Good day, everyone, and welcome to the 1-800-FLOWERS.com, Inc. Fiscal 2013 Third Quarter Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the company's Vice President of Investor Relations, Joseph Pititto. Mr. Pititto, you may please begin.

Thank you, Charlotte. Good morning, and thank you all for joining us today to discuss 1-800-FLOWERS.com's fiscal results -- financial results for our fiscal 2013 third quarter. For those of you who have not received a 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 Altadonna at (516) 237-6113 to receive a copy of the release by e-mail or fax. In terms of structure, our call today will begin with brief formal remarks and then we will open the call to your questions. Presenting today will be Jim McCann, CEO; Chris McCann, President; and Bill Shea, CFO. Before we begin, I need to remind everyone that a number of the statements that we will make today may be forward-looking within 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 a detailed description of these risks and uncertainties, please refer to our press release issued earlier this morning, as well as our SEC filings, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q. In addition, this morning we will discuss certain supplemental financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning. The company expressly disclaims any intent or obligation to update any forward-looking statements made in today's call, any recordings of today's call, the press release issued earlier today or in any of its SEC filings, except as may be otherwise stated by the company. I will now turn the call over to Jim McCann.

Good morning, everyone. I'm pleased to report today on another strong quarter for our company. Solid top and bottom line results for our fiscal third quarter reflected a continuation of the positive trends that we've seen in our business for several years now. During the period, we grew revenues by more than 7% to approximately $193 million, despite the continued uncertainty in the consumer economy. Importantly, our EBITDA and EPS growth significantly outpaced our strong top line growth, illustrating the effectiveness of our initiatives to achieve enhanced operating leverage across our business. Results for the quarter were primarily driven by a strong Valentine holiday performance in our 1-800-FLOWERS.com brand, which grew revenues more than 11% during the month of February, as customers continued to embrace our enhanced marketing and merchandising programs, including our focus on truly original gifts such as our WOW collection of luxury gifts and our signature a-DOG-able and Lucky in Love and Happy Hour Love Potion floral arrangements. Combined with our marketing messaging that encouraged our customers to wow the recipient and never settle for less, we were able to increase gross margin 100 basis points. This reflects the strength of our brand and our disciplined approach to marketing programs, even in a highly promotional, competitive landscape. In our Gourmet Food and Gift Basket business, we saw double-digit revenue growth for the quarter, primarily driven by the shift of Easter -- of the Easter holiday into the third quarter. Revenues in this segment also benefited from strong e-commerce growth in our Cheryl's and The Popcorn Factory brands, as well as the launch of our new Fannie May Berries line, which I will ask Chris to tell you more about in his remarks in just a few minutes. In BloomNet, revenues for the quarter were down approximately 5%.…

Thank you, Jim. Indicated in Jim's comment on our press release issued this morning, our fiscal 2013 third quarter was characterized by solid revenue growth, reflecting both the strong Valentine holiday performance in the 1-800-FLOWERS.com brand and the benefits from the shift of Easter holiday into the period. Most important, as we have demonstrated for several years now, we are continuing to focus on our efforts in those areas of the business that we control and where we believe we can enhance results, particularly in our marketing and merchandising programs and our efforts to enhance our operating leverage. As a result, we continue to achieve growth in our gross margins despite a challenging and competitive marketplace, while concurrently reducing our operating expense ratio. This is enabling us to grow our EBITDA and EPS at significantly faster rates, compared with revenue growth. Regarding specific financial results and key metrics, continuing operations for the third quarter, total net revenue increased 7.2% to $192.6 million, compared with $179.7 million in the prior year period. During the quarter, our e-commerce orders increased 13.7% to 2,218,000, compared with 2,038,000 in the year-ago period. E-commerce revenues increased 9.6%. Average order size during the quarter was $62.50, compared with $64.85 in the prior year period. AOV was impacted by the success of our Cheryl's Cookie card initiative and the launch of Fannie May Berries. AOV on the 1-800-FLOWERS.com e-commerce orders was up slightly during the quarter. During the quarter, we added 702,000 new customers, up 14.6%, compared with the prior year period. This was achieved by concurrently stimulating repeat orders from existing customers who represented 58.4% of total customers in the quarter. Gross margin for the quarter increased 100 basis points to 41.7%, compared with 40.7% in the prior year period, and operating expenses improved 100 basis…

