1-800-FLOWERS.COM(FLWS) - 2023 Q4 - Annual Report

Part I Business Overview 1-800-FLOWERS.COM, Inc. is a leading multi-brand e-commerce gift provider, operating three segments with highly seasonal revenue - The company operates under a multi-brand strategy, including well-known names like 1-800-Flowers.com®, Harry & David®, Cheryl's Cookies®, and PersonalizationMall.com®, aiming to be a one-stop destination for gifting[12] - The core strategy is to build a "Celebratory Ecosystem" by expanding product offerings and leveraging its e-commerce platform to deepen customer relationships through programs like Celebrations Passport®[15][19] - The business is highly seasonal, with the second fiscal quarter (encompassing Thanksgiving and Christmas) accounting for approximately 44% of annual revenues in fiscal 2023[40] Business Segments Overview | Segment | Key Brands/Operations | | :--- | :--- | | Consumer Floral & Gifts | 1-800-Flowers.com®, PersonalizationMall.com®, Things Remembered®, FruitBouquets.com®, Alice's Table® | | BloomNet | BloomNet® floral and gift industry service provider, Napco℠ seasonal décor | | Gourmet Foods & Gift Baskets | Harry & David®, Wolferman's Bakery®, The Popcorn Factory®, Cheryl's Cookies®, Vital Choice®, Shari's Berries® | - As of July 2, 2023, the company had approximately 4,200 full and part-time employees, with a significant increase in temporary staff during peak holiday periods[53] Risk Factors The company faces significant risks from macroeconomic conditions, supply chain, competition, IT vulnerabilities, and intellectual property - Macroeconomic conditions, such as inflation and reduced disposable income, negatively impact consumer discretionary spending, which could reduce demand for the Company's products[61] - The company is dependent on international vendors, primarily in Colombia, Ecuador, and Holland, for its supply of flowers, exposing it to risks from trade policies, tariffs, and political instability[67][70] - Intense competition exists across all product categories from a fragmented market of retail shops, online retailers, and mass merchants, which could lead to price reductions and loss of market share[85][86][87] - Significant risks exist related to IT systems, including cybersecurity threats, data breaches, and system interruptions, which could damage customer relationships and harm the business; the increase in remote work has amplified these risks[97][101][104] - The company faces risks related to the protection of its intellectual property, including trademarks like "1-800-FLOWERS.COM" and various domain names, from unauthorized use by third parties[108][110] - A material weakness related to controls over logical access and segregation of duties in certain IT environments was identified as of July 3, 2022, though remediation was completed during Fiscal 2023[107] Unresolved Staff Comments The company has no unresolved written comments from the SEC staff as of July 2, 2023 - There are no unresolved written comments from the SEC staff[126] Properties The company owns and leases various US properties, including major manufacturing, distribution facilities, and over 2,000 acres of orchards Material Properties as of July 2, 2023 | Location | Principal Use | Square Footage / Acres | Ownership | | :--- | :--- | :--- | :--- | | Medford, OR | Manufacturing, distribution, administrative | 1,112,000 sq ft | Owned | | Bolingbrook, IL | Manufacturing, distribution, administrative | 361,176 sq ft | Leased | | Hebron, OH | Manufacturing, distribution, administrative | 330,900 sq ft | Owned | | Jackson County, OR | Orchards | 2,090 acres | Owned | Legal Proceedings The company settled a class action lawsuit for approximately $2.9 million in November 2022, with other pending claims not expected to be material - A class action lawsuit filed in March 2018 against a subsidiary regarding call center worker pay was settled; the company remitted a payment of approximately $2.9 million in November 2022 without admission of liability[450] Mine Safety Disclosures This item is not applicable to the company Part II Common Stock Market, Stockholder Matters, and Equity Purchases The company's Class A common stock trades on NASDAQ, with differing voting rights for Class A and B shares, an active repurchase plan, and no cash dividends - Class A common stock has one vote per share, while Class B common stock has 10 votes per share; Class B stock is convertible to Class A on a one-for-one basis[133] - The company has never declared or paid cash dividends on its common stock and does not plan to in the foreseeable future[138] Stock Repurchase Program Activity | Fiscal Year | Amount Repurchased (in millions) | Shares Repurchased | | :--- | :--- | :--- | | 2023 | $1.2 | 147,479 | | 2022 | $38.2 | 1,592,555 | | 2021 | $22.4 | 862,290 | - As of July 2, 2023, $32.0 million remains authorized for repurchase under the company's stock repurchase plan[135] Reserved This item is reserved Management's Discussion and Analysis (MD&A) Fiscal 2023 revenue declined 8.6% to $2.02 billion due to macroeconomic pressures, impacted by a $64.6 million impairment, with FY2024 projecting a mid-single-digit revenue decline and $95-100 million Adjusted EBITDA Fiscal 2023 Results and Outlook Fiscal 2023 net revenue declined 8.6% to $2.02 billion due to macroeconomic pressures, with a $64.6 million impairment and $91.2 million Adjusted EBITDA, while FY2024 projects mid-single-digit revenue decline and $95-100 million Adjusted EBITDA Fiscal 2023 Key Financial Results | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $2,017.9 M | $2,207.9 M | -8.6% | | Adjusted EBITDA | $91.2 M | $99.0 M | -7.9% | - The company recorded a goodwill and intangible asset impairment charge of $64.6 million ($62.3 million for goodwill and $2.3 million for tradenames) in its Gourmet Foods & Gift Baskets segment during the third quarter of fiscal 2023[150][218] Fiscal 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Total Revenues | Decline in the mid-single digits (%) | | Adjusted EBITDA | $95 million to $100 million | | Free Cash Flow | $60 million to $65 million | Results of Operations Fiscal 2023 net revenues decreased 8.6% to $2.02 billion, with gross margin improving to 37.5%, but a $64.6 million impairment led to an operating loss of $35.0 million Net Revenues by Channel (in thousands) | Channel | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | E-Commerce | $1,744,622 | $1,934,648 | -9.8% | | Other | $273,231 | $273,237 | 0.0% | | Total | $2,017,853 | $2,207,885 | -8.6% | Gross Profit Performance (in thousands) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Gross Profit | $757,526 | $821,738 | | Gross Margin % | 37.5% | 37.2% | - Marketing and sales expense decreased 12.4% in fiscal 2023 due to lower variable costs associated with reduced revenues and more efficient advertising spend[207] - A goodwill and intangible impairment charge of $64.6 million was recorded in fiscal 2023, with no similar charge in the prior year[218] - Interest expense, net, increased 93.2% to $10.9 million in fiscal 2023, driven by higher interest rates and increased working capital borrowings[219][220] Segment Information All three segments experienced revenue declines in fiscal 2023, with Gourmet Foods & Gift Baskets' contribution margin significantly impacted by a $64.6 million impairment charge Segment Net Revenues (FY 2023 vs FY 2022, in thousands) | Segment | FY 2023 Net Revenues | FY 2022 Net Revenues | % Change | | :--- | :--- | :--- | :--- | | Consumer Floral & Gifts | $920,510 | $1,059,570 | -13.1% | | BloomNet | $133,183 | $145,702 | -8.6% | | Gourmet Foods & Gift Baskets | $965,191 | $1,004,272 | -3.9% | Segment Contribution Margin (FY 2023 vs FY 2022, in thousands) | Segment | FY 2023 Contribution Margin | FY 2022 Contribution Margin | | :--- | :--- | :--- | | Consumer Floral & Gifts | $95,535 | $104,319 | | BloomNet | $37,197 | $42,515 | | Gourmet Foods & Gift Baskets | $12,895* | $62,021 | - *The Gourmet Foods & Gift Baskets segment contribution margin for FY 2023 includes a $64.6 million goodwill and intangible impairment charge; on an adjusted basis, the contribution margin was $77.5 million[172] Liquidity and Capital Resources Liquidity is supported by $126.8 million cash and $115.4 million operating cash flow, with a credit agreement amended in June 2023 to increase the term loan to $200 million and extend maturity to 2028 - As of July 2, 2023, the company had working capital of $152.9 million, including $126.8 million in cash and cash equivalents[225] - On June 27, 2023, the company amended its credit agreement, increasing the term loan to $200 million and extending the maturity to June 27, 2028[229][413] Cash Flow Summary (FY 2023, in millions) | Cash Flow Category | Amount | | :--- | :--- | | Net cash provided by operating activities | $115.4 | | Net cash used in investing activities | ($50.8) | | Net cash provided by financing activities | $30.8 | Critical Accounting Estimates Critical accounting estimates include goodwill and intangibles, with a Q3 FY2023 triggering event leading to a $64.6 million impairment for the Gourmet Foods & Gift Baskets segment - Goodwill is tested for impairment at the reporting unit level annually or when triggering events occur, using either a qualitative (Step 0) or quantitative (Step 1) assessment[239][240] - During Q3 of fiscal 2023, a triggering event prompted a Step 1 quantitative analysis for the Gourmet Foods & Gift