FLWS 10-Q
1 800 Flowers Com Inc (FLWS)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ___ to ___
Commission File No.
1-800-FLOWERS.COM, Inc.
(Exact name of registrant as specified in its charter)
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| (State of incorporation) | (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) (Zip code) | (Registrant’s telephone number, including area code) |
| One Old Country Road, Carle Place, New York, 11514 |
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| (Former name, former address and former fiscal year, if changed since last report) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☐Large accelerated filer | ☑ | |
| ☐Non-accelerated filer | | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of each of the Registrant’s classes of common stock as of October 29, 2021:
| Class A common stock: | |
| Class B common stock: | |
1-800-FLOWERS.COM, Inc.
FORM 10-Q
For the quarterly period ended September 26, 2021
PART I. – FINANCIAL INFORMATION
ITEM 1. – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except for share data)
| September 26, 2021 | June 27, 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Trade receivables, net | ||||||||
| Inventories, net | ||||||||
| Prepaid and other | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Other intangibles, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current maturities of long-term debt | ||||||||
| Current portion of long-term operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | ||||||||
| Long-term operating lease liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value, shares authorized, issued | ||||||||
| Class A common stock, par value, shares authorized, and shares issued at September 26, 2021 and June 27, 2021, respectively | ||||||||
| Class B common stock, par value, shares authorized, shares issued at September 26, 2021 and June 27, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost, and Class A shares at September 26, 2021 and June 27, 2021, respectively, and Class B shares at September 26, 2021 and June 27, 2021 | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except for per share data)
(unaudited)
| Three Months Ended | ||||||||
| September 26, 2021 | September 27, 2020 | |||||||
| Net revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Marketing and sales | ||||||||
| Technology and development | ||||||||
| General and administrative | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Interest expense, net | ||||||||
| Other income, net | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ( | ) | ( | ) | ||||
| Net loss and comprehensive net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per common share | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted average shares used in the calculation of net loss per common share | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share data)
| Three Months Ended September 26, 2021 and September 27, 2020 |
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| Common Stock |
Additional |
Retained |
Accumulated |
Total |
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| Class A |
Class B |
Paid-in |
Earnings |
Other |
Treasury Stock |
Stockholders’ |
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| Shares |
Amount |
Shares |
Amount |
Capital |
(Deficit) |
Comprehensive Loss |
Shares |
Amount |
Equity |
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| Balance at June 27, 2021 |
$ | $ | $ | $ | $ | ( |
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$ | ( |
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| Net loss |
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- | ( |
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| Stock-based compensation |
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| Exercise of stock options |
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| Acquisition of Class A treasury stock |
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| Balance at September 26, 2021 |
$ | $ | $ | $ | $ | ( |
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$ | ( |
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| Balance at June 28, 2020 |
$ | $ | $ | $ | $ | ( |
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$ | ( |
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$ | |||||||||||||||||||||||||||||
| Net loss |
- | - | ( |
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- | ( |
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| Stock-based compensation |
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| Exercise of stock options |
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| Conversion – Class B into Class A |
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- | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Acquisition of Class A treasury stock |
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| Balance at September 27, 2020 |
$ | $ | $ | $ | $ | ( |
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$ | ( |
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$ | |||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three months ended |
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| September 26, 2021 |
September 27, 2020 |
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| Operating activities: |
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| Net loss |
$ | ( |
) | $ | ( |
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| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation and amortization |
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| Amortization of deferred financing costs |
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| Deferred income taxes |
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| Bad debt expense |
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| Stock-based compensation |
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| Other non-cash items |
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| Changes in operating items: |
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| Trade receivables |
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| Inventories |
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| Prepaid and other |
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| Accounts payable and accrued expenses |
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| Other assets and liabilities |
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| Net cash used in operating activities |
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| Investing activities: |
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| Acquisitions, net of cash acquired |
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| Capital expenditures, net of non-cash expenditures |
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| Purchase of equity investments |
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| Net cash used in investing activities |
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| Financing activities: |
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| Acquisition of treasury stock |
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| Proceeds from exercise of employee stock options |
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| Proceeds from bank borrowings |
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| Repayment of notes payable and bank borrowings |
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| Debt issuance cost |
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| Net cash (used in) provided by financing activities |
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| Net change in cash and cash equivalents |
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| Cash and cash equivalents: |
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| Beginning of period |
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| End of period |
$ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 26, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending July 3, 2022. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 27, 2021, which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.
The Company’s quarterly results may experience seasonal fluctuations. Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, historically generated nearly 50% of the Company’s annual revenues, and all of its earnings. However, with the onset of the pandemic of the novel strain of coronavirus (“COVID-19”), our customers have increasingly turned to our brands and our expanded product offerings to help them connect and express themselves, and our “everyday” gifting product line has seen increased volume. While the continuing impacts of COVID-19 are difficult to predict, the Company expects that its fiscal second quarter will continue to be its largest in terms of revenues and earnings, although the aforementioned increase in the Company’s “everyday” business has and is expected to continue to lessen the seasonality of our business. Due to the number of major floral gifting occasions, including Mother's Day, Valentine’s Day, Easter and Administrative Professionals Week, revenues also rise during the Company’s fiscal third and fourth quarters in comparison to its fiscal first quarter.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
COVID-19
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of COVID-19, including tax relief and government loans, grants and investments. The CARES Act did not have a material impact on the Company’s consolidated financial statements during the quarters ended September 26, 2021 and September 27, 2020.
The Company is closely monitoring the impact of COVID-19 on its business, including how it will affect its customers, workforce, suppliers, vendors, franchisees, florists, and production and distribution channels, as well as its financial statements. The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors, including, but not limited to: the magnitude and duration of COVID-19, the extent to which it will impact macroeconomic conditions, including interest rates, employment rates and consumer confidence, product and delivery supply chain capacity, the speed of the anticipated recovery, and governmental, business and individual consumer reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of September 26, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves and the carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s consolidated financial statements as of and for the quarters ended September 26, 2021 and September 27, 2020, the Company’s future assessment of these factors and the evolving factors described above, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.
Revenue Recognition
Net revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Service and outbound shipping charged to customers are recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues. Net revenues exclude sales and other similar taxes collected from customers.
A description of our principal revenue generating activities is as follows:
| ● | E-commerce revenues - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment. |
| ● | Retail revenues - consumer products sold through our retail stores. Revenue is recognized when control of the goods is transferred to the customer, at the point of sale, at which time payment is received. |
| ● | Wholesale revenues - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms are typically 30 days from the date control over the product is transferred to the customer. |
| ● | BloomNet Services - membership fees as well as other service offerings to florists. Membership and other subscription-based fees are recognized monthly as earned. Services revenues related to orders sent through the floral network are variable, based on either the number of orders or the value of orders, and are recognized in the period in which the orders are delivered. The contracts within BloomNet Services are typically month-to-month and as a result no consideration allocation is necessary across multiple reporting periods. Payment is typically due less than 30 days from the date the services were performed. |
Deferred Revenues
Deferred revenues are recorded when the Company has received consideration (i.e. advance payment) before satisfying its performance obligations. As such, customer orders are recorded as deferred revenue prior to shipment or rendering of product or services. Deferred revenues primarily relate to e-commerce orders placed, but not shipped, prior to the end of the fiscal period, as well as for monthly subscription programs, including our Fruit of the Month Club and Celebrations Passport program.
Our total deferred revenue as of June 27, 2021 was $
Recently Issued Accounting Pronouncements
The Company does not expect that any recently issued accounting pronouncements will have a material effect on its consolidated financial statements. Any recently adopted accounting pronouncements did not have a material impact on the Company’s consolidated financial statements.
Note 2 – Net Income (loss) Per Common Share
Basic net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the weighted-average number of common shares outstanding during the period and excludes the dilutive potential common shares (consisting of employee stock options and unvested restricted stock awards), as their inclusion would be antidilutive. As a result of the net loss for the three months ended September 26, 2021 and September 27, 2020, there is
Note 3 – Stock-Based Compensation
The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 12 and Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2021, that provides for the grant to eligible employees, consultants and directors of stock options, restricted shares, and other stock-based awards.
The amounts of stock-based compensation expense recognized in the periods presented are as follows:
| Three Months Ended | ||||||||
| September 26, 2021 | September 27, 2020 | |||||||
| (in thousands) | ||||||||
| Stock options | $ | $ | ||||||
| Restricted stock | ||||||||
| Total | ||||||||
| Deferred income tax benefit | ||||||||
| Stock-based compensation expense, net | $ | $ | ||||||
Stock-based compensation is recorded within the following line items of operating expenses:
| Three Months Ended | ||||||||
| September 26, 2021 | September 27, 2020 | |||||||
| (in thousands) | ||||||||
| Marketing and sales | $ | $ | ||||||
| Technology and development | ||||||||
| General and administrative | ||||||||
| Total | $ | $ | ||||||
Stock based compensation expense has not been allocated between business segments, but is reflected as part of Corporate overhead (see Note 12 - Business Segments).
