1-800-Flowers.com Inc. Presents at Goldman Sachs Technology & Internet Conference 2013, Feb-12-2013 11:40 AM

| About: 1-800 FLOWERS.COM, (FLWS)

1-800 FLOWERS.COM, Inc. (NASDAQ:FLWS)

February 12, 2013 2:40 pm ET

Executives

William E. Shea - Chief Financial Officer, Principal Accounting Officer, Senior Vice President of Finance & Administration and Treasurer

Analysts

Jennifer Watson - Goldman Sachs Group Inc., Research Division

Unknown Analyst

Thanks, everyone, for joining us. Very excited for our next presentation. Timing is perfect with Valentine's Day coming up. Very excited to have 1-800-FLOWERS, Bill Shea, CFO. Thank you for joining us today.

Question-and-Answer Session

Unknown Analyst

So 1-800-FLOWERS is a brand that everybody knows. There have been a ton of products and line extensions in this space. How would you describe the company, and what's your focus as we head into 2013?

William E. Shea

First off, 1-800-FLOWERS is all about delivering smiles. And we started out with the of brand that everybody knows with a kind of a product line that you'd expect to see within a flower shop, so it's flowers and the extensions that started to create. And what we've done, as we started to get into kind of plants and candy, and these are stuff that flower shops normally have. We tested back in the '90s and in early 2000s, we were using other people's brands to do that. And we can only grow it so far because there's other people's brands, we aren't getting good margins on it and we decided to really kind of go after expanding those category by owning brands, and we went through and made an acquisition play to build up a separate segment that we have, our GFGB, Gourmet Food and Gift Basket segment, which is a collection of very strong brands. In many cases, regional -- strong regional brands, which our idea was to create -- to make them into a more national brands. And in many cases, they were not e-commerce brands, but we would grow them into e-commerce brands. But it's all about delivering smiles, thoughtful gifts, so flowers, kind of fun products like The Popcorn Factory and its popcorn tins or baked goods or candy ware. We can kind of extend where flowers are not the appropriate gift, we have other gift offerings that can satisfy our customers.

Unknown Analyst

Great. So they mention Valentine's Day is 2 days away, this is one of your big selling periods. What was your strategy heading into Valentine's Day this year? Any new products that you've been particularly focused on? And then more broadly, what are you seeing in terms of the pricing environment out there, and any early read on how it's going?

William E. Shea

Okay. Not much about the early read that we can give you, more data later on that. But how many out there have already bought their Valentine's Day gifts? Okay, one. Okay. This is what we typically see. Valentine's Day is a very male holiday and it's a last-minute holiday. So the big benefit that we do have this year is the day placement. Thursday is a great day placement for 1-800-FLOWERS. The big -- the 3 big selling days for Valentine's Day is the 11th, 12th and 13th. In fact, that happen to be a Monday, Tuesday and Wednesday when guys are at work and busy, that's great for the e-commerce place, and us being the largest flower brand, we clearly benefit from that. Kind of a broader concept but kind of a product introduction that we've done this year is we're all about merchandising. We're only as good as the merchandising and the product offerings that we have. So we have launched for this Valentine's Day, we did a kind of a test launch at Christmas, but we have introduced kind of a new brand under our Fannie May brand called Fannie May Berries, and it's chocolate-coated strawberries, that's a product that people have seen before. It's a growing category. Overall, it's about a $200 million category within the U.S.. It's very concentrated around specific holidays and Valentine's Days, it's a big one. We clearly have the best product out there. We're buying -- if you go onto our website -- I think we have some here, Joe. I think we're having some delivered here, on the Fannie May Berries. So these are these monster, almost -- they're not steroid-induced but they're monster-sized strawberries dipped in real chocolate. Most of the products out there that's chocolate-covered strawberries or dipped strawberries are not with real chocolate. We own a chocolate company, so we've merged that product under that brand and we're selling quite a number of those this holiday. Because of the day place, we knew volumes were going to be strong. It helps from a logistic standpoint of getting deliveries there. A lot of people want them on Valentine's Day, but the 13th sometime is acceptable for customers. It helps from both the product that we deliver via FedEx and UPS because we have multiple days. The big thing we have to worry about is weather, and luckily, in the Northeast, we got the weather last week and not this week, so everything seems to be working. We continue to play in a kind of a social and mobile world, and that's becoming kind of a new play for us. We've kind of consider it kind of new platform for us. This company has been around for a long time. It started as a brick-and-mortar retail company, merged into kind of the telephony and telephonic brand, became an online brand and now comes the new platform seems to be as the things are morphing into that kind of a social-mobile world, and we're certainly playing in a lot of arenas there.

