10-Q 1 flws20220327_10q.htm FORM 10-Q flws20220327_10q.htm
0001084869 1 800 FLOWERS COM INC false --06-26 Q3 2022 0.01 0.01 10,000,000 10,000,000 0 0 0.01 0.01 200,000,000 200,000,000 57,687,608 55,675,661 0.01 0.01 200,000,000 200,000,000 32,543,754 33,433,614 20,155,931 18,825,841 5,280,000 5,280,000 1 2019 2020 2016 2017 2018 2019 2020 2021 The measurement period adjustments did not have a significant impact on the Company’s condensed consolidated statements of income for the year ended June 27, 2021. On May 31, 2019, the Company and certain of its U.S. subsidiaries entered into a Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders. The 2019 Credit Agreement amended and restated the Company’s existing amended and restated credit agreement dated as of December 23, 2016 to, among other modifications: (i) increase the amount of the outstanding term loan (“Term Loan”) from approximately $97 million to $100 million, (ii) extend the maturity date of the outstanding Term Loan and the revolving credit facility (“Revolver”) by approximately 29 months to May 31, 2024, and (iii) decrease the applicable interest rate margins for LIBOR and base rate loans by 25 basis points. The Term Loan is payable in 19 quarterly installments of principal and interest beginning on September 29, 2019, with escalating principal payments, at the rate of 5.0% per annum for the first eight payments, and 10.0% per annum for the remaining 11 payments, with the remaining balance of $62.5 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 2019 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 based on the Company’s consolidated leverage ratio, where the base rate is the highest of (a) the prime rate, (b) the New York fed bank rate plus 0.5%, and (c) a LIBOR rate plus 1%, or (2) an adjusted LIBOR rate plus an applicable margin varying based on the Company’s consolidated leverage ratio. The Company has established a 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. 00010848692021-06-282022-03-27 xbrli:shares 0001084869us-gaap:CommonClassAMember2022-04-29 0001084869us-gaap:CommonClassBMember2022-04-29 thunderdome:item iso4217:USD 00010848692022-03-27 00010848692021-06-27 iso4217:USDxbrli:shares 0001084869us-gaap:CommonClassAMember2022-03-27 0001084869us-gaap:CommonClassAMember2021-06-27 0001084869us-gaap:CommonClassBMember2022-03-27 0001084869us-gaap:CommonClassBMember2021-06-27 00010848692021-12-272022-03-27 00010848692020-12-282021-03-28 00010848692020-06-292021-03-28 0001084869us-gaap:CommonClassAMemberus-gaap:CommonStockMember2021-12-26 0001084869us-gaap:CommonClassBMemberus-gaap:CommonStockMember2021-12-26 0001084869us-gaap:AdditionalPaidInCapitalMember2021-12-26 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Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2022

 

or 

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

 

Commission File No. 0-26841

flws20220327_10qimg001.jpg

1-800-FLOWERS.COM, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

11-3117311

(State of incorporation)

(I.R.S. Employer Identification No.)

Two Jericho Plaza, Suite 200, Jericho, NY 11753

(516) 237-6000

(Address of principal executive offices) (Zip code)

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Class A common stock

FLWS

The Nasdaq Stock Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐         

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☑   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

☐ Large accelerated filer

 

Accelerated filer

☐ Non-accelerated filer

 

Smaller reporting company

  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

 

The number of shares outstanding of each of the Registrant’s classes of common stock as of April 29, 2022:

 

Class A common stock: 37,292,237

Class B common stock: 27,263,754

 

 

 

 

1-800-FLOWERS.COM, Inc.

FORM 10-Q

For the quarterly period ended March 27, 2022

TABLE OF CONTENTS

 

     

Page

 

Part I.

Financial Information

     

Item 1.

Condensed Consolidated Financial Statements

 

1

 
 

Condensed Consolidated Balance Sheets – March 27, 2022 (Unaudited) and June 27, 2021

 

1

 
 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) – Three and Nine Months Ended March 27, 2022 and March 28, 2021

 

2

 
 

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) – Three and Nine Months Ended March 27, 2022 and March 28, 2021

 

3

 
 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended March 27, 2022 and March 28, 2021

 

4

 
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

5

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

36

 

Item 4.

