# 1 800 FLOWERS COM INC (FLWS) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from 1 800 FLOWERS COM INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1084869/000143774922022580/flws20220626_10k.htm
Accession: 0001437749-22-022580
Filing date: 2022-09-16
Report date: 2022-07-03
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/FLWS/
All MD&A years: /company/FLWS/mda/
Previous year: /company/FLWS/mda/fy2021/ (FY 2021)
Next year: /company/FLWS/mda/fy2023/ (FY 2023)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-K. The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Forward-Looking Information” and under Item 1A — “Risk Factors.”

Business overview

The Company is a leading provider of gifts designed to help customers express, connect and celebrate. See Item 1 in Part I for a detailed description of the Company’s business.

Business Segments

The Company operates in the following three business segments: Consumer Floral & Gifts, Gourmet Foods & Gift Baskets, and BloomNet. The Consumer Floral & Gifts segment includes the operations of the Company’s flagship brand, 1-800-Flowers.com, PersonalizationMall, FruitBouquets.com, Flowerama and Alice’s Table, while the Gourmet Foods & Gift Baskets segment includes the operations of Harry & David, Wolferman’s Bakery, Vital Choice, Moose Munch, Stock Yards, Cheryl’s, Mrs. Beasley’s, The Popcorn Factory, DesignPac, 1-800-Baskets.com, Simply Chocolate and Shari’s Berries. The BloomNet segment includes the operations of BloomNet and Napco.

Fiscal 2022 Results

During fiscal 2022, the Company recorded revenue growth of 4.0%, with total revenues exceeding $2.2 billion. This growth comes on top of the 42.5% revenue growth we saw in fiscal 2021, and represents revenue growth of 76.8% compared with fiscal 2019 (48.8%, excluding the impact of acquisitions), our last full fiscal year prior to the start of the pandemic. However, this was a challenging year for the Company due to a change in consumer behavior, in reaction to unprecedented inflation in the macro economy, which also resulted in a rapid rise of costs, that negatively impacted our gross margins and operating expenses. As a result, our earnings were well below our expectations.

Our business – and the macro-economy – have gone through several significant stages over the past few years. Prior to the pandemic, we made the decision to step up our investments in marketing – particularly in our flagship 1-800-Flowers and Harry & David brands, to accelerate revenue growth. This enabled us to significantly accelerate our revenue growth rate from the second half of fiscal 2018 through the first three quarters of fiscal 2020, when we went from low single-digit to double-digit growth. During that period, we also accelerated the growth of our customer file and membership in our Celebrations Passport Loyalty program. These initiatives, along with continued investments in our business platform, positioned us well to respond to the surge that we saw in consumer demand when the world changed dramatically in the spring of 2020 with the advent of the COVID pandemic. Through lockdowns, social distancing and the shift to remote work, the resourcefulness and dedication of our team helped our customers stay connected with the important people in their lives. With the surge in demand, we saw our top and bottom-line results, and our customer file, grow to record levels. As the world began to emerge from the pandemic last year, we once again saw dramatic changes in the macro-economy and consumer behavior, with increased travel, dining out, group celebrations and other pent-up activities. We also experienced rapidly increasing price inflation, unprecedented disruptions in the global supply chain, geopolitical turmoil, and an extremely tight labor market. As a result, we saw consumer demand moderate, while steep cost increases in everything from labor to shipping to commodities, have negatively impacted our gross margins, and increased digital advertising rates resulted in an unfavorable operating expense ratio.

As a result, despite a 4.0% increase in revenues, the aforementioned cost pressures caused a 500 basis point decrease in gross margin, which combined with an inflationary increase in marketing costs, partially offset by non-gross margin related labor reductions due to the elimination of performance bonuses for executives, resulted in a significant decline in Adjusted EBITDA from $213.1 million in fiscal 2021 to $99.0 million in fiscal 2022. (Refer to Reconciliation of Net Income to Adjusted EBITDA below.)

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While inflationary pressures remain, as we enter fiscal 2023, we are beginning to see early improvements in certain areas, including fuel prices that have pulled back from their peak highs, albeit still significantly higher year-over-year, softening in ocean freight rates, and stabilization of labor rates with some improvement in availability. While we hope that these positive trends will continue, we have taken proactive steps to address these issues, utilizing our balance sheet to invest in our operating platform and continuing to build for the future. These investments, include:

[[GREPCENT_TABLE]]
[["","o","the automation of our warehouse and distribution facilities, which reduces our exposure to both labor rate increases and seasonal labor shortages;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","o","buying and building inventories early to mitigate continuing global supply chain issues, and;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","o","implementing logistics optimization programs to manage rising carrier rates."]]
[[/GREPCENT_TABLE]]

We anticipate that these initiatives, combined with strategic pricing programs across our brands, will help us manage rising costs and gradually improve our gross margins and bottom-line results during the latter half of fiscal 2023.

Acquisition of PersonalizationMall

On August 3, 2020, the Company completed its acquisition of PersonalizationMall.com LLC ("PersonalizationMall"), a leading ecommerce provider of personalized products. The extensive offerings of PersonalizationMall include a wide variety of personalization processes such as sublimation, embroidery, digital printing, engraving and sandblasting, while providing an industry-leading customer experience based on a fully integrated business platform that includes a highly automated personalization process and rapid order fulfillment.

The Company used a combination of cash on its balance sheet and its existing credit facility to fund the $245.0 million purchase (subject to certain working capital and other adjustments), which included its newly renovated, leased 360,000 square foot state-of-the-art production and distribution facility, as well as customer database, tradenames and website. PersonalizationMall’s revenues were approximately $171.2 million during its fiscal year ended February 29, 2020 - see Note 4 – Acquisitions in Item 15.

Acquisition of Vital Choice

On October 27, 2021, the Company completed its acquisition of Vital Choice Seafood LLC (“Vital Choice”), a provider of wild-caught seafood and sustainably farmed shellfish, pastured proteins, organic foods, and marine-sourced nutritional supplements. The Company utilized its existing credit facility to fund the $20.0 million purchase (subject to certain working capital and other adjustments), which included tradenames, customer lists, websites and operations. Vital Choice revenues were approximately $27.8 million during its most recent year ended December 31, 2020 - see Note 4 – Acquisitions in Item 15.

Acquisition of Alice’s Table

On December 31, 2021, the Company completed its acquisition of Alice Table LLC (“Alice’s Table”), a lifestyle business offering fully digital livestreaming floral, culinary and other experiences to guests across the country. The Company utilized existing cash of $0.8 million, converted the existing accounts receivable from Alice’s Table of $0.3 million and its previous $0.3 million cost method investment in Alice’s Table, in order to acquire 100% ownership in Alice’s Table, which included tradenames, customer lists, websites and operations. Alice’s Table revenues were approximately $3.8 million during the twelve-month period ended September 30, 2021 - see Note 4 – Acquisitions in Item 15.

