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FLWS 1-800 Flowers.com

Filed: 5 Feb 21, 12:09pm
 

 

 

 

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended December 27, 2020

 

or 

 

☐  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

 

The number of shares outstanding of each of the Registrant’s classes of common stock as of January 29, 2021:

 

Class A common stock:

36,693,449

Class B common stock:

28,153,614

 

 

Table of Contents

 

 

 

 

 

1-800-FLOWERS.COM, Inc.

FORM 10-Q

For the quarterly period ended December 27, 2020

TABLE OF CONTENTS

 

 

 

 

 

Page

 

Part I.

Financial Information

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

 

1

 

 

Condensed Consolidated Balance Sheets – December 27, 2020 (Unaudited) and June 28, 2020

 

 

1

 

 

Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) – Three and Six Months Ended December 27, 2020 and December 29, 2019

 

 

2

 

 

Condensed Consolidated Statements of Stockholder’s Equity (Unaudited) – Three and Six Months Ended December 27, 2020 and December 29, 2019

 

 

3

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended December 27, 2020 and December 29, 2019

 

 

4

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

5

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

14

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

22

 

Item 4.

Controls and Procedures

 

 

23

 

 

 

 

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

 

 

23

 

Item 1A.

Risk Factors

 

 

23

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

23

 

Item 3.

Defaults upon Senior Securities

 

 

23

 

Item 4.

Mine Safety Disclosures

 

 

23

 

Item 5.

Other Information

 

 

23

 

Item 6.

Exhibits

 

 

24

 

 

 

 

 

 

 

Signatures

 

 

25

 

 

 

 

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)

 

  

December 27, 2020

  

June 28, 2020

 
  

(unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents

 $370,586  $240,506 

Trade receivables, net

  72,590   15,178 

Inventories

  89,389   97,760 

Prepaid and other

  30,879   25,186 

Total current assets

  563,444   378,630 
         

Property, plant and equipment, net

  197,598   169,075 

Operating lease right-of-use assets

  88,096   66,760 

Goodwill

  208,048   74,711 

Other intangibles, net

  140,672   66,273 

Other assets

  24,402   18,986 

Total assets

 $1,222,260  $774,435 
         

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Accounts payable

 $104,965  $25,306 

Accrued expenses

  285,822   141,741 

Current maturities of long-term debt

  15,000   5,000 

Current portion of long-term operating lease liabilities

  10,953   8,285 

Total current liabilities

  416,740   180,332 
         

Long-term debt

  170,912   87,559 

Long-term operating lease liabilities

  81,308   61,964 

Deferred tax liabilities

  27,244   28,632 

Other liabilities

  28,448   16,174 

Total liabilities

  724,652   374,661 
         

Commitments and contingencies (See Note 13 and Note 14)

          
         

Stockholders’ equity:

        

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued

  0   0 

Class A common stock, $0.01 par value, 200,000,000 shares authorized, 55,166,476 and 53,704,477 shares issued at December 27, 2020 and June 28, 2020, respectively

  551   537 

Class B common stock, $0.01 par value, 200,000,000 shares authorized, 33,433,614 and 33,822,823 shares issued at December 27, 2020 and June 28, 2020, respectively

  334   338 

Additional paid-in-capital

  364,411   358,031 

Retained earnings

  271,438   167,523 

Accumulated other comprehensive loss

  (244

)

  (243

)

Treasury stock, at cost, 18,509,689 and 17,963,551 Class A shares at December 27, 2020 and June 28, 2020, respectively, and 5,280,000 Class B shares at December 27, 2020 and June 28, 2020, respectively

  (138,882

 

)

  (126,412

 

)

Total stockholders’ equity

  497,608   399,774 

Total liabilities and stockholders’ equity

 $1,222,260  $774,435 

  

See accompanying Notes to Condensed Consolidated Financial Statements.

 

1

Table of Contents

 

 

 

 

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

Condensed Consolidated Statements of Income and Comprehensive Income

(in thousands, except for per share data)

(unaudited)

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

December 27, 2020

  

December 29, 2019

 
                 

Net revenues

 $877,256  $605,642  $1,161,028  $792,905 

Cost of revenues

  479,010   336,470   647,302   447,587 

Gross profit

  398,246   269,172   513,726   345,318 

Operating expenses:

                

Marketing and sales

  194,696   127,404   274,981   184,243 

Technology and development

  14,053   11,733   25,656   22,536 

General and administrative

  30,835   22,634   59,048   44,156 

Depreciation and amortization

  11,060   7,830   19,900   15,465 

Total operating expenses

  250,644   169,601   379,585   266,400 

Operating income

  147,602   99,571   134,141   78,918 

Interest expense, net

  1,927   985   2,967   1,580 

Other (income) expense, net

  (2,257

)

  (975

)

  (3,256

)

  (891

)

Income before income taxes

  147,932   99,561   134,430   78,229 

Income tax expense

  34,255   25,409   30,515   19,348 

Net income

  113,677   74,152   103,915   58,881 

Other comprehensive income (loss) (currency translation & other miscellaneous items)

  (1)  16   (1)  16 

Comprehensive income

 $113,676  $74,168  $103,914  $58,897 
                 

Basic net income per common share

 $1.76  $1.15  $1.61  $0.91 
                 

Diluted net income per common share

 $1.71  $1.12  $1.56  $0.89 
                 

Weighted average shares used in the calculation of net income per common share:

                

Basic

  64,728   64,687   64,524   64,595 

Diluted

  66,543   66,401   66,593   66,486 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

2

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 December 27, 2020 and December 29, 2019

 
  

Common Stock

  

Additional

  

Retained

  

Accumulated

          

Total

 
  

Class A

  

Class B

  

Paid-in

  

Earnings

  

Other

  

Treasury Stock

  

Stockholders’

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

      

Comprehensive Loss

  

Shares

  

Amount

  

Equity

 

Balance at September 27, 2020

  54,053,730  $541   33,638,614  $336  $360,643  $157,761  $(243)  23,279,906  $(127,500) $391,538 

Net income

  -   0   -   0   0   113,677   0   -   0   113,677 

Translation adjustment

  -   0   -   0   0   0   (1)  -   0   (1)

Stock-based compensation

  554,924   5   0   0   2,960   0   0   0   0   2,965 

Exercise of stock options

  352,822   3   0   0   808   0   0   0   0   811 

Conversion – Class B into Class A

  205,000   2   (205,000)  (2)  0   0   0   0   0   0 

Acquisition of Class A treasury stock

  0   0   0   0   0   0   0   509,783   (11,382)  (11,382)

Balance at December 27, 2020

  55,166,476  $551   33,433,614  $334  $364,411  $271,438  $(244)  23,789,689  $(138,882) $497,608 
                                         

Balance at September 29, 2019

  53,216,294  $532   33,822,823  $338  $351,304  $93,254  $(269

)

  22,491,206  $(115,763

)

 $329,396 

Net income

  -   0   -   0   0   74,152   0   -   0   74,152 

Translation adjustment

  -   0   -   0   0   0   16   -   0   16 

Stock-based compensation

  437,625   4   -   0   2,276   0   0   0   0   2,280 

Exercise of stock options

  25,000   0   0   0   63   0   0   0   0   63 

Acquisition of Class A treasury stock

  0   0   0   0   0   0   0   368,750   (4,999

)

  (4,999

)

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 

 

  

Six Months Ended December 27, 2020 and December 29, 2019

 
  

Common Stock

  

Additional

  

Retained

  

Accumulated

          

Total

 
  

Class A

  

Class B

  

Paid-in

  

Earnings

  

Other

  

Treasury Stock

  

Stockholders’

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

      

Comprehensive Loss

  

Shares

  

Amount

  

Equity

 

Balance at June 28, 2020

  53,704,477  $537   33,822,823  $338  $358,031  $167,523  $(243)  23,243,551  $(126,412) $399,774 

Net income

      0       0   0   103,915   0       0   103,915 

Translation adjustment

  -   0   -   0   0   0   (1)  -   0   (1)

Stock-based compensation

  643,590   6   0   0   5,352   0   0   0   0   5,358 

Exercise of stock options

  429,200   4   0   0   1,028   0   0   0   0   1,032 

Conversion – Class B into Class A

  389,209   4   (389,209)  (4

)

  0   0   0   0   0   0 

Acquisition of Class A treasury stock

  0   0   0   0   0   0   0   546,138   (12,470)  (12,470)

Balance at December 27, 2020

  55,166,476  $551   33,433,614  $334  $364,411  $271,438  $(244)  23,789,689  $(138,882) $497,608 
                                         

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

  -   0   -   0   0   58,881   0   -   0   58,881 

Translation adjustment

  -   0   -   0   0   0   16   -   0   16 

Stock-based compensation

  444,792   4   0   0   4,041   0   0   0   0   4,045 

Exercise of stock options

  150,000   2   0   0   283   0   0  ��0   0   285 

Acquisition of Class A treasury stock

  0   0   0   0   0   0   0   370,863   (5,030

)

  (5,030)

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 

See accompanying Notes to Condensed Consolidated Financial Statements.

