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

Thank you, Kevin. Good morning, and thank you, all, for joining us today to discuss 1-800-FLOWERS.com's financial results for our fiscal 2013 fourth quarter and full year. 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'll 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 your press release issued earlier this morning, as well as our SEC filings, including the company's annual report on Form 10-K or 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 of the forward-looking statements made in today's call or in recording 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'll now turn the call over to Jim McCann.

Good morning, everyone. The solid top and bottom line growth that we achieved in fiscal 2013 reflects a continuation of the positive trends that we have seen in our business for several years now. We achieved these results despite our lackluster consumer environment that was buffeted throughout the year by headwinds from things like Superstorm Sandy, the distraction of the national elections, the concern over the fiscal cliff stalemate in Washington, et al. In addition to the solid revenue growth, we also increased our gross profit margin through a combination of enhanced merchandising and sourcing initiatives. And we further reduced our operating expenses as a percent of revenue by leveraging our operating platform and driving more efficient marketing programs such as our industry-leading initiatives in Social and Mobile. We are particularly pleased with our strong performance of our flagship 1-800-FLOWERS.com business where our e-commerce sales increased 4% for the year through a combination of both higher unit and average order value. Also in the category, we again increased our gross margin, adding another 90 basis points on top of last year's significant gains for a full year gross margin of 39.8%. Category contribution margin in this area increased more than 20% for the year to $47.2 million. The strong performance of our Consumer Floral business over the past several years illustrates the effectiveness of our focus on maintaining those aspects of our business that we can exert control and drive improved performance including our enhanced merchandising programs featuring truly original product designs and our marketing programs that are designed to engage directly with our customers to deepen our relationships with them and help them deliver smiles. We believe these results, coupled with the past 2 years' strong results, have enabled us to further extend our market leadership in the Consumer…

Thank you, Jim. As we noted in our press release this morning, our fiscal '13 fourth quarter results include the impact of the shift of the Easter holiday into our fiscal third quarter. This shift reduced fourth quarter revenues compared with the prior year particularly in our Gourmet Food and Gift Basket segment. We have provided revenue results for the quarter on a comparable non-GAAP basis, adjusting for the Easter shift, as well as providing results on an as-reported basis. We believe that additional information provides a clearer picture of our performance for the fiscal fourth quarter compared with the respective prior-year period. In addition, during the fourth quarter, we made the strategic decision to divest our winetasting.com business to better focus on the significant growth opportunities we see elsewhere in our Gourmet Food and Gift Basket segment. Therefore, our winetasting.com business is presented herein as a discontinued operation. Regarding specific financial results and key metrics for continuing operations. For the full year, revenues grew 4% to $735.5 million, compared with $707.5 million in the prior year. Gross profit margin increased 10 basis points to 41.5%, compared with 41.4% in the prior year. Operating expense ratio improved 50 basis points to 38% of total net revenues, compared with 38.5% in the prior-year period. Operating expenses for the year increased 2.5% to $279.4 million, compared with $272.6 million in the prior year. As a result, adjusted EBITDA for the year, which excludes stock-based compensation expense of $4.3 million and a pretax gain of $3.8 million in fiscal 2012 from the sale of 17 Fannie May company-owned stores, increased $4.5 million or 10.2% to $48.9 million, compared with $44.3 million in the prior year. Including the impact of stock-based compensation, adjusted EBITDA for the year increased $5.1 million or 12.9% to $44.6…

