UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March ~~31, 2019~~29, 2020

__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File No. 0-26841

1-800-FLOWERS.COM, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE	11-3117311
(State of incorporation)	(I.R.S. Employer Identification No.)

One Old Country Road, Carle Place, New York, 11514	(516) 237-6000
(Address of principal executive offices) (Zip code)	(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A common stock	FLWS	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

☐ Large accelerated filer		☑ Accelerated filer
☐ Non-accelerated filer		☐ Smaller reporting company
		☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

~~Securities registered pursuant to Section 12(b) of the Act:~~

~~Title of each class~~	~~Trading symbol(s)~~	~~Name of each exchange on which registered~~
~~Class A common stock~~	~~FLWS~~	~~The Nasdaq Stock Market~~

The number of shares outstanding of each of the Registrant’s classes of common stock as of May ~~3, 2019:~~1, 2020:

Class A common stock:	~~35,775,034~~ 35,739,913
Class B common stock:	28,542,823

Table of Contents

1-800-FLOWERS.COM, Inc.

FORM 10-Q

For the quarterly period ended March 29, 2020

TABLE OF CONTENTS

		Page
Part I.	Financial Information
Item 1.	Condensed Consolidated Financial Statements		1
	Condensed Consolidated Balance Sheets – March ~~31, 2019~~29, 2020 (Unaudited) and ~~July 1, 2018~~June 30, 2019		1
	Condensed Consolidated Statements of Income (Loss) (Unaudited) – Three and ~~Nine Months~~Nine Months Ended March ~~31, 2019~~29, 2020 and ~~April 1, 2018~~March 31, 2019		2
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – Three and ~~Nine Months~~Nine Months Ended March ~~31, 2019~~29, 2020 and ~~April 1, 2018~~March 31, 2019		3
	Condensed Consolidated Statements of Stockholder’s Equity (Unaudited) – Three and ~~Nine Months~~Nine Months Ended March ~~31, 2019~~29, 2020 and ~~April 1, 2018~~March 31, 2019		4
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine ~~Months~~Months Ended March ~~31, 2019~~29, 2020 and ~~April~~ March 31 ~~2018~~, 2019		5
	Notes to Condensed Consolidated Financial Statements (Unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14 15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		22 24
Item 4.	Controls and Procedures		22 25


Part II.	Other Information
Item 1.	Legal Proceedings		22 25
Item 1A.	Risk Factors		22 25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23 26
Item 3.	Defaults upon Senior Securities		23 26
Item 4.	Mine Safety Disclosures		23 26
Item 5.	Other Information		23 26
Item 6.	Exhibits		23 27

Signatures			24 28

Table of Contents

PART I. – FINANCIAL INFORMATION

ITEM 1. – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except for share data)

	March 31, 2019			July 1, 2018			March 29, 2020			June 30, 2019
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	206,377		$	147,240		$	232,115		$	172,923
Trade receivables, net		19,166			12,935			26,217			12,374
Inventories		74,377			88,825			74,037			92,361
Prepaid and other		20,592			24,021			21,312			25,580
Total current assets		320,512			273,021			353,681			303,238

Property, plant and equipment, net		158,190			163,340			166,399			166,681
Operating lease right-of-use assets								70,284			-
Goodwill		62,590			62,590			74,711			62,590
Other intangibles, net		59,762			59,823			66,500			59,615
Other assets		13,894			12,115			17,054			14,316
Total assets	$	614,948		$	570,889		$	748,629		$	606,440

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	25,381		$	41,437		$	37,314		$	25,704
Accrued expenses		103,012			73,299			116,815			96,793
Current maturities of long-term debt		12,219			10,063			5,000			5,000
Current portion of long-term operating lease liabilities								9,524			-
Total current liabilities		140,612			124,799			168,653			127,497

Long-term debt		83,595			92,267			88,648			91,973
Long-term operating lease liabilities								64,251			-
Deferred tax liabilities		27,011			26,200			27,300			28,898
Other liabilities		14,788			12,719			11,766			15,361
Total liabilities		266,006			255,985			360,618			263,729

Commitments and contingencies (See Note 13)
Commitments and contingencies (See Note 13 and Note 14)

Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued		-			-			-			-
Class A common stock, $0.01 par value, 200,000,000 shares authorized, 52,931,127 and 52,071,293 shares issued at March 31, 2019 and July 1, 2018, respectively		528			520
Class B common stock, $0.01 par value, 200,000,000 shares authorized, 33,822,823 shares issued at March 31, 2019 and July 1, 2018		338			338
Class A common stock, $0.01 par value, 200,000,000 shares authorized, 53,702,810 and 53,084,127 shares issued at March 29, 2020 and June 30, 2019, respectively								537			530
Class B common stock, $0.01 par value, 200,000,000 shares authorized, 33,822,823 shares issued at March 29, 2020 and June 30, 2019								338			338
Additional paid-in-capital		347,235			341,783			356,038			349,319
Retained earnings		116,830			73,429			157,749			108,525
Accumulated other comprehensive loss		(258	)		(200	)		(252	)		(269	)
Treasury stock, at cost, 17,209,093 and 15,978,790 Class A shares at March 31, 2019 and July 1, 2018, respectively, and 5,280,000 Class B shares at March 31, 2019 and July 1, 2018		(115,731	)		(100,966	)
Treasury stock, at cost, 17,962,897 and 17,209,093 Class A shares at March 29, 2020 and June 30, 2019, respectively, and 5,280,000 Class B shares at March 29, 2020 and June 30, 2019								(126,399	)		(115,732	)
Total stockholders’ equity		348,942			314,904			388,011			342,711
Total liabilities and stockholders’ equity	$	614,948		$	570,889		$	748,629		$	606,440

See accompanying Notes to Condensed Consolidated Financial ~~Statements~~Statements..

Table of Contents

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Loss)

(in thousands, except for per share data)

(unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018			March 29, 2020			March 31, 2019			March 29, 2020		March 31, 2019

Net revenues	$	248,413		$	238,545		$	989,225		$	921,987		$	278,776		$	248,413		$	1,071,681	$	989,225
Cost of revenues		150,893			145,090			568,338			525,995			171,324			150,893			618,911		568,338
Gross profit		97,520			93,455			420,887			395,992			107,452			97,520			452,770		420,887
Operating expenses:
Marketing and sales		71,163			68,215			243,781			231,708			78,606			71,163			262,849		243,781
Technology and development		11,511			10,241			32,696			29,086			11,900			11,511			34,436		32,696
General and administrative		22,447			19,553			64,480			58,128			20,031			22,447			64,187		64,480
Depreciation and amortization		7,028			7,885			22,840			24,646			7,803			7,028			23,268		22,840
Total operating expenses		112,149			105,894			363,797			343,568			118,340			112,149			384,740		363,797
Operating income (loss)		(14,629	)		(12,439	)		57,090			52,424			(10,888	)		(14,629	)		68,030		57,090
Interest (income) expense, net		(30	)		662			2,390			2,919			147			(30	)		1,727		2,390
Other (income) expense, net		(1,285	)		31			(293	)		(315	)		2,605			(1,285	)		1,714		(293	)
Income (loss) before income taxes		(13,314	)		(13,132	)		54,993			49,820			(13,640	)		(13,314	)		64,589		54,993
Income tax expense (benefit)		(5,073	)		(4,669	)		11,922			806			(3,983	)		(5,073	)		15,365		11,922
Net income (loss)	$	(8,241	)	$	(8,463	)	$	43,071		$	49,014		$	(9,657	)	$	(8,241	)	$	49,224	$	43,071

Basic net income (loss) per common share	$	(0.13	)	$	(0.13	)	$	0.67		$	0.76		$	(0.15	)	$	(0.13	)	$	0.76	$	0.67

Diluted net income (loss) per common share	$	(0.13	)	$	(0.13	)	$	0.65		$	0.73		$	(0.15	)	$	(0.13	)	$	0.74	$	0.65

Weighted average shares used in the calculation of net income (loss) per common share:
Basic		64,194			64,527			64,383			64,694			64,348			64,194			64,517		64,383
Diluted		64,194			64,527			66,456			66,949			64,348			64,194			66,378		66,456

See accompanying Notes to Condensed Consolidated Financial ~~Statements~~Statements..

Table of Contents

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018			March 29, 2020			March 31, 2019			March 29, 2020		March 31, 2019
Net income (loss)	$	(8,241	)	$	(8,463	)	$	43,071		$	49,014		$	(9,657	)	$	(8,241	)	$	49,224	$	43,071
Other comprehensive income (loss) (currency translation & other miscellaneous items)		3			(38	)		(58	)		(11	)		1			3			17		(58	)
Comprehensive income (loss)	$	(8,238	)	$	(8,501	)	$	43,013		$	49,003		$	(9,656	)	$	(8,238	)	$	49,241	$	43,013

See accompanying Notes to Condensed Consolidated Financial ~~Statements~~Statements..

Table of Contents

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

	Three Months Ended March 31, 2019 and April 1, 2018																								Three Months Ended March 29, 2020 and March 31, 2019
	Common Stock								Additional		Retained			Accumulated								Total			Common Stock								Additional		Retained			Accumulated								Total
	Class A				Class B				Paid-in		Earnings			Other			Treasury Stock					Stockholders’			Class A				Class B				Paid-in		Earnings			Other			Treasury Stock					Stockholders’
	Shares		Amount		Shares		Amount		Capital		(Deficit)			Comprehensive Loss			Shares		Amount			Equity			Shares		Amount		Shares		Amount		Capital		(Deficit)			Comprehensive Loss			Shares		Amount			Equity

Balance at December 29, 2019																										53,678,919	$	536		33,822,823	$	338	$	353,643	$	167,406		$	(253	)		22,859,956	$	(120,762	)	$	400,908
Net loss																										-		-		-		-		-		(9,657	)		-			-		-			(9,657	)
Translation adjustment																										-		-		-		-		-		-			1			-		-			1
Stock-based compensation																										23,891		1		-		-		2,395		-			-			-		-			2,396
Acquisition of Class A treasury stock																										-		-		-		-		-		-			-			382,941		(5,637	)		(5,637	)
Balance at March 29, 2020																										53,702,810	$	537		33,822,823	$	338	$	356,038	$	157,749		$	(252	)		23,242,897	$	(126,399	)	$	388,011

Balance at December 30, 2018		52,749,203	$	527		33,822,823	$	338	$	344,769	$	125,071		$	(261	)		22,383,738	$	(114,371	)	$	356,073			52,749,203	$	527		33,822,823	$	338	$	344,769	$	125,071		$	(261	)		22,383,738	$	(114,371	)	$	356,073
Net income		-		-		-		-		-		(8,241	)		-			-		-			(8,241	)
Net loss																										-		-		-		-		-		(8,241	)		-			-		-			(8,241	)
Translation adjustment		-		-		-		-		-		-			3			-		-			3			-		-		-		-		-		-			3			-		-			3
Stock-based compensation		1,924		-		-		-		1,903		-			-			-		-			1,903			1,924		-		-		-		1,903		-			-			-		-			1,903
Exercise of stock options		180,000		1		-		-		563		-			-			-		-			564			180,000		1		-		-		563		-			-			-		-			564
Acquisition of Class A treasury stock		-		-		-		-		-		-			-			105,355		(1,360	)		(1,360	)		-		-		-		-		-		-			-			105,355		(1,360	)		(1,360	)
Balance at March 31, 2019		52,931,127	$	528		33,822,823	$	338	$	347,235	$	116,830		$	(258	)		22,489,093	$	(115,731	)	$	348,942			52,931,127	$	528		33,822,823	$	338	$	347,235	$	116,830		$	(258	)		22,489,093	$	(115,731	)	$	348,942

Balance at December 31, 2017		51,879,967	$	519		33,847,063	$	338	$	339,805	$	90,115		$	(160	)		21,157,054	$	(99,875	)	$	330,742
																									Nine Months Ended March 29, 2020 and March 31, 2019
																									Common Stock								Additional		Retained			Accumulated								Total
																									Class A				Class B				Paid-in		Earnings			Other			Treasury Stock					Stockholders’
																									Shares		Amount		Shares		Amount		Capital		(Deficit)			Comprehensive Loss			Shares		Amount			Equity

Balance at June 30, 2019																										53,084,127	$	530		33,822,823	$	338	$	349,319	$	108,525		$	(269	)		22,489,093	$	(115,732	)	$	342,711
Net income		-		-		-		-		-		(8,463	)		-			-		-			(8,463	)		-		-		-		-		-		49,224			-			-		-			49,224
Translation adjustment		-		-		-		-		-					(38	)		-		-			(38	)		-		-		-		-		-		-			17			-		-			17
Stock-based compensation		2,754		-		-		-		932		-			-			-		-			932			468,683		5		-		-		6,436		-			-			-		-			6,441
Exercise of stock options		30,000		-		-		-		164		-			-			-		-			164			150,000		2		-		-		283		-			-			-		-			285
Acquisition of Class A treasury stock		-		-		-		-		-		-			-			93,192		(990	)		(990	)		-		-		-		-		-		-			-			753,804		(10,667	)		(10,667	)
Balance at April 1, 2018		51,912,721	$	519		33,847,063	$	338	$	340,901	$	81,652		$	(198	)		21,250,246	$	(100,865	)	$	322,347
Balance at March 29, 2020																										53,702,810	$	537		33,822,823	$	338	$	356,038	$	157,749		$	(252	)		23,242,897	$	(126,399	)	$	388,011

Balance at July 1, 2018																										52,071,293	$	520		33,822,823	$	338	$	341,783	$	73,429		$	(200	)		21,258,790	$	(100,966	)	$	314,904
Net income																										-		-		-		-		-		43,071			-			-		-			43,071
Translation adjustment																										-		-		-		-		-		-			(58	)		-		-			(58	)
Stock-based compensation																										411,600		4		-		-		4,527		-			-			-		-			4,531
Exercise of stock options																										448,234		4		-		-		925		-			-			-		-			929
Other																										-		-		-		-		-		330			-			-		-			330
Acquisition of Class A treasury stock																										-		-		-		-		-		-			-			1,230,303		(14,765	)		(14,765	)
Balance at March 31, 2019																										52,931,127	$	528		33,822,823	$	338	$	347,235	$	116,830		$	(258	)		22,489,093	$	(115,731	)	$	348,942

Nine Months Ended March 31, 2019 and April 1, 2018

Common Stock

Additional

Retained
Accumulated
Total

Class A

Class B

Paid-in

Earnings

Other

Treasury Stock

Stockholders’

Shares

Amount

Shares

Amount

Capital

(Deficit)

Comprehensive Loss

Shares

Amount

Equity

Balance at July 1, 2018
52,071,293 $ 520 33,822,823 $ 338 $ 341,783 $ 73,429 $ (200 ) 21,258,790 $ (100,966 ) $ 314,904
Net income
- - - - - 43,071 - - - 43,071
Translation adjustment
- - - - - (58 ) - - (58 )
Stock-based compensation
411,600 4 - - 4,527 - - - - 4,531
Exercise of stock options
448,234 4 - - 925 - - - - 929
Other
- - - - - 330 - - - 330
Acquisition of Class A treasury stock
- - - - - - - 1,230,303 (14,765 ) (14,765 )
Balance at March 31, 2019
52,931,127 $ 528 33,822,823 $ 338 $ 347,235 $ 116,830 $ (258 ) 22,489,093 $ (115,731 ) $ 348,942

Balance at July 2, 2017
51,227,779 $ 513 33,901,603 $ 339 $ 337,726 $ 32,638 $ (187 ) 19,989,731 $ (88,790 ) $ 282,239
Net income
- - - - - 49,014 - - - 49,014
Translation adjustment
- - - - - (11 ) - - (11 )
Conversion of Class B stock into Class A stock
54,540 1 (54,540 ) (1 ) - - - - - -
Stock-based compensation
596,402 5 - - 2,996 - - - - 3,001
Exercise of stock options
34,000 - - - 179 - - - - 179
Acquisition of Class A treasury stock
- - - - - - - 1,260,515 (12,075 ) (12,075 )
Balance at April 1, 2018
51,912,721 $ 519 33,847,063 $ 338 $ 340,901 $ 81,652 $ (198 ) 21,250,246 $ (100,865 ) $ 322,347

See accompanying Notes to Condensed Consolidated Financial ~~Statements~~Statements..

Table of Contents

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended						Nine months ended
	March 31, 2019			April 1, 2018			March 29, 2020			March 31, 2019

Operating activities:
Net income	$	43,071		$	49,014		$	49,224		$	43,071
Reconciliation of net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		22,840			24,646			23,268			22,840
Amortization of deferred financing costs		671			721			486			671
Deferred income taxes		811			(13,004	)		(1,597	)		811
Bad debt expense		1,018			906			1,201			1,018
Stock-based compensation		4,531			3,002			6,441			4,531
Other non-cash items		(301	)		249			(23	)		(301	)
Changes in operating items:
Trade receivables		(7,249	)		(9,347	)		(15,044	)		(7,249	)
Inventories		14,448			6,956			19,353			14,448
Prepaid and other		2,675			(45	)		3,148			2,675
Accounts payable and accrued expenses		14,741			1,453			31,442			14,741
Other assets		(349	)		(88	)
Other liabilities		98			110
Other assets and liabilities								(557	)		(251	)
Net cash provided by operating activities		97,005			64,573			117,342			97,005

Investing activities:
Working capital adjustment related to sale of business		-			(8,500	)
Acquisitions, net of cash acquired								(20,500	)		-
Capital expenditures, net of non-cash expenditures		(16,845	)		(15,809	)		(22,282	)		(16,845	)
Purchase of equity investments								(1,176	)		-
Net cash used in investing activities		(16,845	)		(24,309	)		(43,958	)		(16,845	)

Financing activities:
Acquisition of treasury stock		(14,765	)		(12,075	)		(10,667	)		(14,765	)
Proceeds from exercise of employee stock options		929			179			285			929
Proceeds from bank borrowings		30,000			30,000			20,000			30,000
Repayment of bank borrowings		(37,187	)		(35,031	)
Repayment of notes payable and bank borrowings								(23,750	)		(37,187	)
Debt issuance cost								(60	)		-
Net cash used in financing activities		(21,023	)		(16,927	)		(14,192	)		(21,023	)

Net change in cash and cash equivalents		59,137			23,337			59,192			59,137
Cash and cash equivalents:
Beginning of period		147,240			149,732			172,923			147,240
End of period	$	206,377		$	173,069		$	232,115		$	206,377

See accompanying Notes to Condensed Consolidated Financial ~~Statements~~Statements..

