inefficient marketing spend in our consumer floral and gifts segment a year ago, combined with our focus on improving marketing contribution margin. Part of our efforts to broaden our customer reach, we also continue to expand a new partnership with Instacart. This builds on our strategy to meet customers where they are already shopping, and to expand access to our floral and gifting value proposition partnership. This increases speed and accessibility, particularly while also supporting our florist partners and introducing our brands to new customers from the customer experience across our digital platform. In the quarter, we fully implemented AI-powered sorting and ranking on 1-800-Flowers. This brings customer-selected best sellers to the top of our product rankings and reflects a more AI-driven customer. This is an important step in modernizing the business. Historically, product placement was more heavily influenced by merchants. Today, we improve the overall shopping experience and results in simplifying the shopping experience by reducing choice in certain areas to make it easier for customers to find the right, including how we work in a more coordinated way, working together on assortment decision advantages. It improves the overall value proposition for our customers by simplifying the shopping experience. Importantly, we made significant progress on our cost-savings initiatives. Achieving our previously announced fifth-flexed discipline and execution, we are beginning to thoughtfully reinvest a portion back into the business to support our strategic priorities, including marketing and customer experience. These results are driven by the continued progress initiatives. As part of our transition to a function-driven operating model, We have streamlined the organization's vision making across 2025 to see cost savings from these actions, although in the short term, they are partially offset by consultant costs, incentive compensation, beginning to shift on bottom-of-the-funnel activities or infrastructures in developing those KPIs positions to begin rebuilding our brands. We are also expanding our reach to younger customers through top- and mid-funnel initiatives. services, including influencer marketing and platforms like Instagram and TikTok. At the same time, we are improving our ability to retain customers. As I mentioned earlier, we have significantly enhanced the customer experience by improving areas such as delivery fees and overall customer satisfaction, which are key drivers of long-term In the fourth quarter, we are accelerating and testing this targeted marketing. While these efforts are an important step in rebuilding demand in a more sustainable part of this shift, we expect marketing spend in the fourth quarter to be approximately flyer year period. In addition to these marketing investments, we are also beginning to invest in building out our market. These investments will begin in the fourth quarter and continue into the next fiscal year as we strengthen the capabilities needed to support long-term growth. While cost discipline remains a priority, we believe these actions combine with our structure strengthening the foundation to stabilize the business and enable long-term. Now, I will turn the call over to James.