Thanks, Bill. As Jim and Bill have noted, our fiscal '13 results reflect the positive trends that we've been seeing in our business for the past several years. This has been driven by solid performance across all of our key brands and businesses. In our Floral category, our core 1-800-FLOWERS brand continued to extend its market leadership position with solid e-commerce growth in a highly competitive marketplace. This was illustrated in the fourth quarter by our smart performance over the Mother's Day holiday, which I'll come back to in a moment. In BloomNet, we have become the leading innovator in the wire service industry with an expanded suite of products and services designed to help our florists grow in a difficult economy. BloomNet continues to manage its business exceptionally well, driving strong year-over-year growth in contribution margin on essentially flat revenues. In Gourmet Food and Gift Baskets, we're seeing strong e-commerce growth from Cheryl's, Popcorn Factory, 1-800-BASKETS.com and Fannie May, and we're building national awareness for these brands through our new multi-branded website and our diverse marketing programs. The wholesale division of our Gift Basket business is bouncing back nicely after several challenging years, as mass market customers react to the strong sell-throughs they saw in last year's holiday season and increasingly embrace our lineup of new product designs for this upcoming holiday season. We are also confident that the initiatives we have underway to address the operational issues we faced at Fannie May this past year will result in significantly improved performance during fiscal '14. Jumping back to Mother's Day holiday, as I mentioned a moment ago, we achieved strong performance for this key holiday period. Our order volume increased more than 5%, reflecting the effectiveness of our marketing programs, online and offline. Average order value and gross margin also showed year-over-year increases, reflecting our customers' enthusiastic response to our truly original products and our disciplined approach to promotions. And in what has to be one of the best compliments a brand can receive, 1-800-FLOWERS.com's place in America's cultural fabric was confirmed when Saturday Night Live alumni, Kristen Wiig, kicked off her highly touted return to the show by featuring 1-800-FLOWERS in a great spoof of Mother's Day family relations. If you haven't already seen it, I encourage you to go to YouTube and watch it. I can guarantee it will deliver a smile for you. On that note, I'll turn the call back to Jim.

Yes, thanks, Chris. About that Saturday Night Live skit, it was a great and very funny compliment for our brand and we're still hearing about it from our customers and friends. This illustrates the strength of the 1-800-FLOWERS.com brand, something that we've built our business on for more than 35 years now, the same strength that has enabled us to achieve the positive trends in our business that we've seen for the past several years. As you saw from our press release this morning and our remarks here today, fiscal 2013 was another good year for 1-800-FLOWERS.com during which we achieved solid revenue growth in a lackluster consumer economy, increased gross margin and reduced operating expense ratio, double-digit growth in adjusted EBITDA and EPS, a debt-free balance sheet, significantly enhanced financial flexibility through a new credit facility and we bought back nearly $10 million worth of our stock while continuing to innovate and invest for the future in key areas including: new product development programs, our technology platform and our Social and Mobile initiatives, among others. Most important, we continued to deepen our relationships we have with our customers by engaging directly with them to help them deliver smiles. And that concludes our formal remarks. We'll now ask Kevin to -- our moderator, to please restate the instructions for the Q&A portion. Kevin?

[Operator Instructions] Our first question comes from Dan Kurnos with The Benchmark.

Just a couple -- a few questions for me here. Just first on the Consumer Floral side, we heard from other people in the industry that Mother's Day was extremely competitive from a promotional standpoint. You guys did pretty well to still grow in the quarter, a little bit better than we were expecting. Could you just give us your thoughts on the promotional environment, in general, do you think it continues to get more aggressive from here, or has it kind of stabilized?

Yes. I think, Dan, we work in a highly competitive industry and I think holidays, we see our competitors be highly promotional. With that said, I think what you're seeing from us, we've been able to leverage the strength of our 1-800-FLOWERS brand, focus on our marketing efforts on balancing promotional programs with messaging that reminds our customers to "wow" their recipients. And I think that's enabled us to drive solid growth in both units and average order value while also increasing our gross margin. So I think what you're seeing is us demonstrating an ability to continue to manage our brand, positioning it to the American culture and make sure that we can deliver the results without having to resort to being overly promotional.

And I'm not sure if I missed it, but I know you talked about total results x Easter, but what would your Consumer Floral have been, x Easter, in revenue?

Well, you have it 2 ways, you have the Mother's Day period and then the quarter, overall. Bill?

Yes, the quarter overall, Consumer Floral would have been growth of about 3.5%.

Great. On BloomNet, I think this might be the second quarter in a row that we've seen some declines in the wholesale channel. Is there any competitive issue there or could you give us a little bit more color on what's going on with BloomNet from that regard?

