1-800-FLOWERS.COM, Inc. F3Q10 (Qtr End 03/28/10) Earnings Call Transcript

Apr.30.10 | About: 1-800 FLOWERS.COM, (FLWS)

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

F3Q10 (Qtr End 03/28/10) Earnings Call

April 28, 2010 11:00 am ET

Executives

Joseph Pititto - VP, IR

Jim McCann - CEO

Bill Shea - CFO

Chris McCann - President

Analysts

Eric Beder - Brean Murray Carrett

Ronald Bookbinder - Global Hunter

Anthony Lebiedzinski - Sidoti & Company

Operator

Good day everyone and welcome to the 1-800-FLOWERS.COM, Inc. Fiscal 2010 Third Quarter Results Conference Call. This call is been recorded. At this time for opening remarks and introductions I would like to turn the call over to the Company's Vice President of Investor Relations, Joseph Pititto. Mr. Pititto, please go ahead, sir.

Joseph Pititto

Thanks Jonathan. Good morning and thank you all for joining us today to discuss the 1-800-FLOWERS.COM fiscal results for our 2010 third quarter. Those of you who have not received the copy of our press release earlier this morning, the release can be accessed at the Investor Relation Section of our website at 1-800-FLOWERS.COM or you can call Patty Altadonna at 516-237-6113 to receive a copy of the release by email or fax.

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

Before I begin, I need to remind everyone that a number of the statements that we'll make today maybe 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 our press release issued this morning, as well as our SEC filings including the company's annual report on Form 10-K and quarterly reports on form 10-Q.

In addition, this morning, we will discuss certain adjusted results and supplemental financial measures that are 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, any recordings of today's call, the press release issued earlier today or any of it’s SEC filings except as maybe otherwise stated by the company.

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

Jim McCann

Good morning everyone, as you know our fiscal third quarter is dominated by our consumer floral business which represented a majority of our revenue in contribution margin for the period due primarily to the Valentines Day holiday. During the quarter we saw a number of positive trends that I will discuss in a moment. However, our overall financial results for the period were impacted by the unsatisfied performance of the promotional programs that we deployed to offset the anticipated affects of the Valentine Sunday day-placement.

As we headed into this year’s Valentine’s holiday we made the decision to step up our marketing spending and provide consumers with free shipping on no service charge promotion to incent early ordering for early delivery. On a positive note we did see an increase in order volume for the holiday period. This is a continuation of the improving trend that we have seen in our consumer floral category since the 20% decline in last year's Valentine period.

We also achieved an increase in the number of customers we attracted which were up approximately 6% for the quarter. However, the listed orders for the holiday was insufficient to offset the impact of our gross margin average order value related to these promotions. This combined with the increase in advertising spending to drive the promotion resulted in significantly lower category contribution which impacted overall EBITDA and EPS for the quarter. It is important to note that this promotional program was a one-time effort directly related to this year's day placement of Valentine's Day and not something we will repeat going forward. With that said, we drive a number of very key learning’s from the program which I'll ask Chris to describe in more detail in his remarks later on in this call.

As I mentioned earlier, this year's Valentine's holiday we have seen an improving trend in our consumer floral business in terms of revenue and gross margin. With the exception of the recent Valentine's Day we are seeing a continuation of these trend as well as some signs of gradual improvement in the overall consumer discretionary spending. We believe these trends bode well for our current quarter and for improvement in the consumer floral category results of fiscal 2011. It is also worth noting we have seen a significant boost in brand awareness and consumer engagement since our recent appearance on the CBS hit television show Undercover Boss which attracted more than 15 million viewers on its first airing. This was a tremendous experience for our company that put a much deserved spotlight on some of the great people working in our organization as well as the wonderfully talented and passionate florists in our franchise flower shops around the country.

This show also helped illustrate the unique family florist heritage of the 1-800-FLOWERS.COM brand and the importance of our efforts to engage with our customers and develop a relationship as their florist. Based on the great response we have had from our customers, we view this as a great branding event that we plan to leverage in our marketing and merchandising programs going forward. I will ask the star of the show, my brother Chris, to provide some highlights from his experience in a few minutes.

