1-800-FLOWERS.COM(FLWS) - 2023 Q3 - Quarterly Report

Part I. Financial Information Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, highlighting a decrease in total assets, a significant net loss due to goodwill impairment, and increased operating cash flow Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | April 2, 2023 (in thousands) | July 3, 2022 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $319,467 | $348,238 | | Goodwill | $153,376 | $213,287 | | Total Assets | $998,787 | $1,094,891 | | Total Current Liabilities | $205,092 | $265,697 | | Long-term debt, net | $128,112 | $142,497 | | Total Liabilities | $506,789 | $585,482 | | Total Stockholders' Equity | $491,998 | $509,409 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended April 2, 2023 (in thousands) | Three Months Ended March 27, 2022 (in thousands) | Nine Months Ended April 2, 2023 (in thousands) | Nine Months Ended March 27, 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $417,566 | $469,576 | $1,619,047 | $1,721,993 | | Gross Profit | $140,440 | $154,091 | $609,664 | $658,055 | | Goodwill and intangible impairment | $64,586 | $0 | $64,586 | $0 | | Operating Income (Loss) | $(84,644) | $(26,256) | $(10,879) | $69,149 | | Net Income (Loss) | $(70,993) | $(23,409) | $(22,155) | $51,860 | | Diluted Net Income (Loss) per Share | $(1.10) | $(0.36) | $(0.34) | $0.79 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Nine Months Ended April 2, 2023 (in thousands) | Nine Months Ended March 27, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $73,064 | $38,728 | | Net cash used in investing activities | $(36,351) | $(70,050) | | Net cash used in financing activities | $(16,580) | $(49,226) | | Net change in cash and cash equivalents | $20,133 | $(80,548) | Notes to Condensed Consolidated Financial Statements This section details accounting policies and financial items, including business seasonality, revenue recognition, a $64.6 million goodwill impairment, recent acquisitions, debt structure, and segment performance - 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[23] - On January 10, 2023, the Company acquired certain assets of the Things Remembered brand for $5.0 million in cash, including intellectual property, customer lists, and inventory[39] - During the quarter ended April 2, 2023, the Company recorded a goodwill and intangible impairment charge of $64.6 million against its Gourmet Foods & Gift Baskets reporting unit due to macroeconomic pressures and revised forecasts[62] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting significant revenue declines from macroeconomic pressures, a $64.6 million goodwill impairment, the Things Remembered acquisition, and updated fiscal 2023 guidance, while focusing on margin improvement and expense control Business Overview & Recent Developments The company, a leading gift provider with brands like 1-800-Flowers.com®, expanded offerings through recent acquisitions including Things Remembered, and amended its credit agreement for greater financial flexibility - On January 10, 2023, the company acquired certain assets of the Things Remembered brand for $5.0 million to be integrated into the PersonalizationMall.com brand[103] - The company amended its credit agreement on August 29, 2022, to increase the maximum consolidated leverage ratio and decrease the minimum fixed charge coverage ratio for certain periods, providing greater financial flexibility[105] Macro-Economic Factors & Company Guidance Macroeconomic factors like inflation and recession fears are pressing consumer discretionary spending, particularly for "Everyday" gifting, leading the company to focus on gross margin improvement, expense control, and updated fiscal 2023 guidance - Consumer discretionary spending remains pressured due to inflation, interest rate hikes, and recession fears, leading to moderated purchasing for "Everyday" gifting occasions[106] Updated Fiscal 2023 Guidance | Metric | Guidance | | :--- | :--- | | Total Revenues | Decline approximately 8% vs. prior year | | Adjusted EBITDA | Range of $85.0 million to $90.0 million | | Free Cash Flow | Exceed $75.0 million | Results of Operations The company's results reflect significant macroeconomic challenges, with net revenues declining 11.1% for the quarter and 6.0% for nine months, an improved gross profit margin in Q3, and a substantial operating loss due to a $64.6 million goodwill impairment charge Net Revenue Performance | Period | Net Revenue (in thousands) | % Change YoY | | :--- | :--- | :--- | | Three Months Ended April 2, 2023 | $417,566 | -11.1% | | Nine Months Ended April 2, 2023 | $1,619,047 | -6.0% | - The decline in revenue was primarily due to lower volume across all segments, as consumers moderated spending on "Everyday" gifting occasions[135] - A goodwill and intangible impairment charge of $64.6 million was recorded for the Gourmet Foods & Gift Baskets reporting unit during the quarter ended April 2, 2023[173] Liquidity and Capital Resources The company's liquidity relies on cash, operations, and its credit facility, with working capital increasing to $114.4 million and net cash from operations significantly rising to $73.1 million due to non-cash charges and inventory changes - At April 2, 2023, the Company had working capital of $114.4 million, including $51.6 million in cash and cash equivalents[179] - Net cash provided by operating activities for the nine months ended April 2, 2023, was $73.1 million, primarily due to the net loss adjusted for large non-cash charges like goodwill impairment ($64.6 million) and depreciation ($40.3 million), along with a decrease in inventory[183] - The Company is in the process of refinancing its Credit Agreement, which matures in May 2024[182] Critical Accounting Estimates This section highlights critical accounting estimates, focusing on the interim impairment evaluation for goodwill and intangible assets, which led to a write-down for the Gourmet Foods & Gift Baskets reporting unit due to macroeconomic pressures and revised forecasts - A triggering event for an interim impairment test was identified for the Gourmet Foods & Gift Baskets reporting unit during the quarter ended April 2, 2023[189] - The impairment test resulted in a charge of $64.6 million, with $62.3 million attributed to goodwill and $2.3 million to certain tradenames within the reporting unit[195] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate changes affecting its variable-rate long-term debt, where a hypothetical 50 basis point increase would raise interest expense by approximately $0.9 million - The company's main market risk is from interest rate changes on its variable-rate debt[202] - A hypothetical 50 basis point increase in interest rates would have increased interest expense by approximately $0.9 million for the nine months ended April 2, 2023[203] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of April 2, 2023, due to a material weakness in IT logical access and segregation of duties, which the company is actively remediating - Disclosure controls and procedures were deemed not effective as of April 2, 2023, due to a material weakness in internal control over financial reporting[204] - The material weakness relates to logical access and segregation of duties in certain IT environments and was first identified in the Annual Report for the fiscal year ended July 3, 2022[204] - Management has implemented remedial steps, but the weakness is not considered fully remediated until the new processes have been operational for a sufficient period and tested[205] Part II. Other Information Legal Proceedings This section details the resolution of a class action lawsuit concerning call center worker claims, settled for approximately $2.9 million, with management believing other pending claims will not materially affect the company's financial position - A class action lawsuit filed in March 2018 regarding call center worker pay was settled, with the company remitting approximately $2.9 million in November 2022 to resolve all claims without admitting liability[209] Risk Factors No material changes to the company's risk factors were reported for the period, consistent with disclosures in the prior Annual Report on Form 10-K - No material changes to the Company's risk factors were reported for the period[211] Unregistered Sales of Equity Securities and Use of Proceeds The company's stock repurchase plan had $32.0 million authorized as of April 2, 2023, with 142,005 shares repurchased at an average price of $8.42 per share during the nine months of fiscal 2023 - As of April 2, 2023, $32.0 million remained authorized under the company's stock repurchase plan[213] Common Stock Repurchases (Nine Months Ended April 2, 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | 07/04/22 - 04/02/23 | 142,005 | $8.42 |