1 800 Flowers Com Inc (FLWS) Q4 2026 Earnings Call Transcript

Good day, and welcome to the 1-800-Flowers.com, Inc. 4th Quarter, Fiscal Year 2026 Earnings Conference 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 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Andy Milavoy, Head of Investor Relations. Please go ahead.

Welcome to our fiscal 2026 fourth quarter and year-end earnings call. Joining us on today's call are Adolfo 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 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 Adolfo.

Thanks, Andy, and good morning, everyone. This morning, I would like to discuss some of the announcements we made earlier today during fiscal 2026 and share how we are entering the next phase of our transformation in fiscal 2027. As we announced this morning, we reached an agreement with our banking partners to amend our credit facilities with additional financial flexibility. The amended credit agreement is flexibility to retain a portion of potential assets sell proceeds and reinvest them in the business. It also better positions the company to pursue a successful capital raising process. Any additional capital would enable us to fund the investments required to improve customer acquisition, retention, and ultimately return the company to sustainable growth. This agreement gives us the flexibility to continue executing while we evaluate those capital-raising alternatives. James will discuss this in more detail. When we began this journey a little more than a year ago, We needed to strengthen the foundation of the business, improve the customer, simplify how we operate, and build the capabilities necessary. As I reflect on fiscal 2026, I am proud of what our team has accomplished. Together, we made meaningful changes across the organization, our capabilities, and positioned us to become a more customer-first, data-driven company. While there is still important work ahead, I believe we are exiting fiscal 2026 as a stronger way we enter the year. Fiscal 2026, we strengthened our leadership team, simplified our organization, began to modernize our digital and marketing capabilities, improved operational efficiency, and increasingly put the customer at the center of everything we do. One of the most significant changes we have made is how we operate internally. As part of our transition to a function-based organization, we share ownership and accountability across the customer journey. Historically, our marketing organization was responsible for a broad range of activities, including customer acquisition and retention, promotional discounts and cadence that vary by marketing channel, and other elements of the customer experience. Those responsibilities are more clearly defined across our marketing, merchandising, and digital experience teams, with each team accountable for a specific part of the customer journey. Marketing is focused on attracting new customers and retaining and engaging our existing customers. Our merchandising team is responsible for the valuable position we put in front of those customers, including assortment, pricing, delivery fees, product availability, promotional activity, trade-off opportunities, and new product development. Our digital experience for the experience customers have once they arrive, focus on improving the shopping experience and increasing conversion. We recently promoted one of our leaders into a new role that serves as the store manager for each of our digital platforms. This newly created team is responsible for looking at our websites through the eyes of the customer and identifying ways to make the shopping experience easier, more relevant, and more effective while improving conversion leading to sales growth. This is an important change in how we run the company. One team per brand to influence multiple parts of the customer journey. We now have specialized teams with clear responsibilities and accountability across our digital property. We're also seeing how our teams can work together to better serve. A good example is our floral assortment. Historically, even within the floral brand, we had separate merchandising teams, and they largely operated independently, leading to confusing and sometimes competing value propositions within the same landing page. Working as one team to align our assortment and make more of our most popular products available through both full-time It clarifies our value proposition, coverage in markets where florist availability may be limited, and creates a more consistent experience regardless of how the product is fulfilled. It is a good example of how breaking down silos and working together around the customer can improve the overall customer experience underneath our transformation. across each while bringing those teams together objectives, serving the customer better while improving business performance. Let me share a few other examples of the progress of our redesigned Ari and David website, which is currently in A-B testing. The new site features a mobile-first design, improved navigation, dynamic product ranking, and AI are all designed to make it easier for customers to discover products while improving conversion. We also simplify our digital ecosystem by transitioning some of our low-traffic, stand-alone websites into categories within harryanddavid.com. This allows us to flagship platforms, introduce customers to a broader assortment, and operate more efficiently. Marketing capabilities. With clearer responsibility for customer acquisition and retention, our marketing team is increasingly focused on reaching the right customers, strengthening engagement, and improving the productivity of our marketing investments. We are supporting that effort with investments in our marketing technology platform and a broader full funnel approach. continue simplifying the business and improving efficiency. We achieved our original two-year cost savings target within the first year, giving us greater flexibility to reinvest a meaningful portion of those savings into marketing, technology, digital capabilities, and the customer execution fiscal 2026. I see it as a year in which we fundamentally change how we run the company, our leadership team, marketing capabilities, and establish clear accountability across the customer journey. Looking ahead, we remain focused on putting these capabilities to work to improve business performance and position the company for sustainable. Moving to fiscal 2027, our operational focus priorities that we believe will translate our strategy into stronger business performance over time of our revenue remain challenged and improving those trends it's our highest as consumers remain selective in their discretionary spending it is increasingly important that we give them more reasons to engage with our brands expanding everyday occasions at harry and david or delivering more personalized cost focuses on building base over time as these initiatives continue to mature we believe they will help increase purchase frequency, relationships, and support improving revenue trends. We will continue to modernize the customer experience. Our objective is simple. Make it easier for customers to seamlessly across our portfolio. With accountability within our digital experience team, we will continue optimizing the customer journey to improve conversion and make the experience more intuitive from the moment a customer arrives on one of our sites through checkout. We will also look for opportunities to encourage customers to shop across more categories, to increase average order value, and create a more engaging shopping experience, productivity, and make targeted investments to build our brands. For the past year, we began building a modern marketing organization. With marketing increasingly focused on customer acquisition and retention, we expect to make smarter investment decisions, improve personalization, full funnel marketing investments, and more efficiently connect customers with discipline. We will continue to simplify the business, improve operational efficiency, We believe in some processes we are modernizing to improve productivity and create a simpler, more efficient operating model. In how we invest while continuing to support across all four priorities, our objective is to translate investments we have made into better business outcomes. success by any single quarter, but by sustained progress across these areas, and our ability to translate that progress into improving more than a year ago, we knew we needed to strengthen, have a stronger, better capabilities, deeper customer insights, and a more agile. Enter fiscal 2027, we will continue building those capabilities to work and demonstrating what we can deliver. With that, let me turn the call over to James.