Amended Credit Agreement

Subsequent to, but in contemplation of the acquisition of PersonalizationMall, on August 20, 2020, the Company entered into a First Amendment to its 2019 Credit Agreement to: (i) increase the aggregate principal amount of the existing revolving credit facility ("Revolver") commitments from $200.0 million to $250.0 million, (ii) establish a new tranche of term A-1 loans in an aggregate principal amount of $100.0 million (the “2020 Term Loan”), (iii) increase the working capital sublimit with respect to the Revolver from $175.0 million to $200.0 million, and (iv) increase the seasonally-reduced Revolver commitments from $100.0 million to $125.0 million for the period from January 1 through August 1 for each fiscal year of the Company. The 2020 Term Loan will mature on May 31, 2024. The 2020 Term Loan is payable in 15 quarterly installments of principal and interest beginning on September 27, 2020, with escalating principal payments, at the rate of 5.0% per annum for the first four payments, and 10.0% per annum for the remaining 11 payments, with the remaining balance of $67.5 million due upon maturity. The $100.0 million proceeds of the 2020 Term Loan were used to repay the $95.0 million borrowing, which had been drawn on its existing Revolver to finance the acquisition, as well as financing fees of approximately $2.0 million.

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On November 8, 2021, the Company, entered into a Second Amendment to the Company’s existing credit agreement, to, among other modifications, decrease the interest margins and LIBOR floor applicable to the 2020 Term Loan, and subsequent to fiscal 2022 year-end, on August 29, 2022, the Company entered into a Third Amendment to, among other modifications, (A) alter the financial maintenance covenants set forth therein by (1) increasing the required maximum consolidated leverage ratio, for the reference period ending October 2, 2022, from 3.25 to 1.00 to 4.25 to 1.00 and (2) decreasing the required minimum consolidated fixed charge coverage ratio, for the reference periods ending October 2, 2022, January 1, 2023, and April 2, 2023, from 1.50 to 1.00 to 1.00 to 1.00 and (B) increase the amount of certain capital expenditures that may be disregarded for purposes of calculating the consolidated fixed charge coverage ratio from $25.0 million to $35.0 million (See Note 9 - Debt, in Item 15. for details).  

COVID-19

The global COVID-19 pandemic, and its related impacts, have affected, and will continue to affect, our operations and financial results for the foreseeable future. In response to the pandemic, the Company has taken actions to promote employee safety and business continuity, informed by the guidelines set forth by local, state and federal government and health officials. These initiatives are governed by our “Pandemic Preparedness and Response Plan,” which established an internal “nerve center” to assist efforts surrounding: communication and coordination throughout the business, workforce protection and supply chain management, and support for the Company’s customers, vendors, franchisees, and our BloomNet member florists.

Fiscal 2023 Guidance

Based on the highly unpredictable nature of the current macro economy, the Company has decided to provide guidance on a quarter-by-quarter basis, including current business trends to date at the time of its regular quarterly results releases.

[[GREPCENT_TABLE]]
[["","\u25cf","Through the first two months of fiscal 2023, we have seen continued cautious consumer spending behavior reflecting the impact of price inflation, particularly in food and gasoline. As a result, the Company anticipates that its fiscal first quarter revenues will be down in a range of 3.0-to-6.0 percent, compared with the prior year period."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","In terms of cost inputs, the Company anticipates that year-over-year costs for labor, shipping, commodities, and digital marketing will remain high through the first quarter, compared with the prior year period."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","As a result, the Company anticipates that its Adjusted EBITDA loss for the current fiscal first quarter will be in a range of $28.0 million-to-$33.0 million."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Looking ahead, the Company anticipates that the combination of the investments it has made, and continues to make in its business platform, along with strategic pricing programs and moderation of cost inputs, will enable it to gradually achieve improved gross margins and bottom-line results during the latter half of the current fiscal year."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","For the full year, the Company anticipates reduced capital expenditures as well as lower working capital needs compared with the prior year. As a result, the Company expects to generate substantial positive year-over-year free cash flow."]]
[[/GREPCENT_TABLE]]

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 U.S. Securities and Exchange Commission rules. See below for definitions and the reasons why we use these non-GAAP financial measures. Where applicable, see the Segment Information and Results of Operations sections below for reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures. These non-GAAP financial measures are referred to as “non-GAAP”, “ adjusted" or “on a comparable basis” below, as these terms are used interchangeably. Reconciliations for forward-looking figures would require unreasonable efforts at this time because of the uncertainty and variability of the nature and amount of certain components of various necessary GAAP components, including, for example, those related to compensation, tax items, amortization or others that may arise during the year, and the Company’s management believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors. For the same reasons, the Company is unable to address the probable significance of the unavailable information. The lack of such reconciling information should be considered when assessing the impact of such disclosures.

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 comparability. See Segment Information for details on how EBITDA and adjusted EBITDA were calculated for each period presented.

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The Company presents EBITDA and adjusted EBITDA because it considers such information meaningful supplemental measures of its performance and believes such information 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 determine its interest rate and to measure compliance with certain covenants. 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 contribution margin adjusted for certain items affecting period-to-period comparability. See Segment Information for details on how segment contribution margin was calculated for each period presented.

When viewed together with our GAAP results, we believe segment contribution margin and adjusted segment contribution margin provide management and users of the financial statements meaningful information about the performance of our business segments.

Segment contribution margin and adjusted segment contribution margin are used in addition to and in conjunction with results presented in accordance 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 they are an incomplete measure of profitability as they do 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 measures 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 comparable to similarly titled measures employed by other companies.

Free Cash Flow

We define Free Cash Flow as net cash provided by operating activities, less capital expenditures. The Company considers Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of fixed assets, which can then be used to, among other things, invest in the Company’s business, make strategic acquisitions, strengthen the balance sheet and repurchase stock or retire debt. Free Cash Flow is a liquidity measure that is frequently used by the investment community in the evaluation of similarly situated companies. Since Free Cash Flow is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period.

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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, for fiscal years ended July 3, 2022 and June 27, 2021. For segment information for the fiscal year ended June 28, 2020, please refer to our Annual Report on Form 10-K for the fiscal year ended June 28, 2020.

