Earnings Call Transcript - FLWS Q1 2021

Operator, Operator

Good morning, and welcome to the 1-800-FLOWERS.COM, Inc. First Quarter 2021 Conference Call. Please note this event is being recorded.

Joseph Pititto, Senior Vice President of Investor Relations and Corporate Communications

Thank you, Chris. Good morning, and thank you all for joining us today to discuss 1-800-FLOWERS.COM's financial results for our fiscal 2021 first quarter. For those of you who have not received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our corporate website at www.1800flowersinc.com. Our call today will begin with brief formal remarks, and then we will open the call to your questions. Presenting today will be Chris McCann, CEO; and Bill Shea, CFO. Before we begin, I need to remind everyone that some of the statements we will make today may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to our press release issued this morning as well as our SEC filings, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q. In addition, this morning, we will discuss certain supplemental financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release this morning. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recordings of today's call, the press release issued earlier today or any of its SEC filings, except as may be otherwise stated by the company. I'll now turn the call over to Chris McCann.

Christopher McCann, CEO

Thanks, Joe. And thank you to everyone who joined our call this morning. As you can see, our results for the first quarter really demonstrate the benefits of our business platform, which has positioned us to deepen the relationships we have with our customers and to drive sustainable long-term growth. For the quarter, we achieved 51.5% revenue growth, driven by 85% e-commerce growth. This reflects the momentum we have in our business as we continue to drive strong profitable growth across our three business segments. In fact, Q1 represented the sixth consecutive quarter in which our three business segments, Gourmet Food and Gift Baskets, Consumer Floral and Gifts and BloomNet, each recorded solid year-over-year growth. And we see strong momentum in our business continuing based on some of the key macro trends that we see today. Trends that, quite frankly, have been accelerated dramatically by the current environment, condensing what might have taken five years into less than one year, for sure. First, the tremendous shift of consumers to e-commerce shopping, where we are positioned as a leader with our all-star collection of brands. Second, the increase in nesting as people are spending less time traveling and more time at home, and everything is centered around the home, people are seeking to add more comfort and convenience to their new stay-in-place lifestyle. And third, the prevailing sentiments that have emerged from these challenging times. Specifically, people's need to connect and express themselves to the important people in their lives. Without a vision to inspire more, you need expression, connection and celebration. We are uniquely well positioned to benefit from and build on these trends by leveraging our business platform, which includes our all-star collection of brands, our advanced technology stack, our manufacturing, distribution and logistics capabilities and our marketing capabilities with our integrated and growing customer file. With our leadership positions in Floral, Gourmet Foods and personalized products, we can serve more of our customers' need to connect with more of their recipients for more occasions, thus increasing lifetime value. Over the past several years, our platform has enabled us to execute well on our strategy: to expand our product offerings, evolve our marketing to focus on engagement, accelerate our customer file growth and enhance customer loyalty. And our results illustrate that we are reaping the benefits and the investments that we've made in these areas. For example, we expanded our product offerings organically by adding new product lines such