10-Q 1 flws20191101_10q.htm FORM 10-Q flws20191101_10q.htm
 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2019

 

or

 

__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

 

Commission File No. 0-26841

 

1-800-FLOWERS.COM, Inc.

(Exact name of registrant as specified in its charter)

 

​DELAWARE

11-3117311

(State of incorporation)

(I.R.S. Employer Identification No.)

 

One Old Country Road, Carle Place, New York, 11514

(516) 237-6000

(Address of principal executive offices) (Zip code)

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Class A common stock

FLWS

The Nasdaq Stock Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

   

☐ Large accelerated filer

 

Accelerated filer

☐ Non-accelerated filer

 

☐ Smaller reporting company

 

 

☐ Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No

 

The number of shares outstanding of each of the Registrant’s classes of common stock as of November 1, 2019:

 

Class A common stock:

36,047,572

Class B common stock:

28,542,823

 

 

 

 

 

1-800-FLOWERS.COM, Inc.

 

FORM 10-Q

For the quarterly period ended September 29, 2019

TABLE OF CONTENTS

 

 

 

 

Page

 

Part I.

Financial Information

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

 

1

 

 

Condensed Consolidated Balance Sheets – September 29, 2019 (Unaudited) and June 30, 2019

 

 

1

 

 

Condensed Consolidated Statements of Operations (Unaudited) – Three Months Ended September 29, 2019 and September 30, 2018

 

 

2

 

 

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) – Three Months Ended September 29, 2019 and September 30, 2018

 

 

3

 

 

Condensed Consolidated Statements of Stockholder’s Equity (Unaudited) – Three Months Ended September 29, 2019 and September 30, 2018

 

 

4

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended September 29, 2019 and September 30, 2018

 

 

5

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

6

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

14

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

20

 

Item 4.

Controls and Procedures

 

 

20

 

 

 

 

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

 

 

20

 

Item 1A.

Risk Factors

 

 

20

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

21

 

Item 3.

Defaults upon Senior Securities

 

 

21

 

Item 4.

Mine Safety Disclosures

 

 

21

 

Item 5.

Other Information

 

 

21

 

Item 6.

Exhibits

 

 

21

 

 

 

 

 

 

 

Signatures

 

 

22

 

 

 

 

 

PART I. – FINANCIAL INFORMATION

ITEM 1. – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except for share data)

 

   

September 29, 2019

   

June 30, 2019

 
   

(unaudited)

         

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 34,174     $ 172,923  

Trade receivables, net

    36,062       12,374  

Inventories

    172,513       92,361  

Prepaid and other

    25,649       25,580  

Total current assets

    268,398       303,238  
                 

Property, plant and equipment, net

    163,422       166,681  

Operating lease right-of-use assets

    75,876       -  

Goodwill

    74,711       62,590  

Other intangibles, net

    66,954       59,615  

Other assets

    15,594       14,316  

Total assets

  $ 664,955     $ 606,440  
                 

Liabilities and Stockholders' Equity

               

Current liabilities:

               

Accounts payable

  $ 37,128     $ 25,704  

Accrued expenses

    82,913       96,793  

Current maturities of long-term debt

    5,000       5,000  

Current portion of long-term operating lease liabilities

    10,381       -  

Total current liabilities

    135,422       127,497  
                 

Long-term debt

    90,782       91,973  

Long-term operating lease liabilities

    67,643       -  

Deferred tax liabilities

    28,195       28,898  

Other liabilities

    13,517       15,361  

Total liabilities

    335,559       263,729  
                 

Commitments and contingencies (See Note 13 and Note 14)

               
                 

Stockholders’ equity:

               

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued

    -       -  

Class A common stock, $0.01 par value, 200,000,000 shares authorized, 53,216,294 and 53,084,127 shares issued at September 29, 2019 and June 30, 2019, respectively

    532       530  

Class B common stock, $0.01 par value, 200,000,000 shares authorized, 33,822,823 shares issued at September 29, 2019 and June 30, 2019

    338       338  

Additional paid-in-capital

    351,304       349,319  

Retained earnings

    93,254       108,525  

Accumulated other comprehensive loss

    (269 )     (269 )

Treasury stock, at cost, 17,211,206 and 17,209,093 Class A shares at September 29, 2019 and June 30, 2019, respectively, and 5,280,000 Class B shares at September 29, 2019 and June 30, 2019

    (115,763 )     (115,732 )

Total stockholders’ equity

    329,396       342,711  

Total liabilities and stockholders’ equity

  $ 664,955     $ 606,440  

  

See accompanying Notes to Condensed Consolidated Financial Statements.

  

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except for per share data)

(unaudited)

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

 
                 

Net revenues

  $ 187,263     $ 169,496  

Cost of revenues

    111,117       100,956  

Gross profit

    76,146       68,540  

Operating expenses:

               

Marketing and sales

    56,839       52,954  

Technology and development

    10,803       10,279  

General and administrative

    21,522       20,430  

Depreciation and amortization

    7,635       7,843  

Total operating expenses

    96,799       91,506  

Operating loss

    (20,653 )     (22,966 )

Interest expense, net

    595       990  

Other income (expense), net

    (84 )     274  

Loss before income taxes

    (21,332 )     (23,682 )

Income tax benefit

    (6,061 )     (6,416 )

Net loss

  $ (15,271 )   $ (17,266 )
                 

Basic and diluted net loss per common share

  $ (0.24 )   $ (0.27 )
                 

Basic and diluted weighted average shares used in the calculation of net loss per common share

    64,503       64,620  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

  

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

 

Net loss

  $ (15,271

)

  $ (17,266

)

Other comprehensive income (currency translation & other)

    -       10  

Comprehensive loss

  $ (15,271

)

  $ (17,256

)

 

See accompanying Notes to Condensed Consolidated Financial Statements.

  

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

 

   

Three Months Ended September 29, 2019 and September 30, 2018

 
   

Common Stock

   

Additional

   

Retained

   

Accumulated

                   

Total

 
   

Class A

   

Class B

   

Paid-in

   

Earnings

   

Other

   

Treasury Stock

   

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

           

Comprehensive Loss

   

Shares

   

Amount

   

Equity

 
                                                                                 

Balance at June 30, 2019

    53,084,127     $ 530       33,822,823     $ 338     $ 349,319     $ 108,525     $ (269

)

    22,489,093     $ (115,732

)

  $ 342,711  

Net loss

    -       -       -       -       -       (15,271

)

    -       -       -       (15,271

)

Stock-based compensation

    7,167       -       -       -       1,765       -       -       -       -       1,765  

Exercise of stock options

    125,000       2       -       -       220       -       -       -       -       222  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       2,113       (31

)

    (31

)

Balance at September 29, 2019

    53,216,294     $ 532       33,822,823     $ 338     $ 351,304     $ 93,254     $ (269

)

    22,491,206     $ (115,763

)

  $ 329,396  
                                                                                 

Balance at July 1, 2018

    52,071,293     $ 520       33,822,823     $ 338     $ 341,783     $ 73,429     $ (200

)

    21,258,790     $ (100,966

)

  $ 314,904  

Net loss

    -       -       -       -       -       (17,266

)

    -       -       -       (17,266 )

Translation adjustment

    -       -       -       -       -               10       -       -       10  

Stock-based compensation

    1,667       -       -       -       955       -       -       -       -       955  

Exercise of stock options

    90,000       1       -       -       300       -       -       -       -       301  

Other

    -       -       -       -       -       1,120       -       -       -       1,120  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       345,622       (4,040

)

    (4,040

)

Balance at September 30, 2018

    52,162,960     $ 521       33,822,823     $ 338     $ 343,038     $ 57,283     $ (190

)

    21,604,412     $ (105,006

)

  $ 295,984  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

   