Thanks, Adolfo, and good morning, everyone. During the third quarter, revenue came in line with our reflecting continued execution against our disciplined marketing approach and the ongoing impact of changes in search engine results and pressure on directors. Today was consistent with our expectations, particularly given the difficult day placement as the holiday fell on a Saturday and during President's Day weekend. Into March, we began to see a moderation in the rate of revenue decline in our consumer floral and gift segment as we anniversaryed some of the strategic shifts in our marketing approach. From a category perspective, Our gourmet foods and gift basket segment performed meaningfully better than our consumer floral and gift segment during the quarter. Our gourmet foods and gift basket segment benefited from an approximate 5% revenue lift. This performance also reflects the more pronounced impact of prior-year inefficient marketing spend in our consumer floral and gift segment, along with ongoing changes in search engine results and pressure on direct traffic. During the quarter, we recorded a non-cash, goodwill, and trade name and payment charge related to our consumer floral and gift segment and the personalization mall trade name. While this impacted earnings, from a profitability standpoint, we saw improvement in our ad-to-sales ratio and marketing contribution margin compared to last year. Our contribution margin improved year over year, reflecting stronger pricing discipline and improved marketing efficiency. Our efforts to streamline operations and manage costs are beginning to have a positive impact on the business. As of the third quarter, we have achieved a full $50 million in annualized run rate cost savings that we had initially targeted across fiscal year 2026 and fiscal year 2027. Building on this progress, we have spent $15 to $20 million in additional run rate cost savings over the next fiscal year. This brings our total identified cost savings opportunity to approximately $65 to $70 million, spanning both cost of goods sold and operating expense reductions, reflecting continued opportunities to streamline the business and improve efficiency. We are being thoughtful about how we deploy these savings. As we move into the fourth quarter and into next fiscal year, we are transitioning from a primary focus on marketing contribution margin toward a more balanced strategic investment. This shift is expected to impact our fourth quarter performance. As part of this shift, we are accelerating and testing targeted marketing investments, including top and mid-funnel initiatives, which are intended to support longer-term demand generation and may take time to translate into revenue. Consistent with this approach, we expect total marketing spend as a percentage of sales in the fourth quarter to be approximately flat compared to the prior year period. In addition, we are beginning to invest in enhancing our digital experience and expanding our more tech capabilities, which will support improved customer acquisition, retention, and overall marketing effectiveness over time. These investments will begin in the fourth quarter and continue into the next fiscal year. This approach reflects our focus on building a stronger and more sustainable operating foundation by balancing profitability with the investments needed to stabilize the business and position it for future growth. Let's review our third quarter performance. Consolidated revenue for the quarter decreased 11.6%. Our gourmet foods and gift basket segment was essentially flat. Our consumer floral and gift segment declined 18.7%, and our bloom net segment declined 5.9% for the reasons discussed earlier. Excluding the impact of system-related issues in the prior year period, our gross margin improved 10 basis points to 33.2, reflecting benefits from our cost reduction initiatives, partially offset by tariffs, commodity costs, and fixed cost absorption. Reflecting period-to-period compatibility and the impact of the company's non-qualified deferred compensation plan in both periods, operating expenses declined $16.4 million as compared to prior year to $144.3 million. As a result of these factors, our third quarter adjusted EBITDA loss was $31.2 million compared with an adjusted EBITDA loss of $34.9 million in the prior year period, reflecting a modest year-over-year improvement. Turning to our balance sheet, at quarter end, net debt was $94.3 million compared with $75.3 million a year ago. Our cash balance was $51 million at the end of the third quarter. inventory was $146 million compared with $160 million a year ago. In terms of our debt, we had $145 million in term debt and no borrowings under our revolving credit facility as compared with $160 million a year ago. As we look ahead, we continue to view fiscal 2026 as a foundational year focused on stabilizing the business, improving execution, and building a stronger platform for long-term growth. Our strategic priorities remain centered on enhancing our customer-first and third-party distribution, remarketing efficiency, and driving structural cost savings. We believe these actions are strengthened in the foundation for sustainable revenue and profit growth over time. Fiscal year 2026, we expect revenue to decline by approximately 10% to 12% as compared with the prior year and adjusted EBITDA to be approximately break-even within a range of plus or minus 2 million, which includes approximately 22 million of anticipated incentive compensation and consultant costs incurred during the fiscal These expectations reflect our more disciplined marketing strategy, ongoing changes in search engine results affecting organic traffic and our transition toward a more efficient demand generation model. Now we'll open a call for Q and A. Operator, please provide instructions for those interested in asking a question.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Anthony Lebedinsky with Sidoti and Company. Please go ahead.

Yes, good morning. Thank you for taking the questions. And it's good to hear that you had a successful Valentine's Day, even with an adverse calendar day placement. So I guess, you know, first on that topic, I guess, can you share any additional details as far as, you know, the customer experience metrics that improved? And what are some of the learnings from that holiday that you're looking to apply towards Mother's Day, which is coming up in a few days?

Hey, Anthony. Good morning. This is Adolfo. So, there are a lot of learnings coming out of Valentine's Day. We're literally transforming the business from a merchandising perspective, a digital perspective, and marketing. So let me, and by the way, also our post-purchase experience has significantly improved. Before I go to the learnings, I also want to be mindful that between Valentine's Day and Mother's Day, there isn't a lot of room to make a lot of changes. I mean, you need to buy flowers ahead of time, so you can make some changes, but not all of them. So, Mother's Day, it's going to do better metrics, but don't expect the full performance impact just yet. But as we think about the changes we're making, let me start with digital. It used to be that the merchants would place a buy, and they decided, hey, you're buying roses, or you're buying lilies. and they would be at the top of the product page to make a decision on those products. 65% of the sales come above the fold on any website. So if you don't have the right product, your conversion declines. As I mentioned, we are not using AI-driven sorting and ranking. So, number one, conversion is improving. But most importantly, we're also finding out what customers really want and what they are willing to pay, not only from a type of delivery method and delivery fees they are willing to pay. So we learn a lot from that perspective. From a marketing perspective, I want to remind everybody that, I mean, the reason flowers did worse than food is our marketing spend there last year was heavily unproductive. As an example, I mean, we were buying transactions for $40 and making $20 margin on each transaction. Then you would say, well, that's great because we are acquiring our customer. Well, yeah, that's true if you retain the customer. But if you don't retain them, then you are just wasting dollars. So we're working on both is lowering our customer acquisition cost and improving our retention. The second one requires the MarTech stack. We're making improvements, but we are not 100% there yet. But on the first one, the team started experimenting going top of the funnel and mid-funnel. In the past, the company just wouldn't like that because they were so focused on the transactions and the measurement capabilities we had would lead you to believe that buying clicks was the most effective marketing method. What we are finding out as we have more, I would say, better measurement capabilities is that's not true. If you do it right, top-of-the-funnel and mid-funnel investments also drive customer acquisition. By the way, it allows you to acquire younger customers, which also longer term, it's better. So the team was experimenting with podcasts, TikTok, Instagram, all of them with huge success, which will be expanded in the future. From an assortment perspective, one of the things we started testing was just first our mix between flores delivered and direct from our warehouses. In the past, the team, because they had already made the purchase and we owned the inventory, using this manual sorting and ranking would favor the direct delivery, which combined with the assortment we were offering there led to lower conversion. And by the way, then at the end of the event, because we had a lot of inventory, they would do heavy discounting. We are managing through that. There were huge learnings during Valentine's Day. Again, some of those are being applied during Mother's Day. We continue to learn Mother's Day. I'm actually super excited about the learnings and the implications for assortment, but it's a process. The other thing with the, I think, on our operations, this is the type of stuff you don't see in the short term on a balance sheet, but our customer satisfaction post-purchase increased. Our calls to the call center declined on a per-order basis. And now that we're also using AI on the call center, were able to be significantly more productive with a better customer experience. So all in all, again, it was one event, one of the multiple businesses we have, but a lot of learnings that some of them are being applied during Mother's Day, but certainly they will be fully applied during the upcoming holidays. So very, very optimistic about the improvements to the overall experience.