3


Table of Contents

 

 

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

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

  

Six months ended

 
  

December 27, 2020

  

December 29, 2019

 
         

Operating activities:

        

Net income

 $103,915  $58,881 

Adjustments to reconcile net loss to net cash used in operating activities:

        

Depreciation and amortization

  19,900   15,465 

Amortization of deferred financing costs

  545   325 

Deferred income taxes

  (1,388

)

  (1,003

)

Bad debt expense

  341   731 

Stock-based compensation

  5,358   4,045 

Other non-cash items

  (321

)

  (187

)

Changes in operating items:

        

Trade receivables

  (56,372

)

  (32,918

)

Inventories

  25,369   25,358 

Prepaid and other

  (1,937

)

  1,021 

Accounts payable and accrued expenses

  212,340   90,166 

Other assets and liabilities

  8,897   272 

Net cash provided by operating activities

  316,647   162,156 
         

Investing activities:

        

Acquisitions, net of cash acquired

  (250,943

)

  (20,500

)

Capital expenditures, net of non-cash expenditures

  (15,708

)

  (10,712

)

Purchase of equity investments

  (1,285

)

  (1,001

)

Net cash used in investing activities

  (267,936

)

  (32,213

)

         

Financing activities:

        

Acquisition of treasury stock

  (12,470

)

  (5,030

)

Proceeds from exercise of employee stock options

  1,032   285 

Proceeds from bank borrowings

  265,000   20,000 

Repayment of notes payable and bank borrowings

  (170,000

)

  (22,500

)

Debt issuance cost

  (2,193

)

  (60

)

Net cash provided by (used in) financing activities

  81,369   (7,305

)

         

Net change in cash and cash equivalents

  130,080   122,638 

Cash and cash equivalents:

        

Beginning of period

  240,506   172,923 

End of period

 $370,586  $295,561 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

4

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. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended December 27, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 27, 2021. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 28, 2020, 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, historically generated nearly 50% of the Company’s annual revenues, and all of its earnings. However, with the onset of the pandemic of the novel strain of coronavirus (“COVID-19”), the Company experienced a significant increase in its revenues and earnings during its fourth quarter of fiscal 2020. These trends have continued through the first four weeks of its fiscal 2021 third quarter. Our customers have increasingly turned to our brands and our expanded product offerings to help them connect and express themselves during the recent COVID-19 pandemic and our “everyday” gifting product line has seen increased volume. While the continuing impacts of COVID-19 are difficult to predict, the Company expects that its fiscal second quarter will continue to be its largest in terms of revenues and earnings, although increases in the Company’s “everyday” business have and are expected to continue to lessen the seasonality of our business. Due to 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 in comparison to its fiscal first 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 COVID-19, 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 and six months ended December 27, 2020.

 

The Company is closely monitoring the impact of 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 December 27, 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 three and six months ended December 27, 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

 

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 June 28, 2020 was $25.9 million (included in “Accrued expenses” on our consolidated balance sheets), of which, $8.7 million and $23.7 million was recognized as revenue during the three and six months ended December 27, 2020. The deferred revenue balance as of December 27, 2020 was $61.8 million.  

 

5


Table of Contents

 

Recently Issued Accounting Pronouncements - 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. We adopted ASU 2016-13 for the Company’s fiscal 2021 (quarter ending September 27, 2020), using the modified-retrospective approach. There was no material 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. We adopted this guidance for the Company’s fiscal 2021 (quarter ending September 27, 2020), on a prospective basis. There was no material impact of adopting this guidance on our consolidated financial statements. 

 

 

Note 2Net Income Per Common Share

 

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

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

December 27, 2020

  

December 29, 2019

 
  

(in thousands, except per share data)

 

Numerator:

                

Net income

 $113,677  $74,152  $103,915  $58,881 
                 

Denominator:

                

Weighted average shares outstanding

  64,728   64,687   64,524   64,595 

Effect of dilutive securities:

                

Employee stock options

  824   997   951   1,046 

Employee restricted stock awards

  991   717   1,118   845 
   1,815   1,714   2,069   1,891 
                 

Adjusted weighted-average shares and assumed conversions

  66,543   66,401   66,593   66,486 
                 

Net income per common share

                

Basic

 $1.76  $1.15  $1.61  $0.91 

Diluted

 $1.71  $1.12  $1.56  $0.89 

 

 

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 June 28, 2020, 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

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

December 27, 2020

  

December 29, 2019

 
  

(in thousands)

 

Stock options

 $9  $28  $18  $93 

Restricted stock

  2,956   2,252   5,340   3,952 

Total

  2,965   2,280   5,358   4,045 

Deferred income tax benefit

  785   300   1,388   1,003 

Stock-based compensation expense, net

 $2,180  $1,980  $3,970  $3,042 

 

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

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

December 27, 2020

  

December 29, 2019

 
    (in thousands) 

Marketing and sales

 $1,367  $1,047  $2,511  $1,863 

Technology and development

  226   173   417   292 

General and administrative

  1,372   1,060   2,430   1,890 

Total

 $2,965  $2,280  $5,358  $4,045 

 

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

 

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Stock Options

 

The following table summarizes stock option activity during the six months ended December 27, 2020:

 

  

 

 

Options

  

Weighted Average

Exercise Price

  

Weighted Average Remaining Contractual Term

  

Aggregate Intrinsic Value

 
          

(in years)

  

(in thousands)

 

Outstanding at June 28, 2020

  1,230,000  $2.77         

Granted

  0  $0         

Exercised

  (429,200) $2.41         

Forfeited

                

Outstanding at December 27, 2020

  800,800  $2.97   1.0  $18,475 
                 

Exercisable at December 27, 2020

  785,800  $2.63   0.9  $18,396 

 

As of December 27, 2020, the total future compensation cost related to non-vested options, not yet recognized in the statement of income, was $0.1 million and the weighted average period over which these awards are expected to be recognized was 3.9 years.

 

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 six months ended December 27, 2020:

 

  

 

Shares

  

Weighted Average Grant Date Fair Value

 

Non-vested at June 28, 2020

  1,608,468  $12.01 

Granted

  701,311  $21.83 

Vested

  (643,590) $11.05 

Forfeited

  (29,949) $19.80 

Non-vested at December 27, 2020

  1,636,240  $16.46 

 

The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of December 27, 2020, there was $19.4 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over the weighted-average remaining period of 1.9 years.  

 

 

Note 4 – Acquisition

 

Acquisition of PersonalizationMall

 

On February 14, 2020, 1-800-Flowers.com, Inc., 800-Flowers, Inc., a wholly-owned subsidiary of 1-800-Flowers.com, Inc. (the “Purchaser”), PersonalizationMall.com, LLC ("PersonalizationMall"), and Bed Bath & Beyond Inc. (“Seller”), entered into an Equity Purchase Agreement (the “Purchase Agreement”) pursuant to which Seller agreed to sell to the Purchaser, and the Purchaser agreed to purchase from Seller, all of the issued and outstanding membership interests of PersonalizationMall for $252.0 million in cash (subject to certain working capital and other adjustments). On July 20, 2020, Purchaser, PersonalizationMall, and Seller entered into an amendment (the “Amendment”) to the Purchase Agreement to, among other things, amend the purchase price to $245.0 million (subject to certain working capital and other adjustments). On August 3, 2020, the Company completed its acquisition of PersonalizationMall, including its newly renovated, leased 360,000 square foot, state-of-the-art production and distribution facility, as well as customer database, tradenames and website. After working capital and related adjustments, total consideration paid was approximately $250.9 million.

 

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 fair values assigned to PersonalizationMall’s tangible and intangible assets and liabilities assumed are considered preliminary and are based on the information that was available as of the date of the acquisition. The Company is in the process of finalizing its allocation and this may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain additional intangible assets, revisions of useful lives of intangible assets, establishment of potential acquisition contingencies, and the determination of any residual amount that will be allocated to goodwill. As additional information becomes available, the preliminary purchase price allocation may be revised during the remainder of the measurement period, which will not exceed 12 months from the acquisition date. Any such revisions or changes may be material.