Three months ended

 
   

September 29, 2019

   

September 30, 2018

 
                 

Operating activities:

               

Net loss

  $ (15,271 )   $ (17,266 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    7,635       7,843  

Amortization of deferred financing costs

    112       224  

Deferred income taxes

    (703 )     (259 )

Bad debt expense

    503       224  

Stock-based compensation

    1,765       955  

Other non-cash items

    184       286  

Changes in operating items:

               

Trade receivables

    (24,191 )     (18,024 )

Inventories

    (79,124 )     (71,855 )

Prepaid and other

    (1,190 )     (2,731 )

Accounts payable and accrued expenses

    (2,646 )     (8,766 )

Other assets and liabilities

    148       (54 )

Net cash used in operating activities

    (112,778 )     (109,423 )
                 

Investing activities:

               

Acquisitions, net of cash acquired

    (20,500 )     -  

Capital expenditures, net of non-cash expenditures

    (4,359 )     (4,907 )

Net cash used in investing activities

    (24,859 )     (4,907 )
                 

Financing activities:

               

Acquisition of treasury stock

    (31 )     (4,040 )

Proceeds from exercise of employee stock options

    222       302  

Repayment of notes payable and bank borrowings

    (1,250       (2,156 )

Debt issuance cost

    (53 )     -  

Net cash used in financing activities

    (1,112 )     (5,894 )
                 

Net change in cash and cash equivalents

    (138,749 )     (120,224 )

Cash and cash equivalents:

               

Beginning of period

    172,923       147,240  

End of period

  $ 34,174     $ 27,016  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

  

1-800-FLOWERS.COM, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 1 – Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 29, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 28, 2020. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.

 

The Company’s quarterly results may experience seasonal fluctuations. Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, generates nearly 50% of the Company’s annual revenues, and all of its earnings. Additionally, due to the number of major floral gifting occasions, including Mother's Day, Valentine’s Day, Easter and Administrative Professionals Week, revenues also rise during the Company’s fiscal third and fourth quarters compared to its fiscal first quarter.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

Revenue Recognition

 

Net revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Service and outbound shipping charged to customers are recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues. Net revenues exclude sales and other similar taxes collected from customers.

 

A description of our principal revenue generating activities is as follows:

 

 

E-commerce revenues - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment.

 

Retail revenues - consumer products sold through our retail stores. Revenue is recognized when control of the goods is transferred to the customer, at the point of sale, at which time payment is received.

 

Wholesale revenues - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms are typically 30 days from the date control over the product is transferred to the customer.

 

BloomNet Services - membership fees as well as other service offerings to florists. Membership and other subscription-based fees are recognized monthly as earned. Services revenues related to orders sent through the floral network are variable, based on either the number of orders or the value of orders, and are recognized in the period in which the orders are delivered. The contracts within BloomNet Services are typically month-to-month and as a result no consideration allocation is necessary across multiple reporting periods. Payment is typically due less than 30 days from the date the services were performed. 

   

Deferred Revenues

 

Deferred revenues are recorded when the Company has received consideration (i.e. advance payment) before satisfying its performance obligations. As such, customer orders are recorded as deferred revenue prior to shipment or rendering of product or services. Deferred revenues primarily relate to e-commerce orders placed, but not shipped, prior to the end of the fiscal period, as well as for monthly subscription programs, including our Fruit of the Month Club and Celebrations Passport program.

 

Our total deferred revenue as of June 30, 2019 was $17.3 million (included in “Accrued expenses” on our consolidated balance sheets), of which, $10.0 million was recognized as revenue during the three months ended September 29, 2019. The deferred revenue balance as of September 29, 2019 was $16.5 million.

 

Recently Issued Accounting Pronouncements - Adopted

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASC 842”). Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. We adopted the new standard effective July 1, 2019 and elected the optional transition method and therefore, we will not apply the standard to the comparative periods presented in our financial statements. The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, that did not require us to reassess, under the new standard, our prior conclusions about lease identification, lease classification and initial direct costs. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. The adoption of the new standard had a material impact to the Company’s Consolidated Balance Sheets, but no impact to the Consolidated Statements of Income (Operations) or Consolidated Statements of Cash Flows. As such, we recorded operating lease liabilities of $80.7 million, based on the present value of the remaining minimum rental payments using discount rates as of the effective date, and a corresponding right-of-use assets of $78.7 million based on the operating lease liabilities adjusted for deferred rent and lease incentives received. See Note 13 - Leases for further information about our transition to ASC 842 and the newly required disclosures.

 

Recently Issued Accounting Pronouncements – Not Yet Adopted

 

Financial Instruments – Measurement of Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces a new forward-looking “expected loss” approach, to estimate credit losses on most financial assets and certain other instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. ASU 2016-13 is effective for the Company’s fiscal 2021, and the guidance is to be applied using the modified-retrospective approach. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

 

 

 

Goodwill – Impairment Test. In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance is effective for the Company’s fiscal 2021, with early adoption permitted, and should be applied prospectively. We do not expect the standard to have a material impact on our consolidated financial statements.

 

Note 2 – Net Income (Loss) Per Common Share

 

Basic net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the weighted-average number of common shares outstanding during the period, and excludes the dilutive potential common shares (consisting of employee stock options and unvested restricted stock awards), as their inclusion would be antidilutive. As a result of the net loss for the three months ended September 29, 2019 and September 30, 2018, there is no dilutive impact to the net loss per share calculation for the respective periods.

 

Note 3 – Stock-Based Compensation

 

The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 12 and Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019, that provides for the grant to eligible employees, consultants and directors of stock options, restricted shares, and other stock-based awards.

 

The amounts of stock-based compensation expense recognized in the periods presented are as follows:

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

 
   

(in thousands)

 

Stock options

  $ 65     $ 105  

Restricted stock

    1,700       850  

Total

    1,765       955  

Deferred income tax benefit

    329       259  

Stock-based compensation expense, net

  $ 1,436     $ 696  

 

 Stock-based compensation is recorded within the following line items of operating expenses:

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

 
   

(in thousands)

 

Marketing and sales

  $ 816     $ 255  

Technology and development

    119       51  

General and administrative

    830       649  

Total

  $ 1,765     $ 955  

 

Stock based compensation expense has not been allocated between business segments, but is reflected as part of Corporate overhead (see Note 12 - Business Segments).

 

Stock Options

 

The following table summarizes stock option activity during the three months ended September 29, 2019:

 

   

 

 

Options

   

Weighted Average

Exercise Price

   

Weighted Average Remaining Contractual Term

   

Aggregate Intrinsic Value 

 
                      (in years)       (in thousands)  

Outstanding at June 30, 2019

    1,365,000     $ 2.48                  

Granted

    -     $ -                  

Exercised

    (125,000

)

  $ 1.79                  

Forfeited

    -     $ -                  

Outstanding at September 29, 2019

    1,240,000     $ 2.55       1.9     $ 14,994  
                                 

Exercisable at September 29, 2019

    1,110,000     $ 2.50       1.9     $ 13,470  

 

As of September 29, 2019, the total future compensation cost related to non-vested options, not yet recognized in the statement of income, was $0.1 million and the weighted average period over which these awards are expected to be recognized was 0.1 years.

   

 

Restricted Stock

 

The Company grants shares of Common Stock to its employees that are subject to restrictions on transfer and risk of forfeiture until fulfillment of applicable service and performance conditions and, in certain cases, holding periods (Restricted Stock). The following table summarizes the activity of non-vested restricted stock awards during the three months ended September 29, 2019:

 

   

 

Shares

   

Weighted Average Grant Date Fair Value

 

Non-vested at June 30, 2019

    1,438,592     $ 10.81  

Granted

    1,500     $ 14.73  

Vested

    (7,167

)

  $ 9.23  

Forfeited

    (33,849

)

  $ 12.67  

Non-vested at September 29, 2019

    1,399,076     $ 10.78  

 

The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of September 29, 2019, there was $7.6 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over the weighted-average remaining period of 1.3 years.  