Before I turn the call over to Bill for his review of the metrics for the quarter I'd like to expand a little bit on some of the positive developments we are seeing in our business. Our BloomNet wire service continues to set itself apart as a leading innovator and best value proposition in the wired service industry. During the fiscal third quarter BloomNet grew its revenues and maintained a strong 30% contribution margin despite the difficult Valentine holiday. In our gourmet food and gift baskets category, during the third quarter, we produced strong top and bottom-line results with revenue up almost 14% in contribution margin up approximately 12%.

This reflects solid double-digit growth in our online channels including our new 1-800-BASKETS.COM brands. Our continued strong performance in this category illustrates the benefits of our investments over the past several years in our gourmet food and gift basket businesses which are proving to be an excellent platform for future growth and a perfect complement for our merchandising mix in our flower and gift shop.

Importantly we see a positive trend in all our gourmet food gift brands as our customers are increasingly drawn to the great quality and selection of the Popcorn Factory, Cheryl's cookies and brownies, Fannie May chocolate, Winetasting.com and Geerlings & Wade, and of course, 1-800-BASKETS.COM. Regarding our new gift basket business, since it’s launched back in November 1-800-BASKETS.COM has achieved consistent growth as more and more of our customers are attracted to the beautifully designed and confected gift flowers, baskets, and gourmet collections. Importantly the 1-800-BASKETS brand is growing without a significant incremental marketing spend because we're leveraging the strong brand equity and the site traffic of 35 million strong customers in our database of 1-800-FLOWERS.COM.

I now turn the call over to Bill so he can take us through the metrics for the quarter.

Bill Shea

Thank you, Jim. Regarding specific financial results the key metrics for the third quarter, total net revenues from continuing operations were $155.5 million, up approximately 1% compared with $154.5 million in the prior year period. During the quarter our e-commerce orders totaled nearly $2 million, up 3.2% compared with $1.9 million in the year ago period. Average order value was $56.96, down 5.1% compared with $60.04 in the prior year period, primarily reflecting the impact of the Valentine promotions in the consumer floral category. During the quarter, we added 644,000 new customers, up 5.6%, compared with 610,000 new customers in the year ago period. This was achieved while comparatively stimulating repeat orders from existing customers who represented 60% of total revenues, essentially unchanged compared with the prior year period. Gross margin is 38.2%, down 170 basis points compared with 39.9% in the prior year period.

This primarily affected the aforementioned Valentine promotions in our consumer floral category. Operating expenses from continuing operations before depreciation and amortization increased approximately $1.7 million to $62.2 million compared with $60.5 million in the prior year period, affecting our increased marketing spending associated with the Valentine promotions. Excluding this increase operating expenses would have been down for the quarter compared with the prior year. For the quarter depreciation and amortization was $5.5 million, compared with $5.6 million in the prior year period. As a result of these factors, EBITDA from continuing operations was a loss of $2.8 million compared with a loss of $75.3 million in the prior year period. For the prior year period, adjusted EBITDA was $2.4 million, excluding a pre-tax non cash charge of $76.5 million for the write down of goodwill and intangibles associated with our gourmet food and gift baskets segment and the one time pre-tax charge of $1.2 million severance costs associated with the labor force reduction completed during our fiscal 2009 third quarter.

Net loss from continuing operations for the quarter was $5.9 million or $0.09 per share compared with the prior year's net loss from continuing operations of $64.3 million or $1.01 per share. For the prior year period adjusted net loss and EPS from continuing operations excluding the aforementioned impairment and severance costs were $2.7 million and $0.04 loss per share respectively. Consolidated net loss for the quarter was $7.3 million or $0.11 per share compared with the consolidated net loss of $65.8 million or $1.03 per share in the prior year period, included in the consolidated net loss for the quarter was $1.4 million of net loss from our discontinued operations, essentially unchanged compared with the consolidated net loss from discontinuing operations in the prior year period.

In terms of category results, in the 1-800-FLOWERS.COM consumer floral business, during the third quarter revenue in this category declined 5.7% to $95.3 million compared with a $101.1 million primarily reflecting the inherent demand weakness associated with the Sunday day-placement of the Valentine holiday. Additionally, while our free shipping, no service charge promotion drove in order volume it was not sufficient to affect the lower AOV created with this promotion.