Stock Options
The following table summarizes stock option activity during the three months ended September 26, 2021:
| Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| (in years) | (in thousands) | |||||||||||||||
| Outstanding at June 27, 2021 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Forfeited | ||||||||||||||||
| Outstanding at September 26, 2021 | $ | $ | ||||||||||||||
| Exercisable at September 26, 2021 | $ | $ | ||||||||||||||
As of September 26, 2021, the total future compensation cost related to non-vested options, not yet recognized in the statement of income, was $
Restricted Stock
The Company grants shares of Common Stock to its employees that are subject to restrictions on transfer and risk of forfeiture until fulfillment of applicable service and performance conditions and, in certain cases, holding periods (Restricted Stock). The following table summarizes the activity of non-vested restricted stock awards during the nine months ended September 26, 2021:
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Non-vested at June 27, 2021 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Non-vested at September 26, 2021 | $ | |||||||
The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of September 26, 2021, there was $
Note 4 – Acquisitions
Acquisition of PersonalizationMall
On February 14, 2020, 1-800-Flowers.com, Inc., 800-Flowers, Inc., a wholly-owned subsidiary of 1-800-Flowers.com, Inc. (the “Purchaser”), PersonalizationMall.com, LLC ("PersonalizationMall"), and Bed Bath & Beyond Inc. (“Seller”), entered into an Equity Purchase Agreement (the “Purchase Agreement”) pursuant to which Seller agreed to sell to the Purchaser, and the Purchaser agreed to purchase from Seller, all of the issued and outstanding membership interests of PersonalizationMall for $
The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values on the acquisition date. The fair values assigned to PersonalizationMall’s tangible and intangible assets and liabilities assumed were considered preliminary and were based on the information that was available as of the date of the acquisition. As of June 27, 2021, the Company had finalized its allocation and this resulted in immaterial adjustments to the carrying value of the respective recorded assets and the determination of the residual amount that was allocated to goodwill.
The following table summarizes the allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed:
| PersonalizationMall’s Preliminary Purchase Price Allocation | Measurement Period | PersonalizationMall’s Final Purchase Price Allocation | ||||||||||
| August 3, 2020 | June 27, 2021 | |||||||||||
| (in thousands) | ||||||||||||
| Assets Acquired: | ||||||||||||
| Inventories | $ | $ | - | $ | ||||||||
| Other assets | ||||||||||||
| Property, plant and equipment, net | - | |||||||||||
| Operating lease right-of-use assets | - | |||||||||||
| Goodwill | ||||||||||||
| Other intangibles, net | - | |||||||||||
| Total assets acquired | $ | $ | $ | |||||||||
| Liabilities assumed: | ||||||||||||
| Accounts payable and accrued expenses | $ | $ | $ | |||||||||
| Operating lease liabilities | - | |||||||||||
| Total liabilities assumed | $ | $ | $ | |||||||||
| Net assets acquired | $ | $ | - | $ | ||||||||
(1) The measurement period adjustments did not have a significant impact on the Company’s condensed consolidated statements of income for the year ended June 27, 2021.
The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. The estimates and assumptions include the projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows.
Acquired inventory, consisting of raw materials and supplies, was valued at book value, as there have not been any significant price fluctuations or other events that would materially change the cost to replace the raw materials.
Property, plant and equipment was valued at book value (cost less accumulated depreciation and amortization), due to the nature of the assets, which included recently acquired production equipment and leasehold improvements for PersonalizationMall's production facility, which became operational in September 2019.
Based on the valuation as of August 3, 2020, of the acquired intangible assets, $
The estimated fair value of the acquired trade names was determined using the relief from royalty method, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. The discount rate used in the valuation was based on PersonalizationMall's weighted average cost of capital, the riskiness of the earnings stream association with the trademarks and the overall composition of the acquired assets.
The estimated fair value of the acquired customer lists was determined using the excess earnings method under the income approach. This method requires identifying the future revenue that would be generated by existing customers at the time of the acquisition, considering an appropriate attrition rate based on the historical experience of the Company. Appropriate expenses are then deducted from the revenues and economic rents are charged for the return on contributory assets. The after-tax cash flows attributable to the asset are discounted back to their net present value at an appropriate intangible asset rate of return and summed to calculate the value of the customer lists.
As required by ASC 805, “Business Combinations,” the following unaudited pro forma financial information for the three months ended September 27, 2020, gives effect to the PersonalizationMall acquisition as if it had been completed on June 28, 2020. The unaudited pro forma financial information is prepared by management for informational purposes only in accordance with ASC 805 and is not necessarily indicative of or intended to represent the results that would have been achieved had the acquisition been consummated as of the dates presented, and should not be taken as representative of future consolidated results of operations. The unaudited pro forma financial information does not reflect any operating efficiencies and/or cost savings that the Company may achieve with respect to the combined companies. The pro forma information has been adjusted to give effect to nonrecurring items that are directly attributable to the acquisition.
| Three months ended September 27, 2020 | ||||
| (in thousands) | ||||
| Net revenues | $ | |||
| Net loss | $ | ( | ) | |
The unaudited pro forma amounts above include the following adjustments:
| - | A decrease of operating expenses by $ |
| - | An increase of operating expenses by $ |
| - | An increase in interest expense of $ |
| - | The combined pro forma results were tax effected using the Company's effective tax rate for the respective periods |
Note 5 – Inventory, Net
The Company’s inventory, stated at cost, which is not in excess of market, includes purchased and manufactured finished goods for sale, packaging supplies, crops, raw material ingredients for manufactured products and associated manufacturing labor and is classified as follows:
| September 26, 2021 | June 27, 2021 | |||||||
| (in thousands) | ||||||||
| Finished goods | $ | $ | ||||||
| Work-in-process | ||||||||
| Raw materials | ||||||||
| Total inventory | $ | $ | ||||||
Note 6 – Goodwill and Intangible Assets, Net
The following table presents goodwill by segment and the related change in the net carrying amount:
| Consumer Floral & Gifts | BloomNet | Gourmet Foods & Gift Baskets | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance at June 27, 2021 | $ | $ | $ | $ | ||||||||||||
| Balance at September 26, 2021 | $ | $ | $ | $ | ||||||||||||
The Company’s other intangible assets consist of the following:
| September 26, 2021 | June 27, 2021 | |||||||||||||||||||||||||||
| Amortization Period | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||
| (in years) | (in thousands) | |||||||||||||||||||||||||||
| Intangible assets with determinable lives | ||||||||||||||||||||||||||||
| Investment in licenses | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Customer lists | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||
| Total intangible assets with determinable lives | ||||||||||||||||||||||||||||
| Trademarks with indefinite lives | - | - | ||||||||||||||||||||||||||
| Total identifiable intangible assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Future estimated amortization expense is as follows: remainder of fiscal 2022 - $
Note 7 – Investments
Equity investments without a readily determinable fair value
Investments in non-marketable equity instruments of private companies, where the Company does not possess the ability to exercise significant influence, are accounted for at cost, less impairment (assessed qualitatively at each reporting period), adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. These investments are included within “Other assets” in the Company’s consolidated balance sheets. The aggregate carrying amount of the Company’s cost method investments was $
Equity investments with a readily determinable fair value
The Company also holds certain trading securities associated with its Non-Qualified Deferred Compensation Plan (“NQDC Plan”). These investments are measured using quoted market prices at the reporting date and are included within the “Other assets” line item in the consolidated balance sheets (see Note 10 - Fair Value Measurements).