Thanks, Adolfo, and good morning, everyone. This morning, I will provide some additional perspective on the actions we have taken to enhance our financial flexibility and our evaluation of capital-raising options to optimize our capital structure. Then I'll review our fiscal year 2026, fourth quarter, and full-year financial results, discuss our balance sheet and liquidity position, and conclude with our fiscal 2027 outlook. As Adolfo mentioned, we amended our credit agreement to extend our existing covenant relief period and provide greater flexibility in the use of proceeds from potential asset sales, including the ability to retain a portion of those proceeds to invest in strategic initiatives to support our transformation. We appreciate the continued support of our banking partners as we execute our transformation and position the business for future growth. We are also evaluating the potential sale of non-strategic assets, along with a range of other capital-raising options intended to optimize our capital structure and provide additional capital to support investments in our transformation and drive future growth. All options may include one or more public or private debt or equity financing, potential divestitures of non-strategic assets, or other capital structure transactions. We have retained Guggenheim Securities, LLC, as our financial advisor in connection with this evaluation. There can be no assurance that the evaluation will result in any transaction or outcome, or, if one or more of the transactions ensue, what the terms of any such transaction might be. The company is in the early stages of the evaluation and will not comment further during the process. Taken together, these actions are intended to strengthen our financial position and provide greater flexibility to invest in the strategic initiatives we believe can improve the performance of the business and drive sustainable, profitable growth over time. Fiscal 2026 was about strengthening the foundation of our business and positioning the company for improved financial performance. Throughout the year, we prioritized revenue contribution margin over simply pursuing top-line growth. We streamlined the organization, achieved our cost savings objectives ahead of schedule, and deliberately reinvested a portion of those savings into initiatives designed to strengthen the business over the long term. As we review our financial results, it's important to keep that context in mind. Fiscal 2026 was a year of transition, and our results reflect both the progress we have made and the investments we are making to improve business performance over time. As we move into fiscal 2027, our financial priorities are focused on maintaining appropriate liquidity, managing the balance sheet with discipline, and deploying capital toward the initiatives we believe offer the greatest opportunity to improve the performance of the business and create long-term shareholder value. With that perspective, let's review our financial results. consolidated fourth quarter revenue declined 12.9 percent to 293.1 million this included a 13.4 percent decline in our consumer floral and gift segment a 15.4 percent decline in our gourmet foods and gift basket segment which was affected by the timing of easter and a 1.9 percent increase in our BloomNet segment. With a full fiscal year, consolidated revenue declined 10.8% to $1.5 billion. Transactions declined 17.6%, partially offset by a 5.5% increase in AOV and growth in our wholesale business. At the end of fiscal 2026, we had 7.5 million customers, over 800,000 passport members, and 77% of our revenue came from existing customers. Multicategory customers and passport loyalty members continue to represent our best-performing customers, and we recognize the strong affinity of these customers. During Fiscal 26, multicategory customers represented 12% of our customers and 26% of our revenues, While Passport Loyalty members represented 9% of our customer base and 19% of our revenues. Currently centered around providing members with free shipping, we see an opportunity to broaden the role of our loyalty program to deepen customer