Good day and welcome to the 1-800 Flowers Fiscal 2018 Fourth Quarter and Full-Year Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joseph Pititto, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Michelle. Good morning and thank you all for joining us today to discuss 1-800 Flowers.com’s financial results for our fiscal 2018 fourth quarter and full-year. For those of you who have not yet received the copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our Web site at 1800flowers.com. Our call today will begin with brief formal remarks and then we will open the call to your questions. Presenting today will be Chris McCann, CEO; and Bill Shea, CFO. Before we begin, I need to remind everyone that certain 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 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 supplementary financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Definitions of these non-GAAP financial measures can be found in the definition section of the company's press release issued this morning. Also where applicable, reconciliations of certain non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the tables accompanying this morning's press release. The company expressly disclaims any intent or obligation to update any of the forward-looking statements in today’s call, any recording of today’s call, the press release issued earlier today or any of its SEC filings, except as may be otherwise stated by the company. Before I turn the call over to Chris, I’d like to take this opportunity to make sure that everyone in the call is aware of our upcoming Investor Day. The event will be held on Thursday, September 13 in Columbus, Ohio. We’ve an exciting agenda planned that will showcase our Cheryl's Cookies bakery and Obetz distribution facility and include an update on our initiatives across all three business segments. We will also be hosting a dinner the evening before on September 12 with Chris, Bill, and other members of our executive team. If you’re able to join us next month, please reach out to me via email or phone and I'll send you details of the event. We look forward to seeing you there. Now I'd like to turn the call over to Chris.

Thank you, Joe. As we noted in this morning's press release, we had a strong finish to the fiscal year with comparable revenue growth accelerating across all three of our business segments during the second half. In the fourth quarter, we achieved strong results in our 1-800 Flowers and BloomNet businesses, both of which recorded healthy top and bottom line growth for the period. This reflected a combination of solid everyday gifting demand combined with robust performance during the Mother's Day holiday period, which more than offset the impact of the Easter holiday shift in these segments. The strong growth in our Floral businesses for both the quarter and the second half reflects the investments we've been making in targeted marketing and merchandising programs designed to take advantage of market conditions and accelerate growth. In the 1-800 Flowers brand we continue to leverage our experience and expertise in digital marketing where we are increasingly using machine learning in areas such as search and display. These efforts are focused on helping us customize our messages and enhance relevance for new customer acquisition and to stimulate increased frequency from existing customers. In merchandising where we’ve continued to expand our offerings of truly original gifts with broader price points at both entry-level and the luxury high-end. During the year, we expanded our plant offerings with the successful introduction of our new Succulent line. This is a growing product category that’s particularly popular with our millennial customers. We also celebrated the color of the year with our passion for purple collection of floral arrangements and we expanded our exclusive offerings in flowers and plants, created in collaboration with Style Maven's Real Simple, Southern Living and Sandra Magsamen. These investments we have made and continue to make have enabled us to further extend the 1-800…

Thank you, Chris. As Chris referenced in his remarks, we are pleased with the strong finish to fiscal 2018. Our reported revenue growth in the fourth quarter was 1.7% excluding Fannie May. This was impacted by the shift of Easter into our fiscal third quarter compared with last year when Easter fell in our fiscal fourth quarter. Adjusting for the Easter shift, revenue growth in the quarter was 6.6% and for the second half of the year it was 5.8%. This was driven primarily by strong growth in our flagship 1-800 Flowers and Harry & David brands as well as significantly accelerated growth in BloomNet. Our consumer Floral segment grew 4% in the quarter and 6.3% for the second half of the year. Last quarter we noted strong performance for Valentine's Day. Similarly, in the fourth quarter, we saw strong performance for Mother's Day. Combined with strength in everyday gifting, 1-800 Flowers continues to extend its market leading position. Everyday gifting also grew nicely in our Gourmet Food and Gift Baskets segment with 4.5% growth in the second half of the year adjusted for the sale of Fannie May, driven primarily by Harry & David's e-commerce growth of 9%. In BloomNet, while we are challenged to growth in the first half of the year, that began to turn in the third quarter, culminating with breakout revenue growth in Q4 of 12.6%. Now breaking down the fourth quarter and full-year results. As I already noted, total consolidated revenues adjusted for the sale of Fannie May grew 1.7% in the quarter and 5.8% for the second half. Total consolidated revenues for the year adjusted for Fannie May grew 3.7% to $1.15 billion. This was driven by accelerated revenue growth we saw in the second half of our fiscal year illustrating the strong…