Thanks, Bill. During the fiscal third quarter, we achieved solid revenue growth. Partly, we achieved this in conjunction with a 100 basis point improvement in gross margin despite the highly promotional competitive environment typical of the Valentine holiday. We believe these results reflect the success of our continued focus on enhanced marketing and merchandising programs that focus on the best of our good, better, best gift offerings. In addition, our marketing messaging helped set 1-800-FLOWERS.com apart from the competition by encouraging our customers to wow their recipients and to never settle for less. Our goal is to always provide our customers with real value in the form of truly original products that help them express themselves perfectly, including personalized gifts such as our Vase Expressions and Message in a Bottle offerings, both of which were big hits in the Valentine holiday. For the launch of our new Fannie May Berries and FruitBouquets.com lines, we have applied the same philosophy, introducing a differentiated top-quality product that our customer can see as having great value. In both new offerings, we are leveraging our core capabilities to provide a truly original gift. In the case of Fannie May Berries, unlike many of our competitors who use a compound coating, we dipped our especially selected, extra large strawberries in real chocolate. We are also leveraging the iconic Fannie May flavors that customers have come to love by offering strawberries dipped in our Pixies, Mint Meltaways and Trinidad flavors, in addition to creating a whole host of other unique flavor profiles. Based on the very positive customer reaction we saw during the Valentine holiday period, we believe Fannie May Berries can become a significant new product category for us, as we will continue to invest in both operations and marketing to achieve this goal. In…

Our strong third quarter results represented continuation of the positive trends we have been seeing in our business over several years now, in terms of revenue growth, improving gross margins and increased operational leverage. By continuing to focus on these aspects of our business that we can control, including our merchandising and marketing messaging, as well as programs to enhance our operating leverage, we've been able to deliver outsized bottom line performance. We have also continued to focus on strengthening our fiscal position using our growing cash flows to pay off debt while concurrently investing in innovation and new business opportunities that we believe offer a significant growth opportunity for the future. Our mobile commerce platform for example, our social commerce and engagement efforts, our new gift initiatives and brands, including Fannie May Berries and FruitBouquets.com. And our multi-brand, multi-channel business strategy with an emphasis on our core e-commerce capabilities. To wrap up, we are pleased with our third quarter and year-to-date results. Looking ahead, we remain cognizant of the uncertainties in the marketplace. With that said, we are confident that our business -- that our strategic focus will enable us to build on the positive trends in our business for fiscal '13, and we are increasingly excited by the growth opportunities that we see in our business for the years ahead. Now that concludes our formal remarks. I'll ask Charlotte now, if she'll, please restate the instructions for the Q&A portion. Charlotte?

[Operator Instructions] Our first question comes from the line of Eric Beder from Brean Capital.

When you look at innovation, you guys have done a number of very innovative things in the floral business, and now you're doing some of the things with the food. Where do you see the next step in just, kind of, being more value-added innovative in terms of your offering?

On the product side, Eric?

Yes.

Well I would say, from a -- what facilitates our ability to bring new products to the market is our embrace of social marketing, social relationship building, all of which is aided by the fast embrace of mobile efforts. In terms of product mixes, I think you've seen some innovation from us in our FruitBouquets program and our Berries program where we -- Fannie May Berries, where we're bringing new products to market that don't take a lot because our customers are telling us what they want from us. In addition, I think I'd point to our innovation in terms of price points. While price points were very good this quarter and our margins improved, we did at the same time, we've been pushing our Cookie Card program which has a very low price point and low margins, but we find it an attractive way to engage customers, particularly in the social gifting space which is one that we're paying a lot of attention to. Chris, what would you add in terms of product innovation?

Well, at the same time, what we do is we continue to involve our customers in running our business. And again, as we've spoken about the social capabilities allowed us to do that, whether it's curating our mom approved gifts on Mother's Day or getting feed and read back -- reads and feedback from them on our cookie programs and then the launch of our Cookie Flower Pot line as an example. So with the continued feedback from customers, as well as really looking across the portfolio of capabilities that we have and combining products as well that we see some good innovations lined up for the future.