Gross margin for the quarter was 33.2% compared with 35.6% in the prior period, affecting the impact of the Valentine's holiday promotion. Additionally, due to lower demand we incurred incremental price mark down and higher than planned inventory write-offs. Category contribution for the quarter declined to a loss of $241,000 compared with a gain of $7.4 million in the prior period. This affected a combination of lower sales and gross profit margin margins along with higher marketing spending to promote the Valentine offer. Category contribution was also impacted by the loss of approximately $1.1 million of contribution margin due to the termination of a third-party marketing program which we ended this past December. The Company defines category contribution margins as earnings before interest, taxes, depreciation, amortization, goodwill and intangible impairments, and severance and other restructuring charges and before allocation of corporate overhead expenses.

In our BloomNet wire service business, revenues increased 4.8% to $17.7 million compared with $16.9 million in the prior year period. This primarily reflects higher sales in the wholesale products to florists. Gross margin in this category was 53% compared with 55.5% in the prior year period, primarily reflecting this product mix. Category contribution margin was $5.3 million, down slightly compared with $5.5 million in the prior year period. In our gourmet food and gift basket segment, revenue increased 13.9% to $42.6 million compared with $37.4 million in the prior period. This was driven by growth in our e-commerce channels including the 1-800-BASKETS.COM as well as our wine business. Gross profit margin was 42.6% compared with 44% in the year ago period primarily reflecting product mix. Category contribution increased 11.5% to $1.2 million compared with $1.1 million in the prior period.

In terms of corporate expenses, our category contribution margin results exclude costs associated with 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 fiscal third quarter corporate expense from continuing operations, including stock-based compensation, was $9 million compared with $12.7 million in the prior year period. The prior year amount includes a one-time severance charge of $1.2 million. Providing results from our discontinued operations during the quarter. As we previously announced on January 25th, we completed the sale of our home and children's gift business. Results for the segment for the full week period during fiscal 2010 third quarter prior to the sale are included in our consolidated results for the quarter. Revenues in this category was $6.2 million compared with $18.5 million in the prior year fiscal third quarter.

Category contributions, margin was a loss of $800,000 compared with a contribution loss of $2.7 million for the fiscal third quarter last year. Additionally, upon closing of the transaction in January the company recorded an incremental loss on the sale of $700,000. In terms of our balance sheet, at the end of our third quarter our cash and investments position was $38 million compared with $29.6 million at year end and $31.7 million a year ago. The growth in cash reflect our strong free cash flow and proceeds from the sale of our home and children's gift business offset by our pay down of debt. As we announced last week on April 16th we entered into an amended and restated credit agreement with our bank syndicate led by JPMorgan Chase which included a prepayment of $12 million from the proceeds of the sale of our home and children's gift business back in January.

This reduced our outstanding term loan debt to $60 million. The new agreement also extended the term of the loan through April 2014. In addition, the new agreement reduced our revolving credit line from a previous commitment of $125 million seasonally adjusted to $75 million to a new commitment of $75 million seasonally adjusted to $40 million. Currently, we have zero borrowings outstanding under our revolving credit line and we don't anticipate tapping into the line until August when we begin to build inventories for the calendar year and holiday period. Based on the seasonality of our business, borrowings under the revolver typically peak in mid-November and then we are completely paid down by the end of December. We believe the current credit line together with our strong cash flows from operations will be more than sufficient to fund our working capital requirements going forward.

The new agreement also provides certain financial and non-financial covenants providing additional flexibility going forward. Under the terms of the agreement the interest rate on the outstanding portion of the term debt and revolver is LIBOR plus a range of 300 to 400 basis points based upon the leverage ratio. The initial spread is LIBOR plus 350 basis points which we expect to decline to LIBOR plus 300 basis points during fiscal 2011. Inventory from continuing operations was 45 million, down 7.4 million compared with the end of the third quarter last year. This reflects our successful efforts to reduce inventory throughout the company. Finally, before I turn to guidance I would like to discuss free cash flow. As we stated in past calls we're intently focused on managing those elements of the business that can help us drive strong cash generation, including our operating costs, our capital deployment, and our working capital management.

The results of this focus can be seen in the significant increase in free cash flow for the first nine months of this year which increased to $16.4 million, including the discontinued operations, compared with a negative free cash flow of $9.9 million in the prior period. We anticipate generating positive free cash flow during current fiscal current fourth quarter and expect to finish the fiscal year with a strong cash position.