Thanks so much for that comprehensive answer. Just switching gears to the cost savings program. So you talked about completing the $50 million cost savings program, but you're also looking to reinvest some of that into the business. So how should we think about cost savings on a net basis? And maybe you could just talk about, you know, OPEX versus the cost of goods, how to think about that.

So, Anthony, to answer the second question, right now the $50 million savings is probably split equally between cost of goods sold and SG&A. So that's on that front. As we, you know, as you think of, you know, the cost savings, as we mentioned on the call, some of those savings will be reflected, but not all of those will flow through, you know, this year. You know, near term, we have the consulting costs, you know, for implementing initiatives. And, again, we still have some of the headwinds around tariffs and commodity costs. So that's offsetting some of those benefits. So, you know, we'll see the consulting costs starting in FY27. We'll no longer have those consulting costs, so more of that will flow through. But, you know, we're being very thoughtful on how we deploy those savings, Anthony. So as you look to going into, you know, 27, you know, those savings give us more flexibility in the model, but we're going to be very deliberate on how we deploy those and start investing back in the business. So it's not going to be a dollar, you know, dollar-for-dollar flow through through EBITDA. So we haven't given guidance yet for FY27, but think of it in the context. We have the savings, but we are going to deploy those, so it will not be a dollar-for-dollar flow-through on the EBITDA side.

Right. Okay. And can you just remind us about the consultant costs, how much for this fiscal year?

So the consultant costs will be the total, you know, between incentive compensation and the consultant costs, Anthony, it's about $22 million that's in this year's current P&L. The consultant costs are about $12 to $13 million of that.

Understood. Thank you so much, and best of luck.

Thank you. And the next question comes from Michael Kapinski with Noble Capital Markets. Please go ahead.

Thank you for taking the questions. I appreciate it. With your changes in marketing, have you kind of opened the door to competitors? And I was just wondering if you can talk a little bit about whether or not you have seen increased marketing from competitors, especially during Valentine's or certainly around Mother's Day, particularly from low-cost providers like Boots or any impact from them, for instance?

Short answer is yes. Flowers, it's a very competitive business, especially during those events. I think Google makes it very easy for anybody just to buy other people's brands. So, which was, I think, primarily the reason why if you only focus on buying clicks, your customer acquisition costs become significantly higher. What we are doing now is leveraging the brand awareness of 100flowers.com. Because anywhere I go and I talk to people, they tell me, say, hey, I think your company is the only one that gets, I'm going to call it natural or direct traffic, and everybody else needs. The way you do more of that is you need to continue to build the brand, and that's what we are doing. And in general, the bottom of the funnel transactions do not build a brand. They just lead to transactions. Middle top funnel builds a brand, builds awareness, so that you're in the subconscious of the customer, and eventually when they have a need, they think about you. We are being, as I mentioned, successful on that. But as James mentioned, you need to make investments. And sometimes this top of the funnel, you will invest now, and you won't see the benefits until next month or next quarter. That's why we are being cautious about how we invest, how we learn about the business. But the idea is that the most important asset we have is our brand. And unfortunately, we hadn't invested in the brand for a while. We're reversing that. We're investing in the brand. And as I mentioned, we are reinvesting on the digital experience. Our product discoverability in the website is improving. I think every day we have new enhancements, and we are also improving our ability to retain customers. That flywheel is what would allow us to be first as our competitors. personalization to the customer, AI to drive remainders, to drive recommendations to the customer to increase conversion. And as I mentioned, we're modernizing the brand to continue building that brand awareness.