Why don't you give a little bit more color on the customer suggestion on the cookie bouquets which we call the Flower Pot program.

Yes. So again, it's just looking to -- take our flower customers looking to combine with our cookie capabilities and putting it in a nice arrangement, nice and festive. It's a good -- it's got -- like we've learned from Fruit Bouquets, it's a great shareability factor and we'll just continue to take that feedback and put it into our pipeline.

So these are arrangements of cookies in cookie bouquets and we started introducing them at Valentine’s Day. They build on our Cheryl's products, which is delicious. They're individually wrapped, stemmed and arrange in creative bouquet arrangements. So I think you'll see Fruit Bouquets -- Fruit Berries program from Fannie May and now our cookie bouquets are examples of the innovations in terms of how we package products we're already very strong in.

And just one last element there which I mentioned in my remarks, it's always a focus on great value, great quality product. So those cookie bouquets, again, are leveraging great, great product sales brand. And I stack those up against anything that's out there on the market. The quality of the product just doesn't compare.

One more question here. You have had now you're probably in your third year in a row where your operating and EBITDA margins are going to be higher than the year before and given the economy, that's quite an impressive feat. Where should we think longer term about potential for these margins to keep on going, and I guess tying into this innovation piece, does that lead you to have the ability to drive even to higher margins?

I think you'll see a combination of a couple of different things. I think if we were staying steady-state and not innovative -- innovating our product line, we still think there's opportunity to improve our margins. However, some of the experiments that we have going on where we think we can really jazz volumes of product, we will go for a smaller margin just to create new customers, introduce our product line to a new customer base and there you'll see margins more compromised but that would only be on a new product introduction. If it's steady-state on the existing product mix we have, we're comfortable that we can continue to improve our margins. Bill, would you concur or add?

Yes, Eric. As you've seen, year-to-date we've shown -- we've demonstrated 40 basis point improvement in gross margin and 60 basis point improvement in our operating margin. So as we've guided at the beginning of the year, we believe now we will be able to achieve mid single-digit top line growth, but we'd be able to move those important metrics both in the right direction, and we think we can continue to do so in -- for the foreseeable future.

Our next question comes from the line of Anthony Lebiedzinski from Sidoti.

Just wondering about the BloomNet business. What percentage of your florist would you say use the full assortment of services that you offer such as web marketing, directory advertising programs? Just want to get a better understanding as to the penetration levels there and opportunities.

Well, Anthony, Chris and Bill might be able to provide more color, but just on the broader perspective, BloomNet has had a static membership now for a while, so our focus is, as you suggest, all on penetration. So we have new programs that have very, very small penetration that we're excited about. The directory program has been out for 1 year or 2, but its penetration increases all the time. Our point-of-sale system is very new, so that's a very small penetration, but because we've already spent all they money on the R&D and the technology build out, those have high revenues as we -- as its penetration increases because we already have the expense -- our capital expense in it. And as we've mentioned in this quarter, we saw a little bit of a hangover from the impact of Sandy on the florists in the 3 or 4 state area that was so heavily impacted, and they went from buying a quarter ahead to buying nothing for a while, and now we see them just starting back into the marketplace, on the product side. You'll see to they'll take another month and so for that to get back to their regular steady-state levels. But in terms of overall penetration, Bill, Chris, what would you offer in terms of some insights?

I mean, the target that we kind of look at it, it is about 1/3 or in that range, as far as they participate at various levels. I think you hit it right, Jim, depending on the product line, the product or services, different penetration levels but suffice it to say, I think that it's a still to penetrate further. As what we've said, that does take time, but we see good opportunity in front of us.

Yes, we've been identified, Anthony, that BloomNet, even though it's a mature business in the sense it's been around for about 9 years for us now, we still think it's one of our key growth areas and 1 of the half a dozen or so that we've identified to you and that's almost inclusively a function of our ability to increase our penetration of products and services to a steady-state base of florists in our category. So we still think, of all the things we are doing, it's still the one with the most opportunity for that very reason.

Okay. And it looks like you made a small acquisition in the quarter. Can you just tell us what that was for? And also what your outlook is on future acquisitions?

