Very Near Term View A Little Less Rosy

Benefitting From Moderating Inflation

Off To A Good Start

Gross Margins Surprise On The Upside

Michael Kupinski

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Consumer Cyclical

Retail - Cyclical

1-800 FLOWERS.COM Inc.

Investment Appraisal
The hoped for transitionary nature of inflation and supply chain issues do not seem to be panning out. Our original estimates anticipated favorable economic conditions, as the US economy reopened from the pandemic; moderating inflationary pressures, including ocean freight and shipping costs; and abating supply chain disruptions. Given those factors, management pulled inventory forward and sought to pass along the increased costs to the consumer. We believed that the strategy would be favorable given strong employment and a healthy consumer. A lot has changed. Inflationary pressures have worsened and consumer confidence has taken a downturn. The prospect of a general economic downturn has increased.&nbsp;
We believe that the company is in a solid position to weather a storm. As of&nbsp; year end 2021, the company had $271 million in cash and debt of $151.8 million. Notably, debt is a modest 1.2 times our adj. EBITDA estimate.&nbsp; In addition, the company has greatly expanded its customer files through acquisitions and over the course of the Covid pandemic when e-commerce sales soared. Management indicated that the company has grown its customer files and had roughly 13.5 million active customers last year. Finally, its customer loyalty based Passport program has over 1 million subscribers. In our view, the company is in a strong position to take market share and to manage through various economic scenarios, including &#8220;stagflation&#8221; and/or a general economic downturn.&nbsp;
We are taking a sober view, however, of the current operating environment. Weakening consumer confidence has had an adverse impact on everyday gifting. There is a prospect of an economic downturn, although this appears relatively low at this time. In addition, we believe that it will be harder for the company to pass along rate increases, given the decrease in discretionary consumer income due to inflationary pressures. As such, we are lowering our fiscal third quarter end March 31 revenue estimate from $493.1 million to $478.8 million. Figure #1 Q3 Revision, reflects our recent adjustments. In addition, we are lowering our adj. EBITDA estimate from $17.9 million to a loss of $8.0 million. In addition, we are lowering our fiscal full year 2022 revenue and adj. EBITDA estimates. Our full year 2022 revenue estimate is lowered from $2.29 billion to $2.26 billion. Our fiscal full year 2022 adj. EBITDA estimate is lowered from $146.2 million to $133.4 million. We are posting fiscal full year 2023 revenue estimate of $2.31 million, up 2.4%, and adj. EBITDA estimate of $129.9 million. We would note that our revenue growth rate is below the company&#8217;s targeted long term revenue growth target of 6% to 8%. In addition, we have taken a conservative approach to the company&#8217;s ability to offset expense growth, expecting adj. EBITDA to decline modestly from fiscal 2022 levels.&nbsp;
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Figure #1 Q3 Revisions
 
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/flwsq3.jpg" style="width: 329px;height: 583px" /> 
 
The FLWS shares have significantly dropped 58% from highs in November 2021 to near current levels. In our view, the weakness largely reflects the significant swing in the company&#8217;s near term fundamental outlook. Despite the current challenges to the business, however, we believe the shares are oversold. Near current levels, the shares trade at 6.3 times EV to our 2022 cash flow estimate and 6.4 times 2023 cash flow,&nbsp;on the low end of historic 10 year average trading ranges of 5.8 times to 11.5 times. We are lowering our price target from $25 to $20 given our lowered adj. EBITDA expectations. Yet, we still believe the shares are compelling and offer attractive appreciation potential. Our price target anticipates EV to 2023 adj. EBITDA estimate of 9.2 times. In our view, the basis of the investment thesis of the company remains intact. We believe that the consumers will continue to shift toward ecommerce as a means of everyday gifting and consumption. In our view, 1800FLOWERS.com intersect this favorable long term secular trend. The FLWS shares are rated Outperform.&nbsp;

1-800 FLOWERS.COM Inc. (FLWS)

In For A Rough Spell

Fundamental Analysis:

Rating: Log in to view

Very Near Term View A Little Less Rosy (FLWS)

Benefitting From Moderating Inflation (FLWS)

Off To A Good Start (FLWS)

Gross Margins Surprise On The Upside (FLWS)

Inbox Intel from Channelchek.