Chris?

Yes. No, I don't think it's necessarily a competitive issue. What we had seen earlier was that the wholesale business had suffered a little bit really starting back in Q2.

Right after Sandy.

Yes, right after Sandy and some delays there. But then I think, what we're seeing is pickups on some of the higher-margin parts of our products and service offerings, our web marketing services, our digital directory, our flower selection guide. But we're seeing pickups there which is helping to drive the improved gross margin.

And this is Jim. We're confident for the year, as you've heard us state in our forecast, that we'll grow the top line for BloomNet this year and the bottom line. And of course, we intend to grow the bottom line disproportionate to the growth of the top line. And I think one of the things that I'd put a light on that Chris just mentioned was that we introduced a first in-category iPad application for our florists to use, to replace the old point-of-sale systems and as a front end to the whole business management software programs that we're selling to our florists with great acclaim. The florists really like it, it gives them the ability to participate like everyone else does in the modern era in terms of how they communicate with their customers, show them their capabilities for weddings and funeral presentations, all of which they can do on these iPad devices. So you see, again, us taking a leadership position there. So you'll see that the category, BloomNet, is well positioned. It's clearly the go-to leader and I think, in spite of the issues we had with Sandy at all throughout the year, we're very confident in our forecast that we'll grow both top and bottom line this year.

That's helpful color, Jim. And then just one more if I could. Just on the Gourmet Food side. I guess, maybe, if you could just give us a sense of how you feel now about your brand portfolio. Where you are in the process of scaling some of your larger names? You spun off wines. And just how we should think about the investment process going forward?

I think that you can count on us being -- I think we've demonstrated good evidence that we're good stewards of the assets that we have. So that'll involve 2 things here in the Gift Food category, Dan. One is if we have a brand like we did with winetasting, we've taken 2 steps there. We realized it wasn't important for us to be in the services end of the business. So last year, we divested the biggest part of the wine business, which was the services part of the business. And we did that very well and it's a good, successful business for the company that acquired it. And then we kept the direct-to-consumer piece, but as we realized, it's -- from a human capital point of view and from a fiscal capital point of view, it's too small a business to earn our attention. And it's not a big enough growth opportunity with all the others that we have for it to suck the attention and resources when we have brands like Cheryl's that are on fire, when we have a brand like Fannie May that's a strong brand, saw some operational difficulties but can really accelerate its growth rate this year. And when you see 1-800-BASKETS with its retail and wholesale divisions really starting to improve on the wholesale and gain ever more attraction on the retail side, it just made sense for us to continue to invest in that portfolio. And by the way, The Popcorn Factory, although a smaller brand, doing very, very well too. So we'll continue to prune when it's appropriate, and I think we're done with pruning now, so that we can investment both the unit capital and fiscal capital behind those really good growth engines. And we have others in the portfolio that as they warrant the attention, we have the capital resources available to help fire up their growth as well.

The next question comes from Eric Beder with Brean Capital.

Could you talk a little bit about the, I know you've been updating your website now with the multi-tabs and the single card, how has that affected kind of cost shopping between your customer base online?

Well, I'll ask Chris to go into the detail on that. I'll just tell you that, you should always expect that we're trying to do 2 things, Eric. With our product selection, with our price points, with our truly innovative products that we're bringing to market, we're trying to do 2 things. We're trying to grow the size of the wallet, that is how much customers think about using our products to express themselves and connect to the important people in their lives with range of products, good breadth of products and a variety of price points. And second, we're trying to grow our share of that wallet. So I think you'll see, from the color that Chris can give you, that the multi-branded portal opportunities and our efforts are giving us increased opportunity to do both those things, grow the wallet and our share of it.