Table of Contents

1-800-FLOWERS.COM, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. ~~They~~Accordingly, they do not include all of the information and notes required by ~~generally accepted accounting principles~~GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring ~~accruals)~~adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended March ~~31, 2019~~29, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June ~~30, 2019. For further information, refer to the consolidated~~28, 2020. These financial statements ~~and footnotes thereto included~~should be read in ~~the Company’s~~conjunction with our Annual Report on Form 10-K for the fiscal year ended ~~July 1, 2018~~June 30, 2019., which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.

The Company’s quarterly results may experience seasonal fluctuations. Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, generates nearly 50% of the Company’s annual revenues, and all of its earnings. ~~Additionally, due to~~As a result of the number of major floral gifting occasions, including Mother's Day, Valentine’s Day, Easter and Administrative Professionals Week, revenues also rise during the Company’s fiscal third and fourth quarters compared to its fiscal first quarter. In fiscal 2018, Easter was on April 1st, which resulted in the shift of Easter-related revenue and EBITDA into the Company’s third quarter of fiscal 2018. The Easter holiday was on April 21st in 2019, which resulted in the shift of most Easter-related e-commerce and retail revenue and associated EBITDA, from the Company’s third quarter, to its fourth quarter.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

COVID-19

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. The CARES Act did not have a material impact on the Company’s consolidated financial statements during the three months and nine months ended March 29, 2020.

The Company is closely monitoring the impact of the pandemic of the novel strain of coronavirus ("COVID-19") on its business, including how it will affect its customers, workforce, suppliers, vendors, franchisees, florists, and production and distribution channels, as well as its financial statements. The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which it will impact macroeconomic conditions including interest rates, employment rates and consumer confidence, the speed of the anticipated recovery, and governmental, business and individual consumer reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 29, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves and the carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s consolidated financial statements as of and for the quarter ended March 29, 2020, the Company’s future assessment of these factors and the evolving factors described above, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Revenue Recognition

Net revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Service and outbound shipping charged to customers are recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues. Net revenues exclude sales and other similar taxes collected from customers.

A description of our principal revenue generating activities is as follows:

●

E-commerce revenues - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment.

●

Retail revenues - consumer products sold through our retail stores. Revenue is recognized when control of the goods is transferred to the customer, at the point of sale, at which time payment is received.

●

Wholesale revenues - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms are typically 30 days from the date control over the product is transferred to the customer.

●

BloomNet Services - membership fees as well as other service offerings to florists. Membership and other subscription-based fees are recognized monthly as earned. Services revenues related to orders sent through the floral network are variable, based on either the number of orders or the value of orders, and are recognized in the period in which the orders are delivered. The contracts within BloomNet Services are typically month-to-month and as a result no consideration allocation is necessary across multiple reporting periods. Payment is typically due less than 30 days from the date the services were performed.

Deferred ~~revenues~~Revenues

Deferred revenues are recorded when the Company has received consideration (i.e. advance payment) before satisfying its performance obligations. As such, customer orders are recorded as deferred revenue prior to shipment or rendering of product or services. Deferred revenues primarily relate to e-commerce orders placed, but not shipped, prior to the end of the fiscal period, as well as for monthly subscription programs, including our Fruit of the Month Club and Celebrations Passport program.

Our total deferred revenue as of ~~July 1, 2018~~June 30, 2019 was ~~$13.5~~$17.3 million (included in “Accrued expenses” on our consolidated balance sheets), of which, ~~$0.9~~$0.5 million and ~~$13.2~~$16.4 million was recognized as revenue during the three and nine months ended March ~~31, 2019, respectively.~~29, 2020. The deferred revenue balance as of March ~~31, 2019~~29, 2020 was ~~$23.9~~$28.6 million.

Table of Contents

Recently Issued Accounting Pronouncements - Adopted

~~Revenue from Contracts with Customers.~~ In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” amending revenue recognition guidance (“ASC 606”) and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company determined that the new standard impacted the following areas related to our e-commerce and retail/franchise revenue streams: the costs of producing and distributing the Company’s catalogs will be expensed upon mailing, instead of being capitalized and amortized in direct proportion to the actual sales; gift card breakage will be recognized over the expected customer redemption period, rather than when redemption is considered remote; e-commerce revenue will be recognized upon shipment, when control of the merchandise transfers to the customer, instead of upon receipt by the customer; initial and other franchise fees will be recognized over the franchise term (or remaining franchise term), rather than upon store opening (or renewal/transfer). The Company adopted this ASU effective July 2, 2018 for all revenue contracts with our customers using the modified retrospective approach and increased retained earnings by $0.3 million. The adjustment primarily related to the unredeemed portion of our gift cards (breakage income), which increased retained earnings and reduced accrued expenses by $1.9 million; partially offset by the change in accounting for the Company’s catalogs, which decreased retained earnings and decreased prepaid expense by $0.8 million; as well as a deferral of initial franchise fees, which decreased retained earnings and increased accrued expenses by $0.8 million.

The comparative information presented in this Form 10-Q has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing, annual basis. However, the adoption of the new revenue standard is expected to result in quarterly fluctuations, primarily as a result of the change in accounting for catalog costs, as noted above. During the three months ended March 31, 2019, assuming we had not adopted the new revenue standard, “Marketing and sales” expense, within our statement of operations, would have been approximately $1.6 million higher, thereby increasing our Net loss for the period by approximately $1.0 million (tax effected). During the nine months ended March 31, 2019, assuming we had not adopted the new revenue standard, “Marketing and sales” expense, within our statement of operations, would have been approximately $0.4 million lower, thereby increasing our Net income for the period by approximately $0.3 million (tax effected). The Company’s contract liabilities related to gift cards ($1.7 million as of March 31, 2019) are not considered material for purposes of this disclosure. Refer to Note 12 – Business Segments for disclosure of disaggregated revenues.

~~Table of Contents~~

~~Financial Instruments – Recognition and Measurement.~~ In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," as amended by ASU No. 2018-03, “Financial Instruments-Overall: Technical Corrections and Improvements,” issued in February 2018. The new guidance requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income (subject to an exemption for investments that have no readily determinable fair values), requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. Upon adoption of the new guidance, we have elected to measure the investments we hold in certain non-marketable equity securities in which we do not have a controlling interest or significant influence that have no readily determinable fair values at cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. The Company adopted the guidance prospectively effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

~~Statement of Cash Flows.~~ In June 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), a consensus of the FASB’s Emerging Issues Task Force.” ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The Company adopted the guidance restrospectively, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

~~Business Combinations – Definition of a Business.~~ In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01)," which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. The Company adopted the guidance prospectively, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

~~Nonfinancial Assets – Derecognition.~~ In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets.” This update clarifies the scope of accounting for the derecognition or partial sale of nonfinancial assets to exclude all businesses and nonprofit activities. ASU 2017-05 also provides a definition for in-substance nonfinancial assets and additional guidance on partial sales of nonfinancial assets. The Company adopted the guidance retrospectively, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

~~Stock Compensation – Modification Accounting.~~ In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. An entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The Company adopted the guidance prospectively, to awards modified on or after the adoption date, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

~~Cloud Computing Arrangements – Implementation Costs~~. In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by this ASU. The amendments in this Update also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element and also require the entity to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The Company adopted the guidance prospectively, to all implementation costs incurred after the date of adoption, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

~~Recently Issued Accounting Pronouncements~~ – ~~Not~~ ~~Yet Adopted~~

~~Leases.~~In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASC 842”).” Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ~~This guidance is~~We adopted the new standard effective July 1, 2019 and elected the optional transition method and therefore, we will not apply the standard to the comparative periods presented in our financial statements. The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, that did not require us to reassess, under the new standard, our prior conclusions about lease identification, lease classification and initial direct costs. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. The adoption of the ~~Company’s fiscal year ending June 28, 2020. We are currently evaluating the ASU, but expect that it will have~~new standard had a material impact to the Company’s Consolidated Balance Sheets, but no impact to the Consolidated Statements of Income (Operations) or Consolidated Statements of Cash Flows. As such, we recorded operating lease liabilities of $80.7 million, based on the present value of the remaining minimum rental payments using discount rates as of the effective date, and a corresponding right-of-use assets of $78.7 million based on the operating lease liabilities adjusted for deferred rent and lease incentives received. See Note 13 - Leases for further information about our ~~consolidated financial statements, primarily~~transition to ASC 842 and the ~~consolidated balance sheets and related~~newly required disclosures.

Recently Issued Accounting Pronouncements – Not Yet Adopted

Financial Instruments – Measurement of Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces a new forward-looking “expected loss” approach, to estimate credit losses on most financial assets and certain other instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. ASU 2016-13 is effective for the Company’s fiscal ~~year ending July 4,~~ 2021, and the guidance is to be applied using the modified-retrospective approach. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

Goodwill – Impairment Test. In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance is effective for the Company’s fiscal ~~year ending July 4,~~ 2021, with early adoption permitted, and should be applied prospectively. We do not expect the standard to have a material impact on our consolidated financial statements.

~~U.S. Tax Reform~~

On December 22, 2017, the U.S. government enacted significant changes to the U.S. tax law following the passage and signing of the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act revises the future ongoing U.S. corporate income tax by, among other things, lowering U. S. corporate income tax rates from 35% to 21%. Since the Company’s fiscal year ends in June, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately 28% for fiscal year 2018, and 21% for subsequent fiscal years. The Tax Act also eliminated the domestic production activities deduction and introduced limitations on certain business expenses and executive compensation deductions.

Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), which provided guidance on accounting for the Tax Act’s impact. SAB 118 provided a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Act under ASC Topic 740. In accordance with the expiration of the SAB 118 measurement period, we completed the assessment of the income tax effects of the Tax Act in the second quarter of fiscal 2019, with no adjustments recorded to the provisional amounts.

~~Table of Contents~~

Note 2 – Net Income (Loss) Per Common Share

The following table sets forth the computation of basic and diluted net income (loss) per common share:

	Three Months Ended						Nine Months Ended				Three Months Ended						Nine Months Ended
	March 31, 2019			April 1, 2018			March 31, 2019		April 1, 2018		March 29, 2020			March 31, 2019			March 29, 2020		March 31, 2019
	(in thousands, except per share data)										(in thousands, except per share data)
Numerator:
Net income (loss)	$	(8,241	)	$	(8,463	)	$	43,071	$	49,014	$	(9,657	)	$	(8,241	)	$	49,224	$	43,071

Denominator:
Weighted average shares outstanding		64,194			64,527			64,383		64,694		64,348			64,194			64,517		64,383
Effect of dilutive securities:
Employee stock options		-			-			1,444		1,564		-			-			1,035		1,444
Employee restricted stock awards		-			-			629		691		-			-			826		629
		-			-			2,073		2,255		-			-			1,861		2,073

Adjusted weighted-average shares and assumed conversions		64,194			64,527			66,456		66,949		64,348			64,194			66,378		66,456

Net income (loss) per common share
Basic	$	(0.13	)	$	(0.13	)	$	0.67	$	0.76	$	(0.15	)	$	(0.13	)	$	0.76	$	0.67
Diluted	$	(0.13	)	$	(0.13	)	$	0.65	$	0.73	$	(0.15	)	$	(0.13	)	$	0.74	$	0.65

Note 3 – Stock-Based Compensation

The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 12 and Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended ~~July 1, 2018~~June 30, 2019, that provides for the grant to eligible employees, consultants and directors of stock options, restricted shares, and other stock-based awards.

The amounts of stock-based compensation expense recognized in the periods presented are as follows:

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018		March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
	(in thousands)				(in thousands)				(in thousands)
Stock options	$	67	$	108	$	250	$	323	$	6	$	67	$	99	$	250
Restricted stock		1,836		825		4,281		2,679		2,390		1,836		6,342		4,281
Total		1,903		933		4,531		3,002		2,396		1,903		6,441		4,531
Deferred income tax benefit		328		254		982		846		594		328		1,597		982
Stock-based compensation expense, net	$	1,575	$	679	$	3,549	$	2,156	$	1,802	$	1,575	$	4,844	$	3,549

Table of Contents

Stock-based compensation is recorded within the following line items of operating expenses:

	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018		March 29, 2020		March 31, 2019		March 29, 2020		March 31, 2019
	(in thousands)				(in thousands)				(in thousands)
Marketing and sales	$	830	$	248	$	1,816	$	804	$	1,097	$	830	$	2,960	$	1,816
Technology and development		118		49		274		160		181		118		473		274
General and administrative		955		636		2,441		2,038		1,118		955		3,008		2,441
Total	$	1,903	$	933	$	4,531	$	3,002	$	2,396	$	1,903	$	6,441	$	4,531

Stock based compensation expense has not been allocated between business segments, but is reflected as part of Corporate ~~overhead.~~overhead (see Note 12 - Business Segments.).

Stock Options

The following table summarizes stock option activity during the nine months ended March ~~31, 2019:~~29, 2020:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (000s)		Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
															(in years)		(in thousands)
Outstanding at July 1, 2018		1,968,234		$	2.35
Outstanding at June 30, 2019											1,365,000		$	2.48
Granted		-		$	-						-		$	-
Exercised		(448,234	)	$	2.12						(150,000	)	$	1.90
Forfeited		(2,000	)	$	2.22						-		$	-
Outstanding at March 31, 2019		1,518,000		$	2.42		2.3	$	24,004
Outstanding at March 29, 2020											1,215,000		$	2.55		1.5	$	12,550

Exercisable at March 31, 2019		1,385,000		$	2.36		2.2	$	21,976
Exercisable at March 29, 2020											1,215,000		$	2.55		1.5	$	12,550

As of March ~~31, 2019,~~29, 2020, the total future compensation cost related to non-vested options, not yet recognized in the statement of income, was ~~$0.2~~$0.0 million and the weighted average period over which these awards are expected to be recognized was ~~0.6~~0.0 years.

~~Table of Contents~~

Restricted Stock

The Company grants shares of Common Stock to its employees that are subject to restrictions on transfer and risk of forfeiture until fulfillment of applicable service and performance conditions and, in certain cases, holding periods (Restricted Stock). The following table summarizes the activity of non-vested restricted stock awards during the nine months ended March ~~31, 2019:~~29, 2020:

	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value

Non-vested at July 1, 2018		968,273		$	7.70
Non-vested at June 30, 2019							1,438,592		$	10.81
Granted		937,313		$	12.70		736,555		$	13.09
Vested		(411,600	)	$	7.91		(468,683	)	$	10.37
Forfeited		(24,037	)	$	9.62		(59,816	)	$	12.54
Non-vested at March 31, 2019		1,469,949		$	10.80
Non-vested at March 29, 2020							1,646,648		$	11.89

The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of March ~~31, 2019,~~29, 2020, there was ~~$11.6~~$12.2 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over the weighted-average remaining period of ~~2.2~~1.9 years.

Table of Contents

Note 4 – ~~Disposition~~Acquisition

Acquisition of Shari’s Berries

On ~~March 15, 2017,~~August 14, 2019, the Company ~~and Ferrero International S.A.~~completed its acquisition of the Shari’s Berries business ("Shari's Berries"), a ~~Luxembourg corporation (“Ferrero”), entered into~~leading provider of dipped berries and other specialty treats, through a ~~Stock Purchase Agreement (the “Purchase Agreement”) pursuant to which Ferrero agreed to purchase from the Company all~~bankruptcy proceeding of certain assets of the ~~outstanding equity~~gourmet food business of ~~Fannie May Confections Brands,~~the FTD Companies, Inc.~~, including its subsidiaries, Fannie May Confections, Inc. and Harry London Candies, Inc. (“Fannie May”)~~ The transaction, for a ~~total consideration~~purchase price of ~~$115.0~~$20.5 million, ~~in cash, subject to adjustment for seasonal working capital. On May 30, 2017,~~included the ~~Company closed on the transaction,~~Shari’s Berries domain names, copyrights, trademarks, customer data, phone numbers and other intellectual property, as well as certain raw material inventory and the ~~working capital adjustment was finalized in August 2017, resulting in an $8.5 million payment to Ferrero during the first quarter~~assumption of ~~fiscal 2018. The associated gain of $14.6 million was included within “Other (income) expense, net” in the fourth quarter of fiscal 2017.~~specified liabilities.