So to sum up, in fiscal 2018, while we face some operational challenges in the first half of the year, we built nice momentum in our second half. As we enter fiscal '19, we see revenue growth accelerating across all three of our business segments, in our Floral businesses, 1-800 Flowers and BloomNet are ramping up growth and taking market share. In our Gourmet Food and Gift Baskets, Harry & David's e-commerce business is growing at a solid sustainable pace, reflecting strong everyday and holiday gifting demand. We've addressed the operational issues that held Cheryl's back last year and we're seeing strong performance at 1-800 Baskets and Simply Chocolate. We are growing our customer file across the enterprise and we continue to get more sophisticated in terms of our capabilities to mine and utilize the tremendous amount of data we have in our customer files. Importantly, our customer behavior metrics, including frequency, retention, and average spend are strong and getting stronger. This is being driven by our multi-brand customer initiatives, including our Celebrations Passport program. As we’ve told you in past calls, Passport and multi-brand customers purchase frequency, retention rate and average spend are all significantly higher compared with single brand or non-passport customers, helping to grow lifetime value across our customer file. These metrics are the impetus behind our decision to invest to bring more customers into our ecosystem. Looking ahead, we're excited about the opportunities we see to leverage the celebrations platform that we've built to expand the products and services that we offer our customers and to help them express connect and celebrate. Now before I turn the call over to Michelle to begin the Q&A portion of our call, I would just like to take this opportunity to thank all the associates across our company for their hard work, for the way they embrace change and really help us constantly innovate. And most importantly for their dedication to helping our customers deliver smiles. Michelle, would you please repeat the polling questions for the Q&A session.

We will now begin the question-and-answer session. [Operator Instructions] We show the first question comes from Dan Kurnos of Benchmark Company. Please go ahead.

Great. Thanks. Good morning. The first two questions I have are going to be related and I’m sure this is going to be a familiar line of questioning throughout the call. So Chris, just on the whole situation you guys are very polite not to mention FTD, but -- so I don't have to be as polite and I will just say it, they are obviously a mess right now. You’ve clearly indicated you’re going to market -- will use your terms, the competitive dynamics or competitive landscape, however you want to put it. The real question here is, on the last call you clearly took a bunch of market share. You said you weren't going to spend indefinitely. Your forward, I don’t know how to call it, soft guide of double-digit EBITDA growth and we will get into expenses in a second implies that, as you said in the remarks, the share gains are sustainable. So can you just give us some color on, the stickiness like sort of obviously you don’t give away all the secrets, but the stickiness of customers that you expect to be able to go after and I'm not sure that people are also thinking about this, but potentially on the wire side your ability to take share from guys that are concerned -- order volume from guys that are concerned that FTD may not be around in a few years? Let's start there.

So I will kind of start at the top, Dan, if we can. I think as we look at our guidance for going forward, we really step back and look at the macro environment that we are working in, clearly, we are in the middle of a strong economy here, hopefully in the middle of a strong economy. We are in a strong consumer environment right now and we're in a changing competitive landscape. So that gives us opportunity we believe to continue to accelerate the growth of the company. These multi-brand customer initiatives that we've been doing, the Passport programs, all of the customer metrics I just mentioned to you, give us really the confidence and the ability to drive more customers into that ecosystem because of the stickiness that we are seeing that you referred to. And we’re really looking to invest not just on the floral side of the business, yes, we see opportunity there, yes, the competitive landscape gives us more opportunity, but also on our other flagship brand Harry & David. We took a brand there that that had not grown in a long, long time before us, acquiring that business going through the integration process, started to get good nice growth there last year, and we are seeing that accelerate. And when you look at the two flagship brands that we can invest in customer acquisition both of which have good customer acquisition costs, bringing them into our ecosystem and then leverage them into our multi-brand capabilities, our Passport program, it gives us the customer behavior metrics or stickiness as you put, that really helps us to see this as a sustainable move for us, which we take up -- take the investments and taking the customer acquisitions to next level this year, that bodes well for the next two or three years for us at minimum.

And your thoughts on being able to take on the wire side, Chris?

Yes, I was just going to come back to that, Dan. I think you’re seeing that already on the wire side, and that’s why as you know my comments and certainly Bill's comments alluded to, we saw some opportunity or we saw some turn begin, some momentum begin in Q3, and was able to accelerate that in Q4 as we had double-digit growth in Q4 on BloomNet. And it really is a matter of kind of sticking to our core. making sure that we’re delivering, offering, and sending florists that are out there, a good customer platform, good coverage, good customer service, quality delivery, competitive rates. And what we see we're doing is we are moving market share from other competitors into BloomNet and we see that as being sustainable for some period of time right now.