 

The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed:

 

  

PersonalizationMall’s Preliminary Purchase Price Allocation

 
  

(in thousands)

 

Assets Acquired:

    

Inventories

 $16,998 

Other assets

  5,216 

Property, plant and equipment

  30,792 

Operating lease right-of-use assets

  21,438 

Goodwill

  133,337 

Other intangibles

  76,000 

Total assets acquired

 $283,781 
     

Liabilities assumed:

    

Accounts payable and accrued expenses

 $11,400 

Operating lease liabilities

  21,438 

Total liabilities assumed

  32,838 
     

Net assets acquired

 $250,943 

 

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The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. The estimates and assumptions include the projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows.

 

Acquired inventory, consisting of raw materials and supplies, 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.

 

Property, plant and equipment was valued at book value (cost less accumulated depreciation and amortization), due to the nature of the assets, which included recently acquired production equipment and leasehold improvements for PersonalizationMall's production facility, which became operational in September 2019.

 

Based on the valuation as of August 3, 2020, of the acquired intangible assets, $11.0 million was assigned to customer lists (4 years life), $65.0 million was assigned to tradenames (indefinite life), and the residual amount of $133.3 million was allocated to Goodwill (indefinite life and deductible for tax purposes). The goodwill recognized in conjunction with the Purchaser’s acquisition of PersonalizationMall 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. It also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce.

 

The estimated fair value of the acquired trade names 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 PersonalizationMall's weighted average cost of capital, the riskiness of the earnings stream association 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.

 

As required by ASC 805, “Business Combinations,” the following unaudited pro forma financial information for the three and six months ended December 27, 2020 and December 29, 2019, give effect to the PersonalizationMall acquisition as if it had been completed on July 1, 2019. The unaudited pro forma financial information is prepared by management for informational purposes only in accordance with ASC 805 and is not necessarily indicative of or intended to represent the results that would have been achieved had the acquisition been consummated as of the dates presented, and should not be taken as representative of future consolidated results of operations. The unaudited pro forma financial information does not reflect any operating efficiencies and/or cost savings that the Company may achieve with respect to the combined companies. The pro forma information has been adjusted to give effect to nonrecurring items that are directly attributable to the acquisition.

 

  

Three months ended December 27, 2020

  

Three months ended December 29, 2019

  

Six months ended December 27, 2020

  

Six months ended December 29, 2019

 
  

(in thousands)

 

Net Revenues

 $877,256  $687,596  $1,177,021  $896,297 

Net Income

  114,071   83,084   110,289   66,443 

 

The unaudited pro forma amounts above include the following adjustments:

 

 

-  

A decrease of operating expenses by $0.5 and $5.4 million during the three and six months ended December 27, 2020, to eliminate transaction and litigation costs directly related to the transaction that do not have a continuing impact on operating results. 

 

-

An increase of operating expenses by $0.2 million during the six months ended December 27, 2020 and $0.7 million and $1.4 million during the three and six months ended December 29, 2019, respectively,  to reflect the additional amortization expense related to the increase in definite lived intangible assets. 

 

An increase in interest expense of $0.6 million during the six months ended December 27, 2020 and $1.0 and $2.1 million during the three and six months ended December 29, 2019, respectively, which is comprised of incremental interest and amortization of deferred financing costs associated with the New Term Loan (as defined below). The interest rate used for the purposes of these pro forma statements, of 3.5%, was the rate in effect at loan inception.  

 

The combined pro forma results were tax effected using the Company's effective tax rate for the respective periods   

                                 

Net revenue attributable to PersonalizationMall, included within the three and six month periods ended December 27, 2020, was $122.2 million and $142.6 million, and corresponding operating income during the periods, excluding litigation and transaction costs, was $24.3 million and $25.4 million.

 

Acquisition of Shari’s Berries

 

On August 14, 2019, the Company completed its acquisition of the Shari’s Berries business ("Shari's Berries"), a leading provider of dipped berries and other specialty treats, through a bankruptcy proceeding of certain assets of the gourmet food business of the FTD Companies, Inc. The transaction, for a purchase price of $20.5 million, included the Shari’s Berries domain names, copyrights, trademarks, customer data, phone numbers and other intellectual property, as well as certain raw material inventory and the assumption of specified liabilities.

 

During the quarter ended June 28, 2020, the Company finalized the allocation of the purchase price to the identifiable assets acquired and liabilities assumed based on its estimates of their fair values on the acquisition date. 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 $12.1 million was assigned to goodwill, which is expected to be deductible for tax purposes. The goodwill recognized in conjunction with our acquisition of 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.

 

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The following table summarizes the allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition:

 

  

Shari’s Berries 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 

 

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:

 

  

December 27, 2020

  

June 28, 2020

 
  

(in thousands)

 

Finished goods

 $37,030  $35,779 

Work-in-process

  10,864   16,536 

Raw materials

  41,495   45,445 

Total inventory

 $89,389  $97,760 

 

 

Note 6 – Goodwill and Intangible Assets

 

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

 

  

Consumer Floral & Gifts

  

BloomNet

  

Gourmet Foods &

Gift Baskets

  

Total

 
  

(in thousands)

 

Balance at June 28, 2020

 $17,441  $0  $57,270  $74,711 

Acquisition of PersonalizationMall

  133,337   0   0   133,337 

Balance at December 27, 2020

 $150,778  $0  $57,270  $208,048 

 

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

 

      

December 27, 2020

  

June 28, 2020

 
  

Amortization Period

  

Gross Carrying Amount

  

Accumulated Amortization

  

Net

  

Gross Carrying Amount

  

Accumulated Amortization

  

Net

 
  

(in years)

  

(in thousands)

 

Intangible assets with determinable lives

                            

Investment in licenses

  14-16  $7,420  $6,306  $1,114  $7,420  $6,253  $1,167 

Customer lists

  2-10   23,825   11,972   11,853   12,825   10,474   2,351 

Other

  5-14   2,946   2,432   514   2,946   2,382   564 

Total intangible assets with determinable lives

      34,191   20,710   13,481   23,191   19,109   4,082 

Trademarks with indefinite lives

      127191   -   127,191   62,191   -   62,191 

Total identifiable intangible assets

     $161,382  $20,710  $140,672  $85,382  $19,109  $66,273 

 

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 2021 - $1.8 million, fiscal 2022 - $3.3 million, fiscal 2023 - $3.3 million, fiscal 2024 - $3.3 million, fiscal 2025 - $0.8 million and thereafter - $1.0 million.

 

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Note 7 – Investments

 

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 $4.1 million as of December 27, 2020 and $2.8 million as of June 28, 2020. 

 

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:

  

December 27, 2020

  

June 28, 2020

 
  

(in thousands)

 

Revolver (1)

 $0  $0 

Term Loans (1)

  190,000   95,000 

Deferred financing costs

  (4,088

)

  (2,441

)

Total debt

  185,912   92,559 

Less: current debt

  15,000   5,000 

Long-term debt

 $170,912  $87,559 

 

(1)

On May 31, 2019, the Company and certain of its U.S. subsidiaries 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 December 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 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 based on the Company’s consolidated leverage ratio, where the base rate is the highest of (a) the prime rate, (b) the New York fed bank rate plus 0.5%, and (c) a LIBOR rate plus 1%, or (2) an adjusted LIBOR rate plus an applicable margin varying based on the Company’s consolidated leverage ratio.

 

On August 20, 2020, the Company, the Subsidiary Guarantors, JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders entered into a First Amendment (the “First Amendment”) to the 2019 Credit Agreement. The First Amendment amends the 2019 Credit Agreement (together the "2020 Credit Agreement”) to, among other modifications, (i) increase the aggregate principal amount of the existing Revolver commitments from $200.0 million to $250.0 million, (ii) establish a new tranche of term A-1 loans in an aggregate principal amount of $100.0 million (the “New Term Loan”), (iii) increase the working capital sublimit with respect to the Revolver from $175.0 million to $200.0 million, and (iv) increase the seasonally-reduced Revolver commitments from $100.0 million to $125.0 million for the period from January 1 through August 1 for each fiscal year of the Company. The New Term Loan will mature on May 31, 2024. Proceeds of the borrowing under the New Term Loan may be used for working capital and general corporate purposes of the Company and its subsidiaries, subject to certain restrictions. For each borrowing under the 2020 Credit Agreement, the Company may elect that such borrowing bear interest at an annual rate equal to either (1) a base rate plus the applicable margin for the relevant class of borrowing, which such margins vary based on the Company’s consolidated leverage ratio, where the base rate is the highest of (a) the prime rate, (b) the New York fed bank rate plus 0.5%, and (c) a LIBOR rate plus 1%, or (2) an adjusted LIBOR rate plus an applicable margin varying based on the Company’s consolidated leverage ratio. The New Term Loan is payable in 15 quarterly installments of principal and interest beginning on September 27, 2020, with escalating principal payments, at the rate of 5.0% per annum for the first four payments, and 10.0% per annum for the remaining 11 payments, with the remaining balance of $67.5 million due upon maturity.

