1-800-FLOWERS.COM(FLWS) - 2020 Q3 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for the quarter ended March 29, 2020, reflect increased assets, net revenues, and the adoption of ASC 842 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 29, 2020 (Unaudited) | June 30, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $232,115 | $172,923 | | Total current assets | $353,681 | $303,238 | | Goodwill | $74,711 | $62,590 | | Total assets | $748,629 | $606,440 | | Liabilities & Equity | | | | Total current liabilities | $168,653 | $127,497 | | Long-term debt | $88,648 | $91,973 | | Total liabilities | $360,618 | $263,729 | | Total stockholders' equity | $388,011 | $342,711 | | Total liabilities and stockholders' equity | $748,629 | $606,440 | Condensed Consolidated Statements of Income (Loss) Condensed Consolidated Statements of Income (Loss) (in thousands, except per share data) | Metric | Three Months Ended Mar 29, 2020 | Three Months Ended Mar 31, 2019 | Nine Months Ended Mar 29, 2020 | Nine Months Ended Mar 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $278,776 | $248,413 | $1,071,681 | $989,225 | | Gross profit | $107,452 | $97,520 | $452,770 | $420,887 | | Operating income (loss) | $(10,888) | $(14,629) | $68,030 | $57,090 | | Net income (loss) | $(9,657) | $(8,241) | $49,224 | $43,071 | | Diluted net income (loss) per common share | $(0.15) | $(0.13) | $0.74 | $0.65 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended March 29, 2020 | Nine Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $117,342 | $97,005 | | Net cash used in investing activities | $(43,958) | $(16,845) | | Net cash used in financing activities | $(14,192) | $(21,023) | | Net change in cash and cash equivalents | $59,192 | $59,137 | | Cash and cash equivalents, end of period | $232,115 | $206,377 | Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies, business seasonality, the Shari's Berries acquisition, ASC 842 adoption, and the subsequent closure of Harry & David retail stores - The company's business is highly seasonal, with the second fiscal quarter (Thanksgiving through Christmas) accounting for nearly 50% of annual revenues and all of its earnings[28] - On August 14, 2019, the Company acquired the Shari's Berries business for a purchase price of $20.5 million. The acquisition included domain names, customer data, and other intellectual property[49] - Effective July 1, 2019, the company adopted the new lease accounting standard (ASC 842), resulting in the recognition of operating lease liabilities of $80.7 million and right-of-use assets of $78.7 million on the Consolidated Balance Sheets[39] - Subsequent to the quarter end, on April 14, 2020, the company decided to permanently close 38 of its 39 Harry & David branded stores, expecting a charge of $4.0 - $5.0 million in the fourth quarter[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting revenue growth driven by e-commerce and the Shari's Berries acquisition, alongside the significant impact of COVID-19 and liquidity position COVID-19 Impact - The company is experiencing strong e-commerce demand for gourmet foods, gift baskets, and floral products for both gifting and self-consumption, with an acceleration of demand seen during the Easter holiday period[99] - Negative impacts from the pandemic include the temporary closure of Cheryl's and Harry & David retail stores, with a subsequent decision to permanently close 38 of 39 Harry & David stores, which had annual revenues of approximately $33.0 million[99] - The company is facing headwinds from reduced wholesale business, waived fees for BloomNet members in April, and increased operating costs in manufacturing and distribution facilities to ensure employee safety[99] Segment Information and Results of Operations Net Revenues by Segment (in thousands) | Segment | Three Months Ended Mar 29, 2020 | Three Months Ended Mar 31, 2019 | % Change | Nine Months Ended Mar 29, 2020 | Nine Months Ended Mar 31, 2019 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | 1-800-Flowers.com Consumer Floral | $152,620 | $144,821 | 5.4% | $359,104 | $338,003 | 6.2% | | BloomNet Wire Service | $30,414 | $28,185 | 7.9% | $81,576 | $75,613 | 7.9% | | Gourmet Foods & Gift Baskets | $95,906 | $75,445 | 27.1% | $631,705 | $575,966 | 9.7% | | Total net revenues | $278,776 | $248,413 | 12.2% | $1,071,681 | $989,225 | 8.3% | Segment Contribution