Express
Connect
Celebrate
2018 ANNUAL REPORT
O U R M I S S I O N
Deliver Smiles!
1-800-FLOWERS.COM, Inc. is a leading
provider of gifts designed to help our
customers express, connect and celebrate.
The Company’s Celebrations Ecosystem
features our all-star family of brands,
including: 1-800-Flowers.com®,
1-800-Baskets.com®, Cheryl’s Cookies®,
FruitBouquets.com®, Harry & David®,
Moose Munch®, The Popcorn Factory®,
Wolferman’s®, Personalization Universe®,
Simply Chocolate®, and GoodseySM. We also
offer top-quality steaks and chops from
Stock Yards®. Through the Celebrations
Passport® loyalty program, which provides
members with free standard shipping and
no service charge across our family of
brands, 1-800-FLOWERS.COM, Inc. strives
to deepen relationships with customers.
The Company also operates BloomNet®,
Find it. Love it. Gift it.
an international floral wire service providing
a broad-range of products and services designed to
help professional florists grow their businesses profitably;
NapcoSM, a resource for floral gifts and seasonal décor;
and DesignPac Gifts, LLC, a manufacturer of gift baskets and
towers. 1-800-FLOWERS.COM, Inc. received the Gold award in
the “Mobile Payments and Commerce” category at the Mobile
Marketing Association 2018 Global Smarties Awards. In addition,
Harry & David was named to the Internet Retailer 2019 “The Hot
100” list. Shares in 1-800-FLOWERS.COM, Inc. are traded on the
NASDAQ Global Select Market, ticker symbol: FLWS.
O U R
Vision
HELP OUR
CUSTOMERS
EXPRESS, CONNECT
AND CELEBRATE
Financial
H I G H L I G H T S
(From Continuing Operations)
JULY 1,
2018
JULY 2,
2017
JULY 3,
2016
JUNE 28,
2015
JUNE 29,
2014
Total Net Revenues
Gross Profit Margin
Operating Expense Ratio
Adjusted EBITDA(1)
Adjusted EPS
$1,151.9
42.5%
38.9%
$ 78.9(2)
$ 0.44(3)
$1,193.6
43.6%
39.7%
(in millions, except percentages and per share data)
$1,173.0
44.1%
40.4%
$ 87.2(4) $ 85.7(6) $ 80.7(8)
$ 0.43(5) $ 0.43(7) $ 0.34(9)
$1,121.5
43.4%
40.1%
$756.3
41.7%
38.6%
$ 48.6
$ 0.22
(1) Excludes stock-based compensation and non-qualified supplementary retirement plan investment appreciation and depreciation.
(2) Adjusted EBITDA for fiscal 2018 excludes the items included in footnote (1), as well as litigation settlement costs and severance.
(3) Adjusted EPS for fiscal 2018 excludes litigation costs and severance as well as the impact of the re-valuation of the Company’s deferred tax liability of $12.2 million, or $0.18 per diluted
share, resulting from the Tax Cut and Jobs Act. Fiscal 2018 EPS as reported was $0.61.
(4) Adjusted EBITDA for fiscal 2017 excludes the items included in footnote (1), as well as Harry & David severance costs.
(5) Adjusted EPS for fiscal 2017 excludes Harry & David severance charges and the gain on the sale of Fannie May Confections Brands. Fiscal year 2017 EPS as reported was $0.65.
(6) Adjusted EBITDA for fiscal 2016 excludes the items included in footnote (1), as well as litigation settlement costs and integration costs, including severance, associated with Harry & David and
the rightsizing of Fannie May.
(7) Adjusted EPS for fiscal 2016 excludes the gain from insurance recovery on the Fannie May warehouse fire, loss on the sale of iFlorist, the impairment of foreign equity method investment,
Harry & David integration costs, litigation settlement costs, as well as severance associated with Harry & David and the rightsizing of Fannie May. Fiscal year 2016 EPS as reported was $0.55.
(8) Adjusted EBITDA for fiscal 2015 excludes the items in footnote (1), and includes Harry & David fiscal 2015 first quarter loss in order to present comparable full-year results and excludes
one-time costs associated with the acquisition and integration of Harry & David and the impact of the Fannie May warehouse fire in November 2014.
(9) Adjusted EPS for fiscal 2015 includes Harry & David fiscal 2015 first quarter loss in order to present comparable full-year results and excludes one-time costs associated with the acquisition
and integration of Harry & David and the impact of the Fannie May warehouse fire in November 2014. Fiscal year 2015 EPS, as reported, was $0.30.
(10) Comparable revenues measures GAAP revenues adjusted for the effects of acquisitions, dispositions and other items affecting period to period comparability.
TOTA L R E V E N U E S
(From Continuing Operations In Millions)
Adjusted EBITDA1
F Y 18 % R E V E N U E S
by Segment
$1,122
$1,173
$1,194
$1,152
$756
$80.78
$87.24
$85.76
$78.92
$48.6
F I S C A L 2018 AC H I E V E M E N T S
• Grew Comparable Revenues(10) 3.7 percent to $1.15 Billion
• Accelerated Comparable Revenue(10) growth to 5.8 percent in
second half
• Launched latest gourmet food brand, Simply Chocolate®, a destination
for chocolate lovers, featuring a curated collection of top brands
and trending artisanal chocolatiers from around the world
Gourmet Food
& Gift Baskets
52%
8%
BloomNet® Wire Service
40%
Consumer Floral
by Fiscal Quarter
July – September
(Fiscal 1st Quarter)
April – June
(Fiscal 4th Quarter)
13%
20%
January – March
(Fiscal 3rd Quarter)
21%
46%
October – December
(Fiscal 2nd Quarter)
F I N A N C I A L R E P O R T I N S E R T
See inside rear cover pocket
Vision
TO O U R
Shareholders
We achieved a strong finish to fiscal 2018 with com-
parable revenue growth accelerating to nearly six
percent in the second half of the fiscal year, driven
by increases in all three of our business segments.
For the full fiscal year, total consolidated revenues
– adjusted for the sale of Fannie May Confections
in May of fiscal 2017 – grew 3.7 percent to $1.15
billion. As a result, we entered fiscal 2019 with
significant growth momentum in our brands:
l In Gourmet Foods and Gift Baskets, Harry & David
ecommerce demand continues to accelerate driv-
en by solid growth in everyday gifting occasions;
l In Consumer Floral, 1-800-Flowers.com is further
extending its market leadership position through
our focus on truly original products and con-
tinued investments in marketing, merchandising and innovative
technologies to enhance our customers’ experience, and;
l In BloomNet, increasing order volumes are helping to drive sustain-
able, double-digit revenue growth.
Fiscal 2018: A Strong Year Despite Challenges
Recapping our results for fiscal 2018; net income for the full fiscal year,
on a comparable basis (adjusted primarily for the one-time benefit
related to the Tax Cut and Jobs Act enacted in fiscal 2018 and the
one-time benefit related to the gain on the sale of Fannie May in fiscal
2017) was $29.3 million, or $0.44 per share, essentially unchanged
compared with the prior year.
Addressing Operational and Other Headwinds
Our results for the year were impacted by several headwinds, including:
l a temporary disruption to operations at Cheryl’s Cookies during the
key, holiday shopping period;
l a spike in transportation costs after the early fall hurricanes in
Florida and Texas, combined with new federal regulations limiting
how long truckers can be on the road, which led to limited available
trucking capacity and higher rates, and;
l Rising labor costs associated with low unemployment and increas-
ing minimum wages.
During the second half of fiscal 2018 we implemented several initia-
tives to address these factors which, when combined with the invest-
ments we continue to make across our operating platform, position
us to deliver accelerated growth in fiscal 2019.
First, to address the issue at Cheryl’s Cookies, we deployed a cross-func-
tional team to leverage the experience and skill-sets from across our
enterprise. As a result, by year end Cheryl’s Cookies production and
inventory management were stable and operating well and we are
confident that Cheryl’s Cookies is positioned to rebound in fiscal
2019 and return to its status as one of our top-performing brands.
Second, in terms of trucking costs, we have shifted
our strategy from purchasing trucking capacity exclu-
sively on the “spot market” to longer-term contracts
that enable us to more effectively manage volatility
in transportation capacity requirements and costs.
Third, to more effectively manage rising labor costs,
we utilized our strong balance sheet and expanded
cold storage facilities to prebuild some inventories
using our core employee base during our slower
periods, thereby reducing needs for seasonal hiring.
Expanding Floral-Gifting Leadership
In the second half of fiscal 2018, we began to increase
our investments in targeted marketing and merchan-
dising programs designed to take advantage of market conditions
to accelerate growth. As a result, we achieved solid results in our
1-800-Flowers.com and BloomNet businesses, both of which recorded
top and bottom-line growth for the period. This reflected a combina-
tion of continued, strong everyday gifting demand and robust perfor-
mance during the Valentine’s Day and Mother’s Day holiday periods.
In the 1-800-Flowers.com brand, we also continued to leverage our
experience and expertise in digital marketing, where we are increas-
ingly using machine learning in areas such as Search, Display and
Video. These efforts are focused on helping us customize our messages
and enhance relevance for new customer acquisition, as well
as stimulate increased frequency from existing customers.
In BloomNet, we invested to expand our suite of products and ser-
vices for florists and to increase the order volumes running through
the BloomNet platform. During the year, BloomNet enhanced its dig-
ital marketing programs, offering SEO and SEM capabilities to florists
for their websites; introduced new digital directory features designed
to help florists highlight their unique offerings, and expanded efforts
to capture a growing volume of orders from local flower shops and
third-party, online floral companies. Combined with increased order
volume from the 1-800-Flowers.com brand, BloomNet began to
accelerate its revenue growth in the second half of fiscal 2018 and is
positioned to build on this momentum in fiscal 2019.
Growing Everyday Gifting in Gourmet Foods and Gift Baskets
In our Gourmet Food and Gift Baskets segment, we continued to see
robust growth in everyday gifting throughout the year, particularly
in our Harry & David, Cheryl’s Cookies and 1-800-Baskets.com brands.
Harry & David achieved strong, double-digit growth in Birthday,
Sympathy and Thank You gifts by creating specific product collec-
tions for these occasions and utilizing digital marketing campaigns
to create awareness among customers. We also experienced strong,
everyday gifting demand in our newest gourmet food brand, Simply
Chocolate, which launched just in time for the 2017 holiday season.
Focusing on Truly Original Gifts
A key element of our merchandising initiatives across our brands
is our focus on expanding our offerings of truly original gifts, with
broader price points at both the entry level and the luxury high-end.
Throughout fiscal 2018 and into fiscal 2019, we launched:
l our expanded succulent plants line at 1-800-Flowers.com. This
is a growing product category, particularly popular with
millennial customers;
l our new Wild Beauty line, an exclusive collection of free-spirited
bouquets designed specifically for customers who appreciate a
fresh, natural and youthful aesthetic;
l Harry & David Gourmet, an inspired collection featuring fully prepared
gourmet meals, desserts, wine and more – all perfect for gifting,
self-consumption, and entertaining for everyday and holiday occasions;
l the new Special Edition- Flavors to Love collection from The Popcorn
Factory, including, caramel apple, cookies and cream and salted
caramel bourbon. The Popcorn Factory also expanded its line of
single-serve package sizes for self-consumption, which is gaining
good traction in wholesale channels, and;
l Cheryl’s Cookies new chocolate-chip “Brookie” – a combination
brownie/chocolate-chip cookie that is already becoming a
customer favorite.
Investing in Innovation
We have also continued to invest in innovations designed to enhance
our customers’ experience.
l We launched our digital self-service portal, allowing customers to
track their orders, make modifications to delivery dates, addresses
and even their gift message – further enhancing our already histori-
cally high customer satisfaction metrics;
l We rolled out a new, responsive widescreen website design across
our family of brands with enhanced navigation functionality;
l We launched Smart Gift – a digital gifting application that enables
customers to send a gift even when they don’t have their recipient’s
address. It also allows the recipient to choose their gift from our family
of brands, choose their preferred delivery address and pick their deliv-
ery date – truly involving the recipient in the full gifting experience;
l We continued to build on our early adopter position in the world
of conversational commerce with new applications launched on
Google Assistant, Apple Business Chat, Samsung Chatbot and
Google Rich Business Messaging, and;
l We deployed new PWA – Progressive Web App – technology on our
category-leading mobile platform, significantly ramping up speed
and functionality for our growing volume of mobile customers.
The Celebrations Ecosystem Platform
In addition to truly original products and deployment of new
technology innovations, we have also continued to invest to expand
our Celebrations Ecosystem. Most recently, we launched Goodsey,
an exciting new brand featuring a selection of unique items across
a broad spectrum of product categories – from children’s gifts, to
pets, to jewelry and much more. Joining Simply Chocolate and
Personalization Universe, Goodsey is the third new brand we
have added to our growing portfolio within the past year. This
illustrates the strength of our Celebrations Ecosystem Platform
that allows us to expand rapidly into new product categories
that our customers are looking for.
Our focus on innovation and our investments in product design –
in addition to the introduction of new brands on our platform –
is enabling us to become our customers’ go-to destination for
all gifting occasions.
A Strong Start to Fiscal 2019
We kicked off our new fiscal year building on the positive trends we
saw in the second half of fiscal 2018. We accelerated our consolidated
revenue growth to nearly 8 percent in the first quarter, driven by
double-digit growth in our Consumer Floral and BloomNet businesses,
where we are expanding our market positions. In our Gourmet
Foods and Gift Baskets segment, we positioned ourselves to achieve
robust performance in the key holiday period with double-digit
growth in Harry & David ecommerce demand and customer file, strong
operational performance at Cheryl’s Cookies and solid growth in our
1-800-Baskets.com direct-to-consumer and wholesale business.
Throughout fiscal 2019, we plan to build on the positive trends we
are seeing in our business by increasing investments in targeted
marketing and merchandising programs in our 1-800-Flowers.com
brand; by expanding the suite of products and services we provide to
help our BloomNet florists grow, and increasing the volume of orders
processed through the BloomNet system; and by investing to expand
our digital marketing footprint and to broaden our product offerings
– particularly for everyday gifting occasions – in our Gourmet Foods
and Gift Baskets business. As a result, we expect to accelerate our
revenue growth rate to a range of 5-to-7 percent in fiscal 2019,
compared with an increase of 3.7 percent in fiscal 2018.
Growing Customer Files; Passport and Multi-Brand Customers
Importantly, we are growing our customer files across the enterprise
at rates equal to or faster than our revenue growth and we continue
to become more sophisticated in terms of our capabilities to utilize
the tremendous amount of data we have in our customer database.
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 loyalty program. Passport and Multi-Brand customers’
purchase frequency, retention rate and average spend are all signifi-
cantly higher compared with single-brand or non-Passport custom-
ers – helping to grow life-time 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 are excited by the opportunities we see to leverage
our Celebrations Platform to expand the products and services we offer
our customers. Our positive outlook for fiscal 2019 and the years ahead
is a testament to the strength of our Company’s number one asset –
our people. I would like to thank all our associates for their hard work,
for the way they embrace change and help us constantly innovate,
and for their dedication to helping our customers express, connect,
celebrate and deliver smiles. Thank you, also, to our shareholders for
their continued support and encouragement.
Chris McCann, President & CEO
January
As the leading provider of gifts
designed to help our customers
express, connect and celebrate,
1-800-FLOWERS.COM, Inc. is com-
mitted to making it easy for customers
to deliver smiles for all occasions
and recipients. The cornerstone
to that effort is our multi-brand
strategy, through which our unique
“all star” family of gifting brands
are featured in a one-stop shop,
including 1-800-Flowers.com®,
Harry & David®, 1-800-Baskets.com®,
FruitBouquets.com®, Cheryl’s
Cookies®, The Popcorn Factory®,
Moose Munch® and Wolferman’s®.
We have also welcomed three new
brands to our gifting portfolio:
Simply Chocolate®, Personalization
Universe® and, most recently,
GoodseySM. The continual expansion
of our product offerings is a reflec-
tion of ongoing feedback we receive
from our customers as they look to
us to help solve even more of their
gifting needs.
S U N D AY
M O N D AY
T U E S D AY
1
New Year’s Day
6
13
20
27
7
14
8
15
21
Martin Luther King Jr.’s
Birthday (observed)
22
28
29
2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
4
11
18
25
5
12
19
26
2
9
16
23
30
3
10
17
24
31
February
One of the keys to our company’s
long-term growth is the contin-
ued evolution of our Celebrations
Passport® loyalty program. Passport
members enjoy exceptional value,
including free standard shipping
and no service charge across
our family of brands. In addition,
Passport® members show a high
propensity to become multi-brand
customers – shopping and purchasing
from more than one of our brands
during the year. Multi-brand cus-
tomers appreciate the benefits
of Celebrations Passport®, along
with the ever-expanding breadth
of gift selection. As a result,
multi-brand customers have
the best metrics in terms of pur-
chase frequency, annual spend
and retention.
S U N D AY
M O N D AY
T U E S D AY
3
10
17
4
11
5
12
18
Presidents Day
19
24
25
26
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1
8
15
22
2
Groundhog Day
9
16
23
6
13
20
27
7
14
Valentine’s Day
21
28
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY March
S U N D AY
M O N D AY
T U E S D AY
BloomNet® is the floral industry’s
leading wire service innovator,
providing products and expertise
designed to help thousands of
professional florists grow their
businesses and enhance their
profitability. During fiscal 2018,
BloomNet® increased its order
volume reflecting growing orders
from the 1-800-Flowers.com® brand,
shop-to-shop orders from BloomNet
florists and third-party online floral
companies. BloomNet® also expand-
ed its suite of services for florists,
including: enhanced digital market-
ing programs offering Search Engine
Optimization (SEO) and Search
Engine Marketing (SEM) capabilities
to strengthen florists’ brand recogni-
tion, along with new digital directo-
ry features designed to help florists
highlight their unique offerings
and increase incoming orders from
sending florists. Another compo-
nent in the BloomNet® portfolio of
florist resources is the “FloriologyTM”
collection of services, including the
informative Floriology® Magazine as
well as Floriology Institute where
florists receive hands-on instruction
from world-renowned floral
design experts.
3
10
4
11
17
Saint Patrick’s Day
18
24
25
31
5
12
19
26
2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1
8
15
6
13
7
14
First Day of Spring
20
21
National Flower Day
22
27
28
29
2
9
16
23
30
April
S U N D AY
Innovation is in the DNA of
1-800-FLOWERS.COM, Inc. and, in
keeping with our ongoing mission
to deliver smiles, we constantly em-
brace new and emerging technolo-
gies to ensure we are at the forefront
of how and where today’s consum-
ers want to shop. We continue to
build on our early adopter position
in the world of Conversational Com-
merce, engaging with our customers
via technologies such as Facebook
Messenger bots, Amazon Alexa
voice-enabled skills and our AI gift
concierge “Gywn®” powered by IBM
Watson – which helps customers
choose the perfect gift. In addition,
we offer the ease of voice or text
ordering through Google Assistant,
the convenience of Apple Pay and
the ability for customers to search
for gifts, receive assistance and place
orders using Apple Business Chat.
7
14
M O N D AY
T U E S D AY
1
April Fools Day
8
15
2
9
16
21
Easter
22
Administrative Professionals’
Week Begins
23
28
29
30
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
3
10
17
4
11
18
5
12
6
13
19
Passover Begins at Sunset
20
24
Administrative Professionals’ Day
25
26
27
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY S U N D AY
M O N D AY
T U E S D AY
May
Customers look to 1-800-FLOWERS.COM,
Inc. for imaginative gift ideas to help
them connect in very special ways
with the important people in their
lives. For that reason, launching a
steady stream of new and truly orig-
inal products is always one of our
most important priorities. Among
the latest offerings in our portfolio
is the Wild BeautyTM collection of
free-spirited, farm-fresh bouquets
featuring seasonal stems in a mix of
textures and rich, vibrant colors – a
perfect gift for Mother’s Day. Also
new are single serve packages of
flavorful treats from The Popcorn
Factory®, ideal for office celebra-
tions, parties at home or even
school lunches. In addition, Cheryl’s
Cookies® has introduced the
“Brookie,” a rich chocolate brownie
loaded with chocolate chips and
topped with a delectable Cheryl’s
Cookies chocolate chip cookie.
5
Cinco dé Mayo
6
12
Mother’s Day
13
7
14
21
19
26
20
27
Memorial Day (observed)
28
2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1
8
15
22
29
2
9
16
23
30
3
4
10
Bring Your Mom to Work Day
11
18
25
17
24
31
June
1-800-FLOWERS.COM, Inc. is con-
stantly exploring and implementing
new strategies to grow our business.
During fiscal 2018, we broadened
our universe of gift solutions,
expanding our product categories.
We’re proud that over the past year,
we’ve launched three exciting new
brands. GoodseySM is the newest
addition to our family, offering
everything from children’s gifts, to
jewelry, to gifts for pets and much
more. Goodsey joins two other new
brands recently added to our portfo-
lio: Simply Chocolate®, a destination
for a carefully curated assortment of
chocolate gifts, and Personalization
Universe® featuring thousands of
one-of-a-kind gifts personalized for
individual recipients. The addition of
these brands illustrates the strength
of the Celebrations® Platform, which
enables us to expand rapidly into
new product categories using a
“marketplace” concept to provide
our customers with a wider selection
of gift offerings.
2
9
S U N D AY
M O N D AY
T U E S D AY
3
10
16
Father’s Day
17
23
24
30
4
11
18
25
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1
8
7
14
Flag Day
15
21
First Day of Summer
22
28
29
5
12
19
26
6
13
20
27
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY July
A best-in-class customer experience
is what we strive to deliver every
day at 1-800-FLOWERS.COM, Inc.
