1-800-FLOWERS.COM(FLWS) - 2021 Q1 - Quarterly Report

Part I. Financial Information This section presents the unaudited condensed consolidated financial statements for the quarter ended September 27, 2020, including balance sheets, statements of operations, equity, and cash flows, with detailed notes Item 1. Financial Statements This section provides the unaudited condensed consolidated financial statements and accompanying notes for the quarter ended September 27, 2020 Condensed Consolidated Balance Sheets This section presents the company's financial position as of September 27, 2020, and June 28, 2020 Condensed Consolidated Balance Sheets (in thousands) | Metric | September 27, 2020 | June 28, 2020 | | :----------------------------------- | :------------------- | :------------ | | Total Assets | $934,659 | $774,435 | | Total Liabilities | $543,121 | $374,661 | | Total Stockholders' Equity | $391,538 | $399,774 | | Cash and Cash Equivalents | $11,012 | $240,506 | | Inventories | $192,613 | $97,760 | | Long-term Debt | $175,522 | $87,559 | - Total assets increased significantly from $774.4 million to $934.7 million, primarily driven by the acquisition of PersonalizationMall and related increases in inventory, property, plant, and equipment, goodwill, and other intangibles[7][8][40] - Total liabilities increased from $374.7 million to $543.1 million, largely due to an increase in long-term debt and current maturities of long-term debt, reflecting new borrowings to finance acquisitions[7][8][64][65] Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's financial performance and comprehensive loss for the three months ended September 27, 2020, and September 29, 2019 Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Metric | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | Change (YoY) | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------- | | Net Revenues | $283,772 | $187,263 | +51.5% | | Cost of Revenues | $168,292 | $111,117 | +51.5% | | Gross Profit | $115,480 | $76,146 | +51.7% | | Operating Expenses | $128,941 | $96,799 | +33.2% | | Operating Loss | $(13,461) | $(20,653) | +34.8% | | Net Loss and Comprehensive Loss | $(9,762) | $(15,271) | +36.1% | | Basic and Diluted Net Loss Per Common Share | $(0.15) | $(0.24) | +37.5% | - The company reported a significant increase in net revenues by 51.5% year-over-year, reaching $283.8 million, primarily driven by strong e-commerce demand and the acquisition of PersonalizationMall[12][125] - Despite increased revenues, the company still incurred a net loss of $(9.8 million), an improvement from $(15.3 million) in the prior year, reflecting better operating leverage and the impact of acquisitions[12][125] Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity for the three months ended September 27, 2020, reflecting net loss and capital transactions Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Balance at June 28, 2020 | Net Loss | Stock-based Compensation | Exercise of Stock Options | Conversion Class B to A | Acquisition of Class A Treasury Stock | Balance at September 27, 2020 | | :-------------------------------- | :----------------------- | :------- | :----------------------- | :---------------------- | :---------------------- | :------------------------------------ | :---------------------------- | | Class A Common Stock Amount | $537 | - | $1 | $1 | $2 | - | $541 | | Class B Common Stock Amount | $338 | - | - | - | $(2) | - | $336 | | Additional Paid-in Capital | $358,031 | - | $2,392 | $220 | - | - | $360,643 | | Retained Earnings | $167,523 | $(9,762) | - | - | - | - | $157,761 | | Treasury Stock Amount | $(126,412) | - | - | - | - | $(1,088) | $(127,500) | | Total Stockholders' Equity | $399,774 | $(9,762) | $2,393 | $221 | - | $(1,088) | $391,538 | - Total stockholders' equity decreased from $399.8 million to $391.5 million, primarily due to the net loss of $(9.8 million) and treasury stock acquisitions, partially offset by stock-based compensation and exercise of stock options[15] Condensed Consolidated Statements of Cash Flows This section presents the company's cash flow activities from operations, investing, and financing for the three months ended September 27, 2020 Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | | :---------------------------------------- | :------------------------------ | :------------------------------ | | Net Cash Used in Operating Activities | $(90,708) | $(112,778) | | Net Cash Used in Investing Activities | $(258,226) | $(24,859) | | Net Cash Provided by (Used in) Financing Activities | $119,440 | $(1,112) | | Net Change in Cash and Cash Equivalents | $(229,494) | $(138,749) | | Cash and Cash Equivalents, End of Period | $11,012 | $34,174 | - Net cash used in