Right. And I think, Eric, we began that experiment, so to say, a year or plus ago. And the early results we had then warranted us to therefore make the decision to further invest in that strategy, in that direction. So while we did that, from the multi-branded portal, we put it up there, started some experimentation, saw some encouraging results from cross-brand shopping and exposure of the other brands to our customer base. We're now in the phase where we then come back and said, "Okay. Now let's invest in the technology architecture really underlying that." And we're in the midst of doing that now. We'll be coming out of that during the fall season and then I think you'll expect -- you could expect to see us start to put more attention in onto the marketing efforts behind that, both on platform and in through our direct marketing efforts to drive more multi-brand usage, really positioning us as our customers' go-to destination for all their gifting needs that them deliver smiles.

In terms of the fresh fruit initiative, the fresh fruit basket initiative, is the holdup here the permitting process, which is taking this and make this a lot longer than you expected or is it something else?

Yes, Eric. It's not so much necessarily the permitting process. It's just as we were expanding, what – we're very pleased with the traction that we're getting in expanding fruit bouquets through our florists, primarily our franchise florists, select BloomNet florists. So we're continuing to increase our penetration there. We're continuing to increase our coverage and I think what you'll see is when we get to the point of we're at a little bit more -- it's going to take us a little more time to get to a point of critical mass that will enable us to put more marketing effort behind that product line. What we're seeing so far is in markets where we have established, say last year, where we had the capability, and all we're really doing so far is merchandising the product, we're seeing nice what we call same ZIP code sales increases. It's kind of a same-store sale comparison, where we had the progress -- the product last year. And then this year, we're seeing nice increases just through merchandising initiatives. So as we get to that critical mass of distribution, we'll be able to put more marketing effort behind it.

Yes. I'll give you a little color on one shop that I'm familiar with, in particular, one of our franchisees who introduced the fruit bouquet program, Eric. And he tells me that now about 1/3 of his sales or a 1/3 gross sales increase in his business comes from his introduction of fruit bouquet program just over a year ago. And so to Chris' point, not only are we seeing our business expand as we add new ZIP code coverage, but even within the ZIP codes that have been open for a year or more now, they're seeing great same-store sales increase within the product. So these are guys telling me it's such a good thing for him because it has a 1/3 increase in the sales. And he has no increase in his rent, he has no increase in his other expenses other than more delivery expense because he has more units going out the door. That's a wonderful profile and that's why our florists are so excited about the program. But as Chris mentioned, it's a yin/yang kind of thing that we have to -- as we increase our distribution. Once we get to the point that we can turn the marketing guns on, and not just do it for merchandising, you could expect that to ramp up. That's why we feel fruit bouquets, our other dipped fruit businesses and our fruit bouquets program all will be very big businesses for us in the future.

Great. And in terms of the -- it should be the strawberries, is that also as big an opportunity? And what's the next step for the strawberries?

I think the next step of this program is similar. We introduced it this year so we ran the expenses of building a facility, of introducing the product line, all the packaging, the initial merchandising that we had to do there, and the people that we had to put against it. So we did that. We headed out for Valentine's Day, the take rate was terrific, the customer feedback was even better. So we're very excited. Everything we hoped to prove with the introduction has been proven. I'm not sure if there's a bigger opportunity in fruit bouquets overall. I don't know. But I think our portfolio of fruit bouquets, dipped fruits, strawberries and others, are segments that, as I mentioned, I think are going to be very good for us this year. But every year, you'll see them grow. Not only from the spread of our distribution capabilities but within the -- with the same-store sales growth wherever we have them, the take rate is just enormous.

Our next question comes from Michael Kupinski with Noble Financial.

Just a couple of quick housekeeping questions here. In terms of the restatement in Gift Baskets, that was solely due to the winetasting.com going into discontinued operations, there's nothing else in those numbers, right?

That is correct.

Okay. And in terms of your capital expenditures for next fiscal year, have you guys -- maybe I missed this, can you just remind me what that might be?

Well, you remember -- I'll ask Bill to give you the specifics, but you remember that for the last 2 or years, we've been around $17 million in CapEx. So we're still projecting to do $20 million in CapEx, but this year, we're increasing our CapEx spend to...

