Earnings call transcript: 1-800-FLOWERS.com Q2 2025 misses EPS, stock drops

1-800-FLOWERS.com (FLWS) reported its Q2 2025 earnings on January 30, 2025, revealing a miss on earnings per share (EPS) and revenue compared to forecasts. The company posted an EPS of $1.08, falling short of the expected $1.20, while revenue reached $775.5 million, below the anticipated $801.9 million. This underperformance led to a premarket stock decline of 13.93%, with shares trading at $7.60 as investors reacted to the news.

Key Takeaways

• 1-800-FLOWERS.com missed EPS and revenue forecasts for Q2 2025.
• Stock fell nearly 14% in premarket trading following the earnings release.
• The company continues to face challenges in e-commerce and corporate gifting sectors.
• Focus remains on cost reduction and leveraging AI for personalized marketing.

Company Performance

1-800-FLOWERS.com experienced a challenging quarter as revenue declined by 5.7% year-over-year. The e-commerce segment saw an 8.3% drop, and corporate gifting revenue fell by 17.5%. Despite these setbacks, the company maintained a steady gross margin of 43.3%. The wholesale business showed strength, contributing positively to the overall performance.

Financial Highlights

• Revenue: $775.5 million, down 5.7% YoY
• Earnings per share: $1.08, missing forecasted $1.20
• Adjusted EBITDA: $116.3 million, down from $130.1 million last year
• Cash balance: $247 million
• Net debt: Reduced to $160 million

Earnings vs. Forecast

1-800-FLOWERS.com reported an EPS of $1.08, missing the forecasted $1.20 by 10%. Revenue of $775.5 million was 3.3% below the expected $801.9 million. This marks a significant miss compared to previous quarters, where the company had generally met or exceeded expectations.

Market Reaction

Following the earnings release, 1-800-FLOWERS.com’s stock dropped 13.93% in premarket trading, reflecting investor disappointment. The stock’s current price of $7.60 is close to its 52-week low of $7.01, indicating broader market concerns about the company’s growth prospects.

Outlook & Guidance

Looking ahead, 1-800-FLOWERS.com expects full fiscal year revenue to decline in the mid-single digits. Adjusted EBITDA is projected between $65 million and $75 million, while free cash flow is anticipated to be $25 million to $35 million. The company plans to enhance marketing efficiency and explore potential mergers and acquisitions.

Executive Commentary

CEO Jim McCann stated, "We are seeing an end of the COVID bullwhip," highlighting the shift in consumer behavior post-pandemic. President Tom Hartnett emphasized the company’s transformation into a "comprehensive celebratory ecosystem," focusing on product innovation and AI-driven personalization.

Q&A

During the earnings call, analysts inquired about the company’s Valentine’s Day positioning, challenges with the new order management system, and potential tariff impacts on flower sourcing. Management addressed these concerns, explaining strategies to improve marketing efficiency.

Risks and Challenges

• Continued challenges in e-commerce and corporate gifting segments.
• Implementation issues with the new order management system, impacting operations.
• Competitive market environment with increased promotional activities.
• Potential tariff impacts on flower sourcing.
• Budget-conscious consumer behavior, particularly among lower-income households.

Full transcript - 1-800 FLOWERS.COM Inc (NASDAQ:FLWS) Q2 2025:

Conference Operator: Good day, and welcome to the 1-eight hundred FLOWERS.com, Inc. Fiscal Year 2025 Second Quarter Conference Call. All participants will be in a listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Andy Millavoy, Senior Vice President of Investor Relations. Please go ahead.

Andy Millavoy, Senior Vice President of Investor Relations, 1-800-FLOWERS.com: Good morning, and welcome to our fiscal 2025 Q2 earnings call. Joining us today are Jim McCann, Chairman and CEO Tom Hartnett, President and James Langrock, CFO. Before we begin, I’d like to remind you that some of the statements we make on today’s call are covered by the Safe Harbor disclaimer contained in our press release and public documents. During this call, we will make forward looking statements with predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission.

The company disclaims any obligation to update any of the forward looking statements that may be made or discussed during this call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP. Reconciliations of these non GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. And now, I’ll turn the call over to Jim.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Thanks, Andy, and good morning, everyone. This morning, I’ll begin with a brief overview of our Q2 performance, and then I’ll turn it over to James and Tom, who will provide a context for the results and look ahead. Our 2nd quarter revenue declined 5.7 percent showing year over year improvement, but not at all at the pace that we have been anticipating. There were several factors that contributed to our performance. First, we experienced softer than anticipated consumer demand, and we saw businesses reduce their corporate gifting orders this holiday season.