The Company’s current and long-term debt consists of the following:
| September 26, 2021 | June 27, 2021 | |||||||
| (in thousands) | ||||||||
| Revolver (1) | $ | $ | ||||||
| Term Loans (1) | ||||||||
| Deferred financing costs | ( | ) | ( | ) | ||||
| Total debt | ||||||||
| Less: current debt | ||||||||
| Long-term debt | $ | $ | ||||||
| (1) | On May 31, 2019, the Company and certain of its U.S. subsidiaries entered into a Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders. The 2019 Credit Agreement amended and restated the Company’s existing amended and restated credit agreement dated as of December 23, 2016 to, among other modifications: (i) increase the amount of the outstanding term loan (“Term Loan”) from approximately $ |
| On August 20, 2020, the Company, the Subsidiary Guarantors, JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders entered into a First Amendment (the “First Amendment”) to the 2019 Credit Agreement. The First Amendment amends the 2019 Credit Agreement (together the "2020 Credit Agreement”) to, among other modifications, (i) increase the aggregate principal amount of the existing Revolver commitments from $
The 2020 Credit Agreement requires that while any borrowings or commitments are outstanding the Company comply with certain financial covenants and affirmative covenants as well as certain negative covenants that, subject to certain exceptions, limit the Company’s ability to, among other things, incur additional indebtedness, make certain investments and make certain restricted payments. The Company was in compliance with these covenants as of September 26, 2021. The 2020 Credit Agreement is secured by substantially all of the assets of the Company. |
Future principal payments under the Term Loan and New Term Loan are as follows: $
Note 9 - Property, Plant and Equipment
The Company’s property, plant and equipment consists of the following:
| September 26, 2021 | June 27, 2021 | |||||||
| (in thousands) | ||||||||
| Land | $ | $ | ||||||
| Orchards in production and land improvements | ||||||||
| Building and building improvements | ||||||||
| Leasehold improvements | ||||||||
| Production equipment | ||||||||
| Furniture and fixtures | ||||||||
| Computer and telecommunication equipment | ||||||||
| Software | ||||||||
| Capital projects in progress - orchards | ||||||||
| Property, plant and equipment, gross | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Note 10 - Fair Value Measurements
Cash and cash equivalents, trade and other receivables, prepaids, accounts payable and accrued expenses are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. Although no trading market exists, the Company believes that the carrying amount of its debt approximates fair value due to its variable nature. The Company’s investments in non-marketable equity instruments of private companies are carried at cost and are periodically assessed for other-than-temporary impairment, when an event or circumstances indicate that an other-than-temporary decline in value may have occurred. The Company’s remaining financial assets and liabilities are measured and recorded at fair value (see table below). The Company’s non-financial assets, such as definite lived intangible assets and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. Goodwill and indefinite lived intangibles are tested for impairment annually, or more frequently, if events occur or circumstances change such that it is more likely than not that an impairment may exist, as required under the accounting standards.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below:
| Level 1 | Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. | |
| Level 2 | Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. | |
| Level 3 | Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The following table presents by level, within the fair value hierarchy, financial assets and liabilities measured at fair value on a recurring basis:
| Carrying Value | Fair Value Measurements Assets (Liabilities) | |||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| (in thousands) | ||||||||||||||||
| As of September 26, 2021: | ||||||||||||||||
| Trading securities held in a “rabbi trust” (1) | $ | $ | $ | $ | ||||||||||||
| Total assets (liabilities) at fair value | $ | $ | $ | $ | ||||||||||||
| As of June 27, 2021: | ||||||||||||||||
| Trading securities held in a “rabbi trust” (1) | $ | $ | $ | $ | ||||||||||||
| Total assets (liabilities) at fair value | $ | $ | $ | $ | ||||||||||||
| (1) | The Company has established a NQDC Plan for certain members of senior management. Deferred compensation plan assets are invested in mutual funds held in a “rabbi trust,” which is restricted for payment to participants of the NQDC Plan. Trading securities held in a rabbi trust are measured using quoted market prices at the reporting date and are included in the “Other assets” line item, with the corresponding liability included in the “Other liabilities” line item in the consolidated balance sheets. |
Note 11 – Income Taxes
At the end of each interim reporting period, the Company estimates its effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The Company’s effective tax rate for the three months ended September 26, 2021 was
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Company is currently undergoing its U.S. federal examination for fiscal 2018, however, fiscal years and 2020 remain subject to U.S. federal examination. Due to ongoing state examinations and nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from fiscal The Company's foreign income tax filings from fiscal 2016 are open for examination by its respective foreign tax authorities, mainly Canada, Brazil, and the United Kingdom.
The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At September 26, 2021, the Company has an unrecognized tax benefit, including interest and penalties, of approximately $
The Company’s management reviews the results of its operations by the following
| • | Consumer Floral & Gifts, |
| • | BloomNet, and |
| • | Gourmet Foods & Gift Baskets |
Segment performance is measured based on contribution margin, which includes only the direct controllable revenue and operating expenses of the segments. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead (see (a) below), nor does it include depreciation and amortization, other (income) expense, net and income taxes, or stock-based compensation. Assets and liabilities are reviewed at the consolidated level by management and not accounted for by segment.
| Three Months Ended | ||||||||
| Net Revenues: | September 26, 2021 | September 27, 2020 | ||||||
| Segment Net Revenues: | (in thousands) | |||||||
| Consumer Floral & Gifts | $ | $ | ||||||
| BloomNet | ||||||||
| Gourmet Food & Gift Baskets | ||||||||
| Corporate | ||||||||
| Intercompany eliminations | ( | ) | ( | ) | ||||
| Total net revenues | $ | $ | ||||||
| Three Months Ended | ||||||||
| Operating Income (Loss): | September 26, 2021 | September 27, 2020 | ||||||
| (in thousands) | ||||||||
| Segment Contribution Margin: | ||||||||
| Consumer Floral & Gifts | $ | $ | ||||||
| BloomNet | ||||||||
| Gourmet Food & Gift Baskets | ( | ) | ( | ) | ||||
| Segment Contribution Margin Subtotal | ||||||||
| Corporate (a) | ( | ) | ( | ) | ||||
| Depreciation and amortization | ( | ) | ( | ) | ||||
| Operating loss | $ | ( | ) | $ | ( | ) | ||
(a) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.
The following tables represent a disaggregation of revenue from contracts with customers, by channel:
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | |||||||||||||||||||||||||||||||
| Consumer Floral & Gifts | BloomNet | Gourmet Foods & Gift Baskets | Consolidated | Consumer Floral & Gifts | BloomNet | Gourmet Foods & Gift Baskets | Consolidated | |||||||||||||||||||||||||
| Net revenues | (in thousands) | |||||||||||||||||||||||||||||||
| E-commerce | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||||||||
| Wholesale | ||||||||||||||||||||||||||||||||
| BloomNet services | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||||||||||
| Eliminations | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
The Company currently leases plants, warehouses, offices, store facilities, and equipment under various leases through fiscal 2034. Most lease agreements are of a long-term nature (over a year), although the Company does also enter into short-term leases, primarily for seasonal needs. Lease agreements may contain renewal options and rent escalation clauses and require the Company to pay real estate taxes, insurance, common area maintenance and operating expenses applicable to the leased properties. The Company accounts for its leases in accordance with ASC 842.
At contract inception, we determine whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time, by assessing whether we have the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset.
At the lease commencement date, we determine if a lease should be classified as an operating or a finance lease (we currently have no finance leases) and recognize a corresponding lease liability and a right-of-use asset on our Balance Sheet. The lease liability is initially and subsequently measured as the present value of the remaining fixed minimum rental payments (including base rent and fixed common area maintenance) using discount rates as of the commencement date. Variable payments (including most utilities, real estate taxes, insurance and variable common area maintenance) are expensed as incurred. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. The right-of-use asset is initially and subsequently measured at the carrying amount of the lease liability adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use asset. Right-of-use assets are assessed for impairment using the long-lived assets impairment guidance. The discount rate used to determine the present value of lease payments is our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as we generally cannot determine the interest rate implicit in the lease.
We recognize expense for our operating leases on a straight-line basis over the lease term. As these leases expire, it can be expected that in the normal course of business they will be renewed or replaced. Renewal option periods are included in the measurement of lease liability, where the exercise is reasonably certain to occur. Key estimates and judgments in accounting for leases include how we determine: (1) lease payments, (2) lease term, and (3) the discount rate used in calculating the lease liability.
Additional information related to our leases is as follows:
| Three Months Ended | ||||
| September 26, 2021 | ||||
| (in thousands) | ||||
| Lease costs: | ||||
| Operating lease costs | $ | |||
| Variable lease costs | ||||
| Short-term lease cost | ||||
| Sublease income | ( | ) | ||
| Total lease costs | $ | |||
| Three Months Ended | ||||
| September 26, 2021 | ||||
| (in thousands) | ||||
| Cash paid for amounts included in measurement of operating lease liabilities | $ | |||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | |||
| September 26, 2021 | ||||
| (in thousands) | ||||
| Weighted-average remaining lease term - operating leases (in years) | ||||
| Weighted-discount rate - operating leases | % | |||
Maturities of lease liabilities in accordance with ASC 842 as of September 26, 2021 are as follows (in thousands):
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total Future Minimum Lease Payments | ||||
| Less Imputed Remaining Interest | ||||
| Total | $ |
Note 14 – Commitments and Contingencies
Litigation
Bed Bath & Beyond:
On April 1, 2020, the Seller commenced an action against the Company in the Court of Chancery for the State of Delaware, which is captioned Bed Bath & Beyond Inc. v. 1-800-Flowers.com, et ano., C.A. (the “Complaint”), alleging a breach of the Equity Purchase Agreement (the “Purchase Agreement”), dated February 14, 2020, between Seller, PersonalizationMall, the Company and the Purchaser, pursuant to which the Seller agreed to sell to Purchaser, and the Purchaser agreed to purchase from Seller, all of the issued and outstanding membership interests of PersonalizationMall. The action was initiated after the Company requested a reasonable delay in the closing under the Purchase Agreement due to the unprecedented circumstances created by COVID-19. The Complaint requested an order of specific performance to consummate the transaction under the Purchase Agreement plus attorney’s fees and costs in connection with the action. The Company filed its answer to the Complaint on April 17, 2020 and an order governing expedited proceedings was approved on April 9, 2020 that set a trial date for late September 2020. On July 21, 2020, the Company and Seller entered into a settlement agreement, pursuant to which the Company agreed to move forward with its purchase of PersonalizationMall for $
In addition, there are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the final resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
Note 15 – Subsequent Event
Acquisition of Vital Choice
On October 27, 2021, the Company completed its acquisition of Vital Choice Seafood LLC, a provider of wild-caught seafood and sustainably farmed shellfish, pastured proteins, organic foods, and marine-sourced nutritional supplements. The Company utilized its existing credit facility to fund the $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” ("MD&A") is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-Q and in the Company’s Annual Report on Form 10-K, for the year ended June 27, 2021. The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed or referred to in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Forward-Looking Information and Factors That May Affect Future Results,” under Part I, Item 1A, of the Company’s Annual Report on Form 10-K, for the year ended June 27, 2021 under the heading “Risk Factors” and Part II-Other Information, Item 1A in this Form 10-Q.