Yes, so CapEx this past year, as we just reported, was about $20 million up over the $17 million or $18 million that Jim just related to. Due to kind of late in the year, we made an investment in technology licenses that we thought were important for the company. So that's why year is up the $20 million. Next year, we expect it to be higher than that, at about $23 million, which is incremental to again our normal steady $17 million to $18 million, because we're going to be expanding, in the second half of the year, our Cheryl facility. Our Cheryl facility, we've talked about Cheryl's over the last couple of years, it's grown significantly and we anticipate it to continue to grow very nicely. We're breaking ground on expansion of that facility in January of this year. The result of that would be that will -- at the end of that, will be to double the size of the product capacity of the baking capacity of that facility.

And if we look into your guidance for fiscal 2014, you indicated that you expect some improvements in Fannie May. And then also, obviously, I would assume that you have Cheryl's kind of picking up some contributions there as well. Can you just give us a little bit more color on what your expectations are might be embedded into the guidance related to Fannie May?

Well, Fannie May had a tough year, as we have kind of described in multiple quarters now. We do expect a significant turnaround within the Fannie May operation. We've spent dollars this year to address those operational issues that we had, both within the facility and the distribution facility, as well as changing over management, adding on some operational consultants to work with that. So we do expect a big rebound in Fannie May. We do expect Cheryl's to continue to perform very nicely. And as we alluded to in our comments, we expect our wholesale gift baskets continue to perform. So GFGB.

And Popcorn. So we expect all the businesses that are doing well to continue to do well in increasing fashion. And we expect that we should be able to turn around Fannie May this year, based on things we've already done.

And in terms of the fruit bouquets, it seems like a great opportunity, a growth opportunity, for you guys. I was just wondering what are the take rate, I suppose, in terms of the number of florists that have upgraded their facilities to offer fruit bouquets? And do you have any specific guidance in terms of what your expectations are for fiscal 2014?

Yes, Michael. We just commented, we're very pleased with the progress that we're making in the distribution coverage so far. We don't have a -- specifically give number of shops on that or percentage of coverage. It's increasing nicely. We expect, within a short time frame, that we'll be getting to that point of critical mass, where we should start putting marketing effort behind that we mentioned before. So it continues to grow, it continues to grow within market, where like I mentioned before, kind of same ZIP code sales. And we're excited about the prospects.

And can you remind me, do you have any authorization left on your existing share repurchase authorization or maybe you might want to just talk a little bit about what are the best uses of cash at this point?

Yes, from an authorization standpoint, we had gotten a reauthorization of $20 million back early this fiscal year. We have about $19 million of that remaining. So we have plenty of opportunities here.

So as you can see, Michael, in terms of cash, we're in a good position, we're generating good excess free cash flow. We've used about $10 million in the last fiscal year, toward a stock repurchase program. We're happy to have begun that and we'll continue our stock repurchase program. We've cleaned up our balance sheet so that we're pristine now with 0 debt and a greater credit facility in place to give us great flexibility, give us great opportunity. So in terms of uses of cash, we'll continue to grow our business organically. We invested cash behind the fruit bouquet business this year, we invested cash behind the berries program this year. We invested cash against the fixes we needed to make that are now underway at Fannie May and we've invested -- we will be investing cash this year behind the expansion of our bakery facility in Columbus. So we have the good cash wherewithal to do it. And in terms of other growth, we think there are other organic initiatives that we can use. We've been fairly successful over the last few years on small bolt-on acquisitions and should we find the right M&A opportunity that will help our business and help our portfolio of brands, mostly by helping our customers to express themselves and connect to the important people in their lives in creative and new ways, we have the wherewithal to do that as well. So I think you the mix of our uses of cash being consistent, except that we've not done anything significant in the M&A arena for the last couple of few years.

[Operator Instructions] Our next question comes from Anthony Lebiedzinski with Sidoti & Company.

Jim, you just mentioned that you are potentially looking at some bolt-on acquisitions. So if you could just further expand on that, are you actually seeing interest from companies looking to sell themselves? Or like can you just talk about potential pipelines for such acquisitions?