 

The 2020 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 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 December 27, 2020. The 2020 Credit Agreement is secured by substantially all of the assets of the Company.

  

Future principal payments under the Term Loan and New Term Loan are as follows: $5.0 million – remainder of fiscal 2021, $20.0 million - fiscal 2022, $20.0 million – fiscal 2023 and $145.0 million – fiscal 2024. 

 

 

Note 9 - Property, Plant and Equipment

 

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

 

  

December 27, 2020

  

June 28, 2020

 
  

(in thousands)

 

Land

 $30,789  $30,789 

Orchards in production and land improvements

  18,548   17,139 

Building and building improvements

  61,679   61,159 

Leasehold improvements

  25,669   13,675 

Production equipment

  78,040   57,904 

Furniture and fixtures

  7,995   7,444 

Computer and telecommunication equipment

  57,005   55,381 

Software

  162,304   151,264 

Capital projects in progress - orchards

  7,291   8,130 

Property, plant and equipment, gross

  449,320   402,885 

Accumulated depreciation and amortization

  (251,722

)

  (233,810

)

Property, plant and equipment, net

 $197,598  $169,075 

  

 

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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)

 
      

Level 1

  

Level 2

  

Level 3

 
  

(in thousands)

 

As of December 27, 2020:

                

Trading securities held in a “rabbi trust” (1)

 $18,617  $18,617  $0  $0 

Total assets (liabilities) at fair value

 $18,617  $18,617  $0  $0 
                 

As of June 28, 2020:

                

Trading securities held in a “rabbi trust” (1)

 $13,442  $13,442  $0  $0 

Total assets (liabilities) at fair value

 $13,442  $13,442  $0  $0 

 

 

(1)

The Company has established a 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 six months ended December 27, 2020 was 23.2% and 22.7%, respectively, compared to 25.5% and 24.7% in the same periods of the prior year. The effective rates for fiscal 2021 and fiscal 2020 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 excess tax benefits from stock-based compensation.

 

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 2018, however, fiscal year 2019 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 2016. The Company's foreign income tax filings from fiscal 2015 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 December 27, 2020, the Company has an unrecognized tax benefit, including accrued interest and penalties, of approximately $1.2 million. The Company believes that $0.8 million of unrecognized tax positions will be resolved over the next twelve months.

 

 

Note 12 – Business Segments

 

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

 

•     Consumer Floral & Gifts,

•     BloomNet, and

•     Gourmet Foods & Gift Baskets

 

 

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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. Assets and liabilities are reviewed at the consolidated level by management and not accounted for by segment.

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

December 27, 2020

  

December 29, 2019

 

Net Revenues:

  

(in thousands) 

 

Segment Net Revenues:

                

Consumer Floral & Gifts

 $305,357  $115,716  $466,903  $206,484 

BloomNet

  34,051   25,722   66,789   51,162 

Gourmet Foods & Gift Baskets

  538,265   464,584   628,194   535,799 

Corporate

  135   165   241   360 

Intercompany eliminations

  (552

)

  (545

)

  (1,099

)

  (900

)

Total net revenues

 $877,256  $605,642  $1,161,028  $792,905 
                 

Operating Income:

                

Segment Contribution Margin:

                

Consumer Floral & Gifts

 $45,657  $10,890  $64,893  $19,414 

BloomNet

  12,141   9,134   22,562   17,491 

Gourmet Foods & Gift Baskets

  135,621   113,387   133,040   106,787 

Segment Contribution Margin Subtotal

  193,419   133,411   220,495   143,692 

Corporate (a)

  (34,757

)

  (26,010

)

  (66,454

)

  (49,309

)

Depreciation and amortization

  (11,060

)

  (7,830

)

  (19,900

)

  (15,465

)

Operating income

 $147,602  $99,571  $134,141  $78,918 

 

(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.

 

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

 

 

  

Three Months Ended

  

Three Months Ended

 
  

December 27, 2020

  

December 29, 2019

 
  

Consumer Floral & Gifts

  

BloomNet

  

Gourmet Foods & Gift Baskets

  

Consolidated

  

Consumer Floral & Gifts

  

BloomNet

  

Gourmet Foods & Gift Baskets

  

Consolidated

 

Net revenues

 

(in thousands)

 

E-commerce

 $303,275  $0  $474,535  $777,810  $113,858  $0  $373,226  $487,084 

Retail

  1,210   0   4,088   5,298   1,082   0   23,120   24,202 

Wholesale

  0   9,150   59,642   68,792   0   7,270   68,238   75,508 

BloomNet services

  0   24,901   0   24,901   0   18,452   0   18,452 

Other

  872   0   0   872   776   0   0   776 

Corporate

  0   0   0   135   0   0   0   165 

Eliminations

  0   0   0   (552

)

  0   0   0   (545

)

Net revenues

 $305,357  $34,051  $538,265  $877,256  $115,716  $25,722  $464,584  $605,642 

 

  

Six months ended

  

Six months ended

 
  

December 27, 2020

  

December 29, 2019

 
  

Consumer Floral & Gifts

  

BloomNet

  

Gourmet Foods & Gift Baskets

  

Consolidated

  

Consumer Floral & Gifts

  

BloomNet

  

Gourmet Foods & Gift Baskets

  

Consolidated

 

Net revenues

 

(in thousands)

 

E-commerce

 $463,067  $0  $553,606  $1,016,673  $202,946  $0  $413,188  $616,134 

Retail

  2,157   0   5,661   7,818   2,021   0   30,610   32,631 

Wholesale

  0   20,443   68,927   89,370   0   16,018   92,001   108,019 

BloomNet services

  0   46,346   0   46,346   0   35,144   0   35,144 

Other

  1,679   0   0   1,679   1,517   0   0   1,517 

Corporate

  0   0   0   241   0   0   0   360 

Eliminations

  0   0   0   (1,099

)

  0   0   0   (900

)

Net revenues

 $466,903  $66,789  $628,194  $1,161,028  $206,484  $51,162  $535,799  $792,905 

 

12

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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. 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 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

  

Six Months Ended

 
  

December 27, 2020

  

December 27, 2020

 
  

(in thousands)

 

Lease costs:

        

Operating lease costs

 $3,679  $7,026 

Variable lease costs

  5,451   9,650 

Short-term lease cost

  3,420   5,227 

Sublease income

  (201

)

  (406

)

Total lease costs

 $12,349  $21,497 

 

  

Six Months Ended

 
  

December 27, 2020

 
  

(in thousands)

 
     

Cash paid for amounts included in measurement of operating lease liabilities

 $6,507 

Right-of-use assets obtained in exchange for new operating lease liabilities

 $26,919 

 

  

December 27, 2020

 
  

(in thousands)

 

Weighted-average remaining lease term - operating leases

 

9.1 years

 

Weighted-discount rate - operating leases

  3.8

%

 

Maturities of lease liabilities in accordance with ASC 842 as of December 27, 2020 are as follows (in thousands):

 

Remainder of 2021

 $7,191 

2022

  13,916 

2023

  13,593 

2024

  13,047 

2025

  10,665 

Thereafter

  52,105 

Total Future Minimum Lease Payments

  110,517 

Less Imputed Remaining Interest

  18,256 

Total

 $92,261 

 

 

Note 14 – Commitments and Contingencies

 

Litigation

 

Bed Bath & Beyond

 

On April 1, 2020, the Seller 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 Seller, PersonalizationMall, the Company and the Purchaser, pursuant to which the Seller agreed to sell to Purchaser, and the Purchaser agreed to purchase from Seller, all of the issued and outstanding membership interests of PersonalizationMall. The action was initiated after the Company requested a reasonable delay in the closing under the Purchase Agreement due to the unprecedented circumstances created by COVID-19. The Complaint requested an order of specific performance to consummate the transaction under the Purchase 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 set a trial date for late September 2020.  On July 21, 2020, the Company and Seller entered into a settlement agreement, pursuant to which the Company agreed to move forward with its purchase of PersonalizationMall for $245.0 million, subject to certain working capital and other adjustments. The transaction closed on August 3, 2020. In connection with the settlement agreement, the parties executed a Stipulation and Proposed Order of Dismissal, resulting in the voluntary dismissal with prejudice of the litigation relating to the transaction.