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","July 3, 2022","","","Vital Choice and Alice's Table Transaction Costs","","","Litigation Settlement","","","As Adjusted (non-GAAP) July 3, 2022","","","June 27, 2021","","","Personalization Mall Litigation & Transaction Costs","","","Harry & David Store Closure Costs","","","As Adjusted (non-GAAP) June 27, 2021","","","% Change"],["Net revenues:"],["Consumer Floral & Gifts","","$","1,059,570","","","$","-","","","$","-","","","$","1,059,570","","","$","1,025,015","","","$","-","","","$","-","","","$","1,025,015","","","","3.4","%"],["BloomNet","","","145,702","","","","","","","","","","","","145,702","","","","142,919","","","","","","","","","","","","142,919","","","","1.9","%"],["Gourmet Foods & Gift Baskets","","","1,004,272","","","","","","","","","","","","1,004,272","","","","955,607","","","","","","","","","","","","955,607","","","","5.1","%"],["Corporate","","","201","","","","","","","","","","","","201","","","","341","","","","","","","","","","","","341","","","","-41.1","%"],["Intercompany eliminations","","","(1,860",")","","","","","","","","","","","(1,860",")","","","(1,637",")","","","","","","","","","","","(1,637",")","","","-13.6","%"],["Total net revenues","","$","2,207,885","","","$","-","","","$","-","","","$","2,207,885","","","$","2,122,245","","","$","-","","","$","-","","","$","2,122,245","","","","4.0","%"],["Gross profit:"],["Consumer Floral & Gifts","","$","416,591","","","$","-","","","$","-","","","$","416,591","","","$","420,860","","","$","-","","","$","-","","","$","420,860","","","","-1.0","%"],["","","","39.3","%","","","","","","","","","","","39.3","%","","","41.1","%","","","","","","","","","","","41.1","%"],["BloomNet","","","61,562","","","","","","","","","","","","61,562","","","","64,978","","","","","","","","","","","","64,978","","","","-5.3","%"],["","","","42.3","%","","","","","","","","","","","42.3","%","","","45.5","%","","","","","","","","","","","45.5","%"],["Gourmet Foods & Gift Baskets","","","343,163","","","","","","","","","","","","343,163","","","","410,208","","","","","","","","","","","","410,208","","","","-16.3","%"],["","","","34.2","%","","","","","","","","","","","34.2","%","","","42.9","%","","","","","","","","","","","42.9","%"],["Corporate","","","422","","","","","","","","","","","","422","","","","383","","","","","","","","","","","","383","","","","10.2","%"],["","","","210.0","%","","","","","","","","","","","210.0","%","","","112.3","%","","","","","","","","","","","112.3","%"],["Total gross profit","","$","821,738","","","$","-","","","$","-","","","$","821,738","","","$","896,429","","","$","-","","","$","-","","","$","896,429","","","","-8.3","%"],["","","","37.2","%","","","-","","","","-","","","","37.2","%","","","42.2","%","","","-","","","","-","","","","42.2","%"],["EBITDA (non-GAAP):"],["Segment Contribution Margin (non-GAAP) (a):"],["Consumer Floral & Gifts","","$","104,319","","","$","-","","","$","-","","","$","104,319","","","$","128,625","","","$","-","","","$","-","","","$","128,625","","","","-18.9","%"],["BloomNet","","","42,515","","","","","","","","","","","","42,515","","","","45,875","","","","","","","","","","","","45,875","","","","-7.3","%"],["Gourmet Foods & Gift Baskets","","","62,021","","","","","","","","2,900","","","","64,921","","","","149,377","","","","","","","","(483",")","","","148,894","","","","-56.4","%"],["Segment Contribution Margin Subtotal","","","208,855","","","","-","","","","2,900","","","","211,755","","","","323,877","","","","-","","","","(483",")","","","323,394","","","","-34.5","%"],["Corporate (b)","","","(117,676",")","","","540","","","","","","","","(117,136",")","","","(132,280",")","","","5,403","","","","","","","","(126,877",")","","","7.7","%"],["EBITDA (non-GAAP)","","","91,179","","","","540","","","","2,900","","","","94,619","","","","191,597","","","","5,403","","","","(483",")","","","196,517","","","","-51.9","%"],["Add: Stock-based compensation","","","7,947","","","","","","","","","","","","7,947","","","","10,835","","","","","","","","","","","","10,835","","","","-26.7","%"],["Add: Compensation charge related to NQ Plan Investment (Depreciation) Appreciation","","","(3,583",")","","","","","","","","","","","(3,583",")","","","5,713","","","","","","","","","","","","5,713","","","","-162.7","%"],["Adjusted EBITDA (non-GAAP)","","$","95,543","","","$","540","","","$","2,900","","","$","98,983","","","$","208,145","","","$","5,403","","","$","(483",")","","$","213,065","","","","-53.5","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Reconciliation of net income to adjusted net income (non-GAAP):","","Years Ended"],["","","July 3, 2022","","","June 27, 2021"],["Net income","","$","29,610","","","$","118,652"],["Adjustments to reconcile net income to adjusted net income (non-GAAP)"],["Add: Transaction costs","","","540","","","","5,403"],["Add: Litigation settlement","","","2,900","","","","-"],["Deduct: Harry & David store closure cost adjustment","","","-","","","","(483",")"],["Deduct: Income tax effect on adjustments (c)","","","(165",")","","","(1,005",")"],["Adjusted net income (non-GAAP)","","$","32,885","","","$","122,567"],["Basic and diluted net income per common share"],["Basic","","$","0.46","","","$","1.83"],["Diluted","","$","0.45","","","$","1.78"],["Basic and diluted adjusted net income per common share (non-GAAP)"],["Basic","","$","0.51","","","$","1.89"],["Diluted","","$","0.50","","","$","1.84"],["Weighted average shares used in the calculation of net income and adjusted net income per common share"],["Basic","","","64,977","","","","64,739"],["Diluted","","","65,617","","","","66,546"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Reconciliation of net income to adjusted EBITDA (non-GAAP):","","Years Ended"],["","","July 3, 2022","","","June 27, 2021"],["Net income","","$","29,610","","","$","118,652"],["Add: Interest expense and other expense (income), net","","","10,999","","","","(28",")"],["Add: Depreciation and amortization","","","49,078","","","","42,510"],["Add: Income tax expense","","","1,492","","","","30,463"],["EBITDA","","","91,179","","","","191,597"],["Add: Stock-based compensation","","","7,947","","","","10,835"],["Add: Compensation charge related to NQ plan investment (depreciation) appreciation","","","(3,583",")","","","5,713"],["Add: Transaction costs","","","540","","","","5,403"],["Add: Litigation settlement","","","2,900","","","","-"],["Deduct: Harry & David store closure cost adjustment","","","-","","","","(483",")"],["Adjusted EBITDA","","$","98,983","","","$","213,065"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(a)","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\u2019s 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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(b)","Corporate expenses consist of the Company\u2019s 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\u2019s 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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(c)","Income tax effect on adjustments is calculated based upon the Company's effective tax rate during the applicable period."]]
[[/GREPCENT_TABLE]]

Results of Operations

The Company’s fiscal year is a 52- or 53-week period ending on the Sunday nearest to June 30. Fiscal year 2022, which ended on July 3, 2022, consisted of 53 weeks. Fiscal years 2021 and 2020, which ended on June 27, 2021 and June 28, 2020, respectively, each consisted of 52 weeks.