Our caring team of professionals is
obsessed with service and we are
continually seeking to innovate and
enhance the way customers interact
with our brands. In fiscal 2018, we
added new features to our Online
Customer Service Hub, enabling
shoppers to view real-time order sta-
tus, modify orders, schedule specific
hours for order arrival and receive
live chat support. We also deployed
new PWA (Progressive Web App)
technology on our category-lead-
ing mobile platform, significantly
ramping up speed and functionality
for our growing volume of mobile
customers. Underscoring our com-
mitment to the mobile customer
experience, we received the Gold
award in the “Mobile Payments and
Commerce” category at the Mobile
Marketing Association 2018 Global
Smarties Awards.
S U N D AY
M O N D AY
T U E S D AY
1
8
7
14
Bastille Day
15
21
22
28
Parent’s’ Day
29
2
9
16
23
30
2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
4
Independence Day
5
11
18
25
12
19
26
6
13
20
27
3
10
17
24
31
August
Each summer, a beautiful coun-
tryside in Medford, Oregon comes
alive as what many consider to be
the world’s most delicious peaches
and pears ripen and are readied for
harvest. Harry & David® Oregold®
Peaches and Royal Riviera® Pears
are cherished by millions both as
thoughtful gifts and for self-con-
sumption. There are more than
700,000 pear and peach trees in
the Harry & David® orchards and
approximately 15,000 tons of pears
and 400 tons of peaches are har-
vested each year – nearly 60,000,000
pieces of fruit in total. It all began
in 1914 when brothers Harry and
David Holmes took over the family
orchards and began selling pears
as gourmet gifts. Today, the same
quality the brothers had always de-
manded remains, and our customers
and their recipients enjoy peaches
and pears that are unequaled for
juiciness and taste.
S U N D AY
M O N D AY
T U E S D AY
4
11
18
25
5
National Friendship
Week Begins
6
12
19
26
13
20
27
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1
8
15
22
29
2
9
16
23
30
3
10
17
24
31
7
14
21
28
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY September
S U N D AY
M O N D AY
T U E S D AY
1
2
Labor Day
3
The breadth of product offerings
within the 1-800-FLOWERS.COM, Inc.
family of gift brands provides many
opportunities for cross-brand
marketing and merchandising for a
wide-range of celebratory occasions
throughout the year. We continue
to leverage the strength and lead-
ership of 1-800-Flowers.com® as a
go-to source for birthdays, anni-
versaries, get well, new baby, thank
you, sympathy and other occasions,
while also educating customers
about the availability of everyday
gifts from our entire Celebrations
Ecosystem. To that end, our gourmet
food and gift baskets brands have
created product collections specif-
ically for year-round occasions and
several of those brands are growing
at a double-digit pace in the every-
day gifting category.
10
17
23
First Day of Fall
24
8
Grandparents Day
9
16
15
22
29
Rosh Hashanah Begins at Sunset
30
2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
4
5
11
Patriot Day
12
18
25
19
26
6
13
20
27
7
14
21
28
October
During fiscal 2018, the
1-800-FLOWERS.COM, Inc. Business
Gift Services group expanded its
comprehensive range of year-round
business gifting services designed
to assist companies in recogniz-
ing employees, rewarding career
achievements, thanking clients,
offering condolences, celebrating
holidays and conveying many other
sentiments. Among the division’s
notable successes is the growth of
its “Surprise and Delight” program,
which helps corporate partners
better connect with their customers
and build stronger relationships.
The division also enhanced its
technology capabilities through
co-branded corporate websites,
enabling partners to more easily
access the 1-800-FLOWERS.COM, Inc.
family of brands and choose the
right gifts with quicker completion
of their order. In addition, Business
Gift Services experienced substantial
growth through the establishment
of new relationships with leading
corporations in financial services,
healthcare, hospitality and retail.
6
13
20
S U N D AY
M O N D AY
T U E S D AY
1
8
Yom Kippur Begins at Sunset
7
14
Columbus Day (observed)
15
21
22
27
28
National Chocolate Day
29
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
4
11
18
25
2
9
3
10
16
National Boss’s Day
17
23
30
24
31
Halloween
5
12
19
Sweetest Day
26
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY November
With the start of the holiday season
comes the desire for people to get
together and enjoy delicious foods.
Of course, the allure of taste-tempt-
ing treats is not limited just to the
holidays. To engage with customers
year-round, Harry & David® has
introduced two strategic initiatives.
Harry & David® Share More.TM evolves
the brand positioning around the
power of sharing, inviting a two-way
conversation with customers and
cultivating meaningful relationships.
Harry & David® Gourmet was also in-
troduced, featuring a new collection
of distinctive gourmet fare together
with some of the brand’s iconic
favorites. Among the vast selection
of delicious choices Harry & David®
Gourmet offers is everything from
lobster pot pies, apple spiced-ham
and smoked salmon, to wine and
truffle pairings, artisanal cheeses
and Royal Riviera® Pear tarts – ideal
for everyday entertaining with
elegance and ease.
S U N D AY
M O N D AY
T U E S D AY
3
10
17
24
4
5
Election Day
11
Veterans Day
12
18
25
19
26
2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1
8
15
22
7
14
21
28
Thanksgiving Day
29
2
9
16
23
30
6
13
20
27
December
S U N D AY
M O N D AY
T U E S D AY
The customer experience is
the number one product at
1-800-FLOWERS.COM, Inc. Through-
out fiscal 2018 and into fiscal 2019,
we continued to invest in inno-
vations designed to optimize this
experience. The launch of our digital
self-service portal enables custom-
ers to track their orders as well as
make changes to delivery dates,
addresses and gift messages, further
boosting our already high customer
satisfaction metrics. We also rolled
out a new, responsive widescreen
website design across our family of
brands with enhanced navigation
functionality. And we introduced
SmartGift, a digital gifting applica-
tion enabling customers to send a
gift even when they don’t have their
recipient’s address and allowing the
recipient to select their gift from
our family of brands, choose their
preferred delivery address and
pick their delivery date – involving
the recipient in the full
gifting experience.
1
8
2
9
15
16
22
Hanukkah Begins at Sunset
First Day of Winter
23
3
10
17
24
29
30
31
New Year’s Eve
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY2019 W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
4
National Cookie Day
5
11
18
12
19
6
13
20
25
Christmas Day
26
First Day of Kwanzaa
27
7
14
21
28
THURSDAYWEDNESDAYSATURDAYFRIDAYSUNDAYTUESDAYMONDAY B O A R D O F
Directors
James F. McCann
Founder and
Executive Chairman
1-800-FLOWERS.COM, Inc.
Christopher G. McCann
President and
Chief Executive Officer
1-800-FLOWERS.COM, Inc.
Geralyn R. Breig
CEO
AnytownUSA.com
Celia R. Brown
Executive Vice President
Group HR Director
Willis Group
Retired
James A. Cannavino
IBM Company
Senior Vice President
Retired
Eugene F. DeMark C.P.A.
Area Managing Partner
KPMG, LLP, Retired
BankUnited Director
Leonard J. Elmore
Senior Lecturer
Columbia University
Retired Attorney at Law
Network TV Sports Analyst
Sean P. Hegarty
Managing Partner
Hegarty & Company
Katherine Oliver
Principal
Bloomberg Associates
Larry Zarin
Senior Vice President
Chief Marketing Officer
Express Scripts, Inc.
Retired
Fiscal Year 2018
Financial Report
Selected Financial Data
1-800-FLOWERS.COM, Inc. and Subsidiaries
The selected consolidated statement of operations data for the years ended July 1, 2018, July 2, 2017 and July 3, 2016
and the consolidated balance sheet data as of July 1, 2018 and July 2, 2017, have been derived from the Company’s audited
consolidated financial statements included elsewhere in this Annual Report . The selected consolidated statement of operations
data for the years ended June 28, 2015 and June 29, 2014, and the selected consolidated balance sheet data as of July 3, 2016,
June 28, 2015 and June 29, 2014, are derived from the Company’s audited consolidated financial statements, which are not
included in this Annual Report.
The following tables summarize the Company’s consolidated statement of income and balance sheet data. The Company
acquired Harry & David in September 2014, acquired iFlorist in December 2013 (subsequently disposed in October 2015),
Pingg Corp. in May 2013 (subsequently disposed of in June 2015), and Fine Stationery, Inc. in May 2011 (subsequently disposed
of in June 2015). The following financial data reflects the results of operations of these subsidiaries since their respective dates of
acquisition. In May 2017, the Company completed the disposition of its Fannie May business. The following data reflects the results
of operations of these subsidiaries until their dates of disposition. During the fourth quarter of fiscal 2013, the Company made the
strategic decision to divest the e-commerce and procurement businesses of its Winetasting Network subsidiary in order to
focus on growth opportunities in its Gourmet Foods & Gift Baskets business segment. The Company closed on the sale of its
Winetasting Network business on December 31, 2013. As a result, the Company has classified the results of Winetasting Network
as discontinued operations for fiscal 2014. This information should be read together with the discussion in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and the Company’s consolidated financial statements and notes to
those statements included elsewhere in this Annual Report.
Years Ended
2
Selected Financial Data (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
*In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which amends ASC 835-30, “Interest – Imputation
of Interest.” The Company adopted this ASU in fiscal 2017, and the impact of the adoption of the new guidance was to reclassify $3.6 million of deferred
financing costs previously included within “Other Assets” to “Long-term debt” in the consolidated balance sheets as of July 2, 2017 – see Note 2 . in Item
15 below for details. We have not reclassified other fiscal years for the purposes of this presentation.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
1-800-FLOWERS.COM, Inc. and Subsidiaries
Business Overview
1-800-FLOWERS.COM, Inc. and its subsidiaries
(collectively, the “Company”) is a leading provider of
gifts for all celebratory occasions. For more than 40 years,
1-800-Flowers.com® has been delivering smiles to
customers with gifts for every occasion, including fresh
flowers and the best selection of plants, gift baskets,
gourmet foods, confections, jewelry, candles, balloons
and plush stuffed animals. As always, our 100% Smile
Guarantee® backs every gift. The Company’s Celebra-
tions suite of services, including its Passport Free
Shipping and Reminders programs, are all designed to
engage with customers and deepen relationships as a
one-stop destination for all celebratory and gifting
occasions. In 2017, 1-800-FLOWERS.COM, Inc. was
named to the Stores ® 2017 Hot 100 Retailers list. This
prestigious list, compiled annually by the National Retail
Federation (NRF), ranks the nation’s fastest-growing
retailers by year-over-year domestic sales growth. The
Company also received the Gold award in the “Best
Artificial Intelligence” category at the Data & Marketing
Association’s 2017 International ECHO Awards.
The Company’s BloomNet® international floral
wire service provides a broad range of quality
products and value-added services designed to help
professional florists grow their businesses profitably.
The 1-800-FLOWERS.COM, Inc. family of brands also
includes everyday gifting and entertaining products such
as premium, gift-quality fruits and other gourmet items
from Harry & David®, popcorn and specialty treats from
The Popcorn Factory® and Moose Munch®; cookies and
baked gifts from Cheryl’s®; gift baskets and towers from
1-800-Baskets.com® and DesignPac Gifts; premium
English muffins and other breakfast treats from
Wolferman’s®; artisan chocolate and confections from
Simply Chocolate®, carved fresh fruit arrangements from
FruitBouquets.com (www.fruitbouquets.com); top quality
steaks and chops from Stock Yards® and unique gifts
from Personalization Universe® and GoodseySM.
3
As a provider of gifts to consumers and wholesalers
for resale to consumers, the Company is subject to
changes in consumer confidence and the economic
conditions that impact our customers. Demand for the
Company’s products is affected by the financial health
of our customers, which, in turn, is influenced by macro
economic issues such as unemployment, fuel and energy
costs, trends in the housing market and availability of
consumer credit. As such, the Company expects that its
revenues will continue to be closely tied to changes in
consumer sentiment.
The Company has organized its operations into
three categories, or segments: Consumer Floral,
BloomNet Wire Service and Gourmet Foods & Gift
Baskets, reflecting the way the Company evaluates
its business performance and manages its operations.
On November 27, 2014, a fire occurred at the
Company’s Maple Heights, Ohio warehouse and distribu-
tion facility. While the fire did not cause any injuries, the
building was severely damaged, rendering it inoperable
for the key calendar 2014 holiday season, and all Fannie
May and Harry London confections in the facility were
destroyed. The Company recovered the retail value of its
inventory lost to the fire through its property and business
interruption policies, recognizing a gain of $19.6 million
upon settlement of the claim in fiscal 2016.
On May 30, 2017, the Company completed the sale of
the outstanding equity of Fannie May Confections Brands,
Inc., including its subsidiaries, Fannie May Confections,
Inc. and Harry London Candies, Inc. (“Fannie May”) to
Ferrero International S.A., a Luxembourg corporation
(“Ferrero”). The Company and Ferrero also entered into
a transition services agreement whereby the Company
will provide certain post-closing services to Ferrero and
Fannie May related to the business of Fannie May and a
commercial agreement with respect to the distribution of
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
certain Ferrero and Fannie May products. The operations
of Fannie May were previously included within the
Company’s Gourmet Foods & Gift Baskets segment.
In fiscal 2015, the Company acquired Harry & David,
whose iconic brands transformed the Company into a
destination for premier gifting. Having successfully
completed the integration of Harry & David, and generat-
ing synergistic operating cost savings in fiscal 2016 and
2017, in fiscal 2018, the Company turned its focus
towards unlocking the revenue growth potential of its
family of brands. During fiscal 2018, the 1-800-
Flowers.com and BloomNet brands increased their
marketing and promotional spending to take advantage
of favorable competitive circumstances, knowing that
efforts to take market share would hurt short term earn-
ings performance, but improve their customer file, and
ultimately their respective longer-term earnings outlooks.
While these efforts were successful in accelerating
annual comparable revenue growth to 3.7%, highlighted
by second half growth of 5.8%, and positioned the
Company for continued future growth, operational and
macro issues, in addition to this increase in marketing
spending, negatively impacted the Company’s earnings
during fiscal 2018. During our busy December holiday
season, a temporary operational disruption at our
Cheryl’s brand, related to the implementation of a new
production and warehouse management system, led to
our decision to stop taking orders eight days prior to the
Christmas holiday so that we could focus on fulfilling our
backlog of orders. In addition, the Company incurred
incremental labor and expedited shipping costs to meet
our customer’s delivery expectations on those orders that
we accepted prior to shutting down the Cheryl’s site.
While the operational issues have since been resolved,
the effects of this issue continued after the holiday as
liquidation of inventory depressed our Valentine’s Day,
Easter and “everyday” full priced sales. Additionally,
increases in health insurance costs and higher transpor-
tation costs, across our businesses, further compounded
our unfavorable year-over-year performance. As a result,
Adjusted EBITDA declined from $85.9 million in fiscal
2017 to $78.9 million in fiscal 2018. Although our
Adjusted EBITDA was below our expectations, the
Company believes that it is well positioned, and plans to
take advantage of current conditions to increase its share
across all markets that we operate in. During fiscal 2018,
the Company:
(cid:127) Strengthened its balance sheet – the Company
continued its responsible stewardship of
shareholders’ capital. Following the sale of its
Fannie May and Harry London brands in May of 2017,
which resulted in a gain of $14.6 million, and added
approximately $103.6 million of cash to its balance
sheet, the Company was able to fund its Christmas
holiday working capital requirements primarily
through the use of cash on hand. In fiscal 2018, the
Company continued to pay down its outstanding term
loan, repurchase shares, and invest in capital to grow
its businesses utilizing cash generated from
operations. When combined with the Company’s
amended credit facility, the Company believes that its
4
strong balance sheet, and growing cash flows,
provide it with significant liquidity and flexibility to
invest and enhance future growth, both organically,
as well as through potential acquisitions.
(cid:127)
Invested in business operations – the Company
continued to invest in the key areas that will allow for
accelerated growth in the future, including:
- Manufacturing, production and distribution –
expanded production capacity for Cheryl’s,
including the automation of cookie frosting;
expanded its fulfillment capabilities for
Harry & David, Cheryl’s and 1-800-Flowers brands;
invested in Harry & David orchard plantings,
as well as manufacturing and fulfillment
technology upgrades,
- Technology – improved multi-brand responsive
wide-screen web design and industry award
winning mobile transactional progressive web
application platforms, and
- Business Intelligence – customer database mining
to effectively market and target key demographics.
(cid:127) Multi-Brand Customer Initiatives – The Company
continued to expand its multi-brand customer
initiatives, a key ingredient in our strategy to enhance
customer engagement and facilitate long-term growth.
The multi-brand website provides the customer with
an enriched shopping experience using cross-brand
marketing and merchandising programs and by
providing access to the Company’s Celebrations
suite of services, including Passport free shipping
and Reminders membership programs, as well as
our digital self-service portal.
(cid:127)
Innovation and positioning for emerging technologies –
The Company has built a reputation as an innovator
and an early adopter of new technologies. This was
illustrated by the Company’s initiatives in
Conversational Commerce, including:
- Floral industry-first applications on
Facebook’s Messenger platform
- Voice enabled skill on Amazon’s Alexa platform
- Google Assistant applications,
- Apple Business Chat applications,
- Samsung Chatbot applications, and
- Google Rich Business Messaging
Recognizing the need to balance the Company’s
short and long-term operating and financial objectives,
a key tenet of the Company’s fiscal 2019 strategy is to
accelerate revenue growth through strategic invest-
ments in marketing and merchandising programs
designed to take advantage of market conditions and
build on the momentum gained in the second half of
fiscal 2018 across all three of its business segments.
In addition, the Company is assuming the restoration
of 100 percent bonus payout compared with minimal
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
payout in fiscal 2018. As a result, in fiscal 2019, the
Company anticipates:
Adjusted gross profit and adjusted gross profit
percentage
(cid:127) Consolidated revenue growth of 5.0%-to-7.0%
compared with fiscal 2018;
(cid:127) EPS in a range of $0.38-to-$0.42 (anticipating a
normalized effective tax rate of 26 percent); and
(cid:127) Adjusted EBITDA in a range of $77.0 million-to-
$80.0 million.
The Company anticipates that it will return to
double-digit EBITDA and EPS growth by fiscal 2020.
Definitions of non-GAAP financial measures:
We sometimes use financial measures derived from
consolidated financial information, but not presented in
our financial statements prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”).
Certain of these are considered “non-GAAP financial
measures” under the SEC rules. See below for defini-
tions and the reasons why we use these non-GAAP
financial measures. Where applicable, see the Seg-
ment Information and Results of Operations sections
below for reconciliations of these non-GAAP measures
to their most directly comparable GAAP financial
measures. These non-GAAP financial measures are
referred to as “adjusted” or “on a comparable basis”
below, as these terms are used interchangeably.
Adjusted /comparable revenues
Adjusted, or comparable, revenues measure GAAP
revenues adjusted for the effects of acquisitions, disposi-
tions, and other items affecting period to period compara-
bility. See Segment Information for details on how adjusted
revenues were calculated for each period presented.
We believe that this measure provides management
and investors with a more complete understanding of
underlying revenue trends of established, ongoing
operations by excluding the effect of activities which are
subject to volatility and can obscure underlying trends.
Management recognizes that the term “adjusted
revenues” may be interpreted differently by other
companies and under different circumstances. Although
this may influence comparability of absolute percentage
growth from company to company, we believe that these
measures are useful in assessing trends of the Company
and its segments, and may therefore be a useful tool in
assessing period-to-period performance trends.
Adjusted gross profit measures GAAP revenues less
cost of revenues, adjusted for the effects of acquisitions,
dispositions, and other items affecting period to period
comparability. Adjusted gross profit percentage mea-
sures adjusted gross profit divided by adjusted rev-
enues. See Segment Information for details on how
adjusted gross profit and adjusted gross profit percent-
age were calculated for each period presented.
We believe that these measures provide management
and investors with a more complete understanding of
underlying gross profit trends of established, ongoing
operations by excluding the effect of activities which are
subject to volatility and can obscure underlying trends.
Management recognizes that the term “adjusted
gross profit” or “adjusted gross profit percentage” may
be interpreted differently by other companies and under
different circumstances. Although this interpretation may
vary from company to company, we believe that these
consistently applied measures are useful in assessing
trends of the Company and its segments, and may
therefore be a useful tool in assessing period-to-period
performance trends.
EBITDA and adjusted EBITDA
We define EBITDA as net income (loss) before
interest, taxes, depreciation and amortization.
Adjusted EBITDA is defined as EBITDA adjusted
for the impact of stock-based compensation, Non-
Qualified Plan Investment appreciation/depreciation,
and certain items affecting period to period compara-
bility. See Segment Information for details on how
EBITDA and adjusted EBITDA were calculated for
each period presented.
The Company presents EBITDA because it
considers such information a meaningful supplemental
measure of its performance and believes such informa-
tion is frequently used by the investment community in
the evaluation of similarly situated companies. The
Company uses EBITDA and adjusted EBITDA as
factors used to determine the total amount of incentive
compensation available to be awarded to executive
officers and other employees. The Company’s credit
agreement uses EBITDA and adjusted EBITDA to
measure compliance with covenants such as interest
5
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
coverage and debt incurrence. EBITDA and adjusted
EBITDA are also used by the Company to evaluate and
price potential acquisition candidates.
EBITDA and adjusted EBITDA have limitations
as analytical tools and should not be considered in
isolation or as a substitute for analysis of the
Company’s results as reported under GAAP. Some of
the limitations are: (a) EBITDA and adjusted EBITDA
do not reflect changes in, or cash requirements for, the
Company’s working capital needs; (b) EBITDA and
adjusted EBITDA do not reflect the significant interest
expense, or the cash requirements necessary to service
interest or principal payments, on the Company’s debts;
and (c) although depreciation and amortization are
non-cash charges, the assets being depreciated and
amortized may have to be replaced in the future and
EBITDA does not reflect any cash requirements for such
capital expenditures. EBITDA should only be used on a
supplemental basis combined with GAAP results when
evaluating the Company’s performance.