The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values on the acquisition date. The Company is in the process of finalizing its allocation and ~~Ferrero also entered into a transition services agreement, as amended, whereby~~this may result in potential adjustments to the ~~Company~~carrying value of the respective recorded assets and liabilities, establishment of certain additional intangible assets, revisions of useful lives of intangible assets, and the determination of any residual amount that will ~~provide certain post-closing services~~be allocated to ~~Ferrero~~goodwill. Of the acquired intangible assets, $0.6 million was assigned to customer lists, which is being amortized over the estimated remaining life of 2 years, $6.9 million was assigned to tradenames, and ~~Fannie May~~$12.1 million was assigned to goodwill, which is expected to be deductible for ~~a period~~tax purposes. The goodwill recognized in conjunction with our acquisition of ~~approximately 20 months,~~Shari’s Berries is primarily related to synergistic value created in terms of both operating costs and revenue growth opportunities, enhanced financial and operational scale, and other strategic benefits.

The following table summarizes the ~~business~~preliminary allocation of ~~Fannie May, and a commercial agreement with respect~~the purchase price to the ~~distribution~~estimated fair values of ~~certain Ferrero~~assets acquired and ~~Fannie May products.~~liabilities assumed at the date of the acquisition:

Shari’s Berries Preliminary Purchase Price Allocation

(in thousands)

Current assets
$ 1,029
Intangible assets
7,540
Goodwill
12,121
Total assets acquired
20,690

Current liabilities
190
Net assets acquired
$ 20,500

Raw materials inventory was valued at book value, as there have not been any significant price fluctuations or other events that would materially change the cost to replace the raw materials.

The estimated fair value of the acquired tradenames was determined using the relief from royalty method, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. The discount rate used in the valuation was based on the Company’s weighted average cost of capital, the riskiness of the earnings stream associated with the trademarks and the overall composition of the acquired assets.

The estimated fair value of the acquired customer lists was determined using the excess earnings method under the income approach. This method requires identifying the future revenue that would be generated by existing customers at the time of the acquisition, considering an appropriate attrition rate based on the historical experience of the Company. Appropriate expenses are then deducted from the revenues and economic rents are charged for the return on contributory assets. The after-tax cash flows attributable to the asset are discounted back to their net present value at an appropriate intangible asset rate of return and summed to calculate the value of the customer lists.

Operating results of the Shari’s Berries brand are reflected in the Company’s consolidated financial statements from the date of acquisition, within the Gourmet Foods & Gift Baskets segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results would not have been material.

Note 5 – Inventory

The Company’s inventory, stated at cost, which is not in excess of market, includes purchased and manufactured finished goods for sale, packaging supplies, crops, raw material ingredients for manufactured products and associated manufacturing labor and is classified as follows:

	March 31, 2019		July 1, 2018
	(in thousands)				March 29, 2020		June 30, 2019
					(in thousands)
Finished goods	$	31,947	$	33,930	$	32,361	$	36,820
Work-in-process		10,418		17,575		10,332		17,535
Raw materials		32,012		37,320		31,344		38,006
Total inventory	$	74,377	$	88,825	$	74,037	$	92,361

Table of Contents

Note 6 – Goodwill and Intangible Assets

The following table presents goodwill by segment and the related change in the net carrying amount:

1-800-Flowers.com Consumer Floral

BloomNet Wire Service

Gourmet Food & Gift Baskets

Total

(in thousands)

Balance at March 31, 2019 and July 1, 2018
$ 17,441 $ - $ 45,149 $ 62,590

1-800-Flowers.com Consumer Floral

BloomNet
Wire Service

Gourmet Foods &
Gift Baskets

Total

(in thousands)

Balance at June 30, 2019
$ 17,441 $ - $ 45,149 $ 62,590
Acquisition of Shari’s Berries
- - 12,121 12,121
Balance at March 29, 2020
$ 17,441 $ - $ 57,270 $ 74,711

The Company’s other intangible assets consist of the following:

			March 31, 2019						July 1, 2018								March 29, 2020						June 30, 2019
	Amortization Period		Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net		Amortization Period		Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(in years)														(in years)		(in thousands)
Intangible assets with determinable lives

Investment in licenses		14-16	$	7,420	$	6,121	$	1,299	$	7,420	$	6,042	$	1,378		14-16	$	7,420	$	6,227	$	1,193	$	7,420	$	6,148	$	1,272
Customer lists		3-10		12,184		9,703		2,481		12,184		9,354		2,830		2-10		12,825		10,299		2,526		12,184		9,798		2,386
Other		5-14		2,946		2,255		691		2,946		2,172		774		5-14		2,946		2,356		590		2,946		2,280		666
Total intangible assets with determinable lives				22,550		18,079		4,471		22,550		17,568		4,982				23,191		18,882		4,309		22,550		18,226		4,324

Trademarks with indefinite lives				55,291		-		55,291		54,841		-		54,841				62,191		-		62,191		55,291		-		55,291

Total identifiable intangible assets			$	77,841	$	18,079	$	59,762	$	77,391	$	17,568	$	59,823			$	85,382	$	18,882	$	66,500	$	77,841	$	18,226	$	59,615

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Future estimated amortization expense is as follows: remainder of fiscal ~~2019 - $0.2 million, fiscal~~ 2020 - ~~$0.6~~$0.3 million, fiscal 2021 - ~~$0.6~~$0.9 million, fiscal 2022 - ~~$0.5~~$0.6 million, fiscal 2023 - $0.5 million, fiscal 2024 - $0.5 million and thereafter - ~~$2.1~~$1.5 million.

~~Table of Contents~~

Note 7 – Investments

~~Equity investments accounted for under the equity method~~

The Company has certain investments in non-marketable equity instruments of private companies. The Company accounts for these investments using the equity method if they provide the Company the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method is appropriate. The Company records equity method investments initially at cost and adjusts the carrying amount to reflect the Company’s share of the earnings or losses of the investee.

The Company’s equity method investment is comprised of an interest in Flores Online S.A. ("Flores Online"), a Sao Paulo, Brazil-based internet floral and gift retailer, that the Company originally acquired on May 31, 2012. The Company currently holds 24.9% of the outstanding shares of Flores Online. The book value of this investment was $0.5 million as of March 31, 2019 and $0.6 million as of July 1, 2018, and is included in the “Other assets” line item within the Company’s consolidated balance sheets. The Company’s equity in the net loss of Flores Online for the three and nine months ended March 31, 2019 and April 1, 2018, respectively, was less than $0.1 million. During the quarter ended December 31, 2017, Flores Online entered into a share exchange agreement with Isabela Flores Intermediações Ltda. ("Isabela Flores"), whereby among other changes, the Company exchanged 5% of its interest in Flores Online for a 5% interest in Isabela Flores. This new investment of approximately $0.1 million is currently being accounted for as an equity investment without a readily determinable fair value (see below). In conjunction with this share exchange, the Company determined that the fair value of its investment in Flores Online was below its carrying value and that this decline was other-than-temporary. As a result, the Company recorded an impairment charge of $0.2 million, which is included within “Other (income) expense, net” in the Company’s consolidated statement of income during the quarter ended December 31, 2017.

Equity investments without a readily determinable fair value

Investments in non-marketable equity instruments of private companies, where the Company does not possess the ability to exercise significant influence, are accounted for at cost, less impairment (assessed qualitatively at each reporting period), adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. These investments are included within “Other assets” in the Company’s consolidated balance sheets. The aggregate carrying amount of the Company’s cost method investments was ~~$1.7~~$2.8 million as of March ~~31, 2019~~29, 2020 and ~~July 1, 2018.~~$1.6 million as of June 30, 2019.

Equity investments with a readily determinable fair value

The Company also holds certain trading securities associated with its Non-Qualified Deferred Compensation Plan (“NQDC Plan”). These investments are measured using quoted market prices at the reporting date and are included within the “Other assets” line item in the consolidated balance sheets (see Note 10 - Fair Value Measurements).

Note 8 –Debt

The Company’s current and long-term debt consists of the following:

	March 31, 2019			July 1, 2018
	(in thousands)						March 29, 2020			June 30, 2019
							(in thousands)
Revolver (1)	$	-		$	-		$	-		$	-
Term Loan (1)		97,750			104,938			96,250			100,000
Deferred financing costs		(1,936	)		(2,608	)		(2,602	)		(3,027	)
Total debt		95,814			102,330			93,648			96,973
Less: current debt		12,219			10,063			5,000			5,000
Long-term debt	$	83,595		$	92,267		$	88,648		$	91,973

(1) On December 23, 2016, the Company entered into an Amended and Restated Credit Agreement (the “2016 Amended Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders. The 2016 Amended Credit Agreement amended and restated the Company’s credit agreement dated September 30, 2014 to, among other things, extend the maturity date of the $115.0 million outstanding term loan ("Term Loan") and the revolving credit facility (the "Revolver") by approximately two years to December 23, 2021. The Term Loan is payable in 19 quarterly installments of principal and interest beginning on April 2, 2017, with escalating principal payments, at the rate of 5% in year one, 7.5% in year two, 10% in year three, 12.5% in year four, and 15% in year five, with the remaining balance of $61.8
(1)
On May 31, 2019, the Company entered into a Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders. The 2019 Credit Agreement amended and restated the Company’s existing amended and restated credit agreement dated as of December 23, 2016 (the “2016 Credit Agreement”) to, among other modifications: (i) increase the amount of the outstanding term loan (“Term Loan”) from approximately $97 million to $100 million, (ii) extend the maturity date of the outstanding Term Loan and the revolving credit facility (“Revolver”) by approximately 29 months to May 31, 2024, and (iii) decrease the applicable interest rate margins for LIBOR and base rate loans by 25 basis points. The Term Loan is payable in 19 quarterly installments of principal and interest beginning on September 29, 2019, with escalating principal payments, at the rate of 5.0% per annum for the first eight payments, and 10.0% per annum for the remaining 11 payments, with the remaining balance of $62.5 million due upon maturity. The Revolver, in the aggregate amount of $200 million, subject to seasonal reduction to an aggregate amount of $100 million for the period from January 1 through August 1, may be used for working capital and general corporate purposes, subject to certain restrictions.

For each borrowing under the ~~2016 Amended~~2019 Credit Agreement, the Company may elect that such borrowing bear interest at an annual rate equal to either: (1) a base rate plus an applicable margin varying ~~from 0.75% to 1.5%,~~ based on the Company’s consolidated leverage ratio, where the base rate is the highest of (a) the prime rate, (b) the ~~highest of the federal funds rate and the overnight bank funding rate as published by the~~ New York ~~Fed,~~fed bank rate plus 0.5%, and (c) ~~an adjusted LIBO~~a LIBOR rate plus 1%, or (2) an adjusted ~~LIBO~~LIBOR rate plus an applicable margin varying ~~from 1.75% to 2.5%,~~ based on the Company’s consolidated leverage ratio. The ~~2016 Amended~~2019 Credit Agreement requires that while any borrowings or commitments are outstanding the Company comply with certain financial covenants and affirmative covenants as well as certain negative covenants that, subject to certain exceptions, limit the ~~Company's~~Company’s ability to, among other things, incur additional indebtedness, make certain investments and make certain restricted payments. The Company was in compliance with these covenants as of March ~~31, 2019.~~29, 2020. The ~~2016 Amended~~2019 Credit Agreement is secured by substantially all of the assets of the ~~Company and the subsidiary guarantors, named therein.~~Company.

Future principal payments under the Term Loan are as follows: ~~$2.9~~$1.25 million – remainder of fiscal 2020, $5.0 million – fiscal ~~2019, $12.9~~2021, $10.0 million - fiscal 2022, $10.0 million – fiscal ~~2020, $15.8 million - fiscal 2021,~~2023 and ~~$66.1~~$70.0 million – fiscal ~~2022.~~2024.

Table of Contents

Note 9 - Property, Plant and Equipment

The Company’s property, plant and equipment consists of the following:

	March 31, 2019			July 1, 2018
	(in thousands)						March 29, 2020			June 30, 2019
							(in thousands)
Land	$	30,789		$	30,789		$	30,789		$	30,789
Orchards in production and land improvements		11,312			10,962			11,701			11,339
Building and building improvements		59,115			58,450			60,512			59,236
Leasehold improvements		13,430			12,997			14,182			13,861
Production equipment and furniture and fixtures		57,915			53,066			64,461			61,415
Computer and telecommunication equipment		50,042			46,925			54,664			53,694
Software		125,927			115,944			144,746			132,078
Capital projects in progress - orchards		8,222			10,789			12,489			9,902
Property, plant and equipment, gross		356,752			339,922			393,544			372,314
Accumulated depreciation and amortization		(198,562	)		(176,582	)		(227,145	)		(205,633	)
Property, plant and equipment, net	$	158,190		$	163,340		$	166,399		$	166,681

Note 10 - Fair Value Measurements

Cash and cash equivalents, trade and other receivables, prepaids, accounts payable and accrued expenses are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. Although no trading market exists, the Company believes that the carrying amount of its debt approximates fair value due to its variable nature. The Company’s investments in non-marketable equity instruments of private companies are carried at cost and are periodically assessed for other-than-temporary impairment, when an event or circumstances indicate that an other-than-temporary decline in value may have occurred. The Company’s remaining financial assets and liabilities are measured and recorded at fair value (see table below). The Company’s non-financial assets, such as definite lived intangible assets and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. Goodwill and indefinite lived intangibles are tested for impairment annually, or more frequently, if events occur or circumstances change such that it is more likely than not that an impairment may exist, as required under the accounting standards.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below:

Level 1		Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2		Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3		Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents by level, within the fair value hierarchy, financial assets and liabilities measured at fair value on a recurring basis:

	Carrying Value		Fair Value Measurements Assets (Liabilities)						Carrying Value		Fair Value Measurements Assets (Liabilities)
			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
	(in thousands)								(in thousands)
Assets (liabilities) as of March 31, 2019:
As of March 29, 2020:
Trading securities held in a “rabbi trust” (1)	$	11,338	$	11,338	$	-	$	-	$	11,360	$	11,360	$	-	$	-
Total assets (liabilities) at fair value									$	11,360	$	11,360	$	-	$	-
	$	11,338	$	11,338	$	-	$	-

Assets (liabilities) as of July 1, 2018:
As of June 30, 2019:
Trading securities held in a “rabbi trust” (1)	$	9,368	$	9,368	$	-	$	-	$	11,816	$	11,816	$	-	$	-
	$	9,368	$	9,368	$	-	$	-
Total assets (liabilities) at fair value									$	11,816	$	11,816	$	-	$	-

(1)

The Company has established an NQDC Plan for certain members of senior management. Deferred compensation plan assets are invested in mutual funds held in a “rabbi trust,” which is restricted for payment to participants of the NQDC Plan. Trading securities held in a rabbi trust are measured using quoted market prices at the reporting date and are included in the “Other assets” line item, with the corresponding liability included in the “Other liabilities” line item in the consolidated balance sheets.

Note 11 – Income Taxes

At the end of each interim reporting period, the Company estimates its effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The Company’s effective tax rate from operations for the three and nine months ended March ~~31, 2019~~29, 2020 was 29.2% and 23.8% respectively, compared to 38.1% and 21.7% ~~respectively, compared to 35.6% and 1.6%~~ in the same periods of the prior year. The effective tax rates for fiscal 2020 and fiscal 2019 differed from the U.S. federal statutory rate of 21% due to state income taxes and nondeductible expenses for executive compensation, ~~which were~~ partially offset by various permanent differences and tax credits, including ~~increased~~ excess tax benefits from stock-based compensation. The effective rates for fiscal 2018 differed from the transitional U.S. federal tax rate of 28.0% due to a tax benefit of $12.2 million, or $0.18 per diluted share, recognized during the second quarter of fiscal 2018, reflecting a revaluation of deferred tax liabilities at the lower U.S. federal statutory rate of 21% as a result of the Tax Act (see ~~Note 1~~ – Accounting Policies above), and various permanent differences, tax credits, and return to provision adjustments related to the filing of the Company’s fiscal 2017 tax return, partially offset by state income taxes.

~~Table of Contents~~

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Company is currently undergoing its U.S. federal examination for fiscal ~~2016,~~2017, however, fiscal ~~years 2015, 2017, and~~year 2018 ~~remain~~remains subject to U.S. federal examination. Due to ongoing state examinations and nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from fiscal 2015. The Company's foreign income tax filings from fiscal 2014 are open for examination by its respective foreign tax authorities, mainly Canada, Brazil, and the United Kingdom.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At March ~~31, 2019,~~29, 2020, the Company has an unrecognized tax benefit, including ~~an immaterial amount of~~ accrued interest and penalties, of approximately ~~$0.6~~$0.9 million. The Company believes that ~~$0.1~~$0.2 million of unrecognized tax positions will be resolved over the next twelve months.

Table of Contents

Note 12 – Business Segments

The Company’s management reviews the results of its operations by the following three business segments:

• 1-800-Flowers.com Consumer Floral,

• BloomNet Wire Service, and

• Gourmet ~~Food~~Foods & Gift Baskets

Segment performance is measured based on contribution margin, which includes only the direct controllable revenue and operating expenses of the segments. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead (see (a) below), nor does it include depreciation and amortization, other (income) expense, net and income taxes, or stock-based ~~compensation, both of which are included within corporate overhead.~~compensation. Assets and liabilities are reviewed at the consolidated level by management and not accounted for by segment.