Controls and Procedures

 

36

 
         

Part II.

Other Information

     

Item 1.

Legal Proceedings

 

37

 

Item 1A.

Risk Factors

 

37

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

38

 

Item 3.

Defaults upon Senior Securities

 

38

 

Item 4.

Mine Safety Disclosures

 

38

 

Item 5.

Other Information

 

38

 

Item 6.

Exhibits

 

39

 
         

Signatures

 

40

 

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except for share data)

 

  

March 27, 2022

  

June 27, 2021

 
  

(unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents

 $93,025  $173,573 

Trade receivables, net

  40,881   20,831 

Inventories, net

  214,444   153,863 

Prepaid and other

  33,506   51,792 

Total current assets

  381,856   400,059 
         

Property, plant and equipment, net

  230,067   215,287 

Operating lease right-of-use assets

  130,897   86,230 

Goodwill

  213,905   208,150 

Other intangibles, net

  146,641   139,048 

Other assets

  25,284   27,905 

Total assets

 $1,128,650  $1,076,679 
         

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Accounts payable

 $58,502  $57,434 

Accrued expenses

  176,551   178,512 

Current maturities of long-term debt

  20,000   20,000 

Current portion of long-term operating lease liabilities

  12,518   9,992 

Total current liabilities

  267,571   265,938 
         

Long-term debt, net

  147,171   161,512 

Long-term operating lease liabilities

  125,831   79,375 

Deferred tax liabilities, net

  32,484   34,162 

Other liabilities

  21,802   26,622 

Total liabilities

  594,859   567,609 
         

Commitments and contingencies (See Note 13 and Note 14)

          
         

Stockholders' equity:

        

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued

  -   - 

Class A common stock, $0.01 par value, 200,000,000 shares authorized, 57,687,608 and 55,675,661 shares issued at March 27, 2022 and June 27, 2021, respectively

  577   557 

Class B common stock, $0.01 par value, 200,000,000 shares authorized, 32,543,754 and 33,433,614 shares issued at March 27, 2022 and June 27, 2021, respectively

  325   334 

Additional paid-in capital

  378,741   371,103 

Retained earnings

  338,035   286,175 

Accumulated other comprehensive loss

  (318

)

  (318

)

Treasury stock, at cost, 20,155,931 and 18,825,841 Class A shares at March 27, 2022 and June 27, 2021, respectively, and 5,280,000 Class B shares at March 27, 2022 and June 27, 2021

  (183,569

)

  (148,781

)

Total stockholders’ equity

  533,791   509,070 

Total liabilities and stockholders’ equity

 $1,128,650  $1,076,679 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except for per share data)

(unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 27, 2022

   

March 28, 2021

   

March 27, 2022

   

March 28, 2021

 
                                 

Net revenues

  $ 469,576     $ 474,234     $ 1,721,993     $ 1,635,262  

Cost of revenues

    315,485       289,535       1,063,938       936,837  

Gross profit

    154,091       184,699       658,055       698,425  

Operating expenses:

                               

Marketing and sales

    130,645       127,923       432,795       402,904  

Technology and development

    14,456       14,281       41,369       39,937  

General and administrative

    22,553       30,912       78,491       89,960  

Depreciation and amortization

    12,693       11,892       36,251       31,792  

Total operating expenses

    180,347       185,008       588,906       564,593  

Operating income (loss)

    (26,256

)

    (309

)

    69,149       133,832  

Interest expense, net

    1,226       1,553       4,477       4,520  

Other (income) expense, net

    4,007       (945

)

    954       (4,201

)

Income (loss) before income taxes

    (31,489

)

    (917

)

    63,718       133,513  

Income tax expense (benefit)

    (8,080

)

    (2,344

)

    11,858       28,171  

Net income (loss)

    (23,409

)

    1,427       51,860       105,342  

Other comprehensive loss (currency translation & other miscellaneous items)

    -       -       -       (1

)

Comprehensive income (loss)

  $ (23,409

)