Segment contribution margin and adjusted segment
contribution margin
We define segment contribution margin as earnings
before interest, taxes, depreciation and amortization,
before the allocation of corporate overhead expenses.
Adjusted segment contribution margin is defined as
segment contribution margin adjusted for certain items
affecting period to period comparability. See Segment
Information for details on how segment contribution
margin and comparable segment contribution margin
were calculated for each period presented.
When viewed together with our GAAP results, we
believe segment contribution margin and comparable
segment contribution margin provide management and
users of the financial statements information about the
performance of our business segments.
Segment contribution margin and comparable
segment contribution margin are used in addition
to and in conjunction with results presented in accor-
dance with GAAP and should not be relied upon to the
exclusion of GAAP financial measures. The material
limitation associated with the use of the segment
contribution margin and adjusted segment contribution
margin is that it is an incomplete measure of profitability
as it does not include all operating expenses or
non-operating income and expenses. Management
compensates for these limitations when using this
measure by looking at other GAAP measures, such
as operating income and net income.
Adjusted net income and adjusted net income per
common share
We define adjusted net income and adjusted net
income per common share as net income and net
income per common share adjusted for certain items
affecting period to period comparability. See Segment
Information below for details on how adjusted net
income and adjusted net income per common share
were calculated for each period presented.
We believe that adjusted net income and adjusted
net income per common share are meaningful mea-
sures because they increase the comparability of
period to period results.
Since these are not measures of performance
calculated in accordance with GAAP, they should not be
considered in isolation of, or as a substitute for, GAAP net
income and net income per common share, as indicators
of operating performance and they may not be compa-
rable to similarly titled measures employed by other
companies.
6
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Segment Information
The following table presents the net revenues, gross profit and segment contribution margin from each of the
Company’s business segments, as well as consolidated EBITDA, Adjusted EBITDA and adjusted net income.
7
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Reconciliation of net income to adjusted net income (non-GAAP):
8
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Reconciliation of net income to adjusted EBITDA (non-GAAP) :
(a) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology,
Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to
leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the
organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based
upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.
(b) Segment performance is measured based on segment contribution margin or segment Adjusted EBITDA, reflecting only the direct controllable revenue
and operating expenses of the segments, both of which are non-GAAP measurements. As such, management’s measure of profitability for these segments
does not include the effect of corporate overhead, described above, depreciation and amortization, other income (net), and other items that we do not
consider indicative of our core operating performance.
(c) The adjustment to deduct the impact of the U.S. tax reform from net income, for the year ended July 1, 2018, includes the impact of the re-valuation of the
Company’s deferred tax liability of $12.2 million or $0.18 per diluted share, but does not include the ongoing impact of the lower federal corporate tax rate.
9
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Results of Operations
The Company’s fiscal year is a 52- or 53-week period
ending on the Sunday nearest to June 30. Fiscal years
2018 and 2017, which ended on July 1, 2018 and July 2,
2017, respectively, consisted of 52 weeks. Fiscal year
2016, which ended on July 3, 2016, consisted of 53 weeks.
Net Revenues
Years Ended
July 1, July 2, July 3,
2018 % Change 2017 % Change 2016
(dollars in thousands)
Net revenues:
E-Commerce $ 921,848
Other
230,073 -22.5%
$1,151,921
2.8% $ 896,762 1.6% $ 882,782
2.3%
290,242
1.8% $1,173,024
296,863
-3.5% $1,193,625
Net revenues consist primarily of the selling price of
the merchandise, service or outbound shipping charges,
less discounts, returns and credits.
During the year ended July 1, 2018, net revenues
decreased 3.5% in comparison to the prior year. On a
comparable basis, adjusting fiscal 2017 net revenues to
reflect the May 30, 2017 disposition of Fannie May, net
revenues increased 3.7% during fiscal 2018, driven by
second half growth which improved 5.8%. This growth
came from all business segments, with the Consumer
Floral and BloomNet Segments benefiting from invest-
ments in strategic marketing and merchandising programs
designed to accelerate growth and extend our market
leadership in the floral space, while the Gourmet Foods &
Gift Baskets segment growth reflected strong e-commerce
growth in our Harry & David and 1-800-Baskets brands.
During the year ended July 2, 2017, net revenues
increased 1.8% in comparison to the prior year, as a
result of growth within the Company’s Consumer Floral
and BloomNet segments, with the 1-800-Flowers.com
brand continuing to extend its market leadership position,
driven by increased demand throughout the year,
particularly during the Valentine’s Day holiday. The
increases above were partially offset by a decline in
Harry & David revenues, due to the closure of a number
of underperforming retail locations, and a reduction in
e-commerce demand, primarily during the Christmas
holiday selling season, and the timing of certain factors
including: (i) the closing of the Company’s sale of the
Fannie May Confection Brands business on May 30,
2017, (ii) a 52-week fiscal year in fiscal 2017 versus 53-
week fiscal year in fiscal 2016, reflecting the Company’s
retail calendar, and (iii) the shift of Harry & David’s Fruit of
the Month Club® cherries shipment out of the Company’s
fiscal fourth quarter in fiscal 2017, due to a late harvest,
into the first quarter of fiscal 2018. On a comparable
basis, adjusting fiscal year 2016 GAAP revenues to
remove: (i) the 53rd week ($8.0 million), (ii) Fannie May’s
June 2016 revenues ($4.8 million), and (iii) the June
2016 Harry & David Fruit of the Month Club® cherry
shipment ($2.4 million), net revenues during fiscal
2017 increased 3.1% in comparison to fiscal 2016.
10
E-commerce revenues (combined online and tele-
phonic sales channels) increased 2.8% during the year
ended July 1, 2018 compared to the prior year. On a
comparable basis, adjusting fiscal 2017 e-commerce
revenues to exclude the revenues of Fannie May, e-
commerce revenues increased 4.3% during fiscal 2018,
due to the aforementioned e-commerce growth within
the Company’s Consumer Floral segment, as well as
growth in the Gourmet Foods & Gift Baskets segment,
reflecting year-over-year growth by Harry & David and
1-800-Baskets. During the year ended July 1, 2018, the
Company fulfilled approximately 12.4 million e-commerce
orders, at an average order value of $74.04, representing
increases of 2.4% and 0.4%, respectively, compared to
fiscal 2017. Adjusted to exclude Fannie May’s revenue
and orders, in fiscal 2018, orders increased 5.2%, while
average order value decreased 0.9%, in comparison
to fiscal 2017.
E-commerce revenues increased 1.6% during the
year ended July 2, 2017 compared to the prior year, as a
result of the aforementioned e-commerce growth within
the Company’s Consumer Floral segment, partially offset
by unfavorable e-commerce growth within the Gourmet
Foods & Gift Baskets segment due to the Company’s sale
of the Fannie May Confection Brands business on May
30, 2017, a decrease in demand within the Harry & David
brand during the Christmas Holidays, and the shift of
Harry & David’s Fruit of the Month Club® cherries
shipment out of the Company’s fiscal fourth quarter
in fiscal 2017, due to a late harvest, into the first quarter
of fiscal 2018, as well as the impact of the 53 rd week in
fiscal 2016.
Other revenues, comprised of the Company’s
BloomNet Wire Service segment, as well as the whole-
sale and retail sales channels of the 1-800-Flowers.com
Consumer Floral and Gourmet Foods & Gift Baskets
segments decreased 22.5% during fiscal 2018, primarily
as a result of the May 2017 disposition of Fannie May,
which generated most of its revenues through its retail
and wholesale operations. On a comparable basis,
adjusting fiscal 2017 to exclude the revenues of Fannie
May, other revenues increased 2.0% during fiscal 2018,
as a result of growth within the Bloomnet segment as well
as the Gourmet Foods & Gift Baskets segment, driven by
1-800-Baskets and Cheryl’s wholesale growth, partially
offset by declines in Harry & David retail store volume
due to a reduction in store count and a decline in
customer traffic. Other revenues increased by 2.3%
during fiscal 2017, attributable to the BloomNet segment
which increased revenues through improvements in
membership, transaction and ancillary service fees, as
well as from the Gourmet Foods & Gift Baskets segment,
resulting from wholesale growth within the Fannie May,
Harry & David and 1-800-Baskets wholesale gift busi-
nesses. This favorability was partially offset by a decrease
in retail store sales within Fannie May, due to a decline in
customer traffic, as well as a decline in Harry & David
retail store sales due to the closure of several
underperforming locations.
The 1-800-Flowers.com Consumer Floral segment
includes the operations of the 1-800-Flowers.com
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
brand, which derives revenue from the sale of con-
sumer floral products through its e-commerce sales
channels (telephonic and online sales) and royalties
from its franchise operations. Net revenues during the
fiscal year ended July 1, 2018 increased 4.7% due to
strength in everyday gifting driven by the Company’s
investments in strategic marketing and merchandising
programs designed to accelerate growth and increase
market share, while also expanding its offerings of
original gifts, with broader price points at both the entry
level and the luxury high-end. The brand continued its
strong Valentine’s Day growth trend, driven in part by
the brand’s ability to take advantage of a Wednesday
date placement, building off fiscal 2017’s Tuesday date
placement, compared to Fiscal 2016’s Sunday
Valentine’s Day date placement, which is the lowest
performing date placement within the week for the
Company. While Mother’s Day growth was also strong,
annual growth was negatively impacted by hurricanes
Harvey and Irma. Net revenues during the fiscal year
ended July 2, 2017 increased 4.5%, as a result of
increased order demand throughout the year, and
during the Valentine’s Day holiday in particular, when
the Company was able to leverage the holiday’s
Tuesday date placement, in comparison to the prior
year when Valentine’s Day fell on a Sunday. The brand
was successful at growing its “everyday” business,
including birthdays, anniversaries, sympathy and “just
because,” due to expanded merchandise assortments,
including the Flirty Feline® floral arrangement, and
efforts to capitalize on its same day/next day delivery
capabilities. These increases were partially offset by
the impact of the 53 rd week in fiscal 2016, reflecting
the Company’s retail calendar. On a comparable basis,
adjusting fiscal 2016 GAAP revenues to remove the
53rd week ($4.8 million), fiscal 2017 net revenues
increased 5.7% in comparison to fiscal 2016.
The BloomNet Wire Service segment includes
revenues from membership fees as well as other
product and service offerings to florists. Net revenues
during fiscal 2018 increased 2.1% in comparison to the
prior year due to higher wholesale product revenues,
and higher transaction fees due to fee increases,
partially offset by lower membership and ancillary fees
resulting from an unfavorable network shop count.
During fiscal 2018, the Company made investments in
Bloomnet where it enhanced its digital marketing
programs, offering Search Engine Optimization (“SEO”)
and Search Engine Marketing (“SEM”) capabilities to
our florists for their websites, introduced new digital
directory features designed to help florists highlight
their unique offerings and drive additional incoming
orders from sending florists, and in the second half of
the year, expanded efforts to capture a growing volume
of orders from local flower shops and third-party, online
floral companies, resulting in improved second half
growth. Net revenues during fiscal 2017 increased
2.6% in comparison to the prior year due to an increase
in order volume processed through the network, driven
primarily by the increase in 1-800-Flowers volume
noted above, which enabled BloomNet to generate
increased membership, transaction and ancillary
revenue improvements. These improvements were
partially offset by lower wholesale product revenue as
a result of decreased demand and network shop count.
The Gourmet Foods & Gift Baskets segment
includes the operations of Harry & David, Wolferman’s,
Stockyards, Cheryl’s, Fannie May (through the date of
its disposition on May 30, 2017), The Popcorn Factory,
and 1-800-Baskets/DesignPac Gifts. Revenue is
derived from the sale of gourmet fruits, cookies, baked
gifts, premium chocolates and confections, gourmet
popcorn, gift baskets, and prime steaks and chops
through the Company’s e-commerce sales channels
(telephonic and online sales) and company-owned and
operated retail stores under the Harry & David, Cheryl’s
and Fannie May (through the date of its disposition)
brand names, as well as wholesale operations. Net
revenues during fiscal 2018 were unfavorable by 9.7%,
in comparison to prior year, due to the disposition of
Fannie May on May 30, 2017. On a comparable basis,
adjusting fiscal 2017 to exclude Fannie May results,
fiscal 2018 net revenues were favorable in comparison
to adjusted prior year revenues by 3.2%, driven
primarily by continued growth in everyday gifting in
Harry & David and 1-800-Baskets. Comparable
segment revenue growth was attributable to several
initiatives implemented during the year, including: (i)
the Company’s successful efforts to grow the “everyday”
volume of its Gourmet Foods & Gift Baskets brands
through expanded Birthday , Sympathy and Thank You
merchandise, (ii) development of merchandising
assortments and digital marketing programs that helped
to broaden the demographic reach of the brands within
the segment, and, (iii) the launch of the Simply Choco-
lates product line, which is managed by 1-800-Baskets.
Comparable revenue growth was negatively impacted
by a temporary disruption in operations at our Cheryl’s
brand, related to the implementation of a new produc-
tion and warehouse management system, which, in
turn, led to the brand’s decision to stop taking orders
eight days prior to the Christmas holiday. Net revenue
during fiscal 2017 was consistent with fiscal 2016, as
revenue growth within the Popcorn Factory, 1-800-
Baskets/DesignPac, Fannie May and Cheryl’s brands
was offset by a decline in Harry & David revenues, due
to the closure of a number of underperforming retail
locations, and a reduction in e-commerce demand,
primarily during the Christmas holiday selling season,
and the timing of certain factors including: (i) the
Company’s sale of the Fannie May Confection Brands
business on May 30, 2017, (ii) a 52-week fiscal year in
fiscal 2017 versus 53-week fiscal year in fiscal 2016,
reflecting the Company’s retail calendar, and (iii) the
shift of Harry & David’s Fruit of the Month Club®
cherries shipment out of the Company’s fiscal fourth
quarter in fiscal 2017, due to a late harvest, into the first
quarter of fiscal 2018. On a comparable basis, adjusting
fiscal year 2016 GAAP revenues to remove: (i) the 53rd
week ($3.2 million), (ii) Fannie May’s June 2016
revenues ($4.8 million), and (iii) the June 2016 Harry &
David Fruit of the Month Club® cherry shipment ($2.4
million), net revenues during fiscal 2017 increased
1.6% in comparison to fiscal 2016.
11
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
In fiscal 2019, the Company plans to increase
investments in strategic marketing and merchandising
programs to take advantage of current competitive
market conditions. The Company expects to grow
revenues across all three of its business segments
with consolidated revenue growth of 5.0%-to-7.0%
compared with fiscal 2018.
Gross Profit
Years Ended
July 1, July 2, July 3,
2018 % Change 2017 % Change 2016
(dollars in thousands)
Gross profit $489,025
Gross margin % 42.5%
$520,281
43.6%
-6.0%
0.5% $517,458
44.1%
Gross profit consists of net revenues less cost of
revenues, which is comprised primarily of florist fulfillment
costs (fees paid directly to florists), the cost of floral and
non-floral merchandise sold from inventory or through
third parties, and associated costs including inbound
and outbound shipping charges. Additionally, cost of
revenues includes labor and facility costs related to
direct-to-consumer and wholesale production operations.
Gross profit decreased 6.0% while gross profit
percentage decreased 110 basis points during the
fiscal year ended July 1, 2018 in comparison to the
prior year. On a comparable basis, adjusting prior year
to exclude the gross profit of Fannie May, which was
disposed of on May 30, 2017, gross profit increased
0.3%, while gross profit percentage decreased 140
basis points. The higher comparable gross profit is due
to the increase in comparable revenues noted above,
partially offset by a lower gross profit percentage,
primarily reflecting the growth of the Company’s
Passport free-shipping program, higher promotional
competitive landscape during particularly Valentine’s
Day and Mother’s Day, and higher transportation and
hourly labor costs. Gross profit during fiscal 2018 was
also negatively impacted by the operational issue at
Cheryl’s during the Christmas holiday season. Gross
profit increased 0.5% during the fiscal year ended July
1, 2017 in comparison to the prior year, primarily as a
result of the incremental revenue noted above, partially
offset by a decline in gross profit margin as a result of
annual shipping rate increases, product mix, and
increased promotions during the year.
The 1-800-Flowers.com Consumer Floral segment
gross profit increased by 2.3% during fiscal 2018, in
comparison to the prior year, due to the aforementioned
revenue growth, partially offset by a decrease in gross
profit percentage of 90 basis points, to 39.7%. The lower
gross profit percentages reflect increased promotional
activity in order to increase market share, especially
during the critical Valentine’s Day and Mother’s Day
holidays, and the growth of the Company’s Passport
free-shipping program, which has been driving
improved customer loyalty and purchase frequency. The
1-800-Flowers.com Consumer Floral segment gross profit
increased by 4.1% during the fiscal year ended July 2,
2017, in comparison to the prior year, as a result of the
12
increase in revenues noted above, partially offset by a
20 basis point decrease in gross profit margin, from
40.8% to 40.6%. This decrease in gross profit margin
was primarily due to annual shipping rate increases, as
well as increased promotional activity during the year.
BloomNet Wire Service segment’s gross profit
during the year ended July 1, 2018 decreased 1.9%,
in comparison to the prior year, due to a decline in
gross profit percentage which declined 220 basis points
to 54.3%, partially offset by the increase in revenues
noted above. The lower gross profit percentage was
due to sales mix, with a decline in higher margin
membership and related services, offset by an increase
in lower margin wholesale product sales, as well as
increased transportation costs, and higher rebates as
a result of the Company’s strategy to capture market
share. BloomNet Wire Service segment’s gross profit
increased by 2.9% during the fiscal year ended July 2,
2017 in comparison to the prior year, as a result of the
increase in sales noted above, as well as a 20 basis
point increase in gross margin percentage, from 56.3%
to 56.5%, related to sales mix.
The Gourmet Foods & Gift Baskets segment gross
profit decreased by 11.8% during the year ended July 1,
2018, in comparison to the prior year, while gross profit
percentage decreased 100 basis points to 42.6%, over
the same period. On a comparable basis, adjusting prior
year to exclude the gross profit of Fannie May, which was
disposed of on May 30, 2017, gross profit declined 0.7%
and gross profit percentage decreased 160 basis points,
to 42.6%, during fiscal 2018 in comparison to fiscal 2017.
The lower gross profit percentage was due to the impact
of the operational issue at Cheryl’s during the second
quarter, which caused increased labor, expedited
shipping and product write-downs, but also due to the
lingering effects experienced in the third quarter as a
result of customer “win-back” promotional programs and
liquidation of inventory which was sold in place of full
margin product. In addition, although revenue growth
provided for improved gross profit at Harry & David, higher
transportation costs at our Harry & David and wholesale
1-800-Baskets brand, negatively impacted gross profit
percentage. The Gourmet Foods & Gift Baskets segment
gross profit decreased by 1.9% during the fiscal year
ended July 2, 2017, in comparison to the prior year, due to
a decrease of 80 basis points in gross profit margins, from
44.4% to 43.6%, as revenues were consistent with the
prior year. The decrease in gross profit margin percentage
was due to declines at Harry & David and Fannie May as
a result of product mix and unfavorable volume-related
absorption, partially offset by favorable gross profit
margins at Cheryl’s and DesignPac due to production
process improvements and reduced shipping expenses
due to improved ground shipping conversion rates.
In fiscal 2019, the Company expects its gross profit
to improve due to sales growth and slightly stronger
gross profit margin driven by manufacturing productivity
and automation improvements, targeted price increases
and correction of fiscal 2018 operational issues, offset
by higher labor and transportation costs.
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Marketing and Sales Expense
Years Ended
Technology and Development Expense
Years Ended
July 1, July 2, July 3,
2018 % Change 2017 % Change 2016
July 1, July 2, July 3,
2018 % Change 2017 % Change 2016
(dollars in thousands)
Marketing and
sales $298,810 -5.9%
$317,527
-0.2% $318,175
(dollars in thousands)
Technology and
development
Percentage of
$ 39,258
0.9% $38,903 -0.8% $39,234
25.9%
26.6%
27.1%
sales
3.4%
3.3%
3.3%
Percentage of
sales
Marketing and sales expense consists primarily of
advertising and promotional expenditures, catalog
costs, online portal and search costs, retail store and
fulfillment operations (other than costs included in cost
of revenues) and customer service center expenses,
as well as the operating expenses of the Company’s
departments engaged in marketing, selling and
merchandising activities.
Marketing and sales expense decreased 5.9%
during the year ended July 1, 2018, compared to the
prior year, due to the disposition of Fannie May on
May 30, 2017. On a comparable basis, adjusting prior
year to exclude Fannie May’s marketing and sales
expenditures, marketing and sales expense increased
2.0% during fiscal 2018, but decreased as a percent-
age of net revenue to 25.9% compared to 26.4% during
fiscal year 2017. On a comparable basis, the increase
in spend came from the Consumer Floral and Gourmet
Foods & Gift Baskets segments, commensurate with
revenue growth, as a result of the Company’s incremen-
tal marketing efforts designed to accelerate revenue
growth and capture market share during the highly
competitive and promotional Valentine’s Day and
Mother’s Day holidays. This increased marketing
spend was partially offset by a reduction in performance
based bonuses, resulting in an overall reduction in
total marketing and sales spend ratios, as a percentage
of net revenues.
Marketing and sales expenses declined slightly and
decreased as a percentage of revenues (26.6% in fiscal
2017 vs. 27.1% in fiscal 2016), as a result of a decrease
in labor costs due to a reduction in performance based
bonuses, as well as reductions in labor and facility costs
associated with closure of a number of underperforming
Harry & David retail locations, partially offset by higher
marketing spend within the Consumer Floral segment,
primarily around the Mother’s Day holiday.
During the fiscal year ended July 1, 2018, the Com-
pany added approximately 2.8 million new e-commerce
customers, an increase of 6.6% over the prior year.
Approximately 59% of customers who placed e-commerce
orders during fiscal 2018 were repeat customers com-
pared to approximately 58 % in fiscal 2017.