as our expanded collection of house plants and succulents from the 1-800-Flowers plant shop that has been wildly popular for us. Our Harry & David gourmet line, including Harry & David Wines and The Popcorn Factory's Tins With Pop line. Now we further broadened our product offerings with the acquisition of Shari’s Berries last year and Personalization Mall this year. We have enhanced and expanded our digital marketing capabilities. And as always, we remain hyper-focused on delivering exemplary customer service. The combination of strategic investment, strong execution and focus on our customers has brought us to where we are today, the leader in our industry, driving e-commerce growth in our first quarter of more than 85%. As we enter the holiday season, we will continue to leverage our platform and drive our momentum. We expect that demand for our everyday gifting solutions will remain high, and we are gearing up to satisfy as much of that demand as we possibly can. Now, no doubt, we'll face some challenges as will virtually all retailers, as the third-party shipping companies are facing capacity constraints, and qualified labor is not always at our preferred levels. We are working to proactively manage these issues and execute against our plan for strong growth. And as Bill will discuss in a few minutes, our outlook for Q2, which, as you know, is our seasonally largest quarter, is for record revenue and profits. Before I turn the call to Bill, allow me to take a moment to provide you with some color on the integration of our latest acquisition, Personalization Mall. Put it succinctly, we could not be more pleased with the acquisition of PMall and with the great progress that we are making in our integration process. PMall offers a tremendous assortment of products that can be personalized from glassware to picture frames, to throw blankets. And we have a wonderful holiday assortment, which I encourage you to visit and browse. In addition, PMall is among the industry's broadest range of personalization technologies, including laser engraving, photo sublimation, as well as a dozen more capabilities. And with our highly automated processing capabilities, PMall offers one of the industry's fastest turnaround times with orders often completed and shipped the same day as ordered. As you all may have already noticed, we've integrated PMall onto our Multi-Brand website and into our Passport loyalty program. In terms of cross-brand merchandising, we've integrated PMall into our co-branded holiday gift guide, including our holiday gift and seasons of sharing notebooks. We're leveraging our customer file to introduce PMall to millions of new and existing customers in our everyday and holiday season communications. And we've already begun to leverage our digital marketing teams for PMall with content and creative development across a broad range of digital channels. As a result, we anticipate PMall will be a strong top and bottom line contributor in the upcoming holiday season for sure and for our full fiscal year. One last point. I'd like to touch on another important area where we are seeing accelerated growth. In addition to our revenue growth, we continue to see accelerated growth in our customer files as well as strong double-digit growth in membership in our Passport program and Multi-Brand customers. As we have emphasized in the past, these are our best-performing customer cohorts in terms of purchase frequency, retention and lifetime value. The continued strong growth in our customer files, along with the growth of our Passport program and Multi-Brand customers bodes well as we enter the key holiday shopping period. Now looking ahead, we have strong momentum across our three business segments. We continue to grow our customer files at a rapid pace, and our customer behavior metrics continue to improve. And our latest acquisition, PMall, is already proving to be an excellent fit on our platform and a great addition to our all-star collection of brands. And now I'd like to turn the call over to Bill.