Unknown Analyst

Okay. Looking forward to trying the strawberries. So taking a step back, from an industry perspective, how do you think about growth in the floral category and where is your competitive positioning in there?

William E. Shea

Well, the floral category is somewhat of a stagnant industry. It really has not grown. If you look at various reports, Society of American Florists list it as an $18 billion industry, but a lot -- of cut flowers. But a lot of that is -- about half of that is on kind of the mass channel side. So the supermarket, it's Costco, it's Walmart, that all got into kind of the floral arena over the last 10 to 15 years, and that is somewhat kind of in stagnant. The other $9 billion is comprised of the retail -- mom-and-pop retail flower shops that are out there, that's about 17,000 today. At one point in time, there's about 33,000 mom-and-pop retail flower shops out there, that's around 17,000. The online piece is about $2 billion, $2.5 billion. We're the largest player on that side. We're growing the business, so we're taking market share in kind of a somewhat of a stagnant market. And e-commerce will continue to grow and we'll benefit from that being the largest brand.

Unknown Analyst

And then what about in the Gourmet Food and Baskets business, how big is the addressable market? How fragmented is it? And can you give us a sense of kind of what you're sharing there?

William E. Shea

Yes, very big, very fragmented. It is another huge kind of category, it's a $16 billion category. But there aren't really any major players. The biggest companies, Godiva, Harry and David or maybe Omaha Steaks, we're about $250 billion in run rate. We're a collection of some of brands. We believe over time, we're going to be able to grow organically within those brands. But a lot of those brands we have built through kind of an acquisition strategy and then we created some brands on top of that. What we've spent a lot of time over the last 4 years is really delevering our balance sheet, we've paid off a lot of debt over the last 4 years. We've gotten out of actually some businesses that we're in that were not strategic to our overall goals; we used that cash to pay out more debt; our balance sheet is in great shape now and net cash positive; our debt is down to about less than -- I guess about $20 million. And so we're in a position that, we would, if the opportunities arise, we will be acquisitive again. And we think we can grow into this category. We want -- we think we can -- that category could be a $500 million category for us.

Unknown Analyst

Great. And so in terms of the category being fragmented, how do you think about growth from existing versus new customers?

William E. Shea

Yes. We report that. So in each of our earnings calls, we report that breakdown. And it's usually ballpark, about 60%, little more than 60% is from existing customers and then the rest is from new customers. We've spent a lot of effort and dollars on the technology side. And actually, that kind of pulling our brands together. For the most part, up until a few years ago, we had our collection of food brands and they're great brands and they're kind of stand-alone businesses. And we really would -- weren't doing a good job of cross-marketing the brands. What we spent on the technology side is being everybody onto the same -- common IBM platform, bringing them into a multi-branded environment where you -- now if you come to the 1-800-FLOWERS site, you'll see across the top of our website, you see all the tabs of all our brands. And it just allows for much more natural promotion of our other brands and the product offerings that we have and the other brands. So over time, we're going to see the existing customer numbers' percentages go up because we're going to just be getting a greater share wallet from our existing customers.

Unknown Analyst

So lastly, speaking of cross promotion, you're very savvy in terms of using all the available online channel, whether it'd be e-mail marketing and search, and your early on social and mobile. What are the channels that are working well from those customer acquisition standpoint as well as customer attention?