Net Revenues

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","July 3, 2022","","","% Change","","","June 27, 2021","","","% Change","","","June 28, 2020"],["","","(dollars in thousands)"],["Net revenues:"],["E-Commerce","","$","1,934,648","","","","2.9","%","","$","1,879,550","","","","52.8","%","","$","1,230,385"],["Other","","","273,237","","","","12.6","%","","","242,695","","","","-6.4","%","","","259,252"],["","","$","2,207,885","","","","4.0","%","","$","2,122,245","","","","42.5","%","","$","1,489,637"]]
[[/GREPCENT_TABLE]]

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 3, 2022, net revenues increased 4.0% in comparison to prior year due to higher volumes across all three of our segments. Adjusted for the non-comparative impact of PersonalizationMall, Alice’s Table and Vital Choice, which were acquired on August 3, 2020, December 31, 2021 and October 27, 2021, respectively, consolidated net revenues increased 2.5%, in comparison to the prior year period. This revenue growth followed the 42.5% (26.6% excluding PersonalizationMall) revenue growth we reported for fiscal 2021, which benefitted from the accelerated growth of e-commerce shopping during the pandemic, continuing the strong growth momentum that we had generated over the past several years, as a result of increased recognition and relevance for our family of brands for gifting and connective occasions. We also continued to see growth from our existing customers as our Celebrations Passport loyalty program continued to drive increased cross-brand purchasing, frequency, retention, and customer life-time value. However, during fiscal 2022, the macro economy changed dramatically once again, and we were, and will continue to be faced with significant headwinds which have slowed consumer demand and increased our costs, including limited availability of production and distribution labor, escalating global supply-chain disruptions that caused shortages of key components for some products, geopolitical turmoil, commodity shortages, rapid price inflation, and increased digital marketing costs.

To provide perspective, our post-pandemic fiscal 2022 revenues exceeded our pre-pandemic fiscal 2019 revenues by 76.8%. This revenue growth includes the impact of PersonalizationMall, which was acquired on August 3, 2020, as well as Vital Choice, which was acquired on October 27, 2021, Shari’s Berries, which was acquired in August 2019, and Alice's Table, which was acquired on December 31, 2021. Excluding revenues from these acquisitions, pro-forma revenue growth exceeded pre-pandemic fiscal 2019 revenues by 48.8%.

During the year ended June 27, 2021, net revenues increased 42.5% in comparison to the prior year, reflecting strong growth across the Company’s three business segments. Excluding revenues of PersonalizationMall.com, which was acquired on August 3, 2020, total net revenues grew 26.6% in comparison to the prior year, as the favorable growth trends we had been seeing in everyday gifting occasions, beginning with the fourth quarter of fiscal 2020, continued through the third quarter of fiscal 2021, before normalizing with the annualization of the pandemic during the fourth quarter of fiscal 2021.

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Disaggregated revenue by channel follows:

[[GREPCENT_TABLE]]
[["Years Ended"],["","","Consumer Floral & Gifts","","BloomNet","","Gourmet Foods & Gift Baskets","","Corporate and Eliminations","","Consolidated"],["","","July 3, 2022","","","June 27, 2021","","","% Change","","July 3, 2022","","","June 27, 2021","","","% Change","","July 3, 2022","","","June 27, 2021","","","% Change","","July 3, 2022","","","June 27, 2021","","July 3, 2022","","","June 27, 2021","","","% Change"],["Net revenues"],["E-commerce","","$","1,049,821","","","$","1,015,716","","","","3.4","%","$","-","","","$","-","","","","-","","$","884,827","","","$","863,834","","","","2.4","%","$","-","","","$","-","","$","1,934,648","","","$","1,879,550","","","","2.9","%"],["Other","","","9,749","","","","9,299","","","","4.8","%","","145,702","","","","142,919","","","","1.9","%","","119,445","","","","91,773","","","","30.2","%","","(1,659",")","","","(1,296",")","","273,237","","","","242,695","","","","12.6","%"],["Total net revenues","","$","1,059,570","","","$","1,025,015","","","","3.4","%","$","145,702","","","$","142,919","","","","1.9","%","$","1,004,272","","","$","955,607","","","","5.1","%","$","(1,659",")","","$","(1,296",")","$","2,207,885","","","$","2,122,245","","","","4.0","%"],["Other revenues detail"],["Retail and other","","","9,749","","","","9,299","","","","4.8","%","","-","","","","-","","","","-","","","10,134","","","","9,134","","","","10.9","%","","-","","","","-","","","19,883","","","","18,433","","","","7.9","%"],["Wholesale","","","-","","","","-","","","","-","","","53,957","","","","45,299","","","","19.1","%","","109,311","","","","82,639","","","","32.3","%","","-","","","","-","","","163,268","","","","127,938","","","","27.6","%"],["BloomNet services","","","-","","","","-","","","","-","","","91,745","","","","97,620","","","","-6.0","%","","-","","","","-","","","","-","","","-","","","","-","","","91,745","","","","97,620","","","","-6.0","%"],["Corporate","","","-","","","","-","","","","-","","","-","","","","-","","","","-","","","-","","","","-","","","","-","","","201","","","","341","","","201","","","","341","","","","-41.1","%"],["Eliminations","","","-","","","","-","","","","-","","","-","","","","-","","","","-","","","-","","","","-","","","","-","","","(1,860",")","","","(1,637",")","","(1,860",")","","","(1,637",")","","","-13.6","%"],["Total other revenues","","$","9,749","","","$","9,299","","","","4.8","%","$","145,702","","","$","142,919","","","","1.9","%","$","119,445","","","$","91,773","","","","30.2","%","$","(1,659",")","","$","(1,296",")","$","273,237","","","$","242,695","","","","12.6","%"]]
[[/GREPCENT_TABLE]]

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Revenue by sales channel:

[[GREPCENT_TABLE]]
[["","\u25cf","E-commerce revenues (combined online and telephonic) increased 2.9% during fiscal 2022, comprised of 2.4% growth within the Gourmet Foods & Gift Baskets segment, which includes revenues of Vital Choice, acquired on October 27, 2021, and 3.4% growth within the Consumer Floral & Gifts segment, which includes the revenues of PersonalizationMall and Alice\u2019s Table since their dates of acquisition on August 3, 2020 and December 31, 2021, respectively. These revenue increases were attributable to pricing initiatives and product mix, which drove a higher average order value ($78.77, +9.0%), partially offset by lower order volume (24.5 million, -5.6%, as compared with fiscal 2021). E-commerce revenues increased 52.8% during fiscal 2021, comprised of 73.5% growth within the Consumer Floral & Gifts segment and 34.0% growth in the Gourmet Foods & Gift Baskets segment. During fiscal 2021, the Company fulfilled approximately 26.0 million e-commerce orders (an increase of 54.9% compared to fiscal 2020) at an average order value of $72.22 (a decrease of 1.4% compared to fiscal 2020)."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Other revenues are comprised of the Company\u2019s BloomNet segment, as well as the wholesale and retail channels of its 1-800-Flowers.com Consumer Floral & Gifts and Gourmet Foods & Gift Baskets segments. Other revenues increased by 12.6% during fiscal 2022 due to increased wholesale product demand, partially offset by a decrease in BloomNet services revenues. Other revenues decreased 6.4% during fiscal 2021, primarily as a result of the disposition of Harry & David stores in April 2020, and weak wholesale demand attributable to COVID-19, partially offset by 27.9% growth within the BloomNet segment."]]
[[/GREPCENT_TABLE]]

Revenue by segment:

Consumer Floral & Gifts – this segment, which historically has consisted primarily of the operations of the 1-800-Flowers.com brand, but now includes revenues attributable to PersonalizationMall and Alice’s Table, subsequent to their August 3, 2020 and December 31, 2021 acquisition dates, respectively, derives revenue from the sale of consumer floral products and gifts, primarily through its e-commerce sales channel (telephonic and online sales), as well as retail stores, and royalties from its franchise operations.

Net revenues increased 3.4% during fiscal 2022 (including the impact of PersonalizationMall acquired on August 3, 2020, and Alice’s Table, which was acquired on December 31, 2021). Adjusting for the acquisitions of PersonalizationMall and Alice’s Table, pro-forma segment revenue growth was 2.0%, reflecting the marketing and merchandising investments made in our flagship brand, which are continuing to drive growth and market share gains, with more pronounced growth during the Valentine’s Day and Mother’s Day holiday periods as “Everyday” volume has slowed during this inflationary post-pandemic period. For point of reference, fiscal 2022 revenue increased 112.9%, compared with pre-pandemic fiscal 2019 revenues. Excluding revenue from acquisitions, pro-forma revenue growth during this period was 62.0%.

Net revenues increased 72.8%, during fiscal 2021, reflecting: (i) the marketing and merchandising investments made in our flagship brand, which have driven our growth and market share gains that began in the second half of fiscal 2018, continued through fiscal 2020, and accelerated with the start of the pandemic, and (ii) the incremental revenues of PersonalizationMall. Excluding the revenues derived from PersonalizationMall, segment pro-forma revenue growth was 33.0% during fiscal 2021, despite the shift of the Valentine’s Day date placement from Friday in fiscal 2020 to Sunday in fiscal 2021, which normally results in a 20% reduction in demand. The revenue increase was supported by the Company’s customer acquisition strategy, and a strategic combination of organic and investment spend, resulting in growth across our “everyday” gifting occasions, which focused on “Birthday”, “Anniversary”, “Sympathy” and “Just Because” occasions, as well as holiday specific occasions, including the Christmas, Valentine’s Day and Mother’s Day holidays. The acquisition of PersonalizationMall and its complementary product line contributed to the accelerated growth rate as it filled the personalization gift niche that our consumer and BGS customers requested.

BloomNet - revenues in this segment are derived from membership fees, as well as other product and service offerings to florists.

Net revenues increased 1.9% during fiscal 2022 due to wholesale products growth, partially offset by lower services revenue due to unfavorable membership/transaction fee revenues, resulting from unfavorable 1-800-Flowers and shop-to-shop order volume, attributable to overall macro-economic conditions, and lower referral fees, partially offset by increased directory services due to ad volume and fee amount increases. For point of reference, revenue increased 41.6%, compared with pre-pandemic fiscal 2019 revenue.

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Net revenues increased 27.9% during fiscal 2021, primarily due to increased: (i) settlement processing revenues, due to higher florist-to-florist order volume, (ii) transaction, reciprocity and membership fees, driven primarily by increased order volume referred through the network, and (iii) favorable wholesale demand. This growth was supported by the strategic decision made in April 2020, to temporarily waive fees and establish health and safety protocols to help member florists, until they could safely re-establish operations during the pandemic.

Gourmet Foods & Gift Baskets – this segment includes the operations of Harry & David, Wolferman’s Bakery, Stock Yards, Cheryl’s Cookies, The Popcorn Factory, 1-800-Baskets/DesignPac, Shari’s Berries (subsequent to its acquisition date of August 14, 2019), and Vital Choice (subsequent to its acquisition date of October 27, 2021). Revenue is derived from the sale of gourmet fruits, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, gift baskets, dipped berries, prime steaks, chops, and fish, through the Company’s e-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Harry & David and Cheryl’s brand names, as well as wholesale operations.

Net revenues increased 5.1%, during fiscal 2022 as a result of favorable e-commerce sales, resulting from the acquisition of Vital Choice, increased volume driven by Shari’s Berries and Harry & David, at holiday, as well as a higher average order due to product mix and price increases, partially offset by lower demand across the remainder of the segment, combined with favorable wholesale and retail revenue growth due to improving demand as COVID-19 restrictions were lifted and foot-traffic in customer locations continued to return to more normalized levels. This segment has seen the most dramatic reductions in “EveryDay” volumes, due to the disproportionate impact of the macro-economic conditions noted above, combined with the fact that it also experienced the highest growth rates during the Pandemic when food gifts/self-consumption peaked. For point of reference, revenue increased 54.9%, compared with pre-pandemic fiscal 2019 revenue. Excluding revenue from acquisitions, pro-forma revenue growth during this period was 39.9%.

Net revenues increased 21.6%, during the fiscal year 2021, due to favorable e-commerce revenues across the segment, partially offset by reduced wholesale and retail volumes. E-commerce revenue growth of 34.0% during fiscal 2021 was the result of increased penetration of “everyday” volume, and increased holiday volume in the second quarter of fiscal 2021, both of which benefitted from the impact of the COVID-19 pandemic as product offerings, convenience, and brand sentiment resonated with customers. Wholesale/retail channel revenues declined 34.8% during the fiscal year 2021, as big-box retail store customers reduced order volumes due to the pandemic, and as a result of the closure of the Harry & David retail store operations in the fourth quarter of fiscal 2020.