Bill?

Yes. This acquisition really was just to acquire Intellectual Property in Europe. So basically what we did is -- this entity had reacquired certain assets of this company. Surely it was domains, trademarks, phone numbers related to the kind of the 1-800-FLOWERS intellectual property. It's an asset that we thought it was the right opportunity to get it, if we can get it at the right price and it's something that we just put into our arsenal, and we'll decide when to execute against that.

I'd point out the other side of that. That -- this has been something that's been running through our P&L as a litigation expense, Anthony, for a dozen or more years now, and this circumstance has finally became right, the price became appropriate and we were able to not only pick up our own assets, our own intellectual property assets on a more global basis giving us opportunities for the future, but also eliminates the constant barrage of litigation expenses we've had to endure and puts that whole chapter to bed and creates an opportunity for the future.

Okay. That's good to here. And with your improving balance sheet, can you just talk about what your priorities are for cash flow usage?

Well, I think, we had a good track record that will paint the picture of what our behavior has been and what our behavior is likely to be. Clearly, it was to pay off debt during a time of real uncertainty. We've done that. Now, it’s to use our cash flow to build our opportunities to grow our business organically, perhaps from a development -- business development point of view, there'll be some opportunities. But then when we turn into a cash positive -- net cash positive position, you saw us just this fiscal year begin, a stock buyback program. We were able to buy back about $9 million in stock year-to-date, fiscal year-to-date. We expect to continue to be active with that program, and as such, we just secured from our Board of Directors a $20 million reauthorization. So you see us very prudently guarding that balance sheet which creates more and more opportunities for us as we develop the programs internally, if there was something external, we'd certainly have the capability to look at it. And now, with the new credit facility, it gives us all the more flexibility, but I think you can see prudent organic growth rates like we've been able to deliver, building and investing for the future with our new programs that we've talked about today and now, investing in what we think is a terrific investment opportunity for us, buying our own stock.

And as of today, how much do you have left on your share repurchase program?

We have close to $20 million left. We just initiated that $20 million buy back during the quiet period, so we weren't active -- we haven't been active in the last month or so in the stock buyback, so that we have all of that $20 million available.

Our next question comes from the line of Michael Kupinski from Noble Financial.

This is Juan Bejarano [ph] in for Michael Kupinski. It seems that the floral industry has heavily ramped up promotions in advance of Mother's Day this year. I think Teleflora is offering $20 spa treatments and others are significantly discounting prices. While you have certainly positioned yourself as a premium brand, are you above the trenches in the price wars or do you anticipate some pressure there?

Maybe I'll ask Chris to answer his question for you, but I think I don't remember when this category hasn't been highly promotional. The play has changed and the more aggressive partners might change, faces from time to time but it's always been a very aggressive category, particularly around these holidays. Chris, why don't you answer Juan's question?

Yes, I think you're exactly right. We have done a good job, I think, and we're very proud of the way we positioned the 1-800-FLOWERS brand to really deliver on that best, element of our good, better, best merchandising strategy. So we continue to be -- we have to play in a promotional environment, every retailer does, and you're right, floral competitors have gotten extremely aggressive here, but I think as evidence that you saw in Valentine's Day, we continue to increase our orders, we continue to maintain or slightly increase our AOV in the FLOWERS brand, and at the same time, deliver 100 basis point improvement in gross margin, so we're pretty comfortable that we're well-positioned for that battle.

Okay. And the company has kept marketing costs fairly low and stable. Is there a point at which you will need to ramp up advertising and marketing? I guess what I'm trying to get at is what will be the key metric that we should look for that might indicate a change in future marketing costs?

Yes, I think, again, we manage our marketing cost very closely on a daily basis, basically. And there are times when we'll pull back, times when we'll increase and we'll increase our marketing spend as a percentage, this also provides for new customer acquisitions, et cetera. And so we watch our marketing spend as a percentage of marketing cost per order and we will pull it back or let it out a little bit when we believe it's providing the ROI based on long-term value -- lifetime value of customer acquisition.

