Good day, and welcome to the Third Quarter Results Conference Call. All participants will be listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Andy Milevoj. Please go ahead.

Good morning, and welcome to our fiscal 2024 third quarter earnings call. Joining us today are Jim McCann, Chairman and CEO; Tom Hartnett, President; and Bill Shea, CFO. Before we begin, I'd like to remind you that some of the statements we make on today's call are covered by the Safe Harbor disclaimer contained in our press release and public documents. During this call, we will make forward-looking statements with predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission. The company disclaims any obligation to update any of the forward-looking statements that may be made or discussed during this call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. And now, I'll turn the call over to Jim.

Thank you Andy, and good morning everyone. Thank you for joining us. This morning, I'll begin with a brief overview of our third quarter performance and then turn it over to Tom, who will provide a business update. We will conclude with a financial review from Bill and then we'll open it up to your questions. Over the last few quarters, we have been providing updates on our relationship innovation and work smarter initiatives that are centered on elevating the customer experience and driving efficiencies in all aspects of our business. Our organization continues to relentlessly execute on these initiatives, and you'll hear a number of updates today on how we are actively managing our product portfolio and our pricing elasticity. As we look at our third quarter performance, we continue to see a very complex consumer environment. Consumers continue to be deliberate and discerning with their purchases and are making thoughtful decisions. And although, there has been much discussion about the resilient economy, we continue to see a bifurcation of our lower versus middle and higher-income consumers. It's not surprising that the lower-income consumer continues to be most pressured by inflationary forces and higher interest rates, while at the same time, credit card balances and the delinquency rates are on the rise. Our total third quarter revenue declined 9.1%, which includes lower wholesale and BloomNet revenue. As Bill will highlight further, our e-commerce revenue trends continue to improve sequentially. Helping offset our top line softness, fiscal 2024 remains the year of our gross margin recovery. As we updated everyone last quarter, the pace of our margin recovery is occurring at a faster rate than we had originally anticipated at the beginning of the fiscal year. Our gross margin is benefiting from a combination of our Work Smarter initiatives that…

Thanks, Jim and good morning, everyone. Today, I'll provide an update on our business performance as well as an update on our relationship innovation development, which encompasses new or enhanced product offerings, our merchandising efforts as well as user interface enhancements. Through these initiatives, we continuously evaluate our offerings, pricing and bundling opportunities to ensure we have appropriate price points for each of our customer segments, and that we are actively managing the pricing elasticity of our product portfolio. Turning to our performance. During the third quarter, we generated an adjusted EBITDA loss of $5.7 million essentially in line with prior year, despite the 9.1% decline in revenue. Most notably our e-commerce revenue trends continued to improve sequentially, declining 4.9% for the quarter. As we look at what's driving these trends, we continue to see a bifurcation between our lower income customers, reduce their purchases the most as compared to our middle and higher-income customers. Proof in point, was our Valentine's Day selection of premium gifts that appeal to our luxury buyers and included our Shari's Berries select offering, which are priced 25% to 50% higher than our standard offering. And our 100 long stem roses that retails for $399 and sold out. This demonstrates our pricing power and ability to increase AOV. As a result of this ongoing trend, our AOV increased 1.4%m as our upper income customers continued to represent a greater portion of our overall population, and they continue to gravitate towards our higher-priced bundled products that provide a great gift and value. We recognize that our higher income customers have not meaningfully changed their behavior, and in many cases are trading up in price points. But our lower income customers, who are more affected by the macro economic environment, are being much more deliberate with their…