2nd, we encountered challenges with the implementation of a new Harry and David order management system or what we call OMS that escalated during the peak of the holiday season impacting revenue and earnings for Harry and David and for our other brands. This morning, James and Tom will share more details behind some of these factors and how we are responding to them. Additionally, we’ll discuss our view of the ever changing post COVID world of consumer behavior and how we engage with our customers. And now I’ll turn the call over to James.

James Langrock, CFO, 1-800-FLOWERS.com: Thanks, Jim, and good morning, everyone. This morning, I will walk you through our Q2 performance and discuss the items that contributed to our performance in further detail. Our consolidated 2nd quarter revenue declined 5.7 percent with several factors contributing to this performance. First, we experienced lower consumer demand in a highly competitive and promotional environment, combined with changes in the online marketing environment that had negative impact on our marketing efficiency. As a result, our increased marketing spend did not generate the results we anticipated.

In particular, our free and lower cost marketing channels declined or cost more than anticipated. 2nd, our corporate business partners became more cautious with their spending, leading to decreases in AOVs, items per order and total number of orders placed. In total, our AOV declined 1.2% for the quarter. And third, we experienced challenges with the new Harry and David OMS implementation, which escalated during the surge of holiday orders. Our e commerce business declined 8.3% for the quarter.

We estimate the OMS related issues reduced Q2 e commerce revenue by approximately $20,000,000 These trends were slightly offset by an increase in our wholesale gift baskets business. Adjusting for the $20,000,000 impact of lost revenue, Q2 e commerce revenue would have declined 5.6% and total revenue would have declined 3.2%. Before I move on to gross margin, I did want to take a moment to discuss the RMS implementation that affected our performance. As the business began to scale significantly in December, the new Harry and David order management system that were recently implemented presented challenges with certain customer orders that were more complex during the peak of the holiday season. These orders created bottlenecks in the system that hindered our ability to process orders in a timely manner and in other cases caused order cancellations.

We’re able to resolve many of these problems manually, but it caused certain order cancellations and additional expenses to correct orders and to make it right for our customers. Although the implementation issues we faced were challenging, it’s important to recognize that we successfully delivered over 7,000,000 orders this holiday season on an enterprise level. While the OMS implementation primarily impacted our Harry and David business, we estimate it also had some spillover effect to our other brands given our centralized customer care function. As Tom will discuss further in just a moment, we are in the process of resolving the new system issues. Now turning to gross margin.

Our 2nd quarter gross margin was 43.3%, flat with the prior year. The 2nd quarter was highly promotional as consumers continued to look for and respond to promotional offers. Our gross margin was also affected by the incremental cost associated with the OMS implementation challenges, including expediting shipping fees that we estimate impacted gross profit by approximately 20 basis points. Excluding the OMS related costs, gross margin would have been 43.5%. Adjusted operating expenses declined by $2,900,000 to $239,000,000 as compared with the prior year period, continuing to benefit from our work smarter initiatives.

We believe that we’re only beginning to tap into the potential to enhance our planned operational efficiencies and there is much more we can achieve. Through meticulous cost management and strategic investments in technology, we aim to streamline processes and reduce expenses without compromising the quality of our offerings, while improving the customer experience. In addition to the impact on revenue, we estimate that the incremental costs associated with the OMS challenges included expedited shipping fees and higher customer care costs impacted Q2 EBITDA by approximately $4,800,000 We also incurred expenses of approximately $1,500,000 consisting primarily of redundancy costs as we migrated to our new customer care platform. Altogether, this impacted Q2 results by approximately $6,300,000 Taking this into account, Q2 adjusted EBITDA was $116,300,000 as compared with $130,100,000 in the prior year period. Just to be clear, our adjusted EBITDA does not reflect the approximately $20,000,000 of estimated loss revenue during the quarter, which equates to lost EBITDA of approximately $8,000,000 Over the past few years, we have discussed our gross margin returning to its historical average and we are pleased that post pandemic, it has recovered much of the way to our long term average in the low 40% range.

Going forward, as you will hear from Tom, we are elevating our focus on all aspects of our sales and marketing spend. We believe there is opportunity for further efficiency gains as we adapt to changing technology and changing consumer preferences for engagement with e commerce platforms. And now let’s turn to our balance sheet. Net cash was $87,000,000 compared with $117,000,000 at the end of last year’s Q2. Our cash balance was $247,000,000 at the end of the second quarter.

Inventory declined to $157,000,000 compared with inventory of $161,000,000 at the end of last year’s Q2. In terms of our debt, we had $160,000,000 in term debt and no borrowings under our revolving credit facility as compared with $195,000,000 a year ago. At the end of the quarter, we made a $25,000,000 prepayment to our term loan and amended our credit agreement. Regarding guidance for fiscal 2025. As a result of our Q2 performance, we are updating our fiscal 2025 outlook.

