Ladies and gentleman thank you for standing by. Welcome to our Second Quarter 2006 1-800-Flowers.com Earnings Conference Call. My name is Louis and I will be your coordinator for today. At this time, all participants are in the listen-only mode. We will have however be facilitating a question and answer session towards the end of this conference. If at anytime during the call, you require assistance you may key “*” followed by “0” and a coordinator will be happy to assist you. I would now like to turn the call over to your host for today’s presentation, Mr. Joseph Pititto, Vice President in Investor Relations. Please go ahead sir.

Thank you Louis. Good morning everyone, thank you for joining us today to discuss 1-800-Flowers.com’s financial results for fiscal 2006 second quarter. My name is Joseph Pititto and I am Vice President with Investor Relations. For those of you who have not received the copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our website at 1800flowers.com or you can call Patty Altodoma (ph) at 516-237-6113 to receive the coy of the release by email or fax. In terms of structure, our conference will begin with brief forward remarks and the will up the call to your questions. Presenting today will be Jim McCann, CEO and Bill Shea, CFO. Also joining us today from the Q&A session of our call is, Chris McCann our President. Before we begin, I need to remind everyone that the number of the statements that we will make today maybe forward-looking with the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For detailed description of these risk and uncertainties, please refer to our SEC filings included in the company’s annual report on Form 10-K and quarterly reports on Form 10-Q. The Company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today’s call, any recording of today’s call, the press release issued earlier today, or any of this SEC filings, except as maybe otherwise stated by the Company. I will now turn the call over to Jim McCann.

Good morning everyone. As we announced in this morning press release, during our fiscal second quarter we achieved the record revenues of $278 million representing growth of 21% or $48 million compared with the prior year period. This growth can be attributed primarily to a strong contribution from our recent acquisitions particularly in the food, wine and gift basket category where our newest brand Cheryl & Co performed especially well. The growth we achieved during the second quarter illustrates the success of our strategy to expand our gift offerings. To a combination of internal development and strategic acquisitions that leverage our collection of operating assets and the deepening the relationships we have with our millions of customers. This currency is particularly important during this yearend holiday shopping period when we are increasingly competing with the broad range of gift retailers. And our call for gift category as well in our special gifts both online and stall-based. Before I turn the call over to Bill, let’s review of this specific results and metrics for the quarter. I like to highlight a few key achievements. First on the product front, in our food, wine and gift basket category we enhanced the growth of our Cheryl & Co brand by providing them with access to extensive online marketing programs and expertise. As a result, more than a third of their revenues during the quarter came online, up significantly from last year. In our home and garden gifts category, we achieved double digit revenue growth reflecting the continued success of our efforts to improve the marketing and merchandising of our Plow & Hearth brand and the benefit of our product line expansion and whether-themed gifts which we acquired during the quarter. These new products took well with the gifting profile of our existing and…

Thank you, Jim. Despite the increasingly competitive nature of the yearend holiday season we achieved solid revenue and gross margin improvement over the prior year. Importantly, in the second half of fiscal 2006, we expect to achieve continued strong sales growth particularly in our core flow operations as well as enhance our year-over-year gross profit margin. Additionally, comparatively flat year-over-year operating expense ratio that we saw in the fiscal second quarter reflects the increased investments that we began in January of last year, particularly in our stepped up marketing programs in our Bloomnet business initiatives. On comparative basis, during the second half of fiscal 2006 these investments will begin to anniversary resulting in increasing operating leverage particularly in our fiscal fourth quarter. Regarding specific financial results and key metrics for the second quarter, total net revenues reached 277.8 million, an increase of 20.8% or 47.8 million compared with 230 million in the same period last year. Online revenues grew 23.8% to 133.4 million compared with a 107.7 million in the second quarter last year. These online revenues equaled 51.6% of combined online telephonic revenues for the second quarter of fiscal 2006, compared with 49.6% in the same period last year. Telephonic revenues were 125.1 million, up 14.2% compared with a 109.6 million in the prior year period. This increase primarily reflects the revenue contributions for our new Cheryl & Co brand and the contribution from the product-line extension in weather-themed gifts headed during the quarter in our home and garden division. Retail and fulfillment revenues were 19.3 million compared with 4.8 million in the year ago period. This increase primarily reflects revenues from Bloomnet and contributions from our line operations and the retail stores of Cheryl & Co and Plow & Hearth. During the quarter, our combined online and telephonic…

