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Executives

Joseph D. Pititto - Vice President of Investor Relations and Corporate Communications

James F. McCann - Chairman of The Board, Chief Executive Officer and Member of Secondary Compensation Committee

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

Christopher G. McCann - President, Director and President of Consumer Floral Group

Analysts

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Eric M. Beder - Brean Capital LLC, Research Division

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

David Kanen

Anthony C. Lebiedzinski - Sidoti & Company, LLC

1-800-Flowers.com (FLWS) Q4 2013 Earnings Call August 29, 2013 11:00 AM ET

Operator

Good day, everyone, and welcome to the 1-800-FLOWERS.com Inc. Fiscal 2013 Fourth Quarter Results Conference Call. This call is being recorded. At this time, for opening remarks and introduction, I would like to the turn the call over to the company's Vice President and Investor Relations, Joseph Pititto. Mr. Pititto, please go ahead, sir.

Joseph D. Pititto

Thank you, Kevin. Good morning, and thank you, all, for joining us today to discuss 1-800-FLOWERS.com's financial results for our fiscal 2013 fourth quarter and full year. For those of you who have not received a copy of our press release issued earlier this morning the release can be accessed at the Investor Relations section of our website, at 1800flowers.com, or you can call Patty Altadonna at (516) 237-6113 to receive a copy of the release by e-mail or fax.

In terms of structure, our call today will begin with brief formal remarks and then we'll open the call to your questions. Presenting today will be Jim McCann, CEO; Chris McCann, President; and Bill Shea, CFO.

Before we begin, I need to remind everyone that a number of the statements that we will make today may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to your press release issued earlier this morning, as well as our SEC filings, including the company's annual report on Form 10-K or quarterly reports on Form 10-Q.

In addition, this morning we will discuss certain supplemental financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call or in recording of today's call, the press release issued earlier today or in any of its SEC filings, except as may be otherwise stated by the company.

I'll now turn the call over to Jim McCann.

James F. McCann

Good morning, everyone. The solid top and bottom line growth that we achieved in fiscal 2013 reflects a continuation of the positive trends that we have seen in our business for several years now. We achieved these results despite our lackluster consumer environment that was buffeted throughout the year by headwinds from things like Superstorm Sandy, the distraction of the national elections, the concern over the fiscal cliff stalemate in Washington, et al. In addition to the solid revenue growth, we also increased our gross profit margin through a combination of enhanced merchandising and sourcing initiatives. And we further reduced our operating expenses as a percent of revenue by leveraging our operating platform and driving more efficient marketing programs such as our industry-leading initiatives in Social and Mobile.

We are particularly pleased with our strong performance of our flagship 1-800-FLOWERS.com business where our e-commerce sales increased 4% for the year through a combination of both higher unit and average order value. Also in the category, we again increased our gross margin, adding another 90 basis points on top of last year's significant gains for a full year gross margin of 39.8%. Category contribution margin in this area increased more than 20% for the year to $47.2 million.

The strong performance of our Consumer Floral business over the past several years illustrates the effectiveness of our focus on maintaining those aspects of our business that we can exert control and drive improved performance including our enhanced merchandising programs featuring truly original product designs and our marketing programs that are designed to engage directly with our customers to deepen our relationships with them and help them deliver smiles.

We believe these results, coupled with the past 2 years' strong results, have enabled us to further extend our market leadership in the Consumer Floral category. During fiscal '13, our BloomNet business continued to establish itself as the industry's go-to wire service for unsurpassed quality, service and innovation. In addition to a number of enhancements to its unique digital directory, BloomNet also expanded its suite of online marketing services designed to help florists grow their business and introduce the industry's first iPad application for its proprietary point-of-sale store management system.

BloomNet also further deepened its relationship with professional florists through community building programs including a new digital version of the popular Floriology magazine featuring profiles of florists from around the country; and the new fresh forum on the road seminar program, which builds on the success of our Floriology Institute based in Jacksonville, Florida by taking its educational programs directly to florists in markets across the country. While BloomNet's revenues were essentially flat for the year, gross margin improved 450 -- by 400 basis points to 50.9%, primarily related to product mix and service mix. Combined with effective operating cost controls, BloomNet achieved a nearly 15% increase in category contribution margin to $25.6 million for the year. We believe BloomNet is poised to increase its market penetration and drive solid top and bottom line growth in this current fiscal year.

In our Gourmet Food and Gift Basket businesses, we include -- we increased total revenue for the year reflecting strong e-commerce growth particularly on Cheryl and The Popcorn Factory brands. Revenues also benefited from year-over-year growth in our wholesale Gift Basket division, which showed a solid turnaround after several years of declining sales. In addition, sell-throughs by our mass market customers were strong during the key holiday period last year. This has led to higher demand for the upcoming holiday season. As such, we're confident that our wholesale Gift Basket division will continue to rebound nicely in this fiscal 2014, as we announced after our second quarter back in January.