Yes, Dan, the investments that Chris was referencing of, consumer brands and our flagship brands, 1-800 Flowers and Harry & David as well as the launch of Goodsey, these investments are going to have kind of a mid-single-digit million dollar impact on the EBITDA in 2019, and they’re going to skew more towards the Consumer Floral segment because Goodsey as well as the 1-800 Flowers brand roll up into the Consumer Floral segment. But these investments are helping to drive the accelerated revenue growth that we believe is sustainable and we expect returns on these investments in fiscal '20 and '21 and beyond that will help to drive sustainable double-digit bottom line metrics in EBITDA as we approach $100 million. But to be clear, even with these investments, our bottom line metrics in fiscal '19 would have been up double digits if not for the one-time catch up in bonuses.

Got it. Okay. That’s helpful. All right. Then let me just ask one more question and I will get back in queue. Just on the thought process of your use of cash here, look, you guys have the opportunity to go after the landscape a bit more. I’m sure you would like to scale up -- you haven't made an acquisition yet since selling Fannie, you haven't really been aggressive on buyback. The multiple has gone up and probably rightfully. So does it change your view on willingness to make a growth to your acquisition at this point, given that it would be a less value dilutive or is the landscape still not really healthy enough for you to go out there and find something at an attractive price?

So, you’re right, Dan. I think we're in a very good position with our balance sheet and we're very pleased with the cash position that we have on it. It gives us good flexibility to really achieve our ultimate goal, which is to put our cash in underleveraged balance sheet to work for our shareholders through acquisitions that can help us accelerate our bottom line growth. As we look at where we stand today, clearly. and we’re portraying [ph] our really strong confidence in the plan we have going forward. The investments we're making in our core business behind those customer metrics that I spoke about, behind the products and service we're introducing. Taking the company over the past couple of years from the 1% growth to a 2% to a 3.72% to next year guiding north of 5% growth. So we’re really very pleased with that. With that said, we clearly have the responsibility to be looking for acquisitions that can add to our platform, leverage our platform. And like you saw us doing with Goodsey we will also develop businesses and invest in developing businesses, utilizing the leverage of our platform. So -- and I think as we continue to look at our business and where we're going, we are the leaders in the Floral category, we are leaders in the Gourmet Food category, with steps like Personalization Universe and now Goodsey, we are starting to move into other categories that gives us a higher addressable market to go after. So I think acquisitions will certainly play a role in that.

Got it. Thanks, Chris. Thanks, Bill.

Thanks, Dan.

The next question comes from Linda Bolton-Weiser of D.A. Davidson. Please go ahead.

Hi. So just a follow-on the questions about the increase in the comp expense, the bonus expense, your corporate expense declined by $2.5 million in FY18. So is that $2.5 million -- is that the decline in comp expense? Like is there a dollar figure that we can somehow attach to the delta in comp expense FY19 versus FY18?

Yes, Linda, the comp expense sits within a number of categories. So the bonus expense associated with people who are bonus eligible within the brand sits within the segment, but the bonus for people who are on the -- in the corporate sector would sit in that line. But certainly that $2.5 million reduction in corporate expense is always representative of the decline in bonus in that segment.

It's part of it, yes.

It's part of it. But as we kind of put in our formal remarks, our bottom line results in fiscal '19 would be up double digits if not for the one-year catch up in the bonus. So that would put the incremental bonus in '19 in the -- kind of the high single-digit million dollar range.

Thank you. That’s helpful. And then -- so thinking longer term here, I mean FTD has been having problems for a couple of years now. It just hasn't been all of a sudden, it's been a gradual deterioration of their business. And if you look back at your FY16 EBITDA, I think you did about $86 million of FY16 EBITDA. And here we are next year expecting 7% to 10% lower than that, a couple of years later, three years later your EBITDA is about 7% to 10% lower than a few years ago. So granted your top line growth is accelerating pretty steadily, so that’s good, but it strikes me that you're spending more to get that top line growth. So you’re getting the growth, but your profitability is deteriorating. So can you comment on like customer acquisition costs? Is that increasing over time, because a lot of other Internet type companies, e-commerce companies say that it is increasing. And it's getting costlier and costlier to capture those customers. So can you just comment on the connection between top line growth and profitability? Thanks.