Gross Profit

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","July 3, 2022","","","% Change","","","June 27, 2021","","","% Change","","","June 28, 2020"],["","","(dollars in thousands)"],["Gross profit","","$","821,738","","","","-8.3","%","","$","896,429","","","","44.1","%","","$","622,196"],["Gross margin %","","","37.2","%","","","","","","","42.2","%","","","","","","","41.8","%"]]
[[/GREPCENT_TABLE]]

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, as well as payments made to referring florists related to order volume sent through the Company’s BloomNet network. 

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Gross profit decreased 8.3% during fiscal 2022 due to a significantly lower gross profit percentage, partially offset by the higher revenues noted above. Adjusting for the impact of PersonalizationMall, Alice’s Table and Vital Choice, on a pro-forma basis, gross margin percentage remained 37.2%. Gross profit percentage decreased during fiscal 2022 primarily due to lower margins across all three segments, reflecting macro-economic headwinds including: continued disruptions in the global supply chain, the escalation of increased commodity costs, increased year-over-year labor rates, as well as widespread delays and increased costs for inbound and outbound shipping, including an acceleration in fuel surcharges related to rising oil prices, and the write-off of certain inventories of expired perishable products, reflecting softer than anticipated demand levels. The Company has and will continue to implement strategic initiatives designed to mitigate the impact of these issues, including pricing initiatives across our product assortment, as well as pre-building inventory to offset supply chain delays, implementing logistics optimization programs to enhance our outbound shipping operations and manage rising third-party shipping costs, and deploying automation to increase throughput and address labor shortages.

Gross profit increased 44.1% during fiscal 2021 primarily due to the increase in revenues noted above. Gross profit percentage increased 40 basis points during the fiscal year 2021, as higher margins within the Consumer Floral & Gifts (due to the acquisition of PersonalizationMall) and Gourmet Foods & Gift Baskets segments were offset, in part, by lower margins within the BloomNet segment. On a pro-forma basis, excluding the impact of PersonalizationMall, gross margin percentage was 41.1%.

Consumer Floral & Gifts segment – Gross profit (including the impact of Pmall, acquired on August 3, 2020, and Alice’s Table, acquired on December 31, 2021) was unfavorable in comparison to prior year by 1.0%, as a result of an unfavorable gross profit percentage, partially offset by the higher revenues noted above. On a pro-forma basis, adjusting for the impact of PersonalizationMall and Alice’s Table, gross profit percentage was 39.2% during fiscal 2022, a decrease of 190 basis points compared to fiscal 2021. Gross profit percentage was negatively impacted by increased inbound and outbound shipping costs, labor, and raw material component input costs, partially offset by pricing initiatives, reflected in the higher average order value note above.

Gross profit increased 79.9% during fiscal 2021, due to the aforementioned revenue growth and an increase in gross profit percentage of 170 basis points to 41.1%. The higher gross profit percentage was primarily attributable to the acquisition of PersonalizationMall, which carries higher margins, as well as pricing initiatives and reductions in promotional activity after the onset of COVID-19, partially offset by higher florist fulfillment, credits, product and delivery costs which increased as a result of the pandemic. On a pro-forma basis, excluding the impact of PersonalizationMall, acquired on August 3, 2020, gross margin percentage was 37.9% during the fiscal year 2021.

BloomNet segment – Gross profit from the BloomNet segment was unfavorable in comparison to prior year by 5.3%, due to lower margins, partially offset by the increased revenues noted above. The lower margins were caused by the impact of sales mix (a greater proportion of revenues were derived from lower margin wholesale volume), compounded by higher cost of merchandise due to increased ocean freight costs and product costs, as well as supply chain issues, partially offset by lower rebates (due to lower shop-to-shop volumes).

Gross profit increased 19.9% during fiscal 2021, due to the increase in revenues noted above, partially offset by a decrease in gross profit percentage of 300 basis points to 45.5%. The decrease in gross margin % was due to higher rebates (higher florist to florist volume), combined with unfavorable wholesale product margins due to product mix, and higher shipping/merchandising costs.

Gourmet Foods & Gift Baskets segment – Gross profit was unfavorable in comparison to prior year by 16.3%, due to a decrease in gross profit percentage of 870 basis points, to 34.2%, partially offset by the aforementioned increase in revenues. The unfavorable gross profit percentage was due to macro-economic headwinds including: continued disruptions in the global supply chain, the escalation of increased commodity costs, increased year-over-year labor rates across the Company, as well as widespread delays and increased costs for inbound and outbound shipping, including an acceleration in fuel surcharges related to rising oil prices, and the write-off of certain inventories of expired perishable products, reflecting softer than anticipated demand levels, as well as certain product mix shift into lower margins channels, partially offset by pricing initiatives and increased average order value.

Gross profit increased by 23.0% during fiscal 2021, due to the increase in revenues noted above, as well as an increase in gross profit percentage of 40 basis points, to 42.9%. The increase in gross profit percentage was primarily attributable to lower promotions, merchandise assortment, channel mix, and fixed cost efficiency, partially offset by higher transportation costs due to surcharges and expedited ship methods, as well as increased labor costs. 

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Marketing and Sales Expense

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","July 3, 2022","","","% Change","","","June 27, 2021","","","% Change","","","June 28, 2020"],["","","(dollars in thousands)"],["Marketing and sales","","$","571,661","","","","7.2","%","","$","533,268","","","","46.8","%","","$","363,227"],["Percentage of sales","","","25.9","%","","","","","","","25.1","%","","","","","","","24.4","%"]]
[[/GREPCENT_TABLE]]

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 increased 7.2% during fiscal 2022 due to the variable components associated with the higher revenue noted above, combined with an increase in advertising spend due to efforts to drive revenue growth, combined with advertising rates which have risen above historical rates, and the impact of the acquisitions of Vital Choice, and PersonalizationMall, partially offset by a reduction in labor costs as a result of lower performance-related bonuses.

Marketing and sales expense increased 46.8% during fiscal 2021, as a result of marketing initiatives designed to accelerate revenue growth and capture market share within both the Gourmet Foods & Gift Baskets segment, and the Consumer Floral & Gifts segment, which includes the incremental marketing costs of PersonalizationMall, which was acquired on August 3, 2020. On a pro-forma basis, excluding the impact of PersonalizationMall, and Harry & David store closure costs, marketing and sales as a percentage of net revenues, was 24.6% during fiscal 2021, compared with 24.0% in fiscal 2020, primarily reflecting the year-over-year increase in marketing costs during the fourth quarter of fiscal 2021, due to the low cost of marketing during the early stages of the pandemic.