William Shea, CFO

Thank you, Chris. As Chris noted, we have started fiscal 2021 off with strong momentum carried over from last year. And we are pleased with the strong top and bottom line growth that we achieved in our first quarter. Our first quarter was also successful on the standpoint of our closing of the PMall acquisition, and the completion of an amended credit facility provides added financial flexibility and strengthens our already strong balance sheet. As a result, we are well positioned as we enter the key holiday season, and we anticipate the momentum we see across our three business segments will enable us to deliver strong results for the period. Now breaking down some highlights from our first quarter. First, in terms of revenues. Total consolidated revenues increased 51.5% to $283.8 million compared with $187.3 million in the prior year period. Excluding PMall, which we acquired in August this year, total consolidated growth increased 40.6%. This growth was driven by strong e-commerce demand, which increased 85.1% during the quarter. Gross profit margin for the period was unchanged compared with the prior year period at 40.7%. This reflected increases in the gross profit margin of 90 basis points in both our Gourmet Food and Gift Baskets and Consumer Floral and Gift segments, offset by a reduction of 560 basis points in BloomNet, primarily related to product mix. Operating expenses, as adjusted, improved 820 basis points to 43.5% of total sales, reflecting the strong revenue growth in the period and our ability to leverage our operating platform. Operating expenses, as adjusted, exclude the impact of the company's nonqualified deferred 401(k) compensation plan and one-time costs primarily associated with the acquisition of PMall. As a result of these factors, we improved our adjusted EBITDA by 128.7% or $14.5 million to $3.2 million compared with a loss of $11.3 million in the prior year period. Our adjusted net loss for the period also improved nicely to $6.5 million or a loss of $0.10 per share compared with an adjusted net loss of $15.3 million or $0.24 per share in the prior period. Turning to our segment results. In our recently renamed Consumer Floral and Gift Basket segment, which now includes PMall, we grew revenue 78% for the quarter. The 1-800-Flowers brand grew approximately 55% on the largest revenue base in the industry, thus further expanding its market leadership position. Gross margin in this segment increased 90 basis points to 40.6% compared with 39.7% in the prior year period, primarily reflecting contributions from PMall. Segment contribution margin increased 125.7% or $10.7 million to $19.2 million compared with $8.5 million in the prior year period, primarily driven by the 1-800-Flowers brand, which accounted for more than $8 million of the increase. In our BloomNet business, revenues increased 28.7% to $32.7 million compared with $25.4 million in the prior year period, reflecting significant growth in wholesale products, including Fresh Floral and Hot Goods. And growth in order volumes, both from the 1-800-Flowers brand, as well as from florist-to-florist orders. Clearly, the decision we made to help florists back in the early days of the pandemic, including waiving membership fees and providing various products and services at reduced prices is paying off as more florists are buying more products and services from BloomNet in addition to fulfilling increased order volumes. Gross profit margin for the quarter was 45.3%, representing a decrease of 560 basis points compared with 50.9% in the prior year period, primarily reflecting product mix. Segment contribution margin increased 24.7% to $10.4 million compared with $8.4 million in the prior year period. In our Gourmet Food and Gift Baskets segment, we grew revenues 26.3%. This was driven by e-commerce growth of nearly 100%, offset in part by a decline in wholesale orders for the holiday season of approximately $15 million and a loss of approximately $5 million in revenues associated with the closing of the Harry & David retail stores in fiscal 2020. The strong e-commerce growth we're seeing in each of our brands for everyday occasions, such as birthday, anniversary, sympathy and get well, among others. Customers also continue to embrace the Harry & David Gourmet line and Harry & David Wines, both of which grew significantly during the quarter and continue to attract a younger shopper to the brand. Gross profit margin increased 90 basis points to 38.9% compared with 38% in the prior year period. Segment contribution margin, as adjusted, improved 54.8% or $3.6 million to a loss of $3 million compared with a loss of $6.6 million in the prior year period. Now turning to our balance sheet. Our cash and investment position was $11 million at the end of the first quarter. Inventory was $192.6 million compared with inventory of $172.5 million at the end of last year's first quarter, primarily related to PMall. In terms of debt, we had $217.5 million in debt, including $25 million borrowed under our revolving credit facility. In August, we closed on an amendment to our existing credit facility. The amendment adds an incremental $100 million in term loan and expands our revolving credit line of credit from $200 million to $250 million. All components of the credit facility mature in May 2024. The amendment provides added financial flexibility and further strengthens our balance sheet. Now turning to guidance. Due to the continued uncertainty in the overall economy related to the ongoing COVID-19 pandemic, we are not providing guidance for our full fiscal 2021 year at this time. Regarding the fiscal second quarter, the strong e-commerce demand that we carried into this year continued through our first quarter and through October, the first month of the current fiscal second quarter. Based on this growth momentum, we anticipate achieving total consolidated revenue growth for our second quarter in the range of 22% to 26% compared with the prior year period. This anticipated strong revenue growth in the quarter reflects expected e-commerce growth of more than 40%, including contributions from PMall, somewhat offset by the lower wholesale orders and reduced retail revenues, reflecting the closing of the Harry & David retail stores. Regarding bottom line results for the second quarter, we anticipate that the strong e-commerce revenue growth, combined with contributions from PMall, will help offset certain headwinds, including increased costs from third-party shipping vendors, higher labor costs, higher operating costs due to the COVID-19 pandemic and the lost contributions in the wholesale and retail channels during the quarter. As a result, we anticipate driving adjusted EBITDA and EPS growth in the range of 18% to 23% for the quarter compared with the prior year. I will now turn the call back to Chris.