As a sum up, we are pleased with the, better than 20% revenue growth we achieved during the second quarter. Particularly in light of the increasingly competitive nature of the yearend holiday shopping season. Combined with our first quarter result revenue growth for the first half of fiscal 2006 was approximately 19% compared with 6% in the first half of fiscal 2005. This reflects our strategy to drive doubled digit revenue growth to a combination of internal initiatives and strategic acquisitions. In our consumer flower gift business, we continue to extend our leadership position to our stepped up marketing effects and the success of our, yield florist to choice message, which conveys our unique ability to provide our customers with choices including same day delivery of beautiful horse designed gifts, our Fresh From Our Growers offerings, our exclusive expert designers collection, plus all the great gifts that customers expect to find at their florist, candy, giftware, covers or baked gifts and an expanding range of gift baskets and gift sets. In Bloomnet business we continue to expand our florist membership and we began to introduce products and services to design to help our Bloomnet members to enhance their productivity and profitability. While this is been an investment area for us, this passed 12 months we expect to see increasing leverage during the second half of fiscal 2006 with a growing contribution that will accelerate into fiscal 2007. In our food, wine and gift basket category, we continue to see excellent growth opportunities. We’ve already become a significant player in the category with revenues expected to surpass a $100 million this year. Our target here is to become the leading the provider of gourmet food, wine and gift baskets for all of our customer’s personal and business keeping exchanges. Looking ahead,…

Ladies and gentlemen at this time if you have a question please key “*” followed by “1” on your telephone. If your question has been answered and you wish to withdraw your registration, please key “*” followed by “2”, once again, ladies and gentlemen, “*” “1” to ask a question. Now will you please hold a few minutes, while we compile your list of questions. And your first question comes from the line of Anthony Noto with Goldman Sachs.

Thank you very much. Jim, I was wondering if you commented a little bit, I don’t pretty much assume the call in your acquisitions into quarter, with pipeline extend to Plow & Hearth. What is that contributing the quarter and revenue, and then profits. And then second question, as you continue to build up the Bloomnet relationships, do you think there is a bottleneck or some barrier that you can breakthrough the can really accelerate your growth there, or is it just a longer, in your certain sales cycle, that is going to take a certain amount of time. And if there is a bottleneck or a challenge to kind of breakthrough to really bring on a much bigger network. How do you overcome that? Thanks.

Going back to your first part of your question regarding our weather related gift products that we acquired into our quarter, what we purchased there, we spend about $5 million we bought the inventory, and the inventory and intellectual property related to that area, we’ve already had a good experience with the weather related gift items, under the Plow & Hearth brand, in this case it was the opportunity to extend and deepen our offerings within that category. So it’s an opportunistic thing that we were able to take advantage of, in that quarter, so again, just the inventory and intellectual properties that we acquired there. That 5 million expenditure, last year if they, if we view those assets as a standalone enterprise, they probably did $11 million in sales with a, from our marketing effort against, they would do about 50% of their sales in the quarter, we bought dimensional quarter. So, this would be a few million dollar contribution. On the second part of your question, with regard to Bloomnet, Anthony, I don’t anticipate nor do we expect or frankly plan on any kind of a breakthrough effort, what we said, when we said when we began that effort just 12 months ago now, is that we saw an opportunity to provide a range of products and services to help our florists, the network we’ve had build and kept purposely small to do, to offer a better composition frame in the marketplace. We’ve done that and we expect that to continue to go at the pace its going. We don’t maybe tend to have any big, sales force to bring our members. Our strategy there is to continue to deliberately and selectively expand our Bloomnet network as our buying demands call for, and as our services requirements and our service offerings, all those Bloomnet parts will dictate. So I think, you can expect to see good, steady, sustained growth both in membership where appropriate, but in particularly in terms of depth of relationship with those loss.