 

Note 4 – Acquisition

 

 Acquisition of Shari’s Berries

 

On August 14, 2019, the Company completed its acquisition of the Shari’s Berries business ("Shari's Berries"), a leading provider of dipped berries and other specialty treats, through a bankruptcy proceeding of certain assets of the gourmet food business of the FTD Companies, Inc. The transaction, for a purchase price of $20.5 million, included the Shari’s Berries domain names, copyrights, trademarks, customer data, phone numbers and other intellectual property, as well as certain raw material inventory and the assumption of specified liabilities.

 

The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values on the acquisition date. The Company is in the process of finalizing its allocation and this may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain additional intangible assets, revisions of useful lives of intangible assets, and the determination of any residual amount that will be allocated to goodwill. Of the acquired intangible assets, $0.6 million was assigned to customer lists, which is being amortized over the estimated remaining life of 2 years, $6.9 million was assigned to tradenames, and $12.1 million was assigned to goodwill, which is expected to be deductible for tax purposes. The goodwill recognized in conjunction with our acquisition of Shari’s Berries is primarily related to synergistic value created in terms of both operating costs and revenue growth opportunities, enhanced financial and operational scale, and other strategic benefits.

 

The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition:

 

   

Shari’s Berries Preliminary Purchase Price Allocation

 
   

(in thousands)

 

Current assets

  $ 1,029  

Intangible assets

    7,540  

Goodwill

    12,121  

Total assets acquired

    20,690  
         

Current liabilities

    190  

Net assets acquired

  $ 20,500  

 

Raw materials inventory was valued at book value, as there have not been any significant price fluctuations or other events that would materially change the cost to replace the raw materials.

 

The estimated fair value of the acquired tradenames was determined using the relief from royalty method, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. The discount rate used in the valuation was based on the Company’s weighted average cost of capital, the riskiness of the earnings stream associated with the trademarks and the overall composition of the acquired assets.

 

The estimated fair value of the acquired customer lists was determined using the excess earnings method under the income approach. This method requires identifying the future revenue that would be generated by existing customers at the time of the acquisition, considering an appropriate attrition rate based on the historical experience of the Company. Appropriate expenses are then deducted from the revenues and economic rents are charged for the return on contributory assets. The after-tax cash flows attributable to the asset are discounted back to their net present value at an appropriate intangible asset rate of return and summed to calculate the value of the customer lists.

  

Operating results of the Shari’s Berries brand are reflected in the Company’s consolidated financial statements from the date of acquisition, within the Gourmet Food & Gift Baskets segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results would not have been material.

 

Note 5 – Inventory

 

The Company’s inventory, stated at cost, which is not in excess of market, includes purchased and manufactured finished goods for sale, packaging supplies, crops, raw material ingredients for manufactured products and associated manufacturing labor and is classified as follows:

 

   

September 29, 2019

   

June 30, 2019

 
   

(in thousands)

 

Finished goods

  $ 105,102     $ 36,820  

Work-in-process

    16,227       17,535  

Raw materials

    51,184       38,006  

Total inventory

  $ 172,513     $ 92,361  

  

 

Note 6 – Goodwill and Intangible Assets

 

The following table presents goodwill by segment and the related change in the net carrying amount:

 

   

1-800-Flowers.com Consumer Floral

   

BloomNet

Wire Service

   

Gourmet Food &

Gift Baskets

   

Total

 
   

(in thousands)

 

Balance at June 30, 2019

  $ 17,441     $ -     $ 45,149     $ 62,590  

Acquisition of Shari’s Berries

    -       -       12,121       12,121  

Balance at September 29, 2019

  $ 17,441     $ -     $ 57,270     $ 74,711  

  

The Company’s other intangible assets consist of the following:

 

           

September 29, 2019

   

June 30, 2019

 
   

Amortization Period

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net

 
   

(in years)

    (in thousands)  

Intangible assets with determinable lives

                                                       

Investment in licenses

    14-16     $ 7,420     $ 6,174     $ 1,246     $ 7,420     $ 6,148     $ 1,272  

Customer lists

    2-10       12,825       9,948       2,877       12,184       9,798       2,386  

Other

    5-14       2,946       2,306       640       2,946       2,280       666  

Total intangible assets with determinable lives

            23,191       18,428       4,763       22,550       18,226       4,324  

Trademarks with indefinite lives

            62,191       -       62,191       55,291       -       55,291  

Total identifiable intangible assets

          $ 85,382     $ 18,428     $ 66,954     $ 77,841     $ 18,226     $ 59,615  

 

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Future estimated amortization expense is as follows: remainder of fiscal 2020 - $0.7 million, fiscal 2021 - $0.8 million, fiscal 2022 - $0.7 million, fiscal 2023 - $0.6 million, fiscal 2024 - $0.5 million and thereafter - $1.5 million.

 

Note 7 – Investments

 

Equity investments accounted for under the equity method 

 

The Company has certain investments in non-marketable equity instruments of private companies. The Company accounts for these investments using the equity method if they provide the Company the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method is appropriate. The Company records equity method investments initially at cost and adjusts the carrying amount to reflect the Company’s share of the earnings or losses of the investee.

 

The Company’s equity method investment is comprised of an interest in Flores Online Ltda. ("Flores Online"), a Sao Paulo, Brazil-based internet floral and gift retailer, that the Company originally acquired on May 31, 2012. The Company currently holds 24.9% of the outstanding shares of Flores Online. The book value of this investment was $0.5 million as of September 29, 2019 and June 30, 2019, and is included in the “Other assets” line item within the Company’s consolidated balance sheets. The Company’s equity in the net loss of Flores Online for the three months ended September 29, 2019 and September 30, 2018, respectively, was less than $0.1 million.

 

Equity investments without a readily determinable fair value

 

Investments in non-marketable equity instruments of private companies, where the Company does not possess the ability to exercise significant influence, are accounted for at cost, less impairment (assessed qualitatively at each reporting period), adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. These investments are included within “Other assets” in the Company’s consolidated balance sheets. The aggregate carrying amount of the Company’s cost method investments was $1.7 million as of September 29, 2019 and June 30, 2019. 

 

Equity investments with a readily determinable fair value

 

The Company also holds certain trading securities associated with its Non-Qualified Deferred Compensation Plan (“NQDC Plan”). These investments are measured using quoted market prices at the reporting date and are included within the “Other assets” line item in the consolidated balance sheets (see Note 10 - Fair Value Measurements).

 

 

Note 8 –Debt

 

The Company’s current and long-term debt consists of the following:

   

September 29, 2019

   

June 30, 2019

 
   

(in thousands)

 

Revolver (1)

  $ -     $ -  

Term Loan (1)

    98,750       100,000  

Deferred financing costs

    (2,968 )     (3,027 )

Total debt

    95,782       96,973  

Less: current debt

    5,000       5,000  

Long-term debt

  $ 90,782     $ 91,973  

 

(1)

On May 31, 2019, the Company entered into a Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders. The 2019 Credit Agreement amended and restated the Company’s existing amended and restated credit agreement dated as of December 23, 2016 (the “2016 Credit Agreement”) to, among other modifications: (i) increase the amount of the outstanding term loan (“Term Loan”) from approximately $97 million to $100 million, (ii) extend the maturity date of the outstanding Term Loan and the revolving credit facility (“Revolver”) by approximately 29 months to May 31, 2024, and (iii) decrease the applicable interest rate margins for LIBOR and base rate loans by 25 basis points. The Term Loan is payable in 19 quarterly installments of principal and interest beginning on September 29, 2019, with escalating principal payments, at the rate of 5.0% per annum for the first eight payments, and 10.0% per annum for the remaining 11 payments, with the remaining balance of $62.5 million due upon maturity. The Revolver, in the aggregate amount of $200 million, subject to seasonal reduction to an aggregate amount of $100 million for the period from January 1 through August 1, may be used for working capital and general corporate purposes, subject to certain restrictions.