Yes, let me start. And again, just to be clear, our bottom line results in fiscal '19 would have been up double digits if not for the one-time catch up in bonuses. In addition, our guidance includes investments we are making in our flagship brands, 1-800 Flowers and Harry & David to accelerate revenue growth and to increase customer acquisition as well as the launch of a new brand Goodsey, we expect strong returns on these investments going forward and anticipate our bottom line metrics in '20 and '21 will grow at double-digit rates as we approach a $100 million in EBITDA. So, yes, you could -- our guidance is showing lower EBITDA -- we incurred lower EBITDA this year for a number of the reasons that we talked about, the operational issues we had at Cheryl's, healthcare cost, transportation costs. We’ve addressed a number of those items.

And some midyear decisions to invest in growth in the floral side, right.

But as we move forward, we are seeing that bottom line growth. We do have -- we have a one-year catch up in bonuses, but aside from that we’re seeing double-digit growth and we’re projecting double-digit growth on a sustainable level in EBITDA and EPS going forward.

And I also think it's an opportune time for us to increase our investment spend to take a bit more advantage of the current marketplace whether it be the competitive landscape or the strong consumer economy to invest more in customer acquisition, why? Because the model that we've been building is working. We’re seeing the excellent customer behavior in metrics across our customer file. The multi-brand customers, the Passport customers with their increases in frequency retention and average spend, those values, Linda, will help us to offset increases in marketing spend that we see in different places. Whether it would be from Google or just in the display world, those rates are always going up, so there's always pressures. How we make our marketing more effective is by making sure we’re creating a sticky relationship with our customers. And that's what we're doing and that really -- because we’re seeing that start to really take hold after a couple of years of building this program is what gives us the confidence and the impetus to make these investments.

Thank you.

The next question comes from Alex Fuhrman of Craig-Hallum Capital Group. Please go ahead.

Great. Thank you very much for taking my question. I wanted to ask about a couple of your different business lines. One is, certainly intrigued by the new site Goodsey, curious where you see that sitting into the assortment and how you envision customers migrating there from the other brands? And then, Chris you mentioned everyday gifting as being something that's really taken off lately. Curious where that's coming from if that's been driven by new customers or existing customers? And is it fair to assume as you’ve bringing customers into the Passport Program presumably around some of the big peak holidays like Valentine's Day and Mother's Day. I mean, are these the customers that are then becoming stickier and participating more in the everyday gifting occasions or is there been something else that's been driving that for you guys?

Sure. So let me start off on Goodsey. We are really excited about Goodsey. You saw us with one of our launches this past year bringing Personalization Universe on to our platform as one of the first steps into a new expanded product category, and we will continue to grow in that direction. But what we’ve been looking to do also is to say how do we rapidly expand into other product categories that we believe our customers will want for their total gifting solutions. And really taking a marketplace strategy to do that is something that's a little bit new for us and one that we think holds a good opportunity for us overall as a company in the future as we could significantly ramp up the SKU count in this marketplace area, great gain, great SEO juice out of it, and really get the word out there more and more of these family of brands as a total gifting solution. So we’re really happy with Goodsey. The platform that we are building it on and it shows how we're able to leverage our platform to expand rapidly. So it will be positioned right up along with all of our other brands. It launched on the multi-brand tab of our Web site two days ago. It's already getting some decent -- again, it's just there, so it is just people finding it, some decent cross brand pollination, customers coming in and exploring and trying the products. But we see this as an opportunity first and foremost to really make sure that if you're coming to any one of our brands and you’re not quite finding what you're looking for, take a look at Goodsey, maybe there's an opportunity for us to capture what might've been a lost sale. So…

Great. That's really helpful, Chris. And then, just thinking about the competitive dynamics that are out there, I think another analyst mentioned that FTD has been struggling for a couple years. And while I suppose that is true, they've also been increasing their marketing spending pretty substantially over the last couple of years. And I imagine that is likely set to tail off for them now, which would be what's different here. So curious as you think about the opportunity to grab market share, I mean, clearly, FTD and ProFlowers of the competitors on the floral side, they’re not particularly important on the floral gifting side. Is that where we should think about the biggest opportunities are to gain market share and then have customers migrate over to Gourmet Foods after they come into the Floral segment or it sounds like there's also a lot of opportunity specific to Harry & David there within the Gourmet Food segment. Is there anything going on there that that's competitive in nature or is it just a matter of blocking and tackling following years of underinvestment before you acquired that brand?