Great, thank you very much.

Louis do we had another question?

Yes, your next question comes from the line of Heath Terry of Credit Suisse First Boston.

Great, I was wondering if you could talk just a little bit about what’s, what you are seeing and marketing and customer acquisition expenses, this is the first quarter and quite sometime where we’ve actually seen sales marketing as a percentage of revenue decline. And I was wondering is that something that is being driven by the mix of advertising that you are using, or you actually seeing kind of your unit advertising cost, come down and certain channels or, are you just seeing a better response rate from the advertising that you are doing?

Yeah Heath this is Bill Shea, first of, if you recall back in January the third quarter of last year what we, after coming of about 6% growth the first half of last year, that we will go into a step up our marketing efforts and we are going to continue that steps up marketing efforts. So we haven’t really anniversary that as highest spend at this point. And that’s why you are seeing marketing in sales as a percent of revenues, not come down, as we start anniversary that in the second half of this year, and going forward, we’ll start to see more, more operating leverage there.

I think you can expect too, that during the holiday quarter it’s a bigger quarter it’s a bigger quarter for our specialty brands, then all the second 2 quarter of the fiscal year, the once we are, one we are now and the spring quarter. And that marketing mix is a real different in that quarter, in that much more of our marketing efforts are around the catalog distributions of those brands. We are still seeing net-to-net and we still expect to have a less than $20 acquisitions cost in new customers. So, we’ve been able to hold that consistently over the last, couple of the years. But if you look at it inter quarters, we do internally, the December quarter will be a higher cost of acquisition and of blend of the year, because of the disproportionate use of catalogs during that quarter for our specialty brands.

Great and then obviously, one of your competitors that TDS hasn’t, pretty public comments about the cost of search-based advertising, relative to the returns that we are getting from it, can you talk about what you are seeing specifically within that channel.

I let Chris to cover that.

Sure, Heath its Chris, yeah, we will, certainly search with in expensive GAAP effective marketing vehicles for us, one of our overall marketing channels, we did not see any spike in cost this holiday seasons, so actually we spare holiday season in search cost for comparable to last few holiday season.

Great, thank you very much.

And your next question comes from the line of Rebecca Kujawa of Stanford Group. Please go ahead.

Hi great, thank you. I want to talk actually a little bit about into these questions about Bloomnet. Could you give us a sense of what type of things we can be looking for; I know the big question of Bloomnet is to develop further the services and depth of the relationships with Bloomnet members. I understand you are going to be putting up the directory the next version of it, here in January and then perhaps you can talk about the schedule of that and then perhaps any other services as you are reflected market to this Bloomnet numbers over time?

I’ll ask anyone else here to jump in on that, so Rebecca this is Jim, kinds of products and services that you start to see from course of directory which we’ve first launched with the September mailing, the second mailing for the fourth calendar quarter, second fiscal quarter was our first revenue generating book and that is a book in the market, now as you all setting revenue generating book, we are very happy with the progress of those directory, in addition you see us now increasingly introduce new products into the marketplace that help as far as to get involved in a customers lives and everyday in holiday expression point of view, but with the particular emphasis on the everyday piece like our new happy hour collection. And there some of the products and services as you are seeing, some of the products we are introducing that combine with the services are resulting the product directly for our florists, so they can get it at the good price, and have unique product that help them to differentiate there their capabilities, our collective capabilities with our customer. So, you are seeing increase in Bloomnet there and our ability to sell-through product to our florist to help them. So, product sales catalog, advertising services, credit card payment services and of course we introduced about 5 months, 6 months ago, now, the Bloomnet exchange, into house of florist members to send orders from one to another within that network, so they’ll have opportunity for that same high quality presuming extreme. So, we’ve had for the 1-800-Flowers orders, now they can enjoy that in extreme shape of their own customer’s orders as well.