Business Overview
1-800-FLOWERS.COM, Inc. and its subsidiaries (collectively, the “Company”) is a leading provider of gifts designed to help customers express, connect and celebrate. The Company’s business platform features our all-star family of brands, including: 1-800-Flowers.com®, 1-800-Baskets.com®, Cheryl’s Cookies®, Harry & David®, PersonalizationMall.com®, Shari’s Berries®, FruitBouquets.com®, Moose Munch®, The Popcorn Factory®, Wolferman’s Bakery®, Stock Yards® and Simply Chocolate®. Through the Celebrations Passport® loyalty program, which provides members with free standard shipping and no service charge across our portfolio of brands, 1-800-FLOWERS.COM, Inc. strives to deepen relationships with customers. The Company also operates BloomNet®, an international floral and gift industry service provider offering a broad-range of products and services designed to help members grow their businesses profitably; Napco℠, a resource for floral gifts and seasonal décor; and DesignPac Gifts, LLC, a manufacturer of gift baskets and towers.
For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our Annual Report on Form 10-K for the year ended June 27, 2021.
Acquisition of PersonalizationMall
On August 3, 2020, the Company completed its acquisition of PersonalizationMall.com LLC ("PersonalizationMall"), a leading ecommerce provider of personalized products. The extensive offerings of PersonalizationMall include a wide variety of personalization processes such as sublimation, embroidery, digital printing, engraving and sandblasting, while providing an industry-leading customer experience based on a fully integrated business platform that includes a highly automated personalization process and rapid order fulfillment.
The Company used a combination of cash on its balance sheet and its existing credit facility to fund the $245.0 million purchase (subject to certain working capital and other adjustments), which included its newly renovated, leased 360,000 square foot state-of-the-art production and distribution facility, as well as customer database, tradenames and website. PersonalizationMall’s revenues were approximately $171.2 million during its fiscal year ended February 29, 2020.
Amended Credit Agreement
Subsequent to, but in contemplation of the acquisition, on August 20, 2020, the Company entered into a First Amendment to its 2019 Credit Agreement to: (i) increase the aggregate principal amount of the existing Revolver commitments from $200.0 million to $250.0 million, (ii) establish a new tranche of term A-1 loans in an aggregate principal amount of $100.0 million (the “New Term Loan”), (iii) increase the working capital sublimit with respect to the Revolver from $175.0 million to $200.0 million, and (iv) increase the seasonally-reduced Revolver commitments from $100.0 million to $125.0 million for the period from January 1 through August 1 for each fiscal year of the Company. The $100.0 million proceeds of the New Term Loan were used to repay the $95.0 million borrowing that had been drawn on its existing Revolver to finance the acquisition, as well as financing fees of approximately $2.0 million (See Note 8 - Debt, in Item 1. for details).
COVID-19 Impact
In response to the global pandemic, the Company has taken actions to promote employee safety and business continuity, informed by the guidelines set forth by local, state and federal government and health officials. These initiatives include developing a “Pandemic Preparedness and Response Plan,” establishing an internal “nerve center” to allow for communication and coordination throughout the business, designing workstream teams to promote workforce protection and supply chain management, and dedicating resources to support customers, vendors, franchisees, and our BloomNet member florists.
The COVID-19 pandemic has affected, and will continue to affect, our operations and financial results for the foreseeable future. While there is significant uncertainty in the overall consumer environment due to the COVID-19 crisis, we continue to see strong e-commerce demand for gourmet foods and gift baskets and our floral and personalized products. With that said, there are headwinds (and resulting increased costs) that have been, and will continue to impact our operations during the foreseeable future, including:
| ● |
Increased operating costs - we are seeing increased costs associated with the changes we have made, and continue to make, to our manufacturing, warehouse and distribution facilities to provide for the safety and wellbeing of our associates, including: required social distancing, enhanced facility cleaning and sanitizing schedules, and staggered production shifts, as well as overall wage rate increases and labor supply shortages. |
|
|
|
||
| ● |
Supply chain constraints – the nationwide increase in e-commerce volume has also resulted in third-party carrier capacity constraints, and higher delivery costs, while ocean transport capacity shortages, caused by the ongoing global recovery from the pandemic, have contributed to supply chain shortages and increased costs. |
The scale and overall economic impact of the COVID-19 crisis is still very difficult to assess as the Company began to annualize the impact that COVID-19 has had on consumer behavior in its fiscal fourth quarter of 2021. However, the Company believes that the operating platform it has built over the years, combined with its diversified product line, and ability to engage with its customers will allow it to successfully navigate this challenging environment and continue to grow revenues at a double-digit pace through fiscal 2022. The Company’s 9.0 percent revenue growth for the quarter, followed 51.5 percent growth achieved in last year’s first quarter, when ecommerce demand spiked during the early stages of the pandemic. As we had anticipated, the first quarter of fiscal 2022 started out somewhat slowly, with demand gradually ramping up, before reaching double-digit growth in the month of September. Continuing recognition and relevance of the Company’s products for everyday gifting and connective occasions, as well as an expanded product offering, including PersonalizationMall, were the primary drivers of growth.
In order to mitigate the impact of the aforementioned headwinds, the Company has implemented a number of initiatives designed to take advantage of the strong ecommerce demand we anticipate during the key holiday season. These initiatives include strategic pricing programs across our brands, as wells as the significant investments we have made in our operating platform, including pre-building inventory, which leverages our expanded cold-storage facilities, and deploying automation in our warehouse and distribution facilities to increase throughput and reduces reliance on seasonal labor. As a result, we are well positioned to help our customers connect and express themselves with the important people in their lives for both everyday occasions and the key holiday season.
Company Guidance
The Company is reaffirming its guidance for its fiscal 2022 year, which includes:
| • |
Total revenue growth of 10.0 percent-to-12.0 percent compared with the prior year; |
| • |
Adjusted EBITDA growth of 5.0 percent-to-8.0 percent compared with the prior year; |
| • |
EPS in line with fiscal 2021 as improved EBITDA is offset by higher depreciation and a higher effective tax rate; and |
| • |
Free Cash Flow to exceed $100 million. |
The Company’s guidance for the year is based on several factors, including:
| • |
The significant increase in consumers shopping online where the Company’s broad product offering and brand portfolio makes it a leading destination for customers looking for solutions to help them connect, express themselves and celebrate - sentiments that have become more important than ever; |
| • |
Significant expansion of the Company’s product offering, both organically and through strategic acquisitions like Shari’s Berries and PersonalizationMall; |
| • |
The expanded size of the Company’s customer file along with continued positive customer behavior trends; and |
| • |
Continued strong growth in the Company’s Celebrations Passport® loyalty program, which is helping drive increased frequency, retention, and cross-category/cross-brand purchases. |
Definitions of non-GAAP Financial Measures:
We sometimes use financial measures derived from consolidated financial information, but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain of these are considered "non-GAAP financial measures" under the U.S. Securities and Exchange Commission rules. See below for definitions and the reasons why we use these non-GAAP financial measures. Where applicable, see the Segment Information and Results of Operations sections below for reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures. We do not provide a reconciliation of adjusted EBITDA guidance to net income guidance or a reconciliation of free cash flow guidance to net cash provided by operating activities because doing so would require unreasonable efforts at this time, because of the uncertainty and variability of the nature and amount of certain components of various necessary GAAP components, including for example those related to compensation, tax items, amortization or others that may arise during the year, and the Company's management believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors. These non-GAAP financial measures are referred to as “adjusted" or “on a comparable basis” below.