 

For each borrowing under the 2019 Credit Agreement, the Company may elect that such borrowing bear interest at an annual rate equal to either: (1) a base rate plus an applicable margin varying based on the Company’s consolidated leverage ratio, where the base rate is the highest of (a) the prime rate, (b) the New York fed bank rate plus 0.5% and (c) a LIBOR rate plus 1% or (2) an adjusted LIBOR rate plus an applicable margin varying based on the Company’s consolidated leverage ratio. The 2019 Credit Agreement requires that while any borrowings or commitments are outstanding the Company comply with certain financial covenants and affirmative covenants as well as certain negative covenants that, subject to certain exceptions, limit the Company’s ability to, among other things, incur additional indebtedness, make certain investments and make certain restricted payments. The Company was in compliance with these covenants as of September 29, 2019. The 2019 Credit Agreement is secured by substantially all of the assets of the Company.

 

Future principal payments under the Term Loan are as follows: $3.8 million – remainder of fiscal 2020, $5.0 million – fiscal 2021, $10.0 million - fiscal 2022, $10.0 million – fiscal 2023 and $70.0 million – fiscal 2024. 

 

Note 9 - Property, Plant and Equipment

 

The Company’s property, plant and equipment consists of the following:

 

   

September 29, 2019

   

June 30, 2019

 
   

(in thousands)

 

Land

  $ 30,789     $ 30,789  

Orchards in production and land improvements

    11,629       11,339  

Building and building improvements

    59,800       59,236  

Leasehold improvements

    14,075       13,861  

Production equipment and furniture and fixtures

    62,251       61,415  

Computer and telecommunication equipment

    53,591       53,694  

Software

    135,453       132,078  

Capital projects in progress - orchards

    8,968       9,902  

Property, plant and equipment, gross

    376,556       372,314  

Accumulated depreciation and amortization

    (213,134

)

    (205,633

)

Property, plant and equipment, net

  $ 163,422     $ 166,681  

 

 

 

Note 10 - Fair Value Measurements

 

Cash and cash equivalents, trade and other receivables, prepaids, accounts payable and accrued expenses are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. Although no trading market exists, the Company believes that the carrying amount of its debt approximates fair value due to its variable nature. The Company’s investments in non-marketable equity instruments of private companies are carried at cost and are periodically assessed for other-than-temporary impairment, when an event or circumstances indicate that an other-than-temporary decline in value may have occurred. The Company’s remaining financial assets and liabilities are measured and recorded at fair value (see table below). The Company’s non-financial assets, such as definite lived intangible assets and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. Goodwill and indefinite lived intangibles are tested for impairment annually, or more frequently, if events occur or circumstances change such that it is more likely than not that an impairment may exist, as required under the accounting standards.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below:

 

Level 1

  

Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2

  

Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3

  

Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The following table presents by level, within the fair value hierarchy, financial assets and liabilities measured at fair value on a recurring basis:

 

   

 

Carrying Value

   

Fair Value Measurements

Assets (Liabilities)

 
           

Level 1

   

Level 2

   

Level 3

 
   

(in thousands)

 

As of September 29, 2019:

                               

Trading securities held in a “rabbi trust” (1)

  $ 13,065     $ 13,065     $ -     $ -  
Total assets (liabilities) at fair value   $ 13,065     $ 13,065     $ -     $ -  
                                 

As of June 30, 2019:

                               

Trading securities held in a “rabbi trust” (1)

  $ 11,816     $ 11,816     $ -     $ -  
Total assets (liabilities) at fair value   $ 11,816     $ 11,816     $ -     $ -  

 

 

(1)

The Company has established an NQDC Plan for certain members of senior management. Deferred compensation plan assets are invested in mutual funds held in a “rabbi trust,” which is restricted for payment to participants of the NQDC Plan. Trading securities held in a rabbi trust are measured using quoted market prices at the reporting date and are included in the “Other assets” line item, with the corresponding liability included in the “Other liabilities” line item in the consolidated balance sheets. 

 

Note 11 – Income Taxes

 

At the end of each interim reporting period, the Company estimates its effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The Company’s effective tax rate for the three months ended September 29, 2019 was 28.4% compared to 27.1% in the same period of the prior year. The effective rate for fiscal 2020 differed from the U.S. federal statutory rate of 21% due to state income taxes and nondeductible expenses for executive compensation, which were partially offset by various permanent differences and tax credits, including excess tax benefits from stock-based compensation. The effective rate for the three months ended September 30, 2018 differed from the U.S. federal statutory rate of 21%, primarily due to state income taxes and nondeductible expenses for executive compensation, which were partially offset by various tax credits, including excess tax benefits from stock-based compensation, and other permanent differences.

 

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Company is currently undergoing its U.S. federal examination for fiscal 2017, however, fiscal year 2018 remains subject to U.S. federal examination. Due to ongoing state examinations and nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from fiscal 2015. The Company's foreign income tax filings from fiscal 2014 are open for examination by its respective foreign tax authorities, mainly Canada, Brazil, and the United Kingdom.

 

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At September 29, 2019, the Company has an unrecognized tax benefit, including interest and penalties, of approximately $0.9 million. The Company believes that $0.2 million of unrecognized tax positions will be resolved over the next twelve months. 

 

 

Note 12 – Business Segments

 

The Company’s management reviews the results of its operations by the following three business segments:

 

•     1-800-Flowers.com Consumer Floral,

•     BloomNet Wire Service, and

•     Gourmet Food & Gift Baskets

 

Segment performance is measured based on contribution margin, which includes only the direct controllable revenue and operating expenses of the segments. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead (see (a) below), nor does it include depreciation and amortization, other (income) expense, net and income taxes, or stock-based compensation, both of which are included within corporate overhead. Assets and liabilities are reviewed at the consolidated level by management and not accounted for by segment.

 

   

Three Months Ended

 

Net Revenues:

 

September 29, 2019

   

September 30, 2018

 

Segment Net Revenues:

  (in thousands)

1-800-Flowers.com Consumer Floral

  $ 90,768     $ 85,076  

BloomNet Wire Service

    25,440       23,993  

Gourmet Food & Gift Baskets

    71,215       60,518  

Corporate

    195       267  

Intercompany eliminations

    (355

)

    (358

)

Total net revenues

  $ 187,263     $ 169,496  

 

 

   

Three Months Ended

 

Operating Income (Loss):

 

September 29, 2019

   

September 30, 2018

 
    (in thousands)

Segment Contribution Margin:

               

1-800-Flowers.com Consumer Floral

  $ 8,524     $ 7,495  

BloomNet Wire Service

    8,357       7,638  

Gourmet Food & Gift Baskets

    (6,600

)

    (9,121

)

Segment Contribution Margin Subtotal

    10,281       6,012  

Corporate (a)

    (23,299

)

    (21,135

)

Depreciation and amortization

    (7,635

)

    (7,843

)

Operating loss

  $ (20,653

)

  $ (22,966

)

 

(a) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.