William E. Shea

Well, we do all that kind of the blocking and tackling that you're certainly talking about. We've been playing in and we're an early adopter into a lot of the kind of the social platforms that are out there, and we hear a lot of -- there's always a lot of talk about Facebook, and we're an early adopter with Facebook. And we always used to be that -- at various times, we used to do TV commercials. Couldn't measure the results, but it was kind of a brand building exercise we did. We were taking homepages on the various portal placements that kind of get, again, the brand exposure that we want, and we've done a lot of that with Facebook, and then it has morphed into now some realization of that with Facebook Gifts and some other aspects. But we're playing in a lot of different arenas and kind of the social world. Certainly, on the mobile, we've spent a lot of money on mobile. We've won a couple of awards over the last couple of years for our mobile platform. On the 1-800-FLOWERS side, we're kind of, again, an early adopter. We're seeing a lot of traffic coming into our mobile, specific kind of -- and we measure the mobile as smartphones, not the tablet. Right now, we are investigating if you come to a tab -- you come to us on a tablet, you get the same experience you do from a desktop. We're exploring whether we want a separate platform for the tablet, and whether that would improve the user experience on that. And we continue to play on the mobile side because while we got a lot of traffic on the mobile side, the conversion rates are not nearly what they are on a desktop or on a tablets. So playing kind of in all these areas because that's where the consumers are and they're searching for us. But we are seeing an awful lot of consumers that come to us on their smartphone and then still place the order on their, either on their tablet or on a desktop, and we're trying to figure that one out.

Jennifer Watson - Goldman Sachs Group Inc., Research Division

Okay. Can you measure that yet?

William E. Shea

More anecdotal than anything else. But the conversion rates on mobile, just are not where we would expect them to be. And we're surprised that I could -- we have a mobile application that we think is very strong.

Unknown Analyst

So speaking of, you mentioned your involvement with social and Facebook, and you're a launch partner on Facebook's Gifts platform. First, can you help us understand what social commerce is? And more importantly, what your expectations are from it? Give an early read on how that's going.

William E. Shea

Well, again, I think I was kind of alluding to a little bit where we do think it's been the next wave. So if you kind of look at the history of 1-800-FLOWERS, you start going from -- Jim McCann was a florist, he owned 12 flower shops. All of a sudden -- and that started in 1976. In 1986, he got access to the rights to a watch line that spelled 1-800-FLOWERS. And he created a brand around that. By 1992, he was selling products on CompuServe and we were the first merchant partners on AOL. So we always kind of saw the next wave and was early adopters. And that's why a number of years ago, we started to play in all the kind of the social mediums that we have and we have, under Joe's tutelage, we have a PR team that we have our company blogs and on Twitter. But Facebook is the monster, and we've developed a very strong relationship with Facebook a number of years ago. We were 1 of 3 companies mentioned in their IPO. They talked about as like we're a big company, and we're still obviously a very small company. We're a launch partner with them on Facebook, on Facebook Gifts. It's still very small in overall revenues for us. It's though influencing kind of the shaping up some of our merchandising. I mean, we launched not that long ago, one of our food brands is Cheryl's, is a baked goods -- we have our cookie card. So we have -- basically, for $5 delivery, we have delicious cookie that you have a card message with it. So as supposed to spending $5 card on a Hallmark card, you can actually -- have a -- Cheryl's cookie delivered. That has been a major hit on Facebook Gifts and, I think we're up to over 300,000 cookie card sold on that. So there is some traction that's happening. It's still very, very small. We think it -- there are certainly the opportunity that this could explode. And it's also introducing us and getting us exposed to a younger demographic. So we're just -- that's always been an issue that we've recognized is that we're a $70 AOV. Our typical demographic is a little high, is a little higher end and do we -- how do we attract the 20-something. This is certainly getting us that opportunity.

Unknown Analyst

Okay. And so to sum up what I think I hear you're saying is that Facebook isn't yet a platform for commerce, but you're using it more as -- more for branding initiative?

William E. Shea

I think it can be a platform for commerce. It's still a very small component for us. But we're going to continue to play with Facebook because they're Facebook, right?

Unknown Analyst

Talk a little bit about mobile earlier saying that conversion rates are still low. Are there certain categories that mobile is performing well on? Is there an opportunity to use marketing techniques, like deal targeting, just sort of improve the usage and transaction volume on mobile?