Yes, so I was going to bring you more towards the latter there, but let me jump and address the floral side first. You’re right I think as Bill mentioned, through the first three quarters of last year, we continue to see heavy spend especially as we moved into the Valentine quarter -- I’m sorry fiscal Q3 to Valentine Holiday period. We saw a significant spend and significant pricing promotion and discounting. As we moved into the Q4 Mother's Day holiday period, probably saw the spend pull back a little bit, but still aggressive on discounting and promotional activities, which again in the long-term hurts the brand, I believe, but it got more rational. We expect that rational behavior to continue to play forward into the next year based on what we can see from the competitive landscape in the floral category. However, while that is giving us opportunity again along with the strong consumer out there, that does give us opportunity to grow floral and that's why we are investing behind 1-800 Flowers flagship brand equally we see growth opportunity on the Harry & David brand. I would take your lead there as it is on the question, I will just follow that, and I would say it is not so much from competitive dynamics, but really from blocking and tackling and getting the business to where we wanted. We did that integration four years ago now with first two years or more we’re focused on the cost integrations which we did a good job of, and then we started to turn our attention to the revenue side of the business. And that always takes a little bit longer, but we saw that start to take traction a year or more ago and where we started to see that we saw it last holiday season, we saw it in our continuing the everyday business. So we're really comfortable that we have the right products in place. We have the right marketing messages in place, constantly enhancing them but seeing really strong results on Harry & David's e-commerce business.

Great. That's really helpful. Thank you very much.

Alex, I was just going to say, Harry & David e-commerce growth for the year was over -- it was over 6% and we’ve seen that trend line accelerate in the second half of the year where it was over 9% for the second half of the year.

That’s perfect. Thank you.

The next question comes from Anthony Lebiedzinski of Sidoti & Company. Please go ahead.

Thank you and good morning, everyone. Thank you for taking the questions. So I just wanted to follow-up on the last comment, Bill, that you made as far as Harry & David. So you gave us the e-commerce figures, I may have missed this, but what was Harry & David overall for the quarter, for the year, whatever you have?

Yes, for the year Harry & David was in the mid 4s in growth. So, their retail store numbers of -- the number of retail stores is relatively the same year-over-year down slightly, so we lose a little bit on that. And we’re still working on and I think we have a lot of momentum going into on the wholesale side -- with the wholesale side during fiscal '18 did not grow. We think we’ve a lot of momentum as we hit into fiscal '19.

Okay. Thank you for that. And just getting back to the bonus issue, so as we look at our model, so I assume that most of that will hit the G&A expenses, is that correct? On the income statement?

Yes, the most of it will, yes.

right.

But it follows where the employees are aligned to. So someone in marketing would sit -- their salary sits in sales and marketing and therefore their bonus sits in sales and marketing.

Okay. Thank you. So let's say, if -- let's say hypothetically you’re able to hit your targets in fiscal '19, you pay out the bonuses as planned. Looking forward to fiscal '20, what would be kind of the expected growth in bonuses than assuming, let's say, you do the 5% to 7% revenue growth again?

Yes, so then bonus would be relatively consistent year-over-year where we’re getting the 5% to 7% extend that we’re hiring more people than they could be a few more people, but we really would be leveraging the assets of the -- of our employee base, so that most of the employees that are driving that, their bonuses would be the same. 100% of their bonus in fiscal '19, they’ve the same number in fiscal '20, their bonuses will be relatively consistent year-over-year.

Okay. Thanks for that clarification. And I think earlier you had mentioned that for BloomNet you’re looking to expand your suite of products and services, can you perhaps give us some examples of what you're looking to do there?

I think one area that we’ve begun in getting some traction is the marketing services that we talked about. Today we’ve been focused on working with our BloomNet members to help them with their SCO and their SEM capabilities. Now I can see us adding on to that suite of services as an example.

Got it. Okay. And lastly, Bill, you had mentioned as far as the new revenue recognition rule, there were some shift in timing of your catalog costs. So can you give us a sense as to how much you expect that to be in the September quarter?

Yes, in the first quarter, it could be around $3 million of -- moving from Q2 to Q3, from -- I’m sorry, Q2 to Q1 and then we get it right back in Q2.

Got it. Okay. All right. Thank you. Best of luck.

Thank you, Anthony.

[Operator Instructions] This concludes our question-and-answer session. I would like to now turn the conference back over to Chris McCann for any closing remarks.

Okay. Well, I thank everyone and thank everyone for their questions. I thank everyone for their attention and support. As a reminder, we look forward to hosting you at our Investor Day Joe mentioned in the beginning of the call, our Investor Day next month at Cheryl's bakery and our Obetz distribution facility. It will be a great opportunity to meet more members of our team, to learn more about our company, see what we’ve done in the Cheryl's business there to get ready for the holiday, where we will be showcasing some exciting new automation initiatives in both our Westerville and our Obetz facility. So we will be excited to show those off. And then, of course, there maybe, just maybe, some delicious cookies on the menu as well to entice you to join us. Thank you very much.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.