Thanks, Tom, and good morning. As Jim and Tom highlighted, we continue to operate in a complex consumer environment in which consumers continue to spend on certain categories while curtailing their spend in others. We also continue to see the divergence in our customer file, in which our higher-income customers continue to spend and gravitate towards our higher-priced offerings. As a result, our third quarter revenue declined 9.1% as compared to a year ago. This includes lower wholesale volume with our retail partners for this past Easter, as well as lower bloom net revenue. When we zoom in a little closer and look at our core consumer, our quarter-over-quarter e-commerce revenue trends continue to improve, declining 4.9% in the third quarter as compared to 6.6% in the prior quarter. The improvement was partly due to the shift of Easter. Helping mitigate the revenue decline, our gross margin is continuing its reversion to the mean, improving 300 basis points to 36.6%. The improvement was led by lower freight costs, our inventory optimization efforts, labor efficiencies, as well as a decline in certain commodity costs. I want to take a moment to discuss a couple of external factors that have captured investors' attentions over the past few months, including the Red Sea issues that impacted supply chains and the extraordinary rise in cocoa prices. Beginning with the supply chain, we are happy to report that our logistics team recently completed negotiations with our fiscal 2025 inbound freight costs and successfully negotiated lower rates for the fiscal year ahead, despite the geopolitical issues in the Middle East. In terms of cocoa prices, we were fortunate to have locked in our fiscal 2024 and fiscal 2025 cocoa purchases with moderate price increases prior to the recent and much more dramatic increase in pricing. We…

Thanks, Bill. Before we open it up to your questions, I want to tell you that I'm incredibly proud to share that 1-800-Flowers.Com has been recognized as one of America's most trustworthy companies by Newsweek. I want to take this opportunity to congratulate and thank everyone in our organization for the hard work that contributed to this recognition. It's an honor to have such a strong community of customers who trust us to help them get more, collect more and build more and better relationships, trusting our company matters and we look forward to continuing to build on this momentum. Now operator, if you would let's open it up for any questions.

We will now begin the question and answer session. [Operator Instructions] Our first question comes from Michael Kupinski with NOBLE Capital Markets. Please go ahead.

Thank you for taking the questions and congratulations on managing those costs. I was just wondering if you can talk a little bit about the commodity prices and obviously, continued to weaken in the quarter. Can you give us a sense of those commodities that were weak that were impactful in the quarter, what commodity prices are looking like and trending particularly, not just the cocoa, which obviously you talked about but maybe some of those commodities that might be a little stubborn and offer future prospects for lower prices and going forward.

Michael, thank you for your question. This is Jim. Your commodity prices have been all over the place and I would tell you just in the last week, the change in cocoa prices has been extraordinary. We plan for next year to have a cocoa prices up quite a bit and what the impact on us would be. As Bill mentioned, though, we're fortunate that we have locked in our availability and our pricing on cocoa through next year. So we're a little bit protected from those wild swings, but still very conscious of it because it's going to impact the overall market and impact our pricing the future. But we're very pleased to see in the last couple of days, it's over 20% decline in cocoa prices. So Bill, what other commodities? I know eggs and butter are two big components from your bakery and chocolate maker. You're very conscious of those prices and we've seen some wild swings there, a little color on where we are now and what impacts that might have on our overall cost going forward?

Jim as you mentioned, eggs and butter are ones that have come down significantly of their highs and beginning to benefit – some benefit this year on those commodities. But other items like fuel, we were getting a benefit for most of this fiscal year and client of crossover, where fuel has risen and it's a combination of both on the fuel side, combination of both what's happening in the in the markets but the third-party calories continue to that's a surcharge that they have and continue to play with the mild [indiscernible] that gone from a significant headwind, tailwind this past year. And right now it's a slight – it's a slight headwind as we head into fiscal 2025.

And to answer Michael's question overall, commodity prices, fuel being the biggest, it's still a negative headwind overall on commodity costs because fuel is such a disproportionate part of our commodity mix.

As we move forward, I think fuel has been a benefit to us in fiscal in fiscal '24. But as we move forward fuel will be a headwind against this.

Yes. Thank you for that color. And can you give me a sense of the decrease in shipping costs that surprisingly negotiated lower rates going forward? I was just wondering, if you can give us a sense of the shipping costs including ocean freight costs?

Michael, we found that very surprising I would never have predicted that we lock in rates going forward that will lower who knew that we'd be talking and thinking about the Reg G and who sees it six months ago a year ago. It's certainly a surprise to me, but we'll have just finished a weaker we're going to have to go those contract negotiations lower call it aftermarket.

