1-800-Flowers.com (ticker: FLWS) signed an agreement to acquire
multi-channel cookie retailer Cheryl & Co. for $40 million in cash. Details and quick comments:
Cheryl & Co is a manufacturer of multi-channel retailer of cookies and other baked goods, based in Westerville, Ohio.
FLWS CEO McCann was quoted in the press release
Cheryl & Co. has a history of strong sales growth that we believe we can accelerate by leveraging our operating platform, including our e-commerce technology, customer service and fulfillment capabilities, as well as our expanded corporate sales force and database of more than 15 million customers. Importantly, when combined with our other food gift offerings, this acquisition will increase our annual revenues in the fast growing Food, Wine and Gift Basket category to more than $100 million." McCann said he expected the acquisition to be accretive to the Company's EPS and cash flow in fiscal 2006.Quick comments:
- It certainly makes sense for FLWS to leverage its e-commerce infrastructure, site traffic and customer list by expanding its product offerings. What this does to FLWS' brand is less clear: will customers really assume they can buy cookies from a company called 1-800-Flowers.com?
- Remember that FLWS' missed Q4 estimates due to higher than expected marketing expenses. The cause was most likely rising pay-per-click ad costs. This acquisition addresses that problem by (1) attempting to increase the ad conversion rate (and perhaps average order size) by offering more products, and (2) increasing the number of customers for FLWS by adding Cheryl & Co's customer base.
- The press release didn't give details about Cheryl & Co's revenue or profitability, so no details on what valuation FLWS paid.
- Nor did it mention that Cheryl & Co. operates 8 physical stores. Will investors penalize FLWS for moving even further away from being a pure-play online retailer?