During fiscal 2022, the Company added approximately 5.3 million new e-commerce customers, a decrease of 13.6% over the prior year, while purchase activity from existing customers increased 5.3% in comparison to the prior year. During fiscal 2021, the Company added approximately 6.1 million new e-commerce customers (5.2 million on a proforma basis excluding PersonalizationMall).

Technology and Development Expense

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","July 3, 2022","","","% Change","","","June 27, 2021","","","% Change","","","June 28, 2020"],["","","(dollars in thousands)"],["Technology and development","","$","56,561","","","","3.9","%","","$","54,428","","","","11.8","%","","$","48,698"],["Percentage of sales","","","2.6","%","","","","","","","2.6","%","","","","","","","3.3","%"]]
[[/GREPCENT_TABLE]]

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 by 3.9% during fiscal 2022, primarily due to higher maintenance and support incurred to support the Company’s technology platform enhancements, partially offset by lower labor costs, resulting from reductions in performance related bonuses.

Technology and development expenses increased by 11.8% during fiscal 2021, primarily due to increased consulting and labor costs, increased hosting and maintenance costs incurred to support the Company’s technology platform, in addition to the incremental technology costs associated with PersonalizationMall, which was acquired on August 3, 2020.

During the fiscal years 2022, 2021 and 2020, the Company expended $83.2 million, $79.7 million and $69.5 million, respectively, on technology and development, of which $26.6 million, $25.3 million and $20.8 million, respectively, has been capitalized.

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General and Administrative Expense

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","July 3, 2022","","","% Change","","","June 27, 2021","","","% Change","","","June 28, 2020"],["","","(dollars in thousands)"],["General and administrative","","$","102,337","","","","-12.6","%","","$","117,136","","","","20.3","%","","$","97,394"],["Percentage of sales","","","4.6","%","","","","","","","5.5","%","","","","","","","6.5","%"]]
[[/GREPCENT_TABLE]]

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 12.6% during fiscal 2022, primarily due to: (i) lower labor costs as a result of lower performance-related bonuses, and a decrease in the value of the Company’s non-qualified deferred compensation plan investments in the current year of $3.6 million compared to a $5.7 million increase in the prior year (refer to equal offset in “Other income/expense, net”), partially offset by overall increased labor rates, and (ii) lower professional fees due to lower litigation and transaction costs, partially offset by higher insurance costs due to increased health claims and business insurance rates.

General and administrative expense increased 20.3% during fiscal 2021, due to incremental costs related to: (i) PersonalizationMall (including transaction and litigation-related costs), (ii) higher labor costs due to annual merit increases and performance-related bonuses, as well as investment earnings on the Company’s NQDC Plan assets (offset within Other (income) expenses noted below), (iii) incremental health and safety-related COVID-19 related expenses, partially offset by (iv) lower travel expenses, and (v) lower bad debt expense compared to the impact of COVID-19 on certain business and wholesale accounts in fiscal 2020.

Depreciation and Amortization

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","July 3, 2022","","","% Change","","","June 27, 2021","","","% Change","","","June 28, 2020"],["","","(dollars in thousands)"],["Depreciation and amortization","","$","49,078","","","","15.5","%","","$","42,510","","","","30.7","%","","$","32,513"],["Percentage of sales","","","2.2","%","","","","","","","2.0","%","","","","","","","2.2","%"]]
[[/GREPCENT_TABLE]]

Depreciation and amortization expense increased 15.5% during fiscal 2022, primarily due to recent increases in distribution facility automation projects and IT related e-commerce/platform enhancements, as well as an incremental amortization related to the acquisition of Vital Choice, and the incremental depreciation and customer list amortization associated with PersonalizationMall.

Depreciation and amortization expense increased 30.7% during fiscal 2021, primarily due to the incremental depreciation and customer list amortization associated with PersonalizationMall, recent short-lived IT related ecommerce/platform enhancements and accelerated depreciation on certain legacy systems, which are being replaced with modern platforms.

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Interest Expense, net

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","July 3, 2022","","","% Change","","","June 27, 2021","","","% Change","","","June 28, 2020"],["","","(dollars in thousands)"],["Interest expense, net","","$","5,667","","","","-3.3","%","","$","5,860","","","","140.4","%","","$","2,438"]]
[[/GREPCENT_TABLE]]

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 Part IV, Item 15 for details), net of income earned on the Company’s available cash balances.

Interest expense, net decreased 3.3% during fiscal 2022, due to lower interest rates attributable to the amendment of the Company’s credit facility, partially offset by the annualization of the incremental debt that was used to partially finance the acquisition of PersonalizationMall.

Interest expense, net increased 140.4% during fiscal 2021, due to the incremental interest expense associated with a new tranche of term loan in the aggregate principal of $100.0 million which was used to partially finance the acquisition of PersonalizationMall, and lower interest income on the Company’s outstanding cash balances due to lower interest rates.

Other (income) expense, net

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","July 3, 2022","","","% Change","","","June 27, 2021","","","% Change","","","June 28, 2020"],["","","(dollars in thousands)"],["Other (income) expense, net","","$","5,332","","","","-190.6","%","","$","(5,888",")","","","7,109.5","%","","$","84"]]
[[/GREPCENT_TABLE]]

Other expense, net during fiscal 2022 consists of a $3.6 million loss on the Company’s NQDC deferred compensation investments (for which the offsetting expense was recorded in the General and Administration expense line item), compared to a $5.7mm gain in the prior year, (ii) a $0.7 million impairment of the Company’s investment in Alice’s Table, prior to completion of the acquisition during Q3, and (iii) a $1.2 million impairment of certain of the Company’s cost method investments. Other income, net for the fiscal years 2021 and 2020, respectively, consist primarily of investment (earnings)/ losses on the Company’s NQDC Plan assets.

Income Taxes

During the fiscal years 2022, 2021 and 2020, the Company recorded income tax expense of $1.5 million, $30.5 million and $18.8 million, respectively, resulting in an effective tax rate of 4.8%, 20.4% and 24.2%, respectively. The Company’s effective tax rate for fiscal 2022 and fiscal 2021 differed from the U.S. federal statutory rate of 21.0% primarily due to excess tax benefits from stock-based compensation and various tax credits, partially offset by state income taxes and nondeductible expenses for executive compensation. Further impacting fiscal 2022, was a reduction in the Company’s valuation allowance, offset in part by the expiration of capital loss carryforwards, as well as enhanced deductions. The Company’s effective tax rate for fiscal 2020 differed from the U.S. federal statutory rate of 21% primarily due to state income taxes and nondeductible expenses for executive compensation, partially offset by excess tax benefits from stock-based compensation and various tax credits.