 

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 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.

 

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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 June 28, 2020. 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,” under Part I, Item 1A, of the Company’s Annual Report on Form 10-K, for the year ended June 28, 2020 under the heading “Risk 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. The Company’s business platform features our all-star family of brands, including: 1-800-Flowers.com®, 1-800-Baskets.com®, Cheryl’s Cookies®, Harry & David®, PersonalizationMall.com®, Shari’s Berries®, FruitBouquets.com®, Moose Munch®, The Popcorn Factory®, Wolferman’s Bakery® and Simply Chocolate®. We also offer top-quality steaks and chops from 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. strives to deepen relationships with customers. The Company also operates BloomNet®, an international floral service provider offering a broad-range of products and services designed to help professional florists grow their businesses profitably; Napco℠, a resource for floral gifts and seasonal décor; and DesignPac Gifts, LLC, a manufacturer of gift baskets and towers.

 

1-800-FLOWERS.COM, Inc. was named in the Forbes 2021 Best Small Companies List.

 

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 June 28, 2020. 

 

Acquisition of PersonalizationMall

 

On August 3, 2020, the Company completed its acquisition of PersonalizationMall.com LLC ("PersonalizationMall"), a leading ecommerce provider of personalized products. The extensive offerings of PersonalizationMall include a wide variety of personalization processes such as sublimation, embroidery, digital printing, engraving and sandblasting, while providing an industry-leading customer experience based on a fully integrated business platform that includes a highly automated personalization process and rapid order fulfillment.

 

The Company used a combination of cash on its balance sheet and its existing credit facility to fund the $245.0 million purchase (subject to certain working capital and other adjustments), which included its newly renovated, leased 360,000 square foot, state-of-the-art production and distribution facility, as well as customer database, tradenames and website. PersonalizationMall’s revenues were approximately $171.2 million in its fiscal year 2020.

 

Amended Credit Agreement

 

Subsequent to, but in contemplation of the acquisition, on August 20, 2020, the Company entered into a First Amendment to its 2019 Credit Agreement to: (i) increase the aggregate principal amount of the existing Revolver commitments from $200.0 million to $250.0 million, (ii) establish a new tranche of term A-1 loans in an aggregate principal amount of $100.0 million (the “New Term Loan”), (iii) increase the working capital sublimit with respect to the Revolver from $175.0 million to $200.0 million, and (iv) increase the seasonally-reduced Revolver commitments from $100.0 million to $125.0 million for the period from January 1 through August 1 for each fiscal year of the Company. The $100.0 million proceeds of the New Term Loan were used to repay the $95.0 million borrowing that had been drawn on its existing Revolver to finance the acquisition, as well as financing fees of approximately $2.0 million (See Note 8 - Debt, in Item 1. for details). 

 

COVID-19 Impact

 

In response to the global pandemic, the Company has taken actions to promote 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, through the first four weeks of our third quarter of fiscal year 2021, we continue to see strong e-commerce demand for gourmet foods and gift baskets and our floral and personalized products. With that said, there are also 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 3rd, as the nation and the Company worked to understand the extent and potential length of the crisis. On April 14th, the difficult decision was made to permanently close 38 of our 39 Harry & David retail stores. As a result, the Company incurred a charge of approximately $5.2 million in our fourth quarter of fiscal year 2020 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 impacted our first and second quarter results within our Gourmet Foods and Gift Baskets segment, as many of our large wholesale customers took a cautious approach to the holiday season due to the uncertainty surrounding COVID-19 and its potential impact on brick and mortar retail store traffic.

 

Increased operating costs - we have seen third-party carrier capacity constraints and an associated increase in transportation costs, increases in seasonal labor wage rates, as well as operating inefficiencies and 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.

 

The scale and overall economic impact of the COVID-19 crisis is still very difficult to assess. However, 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.

 

 

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Table of Contents

 

Company Guidance

 

Due to the significant uncertainty in the overall economy related to the ongoing COVID-19 pandemic, the Company is not providing guidance for its full fiscal 2021 year at this time.

  

Regarding the fiscal third quarter:

 

 

o

Based on the continued strong ecommerce growth momentum that has carried into January 2021, the Company expects to achieve total consolidated revenue growth for its third fiscal quarter, including contributions from PersonalizationMall, in a range of 45-to-50 percent, compared with the prior year period.

  

o

The Company anticipates that the strong revenue growth will help offset certain headwinds, including the Sunday placement of the key Valentine’s Day holiday, increased year-over-year labor and transportation costs and operating inefficiencies related to the COVID-19 pandemic.

  

o

As a result, the Company anticipates achieving Adjusted EBITDA of between $4.0-and-$5.0 million, compared with an Adjusted EBITDA loss of $2.4 million in the prior year period, and

   

o

an EPS loss of between $0.09-and-$0.11, compared with an EPS loss of $0.15 in the prior year period.

 

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, NQDC Plan investment appreciation/depreciation, and for certain items affecting period to period comparability. See Segment 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 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 and adjusted segment contribution margin

 

We define segment contribution margin as earnings before interest, taxes, depreciation and amortization, before the allocation of corporate overhead expenses. Adjusted segment contribution margin is defined as contribution margin adjusted for certain items affecting period-to-period comparability. 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 and adjusted segment contribution margin provide management and users of the financial statements meaningful information about the performance of our business segments.

 

Segment contribution margin and adjusted segment contribution margin are 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 and adjusted segment contribution margin is that they are an incomplete measure of profitability as they do 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 or comparable net income (loss) per common share

We define adjusted net income (loss) and adjusted or comparable 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 or comparable net income (loss) per common share were calculated for each period presented.

 

We believe that adjusted net income (loss) and adjusted or comparable 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. 

 

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, and adjusted EBITDA.

 

15

Table of Contents

  

Three Months Ended

 
  

December 27, 2020

  

PersonalizationMall Litigation and Transaction Costs

  

Harry & David Store Closure Costs

  

As Adjusted (non-GAAP) December 27, 2020

  

December 29, 2019

  

% Change

 

Net revenues:

                        

Consumer Floral & Gifts

 $305,357  $-  $-  $305,357  $115,716   163.9%

BloomNet

  34,051   -   -   34,051   25,722   32.4%

Gourmet Foods & Gift Baskets

  538,265   -   -   538,265   464,584   15.9%

Corporate

  135   -   -   135   165   -18.2%

Intercompany eliminations

  (552)  -   -   (552)  (545)  -1.3%

Total net revenues

 $877,256  $-  $-  $877,256  $605,642   44.8%
                         

Gross profit:

                        

Consumer Floral & Gifts

 $134,474  $-  $-  $134,474  $44,544   201.9%
   44.0%          44.0%  38.5%    
                         

BloomNet

  16,820   -   -   16,820   13,161   27.8%
   49.4%          49.4%  51.2%    
                         

Gourmet Foods & Gift Baskets

  246,890   -   -   246,890   211,362   16.8%
   45.9%          45.9%  45.5%    
                         

Corporate

  62   -   -   62   105   -41.0%
   45.9%          45.9%  63.6%    
                         

Total gross profit

 $398,246  $-  $-  $398,246  $269,172   48.0%
   45.4%  -   -   45.4%  44.4%    
                         

EBITDA (non-GAAP):

                        

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

                        

Consumer Floral & Gifts

 $45,657  $-  $-  $45,657  $10,890   319.3%

BloomNet

  12,141   -   -   12,141   9,134   32.9%

Gourmet Foods & Gift Baskets

  135,621   -   (78)  135,543   113,387   19.5%

Segment Contribution Margin Subtotal

  193,419   -   (78)  193,341   133,411   44.9%

Corporate (b)

  (34,757)  513   -   (34,244)  (26,010)  -31.7%

EBITDA (non-GAAP)

  158,662   513   (78)  159,097  $107,401   48.1%

Add: Stock-based compensation

  2,965           2,965   2,280   30.0%

Add: Compensation charge related to NQDC Plan Investment Appreciation

  2,227   -   -   2,227   1,002   122.2%

Adjusted EBITDA (non-GAAP)

