Gross Margins Surprise On The Upside

Amends Credit Agreement & Leadership Change

Margin Improvement Could Even Accelerate

Focused on Innovation and Acquisitions

Michael Kupinski

Virtual & In-person Roadshows / Conferences

Channelchek Premium. Access more at no cost. 

The site "channelcheck" is opened on the phone

Join the Channelchek Investor Community. Your name, email, zip, and investor type is all it takes to open the door to research reports, favorites tracking, and virtual and in-person roadshows / conferences. Even exclusive investment opps.

Take it to the next level. It doesn’t cost a penny.

Click “Log In” to agree to Channelchek.com <a href="#">Terms of Use</a> and acknowledge that Channelchek.com <a href="#">Privacy Policy</a> applies to you.

Welcome to the Channelchek Investor Community

Informed investors make more money. And it’s all about timing. Get it when it happens.

Inbox Intel from Channelchek.

Consumer Cyclical

Retail - Cyclical

1-800 FLOWERS.COM Inc.

Investment Appraisal
 The company reported an extraordinary quarter to finish the fiscal year, fueled by a surge in e-commerce and strong demand for gifting in a social distancing environment. Fiscal fourth quarter revenues increased a remarkable 61% to $417.6 million and cash flow, as measured by adjusted EBITDA, swung from a $2.6 million loss in the year earlier quarter to strong $32.5 million. The results were better than our expectations of revenue and cash flow of $391.4 million and $27.3 million, respectively. Consequently, the company overachieved our fiscal full year 2020 revenue and cash flow expectations by 1.8% and 4.3%, respectively.
Notably, the bump in ecommerce appears to have a long tail, as we thought it might. Certainly, the strong ecommerce trends are a function of consumers wariness of shopping centers and potential crowds in a Covid environment. But, we believe that the strong momentum may also indicate that shopping habits have dynamically shifted toward the convenience and comfort of the home. The the pace of its ecommerce business is better than our expectations. Management indicated that revenues in the upcoming fiscal first quarter is expected to increase a solid 40% to 45%. The revenue growth guidance includes the recent, August acquisition of PersonalizationMall.com (PMall). Nonetheless, revenue growth is expected to be a strong 30% to 35% excluding the acquisition.&nbsp;
This strong revenue momentum seems to shrug off the weak general U.S. economy. In addition, the company seems to be managing other headwinds, including possible seasonal labor shortages and strains on delivery services, including FedEx and the US Postal Service. Notably, delivery services indicate that August deliveries have been more than a typical Holiday season. It is quite possible that continued growth in ecommerce demand will put significant pressure on Holiday deliveries. In response, 1800Flowers has not marketed its same day delivery options or its price promoted due to its current strong demand.&nbsp;
Despite the absence of price promotions, cost of revenues have been higher. This is a function of the anticipated increases in bonus and incentive compensation, but also the added expenses to provide a healthy work environment for its workers. Management indicated that it has hired nurses, purchased thermometers, and provided added cleaning services. We anticipate that this will restrain gross profit margins. Nonetheless, stronger-than-expected revenues are expected to lead to higher-than-expected cash flow.&nbsp;
We are raising our fiscal first quarter revenue estimate from $248 million to $263 million, which would represent 40.7% growth from the year-earlier quarter, at the low end of the company&#8217;s guidance. Notably, the strong revenue growth comes despite the closing of the company&#8217;s Harry &amp; David retail stores, which on a full year basis accounted for roughly $33 million in revenues and a loss of $2 million. We are raising our cash flow estimate from a loss of $6 million to a $196,000 gain. Furthermore, management indicated that there is favorable momentum into the second quarter as well. The strong ecommerce revenue growth is expected to offset the expected decline in wholesale and retail for its Gourmet Food &amp; Gift Basket division into the Holiday season.&nbsp;
While there is a lack of visibility in the company&#8217;s second half, given the prospect of easing ecommerce demand, the company&#8217;s strong current operating momentum and the benefit of the PMall acquisition should allow the company to show revenue and cash flow growth. We are revising our fiscal 2021 revenue estimate from $1.395 billion to $1.613 billion, which reflects the strength of the first half and the acquisition of PMall. Management indicated that PMall is reflecting growth in revenues year over year and is profitable. We believe that it is possible that PMall will generate more than the $150 million in revenues and $25 million in contribution cash flow in fiscal 2021. But, at this time, we are not willing to flow through all of the upside into our full year estimates. Nonetheless, we are raising our cash flow expectation to $137.7 million up from our $128 million estimate (post the PMall acquisition). Again, these estimates may prove to be conservative should ecommerce trends continue on the current trajectory.&nbsp;
As of June 28, the company had a strong cash position of $240.5 million and long term debt of $87.6 million for a net cash position of roughly $150 million. The PMall acquisition was on August 3rd, and, as such, the balance sheet did change somewhat. The company used roughly $150 million in cash and added roughly $100 million in debt. Notably, debt levels of $187 million would imply debt-to-cash flow leverage of just 1.4 times. We believe that the company will use some of its revolving credit facility for inventory build heading into its seasonally strong Holiday season. Notably, given the strong operating results, we expect that the company will build upon its strong cash position and be in a sound shape to seek accretive acquisitions.&nbsp;
Given the upwardly revised fiscal 2021 estimates, we are raising our price target from $30 to $35. Our price target reflects our upwardly revised fiscal 2021 cash flow estimates and anticipates a 17.2 times Enterprise Value to our 2021 cash flow estimate. Our target multiple has been raised from 15.8 to 17.2, which we feel is warranted given the prospect for positive upside cash flow surprise potential with the current favorable ecommerce trends. Furthermore, the better-than-expected fundamental environment has improved the company&#8217;s financial position post the PMall acquisition. This should allow the company to seek accretive acquisition fueled growth.&nbsp; 
 