Our Fannie May business did not perform up to our expectations during fiscal '13 due primarily to operational issues. During the second half of the year, we implemented a number of initiatives to address these issues. We changed out several members of the senior management team. We have realigned reporting lines throughout the company and we added new personnel focused on upgrading operating processes at both the factory and distributor center. The costs associated with these issues, combined with the investments we've made to address them, resulted in impacts to both gross margin and category contribution margin for the overall Gourmet Food and Gift Basket segments.

However, we are confident that the efforts that we now have underway will enable Fannie May to bounce back and perform well from both a top and bottom line perspective this fiscal 2014. Also within the category, we made the decision during the fourth quarter to divest of our winetasting.com business, which has proved to be difficult to grow at an acceptable rate due primarily to the many conflicting interstate shipping regulations that apply to wine. Going forward, we expect to continue to offer wine in gift baskets using external resources.

Lastly, we are very excited about the growth opportunities we see in our expanding line of fruit gifts, specifically our FruitBouquets.com and new Fannie May Berries lines. In fruit bouquets, during fiscal 2013, we continued to leverage our floral franchise and BloomNet network to increase delivery coverage around the country. Feedback on the fruit bouquets line from both customers and the florists fulfilling the products for us has been very positive and we are excited by the long-term opportunity to capture share in a growing market that is already more than $0.5 billion in sales in the U.S. alone.

Equally exciting has been the launch of the new Fannie May Berries line. Incredible strawberries, especially selected for their size and freshness that are dipped in real Fannie May chocolate. We launched Fannie May Berries in time for the Valentine's holiday this past year and customer reaction has been excellent. Throughout fiscal 2014, we will be working to scale our production and distribution capabilities for this new line and developing marketing campaigns to help drive brand awareness nationwide. Here, again, we believe we are well-positioned to capture share in an already large and growing market for strawberries, as well as other fruits, dipped in real chocolate, products our customers are increasingly embracing as great gifts and a great way to deliver a smile.

I will now turn the call over to Bill for a review of the financial and operating metrics for the quarter.

William E. Shea

Thank you, Jim. As we noted in our press release this morning, our fiscal '13 fourth quarter results include the impact of the shift of the Easter holiday into our fiscal third quarter. This shift reduced fourth quarter revenues compared with the prior year particularly in our Gourmet Food and Gift Basket segment. We have provided revenue results for the quarter on a comparable non-GAAP basis, adjusting for the Easter shift, as well as providing results on an as-reported basis. We believe that additional information provides a clearer picture of our performance for the fiscal fourth quarter compared with the respective prior-year period. In addition, during the fourth quarter, we made the strategic decision to divest our winetasting.com business to better focus on the significant growth opportunities we see elsewhere in our Gourmet Food and Gift Basket segment. Therefore, our winetasting.com business is presented herein as a discontinued operation.

Regarding specific financial results and key metrics for continuing operations. For the full year, revenues grew 4% to $735.5 million, compared with $707.5 million in the prior year. Gross profit margin increased 10 basis points to 41.5%, compared with 41.4% in the prior year. Operating expense ratio improved 50 basis points to 38% of total net revenues, compared with 38.5% in the prior-year period. Operating expenses for the year increased 2.5% to $279.4 million, compared with $272.6 million in the prior year. As a result, adjusted EBITDA for the year, which excludes stock-based compensation expense of $4.3 million and a pretax gain of $3.8 million in fiscal 2012 from the sale of 17 Fannie May company-owned stores, increased $4.5 million or 10.2% to $48.9 million, compared with $44.3 million in the prior year. Including the impact of stock-based compensation, adjusted EBITDA for the year increased $5.1 million or 12.9% to $44.6 million, compared with $39.5 million in the prior year.

Adjusted net income from continuing operations grew 43.9% to $15.7 million or $0.24 per diluted -- per fully diluted share, compared with $10.9 million or $0.16 per fully diluted share in the prior year. Our free cash flow for the year was $14.6 million and reflects additional investments of $5.3 million made during the second half of the year. Adjusting for this, free cash flow would have been approximately $20 million. The additional investments included approximately $2.3 million for the purchase of certain technology licenses and approximately $3 million for increased inventory related to several factors associated with growth in our Gourmet Food and Gift Baskets segment including an incremental order for gift baskets that required early delivery for the upcoming holiday season and an early build of inventories for the upcoming holiday season on our Cheryl's brand, where very strong customer demand is beginning to push up against production capacity at our baking facility in Ohio. As a result of this demand, we will be breaking ground on a plant expansion project in the second half of fiscal 2014.

For the fiscal fourth quarter, total net revenues increased 1.4% or $173 million on a comparable non-GAAP basis adjusted for the shift of the Easter holiday. On a reported basis, revenues for the quarter declined 2.5% to $173 million, compared with $177.3 million in the prior year period. Gross profit margin was 41%, compared with 41.6% in the prior year period. The declining gross profit margin for the quarter reflects higher gross profit margin in our Consumer Floral and BloomNet businesses, offset by lower gross profit margin in our Gourmet Food and Gift Basket business related to both the aforementioned Easter shift and the operational issues at Fannie May.