Christopher McCann, CEO

Thanks, Bill. So, as you can see, we had an excellent start to fiscal '21. Top and bottom line results for the first quarter represent a continuation of the growth momentum that we built for the past several years. In our Gourmet Floral and Gift business, 1-800-Flowers brand continues to extend its market leadership position with strong e-commerce growth on the largest revenue base in the industry. This is now complemented by the acquisition of PMall, which is already proving to be an excellent fit on our platform and in our all-star collection of brands, making us a leader in the fast-growing category of personalized products with gifting and home decor. In BloomNet, we are further expanding our market share position with increasing order volumes and growing wholesale business. In our Gourmet Food and Gift Baskets segment, we have continuing strong e-commerce demand for Harry & David's expanded product offerings as well as a growing assortment of innovative, on-trend, top products from The Popcorn Factory, Cheryl’s Cookies and our other great gourmet brands. In addition, we're continuing to grow our customer file across the enterprise with accelerated new customer growth, increased demand from existing customers and growing membership in our Passport program. And perhaps most important, we've begun to engage with our customers differently through an open two-way dialogue, such as our weekly celebrations post letters that Jim and I send out to customers designed around empathy and emotion rather than a transaction. These efforts are helping to deepen the relationships we have with our customers and build customer loyalty as our customer file evolves into an interactive customer community. So as we head into the key holiday season, we are very well positioned to deliver again an excellent customer experience and drive continued strong top and bottom line results. With that, I'll turn it to Chris to open the call for questions. Chris, would you please repeat the directions again for the Q&A?

Operator, Operator

Our first question comes from Dan Kurnos of The Benchmark Company.

Daniel Kurnos, Analyst

Yes, Chris, regarding the KPIs you mentioned about Passports and Multi-Brand, I wanted to clarify if those were year-over-year growth rates. If so, can you provide any insights on sequential improvements? Also, could you share information about the profile of new customers visiting the site? What percentage of them opt for Passport and subsequently become Multi-Brand users? Additionally, on PMall, it seems you are making progress with the integration. You mentioned last quarter that this is beneficial, especially with reduced mobility, suggesting that personalization may perform well this holiday season. Is there anything, despite it being early and right after the integration, that you can share about how this specific customer channel behaves compared to your traditional customers? Are they more or less likely to explore other brands?

Christopher McCann, CEO

Sure. Thank you for the question, Dan. Looking at the numbers from the past quarter, we're experiencing a double-digit growth rate year-over-year. We don't typically report on quarterly sequential numbers, but our seasonality business is showing positive year-over-year comparisons. We're seeing strong double-digit growth in both customers becoming Multi-Brand patrons and those joining the Passport program. Additionally, with the accelerated growth in new customers, we're noticing an increase in conversion rates from both existing and new customers into the Passport program. This has resulted in a significant year-over-year lift in conversion rates. Although we don't disclose specific figures, the increase has been substantial, which is encouraging for us. The data shows that a larger percentage of our everyday customers are becoming Passport members and/or Multi-Brand customers, leading to increased purchase frequency and spending following their initial purchase. Our efforts in the Passport and Multi-Brand initiatives are paying off. At this stage, we are still developing some of our cross-brand merchandising and marketing capabilities. Regarding your question about Personalization Mall, we are pleased with the integration progress and are excited to have it live on our website, which just launched this week. While I don't yet have strong indications of cross-brand migration, we've seen a good response to the communication sent to our Passport members and our general customer base about their new login capabilities, which now allow PMall login credentials to work on the 1-800-Flowers platform. Feedback from that has been positive. The PMall business is outperforming our expectations, and initial indications suggest that the door-to-door product line will be well received by the existing 1-800-Flowers customer base.

Daniel Kurnos, Analyst

Got it. That's helpful. I have just one quick follow-up and one question for Bill. Chris, regarding the forward growth trajectory, this has become more of a discussion point. It seems like you're just beginning to tap into your customer base. How should we think about the balance between growing your customer list and expanding wallet share? Do you have an idea of what percentage of your existing customers' gifting budget you currently capture?

Christopher McCann, CEO

No. We don't really look at the wallet share so much. What we're focused on really is our internal metrics to customer behavior metrics. We're seeing a frequency, retention and thus, lifetime value. So that we're seeing move nicely in the right direction. And that's what really gives us really good, strong confidence on sustainability of our growth rate going forward.

Daniel Kurnos, Analyst

Okay. Understood. Bill, you've mentioned the numerous challenges you're encountering. Can you estimate the margin impact from COVID? What strategies are you implementing? Are you conceding some margin to boost demand, similar to your approach before Valentine's Day, to ensure you can fulfill orders? Or are you exploring other methods to enhance shipping date flexibility, akin to what you did for Mother's Day, which is significantly more challenging during the holiday season?