Gotcha. And I know that the business is heavily correlated to consumer confidence. I was wondering if you can determine whether or not there was an impact by the war in Iran. And then also I was just wondering if you can just talk a little bit about your third-party platforms like Amazon DoorDash. And I was wondering if you can just kind of talk a little bit about what percent of revenue do you expect to achieve from marketplaces like, let's say, over the next two to three years?

Got it. So let me start with the first one, impact of the Iran war. Very difficult to see that in the numbers. What we are seeing is, I think, what this country has seen for a while, which is higher-income spenders are doing okay, lower-income are not. You can clearly see that in AOV that it's selling. In all honesty, that hasn't changed much since I joined the company, so whether there was an impact from the world or not is very difficult to see. What was the second one? I'm sorry. Marketplace. Oh, Marketplace. So, marketplace, the way I think about it, or the way we are thinking about it as a team, is it's a two-fold strategy. Number one, by selling to, I would say, professional e-commerce marketplaces like Amazon, you do learn a lot. You learn a lot about what's working on websites, what drives conversions. So that one will have a level of impact on everything we do. It's fascinating what we have learned in the last six months. Now, okay, how much should we expect on that? I mean, if you are talking about three years from now, I think we're only going to see double digits of the company. And again, when I think about these, keep in mind we're doing marketplaces, like Amazon, Walmart, and Etsy. And we're also doing delivery service. We're now on Instacart, but we're also doing DoorDor. The intention here is we want to be where the customers are shopping. We do have a website, but we also have operations. We manufacture product, and we represent our florists. So I think that was a huge miss from our side, not to be in those channels which we are trying to correct. It's early days, but we're optimistic about it.

And as we kind of think of the inflection point in coming out of the, you know, to more of the growth phase of the company, I was just wondering, you know, what would be now the true baseline growth rate of the businesses now? Like historically, we had looked at, you know, 3% to 5% revenue growth and about 8% EBITDA growth. And I was just wondering if you had any thoughts in terms of the baseline growth rate coming out of this inflection point.

So, Michael, we're not giving guidance yet for FY27, so, you know, we believe, you know, longer term, you know, further out, we would get back to...

And let me build on that, Michael. It's a process, and we are sequencing. I think, I mean, I've been in this role, I think, to these days a year. When I joined, we were declining at a rate of 20-plus. You need to suddenly stop declining. You get to one or two days of positive comps. Then you get to a week on one business. And then you want the entire company to drive growth. We are seeing those positive days and those positive weeks in businesses. But, I mean, it's a process. At some point, we want the company to grow. and then it's going to be or it's we're building a very different business model the previous one was manually driven um and the new one is going to be ai technology driven so i'm cautiously optimistic about what this company can deliver in the future but it is a process and the only thing we can tell you at this point is we're ahead where we thought we would be but there's There's still a lot of work in front of us.

It sounds like you made a lot of progress. Thank you. That's all I have.

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

Good morning, everybody. Just staying on the whole margin cost side of things, it looks like your EBITDA outlook this year improved a little bit despite the fact that you have $10 million more of the incentive comp and consultant costs running through it than you had last quarter. So it looks like the underlying margin outlook has improved pretty decently since you last reported results. So where are the two or three key areas that you're seeing the improved margins on the EBITDA level?

So Doug, it's, you know, part of it, as you mentioned, part of it is we are starting to see some of the cost benefits flow through on the gross margin, so we're seeing that, and as Adolfo mentioned, you know, with, you know, on the floral side, with, you know, the florist fulfilled versus direct, you know, we're seeing, you know, much more, you know, pricing discipline, more targeted promotional activity, and as we mentioned, you know, better coordination between the florist fulfilled and the direct shipment, so we're seeing that, you know, overall improve the gross margin and improved AOV, you know, so we're being more, you know, consistent with our pricing decisions, and again, reducing discounts, which is improving our overall margin quality. Now, products being, still being offset, Doug, by the higher tariff in commodity and shipping costs, but overall, our gross margin on a year-over-year basis was up about 10 basis points, so we all started to see that flow through and, you know, the strategy.