Operating expense ratio was 40.7% of total net revenues, compared with 40.1% in the prior year period. Again, primarily related to the aforementioned Easter shift and the operational issues at Fannie May. As a result of these factors, EBITDA for the quarter, excluding stock-based compensation expense, was $6.3 million, compared with $8.6 million in the prior year period. Net income from continuing operations for the quarter was $538,000 or $0.01 per fully diluted share, compared with $1.7 million or $0.03 per fully diluted share in the prior year period.

Net loss from discontinued operations for the year was $3.4 million or $0.05 per share, including a loss of $1.5 million or $0.02 per share related to the anticipated loss from divestiture of the winetasting.com business. This compared with a gain of $4.3 million or $0.07 per share in the prior year, which included a gain of $4.5 million resulting from the sale of our winery services business during fiscal 2012.

For the quarter, results from discontinued operations were a loss of $2.3 million or $0.04 per share, including the aforementioned loss of $1.5 million or $0.02 per share related to the anticipated loss from divestiture of the winetasting.com business, compared with a gain of $100,000 or breakeven per share in the prior year period. Consolidated net income for the year, including results from discontinued operations, was $12.3 million or $0.19 per share, compared with net income of $17.6 million or $0.27 per share in the prior year. For the quarter, net loss, including discontinued operations, was $1.7 million or $0.03 per share, compared with a net income of $1.8 million or $0.03 per share in the prior year period.

In terms of customer metrics from continuing operations. For the year, e-commerce orders increased 5.9% to $8,710,000, compared with $8,228,000 in the prior year. For the quarter, e-commerce orders were $2,163,000, essentially flat compared with the year-ago period. Average order value for the year was $61.60 the compared with $62.26 in fiscal 2012. The lower AOV reflects growth in our popular Cheryl's Cookie Card, without which our AOV increased for the year. And average order value for the fourth quarter was $64.31 compared with $63.61 in the prior year period. For the year, we added 2.3 million new customers, representing an increase of 14.1% compared with the prior year, with repeat orders representing 52.3% of total customers. And during the fourth quarter, we added 650,000 new customers, up 12.7% year-over-year, while concurrently stimulating repeat orders from existing customers who represented 60.2% of total customers.

Now in terms of category results. In our 1-800-FLOWERS.com Consumer Floral business, full year revenues were -- grew $13.3 million or 3.4% to $411.5 million and fourth quarter revenues grew approximately $1.9 million or 1.5% to $125.9 million, compared with $398.2 million and $124 million in the respective prior year periods. Gross profit margin increased 90 basis points to 39.8% for the year and 130 basis points to 40.5% for the fourth quarter, compared with 38.9% and 39.2% in the respective prior year periods.

The significant improvement in gross profit margin reflects enhanced product mix, sourcing, improved logistics and the effectiveness of our marketing and merchandising programs, which focus on customer engagement and feature reduced promotional activities. Category contribution margin for the year grew 20.6% to $47.2 million and 31.6% to $16.1 million for the fourth quarter, compared with $39.1 million and $12.2 million in the respective prior year periods. This reflected the growth in revenues combined with higher gross margins and enhanced marketing efficiencies. The company defines category contribution margin as earnings before interest, taxes, depreciation and amortization and before the allocation of corporate overhead expenses.

In terms of our BloomNet Wire Service business. Full year revenues were $81.8 million, down 0.9%, and fourth quarter revenues were $20.5 million, down 5.7% compared with $82.6 million and $21.7 million in the respective prior year periods. The lower revenues for the fourth quarter reflect the impact of the aforementioned shift of the Easter holiday, and for the quarter and the year, revenues also reflect product mix including a reduction in lower margin shop-to-shop orders and wholesale product sales, somewhat offset by growth in high-margin products and services including our web marketing services, directory advertising and the flower selection guide.

As a result of the product mix, gross profit margin increased 400 basis points for both the year and the quarter to 50.9% and 52.2% respectively, compared with 46.9% and 48.2% in the respective prior year periods. And category contribution margin increased 14.6% to $25.6 million for the year and 6.2% to $6.8 million for the fourth quarter, compared with $22.3 million and $6.4 million in the respective prior year periods, reflecting the higher gross margins and effective operating cost controls.

Gourmet Food and Gift Baskets. Full year revenues increased 6.7% to $243.2 million. Our fourth quarter revenues declined 15.7% to $26.7 million, reflecting the shift of the Easter holiday, compared with $228 million and $31.7 million in the respective prior year periods. Revenue growth for the year was driven primarily by strong e-commerce demand in our Cheryl's and Popcorn Factory brands, combined with increased orders for our wholesale gift baskets, somewhat offset by lower wholesale volumes in our Fannie May brand. Gross profit margin for the year was 40.6% and 32.9% for the fourth quarter, compared with 43.1% and 45.6% in the respective prior year periods. For the fourth quarter, gross profit margin was impacted by product mix associated with the aforementioned shift of the Easter holiday, as well as operational issues at our Fannie May production and distribution facilities, which we've discussed with you in previous quarters. And for the year, gross profit margin was impacted by these operational issues, as well as product mix, particularly higher growth in wholesale gift baskets.