Three Months Ended

Nine Months Ended

Net Revenues:

March 31, 2019

April 1, 2018

March 31, 2019

April 1, 2018

(in thousands)

Segment Net Revenues:

1-800-Flowers.com Consumer Floral
$ 144,821 $ 135,782 $ 338,003 $ 312,456
BloomNet Wire Service
28,185 24,498 75,613 64,637
Gourmet Food & Gift Baskets
75,445 78,458 575,966 545,408
Corporate
263 264 845 851
Intercompany eliminations
(301
)
(457
)
(1,202
)
(1,365
)
Total net revenues
$ 248,413 $ 238,545 $ 989,225 $ 921,987

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
Operating Income (Loss):	March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018
				(in thousands)									March 29, 2020			March 31, 2019			March 29, 2020			March 31, 2019
Net Revenues:													(in thousands)
Segment Net Revenues:
1-800-Flowers.com Consumer Floral													$	152,620		$	144,821		$	359,104		$	338,003
BloomNet Wire Service														30,414			28,185			81,576			75,613
Gourmet Foods & Gift Baskets														95,906			75,445			631,705			575,966
Corporate														112			263			472			845
Intercompany eliminations														(276	)		(301	)		(1,176	)		(1,202	)
Total net revenues													$	278,776		$	248,413		$	1,071,681		$	989,225

Operating Income (Loss):
Segment Contribution Margin:
1-800-Flowers.com Consumer Floral	$	15,364		$	16,226		$	32,667		$	33,988		$	15,439		$	15,364		$	34,853		$	32,667
BloomNet Wire Service		9,480			8,439			25,375			22,832			10,025			9,480			27,516			25,375
Gourmet Food & Gift Baskets		(7,202	)		(8,811	)		89,191			79,698
Gourmet Foods & Gift Baskets														(6,275	)		(7,202	)		100,512			89,191
Segment Contribution Margin Subtotal		17,642			15,854			147,233			136,518			19,189			17,642			162,881			147,233
Corporate (a)		(25,243	)		(20,408	)		(67,303	)		(59,448	)		(22,274	)		(25,243	)		(71,583	)		(67,303	)
Depreciation and amortization		(7,028	)		(7,885	)		(22,840	)		(24,646	)		(7,803	)		(7,028	)		(23,268	)		(22,840	)
Operating income (loss)	$	(14,629	)	$	(12,439	)	$	57,090		$	52,424		$	(10,888	)	$	(14,629	)	$	68,030		$	57,090

(a) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.

~~Table of Contents~~

The following tables represent a disaggregation of revenue from contracts with customers, by channel:

																			Three Months Ended									Three Months Ended
	Three Months Ended									Three Months Ended									March 29, 2020									March 31, 2019
	March 31, 2019									April 1, 2018									Consumer Floral		BloomNet Wire Service		Gourmet Foods & Gift Baskets		Consolidated			Consumer Floral		BloomNet Wire Service		Gourmet Foods & Gift Baskets		Consolidated
	Consumer Floral		BloomNet Wire Service		Gourmet Food and Gift Baskets		Consolidated			Consumer Floral		BloomNet Wire Service		Gourmet Food and Gift Baskets		Consolidated			(in thousands)
Net revenues
E-commerce	$	142,552	$	-	$	61,810	$	204,362		$	133,442	$	-	$	63,422	$	196,864		$	150,491	$	-	$	81,360	$	231,851		$	142,552	$	-	$	61,810	$	204,362
Retail		1,189		-		5,727		6,916			1,272		-		6,326		7,598			1,166		-		5,030		6,196			1,189		-		5,727		6,916
Wholesale		-		9,321		7,908		17,229			-		8,838		8,710		17,548			-		10,801		9,516		20,317			-		9,321		7,908		17,229
BloomNet services		-		18,864		-		18,864			-		15,660		-		15,660			-		19,613		-		19,613			-		18,864		-		18,864
Other		1,080		-		-		1,080			1,068		-		-		1,068			963		-		-		963			1,080		-		-		1,080
Corporate		-		-		-		263			-		-		-		264			-		-		-		112			-		-		-		263
Eliminations		-		-		-		(301	)		-		-		-		(457	)		-		-		-		(276	)		-		-		-		(301	)
Net revenues	$	144,821	$	28,185	$	75,445	$	248,413		$	135,782	$	24,498	$	78,458	$	238,545		$	152,620	$	30,414	$	95,906	$	278,776		$	144,821	$	28,185	$	75,445	$	248,413

																			Nine months ended									Nine months ended
	Nine Months Ended									Nine Months Ended									March 29, 2020									March 31, 2019
	March 31, 2019									April 1, 2018									Consumer Floral		BloomNet Wire Service		Gourmet Foods & Gift Baskets		Consolidated			Consumer Floral		BloomNet Wire Service		Gourmet Foods & Gift Baskets		Consolidated
	Consumer Floral		BloomNet Wire Service		Gourmet Food and Gift Baskets		Consolidated			Consumer Floral		BloomNet Wire Service		Gourmet Food and Gift Baskets		Consolidated			(in thousands)
Net revenues
E-commerce	$	332,302	$	-	$	448,581	$	780,883		$	306,479	$	-	$	423,289	$	729,768		$	353,436	$	-	$	494,549	$	847,985		$	332,302	$	-	$	448,581	$	780,883
Retail		3,113		-		38,477		41,590			3,199		-		39,270		42,469			3,187		-		35,640		38,827			3,113		-		38,477		41,590
Wholesale		-		23,247		88,908		112,155			-		22,204		82,849		105,053			-		26,819		101,516		128,335			-		23,247		88,908		112,155
Bloomnet services		-		52,366		-		52,366			-		42,433		-		42,433
BloomNet services																				-		54,757		-		54,757			-		52,366		-		52,366
Other		2,588		-		-		2,588			2,778		-		-		2,778			2,481		-		-		2,481			2,588		-		-		2,588
Corporate		-		-		-		845			-		-		-		851			-		-		-		472			-		-		-		845
Eliminations		-		-		-		(1,202	)		-		-		-		(1,365	)		-		-		-		(1,176	)		-		-		-		(1,202	)
Net revenues	$	338,003	$	75,613	$	575,966	$	989,225		$	312,456	$	64,637	$	545,408	$	921,987		$	359,104	$	81,576	$	631,705	$	1,071,681		$	338,003	$	75,613	$	575,966	$	989,225

Table of Contents

Note 13 – Leases

The Company currently leases plants, warehouses, offices, store facilities, and equipment under various leases through fiscal 2034. Most lease agreements are of a long-term nature (over a year), although the Company does also enter into short-term leases, primarily for seasonal needs. Lease agreements may contain renewal options and rent escalation clauses and require the Company to pay real estate taxes, insurance, common area maintenance and operating expenses applicable to the leased properties. The Company accounts for its leases in accordance with ASC 842. At contract inception, we determine whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time, by assessing whether we have the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset.

At the lease commencement date, we determine if a lease should be classified as an operating or a finance lease (we currently have no finance leases) and recognize a corresponding lease liability and a right-of-use asset on our Balance Sheet. The lease liability is initially and subsequently measured as the present value of the remaining fixed minimum rental payments (including base rent and fixed common area maintenance) using discount rates as of the commencement date. Variable payments (including most utilities, real estate taxes, insurance and variable common area maintenance) are expensed as incurred. The right-of-use asset is initially and subsequently measured at the carrying amount of the lease liability adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use asset. Right-of-use assets are assessed for impairment using the long-lived assets impairment guidance. The discount rate used to determine the present value of lease payments is our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as we generally cannot determine the interest rate implicit in the lease.

We recognize expense for our operating leases on a straight-line basis over the lease term. As these leases expire, it can be expected that in the normal course of business they will be renewed or replaced. Renewal option periods are included in the measurement of lease liability, where the exercise is reasonably certain to occur. Key estimates and judgments in accounting for leases include how we determine: (1) lease payments, (2) lease term and (3) the discount rate used in calculating the lease liability.

Additional information related to our leases is as follows:

Three Months Ended

Nine Months Ended

March 29, 2020

March 29, 2020

(in thousands)

Lease costs:

Operating lease costs
$ 3,384 $ 10,690
Variable lease costs
3,679 11,565
Short-term lease cost
1,013 5,983
Sublease income
(243
)
(721
)
Total lease costs
$ 7,833 $ 27,517

Nine Months Ended

March 29, 2020

(in thousands)

Cash paid for amounts included in measurement of operating lease liabilities
$ 9,014
Right-of-use assets obtained in exchange for new operating lease liabilities
$ 178

	March 29, 2020
	(in thousands)
Weighted-average remaining lease term - operating leases	9.5 years
Weighted-discount rate - operating leases		3.8	%

Maturities of lease liabilities in accordance with ASC 842 as of March 29, 2020 are as follows (in thousands):

Remainder of 2020
$ 3,195
2021
11,683
2022
10,313
2023
9,905
2024
9,455
Thereafter
44,897
Total Future Minimum Lease Payments
89,448
Less Imputed Remaining Interest
15,673
Total
$ 73,775

At June 30, 2019, in accordance with ASC 840, future minimum rental payments under non-cancelable operating leases with initial terms of one year or more consisted of the following (in thousands):

2020
$ 16,588
2021
13,490
2022
12,081
2023
9,957
2024
9,498
Thereafter
44,953
Total Future Minimum Lease Payments
$ 106,567

Table of Contents

Note 1314 – Commitments and Contingencies

Litigation

~~There~~Bed Bath & Beyond:

On April 1, 2020, Bed Bath & Beyond Inc. (“Bed Bath”) commenced an action against the Company in the Court of Chancery for the State of Delaware, which is captioned Bed Bath & Beyond Inc. v. 1-800-Flowers.com, et ano., C.A. (the “Complaint”), alleging a breach of the Equity Purchase Agreement (the “Agreement”), dated February 14, 2020, between Bed Bath, PersonalizationMall.com, LLC (“Personalization Mall”), the Company and a subsidiary of the Company (the “Purchaser”) pursuant to which Bed Bath agreed to sell to Purchaser, and the Purchaser agreed to purchase from Bed Bath, all of the issued and outstanding membership interests of Personalization Mall. The action was initiated after the Company requested a reasonable delay in the closing under the Agreement due to the unprecedented circumstances created by the COVID-19 pandemic. The Complaint requests an order of specific performance to consummate the transaction under the Agreement plus attorney’s fees and costs in connection with the action. The Company filed its answer to the Complaint on April 17, 2020 and an order governing expedited proceedings was approved on April 9, 2020 that sets a trial date for late September. The Company intends to vigorously defend itself against this lawsuit and no assurance can be given as to the ultimate outcome of this matter. At this time the proceedings are in the very early stages, and we are unable to determine or estimate the amount of possible loss or range of loss.

In addition, there are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ~~ultimate~~final resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or ~~liquidity~~

~~Table of Contents~~

liquidity.

Note 15 –Subsequent Event-Closure of Harry & David Retail Stores

On April 14, 2020, the Company made the strategic decision to permanently close 38 of its 39 Harry & David branded stores, which had previously been closed on a temporary basis due to COVID-19, in accordance with state and local regulations. This will result in a charge within the range of $4.0 - $5.0 million in our fourth quarter for lease obligations, employee costs and other store closure costs.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-Q and in the Company’s Annual Report on Form 10-K, for the year ended ~~July 1, 2018~~June 30, 2019. The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed or referred to in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Forward-Looking Information and Factors That May Affect Future ~~Results” and~~Results,” under Part I, Item 1A, of the Company’s Annual Report on Form 10-K, for the year ended ~~July 1, 2018~~June 30, 2019 under the heading “Risk ~~Factors.~~Factors” and Part II-Other Information, Item 1A in this Form 10-Q.

Overview

1-800-FLOWERS.COM, Inc. and its subsidiaries (collectively, the “Company”) is a leading provider of gifts designed to help customers express, connect and ~~celebrate~~.celebrate. For more than 40 years, 1-800-Flowers.com® has been delivering smiles to customers with gifts for every occasion, including fresh flowers and the best selection of plants, gift baskets, gourmet foods, confections, jewelry, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee® backs every gift.

The Company’s Celebrations Ecosystem includes the following brands: 1-800-Flowers.com®, 1-800-Baskets.com®, Cheryl’s Cookies®, ~~FruitBouquets.com®,~~ Harry & David®, Shari's Berries®, FruitBouquets.com^SM, Moose Munch®, The Popcorn Factory®, ~~Wolferman’s®~~Wolferman’s Bakery®, Personalization Universe®, Simply Chocolate®, ~~Goodsey~~^SMGoodsey®, DesignPac®, and Stock Yards®. Through the Celebrations Passport® loyalty program, which provides members with free standard shipping and no service charge across our portfolio of brands, ~~1-800-FLOWERS.COM, Inc.~~the Company strives to deepen its relationships with its customers. The Company also operates BloomNet®, an international floral wire service providing a ~~broad-range~~broad range of products and services designed to help professional florists grow their businesses ~~profitably,~~profitably; as well as Napco^SM, a resource for floral gifts and seasonal décor.

1-800-FLOWERS.COM, Inc. ~~received~~was recognized as the ~~Gold award in~~2019 Mid-Market Company of the ~~“Mobile Payments and Commerce” category at the Mobile Marketing Association 2018 Global Smarties Awards. In addition, Harry & David was named to the Internet Retailer 2019 “The Hot 100” list.~~ Year by CEO Connection.

Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market, ticker symbol: FLWS.

For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our Annual Report on Form 10-K for the year ended ~~July 1, 2018.~~June 30, 2019.

COVID-19 Impact

In response to the global pandemic, the Company has taken actions to ensure employee safety and business continuity, informed by the guidelines set forth by local, state and federal government and health officials. These initiatives include developing a “Pandemic Preparedness and Response Plan,” establishing an internal “nerve center” to allow for communication and coordination throughout the business, designing workstream teams to promote workforce protection and supply chain management, and dedicating resources to support customers, vendors, franchisees, and our BloomNet member florists.

The COVID-19 pandemic has affected, and will continue to affect, our operations and financial results for the foreseeable future. While there is significant uncertainty in the overall consumer environment due to the COVID-19 crisis, we are seeing strong e-commerce demand for gourmet foods and gift baskets and our floral products for holidays and every-day gifting occasions, as well as for self-consumption. As we entered the Company’s fiscal fourth quarter, we saw an acceleration of demand during the Easter Holiday period, and this continued throughout the month of April. As we look ahead, our expectation is that demand trends will remain strong through the balance of the fourth quarter. With that said, there are headwinds (and resulting increased costs) that have been, and will continue to impact our operations during the foreseeable future, including the following:

●	Retail store closures – on March 20, 2020, in response to government actions, and for the safety of its employees, the Company temporarily closed its Cheryl’s and Harry & David retail stores. Affected employees were provided with Company paid special COVID leave pay through April 3^rd, as the nation and the Company worked to understand the extent and potential length of the crisis. On April 14^th, the difficult decision was made to permanently close 38 of our 39 Harry & David retail stores. Plans to wind-down store operations in an orderly manner are currently in development. As a result, the Company expects to incur a charge within the range of $4.0 - $5.0 million in our fourth quarter for lease obligations, employee costs and other store closure costs. Annual revenues attributable to the closed locations was approximately $33.0 million.
●	Wholesale volume reductions - we have seen a reduction in our wholesale business as a result of COVID-19, which will impact our fourth quarter results within our BloomNet and Gourmet Foods and Gift Baskets segments. Additionally, we anticipate reduced wholesale orders through the fiscal second quarter of fiscal 2021, as our large wholesale customers are taking a cautious approach due to the uncertainty surrounding the impact of COVID-19 on the overall consumer economy.
●	Bloomnet membership fee reductions - we have waived certain fees to our BloomNet members for the month of April to help them weather the COVID-19 crisis.
●	Increased operating costs - we are seeing some increased costs associated with the changes we have made, and continue to make, to our manufacturing, warehouse and distribution facilities to provide for the safety and wellbeing of our associates, including: required social distancing, enhanced facility cleaning and sanitizing schedules, and staggered production shifts.
●	PersonalizationMall.com - Due to the unprecedented circumstances created by the COVID-19 pandemic, the Company requested a reasonable delay in the closing of the previously announced acquisition of PersonalizationMall.com, LLC until April 30, 2020. Bed Bath & Beyond Inc., the parent company of PersonalizationMall.com, responded to this request by filing a lawsuit in the Court of Chancery in the state of Delaware on April 1, 2020. The Company intends to vigorously defend itself against this lawsuit.

The scale and overall economic impact of the COVID-19 crisis is still very difficult to assess. However, the strong e-commerce demand that we are seeing across our brands, is expected to offset both the reductions in revenues and increases in costs noted above. The Company believes that the operating platform it has built over the years, combined with its diversified product line, and ability to engage with its customers will allow it to successfully navigate this challenging environment. We remain focused on three key elements of our business strategy:

●	Taking care of the health and safety of our associates, our BloomNet florists, our vendors and our customers,
●	Maintaining our financial strength and flexibility, and
●	Continuing to invest in areas of our business that can help drive future growth.

The Company believes that it is in a strong financial position and has already begun to plan and take the necessary steps to ensure its continued financial health. See Part II, Item 1A. Risk Factors for further discussion of the possible impact of the COVID-19 pandemic on our business.

Table of Contents

Definitions of non-GAAP Financial Measures:

We sometimes use financial measures derived from consolidated financial information, but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain of these are considered "non-GAAP financial measures" under the U.S. Securities and Exchange Commission rules. See below for definitions and the reasons why we use these non-GAAP financial measures. Where applicable, see the Segment Information and Results of Operations sections below for reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures. These non-GAAP financial measures are referred to as “adjusted" or “on a comparable basis” below.

EBITDA and adjusted EBITDA

We define EBITDA as net income (loss) before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for the impact of stock-based compensation, ~~Non-Qualified~~NQDC Plan ~~Investment~~investment appreciation/depreciation, and for certain items affecting period to period comparability. SeeSegment ~~Information~~Information for details on how EBITDA and adjusted EBITDA were calculated for each period presented.