  $ 1,427     $ 51,860     $ 105,341  
                                 

Basic net income (loss) per common share

  $ (0.36

)

  $ 0.02     $ 0.80     $ 1.63  
                                 

Diluted net income (loss) per common share

  $ (0.36

)

  $ 0.02     $ 0.79     $ 1.58  
                                 

Weighted average shares used in the calculation of net income (loss) per common share:

                               

Basic

    65,028       64,885       65,086       64,644  

Diluted

    65,028       66,474       65,849       66,564  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

 

   

Three Months Ended March 27, 2022 and March 28, 2021

 
   

Common Stock

   

Additional

           

Accumulated

Other
                   

Total

 
   

Class A

   

Class B

   

Paid-in

    Retained     Comprehensive    

Treasury Stock

   

Stockholders

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

    Earnings    

Loss

   

Shares

   

Amount

   

Equity

 
                                                                                 

Balance at December 26, 2021

    56,778,082     $ 568       33,433,614     $ 334     $ 377,234     $ 361,444     $ (318

)

    24,933,148     $ (174,302

)

  $ 564,960  

Net loss

    -       -       -       -       -       (23,409

)

    -       -       -       (23,409

)

Stock-based compensation

    19,666       -       -       -       1,507       -       -       -       -       1,507  

Exercise of stock options

    -       -       -       -       -       -       -       -       -       -  

Conversion – Class B into Class A

    889,860       9       (889,860

)

    (9

)

    -       -       -       -       -       -  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       502,783       (9,267

)

    (9,267

)

Balance at March 27, 2022

    57,687,608     $ 577       32,543,754     $ 325     $ 378,741     $ 338,035     $ (318

)

    25,435,931     $ (183,569

)

  $ 533,791  
                                                                                 

Balance at December 28, 2020

    55,166,476     $ 551       33,433,614     $ 334     $ 364,411     $ 271,438     $ (244

)

    23,789,689     $ (138,882

)

  $ 497,608  

Net income

    -       -       -       -       -       1,427       -       -       -       1,427  

Stock-based compensation

    36,335       1       -       -       2,870       -       -       -       -       2,871  

Exercise of stock options

    249,900       3       -       -       561       -       -       -       -       564  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       83,259       (2,355

)

    (2,355

)

Balance at March 28, 2021

    55,452,711     $ 555       33,433,614     $ 334     $ 367,842     $ 272,865     $ (244

)

    23,872,948     $ (141,237

)

  $ 500,115  

 

   

Nine Months Ended March 27, 2022 and March 28, 2021

 
   

Common Stock

   

Additional

           

Accumulated Other

                   

Total

 
   

Class A

   

Class B

   

Paid-in

    Retained     Comprehensive    

Treasury Stock

   

Stockholders

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

    Earnings    

Loss

   

Shares

   

Amount

   

Equity

 
                                                                                 

Balance at June 27, 2021

    55,675,661     $ 557       33,433,614     $ 334     $ 371,103     $ 286,175     $ (318

)

    24,105,841     $ (148,781

)

  $ 509,070  

Net income

    -       -       -       -       -       51,860       -       -       -       51,860  

Stock-based compensation

    800,387       8       -       -       6,795       -       -       -       -       6,803  

Exercise of stock options

    321,700       3       -       -       843       -       -       -       -       846  

Conversion – Class B into Class A

    889,860       9       (889,860

)

    (9

)

    -       -       -       -       -       -  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       1,330,090       (34,788

)

    (34,788

)

Balance at March 27, 2022

    57,687,608     $ 577       32,543,754     $ 325     $ 378,741     $ 338,035     $ (318

)

    25,435,931     $ (183,569

)

  $ 533,791  
                                                                                 

Balance at June 28, 2020

    53,704,477     $ 537       33,822,823     $ 338     $ 358,031     $ 167,523     $ (243

)

    23,243,551     $ (126,412

)

  $ 399,774  

Net income

    -       -       -       -       -       105,342       -       -       -       105,342  

Translation adjustment

    -       -       -       -       -             (1

)

    -       -       (1

)

Stock-based compensation

    679,925       7       -       -       8,222       -       -       -       -       8,229  