 

The following tables represent a disaggregation of revenue from contracts with customers, by channel:

 

   

Three Months Ended

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

 
   

1-800-Flowers.comConsumer Floral

   

BloomNet Wire Service

   

Gourmet Food & Gift Baskets

   

Consolidated

   

1-800-Flowers.com  Consumer Floral

   

BloomNet Wire Service

   

Gourmet Food & Gift Baskets

   

Consolidated

 
    (in thousands)  

Net revenues

                                                               

E-commerce

  $ 89,088     $ -     $ 39,962     $ 129,050     $ 83,450     $ -     $ 34,250     $ 117,700  

Retail

    939       -       7,490       8,429       861       -       7,779       8,640  

Wholesale

    -       8,748       23,763       32,511       -       8,133       18,489       26,622  

BloomNet services

    -       16,692       -       16,692       -       15,860       -       15,860  

Other

    741       -       -       741       765       -       -       765  

Corporate

    -       -       -       195       -       -       -       267  

Eliminations

    -       -       -       (355

)

    -       -       -       (358

)

Net revenues

  $ 90,768     $ 25,440     $ 71,215     $ 187,263     $ 85,076     $ 23,993     $ 60,518     $ 169,496  

  

 

Note 13 – Leases

 

The Company currently leases plants, warehouses, offices, store facilities, and equipment under various leases through fiscal 2034. Most lease agreements are of a long-term nature (over a year), although the Company does also enter into short-term leases, primarily for seasonal needs. Lease agreements may contain renewal options and rent escalation clauses and require the Company to pay real estate taxes, insurance, common area maintenance and operating expenses applicable to the leased properties. The Company accounts for its leases in accordance with ASC 842. At contract inception, we determine whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time, by assessing whether we have the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset.

 

At the lease commencement date, we determine if a lease should be classified as an operating or a finance lease (we currently have no finance leases) and recognize a corresponding lease liability and a right-of-use asset on our Balance Sheet. The lease liability is initially and subsequently measured as the present value of the remaining fixed minimum rental payments (including base rent and fixed common area maintenance) using discount rates as of the commencement date. Variable payments (including most utilities, real estate taxes, insurance and variable common area maintenance) are expensed as incurred. The right-of-use asset is initially and subsequently measured at the carrying amount of the lease liability adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use asset. Right-of-use assets are assessed for impairment using the long-lived assets impairment guidance. The discount rate used to determine the present value of lease payments is our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as we generally cannot determine the interest rate implicit in the lease.

 

We recognize expense for our operating leases on a straight-line basis over the lease term. As these leases expire, it can be expected that in the normal course of business they will be renewed or replaced. Renewal option periods are included in the measurement of lease liability, where the exercise is reasonably certain to occur. Key estimates and judgments in accounting for leases include how we determine: (1) lease payments, (2) lease term and (3) the discount rate used in calculating the lease liability.

 

Information related to our leases as of and for the period ending September 29, 2019 is as follows:

 

   

Three Months Ended

 
   

September 29, 2019

 
   

(in thousands)

 

Lease costs:

       

Operating lease costs

  $ 3,640  

Variable lease costs

    3,540  

Short-term lease cost

    1,065  

Sublease income

    (270 )

Total lease costs

  $ 7,975  
         

Cash paid for amounts included in measurement of operating lease liabilities

  $ 3,305  

Right-of-use assets obtained in exchange for new operating lease liabilities

  $ 178  

Weighted-average remaining lease term - operating leases

 

9.8 years

 

Weighted-discount rate - operating leases

    3.8 %

 

Maturities of lease liabilities in accordance with ASC 842 as of September 29, 2019 are as follows (in thousands):

 

Remainder of 2020

  $ 8,899  

2021

    11,679  

2022

    10,310  

2023

    9,901  

2024

    9,452  

Thereafter

    44,888  

Total Future Minimum Lease Payments

  $ 95,129  

Less Imputed Remaining Interest

    17,105  

Total

  $ 78,024  

 

 At June 30, 2019, in accordance with ASC 840, future minimum rental payments under non-cancelable operating leases with initial terms of one year or more consisted of the following (in thousands):

 

2020

  $ 16,588  

2021

    13,490  

2022

    12,081  

2023

    9,957  

2024

    9,498  

Thereafter

    44,953  

Total Future Minimum Lease Payments

  $ 106,567  
 

Note 14 – Commitments and Contingencies

 

Litigation

 

There are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-Q and in the Company’s Annual Report on Form 10-K, for the year ended June 30, 2019. The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed or referred to in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Forward-Looking Information and Factors That May Affect Future Results” and under Part I, Item 1A, of the Company’s Annual Report on Form 10-K, for the year ended June 30, 2019 under the heading “Risk Factors.”

 

Overview

 

1-800-FLOWERS.COM, Inc. and its subsidiaries (collectively, the “Company”) is a leading provider of gifts designed to help customers express, connect and celebrate. For more than 40 years, 1-800-Flowers.com® has been delivering smiles to customers with gifts for every occasion, including fresh flowers and the best selection of plants, gift baskets, gourmet foods, confections, jewelry, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee® backs every gift.

 

The Company’s Celebrations Ecosystem includes the following brands: 1-800-Flowers.com®, 1-800-Baskets.com®, Cheryl’s Cookies®, Harry & David®, Shari's Berries®, FruitBouquets.comSM, Moose Munch®, The Popcorn Factory®, Wolferman’s Bakery ®, Personalization Universe®, Simply Chocolate®, Goodsey®, DesignPac® and Stock Yards®. Through the Celebrations Passport® loyalty program, which provides members with free standard shipping and no service charge across our portfolio of brands, 1-800-FLOWERS.COM, Inc. strives to deepen its relationships with its customers. The Company also operates BloomNet®, an international floral wire service providing a broad range of products and services designed to help professional florists grow their businesses profitably; as well as NapcoSM, a resource for floral gifts and seasonal décor.

 

1-800-FLOWERS.COM, Inc. was recognized as the 2019 Mid-Market Company of the Year by CEO Connection.

 

Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market, ticker symbol: FLWS.

 

For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our Annual Report on Form 10-K for the year ended June 30, 2019. 

 

Definitions of non-GAAP Financial Measures:

 

We sometimes use financial measures derived from consolidated financial information, but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain of these are considered "non-GAAP financial measures" under the U.S. Securities and Exchange Commission rules. See below for definitions and the reasons why we use these non-GAAP financial measures. Where applicable, see the Segment Information and Results of Operations sections below for reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures. These non-GAAP financial measures are referred to as “adjusted" or “on a comparable basis” below.

  

EBITDA and adjusted EBITDA

We define EBITDA as net income (loss) before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for the impact of stock-based compensation, NQDC Plan investment appreciation/depreciation, and for certain items affecting period to period comparability. See Segment Information for details on how EBITDA and adjusted EBITDA were calculated for each period presented.

 

The Company presents EBITDA and adjusted EBITDA because it considers such information meaningful supplemental measures of its performance and believes such information is frequently used by the investment community in the evaluation of similarly situated companies. The Company uses EBITDA and adjusted EBITDA as factors used to determine the total amount of incentive compensation available to be awarded to executive officers and other employees. The Company's credit agreement uses EBITDA and adjusted EBITDA to measure compliance with covenants such as interest coverage and debt incurrence. EBITDA and adjusted EBITDA are also used by the Company to evaluate and price potential acquisition candidates.

 

EBITDA and adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of the limitations are: (a) EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements for, the Company's working capital needs; (b) EBITDA and adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debts; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and EBITDA does not reflect any cash requirements for such capital expenditures. EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company's performance.

 

Segment contribution margin

We define segment contribution margin as earnings before interest, taxes, depreciation and amortization, before the allocation of corporate overhead expenses. See Segment Information for details on how segment contribution margin was calculated for each period presented.

 

When viewed together with our GAAP results, we believe segment contribution margin provides management and users of the financial statements meaningful information about the performance of our business segments.