Baskets reporting unit, resulting in the full impairment of its goodwill and partial impairment of certain tradenames[244][339] - The fair value of reporting units is estimated using an equal weighting of the income approach (discounted cash flow) and the market approach (guideline public company method)[242] Market Risk Disclosures The company's primary market risk is interest rate changes on variable-rate debt, with a hypothetical 50 basis point increase estimated to raise FY2023 interest expense by $1.1 million - The company's main market risk is from interest rate fluctuations on its variable-rate debt under its credit facility[259] - A hypothetical 50 basis point increase in interest rates would have resulted in an approximate $1.1 million increase in interest expense for fiscal year 2023[259] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for FY2023, including Balance Sheets, Statements of Operations, Stockholders' Equity, and Cash Flows, with accompanying notes Consolidated Balance Sheets As of July 2, 2023, total assets were $1.05 billion, total liabilities $579.6 million, and stockholders' equity $471.8 million, reflecting changes in cash, inventories, and goodwill Consolidated Balance Sheet Highlights (in thousands) | Account | July 2, 2023 | July 3, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $126,807 | $31,465 | | Inventories | $191,334 | $247,563 | | Goodwill | $153,376 | $213,287 | | Total Assets | $1,051,430 | $1,094,891 | | Total current liabilities | $220,261 | $265,697 | | Long-term debt, net | $186,391 | $142,497 | | Total Liabilities | $579,587 | $585,482 | | Total Stockholders' Equity | $471,843 | $509,409 | Consolidated Statements of Operations For FY2023, the company reported a net loss of $44.7 million on $2.02 billion revenues, significantly impacted by a $64.6 million impairment charge Consolidated Statement of Operations Highlights (in thousands) | Account | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net revenues | $2,017,853 | $2,207,885 | $2,122,245 | | Gross profit | $757,526 | $821,738 | $896,429 | | Goodwill and intangible impairment | $64,586 | $0 | $0 | | Operating income (loss) | ($35,011) | $42,101 | $149,087 | | Net income (loss) | ($44,702) | $29,610 | $118,652 | | Diluted EPS | ($0.69) | $0.45 | $1.78 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $115.4 million in FY2023, a significant improvement driven by working capital management, resulting in a $95.3 million net increase in cash Consolidated Statement of Cash Flows Highlights (in thousands) | Account | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $115,351 | $5,189 | $173,290 | | Net cash used in investing activities | ($50,829) | ($89,688) | ($307,917) | | Net cash provided by (used in) financing activities | $30,820 | ($57,609) | $67,694 | | Net change in cash and cash equivalents | $95,342 | ($142,108) | ($66,933) | Changes in and Disagreements with Accountants This item is not applicable to the company Controls and Procedures Management concluded disclosure controls were effective as of July 2, 2023, with a previously identified material IT control weakness successfully remediated and an unqualified auditor opinion received - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the fiscal year, July 2, 2023[262] - A material weakness in internal control over financial reporting related to IT logical access and segregation of duties, which was identified in the prior fiscal year, has been fully remediated as of July 2, 2023[264][265] - The independent registered public accounting firm, BDO USA, P.C., audited and provided an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of July 2, 2023[271][273] Other Information There is no other information to report Part III Directors, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10 through 14, covering directors, executive compensation, security ownership, and accountant fees, is incorporated by reference from the 2023 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accounting Fees is incorporated by reference from the company's 2023 Proxy Statement[283][285][286][287][288] Part IV Exhibits and Financial Statement Schedules This section provides an index of all financial statements, the financial statement schedule, and exhibits filed as part of the Form 10-K, including consolidated financial statements and Schedule II - This section contains the index to the Consolidated Financial Statements and Financial Statement Schedule II - Valuation and Qualifying Accounts[290][291] - An extensive list of exhibits is provided, including the company's certificate of incorporation, bylaws, credit agreements, and various management and compensatory plans[293] Form 10-K Summary This item is not applicable