We now expect full fiscal year revenue to decline in the mid single digits. Adjusted EBITDA is expected to be in the range of $65,000,000 to $75,000,000 and free cash flow is expected to be in the range of $25,000,000 to 35,000,000 We are disappointed that our Q2 performance did not meet our expectations. Some of the challenges are self inflicted and as we resolve these challenges, we remain optimistic about our future performance and the initiatives that we are executing on. We are confident that the strategies and the foundational steps we have implemented will significantly improve our trends and create substantial shareholder value. And now, I will turn it over to Tom.

Tom Hartnett, President, 1-800-FLOWERS.com: Thanks, James, and good morning, everyone. As James outlined, the Q2 presented us with several unexpected challenges. Changes in online marketing trends impacted our performance and businesses reduced their corporate gifting orders this holiday season, both in terms of AOV and total orders placed. Furthermore, our results were pressured by challenges that escalated with our new Harry and David OMS implementation. As with any new system implementation, it’s difficult to anticipate every issue that might arise.

We felt the system was prepared for the holiday rush. The OMS implementation presented mounting challenges during the peak of the holiday season. The order issues were directly related to Harry and David orders and in particular more complex orders that needed to be manually corrected such as certain product bundles, wine gifts and club orders. It is important to highlight that many of the system challenges were exacerbated due to the significant surge in demand that we experienced during the holiday season. We have resolved many of the issues and prioritize the remaining ones, which we expect to correct in short order.

These challenges further reinforce our conviction that in addition to our work smarter and relationship innovation initiatives, which have improved our company, we need to fundamentally review all aspects of our marketing and sales strategy. We must accelerate our evolution to ensure our platform is both highly effective and efficient in supporting our customers’ gift giving needs. We will accelerate our work smarter initiatives to cut costs and in turn increase investments in our growth oriented relationship initiatives and marketing strategies. As we focus on expanding our customer base, we see significant opportunities to leverage new technology to enhance engagement and build deeper relationships with our customers. These initiatives are designed to inspire our customers to help them connect with the important people in their lives.

They are also designed to give them more and better ways to interact with us. Our relationship innovation initiatives are in the process of transforming our organization into a comprehensive celebratory ecosystem. We are continuing our evolution from a transactional company into one that is experiential and personalized, focusing on enhancing customer engagement and satisfaction. This shift reflects a growing expectation for seamless, enjoyable shopping experiences that integrate advanced technologies to deliver tailored content and recommendations based on individual consumer behavior. We are confident that our efforts will enhance our customer experience and yield better results.

Now I’ll turn the call back to Jim for his closing comments before we open it up for Q and A.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Thanks, Tom. As we reflect on the past 18 months, our company has made progress in our relationship innovation initiatives that are focused on strengthening our relationships, enhancing our platform and offering a wider range of gift giving options. But we also recognize the need to move faster and be more aggressive in certain areas, including our marketing and sales strategy. We must respond quicker and provide better value for our customers that have curtailed their spending the most in the current macro environment. We must become more effective with our advertising spend and invest more in marketing until we can rely less on external channels and more on our existing customer base.

AI can significantly help us here. It will provide us with opportunity to accelerate our personalization efforts and present customers with content that is specific and appropriate for the sentiments that they are expressing. Our robust customer data set will enable us to deliver highly personalized marketing experiences, ensuring that we are not only attracting new customers, but also nurturing the existing relationships. Leveraging these innovative tools presents an unparalleled opportunity to better serve our customers and forge even deeper, more meaningful relationships with them. The future holds incredible promise for us and I’m thrilled about the possibilities that lie immediately ahead.

Now we look forward to keeping you appraised on our progress and now I’ll ask the operator to restate the Q and A instructions. Operator?

Conference Operator: We will now begin the question and answer session. The first question today comes from Anthony Lebiedzinski with Sidoti and Company. Please go ahead.

Anthony Lebiedzinski, Analyst, Sidoti and Company: Good morning, everyone. Thank you for taking the question. So first, I guess, sort of a bigger picture type of question here. So obviously, after the pandemic, we’ve seen changing patterns in consumer engagement. Do you feel like these shifts in consumer engagement actually accelerated during the quarter or is it just kind of more of the same that you saw here in the December quarter?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Anthony, thanks for your question. I think what we saw, we have to read through the smoke here, the smoke being the difficulties we had with the implementation of the OMS. But yes, I think we’re seeing an end of the what we call here the COVID bullwhip, We had a great acceleration in demand when people were homebound and that’s eased up considerably. So we think that this fiscal year is the end of that for us. We’re seeing signs as a consumer responding better.