Category contribution margin was $20.3 million for the year, compared with $26.4 million in fiscal '12, excluding the one-time gain of $3.8 million from the sale of the 17 Fannie May company-owned stores in the prior year. For the fourth quarter, category contribution margin was a loss of $6.6 million, compared with a gain of $760,000 in the prior year period. Our fourth quarter category contribution margin reflected the aforementioned Easter shift. Both the quarter and full year were impacted by costs associated with the aforementioned Fannie May operational issues and subsequent investments we've made to address those issues and investment costs associated with the launch of the new Fannie May Berries line during the second half of the year.

In terms of corporate expenses, our category contribution margin excludes costs associated with the company's enterprise shared services platform, which includes, among other services, IT, HR, finance, legal and executive. These functions are operated under a centralized management platform, providing support services to the entire organization. For the full fiscal year, corporate expenses from continuing operations including stock-based compensation was $48.6 million, compared with $48.4 million in the prior year. For the fiscal fourth quarter, corporate expense from continuing operations including stock-based compensation was $10.9 million, compared with $12 million in the prior-year period.

Turning to our balance sheet. At year end, our balance sheet was debt free, with cash and investments of $154,000 and no borrowings under our new revolving bank credit facility, which I will describe for you in a few moments. It's worth noting that during the fourth quarter, we made the final payment of $18 million on our term debt for a total of $29.3 million paid during fiscal 2013 and more than $130 million paid since 2008. We accomplished this through solid cash flows even through an unprecedented recessionary economy, combined with proceeds from divesting non-strategic assets all while continuing to invest in our core business platform, as well as a broad range of initiatives designed to drive long-term growth.

During fiscal '13, we also used nearly $10 million in cash buying back approximately 2.5 million shares of our stock. Our credit facility, which we closed on back in April, provides us with considerable flexibility to grow our business going forward. It is comprised entirely of a $200 million revolving line of credit and features an advantageous interest rate of LIBOR plus a range of 150 to 225 basis points.

Now jumping back to the balance sheet. Inventory at our fiscal year end was $55.8 million, compared with $53.9 million in fiscal 2012. This includes the aforementioned inventory prebuild in our Gourmet Food and Gift Baskets segment for the upcoming holiday season. Adjusting for this earlier-than-usual prebuild, our inventory would have been down year-over-year even with our revenue growth. We anticipate inventory will grow at a significantly slower rate versus our expectations for revenue growth during the current fiscal year.

Providing guidance. For fiscal 2014, we expect to achieve revenue growth across all 3 of our business segments, with consolidated revenue growth for the year in the mid-single-digit range. We also expect to grow EBITDA and EPS at rates in excess of the expected revenue growth, reflecting on anticipation for continued improvements in gross profit margin and operating leverage across the company. In terms of free cash flow, we expect to generate approximately $20 million during fiscal 2014, this despite an expected increase in our capital expenditures for the year to approximately $23 million for the start of a plant expansion for our fast-growing Cheryl's brand, which I mentioned earlier.

I would now turn the call to our President, Chris McCann.

Christopher G. McCann

Thanks, Bill. As Jim and Bill have noted, our fiscal '13 results reflect the positive trends that we've been seeing in our business for the past several years. This has been driven by solid performance across all of our key brands and businesses.

In our Floral category, our core 1-800-FLOWERS brand continued to extend its market leadership position with solid e-commerce growth in a highly competitive marketplace. This was illustrated in the fourth quarter by our smart performance over the Mother's Day holiday, which I'll come back to in a moment. In BloomNet, we have become the leading innovator in the wire service industry with an expanded suite of products and services designed to help our florists grow in a difficult economy. BloomNet continues to manage its business exceptionally well, driving strong year-over-year growth in contribution margin on essentially flat revenues.

In Gourmet Food and Gift Baskets, we're seeing strong e-commerce growth from Cheryl's, Popcorn Factory, 1-800-BASKETS.com and Fannie May, and we're building national awareness for these brands through our new multi-branded website and our diverse marketing programs. The wholesale division of our Gift Basket business is bouncing back nicely after several challenging years, as mass market customers react to the strong sell-throughs they saw in last year's holiday season and increasingly embrace our lineup of new product designs for this upcoming holiday season. We are also confident that the initiatives we have underway to address the operational issues we faced at Fannie May this past year will result in significantly improved performance during fiscal '14.