Providing guidance, as we stated in this morning's press release, with three-quarters of the fiscal year completed, we have reiterated our guidance for full year revenues from continuing operations to be in the down 5% to 10% compared with the prior year. In terms of bottom-line results we expect EBITDA from continuing operations to be in the range of $28 to $30 million and for EPS from continuing operation to be positive for the full fiscal year.

We have also reiterated our guidance for free cash flow, including the discontinued operations, to be more than $30 million. In summary, while the Valentine's Day holiday results impacted our third quarter and full year performance we are seeing improving trends across our business. In addition, we are continuing to focus on reducing our operating expenses, further strengthening our balance sheet, as well as initiating programs to identify and pursue revenue growth opportunities. I'll now turn the call to our President, Chris McCann.

Chris McCann

Thanks, Bill. As Jim mentioned earlier in his remarks, as we headed into this year's Valentine's holiday we had seen consistent improvement in consumer demand with revenues in the category bouncing back from double-digit declines a year ago with. This in mind and an effort to offset the challenge of a Sunday day-placement, we made the decision to offer a free shipping, no service charge promotion backed up with additional advertising to incent customers to place their Valentine's orders early and for early delivery. While the impact of these initiatives reduced gross margins and average order volume more than the increased order volumes could offset, we did gain a number of important learning’s from the effort.

First, while free shipping can be an attractive incentive, it is not the most important factor in our customer's purchase decision. Our customers are attracted to the key brand values of 1-800-FLOWERS.COM, quality, convenience and selection along with reliable, everyday service, and value. Second, our customers want the great shopping experience whether it's online, on their mobile device, or in a store. Customers are looking for a personal touch. This is where we believe our family florist heritage gives us a distinct competitive advantage as we continue to expand our efforts to engage our customers in a direct dialogue and recreate that personal florist experience. For this goal our focus on social commerce sets us apart as a leading innovator, including our initiatives on Facebook where we were the first e-commerce company of any kind to enable customers to shop and place an order without leaving their Facebook page, our expanded presence on Twitter, and in the blogosphere, and in the fast growing mobile commerce space where we recently received the Retail Info System's 2010 Mobile App of the Year award in the Best Shopping category.

We believe that these initiatives, combined with a number of changes we have made in terms of our marketing and merchandising strategies positions 1-800-FLOWERS.COM for improved performance. Among the other key changes we have made in this category is to further strengthen the management team in our consumer floral business. I have tapped some of the most talented team members to take on new roles in the consumer floral business. I challenge this team to execute against our plans to enhance our customer's total shopping experience from our marketing messaging to our product development programs and our fulfillment initiatives. We believe these efforts will enable us to drive both order frequency and bottom-line profitability.

Lastly, I have personally assumed direct day-to-day responsibility for the success of these efforts. As such I can assure you we are all committed to driving significantly improved results in this category. Before I turn the call back to Jim for his closing remarks I thought I'd take a minute to tell you about the fantastic experience I had going undercover in our company as part of the hit CBS TV show "Undercover Boss." When the producers of the show first came to us with the idea, Jim and I had to think hard about how our brand would be portrayed and what messages about our business would viewers take away. Ultimately, we decided that this was just too good of an opportunity to me to learn more about our business and to present our brands to a huge national audience. Indeed it turned out to be a wonderful experience for me personally and for our company. I got the opportunity to see first hand the tremendous dedication of our associates.

I was incredibly impressed by their dedication to quality and to their commitment to our goal of delivering smiles to our customer’s everyday. One of the key learning’s that I took away from Undercover Boss experience was the importance to our customers of that personal touch. This was clearly illustrated in my experiences that I had in our flower shops and it is something that we strive for every day in all of our direct customer engagement initiatives.

Going forward you will see us further increasing our focus on creating that personal connection with our customers in all of our marketing and merchandising efforts. In addition, you will see us leveraging the great brand exposure we received from Undercover Boss and the 15 million viewers that the show attracted as well as the fantastic customer response we received via e-mails, letters and comments on Facebook, Twitter and in the blogosphere. We have already seen a nice lift in brand awareness from the show. Jim, turn the call back to you.