We’ve introduced some lower price points and some highs, so a broadening of our price ranges and we’ve seen good take on the lower end, but we need to be do even more of that. So we have some of those products in the pipeline. So Tom, I would say that we’re seeing good response from the customer. You pointed out in your remarks Tom that we saw a degradation in our business demand, but the consumer demand was actually making up to some of that until we hit the wall with the OMS system.

Tom Hartnett, President, 1-800-FLOWERS.com: Good morning Anthony, it’s Tom. Good morning. Yeah, I think we’re seeing similar bifurcation on the customer. We are seeing that lower household income customer, which is continuing to obviously watch their budget and their pocketbooks and we have seen some good results with some of the product introductions and the some good results with some of the product introductions and the prices that we’ve brought forth, but as Jim mentioned, we need to do more.

Anthony Lebiedzinski, Analyst, Sidoti and Company: Got you. Okay. And then as far as the issues with the order of management system, when was this initially put in place? And as far as getting this system to work as it should be, what’s the timeframe as to when you would expect to be 100% fully functional as the system was designed to be?

James Langrock, CFO, 1-800-FLOWERS.com: Hi, Anthony. This is James. So we implemented the system at the end of August into September. We did all of the necessary user acceptance testing. We did regression analysis, simulation testing to simulate the peak of the busy season.

So like with any system implementation, you know there’s going to be some issues along the way, but what happened as we got into the peak of the busy season after Thanksgiving, the surge of that and with some more of the complex orders in the system that were getting put on hold and it was creating a real backlog. So a lot of orders were being put on hold and or canceled because of that. We had manual workarounds on that. So really it kind of showed itself in the peak in December, the issue. We’re working through that now.

It really did the last 2 weeks have a real impact because we’re doing huge order volumes every day

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: and anything that had to be was done in a manual workaround was just backlogging for us. And because we have a platform customer service system, as Tom mentioned in his remarks, there was contagion from that problem. That is we were sucking up all of our resources across the enterprise to try and deal with the OMS issues and that was causing staff shortages or lack of availability across the brands. So it was that last couple of weeks that the small problems that they could work around through those test periods just became overwhelming. So Tom, where are we on the path to full recoveries Anthony asked?

Tom Hartnett, President, 1-800-FLOWERS.com: Yes. So many of those challenges were addressed within the quarter. We still have some open items we expect that the majority of those will be resolved in this quarter or Q3 quarter.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: And 100% to get to the 100% level within these next two quarters. However, I would point out Anthony that at these volume levels on the food group in particular, it doesn’t cause us any systemic issues now because they’re all manageable because of the volumes. On the flower side, we didn’t change the order management system and flowers becomes a more dominant part of our business during these next this quarter and next with Valentine’s Day, Easter, Mother’s Day, Father’s Day. So that order management system wasn’t touched. We implemented that a couple of years ago.

So that’s in and debugged. So while we’re doing the fixes on the OMS system for Harry and David and food group, it doesn’t cause the customer any difficulty because we have the bandwidth to deal with those as we fix

Anthony Lebiedzinski, Analyst, Sidoti and Company: the last of the issues. So for the customers that cancel their orders because of these issues, do you plan to do a specific marketing outreach to them to make sure you don’t lose those customers permanently? I’m just wondering how you’re thinking about that from a marketing perspective?

Tom Hartnett, President, 1-800-FLOWERS.com: Yes, Anthony absolutely. I mean we’ve reached out already to those customers. We plan and we have a win back program going on. We’re extremely focused.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: That will go on throughout the year.

Tom Hartnett, President, 1-800-FLOWERS.com: Yes, there will be much multiple touch points with those customers throughout the year. You know it is extremely important to us in some cases. We did lose the trust of some of those customers that we failed. We take that very seriously and we’re working to regain their trust.

Anthony Lebiedzinski, Analyst, Sidoti and Company: Got it. Okay. Well, thank you very much. I’ll pass it on to others and best of luck going forward.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Thank you. Thank you.

Conference Operator: The next question comes from Alex Fuhrman with Craig Hallum. Please go ahead.

Alex Fuhrman, Analyst, Craig Hallum: Hey guys, thanks very much for taking my question. Looking out over the next couple of weeks, it looks like a little bit of a better placement for Valentine’s Day relative to the Super Bowl this year. Can you talk about how you’re going to go after Valentine’s Day this year? I know it’s been challenging the last couple of years since the Super Bowl moved a week later. Are there maybe opportunities to engage with customers before the Super Bowl or maybe really, really be hyper engaged during that couple of days between the Super Bowl and Valentine’s Day?