 $163,854  $513  $(78) $164,289  $110,683   48.4%

 

  

Six Months Ended

 
  

December 27, 2020

  

PersonalizationMall Litigation and Transaction Costs

  

Harry & David Store Closure Costs

  

As Adjusted (non-GAAP) December 27, 2020

  

December 29, 2019

  

% Change

 

Net revenues:

                        

Consumer Floral & Gifts

 $466,903  $-  $-  $466,903  $206,484   126.1%

BloomNet

  66,789   -   -   66,789   51,162   30.5%

Gourmet Foods & Gift Baskets

  628,194   -   -   628,194   535,799   17.2%

Corporate

  241   -   -   241   360   -33.1%

Intercompany eliminations

  (1,099)  -   -   (1,099)  (900)  -22.1%

Total net revenues

 $1,161,028  $-  $-  $1,161,028  $792,905   46.4%
                         

Gross profit:

                        

Consumer Floral & Gifts

 $200,060  $-  $-  $200,060  $80,594   148.2%
   42.8%          42.8%  39.0%    
                         

BloomNet

  31,658   -   -   31,658   26,119   21.2%
   47.4%          47.4%  51.1%    
                         

Gourmet Foods & Gift Baskets

  281,897   -   -   281,897   238,404   18.2%
   44.9%          44.9%  44.5%    
                         

Corporate

  111   -   -   111   201   -44.8%
   46.1%          46.1%  55.8%    
                         

Total gross profit

 $513,726  $-  $-  $513,726  $345,318   48.8%
   44.2%  -   -   44.2%  43.6%    
                         

EBITDA (non-GAAP):

                        

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

                        

Consumer Floral & Gifts

 $64,893  $-  $-  $64,893  $19,414   234.3%

BloomNet

  22,562   -   -   22,562   17,491   29.0%

Gourmet Foods & Gift Baskets

  133,040   -   (483)  132,557   106,787   24.1%

Segment Contribution Margin Subtotal

  220,495   -   (483)  220,012   143,692   53.1%

Corporate (b)

  (66,454)  5,403   -   (61,051)  (49,309)  -23.8%

EBITDA (non-GAAP)

  154,041  $5,403  $(483) $158,961   94,383   68.4%

Add: Stock-based compensation

  5,358           5,358   4,045   32.5%

Add: Compensation charge related to NQDC Plan Investment Appreciation

  3,207   -   -   3,207   958   234.8%

Adjusted EBITDA (non-GAAP)

 $162,606  $5,403  $(483) $167,526  $99,386   68.6%

 

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Reconciliation of net income to adjusted net income (non-GAAP):

 

 

Three Months Ended

  

 

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

December 27, 2020

  

December 29, 2019

 
                 

Net income

 $113,677  $74,152  $103,915  $58,881 

Adjustments to reconcile net income to adjusted net income (non-GAAP)

                

Add: Personalization Mall litigation and transaction costs

  513   -   5,403   - 

Deduct: Harry & David store closure cost adjustment

  (78)  -   (483)  - 

Deduct: Income tax (benefit) on adjustments

  125   -   (1,117)  - 

Adjusted net income (non-GAAP)

 $114,237  $74,152  $107,718  $58,881 
                 

Basic and diluted net income per common share

                

Basic

 $1.76  $1.15  $1.61  $0.91 

Diluted

 $1.71  $1.12  $1.56  $0.89 
                 
                 

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

                

Basic

 $1.76  $1.15  $1.67  $0.91 

Diluted

 $1.72  $1.12  $1.62  $0.89 
                 

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

                

Basic

  64,728   64,687   64,524   64,595 

Diluted

  66,543   66,401   66,593   66,486 

 

Reconciliation of net income to adjusted EBITDA (non-GAAP):

 

 

Three Months Ended

  

 

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

December 27, 2020

  

December 29, 2019

 
                 

Net income

 $113,677  $74,152  $103,915  $58,881 

Add: Interest expense, net

  (330)  10   (289)  689 

Add: Depreciation and amortization

  11,060   7,830   19,900   15,465 

Add: Income tax expense

  34,255   25,409   30,515   19,348 

EBITDA

  158,662   107,401   154,041   94,383 

Add: Stock-based compensation

  2,965   2,280   5,358   4,045 

Add: Compensation charge related to NQDC plan investment appreciation

  2,227   1,002   3,207   958 

Add: Personalization Mall litigation and transaction costs

  513   -   5,403   - 

Deduct: Harry & David store closure cost adjustment

  (78)  -   (483)  - 

Adjusted EBITDA

 $164,289  $110,683  $167,526  $99,386 
                 

(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

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

% Change

  

December 27, 2020

  

December 29, 2019

  

% Change

 
  

(dollars in thousands)

     

Net revenues:

                        

E-Commerce

 $777,810  $487,084   59.7

%

 $1,016,673  $616,134   65.0

%

Other

  99,446   118,558   -16.1

%

  144,355   176,771   -18.3

%

Total net revenues

 $877,256  $605,642   44.8

%

 $1,161,028  $792,905   46.4

%

 

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

 

Net revenues increased 44.8% and 46.4% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, due to higher revenues across our three business segments (+24.7% and +28.4% on a pro-forma basis for the three and six months ended December 27, 2020, compared to the respective prior year periods, excluding the impact of PersonalizationMall, which was acquired on August 3, 2020, and is included in our Consumer Floral & Gifts segment) as the positive trends we had been seeing in everyday gifting occasions during the previous two quarters continued throughout the 2020 holiday gifting season. The marketing and merchandising investments that the Company has made across its brands, including product offerings and messaging that have resonated with our customers, coupled with the strategic acquisitions of Shari’s Berries® in August of 2019 and PersonalizationMall.com in August of 2020, have enabled the Company to capitalize on the consumer behavioral shift to e-commerce shopping caused by the pandemic.

 

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Disaggregated revenue by channel follows:

 

  

Three Months Ended

  

Three Months Ended

 
  

December 27, 2020

  

December 29, 2019

 
  

Consumer Floral & Gifts

  

BloomNet

  

Gourmet Foods & Gift Baskets

  

Consolidated

  

Consumer Floral & Gifts

  

BloomNet

  

Gourmet Foods & Gift Baskets

  

Consolidated

 

Net revenues

 

 

 
(in thousands)
 

 

 

E-commerce

 $303,275  $-  $474,535  $777,810  $113,858  $-  $373,226  $487,084 

Retail

  1,210   -   4,088   5,298   1,082   -   23,120   24,202 

Wholesale

      9,150   59,642   68,792   -   7,270   68,238   75,508 

BloomNet services

      24,901   -   24,901   -   18,452   -   18,452 

Other

  872   -   -   872   776   -   -   776 

Corporate

      -   -   135   -   -   -   165 

Eliminations

      -   -   (552

)

  -   -   -   (545

)

Net revenues

 $305,357  $34,051  $538,265  $877,256  $115,716  $25,722  $464,584  $605,642 

 

  

Six months ended

  

Six months ended

 
  

December 27, 2020

  

December 29, 2019

 
  

Consumer Floral & Gifts

  

BloomNet

  

Gourmet Foods & Gift Baskets

  

Consolidated

  

Consumer Floral & Gifts

  

BloomNet

  

Gourmet Foods & Gift Baskets

  

Consolidated

 

Net revenues

 

(in thousands)

 

E-commerce

 $463,067  $-  $553,606  $1,016,673  $202,946  $-  $413,188  $616,134 

Retail

  2,157   -   5,661   7,818   2,021   -   30,610   32,631 

Wholesale

  -   20,443   68,927   89,370   -   16,018   92,001   108,019 

BloomNet services

  -   46,346   -   46,346   -   35,144   -   35,144 

Other

  1,679   -   -   1,679   1,517   -   -   1,517 

Corporate

  -   -   -   241   -   -   -   360 

Eliminations

  -   -   -   (1,099

)

  -   -   -   (900

)

Net revenues

 $466,903  $66,789  $628,194  $1,161,028  $206,484  $51,162  $535,799  $792,905 

 

Revenue by sales channel:

E-commerce revenues (combined online and telephonic) increased by 59.7% and 65.0% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, as a result of growth within: (i) the Gourmet Foods & Gift Baskets segment of 27.1% and 34.0%, and (ii) the Consumer Floral & Gifts segment of 166.4% and 128.2%, which includes the revenues of PersonalizationMall, since its date of acquisition on August 3, 2020. During the three and six months ended December 27, 2020, respectively, the Company fulfilled approximately 9.9 and 13.2 million orders through its e-commerce sales channels (online and telephonic sales), an increase of 70.7% and 75.5% compared to the same period of the prior year, while average order value decreased 6.5% and 6.0%, to $78.89 and $76.83, respectively. The decrease in average order value was attributable to the impact of the mix of PersonalizationMall order volumes.