Yes. So several months ago, the spot market for ocean rates jumped dramatically probably doubled at the contractual rates that everybody had. The good news is that the carriers did honor the contractual rates. So we didn't feel the impact of those spot market spikes, as we had entered into negotiations several deals back in back in March, we were concerned where rates would go for fiscal '25, but we were able to successfully negotiate a core store of the four carriers that we use a slight decrease in our ocean rates as we head into fiscal 25. So those actually rates went into effect yesterday, May 1 and they run through May 31st of next year. On the Fedex side on the outbound shipping side, we always have modest contractual rates. We talked a little bit about fuel. I know all of the surcharges that are outside of those rates but -- we have been in between would fall under our model work smarter initiative with inventory optimization and logistics initiatives, we've been able to offset those rate increases this past year. So, through the nine months ended at the end of the third quarter, our actual cost per package is flat to slightly lower on a year-over-year basis. It has great than what we've done Michael to mitigate that those inbound freight costs. I'll ask Tom to comment on this a bit where we purchase where we manufacture.

Yeah so, as Michael asked we over time and still feeling the sting from the pandemic, we have shifted some of our volume to the states et cetera from a supply chain except -- so you know just a raw number of containers we're bringing in is less than it was of even sands where we've been in sales.

Got you. Thanks for that color. And just final question if I may. You implemented cost cutting actions in your workforce in the quarter, how much of those actions could be viewed permanent?

Michael, this is Jim. Yes, we reduced our workforce -- salaried workforce in this quarter. Painful thing to do, but appropriate under our ongoing work smarter initiatives, where we'll continue to look to say how can we operate more efficiently, how can we be more productive? And that's going to result in us having a constant eye on our costs and part of our cost structure is obviously our talent. So they didn't have any impact on last quarter because in the same quarter. We also have the related severance costs that go along with that. So it didn't have any benefit in the last quarter. On an ongoing basis, we're estimating about $10 million in reduced operating costs at the payroll level. And that is all permits.

That's all I have. Thank you.

Our next question comes from Alex Fuhrman with Craig-Hallum. Please go ahead.

Thanks very much for taking my question. I wanted to ask about same-day delivery. It certainly seems like in many ways that's where the industry is heading, what are the economics on your orders look like compared to the rest of your business? And what do you think happens to your cost structure if it's become table stakes over time.

Thanks Alex. I think the last thing you said is absolutely the case that is going to be table stakes. And we've been saying in these forums for a couple of years now. So it's something we're working toward and we're looking forward to more of that topline to give a little color on what the impact of the costs are for us. But the unique model that we've become, it gives us a real leg up there. And in particular time if you would talk about what we're doing now with other products across our portfolio and putting them in the same day program. What we're seeing it's very early stages but at the same day is as you say Alex increasingly table stakes and we think we're particularly well positioned to serve our customer better and benefit our community particularly our last mile fulfillment which is anchored by our BloomNet network. Tom?

Good morning Alex. So, on this obviously same-day is something we've been at a long time and we are very involved just in our floral with our floral partners in helping them manage delivery costs. So that's something we're right all the time for same day. So, we're leveraging a lot of that learning as we move further and further into other gifting items that we can push into the local markets. And so we've seen success in our early success with Cheryl's Cookies. We've had confection products with the Shari's Berries brand where we've been able to bundle those products or our obviously our Shari's Berries products, our Fruit Bouquets products. And so we have a pretty wide swath of products. There will always be different economics based upon the speed in which a customer chooses to have to get delivery. Obviously, if somebody wants something in two weeks, we probably can be more economical in the way we provide that item to the customer and how we ship it then than that same day. We think of that as we continue to grow our volume and we learn into the better ways of for deploying product and really about those rings of fulfillment, et cetera, we can leverage our of our network that much greater.

Okay. Thank you so much both of you. Really appreciate the thorough answer there.