investing activities significantly increased to $(258.2 million), primarily due to the $250.9 million acquisition of PersonalizationMall[18][160] - Net cash provided by financing activities was $119.4 million, driven by $220.0 million in bank borrowings, including a new $100.0 million Term Loan, partially offset by debt repayments and treasury stock acquisitions[18][161] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures on the company's accounting policies, significant transactions, and financial instrument valuations Note 1 – Accounting Policies This note details the company's significant accounting policies, including revenue recognition, seasonality, and recent accounting standard adoptions - The company's business is seasonal, with the Thanksgiving through Christmas holiday season (fiscal Q2) historically generating nearly 50% of annual revenues and all earnings[20][152] - Revenue is recognized when control of merchandise is transferred to the customer (shipment for e-commerce, point of sale for retail, per agreement for wholesale) or as services are earned (BloomNet membership fees monthly, order-based services upon delivery)[26] Deferred Revenues (in millions) | Date | Amount | | :---------------- | :----- | | June 28, 2020 | $25.9 | | Recognized in Q1 FY2021 | $15.0 | | September 27, 2020 | $27.1 | - The adoption of new accounting standards for credit losses (ASU 2016-13) and goodwill impairment (ASU 2017-04) in fiscal 2021 had no material impact on the consolidated financial statements[30][31] Note 2 – Net Income (Loss) Per Common Share This note explains the calculation of basic and diluted net income (loss) per common share, addressing antidilutive effects - Due to net losses for the three months ended September 27, 2020, and September 29, 2019, potential common shares (employee stock options and unvested restricted stock awards) were excluded from diluted EPS calculations as their inclusion would be antidilutive[32] Note 3 – Stock-Based Compensation This note details stock-based compensation expense, its allocation across operating expenses, and future compensation costs Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | | :-------------------------- | :------------------------------ | :------------------------------ | | Stock options | $9 | $65 | | Restricted stock | $2,384 | $1,700 | | Total | $2,393 | $1,765 | | Deferred income tax benefit | $603 | $703 | | Net Expense | $1,790 | $1,062 | Stock-Based Compensation Expense by Operating Expense Line Item (in thousands) | Operating Expense | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | | :-------------------------- | :------------------------------ | :------------------------------ | | Marketing and sales | $1,144 | $816 | | Technology and development | $191 | $119 | | General and administrative | $1,058 | $830 | | Total | $2,393 | $1,765 | - As of September 27, 2020, total future compensation cost for non-vested options was $0.1 million (over 4.1 years) and for non-vested restricted stock was $9.5 million (over 1.1 years)[37][39] Note 4 – Acquisition This note provides details on the acquisition of PersonalizationMall and Shari's Berries, including purchase price allocation and pro forma financial information - On August 3, 2020, the Company completed the acquisition of PersonalizationMall for approximately $250.9 million in cash, after working capital adjustments. The preliminary purchase price allocation included $133.3 million to goodwill, $76.0 million to other intangibles (including $65.0 million for tradenames with indefinite life and $11.0 million for customer lists with a 4-year life), and $30.8 million to property, plant and equipment[40][42][47] PersonalizationMall Preliminary Purchase Price Allocation (in thousands) | Assets Acquired | Amount | | :-------------------------- | :----- | | 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 | Amount | | :-------------------------- | :----- | | Accounts payable and accrued expenses | $11,400 | | Operating lease liabilities | $21,438 | | Total Liabilities Assumed | $32,838 | | Net Assets Acquired | $250,943 | Unaudited Pro Forma Financial Information (PersonalizationMall Acquisition, in thousands) | Metric | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | | :-------------------------- | :------------------------------ | :------------------------------ | | Net Revenues | $299,765 | $208,701 | | Net Loss | $(4,171) | $(16,665) | - The acquisition of Shari's Berries on August 14, 2019, for $20.5 million, included $12.1 million in goodwill and $7.5 million in intangible assets (tradenames and customer lists). Its operating results are reflected in the Gourmet Foods & Gift Baskets segment, with no material pro forma impact[52][53][55][58] Note 