Jim McCann

Thanks, Chris. As we told you in our previous calls, we are focused on three key strategic priorities that drive our business. First, knowing and taking care of our customers, second maintain and enhance our financial strength and flexibility, and, finally, continue to innovate and invest for the future. In terms of knowing and taking care of our customers, we are pleased with the results of our customer engagement programs. Throughout the year, we have enhanced our efforts in social commerce, through our initiatives on Facebook, Twitter and in the blogosphere and to our innovative mobile applications. Our customers are interacting directly with us through these channels sharing their personal stories about connecting and expressing themselves with the important people in their lives. The product of this interaction can be seen in our new book titled "Celebrating Mom" which features stories submitted by our customers about all of the special moms in their lives.

The book which is the first of many planned celebration titles was published with Andrew McNeilly and is available at Amazon, Barnes & Noble, Borders as well as independent book stores across the country. It will also be featured on our gift sites, in the Fannie May retail stores and in the BloomNet retail flower shops. In terms of enhancing our financial strength and flexibility we finished the fiscal third quarter with a solid balance sheet including $38 million in cash, no debt outstanding on our revolving credit line. Our business continues to generate strong cash flows enabling us to aggressively reduce our debt. For the past 18 months, we have strengthened our balance sheet by paying down approximately $70 million in our long-term debt. In, addition we enhanced the flexibility of our balance sheet with our new bank credit facility, reducing our term loan debt to $60 million and extending the term through 2014.

In terms of free cash flow, we continue to improve our operating efficiency throughout the company as illustrated by the $26 million swing in free cash flow to more than $60 million in the fiscal third quarter compared with negative free cash flow of approximately $10 million in the year ago period.

Lastly, we have continued to innovate and invest for the future. Among our key innovative initiatives this year, the launch of our new 1-800-BASKETS.COM brand and our investments in mobile commerce are performing very well. We believe both our gift basket business and our mobile commerce applications provide significant opportunities to drive growth and profitability in the years ahead. Looking ahead I believe we are well positioned to achieve enhanced growth and strong bottom-line results based on improving trend we are seeing in our macro consumer economy and our own customer demand, the opportunities we see to increase gross margins across all of our brands and businesses, the increased strength and flexibility of our balance sheet, the enhanced strength of our management team, and our ability to generate strong free cash flow. We believe these efforts will enable us to drive long-term growth and profitability and enhance shareholder value. That concludes our formal remarks.

I'll ask Jonathan now if he will open the call for all of your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Eric Bedder from Brean Murray. Your question, please?

Eric Beder - Brean Murray Carrett

I want to talk to you about the promotional environment that you are seeing now as we enter the week before Mother's Day. What are you seeing in terms of that environment? Obviously, it was a little bit aggressive in terms of Valentine's Day. But how does it look for Mother's Day?

Chris McCann

I think we’re seeing a continuation of an aggressive promotional environment. Our competitors are spending heavily. The difference is I think we're managing our business different than we did Valentine's Day. As we headed into, as we said a difficult day placement that we knew would pose challenges we tried something different. Here we're kind of sticking to our knitting a little bit, doing what we know has worked historically for us, repeating our Spot a Mom Campaign from last Mother's Day. So, we're managing the promotional environment much better than certainly our Valentine's Day.

Eric Beder - Brean Murray Carrett

When you look at integrating your food and gift basket categories into the 1-800-BASKETS piece, how is that going and kind of where do you think you're going to end up in terms of how much of your own product you're going to have in the basket assortment?

Jim McCann

Well, I think we're doing a couple of things, Eric. This is Jim. One is 1-800-BASKETS is a business that we're growing on the back of the brand relationship we have with 1-800-FLOWERS.COM. We have 35 million customer database there. We're exposing those customers to the 1-800-BASKETS brand, we're doing it in a way that is efficient from a marketing spend. So, that we don't have to a big third-party spend on marketing to grow their brand, to grow it to be quite a large. In terms of integration of other products as you can see in the mix that we have now we're both integrating the other brand products and expanding the brand product categories that we're in by introducing other third-party products, gives us a great environment to test without a lot of capital behind those programs. So, I think you'll continue to see good steady solid integration; good steady aggressive growth as a result of our ability to market to the 1-800-FLOWERS.COM customers, and the exploration and development of our opportunities in the product category with the experimentations that are going on.