Technology and development expense consists
primarily of payroll and operating expenses of the
Company’s information technology group, costs
associated with its websites, including hosting, design,
content development and maintenance and support
costs related to the Company’s order entry, customer
service, fulfillment and database systems.
Technology and development expenses increased
0.9% during the fiscal year ended July 1, 2018,
compared to the prior year, primarily due to increased
license and maintenance costs related to cloud based
contact center telecommunications support, payment
gateways, order management systems, and security
software, partially offset by a decrease in labor and
consulting costs due to reductions in headcount and
performance based bonuses.
Technology and development expenses
decreased 0.8% during the fiscal year ended July 2,
2017 compared to the prior year primarily due to
lower labor costs, related to reduced headcount and
a reduction in performance based bonuses, partially
offset by increased license and maintenance costs
related to system security, and platform improvements.
During the fiscal years ended July 1, 2018, July 2,
2017 and July 3, 2016, the Company expended $61.2
million, $59.2 million and $60.6 million, respectively,
on technology and development, of which $21.8 million,
$20.3 million and $21.4 million, respectively, has
been capitalized.
General and Administrative Expense
Years Ended
July 1, July 2, July 3,
2018 % Change 2017 % Change 2016
(dollars in thousands)
General and
administrative
$ 77,440
-7.9% $ 84,116 -0.3% $ 84,383
Percentage of
sales
6.7%
7.0%
7.2%
General and administrative expense consists of
payroll and other expenses in support of the Company’s
executive, finance and accounting, legal, human
resources and other administrative functions, as well as
professional fees and other general corporate expenses.
General and administrative expense decreased
7.9% during the fiscal year ended July 1, 2018,
compared to the prior year, primarily due to the disposi-
13
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Fannie May. On a comparable basis, adjusting prior year
to exclude Fannie May’s depreciation and amortization
expense, depreciation and amortization expense
increased 4.5% during fiscal 2018, in comparison to
the prior year as a result of recent shorter-lived IT
capital expenditures.
Depreciation and amortization expense increased
by 3.1% during the fiscal year ended July 2, 2017 in
comparison to the prior year, as a result of recent
increases in capital expenditures, primarily in support
of the Company’s technology infrastructure, partially
offset by the impact of the disposition of Fannie May.
Interest Expense, net
Years Ended
July 1, July 2, July 3,
2018 % Change 2017 % Change 2016
(dollars in thousands)
Interest expense,
net
$ 3,631
-37.6% $ 5,821 -12.8% $ 6,674
Interest expense, net consists primarily of interest
expense and amortization of deferred financing costs
attributable to the Company’s credit facility (See Note
9. in Item 15 for details regarding the 2016 Credit
Facility), net of income earned on the Company’s
available cash balances.
Interest expense, net decreased 37.6% during the
year ended July 1, 2018 in comparison to the prior year,
due to the scheduled repayment of term loan borrow-
ings, the funding of Christmas holiday working capital
requirements primarily through the use of cash on hand
from the sale of Fannie May, in comparison to fiscal
2017, when the Company funded working capital
requirements through its revolving credit facility, as
well as higher interest income on the Company’s
outstanding cash balances (associated with cash
received from the sale of Fannie May in the prior year).
Interest expense, net decreased 12.8% during the
year ended July 2, 2017 in comparison to the prior year,
due to the reduction in the outstanding Term Debt due to
principal payments during the year, partially offset by a
$0.3 million write-off of deferred financing costs as a result
of amending the Company’s credit facility in December
2016, and an overall increase in interest rates.
tion of Fannie May on May 30, 2017. On a comparable
basis, adjusting prior year to exclude Fannie May’s
general and administrative expenditures, general and
administrative expense during fiscal 2018, was consis-
tent with the prior year as higher health insurance costs
due to unfavorable medical claims, as well as an
increase in legal fees and bad debt expense, due to the
bankruptcy of a wholesale customer, was offset by lower
labor due to a reduction in performance based bonuses.
General and administrative expense decreased 0.3%
during the fiscal year ended July 2 2017 in comparison
to the prior year, as a result of lower labor costs due to
decreases in performance based bonuses, as well as
certain prior year expenses that were not incurred in the
current year, including Harry & David integration costs
and the Edible Arrangements litigation settlement. These
decreases were partially offset by increased health
insurance costs, headcount and expense related to the
Company’s Non-Qualified Deferred Compensation Plan
(“NQDC”). The Company has established an NQDC for
certain members of senior management. The plan assets
are classified as trading securities - see Note 10. in Item
15 for details – in fiscal 2017, the Company recorded
labor expense of approximately $1.0 million, compared
to a benefit of $0.1 million during fiscal 2016, within
“General and administrative” expenses, associated with
an increase in amounts owed to participants due to the
appreciation of the fair value of participant directed
investments. The corresponding offset to this expense
is an equivalent amount of investment income, which is
recorded in “Other (income) expense, net”. Trading
securities held in the NQDC are measured using
quoted market prices at the reporting date and are
included in “Other assets,” with the corresponding
liability to participants included in “Other liabilities”
within the consolidated balance sheets.
Depreciation and Amortization
Years Ended
July 1, July 2, July 3,
2018 % Change 2017 % Change 2016
(dollars in thousands)
Depreciation and
amortization
Percentage of
$ 32,469
-2.7% $ 33,376 3.1% $ 32,384
sales
2.8%
2.8% 2.8%
Depreciation and amortization expense decreased
2.7% during the fiscal year ended July 1, 2018 in
comparison to the prior year, due to the disposition of
14
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Other (income) Expense, net
Years Ended
July 1, July 2, July 3,
2018 % Change 2017 % Change 2016
(dollars in thousands)
Other (income) expense,
net $(605) -96.1% $(15,471) 4.3% $(14,839)
Other (income) expense, net for the year ended
July 1, 2018 consists primarily of investment earnings of
the Company’s Non-Qualified Deferred Compensation
Plan assets, partially offset by a $0.2 million impairment
related to the Company’s equity method investment in
Flores Online (see Note 2. in Item 15 for details).
Other (income) expense, net for the year ended
July 1, 2018 consists primarily of a $14.6 million gain
on the sale of Fannie May (see Note 4. in Item 15 for
details), a $1.0 million investment gain related to the
Company’s Non-Qualified Deferred Compensation Plan
(see “General and Administrative” expense above),
partially offset by a $0.1 million loss related to the
Company’s equity in the net loss of Flores Online
(see Note 2. in Item 15 for details).
Income Taxes
During the fiscal years ended July 1, 2018, July 2,
2017 and July 3, 2016, the Company recorded income
tax expense (benefit) from continuing operations of
($2.8) million, $12.0 million and $15.6 million, respec-
tively, resulting in an effective tax rate of -7.3%, 21.4%
and 30.3%, respectively. The Company’s effective tax
rate for fiscal 2018 was impacted by the enactment of
the The Tax Cuts and Jobs Act (“Tax Act”) on December
22, 2017 (see Note 1. in Item 1 above). Although the
Tax Act was enacted on December 22, 2017, since
the Company has a July 1 fiscal year-end, the lower
corporate income tax rate is being phased in, resulting
in a U.S. statutory federal rate of approximately 28%
for our fiscal year ending on July 1, 2018, and 21% for
subsequent fiscal years. In addition to the impact of
the lower transitional rate, during the quarter ended
December 31, 2017, the Company recognized a
discrete tax benefit of $12.2 million, or $0.18 per diluted
share, reflecting a revaluation of deferred tax liabilities
at the lower U.S. federal statutory rate of 21%. Adjusted
for the discrete benefit of $12.2 million, the Company’s
effective tax rate would have been 24.8%, reflecting
various tax credits and return to provision adjustments
related to the filing of the Company’s Fiscal 2017 tax
return. The Company’s effective tax rate for fiscal 2017
and 2016 differed from the U.S. federal statutory rate of
35% primarily due to the impact of state income taxes,
valuation allowance changes, rate differences, tax
settlements, various tax credits/deductions as well as
deductible stock-based compensation, as well as the
tax effect of the Fannie May disposition in fiscal 2017
(see Note 11 . in Item 15 for details).
At July 1, 2018, the Company’s total federal and
state capital loss carryforwards were $28.4 million,
which if not utilized, will expire in fiscal 2022. The
Company’s foreign net operating loss carryforwards
were $2.8 million, which if not utilized, will begin to
expire in fiscal 2034.
15
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Liquidity and Capital Resources
Liquidity and borrowings
The Company’s principal sources of liquidity are cash
on hand, cash flows generated from operations and the
borrowings available under the 2016 Credit Facility (see
Note 9. in Item 15 for details). At July 1, 2018, the Company
had working capital of $148.2 million, including cash and
cash equivalents of $147.2 million, compared to working
capital of $132.2 million, including cash and cash equiva-
lents of $149.7 million, at July 2, 2017. As of July 1, 2018,
there were no borrowings outstanding under the Company’s
Revolver. Due to the seasonal nature of the Company’s
business, and its continued expansion into non-floral
products, including the acquisition of Harry & David, the
Thanksgiving through Christmas holiday season, which falls
within the Company’s second fiscal quarter, is expected to
generate nearly 50% of the Company’s annual revenues,
and all of its earnings. As a result, the Company expects to
generate significant cash from operations during its second
quarter, and then utilize that cash for operating needs
during its fiscal third and fourth quarters, after which time,
the Company expects to borrow against its Revolver to
fund pre-holiday manufacturing and inventory purchases.
Borrowings under the Revolver typically peak in November,
at which time cash generated from operations during the
Christmas holiday shopping season are expected to enable
the Company to repay working capital borrowings prior to
the end of December.
We believe that our sources of funding will be sufficient
to meet our anticipated operating cash needs for at least
the next 12 months. However, any projections of future
cash needs and cash flows are subject to substantial
uncertainty. We continually evaluate opportunities to
repurchase common stock and we will, from time to time,
consider the acquisition of, or investment in, complemen-
tary businesses, products, services, capital infrastructure,
and technologies, which might affect our liquidity require-
ments or cause us to require additional financing.
Cash Flows
Net cash provided by operating activities of $58.3
million for the fiscal year ended July 1, 2018 was primarily
attributable to net income, adjusted for non-cash charges
for depreciation and amortization and stock-based
compensation, net of the deferred income tax benefit,
primarily related to the Tax Act, partially offset by working
capital changes related to the accelerated production of
inventory to mitigate the impact of seasonal labor short-
ages expected during the holiday season, partially offset
by decreases in accounts payable and accrued expenses
as a result of the timing of the inventory build.
Net cash used in investing activities of $41.8 million
was primarily attributable to capital expenditures related
to the Company’s technology initiatives and manufactur-
ing production and orchard planting equipment, and
the working capital adjustment related to the sale of
Fannie May, of which $8.5 million was still due to
Ferrero at July 2, 2017.
Net cash used in financing activities of $19.0 million for
the fiscal year ended July 1, 2018 was for Term Loan
repayment of $7.2 million, and the acquisition of $12.2
million of treasury stock. There were no borrowings out-
standing under the Company’s Revolver as of July 1, 2018.
Stock Repurchase Program
The Company has a stock repurchase plan through
which purchases can be made from time to time in the
open market and through privately negotiated transactions,
subject to general market conditions. The repurchase
program is financed utilizing available cash. On August 30,
2017, the Company’s Board of Directors authorized an
increase to its stock repurchase plan of up to $30.0 million.
The Company repurchased a total of $12.2 million
(1,269,059 shares), $10.7 million (1,120,706 shares)
and $15.2 million (1,714,550 shares) during the fiscal
years ended July 1, 2018, July 2, 2017 and July 3, 2016,
respectively, under this program. As of July 1, 2018, $20.0
million remained authorized under the plan.
Contractual Obligations
At July 1, 2018, the Company’s contractual obligations from continuing operations consist of:
Payments due by period
(in thousands)
Less than More than
Total 1 year 1 - 3 years 3 - 5 years 5 years
Long-term debt obligations (1)
Operating lease obligations
Purchase commitments(2)
Unrecognized tax liabilities (3)
Total
$116,197
98,022
84,943
––
$299,162
$ 13,870
15,722
80,446
––
$ 110,038
$ 35,003
21,635
2,681
––
$ 59,319
$
67,324
17,476
1,816
––
$
––
43,189
––
––
$
86,616
$ 43,189
(1) The payments due for long-term debt include principal and estimated interest payments on the Company’s Term Loan (see Note 9. in Item 15 below for
details). Estimated interest payments are based on outstanding principal amounts, currently effective interest rates as of July 1, 2018 and timing of
scheduled principal payments.
(2) Purchase commitments consist primarily of inventory and equipment purchase orders made in the ordinary course of business.
(3) As of July 1, 2018, the Company’s Consolidated Balance Sheet reflects a liability for uncertain tax positions of $0.6 million, including an immaterial
amount of accrued interest and penalties (see Note 10. in item 15 ). Due to the high degree of uncertainty regarding the timing of future cash outflows of
liabilities for uncertain tax positions, a reasonable estimate of the period of cash settlement cannot be made.
16
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its
financial position and results of operations are
based upon the consolidated financial statements of
1-800-FLOWERS.COM, Inc., which have been prepared
in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements
requires management to make estimates and assump-
tions that affect the reported amount of assets, liabilities,
revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis,
management evaluates its estimates, including those
related to revenue recognition, inventory and long-lived
assets, including goodwill and other intangible assets
related to acquisitions. Management bases its estimates
and judgments on historical experience and on various
other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for
making judgments about the carrying values of assets
and liabilities. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes the following critical accounting
policies, among others, affect its more significant judg-
ments and estimates used in preparation of its consoli-
dated financial statements.
Revenue Recognition
Net revenues are generated by e-commerce opera-
tions from the Company’s online and telephonic sales
channels as well as other operations (retail/wholesale)
and primarily consist of the selling price of merchandise,
service or outbound shipping charges, net of discounts,
returns and credits. Net revenues are recognized primarily
upon product delivery and do not include sales tax. Net
revenues generated by the Company’s BloomNet Wire
Service operations include membership fees as well
as other products and service offerings to florists.
Membership fees are recognized monthly in the period
earned, and products sales are recognized upon product
shipment with shipping terms primarily FOB shipping point.
Accounts Receivable
The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability
of its customers or franchisees to make required pay-
ments. In establishing the appropriate provisions for
customer receivable balances, the Company makes
assumptions with respect to their future collectability.
The Company’s assumptions are based on an assess-
ment of a customer’s credit quality as well as subjective
factors and trends, including the aging of receivable
balances. Once the Company considers the factors
above, an appropriate provision is made, which takes into
account the severity of the likely loss on the outstanding
receivable balance based on the Company’s experience
in collecting these amounts. If the financial condition of
the Company’s customers or franchisees were to deterio-
rate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Inventory
Inventories are valued at the lower of cost or market
using the first-in, first-out method of accounting. The
17
Company also records an inventory obsolescence
reserve, which represents the difference between the
cost of the inventory and its estimated realizable value,
based on various product sales projections. This reserve
is determined by analyzing inventory skus based on age,
expiration, historical trends and requirements to support
forecasted sales. In addition, and as necessary, the
Company may establish specific reserves for future
known or anticipated events.
Business Combinations
The Company accounts for business combinations in
accordance with ASC Topic 805 which requires, among
other things, the acquiring entity in a business combina-
tion to recognize the fair value of all the assets acquired
and liabilities assumed; the recognition of acquisition-
related costs in the consolidated results of operations;
the recognition of restructuring costs in the consolidated
results of operations for which the acquirer becomes
obligated after the acquisition date; and contingent
purchase consideration to be recognized at their fair
values on the acquisition date with subsequent adjust-
ments recognized in the consolidated results of opera-
tions. The fair values assigned to identifiable intangible
assets acquired are determined primarily by using an
income approach which is based on assumptions and
estimates made by management. Significant assumptions
utilized in the income approach are based on company
specific information and projections which are not
observable in the market and are therefore considered
Level 3 measurements. The excess of the purchase price
over the fair value of the identified assets and liabilities is
recorded as goodwill. Operating results of the acquired
entity are reflected in the Company’s consolidated
financial statements from date of acquisition.
Goodwill
Goodwill represents the excess of the purchase
price over the fair value of the net assets acquired in
each business combination, with the carrying value of
the Company’s goodwill allocated to its reporting units,
in accordance with the acquisition method of account-
ing. Goodwill is not amortized, but it is subject to an
annual assessment for impairment, which the Company
performs during the fourth quarter, or more frequently
if events occur or circumstances change such that it
is more likely than not that an impairment may exist.
The Company tests goodwill for impairment at the
reporting unit level. The Company identifies its reporting
units by assessing whether the components of its
operating segments constitute businesses for which
discrete financial information is available and manage-
ment of each reporting unit regularly reviews the
operating results of those components.
In applying the goodwill impairment test, the
Company has the option to perform a qualitative test
(also known as “Step 0”) or a two-step quantitative test
(consisting of “Step 1” and “Step 2”). Under the Step 0
test, the Company first assesses qualitative factors to
determine whether it is more likely than not that the fair
value of the reporting units is less than its carrying
value. Qualitative factors may include, but are not
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
limited to economic conditions, industry and market
considerations, cost factors, overall financial perfor-
mance of the reporting unit and other entity and
reporting unit specific events. If after assessing these
qualitative factors, the Company determines it is
“more-likely-than-not” that the fair value of the reporting
unit is less than the carrying value, then performing the
two-step quantitative test is necessary.
The first step (“Step 1”) of the two-step quantitative
test requires comparison of the fair value of each of the
reporting units to the respective carrying value. If the
carrying value of the reporting unit is less than the fair
value, no impairment exists and the second step
(“Step 2”) is not performed. If the carrying value of the
reporting unit is higher than the fair value, Step 2 must
be performed to compute the amount of the goodwill
impairment, if any. In Step 2, the impairment is
computed by comparing the implied fair value of the
reporting unit goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting unit
goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized for the excess.
The Company generally estimates the fair value of
a reporting unit using an equal weighting of the income
and market approaches. The Company uses industry
accepted valuation models and set criteria that are
reviewed and approved by various levels of manage-
ment and, in certain instances, the Company engages
third-party valuation specialists. Under the income
approach, the Company uses a discounted cash flow
methodology which requires management to make
significant estimates and assumptions related to
forecasted revenues, gross profit margins, operating
income margins, working capital cash flow, perpetual
growth rates, and long-term discount rates, among
others. For the market approach, the Company uses the
guideline public company method. Under this method
the Company utilizes information from comparable
publicly traded companies with similar operating and
investment characteristics as the reporting units, to
create valuation multiples that are applied to the
operating performance of the reporting unit being
tested, in order to obtain their respective fair values.
The Company also reconciles the aggregate fair values
of its reporting units determined in the first step (as
described above) to its current market capitalization,
allowing for a reasonable control premium.
During fiscal years 2018, 2017 and 2016, the
Company performed a Step 0 analysis and determined
that it was not “more likely than not” that the fair values
of its reporting units were less than their carrying
amounts. Future changes in the estimates and assump-
tions above could materially affect the results of our
reviews for impairment of goodwill.
Other Intangibles, net
Other intangibles consist of definite-lived intangible
assets (such as investment in licenses, customer lists,
and others) and indefinite-lived intangible assets (such
as acquired trade names and trademarks). The cost of
definite-lived intangible assets is amortized to reflect
the pattern of economic benefits consumed, over the
estimated periods benefited, ranging from 3 to 16 years,
while indefinite-lived intangible assets are not amortized.
Definite-lived intangibles are reviewed for impair-
ment whenever changes in circumstances or events
may indicate that the carrying amounts are not recover-
able. When such events or changes in circumstances
occur, a recoverability test is performed comparing
projected undiscounted cash flows from the use and
eventual disposition of an asset or asset group to its
carrying value. If the projected undiscounted cash flows
are less than the carrying value, then an impairment
charge would be recorded for the excess of the carrying
value over the fair value, which is determined by
discounting future cash flows.
The Company tests indefinite-lived intangible
assets for impairment at least annually, during the
fourth quarter, or whenever changes in circumstances
or events may indicate that the carrying amounts are
not recoverable. In applying the impairment test, the
Company has the option to perform a qualitative test
(also known as “Step 0”) or a quantitative test. Under
the Step 0 test, the Company assesses qualitative
factors to determine whether it is more likely than not
that an indefinite-lived intangible asset is impaired.
Qualitative factors may include, but are not limited to
economic conditions, industry and market consider-
ations, cost factors, financial performance, legal and
other entity and asset specific events. If after assessing
these qualitative factors, the Company determines it is
“more-likely-than-not” that the indefinite-lived intangible
asset is impaired, then performing the quantitative test
is necessary. The quantitative impairment test for
indefinite-lived intangible assets encompasses
calculating a fair value of an indefinite-lived intangible
asset and comparing the fair value to its carrying value.
If the carrying value exceeds the fair value, impairment
is recognized for the difference. To determine fair value
of other indefinite-lived intangible assets, the Company
uses an income approach, the relief-from-royalty
method. This method assumes that, in lieu of ownership,
a third party would be willing to pay a royalty in order
to obtain the rights to use the comparable asset. Other
indefinite-lived intangible assets’ fair values require
significant judgments in determining both the assets’
estimated cash flows as well as the appropriate
discount and royalty rates applied to those cash flows
to determine fair value.
During fiscal years 2018, 2017 and 2016, the
Company performed a Step 0 analysis and determined
that it is not “more likely than not” that the fair values of
the indefinite-lived intangibles were less than their
carrying amounts. Future changes in the estimates and
assumptions above could materially affect the results of
our reviews for impairment of intangibles.