Our next question comes from Linda Bolton Weiser with D.A. Davidson. Please go ahead.

Yes hi. So, I was wondering about you mentioned the on the wholesale side that some retailers you pulled back a little bit on ordering for Easter. I'm just curious if you're getting any early read about what retailers are thinking for Christmas? And going along with that I know that the club programs are kind of an important part of things. Do you anticipate a decline in sort of your sales from those club programs this Christmas? Thanks.

Hi Linda, how are you? The answer to your question the wholesale is a piece of our business that gives us an excuse and coverage for infrastructure. So it's not something we wanted to do well and do better but it's not something we're going to be very reliant on other lender and help us offset the operating expenses that we have with or without it. So, it's only important in that respect. What we saw last year is it sell-throughs during the Christmas holiday in calendar 2022 weren't as strong as the big boxes were hoping for. So, they cut back dramatically on their on their buy for calendar 2023 holiday period. So, that was something we had as a headwind going into this that we knew about because as you indicated in your question we have a good line of sight as to what that would look like several months out before the holiday season. And then Easter was a complication because we had a good Easter a year ago. And then this Easter the big box guys I think because Easter moved up and that always has a depressing impact on sales where Easter was earlier cycle tends to sneak up on people they cut way back on the eStore. So, we knew that coming in. And answer to the most of the important underlying question about you asked I'll ask Bill to talk about what line of sight that we have for this year and for the continuation and the ask our question to be a headwind for us.

Yes. So, Linda as we talked about at the end of the second quarter, we took about a $20 million reduction in those big box wholesale orders on backend into about $10 million hit this year because of the reduction in Easter. We do have some line of sight into holiday next year and orders will be up next year. So, it will not be a headwind. It will be a tailwind. Those orders have not been finalized yet, so to the extent of the increase that we'll get next year, we don't have that locked in yet but it will be a tailwind not a headwind.

But we don't anticipate getting back to its high of the pandemic time.

Right. No, we expect it to be up but not to -- not to recapture maybe the -- fully recover from the high.

Yes. Okay. Thanks. And then and on the personalization side, I was wondering given your commentary about the bifurcated consumer high versus low on is there a big difference between P Mall and I think the other line I think it's called Things Remembered or something like that. Is there has there been a big difference in the performance of those two lines? And can you, kind of, comment on how that area is doing in general? Thanks.

Good insights there, Linda of course, but I have Tom to give you color. I think the answer is yes, but Tom?

I think that is true, Linda. As the personalization of small business that tends to have a consumer with a lower household income. We have seen a little bit more of the impact there on that personalization business some, but on I'd say right now because Things Remembered is still so new, if you remember we acquired that a year back and it was just the IP. And we're just starting to get our sea line under us. We have -- but we have seen growth in that we're very pleased with there and that is appealing to a different demographic. And we see a pretty big delta in average -- our AOV for Things Remember.

S we're very, very pleased with how Things Remembered is getting started. It takes a couple of years to get your legs on this concept on that business. Because you have to select inventory, manufactured, imported get it into stock. So it will take us through next holiday season to really get a feel how it's going. But we're really pleased with how it's doing coming out of the gate. Tom what does that business -- what is the big selling item we have is Things Remembered.

It's a Hero [indiscernible] 1 base that sells very well at $180 for example.

It's a beautiful item but that's a strong seller for us and continues to gain strength. And that's $180 ticket. So I think that goes to the heart of your question, Linda.

And would the contribution margin for Things Remembered be higher than for P Mall?

The contribution margin is about is about the same. You know some -- the labor component of some of the items that we make on Things Remembered can be higher with a little bit less automation. So we're still working through those things there's opportunity there in the future. But even though we have a higher ticket on the Things Remembered product it is less about the -- and the Things Remembered brand. It's more about the product and the personalization and vice versa on the Personalization Mall side.

Okay. And then on I'm just curious about your workforce reduction. I mean I applaud you for taking action on that front. But I don't recall you taking a lot of workforce reductions just historically. So I'm just wondering how that's sitting like -- is that affecting morale within the company. Maybe you could comment on that?