Well, I don't want to mislead you there. I mean I didn't say like that we have a great potential there. I think what I've said is that we've done that successfully over the last few years where that's an area to buttress something, that we do add a technology perhaps. And we'll continue to look at those. There's no great pipeline of those. But yes, we're seeing the fact that we've continued to do well through this environment, that we have the cash resources that we have, that we've been good stewards of our cash, yes, we attract inquiries and, frankly, we look at a lot of them. But we're very disciplined about exactly what we'll do in terms of how it would fit with our portfolio or expand the portfolio. What its financial characteristics are from an inventory, from a leverage point of view, in terms of leveraging the things that we could bring to the table. So we're active. We have a strat/dev team that works on these issues all the time, but nothing that we're prepared to report on now because it's just a continuing effort for us to do organic growth, bolt-ons to help that organic growth. And we're active and interested in the marketplace on things that'll help our company grow, but that have to meet our profile and our criteria. And we've been very, very disciplined about that.

Okay. And also, you've done a good job with improving your gross margins. But when I look specifically at the Consumer Floral segment, you've done less promotions, you've improved your product mix. Now going forward, do you see further incremental opportunities to improve the gross margin within the Consumer Floral segment?

Chris, do you want to cover specifically the consumer floral? But the answer is yes. We see the marketing spends and opportunity on ratio improvement opportunity across the board, but Chris, specifically to Consumer Floral, or Bill?

Yes. I mean I'll just comment, and I think Bill can add a little bit more color to it. I think you've seen our disciplined approach certainly for the balance between managing a brand and increasing the brand awareness, the relevancy of the brand that helps us increase AOV. Get the right products and truly original designs out there that has helped us to move our margin up, not only in the Floral but, I think, across the board in a business that is performing well.

Yes, I mean from a standpoint of Consumer Floral, I mean, I think to be -- to the set that we are, it improved 90 basis points this year. We have gotten our Consumer Floral margins up almost 40 basis points. This is a very strong...

40 points, not basis points.

Yes, 40 points. It's a very strong margin, it's probably the highest we've had in the company's history. So we've done a very good job of getting those margins. We think there is really greater opportunity across the enterprise to improve margins.

Yes. So I don't think we're looking to push margins much more on the Floral side. But yes, we think we have gross margin opportunity across the enterprise, as Bill and Chris just said, in our GFGB brands. And where we have operating expense ratio leverage that any growth gives us good leverage return, which is why we're able to forecast and achieve each of the last few years double-digit increases in our bottom line.

Okay. And what is your outlook for commodity costs, including cocoa?

Well, I'll let Bill give you the specifics, but we all read the newspapers every day and commodity costs are something, as a company, we have to address all the time. Certainly, fuel costs are at a recent high. And cocoa, Bill, would you address specifically how we've handled cocoa?

Yes. I think we've done a really good job with the -- overall, from a commodity standpoint. Certainly, cocoa was our biggest commodity that we've had and we've locked in very favorable pricing on cocoa that will cover us through this fiscal year. In the past, we've employed strategies where we've actually taken possession and bought butter when we saw butter on a dip. We bought butter in -- prior to high spikes in butter. So I think we do a good job on the food commodities that we deal with. As Jim references, as we're entering fiscal '14, we're already seeing higher oil prices and with all the unrest in the Middle East. But that is something we have to monitor. And ultimately, we look for ways to offset that.

And I'm not showing any further questions at this time. I'd like to turn the conference over to Jim McCann for closing remarks.

Thank you, Kevin. Thank you, all, for you questions and your interest today. If you have any additional questions, please get in touch with us. Enjoy the Labor Day weekend, and don't forget to visit our website to join in on our Summer of a Million Smiles program that is now growing across the country. It is a great way for you to help deliver a smile to someone deserving in your community and the communities all around the country. Thank you again for your participation today.

Ladies and gentlemen, that does conclude today's presentation. You may now disconnect, and have a wonderful day.