Income Taxes
The Company uses the asset and liability method
to account for income taxes. The Company has estab-
lished deferred tax assets and liabilities for temporary
differences between the financial reporting bases and
the income tax bases of its assets and liabilities at
18
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
enacted tax rates expected to be in effect when such
assets or liabilities are realized or settled. The Company
recognizes as a deferred tax asset, the tax benefits
associated with losses related to operations. Realiza-
tion of these deferred tax assets assumes that we will
be able to generate sufficient future taxable income so
that these assets will be realized. The factors that the
Company considers in assessing the likelihood of
realization include the forecast of future taxable income
and available tax planning strategies that could be
implemented to realize the deferred tax assets.
The Company recognizes the tax benefit from an
uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by
the taxing authorities based on the technical merits of
the position. The tax benefits recognized in the financial
statements on a particular tax position are measured
based on the largest benefit that has a greater than
50% likelihood of being realized upon settlement.
The amount of unrecognized tax benefits (“UTBs”)
is adjusted as appropriate for changes in facts and
circumstances, such as significant amendments to
existing tax law, new regulations or interpretations by
the taxing authorities, new information obtained during
a tax examination, or resolution of an examination.
We recognize both accrued interest and penalties,
where appropriate, related to UTBs in income tax
expense. Assumptions, judgment and the use of
estimates are required in determining if the “more
likely than not” standard has been met when develop-
ing the provision for income taxes.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers.” This
amended guidance will enhance the comparability of
revenue recognition practices and will be applied to all
contracts with customers. Expanded disclosures related
to the nature, amount, timing, and uncertainty of
revenue that is recognized are requirements under the
amended guidance. We will adopt this guidance
beginning with the first quarter of our fiscal year ending
on June 30, 2019, on a modified retrospective basis,
with a cumulative adjustment to retained earnings. The
Company has substantially completed its analysis, and
based upon this evaluation, we have determined that
the new standard will impact the following areas related
to our e-commerce and retail revenue streams: the
costs of producing and distributing the Company’s
catalogs will be expensed upon mailing, instead of
being capitalized and amortized in direct proportion to
the actual sales; gift card breakage will be recognized
over the expected customer redemption period,
rather than when redemption is considered remote;
e-commerce revenue will be recognized upon ship-
ment, when control of the merchandise transfers to the
customer, instead of upon receipt by the customer. The
new standard will not have a material effect on the
Company’s consolidated financial position, results of
operations, or cash flows. The Company expects to
complete its analysis during the first quarter of FY 2019.
In July 2015, the FASB issued ASU No. 2015-11,
“Inventory (Topic 330).” The pronouncement was issued
to simplify the measurement of inventory and changes
the measurement from lower of cost or market to lower
of cost and net realizable value. The Company adopted
this standard effective July 3, 2017. The adoption of
ASU 2015-11 did not have a significant impact on the
Company’s consolidated financial position or results
of operations.
In January 2016, the FASB issued ASU No. 2016-01,
“Financial Instruments – Overall: Recognition and
Measurement of Financial Assets and Financial Liabili-
ties.” The pronouncement requires equity investments
(except those accounted for under the equity method of
accounting, or those that result in consolidation of the
investee) to be measured at fair value with changes in
fair value recognized in net income, requires public
business entities to use the exit price notion when
measuring the fair value of financial instruments for
disclosure purposes, requires separate presentation of
financial assets and financial liabilities by measurement
category and form of financial asset, and eliminates the
requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate
the fair value that is required to be disclosed for financial
instruments measured at amortized cost. This guidance
will become effective for the Company’s fiscal year
ending June 30, 2019. The adoption is not expected to
have a significant impact on the Company’s consolidated
financial statements.
In February 2016, the FASB issued ASU No. 2016-
02, “Leases (Topic 842).” Under this guidance, an entity
is required to recognize right-of-use assets and lease
liabilities on its balance sheet and disclose key
information about leasing arrangements. This guidance
offers specific accounting guidance for a lessee, a
lessor and sale and leaseback transactions. Lessees
and lessors are required to disclose qualitative and
quantitative information about leasing arrangements
to enable a user of the financial statements to assess
the amount, timing and uncertainty of cash flows
arising from leases. This guidance is effective for the
Company’s fiscal year ending June 28, 2020. We are
currently evaluating the ASU, but expect that it will
have a material impact on our consolidated financial
statements, primarily the consolidated balance sheets
and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
“Improvements to Employee Share-Based Payment
Accounting.” ASU No. 2016-09 affects all entities that
issue share-based payment awards to their employees.
ASU No. 2016-09 simplifies several aspects of the
accounting for share-based payment transactions,
including the income tax consequences, classification
of awards as either equity or liabilities, and classifica-
tion on the statement of cash flows. The Company
elected to early adopt the amendments in ASU 2016-
09, in fiscal 2017. As a result, stock-based compensa-
tion excess tax benefits are reflected in the Consoli-
dated Statements of Income as a component of the
provision for income taxes, whereas they were previ-
ously recognized in equity. Additionally, our Consoli-
19
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
dated Statements of Cash Flows now present excess
tax benefits as an operating activity. This change has
been applied prospectively in accordance with the ASU
and prior periods have not been adjusted. Further, the
Company has elected to account for forfeitures as they
occur, rather than estimate expected forfeitures. The
cumulative effect of this change, which was recorded as
compensation expense in fiscal 2017, was not material
to the financial statements. In addition, this ASU allows
entities to withhold an amount up to an employees’
maximum individual statutory tax rate in the relevant
jurisdiction, up from the minimum statutory requirement,
without resulting in liability classification of the award.
We adopted this change on a modified retrospective
basis, with no impact to our consolidated financial
statements. Finally, this ASU clarified that the cash
paid by an employer when directly withholding shares
for tax withholding purposes should be classified as
a financing activity. This change does not have an
impact on the Company’s consolidated financials as
it conforms with its current practice.
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instru-
ments.” ASU 2016-13 introduces a new forward-looking
“expected loss” approach, to estimate credit losses on
most financial assets and certain other instruments,
including trade receivables. The estimate of expected
credit losses will require entities to incorporate consid-
erations of historical information, current information
and reasonable and supportable forecasts. This ASU
also expands the disclosure requirements to enable
users of financial statements to understand the entity’s
assumptions, models and methods for estimating
expected credit losses. ASU 2016-13 is effective for
the Company’s fiscal year ending July 4, 2021, and
the guidance is to be applied using the modified-
retrospective approach. The Company is currently
evaluating the potential impact of adopting this
guidance on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230), a consensus of
the FASB’s Emerging Issues Task Force.” ASU 2016-15
is intended to reduce diversity in practice in how certain
transactions are classified in the statement of cash
flows. The ASU is effective for the Company’s fiscal year
ending June 30, 2019, with early adoption permitted,
and should be applied using a retrospective transition
method. The adoption is not expected to have a
significant impact on the Company’s consolidated
financial statements.
In January 2017, the FASB issued ASU No. 2017-01,
“Business Combinations (Topic 805): Clarifying the
Definition of a Business (ASU 2017-01),” which revises
the definition of a business and provides new guidance
in evaluating when a set of transferred assets and
activities is a business. ASU 2017-01 is effective for the
Company’s fiscal year ending June 30, 2019, with early
adoption permitted, and should be applied prospec-
tively. We do not expect the standard to have a material
impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
“Intangibles - Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment,” which eliminates step
two from the goodwill impairment test. Under ASU 2017-
04, an entity should recognize an impairment charge for
the amount by which the carrying amount of a reporting
unit exceeds its fair value up to the amount of goodwill
allocated to that reporting unit. This guidance is effective
for the Company’s fiscal year ending July 4, 2021, with
early adoption permitted, and should be applied
prospectively. We do not expect the standard to have a
material impact on our consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-
05, “Other Income - Gains and Losses from the
Derecognition of Nonfinancial Assets.” This update
clarifies the scope of accounting for the derecognition
or partial sale of nonfinancial assets to exclude all
businesses and nonprofit activities. ASU 2017-05 also
provides a definition for in-substance nonfinancial
assets and additional guidance on partial sales of
nonfinancial assets. This guidance will be effective for
the Company’s fiscal year ending June 30, 2019 and
may be applied retrospectively. We do not expect the
standard to have a material impact on our consolidated
financial statements.
In May 2017, the FASB issued ASU No. 2017-09,
“Compensation - Stock Compensation (Topic 718):
Scope of Modification Accounting.” This ASU provides
guidance on the types of changes to the terms or
conditions of share-based payment awards to which an
entity would be required to apply modification account-
ing. An entity would not apply modification accounting
if the fair value, vesting conditions, and classification of
the awards are the same immediately before and after
the modification. ASU 2017-09 is effective for the
Company’s fiscal year ending June 30, 2019, and
should be applied prospectively to an award modified
on or after the adoption date. We do not expect the
standard to have a material impact on our consolidated
financial statements.
U.S. Tax Reform
On December 22, 2017, the U.S. government
enacted significant changes to the U.S. tax law follow-
ing the passage and signing of the Tax Cuts and Jobs
Act (the “Tax Act”). The Tax Act revises the future
ongoing U.S. corporate income tax by, among other
things, lowering U.S. corporate income tax rates from
35% to 21%. As the Company’s fiscal year ended on
July 1, 2018, the lower corporate income tax rate was
phased in, resulting in a U.S. statutory federal rate of
approximately 28% for fiscal year 2018, and 21% for
subsequent fiscal years. The Tax Act also eliminates the
domestic production activities deduction and introduces
limitations on certain business expenses and executive
compensation deductions. See Note 11. for the impact
of the Tax Act on the Company’s financial statements.
On December 22, 2017, the SEC issued guidance
under Staff Accounting Bulletin No. 118, Income Tax
Accounting Implications of the Tax Cuts and Jobs Act
(“SAB 118”) directing taxpayers to consider the impact
20
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
of the Tax Act as “provisional” when it does not have the
necessary information available, prepared or analyzed
(including computations) in reasonable detail to
complete its accounting for the change in tax law. The
changes in the Tax Act are broad and complex. The final
impacts of the Tax Act may differ from the Company’s
estimates due to, among other things, changes in
interpretations of the Tax Act, further legislation related
to the Tax Act, changes in accounting standards for
income taxes or related interpretations in response to
the Tax Act, or any updates to estimates the Company
has utilized to calculate the impacts of the Tax Act. The
Securities Exchange Commission has issued rules that
would allow for a measurement period of up to one year
after the enactment date of the Tax Act to finalize the
related tax impacts.
Quantitative and Qualitative Disclosures
About Market Risk
The Company is exposed to market risk from the
effect of interest rate changes and changes in the
market values of its investments.
Interest Rate Risk
The Company’s exposure to market risk for changes
in interest rates relates primarily to the Company’s
investment of available cash balances and its long-term
debt. The Company generally invests its cash and
cash equivalents in investment grade corporate and
U.S. government securities. Due to the currently low
rates of return the Company is receiving on its cash
equivalents, the potential for a significant decrease in
short-term interest rates is low and, therefore, a further
decrease would not have a material impact on the
Company’s interest income. Borrowings under the
Company’s credit facility bear interest at a variable rate,
plus an applicable margin, and therefore expose the
Company to market risk for changes in interest rates.
The effect of a 50 basis point increase in current interest
rates on the Company’s interest expense would be
approximately $0.6 million during the fiscal year ended
July 1, 2018.
Special Note Regarding Forward-Looking
Statements
This annual report contains forward-looking state-
ments within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking
statements represent the Company’s current expectations
or beliefs concerning future events and can generally be
identified by the use of statements that include words
such as “estimate,” “expects,” “project,” “believe,” “antici-
pate,” “intend,” “plan,” “foresee,” “likely,” “will,” or similar
words or phrases. These forward-looking statements are
subject to risks, uncertainties and other factors, many of
which are outside of the Company’s control, which could
cause actual results to differ materially from the results
expressed or implied in the forward-looking statements,
including, among others: the Company’s ability to achieve
its guidance for revenue, EBITDA and EPS; its ability to
manage the significant seasonality of its business; its
ability to integrate the operations of acquired companies;
its ability to cost effectively acquire and retain customers;
the outcome of contingencies, including legal proceed-
ings in the normal course of business; its ability to
compete against existing and new competitors; its
ability to manage expenses associated with sales and
marketing and necessary general and administrative
and technology investments and general consumer
sentiment and economic conditions that may affect levels
of discretionary customer purchases of the Company’s
products. The Company undertakes no obligation to
publicly update any of the forward-looking statements,
whether as a result of new information, future events or
otherwise, made in this annual report or in any of its SEC
filings except as may be otherwise stated by the Com-
pany. For a more detailed description of these and other
risk factors, and a list of definitions of non-GAAP terms,
please refer to the Company’s SEC filings including the
Company’s Annual Reports on Form 10-K and its
Quarterly Reports on Form 10-Q. Consequently, you
should not consider any such list to be a complete set
of all potential risks and uncertainties.
21
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Quarterly Results of Operations
The following table provides unaudited quarterly consolidated results of operations for each quarter of fiscal years
2018 and 2017. The Company believes this unaudited information has been prepared substantially on the same basis as
the annual audited consolidated financial statements and all necessary adjustments, consisting of only normal recurring
adjustments, have been included in the amounts stated below to present fairly the Company’s results of operations.
The operating results for any quarter are not necessarily indicative of the operating results for any future period.
The Company’s quarterly results may experience seasonal fluctuations. Refer above to the Results of Operations for a discussion of significant events
and transactions.
22
Consolidated Balance Sheets
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except share data)
See accompanying Notes to Consolidated Financial Statements.
23
Consolidated Statements of Income
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except per share data)
Years Ended
See accompanying Notes to Consolidated Financial Statements.
24
Consolidated Statements of Comprehensive Income
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands)
See accompanying Notes to Consolidated Financial Statements.
25
Consolidated Statements of Stockholders’ Equity
1-800-FLOWERS.COM, Inc. and Subsidiaries
Years ended July 1, 2018, July 2, 2017 and July 3, 2016
(in thousands, except share data)
Accumulated Total
Common Stock Additional Retained Other 1-800-FLOWERS.COM, Inc.
Class A Class B Paid-In Earnings Comprehensive Treasury Stock Stockholders’ Noncontrolling Total
Shares Amount Shares Amount Capital (Deficit) Loss Shares Amount Equity Interest Equity
Balance at June 28, 2015
42,875,291
$ 429 39,310,044
$ 393
$ 319,108 $ (48,278)
$ (371) 17,154,475 $ (62,832)
$ 208,449
$ 1,807 $ 210,256
Net income
Translation adjustment
Noncontrolling interest write-off
Conversion of Class B stock
into Class A stock
Stock-based compensation
Exercise of stock options
Excess tax benefit from
––
––
––
––
––
––
––
––
––
––
––
––
4,047,040
879,863
1,044,255
40 (4,047,040)
––
10 ––
9
(40)
––
––
––
––
––
––
6,334
3,507
stock-based compensation
Acquisition of Class A treasury stock
––
––
––
––
––
––
––
––
2,400
––
36,875
––
––
––
––
––
––
––
––
165
60
––
––
––
––
––
36,875
(1,007)
35,868
165
252
60 (887) (827)
87
––
––
––
––
––
––
––
––
––
––
––
––
––
6,343
3,517
––
––
1,714,550 (15,223)
2,400
(15,223)
Balance at July 3, 2016
48,846,449
488 35,263,004
353
331,349 (11,403)
(146)
18,869,025 (78,055)
242,586
––
––
––
––
––
––
––
––
6,343
3,517
2,400
(15,223)
242,586
44,041
6
2
44,041
––
(41)
––
––
––
––
44,041
(41)
––
(41)
Net income
Translation adjustment
Conversion of Class B stock
into Class A stock
Stock-based compensation
Exercise of stock options
Acquisition of Class A treasury stock
––
––
––
––
––
––
––
––
1,361,401
965,429
54,500
––
14 (1,361,401)
––
––
––
10
1
––
(14)
––
––
––
––
––
––
6,092
285
––
––
––
––
––
––
––
––
––
––
––
1,120,706 (10,735)
––
6,102
286
(10,735)
Balance at July 2, 2017
51,227,779
513 33,901,603
339
337,726
32,638
(187)
19,989,731 (88,790)
282,239
Net income
Translation adjustment
Conversion of Class B stock
into Class A stock
Stock-based compensation
Exercise of stock options
Acquisition of Class A treasury stock
––
––
––
––
––
––
––
––
78,780
622,734
142,000
––
1 (78,780)
––
––
––
5
1
––
(1)
––
––
––
––
––
––
3,721
336
––
40,791
––
(13)
––
––
––
––
40,791
(13)
––
––
––
––
––
––
––
––
––
––
1,269,059 (12,176)
––
3,726
337
(12,176)
Balance at July 1, 2018
52,071,293
$ 520 33,822,823
$ 338
$ 341,783 $ 73,429
$ (200) 21,258,790 $(100,966)
$ 314,904
$ –– $ 314,904
See accompanying Notes to Consolidated Financial Statements.
––
––
––
––
––
––
––
––
––
––
––
––
6,102
286
(10,735)
282,239
40,791
(13)
––
3,726
337
(12,176)
––
––
––
––
––
––
––
––
––
––
Consolidated Statements of Cash Flows
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands)
Years Ended
Supplemental Cash Flow Information:
- Interest paid amounted to $4.0 million, $4.4 million and $5.0 million, for the years ended July 1, 2018, July 2, 2017 and
July 3, 2016, respectively.
- The Company paid income taxes of approximately $5.2 million, $6.8 million, and $13.4 million, net of
tax refunds received, for the years ended July 1, 2018, July 2, 2017, and July 3, 2016, respectively.
See accompanying Notes to Consolidated Financial Statements.
27
Notes to Consolidated Financial Statements
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 1. Description of Business
1-800-FLOWERS.COM, Inc. and its subsidiaries
(collectively, the “Company”) is a leading provider of
gifts for all celebratory occasions. For more than 40 years,
1-800-Flowers.com® has been delivering smiles to
customers with gifts for every occasion, including fresh
flowers and the best selection of plants, gift baskets,
gourmet foods, confections, jewelry, candles, balloons
and plush stuffed animals. As always, our 100% Smile
Guarantee® backs every gift.
The Company’s BloomNet® international floral wire
service provides a broad range of quality products and
value-added services designed to help professional
florists grow their businesses profitably. The 1-800-
FLOWERS.COM, Inc. family of brands also includes
everyday gifting and entertaining products such as
premium, gift-quality fruits and other gourmet items from
Harry & David®, popcorn and specialty treats from
The Popcorn Factory® and Moose Munch®; cookies and
baked gifts from Cheryl’s®; gift baskets and towers from
1-800-Baskets.com® and DesignPac Gifts; premium
English muffins and other breakfast treats from
Wolferman’s®; artisan chocolate and confections from
Simply Chocolate®, carved fresh fruit arrangements from
FruitBouquets.com (www.fruitbouquets.com); top quality
steaks and chops from Stock Yards® and unique gifts
from Personalization Universe® and Goodsey SM .
Note 2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the
accounts of 1-800-FLOWERS.COM, Inc. and its subsidiar-
ies. All significant intercompany accounts and transactions
have been eliminated in consolidation. During fiscal years
2018, 2017 and 2016, approximately 1%, of consolidated
net revenue came from international sources.
Fiscal Year
The Company’s fiscal year is a 52 - or 53 -week period
ending on the Sunday nearest to June 30. Fiscal years
2018 and 2017, which ended on July 1, 2018 and July 2,
2017, respectively, consisted of 52 weeks. Fiscal year
2016, which ended on July 3, 2016, consisted of 53 weeks.
Use of Estimates
The preparation of financial statements in conformity
with U.S. generally accepted accounting principles
requires management to make estimates and assump-
tions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand
deposits with banks, highly liquid money market funds,
United States government securities, overnight repur-
chase agreements and commercial paper with maturities
of three months or less when purchased.
Inventories
Inventories are valued at the lower of cost or market
using the first -in, first -out method of accounting.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation
expense is computed using the straight-line method over
the assets’ estimated useful lives. Amortization of lease-
hold improvements and capital leases is computed using
the straight-line method over the shorter of the estimated
useful lives and the initial lease terms. The Company
capitalizes certain internal and external costs incurred
to acquire or develop internal-use software. Capitalized
software costs are amortized on a straight-line basis
over the estimated useful life of the software. Orchards
in production, consisting of direct labor and materials,
supervision and other items, are capitalized as part of
capital projects in progress – orchards until the orchards
produce fruit in commercial quantities. Upon attaining
commercial levels of production, the capital investments
in these orchards are recorded as land improvements.
Estimated useful lives are periodically reviewed, and
where appropriate, changes are made prospectively.
The Company’s property, plant and equipment is
depreciated using the following estimated lives:
10 - 40
Building and building improvements (years)
Leasehold improvements (years)
3 - 10
Furniture, fixtures and production equipment (years) 3 - 10
Software (years)
3 - 7
Orchards in production and
land improvements (years)
15 - 35
Property, plant and equipment are reviewed for
impairment whenever changes in circumstances or
events may indicate that the carrying amounts are
not recoverable.
Goodwill
Goodwill represents the excess of the purchase
price over the fair value of the net assets acquired in
each business combination, with the carrying value of
the Company’s goodwill allocated to its reporting units,
in accordance with the acquisition method of account-
ing. Goodwill is not amortized, but it is subject to an
annual assessment for impairment, which the Company
performs during the fourth quarter, or more frequently if
events occur or circumstances change such that it is
more likely than not that an impairment may exist. The
Company tests goodwill for impairment at the reporting
unit level. The Company identifies its reporting units by
assessing whether the components of its operating
segments constitute businesses for which discrete
financial information is available and management
of each reporting unit regularly reviews the operating
results of those components.
In applying the goodwill impairment test, the
Company has the option to perform a qualitative test
(also known as “Step 0” ) or a two -step quantitative test
(consisting of “Step 1” and “Step 2” ). Under the Step 0
test, the Company first assesses qualitative factors to
determine whether it is more likely than not that the fair
value of the reporting units is less than its carrying
value. Qualitative factors may include, but are not
28
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
limited to, economic conditions, industry and market
considerations, cost factors, overall financial perfor-
mance of the reporting unit and other entity and
reporting unit specific events. If after assessing
these qualitative factors, the Company determines it
is “more-likely-than- not” that the fair value of the
reporting unit is less than the carrying value, then
performing the two-step quantitative test is necessary.
