1-800-FLOWERS.COM(FLWS) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Revenues for the third quarter declined 11.1% year-over-year, with adjusted EBITDA loss improving to $5.5 million compared to$ 12 million in the prior year [38] - Gross margins improved by 80 basis points to 33.6%, driven by strategic pricing initiatives and lower ocean freight costs [11] - Free cash flow is expected to exceed $75 million for the fiscal year, representing an improvement of over$ 135 million compared to the previous year [14] - Inventory levels decreased to $191.9 million from$ 214.4 million year-over-year, reflecting efforts to optimize inventory management [123] Business Segment Performance - Gourmet Food and Gift Baskets segment revenues decreased 11.7% to $147.9 million, with gross profit margin declining to 24.6% due to higher commodity costs and increased promotional activity [12] - Consumer Floral and Gifts segment revenues decreased 11.8% to$ 233 million, but gross profit margin improved to 37.9% due to strategic pricing and lower freight costs [40] - BloomNet segment revenues decreased 3.8% to $37 million, with gross profit margin improving 380 basis points to 42.5% [13] Market and Strategic Initiatives - The company is leveraging AI technology, such as ChatGPT, to enhance customer engagement with products like the Mom Verse for Mother's Day [34][116] - Acquisitions, such as Things Remembered and Smart Gift, are being integrated to expand product offerings and strengthen B2B gifting capabilities [7][117] - The company is focusing on cross-brand subscriptions and customer personalization to drive long-term value and engagement [23][129] Management Commentary on Operating Environment - Consumer discretionary spending remains challenged due to macroeconomic pressures, including inflation, rising interest rates, and recession fears [3][110] - The company expects gross margins to continue improving in Q4 and beyond, supported by lower ocean freight costs and stabilizing commodity prices [43][120] - Management remains optimistic about long-term growth opportunities, both organically and through strategic acquisitions [33][43] Other Important Information - The company recorded a$ 64 million pretax non-cash impairment charge related to the Food Group's goodwill and intangible assets [37][120] - Advertising and labor costs were reduced, contributing to improved operating efficiency [121][83] - The company is actively managing its debt, with discussions ongoing to refinance a term loan maturing in May 2024 [54] Q&A Session Highlights Question: How is the company managing its product portfolio to balance market share gains and efficiency? - The company is focusing on strategic pricing, particularly in higher price point items, and leveraging cross-brand subscriptions to drive customer engagement [18][23][73] Question: What is driving the improvement in gross margins? - Approximately half of the margin improvement is attributed to strategic pricing, with the remainder driven by lower ocean freight costs [57][58] Question: Can you provide an update on the Passport Membership program? - Passport members account for over 20% of daily revenue, with consistent performance and strong customer retention [72][131] Question: What is the outlook for commodity costs and their impact on margins? - Certain commodity costs, such as eggs and butter, have started to decline, while others like cocoa and sugar remain at historical highs [59][80] Question: How is the company managing inventory and promotional activity? - Inventory levels have been reduced by $25 million year-over-year, with promotional activity focused on moving perishable inventory to avoid write-offs [88][62]