Exercise of stock options

    679,100       7       -       -       1,589       -       -       -       -       1,596  

Conversion – Class B into Class A

    389,209       4       (389,209

)

    (4

)

    -       -       -       -       -       -  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       629,397       (14,825

)

    (14,825

)

Balance at March 28, 2021

    55,452,711     $ 555       33,433,614     $ 334     $ 367,842     $ 272,865     $ (244

)

    23,872,948     $ (141,237

)

  $ 500,115  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

   

Nine months ended

 
   

March 27, 2022

   

March 28, 2021

 
                 

Operating activities:

               

Net income

  $ 51,860     $ 105,342  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    36,251       31,792  

Amortization of deferred financing costs

    943       844  

Deferred income taxes

    (1,678

)

    (2,131

)

Bad debt expense

    (873

)

    959  

Stock-based compensation

    6,803       8,229  

Other non-cash items

    1,352       (79

)

Changes in operating items:

               

Trade receivables

    (18,570

)

    (23,520

)

Inventories

    (51,928

)

    (7,627 )

Prepaid and other

    7,174       (1,301

)

Accounts payable and accrued expenses

    6,847       96,947  

Other assets and liabilities

    547       8,756  

Net cash provided by operating activities

    38,728       218,211  
                 

Investing activities:

               

Acquisitions, net of cash acquired

    (22,105

)

    (250,943

)

Capital expenditures, net of non-cash expenditures

    (47,945

)

    (26,821

)

Purchase of equity investments

    -       (1,251

)

Net cash used in investing activities

    (70,050

)

    (279,015

)

                 

Financing activities:

               

Acquisition of treasury stock

    (34,788

)

    (14,825

)

Proceeds from exercise of employee stock options

    846       1,596  

Proceeds from bank borrowings

    125,000       265,000  

Repayment of notes payable and bank borrowings

    (140,000

)

    (172,497

)

Debt issuance cost

    (284

)

    (2,193

)

Net cash (used in) provided by financing activities

    (49,226

)

    77,081  
                 

Net change in cash and cash equivalents

    (80,548

)

    16,277  

Cash and cash equivalents:

               

Beginning of period

    173,573       240,506  

End of period

  $ 93,025     $ 256,783  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

 

Note 1 Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended March 27, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending July 3, 2022. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 27, 2021, which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.

 

The Company’s quarterly results may experience seasonal fluctuations. 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.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

COVID-19

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of COVID-19, including tax relief and government loans, grants and investments. The CARES Act did not have a material impact on the Company’s consolidated financial statements during the quarters ended March 27, 2022 and March 28, 2021.

 

The Company is closely monitoring the impact of COVID-19 on its business, including how it affects its customers, workforce, suppliers, vendors, franchisees, florists, and production and distribution channels, as well as its financial statements. The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors, including, but not limited to: the magnitude and duration of COVID-19, the extent to which it continues to impact macroeconomic conditions, including interest rates, employment rates and consumer confidence, product and delivery supply chain capacity and rates, and governmental, business and individual consumer reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 27, 2022 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves and the carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s consolidated financial statements as of and for the quarters ended March 27, 2022 and March 28, 2021, the Company’s future assessment of these factors and the evolving factors described above, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

 

5

 

Revenue Recognition

 

Net revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Service and outbound shipping charged to customers are recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues. Net revenues exclude sales and other similar taxes collected from customers.

 

A description of our principal revenue generating activities is as follows:

 

E-commerce revenues - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment.

Retail revenues - consumer products sold through our retail stores. Revenue is recognized when control of the goods is transferred to the customer, at the point of sale, at which time payment is received.

Wholesale revenues - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms are typically 30 days from the date control over the product is transferred to the customer.

BloomNet Services - membership fees as well as other service offerings to florists. Membership and other subscription-based fees are recognized monthly as earned. Services revenues related to orders sent through the floral network are variable, based on either the number of orders or the value of orders, and are recognized in the period in which the orders are delivered. The contracts within BloomNet Services are typically month-to-month and as a result no consideration allocation is necessary across multiple reporting periods. Payment is typically due less than 30 days from the date the services were performed. 

