1-800 Flowers Comments on "Aggressive Marketing" and Competition

| About: 1-800 FLOWERS.COM, (FLWS)
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On 1-800 Flower's (NASDAQ:FLWS) Fiscal 4Q conference call, executives discuss missing the 4Q revenue forecast, competition and marketing strategies:

Jeffrey S. Stein - KeyBanc Capital Markets

I’m wondering if you might expand on why you think you missed your revenue forecast in the floral category in Q4 and what measures you are taking to get back on track there?

James F. McCann - Chairman and CEO

...the miss in Q4 on revenue is primarily in floral and was primarily rather than that the Mother’s Day period -- the last few days of the Mother’s day period and frankly it was aggressive marketing time by everyone in the category. There are lots of well-funded competitors who were very aggressive, and the mix of advertising vehicles we use particularly in the online world left us in a position where we had a continuing bets on categories that were under performing, like the portal growth, and we’re insufficiently betting on the categories that have emerged as the new leadership categories are the list programs, the search categories. And so from all point of few a combination of aggressive competition, deep discounting on pricing, we did not participate into the extend perhaps we should have, and misplaced resources in terms of under performing online vehicles versus the newer more recently emerged the news like the search and affiliate programs.

Jeffrey S. Stein - KeyBanc Capital Markets

We’ll, it seems that last year you were backing away from search because of the high cost and I’m wondering given the fact that those vehicles continue to seem to produce costumers. Are you prepared to move back into those, and how is that going to weigh against the cost reduction efforts that you are intending to initiate? In other words, nets, are you really going to be reducing your expenses if you have to invest more in search and affiliate advertising?

Christopher G. McCann - President

As we look at you know, all our advertising specifically search. Searches continues to be a very expensive propagation as we mentioned in the past, it always spikes at holidays, there has been some more rationale pricing on search -- you know, most of the holiday season this year was -- it was aggressive -- holiday period. We do find it, however, to be effective. We do still find it to be effective in new customer acquisition as well. So you know, the overall -- I would say, yes we probably step up our aggressiveness more than -- Q4 anyway, and still working very well for us so we’ll step up our aggressiveness there. I’m not concerned that limiting our ability to reduce our operating cost, however, as the focus on operating cost reductions mainly into non-marketing areas, Jim gave you the examples that he did and again, utilizing the collection of assets that we acquired across our businesses we’re able to drive those operating cost reductions. At the same we will always stay focused on improving marketing efficiencies.

Jeffrey S. Stein - KeyBanc Capital Markets

Okay. The last couple of years, 1-800-FLOWERS underestimated the impact that an increased promotional environment over -- specifically over the holiday season it’s had on its business and I am wondering and why it is effective, we are facing a very challenging consumer expanding environment moving ahead here, are you guys building enough conservatism into your plan on the consumer side of your business to take these factors into considerations?

James F. McCann

It’s a good question, Jeff, and I think that -- the one we have -- we asked ourselves many times in the last few weeks. And the answer to the question is yes I think we have. I think the portfolio of products, brands, services that we’ve accumulated gives us a little bit of protection there in terms of being able to properly balance our business, have the right margins, have a variety of areas that consumers are turning to, I think the portfolio helps us a little bit there. And I think some of the areas that we have invested in new marketing areas they were not under but increased emphasis in marketing areas are showing such promise for us that we feel confident that we can reduce our marking cost at the same time which obviously has an impact when you look at the promotional efforts. For example, the introduction of our chocolate gift lines gives us an opportunity for add-on sale on our floral purchases, also gives us the opportunity for existing standalone sales of a higher margin product than is our floral business. It also gives us an opportunity for search and for leveraging across our basket business and our Bloomnet businesses, that same high margin product capability which actually bring a benefit to our Bloomnet partners as well.

So from a portfolio point of view we think we have done it and from a marketing perspective I would also add that if you look at our emphases on new marketing techniques -- our introduction of the CBS Out of Home, Happy Hour Collection introduction -- a terrific benefit for us. Relatively speaking, a small effort in its first introductory stages, but one that you’ll see us step on the gas. But based on results we saw in the last five months of this fiscal year with our test introduction. In addition, our loyalty efforts, we have a loyalty program for about 20 years, which has been only focus on our retail activities, which we essentially sold off to our franchise operators. Twice the learning from that program and what it does to your customer’s relationship besides that they cause us to -- over the last year, spend heavily to develop an online and you know, a non-place based loyalty program. It’s called Fresh Rewards, it’s been staying for a long time. And we are so excited about the early results of our rolling out that loyalty program to the whole of our customer base that we feel confident that will have their protection and their conservatism built in because that’s a none competitive arena. When you have more 70% of your florist customers coming directly to your URL you look to build the relationship with them, have signature products that protects because customers are coming specifically for those products and then having a loyalty means to have them not yet approach by all the other online competitors gives us -- collectively those things gives us the assurance that we are forecasting properly.


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