1-800-FLOWERS.COM(FLWS) - 2023 Q2 - Quarterly Report

markdown [Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the quarterly period ended January 1, 2023, detailing financial position, operational results, and cash movements [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of January 1, 2023, the company's total assets were $1.22 billion, an increase from $1.09 billion on July 3, 2022, driven by a significant rise in cash and cash equivalents to $189.7 million from $31.5 million, while total liabilities increased to $656.5 million from $585.5 million, and total stockholders' equity grew to $560.5 million from $509.4 million Condensed Consolidated Balance Sheets (Unaudited) | | January 1, 2023 | July 3, 2022 | | :--- | :--- | :--- | | | (in thousands) | (in thousands) | | **Total current assets** | $468,731 | $348,238 | | **Total assets** | $1,216,999 | $1,094,891 | | **Total current liabilities** | $344,310 | $265,697 | | **Total liabilities** | $656,473 | $585,482 | | **Total stockholders' equity** | $560,526 | $509,409 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) For the three months ended January 1, 2023, net revenues were $897.9 million, a 4.8% decrease from $943.0 million in the prior-year period, with net income for the quarter at $82.5 million, down from $88.5 million, and for the six-month period, net revenues decreased by 4.1% to $1.20 billion, and net income fell to $48.8 million from $75.3 million year-over-year Condensed Consolidated Statements of Operations (Unaudited) | (in thousands) | Three Months Ended Jan 1, 2023 | Three Months Ended Dec 26, 2021 | Six Months Ended Jan 1, 2023 | Six Months Ended Dec 26, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net revenues** | $897,877 | $943,044 | $1,201,481 | $1,252,417 | | **Gross profit** | $367,766 | $378,450 | $469,224 | $503,964 | | **Operating income** | $115,125 | $115,729 | $73,765 | $95,405 | | **Net income** | $82,530 | $88,468 | $48,838 | $75,269 | | **Diluted net income per common share** | $1.27 | $1.34 | $0.75 | $1.14 | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased from $509.4 million at July 3, 2022, to $560.5 million at January 1, 2023, primarily driven by net income of $48.8 million for the six-month period, partially offset by the acquisition of treasury stock for $1.2 million - For the six months ended **January 1, 2023**, total stockholders' equity increased by **$51.1 million**, from **$509.4 million** to **$560.5 million**[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended January 1, 2023, net cash provided by operating activities was $193.7 million, compared to $185.8 million in the prior-year period, with net cash used in investing activities at $23.8 million, mainly for capital expenditures, and net cash used in financing activities at $11.6 million, primarily due to net repayments of bank borrowings and treasury stock acquisitions, resulting in a $158.3 million increase in cash and cash equivalents during the period Condensed Consolidated Statements of Cash Flows (Unaudited) | (in thousands) | Six months ended Jan 1, 2023 | Six months ended Dec 26, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $193,660 | $185,848 | | **Net cash used in investing activities** | $(23,849) | $(53,394) | | **Net cash used in financing activities** | $(11,558) | $(34,959) | | **Net change in cash and cash equivalents** | $158,253 | $97,495 | | **Cash and cash equivalents, end of period** | $189,718 | $271,068 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on accounting policies, revenue recognition, seasonality, and significant events including acquisitions and a lawsuit settlement - The company's business is highly seasonal, with the second fiscal quarter (Thanksgiving through Christmas) expected to generate over **40%** of annual revenues and all of its earnings[22](index=22&type=chunk) - On January 10, 2023, the Company acquired the Things Remembered brand for **$5.0 million** in cash[83](index=83&type=chunk)[84](index=84&type=chunk) - In November 2022, the company paid a **$2.9 million** settlement for a class-action lawsuit related to call center worker claims, which had been previously accrued[81](index=81&type=chunk) - The company finalized the purchase price allocation for the Vital Choice acquisition, resulting in goodwill of **$5.0 million** and intangible assets of **$9.2 million**[38](index=38&type=chunk)[40](index=40&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results, highlighting a 4.1% revenue decline for the first six months of fiscal 2023 due to macroeconomic pressures on consumer discretionary spending, with gross profit margin improving in the second quarter due to pricing initiatives and cost optimization, and updated full-year fiscal 2023 guidance expecting a mid-single-digit revenue decline, Adjusted EBITDA between $80-$85 million, and Free Cash Flow over $75 million, while liquidity remains strong with cash from holiday operations used to repay revolver borrowings - Consumer behavior reflects significant inflationary pressures, with spending on "Everyday" gifting occasions slowing while major holiday spending has held up better[95](index=95&type=chunk) - The company is updating its fiscal 2023 guidance, expecting revenues to decline in the mid-single-digit range, Adjusted EBITDA of **$80 million** to **$85 million**, and Free Cash Flow to exceed **$75 million**[98](index=98&type=chunk)[100](index=100&type=chunk) - On January 10, 2023, the company acquired the Things Remembered brand for **$5.0 million**, which will be integrated into the PersonalizationMall brand within the Consumer Floral & Gifts segment[91](index=91&type=chunk)[92](index=92&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) For the six months ended January 1, 2023, net revenues decreased **4.1%** to **$1.20 billion**, driven by a **5.6%** decline in e-commerce revenues due to lower demand for "Everyday" gifts, with the Consumer Floral & Gifts segment seeing an **11.5%** revenue drop, while Gourmet Foods & Gift Baskets grew **1.2%**, and gross profit margin for the six months fell **110 basis points** to **39.1%** due to cost pressures in Q1, though Q2 saw a **90 basis point** improvement, and operating expenses decreased, with marketing and sales down **6.1%**, while technology and development costs rose **10.3%** Net Revenues