The Company presents EBITDA and adjusted EBITDA because it considers such information meaningful supplemental measures of its performance and believes such information is frequently used by the investment community in the evaluation of similarly situated companies. The Company uses EBITDA and adjusted EBITDA as factors ~~used~~ to determine the total amount of incentive compensation available to be awarded to executive officers and other employees. The Company's credit agreement uses EBITDA and adjusted EBITDA to measure compliance with covenants such as interest coverage and debt incurrence. EBITDA and adjusted EBITDA are also used by the Company to evaluate and price potential acquisition candidates.

EBITDA and adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of the limitations are: (a) EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements for, the Company's working capital needs; (b) EBITDA and adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debts; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and EBITDA does not reflect any cash requirements for such capital expenditures. EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company's performance.

Segment contribution margin

We define segment contribution margin as earnings before interest, taxes, depreciation and amortization, before the allocation of corporate overhead expenses. See Segment Information for details on how segment contribution margin was calculated for each period presented.

When viewed together with our GAAP results, we believe segment contribution margin provides management and users of the financial statements meaningful information about the performance of our business segments.

Segment contribution margin is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. The material limitation associated with the use of the segment contribution margin is that it is an incomplete measure of profitability as it does not include all operating expenses or non-operating income and expenses. Management compensates for these limitations when using this measure by looking at other GAAP measures, such as operating income and net income.

Adjusted net income (loss) and adjusted net income (loss) per common share

We define adjusted net income (loss) and adjusted net income (loss) per common share as net income (loss) and net income (loss) per common share adjusted for certain items affecting period to period comparability. See Segment Information below for details on how adjusted net income (loss) and adjusted net income (loss) per common share were calculated for each period presented.

We believe that adjusted net income (loss) and adjusted net income (loss) per common share are meaningful measures because they increase the comparability of period to period results.

Since these are not measures of performance calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, GAAP net income (loss) and net income (loss) per common share, as indicators of operating performance and they may not be comparable to similarly titled measures employed by other companies.

Table of Contents

Segment Information

The following table presents the net revenues, gross profit and segment contribution margin from each of the Company’s business segments, as well as consolidated EBITDA, ~~adjusted EBITDA~~ and adjusted ~~net income.~~EBITDA.

	Three Months Ended									Three Months Ended
	March 31, 2019			April 1, 2018			% Change			March 29, 2020			Transaction Costs		As Adjusted (non-GAAP) March 29, 2020			March 31, 2019			% Change
											(dollars in thousands)
Net revenues:
1-800-Flowers.com Consumer Floral	$	144,821		$	135,782			6.7	%	$	152,620		$	-	$	152,620		$	144,821			5.4	%
BloomNet Wire Service		28,185			24,498			15.1	%		30,414			-		30,414			28,185			7.9	%
Gourmet Food & Gift Baskets		75,445			78,458			(3.8%	)
Gourmet Foods & Gift Baskets											95,906			-		95,906			75,445			27.1	%
Corporate		263			264			(0.4%	)		112			-		112			263			-57.4	%
Intercompany eliminations		(301	)		(457	)		34.1	%		(276	)		-		(276	)		(301	)		8.3	%
Total net revenues	$	248,413		$	238,545			4.1	%	$	278,776		$	-	$	278,776		$	248,413			12.2	%

Gross profit:
1-800-Flowers.com Consumer Floral	$	56,334		$	53,744			4.8	%	$	59,943		$	-	$	59,943		$	56,334			6.4	%
		38.9	%		39.6	%					39.3	%				39.3	%		38.9	%

BloomNet Wire Service		14,071			12,931			8.8	%		14,401			-		14,401			14,071			2.3	%
		49.9	%		52.8	%					47.3	%				47.3	%		49.9	%

Gourmet Food & Gift Baskets		26,848			26,532			1.2	%
Gourmet Foods & Gift Baskets											32,956			-		32,956			26,848			22.8	%
		35.6	%		33.8	%					34.4	%				34.4	%		35.6	%

Corporate		267			248			7.7	%		152			-		152			267			-43.1	%
		101.5	%		93.9	%					135.7	%				135.5	%		101.5	%

Total gross profit	$	97,520		$	93,455			4.3	%	$	107,452		$	-	$	107,452		$	97,520			10.2	%
		39.3	%		39.2	%					38.5	%		-		38.5	%		39.3	%

EBITDA (non-GAAP)
EBITDA (non-GAAP):
Segment Contribution Margin (non-GAAP) (a):
1-800-Flowers.com Consumer Floral	$	15,364		$	16,226			(5.3%	)	$	15,439		$	-	$	15,439		$	15,364			0.5	%
BloomNet Wire Service		9,480			8,439			12.3	%		10,025			-		10,025			9,480			5.7	%
Gourmet Food & Gift Baskets		(7,202	)		(8,811	)		18.3	%
Gourmet Foods & Gift Baskets											(6,275	)		-		(6,275	)		(7,202	)		12.9	%
Segment Contribution Margin Subtotal		17,642			15,854			11.3	%		19,189			-		19,189			17,642			8.8	%
Corporate (b)		(25,243	)		(20,408	)		(23.7%	)		(22,274	)		911		(21,363	)		(25,243	)		15.4	%
EBITDA (non-GAAP)		(7,601	)		(4,554	)		(66.9%	)		(3,085	)		911		(2,174	)		(7,601	)		71.4	%

Add: Stock-based compensation		1,903			933			104.0	%		2,396					2,396			1,903			25.9	%
Add: Compensation charge related to NQDC Plan investment appreciation		1,294			30			4,213.3	%
Add: Comp charge related to NQ Plan Investment Appreciation/(Depreciation)											(2,611	)		-		(2,611	)		1,294			-301.8	%
Adjusted EBITDA (non-GAAP)	$	(4,404	)	$	(3,591	)		(22.8%	)	$	(3,300	)	$	911	$	(2,389	)	$	(4,404	)		-45.8	%

Table of Contents

Nine Months Ended

March 29, 2020

Transaction Costs

As Adjusted (non-GAAP) March 29, 2020

March 31, 2019

% Change

(dollars in thousands)
Net revenues:

1-800-Flowers.com Consumer Floral
$ 359,104 $ - $ 359,104 $ 338,003 6.2 %
BloomNet Wire Service
81,576 - 81,576 75,613 7.9 %
Gourmet Foods & Gift Baskets
631,705 - 631,705 575,966 9.7 %
Corporate
472 - 472 845 -44.1 %
Intercompany eliminations
(1,176 ) - (1,176 ) (1,202 ) 2.2 %
Total net revenues
$ 1,071,681 $ - $ 1,071,681 $ 989,225 8.3 %

Gross profit:

1-800-Flowers.com Consumer Floral
$ 140,537 $ - $ 140,537 $ 131,254 7.1 %
39.1 % 39.1 % 38.8 %

BloomNet Wire Service
40,520 - 40,520 38,306 5.8 %
49.7 % 49.7 % 50.7 %

Gourmet Foods & Gift Baskets
271,360 - 271,360 250,550 8.3 %
43.0 % 43.0 % 43.5 %

Corporate
353 - 353 777 -54.6 %
74.8 % 74.8 % 92.0 %

Total gross profit
$ 452,770 $ - $ 452,770 $ 420,887 7.6 %
42.2 % - 42.2 % 42.5 %

EBITDA (non-GAAP):

Segment Contribution Margin (non-GAAP) (a):

1-800-Flowers.com Consumer Floral
$ 34,853 $ - $ 34,853 $ 32,667 6.7 %
BloomNet Wire Service
27,516 - 27,516 25,375 8.4 %
Gourmet Foods & Gift Baskets
100,512 - 100,512 89,191 12.7 %
Segment Contribution Margin Subtotal
162,881 - 162,881 147,233 10.6 %
Corporate (b)
(71,583 ) 911 (70,672 ) (67,303 ) -5.0 %
EBITDA (non-GAAP)
91,298 911 92,209 79,930 15.4 %
Add: Stock-based compensation
6,441 6,441 4,531 42.2 %
Add: Comp charge related to NQ Plan
Investment Appreciation/(Depreciation)
(1,653 ) - (1,653 ) 327 -605.5 %
Adjusted EBITDA (non-GAAP)
$ 96,086 $ 911 $ 96,997 $ 84,788 14.4 %
18
Table of Contents
Reconciliation of net income (loss) to adjusted net income (loss) (non-GAAP):

Three Months Ended

Nine Months Ended

March 29, 2020

March 31, 2019

March 29, 2020

March 31, 2019

(in thousands, except per share data)

Net income (loss)
$ (9,657 ) $ (8,241 ) $ 49,224 $ 43,071
Adjustments to reconcile net income (loss) to adjusted net income (loss) (non-GAAP)

Add: Personalization Mall transaction costs
911 - 911 -
Deduct: Income tax (benefit) on transaction costs
(217 ) - (217 ) -
Adjusted net income (loss) (non-GAAP)
$ (8,963 ) $ (8,241 ) $ 49,918 $ 43,071

Basic and diluted net income (loss) per common share

Basic
$ (0.15 ) $ (0.13 ) $ 0.76 $ 0.67
Diluted
$ (0.15 ) $ (0.13 ) $ 0.74 $ 0.65

Basic and diluted adjusted net income (loss) per common share (non-GAAP)

Basic
$ (0.14 ) $ (0.13 ) $ 0.77 $ 0.67
Diluted
$ (0.14 ) $ (0.13 ) $ 0.75 $ 0.65

Weighted average shares used in the calculation of net income (loss) and adjusted net income (loss) per common share

Basic
64,348 64,194 64,517 64,383
Diluted
64,348 64,194 66,378 66,456

15
~~Table of Contents~~

Nine Months Ended

March 31, 2019

April 1, 2018

% Change

Net revenues:

1-800-Flowers.com Consumer Floral
$ 338,003 $ 312,456 8.2 %
BloomNet Wire Service
75,613 64,637 17.0 %
Gourmet Food & Gift Baskets
575,966 545,408 5.6 %
Corporate
845 851 (0.7% )
Intercompany eliminations
(1,202 ) (1,365 ) 11.9 %
Total net revenues
$ 989,225 $ 921,987 7.3 %

Gross profit:

1-800-Flowers.com Consumer Floral
$ 131,254 $ 123,322 6.4 %
38.8 % 39.5 %

BloomNet Wire Service
38,306 35,682 7.4 %
50.7 % 55.2 %

Gourmet Food & Gift Baskets
250,550 236,152 6.1 %
43.5 % 43.3 %

Corporate (b)
777 836 (7.1% )
92.0 % 98.2 %

Total gross profit
$ 420,887 $ 395,992 6.3 %
42.5 % 42.9 %

EBITDA (non-GAAP)

Segment Contribution Margin (non-GAAP) (a):

1-800-Flowers.com Consumer Floral
$ 32,667 $ 33,988 (3.9% )
BloomNet Wire Service
25,375 22,832 11.1 %
Gourmet Food & Gift Baskets
89,191 79,698 11.9 %
Segment Contribution Margin Subtotal
147,233 136,518 7.8 %
Corporate (b)
(67,303 ) (59,448 ) (13.2% )
EBITDA (non-GAAP)
79,930 77,070 3.7 %
Add: Stock-based compensation
4,531 3,002 50.9 %
Add: Compensation charge related to NQDC Plan investment appreciation
327 669 (51.2% )

Adjusted EBITDA (non-GAAP)
$ 84,788 $ 80,741 5.0 %
16
~~Table of Contents~~
~~Reconciliation of net income (loss) to adjusted net income (loss) (non-GAAP):~~

Three Months Ended

Nine Months Ended

March 31, 2019

April 1, 2018

March 31, 2019

April 1, 2018

Net income (loss)
$ (8,241 ) $ (8,463 ) $ 43,071 $ 49,014
Adjustments to reconcile net income (loss) to adjusted net income (loss) (non-GAAP):

Deduct U.S. tax reform benefit on deferred taxes (c)
- - - 12,158
Adjusted net income (loss) (non-GAAP)
$ (8,241 ) $ (8,463 ) $ 43,071 $ 36,856

Basic and diluted net income (loss) per common share

Basic
$ (0.13 ) $ (0.13 ) $ 0.67 $ 0.76
Diluted
$ (0.13 ) $ (0.13 ) $ 0.65 $ 0.73

Basic and diluted adjusted net income (loss) per common share (non-GAAP)

Basic
$ (0.13 ) $ (0.13 ) $ 0.67 $ 0.57
Diluted
$ (0.13 ) $ (0.13 ) $ 0.65 $ 0.55

Weighted average shares used in the calculation of net income (loss) and adjusted net income (loss) per common share

Basic
64,194 64,527 64,383 64,694
Diluted
64,194 64,527 66,456 66,949
~~Reconciliation of net income (loss) to Adjusted EBITDA (non-GAAP):~~

Three Months Ended

Nine Months Ended

March 31, 2019

April 1, 2018

March 31, 2019

April 1, 2018

Net income (loss)
$ (8,241 ) $ (8,463 ) $ 43,071 $ 49,014
Add:

Interest (income) expense, net
(1,315 ) 693 2,097 2,604
Depreciation and amortization
7,028 7,885 22,840 24,646
Income tax expense
- - 11,922 806
Less:

Income tax benefit
5,073 4,669 - -
EBITDA
(7,601 ) (4,554 ) 79,930 77,070
Add: Compensation charge related to NQDC Plan investment appreciation
1,294 30 327 669
Add: Stock-based compensation
1,903 933 4,531 3,002
Adjusted EBITDA
$ (4,404 ) $ (3,591 ) $ 84,788 $ 80,741
a)
Segment performance is measured based on segment contribution margin or segment Adjusted EBITDA, reflecting only the direct controllable revenue and operating expenses of the segments, both of which are non-GAAP measurements. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead, described above, depreciation and amortization, other income (net), and other items that we do not consider indicative of our core operating performance.
b)
Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.
c)
The adjustment to deduct the U.S. tax reform impact from Net Income includes the impact of the re-valuation of the Company’s deferred tax liability of $12.2 million, or $0.18 per diluted share, as a result of the Tax Act, but does not include the ongoing impact of the lower federal corporate tax rate.
17
~~Table of Contents~~
Reconciliation of net income (loss) to adjusted EBITDA (non-GAAP):

Three Months Ended

Nine Months Ended

March 29, 2020

March 31, 2019

March 29, 2020

March 31, 2019

(in thousands, except per share data)

Net income (loss)
$ (9,657 ) $ (8,241 ) $ 49,224 $ 43,071
Add:

Interest expense, net
2,752 (1,315 ) 3,441 2,097
Depreciation and amortization
7,803 7,028 23,268 22,840
Income tax expense
- - 15,365 11,922
Less:

Income tax benefit
3,983 5,073 - -
EBITDA
(3,085 ) (7,601 ) 91,298 79,930
Add: Transaction costs
911 - 911 -
Add: Stock-based compensation
2,396 1,903 6,441 4,531
Add: Compensation charge related to NQ plan investment appreciation/(depreciation)
(2,611 ) 1,294 (1,653 ) 327
Adjusted EBITDA
$ (2,389 ) $ (4,404 ) $ 96,997 $ 84,788

(a) Segment performance is measured based on segment contribution margin or segment Adjusted EBITDA, reflecting only the direct controllable revenue and operating expenses of the segments, both of which are non-GAAP measurements. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead, described above, depreciation and amortization, other income (net), and other items that we do not consider indicative of our core operating performance.

(b) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.

Results of Operations

Net revenues

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

March 31, 2019

April 1, 2018

% Change

March 31, 2019

April 1, 2018

% Change

March 29, 2020

March 31, 2019

% Change

March 29, 2020

March 31, 2019

% Change

(dollars in thousands)

(dollars in thousands)

Net revenues:

E-Commerce
$ 204,361 $ 196,866 3.8
%
$ 780,882 $ 729,769 7.0
%
$ 231,851 $ 204,362 13.5
%
$ 847,985 $ 780,883 8.6
%
Other
44,052 41,679 5.7
%
208,343 192,218 8.4
%
46,925 44,051 6.5
%
223,696 208,342 7.4
%
Total net revenues
$ 248,413 $ 238,545 4.1
%
$ 989,225 $ 921,987 7.3
%
$ 278,776 $ 248,413 12.2
%
$ 1,071,681 $ 989,225 8.3
%

Net revenues consist primarily of the selling price of the merchandise, service or outbound shipping charges, less discounts, returns and credits.

Net revenues increased ~~4.1%~~12.2% and 8.3% during the three and nine months ended March ~~31, 2019,~~29, 2020, respectively, compared to the same ~~period~~periods of the prior year, due to ~~strong~~ growth across all three of the Company’s business segments, reflecting the strategic marketing and merchandising investments across the Company’s brands, the continuing positive trends in everyday gifting occasions, and increased self-consumption within the ~~Consumer Floral~~Gourmet Foods and ~~BloomNet segments during the Valentine’s Day holiday,~~Gift Baskets segment, as well as ~~for everyday gifting occasions. Quarterly growth in these segments was partially offset by a year over year decline within the Gourmet Food & Gift Baskets segment,~~incremental revenues from Shari’s Berries, which was ~~negatively impacted by the shift in the Easter Holiday from the third quarter in fiscal 2018 to the fourth quarter in fiscal 2019.~~acquired on August 14, 2019, and contributed approximately 4.1% of consolidated revenue growth.