Margin (non-GAAP, in thousands) | Segment | Three Months Ended Mar 29, 2020 | Three Months Ended Mar 31, 2019 | % Change | Nine Months Ended Mar 29, 2020 | Nine Months Ended Mar 31, 2019 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | 1-800-Flowers.com Consumer Floral | $15,439 | $15,364 | 0.5% | $34,853 | $32,667 | 6.7% | | BloomNet Wire Service | $10,025 | $9,480 | 5.7% | $27,516 | $25,375 | 8.4% | | Gourmet Foods & Gift Baskets | $(6,275) | $(7,202) | 12.9% | $100,512 | $89,191 | 12.7% | | Segment Contribution Margin Subtotal | $19,189 | $17,642 | 8.8% | $162,881 | $147,233 | 10.6% | - Consolidated gross profit percentage declined 80 basis points to 38.5% for the third quarter and 30 basis points to 42.2% for the nine-month period, primarily due to product mix and macroeconomic headwinds including rising labor, transportation costs, and tariffs[135] Liquidity and Capital Resources - As of March 29, 2020, the company had working capital of $185.0 million, including cash and cash equivalents of $232.1 million, an increase from $175.7 million and $172.9 million, respectively, at June 30, 2019[154] - For the nine months ended March 29, 2020, net cash from operating activities was $117.3 million. Net cash used in investing activities was $44.0 million, primarily for the $20.5 million acquisition of Shari's Berries and $22.3 million in capital expenditures[159][160] - Net cash used in financing activities was $14.2 million for the nine-month period, mainly due to $10.7 million in treasury stock acquisitions and net bank repayments of $3.8 million[161] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is exposure to interest rate changes, impacting cash balances and variable-rate long-term debt - The company's main market risk is from interest rate changes on its cash investments and variable-rate long-term debt[172] - A 50 basis point increase in interest rates would increase interest expense by approximately $0.1 million for the quarter and $0.4 million for the nine-month period[173] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 29, 2020, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter, March 29, 2020[175] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[176] Part II. Other Information Item 1. Legal Proceedings The company is involved in a lawsuit with Bed Bath & Beyond Inc. regarding an alleged breach of the PersonalizationMall.com acquisition agreement due to COVID-19 - On April 1, 2020, Bed Bath & Beyond Inc. filed a lawsuit against the company alleging a breach of the agreement to purchase PersonalizationMall.com[177] - The lawsuit was initiated after the company requested a reasonable delay in the closing of the transaction due to the unprecedented circumstances created by the COVID-19 pandemic. The company plans to defend itself vigorously[177] Item 1A. Risk Factors This section introduces new risk factors related to the COVID-19 pandemic, including operational disruptions, supply chain impacts, and increased cybersecurity risks - The COVID-19 pandemic creates significant uncertainty for the business, with impacts depending on the duration and scope of the pandemic, governmental actions, and changes in consumer behavior[180][181] - Operational risks include supply chain disruptions, reduced availability of transport, and potential workforce interruptions if a significant percentage of employees are unable to work[182][183] - The increase in remote work has amplified cybersecurity risks, including phishing and other attacks targeting a larger number of potential entry points like laptops and mobile devices[184] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has an ongoing stock repurchase plan, with $19.3 million remaining authorized as of March 29, 2020, after repurchasing $10.7 million in shares - The Board of Directors authorized an increase to its stock repurchase plan of up to $30.0 million on June 27, 2019. As of March 29, 2020, $19.3 million remained available for repurchase[189] Common Stock Purchases (July 1, 2019 - March 29, 2020) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | 07/01/19 - 12/29/19 | 370,863 | $13.61 | | 12/30/19 - 03/29/20 | 382,941 | $14.72 | | Total | 753,804 | $14.13 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Equity Purchase Agreement, certifications, and XBRL data files - Lists exhibits filed with the report, including certifications and XBRL data[195]