Sell-side reaction to FTD earnings (2Q05 earnings results)

Citigroup analyst Mark Mahaney sent a note to clients August 9th analyzing FTD's (ticker: FTD) Q2 earnings. Excerpts:

FTD - Still Not Spring

SUMMARY

FTD reported a Modest Beat & In-Line Quarter -- $123MM revenue was a tad shy of our/Street's $124MM estimate, but $0.18 EPS beat our/Street's $0.15 estimate.  FY06 guidance was In-Line with the Street.  The EPS upside sources were better than expected gross margins and lower than expected G&A.

Fundies worsened - 1.8% Y/Y rev growth was the lowest in many quarters, although Easter holiday timing played a major factor.  Easter-normalized Y/Y growth was approx 9%, a deceleration from prior periods.  13.3% EBITDA margin was down 10 bps Y/Y and down 180 bps Q/Q.

No change in our opinion on the stock.  Our FY2006 estimate nudges up from $0.74 to $0.75, but our price target remains $13.

Among the positives - sustainably ramping gross margins and debt paydown. Among the negatives - still rising marketing costs and guidance-implied margin declines in FY06.  Marketshare shifts ambiguous.

JUNE BY THE NUMBERS

FTD reported June quarter revenue of $123MM, EBITDA of $16.2MM, and EPS of $0.18, vs. our estimates of $124MM, $14.5MM, and $0.15 EPS, respectively.

The slight revenue miss vs. our expectations was due to underperformance in the Florist segment.  Florist revenue came in at $44.6MM, $2.6MM or 6% below our expectation of $47.2MM and down 2.8% Y/Y.  Florist results reflected the elimination of unprofitable product lines in the Specialty wholesaling business, as well as Easter holiday timing, which was in the third quarter of fiscal year 2005 vs. the fourth quarter in 2004 (the June quarter is Q4 for FTD).  Consumer revenue of $78MM exceeded our estimate of $76.2 by 2%, and was up 4.7% Y/Y, driven by an increase in Mother’s Day orders but partially offset by the timing of the Easter holiday.

Gross margin came in 0.7% higher than we expected (42% vs. 41.3%), in part due to the elimination of the unprofitable product lines discussed above.  Florist gross margin was 71.2% vs. our estimate of 69%, while Consumer gross margin of 26.1% exceeded our 25% estimate by 110 bps.  Consumer gross margins are benefiting from the increasing shift of order to the Internet (89.3% of total vs. 86.3% Q/Q) and the increasing contribution from higher margin Specialty Gift orders (30.7% vs. 27.6% Q/Q).

Despite the revenue miss, EBITDA came in $1.8MM or 12% better than our expectation with gross margin and G&A being the major variances.  G&A was $13.2MM, $1.8MM or 12% lower than our estimate.  As a result, EBITDA margins were 13.3%, 1.5% higher than we expected.

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