Just curious what you’ve learned and how that’s going to impact your strategy this year?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Alex, thanks for your question. And in answer to the day placement question, we’re pleased that Valentine’s Day moves to a Friday this year. It’s the best day placement from a sales point of view for us. And yes, thank you for using your influence to move the Super Bowl date. That’s very helpful too because last year was 2 days before Valentine’s Day.

So that was a crusher for us in terms of attention and distraction. So yes, having 5 big selling days post Super Bowl is critical for us for the holiday. So we have a marketing scheme in place to reach out to customers well before giving them a lot of incentives to place their orders early in the cycle. So we have a 2 week selling period and right in the middle of that is Super Bowl. So again, that’s so much better than last year where it was just before Super was just before Valentine’s Day.

So good day placement there. I’d also point out that Easter is a better placement than last year. Easter was at the very beginning of Q4 last year. So a couple of selling days in the Q3. And when it’s early, it retards the appeal and the sales of Easter because it comes up so early on people.

So having it later in April, in the 20th April, I think it is, is a great selling time for us. So not the biggest of holidays, but an important holiday and one with good margins and a good distribution of customer demand. So it’s easy for our floors to really delight our customers then. And so those 2 day placements help us a lot. Anything more you’d add Tom on the marketing plan?

Tom Hartnett, President, 1-800-FLOWERS.com: No, just obviously we’ve been at this Valentine’s thing for a long time and there are different personalities that can be engaged and attracted early in the season and those who are more planful, sometimes those who are more price conscious etcetera, earlier end can engage those customers pre Super Bowl in this case. And then there is an awful lot of those procrastinators out there that you know we will enjoy the extra days of selling this year compared to last year.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: And this year in Q4 that 5 less selling days between Thanksgiving and Christmas seem to have an impact on us too. So day placement for those particularly for those 3 big holidays really makes a difference for us and we’re happy to see in the second half of the year we have 2 good placements around Valentine’s Day and Easter.

Alex Fuhrman, Analyst, Craig Hallum: Okay. That’s really helpful. Thanks. And then if I could just ask quickly on corporate gifting, it sounds like the decline there was a little bit self inflicted a little bit demand. Can you just help to kind of give us a little bit more historical context?

I mean, how big is your corporate gifting business today compared to what it was before the pandemic? And what’s your kind of outlook there for the next couple of years?

James Langrock, CFO, 1-800-FLOWERS.com: So just this year was around $70,000,000 compared to last year of $84,000,000 So it was down almost $15,000,000 or 17.5 percent on a year over year basis and it was higher obviously coming out of the pandemic. So it was obviously much bigger than the decline in e commerce was the corporate sales. We did see our corporate customers reduced their spend. So the AOV was down and they reduced the item per order and that led and also less orders. So we were obviously looking at that very closely.

Some of it was impacted by the OMS. We’re trying to kind of get to the bottom of that, but we definitely did see weakness in the our corporate consumer more than our consumer on the corporate side was obviously much more significant as a percentage decline. Just to add Alex, we are bullish about the corporate business. We think We

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: saw some hotspots in the corporate business on lower price point items across the enterprise.

Tom Hartnett, President, 1-800-FLOWERS.com: I think we have to retool some of our offerings but And how we go to market, how we staff our teams on

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: the marketing and stay engaged more year round because we have the breadth of product offerings now that we’re concerned year round.

Conference Operator: The next question comes from Michael Kupinski with NOBLE Capital. Please go ahead.

Michael Kupinski, Analyst, NOBLE Capital: Thank you. Thanks for taking my questions and good morning. In terms of the marketing strategy you talked about, I was just wondering and some of the issues that you had with marketing, I was wondering if it was more of the content and message or related to maybe some of the channels you’re using and just getting a lower return. I was just wondering as you kind of look forward in terms of your marketing strategy, what types of changes are you anticipating at this point?

Tom Hartnett, President, 1-800-FLOWERS.com: Hey, good morning, Michael. It’s Tom. I think there were some specific changes in some of our bottom of the funnel channels where the search engine results page changes some of the ranking that really hit us in kind of natural search and branded search, where those were very low cost channels for us and those declined more than expected. As we go forward, we continue to push more in the mid and upper funnel channels, etcetera. And we think we continue to obviously refine our content and refine our content to be more relevant to individual segments of our customers.

So we think we continue to make strong strides there and we’re hopeful you hear the AI term used a lot, but we’re hopeful that we’ll see increased efficiency with our ability to create content at that larger scale.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Michael, what we’re seeing with the technology deployments that we’re and by the way, we don’t fail to notice the irony of we had a technology fail in terms of an implementation, not the technology itself, but the anticipation of how the demand would impact it, yet we’re full speed ahead on other technology investments. And that manifests itself in 2 different ways. 1 is on the cost side. We’re able to operate more efficiently by digitizing so many more of the things that we do. And it impacts us and we certainly anticipate that it will impact us on the marketing side too as we employ especially beginning these next two quarters in front of us and then throughout the rest of this calendar year.