EBITDA and adjusted EBITDA
We define EBITDA as net income (loss) before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for the impact of stock-based compensation, NQDC Plan investment appreciation/depreciation, and for certain items affecting period-to-period comparability. See Segment Information for details on how EBITDA and adjusted EBITDA were calculated for each period presented.
The Company presents EBITDA and adjusted EBITDA because it considers such information meaningful supplemental measures of its performance and believes such information is frequently used by the investment community in the evaluation of similarly situated companies. The Company uses EBITDA and adjusted EBITDA as factors to determine the total amount of incentive compensation available to be awarded to executive officers and other employees. The Company's credit agreement uses EBITDA and adjusted EBITDA to measure compliance with covenants such as interest coverage and debt incurrence. EBITDA and adjusted EBITDA are also used by the Company to evaluate and price potential acquisition candidates.
EBITDA and adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of the limitations are: (a) EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements for, the Company's working capital needs; (b) EBITDA and adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debts; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and EBITDA does not reflect any cash requirements for such capital expenditures. EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company's performance.
Segment contribution margin and adjusted segment contribution margin
We define segment contribution margin as earnings before interest, taxes, depreciation and amortization, before the allocation of corporate overhead expenses. Adjusted segment contribution margin is defined as contribution margin adjusted for certain items affecting period-to-period comparability. See Segment Information for details on how segment contribution margin was calculated for each period presented.
When viewed together with our GAAP results, we believe segment contribution margin and adjusted segment contribution margin provide management and users of the financial statements meaningful information about the performance of our business segments.
Segment contribution margin and adjusted segment contribution margin are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. The material limitation associated with the use of the segment contribution margin and adjusted segment contribution margin is that they are an incomplete measure of profitability as they do not include all operating expenses or non-operating income and expenses. Management compensates for these limitations when using this measure by looking at other GAAP measures, such as operating income and net income.
Adjusted net income (loss) and adjusted or comparable net income (loss) per common share
We define adjusted net income (loss) and adjusted or comparable net income (loss) per common share as net income (loss) and net income (loss) per common share adjusted for certain items affecting period-to-period comparability. See Segment Information below for details on how adjusted net income (loss) and adjusted or comparable net income (loss) per common share were calculated for each period presented.
We believe that adjusted net income (loss) and adjusted or comparable net income (loss) per common share are meaningful measures because they increase the comparability of period-to-period results.
Since these are not measures of performance calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, GAAP net income (loss) and net income (loss) per common share, as indicators of operating performance and they may not be comparable to similarly titled measures employed by other companies.
Free Cash Flow
We define free cash flow as net cash provided by operating activities less capital expenditures. The Company considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of fixed assets, which can then be used to, among other things, invest in the Company’s business, make strategic acquisitions, strengthen the balance sheet, and repurchase stock or retire debt. Free cash flow is a liquidity measure that is frequently used by the investment community in the evaluation of similarly situated companies.
Since free cash flow is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period.
The following table presents the net revenues, gross profit and segment contribution margin from each of the Company’s business segments, as well as consolidated EBITDA, and adjusted EBITDA.
| Three Months Ended |
||||||||||||||||||||||||||||||||
| September 26, 2021 |
Transaction Costs |
As Adjusted (non-GAAP) September 26, 2021 |
September 27, 2020 |
PersonalizationMall Litigation & Transaction Costs |
Harry & David Store Closure Costs |
As Adjusted (non-GAAP) September 27, 2020 |
% Change |
|||||||||||||||||||||||||
| Net revenues: |
||||||||||||||||||||||||||||||||
| Consumer Floral & Gifts |
$ | 181,229 | $ | - | $ | 181,229 | $ | 161,546 | $ | - | $ | - | $ | 161,546 | 12.2 | % | ||||||||||||||||
| BloomNet |
30,834 | 30,834 | 32,738 | 32,738 | -5.8 | % | ||||||||||||||||||||||||||
| Gourmet Foods & Gift Baskets |
97,482 | 97,482 | 89,929 | 89,929 | 8.4 | % | ||||||||||||||||||||||||||
| Corporate |
45 | 45 | 106 | 106 | -57.5 | % | ||||||||||||||||||||||||||
| Intercompany eliminations |
(217 | ) | (217 | ) | (547 | ) | (547 | ) | 60.3 | % | ||||||||||||||||||||||
| Total net revenues |
$ | 309,373 | $ | - | $ | 309,373 | $ | 283,772 | $ | - | $ | - | $ | 283,772 | 9.0 | % | ||||||||||||||||
| Gross profit: |
||||||||||||||||||||||||||||||||
| Consumer Floral & Gifts |
$ | 76,003 | $ | 76,003 | $ | 65,586 | $ | 65,586 | 15.9 | % | ||||||||||||||||||||||
| 41.9 | % | 41.9 | % | 40.6 | % | 40.6 | % | |||||||||||||||||||||||||
| BloomNet |
15,409 | 15,409 | 14,838 | 14,838 | 3.8 | % | ||||||||||||||||||||||||||
| 50.0 | % | 50.0 | % | 45.3 | % | 45.3 | % | |||||||||||||||||||||||||
| Gourmet Foods & Gift Baskets |
34,163 | 34,163 | 35,007 | 35,007 | -2.4 | % | ||||||||||||||||||||||||||
| 35.0 | % | 35.0 | % | 38.9 | % | 38.9 | % | |||||||||||||||||||||||||
| Corporate |
(61 | ) | (61 | ) | 49 | 49 | -224.5 | % | ||||||||||||||||||||||||
| -135.6 | % | -135.6 | % | 46.2 | % | 46.2 | % | |||||||||||||||||||||||||
| Total gross profit |
$ | 125,514 | $ | - | $ | 125,514 | $ | 115,480 | $ | - | $ | - | $ | 115,480 | 8.7 | % | ||||||||||||||||
| 40.6 | % | - | 40.6 | % | 40.7 | % | - | - | 40.7 | % | ||||||||||||||||||||||
| EBITDA (non-GAAP): |
||||||||||||||||||||||||||||||||
| Segment Contribution Margin (non-GAAP) (a): |
||||||||||||||||||||||||||||||||
| Consumer Floral & Gifts |
$ | 19,190 | $ | - | $ | 19,190 | $ | 19,236 | $ | - | $ | - | $ | 19,236 | -0.2 | % | ||||||||||||||||
| BloomNet |
10,860 | 10,860 | 10,421 | 10,421 | 4.2 | % | ||||||||||||||||||||||||||
| Gourmet Foods & Gift Baskets |
(7,673 | ) | (7,673 | ) | (2,581 | ) | (405 | ) | (2,986 | ) | -157.0 | % | ||||||||||||||||||||
| Segment Contribution Margin Subtotal |
22,377 | - | 22,377 | 27,076 | - | (405 | ) | 26,671 | -16.1 | % | ||||||||||||||||||||||
| Corporate (b) |
(31,731 | ) | 456 | (31,275 | ) | (31,697 | ) | 4,890 | (26,807 | ) | -16.7 | % | ||||||||||||||||||||
| EBITDA (non-GAAP) |
(9,354 | ) | 456 | (8,898 | ) | (4,621 | ) | 4,890 | (405 | ) | (136 | ) | -6442.6 | % | ||||||||||||||||||
| Add: Stock-based compensation |
3,005 | 3,005 | 2,393 | 2,393 | 25.6 | % | ||||||||||||||||||||||||||
| Add: Compensation charge related to NQ Plan Investment Appreciation |
567 | 567 | 980 | 980 | -42.1 | % | ||||||||||||||||||||||||||
| Adjusted EBITDA (non-GAAP) |
$ | (5,782 | ) | $ | 456 | $ | (5,326 | ) | $ | (1,248 | ) | $ | 4,890 | $ | (405 | ) | $ | 3,237 | -264.5 | % | ||||||||||||
| Reconciliation of net loss to adjusted net loss (non-GAAP): |
Three Months Ended |
|||||||
| September 26, 2021 |
September 27, 2020 |
|||||||
| Net loss |
$ | (13,199 | ) | $ | (9,762 | ) | ||
| Adjustments to reconcile net loss to adjusted net loss (non-GAAP) |
||||||||
| Add: Transaction costs |
456 | 4,890 | ||||||
| Deduct: Harry & David store closure cost adjustment |
- | (405 | ) | |||||
| Deduct: Income tax effect on adjustments |
(173 | ) | (1,242 | ) | ||||
| Adjusted net loss (non-GAAP) |
$ | (12,916 | ) | $ | (6,519 | ) | ||
| Basic and diluted net loss per common share |
$ | (0.20 | ) | $ | (0.15 | ) | ||
| Basic and diluted adjusted net loss per common share (non-GAAP) |
$ | (0.20 | ) | $ | (0.10 | ) | ||
| Weighted average shares used in the calculation of net loss and adjusted net loss per common share |
65,062 | 64,320 | ||||||
| Reconciliation of net loss to adjusted EBITDA (non-GAAP): |
Three Months Ended |
|||||||
| September 26, 2021 |
September 27, 2020 |
|||||||
| Net loss |
$ | (13,199 | ) | $ | (9,762 | ) | ||
| Add: Interest expense and other, net |
932 | 41 | ||||||
| Add: Depreciation and amortization |
10,970 | 8,840 | ||||||
| Deduct: Income tax benefit |
8,057 | 3,740 | ||||||
| EBITDA |
(9,354 | ) | (4,621 | ) | ||||
| Add: Stock-based compensation |
3,005 | 2,393 | ||||||
| Add: Compensation charge related to NQ plan investment appreciation |
567 | 980 | ||||||
| Add: Transaction costs |
456 | 4,890 | ||||||
| Deduct: Harry & David store closure cost adjustment |
- | (405 | ) | |||||
| Adjusted EBITDA |
$ | (5,326 | ) | $ | 3,237 | |||
(a) Segment performance is measured based on segment contribution margin or segment Adjusted EBITDA, reflecting only the direct controllable revenue and operating expenses of the segments, both of which are non-GAAP measurements. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead, described above, depreciation and amortization, other income (net), and other items that we do not consider indicative of our core operating performance.