Jumping back to Mother's Day holiday, as I mentioned a moment ago, we achieved strong performance for this key holiday period. Our order volume increased more than 5%, reflecting the effectiveness of our marketing programs, online and offline. Average order value and gross margin also showed year-over-year increases, reflecting our customers' enthusiastic response to our truly original products and our disciplined approach to promotions. And in what has to be one of the best compliments a brand can receive, 1-800-FLOWERS.com's place in America's cultural fabric was confirmed when Saturday Night Live alumni, Kristen Wiig, kicked off her highly touted return to the show by featuring 1-800-FLOWERS in a great spoof of Mother's Day family relations. If you haven't already seen it, I encourage you to go to YouTube and watch it. I can guarantee it will deliver a smile for you.

On that note, I'll turn the call back to Jim.

James F. McCann

Yes, thanks, Chris. About that Saturday Night Live skit, it was a great and very funny compliment for our brand and we're still hearing about it from our customers and friends. This illustrates the strength of the 1-800-FLOWERS.com brand, something that we've built our business on for more than 35 years now, the same strength that has enabled us to achieve the positive trends in our business that we've seen for the past several years.

As you saw from our press release this morning and our remarks here today, fiscal 2013 was another good year for 1-800-FLOWERS.com during which we achieved solid revenue growth in a lackluster consumer economy, increased gross margin and reduced operating expense ratio, double-digit growth in adjusted EBITDA and EPS, a debt-free balance sheet, significantly enhanced financial flexibility through a new credit facility and we bought back nearly $10 million worth of our stock while continuing to innovate and invest for the future in key areas including: new product development programs, our technology platform and our Social and Mobile initiatives, among others. Most important, we continued to deepen our relationships we have with our customers by engaging directly with them to help them deliver smiles.

And that concludes our formal remarks. We'll now ask Kevin to -- our moderator, to please restate the instructions for the Q&A portion. Kevin?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Dan Kurnos with The Benchmark.

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Just a couple -- a few questions for me here. Just first on the Consumer Floral side, we heard from other people in the industry that Mother's Day was extremely competitive from a promotional standpoint. You guys did pretty well to still grow in the quarter, a little bit better than we were expecting. Could you just give us your thoughts on the promotional environment, in general, do you think it continues to get more aggressive from here, or has it kind of stabilized?

Christopher G. McCann

Yes. I think, Dan, we work in a highly competitive industry and I think holidays, we see our competitors be highly promotional. With that said, I think what you're seeing from us, we've been able to leverage the strength of our 1-800-FLOWERS brand, focus on our marketing efforts on balancing promotional programs with messaging that reminds our customers to "wow" their recipients. And I think that's enabled us to drive solid growth in both units and average order value while also increasing our gross margin. So I think what you're seeing is us demonstrating an ability to continue to manage our brand, positioning it to the American culture and make sure that we can deliver the results without having to resort to being overly promotional.

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

And I'm not sure if I missed it, but I know you talked about total results x Easter, but what would your Consumer Floral have been, x Easter, in revenue?

James F. McCann

Well, you have it 2 ways, you have the Mother's Day period and then the quarter, overall. Bill?

William E. Shea

Yes, the quarter overall, Consumer Floral would have been growth of about 3.5%.

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Great. On BloomNet, I think this might be the second quarter in a row that we've seen some declines in the wholesale channel. Is there any competitive issue there or could you give us a little bit more color on what's going on with BloomNet from that regard?

James F. McCann

Chris?

Christopher G. McCann

Yes. No, I don't think it's necessarily a competitive issue. What we had seen earlier was that the wholesale business had suffered a little bit really starting back in Q2.

William E. Shea

Right after Sandy.

Christopher G. McCann

Yes, right after Sandy and some delays there. But then I think, what we're seeing is pickups on some of the higher-margin parts of our products and service offerings, our web marketing services, our digital directory, our flower selection guide. But we're seeing pickups there which is helping to drive the improved gross margin.

James F. McCann

And this is Jim. We're confident for the year, as you've heard us state in our forecast, that we'll grow the top line for BloomNet this year and the bottom line. And of course, we intend to grow the bottom line disproportionate to the growth of the top line. And I think one of the things that I'd put a light on that Chris just mentioned was that we introduced a first in-category iPad application for our florists to use, to replace the old point-of-sale systems and as a front end to the whole business management software programs that we're selling to our florists with great acclaim. The florists really like it, it gives them the ability to participate like everyone else does in the modern era in terms of how they communicate with their customers, show them their capabilities for weddings and funeral presentations, all of which they can do on these iPad devices. So you see, again, us taking a leadership position there. So you'll see that the category, BloomNet, is well positioned. It's clearly the go-to leader and I think, in spite of the issues we had with Sandy at all throughout the year, we're very confident in our forecast that we'll grow both top and bottom line this year.

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

That's helpful color, Jim. And then just one more if I could. Just on the Gourmet Food side. I guess, maybe, if you could just give us a sense of how you feel now about your brand portfolio. Where you are in the process of scaling some of your larger names? You spun off wines. And just how we should think about the investment process going forward?