Okay, can you give us any update on your franchising efforts sequence you have them?

Our franchising efforts are simple and small they, we have same 100 to 150 franchisees depending on how do you classify our design channel relationships and also are expected to grow very modestly over the foreseeable future. It’s super Bloomnet for us, but our primary focus is on delivering the right products and services to help out Bloomnet florists who are increasingly challenged by the number of our florists in general in the marketplace declining their lack of top-line revenue growth which is given us an opportunity in terms of Bloomnet being much smaller more selective organization to attract the very best florist who, what we have which is sales and sales growth opportunities with the mix of products and services we bring together.

Okay. And then on gross profit margin, you mentioned I think actually Bill mentioned on the, in the prepared remarks, the discussion that you made, seeing a little more pricing pressure from competitors although some of that was offset by lower product cost. On the pricing pressure from customers are you seeing a more competitive environment across the board, is it particular categories and what would you expect obviously, the December quarter is unique in some ways you see that competition continuing in the other quarters as well?

Yeah, I think we did basically see it across the board. Certainly, for the flower category, in the holiday season was, with, what we’ve find is that, what we use to have, what a flower category using to have an advantage over a many other, the other gift category, because that was the last minute gift. So that is become less and less over time, so we’ve really in the flower category, we are competing against many of the category. The broad range of categories, and therefore that has put some, some pressure on the growth during this particular period. As we get into, the second half of our fiscal year where 75% of our revenues are in that flower category, we are we certainly have competition, we have competition within the flower category. But we don’t we are not competing as everybody else out there. So, we think there will be less pressure on promotional pricing.

And that’s why, Rebecca this is Jim, why we think what we saw this last quarter reinforces our decision a few years to put an emphasis on the specialty, specialty products category. Because as Bill mentioned, it could easily be interpreted and perhaps it is by us, that when FedEx and UPS and the Internet were much less factors in the florist world. We had the luxury of being the, the thing you can do with the last minute. For now every product, every service is available right up to the last minute. So as Bill says, we are not just competing in the florist base, we are competing in the whole universe of the gifting space, which is why we have invested our capital and our efforts as making sure we had the right brands and the right products, so we had the products that customers want during that category. Not just relying on the products that customers had no choice about, for the last minute gift. Now, with our candy products, our fruit and gourmet products all of our gift baskets are bakery gift products increasingly we have the range of products that allow us to do so well, do to do well in a quarter like this, in spite of the fact that we’ve seem to be a little bit more challenged on the flower growth side in a grand picture of things. And that’s why you see such accelerated growth in our specialty brands.

Okay and then one last question if I could and then I will step out, you’ve talked a couple of times on the last couple of quarters about the corporate giving efforts and obviously this December quarter would be in a important benchmark, could you give us an update on how that performed in second quarter?

Sure Chris can you handle the….

Continually good progress in the business gift service as then I’d say especially this year with the additional product life in Cheryl & Co. Again similarly, as Jim was just referring to on the consumer segment, same thing on the corporate segment for us, handling all the broad range of gifts and products really helps us deepen the relation with our customers. One quick agenda over the customer last year was placed $4,000 to $5,000 flower order for the Christmas holidays. We’ve not have gotten that order again this year, as we did and have the base for this product line. So, they were looking for something different. So we’re able to maintain that by providing them made goods, so we continue to make good progress and again in course of the extended product and brand capabilities deepening relationships with our corporate customers.

Okay thanks.

And our next question comes from the line of Kristine Koerber with JMP Securities.

You know hi, a couple of brief questions, you talked about inventory being in a lot of it’s, build, they’re going into development and they would, we are seeing inventory of the quarter-after-quarter, how much of the inventory is configured quarter end and is there any reason to be confirm?