(b) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.
Net revenues
| Three Months Ended |
||||||||||||
| September 26, 2021 |
September 27, 2020 |
% Change |
||||||||||
| (dollars in thousands) |
||||||||||||
| Net revenues: | ||||||||||||
| E-Commerce |
$ | 263,371 | $ | 238,863 | 10.3 | % |
||||||
| Other |
46,002 | 44,909 | 2.4 | % |
||||||||
| Total net revenues |
$ | 309,373 | $ | 283,772 | 9.0 | % |
||||||
Net revenues consist primarily of the selling price of the merchandise, service or outbound shipping charges, less discounts, returns and credits.
Net revenues increased 9.0% during the three months ended September 26, 2021, compared to the same period of the prior year, due to higher revenues within the Consumer Floral & Gifts and Gourmet Foods & Gift Baskets segments, partially offset by a decline within the BloomNet segment. Adjusted for the impact of the non-comparative period of PersonalizationMall, which was acquired on August 3, 2020, and is included in our Consumer Floral & Gifts segment, consolidated revenues grew 4.3% in comparison to the prior year. This revenue growth was during one of our most challenging year-over-year comparisons, as it followed the 51.5% revenue growth we reported in the first quarter last year, which was accelerated by the growth of e-commerce shopping during the pandemic, and as we faced significant headwinds affecting revenue growth, including increased digital marketing costs, and wide-spread delays in obtaining certain product components. This illustrates the strong growth momentum that we have been building over the past several years, as a result of increased recognition and relevance for our family of brands for everyday gifting and connective occasions, which was complemented by an expanded product assortment, including PersonalizationMall products. We also continued to see growth in our Celebrations Passport loyalty program, which helps drive increased cross-brand purchasing, purchase frequency, retention, and customer life-time value.
Disaggregated revenue by channel follows:
| Three Months Ended |
Three Months Ended |
|||||||||||||||||||||||||||||||
| September 26, 2021 |
September 27, 2020 |
|||||||||||||||||||||||||||||||
| Consumer Floral & Gifts |
BloomNet |
Gourmet Foods & Gift Baskets |
Consolidated |
Consumer Floral & Gifts |
BloomNet |
Gourmet Foods & Gift Baskets |
Consolidated |
|||||||||||||||||||||||||
| Net revenues |
(in thousands) |
|||||||||||||||||||||||||||||||
| E-commerce |
$ | 179,286 | $ | - | $ | 84,085 | $ | 263,371 | $ | 159,792 | $ | - | $ | 79,071 | $ | 238,863 | ||||||||||||||||
| Retail |
1,110 | - | 1,837 | 2,947 | 946 | - | 1,573 | 2,519 | ||||||||||||||||||||||||
| Wholesale |
- | 9,984 | 11,560 | 21,544 | - | 11,292 | 9,285 | 20,577 | ||||||||||||||||||||||||
| BloomNet services |
- | 20,850 | - | 20,850 | - | 21,446 | - | 21,446 | ||||||||||||||||||||||||
| Other |
833 | - | - | 833 | 808 | - | - | 808 | ||||||||||||||||||||||||
| Corporate |
- | - | - | 45 | - | - | - | 106 | ||||||||||||||||||||||||
| Eliminations |
- | - | - | (217 | ) | - | - | - | (547 | ) |
||||||||||||||||||||||
| Net revenues |
$ | 181,229 | $ | 30,834 | $ | 97,482 | $ | 309,373 | $ | 161,546 | $ | 32,738 | $ | 89,929 | $ | 283,772 | ||||||||||||||||
Revenue by sales channel:
| ● |
E-commerce revenues (combined online and telephonic) increased by 10.3% during the three months ended September 26, 2021, comprised of 6.3% growth within the Gourmet Foods & Gift Baskets segment, and 12.2% within the Consumer Floral & Gifts segment, which includes the revenues of PersonalizationMall, since its date of acquisition on August 3, 2020. |
The Company fulfilled approximately 3.7 million orders through its e-commerce sales channels (online and telephonic sales) during the three months ended September 26, 2021, an increase of 5.9% compared to the same period of the prior year, while average order value increased 4.1% to $70.95 during the same period.
| ● |
Other revenues are comprised of the Company’s BloomNet segment, as well as the wholesale and retail channels of its Consumer Floral & Gifts and Gourmet Foods & Gift Baskets segments. Other revenues increased by 2.4% during the three months ended September 26, 2021, compared to the same period of the prior year, due to increased volume by Gourmet Food & Gift Basket wholesale customers as COVID-19 restrictions eased, partially offset by lower wholesale revenues within the BloomNet segment, primarily as a result of supply chain delays. |
Revenue by segment:
Consumer Floral & Gifts – this segment, which historically has consisted primarily of the operations of the 1-800-Flowers.com brand, but now includes revenues attributable to PersonalizationMall subsequent to its August 3, 2020 acquisition date, derives revenue from the sale of consumer floral products and gifts through its e-commerce sales channels (telephonic and online sales), retail stores, and royalties from its franchise operations.
Net revenues within this segment increased 12.2% during the three months ended September 26, 2021, compared to the same period of the prior year, reflecting the contributions of PersonalizationMall and the marketing and merchandising investments made in our flagship brand, which are continuing to drive growth and market share gains. This growth came during a period when consumers were distracted by summer activities that re-opened as COVID-19 restrictions were being lifted, validating the strength of the brand and its customer base. Pro-forma segment revenue growth was 3.9%, during the three months ended September 26, 2021, adjusting for the August 3, 2020 acquisition of PersonalizationMall.
BloomNet - revenues in this segment are derived from membership fees, as well as other product and service offerings to florists. Net revenues decreased 5.8% during the three months ended September 26, 2021, compared to the same period of the prior year, reflecting delays in wholesale hard-goods shipments due to supply chain constraints which have delayed receipt of product, and reduced florist-to-florist order volume, partially offset by favorable membership related services.
Gourmet Foods & Gift Baskets – this segment includes the operations of Harry & David, Wolferman’s, Stock Yards, Cheryl’s Cookies, The Popcorn Factory, 1-800-Baskets/DesignPac, and Shari’s Berries. Revenue is derived from the sale of gourmet fruits, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, gift baskets, dipped berries, and prime steaks and chops through the Company’s e-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Harry & David and Cheryl’s brand names, as well as wholesale operations.
Net revenues within this segment increased 8.4% during the three months ended September 26, 2021, compared to the same period of the prior year, due to: (i) favorable e-commerce revenues of 6.3% resulting from increased penetration of “everyday” volume driven by Harry & David, Cheryl’s Cookies, and Shari’s Berries initiatives, as well as (ii) wholesale and retail revenue growth of 23.4%, due to improving demand as COVID-19 restrictions were lifted and foot-traffic in customer locations continued to return to more normalized levels.
Gross profit
| Three Months Ended |
||||||||||||
| September 26, 2021 |
September 27, 2020 |
% Change |
||||||||||
| (dollars in thousands) |
||||||||||||
| Gross profit |
$ | 125,514 | $ | 115,480 | 8.7 | % |
||||||
| Gross profit % |
40.6 | % |
40.7 | % |
||||||||
Gross profit consists of net revenues less cost of revenues, which is comprised primarily of florist fulfillment costs (fees paid directly to florists), the cost of floral and non-floral merchandise sold from inventory or through third parties, and associated costs, including inbound and outbound shipping charges. Additionally, cost of revenues includes labor and facility costs related to direct-to-consumer and wholesale production operations, as well as payments made to sending florists related to order volume sent through the Company’s BloomNet network.