James F. McCann

I think that you can count on us being -- I think we've demonstrated good evidence that we're good stewards of the assets that we have. So that'll involve 2 things here in the Gift Food category, Dan. One is if we have a brand like we did with winetasting, we've taken 2 steps there. We realized it wasn't important for us to be in the services end of the business. So last year, we divested the biggest part of the wine business, which was the services part of the business. And we did that very well and it's a good, successful business for the company that acquired it. And then we kept the direct-to-consumer piece, but as we realized, it's -- from a human capital point of view and from a fiscal capital point of view, it's too small a business to earn our attention. And it's not a big enough growth opportunity with all the others that we have for it to suck the attention and resources when we have brands like Cheryl's that are on fire, when we have a brand like Fannie May that's a strong brand, saw some operational difficulties but can really accelerate its growth rate this year. And when you see 1-800-BASKETS with its retail and wholesale divisions really starting to improve on the wholesale and gain ever more attraction on the retail side, it just made sense for us to continue to invest in that portfolio. And by the way, The Popcorn Factory, although a smaller brand, doing very, very well too. So we'll continue to prune when it's appropriate, and I think we're done with pruning now, so that we can investment both the unit capital and fiscal capital behind those really good growth engines. And we have others in the portfolio that as they warrant the attention, we have the capital resources available to help fire up their growth as well.

Operator

The next question comes from Eric Beder with Brean Capital.

Eric M. Beder - Brean Capital LLC, Research Division

Could you talk a little bit about the, I know you've been updating your website now with the multi-tabs and the single card, how has that affected kind of cost shopping between your customer base online?

James F. McCann

Well, I'll ask Chris to go into the detail on that. I'll just tell you that, you should always expect that we're trying to do 2 things, Eric. With our product selection, with our price points, with our truly innovative products that we're bringing to market, we're trying to do 2 things. We're trying to grow the size of the wallet, that is how much customers think about using our products to express themselves and connect to the important people in their lives with range of products, good breadth of products and a variety of price points. And second, we're trying to grow our share of that wallet. So I think you'll see, from the color that Chris can give you, that the multi-branded portal opportunities and our efforts are giving us increased opportunity to do both those things, grow the wallet and our share of it.

Christopher G. McCann

Right. And I think, Eric, we began that experiment, so to say, a year or plus ago. And the early results we had then warranted us to therefore make the decision to further invest in that strategy, in that direction. So while we did that, from the multi-branded portal, we put it up there, started some experimentation, saw some encouraging results from cross-brand shopping and exposure of the other brands to our customer base. We're now in the phase where we then come back and said, "Okay. Now let's invest in the technology architecture really underlying that." And we're in the midst of doing that now. We'll be coming out of that during the fall season and then I think you'll expect -- you could expect to see us start to put more attention in onto the marketing efforts behind that, both on platform and in through our direct marketing efforts to drive more multi-brand usage, really positioning us as our customers' go-to destination for all their gifting needs that them deliver smiles.

Eric M. Beder - Brean Capital LLC, Research Division

In terms of the fresh fruit initiative, the fresh fruit basket initiative, is the holdup here the permitting process, which is taking this and make this a lot longer than you expected or is it something else?

Christopher G. McCann

Yes, Eric. It's not so much necessarily the permitting process. It's just as we were expanding, what – we're very pleased with the traction that we're getting in expanding fruit bouquets through our florists, primarily our franchise florists, select BloomNet florists. So we're continuing to increase our penetration there. We're continuing to increase our coverage and I think what you'll see is when we get to the point of we're at a little bit more -- it's going to take us a little more time to get to a point of critical mass that will enable us to put more marketing effort behind that product line. What we're seeing so far is in markets where we have established, say last year, where we had the capability, and all we're really doing so far is merchandising the product, we're seeing nice what we call same ZIP code sales increases. It's kind of a same-store sale comparison, where we had the progress -- the product last year. And then this year, we're seeing nice increases just through merchandising initiatives. So as we get to that critical mass of distribution, we'll be able to put more marketing effort behind it.

James F. McCann

Yes. I'll give you a little color on one shop that I'm familiar with, in particular, one of our franchisees who introduced the fruit bouquet program, Eric. And he tells me that now about 1/3 of his sales or a 1/3 gross sales increase in his business comes from his introduction of fruit bouquet program just over a year ago. And so to Chris' point, not only are we seeing our business expand as we add new ZIP code coverage, but even within the ZIP codes that have been open for a year or more now, they're seeing great same-store sales increase within the product. So these are guys telling me it's such a good thing for him because it has a 1/3 increase in the sales. And he has no increase in his rent, he has no increase in his other expenses other than more delivery expense because he has more units going out the door. That's a wonderful profile and that's why our florists are so excited about the program. But as Chris mentioned, it's a yin/yang kind of thing that we have to -- as we increase our distribution. Once we get to the point that we can turn the marketing guns on, and not just do it for merchandising, you could expect that to ramp up. That's why we feel fruit bouquets, our other dipped fruit businesses and our fruit bouquets program all will be very big businesses for us in the future.