Kristine inventories within, where our management expected, to be as we look at it compared to on yearend at June as obviously a seasonal shift for that and if you look at it year-over-year where it is up, like you have to take into consideration is that, because I have an year ago the Cheryl & Co brand and the product associated with Cheryl & Co brand the weather-related product line that we acquired, during the quarter and as Bloomnet continues to grow and brings us, additional services, they are, buying, it was the three digit flower holidays like Valentine’s Day and Mothers Day. They are building; we are taking on inventory for that that will have been sell-through in January, prior to the Valentine’s Day holiday. There is no concern with about to, for the level of the inventory that we have.

Okay and then….

I think the Bill, so as with your steady state, but our new expectations on steady state inventory.

Yeah, I think inventory for the remainder of this year and it would be about, in the mid 30s.

Okay fair enough. And as far as Wine, Winetasting, you’re the, talk about how that did this holiday season now that you owned, licensing that term versus the year-ago when you are just partner and then consoling that, since you are fast to get with Wine. Is there been strong demand for Wine products in general?

The Wine categories, one that we think over the next 5 years, will become an important category for us Kristine. The acquisition we made of those assets just a year-ago now, are very small but less that 1% around 1% of our sales. So it’s not a big contributor. Yes usually I pay you in spite of that that yes we are seeing of the landscape change would be more favorable to our customers there, where we are taking steps to increase Wine Gift Basket sales there and we saw good up tick on those gift baskets as holiday quarters as we tell you a whole fruit wine and gift baskets category sounds extremely well for us. But if you, I would want isolate just the one category it is, I don’t want give you force leave there, its just a very small business right now, as a standalone business but it’s a nice contributor to our overall capabilities in the food wine gift basket area.

Okay great thanks.

Your next question comes from the line of Mark Mahaney of Citigroup.

Thanks, I just want to get a little bit more clarification. You mentioned a couple of times the, a few words where the increasingly competitive nature of the holiday season, just in the consumer, our floral part of the business it doesn’t sound like you saw that, in terms of increased marketing cost, in terms of key words search pricing increasing, so was there something else about the consumer flower business that, made you make those comments about that reasonably competitive nature or should those comments will lead, meant to reflect other parts of the business, thank you.

I’ve been discussing overall comment, I don’t know anyone who thinks that category isn’t getting core competitive Mark, and mostly said, what we mean to say there I’ll ask Chris to cover specifically the search for that. But in general, it used to be that our catalog brands was finished with business a week after Thanksgiving numbered in two weeks after Thanksgiving and that is busy right up until the last day because customers will come to expect that they can order in the last minute and get things last minute, usually all kinds of discounting would go on as different companies, whether a department stores or there’s a direct marketers or full shippers, get nervous when business isn’t as coming as early and they and so they put on different competitive pricing scenarios and drop shipping cost and things like that. So you see the, this shipping, the discounting or in everyone of the fruit gift categories, frankly all of the gift categories throughout this holiday season as people come more and more nervous as we got closer to the holiday itself. So logistically, we’ve get ourselves to have a later and later holiday of every year and it’s been indicate. So our comments about the competitive nature, isn’t specific flower, because you’re right our cost does go up there on a market basis. But overall, we are just seeing have a competitive landscape, there are a lots of people who are trying to get a share of the customers wallets and we’re wanted them and we’re fighting all for it.

And the only thing I’ll add Jim, you already covered again the, from a floral category segment, its just fighting for share of mind, in the quite competitive holiday season with all of the other categories, most among same marketing cost point of view again we did not see anything and in the search field, no those things don’t increase.

Thank you very much.

Your next question comes from the line of Eric Beder of Brean Murray.

Hi, guys Eric Beder, Brean Murray, good morning.

Good morning.

Good morning Eric.

What is the expected CapEx for the year now?

Our expected CapEx is, is in that $16 million to $17 million range.