~~Net revenues increased 7.3% during the nine months ended March 31, 2019, compared to the same period~~19
Table of the prior year, due to strong customer demand for both holiday and everyday gifting occasions in our Gourmet Food & Gift Baskets and Consumer Floral segments, as well as membership, transaction and services growth in the BloomNet WireService segment, partially offset by the shift in the Easter Holiday referred to above.Contents

Disaggregated revenue by channel follows:

Three Months Ended

Three Months Ended

Three Months Ended

Three Months Ended

March 29, 2020

March 31, 2019

March 31, 2019

April 1, 2018

Consumer Floral

BloomNet Wire Service
Gourmet Foods & Gift Baskets
Consolidated

Consumer Floral

BloomNet Wire Service
Gourmet Foods & Gift Baskets
Consolidated

Consumer Floral

BloomNet Wire Service

Gourmet Food and Gift Baskets

Consolidated

Consumer Floral

BloomNet Wire Service

Gourmet Food and Gift Baskets

Consolidated
(in thousands)
Net revenues

E-commerce
$ 142,552 $ - $ 61,810 $ 204,362 $ 133,442 $ - $ 63,422 $ 196,864 $ 150,491 $ - $ 81,360 $ 231,851 $ 142,552 $ - $ 61,810 $ 204,362
Retail
1,189 - 5,727 6,916 1,272 - 6,326 7,598 1,166 - 5,030 6,196 1,189 - 5,727 6,916
Wholesale
- 9,321 7,908 17,229 - 8,838 8,710 17,548 - 10,801 9,516 20,317 - 9,321 7,908 17,229
BloomNet services
- 18,864 - 18,864 - 15,660 - 15,660 - 19,613 - 19,613 - 18,864 - 18,864
Other
1,080 - - 1,080 1,068 - - 1,068 963 - - 963 1,080 - - 1,080
Corporate
- - - 263 - - - 264 - - - 112 - - - 263
Eliminations
- - - (301 ) - - - (457 ) - - - (276
)
- - - (301
)
Net revenues
$ 144,821 $ 28,185 $ 75,445 $ 248,413 $ 135,782 $ 24,498 $ 78,458 $ 238,545 $ 152,620 $ 30,414 $ 95,906 $ 278,776 $ 144,821 $ 28,185 $ 75,445 $ 248,413

Nine Months Ended

Nine Months Ended

March 31, 2019

April 1, 2018

Consumer Floral

BloomNet Wire Service

Gourmet Food and Gift Baskets

Consolidated

Consumer Floral

BloomNet Wire Service

Gourmet Food and Gift Baskets

Consolidated

Net revenues

E-commerce
$ 332,302 $ - $ 448,581 $ 780,883 $ 306,479 $ - $ 423,289 $ 729,768
Retail
3,113 - 38,477 41,590 3,199 - 39,270 42,469
Wholesale
- 23,247 88,908 112,155 - 22,204 82,849 105,053
Bloomnet services
- 52,366 - 52,366 - 42,433 - 42,433
Other
2,588 - - 2,588 2,778 - - 2,778
Corporate
- - - 845 - - - 851
Eliminations
- - - (1,202 ) - - - (1,365 )
Net revenues
$ 338,003 $ 75,613 $ 575,966 $ 989,225 $ 312,456 $ 64,637 $ 545,408 $ 921,987

Nine months ended

Nine months ended

March 29, 2020

March 31, 2019

Consumer Floral

BloomNet Wire Service
Gourmet Foods & Gift Baskets
Consolidated

Consumer Floral

BloomNet Wire Service
Gourmet Foods & Gift Baskets
Consolidated

(in thousands)
Net revenues

E-commerce
$ 353,436 $ - $ 494,549 $ 847,985 $ 332,302 $ - $ 448,581 $ 780,883
Retail
3,187 - 35,640 38,827 3,113 - 38,477 41,590
Wholesale
- 26,819 101,516 128,335 - 23,247 88,908 112,155
BloomNet services
- 54,757 - 54,757 - 52,366 - 52,366
Other
2,481 - - 2,481 2,588 - - 2,588
Corporate
- - - 472 - - - 845
Eliminations
- - - (1,176
)
- - - (1,202
)
Net revenues
$ 359,104 $ 81,576 $ 631,705 $ 1,071,681 $ 338,003 $ 75,613 $ 575,966 $ 989,225

Revenue by sales channel:
E-commerce revenues (combined online and telephonic) increased by ~~3.8%~~13.5% during the three months ended March ~~31, 2019,~~29, 2020, compared to the same period of the prior year, primarily as a result of growth within the Gourmet Foods & Gift Baskets segment of 31.6%, complemented by growth within the 1-800-Flowers.comConsumer Floral segment of 5.6%. During the three months ended March 29, 2020, the Company fulfilled approximately 3.5 million orders through its e-commerce sales channels (online and telephonic sales), an increase of 13.6% compared to the same period of the prior year, while average order value decreased 0.1% to $66.98.
E-commerce revenues (combined online and telephonic) increased by 8.6% during the nine months ended March 29, 2020, compared to the same period of the prior year, as a result of growth within the ~~Consumer Floral segment of 6.8%, partially offset by a decline in the~~ Gourmet Foods & Gift Baskets ~~segment~~and 1-800-Flowers.com Consumer Floral segments of ~~2.5%~~10.2% and 6.4%, ~~primarily due to the shift of the Easter holiday from the third quarter in fiscal 2018 to the fourth quarter in fiscal 2019. E-commerce revenues increased by 7.0% during~~respectively. During the nine months ended March 31, 2019, compared to the same period of the prior year, as a result of growth within the Consumer Floral segment of 8.4% and growth in the Gourmet Foods & Gift Baskets segment of 6.0%. During the three months ended March 31, 2019,29, 2020, the Company fulfilled approximately ~~3,047,000~~10.9 million orders through its e-commerce sales channels (online and telephonic sales), ~~a decrease~~an increase of ~~0.9%~~7.8% compared to the same period of the prior year, while average order value increased ~~4.7%~~0.7%, to ~~$67.07,~~$77.62, during the ~~three~~nine months ended March ~~31, 2019,~~29, 2020, compared to the same period of the prior year, primarily due to product sales and segment mix shift due to the timing of the Easter Holiday. During the nine months ended March 31, 2019, the Company fulfilled approximately 10,130,000 orders through its e-commerce sales channels (online and telephonic sales), an increase of 4.6% compared to the same period of the prior year, while average order value increased 2.3%, to $77.08 during the comparative period.year.

Other revenues are comprised of the Company’s BloomNet Wire Service segment, as well as the wholesale and retail channels of its 1-800-Flowers.comConsumer Floral and Gourmet ~~Food~~Foods & Gift Baskets segments. Other revenues increased by ~~5.7%~~6.5% during the three months ended March ~~31, 2019,~~29, 2020, compared to the same period of the prior year, due to growth within the ~~BloomNet Wire Service segment of 15%, partially offset by a decline in the~~ Gourmet Foods & Gift Baskets segment of ~~9.3%, primarily due to the Easter shift.~~ 6.7% and BloomNet Wire Service segment of 7.9%.
Other revenues increased by ~~8.4%~~7.4% during the nine months ended March ~~31, 2019,~~29, 2020, compared to the same period of the prior year, driven primarily ~~as a result of~~by growth within the ~~Bloomnet and~~ Gourmet Foods & Gift Baskets ~~segments~~segment of ~~17.0%~~7.7% and ~~4.3%, respectively.~~BloomNet Wire Service segment of 7.9%.

20
18
Table of Contents

Revenue by segment:
1-800-Flowers.com Consumer Floral – this segment, ~~includes~~which consists primarily of the operations of the 1-800-Flowers.com brand, ~~which~~ derives revenue from the sale of consumer floral products through its e-commerce sales channels (telephonic and online sales), retail stores, and royalties from its franchise operations. Net revenues increased ~~6.7%~~5.4% and ~~8.2%,~~6.2% during the three and nine months ended March ~~31, 2019,~~29, 2020, compared to the same periods of the prior year, ~~due to volume growth in both holiday and “everyday” gifting occasions, such as Birthday, Sympathy, Get-well, and Thank-you, driven in part by~~reflecting the ~~Company’s investments in~~ strategic marketing and merchandising ~~programs designed~~investments that we have been making in the Company’s flagship brand, resulting in strong growth during the Valentine’s Day holiday period, partially offset by softer demand in the last few weeks of the quarter due to ~~accelerate growth and increase market share.~~the impact of the COVID-19 crisis.

BloomNet Wire Service ~~-revenues~~- revenues in this segment are derived from membership fees, as well as other product and service offerings to florists. Net revenues increased ~~15.0% and 17.0%~~7.9% during both the three and nine months ended March ~~31, 2019, respectively,~~29, 2020, compared to the same periods of the prior year, primarily due to increasing demand for our expanded line of wholesale products, as well as higher services ~~revenues,~~revenue, including ~~membership, reciprocity, clearinghouse,~~digital directory and transaction fees ~~driven~~(driven primarily by increased 1-800-Flowers and ~~florist-to-florist orders~~Shari’s Berries order volume sent through the ~~network, as well as an increase~~network), partially offset by softer demand in ~~wholesale product volume.~~the last few weeks of the quarter due to the impact of the COVID-19 crisis.

Gourmet ~~Food~~Foods & Gift Baskets – this segment includes the operations of Harry & David, Wolferman’s, ~~Stockyards,~~Stock Yards, Cheryl’s Cookies, The Popcorn Factory, 1-800-Baskets/DesignPac, and ~~1-800-Baskets/DesignPac.~~Shari’s Berries (acquired on August 14, 2019). Revenue is derived from the sale of gourmet fruits, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, gift baskets, dipped berries, and prime steaks and chops through the Company’s e-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Harry & David and Cheryl’s brand names, as well as wholesale operations. Net revenues ~~decreased 3.8%~~increased 27.1% and 9.7% during the three and nine months ended March ~~31, 2019,~~29, 2020, compared to the same ~~period~~periods of the prior year primarily due ~~to the Easter holiday shift, partially offset by~~to: (i) Harry & David growth which continues to benefit from the digital transformation of its marketing programs as well as its expanded product offerings of unique, shareable gifts for both holiday (seasonal fruits and ~~1-800-Baskets~~bakery) and everyday occasions, as well as Harry & David’s Gourmet line, which includes prepared meals and wines for both gifting and entertaining, which is enabling the brand to attract new customers while also deepening engagement with existing customers, (ii) strong growth in ~~“everyday” occasions. Net revenues~~the DesignPac wholesale business due to increased ~~5.6% during~~demand fueled by new product designs and an expanded customer list, and (iii) the acquisition of Shari’s Berries on August 14, 2019. Revenues for the three months ended March 29, 2020 also benefitted slightly from favorable e-commerce buying patterns late in the quarter due to COVID-19, although the impact will primarily be reflected in Q4 when product is shipped. Results for the nine months ended March ~~31, 2019, compared~~29, 2020 were negatively impacted by the shortened holiday shopping season caused by the late Thanksgiving/Cyber Monday, which resulted in 6 fewer shopping days between Thanksgiving and Christmas in the second quarter of fiscal 2020 in comparison to the ~~same period of the~~ prior year attributable to: (i) strong growth at Harry & David, driven by improved merchandising assortments, increased investments in digital marketing programs, which contributed to new customer growth, and its “Share More” messaging which resonated with customers; and (ii) strong growth in the 1-800-Baskets/DesignPac business due to increased demand from new and existing wholesale customers, as well as e-commerce demand for the Simply Chocolates line of products, partially offset by the impact of the Easter holiday.year.

Gross profit

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

March 31, 2019

April 1, 2018

% Change

March 31, 2019

April 1, 2018

% Change

March 29, 2020

March 31, 2019

% Change

March 29, 2020

March 31, 2019

% Change

(dollars in thousands)

(dollars in thousands)

Gross profit
$ 97,520 $ 93,455 4.3
%
$ 420,887 $ 395,992 6.3
%
$ 107,452 $ 97,520 10.2
%
$ 452,770 $ 420,887 7.6
%
Gross profit %
39.3
%
39.2
%
42.5
%
42.9
%
38.5
%
39.3
%
42.2
%
42.5
%

Gross profit consists of net revenues less cost of revenues, which is comprised primarily of florist fulfillment costs (fees paid directly to florists), the cost of floral and non-floral merchandise sold from inventory or through third parties, and associated costs, including inbound and outbound shipping charges. Additionally, cost of revenues includes labor and facility costs related to direct-to-consumer and wholesale production operations, as well as payments made to sending florists related to order volume sent through the Company’s BloomNet network.

Gross profit increased ~~4.3%~~10.2% and ~~6.3%~~7.6% during the three and nine months ended March ~~31, 2019, respectively,~~29, 2020, compared to the same periods of the prior year, ~~due to~~as a result of the increase in revenues noted ~~above.~~above, partially offset by a decrease in gross profit percentage. Gross profit percentage ~~increased 10~~declined 80 and 30 basis points, to 38.5% and 42.2%, during the respective three and nine months ended March ~~31, 2019,~~29, 2020, compared to the same ~~period~~periods of the prior year, as a result of ~~lower promotional activity,~~product mix, combined with macro-economic headwinds including: (i) rising labor and ~~reduced~~ transportation costs, ~~due~~(ii) tariffs, and (iii) increased costs associated with the changes we have made, and continue to ~~logistics initiatives,~~make, to our manufacturing, warehouse and distribution facilities to provide for the safety and wellbeing of our associates in light of COVID-19, including: required social distancing, enhanced facility cleaning and sanitizing schedules, and staggered production shifts. These headwinds have been partially offset by ~~BloomNet’s lower gross margin percentage due to sales mix. Gross profit percentage decreased 40 basis points during~~ the ~~nine months ended March 31, 2019 compared to the same period of the prior year, reflecting BloomNet’s lower gross margin percentage, as well as rising seasonal labor costs,~~Company’s strategic pricing initiatives and the growth of our Celebrations Passport free shipping program, partially offset by Gourmet Food & Gift Baskets logistics initiatives, which reduced per order transportation costs, as well as manufacturing initiatives including automation and shifting some production to earlier in the season to better utilize our core workforce.operational productivity improvements.

1-800-Flowers.com Consumer Floral segment - Gross profit increased by ~~4.8%~~6.4% and ~~6.4%~~7.1% during the three and nine months ended March ~~31, 2019, respectively,~~29, 2020, compared to the same periods of the prior year, as a result of the revenue increases noted ~~above, partially offset by a decrease in gross~~above. Gross profit percentage ~~of 70~~increased 40 basis points and 30 basis points, to 39.3% and 39.1%, during ~~both periods in comparison~~the respective three and nine months ended March 29, 2020, compared to the ~~respective~~same periods of the prior ~~year. The lower gross profit percentages reflect higher~~year, primarily due to efficient use of promotional pricing programs, partially offset by increased product ~~costs, an increased Celebrations Passport program participation, which has improved customer loyalty~~ and ~~purchase frequency, and increased~~ transportation costs.

BloomNet Wire Service segment - Gross profit increased by ~~8.8%~~2.3% and ~~7.4%~~5.8% during the three and nine months ended March ~~31, 2019, respectively,~~29, 2020, compared to the same periods of the prior year, due to the increase in revenues noted above, partially offset by a ~~decrease~~decline in gross ~~profit~~margin percentage of ~~290~~260 and ~~450~~100 basis points, to ~~49.9%~~47.3% and ~~50.7%~~49.7%, ~~respectively. The lower gross profit percentages are~~respectively, due to product sales mix associated with the ~~mix~~ impact ~~resulting from the increase in the volume~~ of ~~lower margin florist-to-florist orders~~COVID-19 on membership and transaction ~~fee margins.~~fees, combined with the significant increase in wholesale product revenues and the impact of tariffs on product cost.

Gourmet ~~Food~~Foods & Gift Baskets segment - Gross profit increased by ~~1.2%~~22.8% and 8.3% during the three and nine months ended March ~~31, 2019,~~29, 2020, compared to the same period of the prior year, due to improved margins, partially offset by the decrease in revenue due to the Easter shift as noted above. Gross profit percentage increased 180 basis points to 35.6% during the three months ended March 31, 2019, reflecting logistics initiatives to reduce shipping and transportation costs, combined with strategic pricing initiatives. Gross profit increased 6.1% during the nine months ended March 31, 2019, compared to the same periodperiods of the prior year, due to the revenue increase ~~in revenues~~ noted above, ~~as well as increased margins. Gross~~partially offset by gross profit percentage ~~increased 20~~which decreased 120 basis points to ~~43.5%~~34.4%, and 50 basis points to 43.0% during the three months ended and nine months ended March ~~31, 2019, due~~29, 2020 compared to logistics initiatives which reduced shipping and transportation costs, combined with strategic pricing initiatives, and improved operational performance at Cheryl’s, partially offset by rising labor costs, and penetrationthe same periods of the ~~Celebrations Passport program.~~prior year, primarily as a result of product mix and the input cost increases described above.
21
Table of Contents

Marketing and sales expense

Three Months Ended

Nine Months Ended

Three Months Ended

Nine months Ended

March 31, 2019

April 1, 2018

% Change

March 31, 2019

April 1, 2018

% Change

March 29, 2020

March 31, 2019

% Change

March 29, 2020

March 31, 2019

% Change

(dollars in thousands)

(dollars in thousands)

Marketing and sales
$ 71,163 $ 68,215 4.3
%
$ 243,781 $ 231,708 5.2
%
$ 78,606 $ 71,163 10.5
%
$ 262,849 $ 243,781 7.8
%
Percentage of net revenues
28.6
%
28.6
%
24.6
%
25.1
%
28.2
%
28.6
%
24.5
%
24.6
%

Marketing and sales expense consists primarily of advertising and promotional expenditures, catalog costs, online portal and search costs, retail store and fulfillment operations (other than costs included in cost of revenues) and customer service center expenses, as well as the operating expenses of the Company’s departments engaged in marketing, selling and merchandising activities.