Eric M. Beder - Brean Capital LLC, Research Division

Great. And in terms of the -- it should be the strawberries, is that also as big an opportunity? And what's the next step for the strawberries?

James F. McCann

I think the next step of this program is similar. We introduced it this year so we ran the expenses of building a facility, of introducing the product line, all the packaging, the initial merchandising that we had to do there, and the people that we had to put against it. So we did that. We headed out for Valentine's Day, the take rate was terrific, the customer feedback was even better. So we're very excited. Everything we hoped to prove with the introduction has been proven. I'm not sure if there's a bigger opportunity in fruit bouquets overall. I don't know. But I think our portfolio of fruit bouquets, dipped fruits, strawberries and others, are segments that, as I mentioned, I think are going to be very good for us this year. But every year, you'll see them grow. Not only from the spread of our distribution capabilities but within the -- with the same-store sales growth wherever we have them, the take rate is just enormous.

Operator

Our next question comes from Michael Kupinski with Noble Financial.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Just a couple of quick housekeeping questions here. In terms of the restatement in Gift Baskets, that was solely due to the winetasting.com going into discontinued operations, there's nothing else in those numbers, right?

William E. Shea

That is correct.

David Kanen

Okay. And in terms of your capital expenditures for next fiscal year, have you guys -- maybe I missed this, can you just remind me what that might be?

James F. McCann

Well, you remember -- I'll ask Bill to give you the specifics, but you remember that for the last 2 or years, we've been around $17 million in CapEx. So we're still projecting to do $20 million in CapEx, but this year, we're increasing our CapEx spend to...

William E. Shea

Yes, so CapEx this past year, as we just reported, was about $20 million up over the $17 million or $18 million that Jim just related to. Due to kind of late in the year, we made an investment in technology licenses that we thought were important for the company. So that's why year is up the $20 million. Next year, we expect it to be higher than that, at about $23 million, which is incremental to again our normal steady $17 million to $18 million, because we're going to be expanding, in the second half of the year, our Cheryl facility. Our Cheryl facility, we've talked about Cheryl's over the last couple of years, it's grown significantly and we anticipate it to continue to grow very nicely. We're breaking ground on expansion of that facility in January of this year. The result of that would be that will -- at the end of that, will be to double the size of the product capacity of the baking capacity of that facility.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

And if we look into your guidance for fiscal 2014, you indicated that you expect some improvements in Fannie May. And then also, obviously, I would assume that you have Cheryl's kind of picking up some contributions there as well. Can you just give us a little bit more color on what your expectations are might be embedded into the guidance related to Fannie May?

William E. Shea

Well, Fannie May had a tough year, as we have kind of described in multiple quarters now. We do expect a significant turnaround within the Fannie May operation. We've spent dollars this year to address those operational issues that we had, both within the facility and the distribution facility, as well as changing over management, adding on some operational consultants to work with that. So we do expect a big rebound in Fannie May. We do expect Cheryl's to continue to perform very nicely. And as we alluded to in our comments, we expect our wholesale gift baskets continue to perform. So GFGB.

James F. McCann

And Popcorn. So we expect all the businesses that are doing well to continue to do well in increasing fashion. And we expect that we should be able to turn around Fannie May this year, based on things we've already done.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

And in terms of the fruit bouquets, it seems like a great opportunity, a growth opportunity, for you guys. I was just wondering what are the take rate, I suppose, in terms of the number of florists that have upgraded their facilities to offer fruit bouquets? And do you have any specific guidance in terms of what your expectations are for fiscal 2014?

Christopher G. McCann

Yes, Michael. We just commented, we're very pleased with the progress that we're making in the distribution coverage so far. We don't have a -- specifically give number of shops on that or percentage of coverage. It's increasing nicely. We expect, within a short time frame, that we'll be getting to that point of critical mass, where we should start putting marketing effort behind that we mentioned before. So it continues to grow, it continues to grow within market, where like I mentioned before, kind of same ZIP code sales. And we're excited about the prospects.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

And can you remind me, do you have any authorization left on your existing share repurchase authorization or maybe you might want to just talk a little bit about what are the best uses of cash at this point?

William E. Shea

Yes, from an authorization standpoint, we had gotten a reauthorization of $20 million back early this fiscal year. We have about $19 million of that remaining. So we have plenty of opportunities here.

James F. McCann

So as you can see, Michael, in terms of cash, we're in a good position, we're generating good excess free cash flow. We've used about $10 million in the last fiscal year, toward a stock repurchase program. We're happy to have begun that and we'll continue our stock repurchase program. We've cleaned up our balance sheet so that we're pristine now with 0 debt and a greater credit facility in place to give us great flexibility, give us great opportunity. So in terms of uses of cash, we'll continue to grow our business organically. We invested cash behind the fruit bouquet business this year, we invested cash behind the berries program this year. We invested cash against the fixes we needed to make that are now underway at Fannie May and we've invested -- we will be investing cash this year behind the expansion of our bakery facility in Columbus. So we have the good cash wherewithal to do it. And in terms of other growth, we think there are other organic initiatives that we can use. We've been fairly successful over the last few years on small bolt-on acquisitions and should we find the right M&A opportunity that will help our business and help our portfolio of brands, mostly by helping our customers to express themselves and connect to the important people in their lives in creative and new ways, we have the wherewithal to do that as well. So I think you the mix of our uses of cash being consistent, except that we've not done anything significant in the M&A arena for the last couple of few years.