5 – Inventory This note details the composition of inventory and the significant increase driven by pre-holiday preparations and acquisitions Inventory Composition (in thousands) | Category | September 27, 2020 | June 28, 2020 | | :---------------- | :------------------- | :------------ | | Finished goods | $104,862 | $35,779 | | Work-in-process | $19,125 | $16,536 | | Raw materials | $68,626 | $45,445 | | Total Inventory | $192,613 | $97,760 | - Total inventory increased significantly from $97.8 million to $192.6 million, primarily in finished goods and raw materials, reflecting pre-holiday manufacturing and inventory procurement requirements, and the PersonalizationMall acquisition[59][152] Note 6 – Goodwill and Intangible Assets This note outlines the changes in goodwill and other intangible assets, primarily due to the PersonalizationMall acquisition Goodwill by Segment (in thousands) | Segment | Balance at June 28, 2020 | Acquisition of PersonalizationMall | Balance at September 27, 2020 | | :-------------------------- | :----------------------- | :--------------------------------- | :---------------------------- | | Consumer Floral & Gifts | $17,441 | $133,337 | $150,778 | | BloomNet | - | - | - | | Gourmet Foods & Gift Baskets | $57,270 | - | $57,270 | | Total | $74,711 | $133,337 | $208,048 | Other Intangible Assets (in thousands) | Category | September 27, 2020 Net | June 28, 2020 Net | | :-------------------------------- | :--------------------- | :---------------- | | Intangible assets with determinable lives | $14,396 | $4,082 | | Trademarks with indefinite lives | $127,191 | $62,191 | | Total Identifiable Intangible Assets | $141,587 | $66,273 | - Goodwill increased significantly to $208.0 million, primarily due to the $133.3 million allocated from the PersonalizationMall acquisition, which is primarily related to synergistic value and enhanced scale[47][60] - Total identifiable intangible assets increased to $141.6 million, largely due to the acquisition of PersonalizationMall, which added $65.0 million in tradenames (indefinite life) and $11.0 million in customer lists (4-year life)[47][60] Note 7 – Investments This note provides details on the company's equity investments, including non-marketable instruments and trading securities Equity Investments (in millions) | Type | September 27, 2020 | June 28, 2020 | | :------------------------------------------------ | :------------------- | :------------ | | Non-marketable equity instruments (cost method) | $3.1 | $2.8 | | Trading securities (NQDC Plan, fair value) | $16.3 | $13.4 | Note 8 – Debt This note details the company's debt composition, including revolving credit facilities and term loans, and future principal payments Debt Composition (in thousands) | Category | September 27, 2020 | June 28, 2020 | | :-------------------------- | :------------------- | :------------ | | Revolver | $25,000 | - | | Term Loans | $192,500 | $95,000 | | Deferred financing costs | $(4,478) | $(2,441) | | Total Debt | $213,022 | $92,559 | | Less: Current Debt | $37,500 | $5,000 | | Long-term Debt | $175,522 | $87,559 | - On August 20, 2020, the Company amended its 2019 Credit Agreement, increasing the Revolver commitments to $250.0 million and establishing a new $100.0 million Term A-1 Loan, which was used to repay $95.0 million drawn on the Revolver for the PersonalizationMall acquisition[65][97] Future Principal Payments under Term Loan and New Term Loan (in millions) | Fiscal Year | Amount | | :---------------- | :----- | | 2021 (remainder) | $7.5 | | 2022 | $20.0 | | 2023 | $20.0 | | 2024 | $145.0 | Note 9 – Property, Plant and Equipment This note presents the composition of property, plant, and equipment, highlighting changes from acquisitions and capital expenditures Property, Plant and Equipment (in thousands) | Category | September 27, 2020 Gross | June 28, 2020 Gross | | :----------------------------------- | :----------------------- | :------------------ | | Land | $30,789 | $30,789 | | Orchards in production and land improvements | $17,282 | $17,139 | | Building and building improvements | $61,670 | $61,159 | | Leasehold improvements | $25,525 | $13,675 | | Production equipment | $74,645 | $57,904 | | Furniture and fixtures | $7,837 | $7,444 | | Computer and telecommunication equipment | $55,381 | $55,381 | | Software | $151,264 | $151,264 | | Capital projects in progress - orchards | $8,130 | $8,130 | | Total Gross PP&E | $432,523 | $402,885 | | Accumulated depreciation and amortization | $(241,480) | $(233,810) | | Net PP&E | $191,043 | $169,075 | - Net property, plant and equipment increased from $169.1 million to $191.0 million, primarily due to the PersonalizationMall acquisition which included