How much additional cost that you have for your move that you did this year?

Yeah, all in, I mean its one’s for the P&L, probably $0.5 million to $1 million and then there is, there is CapEx associated with out leaseholds and wedding, I think it treated, for timing purposes, even when you get a timing allowance, your growth of the fixed assets and then you basically get the timing allowance through reduced range over the over the leased term of over a long term. That’s, so the change in accounting a couple of years ago.

P&L, 502 million?

Yes.

Okay, what is this; actually you guys did not do very much in terms of the buyback. What is the thinking in terms of the buyback, in terms of when you wanted to do and sort of I think in terms of the buyback I guess.

The buyback is just, as we stated in the past our cash flow and just of our business needs, we have nearly of 2 uses for it. First of all, almost to growth of business so, the strategic acquisitions that we’ve been making, second is stock repurchase, the fiscal second quarter is a quarter where as you know we go into the quarter, doubling our cash as we build inventory, we finished the quarter obviously most of that turned back into cash and as Bill mentioned we finished the quarter with 61 million in cash and well build cash over the next 2 quarters, so while we weren’t active in the fiscal second quarter and second half of the year we do expect to be active in stock buyback again.

Okay in terms of Bloomnet, when did you planned, you’ve guys have, opens the directories, you’ve spent some other pieces, when do have, when do you believe you’ll have a similar set of services comparable to FTD and tall flower in terms of statements, a personal way to bet that get rid of that FTD entirely or and those services they could do it and use your entire basis of services to run their business.

I would think that in terms of services we want to offer, I think we already offer a suite of services that satisfy us our Flowers need in terms of running their business today. We have a whole suite of services that we will be introducing each quarter over, for the foreseeable couple of years, that will help and enhanced that flowers ability to pickup business. But I don’t think there’s anything that a flowers need to operate now that we don’t provide.

Okay and finally could you kind of give me a little more depth in terms of these shift or Valentine’s Day from Monday to Tuesday affects you guys in terms of positives for this year?

Well there is two ways and I can’t say that both positive. From a positive point of view, the logistics associated with Valentines Day and a less Christine (ph) and build the churn as well. But the, how are we moving to Tuesday, you have FedEx shipping capability, UPS shipping capability and all of our overnight means available to us now for a pickup on Monday and delivery on Tuesday well, actually we didn’t have the case that we need to pick up Friday or its picked up Saturday. So product wasn’t going to be at its best and you had surcharges related with those Saturday pickups and you have product sitting in a box over two or three nights. After they’ve been sitting in a box in the coolers, so that’s why we moved away from that and the piece that we did do at the surcharges for Saturday preparation of pickup. So that had a gross margin hit to its last year because of that strata of the Saturday, Sunday period that won’t have this year. So logistically we have more flexibility this year in terms of the means we used to deliver our products for the customers, I think flowers delivery methodology is the best for the consumer, because its probably high traded company condition, properly handled and by the way professionally arranged in design products that can be delivered to the consumer and you’ll see is heavy emphasize on that but we do have backup capability with our overnight delivery. There is a consequence though, for Valentine’s Day as we see it move the each of the different day placements will be all smiling bigger next year when it’s on a Wednesday and the year after as it moves wavering the week on Thursday because we have benefited by our customers being in the office over the week where this year’s they will be in the, they will be in home Saturday and Sunday the majority of them. That’s why Thursday and Friday are the best placement days for us because all of the days leading up to Valentine’s Day are work days which are better from us in the sales perspective.

Okay thank you.

Okay.

Your next question comes from of Jeff Stein of Keybanc Capital Markets.

Good morning Jim, a question on, setting back to gross margins it looks like you guys felt pretty far short of the market in terms of where you wanted to be from a gross margin standpoint and you have taken your guidance accounts considerably through the year. So my question would be two full, number 1, can you talk a little bit more specifically about where you saw the greatest margin degradation in the second quarter relative to plans and number 2, if it is in fact due to more competitive environment and this perhaps is now a structural issue going forward, do you guys still believe an 8% operating margins by fiscal 2008 is still a realistic target since gross margin enhancement is one of the key drivers here.