engagement, increase purchase frequency, and reduce the cost of reacquiring existing customers. This is consistent with our broader marketing strategy to build stronger relationships with our customers and reduce reacquisition costs. As Adolfo discussed, accelerating the recovery of revenue trends is our highest priority. We are evolving toward a more full-funnel marketing approach to reach new audiences while modernizing the customer experience to improve conversion and purchase frequency. Combined with greater personalized marketing and more year-round purchasing occasions, these initiatives are designed to strengthen customer acquisition and retention and support a more durable revenue base over time. Turning to gross margin, fourth quarter adjusted gross margin was 34.7% compared with 35.5% in the prior year period. Gross margin continued to reflect the impact of sales deleveraging, higher commodity costs, and inventory reserves, offset in part by our cost reduction and operational efficiency initiatives, along with an approximately $7 million benefit related to tariff fiscal year, adjusted gross margin was 38% compared with 39.1% last year. Excluding non-recurring charges and the impact of the company's non-qualified deferred compensation plan in both periods, fourth quarter operating expenses decreased $8.9 million as compared with the prior year to $150.8 million. As we discussed throughout the year, our cost savings came from two primary areas, improving the efficiency of our marketing investments and operating more effectively. We completed our original $50 million run rate savings by an additional $15 to $20 million of opportunities across both cost of goods sold. We expect to execute against these additional opportunities during fiscal 2027, with the full benefit expected in fiscal 2028. As a result of these factors, our fourth quarter adjusted EBITDA loss was $31 million, compared with a loss of $24.2 million in the prior year period. For the full fiscal year, adjusted EBITDA was $2.9 million, compared with $29.2 million in the prior year. Turning to our fiscal year end, net debt was $128 million, compared with $114 million a year ago. Cash totaled $11 million, while inventory ended the year at $153 million, compared with $177 million last year. In terms of our debt, we had $139 million in term debt and no borrowings under our revolving credit facility, as compared with $160 million in term debt a year ago. Our continued focus on disciplined working capital management also contributed to a $55 million improvement in free cash flow compared with the prior year. As we discussed on today's call, fiscal 2027 represents the next phase of our transformation. We will continue to build new capabilities while leveraging the investments we have already made. We plan to reinvest a significant portion of our cost savings back into the business in areas where we believe can drive long-term value. These include marketing, marketing technology, improving the digital customer experience, and increased personalized marketing. We are very disciplined in how we allocate this capital, using a test-and-learn approach to measure the results and prioritize the investments that demonstrate the greatest potential returns. We expect these investments to improve marketing productivity and the customer experience while supporting customer acquisition and retention. Benefits will take time to build, but we believe they will lead to better business performance and create long-term value. As a result, for fiscal 2027, we expect revenue to decline in the mid-single-digit range. Our revenue outlook does not assume any incremental benefit from investments that may be funded through the capital-raising activities or potential divestitures. We expect adjusted EBITDA to be in the range of $10 to $15 million, which includes approximately $12 million of additional variable compensation expense compared with fiscal 2026. With that, we will open the call for Q&A. 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, then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Michael Kupinski with Noble Capital Markets. Please go ahead.