Near current levels, the FLWS shares trade at 15.3 times Enterprise Value to our upwardly revised fiscal 2021 cash flow estimate, which we believe is reasonable given the strong revenue and cash flow growth trajectory of the company, with favorable ecommerce trends. We would note that the shares are priced for perfection near current levels. Near term risks, such as disruptions or restraints in the ability of its delivery providers, especially during the upcoming Holiday season, could adversely affect our estimates. Easing of the strong ecommerce trends, possibly as consumers become less fearful of contracting the Covid virus/a possible vaccine, could cause shortfall in revenue and/or cash flow expectations.&nbsp;
Behind the numbers&#8230;. 
 
 As the following Figure illustrates, the company overachieved revenue and cash flow expectations, in spite of a surge in expenses related to a safe work environment for its employees during the Covid pandemic. Costs included adding nurses, testing and cleansing of the facilities, all the reason that cost of revenue was higher than expected and gross profit margins was lower than expected. Nonetheless, revenues and cash flow, as measured by adjusted EBITDA, was better than expected, driven by strong ecommerce revenue, discussed later in this report. This was reflected in the company&#8217;s Consumer Floral and Gourmet Food &amp; Gift Baskets segments. Bloomnet, its wire service, support network for floral shops, was the only segment that was slightly lower than expected on its segment contribution.&nbsp;

 
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/flwsq4variance.jpg" style="width: 434px;height: 835px" /> 
 
Consumer floral shines. The company&#8217;s consumer floral business segment increased revenues a significant 46.5% to $234.1 million, better than our $225.0 million estimate. The revenue growth was an impressive sequential improvement from the 5.4% revenue growth in the fiscal third quarter. Management indicated that the favorable momentum is expected to continue into the its fiscal first and second 2021 quarters, supported by a long tail of ecommerce driven revenue. In addition, management indicated that the growth is sustained by growth in new customers and that the behavior of the new customers in multi-brand usage and repeat usage. Gross profit margins were lower than expected due in part to extraordinary expenses to support a healthy work environment for its employees. Operating cash flow, as measured by adjusted EBITDA, was better than expected, $38.9 million versus our estimate of $30.0 million.

 
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/flwsconsumersegq4.jpg" style="width: 437px;height: 339px" /> 
 
Mixed results at Bloomnet. The Bloomnet segment reflected mixed results with revenues beating expectations, $30.2 million versus our estimate of $28.8 million. Cash flow, as measured by adj. EBITDA, was below expectations, $7.6 million versus our estimate of $9.5 million. Cash flow declined 18.6% from the year earlier quarter. We believe that the results of this segment were adversely affected by management&#8217;s decision to waive membership fees and to provide support services to its Florist network during the pandemic. These actions, we believe, will pay dividends for the company in the future and that results will improve.&nbsp;

 
 <img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/flwsbloomnetq4.jpg" style="width: 441px;height: 343px" />
Big boost in Gourmet Food. Q4 revenues in its Gourmet Food &amp; Gift Basket division surged 112.3% to $153.8 million, 11.5% better than our $139.0 million estimate. As with the other segments, cost of revenue was higher than expected, which reflected the additional expenses related to the pandemic and incentive compensation. Operating cash flow, however, was better than expected, $10.1 million versus our $9.0 million estimate.&nbsp;

 
 <img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/flwsgourmetq4.jpg" style="width: 444px;height: 385px" />

 
 Momentum continues. Management indicated that the favorable revenue momentum continues into its fiscal first quarter and provided guidance of 40% to 45% total company revenue growth. The guidance reflects the acquisition of PersonalizationMall.com (PMall), which was acquired on August 3 for $245 million. Excluding the acquisition, revenues would be expected to increase a solid and still strong 30% to 35%. Notably, PMall will be included in the company&#8217;s Consumer Floral segment. We believe that PMall has now completed its backlog of orders after being shut down during the depth of the Covid mitigation efforts. Management also indicated that it expects that adj EBITDA will be flat to slightly positive in the quarter, much better than its typical seasonal losses that it typically reports. The following Figure illustrates our fiscal full year 2021 estimates and revisions, which takes into account our upwardly revised fiscal first half estimate revisions and the acquisition of PMall. As indicated, our preliminary cash flow estimate for the PMall acquisition was $128 million. Our upwardly revised cash flow estimate is $137.7 million, which does not fully flow though all of the potential upside of the first half and anticipates some easing in the current strong ecommerce trends. Our estimates may prove conservative should the tail of the bump in ecommerce trends extend longer than currently expected.&nbsp;
 <img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/flws2021.jpg" style="width: 386px;height: 756px" />

1-800 FLOWERS.COM Inc. (FLWS)

Long Legs in E-Commerce Trends; Raising Price Target

Fundamental Analysis:

Rating: Log in to view

Gross Margins Surprise On The Upside (FLWS)

Amends Credit Agreement & Leadership Change (FLWS)

Margin Improvement Could Even Accelerate (FLWS)

Focused on Innovation and Acquisitions (FLWS)

Inbox Intel from Channelchek.