We see this calendar year as a big, big year for us in terms of changing things we do on the cost side and changing how we do things that will generate more revenue on the top line side. And these new digital tools are really intended to impact us both ways on the growth side and on the cost side.

Michael Kupinski, Analyst, NOBLE Capital: And just to follow-up on that, the margin outlook is actually a little bit better than what I was looking for, especially with the lowered revenue expectations for the year. Can you talk about where you anticipate to see improved adjusted EBITDA margins? Will it be a combination or maybe if you can give me the weighting of reduced commodity costs, transportation costs or just from your work smarter initiatives. I was just wondering if you can kind of give us some additional color on that?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: This is Jim. I’ll ask James to give you some color on that. We’re not anticipating any savings on the commodity costs. You always have they’ve moderated, they’ve come back close to the mean now, but you get little bubble up things that impact us. So we’re comfortable with cocoa prices, for example, on side through the rest of this calendar year, which gets us through the Christmas season.

But then you have bird flu and eggs egg costs go through the roof and availability is always a question. So those are the things where we expect to be able to manage day to day. So no real savings there. The savings will be in terms of how the Work Smarter initiatives, how we do things, the amount of people we deploy to do them, the automation that we’ve been constantly installing now in our distribution centers, those are in place and have shown good, good results. What would you add James in terms of?

James Langrock, CFO, 1-800-FLOWERS.com: And Michael what I would add is that we’re obviously we continually look at all the aspects of the business. We’re aiming to streamline processes and reduce costs. But I also want to caution that we will some of that savings from an EBITDA margin standpoint, we plan on investing back in the business and our sales and marketing strategy. So we are taking costs out, but we do have to reinvest some of that savings into marketing and sales.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: But having reverted closer to the mean now on gross margin and seeing that actually we could have we would have better gross margin except for the OMS issue, that gave us the confidence there.

Michael Kupinski, Analyst, NOBLE Capital: Got you. And typically you guys in periods like this which has been challenged for some e commerce type companies and things like that, You kind of stepped on the M and A activity and was just wondering if you can just kind of gauge what the M and A level might be at this point?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Well, I think those are so many of us who are in the consumer facing e commerce almost exclusive, but not 100% exclusive e commerce have all felt similar drains. So that creates a strain for us, yes, but because of the good balance sheet we have and the leverageable assets we have, I would tell you that the tenor of people interested in linking up has increased. Whether or not we actually do anything there is to be determined, but I think the opportunities will be quite a bit better than they’ve been in the last couple of years. So if we find the right opportunity and we think it’s accretive to what we do, helps our customer in a better way, I think you’ll see us have the potential to be more active in the quarters ahead.

Michael Kupinski, Analyst, NOBLE Capital: Got you. That’s all I have. Thank you.

Conference Operator: The next question comes from Linda Bolton Weiser with D. A. Davidson. Please go ahead.

Linda Bolton Weiser, Analyst, D. A. Davidson: Yes. Hi. So just a clarification, if you would, on the Valentine’s Day placement, maybe I’m confused, but I always thought that when Valentine’s Day is in the middle of the week, it’s better because then the guys will be placing orders they have delivered to women’s offices, etcetera. And I thought if it was Friday or Saturday, it’s bad because they won’t send the flowers, they’ll just buy them and take the woman out to dinner or something. So I thought Wednesday was much better than Friday and Wednesday was last year and Friday this year.

So can you just clarify, maybe I’m just confused on that? Thank you.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Sure, Linda. No problem on the confusion. The having been doing this now, this is my 48th Valentine’s Day. Actually, it should be my 49th Valentine’s Day. The trends are inescapable for us.

Wednesday is better than Tuesday. Thursday is the best day all around from my point of view, not from the sales point of view, but from an overall point of view because it gives you the last minute Charlie’s will be very accepting with delivery. They call they come online midday on Thursday and see that it’s not available, they’ll accept the Friday delivery. So it delivery. So it extends your selling ability with the delivery window on Friday.

So but from a pure sales point of view, not from a delivery point of view, pure sales point of view, Friday is the best day because we like our customer to be at work and busy and then when it’s on a weekend they have other options. They’re out shopping, they’ll take them out to dinner, they’ll pop into a store and pick something up, but when they’re working either at home or in the office, it narrows their field of options and it’s a better sales placement for us. So Friday is much better than Wednesday. I would prefer not to have leap year, take the Thursday out because next year it does move to a weekend, but this year it’s on the best day.