The first step (“Step 1” ) of the two -step quantitative
test requires comparison of the fair value of each of the
reporting units to the respective carrying value. If the
carrying value of the reporting unit is less than the fair
value, no impairment exists and the second step
(“Step 2” ) is not performed. If the carrying value of the
reporting unit is higher than the fair value, Step 2 must
be performed to compute the amount of the goodwill
impairment, if any. In Step 2, the impairment is com-
puted by comparing the implied fair value of the
reporting unit goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting unit
goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized for the excess.
The Company generally estimates the fair value of
a reporting unit using an equal weighting of the income
and market approaches. The Company uses industry
accepted valuation models and set criteria that are
reviewed and approved by various levels of manage-
ment and, in certain instances, the Company engages
third -party valuation specialists. Under the income
approach, the Company uses a discounted cash flow
methodology which requires management to make
significant estimates and assumptions related to
forecasted revenues, gross profit margins, operating
income margins, working capital cash flow, perpetual
growth rates, and long-term discount rates, among
others. For the market approach, the Company uses the
guideline public company method. Under this method
the Company utilizes information from comparable
publicly traded companies with similar operating and
investment characteristics as the reporting units, to
create valuation multiples that are applied to the
operating performance of the reporting unit being
tested, in order to obtain their respective fair values.
The Company also reconciles the aggregate fair values
of its reporting units determined in the first step (as
described above) to its current market capitalization,
allowing for a reasonable control premium.
During fiscal years 2018, 2017 and 2016, the
Company performed a Step 0 analysis and determined
that it was not “more likely than not” that the fair values
of its reporting units were less than their carrying
amounts. Future changes in the estimates and
assumptions above could materially affect the results
of our reviews for impairment of goodwill.
Other Intangibles, net
Other intangibles consist of definite-lived intangible
assets (such as investment in licenses, customer lists,
and others) and indefinite-lived intangible assets (such
as acquired trade names and trademarks). The cost of
definite-lived intangible assets is amortized to reflect
the pattern of economic benefits consumed, over the
estimated periods benefited, ranging from 3 to 16 years,
while indefinite-lived intangible assets are not amortized.
Definite-lived intangibles are reviewed for impair-
ment whenever changes in circumstances or events
may indicate that the carrying amounts are not recover-
able. When such events or changes in circumstances
occur, a recoverability test is performed comparing
projected undiscounted cash flows from the use and
eventual disposition of an asset or asset group to its
carrying value. If the projected undiscounted cash flows
are less than the carrying value, then an impairment
charge would be recorded for the excess of the carrying
value over the fair value, which is determined by
discounting future cash flows.
The Company tests indefinite-lived intangible assets
for impairment at least annually, during the fourth
quarter, or whenever changes in circumstances or
events may indicate that the carrying amounts are not
recoverable. In applying the impairment test, the
Company has the option to perform a qualitative test
(also known as “Step 0” ) or a quantitative test. Under
the Step 0 test, the Company assesses qualitative
factors to determine whether it is more likely than not
that an indefinite-lived intangible asset is impaired.
Qualitative factors may include, but are not limited to
economic conditions, industry and market consider-
ations, cost factors, financial performance, legal and
other entity and asset specific events. If, after assessing
these qualitative factors, the Company determines it is
“more-likely-than- not” that the indefinite-lived intan-
gible asset is impaired, then performing the quantitative
test is necessary. The quantitative impairment test for
indefinite-lived intangible assets encompasses
calculating a fair value of an indefinite-lived intangible
asset and comparing the fair value to its carrying value.
If the carrying value exceeds the fair value, impairment
is recognized for the difference. To determine fair value
of other indefinite-lived intangible assets, the Company
uses an income approach, the relief-from-royalty
method. This method assumes that, in lieu of ownership,
a third party would be willing to pay a royalty in order to
obtain the rights to use the comparable asset. Other
indefinite-lived intangible assets’ fair values require
significant judgments in determining both the assets’
estimated cash flows as well as the appropriate
discount and royalty rates applied to those cash flows
to determine fair value.
During fiscal years 2018, 2017 and 2016, the
Company performed a Step 0 analysis and determined
that it is not “more likely than not” that the fair values of
the indefinite-lived intangibles were less than their
carrying amounts. Future changes in the estimates and
assumptions above could materially affect the results of
our reviews for impairment of intangibles.
Business Combinations
The Company accounts for business combinations
in accordance with ASC Topic 805, which requires,
among other things, the acquiring entity in a business
combination to recognize the fair value of all the assets
acquired and liabilities assumed; the recognition of
29
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
acquisition-related costs in the consolidated results
of operations; the recognition of restructuring costs in
the consolidated results of operations for which the
acquirer becomes obligated after the acquisition date;
and contingent purchase consideration to be recog-
nized at their fair values on the acquisition date with
subsequent adjustments recognized in the consoli-
dated results of operations. The fair values assigned to
identifiable intangible assets acquired are determined
primarily by using an income approach which is based
on assumptions and estimates made by management.
Significant assumptions utilized in the income approach
are based on company specific information and
projections which are not observable in the market and
are therefore considered Level 3 measurements. The
excess of the purchase price over the fair value of the
identified assets and liabilities is recorded as goodwill.
Operating results of the acquired entity are reflected in
the Company’s consolidated financial statements from
date of acquisition.
Deferred Catalog Costs
The Company capitalizes the costs of producing and
distributing its catalogs. These costs are amortized in
direct proportion to actual sales from the corresponding
catalogs over a period not to exceed 12 months.
Included within prepaid and other current assets was
$3.0 million and $2.7 million at July 1, 2018 and July 2,
2017 respectively, relating to prepaid catalog expenses.
Investments
The Company has certain investments in non-
marketable equity instruments of private companies.
The Company accounts for these investments using the
equity method if they provide the Company the ability to
exercise significant influence, but not control, over the
investee. Significant influence is generally deemed to exist
if the Company has an ownership interest in the voting
stock of the investee between 20% and 50%, although
other factors, such as representation on the investee’s
Board of Directors, are considered in determining whether
the equity method is appropriate. The Company records
equity method investments initially at cost, and adjusts the
carrying amount to reflect the Company’s share of the
earnings or losses of the investee.
The Company’s equity method investment is com-
prised of an interest in Flores Online, a Sao Paulo, Brazil
based internet floral and gift retailer, that the Company
originally acquired on May 31, 2012. The Company
currently holds 24.9% of the outstanding shares of
Flores Online. The book value of this investment was
$0.6 million as of July 1, 2018 and $1.0 million as of
July 2, 2017, and is included in the “Other assets” line
item within the Company’s consolidated balance sheets.
The Company’s equity in the net loss of Flores Online for
the years ended July 1, 2018, July 2, 2017 and July 3,
2016 was less than $0.1 million per year. During the
quarter ended December 31, 2017, Flores Online
entered into a share exchange agreement with Isabella
Flores, whereby among other changes, the Company
exchanged 5% of its interest in Flores Online for a 5%
interest in Isabella Flores. This new investment of
approximately $0.1 million is currently being accounted
as a cost method investment. In conjunction with this
share exchange, the Company determined that the
fair value of its investment in Flores Online was below
its carrying value and that this decline was other-than-
temporary. As a result, during the quarter ended
December 31, 2017, the Company recorded an
impairment charge of $0.2 million, which is included
within the “Other (income) expense, net” line item in the
Company’s consolidated statement of income. During the
quarter ended September 27, 2015, the Company
determined that the fair value of its investment in Flores
Online was below its carrying value and that this decline
was other-than-temporary. As a result, the Company
recorded an impairment charge of $1.7 million, which is
included within the “Other (income) expense, net” line
item in the Company’s consolidated statement of income
in fiscal 2016.
Investments in non-marketable equity instruments
of private companies, where the Company does not
possess the ability to exercise significant influence,
are accounted for under the cost method. Cost method
investments are originally recorded at cost, and are
included within “Other assets” in the Company’s
consolidated balance sheets. The aggregate carrying
amount of the Company’s cost method investments
was $1.7 million as of July 1, 2018 and July 2, 2017,
including a $1.5 million investment in Euroflorist – see
Note 4. for details. During the year ended July 3, 2016,
the Company determined that the fair value of one of its
cost method investments was below its carrying value
and that the decline was other-than-temporary. As a
result, the Company recorded an impairment charge of
$0.5 million, which is included within the “Other (in-
come) expense, net” line items in the Company’s
consolidated statements of income in fiscal 2016.
The Company also holds certain trading securities
associated with its Non-Qualified Deferred Compensa-
tion Plan (“NQDC Plan”). These investments are
measured using quoted market prices at the reporting
date and are included within the “Other assets” line item
in the consolidated balance sheets (see Note 10.).
Each reporting period, the Company uses available
qualitative and quantitative information to evaluate its
investments for impairment. When a decline in fair
value, if any, is determined to be other-than-temporary,
an impairment charge is recorded in the consolidated
statement of operations.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to significant concentrations of credit risk
consist principally of cash and cash equivalents and
accounts receivable. The Company maintains cash and
cash equivalents with high quality financial institutions.
Concentration of credit risk with respect to accounts
receivable is limited due to the Company’s large
number of customers and their dispersion throughout
the United States, and the fact that a substantial portion
of receivables are related to balances owed by major
credit card companies. Allowances relating to consumer,
30
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
corporate and franchise accounts receivable ( $2.4
million at July 1, 2018 and $1.8 million at July 2, 2017)
have been recorded based upon previous experience
and management’s evaluation.
Revenue Recognition
Net revenues are generated by e-commerce
operations from the Company’s online and telephonic
sales channels as well as other operations (retail/
wholesale) and primarily consist of the selling price
of merchandise, service or outbound shipping charges,
net of discounts, returns and credits. Net revenues are
recognized primarily upon product delivery and do
not include sales tax. Net revenues generated by the
Company’s BloomNet Wire Service operations include
membership fees as well as other products and service
offerings to florists. Membership fees are recognized
monthly in the period earned, and products sales are
recognized upon product shipment with shipping terms
primarily FOB shipping point.
Cost of Revenues
Cost of revenues consists primarily of florist fulfill-
ment costs (fees paid directly to florists), the cost of
floral and non-floral merchandise sold from inventory or
through third parties, and associated costs including
inbound and outbound shipping charges. Additionally,
cost of revenues includes labor and facility costs related
to manufacturing and production operations.
Marketing and Sales
Marketing and sales expense consists primarily of
advertising expenses, catalog costs, online portal and
search expenses, retail store and fulfillment operations
(other than costs included in cost of revenues), and
customer service center expenses, as well as the operat-
ing expenses of the Company’s departments engaged in
marketing, selling and merchandising activities.
The Company expenses all advertising costs, with
the exception of catalog costs (see Deferred Catalog
Costs above), at the time the advertisement is first
shown. Advertising expense was $138.2 million, $137.5
million and $133.1 million for the years ended July 1,
2018, July 2, 2017 and July 3, 2016, respectively.
Technology and Development
Technology and development expense consists
primarily of payroll and operating expenses of the
Company’s information technology group, costs
associated with its websites, including hosting, content
development and maintenance and support costs
related to the Company’s order entry, customer service,
fulfillment and database systems. Costs associated with
the acquisition or development of software for internal
use are capitalized if the software is expected to have
a useful life beyond one year and amortized over the
software’s useful life, typically three to seven years.
Costs associated with repair maintenance or the
development of website content are expensed as
incurred, as the useful lives of such software
modifications are less than one year.
Stock-Based Compensation
The Company records compensation expense
associated with restricted stock awards and other forms
of equity compensation based upon the fair value of
stock-based awards as measured at the grant date.
The cost associated with share-based awards that are
subject solely to time-based vesting requirements is
recognized over the awards’ service period for the entire
award on a straight-line basis. The cost associated with
performance-based equity awards is recognized for
each tranche over the service period, based on an
assessment of the likelihood that the applicable
performance goals will be achieved.
Derivatives and hedging
The Company does not enter into derivative
transactions for trading purposes, but rather, on occa-
sion to manage its exposure to interest rate fluctuations.
When entering into these transactions, the Company
has periodically managed its floating rate debt using
interest rate swaps in order to reduce its exposure to
the impact of changing interest rates on its consolidated
results of operations and future cash outflows for
interest. The Company did not have any open
derivative positions at July 1, 2018 and July 2, 2017.
Income Taxes
The Company uses the asset and liability method
to account for income taxes. The Company has estab-
lished deferred tax assets and liabilities for temporary
differences between the financial reporting bases and
the income tax bases of its assets and liabilities at
enacted tax rates expected to be in effect when such
assets or liabilities are realized or settled. The Company
recognizes as a deferred tax asset, the tax benefits
associated with losses related to operations. Realization
of these deferred tax assets assumes that we will be
able to generate sufficient future taxable income so that
these assets will be realized. The factors that the
Company considers in assessing the likelihood of
realization include the forecast of future taxable income
and available tax planning strategies that could be
implemented to realize the deferred tax assets.
The Company recognizes the tax benefit from an
uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the
taxing authorities based on the technical merits of the
position. The tax benefits recognized in the financial
statements on a particular tax position are measured
based on the largest benefit that has a greater than a
50% likelihood of being realized upon settlement.
The amount of unrecognized tax benefits (“UTBs”) is
adjusted as appropriate for changes in facts and
circumstances, such as significant amendments to
existing tax law, new regulations or interpretations by
the taxing authorities, new information obtained during
a tax examination, or resolution of an examination.
We recognize both accrued interest and penalties,
where appropriate, related to UTBs in income tax
expense. Assumptions, judgment and the use of
estimates are required in determining if the “more
likely than not” standard has been met when
developing the provision for income taxes.
31
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Net Income Per Share
Basic net income per common share is computed
using the weighted-average number of common shares
outstanding during the period. Diluted net income per
share is computed using the weighted-average number of
common and dilutive common equivalent shares (consist-
ing primarily of employee stock options and unvested
restricted stock awards) outstanding during the period.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014 - 09,
“Revenue from Contracts with Customers.” This
amended guidance will enhance the comparability
of revenue recognition practices and will be applied to
all contracts with customers. Expanded disclosures
related to the nature, amount, timing, and uncertainty of
revenue that is recognized are requirements under the
amended guidance. We will adopt this guidance
beginning with the first quarter of our fiscal year ending
on June 30, 2019, on a modified retrospective basis,
with a cumulative adjustment to retained earnings. The
Company has substantially completed its analysis, and
based upon this evaluation, we have determined that
the new standard will impact the following areas related
to our e-commerce and retail revenue streams: the
costs of producing and distributing the Company’s
catalogs will be expensed upon mailing, instead of
being capitalized and amortized in direct proportion to
the actual sales; gift card breakage will be recognized
over the expected customer redemption period,
rather than when redemption is considered remote;
e-commerce revenue will be recognized upon ship-
ment, when control of the merchandise transfers to the
customer, instead of upon receipt by the customer. The
new standard will not have a material effect on the
Company’s consolidated financial position, results of
operations, or cash flows. The Company expects to
complete its analysis during the first quarter of FY 2019.
In July 2015, the FASB issued ASU No. 2015 - 11,
“Inventory (Topic 330 ).” The pronouncement was
issued to simplify the measurement of inventory and
changes the measurement from lower of cost or market
to lower of cost and net realizable value. The Company
adopted this standard effective July 3, 2017. The
adoption of ASU 2015 - 11 did not have a significant
impact on the Company’s consolidated financial
position or results of operations.
In January 2016, the FASB issued ASU No. 2016 - 01,
“Financial Instruments – Overall: Recognition and
Measurement of Financial Assets and Financial Liabili-
ties.” The pronouncement requires equity investments
(except those accounted for under the equity method of
accounting, or those that result in consolidation of the
investee) to be measured at fair value with changes in
fair value recognized in net income, requires public
business entities to use the exit price notion when
measuring the fair value of financial instruments for
disclosure purposes, requires separate presentation of
financial assets and financial liabilities by measurement
category and form of financial asset, and eliminates the
requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate
the fair value that is required to be disclosed for financial
instruments measured at amortized cost. This guidance
will become effective for the Company’s fiscal year
ending June 30, 2019. The adoption is not expected to
have a significant impact on the Company’s consolidated
financial statements.
In February 2016, the FASB issued ASU No. 2016 -
02, “Leases (Topic 842 ).” Under this guidance, an
entity is required to recognize right-of-use assets and
lease liabilities on its balance sheet and disclose key
information about leasing arrangements. This guidance
offers specific accounting guidance for a lessee, a
lessor and sale and leaseback transactions. Lessees
and lessors are required to disclose qualitative and
quantitative information about leasing arrangements to
enable a user of the financial statements to assess the
amount, timing and uncertainty of cash flows arising
from leases. This guidance is effective for the
Company’s fiscal year ending June 28, 2020. We are
currently evaluating the ASU, but expect that it will have
a material impact on our consolidated financial state-
ments, primarily the consolidated balance sheets and
related disclosures.
In March 2016, the FASB issued ASU No. 2016 - 09,
“Improvements to Employee Share-Based Payment
Accounting.” ASU No. 2016 - 09 affects all entities that
issue share-based payment awards to their employees.
ASU No. 2016 - 09 simplifies several aspects of the
accounting for share-based payment transactions,
including the income tax consequences, classification
of awards as either equity or liabilities, and classifica-
tion on the statement of cash flows. The Company
elected to early adopt the amendments in ASU 2016 -
09, in fiscal 2017. As a result, stock-based compensa-
tion excess tax benefits are reflected in the Consoli-
dated Statements of Income as a component of the
provision for income taxes, whereas they were previ-
ously recognized in equity. Additionally, our Consoli-
dated Statements of Cash Flows now present excess
tax benefits as an operating activity. This change has
been applied prospectively in accordance with the ASU
and prior periods have not been adjusted. Further, the
Company has elected to account for forfeitures as they
occur, rather than estimate expected forfeitures. The
cumulative effect of this change, which was recorded as
compensation expense in fiscal 2017, was not material
to the financial statements. In addition, this ASU allows
entities to withhold an amount up to an employees’
maximum individual statutory tax rate in the relevant
jurisdiction, up from the minimum statutory requirement,
without resulting in liability classification of the award.
We adopted this change on a modified retrospective
basis, with no impact to our consolidated financial
statements. Finally, this ASU clarified that the cash paid
by an employer when directly withholding shares for tax
withholding purposes should be classified as a
financing activity. This change does not have an impact
on the Company’s consolidated financials as it con-
forms with its current practice.
32
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
In June 2016, the FASB issued ASU No. 2016 - 13,
“Financial Instruments-Credit Losses (Topic 326 ):
Measurement of Credit Losses on Financial Instru-
ments.” ASU 2016 - 13 introduces a new forward-
looking “expected loss” approach, to estimate credit
losses on most financial assets and certain other
instruments, including trade receivables. The estimate
of expected credit losses will require entities to incorpo-
rate considerations of historical information, current
information and reasonable and supportable forecasts.
This ASU also expands the disclosure requirements to
enable users of financial statements to understand the
entity’s assumptions, models and methods for estimat-
ing expected credit losses. ASU 2016 - 13 is effective
for the Company’s fiscal year ending July 4, 2021,
and the guidance is to be applied using the modified-
retrospective approach. The Company is currently
evaluating the potential impact of adopting this
guidance on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016 - 15,
“Statement of Cash Flows (Topic 230 ), a consensus of
the FASB’s Emerging Issues Task Force.” ASU 2016 - 15
is intended to reduce diversity in practice in how certain
transactions are classified in the statement of cash
flows. The ASU is effective for the Company’s fiscal year
ending June 30, 2019, with early adoption permitted,
and should be applied using a retrospective transition
method. The adoption is not expected to have a
significant impact on the Company’s consolidated
financial statements.
In January 2017, the FASB issued ASU No. 2017 - 01,
“Business Combinations (Topic 805 ): Clarifying the
Definition of a Business (ASU 2017 - 01 ),” which revises
the definition of a business and provides new guidance
in evaluating when a set of transferred assets and
activities is a business. ASU 2017 - 01 is effective for the
Company’s fiscal year ending June 30, 2019, with early
adoption permitted, and should be applied prospectively.
We do not expect the standard to have a material impact
on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017 - 04,
“Intangibles - Goodwill and Other (Topic 350 ): Simplifying
the Test for Goodwill Impairment,” which eliminates step
two from the goodwill impairment test. Under ASU 2017 -
04, an entity should recognize an impairment charge for
the amount by which the carrying amount of a reporting
unit exceeds its fair value up to the amount of goodwill
allocated to that reporting unit. This guidance is effective
for the Company’s fiscal year ending July 4, 2021, with
early adoption permitted, and should be applied prospec-
tively. We do not expect the standard to have a material
impact on our consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017 -
05, “Other Income - Gains and Losses from the
Derecognition of Nonfinancial Assets.” This update
clarifies the scope of accounting for the derecognition
or partial sale of nonfinancial assets to exclude all
businesses and nonprofit activities. ASU 2017 - 05
also provides a definition for in-substance nonfinancial
assets and additional guidance on partial sales of
nonfinancial assets. This guidance will be effective for
the Company’s fiscal year ending June 30, 2019 and
may be applied retrospectively. We do not expect the
standard to have a material impact on our consolidated
financial statements.
In May 2017, the FASB issued ASU No. 2017 - 09,
“Compensation - Stock Compensation (Topic 718 ):
Scope of Modification Accounting.” This ASU provides
guidance on the types of changes to the terms or
conditions of share-based payment awards to which an
entity would be required to apply modification account-
ing. An entity would not apply modification accounting
if the fair value, vesting conditions, and classification of
the awards are the same immediately before and after
the modification. ASU 2017 - 09 is effective for the
Company’s fiscal year ending June 30, 2019, and
should be applied prospectively to an award modified
on or after the adoption date. We do not expect the
standard to have a material impact on our consolidated
financial statements.