recently acquired production equipment and leasehold improvements[45][68][69] Note 10 – Fair Value Measurements This note describes financial assets measured at fair value, specifically trading securities held in a 'rabbi trust' Financial Assets Measured at Fair Value (in thousands) | Asset | September 27, 2020 | June 28, 2020 | | :---------------------------------------- | :------------------- | :------------ | | Trading securities held in a "rabbi trust" | $16,311 | $13,442 | - The company's trading securities held in a "rabbi trust" for its Non-Qualified Deferred Compensation Plan are measured at fair value using Level 1 inputs (quoted market prices)[73] Note 11 – Income Taxes This note provides details on the company's income tax benefit, effective tax rate, and unrecognized tax benefits Income Tax Information | Metric | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | | :-------------------------- | :------------------------------ | :------------------------------ | | Income Tax Benefit | $(3,740) | $(6,061) | | Effective Tax Rate | 27.7% | 28.4% | | Unrecognized Tax Benefit (incl. interest/penalties) | $1.3 million | N/A | - The effective tax rate for the three months ended September 27, 2020, was 27.7%, differing from the U.S. federal statutory rate of 21% due to state income taxes, nondeductible expenses (executive compensation, transaction costs), and partially offset by permanent differences and tax credits[12][74][76] Note 12 – Business Segments This note provides disaggregated financial information by the company's three business segments, including net revenues and contribution margin - The company operates in three business segments: Consumer Floral & Gifts, BloomNet, and Gourmet Foods & Gift Baskets. Segment performance is measured by contribution margin, excluding corporate overhead, depreciation, amortization, other income/expense, and stock-based compensation[77] Net Revenues by Segment (in thousands) | Segment | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | % Change | | :-------------------------- | :------------------------------ | :------------------------------ | :----------- | | Consumer Floral & Gifts | $161,546 | $90,768 | +78.0% | | BloomNet | $32,738 | $25,440 | +28.7% | | Gourmet Foods & Gift Baskets | $89,929 | $71,215 | +26.3% | | Total Net Revenues | $283,772 | $187,263 | +51.5% | Segment Contribution Margin (non-GAAP, in thousands) | Segment | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | % Change | | :-------------------------- | :------------------------------ | :------------------------------ | :----------- | | Consumer Floral & Gifts | $19,236 | $8,524 | +125.7% | | BloomNet | $10,421 | $8,357 | +24.7% | | Gourmet Foods & Gift Baskets | $(2,581) | $(6,600) | +54.8% | | Segment Contribution Margin Subtotal | $27,076 | $10,281 | +159.4% | Disaggregated Revenue by Channel (in thousands) | Channel | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | | :-------------------------- | :------------------------------ | :------------------------------ | | E-commerce | $238,863 | $129,050 | | Retail | $2,519 | $8,429 | | Wholesale | $20,577 | $32,511 | | BloomNet services | $21,446 | $16,692 | | Other | $808 | $741 | | Corporate | $106 | $195 | | Eliminations | $(547) | $(355) | | Total Net Revenues | $283,772 | $187,263 | Note 13 – Leases This note details the company's lease costs, including operating, variable, and short-term leases, and future lease liability maturities Lease Costs (in thousands) | Category | Three Months Ended Sep 27, 2020 | | :-------------------------- | :------------------------------ | | Operating lease costs | $3,347 | | Variable lease costs | $4,199 | | Short-term lease cost | $1,807 | | Sublease income | $(205) | | Total Lease Costs | $9,148 | Maturities of Lease Liabilities (in thousands) | Period | Amount | | :-------------------------- | :----- | | Remainder of 2021 | $10,560 | | 2022 | $13,697 | | 2023 | $13,369 | | 2024 | $12,819 | | 2025 | $10,529 | | Thereafter | $52,026 | | Total Future Minimum Lease Payments | $113,000 | | Less Imputed Remaining Interest | $19,060 | | Total | $93,940 | - The weighted-average remaining lease term for operating leases is 9.3 years, with a weighted-average discount rate of 3.8%[86] Note 14 – Commitments and Contingencies This note discusses the settlement of the PersonalizationMall acquisition litigation and management's assessment of other legal matters - Litigation with Bed Bath & Beyond Inc. regarding the PersonalizationMall acquisition was settled on July 21, 2020, with the Company agreeing to proceed with the purchase for $245.0 million, leading to the voluntary dismissal of the lawsuit[88][176] - Management believes that the final resolution of other