Linda Bolton Weiser, Analyst, D. A. Davidson: Okay. Thanks for that explanation. And then just to be clear, because I’m not you kind of talked about still some fix it actions coming in the next few quarters. For Valentine’s Day, on the food side, will the issues be all fixed or not? I mean, I know the flower side is much bigger, but will the issues be completely fixed on the food side for Valentine’s Day or not really?

Tom Hartnett, President, 1-800-FLOWERS.com: On the food side, we are expecting the majority of those to be fixed. But as Jim had mentioned, there will not if there are still remaining challenges, there won’t be customer facing issues. We have the resources internally to make sure anything that does get bogged down in the system if you will, we can address it through manual intervention and you know that we will not have any impact on demand.

James Langrock, CFO, 1-800-FLOWERS.com: And Linda just you know obviously we’re extremely disappointed with the challenges from the OMS system, but I just want to remind everyone that we shipped over we delivered over 7,000,000 orders in Q4. So while we did have some issues, we still got the lion’s share of all the orders were delivered to our customers in Q2.

Linda Bolton Weiser, Analyst, D. A. Davidson: Right. Okay. And then,

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: We won’t have that same kind of demand in the food group. So if there are any things that are unresolved, they’re unresolved but manageable with our existing processes. So to get to 100% with the new systems working the way we want, that’s by the end of the 4th fiscal quarter or the spring quarter, but it won’t be anything that’s not resolved will not be noticeable to customers and that’s because while demand is good, it’s not nearly as high as those couple of last couple of weeks of December in the food group.

Linda Bolton Weiser, Analyst, D. A. Davidson: Okay, understood. Thank you. And then finally, I was just curious about you talked about your efficiency of your marketing cost spend, but I was wondering in general about rates for digital spending, digital marketing costs, rates, they were expected to go lower post election. Is that what you found general in the more macro marketing environment that there was a pullback in rates after the election?

Tom Hartnett, President, 1-800-FLOWERS.com: I’d say certainly compared to before the election, compared to after there was rates were more reasonable. Mean overall if we compare it to kind of the prior year, we did see increased costs in the lower portion of the funnel that were advertising, so our lower portion.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: So that was efficiency, right?

Tom Hartnett, President, 1-800-FLOWERS.com: Yeah, that was more about efficiency. And then on the mid and top, it was kind of a mixed bag, I’d say. I mean we saw definitely some great opportunities with some partners and some tactics we had and others were a little higher. So I’d say it was mixed across the board. But certainly as we came out of the election, the costs were down.

Linda Bolton Weiser, Analyst, D. A. Davidson: Okay. And then just one last one. Just if you could review your tariff exposure, you’ve probably got some on the Pemos side and also some of your baskets and stuff. Could you review what the plan is there?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Well, it’s an ever changing landscape, Linda. This is Jim. We had a little jolt to our cardiac systems earlier in the week when Colombia was threatened with tariffs. Colombia is an important market for us on the floral side of things. They grow a lot of product that we use here in the U.

S. So we’re very happy a couple of days later to see that resolved, but we’ll never get that sleep back. But tariffs are something to watch. James, how do you give us some context again to Linda about how our sourcing materials where they come from and how they’d be exposed to tariffs?

James Langrock, CFO, 1-800-FLOWERS.com: So Linda just a little way of context, if you look at our cost of goods sold, approximately $1,000,000,000 on an annual basis our cost of goods sold. Within that roughly 40% of that is comprised of the cost of of merchandise. And within that is about 10% of that would be China. So we’re talking about there’s $40,000,000 $45,000,000 of purchases from China. So clearly the tariff will have an impact, but it’s off a base of $1,000,000,000 of cost of goods sold.

So we’re looking at it, we’re up. Cost of goods sold $1,000,000,000 $40,000,000 $45,000,000 of exposure to Asia and so that’s what we’d be watching with tariffs. So we don’t want to see any increase in cost, but any increase in cost be off that $40,000,000 $45,000,000 Correct. For China specifically, yes.

Linda Bolton Weiser, Analyst, D. A. Davidson: Okay. Thank you. Very helpful.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Okay. Thank you. Thanks,

Conference Operator: The next question comes from Doug Lane with Water Tower Research. Please go ahead.

Doug Lane, Analyst, Water Tower Research: Hi. Good morning, everybody. Just a follow-up on Linda’s question. What would you have done if tariffs have been enacted in Colombia?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: We would have postponed this call to see what the impact would be. That would have been painful because we rely on Colombia and other adjoining markets for a good supply of our product here. So the good news is we don’t have to dust off that plan. And it seems to be has been completely resolved. But it would have been damaging.

So I don’t have a hard answer for you Doug. We’re just glad we don’t have to answer that.