Well, that's what I wanted to probe because you've got the $10 million more of the consultants and incentive comp, and you've also got a commodity cost environment that arguably has deteriorated since you last reported results. And then I don't even know what cocoa prices are doing these days. But are the commodity inputs actually down? Is that another thing that you're having to offset here? I'm just trying to get an order of magnitude of what you're really seeing from your internal cost savings efforts. And it sounds like it's a little bit more than it's obvious by the numbers on the surface.

So I just want to be clear, Doug, that the $22 million is an annualized number. It just wasn't for the quarter, right? So I want to make sure that I'm clear on that. So from a commodity perspective, obviously, cocoa prices are still elevated on a year-over-year basis. What we are seeing is, you know, butterfly and eggs are down on a year-over-year basis. So, you know, we're starting to see a little relief on that. As you mentioned, obviously, we are starting to see a little bit of the impact on the fuel surcharges on our outbound shipping because of the increase in the oil prices. Inbound, you know, there's no impact yet on inbound from a fuel standpoint because we have the contracts in place for the remainder of the year. So, yes, we have, you know, commodity headwinds with Cocoa starting to see some relief on the other commodities. you know still have the impact of tariffs but we are getting the benefit of you know the cost savings as well as I just talked about you know the pricing discipline that we have so that's what's flowing through and that's why I've seen gross margin up slightly this year versus last year.

And are we still expecting the consultants to roll off at the end of June or are they going to be spilling over into 27?

The costs roll off at the end of June so we will not have that start on July 1st, Doug.

And then tariffs as well, you know, you've got some tariff relief here, and then you start to anniversary the implementation of tariffs in 2025. So the tariff impacts should begin to recede in the first part of fiscal 27 as well, right?

Yes, you know, we still have, you know, right now, you know, there's still our tariffs in place. But yes, we will we will start to anniversary that. And we'll start to get the benefit of the lower tariff rates in 2027, Doug.

Okay. And just one last one for me. You raised the flag that marketing spend as a percent of sales will be, not as a flag, but just to let us know that marketing spend as a percent of sales will be flat in the June quarter. But going forward, the base case should be improved marketing spending lowers for percent of sales because it'll be more efficient. Is that still the base case? I know you're not giving guidance for 27, but just directionally.

Doug, I would say And potentially, we're planning with some of the savings that we're getting, you know, in cost of goods sold in SG&A, part of that savings is going to be redeployed in marketing. So, it's not necessarily that you're going to see marketing, you know, percentage, as a percentage of sales going down in FY27 as we make strategic investments in marketing.

Let me be on that.

Longer term, though, but longer term, Doug. So in the short run, as Adolfo mentioned, we need to invest back in the brand and some of the top of the funnel and mid funnel. So in the shorter term, you may not see that. But longer term, absolutely, you will start to see the improvement in the spend becoming more efficient.

The other thing I would say, building on that, Doc, is 100flowers.com, it's a very different company right now. because every investment we make, it's being unmeasured versus a control group. So we are making investments, and if there is a lift, whether it's sales of margin, it goes through. If we don't see a lift, we cannot just declare victory by failing fast and move on. So we are not going to make crazy investments, but we are making investments and we are experimenting. I'm convinced, and I think we all are convinced in this company, that really our future is we need to find a way to drive growth. So the investments that I mentioned on marketing, on the MarTech stack, on digital capabilities, and so on and so forth, are targeted towards that. It's how do we invest to drive efficiencies on conversion on the website, traffic from a marketing perspective, conversion from an assortment perspective, and we decide whether it goes forward or not. So the $50 million in run rate that we already have in our pocket, some of that will flow through the bottom line. Some of that is going to go through investments. But rest assured that when we invest, it's because we want to see a return on that. So that should help the company in the midterm.

Okay, that's very helpful.

This concludes 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 joining us today and for your continued support. Fiscal 2026 continues to be a year of stabilization for the company. During the third quarter, we continue to make progress on the initiatives that matter most, and we're beginning to see tangible evidence that these actions are improving execution, strengthening the customer experience, and driving more disciplined performance across. We're taking the next step in our transformation as we begin to balance cost discipline with targeted investments, supported by the progress we have made on our cost savings initiatives. These investments, including marketing and digital capabilities, are beginning in the fourth quarter and will continue into the next fiscal year to support stabilization and future growth. While we recognize that progress will not be linear, we remain focused on executing our strategy with discipline and consistency. The actions we are taking today are intended to stabilize the business and build a strong and durable foundation to support improved performance over time. We appreciate your continued interest in and support of the company, and we look forward to keeping you updated on our progress. Thank you.

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