various claims, lawsuits, and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity[89][177] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the company's business, recent acquisitions, COVID-19 impact, financial guidance, and analysis of operations, liquidity, and capital resources Overview This section introduces 1-800-FLOWERS.COM, Inc. as a leading gift provider with an 'all-star family of brands' and loyalty program - 1-800-FLOWERS.COM, Inc. is a leading provider of gifts, operating an 'all-star family of brands' including 1-800-Flowers.com®, Harry & David®, PersonalizationMall.com®, and Shari's Berries®, among others. The Celebrations Passport® loyalty program offers free standard shipping across brands[92] - The company also operates BloomNet®, an international floral service provider, and DesignPac Gifts, LLC, a gift basket manufacturer[92] Recent Developments This section highlights the acquisition of PersonalizationMall.com and the amendment of the company's credit agreement - On August 3, 2020, the Company acquired PersonalizationMall.com LLC, a leading e-commerce provider of personalized products, for $245.0 million, funded by cash and existing credit facilities[95][96] - On August 20, 2020, the Company amended its credit agreement, increasing the Revolver commitments to $250.0 million and establishing a new $100.0 million Term A-1 Loan, used to repay the $95.0 million drawn for the PersonalizationMall acquisition[97] COVID-19 Impact and Business Strategy This section discusses the impact of the COVID-19 pandemic on demand, operational challenges, and the company's strategic response - The COVID-19 pandemic has led to strong e-commerce demand for gourmet foods, gift baskets, floral, and personalized products, a trend expected to continue[99] - Headwinds include permanent closure of 38 Harry & David retail stores (incurring a $5.2 million charge and $33.0 million annual revenue loss), reduced wholesale volume due to cautious big-box retailers, increased operating costs for employee safety, and third-party carrier capacity constraints[99][100] - The company's strategy focuses on three key elements: ensuring the health and safety of associates and partners, maintaining financial strength and flexibility, and continuing to invest in areas that drive future growth[101] Company Guidance This section outlines the company's fiscal second quarter 2021 guidance, noting the absence of full fiscal year guidance due to uncertainty - Due to significant economic uncertainty from COVID-19, the Company is not providing full fiscal 2021 guidance[102] Fiscal Second Quarter 2021 Guidance | Metric | Expected Growth Range (YoY) | | :-------------------------- | :-------------------------- | | Total Consolidated Revenue | 22% - 26% | | E-commerce Revenue | >40% | | Adjusted EBITDA and EPS | 18.0% - 23.0% | - Anticipated strong revenue growth is expected to offset headwinds such as increased third-party shipping costs, higher labor expenses, and elevated operating costs due to the pandemic[104] Definitions of Non-GAAP Financial Measures This section defines the non-GAAP financial measures used by the company, including EBITDA, Adjusted EBITDA, and segment contribution margin - The company uses non-GAAP financial measures such as EBITDA (Net income/loss before interest, taxes, depreciation, and amortization) and Adjusted EBITDA (EBITDA adjusted for stock-based compensation, NQDC Plan investment appreciation/depreciation, and certain comparability items) to provide supplemental performance insights[106] - Segment contribution margin (earnings before interest, taxes, depreciation, amortization, and corporate overhead allocation) and adjusted segment contribution margin are used to assess business segment performance[109] - Adjusted net income (loss) and adjusted or comparable net income (loss) per common share are used to enhance period-to-period comparability[112][113] Segment Information This section provides a detailed breakdown of net revenues, gross profit, and Adjusted EBITDA by the company's operating segments Net Revenues by Segment (in thousands) | Segment | Sep 27, 2020 | Sep 29, 2019 | % Change | | :-------------------------- | :----------- | :----------- | :----------- | | Consumer Floral & Gifts | $161,546 | $90,768 | 78.0% | | BloomNet | $32,738 | $25,440 | 28.7% | | Gourmet Foods & Gift Baskets | $89,929 | $71,215 | 26.3% | | Corporate | $106 | $195 | -45.6% | | Intercompany eliminations | $(547) | $(355) | -54.1% | | Total Net Revenues | $283,772 | $187,263 | 51.5% | Gross Profit by Segment (in thousands) | Segment | Sep 27, 2020 | Sep 29, 2019 | % Change | | :-------------------------- | :----------- | :----------- | :----------- | | Consumer Floral & Gifts | $65,586 (40.6%) | $36,050 (39.7%) | 81.9% | | BloomNet | $14,838 (45.3%) | $12,958 (50.9%) | 14.5% | | Gourmet Foods & Gift Baskets | $35,007 (38.9%) | $27,042 (38.0%) | 29.5% | | Corporate | $49 (46.2%) | $96 (49.2%) | -49.0% | | Total Gross Profit | $115,480 (40.7%) | $76,146 (40.7%) | 51.7% | Adjusted EBITDA (non-GAAP, in thousands) | Metric | Sep 27, 2020 | Sep 29, 2019 | % Change | | :-------------------------- | :----------- | :----------- | :----------- | | EBITDA | $(4,621) | $(13,018) | 99.0% | | Add: Stock-based compensation | $2,393 | $1,765 | 35.6% | | Add: NQDC Plan Investment Appreciation | $980 | $(44) | 2327.3% | | Add: PersonalizationMall Litigation/Transaction Costs | $4,890 | - | N/A | | Deduct: Harry & David Store Closure Cost Adjustment | $(405) | - | N/A | | Adjusted EBITDA | $3,237 | $(11,297) | 128.7% | Results of Operations This section analyzes the company's financial performance, including net revenues, gross profit, and operating expenses for the quarter Net Revenues This section analyzes the drivers of net revenue growth, including e-commerce performance and segment-specific contributions Net Revenues by Channel (in thousands) | Channel | Sep 27, 2020 | Sep 29, 2019 | % Change | | :-------------------------- | :----------- | :----------- | :----------- | | E-Commerce | $238,863 | $129,050 | 85.1% | | Other | $44,909 | $58,213 | -22.9% | | Total Net Revenues | $283,772 | $187,263 | 51.5% | - E-commerce revenues surged by 85.1% year-over-year, driven by 97.9% growth in Gourmet Foods & Gift Baskets and 79.4% growth in Consumer Floral & Gifts (including $20.4 million from PersonalizationMall). The company fulfilled 3.0 million e-commerce orders, a 67.0% increase, with average order value rising 1.4% to $72.19[127] - Other revenues decreased by 22.9%, primarily due to a 65.3% decline in the Gourmet Foods & Gift Baskets segment (wholesale volume reduction and Harry & David retail store closures), partially offset by a 28.7% increase in BloomNet Wire Service revenues[128] - Consumer Floral & Gifts net revenues increased 78.0% (55.5% pro-forma excluding PersonalizationMall), BloomNet net revenues increased 28.7%, and Gourmet Foods & Gift Baskets net revenues increased 26.3%[129][130][131] Gross Profit This section examines the changes in gross profit and gross profit percentage across segments, highlighting factors influencing margins Gross Profit (in thousands) | Metric | Sep 27, 2020 | Sep 29, 2019 | % Change | | :-------------------------- | :----------- | :----------- | :----------- | | Gross profit | $115,480 | $76,146 | 51.7% | | Gross profit % | 40.7% | 40.7% | 0.0% | | Consumer Floral & Gifts Gross Profit % | 40.6% | 39.7% | +90 bps | | BloomNet Gross Profit % | 45.3% | 50.9% | -560 bps | | Gourmet Foods & Gift Baskets Gross Profit % | 38.9% | 38.0% | +90 bps | - Gross profit increased 51.7% to $115.5 million, consistent with revenue growth. The gross profit percentage remained flat at 40.7% as higher margins in Consumer Floral & Gifts (due to PersonalizationMall acquisition) and Gourmet Foods & Gift Baskets were offset by lower margins in BloomNet (due to higher rebates, unfavorable wholesale margins, and increased shipping/merchandise costs)[133][134][135][136] Operating Expenses This section analyzes the trends in marketing and sales, technology and development, general and administrative, and depreciation and amortization expenses Operating Expenses (in thousands) | Expense Category | Sep 27, 2020 | Sep 29, 2019 | % Change | | :-------------------------- | :----------- | :----------- | :----------- | | Marketing and sales | $80,285 (28.3% of rev) | $56,839 (30.4% of rev) | 41.2% | | Technology and development | $11,603 (4.1% of rev) | $10,803 (5.8% of rev) | 7.4% | | General and administrative | $28,213 (9.9% of rev) | $21,522 (11.5% of rev) | 31.1% | | Depreciation and amortization | $8,840 (3.1% of rev) | $7,635 (4.1% of rev) | 15.8% | - Marketing and sales expense increased 41.2% due to incremental marketing efforts to accelerate revenue growth and capture market share, but decreased as a percentage of net revenues from 30.4% to 28.3% due to operational efficiencies[140] - General and administrative expense increased 31.1%, primarily due to $4.9 million in PersonalizationMall transaction and litigation costs, higher labor costs (including PersonalizationMall), and COVID-19 related expenses[144] - Depreciation and amortization expense increased 15.8% due to incremental depreciation and customer list amortization associated with PersonalizationMall[145] Interest Expense, Net This section discusses the increase in net interest expense, primarily driven by lower interest income on cash balances Interest Expense, Net (in thousands) | Metric | Sep 