Marketing and sales expense increased ~~4.3%~~10.5% and ~~5.2%~~7.8% during the three and nine months ended March ~~31, 2019,~~29, 2020, compared to the same periods of the prior year, primarily due to increased advertising spend within the ~~Consumer Floral and~~ Gourmet ~~Food~~Foods & Gift Baskets and 1-800-Flowers.comConsumer Floral segments, ~~as a result of~~due to the Company’s incremental marketing efforts designed to accelerate revenue growth and capture market share, ~~coupled with an increase in performance-based bonuses~~partially offset by operational efficiencies and ~~timing of catalog amortization due~~platform leverage attributable to the ~~adoption of ASC 606. Increased efficiency around our digital marketing programs generated strong~~ revenue ~~growth, which in turn, enabled us to leverage our platform, while automation initiatives in our service centers drove lower customer service costs.~~growth. As a result, ~~despite the shift of the Easter Holiday,~~ marketing and sales as a percentage of net revenues ~~during~~decreased 40 basis points, to 28.2% for the three months ended March ~~31, 2019, was consistent with prior year at 28.6%,~~29, 2020, and decreased ~~by 50~~10 basis points, to ~~24.6%~~24.5%, ~~during~~for the nine months ended March ~~31, 2019 compared~~29, 2020, in comparison to the same ~~period~~periods of the prior year.
The variances above include the impact of the adoption of ASC 606, which requires that the costs of producing and distributing the Company’s catalogs be expensed upon mailing, instead of being capitalized and amortized in direct proportion to the actual sales. During the three months ended March 31, 2019, assuming we had not adopted the new revenue standard, “Marketing and sales” expense, within our statement of operations, would have been approximately $1.6 million higher. During the nine months ended March 31, 2019, assuming we had not adopted the new revenue standard, “Marketing and sales” expense, within our statement of operations, would have been approximately $0.4 million higher.
19
~~Table of Contents~~
Technology and development expense

Three Months Ended

Nine Months Ended

Three Months Ended

Nine months Ended

March 31, 2019

April 1, 2018

% Change

March 31, 2019

April 1, 2018

% Change

March 29, 2020

March 31, 2019

% Change

March 29, 2020

March 31, 2019

% Change

(dollars in thousands)

(dollars in thousands)

Technology and development
$ 11,511 $ 10,241 12.4
%
$ 32,696 $ 29,086 12.4
%
$ 11,900 $ 11,511 3.4
%
$ 34,436 $ 32,696 5.3
%
Percentage of net revenues
4.6
%
4.3
%
3.3
%
3.2
%
4.3
%
4.6
%
3.2
%
3.3
%

Technology and development expense consists primarily of payroll and operating expenses of the Company’s information technology group, costs associated with its websites, including hosting, design, content development and maintenance and support costs related to the Company’s order entry, customer service, fulfillment and database systems.

Technology and development expenses increased ~~12.4%~~3.4% and 5.3% during the three and nine months ended March ~~31, 2019, respectively,~~29, 2020, compared to the same periods of the prior year, primarily due to increased license and maintenance costs required to support the Company’s technology platform as well ~~an increase in labor~~as increased hosting costs due to ~~annual merit increases and an increase in performance-based bonuses.~~higher usage of cloud storage applications.
General and administrative expense

Three Months Ended

Nine Months Ended

Three Months Ended

Nine months Ended

March 31, 2019

April 1, 2018

% Change

March 31, 2019

April 1, 2018

% Change

March 29, 2020

March 31, 2019

% Change

March 29, 2020

March 31, 2019

% Change

(dollars in thousands)

(dollars in thousands)

General and administrative
$ 22,447 $ 19,553 14.8
%
$ 64,480 $ 58,128 10.9
%
$ 20,031 $ 22,447 (10.8
%)
$ 64,187 $ 64,480 (0.5
%)
Percentage of net revenues
9.0
%
8.2
%
6.5
%
6.3
%
7.2
%
9.0
%
6.0
%
6.5
%

General and administrative expense consists of payroll and other expenses in support of the Company’s executive, finance and accounting, legal, human resources and other administrative functions, as well as professional fees and other general corporate expenses.

General and administrative expense ~~increased 14.8%~~decreased 10.8% and ~~10.9%~~0.5% during the three and nine months ended March ~~31, 2019, respectively,~~29, 2020, compared to the same periods of the prior year, primarily due to ~~an increase in~~lower labor costs, ~~related~~attributable to ~~performance-based bonuses, as well as an increase~~a decrease in the value of Non-Qualified Deferred Compensation Plan (NQ Plan) investments ~~(increase offset~~(offset by an equal decrease in ~~Other (income) expense net line item~~other income on the financials statement – see below)., and lower insurance costs due to favorable claims experience, partially offset by higher transaction costs associated with the planned acquisition of PersonalizationMall.com. Adjusted to exclude the impact of the decrease in the value of the NQ Plan investments and the PersonalizationMall.com transaction costs, general and administrative expenses would have been $21.7 million and $64.9 million during the three and nine months ended March 29, 2020, representing increases of 2.7% and 1.2% over the respective prior year periods.

Depreciation and amortization expense

Three Months Ended

Nine Months Ended

Three Months Ended

Nine months Ended

March 31, 2019

April 1, 2018

% Change

March 31, 2019

April 1, 2018

% Change

March 29, 2020

March 31, 2019

% Change

March 29, 2020

March 31, 2019

% Change

(dollars in thousands)

(dollars in thousands)

Depreciation and amortization
$ 7,028 $ 7,885 (10.9
%)
$ 22,840 $ 24,646 (7.3
%)
$ 7,803 $ 7,028 11.0
%
$ 23,268 $ 22,840 1.9
%
Percentage of net revenues
2.8
%
3.3
%
2.3
%
2.7
%
2.8
%
2.8
%
2.2
%
2.3
%

Depreciation and amortization expense during the three and nine months ended March ~~31, 2019, decreased 10.9%~~29, 2020 increased 11.0% and ~~7.3%~~1.9%, respectively, compared to the same periods of the prior year, primarily as ~~certain~~result of short-lived ~~assets were fully depreciated/amortized in~~capital expenditures to support the ~~first half~~Company’s IT infrastructure, but was consistent as a percentage of ~~fiscal 2019.~~revenues.
22
Table of Contents

Interest (income) expense, net

Three Months Ended

Nine Months Ended

March 31, 2019

April 1, 2018

% Change

March 31, 2019

April 1, 2018

% Change

(dollars in thousands)

Interest (income) expense, net
$ (30 ) $ 662 104.5
%
$ 2,390 $ 2,919 18.1
%

Three Months Ended

Nine months Ended

March 29, 2020

March 31, 2019

% Change

March 29, 2020

March 31, 2019

% Change

(dollars in thousands)

Interest (income) expense, net
$ 147 $ (30
)
590.0
%
$ 1,727 $ 2,390 (27.7
%)

Interest (income) expense, net consists primarily of interest expense and amortization of deferred financing costs attributable to the Company’s ~~2016 Amended Credit Agreement~~credit facility (See Note 8 - Debt,, in Item 1.1. for details), net of income earned on the Company’s available cash balances.

Interest (income) expense, net ~~decreased 104.5% and 18.1%~~increased during the three ~~and nine~~ months ended March ~~31, 2019, respectively,~~29, 2020, compared to the same ~~periods~~period of the prior year, due to ~~higher invested~~lower interest income on available cash ~~balances~~balance, as a result of the Federal Reserve’s March 2020 rate reduction to counteract the impact of COVID-19. Interest (income) expense, net decreased 27.7% during the nine months ended March 29, 2020, compared to the same period of the prior year, due to lower borrowings outstanding, and ~~associated~~a lower interest rate resulting from the 2019 Credit Agreement amendment, partially offset by lower rates earned on ~~these balances, combined with a declining~~ outstanding ~~Term Loan balance, partially offset by increasing interest rates on the Company’s variable rate Revolver.~~cash balances.

Other (income) expense, net

Three Months Ended

Nine Months Ended

March 31, 2019

April 1, 2018

% Change

March 31, 2019

April 1, 2018

% Change

(dollars in thousands)

Other (income) expense, net
$ (1,285 ) $ 31 4,245.2
%
$ (293
)
$ (315
)
(7.0
%)

Three Months Ended

Nine months Ended

March 29, 2020

March 31, 2019

% Change

March 29, 2020

March 31, 2019

% Change

(dollars in thousands)

Other (income) expense, net
$ 2,605 $ (1,285
)
302.7
%
$ 1,714 $ (293
)
685.0
%

Other ~~income,~~expense, net for the three and nine months ended March ~~31, 2019~~29, 2020 consists primarily of investment ~~(gains) losses of the Company’s Non-Qualified Deferred Compensation Plan assets.~~
~~Other income, net for the three and nine months ended April 1, 2018 consists primarily of investment (gains) of~~loss on the Company’s Non-Qualified Deferred Compensation Plan assets ~~partially offset by a $0.2~~of approximately $2.6 million ~~impairment related to~~and $1.7 million, respectively, whereas in the ~~Company’s equity method~~prior year there was investment ~~in Flores Online (see~~ ~~Note 7 - Investmentsabove).~~
20
~~Table~~income of ~~Contents~~
$1.3 million and $0.3 million, respectively.

Income Taxes

The Company recorded anincome tax benefit of $4.0 million and expense of $15.4 million, during the three and nine months ended March 29, 2020, respectively, and income tax benefit of $5.1 million and ~~$4.7 million during the three months ended March 31, 2019 and April 1, 2018, respectively, and~~ income tax expense of $11.9 million, ~~and $0.8 million~~ during ~~the nine months ended March 31, 2019 and April 1, 2018, respectively. The Company’s effective tax rate for~~ the three and nine months ended March 31, 2019, respectively. The Company’s effective tax rate from operations for the three and nine months ended March 29, 2020 was 29.2% and 23.8% respectively, compared to 38.1% and 21.7% ~~respectively, compared to 35.6% and 1.6%~~ in the same periods of the prior year. The effective tax rates for fiscal 2020 and fiscal 2019 differed from the U.S. federal statutory rate of 21% due to state income taxes and nondeductible expenses for executive compensation, ~~which were~~ partially offset by various permanent differences and tax credits, including ~~increased~~ excess tax benefits from stock-based compensation. The effective rates for fiscal 2018 differed from the transitional U.S. federal tax rate of 28.0% due to a tax benefit of $12.2 million, or $0.18 per diluted share, recognized during the second quarter of fiscal 2018, reflecting a revaluation of deferred tax liabilities at the lower U.S. federal statutory rate of 21% as a result of the Tax Act (see ~~Note 1~~ – Accounting Policies above), and various permanent differences, tax credits, and return to provision adjustments related to the filing of the Company’s fiscal 2017 tax return, partially offset by state income taxes. At March ~~31, 2019,~~29, 2020, the Company has an unrecognized tax benefit, including ~~an immaterial amount of~~ accrued interest and penalties, of approximately ~~$0.6~~$0.9 million. The Company believes that ~~$0.1~~$0.2 million of unrecognized tax positions will be resolved over the next twelve months.

Liquidity and Capital Resources

Liquidity and borrowings

The Company's principal sources of liquidity are cash on hand, cash flows generated from operations and borrowings available under the ~~2016 Amended~~2019 Credit Agreement (see Note 8 - Debtin Item 1 for details). At March ~~31, 2019,~~29, 2020, the Company had working capital of ~~$179.9~~$185.0 million, including cash and cash equivalents of ~~$206.4~~$232.1 million, compared to working capital of ~~$148.2~~$175.7 million, including cash and cash equivalents of ~~$147.2~~$172.9 million, at ~~July 1, 2018. As of~~June 30, 2019. The March ~~31, 2019, there were no borrowings outstanding under the Company’s~~29, 2020 working capital ~~Revolver.~~ was negatively impacted by $9.5 million due the establishment of an operating lease liability (current portion) on the balance sheet in the first quarter of fiscal 2020 as a result of the adoption of ASC 842.
Due to the seasonal nature of the Company’s business, ~~and its continued expansion into non-floral products,~~ the Thanksgiving through Christmas holiday season, which falls within its second fiscal quarter, generates nearly 50% of the Company’s annual revenues, and all of its earnings. ~~As a result,~~The Company utilized cash on hand to fund operations through September 2019. In October 2019, the Company borrowed under its Revolver to fund short-term working capital needs, with borrowings peaking at $20.0 million in November 2019. Cash generated from operations during the ~~second quarter is~~Christmas holiday shopping season enabled the Company to repay the Revolver prior to the end of December 2019. Based on current projected cashflows, the Company believes that available cash balances are expected to be sufficient to provide for the Company’s operating needs ~~until the second quarter of~~through fiscal ~~2020, when the Company expects to borrow against its Revolver to fund pre-holiday manufacturing and inventory purchases.~~2021.

WeWhile we believe that our sources of funding will be sufficient to meet our anticipated operating cash needs for at least the next twelve ~~months. However,~~months, any projections of future cash needs and cash flows are subject to substantial uncertainty. We continually evaluate, ~~opportunities to repurchase common stock~~ and we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to require additional financing.

Our sources and uses of cash were not materially impacted by COVID-19 for the quarter ended March 29, 2020 and, to date, we have not identified any material liquidity deficiencies as a result of the COVID-19 pandemic. Based on the information currently available to us, we do not expect the impact of COVID-19 to have a material impact on our liquidity. We will continue to monitor and assess the impact COVID-19 may have on our business and financial results. See Part II. Item 1A. “Risk Factors” and Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.
Cash Flows

Net cash provided by operating activities of ~~$97.0~~$117.3 million, for the nine months ended March ~~31, 2019,~~29, 2020, was primarily attributable to the Company’s net income during the period, adjusted by non-cash charges for depreciation/amortization and stock based compensation, ~~as well as~~combined with seasonal changes in working capital, including increases in accounts payable and accrued expenses, and reductions in inventory, partially offset by increases in receivables.

Net cash used in investing activities of ~~$16.8~~$44.0 million, for the nine months ended March ~~31, 2019,~~29, 2020, was primarily attributable to the acquisition of Shari’s Berries for $20.5 million, capital expenditures of $22.3 million related to the Company's technology initiatives and Gourmet ~~Food~~Foods & Gift Baskets segment manufacturing production and warehousing equipment, and ~~orchard planting equipment.~~the purchase of equity investments of $1.2 million.

Net cash used in financing activities of ~~$21.0~~$14.2 million, for the nine months ended March ~~31, 2019~~29, 2020, was primarily due to ~~Term Loan~~net bank repayments of ~~$7.2~~$3.8 million and the acquisition of ~~$14.8~~$10.7 million of treasury ~~stock, partially offset by $0.9 million in proceeds from exercise of employee stock options.~~stock.

23
Table of Contents
Stock Repurchase Program

The Company has a stock repurchase plan through which purchases can be made from time to time in the open market and through privately negotiated transactions, subject to general market conditions. The repurchase program is financed utilizing available cash. On August 30, 2017, the Company’s Board of Directors authorized an increase to its stock repurchase plan of up to $30.0 million. As of March 31, 2019, $5.2 million remained authorized under the plan. See Item 2 in Part II below for details.

Contractual Obligations

~~There have been no material changes outside the ordinary course of business related to~~At March 29, 2020, the Company’s contractual obligations ~~as discussed in the Annual Report on Form 10-K for the year ended July 1, 2018.~~consist of:
●
Long-term debt obligations - payments due under the Company's 2019 Credit Agreement (see Note 8 - Debt in Item 1 for details).
●
Operating lease obligations – payments due under the Company’s long-term operating leases (see Note 13 - Leases in Item 1 for details).
●
Purchase commitments - consisting primarily of inventory and IT related equipment purchase orders and license agreements made in the ordinary course of business – see below for the contractual payments due by period.

Payments due by period

(in thousands)

Remaining Fiscal 2020

Fiscal 2021

Fiscal 2022

Fiscal 2023

Fiscal 2024

Thereafter

Total

Purchase commitments
$ 37,722 $ 24,163 $ 6,845 $ 4,725 $ 1,170 $ - $ 74,625

Critical Accounting Policies and Estimates

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended ~~July 1, 2018,~~June 30, 2019, the discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements of 1-800-FLOWERS.COM, Inc., which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, and management evaluates its estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. The Company’s most critical accounting policies relate to ~~revenue recognition, accounts receivable, inventory,~~ goodwill, other intangible ~~assets and long-lived~~ assets and income taxes. There have been no significant changes to the assumptions and estimates related to the Company’s critical accounting policies, since ~~July 1, 2018,~~June 30, 2019, except for the adoption of ASC ~~606~~842 (see Note 1 - Accounting Policies in Item 1 above for details).

Recently Issued Accounting Pronouncements

~~A discussion of recently issued accounting pronouncements, both adopted and yet to be adopted, is included in~~See Note 1 - Accounting Policies in Item 1 for details regarding the impact of ~~this Quarterly Report~~accounting standards that were recently issued on ~~Form 10-Q.~~our consolidated financial statements.
21
~~Table of Contents~~

Forward Looking Information and Factors that May Affect Future Results

Our disclosure and analysis in this report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s current expectations or beliefs concerning future events and can generally be identified by the use of statements that include words such as “estimate,” “project,” “believe,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “goal,” “target” or similar words or phrases. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control that could cause actual results to differ materially from the results expressed or implied in the forward-looking statements, including:

●
the Company’s ability:

o
to achieve revenue and profitability;

o
to leverage its operating platform and reduce operating expenses;

o
to manage the increased seasonality of its business;

o
to cost effectively acquire and retain customers;

o
to effectively integrate and grow acquired companies;

o
to reduce working capital requirements and capital expenditures;

o
to compete against existing and new competitors;

o
to manage expenses associated with sales and marketing and necessary general and administrative and technology investments; and

o
to cost ~~efficiently~~effectively manage inventories;
●
the outcome of contingencies, including legal proceedings in the normal course of business; and
●
general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company’s ~~products.~~products; and
●
the impact of COVID-19 on our business and financial statements.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Annual Report on Form 10-K filing for the fiscal year ended ~~July 1, 2018~~June 30, 2019 listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Cautionary Statements Under the Private Securities Litigation Reform Act of 1995”. We incorporate that section of that Form 10-K in this filing and investors should refer to it. In addition, please refer to additional risk factors in Part II, Item 1A in this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from the effect of interest rate changes.