I'd like to add, Juan, [ph] to that, that some of that things that we've been spending money on, multi-branded portal technology platform which we call Agile, the new database capabilities, we think that the real opportunity to accelerate growth even beyond where we've been, is with the good use of that CapEx spending that we've been doing to give us more and more tools in our marketing holster.

And I'm not sure if I missed this but is the company looking to expand the Cheryl's business?

I think, Juan, each of our brands -- we're constantly looking to expand each and every one of the brands. Cheryl's has been extremely doing well. I think we see the prospects of Cheryl's doing well for the foreseeable future, for the next several years.

Yes. I think, as Chris has pointed out, that it's -- of all of our food brands that are growing, that's been growing the most and doing the most innovative things that's now embraced by the other brands in the food group. So we expect growth from all of them but we think that Cheryl's will probably provide some outsize growth in that category for the next couple of few years, certainly.

Okay. So as far as those expansion plans, if you're going to expand, would it be due to increase capacity or is it just to expand product offerings?

No, I think as that business continues to grow, as we reach a broader and broader customer base, certainly, innovative product offerings, but with that comes a need for capacity and we manage that on an ongoing basis and so you'll see us continue to add capacity capabilities as the customer demand warrants.

[Operator Instructions] Our next question comes from the line of Jeff Stein from Northcoast Research.

Question on the outlook for commodity costs over the next 6 to 12 months and maybe more specifically cost of cocoa?

Bill, do you want to?

Sure. Yes, Jeff, we talked about cocoa, that is our largest commodity that we have and it does -- and it has been kind of fluctuating over the last number of years with the unrest in the Ivory Coast where most of the world's cocoa comes from. We've done a pretty good job of buying or committing and getting pricing commitments when there's been dips in pricing and we've done so again now. And so we've kind of locked in to the next holiday season some pricing on cocoa that we feel very comfortable that we're not going to be adversely affected by any shifts in pricing on cocoa. As we've talked about in previous calls, the one that we always -- that we monitor very closely is fuel. That's been high for us for several years now. We've had to absorb the fuel surcharges that get passed along to us by the common carriers, UPS and FedEx, and so we continue to monitor that. This year, it's pretty close to where last year's numbers were but certainly, very high compared to any kind of historical levels and we have to continue to monitor that and take that into account in our business plans.

So in -- with respect to Fannie May, do you believe you'll have to take any price increases as a result of the cost that you've locked in, in cocoa for 2013? Or should we look for relatively stable pricing?

The prices we've locked in for '13 are consistent with the prices we're paying now, so we do not envision any price increases as a result of commodity changes.

Okay. And can you talk a little bit about the outlook for the wholesale business? This past year, you began to regrow the wholesale business, again. I'm wondering if you see that sustainable, for the next fiscal year?

Jeff, this is Jim. I think in the few places that we're involved in the wholesale business, and the gift basket business, a little bit in the chocolate business, we expect that to continue to grow. We've turned the -- turned that into a growth opportunity -- it's a small part of our business but continue to grow, but our primary emphasis is on the e-commerce and retail sides of the business where we can have the best market. We use wholesale primarily for a -- to separate our manufacturing and baking capacity.

And final question, guys. I know you had an issue in the second quarter, I believe it was about consolidating a distribution facility from Fannie May. Is that now behind you? And if not, is it anything that could linger into Q4 or beyond?

Yes, Jeff. We've had some challenges with some of the bulk production and distribution center at Fannie May. We've absorbed a lot of that in both Q2 and it continued and we're making improvements there into Q3. The idea is to have it obviously fully corrected as we head into the holiday season for next year and that will occur.

So we're confident that by summer production, that's behind us.

That's right.

Pardon me. I'm not showing any further questions. At this time, I would like to turn the call back over to management for closing remarks.

Thank you, and thank you all for your questions and your interest. If you have any additional questions, please contact us. As a reminder though, Mother's Day is just around the corner, a week from Sunday, and we all know that around here, moms mean so much. Fortunately, at 1-800-FLOWERS, we know exactly what gifts mom want, because thousands of moms have been telling us every day on our Facebook page. So visit our mom-approved gift center to find out what your mom is hoping to receive this Mother's Day. Thank you, and have a good spring and a good Mother's Day holiday.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.