27, 2020 | Sep 29, 2019 | % Change | | :-------------------------- | :----------- | :----------- | :----------- | | Interest expense, net | $1,040 | $595 | 74.8% | - Interest expense, net increased 74.8%, primarily due to lower interest income on cash balances resulting from lower interest rates. Interest expense on debt remained consistent as lower rates on existing debt were offset by incremental interest from the New Term Loan for the PersonalizationMall acquisition[148] Other (Income) Expense, Net This section explains the components of other income (expense), net, primarily an investment gain on deferred compensation plan assets Other (Income) Expense, Net (in thousands) | Metric | Sep 27, 2020 | Sep 29, 2019 | % Change | | :-------------------------- | :----------- | :----------- | :----------- | | Other income (expense), net | $999 | $(84) | 1289.3% | - Other income, net, was $1.0 million, primarily consisting of investment gain on the Company's Non-Qualified Deferred Compensation Plan assets[149] Income Taxes This section details the income tax benefit and effective tax rate, noting factors influencing the rate Income Tax Information | Metric | Three Months Ended Sep 27, 2020 | Three Months Ended Sep 29, 2019 | | :-------------------------- | :------------------------------ | :------------------------------ | | Income Tax Benefit | $(3,740) | $(6,061) | | Effective Tax Rate | 27.7% | 28.4% | | Unrecognized Tax Benefit (incl. interest/penalties) | $1.3 million | N/A | - The effective tax rate for the three months ended September 27, 2020, was 27.7%, influenced by state income taxes, nondeductible expenses, and tax credits[150] Liquidity and Capital Resources This section discusses the company's liquidity sources, working capital, and the impact of the COVID-19 pandemic on financial flexibility - Principal liquidity sources are cash on hand, cash flows from operations, and borrowings under the 2020 Credit Agreement[151] Working Capital and Cash Equivalents (in millions) | Metric | September 27, 2020 | June 28, 2020 | | :-------------------------- | :------------------- | :------------ | | Working Capital | $41.5 | $198.3 | | Cash and Cash Equivalents | $11.0 | $240.5 | - The company borrowed $25.0 million under its revolving credit agreement in Q1 fiscal 2021 to fund pre-holiday manufacturing and inventory procurement, with expectations to repay these borrowings from Q2 holiday season cash flows[152] - Despite the COVID-19 pandemic, the company has not identified any material liquidity deficiencies and does not expect a negative impact on its liquidity, believing its operating platform and diversified product line will help navigate the environment[154] Cash Flows This section analyzes cash flows from operating, investing, and financing activities for the quarter, highlighting key drivers - Net cash used in operating activities was $90.7 million, primarily due to net loss and seasonal working capital changes (increases in inventory, trade receivables, and prepaids)[159] - Net cash used in investing activities was $258.2 million, mainly for the $250.9 million PersonalizationMall acquisition and $7.0 million in capital expenditures[160] - Net cash provided by financing activities was $119.4 million, driven by $220.0 million in bank borrowings, including a new $100.0 million Term Loan, partially offset by $97.5 million in Revolver repayments[161] Stock Repurchase Program This section provides an update on the company's stock repurchase program, including authorized amounts and recent purchases - The Board of Directors authorized an increase of up to $30.0 million to the stock repurchase plan on June 27, 2019. As of September 27, 2020, $18.2 million remained authorized[179] Common Stock Purchases (in thousands, except share price) | Period | Total Shares Purchased | Average Price Paid Per Share | | :-------------------------- | :--------------------- | :--------------------------- | | 08/24/20 - 09/27/20 | 36,355 | $29.94 | | Total (July 1 - Sep 27, 2020) | 36,355 | $29.94 | Contractual Obligations This section outlines the company's contractual obligations, including long-term debt, operating leases, and purchase commitments - Contractual obligations include long-term debt, operating lease obligations, and purchase commitments[163] Purchase Commitments Payments Due by Period (in thousands) | Period | Amount | | :-------------------------- | :----- | | Remainder of Fiscal 2021 | $90,897 | | Fiscal 2022 | $4,104 | | Fiscal 2023 | $3,595 | | Fiscal 2024 | $1,170 | | Total | $99,766 | Critical Accounting Policies and Estimates This section identifies the company's critical accounting policies related to goodwill, intangible assets, and income taxes - 