Thank you. Good morning. A couple of questions. Let's start with the guide. You are guiding $10 to $15 million in adjusted EBITDA for $27. I was wondering if you can just kind of give us a bridge to that number, particularly, I think, there are consulting fees that roll off, but I just wondered if those might be continuing into fiscal 27, and then maybe you can walk us through cost savings, gross margin improvement, marketing efficiencies, you know, relative to the guide that you're providing.

Good morning, Michael. How are you doing? This is James. So, you know, the way I bridge it is, you know, if you start at the $2.9 million of, you know, reported adjusted EBITDA as your starting point, you know, we expect to benefit, you know, from approximately $50 million of our run rate cost savings in fiscal 2027 and you know the consultant cost we're done with the consultant cost so we're getting the full benefit of the 50 million in 2027 however those savings you know being partially offset by the expected mid single digit revenue decline so that flows through from a gross margin perspective we're going to continue to make investments in you know marketing martech stack and digital customer experience so some of those savings we're going to use to reinvest back into the business. And then we have approximately $12 million of incremental variable compensation compared to last year. So that's how you get from the $2.9 to the $10.5 million. So, you know, the cost savings are providing us with the capacity, you know, to continue to invest in the initiatives that we believe will improve, you know, the business performance and support, you know, our growth. So that's where we're coming up. So the $2.9 with those puts and takes get you to the 10 to 15 million of even thought, Michael.

Okay, great. And then, of course, gourmet foods obviously, you know, had an Easter shift there. And I was just wondering if you can give us some thoughts about what the Easter shift in terms of revenues might have been, and then maybe discuss a little bit about the gross margin decline, you know, how temporary that was and how much of that was affected by Easter, but then also So what how much of that might have been affected by, you know, tariffs, commodities, shipping and that sort of thing.

So the reported for the gourmet food and gift basket, we reported, you know, 15.4 percent decline. So the shift had about a two and a half to three and a half percentage point impact on that. And about, you know, one, you know, one and a half percent impact on the overall revenue for the quarter. But obviously, Michael, you know, there's no impact on a full year basis.

Yeah. And then. OK, go ahead. I'm sorry. No. Yeah. On the commodities. Yeah.

So on the commodities, I kind of, you know, we're seeing the trends generally consistent. We discussed last quarter, Michael. Coco remains, you know, year over year, you know, a headwind for us. You know, all the market pricing has moderated from the peak levels. You know, we did see some benefit in, you know, butter flour in our liquid eggs. Of course, it's down slightly year over year. But we are starting to see, you know, the cost of flour is starting to tick up a little bit as well. And then, you know, the big one that we're keeping an eye on is on our outbound shipping, you know, the impact of the fuel surcharge. So right now that impact hasn't been that material to date because, you know, as you know, our Q1 is, you know, our lowest volume quarter. We're monitoring that situation closely. you know, with the gas prices and the diesel prices where they are. So that one is really kind of a headwind that we're dealing with right now, Michael.

Okay, gotcha. And then I just want to chat just a little bit about the credit facility in terms of, you know, how should investors primarily view this amendment, you know, obviously providing additional operating flexibility for you, but during this transformation, but we're just wondering, is that the reason or Or is there also the prospect here that there's a change in your expectations for liquidity or operating performance of the company?

No, I think, Michael, the way, you know, we announced today, I think you need to look at, you know, the announcement made today together. You know, it's around the bank amendment, the potential asset sales, and the capital raise evaluation. but they're all kind of interconnected of our broader effort to strengthen the company's financial position as well as support the execution of our transformation right so we believe we have the right strategy fy 2026 was the year we set the foundation you know so you know the bank amendment the potential sale of assets and the capital raising evaluation really are intended to strengthen our financial position and provide flexibility to invest in strategic initiatives that will improve the business performance, you know, so what the bank amendment does for us, Michael, is it provides additional covenant flexibility and greater flexibility, you know, we can deploy a portion of any potential asset sales that helps us, you know, invest in the, you know, back into the business on the growth initiatives. You know, when you look at the non-strategic asset sales, you know, we're looking at it as a way to help simplify the business, the same time monetizing assets that, you know, not essential to the long-term strategy, but it will generate additional liquidity. And then kind of combining that, you know, with the capital raise evaluation, that'll help us determine whether, you know, this incremental capital could further enhance our ability to execute the transformation and support future growth. And as we mentioned on the call, we retain Guggenheim Securities as our advisor to help us evaluate the range of capital, you know, raising and the capital structural alternatives that may be available to the company. So it's more of a, you know, we need to, you know, we're looking from a liquidity standpoint and a capital structure to help us fund the, you know, fund the growth initiatives that we have out there.