Gross profit increased 8.7% during the three months ended September 26, 2021, compared to the same period of the prior year, as a result of the increase in revenues noted above, partially offset by slightly lower gross margin percentage. Gross profit percentage decreased 10 basis points, during the three months ended September 26, 2021, compared to the same period of the prior year, primarily due to lower margins within the Gourmet Foods & Gift Baskets segment, partially offset by higher margins within the Consumer Floral & Gifts and Bloomnet segments. On a pro-forma basis, adjusting for the impact of PersonalizationMall, gross margin percentage was 40.0% during the three months ended September 26, 2021. The lower margins reflect macro-economic headwinds including limited availability and increased costs for labor, as well as widespread delays and rising costs of inbound and outbound transportation. The Company has implemented a number of initiatives designed to mitigate the impact of these issues, including strategic pricing initiatives across our brands, as well as the investments we have made in our operating platform, consisting of pre-building inventory, deploying automation to increase throughput and reduce reliance on seasonal labor. Gross profit by segment follows:
Consumer Floral & Gifts segment - Gross profit increased by 15.9% during the three months ended September 26, 2021, compared to the same period of the prior year, as a result of the revenue increase noted above, as well as higher gross margin percentage, which increased 130 basis points, to 41.9%, due to the impact of the acquisition of PersonalizationMall, which carries higher margins, as well as pricing initiatives, partially offset by higher component and transportation costs. On a pro-forma basis, adjusting for the impact of PersonalizationMall, gross margin percentage was 41.1% during the three months ended September 26, 2021.
BloomNet segment - Gross profit increased by 3.8% during the three months ended September 26, 2021, compared to the same period of the prior year, due to an increase in gross margin percentage of 470 basis points to 50.0%, partially offset by the decrease in revenue noted above. The increase in gross margin percentage was due to revenue mix resulting from growth in high margin services revenue streams, and decreases in lower margin wholesale revenues and florist-to-florist volumes.
Gourmet Foods & Gift Baskets segment - Gross profit decreased by 2.4% during the three months ended September 26, 2021, compared to the same period of the prior year, due to the decrease in gross profit percentage of 390 basis points, to 35.0%, partially offset by the revenue increase noted above. The decline in gross margin percentage was primarily reflecting increased costs for labor and transportation, as well as higher discounts.
Marketing and sales expense
| Three Months Ended |
||||||||||||
| September 26, 2021 |
September 27, 2020 |
% Change |
||||||||||
| (dollars in thousands) |
||||||||||||
| Marketing and sales |
$ | 94,379 | $ | 80,285 | 17.6 | % |
||||||
| Percentage of net revenues |
30.5 | % |
28.3 | % |
||||||||
Marketing and sales expense consists primarily of advertising and promotional expenditures, catalog costs, online portal and search costs, retail store and fulfillment operations (other than costs included in cost of revenues) and customer service center expenses, as well as the operating expenses of the Company’s departments engaged in marketing, selling and merchandising activities.
Marketing and sales expense increased 17.6% during the three months ended September 26, 2021, compared to the same period of the prior year, due to: (i) the variable components of revenue growth, (ii) the annualization of the impact of the acquisition of PersonalizationMall, which carries both higher product gross margins, as well as higher advertising ratios, and (iii) increased digital marketing and labor costs, reflecting the competitive post COVID-19 environment.
During the three months ended September 26, 2021, the Company added approximately 0.9 million new e-commerce customers, a decrease of 5.3% compared to the same period of the prior year, while purchase activity from existing customers increased 13.1%.
Technology and development expense
| Three Months Ended |
||||||||||||
| September 26, 2021 |
September 27, 2020 |
% Change |
||||||||||
| (dollars in thousands) |
||||||||||||
| Technology and development |
$ | 13,423 | $ | 11,603 | 15.7 | % |
||||||
| Percentage of net revenues |
4.3 | % |
4.1 | % |
||||||||
Technology and development expense consists primarily of payroll and operating expenses of the Company’s information technology group, costs associated with its websites, including hosting, design, content development and maintenance and support costs related to the Company’s order entry, customer service, fulfillment and database systems.
Technology and development expense increased 15.7% during the three months ended September 26, 2021, compared to the same period of the prior year, primarily due to increased consulting and labor costs, increased hosting and maintenance costs incurred to support the Company’s technology platform, in addition to the incremental costs associated with PersonalizationMall, which was acquired on August 3, 2020.
General and administrative expense
| Three Months Ended |
||||||||||||
| September 26, 2021 |
September 27, 2020 |
% Change |
||||||||||
| (dollars in thousands) |
||||||||||||
| General and administrative |
$ | 27,066 | $ | 28,213 | -4.1 | % |
||||||
| Percentage of net revenues |
8.7 | % |
9.9 | % |
||||||||
General and administrative expense consists of payroll and other expenses in support of the Company’s executive, finance and accounting, legal, human resources and other administrative functions, as well as professional fees and other general corporate expenses.
General and administrative expenses decreased 4.1% during the three months ended September 26, 2021, compared to the same period of the prior year, due to lower transaction and litigation costs, and lower labor costs caused by a smaller increase in the value of the Company’s NQDC Plan assets (offset within Other (income) expenses noted below), combined with the impact of severance paid to terminated PersonalizationMall employees in the prior year. These decreases were partially offset by higher health insurance and facility costs.
Depreciation and amortization expense
| Three Months Ended |
||||||||||||
| September 26, 2021 |
September 27, 2020 |
% Change |
||||||||||
| (dollars in thousands) |
||||||||||||
| Depreciation and amortization |
$ | 10,970 | $ | 8,840 | 24.1 | % |
||||||
| Percentage of net revenues |
3.5 | % |
3.1 | % |
||||||||
Depreciation and amortization expense increased 24.1% during the three months ended September 26, 2021, compared to the same period of the prior year, due to incremental depreciation and customer list amortization associated with PersonalizationMall, and recent short-lived IT related e-commerce/platform enhancements.
Interest (income) expense, net
| Three Months Ended |
||||||||||||
| September 26, 2021 |
September 27, 2020 |
% Change |
||||||||||
| (dollars in thousands) |
||||||||||||
| Interest expense, net |
$ | 1,528 | $ | 1,040 | 46.9 | % |
||||||
Interest expense, net consists primarily of interest expense and amortization of deferred financing costs attributable to the Company’s credit facility (See Note 8 - Debt, in Item 1. for details), net of income earned on the Company’s available cash balances.
Interest expense, net increased 46.9% during the three months ended September 26, 2021, compared to the same period of the prior year, due to the incremental interest expense associated with the New Term Loan, which was used to partially finance the acquisition of PersonalizationMall, and lower interest income on the Company’s outstanding cash balances due to lower interest rates.
Other income, net
| Three Months Ended |
||||||||||||
| September 26, 2021 |
September 27, 2020 |
% Change |
||||||||||
| Other income, net |
$ | 596 | $ | 999 | -40.3 | % |
||||||
Other income, net for the three months ended September 26, 2021, consists primarily of investment gains on the Company’s NQDC Plan assets.
Income Taxes
The Company recorded income tax benefit of $8.1 million and $3.7 million, during the three months ended September 26, 2021 and September 27, 2020, respectively. The Company’s effective tax rate for the three months ended September 26, 2021 was 37.9%, compared to 27.7% in the same period of the prior year. The effective rate for the three months ended September 26, 2021 and September 27, 2020 differed from the U.S. federal statutory rate of 21% primarily from excess tax benefit from stock-based compensation during the respective interim tax periods, as well as state income taxes and nondeductible expenses for executive compensation.
Liquidity and Capital Resources
Liquidity and borrowings
The Company's principal sources of liquidity are cash on hand, cash flows generated from operations and borrowings available under the 2020 Credit Agreement (see Note 8 - Debt in Item 1 for details). At September 26, 2021, the Company had working capital of $110.7 million, including cash and cash equivalents of $3.8 million, compared to working capital of $134.1 million, including cash and cash equivalents of $173.6 million, at June 27, 2021.
Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, historically generated nearly 50% of the Company’s annual revenues, and all of its earnings. However, with the onset of the pandemic of COVID-19, our customers have increasingly turned to our brands and our expanded product offerings to help them connect and express themselves, and our “everyday” gifting product line has seen increased volume. While the continuing impacts of COVID-19 are difficult to predict, the Company expects that its fiscal second quarter will continue to be its largest in terms of revenues and earnings, although the aforementioned increase in the Company’s “everyday” business has and is expected to continue to lessen the seasonality of our business.
During the first quarter of fiscal 2022, the Company did not borrow under its revolving credit agreement. Working capital borrowings typically peak in November, after which time cash generated from operations during the Christmas holiday shopping season are expected to enable the Company to repay such borrowings. In addition, on October 27, 2021, the Company completed its acquisition of Vital Choice, a provider of premium wild-caught seafood and sustainably farmed shellfish, pastured proteins, organic foods, and marine-sourced nutritional supplements. The Company utilized its existing credit facility to fund the $20.0 million purchase (subject to certain working capital and other adjustments).