 

Segment contribution margin is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. The material limitation associated with the use of the segment contribution margin is that it is an incomplete measure of profitability as it does not include all operating expenses or non-operating income and expenses. Management compensates for these limitations when using this measure by looking at other GAAP measures, such as operating income and net income.

 

 

Segment Information

 

The following table presents the net revenues, gross profit and segment contribution margin from each of the Company’s business segments, as well as consolidated EBITDA, and adjusted EBITDA.

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

   

% Change

 
   

(dollars in thousands)

 

Net revenues:

                       

1-800-Flowers.com Consumer Floral

  $ 90,768     $ 85,076       6.7

%

BloomNet Wire Service

    25,440       23,993       6.0

%

Gourmet Food & Gift Baskets

    71,215       60,518       17.7

%

Corporate

    195       267       (27.0

%)

Intercompany eliminations

    (355

)

    (358

)

    0.8

%

Total net revenues

  $ 187,263     $ 169,496       10.5

%

                         

Gross profit:

                       

1-800-Flowers.com Consumer Floral

  $ 36,050     $ 33,288       8.3

%

      39.7

%

    39.1

%

       
                         

BloomNet Wire Service

    12,958       11,907       8.8

%

      50.9

%

    49.6

%

       
                         

Gourmet Food & Gift Baskets

    27,042       23,036       17.4

%

      38.0

%

    38.1

%

       
                         

Corporate

    96       309       (68.9

%)

      49.2

%

    115.7

%

       
                         

Total gross profit

  $ 76,146     $ 68,540       11.1

%

      40.7

%

    40.4

%

       
                         

EBITDA (non-GAAP)

                       

Segment Contribution Margin (non-GAAP) (a):

                       

1-800-Flowers.com Consumer Floral

  $ 8,524     $ 7,495       13.7

%

BloomNet Wire Service

    8,357       7,638       9.4

%

Gourmet Food & Gift Baskets

    (6,600

)

    (9,121

)

    27.6

%

Segment Contribution Margin Subtotal

    10,281       6,012       71.0

%

Corporate (b)

    (23,299

)

    (21,135

)

    (10.2

%)

EBITDA (non-GAAP)

    (13,018

)

    (15,123

)

    13.9

%

Add: Stock-based compensation

    1,765       955       84.8

%

Add: Compensation charge related to NQDC Plan investment appreciation (depreciation)

    (44

)

    282       (115.6

%)

Adjusted EBITDA (non-GAAP)

  $ (11,297

)

  $ (13,886

)

    18.6

%

 

Reconciliation of net loss to Adjusted EBITDA (non-GAAP):

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

 
   

(in thousands)

 
                 

Net loss

  $ (15,271

)

  $ (17,266

)

Add:

               

Interest expense, net

    679       716  

Depreciation and amortization

    7,635       7,843  

Less:

               

Income tax benefit

    6,061       6,416  

EBITDA

    (13,018

)

    (15,123

)

Add: Stock-based compensation

    1,765       955  

Add: Compensation charge related to NQDC Plan investment appreciation/(depreciation)

    (44

)

    282  

Adjusted EBITDA

  $ (11,297

)

  $ (13,886

)

  

 

a)

Segment performance is measured based on segment contribution margin or segment Adjusted EBITDA, reflecting only the direct controllable revenue and operating expenses of the segments, both of which are non-GAAP measurements. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead, described above, depreciation and amortization, other income (net), and other items that we do not consider indicative of our core operating performance.

 

b)

Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.

 

 

Results of Operations

 

Net revenues

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

   

% Change

 

 

 

(dollars in thousands)

 
Net revenues:                        

E-Commerce

  $ 129,050     $ 117,700       9.6

%

Other

    58,213       51,796       12.4

%

Total net revenues

  $ 187,263     $ 169,496       10.5

%

 

Net revenues consist primarily of the selling price of the merchandise, service or outbound shipping charges, less discounts, returns and credits.

 

Net revenues increased 10.5% during the three months ended September 29, 2019, compared to the same period of the prior year, due to growth across all three of the Company’s business segments, including the Gourmet Food & Gift Baskets segment, which benefited from strong everyday gifting at Harry & David and 1-800-Baskets.com, combined with a shift into the quarter of some gift basket shipments for certain wholesale customers and revenues from Shari’s Berries, which was acquired through bankruptcy auction in August 2019.

 

Disaggregated revenue by channel follows:

 

   

Three Months Ended

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

 
   

1-800-Flowers.com Consumer Floral

   

BloomNet Wire Service

   

Gourmet Food & Gift Baskets

   

Consolidated

   

1-800-Flowers.com Consumer Floral

   

BloomNet Wire Service

   

Gourmet Food & Gift Baskets

   

 

Consolidated

 
    (in thousands)  

Net revenues

                                                               

E-commerce

  $ 89,088     $ -     $ 39,962     $ 129,050     $ 83,450     $ -     $ 34,250     $ 117,700  

Retail

    939       -       7,490       8,429       861       -       7,779       8,650  

Wholesale

    -       8,748       23,763       32,511       -       8,133       18,489       26,622  

BloomNet services

    -       16,692       -       16,692       -       15,860       -       15,860  

Other

    741       -       -       741       765       -       -       765  

Corporate

    -       -       -       195       -       -       -       267  

Eliminations

    -       -       -       (355

)

    -       -       -       (358

)

Net revenues

  $ 90,768     $ 25,440     $ 71,215     $ 187,263     $ 85,076     $ 23,993     $ 60,518     $ 169,496  

 

Revenue by sales channel:

E-commerce revenues (combined online and telephonic) increased by 9.6% during the three months ended September 29, 2019, compared to the same period of the prior year, as a result of growth within the Gourmet Food & Gift Baskets segment of 16.7% as well as growth within the 1-800-Flowers.com Consumer Floral segment of 6.8%. During the three months ended September 29, 2019, the Company fulfilled approximately 1,845,000 orders through its e-commerce sales channels (online and telephonic sales), an increase of 8.2% compared to the same period of the prior year, while average order value increased 1.3%, to $69.95, during the three months ended September 29, 2019, compared to the same period of the prior year.

 

Other revenues are comprised of the Company’s BloomNet Wire Service segment, as well as the wholesale and retail channels of its 1-800-Flowers.com Consumer Floral and Gourmet Food & Gift Baskets segments. Other revenues increased by 12.4% during the three months ended September 29, 2019, compared to the same period of the prior year, due to growth within the Gourmet Food & Gift Baskets segment of 19.0%, BloomNet Wire Service segment of 6.0%, and 1-800-Flowers.com Consumer Floral of 3.3%.

 

Revenue by segment:

1-800-Flowers.com Consumer Floral – this segment, which consists primarily of the operations of the 1-800-Flowers.com brand, derives revenue from the sale of consumer floral products through its e-commerce sales channels (telephonic and online sales), retail stores, and royalties from its franchise operations. Net revenues increased 6.7% during the three months ended September 29, 2019, compared to the same period of the prior year, reflecting the strategic marketing and merchandising investments that we have been making in the Company’s flagship brands.

 

BloomNet Wire Service -revenues in this segment are derived from membership fees, as well as other product and service offerings to florists. Net revenues increased 6.0% during the three months ended September 29, 2019, compared to the same period of the prior year, primarily due to higher services revenue, including digital directory and transaction fees (driven primarily by increased 1-800-Flowers order volume sent through the network), as well as increasing demand for our expanded line of wholesale products.