Gotcha. And if I could just squeeze one more in, obviously, you now have some third-party distribution. I was wondering if you have early results on your relationships with Amazon, DoorDash, Instacart, and so forth. I was wondering if you can just give us an update there and how those relationships are working for you.

Sure, Michael. Good morning. This is Adolfo. Those are going really well, growing double, sometimes triple digits from a very small base. And they are marketing contribution margin positive. So we are very excited about where that is going. I think our marketplace team is doing a great job of managing these external marketplaces. And customers shopping in those sites are actually liking our products. They are liking our value proposition. So that is expected to continue to grow. Again, it's from a small base, but I think everything is very positive in that area.

And there's no evidence of cannibalization from your own digital channels?

Absolutely. I mean, we tried to measure. That's the key question. We have found very little cannibalization. It's a different – this is the way to think about it, Michael. Even if it is the same individual, the mindset of the transaction is very different. um places like amazon walmart etc are designed to buy for you as you know our main customer objective um uh it's a gift to somebody else and our websites are positioned for that i we believe we have a premier gifting platform and that occasion actually makes the cannibalization minimal to non-existent.

Thank you so much.

The next question comes from Anthony Levitsynski with Sidoti and Company. Please go ahead.

Good morning. Thank you for taking the questions. So I was just curious as far as your Mother's Day performance, how did the holiday do perform versus your expectations?

And just going back to your last conference call, we talked about some of the learnings from valentine's day whether those were successful and then as you get into the holiday season kind of how are you looking to perhaps shift your marketing messaging and other initiatives longer answer that you were hoping for anthony but but uh but this is a a journey and again um the the key the key message i want you to hear from me for me is it's a trajectory that we are trying to improve on how we go back to growing revenues. So if you go back to Valentine's Day, that was a major shift in the strategy. It used to be that we would favor our direct shipping business. That would lead to significant discounts when we had excess inventory. And for the first time ever in Valentine's Day, we changed that. to try to see, again, what the customer wanted, not what we wanted to sell. We learned a lot. We applied some of those learnings in Mother's Day. There isn't a lot of, I mean, it feels like enough timing between one event versus the other, but if you account for the purchase order timing, the communications to florists, et cetera, there's only so many things you can actually change. The trajectory of Mother's Day was aligned with our expectations, and it also provided significant learnings that we are implementing as we speak. I mentioned during the prepared remarks these minor things, which is super important, of aligning the value proposition between the two channels, florists and direct ship. It literally used to be that you would go into our website, and by the way, we're still fixing all of that, but, I mean, we know what we are doing and we're executing, that you would find two identical, well, for an uneducated person, you would see two almost identical flower bouquets. Think of two dozen roses. And the price gap would be 20%. And you would go like, why is the price gap so much? and you could drive yourself crazy, and the answer was, well, one is direct shape, the other is coming from the florist. We learned, we tested, said, hey, what if you have the same SKU for both channels? And we tested that on Mother's Day, and we sold out. So all of these little learnings were sequentially applying to improve the trajectory of the business. and again those are being applied and on 100flowers.com the trajectory of the business is improving significantly and there are weeks in which it's positive sales of that category so it's moving in the right direction but there are also the other moving parts which is okay one thing is to sell flowers but that website was selling flowers, chocolate covered strawberries, it was selling a lot of many different things because we manually, we're putting those products in front of the customer. And yes, they were buying them, but nobody was measuring incrementality. Now we're measuring incrementality. We are measuring conversion. And you may be surprised to hear this, but when people go to 100flowers.com, they want to buy a flower bouquet. So we are now with AI ranking because that's what the customer wants to see. That's what we are showing, and that's what we are selling. So the category as flowers, it's already growing, most days, more weeks. But you are compensating for declining sales in the other categories. So, all of this to tell you, we are very optimistic about the tests that we are making, the measurement of incrementality, and when it works, we roll out. Now, you have to keep in mind, we have multiple websites. So, every change doesn't impact the $1.5 billion in sales. It just impacts that website. And just as we are talking about flowers, I mentioned, hey, we also have Harry and David. For Harry and David, the priority right now is Q2, is Christmas. So we have different tests, different things going on. And as I mentioned, that's why we are testing the new platform on an A-B basis at this point. So positive about the trajectory, satisfied with the results in Mother's Day, and we are learning a lot. And those learnings will allow us to change the trajectory of the business over time.