William Shea, CFO

Yes, Dan, as we've mentioned, we're similar to many companies facing the headwinds we've discussed, including higher shipping costs, increased labor expenses, and costs related to COVID. These factors do affect us. We showcased significant leverage in our business model during the fourth quarter and the first quarter of this year. However, our guidance does not indicate that same level of leverage, yet we are still achieving record numbers for both revenue and profit in our second quarter. While we aim to encourage customers to order early, perishable products make it challenging for them to accept only shipping options. This poses a challenge with our third-party shippers, particularly in December. We are still exploring incentives to address this, but they don't significantly impact the overall situation.

Operator, Operator

The next question is from Alex Fuhrman of Craig-Hallum.

Alex Fuhrman, Analyst

I wanted to talk also about just the shipping issue and, of course, seeing a lot about the strain that there's going to be on the supply chain this year. Just wondering how much visibility you have into delivery times? And what sort of estimates in terms of times you're quoting customers versus what you normally would? Is there any concern that, that could result in a shorter shopping season this holiday season?

William Shea, CFO

Yes. The significant shift in consumers to e-commerce has put quite a bit of strain on the capabilities of the third-party shippers. You've heard and I have been reading many stories about FedEx, UPS, USPS, well documented in the media. So all retailers, including ourselves, are facing these constraints, higher cost constraints on volume. We've built that all into our guidance. We're navigating through these challenges. We work very closely with our primary shipping partner, which is FedEx. And even with the constraints on shipping capacity as well as the higher cost, we anticipate record top and bottom line results in the second quarter.

Christopher McCann, CEO

Yes. And I think based on the fact that we worked so well and so closely with our primary shipper, FedEx, specifically. I think, Alex, we do have very good visibility into shipping times that we're able to then, should we see a challenge, adjust our communication and our customers' expectations around that. That's what we're always trying to manage. So I think the answer is yes, we have good visibility into it. We have a team that manages that extremely well. We're fairly confident that we can navigate through the challenges in this holiday season, produce the numbers that Bill gave and that we gave in guidance for this holiday, which is 4x over what our growth rate was last year, and still provide a great customer experience.

Operator, Operator

The next question is from Linda Bolton-Weiser of D.A. Davidson.

Colin Sebastian, Analyst

So I think there's been some investor questions around how well you think you can maintain or retain the customers that you're gaining here during the pandemic. So maybe you can comment on that in terms of kind of retention. And also, I think your average purchase rate is about 1.7x per year, maybe at least for Floral. Is there any indication that, that's actually increasing because people are participating more in e-commerce gift giving?

Christopher McCann, CEO

Thank you, Linda. Thank you for that question. Now as we look at our business and the momentum that we've built over the past few years, it's very encouraging to see that just continue to grow. So it's been several years out and we've been building that growth momentum, increasing our customer file, new customers, as you pointed out. Then we look at what's been the impact of the pandemic on business in general. And it's really been a binary impact. There are certain businesses like restaurants, bars, retail, brick-and-mortar retail stores have just been devastated by it. Then there's businesses like us, e-commerce businesses that will reap the benefits of it. And as we said early on, we've been leaning into that opportunity to grow our customer file even more aggressively with fantastic new customer acquisition growth rates that we're seeing. And why is because it's behind the three trends that we see coming out of this pandemic. The trend of a dramatic shift to consumers to e-commerce shopping from offline to online, that went from 14% up to 40% of sales. It's probably moderated somewhere between 30% and 40% right now, but that's not going away. That's not changing. Then we look at the second real trend of nesting, and how our products like Plants and Floral and Gourmet Food Gifts fit so well into that trend. And now we've really enhanced that even further with the Personalization Mall product line in front of the trend of nesting. And then the third real trend that we're seeing that we believe we are so well suited for with our vision to inspire expression, connection and celebration is that we've all learned that there is a strong human need to stay connected to the people or alliance. And people turning digitally, looking to companies like ours to help them do that. So you take those components, the momentum we had, the trends that we see that we're so well positioned for, the benefits of the platform that we've built over the years. The customer file size and the increasing behavior metrics that you asked about. Yes, we are seeing increased behavior metrics of frequency and retention and customer lifetime value. Then you add in that, the acquisition we just did with Personalization Mall, and we think we couldn't be better, well positioned for long-term sustainable growth when you combine all of those factors together.