 

Gourmet Food & Gift Baskets – this segment includes the operations of Harry & David, Wolferman’s, Stock Yards, Cheryl’s Cookies, The Popcorn Factory, 1-800-Baskets/DesignPac, and Shari’s Berries (acquired on August 14, 2019). Revenue is derived from the sale of gourmet fruits, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, gift baskets, dipped berries, and prime steaks and chops through the Company’s e-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Harry & David and Cheryl’s brand names, as well as wholesale operations. Net revenues increased 17.7% during the three months ended September 29, 2019, compared to the same period of the prior year primarily due to : (i) strong growth at Harry & David and 1-800-Baskets, driven by everyday gifting, particularly for such occasions as Birthday, Sympathy and Thank You, along with the new “Get-Well” Collection, as well as Harry & David’s Gourmet line, which includes prepared meals and wines for both gifting and entertaining, (ii) strong growth in the DesignPac wholesale business due to a combination of increased demand, and a timing shift of some wholesale gift basket shipments into the quarter, and (iii) the acquisition of Shari’s Berries on August 14, 2019, which contributed approximately $2.0 million of revenue during the quarter. On a comparable basis, excluding Shari’s Berries incremental revenue and the earlier wholesale shipments, adjusted Gourmet Food & Gift Baskets revenues would have increased approximately 9.4% in comparison to the prior year period.

 

 

Gross profit

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

   

% Change

 
   

(dollars in thousands)

 

Gross profit

  $ 76,146     $ 68,540       11.1

%

Gross profit %

    40.7

%

    40.4

%

       

 

Gross profit consists of net revenues less cost of revenues, which is comprised primarily of florist fulfillment costs (fees paid directly to florists), the cost of floral and non-floral merchandise sold from inventory or through third parties, and associated costs, including inbound and outbound shipping charges. Additionally, cost of revenues includes labor and facility costs related to direct-to-consumer and wholesale production operations, as well as payments made to sending florists related to order volume sent through the Company’s BloomNet network. 

 

Gross profit increased 11.1% during the three months ended September 29, 2019, compared to the same period of the prior year, primarily as a result of the increase in revenues noted above. Gross profit percentage increased 30 basis points, reflecting a combination of strategic pricing initiatives and more efficient use of promotional marketing programs, which offset higher costs associated with seasonal labor and tariffs. 

 

1-800-Flowers.com Consumer Floral segment - Gross profit increased by 8.3% during the three months ended September 29, 2019, compared to the same period of the prior year, as a result of the revenue increases noted above, as well as an increase in gross profit percentage of 60 basis points to 39.7%. The higher gross profit percentage was due to product mix combined with efficient use of promotional pricing programs.

 

BloomNet Wire Service segment - Gross profit increased by 8.8% during the three months ended September 29, 2019, compared to the same period of the prior year, due to the increase in revenues noted above, as well as an increase in gross profit percentage of 130 basis points to 50.9%. The higher gross profit percentage was due to the impact of sales mix, resulting from increases in higher margin directory and transaction fee revenues.

 

Gourmet Food & Gift Baskets segment - Gross profit increased by 17.4% during the three months ended September 29, 2019, compared to the same period of the prior year, due to the revenue increase noted above. Gross profit percentage decreased 10 basis points, to 38.0%, primarily due to product mix as a result of the increase in wholesale gift basket shipments.

 

Marketing and sales expense

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

   

% Change

 
   

(dollars in thousands)

 

Marketing and sales

  $ 56,839     $ 52,954       7.3

%

Percentage of net revenues

    30.4

%

    31.2

%

       

 

Marketing and sales expense consists primarily of advertising and promotional expenditures, catalog costs, online portal and search costs, retail store and fulfillment operations (other than costs included in cost of revenues) and customer service center expenses, as well as the operating expenses of the Company’s departments engaged in marketing, selling and merchandising activities. 

 

Marketing and sales expense increased 7.3% during the three months ended September 29, 2019, compared to the same period of the prior year, primarily due to increased advertising spend within the 1-800-Flowers.com Consumer Floral and Gourmet Food & Gift Baskets segments, as a result of the Company’s incremental marketing efforts designed to accelerate revenue growth and capture market share. Marketing and sales as a percentage of net revenues of 30.4%, decreased from 31.2% in the same period of the prior year, primarily as a result of the timing shift of some wholesale gift basket shipments into the quarter.

 

 

Technology and development expense

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

   

% Change

 
   

(dollars in thousands)

 

Technology and development

  $ 10,803     $ 10,279       5.1

%

Percentage of net revenues

    5.8

%

    6.1

%

       

 

Technology and development expense consists primarily of payroll and operating expenses of the Company’s information technology group, costs associated with its websites, including hosting, design, content development and maintenance and support costs related to the Company’s order entry, customer service, fulfillment and database systems.

 

Technology and development expenses increased 5.1% during the three months ended September 29, 2019, compared to the same period of the prior year, primarily due to increased license and maintenance costs required to support the Company’s technology platform.

 

General and administrative expense

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

   

% Change

 
   

(dollars in thousands)

 

General and administrative

  $ 21,522     $ 20,430       5.3

%

Percentage of net revenues

    11.5

%

    12.1

%

       

 

General and administrative expense consists of payroll and other expenses in support of the Company’s executive, finance and accounting, legal, human resources and other administrative functions, as well as professional fees and other general corporate expenses.

 

General and administrative expense increased 5.3% during the three months ended September 29, 2019, compared to the same period of the prior year, primarily due to higher labor costs, bad debt expense, and professional fees related to due diligence acquisition related costs.

 

Depreciation and amortization expense

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

   

% Change

 
   

(dollars in thousands)

 

Depreciation and amortization

  $ 7,635     $ 7,843       -2.7

%

Percentage of net revenues

    4.1

%

    4.6

%

       

 

Depreciation and amortization expense during the three months ended September 29, 2019 was slightly favorable in comparison to the prior year.

 

Interest (income) expense, net

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

   

% Change

 
   

(dollars in thousands)

 

Interest expense, net

  $ 595     $ 990       -39.9

%

 

Interest expense, net consists primarily of interest expense and amortization of deferred financing costs attributable to the Company’s credit facility (See Note 8 - Debt, in Item 1. for details), net of income earned on the Company’s available cash balances.

 

Interest expense, net decreased 39.9% during the three months ended September 29, 2019, compared to the same period of the prior year, due to higher invested cash balances and associated rates earned on these balances, combined with lower borrowings outstanding on the 2019 Credit Agreement.

 

Other income (expense), net

 

   

Three Months Ended

 
   

September 29, 2019

   

September 30, 2018

   

% Change

 
    (dollars in thousands)  

Other income (expense), net

  $ (84

)

  $ 274       -130.7

%

 

Other income, net for the three months ended September 29, 2019 consists primarily of investment losses on the Company’s Non-Qualified Deferred Compensation Plan assets, whereas in the prior year, there was a gain $0.3 million. 

 

Income Taxes

 

The Company recorded an income tax benefit of $6.1 million during the three months ended September 29, 2019. The Company’s effective tax rate for the three months ended September 29, 2019 was 28.4% compared to 27.1% in the same period of the prior year. The effective rate for fiscal 2020 differed from the U.S. federal statutory rate of 21% due to state income taxes and nondeductible expenses for executive compensation, which were partially offset by various permanent differences and tax credits, including excess tax benefits from stock-based compensation. The effective rate for the three months ended September 30, 2018 differed from the U.S. federal statutory rate of 21%, primarily due to state income taxes and nondeductible expenses for executive compensation, which were partially offset by various tax credits, including excess tax benefits from stock-based compensation, and other permanent differences. At September 29, 2019, the Company has an unrecognized tax benefit, including interest and penalties, of approximately $0.9 million. The Company believes that $0.2 million of unrecognized tax positions will be resolved over the next twelve months.

   

 

Liquidity and Capital Resources

 

Liquidity and borrowings

 

The Company's principal sources of liquidity are cash on hand, cash flows generated from operations and borrowings available under the 2019 Credit Agreement (see Note 8 - Debt in Item 1 for details). At September 29, 2019, the Company had working capital of $133.0 million, including cash and cash equivalents of $34.2 million, compared to working capital of $175.7 million, including cash and cash equivalents of $172.9 million, at June 30, 2019. As of September 29, 2019, there were no borrowings outstanding under the Company’s working capital Revolver.