That's very helpful context. So just to follow up quickly on just the consumer floral business. So as you talk about the florist fulfilled and direct fulfillment, what's the mix nowadays between those two? And is there an optimal number there that you think would make sense for you guys going forward?

So, Anthony, this is James. So right now the mix is plus 60% is florist-fulfilled, and the remaining is direct. And the florist-fulfilled percentage has been increasing for all the reasons that Adolfo was speaking to. So there is an optimal mix, but it's really more around getting the product and the right product to our customers to the best fulfillment channel.

I mean, and we don't have a target in mind of the optimal mix. The way I think about it is we want to provide customer choice. If you are a customer living in Manhattan, we have plenty of florids that can provide the bouquets you're looking for. So I don't want to sell you direct products in there because certainly our florist-delivered business, it's probably the best experience we can provide. But my favorite example with the team is if you are a customer that is trying to send a gift to Big Sky, Montana, there isn't a florist in Big Sky, Montana. So you need to actually ship direct. And what we are trying to do is to improve that value proposition, align it with our florist-delivered business to get to an optimal mix driven by what the customer wants.

Okay, and then just switching gears, BloomNet was a bright spot here with sales increasing slightly. I know it's your lowest revenue segment, but what's going on there, and do you think you can sustain modest growth in BloomNet?

As you mentioned, it's about a $500,000 increase year over year. One of the main drivers is what we call the local marketplace or the apps. That's the sales that are being processed through DoorDash, Instacart, and Uber Eats. So that was one of the main drivers. And then there was some, you know, we had a, you know, from a florist for Phil, we had a pretty decent Mother's Day on that front, as Adolfo mentioned. So we got a little uplift there as well. So, and we are excited about the local, what we call local marketplace or the local apps, you know, as something that will continue to grow.

Yeah, I will build on that. Anthony, I regularly think about BloomNet as a leading indicator into where we are heading. We just discussed two things, how our flowers category is growing, that we are favoring florists deliver business because that's what the customer wants. and those two things by itself impact in a positive way our BloomNet revenues. The other thing we discussed was the third-party marketplace, which as James explained, that's also growing nicely.

So if you combine those factors, BloomNet is getting the benefit of those and that's why you see the positive trajectory in there. gotcha okay and if i could just squeeze one more in uh as far as tariff refunds so you talked about seven millions in the in the quarter do you expect to get any additional tariff refunds in fiscal 27 perhaps no at this point anthony we believe we have we've got all the refunds that are due us at the moment understood well thank you very much and best of luck thank you the next question comes from Linda Bolton-Wiser with Water Tower Research.

Please go ahead.

Yes, hi. I was wondering if you could comment, Adolfo, on your efforts to improve marketing spending productivity. Is there any metrics you can share with us that would help us understand better the progress you've made other than spending as a percentage of revenue? So maybe something like CAC. if your customer acquisition cost has gone down or up? And is there any other metrics that could help us see, you know, the progress that you're making there?