 

Other revenues are comprised of the Company’s BloomNet segment, as well as the wholesale and retail channels of its Consumer Floral & Gifts and Gourmet Foods & Gift Baskets segments. Other revenues decreased by 16.1% and 18.3% during the three and six months ended December 27, 2020, compared to the same periods of the prior year, due to: (i) wholesale/retail sales channel declines within the Gourmet Foods & Gift Baskets segment, as big-box retail store customers reduced order volumes for the holiday season due to the pandemic, and (ii) the closure of Harry and David retail store operations in the fourth quarter of fiscal 2020, partially offset by an increase in BloomNet segment revenues.

 

Revenue by segment:

Consumer Floral & Gifts – this segment, which historically has consisted primarily of the operations of the 1-800-Flowers.com brand, but now includes revenues attributable to PersonalizationMall subsequent to its August 3, 2020 acquisition date, derives revenue from the sale of consumer floral products and gifts through its e-commerce sales channels (telephonic and online sales), retail stores, and royalties from its franchise operations. Net revenues increased 163.9% and 126.1% during the three and six months ended December 27, 2020, compared to the same periods of the prior year, reflecting: (i) the marketing and merchandising investments made in our flagship brand, which have driven our growth and market share gains that began in the second half of Fiscal 2018, continued through Fiscal 2020, and accelerated with the start of the pandemic, as well as (ii) the incremental revenues of PersonalizationMall. Excluding the revenues derived from PersonalizationMall, segment pro-forma revenue growth was 58.3% and 57.1% during the three and six months ended December 27, 2020, respectively.

 

BloomNet - revenues in this segment are derived from membership fees, as well as other product and service offerings to florists. Net revenues increased 32.4% and 30.5% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, primarily due to increased: (i) settlement processing revenues, due to the higher florist-to-florist order volume, (ii)transaction, reciprocity and membership fees, driven primarily by increased order volume sent through the network, and (iii) favorable wholesale demand.

 

Gourmet Foods & Gift Baskets – this segment includes the operations of Harry & David, Wolferman’s, Stock Yards, Cheryl’s Cookies, The Popcorn Factory, 1-800-Baskets/DesignPac, and 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 increased 15.9% and 17.2% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, due to favorable e-commerce revenues across the segment, partially offset by reduced wholesale and retail volumes. E-commerce revenue growth of 27.1% and 34.0% during the three and six months ended December 27, 2020, respectively, was the result of increased demand during the Christmas holiday period, as well as increased penetration of “everyday” volume within the segment, which benefitted from the impact of the COVID-19 pandemic as product offerings, convenience, and brand sentiment resonated with customers. Wholesale/retail channel revenues declined 30.2% and 39.2%, during the three and six months ended December 27, 2020, respectively, as big-box retail store customers reduced order volumes due to the pandemic and as a result of the closure of the Harry and David retail store operations in the fourth quarter of fiscal 2020.

 

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Gross profit

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

% Change

  

December 27, 2020

  

December 29, 2019

  

% Change

 
  

(dollars in thousands)

 
                         

Gross profit

 $398,246  $269,172   48.0

%

 $513,726  $345,318   48.8

%

Gross profit %

  45.4

%

  44.4

%

      44.2

%

  43.6

%

    

 

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 48.0% and 48.8% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, as a result of the increase in revenues noted above. Gross profit percentage increased 100 basis points and 60 basis points, during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, as higher margins in the Consumer Floral & Gifts (primarily due to the acquisition of PersonalizationMall, which carries higher margins) and Gourmet Foods & Gift Basket segments were offset by lower margins in the BloomNet segment. On a pro-forma basis, excluding the impact of PersonalizationMall, gross margin percentage was 44.4% and 43.2% during the three and six months ended December 27, 2020, respectively.

 

Consumer Floral & Gifts segment - Gross profit increased by 201.9% and 148.2% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, as a result of the revenue increases noted above and increases in gross margin percentage of 550 basis points, to 44.0% and 380 basis points, to 42.8%, during the respective three and six months periods ended December 27, 2020. The increase in gross margin percentage was primarily attributable to the acquisition of PersonalizationMall, which carries higher margins, as well as pricing initiatives and reductions in promotional activity after the onset of COVID-19, partially offset by higher product and delivery costs associated with the pandemic. On a pro-forma basis, excluding the impact of PersonalizationMall, acquired on August 3, 2020, gross margin percentage was 39.2% and 39.1% during the three and six months ended December 27, 2020, respectively. 

 

BloomNet segment - Gross profit increased by 27.8% and 21.2% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, due to the increase in revenue noted above, partially offset by a decline in gross margin percentage of 180 basis points, to 49.4%, and 370 basis points, to 47.4% during the respective three months ended and six months ended December 27, 2020, due to higher rebates (higher florist-to-florist volume) and unfavorable wholesale product margins due to mix, and higher shipping and product costs.

 

Gourmet Foods & Gift Baskets segment - Gross profit increased by 16.8% and 18.2% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, due to the revenue increase noted above, as well as an increase in gross profit percentage of 40 basis points, to 45.9%, and 40 basis points, to 44.9% during the three and six months ended December 27, 2020, respectively. The improvement in gross margin percentage was primarily attributable to lower promotions, merchandise assortment, and channel mix, partially offset by higher transportation costs due to holiday surcharges and expedited ship methods, as well as increased labor costs.

 

Marketing and sales expense

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

% Change

  

December 27, 2020

  

December 29, 2019

  

% Change

 
  

(dollars in thousands)

 
                         

Marketing and sales

 $194,696  $127,404   52.8

%

 $274,981  $184,243   49.2

%

Percentage of net revenues

  22.2

%

  21.0

%

      23.7

%

  23.2

%

    

 

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 52.8% and 49.2% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, as a result of marketing initiatives designed to accelerate revenue growth and capture market share within both the Gourmet Foods & Gift Baskets segment, and the Consumer Floral & Gifts segment, which includes the incremental marketing costs of PersonalizationMall, which was acquired on August 3, 2020. On a pro-forma basis, excluding the impact of PersonalizationMall, marketing and sales as a percentage of net revenues, was 21.4% and 23.1% during the three and six months ended December 27,2020, respectively, compared to 21.0% and 23.2% in the same periods of the prior year, reflecting the operational efficiencies and platform leverage attributable to the revenue growth.

 

Technology and development expense

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

% Change

  

December 27, 2020

  

December 29, 2019

  

% Change

 
  

(dollars in thousands)

 
                         

Technology and development

 $14,053  $11,733   19.8

%

 $25,656  $22,536   13.8

%

Percentage of net revenues

  1.6

%

  1.9

%

      2.2

%

  2.8

%

    

 

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 expense increased 19.8% and 13.8% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, primarily due to increased labor, hosting and maintenance costs incurred to support the Company’s technology platform, in addition to the incremental technology costs associated with PersonalizationMall, which was acquired on August 3, 2020.

 

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General and administrative expense

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

% Change

  

December 27, 2020

  

December 29, 2019

  

% Change

 
  

(dollars in thousands)

 
                         

General and administrative

 $30,835  $22,634   36.2

%

 $59,048  $44,156   33.7

%

Percentage of net revenues

  3.5

%

  3.7

%

      5.1

%

  5.6

%

    

 

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 expenses increased 36.2% and 33.7% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, due to incremental costs related to: (i) PersonalizationMall (including transaction and litigation related costs), (ii) higher labor costs due to annual merit increases and performance related bonuses as well as investment earnings on the Company’s NQDC Plan assets (offset within Other (income) expenses noted below, and (iii) incremental health and safety-related COVID-19 related expenses.

 

Depreciation and amortization expense

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

% Change

  

December 27, 2020

  

December 29, 2019

  

% Change

 
  

(dollars in thousands)

 
                         

Depreciation and amortization

 $11,060  $7,830   41.3

%

 $19,900  $15,465   28.7

%

Percentage of net revenues

  1.3

%

  1.3

%

      1.7

%

  2.0

%

    

 

 

Depreciation and amortization expense expenses increased 41.3% and 28.7% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, primarily due to the incremental depreciation and customer list amortization associated with PersonalizationMall, as well as recent short-lived IT related ecommerce/platform enhancements.