Eric Beder - Brean Murray Carrett

And finally, how is Martha Stewart doing? How is that going?

Chris McCann

The Martha Stewart program continues to develop for us. It has not met the expectations that we had never yet set out for it.

Jim McCann

We're actively involved with the Martha team. We're constantly taking our learning’s and applying it to what we believe can be a strong go forward plan for us in Martha Stewart Living.

Eric Beder - Brean Murray Carrett

Okay. Thanks.

Operator

Thank you. Our next question comes from Ronald Bookbinder from Global Hunter. Your question, please?

Ronald Bookbinder - Global Hunter

That's Ronald Bookbinder. Yes, good morning. When looking at the gross margin on a product basis, basically excluding the promotional free shipping. How was gross margin year-over-year?

Bill Shea

Material to the free shipping offer? Well, there's a combination that we guys have had during the quarter. You saw that the flowers, the consumer floral margins were down fairly dramatically during the third quarter. It was the free shipping but it was also the lack of demand that the free shipping generated. We expected higher demand. Obviously, that's why we spent behind. We also had some higher than planned inventory write-offs as a part of that. The entire margin impact relates really to that. If it was not for that program --

Jim McCann

Separate from that is what he's asking.

Chris McCann

But if you look at it really on a product basis I think you see the continuing trends that we have had where gross margin is improving. So, other than the Valentine's Day issue, the trends continue to show improvement in both the floral category and the food category.

Bill Shea

Good point, Chris. If you've seen the first half of our year you've see the trends where gross margin has improved Q1 and Q2 over prior years. We expect gross margin to be strong going forward as well.

Ronald Bookbinder - Global Hunter Securities

Okay and we've been hearing stories about flower inventories backing up in Columbia due to flights not being able to get the flowers to Europe. Have you been able to take advantage of that? And could we see a little bit of a boost to gross margin in this fourth quarter?

Chris McCann

No, you wouldn't expect to see much of an impact on us in this quarter from anything like that happening, Ronald, because we've already contracted long in advance for our prices, we contract with farms to grow specific products. So, we're not playing spot market. So no, I don't think it will have much of an impact on this quarter.

Ronald Bookbinder - Global Hunter Securities

Okay and on the baskets, how many stock-keeping units are you planning for the 1-800-BASKETS in the fall? And how does that compare to last year?

Bill Shea

Yeah. Ronald, I'm not sure of the number was at the top of my head on the number of SKUs for the fall. It was more than last year, last year it was just out of the gate so it will be significantly more than last year. Again it's all built on the learning’s that we have from our customers as far as making sure we're giving them the broad price range that we want to book the lower end but also adding in more higher end products than we booked market last year. Again taking the learning’s that we're seeing from our customers as to what they're looking to buy. So, it will certainly be an increase SKUs over last year.

Ronald Bookbinder - Global Hunter Securities

And lastly, the order value was down this quarter because of the Valentine's promo. But once again, excluding that promo would those order values have been up with a little bit better consumer discretionary spending?

Bill Shea

I think we have been seeing kind of positive trend lines in AOV. Yes, Valentine's Day was the impact why AOV was overall was down. We do certainly see some opportunities as Chris mentioned within baskets and within some of our product categories to take some pricing up and to take AOV up. So, excluding the Valentine's Day promotional campaign, AOV probably would have been relatively flat but we like the trend lines that we're seeing. And we expect AOV to increase as we go forward.

Ronald Bookbinder - Global Hunter Securities

Okay. Great. Thank you.

Operator

(Operator Instructions). Our next question comes from Anthony Lebiedzinski from Sidoti & Company. Your question?

Anthony Lebiedzinski - Sidoti & Company

Yes. Good morning. Currently you have a free shipping, no service charge promotion on your website for Mother's Day. How does this compare to last year? Also can you talk about number of SKUs that you're offering versus Mother's Day a year ago?