This is Jim. Jeff on the first part, it is clear that we planned on doing a lot more business this quarter than we did. Therefore we inventoried out, we planned out, we did all the things to handle more business. So the bad news we would have liked to have done more business than we did indicated. The good news is we still had a respectable quarter and we still had and we didn’t thank on margins back, we still improved our gross margins but clearly we thought that we have more sales opportunities and better traction than we did. So that’s, that, that’s compressions for sold there, that’s what happened and that’s, as I said that the shading raise on that, is that we still are able to improve gross margins despite of that. And we didn’t have and we could move inventory before it became an issue for us.

Yes did the, did the mix in gross margin that’ll come from having too much merchandize that you didn’t sell-through and you had the markets down, or did it come from certain, or just it come from mix?

Right now, I think it really on definitely the sales. Its, again the consumer continues to buy later and later and as were alluding to before with the competition in competing with all the advertisings out there for whatever its for, for free shipping or mock downs and stuff like that and with the consumer buying later and later, we were kind of forced into a, taking some off downs and doing some promotional pricing, and this, kind of just further, the top line so that’s really where the, where the margins are impacting. When we get into the second half of the year where we were much more slow in nature, we don’t have all those same, the same level of competition but that’s for not competing those other categories and that really competing it, that will ease up and then as Jim mentioned some of the logistical improvements with the day placement of Valentine’s Day will help us to still get better improve our margins.

Looking at longer term Bill, your 8% targeted operating margin for fiscal 2008, do you still believe that’s a realistic target and if so, how do you get back there, given the changing nature of benefits in later shopping environments?

Yeah Jeff, we have not changed our, longer term outlook for an 8% operating margin in this company. We still believe that there are margin enhancement opportunities for us, we got to look at it during that, the Christmas holiday quarter, quarter, with, with the trends what people are buying, buying later and later. And we still think there is, significant operating leverage in, in our model, obviously we said a lot of times talking about Bloomnet and, Bloomnet is a very high margin, in our business and as that starts to mature as we get into ’07 and certainly ’08 when, when we have four sweated services and, and the size of Bloomnet is larger than that is, today that will be a, that will be a significant contributor.

Okay and Bill, just a housekeeping item, the 40% growth in earnings on a pro forma basis I presume that excludes FAS 123?

Yes.

If you, if you include FAS 123, what kind of growth rate are we looking at and half of what base is it of be $0.12 base first of all and what would we be looking at?

Yeah well, the $0.12 base is a $0.12, is what last year was that did not include any compensation, any stock option compensation charge. So that, so that’s why we provide the pro forma for, our comparative coverage, as you saw in the first quarter and then in this quarter is about a penny a quarter.

Right.

Impacts on EPS prospect that would continue into Q3 and Q4 so, for the full year you could, is it at the four quarters up and it will be $0.04 impact.

Okay very good. And finally of the growth in floral orders, can you talk a little bit about that, just isolate floral orders for the quarter?

Well, if you look at our organic growth rate it would be 5% on the floral side; 6% - 8% on the other products whether or not include the growth that we achieved in, in sales. So our specialty brands grew, that’s grow at 6% and it include the outside’s growth rate of Cheryl from the, it’s based we bought and it would be 7%-8%.

Okay, thanks a lot.

Okay.

And your next question comes from the line Anthony Lebiedzinski of Sidoti & Company. Please go ahead.

Good mornings, I joined the call late I apologize if I …

That’s what we putted your name.

It’s okay, understood, regarding the sales growth top-line overall grew 21%. And I was wondering if you could just, just say how much of that was organic sales growth and how much was it there from acquisitions?