U.S. Tax Reform
On December 22, 2017, the U.S. government
enacted significant changes to the U.S. tax law follow-
ing the passage and signing of the Tax Cuts and Jobs
Act (the “Tax Act”). The Tax Act revises the future
ongoing U.S. corporate income tax by, among other
things, lowering U. S. corporate income tax rates from
35% to 21%. As the Company’s fiscal year ended on
July 1, 2018, the lower corporate income tax rate was
phased in, resulting in a U.S. statutory federal rate of
approximately 28% for fiscal year 2018, and 21% for
subsequent fiscal years. The Tax Act also eliminates the
domestic production activities deduction and introduces
limitations on certain business expenses and executive
compensation deductions. See Note 11. for the impact
of the Tax Act on the Company’s financial statements.
On December 22, 2017, the SEC issued guidance
under Staff Accounting Bulletin No. 118, Income Tax
Accounting Implications of the Tax Cuts and Jobs Act
(“SAB 118” ) directing taxpayers to consider the impact
of the Tax Act as “provisional” when it does not have the
necessary information available, prepared or analyzed
(including computations) in reasonable detail to
complete its accounting for the change in tax law. The
changes in the Tax Act are broad and complex. The final
impacts of the Tax Act may differ from the Company’s
estimates due to, among other things, changes in
interpretations of the Tax Act, further legislation related
to the Tax Act, changes in accounting standards for
income taxes or related interpretations in response to
the Tax Act, or any updates to estimates the Company
has utilized to calculate the impacts of the Tax Act. The
Securities Exchange Commission has issued rules that
would allow for a measurement period of up to one year
after the enactment date of the Tax Act to finalize the
related tax impacts.
Reclassifications
Certain balances in the prior fiscal years have been
reclassified to conform to the presentation in the current
fiscal year.
33
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
closed on the transaction, and the working capital
adjustment was finalized in August 2017, resulting in
an $11.4 million reduction to the purchase price.
The resulting gain on sale of $14.6 million, is included
within “Other (income) expense, net” in the Company’s
consolidated statement of income.
The Company and Ferrero also entered into a
transition services agreement whereby the Company
will provide certain post-closing services to Ferrero and
Fannie May for a period of approximately 18 months,
related to the business of Fannie May, and a commercial
agreement with respect to the distribution of certain
Ferrero and Fannie May products.
Operating results of Fannie May are reflected in the
Company’s consolidated financial statements through May
30, 2017, the date of its disposition, within its Gourmet Foods
& Gift Baskets segment. During fiscal 2017, Fannie May
contributed net revenues of $85.6 million. Operating and
pre-tax income during such period were not material.
Disposition of Colonial Gifts Limited (“iFlorist”)
During October 2015, the Company completed the
sale of substantially all of the assets of iFlorist to
Euroflorist AB (“Euroflorist”), a pan-European floral
and gifting company headquartered in Malmo, Sweden.
As consideration for the assets sold, the Company
received an investment in Euroflorist with a fair value
on the date of sale of approximately $1.5 million. (The
Company accounts for this investment using the cost
method as it does not possess the ability to exercise
significant influence over Euroflorist.). The Company
recorded a loss on the sale in the amount of $2.0 million,
which is included within “Other (income) expense, net”
in the consolidated statements of income.
Note 5. Inventory
The Company’s inventory, stated at cost, which
is not in excess of market, includes purchased and
manufactured finished goods for sale, packaging
supplies, crops, raw material ingredients for manufac-
tured products and associated manufacturing labor
and is classified as follows:
July 1, July 2,
2018 2017
(in thousands)
Finished goods $ 33,930 $ 34,476
11,933
Work-in-process
Raw materials
29,453
Total Inventory $ 88,825 $ 75,862
17,575
37,320
Note 3 – Net Income Per Common Share
from Continuing Operations
The following table sets forth the computation of
basic and diluted net income per common share from
continuing operations:
Years Ended
July 1, July 2, July 3,
2018 2017 2016
(in thousands, except per share data)
Numerator:
Net income $40,791 $44,041 $35,868
Less: Net loss
attributable to
noncontrolling interest
Net income attributable to
––
––
(1,007)
1-800-FLOWERS.COM, Inc. $40,791 $44,041 $36,875
Denominator:
Weighted average
shares outstanding
64,666
65,191
64,896
Effect of dilutive securities:
Employee stock
options (1)
Employee restricted
stock awards
Total effect of
dilutive securities
Adjusted weighted-average
shares and assumed
1,580
1,519
1,294
692
1,025
893
2,272
2,544
2,187
conversions
66,938
67,735
67,083
Net income per common share
from continuing operations
attributable to 1-800-FLOWERS.COM, Inc.
Basic $ 0.63 $ 0.68 $ 0.57
Diluted $ 0.61 $ 0.65 $ 0.55
Note ( 1 ): The effect of options to purchase 0.0 million, 0.0 million and
0.1 million shares for the years ended July 1, 2018, July 2, 2017 and
July 3, 2016, respectively, were excluded from the calculation of net
income per share on a diluted basis as their effect is anti-dilutive.
Note 4. Dispositions
On March 15, 2017, the Company and Ferrero
International S.A., a Luxembourg corporation (“Ferrero”),
entered into a Stock Purchase Agreement (the “Purchase
Agreement”) pursuant to which Ferrero agreed to
purchase from the Company all of the outstanding equity
of Fannie May Confections Brands, Inc., including its
subsidiaries, Fannie May Confections, Inc. and Harry
London Candies, Inc. (“Fannie May”) for a total consider-
ation of $115.0 million in cash, subject to adjustment for
seasonal working capital. On May 30, 2017, the Company
34
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 6. Goodwill and Intangible Assets
The following table presents goodwill by segment and the related change in the net carrying amount:
BloomNet Gourmet
Consumer Wire Foods &
Floral Service Gift Baskets Total
Balance at July 3, 2016
Sale of Fannie May
Balance at July 2, 2017
Balance at July 1, 2018
$ 17,441
––
$ 17,441
$ 17,441
$
$
$
––
––
––
––
$
60,226
(15,077)
45,149
$
45,149
$
$ 77,667
(15,077)
$ 62,590
$ 62,590
There were no goodwill impairment charges in any segment during the years ended July 1, 2018, July 2, 2017
and July 3, 2016.
The Company’s other intangible assets consist of the following:
July 1, July 2,
2018 2017
Gross Gross
Amortization Carrying Accumulated Carrying Accumulated
Period Amount Amortization Net Amount Amortization Net
(in years)
Intangible assets with determinable lives
Investment in
licenses
Customer lists
Other
14-16
3-10
5-14
$ 7,420 $ 6,042
9,354
2,172
12,184
2,946
$ 1,378
2,830
774
$ 7,420 $ 5,937 $ 1,483
3,957
901
8,227
2,045
12,184
2,946
Total intangible assets with
determinable lives
Trademarks with
indefinite lives
Total identifiable
intangible assets
22,550
17,568
4,982
22,550
16,209
6,341
54,841
––
54,841
54,749
––
54,749
$ 77,391
$17,568
$59,823
$77,299 $16,209
$61,090
Intangible assets with determinable lives are reviewed for impairment whenever events or changes in circum-
stances indicate that the carrying amount of an asset or asset group may not be recoverable. No material impairments
were recognized for the years ended July 1, 2018, July 2, 2017 and July 3, 2016.
The amortization of intangible assets for the years ended July 1, 2018, July 2, 2017 and July 3, 2016 was $1.4
million, $1.4 million and $1.9 million, respectively. Future estimated amortization expense is as follows: 2019 - $0.7
million, 2020 - $0.6 million, 2021 - $0.6 million, 2022 - $0.5 million, 2023 - $0.5 and thereafter - $2.1 million.
35
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 7. Property, Plant and Equipment
Note 9. Long-Term Debt
46,925
115,944
45,026
119,177
long-term debt
Long-term debt
10,063
$ 92,267
7,188
$101,377
July 1, July 2,
2018 2017
(in thousands)
Land
Orchards in production and
land improvements
Building and building improvements
Leasehold improvements
Production equipment and
furniture and fixtures
Computer and
telecommunication equipment
Software
Capital projects in progress
- orchards
Property, plant and
equipment, gross
Accumulated depreciation and
amortization
Property, plant and
equipment, net
$ 30,789
$ 30,789
10,962
58,450
12,997
9,703
56,791
11,950
53,066
47,293
10,789
9,971
339,922
330,700
(176,582) (169,319)
$163,340
$161,381
Depreciation expense for the years ended July 1,
2018, July 2, 2017 and July 3, 2016 was $31.3 million,
$32.0 million and $30.5 million, respectively.
Note 8. Accrued Expenses
Accrued expenses consisted of the following:
July 1, July 2,
2018 2017
(in thousands)
Payroll and employee benefits
Deferred revenue
Accrued marketing expenses
Fannie May working capital
adjustment
Accrued florist payout
Other
Accrued Expenses
$19,244 $22,767
13,865
11,974
13,524
12,472
––
6,890
21,169
8,500
6,576
26,524
$73,299 $90,206
The Company’s current and long-term debt consists
of the following:
July 1, July 2,
2018 2017
(in thousands)
Revolver (1)
Term Loan (1)
Deferred Financing Costs
Total debt
Less: current maturities of
$
––
$
––
104,938 112,125
(2,608) (3,560)
108,565
102,330
( 1 ) On December 23, 2016, the Company entered into an Amended and
Restated Credit Agreement (the “2016 Amended Credit Agreement”) with
JPMorgan Chase Bank, N.A. as administrative agent, and a group of
lenders. The 2016 Amended Credit Agreement amended and restated the
Company’s credit agreement dated as of September 30, 2014 to, among
other things, extend the maturity date of the $115.0 million outstanding
term loan (“Term Loan”) and the revolving credit facility (the “Revolver”)
by approximately two years to December 23, 2021. The Term Loan is
payable in 19 quarterly installments of principal and interest beginning on
April 2, 2017, with escalating principal payments, at the rate of 5% in
year one, 7.5% in year two, 10% in year three, 12.5% in year four, and
15% in year five, with the remaining balance of $61.8 million due upon
maturity. The Revolver, in the aggregate amount of $200 million, subject
to seasonal reduction to an aggregate amount of $100 million for the
period from January 1 through August 1, may be used for working capital
and general corporate purposes, subject to certain restrictions.
For each borrowing under the 2016 Amended Credit Agreement, the
Company may elect that such borrowing bear interest at an annual rate
equal to either: ( 1 ) a base rate plus an applicable margin varying from
0.75% to 1.5%, based on the Company’s consolidated leverage ratio,
where the base rate is the highest of (a) the prime rate, (b) the highest
of the federal funds rate and the overnight bank funding rate as
published by the New York Fed, plus 0.5% and (c) an adjusted LIBO rate,
plus 1% or ( 2 ) an adjusted LIBO rate plus an applicable margin varying
from 1.75% to 2.5%, based on the Company’s consolidated leverage
ratio. The 2016 Amended Credit Agreement requires that while any
borrowings are outstanding the Company comply with certain financial
covenants and affirmative covenants as well as certain negative
covenants, that subject to certain exceptions, limit the Company’s ability
to, among other things, incur additional indebtedness, make certain
investments and make certain restricted payments. The Company was in
compliance with these covenants as of July 1, 2018. The 2016 Amended
Credit Agreement is secured by substantially all of the assets of the
Company and the Subsidiary Guarantors.
Future principal payments under the term loan are as follows: $10.1
million – fiscal 2019, $12.9 million – fiscal 2020, $15.8 million - fiscal
2021, and $66.1 million – fiscal 2022
36
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 10. Fair Value Measurements
Cash and cash equivalents, trade and other
receivables, accounts payable and accrued expenses
are reflected in the consolidated balance sheets at
carrying value, which approximates fair value due to
the short-term nature of these instruments. Although no
trading market exists, the Company believes that the
carrying amount of its debt approximates fair value due
to its variable nature. The Company’s investments in
non-marketable equity instruments of private compa-
nies are carried at cost and are periodically assessed
for other-than-temporary impairment, when an event or
circumstances indicate that an other-than-temporary
decline in value may have occurred. The Company’s
remaining financial assets and liabilities are measured
and recorded at fair value (see table below). The
Company’s non-financial assets, such as intangible
assets with determinable lives and property, plant and
equipment, are recorded at cost and are assessed for
impairment when an event or circumstance indicates
that an other-than-temporary decline in value may have
occurred. Goodwill and indefinite lived intangibles are
tested for impairment annually, or more frequently if
events occur or circumstances change such that it is
more likely than not that an impairment may exist,
as required under the accounting standards.
Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability,
in the principal or most advantageous market for the
asset or liability, in an orderly transaction between
market participants at the measurement date. The
authoritative guidance for fair value measurements
establishes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 measurements)
and the lowest priority to unobservable inputs (level
3 measurements). The three levels of the fair value
hierarchy under the guidance are described below:
Level 1 Valuations based on quoted prices in active
markets for identical assets or liabilities that
the entity has the ability to access.
Level 2 Valuations based on quoted prices for similar
assets or liabilities, quoted prices in markets
that are not active, or other inputs that are
observable or can be corroborated by
observable data for substantially the
full term of the assets or liabilities.
Level 3 Valuations based on inputs that are supported
by little or no market activity and that are
significant to the fair value of the assets
or liabilities.
The following table presents by level, within the fair
value hierarchy, financial assets and liabilities mea-
sured at fair value on a recurring basis:
Fair Value Measurements
Assets (Liabilities)
Carrying Value Level 1 Level 2 Level 3
(in thousands)
Assets (liabilities) as of July 1, 2018:
Trading securities
held in a
“rabbi trust” (1)
$9,368 $9,368 $ –– $ ––
$9,368 $9,368 $ –– $ ––
Assets (liabilities) as of July 2, 2017:
Trading securities
held in a
“rabbi trust” (1)
$6,916 $6,916 $ –– $ ––
$6,916
$6,916 $ –– $ ––
( 1 ) The Company has established a Non-qualified Deferred Compensation
Plan (the “NQDC Plan”) for certain members of senior management.
Deferred compensation plan assets are invested in mutual funds held in a
“rabbi trust,” which is restricted for payment to participants of the NQDC
Plan. Trading securities held in a rabbi trust are measured using quoted
market prices at the reporting date and are included in the “Other assets”
line item, with the corresponding liability included in the “Other liabilities”
line item in the consolidated balance sheets.
Note 11. Income Taxes
Significant components of the income tax provision
are as follows:
Years Ended
July 1, July 2, July 3,
2018 2017 2016
(in thousands)
Current provision:
Federal
State
Foreign
Current income
tax expense
$ 3,385
1,514
––
$11,859 $15,876
2,703
––
1,758
––
4,899
13,617
18,579
Deferred provision (benefit):
Federal
State
Foreign
Deferred income tax
(9,331)
1,648
15
(1,563) (2,949)
(7)
(90)
(44)
4
(benefit)
(7,668)
(1,649)
(3,000)
Income tax expense
(benefit)
$ (2,769)
$11,968 $15,579
37
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
A reconciliation of the U.S. federal statutory tax rate to
the Company’s effective tax rate is as follows:
Years Ended
July 1, July 2, July 3,
2018 2017 2016
Tax at U.S. statutory rates
35.0%
State income taxes, net
of federal tax benefit
35.0%
28.0%
5.7
Valuation allowance change 2.6
Foreign rate differences ––
Deductible stock-based
2.3
14.9
0.1
3.4
1.3
(2.6)
compensation (1.6) (1.6) (0.2)
Domestic production
deduction (2.0) (2.1) (2.6)
Tax credits (2.5) (1.7) (4.2)
Tax Act impact on
deferred tax balance (1)
Return to provision
Tax effect of
(32.0) –– ––
(0.3)
(5.8) ––
Fannie May disposition –– (25.3) ––
(0.3) (0.2) 0.5
21.4%
(7.3)%
Other, net
Effective tax rate
30.3%
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The
significant components of the Company’s deferred
income tax assets (liabilities) are as follows:
Years Ended
July 1, July 2,
2018 2017
(in thousands)
Deferred income tax assets:
Loss and credit
carryforwards
Accrued expenses
and reserves
Stock-based
compensation
Deferred compensation
Gross deferred
$ 11,286 $ 12,717
3,871
1,344
1,711
4,626
2,565
1,950
income tax assets
21,858
Less: Valuation allowance (9,972) (11,772)
10,086
Deferred tax assets, net
18,212
8,240
On December 22, 2017, the U.S. government enacted
comprehensive tax legislation pursuant to the Tax Cuts
and Jobs Act (the “Tax Act”), which significantly revised
the ongoing U.S. corporate income tax law by lowering
the U.S. federal corporate income tax rate from 35% to
21%. As the Company has a July 1, 2018 fiscal year end,
the lower corporate income tax rate was phased in,
resulting in a U.S. statutory federal rate of approximately
28% for the Company’s fiscal year ended July 1, 2018,
and 21% for subsequent fiscal years.
( 1 ) Due to the complexities involved in accounting
for the Tax Act, the SEC’s Staff Accounting Bulletin
(“SAB”) 118 requires that the Company include in its
financial statements a reasonable estimate of the
impact of the Tax Act on earnings to the extent such
reasonable estimate has been determined. Accordingly,
for the fiscal year ended July 1, 2018, the Company
recorded a tax benefit of $12.2 million related to the
net change in deferred tax liabilities from the Tax Act’s
reduction of the U.S. federal tax rate from 35% to 21%.
Certain deferred tax assets may be impacted by the
Company’s final interpretation of current and future
guidance issued in connection with the changes
imposed by the Tax Act on the deductibility of executive
compensation. However, the Company does not expect
such changes to be material to the financial statements.
Pursuant to SAB 118, the Company is allowed a
measurement period of up to one year after the enact-
ment date of the Tax Act to finalize the recording of the
related tax impacts and will record any further resulting
tax adjustments during fiscal 2019.
Deferred income taxes reflect the net tax effects of
38
Deferred income tax liabilities:
Other intangibles (14,983) (20,537)
Tax in excess of
book depreciation (19,457) (23,417)
Deferred tax liabilities (34,440) (43,954)
Net deferred
income tax liabilities
$ (26,200) $ (33,868)
A valuation allowance is provided when it is more
likely than not that some portion, or all, of the deferred
tax assets will not be realized. The Company has
established valuation allowances, primarily for certain
state and all foreign net operating losses as well as
federal and state capital loss carryforwards. The Com-
pany does not expect to utilize the federal and state
capital loss carryforward prior to expiration and has
therefore provided for a full valuation allowance. At July
1, 2018, the Company’s total federal and state capital
loss carryforwards were $28.4 million, which if not
utilized, will expire in fiscal 2022. The Company’s foreign
net operating loss carryforwards were $2.8 million, which
if not utilized, will begin to expire in fiscal 2034.
The Company files income tax returns in the U.S.
federal jurisdiction, various state jurisdictions, and
various foreign countries. The Company is currently
undergoing its U.S. federal examination for fiscal 2016,
however, fiscal years 2015 and 2017 remain subject to
U.S. federal examination. Due to ongoing state examina-
tions and nonconformity with the U.S. federal statute of
limitations for assessment, certain states remain open
from fiscal 2013. The Company’s foreign income tax
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 13. Stock Based Compensation
The Plan is administered by the Compensation
Committee or such other Board committee (or the
entire Board) as may be designated by the Board (the
“Committee”). At July 1, 2018, the Company has reserved
approximately 5.5 million shares of Class A common
stock for issuance, including options previously autho-
rized for issuance under the 1999 Stock Incentive Plan.
The amounts of stock-based compensation expense
recognized within operating income (*) in the periods
presented are as follows:
Years Ended
July 1, July 2, July 3,
2018 2017 2016
(in thousands, except per share data)
Stock options
Restricted stock awards
Total
Deferred income tax benefit
Stock-based compensation
$ 429
3,297
3,726
961
$ 446
5,248
5,694
2,213
$ 432
5,911
6,343
1,987
expense, net
$2,765 $3,481
$4,356
Stock based compensation expense is recorded
within the following line items of operating expenses:
Years Ended
July 1, July 2, July 3,
2018 2017 (*) 2016
(in thousands)
Marketing and sales
Technology and
development
General and administrative
Total
$ 989
$1,624
$2,306
198
2,539
315
3,755
$3,726 $5,694
493
3,544
$6,343
Stock-based compensation expense has not
been allocated between business segments, but is
reflected as part of Corporate overhead. (See Note 15.
for details).
(*) Excludes approximately $0.4 milliom of stock-based compensation
expense recorded within the gain on the sale of Fannie May, resulting
from the acceleration of vesting of shares for Fannie May personnel,
upon closing of the disposition.
filings from fiscal 2013 forward are open for examination
by its respective foreign tax authorities, mainly Canada,
Brazil, and the United Kingdom.
The Company’s policy is to recognize interest and
penalties accrued on any unrecognized tax benefits as
a component of income tax expense. At July 1, 2018, the
Company has an unrecognized tax benefit, including an
immaterial amount of accrued interest and penalties, of
approximately $0.6 million. The Company believes that
no significant unrecognized tax positions will be resolved
over the next twelve months.
Note 12. Capital Stock
Holders of Class A common stock generally have
the same rights as the holders of Class B common stock,
except that holders of Class A common stock have one
vote per share and holders of Class B common stock
have 10 votes per share on all matters submitted to the
vote of stockholders. Holders of Class A common stock
and Class B common stock generally vote together as a
single class on all matters presented to the stockholders
for their vote or approval, except as may be required by
Delaware law. Class B common stock may be converted
into Class A common stock at any time on a one -for- one
share basis. Each share of Class B common stock will
automatically convert into one share of Class A common
stock upon its transfer, with limited exceptions. During
fiscal 2018 and fiscal 2017, 78,780 and 1,361,401 shares
of Class B common stock, respectively, were converted
into shares of Class A common stock.