Chris McCann

Yes. So, again, what we’ve learned as I mentioned for Valentine's Day is that doing it from an overall perspective isn't enough to drive the volume to offset the impact on AOV. Free shipping does have a place as a marketing vehicle from time to time and you'll see us do that where it makes sense to certain aspects. In our offering now we have a collection that's available for Mother's Day free shipping again to incent early ordering but, again, it's not the over-arching campaign that we did at Valentine's Day. So, we're managing that very closely and we'll make determinations as we move through the holiday when to offer it and when to not offer it. From a SKUs point of view in the floral category, it’s very similar to the number of SKUs we had offered last year.

Jim McCann

One of the learning’s we saw from Valentine's Day with the free ship offer was the two weeks out, the two weeks leading up to Valentine's Day we saw strong revenue growth. It was as we got closer to the holiday that it did not work. So, we're taking some of those learning’s and implementing those promotional campaigns where they make sense.

Anthony Lebiedzinski - Sidoti & Company

Okay. And then currently on your website you have the dual basket feature between 1-800-FLOWERS and 1-800-BASKETS. Do you also plan to add Cheryl and Company, The Popcorn Factory, and Fannie May to that so that people can cross shop the brands?

Chris McCann

I think what we're doing right now is focused on getting all the learning’s as we can between 1-800-FLOWERS and 1-800-BASKETS, how to navigate the customers through the website so they're seeing a full product line, how to navigate the use of single checkout, single customer database, single gift reminder program, etcetera. So, we're really focused on the learning. You will see in time and more of the other product categories in under the baskets and depending on the learning’s we’ll depend on where we go in the future.

Anthony Lebiedzinski - Sidoti & Company

Okay and in terms of BloomNet, where do you see opportunities there that talk about increasing your market penetration? So, can you just give us an update there, please?

Jim McCann

We're quite pleased with how BloomNet is doing, Anthony. We saw good performance again this quarter, good margins. I think we are really very confident about where BloomNet can go in the future. One of the outgrowths of the experience that we had with Undercover Boss was a dramatic outpouring of sentiment from not only BloomNet networks but in particular BloomNet, our franchisees, and florists around the country, in fact around North America, saying how pleased they were with our involvement in the program, how they thought it reflected them in such a very good light, and that they were pleased with the emphasis that was placed on our retail florist component, the fact that we're a multi-channel company and that we celebrated our retail flower shops.

So, there's been tremendous outpouring from BloomNet in that regard. I think that's something we can build on. I think they were pleased and we're getting great reaction to the continuing suite of services that we're rolling out, the product opportunities. We have a program that's been particularly well embraced where we introduce our whole glass container buying program which reduces their costs, gives them the opportunity to improve their margins, service their customers better, and so both from a service and product category I think we're more enthusiastic than ever in terms of how we can deepen our relationship with our existing customer base in BloomNet.

Anthony Lebiedzinski - Sidoti & Company

Okay. And also I did see that you guys noted in your gourmet food and gift basket business, talking about the wine contribution, I was just curious. Is there a significant margin difference between wine and your other products within that category?

Jim McCann

What we're seeing with the wine business, the wine business is a small business for us. We expect a growth in the wine category be primarily in 1-800-BASKETS category. There's a slightly less margin in the wine piece of that basket because of just the cost of the products. But our wine business has grown to be a nice size. It's a nice contributor. It's a good platform. We will not grow it a lot larger than it is now. Just like we do in BloomNet, in the wine business we'll just continue to deepen our relationship with our customers. But it's a great platform to help 1-800-BASKETS grow. Its gift baskets that contain wine.

Anthony Lebiedzinski - Sidoti & Company

Okay. Thank you.

Jim McCann

Thank you, Anthony.

Operator

Thank you. (Operator Instructions). I'm not showing any further questions in the queue at this.

Chris McCann

Thank you, Jonathan. And thank you all for your questions and your interest. And if you have any additional questions please don't hesitate to contact us. I just want to remind you that with Mother's Day fast approaching we have our Spot a Mom campaign, so you can come and say something very nice about the moms in your life.

And if it's something our judges really like you could wind up in next year's book called "Celebrating Mom" so with Mother's Day right around the corner please visit 1-800-FLOWERS.COM whether to place an order or to nominate a mom in your life and certainly visit our 1-800-BASKETS collection while you're there. Thank you and we look forward to our follow-up discussions with you all.

Operator

Thank you ladies and gentlemen for your participation in today's program. This does conclude the program. You may now disconnect. Good day.

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