Linda, it's Jim. I'll stop there. Answer is it's always tough to do. And yes, you're right. We haven't done historically. We haven't done at all. But I think it's only the second time in my memory that we've had to do a significant ramp. I think what you'll see from us going forward is that we have a new sense of talent management. And I think frankly it's not unique to us. I think you're seeing when a company like Google which really never had large layoffs or layoffs of any kind in their history and now telling their people that talent management is going to be a regular part of how they think about their cost and how they manage their company going forward. So to us that is you're going to have growth areas to the company. We're going to be stepping up. And even in the last couple of weeks we've had a couple of really significant hires in our management ranks that we've just initiated and to continue to step up the areas with us growth where there's opportunity and sometimes an area that's you're not emphasizing as much is you still require some [indiscernible] or in some cases it removes some folks. So I think we have a different ongoing attitude about talent management. I don't anticipate that we'd have to do other risks of any size going forward, but we will always from a working model point of view be managing our talent in a very proactive way to make sure we step the growth opportunities and minimizing our exposure and our expenses on the areas that aren't growing or don't have the same promise going forward.

And, Linda, we're smarter, and we've talked about this for several years now. It's really much broader than just labor management, right? It is all about, operating more, you know, efficiently and driving costs out of the business. We've talked a lot about, you know, technology and automation and how that's, driven down our costs in our production areas. We've talked about logistics, inventory management to drive down our cost per package, which incorporates vendor negotiations, marketing efficiency, moving from some bottom of the funnel where the digital rates have continued to, to rise to more efficient marketing spend. So it is a much broader area of ultimately, you know, continuing to look at how we can operate this business more efficiently and drive costs out of the business.

Okay. Well, thanks for everything and good luck.

Thank you, Linda.

Our next question comes from Anthony Lebiedzinski with Sidoti. Please go ahead.

Hi. Good morning, guys. Can you hear me?

Yep.

Hi. This is Stephan Guillaume on for Anthony. How much was average order value in the quarter, and are you seeing success with doing multi-branded bundles?

Well, there's a short question but a couple of pieces to it. Bill will touch on what the average order was. I'll tell you the average order is increasing, and we're not thrilled with that. It evidences and supports the theory that our better, our higher-income customers are weathering this period better than our lower-income customers, number one. Number two, when I say we're not thrilled with the rise in average order value, it causes Bill to have hard palpitations. But that's the reason I say we're not thrilled with that is because I'd rather see us have a broader range of price points, many more accessible price points. And you'll see and have seen our efforts to do that. And then the third piece of your question is around bundles. So I asked Bill to start with the average order value and then Tom to talk about the success we've seen with bundles, which goes back to a question that Alex asked earlier about what we're seeing with our last mile delivery capabilities, how that's benefiting our bundles, which is a collection of more than one of our brands.

Yeah. So the average ticket during the quarter was $79. It's up about 1.5% year-over-year. At the Jim's point, a lot of that is driven by these bundles and ultimately the pricing elasticity that we have. So we have been introducing more higher-priced items that feed the affluent consumer that's continuing to buy. Part of that is the bundles that Tom will describe. But we've also introduced a number of lower-priced point items as well to generate interest and orders from less affluent consumer.

Tom, if you would.

Yes, to highlight again on the part of this is, I don't think we answered your specific question. We rose, AOV was $79. we didn't? I apologize. So our bundles continue to do great. We're exceeding our expectations. We recently, for the holiday season, we're continuing this with, launched a new bundle series between our personalization mall business and our Harry & David business. And to give you a good example of a charcuterie board where we have a personalized cutting board that is delivered together as one discrete gift.

And the board is personalized.