William E. Shea

We definitely think the mobile devices are going to continue to explode. It's growing exponentially for us. I mean, we can see those trend lines and we can see this -- this feels like the mid- to late-'90s when we were moving on a telephonic company over to a online company, and as our growth rates were starting to slow in a traditional telephonic business and it was growing exponentially online. We're seeing that kind of exponential growth still off a very small base with respect to mobile. So it's going to be probably the major source. I just don't know when. 5 years from now, it will be the largest -- where the consumers are buying more and more on their smartphones or maybe on their tablets, but certainly on a desktop. That trend is coming. I think we saw a report that it said 15%, 16% of all e-commerce buying will be on mobile devices in 3 years, so we're not at that pace yet. But we're climbing. We're going to be there well before that. We will be at that. So mobile is very important to us. We continue to invest behind mobile. We have a team, a marketing team that's just devoted to mobile, both from a marketing's perspective, as well as from just the development of the platform itself.

Jennifer Watson - Goldman Sachs Group Inc., Research Division

Great. So switching gears a little bit towards merchandising. You mentioned that you continually roll out new products, you spoke about a few of them earlier. What are the ones that are resonated? What are you continuing to invest in? And any new products or line extensions that you're planning for 2013?

William E. Shea

Well, for Valentine's Day, no one can beat a red rose. I mean, that's still, by far and away, the largest product that we order, a dozen roses to 2 dozen roses for that. But we are all about merchandising. Again, from 1-800-FLOWERS, I think we're always being kind of innovators within the industry. This goes back to the days when we introduced the birthday flower cake, a birthday cake made out of flowers; where we've introduced kind of a Happy Hour Collection which are flower bouquets and a giant Martini glass. Those have been big hits. We have -- somewhere around here, I saw it earlier, we have a couple of dogs made out of Carnation sitting in a basket, we call it the a-DOG-able line, and that's been how we introduced a couple of years ago and that's been a major hit. But we need to continue to introduce new product offerings. I mentioned briefly about the Fannie May Berries, and that's -- well, it's coming under the Fannie May brand. You'll see it all over the 1-800-FLOWERS website at Valentine's Day, and we sell a lot more on 1-800-FLOWERS than we will off our Fannie May website. One product category that we've started to get into about a year ago and we're working on is FruitBouquets. This is a product offering that Edible Arrangements, and those of you who know Edible Arrangements, has built up a $0.5 billion product category. This is -- a number of years ago, when the fresh FruitBouquets didn't exist, people would send and it -- there's a lot many times sent by local flowers, a fruit basket, it would be a traditional fruit basket that would come from a local florist, or Harry and David would be sending some sort of basket. They've created this category and it's impacted the floral, I mean, impacted all business from an e-commerce standpoint, but it's impacted at mom-and-pops that are out there. There is no second player in that, and it's a $500 million category, no #2. So we've introduced that. If you go on our site, again, one of our tabs is FruitBouquets. So next to the 1-800-FLOWERS and 1-800-BASKETS site is FruitBouquets. It is a great product offering. And what we're working towards -- we have the merchandising for it and we have about 20% coverage in the country right now as to how we can fulfill that. Because this is a natural for a florist to be able to do. They do same-day delivery as the Edible Arrangements shops do. What they need-- they just going to -- it's kind of a product line that they can add to their offerings so they can do the fulfillment for us, sorry, but also, do their own marketing of it in their local areas. This will be a growth area for us. This is going to be...

Unknown Analyst

And so for FruitBouquets, you've had to retrofit stores to scale this business. You just said you were 20% coverage. Where do you expect to be, call it, 1 year from now, 2 years from now?

William E. Shea

Yes, I wish it was going faster. It's -- there's 2 aspects of it. There is an investment that the florist has to make. It's probably about a $20,000 investment to retrofit the store because they need to separate the fresh fruit from the floral. So they need a separate freezer, they need a separate work area and most importantly, they need to become health-certified, and that's become a major issue for a lot of these florists. It's -- there's a lot of red tape, it depends on the jurisdiction that they're in and that's taken a much longer to accomplish. So we're looking at multiple alternatives. One, we want to roll this out in -- within the floral industry because we think we can be good partners with the mom-and-pop floral community, so with our BloomNet shops, with our franchised shops, for them because we think it can be significantly additive to their business, but we're also looking at some regional distribution centers where we can kind of help grow kind of the e-commerce side. So we're not happy with the fact that we're at 20% today. And if the trend lines were to continue, we might only be at 30% if we left it the way the current trend lines would be a year from now, and we're just not happy with that.