Tom Hartnett, President, 1-800-FLOWERS.com: In the short term it would be challenging in weeks especially leading into Valentine’s. Valentine’s. I mean obviously our buys, our florist buys have been largely in place for a period of time.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Yes. I assume the tariff Tom would have been on top of our contract prices right?

Tom Hartnett, President, 1-800-FLOWERS.com: I would assume, yes, all to be negotiated. But mid term we would be able to not completely but move product around to different markets throughout the world, etcetera to mitigate it somewhat. And we’ve been conscious

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: of that for a while. So we had a whole program to encourage domestic growing of product in partnership with our grower community and some of it independent with our domestic growers. That program has not produced the results we wanted because frankly some of our providers who we spent a long time cultivating decided that cannabis was a more profitable crop. Well, that didn’t turn out to be the case and a few of them have returned to flower production, but not all of them yet. So it’s something we’re always conscious of Doug and we’ve had 10 year plans in place to increase the breadth of sources for our flower product.

A lot of it in partnership with our growth community because they have the same issues and concerns. So it’s something we work on all the time.

Doug Lane, Analyst, Water Tower Research: Is Colombia that important or could you shift supplies to other countries in case it’s just an isolated incident?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: No, it’s that important to us. It’s when I say us, it’s the whole country, the whole industry is dependent on Colombia probably for 50% to 60% of all that fresh flower product grown and sold in this country.

Doug Lane, Analyst, Water Tower Research: Well, so everybody would be in the same boat. That’s helpful. And just to just No, we don’t want

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: to be in the boat because we don’t want to be in that boat.

Doug Lane, Analyst, Water Tower Research: No, that’s right. It’s not good for anybody. I get that. Just to shift gears on the wholesale business, could you hit it on the Q1 call that wholesale is going to be good this year and frankly, it was a lot better than I thought it was going to be. So, it’s a bit of a reversal from recent trends where e commerce has been outperforming wholesale and now you have e commerce down in the mid to high single digits depending upon your adjustments and the wholesale was up strongly in the teens.

So that’s a big shift. I just wondered if you could talk a little bit more about that shift and whether you think that’s something that’s going to continue or will e commerce revert back outperforming wholesale?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Doug, what we think on that is, it’s counter indicative. In other words, wholesale was up because retail in store traffic was better. So that’s where that product is sold. So that shows you that the customer felt comfortable going out and about and shopping in the counterbalance to the e commerce hit. However, going forward, we expect wholesale to stay stronger because we’ve cultivated new relationships in the wholesale channels this year.

So we’ll have a broader base of customers in the years ahead. So we expect that it won’t be counter indicative of the e commerce pressure we saw. We expect both to go up next year. We’re anticipating and I hope we haven’t built the plan yet, but on the wholesale side, we have a broader wholesale customer base. So we’d expect that will continue to look good because of the breadth of customers and the product frankly that we’ve introduced there that was so successful in the retail stores this year.

Doug Lane, Analyst, Water Tower Research: And which particular channels are you talking about?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: That’s where we manufacture gift products and sell into our retail partners as a wholesale product. So into the big box stores that we sell to all the time.

Doug Lane, Analyst, Water Tower Research: So it’s like the mass merchants or the club stores in particular or I would take it is the large chains and not the mom and pop?

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: That’s right.

Doug Lane, Analyst, Water Tower Research: Okay. Thank you.

Jim McCann, Chairman and CEO, 1-800-FLOWERS.com: Thank you. Well, thank you all for your time and attention today, for your interest. It’s a tough quarter for us. I will tell you that as I look at the big influences that we’ve experienced during this period, we think three things have happened here. One is that the COVID bullwhip that so many of us in e commerce have experienced is playing its hand out, so it’s coming to a close.

So we won’t have that we’re hopeful that we won’t have that to deal with. We are concerned that the bigger macro environment is still impacting the paycheck to paycheck customers who for a couple of years there as a result of recovery programs had a great deal of discretionary spending capability. We’re still concerned about them. That’s why Tom spoke about the work we’re doing to broaden our product lines and prices both more attractive and higher end for our higher end customers who seem to be weathering the storm quite well. And frankly, we’re disappointed in our own execution this quarter and the first two quarters of the fiscal year for us.

The OMS issue should never have happened. We’re embarrassed by it. We’re very disappointed by it. And as Tom and James both mentioned, we’re doing everything we can to make sure it never happens again, that these issues are fixed and that we do everything we can to do the right thing for the customers that were impacted by this. Yes, we have 7,000,000 very happy customers, but even a few 1,000 customers that were hurt negatively impacted by this bothers the heck out of us and we’ll do everything we can to make it right.

So thanks for your interest, your attention. We look forward to further discussions with you when you reach out. Thanks so much.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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