Linda Bolton-Weiser, Analyst

Great. Can you provide an update on whether the concessions previously given to BloomNet florists, such as fee waivers, are still in effect or if they have ended? Additionally, could you quantify that? Does this impact the revenue or gross margin for BloomNet, and could you elaborate a bit more on that?

Christopher McCann, CEO

Thank you very much, Linda. As Bill mentioned, in Q4, when the pandemic first impacted us, we offered some concessions by lowering pricing for our florists, waiving certain fees, and implementing marketing programs to support them. Our goal was to ensure our florists could survive, which they have successfully done. This support is now benefiting us, as evidenced by an increase in customers choosing to send their orders through BloomNet instead of our competitors, as well as an increase in purchases of wholesale products from BloomNet. We're seeing a growing customer loyalty. Bill, do you have any quantifiable data from the last quarter?

William Shea, CFO

Yes. Back in Q4, the revenue growth was slightly below double digits, and the contribution margin was negative. However, as we reported in Q1, we achieved nearly 29% growth for the quarter, with contribution margins increasing by $2 million. Clearly, the decisions made back then were the right ones.

Christopher McCann, CEO

Yes. It's a good team. That BloomNet team is really doing a good job taking care of the florists.

Operator, Operator

The next question is from Anthony Lebiedzinski of Sidoti & Co.

Anthony Lebiedzinski, Analyst

So I may have missed this, but as far as the customer file growth is concerned, so are you seeing this growth across all of your brands? Or is there any one brand that stands out? And then as far as your customer file, just wondering when you look at the customer file for PMall, can you give us any indication as far as the incremental growth that customer filed because of PMall acquisition?

Christopher McCann, CEO

Thank you, Anthony. Regarding customer file growth, it's happening across all our brands, which is significant. The two leading brands in our customer acquisition efforts are 1-800-Flowers and Harry & David, but growth is evident across the board. We're also noticing similar growth with Multi-Brand customers as they recognize the value of the comprehensive solutions we offer. We are very pleased with the visibility in that area. As for the PMall numbers, the 12-month active customer range is approximately 1.5 million to 1.8 million, which we'll be adding to our customer file. We're excited about the expanded product line at PMall, which addresses more gifting needs. The broader range of lower price point items should increase usage frequency among our customers, providing a wider selection for various recipients and enhancing our lifetime value.

Anthony Lebiedzinski, Analyst

Got it. Okay. So regarding the 1.5 million to 1.8 million active customers for PMall, do you know how many of those are also your current customers? I would like to understand if you are gaining entirely new customers or not.

Christopher McCann, CEO

There's enough turnover to provide strong confidence in our ability to grow Multi-Brand purchasing. While there is some crossover in the customer base, it’s not significant, meaning that most of those customers are really new to us.

Anthony Lebiedzinski, Analyst

Got it. Okay. Can you provide a breakdown of the wholesale and retail challenges you experienced in the first quarter? Specifically, could you separate the impact from wholesale and retail?

William Shea, CFO

Yes, Anthony. So in Q1, it was about $20 million combined, about $15 million for wholesale down year-over-year and about $5 million by not having Harry & David stores open this quarter.

Operator, Operator

The next question is from Michael Kupinski of NOBLE Capital Markets.

Michael Kupinski, Analyst

Congratulations on your quarter. I know that during the height of COVID, you mentioned not experiencing any product disruptions from China. Since this is a significant inventory quarter, could you provide some insight into whether you have shifted your suppliers' products away from China and what kind of increases in inventory you have observed?