Unknown Analyst

Are there any other categories that you're particularly focused on? Weddings is one that comes to my mind as the category that's big in floral categories broadly, but it's not something that's been a big part of your business in the past. Is that something that you focused on?

William E. Shea

From a different aspect, I mean, wedding is certainly big within the floral industry, but it's much more of -- as opposed from e-commerce player, a bride and groom really want to sit down and talk with a local florist. So we have some offerings that -- if you could buy some product from that. But really, we have more of a referral service. So again, as we grow our kind of floral franchise base or as a service that we provide to our BloomNet shops, we do a referral service. So if you come to us as your trusted floral provider and ask about weddings, we, in many cases, we'll put you in touch with a local florist in your -- close to you that we believe can do a good job for you, and we'll hopeful on that come just to referral service that we do for our florist.

Jennifer Watson - Goldman Sachs Group Inc., Research Division

Okay, great. Switching gears to BloomNet, how big is that now? Can you help us understand the growth in that segment, thinking about one end of it, there are still retail store closures that are impacting the business side. On the other side of it, you're differentiating from a competitive standpoint. So just kind of walk us through how you're thinking about the growth in BloomNet.

William E. Shea

So just a little bit background on what BloomNet is. So everybody knows the 1-800-FLOWERS consumer brand, we're selling products directly to consumers. And then on -- within our Gourmet Food and Gift Basket segment, we're selling directly to consumers or we're selling to kind of large big box wholesalers or we have some brick-and-mortar stores. Next to the 1-800-FLOWERS brand is kind of a B2B play that we call BloomNet. It's the kind of the traditional clearinghouse or wire service that what FTD was and what Teleflora is. It really is the kind of a middleware between one florist and another florist, so that if you're walking into a florist or calling a florist in San Francisco and want flowers delivered to your mom who lives New York, they would serve as that middleware, both the communication system in between as well as guarantee the payment to the filling florist in New York. They would -- so one florist will collect in San Francisco, they would guarantee that payment. That's what FTD was like forever. And we were the largest customer of FTD and, to some degree, at Teleflora for many years because we used their service as 1-800-FLOWERS was developing. We ultimately decided to go direct to the florist, so we build our own communication system, go direct to the florist that happened probably about a dozen years ago, and then we started to build a business around that. In 2005, we launched what we call BloomNet, and that is kind of a full-service wire service or clearinghouse. We're providing products and services to the floral community. So it's a $90 million division for us and it's basically -- that $90 million is basically fees that we collect from florists. So there's a membership fee associated with that so that they can fulfill the orders. 1-800-FLOWERS has the most directable orders, meaning it's the largest consumer brand. Those orders have to get fulfilled. So as opposed to in the old days where we used to go through a network of FTD to out to just kind of a general pool of florists, we ultimately had a sole subset of those 17,000 florist, about 7,000 of those florist are BloomNet members, those are the ones that fulfill our orders. We keep it smaller than just going out and being a true kind of a subscription model and growing it to be full 17,000 because we want to control the quality. We come at kind of the floral industry from a consumer perspective first and then kind of built a wire service to append to that as opposed to some of our competitors that will wire services first and then became consumer brands when 1-800-FLOWERS developed a national brand. And what we do is we provide a whole host of services to BloomNet. So we sell them kind of the pots and pans, so the vases and the baskets that they used to fulfill their products. But we sell them Web-hosting services, we answer their phones at night if they want, we do credit card clearing for them, we sell them kind of an advertising vehicle. We sell service -- Web services, Web-marketing services for them to improve their search capabilities on their website. So it's a whole host of services and we sell them technology. So whether it'd be a point-of-sale system in the store. So it's everything they need to run their shop. We launched this in 2005, we build it up to about a $90 million business today. It's a very profitable business for us, about a 30 -- almost a 30% contribution margin on that, so it's extremely profitable side of the business. It continues to grow, it is -- we're grabbing market share as we've talked about before, there's 17,000 florists in United States. A dozen years ago, there's probably 33,000 florists in United States, so there's kind of a contracting base within the overall industry, but BloomNet continues to grow. What we're looking to do is not really grow the number of shops but to get a deeper penetration and sell more products and services to the 7,000 member shops that we have because there's no exclusivity. So there are many flower shops that are member of BloomNet but also be a member of FTD and might also be a member of Teleflora. They pay fees to all of us because they want the orders that come from being members. But they -- in many cases, will buy a certain suite of services from one and other services from another, may want to obviously get more and more of that product.