At July 3, 2022, the Company’s federal enhanced deduction and tax credit carryforwards were $9.6 million and $1.3 million, respectively, which if not utilized, will expire in fiscal 2027 and fiscal 2042, respectively. At July 3, 2022, the Company’s state and foreign net operating loss carryforwards were $57.7 million and $4.9 million, respectively, which if not utilized, will begin to expire in fiscal 2023 and fiscal 2034, respectively.

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Liquidity and Capital Resources

Liquidity and borrowings

The Company's principal sources of liquidity are cash on hand, cash flows generated from operations and borrowings available under the Company’s credit agreement (see Note 9. in Part IV, Item 15 for details). At July 3, 2022, the Company had working capital of $82.5 million, including cash and cash equivalents of $31.5 million, compared to working capital of $134.1 million, including cash and cash equivalents of $173.6 million at June 27, 2021.

As of July 3, 2022, 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, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, generates over 40% of the Company’s annual revenues. Since the onset of the pandemic of the novel strain of coronavirus (“COVID-19”), our customers have turned to our brands and our expanded product offerings to help them connect and express themselves. While the continuing impacts of COVID-19 are difficult to predict, the Company expects that its fiscal second quarter will continue to be its largest in terms of revenues, and the Company will likely generate all of its earnings within this quarter. Due to the number of major floral gifting occasions, including Mother's Day, Valentine’s Day, Easter and Administrative Professionals Week, revenues also have historically risen during the Company’s fiscal third and fourth quarters in comparison to its fiscal first quarter.

The Company utilized cash on hand to fund its operations through the first quarter of fiscal 2022. In the beginning of the second quarter, the Company borrowed under its Revolver to fund short-term working capital needs, and the acquisition of Vital Choice, with borrowings peaking at $125.0 million in November 2021. Cash generated from operations during the Christmas holiday shopping season enabled the Company to repay the borrowings under the Revolver in December 2021. Based on current projected cash flows, the Company expects to borrow against its Revolver to fund pre-holiday manufacturing and inventory purchases during the first quarter of fiscal 2023. The Company expects to be able to repay all working capital borrowings prior to the end of the second quarter in fiscal 2023.

While we believe that our sources of funding will be sufficient to meet our anticipated operating cash needs for at least the next twelve months, any projections of future cash needs and cash flows are subject to substantial uncertainty. We continually evaluate, and will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to require additional financing.

To date, we have not identified any material liquidity deficiencies as a result of the COVID-19 pandemic. Based on the information currently available to us, we do not expect the impact of COVID-19 to have a negative impact on our liquidity. We will continue to monitor and assess the impact COVID-19 may have on our business and financial results. See Part I. Item 1A. “Risk Factors” and Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.

Cash Flows

Net cash provided by operating activities of $5.2 million for the fiscal 2022 was primarily attributable to the Company’s net income, adjusted for non-cash charges including depreciation and amortization and stock-based compensation, offset by the accelerated timing of our seasonal inventory build to support holiday sales.

Net cash used in investing activities of $89.7 million was primarily attributable to the acquisitions of Vital Choice and Alice’s Table for a combined $21.3 million, and capital expenditures of $66.4 million related to the Company's technology initiatives, as well as manufacturing production and warehousing equipment.

Net cash used in financing activities of $57.6 million related to net repayment of notes payable of $20.0 million, and the acquisition of $38.2 million of treasury stock.

Stock Repurchase Program

See Item 5 in Part II for details.

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Contractual Obligations

At July 3, 2022, the Company’s contractual obligations consist of:

[[GREPCENT_TABLE]]
[["\u25cf","Long-term debt obligations - payments due under the Company's existing Credit Agreement (See Note 9 \u2013 Long-Term Debt in Item 15 for details)."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Operating lease obligations \u2013 payments due under the Company\u2019s long-term operating leases (See Note 16 \u2013 Leases in Item 15 for details)."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Purchase commitments - consisting primarily of inventory and IT- related equipment purchase orders and license agreements made in the ordinary course of business \u2013 see below for the contractual payments due by period."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Payments due by period"],["","","(in thousands)"],["","","Fiscal 2023","","","Fiscal 2024","","","Fiscal 2025","","","Fiscal 2026","","","Fiscal 2027","","","Thereafter","","","Total"],["Purchase commitments","","$","169,291","","","$","11,236","","","$","6,724","","","$","2,472","","","$","148","","","$","-","","","$","189,871"]]
[[/GREPCENT_TABLE]]

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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 assumptions that affect the reported amount of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management evaluates its estimates on an ongoing basis, and bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We consider accounting estimates to be critical if both: (i) the nature of the estimate or assumption is material due to the levels of subjectivity and judgment involved, and (ii) the impact within a reasonable range of outcomes of the estimate and assumption is material to the Company’s financial condition. Our critical accounting policies relate to goodwill, other intangible assets and income taxes. Management of the Company has discussed the selection of critical accounting policies and the effect of estimates with the audit committee of the Company’s board of directors.

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 accounting. 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 quantitative test ( “Step 1”). 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 limited to, economic conditions, industry and market considerations, cost factors, overall financial performance 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 Step 1 quantitative test is necessary.

Step 1 of the 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. Otherwise, the Company would 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.

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 management. 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.

The assessment of the recoverability of goodwill contains uncertainties requiring management to make assumptions and to apply judgment to estimate economic factors and the profitability of future operations. The Company’s stock price, and resulting market capitalization reconciliation, are subject to the Company’s financial performance, as well as fluctuations in the equity market resulting from economic, geo-political, consumer-confidence, inflation, natural disasters and pandemics. Actual results could differ from these assumptions and projections, resulting in us revising our assumptions and, if required, recognizing an impairment loss.

For further discussion of the methods used and factors considered in our estimates as part of the impairment testing for Goodwill, see Note 2 and Note 6 in Part IV, Item 15

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.

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Definite-lived intangibles are reviewed for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. 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 considerations, 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.

The assessment of the recoverability of intangible assets contains uncertainties requiring management to make assumptions and to apply judgment to estimate economic factors and the profitability of future operations. Actual results could differ from these assumptions and projections, resulting in us revising our assumptions and, if required, recognizing an impairment loss.

For further discussion of the methods used and factors considered in our estimates as part of the impairment testing for other intangibles, see Note 2 and Note 6 in Part IV, Item 15.

Income Taxes

The Company uses the asset and liability method to account for income taxes. The Company has established 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. For further discussion see Note 11, in Part IV, Item 15.

Recently Issued Accounting Pronouncements  

See Note 2. in Part IV, Item 15 for details regarding the impact of accounting standards that were recently issued, on our consolidated financial statements.

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