 

Interest (income) expense, net

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

% Change

  

December 27, 2020

  

December 29, 2019

  

% Change

 
  

(dollars in thousands)

 
                         

Interest expense, net

 $1,927  $985   95.6

%

 $2,967  $1,580   87.8

%

 

Interest expense, net consists primarily of interest expense and amortization of deferred financing costs attributable to the Company’s credit facility (See Note 8 - Debt, in Item 1. for details), net of income earned on the Company’s available cash balances.

 

Interest expense, net increased 95.6% and 87.8% during the three and six months ended December 27, 2020, respectively, compared to the same periods of the prior year, due to the incremental interest expense associated with the New Term Loan, which was used to partially finance the acquisition of PersonalizationMall, and lower interest income on the Company’s outstanding cash balances due to lower interest rates.

 

Other (income) expense, net

 

  

Three Months Ended

  

Six Months Ended

 
  

December 27, 2020

  

December 29, 2019

  

% Change

  

December 27, 2020

  

December 29, 2019

  

% Change

 
  

(dollars in thousands)

 
                         

Other (income) expense, net

 $(2,257

)

 $(975

)

  131.5

%

 $(3,256

)

 $(891

)

  265.4

%

 

Other expense, net for the three and six months ended December 27, 2020, respectively,  consists primarily of investment gain on the Company’s NQDC Plan assets. 

 

Income Taxes

The Company recorded income tax expense of $34.3 million and $30.5 million during the three and six months ended December 27, 2020, respectively, and $25.4 million and $19.3 million during the three and six months ended December 29, 2019, respectively. The Company’s effective tax rate for the three and six months ended December 27, 2020 was 23.2% and 22.7%, respectively, compared to 25.5% and 24.7% in the same periods of the prior year. The effective rates for fiscal year 2021 and fiscal year 2020 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 excess tax benefits from stock-based compensation.

 

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Table of Contents

 

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 2020 Credit Agreement (see Note 8 - Debt in Item 1 for details). At December 27, 2020, the Company had working capital of $146.7 million, including cash and cash equivalents of $370.6 million, compared to working capital of $198.3 million, including cash and cash equivalents of $240.5 million, at June 28, 2020. 

 

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, historically generated nearly 50% of the Company’s annual revenues, and all of its earnings. However, with the onset of the COVID-19 pandemic, the Company experienced a significant increase in its revenues and earnings during its fourth quarter of fiscal year 2020. These trends have continued through the first four weeks of its fiscal year 2021 third quarter. Our customers have increasingly turned to our brands and our expanded product offerings to help them connect and express themselves during the recent COVID-19 pandemic and our “everyday” gifting product line has seen increased volume. While the continuing impacts of COVID-19 are difficult to predict, the Company expects that its fiscal second quarter will continue to be its largest in terms of revenues and earnings, although increases in the Company’s “everyday” business have and are expected to continue to lessen the seasonality of our business.

 

The Company utilized cash on hand to fund its operations through August 2020. In September 2020, the Company borrowed under its Revolver to fund short-term working capital needs, with borrowings peaking at $70.0 million in November 2020. Cash generated from operations during the Christmas holiday shopping season enabled the Company to repay the Revolver in December 2020. Based on current projected cash flows, the Company believes that available cash balances are expected to be sufficient to provide for the Company’s operating needs until the second of fiscal year 2022, when the Company expects to borrow against its Revolver to fund pre-holiday manufacturing and inventory purchases. The Company has no outstanding amount under its Revolver as of December 27, 2020.

 

While we believe that our sources of funding will be sufficient to meet our anticipated operating cash needs for at least the next twelve months, any projections of future cash needs and cash flows are subject to substantial uncertainty. We continually evaluate, and 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. 

 

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 negative 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 $316.6 million, for the six months ended December 27, 2020, was primarily attributable to the Company’s net income during the period, adjusted by non-cash charges for depreciation and amortization and stock-based compensation, combined with seasonal changes in working capital, including holiday related increases in accounts payable and accrued expenses, and reductions in inventory, partially offset by increases in receivables related to holiday season sales.

 

Net cash used in investing activities of $267.9 million, for the six months ended December 27, 2020, was primarily attributable to the acquisition of PersonalizationMall for $250.9 million, capital expenditures of $15.7 million related to the Company's technology initiatives, as well as manufacturing production and warehousing equipment.

 

Net cash provided by financing activities of $81.4 million, for the six months ended December 27, 2020, related to proceeds from bank borrowings of $265.0 million (including the Company’s New Term Loan in the amount of $100.0 million, which was used to repay borrowing then outstanding under the Company’s Revolver in the amount of $97.5 million), repayment of notes payable and bank borrowings of $170.0 million (including the $97.5 million repayment of the Revolver upon closing of the $100.0 million New Term Loan), and the acquisition of $12.5 million of treasury stock.

 

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Table of Contents

 

Stock Repurchase Program

 

See Item 2 in Part II below for details.

 

Contractual Obligations

 

At December 27, 2020, the Company’s contractual obligations consist of:

 

Long-term debt obligations - payments due under the Company's 2020 Credit Agreement (see Note 8 - Debt in Item 1 for details and payments due by period).

Operating lease obligations – payments due under the Company’s operating leases (see Note 13 - Leases in Item 1 for details and payments due by period for the long-term operating leases).

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 2021

  

Fiscal 2022

  

Fiscal 2023

  

Fiscal 2024

  

Fiscal 2025

  

Thereafter

  

Total

 

Purchase commitments

 $92,805  $4,986  $5,694  $4,539  $3,750  $2,000  $113,774 

 

Critical Accounting Policies and Estimates

 

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2020, the discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements, 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 goodwill, other intangible assets and income taxes. There have been no significant changes to the assumptions and estimates related to the Company’s critical accounting policies, since June 28, 2020.

 

Recently Issued Accounting Pronouncements 

 

See Note 1 - Accounting Policies in Item 1 for details regarding the impact of accounting standards that were recently issued on our consolidated financial statements.

 

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 effectively manage inventories;

the outcome of contingencies, including legal proceedings in the normal course of business

general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company’s 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 June 28, 2020 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 2020 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 $0.3 million and $0.5 million during the three and six months ended December 27, 2020, respectively.

 

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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 December 27, 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 December 27, 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 December 27, 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

 

Bed Bath & Beyond

 

On April 1, 2020, the Seller 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 Seller, PersonalizationMall, the Company and the Purchaser, pursuant to which the Seller agreed to sell to Purchaser, and the Purchaser agreed to purchase from Seller, all of the issued and outstanding membership interests of PersonalizationMall. The action was initiated after the Company requested a reasonable delay in the closing under the Purchase Agreement due to the unprecedented circumstances created by COVID-19. The Complaint requested an order of specific performance to consummate the transaction under the Purchase 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 set a trial date for late September 2020.  On July 21, 2020, the Company and Seller entered into a settlement agreement, pursuant to which the Company agreed to move forward with its purchase of PersonalizationMall for $245.0 million, subject to certain working capital and other adjustments. The transaction closed on August 3, 2020. In connection with the settlement agreement, the parties executed a Stipulation and Proposed Order of Dismissal, resulting in the voluntary dismissal with prejudice of the litigation relating to the transaction.

 

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 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 to 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 June 28, 2020.

 

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 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 December 27, 2020, $6.9 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 six months of fiscal 2021, which includes the period July 1, 2020 through December 27, 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)

     
                 

06/29/20 - 07/26/20

  -  $-   -  $19,320 

07/27/20 - 08/23/20

  -  $-   -  $19,320 

08/24/20 - 09/27/20

  36,355  $29.94   36,355  $18,231 

09/28/20 - 10/25/20

  -  $-   -  $18,231 

10/26/20 - 11/22/20

  305,941  $21.23   305,941  $11,735 

11/23/20 - 12/27/20

  203,842  $23.93   203,842  $6,850 

Total

  546,138  $22.82   546,138     

(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.

 

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ITEM 6. EXHIBITS

 

31.1 

Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2 

Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

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

 

Inline XBRL Instance Document

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Document

101.PRE

 

Inline XBRL Taxonomy Definition Presentation Document

104 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

 

 

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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:      February 5, 2021

/s/ Christopher G. McCann      

Christopher G. McCann
Chief Executive Officer, 
Director and President
(Principal Executive Officer)  

 

 

Date:      February 5, 2021

/s/ William E. Shea      
William E. Shea
Senior Vice President, Treasurer and
Chief Financial Officer (Principal
Financial and Accounting Officer)

 

 

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