While we believe that our sources of funding will be sufficient to meet our anticipated operating cash needs for at least the next twelve months, any projections of future cash needs and cash flows are subject to substantial uncertainty. We continually evaluate, and will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to require additional financing.
To date, we have not identified any material liquidity deficiencies as a result of the COVID-19 pandemic. Based on the information currently available to us, we do not expect the impact of COVID-19 to have a negative impact on our liquidity. We will continue to monitor and assess the impact COVID-19 may have on our business and financial results. See Part II. Item 1A. “Risk Factors” and Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.
Cash Flows
Net cash used in operating activities of $150.2 million, for the first quarter of fiscal 2022, was primarily attributable to the Company’s net loss during the period, combined with seasonal changes in working capital, including increases in inventory, trade receivables and prepaid and other, partially offset by non-cash charges for depreciation and amortization and stock-based compensation.
Net cash used in investing activities of $11.1 million, for the first quarter of fiscal 2022, was primarily attributable to capital expenditures related to the Company's technology initiatives, as well as manufacturing production and warehousing equipment.
Net cash used in financing activities of $8.5 million, for the first quarter of fiscal 2022, was primarily due to the acquisition of treasury stock.
Stock Repurchase Program
See Item 2 in Part II below for details.
Contractual Obligations
At September 26, 2021, the Company’s contractual obligations consist of:
| ● |
Long-term debt obligations - payments due under the Company's 2020 Credit Agreement (see Note 8 - Debt in Item 1 for details and payments due by period). |
| ● |
Operating lease obligations – payments due under the Company’s operating leases (see Note 13 - Leases in Item 1 for details and payments due by period for the long-term operating leases). |
| ● |
Purchase commitments - consisting primarily of inventory and IT related equipment purchase orders and license agreements made in the ordinary course of business – see below for the contractual payments due by period. |
| Payments due by period |
||||||||||||||||||||||||||||
| (in thousands) |
||||||||||||||||||||||||||||
| Remaining Fiscal 2022 |
Fiscal 2023 |
Fiscal 2024 |
Fiscal 2025 |
Fiscal 2026 |
Thereafter |
Total |
||||||||||||||||||||||
| Purchase commitments |
$ | 175,121 | $ | 8,158 | $ | 5,941 | $ | 3,750 | $ | 2,000 | $ | - | $ | 194,970 | ||||||||||||||
Critical Accounting Policies and Estimates
As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2021, the discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, and management evaluates its estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. The Company’s most critical accounting policies relate to goodwill, other intangible assets and income taxes. There have been no significant changes to the assumptions and estimates related to the Company’s critical accounting policies, since June 27, 2021.
Recently Issued Accounting Pronouncements
See Note 1 - Accounting Policies in Item 1 for details regarding the impact of accounting standards that were recently issued on our consolidated financial statements.
Forward Looking Information and Factors that May Affect Future Results
Our disclosure and analysis in this report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s current expectations or beliefs concerning future events and can generally be identified by the use of statements that include words such as “estimate,” “project,” “believe,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “goal,” “target” or similar words or phrases. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control that could cause actual results to differ materially from the results expressed or implied in the forward-looking statements, including:
| ● |
the Company’s ability: |
| o | to achieve revenue and profitability; |
|
| o | to leverage its operating platform and reduce operating expenses; |
|
| o | to manage the increased seasonality of its business; |
|
| o | to cost effectively acquire and retain customers; |
|
| o | to effectively integrate and grow acquired companies; |
|
| o | to reduce working capital requirements and capital expenditures; |
|
| o | to compete against existing and new competitors; |
|
| o | to manage expenses associated with sales and marketing and necessary general and administrative and technology investments; and |
|
| o | to cost effectively manage inventories; |
| ● |
the outcome of contingencies, including legal proceedings in the normal course of business |
| ● |
general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company’s products; and |
| ● |
the impact of COVID-19 on our business and financial statements. |
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Annual Report on Form 10-K filing for the fiscal year ended June 27, 2021, listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Cautionary Statements Under the Private Securities Litigation Reform Act of 1995”. We incorporate that section of that Form 10-K in this filing and investors should refer to it. In addition, please refer to additional risk factors in Part II, Item 1A in this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from the effect of interest rate changes.
Interest Rate Risk
The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment of available cash balances and its long-term debt. The Company generally invests its cash and cash equivalents in investment grade corporate and U.S. government securities. Due to the currently low rates of return the Company is receiving on its cash equivalents, the potential for a significant decrease in short-term interest rates is low and, therefore, a further decrease would not have a material impact on the Company’s interest income. Borrowings under the Company’s 2020 Credit Agreement bear interest at a variable rate, plus an applicable margin, and therefore expose the Company to market risk for changes in interest rates. The effect of a 50 basis point increase in current interest rates on the Company’s interest expense would be approximately $0.3 million during the three months ended September 26, 2021, respectively.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of September 26, 2021. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 26, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the Company’s evaluation required by Rules 13a-15(d) or 15d-15(d) of the Securities Exchange Act of 1934 during the quarter ended September 26, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. To the extent our normal procedures and controls related to our financial close or other reporting processes were adversely impacted by the COVID-19 outbreak, we took appropriate actions and safeguards to reasonably ensure the fair presentation of the financial statements in accordance with GAAP.
Litigation
Bed Bath & Beyond:
On April 1, 2020, the Seller commenced an action against the Company in the Court of Chancery for the State of Delaware, which is captioned Bed Bath & Beyond Inc. v. 1-800-Flowers.com, et ano., C.A. (the “Complaint”), alleging a breach of the Equity Purchase Agreement (the “Purchase Agreement”), dated February 14, 2020, between Seller, PersonalizationMall, the Company and the Purchaser, pursuant to which the Seller agreed to sell to Purchaser, and the Purchaser agreed to purchase from Seller, all of the issued and outstanding membership interests of PersonalizationMall. The action was initiated after the Company requested a reasonable delay in the closing under the Purchase Agreement due to the unprecedented circumstances created by COVID-19. The Complaint requested an order of specific performance to consummate the transaction under the Purchase Agreement plus attorney’s fees and costs in connection with the action. The Company filed its answer to the Complaint on April 17, 2020 and an order governing expedited proceedings was approved on April 9, 2020 that set a trial date for late September 2020. On July 21, 2020, the Company and Seller entered into a settlement agreement, pursuant to which the Company agreed to move forward with its purchase of PersonalizationMall for $245.0 million, subject to certain working capital and other adjustments. The transaction closed on August 3, 2020. In connection with the settlement agreement, the parties executed a Stipulation and Proposed Order of Dismissal, resulting in the voluntary dismissal with prejudice of the litigation relating to the transaction.
In addition, there are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the final resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
There were no material changes to the Company’s risk factors as discussed in Part 1, Item 1A-Risk Factors in the Company’s Annual Report on Form 10-K for the year ended June 27, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company has a stock repurchase plan through which purchases can be made from time to time in the open market and through privately negotiated transactions, subject to general market conditions. The repurchase program is financed utilizing available cash. On April 22, 2021, the Company’s Board of Directors authorized an increase to its stock repurchase plan of up to $40.0 million. As of September 26, 2021, $23.4 million remained authorized under the plan.
The following table sets forth, for the months indicated, the Company’s purchase of common stock during the first three months of fiscal 2022, which includes the period June 28, 2021 through September 26, 2021:
| Period |
Total Number of Shares Purchased |
Average Price Paid Per Share (1) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
| (in thousands, except average price paid per share) |
||||||||||||||||
| 06/28/21 - 07/25/21 |
34,835 | $ | 30.03 | 34,835 | $ | 31,409 | ||||||||||
| 07/26/21 - 08/22/21 |
99,602 | $ | 31.07 | 99,602 | $ | 28,312 | ||||||||||
| 08/23/21 - 09/26/21 |
153,589 | $ | 32.01 | 153,589 | $ | 23,393 | ||||||||||
| Total |
288,026 | $ | 31.44 | 288,026 | ||||||||||||
| (1) |
Average price per share excludes commissions and other transaction fees. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
| 31.1 |
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| 31.2 |
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| 32.1 |
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| 101.INS |
Inline XBRL Instance Document |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL |
Inline XBRL Taxonomy Calculation Linkbase Document |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Label Document |
|
| 101.PRE |
Inline XBRL Taxonomy Definition Presentation Document |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| 1-800-FLOWERS.COM, Inc. (Registrant) |
|
| Date: November 5, 2021 |
/s/ Christopher G. McCann Christopher G. McCann |
| Date: November 5, 2021 |
/s/ William E. Shea |