Yes, Linda. I don't have hard numbers for you, but let me explain what we're trying to do and what we are seeing. If you step back for a moment, And 2026 was, this is the core problem we were trying to solve. We were trying to drive revenues, hoping that the customer acquisition cost would be upset by customer lifetime value. However, we, our marketing machine, would get the customer. I mean, I think we mentioned somewhere in there that about 70-plus percent of our sales come from repeat customers. But the problem we were having is we were paying a customer acquisition cost to get a lot of those customers. So our marketing investment wasn't measuring incrementality and wasn't really driving customer lifetime value. We didn't have the capacity to measure multi-touch attribution. We were only measuring last-touch attribution, which would lead you to believe that buying clicks from Google was the most effective investment you were making. But if you were to measure that using incrementality, you would realize that it was minimal incrementality. So, as step number one, and this is what we did in 2026, we implemented and we have talked about marketing contribution margin, which was, hey, guys, if it is not contribution margin positive for the transaction, including the marketing acquisition cost, don't spend the money. We know we probably left in there some transactions that we may have wanted to have, but we just didn't have the capability to measure what was good and what was bad. And again, the very basic approach we were using for measurement wasn't the right way of measuring customer acquisition cost and customer lifetime value. So we literally just put the brakes, save a lot of money in the process. I think if you were to look at 2026 in total, marketing contribution margin was positive in most quarters, in most months, just because we were spending more money than we should have spent. Now, as part of that process now, so, I mean, let me just stop right there. So in 2026, yes, our customer acquisition cost declined, and yes, our customer lifetime value increased. But for the basis of the business, a $1.5, $1.6 billion business, we need to go back to revenue growth for the operational efficiencies to kick in. So as we were doing that and cutting costs, we have been investing in capabilities. I'm not going to declare victory that we have everything, but as we speak, literally every week we are releasing and implementing new tools, new capabilities within marketing in the different websites that are allowing us to prepare for the upcoming events, which are where the majority of our revenues come. I'll give you an example. For the first time ever, we are going to have marketing measurement, multi-touch attribution across all of our websites. That's becoming live in October. We are changing our loyalty program. Our loyalty program was a one-size-fits-all that basically just focused, okay, if you are going to buy multiple orders from us, I'll give you free delivery. That was the only value proposition. What we are doing right now is we are redesigning that. We are going to bring a wallet to truly measure retention and incrementality and segment our customers. We're finding out our B2B customers are very different from our consumers. Yet we were offering them the same value proposition. So we are changing those things. We're modernizing our media team. We are doing a lot of things with the idea to get back to a productive, okay, here is the customer acquisition cost we can have. By the way, that varies by website. It's not the same. So we need to measure that by website. And then determine how much can we spend to truly deliver a positive customer lifetime value based on conversion, retention, et cetera, et cetera, et cetera. So, Linda, we're moving in the right direction, and now the challenge in 2027 is just to demonstrate that those capabilities actually will allow us to deliver revenue growth. And as I mentioned, the reason we're not saying, hey, it's positive in 2027, it's because this is sequential, and you will see the trajectory improving. So as the year goes by, this trajectory should continue to improve as we bring the new capabilities into each of our different websites to increase our acquisition, retention, and repeatability of customers.

That's helpful. Thank you. And it sort of leads into my next question, which is the cadence of sales performance in FY27. You kind of indicated this would improve as the year goes on. So would we expect sales decline to be biggest in the first part of the fiscal year and then to improve as you go on? And do you think by the fourth quarter of fiscal 27, do you think the top line can be flat or even slightly up year over year?

So, Linda, this is James. As you mentioned, we expect the rate of revenue decline to moderate as we progress throughout 2027. As Adolfo mentioned, as these initiatives begin to gain traction. And, again, we don't expect these improvements to be linear from quarter to quarter, and we're not giving specific quarterly guidance, but we do anticipate that we'll see improvement on the top line, you know, throughout the year.

Yeah, but the key thing here, Linda, is we do expect the revenue trajectory to improve.

Okay, great. And then my final question has to do with your discussion about, I guess, potential divestitures. are you talking more about like brand sales or hard assets like facilities and then my second question has to do with on the brand are you able to give us some sense as to whether there are any brands that are unprofitable like on a standalone basis like is that possible for you to measure and convey in terms of the profitability particularly of each brand individually? Thanks.

So, Linda, so, you know, we're obviously evaluating, you know, potential investors, you know, to help, you know, simplify the business, you know, and optimize the capital structure, you know, really focused on non-strategic assets where ownership may not be necessary to support our long-term strategy, you know, including situations where we might be able to work with third-party partners and operate with more focus in a capital-efficient model. We're not really commenting right now on the specific divestitures, but we're obviously looking at everything both from brands as well as part assets.

Thank you very much. I appreciate it.

Thank you.

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

Thank you for joining us today and for your continued support. As we close, I want to reinforce a few key points. Fiscal 2026 was an important year for our company. We strengthened our leadership team, simplified how we operate, began to modernize our customer experience and marketing capabilities, and created clearer ownership and accountability across the customer journey. While there is still important work ahead, we believe we have built a stronger foundation for the business. As we enter fiscal 2027, our focus is increasingly on putting these capabilities to work and translating them into better business performance. Improving our revenue trends remains our highest priority, supported by our efforts to modernize the customer experience, increase marketing productivity, and execute with discipline. I am confident in the team we have in place and the opportunities ahead of us. Thank you again for joining us today.

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