Unknown Analyst

So thinking about international expansion, you've had sort of a risk-lite strategy for international expansion. Can you walk us through how your -- what your focus is for Brazil, the U.K. and any other markets?

William E. Shea

Yes, we have -- by and large we're domestic. We are a domestic company. We're putting kind of toe in the water in 3 different markets. In the U.K., we've made an investment a couple years ago, so we own about a little under 20% of an e-commerce company who buy flowers in the U.K. that services U.K. and is expanding into Mainland Europe. We've made recent investment this past year. And again, in e-commerce play, Flores Online down in Brazil. As we were going through in evaluating Brazil's economy was exploding a couple years ago, it's kind of come down quite a bit, but it certainly has a rising middle class and e-commerce growth. So I think that's -- we think that, that could -- that is growing rather significantly. We are again, about a 19% -- a little under 20% interest in that business, then we also have 1 in Canada kind of the same strategy. These are small businesses, anywhere probably from $10 million to $15 million in revenues, e-commerce plays that we think that have outsized growth opportunities. We're helping them develop their plans, and we have the right as part of the agreements to take majority ownership at various times during the agreement and eventually, we will as we move more internationally. So kind of going slow. U.K., at one point in time, we thought we probably would have owned it by now. And then as Europe has its problems, we kind of slowed that decision and we put that off a little while. Brazil is really -- we just made it inside over the last year, it's probably several years before we're going to take that ownership. But we're really kind of looking to expand that into multiple cities where they actually have a presence. And to really kind of grow that, we're going to grow that off balance sheet for a period of time and then take ownership in it sometime down the road.

Unknown Analyst

Okay. And so speaking into the U.K. and Brazil a little bit more. Brazil, in particular, you said it's going to take a couple of years. What's sort of the point at which you do start taking it on balance sheet and investing more heavily?

William E. Shea

Yes. I think what we want to do is we want that -- what we've done is we've partnered with a private equity firm down in Brazil, so we own -- we actually own a little bit more than that. We own about 30% of the Brazil company, they own about 30% of the Brazilian company and the existing family-owned is 40%. There is obviously a natural there, with private equity, there's a natural kind of exit strategy that they want. But the money that we put in did not go to the family. The money where we put in went into the company, and it really is to kind of expand and to grow this business. So right now, they're going to -- we're expecting them to grow significantly, not generate a lot of bottom line for them. And so for this kind of investment period, it's going to remain kind of off balance sheet and then we'll bring it on at a point in time where it's gotten enough size that we can then start harvesting, both from maybe moderate the top line growth, but really start harvesting the profitability of it.

Unknown Analyst

Okay. And we also do have mics in the room, so to the degree anyone have any questions.

Unknown Analyst

[indiscernible] about a generational gap in flowers buying, in buying type of stuff. What do you do about the younger generations that maybe aren't quite in that mode, if you will?

William E. Shea

Yes. I mean, I think there is to some degree, and I think a lot of what where we're playing though is not the traditional -- we've moved away. I think if you talk to us 15 years ago when we were still thinking of a brick-and-mortar strategy and everything else, I think we've moved with the times as we've moved online, as we've moved into kind of the social and e-commerce. And we are playing and investing in that world that our brand is going to resonate with the 20-something and with 30-something. I have 4 childen but 3 that are college in here. They would never think of walking into our flower shop, oh my god, why would they ever do that? But they are busy. They're young professionals, they're busy, and they think maybe because I work for the company, but they just go online because it's so easy to do, and that's their world, they want easy solutions to their problem. So I think we are moving. I think they're probably -- I think we had a customer base that's probably in its 40s and 50s. We kind of -- they may have lost that middle ground, and then the 20-something with the technology, I think we're actually gaining ground on that.

Unknown Analyst

Do you think about rebranding as the 1-800-FLOWERS eventually becomes [indiscernible]?