Interest Rate Risk

The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment of available cash balances and its long-term debt. The Company generally invests its cash and cash equivalents in investment grade corporate and U.S. government securities. Due to the currently low rates of return the Company is receiving on its cash equivalents, the potential for a significant decrease in short-term interest rates is low and, therefore, a further decrease would not have a material impact on the Company’s interest income. Borrowings under the Company’s ~~2016 Amended~~2019 Credit Agreement bear interest at a variable rate, plus an applicable margin, and therefore expose the Company to market risk for changes in interest rates. The effect of a 50 basis point increase in current interest rates on the Company’s interest expense would be approximately $0.1 million and $0.4 million during the three and nine months ended March ~~31, 2019, respectively.~~29, 2020.
24
Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of March ~~31, 2019.~~29, 2020. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March ~~31, 2019.~~29, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the Company’s evaluation required by Rules 13a-15(d) or 15d-15(d) of the Securities Exchange Act of 1934 during the quarter ended March ~~31, 2019,~~29, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. To the extent our normal procedures and controls related to our financial close or other reporting processes were adversely impacted by the COVID-19 outbreak, we took appropriate actions and safeguards to reasonably ensure the fair presentation of the financial statements in accordance with GAAP.

PART II. – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Litigation

~~There~~Bed Bath & Beyond:
On April 1, 2020, Bed Bath & Beyond Inc. (“Bed Bath”) commenced an action against the Company in the Court of Chancery for the State of Delaware, which is captioned Bed Bath & Beyond Inc. v. 1-800-Flowers.com, et ano., C.A. (the “Complaint”), alleging a breach of the Equity Purchase Agreement (the “Agreement”), dated February 14, 2020, between Bed Bath, PersonalizationMall.com, LLC (“Personalization Mall”), the Company and a subsidiary of the Company (the “Purchaser”) pursuant to which Bed Bath agreed to sell to Purchaser, and the Purchaser agreed to purchase from Bed Bath, all of the issued and outstanding membership interests of Personalization Mall. The action was initiated after the Company requested a reasonable delay in the closing under the Agreement due to the unprecedented circumstances created by the COVID-19 pandemic. The Complaint requests an order of specific performance to consummate the transaction under the Agreement plus attorney’s fees and costs in connection with the action. The Company filed its answer to the Complaint on April 17, 2020 and an order governing expedited proceedings was approved on April 9, 2020 that sets a trial date for late September. The Company intends to vigorously defend itself against this lawsuit and no assurance can be given as to the ultimate outcome of this matter. At this time the proceedings are in the very early stages, and we are unable to determine or estimate the amount of possible loss or range of loss.
In addition, there are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ~~ultimate~~final resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS.

~~There were no material changes~~The following additional risk factor related to COVID-19 should be read in conjunction with the Company’s risk factors as discussed in Part 1, Item 1A-Risk Factors in the Company’s Annual Report on Form 10-K for the year ended ~~July 1, 2018~~June 30, 2019. The developments described in this additional risk factor have heightened, or in some cases manifested, certain of the risks disclosed in the risk factor section of our previously filed Form 10-K, and such risk factors are further qualified by the information relating to COVID-19 that is described in this Form 10-Q, including in the additional risk factor below. Except as described herein, there have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the year ended June 30, 2019.

The impact of the spread of COVID-19 is creating significant uncertainty for our business, financial condition and results of operations and for the prices of our publicly traded securities.
The extent of the impact of the COVID-19 pandemic on our business and financial results will depend on numerous evolving factors that we are not able to accurately predict and which will vary by market, including the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.
Our operations expose us to risks associated with the COVID-19 pandemic, which has resulted in challenging operating environments. COVID-19 has spread across the globe to the countries and states in which we do business. Authorities in many of these markets have implemented numerous measures to stall the spread of COVID-19, including travel bans and restrictions, quarantines, curfews, shelter in place orders, and business shutdowns. These measures have impacted and will further impact us and our business partners (such as customers, employees, suppliers, franchisees, florists and other third parties with whom we do business). There is considerable uncertainty regarding how these measures and future measures in response to the pandemic will impact our business, including whether they will result in further changes in demand for our products, further increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs or otherwise), how they will further impact our supply chain and whether they will result in further reduced availability of air or other commercial transport, port closures or border restrictions, each or all of which can impact our ability to make, manufacture, distribute and sell our products. In addition, measures that impact our ability to access our offices, plants, warehouses, distribution centers or other facilities, or that impact the ability of our business partners to do the same, may impact the availability of our and their employees, many of whom are not able to perform their job functions remotely. If a significant percentage of our or our business partners’ workforce is unable to work, our operations will be negatively impacted. Any sustained interruption in our or our business partners’ operations, distribution network or supply chain or any significant continuous shortage of raw materials or other supplies as a result of these measures, restrictions or disruptions can impair our ability to make, manufacture, distribute or sell our products.
Compliance with governmental measures imposed in response to COVID-19 has caused and may continue to cause us to incur additional costs, and any inability to comply with such measures can subject us to restrictions on our business activities, fines, and other penalties, any of which can adversely affect our business. The continuation of the COVID-19 pandemic and various governmental responses may continue to restrict our ability to carry on business development activities and business-related travel, and our sales activity may be adversely affected. In addition, the increase in certain of our employees working remotely has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured, and any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely affect our business.
25
22
Table of Contents
Public concern regarding the risk of contracting COVID-19 impacts demand from customers, including due to customers not leaving their homes or otherwise shopping in a different manner than they historically have or because some of our customers have lower discretionary income due to unemployment or reduced or limited work as a result of measures taken in response to the pandemic. As we sell a wide variety of products, the profile of the products we sell and the amount of revenue attributable to such products varies by jurisdiction and changes in demand as a result of COVID-19 will vary in scope and timing across these markets. In addition, changes in consumer purchasing and consumption patterns may result in changes in demand for our products, thereby impacting our earnings. Any reduced demand for our products or change in customers purchasing and consumption patterns, as well as continued economic uncertainty, can adversely affect our customers’ and business partners’ financial condition, resulting in an inability to pay for our products, reduced or canceled orders of our products, closing of florist or franchise locations, stores, or our business partners’ inability to supply us with ingredients or other items necessary for us to make, manufacture, distribute or sell our products. Such adverse changes in our customers’ or business partners’ financial condition may also result in our recording impairment charges for our inability to recover or collect any accounts receivable, owned or leased assets, or prepaid expenses. In addition, economic uncertainty associated with the COVID-19 pandemic has resulted in volatility in the global capital and credit markets, and in foreign currency exchange rates, commodity prices, and interest rates, which can impair our ability to access these markets on terms commercially acceptable to us, or at all. Even after the COVID-19 global pandemic has subsided, we may experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future.
While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols in an effort to try to mitigate the negative impact of COVID-19 on our employees and our business, there can be no assurance that we will be successful in our efforts, and as a result, our business, financial condition and results of operations and the prices of our publicly traded securities may be adversely affected.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company has a stock repurchase plan through which purchases can be made from time to time in the open market and through privately negotiated transactions, subject to general market conditions. The repurchase program is financed utilizing available cash. On ~~August 30, 2017,~~June 27, 2019, the Company’s Board of Directors authorized an increase to its stock repurchase plan of up to $30.0 million. As of March ~~31, 2019, $5.2~~29, 2020, $19.3 million remained authorized under the plan.

The following table sets forth, for the months indicated, the Company’s purchase of common stock during the ~~first~~ nine months of fiscal ~~2019,~~2020, which includes the period July ~~2, 2018~~1, 2019 through March ~~31, 2019:~~29, 2020:

Period

Total Number of
Shares Purchased

Average Price
Paid Per Share (1)

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Dollar Value of Shares
that May Yet Be Purchased
Under the Plans or Programs

(in thousands, except average price paid per share)

07/02/18 - 07/29/18
- $ - - $ 19,997
07/30/18 - 08/26/18
- $ - - $ 19,997
08/27/18 - 09/30/18
345.6 $ 11.66 345.6 $ 15,957
10/01/18 – 10/28/18
318.4 $ 11.12 318.4 $ 12,409
10/29/18 – 11/25/18
346.0 $ 12.70 346.0 $ 8,010
11/26/18 – 12/30/18
115.0 $ 12.31 115.0 $ 6,591
12/31/18 – 01/27/19
90.0 $ 12.80 90.0 $ 5,436
01/28/18 – 02/24/19
15.3 $ 13.34 15.3 $ 5,231
02/25/19 – 03/31/19
- - - $ 5,231
Total
1,230.3 $ 11.98 1,230.3
Period

Total Number of
Shares Purchased

Average Price
Paid Per Share (1)

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Dollar Value of Shares
that May Yet Be Purchased
Under the Plans or Programs

(in thousands, except average price paid per share)

07/01/19 - 07/28/19
- $ - - $ 30,000
07/29/19 - 08/25/19
- $ - - $ 30,000
08/26/19 - 09/29/19
2,113 $ 14.85 2,113 $ 29,969
09/30/19 - 10/27/19
- $ - - $ 29,969
10/28/19 - 11/24/19
158,750 $ 13.24 158,750 $ 27,867
11/25/19 - 12/29/19
210,000 $ 13.76 210,000 $ 24,970
12/30/19 - 01/26/20
270,000 $ 14.43 270,000 $ 21,065
01/27/20 - 02/23/20
112,941 $ 15.30 112,941 $ 19,333
02/24/20 - 03/29/20
- $ - - $ 19,333
Total
753,804 $ 14.13 753,804
(1)(1) Average price per share excludes commissions and other transaction fees.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.
26
Table of Contents

ITEM 6. EXHIBITS

2.1 ~~3.2~~ ~~Second Amended~~Equity Purchase Agreement dated as of February 14, 2020, by an among 1-800-Flowers.com, Inc., 800-Flowers, Inc. PersonalizationMall.com, LLC, and ~~Restated By-Laws~~Bed Bath & Beyond Inc. (Current Report on Form ~~8-k~~8-K filed on ~~April 29, 2019,~~February 18, 2020, Exhibit 3.2)**2.1).
31.1
~~31.1~~
Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2
~~31.2~~
Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1
~~32.1~~
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS
~~101.INS~~
XBRL Instance Document
101.SCH
~~101.SCH~~
XBRL Taxonomy Extension Schema Document
101.CAL
~~101.CAL~~
XBRL Taxonomy Calculation Linkbase Document
101.DEF
~~101.DEF~~
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
~~101.LAB~~
XBRL Taxonomy Extension Label Document
101.PRE
~~101.PRE~~
XBRL Taxonomy Definition Presentation Document
* Filed herewith.
** Incorporated by reference to exhibits or appendices previously filed with the Securities and Exchange Commission, as indicated by the reference in brackets.
27
23
Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

1-800-FLOWERS.COM, Inc.
(Registrant)

Date:      May ~~10, 2019~~8, 2020
/s/ Christopher G. McCann
Christopher G. McCann
Chief Executive Officer,
Director and President
(Principal Executive Officer)

Date:      May ~~10, 2019~~8, 2020
/s/ William E. Shea
William E. Shea
Senior Vice President, Treasurer and
Chief Financial Officer (Principal
Financial and Accounting Officer)

28
24

	Shari’s Berries Preliminary Purchase Price Allocation
	(in thousands)
Current assets	$	1,029
Intangible assets		7,540
Goodwill		12,121
Total assets acquired		20,690

Current liabilities		190
Net assets acquired	$	20,500

	1-800-Flowers.com Consumer Floral		BloomNet Wire Service		Gourmet Food & Gift Baskets		Total
	(in thousands)
Balance at March 31, 2019 and July 1, 2018	$	17,441	$	-	$	45,149	$	62,590

	1-800-Flowers.com Consumer Floral		BloomNet Wire Service		Gourmet Foods & Gift Baskets		Total
	(in thousands)
Balance at June 30, 2019	$	17,441	$	-	$	45,149	$	62,590
Acquisition of Shari’s Berries		-		-		12,121		12,121
Balance at March 29, 2020	$	17,441	$	-	$	57,270	$	74,711

Remainder of 2020	$	3,195
2021		11,683
2022		10,313
2023		9,905
2024		9,455
Thereafter		44,897
Total Future Minimum Lease Payments		89,448
Less Imputed Remaining Interest		15,673
Total	$	73,775

2020	$	16,588
2021		13,490
2022		12,081
2023		9,957
2024		9,498
Thereafter		44,953
Total Future Minimum Lease Payments	$	106,567

Reconciliation of net income (loss) to adjusted net income (loss) (non-GAAP):	Three Months Ended						Nine Months Ended
	March 29, 2020			March 31, 2019			March 29, 2020			March 31, 2019
	(in thousands, except per share data)

Net income (loss)	$	(9,657	)	$	(8,241	)	$	49,224		$	43,071
Adjustments to reconcile net income (loss) to adjusted net income (loss) (non-GAAP)
Add: Personalization Mall transaction costs		911			-			911			-
Deduct: Income tax (benefit) on transaction costs		(217	)		-			(217	)		-
Adjusted net income (loss) (non-GAAP)	$	(8,963	)	$	(8,241	)	$	49,918		$	43,071

Basic and diluted net income (loss) per common share
Basic	$	(0.15	)	$	(0.13	)	$	0.76		$	0.67
Diluted	$	(0.15	)	$	(0.13	)	$	0.74		$	0.65


Basic and diluted adjusted net income (loss) per common share (non-GAAP)
Basic	$	(0.14	)	$	(0.13	)	$	0.77		$	0.67
Diluted	$	(0.14	)	$	(0.13	)	$	0.75		$	0.65


Weighted average shares used in the calculation of net income (loss) and adjusted net income (loss) per common share
Basic		64,348			64,194			64,517			64,383
Diluted		64,348			64,194			66,378			66,456

	b)	Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.
	c)	The adjustment to deduct the U.S. tax reform impact from Net Income includes the impact of the re-valuation of the Company’s deferred tax liability of $12.2 million, or $0.18 per diluted share, as a result of the Tax Act, but does not include the ongoing impact of the lower federal corporate tax rate.

●	Long-term debt obligations - payments due under the Company's 2019 Credit Agreement (see Note 8 - Debt in Item 1 for details).
●	Operating lease obligations – payments due under the Company’s long-term operating leases (see Note 13 - Leases in Item 1 for details).
●	Purchase commitments - consisting primarily of inventory and IT related equipment purchase orders and license agreements made in the ordinary course of business – see below for the contractual payments due by period.

	Payments due by period
	(in thousands)
	Remaining Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024		Thereafter		Total
Purchase commitments	$	37,722	$	24,163	$	6,845	$	4,725	$	1,170	$	-	$	74,625

	●	general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company’s ~~products.~~products; and
●	the impact of COVID-19 on our business and financial statements.

Period	Total Number of Shares Purchased		Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
	(in thousands, except average price paid per share)

07/02/18 - 07/29/18		-	$	-		-	$	19,997
07/30/18 - 08/26/18		-	$	-		-	$	19,997
08/27/18 - 09/30/18		345.6	$	11.66		345.6	$	15,957
10/01/18 – 10/28/18		318.4	$	11.12		318.4	$	12,409
10/29/18 – 11/25/18		346.0	$	12.70		346.0	$	8,010
11/26/18 – 12/30/18		115.0	$	12.31		115.0	$	6,591
12/31/18 – 01/27/19		90.0	$	12.80		90.0	$	5,436
01/28/18 – 02/24/19		15.3	$	13.34		15.3	$	5,231
02/25/19 – 03/31/19		-		-		-	$	5,231
Total		1,230.3	$	11.98		1,230.3

2.1	~~3.2~~	~~Second Amended~~Equity Purchase Agreement dated as of February 14, 2020, by an among 1-800-Flowers.com, Inc., 800-Flowers, Inc. PersonalizationMall.com, LLC, and ~~Restated By-Laws~~Bed Bath & Beyond Inc. (Current Report on Form ~~8-k~~8-K filed on ~~April 29, 2019,~~February 18, 2020, Exhibit 3.2)**2.1).
31.1	~~31.1~~	Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	~~31.2~~	Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1	~~32.1~~	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS	~~101.INS~~	XBRL Instance Document
101.SCH	~~101.SCH~~	XBRL Taxonomy Extension Schema Document
101.CAL	~~101.CAL~~	XBRL Taxonomy Calculation Linkbase Document
101.DEF	~~101.DEF~~	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	~~101.LAB~~	XBRL Taxonomy Extension Label Document
101.PRE	~~101.PRE~~	XBRL Taxonomy Definition Presentation Document

	1-800-FLOWERS.COM, Inc. (Registrant)
Date: May ~~10, 2019~~8, 2020	/s/ Christopher G. McCann Christopher G. McCann Chief Executive Officer, Director and President (Principal Executive Officer)

Date: May ~~10, 2019~~8, 2020	/s/ William E. Shea William E. Shea Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)