 

Due to the seasonal nature of the Company’s business, the Thanksgiving through Christmas holiday season, which falls within its second fiscal quarter, generates nearly 50% of the Company’s annual revenues, and all of its earnings. As a result, the Company expects to generate significant cash from operations during its second quarter. In order to fund pre-holiday manufacturing and inventory procurement requirements, the Company will borrow from its Revolver at the beginning of its second quarter. Cash generated during the Holiday selling season will enable the Company to repay all such borrowings before the end of the quarter, with sufficient cash on hand to fund its operations through the second quarter of fiscal 2021.

 

While we believe that our sources of funding will be sufficient to meet our anticipated operating cash needs for at least the next twelve months, any projections of future cash needs and cash flows are subject to substantial uncertainty. We continually evaluate opportunities to repurchase common stock and we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to require additional financing. 

 

Cash Flows

 

Net cash used in operating activities of $112.8 million, for the three months ended September 29, 2019, was primarily attributable to the Company’s net loss during the period, combined with seasonal changes in working capital, including increases in inventory and trade receivables, partially offset by non-cash charges for depreciation and amortization and stock-based compensation.

 

Net cash used in investing activities of $24.9 million, for the three months ended September 29, 2019, was primarily attributable to the acquisition of Shari’s Berries for $20.5 million and capital expenditures of $4.4 million related to the Company's technology initiatives and Gourmet Food & Gift Baskets segment manufacturing production and warehousing equipment.

 

Net cash used in financing activities of $1.1 million, for the three months ended September 29, 2019, was primarily due to net bank repayments of $1.3 million, partially offset by $0.2 million in proceeds from exercise of employee stock options.

 

Stock Repurchase Program

 

See Item 2 in Part II below for details.

 

Contractual Obligations

 

At September 29, 2019, the Company’s contractual obligations consist of:

 

Long-term debt obligations - payments due under the Company's 2019 Credit Agreement (see Note 8 - Debt in Item 1 for details).

 

Operating lease obligations – payments due under the Company’s long-term operating leases (see Note 13 - Leases in Item 1 for details).

 

Purchase commitments - consisting primarily of inventory and IT related equipment purchase orders and license agreements made in the ordinary course of business – see below for the contractual payments due by period.

 

   

Payments due by period

 
   

(in thousands)  

 
   

Remaining Fiscal 2020

   

Fiscal 2021

   

Fiscal 2022

   

Fiscal 2023

   

Fiscal 2024

   

Thereafter

   

Total

 

Purchase commitments

   $ 62,828      $ 4,447      $ 2,855      $ 1,376      $ -      $ -      $ 71,506  

 

 

Critical Accounting Policies and Estimates

 

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019, the discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements of 1-800-FLOWERS.COM, Inc., which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, and management evaluates its estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. The Company’s most critical accounting policies relate to goodwill, other intangible assets and income taxes. There have been no significant changes to the assumptions and estimates related to the Company’s critical accounting policies, since June 30, 2019, except for the adoption of ASC 842 (see Note 1 - Accounting Policies in Item 1 above for details). 

 

Recently Issued Accounting Pronouncements 

 

See Note 1 - Accounting Policies in Item 1 for details regarding the impact of accounting standards that were recently issued on our consolidated financial statements.

 

 

Forward Looking Information and Factors that May Affect Future Results

 

Our disclosure and analysis in this report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s current expectations or beliefs concerning future events and can generally be identified by the use of statements that include words such as “estimate,” “project,” “believe,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “goal,” “target” or similar words or phrases. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control that could cause actual results to differ materially from the results expressed or implied in the forward-looking statements, including:

 

 

the Company’s ability:

 

o

to achieve revenue and profitability;

 

o

to leverage its operating platform and reduce operating expenses;

 

o

to manage the increased seasonality of its business;

 

o

to cost effectively acquire and retain customers;

 

o

to effectively integrate and grow acquired companies;

 

o

to reduce working capital requirements and capital expenditures;

 

o

to compete against existing and new competitors;

 

o

to manage expenses associated with sales and marketing and necessary general and administrative and technology investments; and

 

o

to cost effectively manage inventories;

 

the outcome of contingencies, including legal proceedings in the normal course of business; and

 

general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company’s products.

 

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

 

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Annual Report on Form 10-K filing for the fiscal year ended June 30, 2019 listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Cautionary Statements Under the Private Securities Litigation Reform Act of 1995”. We incorporate that section of that Form 10-K in this filing and investors should refer to it.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is exposed to market risk from the effect of interest rate changes.

 

Interest Rate Risk

 

The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment of available cash balances and its long-term debt. The Company generally invests its cash and cash equivalents in investment grade corporate and U.S. government securities. Due to the currently low rates of return the Company is receiving on its cash equivalents, the potential for a significant decrease in short-term interest rates is low and, therefore, a further decrease would not have a material impact on the Company’s interest income. Borrowings under the Company’s 2019 Credit Agreement bear interest at a variable rate, plus an applicable margin, and therefore expose the Company to market risk for changes in interest rates. The effect of a 50 basis point increase in current interest rates on the Company’s interest expense would be approximately $0.1 million during the three months ended September 29, 2019.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of September 29, 2019. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 29, 2019.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in connection with the Company’s evaluation required by Rules 13a-15(d) or 15d-15(d) of the Securities Exchange Act of 1934 during the quarter ended September 29, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Litigation

 

There are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.

 

ITEM 1A. RISK FACTORS.

 

There were no material changes to the Company’s risk factors as discussed in Part 1, Item 1A-Risk Factors in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The Company has a stock repurchase plan through which purchases can be made from time to time in the open market and through privately negotiated transactions, subject to general market conditions. The repurchase program is financed utilizing available cash. On June 27, 2019, the Company’s Board of Directors authorized an increase to its stock repurchase plan of up to $30.0 million. As of September 29, 2019, $30.0 million remained authorized under the plan.

 

The following table sets forth, for the months indicated, the Company’s purchase of common stock during the first three months of fiscal 2020, which includes the period July 1, 2019 through September 29, 2019:

 

Period

 

Total Number of

Shares Purchased

   

Average Price

Paid Per Share (1)

   

Total Number of Shares

Purchased as Part of

Publicly Announced

Plans or Programs

   

Dollar Value of Shares

that May Yet Be Purchased

Under the Plans or Programs

 
   

(in thousands, except average price paid per share)

         
                                 

07/01/19 - 07/28/19

    -     $ -       -     $ 30,000  

07/29/19 - 08/25/19

    -     $ -       -     $ 30,000  

08/26/19 – 09/29/19

    2,113     $ 14.85       2,113     $ 29,969  

Total

    2,113     $ 14.85       2,113          

 

(1) Average price per share excludes commissions and other transaction fees.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable. 

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

 

31.1

Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

 

31.2

Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

 

32.1

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

 

101.INS

XBRL Instance Document

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

101.CAL

XBRL Taxonomy Calculation Linkbase Document

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB

XBRL Taxonomy Extension Label Document

 

101.PRE

XBRL Taxonomy Definition Presentation Document

* Filed herewith.

 

21

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

1-800-FLOWERS.COM, Inc. 

(Registrant)
 

Date:      November 8, 2019

/s/ Christopher G. McCann      

Christopher G. McCann
Chief Executive Officer, 
Director and President
(Principal Executive Officer)  

 

 

Date:      November 8, 2019

/s/ William E. Shea      
William E. Shea
Senior Vice President, Treasurer and
Chief Financial Officer (Principal
Financial and Accounting Officer)

 

 

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