The board is personalized, an example. So just like we were talking about with Cheryl's Cookies, we have bundles that are doing great now in bundling those with floral gifts. Some of the others we talked about are as a wine gift that we're bundling with a whole assortment of different products throughout the different brands. We have this wonderful gift for Mother's Day, which is a Harry & David prepared mirror, which is prime rib, but we're also bundling with Sherry's berries in a floral arrangement. We think that's going to have great appeal. It's selling for $699. I think that's going to have a great appeal for some of our afternoon customers. So we continue to push heavily into the bundles model, and our merchants have done a great job of being very creative and coming up with great ideas that our consumers are gravitating towards, so happy to see.

Thank you for the follow-up, Eric.

[Operator Instructions] Our next question comes from Doug Lane with Water Tower Research. Please go ahead.

Yeah, hi. Good morning, everybody. I just have a couple of things here. I look at the third quarter EBITDA loss of $5.7 million and that's not really too far from where that quarter was pre-COVID. Through nine months, your gross margin is 40%, 41%. Again, not too far from where you were pre-COVID. So I guess my question is, how close are we with regards to reverting to the mean on your cost structure?

From a margin perspective, if you look at, Doug, if you look at a 10-year history from 2012 to 2021, you saw us in that 42% range, give or take 50 basis points. We had a low point of 37.2 a few years ago and we've been climbing back. And this year, we've obviously made great progress on that. At the beginning of the year, we had guided that we'd be in the low 39% for the year and we upped that after the second quarter and now anticipate that our margins will exceed 40% this year and be in the low 40s, 40.1%. So we're climbing back, but we're not all the way there yet. We do think there's still opportunity for us and that we're going to revert back to our historical mean of 42% over the next couple of years.

You're getting pretty close. Anyway, I'm looking at the balance sheet here and I have to ask, what's the acquisition fund look like? Are you still prioritizing acquisitions in your growth strategy and what's the environment like these days?

Well, I think, Doug, this is Jim. The overall environment, I'd say, is that a lot of smaller companies, particularly earlier stage companies, really have a hard time finding capital if they don't have profitability or a clear short-term path to profitability. So it's a target-rich environment. We're being very judicious about what things we give real consideration to. We talked about an acquisition just a few weeks ago. We don't even really look at that as an acquisition. We see that as a talent acquisition. We see that as a capabilities acquisition. It comes with very little revenue, but a very talented technology team that's fitted very nicely with our existing team. We're using that to improve our capabilities. We're spending a lot of effort in terms of our portfolio of products that we have. So I don't think we need to do any acquisitions to achieve our near-term objectives. We will be opportunistic if we find something that really does fit our portfolio well and we'll continue to do these tuck-in kind of talent acquisitions that really buttress our capabilities of providing a full experience for our consumers, helping them to have more and better relationships and provide them with a different blend of services. So I think it's a good environment, but we're being very judicious about what kind of a company do we want to be, what capabilities do we need to really serve our customers. We already have an enormous database. How else can we serve those customers in that database is our primary objective. And Bill or Tom, any follow-up?

Yeah, I was going to say, I mean, you've seen us do big acquisitions over the years with Harry and David and Personalization more. You've seen us do tuck-in acquisitions with the Sherry's Berries and Things Remembered type of items. And you've seen us almost like acquihires over the last year or so with SmartGift and now with Cardisle to kind of bring capabilities to the company that will help enhance the offerings that we have for our customers. And with Cardisle, it does give us an offering that comes with the greeting cards that are at the low price points that our consumers can interact with us. And we want our customers to come and visit us and interact with us more frequently.

Great. That's very helpful. Thanks, guys.

Thanks, David.

Ladies and gentlemen, this was our last question.

Well, thank you all. Thanks for your interest and for your good questions. Any other follow-up you have, we'll be happy to chat with you one-on-one. We'll be happy to do that today, tomorrow, anytime in the future. A reminder, we're at the beginning of the Mother's Day push here, so all the wonderful moms in your life, we're here with a beautiful selection of gifts from all of our portfolio brands to help you express yourself in just the right way to the women in your life who are moms, who had a very mom-like influence on you and the people around you. So enjoy the upcoming Mother's Day holiday. Thanks for your interest and your time today.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.