Operator

[Operator Instructions] Our next question comes from Anthony Lebiedzinski with Sidoti & Company.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Jim, you just mentioned that you are potentially looking at some bolt-on acquisitions. So if you could just further expand on that, are you actually seeing interest from companies looking to sell themselves? Or like can you just talk about potential pipelines for such acquisitions?

James F. McCann

Well, I don't want to mislead you there. I mean I didn't say like that we have a great potential there. I think what I've said is that we've done that successfully over the last few years where that's an area to buttress something, that we do add a technology perhaps. And we'll continue to look at those. There's no great pipeline of those. But yes, we're seeing the fact that we've continued to do well through this environment, that we have the cash resources that we have, that we've been good stewards of our cash, yes, we attract inquiries and, frankly, we look at a lot of them. But we're very disciplined about exactly what we'll do in terms of how it would fit with our portfolio or expand the portfolio. What its financial characteristics are from an inventory, from a leverage point of view, in terms of leveraging the things that we could bring to the table. So we're active. We have a strat/dev team that works on these issues all the time, but nothing that we're prepared to report on now because it's just a continuing effort for us to do organic growth, bolt-ons to help that organic growth. And we're active and interested in the marketplace on things that'll help our company grow, but that have to meet our profile and our criteria. And we've been very, very disciplined about that.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Okay. And also, you've done a good job with improving your gross margins. But when I look specifically at the Consumer Floral segment, you've done less promotions, you've improved your product mix. Now going forward, do you see further incremental opportunities to improve the gross margin within the Consumer Floral segment?

James F. McCann

Chris, do you want to cover specifically the consumer floral? But the answer is yes. We see the marketing spends and opportunity on ratio improvement opportunity across the board, but Chris, specifically to Consumer Floral, or Bill?

Christopher G. McCann

Yes. I mean I'll just comment, and I think Bill can add a little bit more color to it. I think you've seen our disciplined approach certainly for the balance between managing a brand and increasing the brand awareness, the relevancy of the brand that helps us increase AOV. Get the right products and truly original designs out there that has helped us to move our margin up, not only in the Floral but, I think, across the board in a business that is performing well.

William E. Shea

Yes, I mean from a standpoint of Consumer Floral, I mean, I think to be -- to the set that we are, it improved 90 basis points this year. We have gotten our Consumer Floral margins up almost 40 basis points. This is a very strong...

James F. McCann

40 points, not basis points.

William E. Shea

Yes, 40 points. It's a very strong margin, it's probably the highest we've had in the company's history. So we've done a very good job of getting those margins. We think there is really greater opportunity across the enterprise to improve margins.

James F. McCann

Yes. So I don't think we're looking to push margins much more on the Floral side. But yes, we think we have gross margin opportunity across the enterprise, as Bill and Chris just said, in our GFGB brands. And where we have operating expense ratio leverage that any growth gives us good leverage return, which is why we're able to forecast and achieve each of the last few years double-digit increases in our bottom line.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Okay. And what is your outlook for commodity costs, including cocoa?

James F. McCann

Well, I'll let Bill give you the specifics, but we all read the newspapers every day and commodity costs are something, as a company, we have to address all the time. Certainly, fuel costs are at a recent high. And cocoa, Bill, would you address specifically how we've handled cocoa?

William E. Shea

Yes. I think we've done a really good job with the -- overall, from a commodity standpoint. Certainly, cocoa was our biggest commodity that we've had and we've locked in very favorable pricing on cocoa that will cover us through this fiscal year. In the past, we've employed strategies where we've actually taken possession and bought butter when we saw butter on a dip. We bought butter in -- prior to high spikes in butter. So I think we do a good job on the food commodities that we deal with. As Jim references, as we're entering fiscal '14, we're already seeing higher oil prices and with all the unrest in the Middle East. But that is something we have to monitor. And ultimately, we look for ways to offset that.

Operator

And I'm not showing any further questions at this time. I'd like to turn the conference over to Jim McCann for closing remarks.

James F. McCann

Thank you, Kevin. Thank you, all, for you questions and your interest today. If you have any additional questions, please get in touch with us. Enjoy the Labor Day weekend, and don't forget to visit our website to join in on our Summer of a Million Smiles program that is now growing across the country. It is a great way for you to help deliver a smile to someone deserving in your community and the communities all around the country. Thank you again for your participation today.

Operator

Ladies and gentlemen, that does conclude today's presentation. You may now disconnect, and have a wonderful day.

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