William E. Shea

I think it already is that. But I think there's still so much power in the brand. But yes, I don't think people who come to the brand today think of it as a phone number, they don't. But it's just -- it's a brand, it's a brand now. And that's why we -- and what we have to continue to do, like we talked about briefly just with that Cheryl's cookie card, so we're going to have a traditional products. But we have to have products that are -- that serve a greater audience as well. So we'll have -- I don't want to trade my $70 customer down to something less than that, but we have to have products that are suitable for younger generation that are looking to spend a little less.

Unknown Analyst

I placed an order on the site probably last year...

William E. Shea

Which site, the 1-800-FLOWERS?

Unknown Analyst

The 1-800-FLOWERS. And the recipients, this Valentine's Day received a box of flowers in it that were individually wrapped. And she had to assemble the bouquet herself which was not at all what I was expecting to have happen. So there was no way to distinguish when I placed the order on your site, whether it was coming from a local florist, whether this was this new approach now when you guys are apparently coming out of warehouse distribution set-up scenario. I found that incredibly disconcerting as a consumer. And it's one thing if I can pay less for that, but I know that's what I'm getting. To be surprised by that was a negative experience. But I guess I'm curious, are you guys moving in that direction away from the local florist handling the fulfillment and you guys were kind of customize?

William E. Shea

Okay. Let me just -- and I'm surprised that you are surprised because we do sell that, we do sell our product that is flowers in a box. We have a competitor, a very large competitor called ProFlowers that, that is what they do, it's flowers in a box. During the economic downturn, we did emphasize that a little bit more. It's probably -- it's still a small percentage of our overall business, but we've always had kind of a good, better, best merchandising strategy. That is the lower price point of our merchandising strategy, and it is -- so it does cost less for that. But it's clearly on our website that this is flowers in a box, delivered in a box, delivered to common carrier versus florist-fulfilled. We highlight that all over our website so that I'm surprised that you're surprised. I'm not sure what happened there. And you're sure it's with us and it wasn't ProFlowers?

Unknown Analyst

You know [indiscernible] in my room probably you still [indiscernible] what I'm doing before [indiscernible].

Unknown Analyst

Yes. [indiscernible] and part of that [indiscernible]

William E. Shea

Yes, I mean, actually, reports up through Joe. It's a very small piece of the business, probably about $7.5 million piece of business. We have a lot of internal debates about that. While it certainly fits into the realm of thoughtful gifting, it's just -- there's not just enough customers I think that appreciate that offering right now with so many more cheaper alternatives that are out there. It's very difficult to grow that business.

Unknown Analyst

And we're almost out of time. But one last quick question. You touched upon it earlier briefly, but you've been cleaning up the balance sheet. How do you think about delevering, acquisitions?

William E. Shea

Yes. So what we've done over the last 4 to 5 years, in 2008, we had about $130 million worth of debt on our balance sheet. Today, we have about $20 million in debt. So we've paid off about $110 million in debt. During actually a period of time where our top line and bottom line was not where we wanted it to be. We've driven fairly decent free cash flow during that time frame and we did sell off some nonstrategic assets during that point in time to put us in this position. So we're now in a net cash positive position. We did build the Gourmet Food and Gift Basket side of our business through kind of an acquisition strategy. We've also birthed some brands on that side, but it has been through an acquisition strategy. We're not afraid of making acquisitions. But during this past period of time, that wasn't the right thing for us to do. We really wanted to delever the balance sheet and put us in a position today where, if there's acquisitions -- we want to grow this business. We've been growing now for 8 -- we've rebound and grow for the last 2 years or 8 consecutive quarters of growth, we grew last year just about 7%, we've grown the first half of this year at 5% organically and we're improving our bottom line at a multiple of those numbers. We want to get bigger, and we wish our friends in Washington will help us a little bit. They seem to always do something around Christmas time around, who knows that puts the consumer a little bit on edge. We think we can get organic growth rates moving north of where they are today, but we want to append to that businesses that can leverage the assets that we have or be in a new category. Personalization is a big kind of hot button today, so we look for companies in that arena. And if we can find the right company and strike the right deal, we will do that.

Unknown Analyst

Great. So with that, good luck on Thursday, and thanks for joining us today.

William E. Shea

Thank you.

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