Christopher McCann, CEO

Yes, Michael. Thank you. And look, I think as we look at the inventory, we've been very fortunate that, first off, the imports from China for us are not a significant part of our supply chain. And even early on, we saw some disruption, not a lot, more just late shipping, getting in, and that caused a little bit of problem back in the March, April time period. Things got better since then. And really, the big concern was as we moved into this holiday season, what would happen as far as inventory coming in, components that we bring in from China. While they run one week to two weeks late sometimes, and that has not caused a major disruption. We've been able to utilize that and service our customers appropriately without any major interruptions. So that's worked out well for us. We've looked at shifting some capabilities, some sourcing out of China. And we've done a little bit of it. But even really as we studied it more and more, other geographies are just really aren't set up like China. So even with some of the challenges, even with some of the tariffs coming out of China, we're still better off sourcing there than many other places around the world, although we continue to look at mitigating any risk that might exist.

Michael Kupinski, Analyst

I understand. Regarding PMall, I'm curious about its revenue trajectory, especially considering the impact of COVID. Additionally, could you discuss whether the new restrictions imposed by the governor of Illinois in certain areas have affected PMall, given its location outside of Chicago?

William Shea, CFO

In Q1, we discussed the results both including and excluding PMall. Upon reviewing the figures, approximately 10 points of our growth were attributed to PMall, translating to around $20 million for the quarter. Q2 is by far the largest quarter for PMall, accounting for nearly 50% of its revenues. A significant advantage of PMall is that it remains EBITDA positive and generates a positive contribution throughout all four quarters. This upcoming quarter is particularly crucial as it coincides with important user activity. Since we took ownership, we have not experienced any disruptions in PMall, and it continues to grow steadily year-over-year.

Christopher McCann, CEO

Since we acquired PMall and began the integration process, we've involved the digital marketing team in examining the creative and content, and we are experiencing strong growth rates that exceed our expectations for PMall. The recent announcements from Governor Pritzker have not impacted our facilities in the Chicago area so far, and we believe we are well-positioned to avoid any interruptions. While the pandemic is unpredictable, we currently feel confident that we will not face any disruptions.

Michael Kupinski, Analyst

I understand that you expected some consolidation among your facilities in the long term, and that PMall's advanced facilities present opportunities for relocating some of your inventory and products there. However, does the COVID situation and the issues with Governor Pritzker, considering Illinois has been more restrictive than other markets, affect your plans for consolidating into that facility?

Christopher McCann, CEO

Not so much regarding Illinois or its restrictions. We had mentioned earlier that some planned efforts for this year were delayed due to the pandemic, particularly automation projects in several facilities, as we couldn't bring in the necessary personnel during March, April, and May. However, we anticipate that these efforts will resume more actively after the holidays as we enter January. It's important to note that this delay was not specific to Illinois; most of the work was concentrated in our facilities in Ohio and our new facility in Atlanta. While there was a setback, we expect to see progress again now after the holiday period.

Operator, Operator

The next question is from Doug Lane of Lane Research.

Douglas Lane, Analyst

So you mentioned that the PMall acquisition contributed about $20 million. Do you have a number for what the sales were lost from closing the Harry & David stores?

William Shea, CFO

Yes. It was about $5 million in the quarter.

Christopher McCann, CEO

In sales.

William Shea, CFO

We're about $20 million down in the retail wholesale component of our business, with $15 million from wholesale and $5 million from retail sales.

Operator, Operator

The next question is from Michael Kupinski of NOBLE Capital Markets.

Michael Kupinski, Analyst

Congratulations on your quarter. I recall that during the peak of COVID, you mentioned not experiencing product disruptions from China. Since this is a significant inventory quarter, could you clarify whether you have shifted your suppliers' products away from China? Additionally, what type of inventory increases have you observed?

Christopher McCann, CEO

Operator, Operator

We have no further questions in the queue. And I'd like to hand the call to the management for some closing remarks.

Christopher McCann, CEO

Great. Thank you, Chris, and thank you, everyone, for joining us on the call. Let us know if you have any additional questions. Please don't hesitate to contact us. Certainly, we'd like to wish everybody a very happy and different Halloween this season. Also, I encourage you to visit our lineup of all-star brands to see what we have for the fall season and the holiday season. Especially, I mentioned the great lineup of products that we have in PMall for this holiday season that we're just so very excited about. So thank you, and we look forward to any follow-up questions you may have.

Operator, Operator

Thank you, management. Ladies and gentlemen, this conference call has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.