The Company has a stock repurchase plan through
which purchases can be made from time to time in the
open market and through privately negotiated transac-
tions, subject to general market conditions. The repur-
chase program is financed utilizing available cash. In
October 2016, the Company’s Board of Directors autho-
rized an increase to its stock repurchase plan of up to
$25 million, and then on August 30, 2017, the Board of
Directors increased the authorization to $30.0 million.
The Company repurchased a total of $12.2 million
(1,269,059 shares), $10.7 million (1,120,706 shares)
and $15.2 million (1,714,550 shares) during the fiscal
years ended July 1, 2018, July 2, 2017 and July 3, 2016,
respectively, under this program. As of July 1, 2018,
$20.0 million remains authorized under the plan.
The Company has stock options and restricted stock
awards outstanding to participants under the 1 - 800 -
FLOWERS.COM 2003 Long Term Incentive and Share
Award Plan (as amended and restated as of October 22,
2009, as amended as of October 28, 2011 and September
14, 2016) ( the “Plan”). The Plan is a broad-based, long-
term incentive program that is intended to provide incen-
tives to attract, retain and motivate employees, consultants
and directors in order to achieve the Company’s long-term
growth and profitability objectives. The Plan provides for
the grant to eligible employees, consultants and directors
of stock options, share appreciation rights (“SARs”),
restricted shares, restricted share units, performance
shares, performance units, dividend equivalents, and
other share-based awards (collectively “Awards”).
39
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Stock Options
The Company did not grant stock options during fiscal years 2018, 2017 and 2016. The following table summarizes
stock option activity during the year ended July 1, 2018:
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Options Price Contractual Term (years) Value (000s)
Outstanding beginning of period 2,127,734 $ 2.42
Granted –– $ ––
Exercised (142,000) $ 2.49
Forfeited/Expired (17,500) $ 9.83
Outstanding end of period 1,968,234 $ 2.35
Options vested or expected to
2.9
vest at end of period 1,968,234 $ 2.35 2.9
2.8
1,580,234 $ 2.29
Exercisable at July 1, 2018
$20,077
$20,077
$16,207
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference be-
tween the Company’s closing stock price on the last trading day of fiscal 2018 and the exercise price, multiplied by
the number of in-the-money options) that would have been received by the option holders had all option holders
exercised their options on July 1, 2018. This amount changes based on the fair market value of the Company’s stock.
The total intrinsic value of options exercised for the years ended July 1, 2018, July 2, 2017 and July 3, 2016 was $1.1
million, $0.5 million and $4.2 million, respectively.
The following table summarizes information about stock options outstanding at July 1, 2018:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Options Contractual Life Exercise Options Exercise
Exercise Price Outstanding (years) Price Exercisable Price
1.79
$
2.22 - 2.44
$
$
2.63
$ 3.26 - 10.20
895,000
32,000
1,000,000
41,234
1,968,234
2.3
1.5
3.3
4.7
2.9
$ 1.79
$ 2.43
$ 2.63
$ 7.63
$ 2.35
770,000
32,000
750,000
28,234
1,580,234
$ 1.79
$ 2.43
$ 2.63
$ 6.94
$ 2.29
As of July 1, 2018, the total future compensation cost related to non-vested options not yet recognized in the
statement of operations was $0.4 million and the weighted average period over which these awards are expected to
be recognized was 1.0 years.
Restricted Stock
The Company grants shares of Common Stock to its
employees that are subject to restrictions on transfer
and risk of forfeiture until fulfillment of applicable
service conditions and, in certain cases, holding
periods (Restricted Stock).
The following table summarizes the activity of non-
vested restricted stock during the year ended
July 1, 2018:
Weighted
Average
Grant Date
Shares Fair Value
Non-vested – beginning of period 1,352,873 $ 7.44
Granted 921,473 $ 9.50
Vested (622,734) $ 7.87
Forfeited (683,339) $ 9.46
Non-vested - end of period 968,273 $ 7.70
The fair value of non-vested shares is determined
based on the closing stock price on the grant date. As of
July 1, 2018, there was $4.3 million of total unrecognized
compensation cost related to non-vested restricted stock-
based compensation to be recognized over a weighted-
average period of 1.8 years.
40
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 14. Employee Retirement Plans
The Company has a 401 (k) Profit Sharing Plan
covering substantially all of its eligible employees.
All employees who have attained the age of 21 are
eligible to participate upon completion of one month
of service. Participants may elect to make voluntary
contributions to the 401 (k) plan in amounts not
exceeding federal guidelines. On an annual basis the
Company, as determined by its board of directors, may
make certain discretionary contributions. Employees
are vested in the Company’s contributions based
upon years of service. The Company suspended all
contributions during fiscal years 2018, 2017 and 2016.
The Company also has a nonqualified supplemental
deferred compensation plan for certain executives
pursuant to Section 409A of the Internal Revenue Code.
Participants can defer from 1% up to a maximum of
100% of salary and performance and non-performance
based bonus. Up until December 31, 2016, the Com-
pany matched 50% of the deferrals made by each
participant during the applicable period, up to a
maximum of $2,500. Effective January 1, 2017, the
Company suspended contributions. Employees are
vested in the Company’s contributions based upon
years of participation in the plan. Distributions will be
made to participants upon termination of employment
or death in a lump sum, unless installments are
selected. As of July 1, 2018 and July 2, 2017, these
plan liabilities, which are included in “Other liabilities”
within the Company’s consolidated balance sheets,
totaled $9.4 million and $6.9 million, respectively.
The associated plan assets, which are subject to the
claims of the creditors, are primarily invested in mutual
funds and are included in “Other assets” within the
Company’s consolidated balance sheets. Company
contributions during the years ended July 2, 2017 and
July 3, 2016 were less than $0.1 million. The gains
(losses) on these investments were $0.8 million, $1.0
million and ( $0.1 ) million for the years ended July 1,
2018, July 2, 2017 and July 3, 2016, are included in
“Other (income) expense, net,” within the Company’s
consolidated statements of income.
Note 15. Business Segments
The Company’s management reviews the results
of the Company’s operations by the following three
business segments:
(cid:127) 1-800-Flowers.com Consumer Floral,
(cid:127) BloomNet Wire Service, and
(cid:127) Gourmet Foods & Gift Baskets
Segment performance is measured based on contri-
bution margin, which includes only the direct controllable
revenue and operating expenses of the segments.
As such, management’s measure of profitability for
these segments does not include the effect of corporate
overhead (see (a) below), nor does it include deprecia-
tion and amortization, other (income) expense, net and
income taxes, or stock-based compensation which is
included within corporate overhead. Assets and liabilities
are reviewed at the consolidated level by management
and not accounted for by segment.
Net Revenues
Years Ended
July 1, July 2, July 3,
2018 2017 2016
(in thousands)
Net revenues:
1-800-Flowers.com
Consumer Floral
BloomNet Wire
Service
Gourmet Foods &
Gift Baskets
Corporate
Intercompany
$ 457,460 $ 437,132 $ 418,492
89,569
87,700
85,483
605,523
670,677
670,453
1,114
1,102
1,066
eliminations (1,745) (2,986) (2,470)
Total net revenues
$1,151,921
$1,193,625 $1,173,024
Operating Income from Continuing Operations
Years Ended
July 1, July 2, July 3,
2018 2017 2016
(in thousands)
Segment Contribution Margin:
1-800-Flowers.com
Consumer Floral $50,808 $ 51,860 $ 50,773
BloomNet Wire
Service
Gourmet Foods &
Gift Baskets
Segment Contribution
Margin Subtotal
31,683 32,383 30,629
70,927 77,312 79,398
153,418 161,555 160,800
Corporate (a) (79,901) (81,820) (85,134)
Depreciation and
amortization (32,469) (33,376) (32,384)
Operating income $ 41,048 $ 46,359 $ 43,282
(a) Corporate expenses consist of the Company’s enterprise shared service
cost centers, and include, among other items, Information Technology,
Human Resources, Accounting and Finance, Legal, Executive and Customer
Service Center functions, as well as Stock-Based Compensation. In order to
leverage the Company’s infrastructure, these functions are operated under a
centralized management platform, providing support services throughout the
organization. The costs of these functions, other than those of the Customer
Service Center, which are allocated directly to the above categories based
upon usage, are included within corporate expenses as they are not directly
allocable to a specific segment.
41
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 17. Fire at the Fannie May Warehouse
and Distribution Facility
On November 27, 2014, a fire occurred at the Company’s
Maple Heights, Ohio warehouse and distribution facility.
While the fire did not cause any injuries, the building was
severely damaged, rendering it inoperable for the key cal-
endar 2014 holiday season, and all Fannie May and Harry
London confections in the facility were destroyed.
During fiscal 2016, the Company and its insurance
carrier reached final agreement, and the Company
received all remaining proceeds from its Fannie May fire
claim. The agreement, in the amount of $55.0 million,
provided for: (i) recovery of raw materials and work-in-
process at replacement cost, and finished goods at
selling price, less costs to complete the sale and normal
discounts and other charges, as well as (ii) other incre-
mental fire-related costs. The cost of inventory lost in the
fire was approximately $29.6 million, while other fire-
related costs amounted to approximately $5.8 million,
including incremental contracted lease and cold storage
fees which were incurred by the Company until the move
back into its leased facility once the landlord completed
repairs, during the Company’s third quarter of fiscal 2016.
The resulting gain of $19.6 million is included in “Other
(income) expense, net” in the consolidated statements
of income for the year ended July 3, 2016.
The following table reflects the costs related to the fire
and the insurance recovery and associated gain as of
July 3, 2016:
Fire-related
Insurance Recovery
(in thousands)
Loss on inventory
Other fire related costs
Total fire related costs
$ 29,587
5,802
35,389
Less: fire related insurance recoveries (55,000)
$ (19,611)
Fire related gain
Note 16. Commitments and Contingencies
Leases
The Company currently leases office, store facilities,
and equipment under various leases through fiscal 2030.
As these leases expire, it can be expected that in the
normal course of business they will be renewed or
replaced. Most lease agreements contain renewal
options and rent escalation clauses and require the
Company to pay real estate taxes, insurance, common
area maintenance and operating expenses applicable
to the leased properties. The Company has also entered
into leases that are on a month-to-month basis. These
leases are classified as either capital leases, operating
leases or subleases, as appropriate.
As of July 1, 2018, future minimum rental payments
under non-cancelable operating leases with initial terms
of one year or more consist of the following:
Operating
Leases
(in thousands)
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
$15,722
11,615
10,020
8,880
8,596
43,189
$98,022
At July 1, 2018, the total future minimum sublease
rentals under non-cancelable operating sub-leases for
land and buildings were $3.8 million. Rent expense was
approximately $25.7 million, $32.6 million and $34.3
million for the years ended July 1, 2018, July 2, 2017
and July 3, 2016, respectively.
Other Commitments
The Company’s purchase commitments consist
primarily of inventory, equipment and technology (hard-
ware and software) purchase orders made in the ordinary
course of business, most of which have terms less than
one year. As of July 1, 2018, the Company had fixed and
determinable off-balance sheet purchase commitments
with remaining terms in excess of one year of approxi-
mately $3.5 million, primarily related to the Company’s
technology infrastructure and inventory commitments.
The Company had approximately $1.8 million in
unused stand-by letters of credit as of July 1, 2018.
Litigation
There are various claims, lawsuits, and pending
actions against the Company and its subsidiaries
incident to the operations of its businesses. It is the
opinion of management, after consultation with counsel,
that the ultimate resolution of such claims, lawsuits and
pending actions will not have a material adverse effect
on the Company’s consolidated financial position,
results of operations or liquidity.
42
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is
defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act as a process designed by, or under the
supervision of, the Company’s principal executive and
principal financial officers and effectuated by the
Company’s board of directors, management and other
personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with U.S. generally accepted accounting principles (“U.S.
GAAP”), and includes those policies and procedures that:
(cid:127) pertain to the maintenance of records that, in reason-
able detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
(cid:127) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP, and that
receipts and expenditures of the Company are being
made in accordance with authorization of management
and directors of the Company; and
(cid:127) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk
that controls may become inadequate because of
changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management, including the Company’s Chief
Executive Officer and Chief Financial Officer, assessed
the effectiveness of the Company’s internal control over
financial reporting based on criteria established in
Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework), (the COSO criteria).
Based on this assessment, management concluded that
the Company’s internal control over financial reporting
was effective as of July 1, 2018.
The Company’s independent registered public
accounting firm, BDO USA, LLP, audited the effectiveness
of the Company’s internal control over financial reporting
as of July 1, 2018. BDO USA, LLP’s report on the
effectiveness of the Company’s internal control over
financial reporting as of July 1, 2018 is set forth below.
43
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
1-800-Flowers.com, Inc.
Carle Place, NY
Opinion on Internal Control over Financial Reporting
We have audited 1-800-FLOWERS.COM, Inc. (the
“Company’s”) internal control over financial reporting as
of July 1, 2018, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”). In our opinion, based
on our audit, the Company maintained, in all material
respects, effective internal control over financial reporting
as of July 1, 2018, based on the COSO criteria.
We also have audited, in accordance with the stan-
dards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the consolidated balance
sheets of 1-800-FLOWERS.COM. Inc. and Subsidiaries as
of July 1, 2018 and July 2, 2017 and the related consoli-
dated statements of income, comprehensive income,
stockholders’ equity and cash flows for each of the three
years in the period ended July 1, 2018, and the related
notes and schedule and our report dated September 14,
2018, expressing an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for
maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying “Item 9A, Management’s Report on
Internal Control over Financial Reporting”. Our responsi-
bility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We
are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws
and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit of internal control over
financial reporting in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting
was maintained in all material respects. Our audit
included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing
such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control over
Financial Reporting
A company’s internal control over financial reporting
is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes
in accordance with generally accepted accounting
principles. A company’s internal control over financial
reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reason-
able detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements
in accordance with generally accepted accounting
principles, and that receipts and expenditures of the
company are being made only in accordance with
authorizations of management and directors of the
company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
BDO USA, LLP
Melville, New York
September 14, 2018
44
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
1-800-FLOWERS.COM, Inc.
Carle Place, NY
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheets of 1-800-FLOWERS.COM, Inc. and
Subsidiaries as of July 1, 2018 and July 2, 2017 and the
related consolidated statements of income, comprehen-
sive income, stockholders’ equity, and cash flows for each
of the three years in the period ended July 1, 2018, and
the related notes and schedule (collectively referred to as
the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all
material respects, the financial position of the Company
and subsidiaries at July 1, 2018 and July 2, 2017, and the
results of their operations and their cash flows for each of
the three years in the period ended July 1, 2018 ,
in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the Company’s internal
control over financial reporting as of July 1, 2018, based
on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsor-
ing Organizations of the Treadway Commission (“COSO”)
and our report dated September 14, 2018 expressed an
unqualified opinion thereon.
Basis for Opinion
consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial
statements are free of material misstatement, whether
due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to
error or fraud, and performing procedures that respond
to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles
used and significant estimates made by management, as
well as evaluating the overall presentation of the consoli-
dated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2014.
These consolidated financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s
BDO USA, LLP
Melville, New York
September 14, 2018
45
Market for Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Market Information
1-800-FLOWERS.COM’s Class A common stock
trades on The NASDAQ Global Select Market under the
ticker symbol “FLWS.” There is no established public
trading market for the Company’s Class B common stock.
The following table sets forth the reported high and low
sales prices for the Company’s Class A common stock for
each of the fiscal quarters during the fiscal years ended
July 1, 2018 and July 2, 2017.
fiscal 2018 and fiscal 2017, 78,780 and 1,361,401 shares
of Class B common stock, respectively, were converted
into shares of Class A common stock.
Holders
As of September 7, 2018, there were approximately
239 stockholders of record of the Company’s Class A
common stock, although the Company believes that there
is a significantly larger number of beneficial owners. As of
September 7, 2018, there were approximately 6 stockhold-
ers of record of the Company’s Class B common stock.
Dividend Policy
The Company has never declared or paid any
cash dividends on its Class A or Class B common stock.
Although the Company has no current intent to do so, the
Company may choose, at some future date, to use some
portion of its cash for the purpose of cash dividends.
Purchases of Equity Securities by the Issuer
The Company has a stock repurchase plan through
which purchases can be made from time to time in the
open market and through privately negotiated transactions,
subject to general market conditions. The repurchase
program is financed utilizing available cash. On August 30,
2017, the Company’s Board of Directors authorized an
increase to its stock repurchase plan of up to $30.0 million.
The Company repurchased a total of $12.2 million
(1,269,059 shares), $10.7 million (1,120,706 shares)
and $15.2 million (1,714,550 shares) during the fiscal
years ended July 1, 2018, July 2, 2017 and July 3, 2016,
respectively, under this program. As of July 1, 2018,
$20.0 million remained authorized under the plan.
Rights of Common Stock
Holders of Class A common stock generally have the
same rights as the holders of Class B common stock,
except that holders of Class A common stock have one
vote per share and holders of Class B common stock
have 10 votes per share on all matters submitted to the
vote of stockholders. Holders of Class A common stock
and Class B common stock generally vote together as a
single class on all matters presented to the stockholders
for their vote or approval, except as may be required by
Delaware law. Class B common stock may be converted
into Class A common stock at any time on a one-for-one
share basis. Each share of Class B common stock will
Total Number of Dollar Value of
automatically convert into one share of Class A common
Shares Purchased as Shares that May Yet
stock upon its transfer, with limited exceptions. During
Part of Publicly Be Purchased Under
Total Number of Average Price Announced Plans or the Plans or
Period Shares Purchased Paid Per Share (1) Programs Programs
the Company’s purchase of common stock during the
fiscal year ended July 1, 2018, which includes the period
July 3, 2017 through July 1, 2018:
The following table sets forth, for the months indicated,
(in thousands, except average price paid per share)
07/03/17 - 07/30/17
07/31/16 - 08/27/17
08/28/17 - 10/01/17
10/02/17 - 10/29/17
10/30/17 - 12/03/17
12/04/17 - 12/31/17
01/01/18 - 01/28/18
01/29/18 - 02/25/18
02/26/18 - 04/01/18
04/02/18 - 04/29/18
04/30/18 - 05/27/18
05/28/18 - 07/01/18
89.3
99.6
268.7
233.5
414.3
61.9
––
93.2
––
––
8.6
––
$ 9.66
$ 9.08
$ 9.43
$ 9.62
$ 9.36
$10.16
––
$10.60
––
––
$11.85
––
$ 9.57
1,269.1
Total
(1) Average price per share excludes commissions and other transaction fees.
46
89.3
99.6
268.7
233.5
414.3
61.9
––
93.2
––
––
8.6
––
1,269.1
$16,363
$15,456
$27,859
$25,606
$21,719
$21,089
$21,089
$20,098
$20,098
$20,098
$19,997
$19,997
Comparison of 5 Year Cumulative Total Return*
Among 1-800-Flowers.com, Inc., the Russell 2000 Index
and the NASDAQ Non-Financial Index
■
1-800-FLOWERS.COM, INC.
▼
Russell 2000
●
Nasdaq Non-Financial
*$100 invested on 6/30/13 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.
47
One Old Country Road, Suite 500
Carle Place, NY 11514
(516) 237-6000
Special Note
Regarding Forward-Looking Statements
This annual report contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements represent the Compa-
ny’s current expectations or beliefs concerning future events and
can generally be identified by the use of statements that include
words such as “estimate,” “expects,” “project,” “believe,” “anticipate,”
“intend,” “plan,” “foresee,” “likely,” “will,” or similar words or phrases.
These forward-looking statements are subject to risks, uncertain-
ties and other factors, many of which are outside of the Company’s
control, which could cause actual results to differ materially from
the results expressed or implied in the forward-looking statements,
including, among others: the Company’s ability to achieve its
guidance for revenue, EBITDA and EPS; its ability to manage the
significant seasonality of its business; its ability to integrate the
operations of acquired companies; its ability to cost effectively
acquire and retain customers; the outcome of contingencies,
including legal proceedings in the normal course of business; its
ability to compete against existing and new competitors; its ability
to manage expenses associated with sales and marketing and nec-
essary general and administrative and technology investments and
general consumer sentiment and economic conditions that may
affect levels of discretionary customer purchases of the Company’s
products. The Company undertakes no obligation to publicly
update any of the forward-looking statements, whether as a
result of new information, future events or otherwise, made in this
annual report or in any of its SEC filings except as may be other-
wise stated by the Company. For a more detailed description of
these and other risk factors, and a list of definitions of non-GAAP
terms, please refer to the Company’s SEC filings including the
Company’s Annual Reports on Form 10-K and its Quarterly Reports
on Form 10-Q. Consequently, you should not consider any such
list to be a complete set of all potential risks and uncertainties.
Stock Exchange Listing
NASDAQ Global Select Market
Ticker Symbol: FLWS
Transfer Agent and Registrar
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, New York 11219
(718) 921-8200
Independent Auditors
BDO USA, LLP
401 Broadhollow Road
Suite 201
Melville, NY 11747
(631) 501-9600
SEC Counsel
Cahill Gordon and Reindel LLP
80 Pine Street
New York, NY 10005
(212) 701-3000
Shareholder Inquiries
Copies of the Company’s reports on Forms
10-K and 10-Q as filed with the Securities
and Exchange Commission and additional
information about 1-800-FLOWERS.COM, Inc.
may be obtained by visiting the Investor
Relations section at www.1800flowersinc.com,
by calling 516-237-6113, or by writing to:
Investor Relations
1-800-FLOWERS.COM, Inc.
One Old Country Road, Suite 500
Carle Place, NY 11514
Find it. Love it. Gift it.
One Old Country Road, Suite 500
Carle Place, NY 11514
1800flowers.com
(516) 237-6000