by Channel (Six Months Ended) | Channel | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | E-Commerce | $1,029,332 | $1,090,893 | -5.6% | | Other | $172,149 | $161,524 | 6.6% | | **Total** | **$1,201,481** | **$1,252,417** | **-4.1%** | Net Revenues by Segment (Six Months Ended) | Segment | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Consumer Floral & Gifts | $439,229 | $496,312 | -11.5% | | BloomNet | $66,219 | $68,764 | -3.7% | | Gourmet Foods & Gift Baskets | $696,659 | $688,428 | 1.2% | | **Total** | **$1,201,481** | **$1,252,417** | **-4.1%** | - Gross profit margin decreased by **110 basis points** to **39.1%** for the six-month period, reflecting macroeconomic headwinds in Q1, but improved by **90 basis points** in Q2 due to pricing initiatives, lower freight costs, and automation[138](index=138&type=chunk) - Marketing and sales expense decreased **6.1%** for the six-month period due to lower variable costs associated with reduced revenues and more efficient advertising spend[145](index=145&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company's primary liquidity sources are cash on hand, operating cash flows, and its credit facility, with working capital of $124.4 million and cash of $189.7 million as of January 1, 2023, and utilized its revolving credit facility to fund pre-holiday inventory, with borrowings peaking at $195.9 million in November 2022, which were fully repaid in December 2022 using cash from holiday sales, and believes available cash is sufficient for operating needs for the remainder of fiscal 2023 - At **January 1, 2023**, the Company had working capital of **$124.4 million**, including cash and cash equivalents of **$189.7 million**[157](index=157&type=chunk) - The company borrowed up to **$195.9 million** under its revolver during the first two quarters of fiscal 2023 for seasonal inventory needs and fully repaid the borrowings by the end of the second quarter[159](index=159&type=chunk) - Net cash provided by operating activities for the six months ended January 1, 2023, was **$193.7 million**[161](index=161&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risk primarily from changes in interest rates affecting its long-term debt and investment of cash balances, with borrowings under the credit facility having a variable interest rate, where a hypothetical **50 basis point** increase in interest rates would have increased interest expense by approximately **$0.7 million** for the six months ended January 1, 2023 - The company's primary market risk is interest rate changes on its variable-rate long-term debt[172](index=172&type=chunk)[173](index=173&type=chunk) - A **50 basis point** increase in interest rates would have resulted in an approximate **$0.7 million** increase in interest expense for the six months ended January 1, 2023[173](index=173&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that as of **January 1, 2023**, the company's disclosure controls and procedures were not effective due to a previously reported material weakness in internal control over financial reporting related to logical access and segregation of duties in certain IT environments, with remediation steps ongoing, but management asserts the consolidated financial statements are fairly presented in accordance with GAAP - The company's disclosure controls and procedures were deemed not effective as of **January 1, 2023**, due to a material weakness in internal control over financial reporting[174](index=174&type=chunk) - The material weakness relates to logical access and segregation of duties at the application control level in certain IT environments, first identified in the Form 10-K for the period ending July 3, 2022[174](index=174&type=chunk) - Management has begun implementing remedial actions, including redesigning logical access and enhancing segregation of duties, but the weakness is not yet considered fully remediated[175](index=175&type=chunk) [Part II. Other Information](index=41&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) This section details a settlement for a putative class action lawsuit filed in March 2018 against a subsidiary regarding call center worker claims, where in November 2022, the company paid approximately **$2.9 million** to resolve all claims, a sum that was previously accrued, and the company states that other pending claims are not expected to have a material adverse effect on its financial position - A class action lawsuit filed in March 2018 concerning call center worker pay was settled, with the company remitting a payment of approximately **$2.9 million** in November 2022, which had been previously accrued[178](index=178&type=chunk) - Management believes that the final resolution of other various claims and lawsuits will not materially impact the company's financial position, results, or liquidity[179](index=179&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended July 3, 2022 - No material changes were reported to the Company's risk factors as discussed in the Annual Report on Form 10-K for the year ended July 3, 2022[180](index=180&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has an ongoing stock repurchase plan, with the Board of Directors authorizing increases of up to $40.0 million in April 2021 and another $40.0 million in February 2022, and during the six months ended January 1, 2023, the company repurchased **140,248 shares** for approximately **$1.2 million**, with **$32.0 million** remaining authorized for future repurchases under the plan as of January 1, 2023 - As of January 1, 2023, **$32.0 million** remained authorized for repurchase under the company's stock repurchase plan[181](index=181&type=chunk) Common Stock Purchases (Six Months Ended Jan 1, 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | 07/04/22 - 10/02/22 | - | - | | 10/03/22 - 10/30/22 | - | - | | 10/31/22 - 11/27/22 | 140,248 | $8.38 | | 11/28/22 – 01/01/23 | - | - | | **Total** | **140,248** | **$8.38** | [Item 3. Defaults upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) Not applicable [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) None [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the principal executive and financial officers pursuant to the Sarbanes-Oxley Act of 2002, and Inline XBRL data files [Signatures](index=43&type=section&id=Signatures)