I’ll do it quickly because we just covered that Anthony, if you look at 21% growth rate the primary contributor to our growth was the as a good performance of the acquisitions we’ve made in the last year are in the food, wine, and gift basket area. Our organic growth rates, the flowers would be 5%, for our specialty brands would be 6% and for the growth, as we included the growth rated that we achieve with Cheryl is a outsize growth above its space that we bought to the April year end, it would be 7%-8%.

Okay right that’s helpful. And looks like your CapEx is actually somewhat more than, than what your previous guidance was, believe your previous guidance was around 14 million and now it’s around 17 million, what is the primary reason for the increase?

Hi Anthony I think it’s that is only 16 plus million, I think what we saw in the first half is just a timing shift this year versus last year, last year our CapEx is 13.5 and the lot of it came in the second half of the year, this year a lot more of it came in the, in the first half of the year.

Well its still consistent with what we’ve forecasted for the year, it just that we did more in the first half of this year, than we did in last year. Plus we had to move our operational and those CapEx expenses in that, in this quarter versus being spread out of the year.

And, just came back to, to the gross margin, I mean it was up 40 basis points year-over-year and there was, trying to maybe you could quantify this on the, perhaps, certainly there was some markdowns that you, you spoke about. I was wondering if you could just maybe give us a little bit more color on this as to how much of the gross margin improvement was because of Cheryl & Co and much was that offset by, by some of the marks downs that you had to take.

That it will be, it will be a pattern indicated with the, Cheryl & Co and other non, number of factors product mix really contributed to, to the improvement in the overall improvement in, in margin but it was offset by, so is actually in excess of the 40 basis point. And then, and then it was curtailed by the, by the promotion, by the promotion of pricing which didn’t get it, even stronger growth into what we had targeted internally.

Well this is, so you said its more than a 40 basis points in term of the product mix of that, can you quantify how much that was?

I don’t think it would, I don’t think we have that information really double, but maybe would have been doubled that without the discounting…

Okay.

Was it is 60 basis points more.

Okay and finally what is your bottom-line guidance for the third quarter of ’06 that of the March period?

We believe, we affirmed our guidance for the full year and then as we always do and we give the percentage of revenue that with respect each quarter that contributes so we don’t guidance on the EPS target each quarter.

Easily cleared, where we’ve affirmed top-line guidance and what we basically said accounting for them, for the impact of what happened for the first half of the year we have, we have earnings, guidance for the year of now uploads of about 20%.

On a pro forma basis, right.

On a pro forma basis.

Yeah

Okay, thank you.

And your next question comes from the line of Robert Labick of CJS Securities.

Good morning Jim, Bill this is (indiscernible) for Bob. I have a question, you mentioned several new products and services that you are rolling out to Bloomnet, what investments are necessary for these roll outs and can speak to your targeted ROI? Thank you.

Yeah, the two, two quick questions that in that so let me drill down, but in terms of our positive ROI in that business as it matures is about 25%, also the, a gross margin of, our current operating margin about 25%. We’ve invested over the past year for the P&L in that business over the last 12 months, and we don’t see any capital expenditures to develop the different of products and service offerings relate to introduce each quarter, that have a capital consequence to them, they will primarily went through the P&L or, to our ordinary CapEx budget so there is nothing different than what’s already been forecast, that will enable us to offer those products and services.

Thank you.

Once again ladies and gentleman if you have a question key “*”, “1”, at this time. Gentleman you have no further questions.

Thank you Louis and thank you all for your questions and your interest, if you have any additional questions please contact us. In closing I would like to, of a reminder as you heard in our call Valentines Day is an important holidays for us and for you and its just weeks away and it’s never too early to visit your flowers of choice, 1-800Flowers.com. And where you will find that the best selection of gifts, all design to help you say The Mine Valentine. We have everything from our two local tape by expert designer Julie Mulligan’s to our new love portion arrangement, the latest addition to our happy holocaust. So, don’t wait, call or click or come in today to 1-800Flowers.com your flowers to choice. Thank you.

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