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 these policies since June 28, 2020[164] Recently Issued Accounting Pronouncements This section refers to Note 1 for details on the impact of recently issued accounting standards - Details regarding the impact of recently issued accounting standards on consolidated financial statements are provided in Note 1 – Accounting Policies[165] Forward Looking Information and Factors that May Affect Future Results This section highlights risks and uncertainties associated with forward-looking statements, including operational, market, and economic factors - Forward-looking statements are subject to risks and uncertainties, including the company's ability to achieve revenue and profitability, leverage its operating platform, manage seasonality, acquire and retain customers, integrate acquisitions, manage working capital and capital expenditures, compete, manage expenses, and cost-effectively manage inventories[166] - Other factors include the outcome of contingencies (e.g., legal proceedings), general consumer sentiment and economic conditions, and the ongoing impact of COVID-19 on the business and financial statements[167] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily focusing on interest rate risk related to its cash investments and variable-rate debt Interest Rate Risk This section details the company's exposure to interest rate fluctuations on its cash balances and variable-rate debt - The company's exposure to market risk from interest rate changes primarily relates to its investment of available cash balances and its long-term debt[171] - Borrowings under the 2020 Credit Agreement bear interest at a variable rate, exposing the company to interest rate fluctuations. A 50 basis point increase in current interest rates would result in an approximate $0.1 million increase in interest expense for the three months ended September 27, 2020[171] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of the reporting period - The company's management, including the CEO and CFO, concluded that the disclosure controls and procedures were effective as of September 27, 2020[173] Changes in Internal Control over Financial Reporting This section reports on any material changes in internal control over financial reporting during the quarter - There were no material changes in internal control over financial reporting identified during the quarter ended September 27, 2020. Appropriate actions and safeguards were taken to ensure fair presentation of financial statements despite any COVID-19 impact on normal procedures[174] Part II. Other Information This section covers legal proceedings, risk factors, equity security sales, and other miscellaneous disclosures Item 1. Legal Proceedings This section updates on legal proceedings, including the settlement of the PersonalizationMall acquisition litigation - The litigation initiated by Bed Bath & Beyond Inc. against the Company regarding the PersonalizationMall acquisition was settled on July 21, 2020. The Company agreed to proceed with the purchase for $245.0 million, leading to the voluntary dismissal of the lawsuit[175][176] - Management believes that the final resolution of other various claims, lawsuits, and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity[177] Item 1A. Risk Factors This section confirms no material changes to the company's previously disclosed risk factors - There were no material changes to the Company's risk factors as discussed in its Annual Report on Form 10-K for the year ended June 28, 2020[178] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase program, including authorization and recent purchases - The Company's Board of Directors authorized an increase of up to $30.0 million to its stock repurchase plan on June 27, 2019. As of September 27, 2020, $18.2 million remained authorized under the plan[179] Common Stock Purchases (in thousands, except share price) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------- | :----------------------------- | :--------------------------- | | 08/24/20 - 09/27/20 | 36,355 | $29.94 | | Total (July 1 - Sep 27, 2020) | 36,355 | $29.94 | Item 3. Defaults Upon Senior Securities This item is not applicable for the current reporting period Item 4. Mine Safety Disclosures This item is not applicable for the current reporting period Item 5. Other Information This item indicates no other information to report Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications from the principal executive and financial officers (31.1, 31.2, 32.1) and Inline XBRL Instance Document and Taxonomy Extension Documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[183][184] Signatures This section contains the required signatures for the financial report