 

Deferred Revenues

 

Deferred revenues are recorded when the Company has received consideration (i.e. advance payment) before satisfying its performance obligations. As such, customer orders are recorded as deferred revenue prior to shipment or rendering of product or services. Deferred revenues primarily relate to e-commerce orders placed, but not shipped, prior to the end of the fiscal period, as well as for subscription programs, including our various food, wine, and plant-of-the-month clubs and our Celebrations Passport program.

 

Our total deferred revenue as of June 27, 2021 was $33.4 million (included in “Accrued expenses” on our consolidated balance sheets), of which $3.0 million and $32.3 million was recognized as revenue during the three and nine months ended March 27, 2022, respectively. The deferred revenue balance as of March 27, 2022 was $42.6 million.  

 

Recently Issued Accounting Pronouncements

 

The Company does not expect that any recently issued accounting pronouncements will have a material effect on its consolidated financial statements. Any recently adopted accounting pronouncements did not have a material impact on the Company’s consolidated financial statements.

 

6

 

 

 

Note 2 Net Income (Loss) Per Common Share

 

Basic net income (loss) per common share is computed by dividing the net income (loss) during the period by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing the net income during the period by the sum of the weighted-average number of common shares outstanding during the period and the potential dilutive common shares (consisting of employee stock options and unvested restricted stock awards). During periods of net loss, the potentially dilutive common shares are not included in the calculation as their inclusion would be antidilutive.

 

The following table sets forth the computation of basic and diluted net income (loss) per common share:

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 27,

2022

   

March 28,

2021

   

March 27,

2022

   

March 28,

2021

 
   

(in thousands, except per share data)

 

Numerator:

                               

Net income (loss)

  $ (23,409

)

  $ 1,427     $ 51,860     $ 105,342  
                                 

Denominator:

                               

Weighted average shares outstanding

    65,028       64,885       65,086       64,644  

Effect of dilutive securities:

                               

Employee stock options

    -       604       63       837  

Employee restricted stock awards

    -       985       700       1,083  
      -       1,589       763       1,920  
                                 

Adjusted weighted-average shares and assumed conversions

    65,028       66,474       65,849       66,564  
                                 

Net income (loss) per common share

                               

Basic

  $ (0.36

)

  $ 0.02     $ 0.80     $ 1.63  

Diluted

  $ (0.36

)

  $ 0.02     $ 0.79     $ 1.58  

 

7

 

 

 

Note 3 Stock-Based Compensation

 

The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 12 and Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2021, that provides for the grant to eligible employees, consultants and directors of stock options, restricted shares, and other stock-based awards.

 

The amounts of stock-based compensation expense recognized in the periods presented are as follows:

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 27,

2022

   

March 28,

2021

   

March 27,

2022

   

March 28,

2021

 
   

(in thousands)

 

Stock options

  $ -     $ 9     $ -     $ 27  

Restricted stock

    1,507       2,862       6,803       8,202  

Total

    1,507       2,871       6,803       8,229  

Deferred income tax benefit

    372       743       1,678       2,131  

Stock-based compensation expense, net

  $ 1,135     $ 2,128     $ 5,125     $ 6,098  

 

Stock-based compensation is recorded within the following line items of operating expenses:

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 27,

2022

   

March 28,

2021

   

March 27,

2022

   

March 28,

2021

 
   

(in thousands)

 

Marketing and sales

  $ 600     $ 1,236     $ 2,933     $ 3,747  

Technology and development

    63       132       274       549  

General and administrative

    844       1,503       3,596       3,933  

Total

  $ 1,507     $ 2,871     $ 6,803     $ 8,229  

 

Stock based compensation expense has not been allocated between business segments, but is reflected as part of Corporate overhead (see Note 12 - Business Segments). 

 

Stock Options

 

The following table summarizes stock option activity during the nine months ended March 27, 2022:

 

   

Options

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining

Contractual

Term

   

Aggregate

Intrinsic

Value

 
                   

(in years)

   

(in thousands)

 

Outstanding at June 27, 2021

    336,700     $ 3.44                  

Granted

    -     $ -                  

Exercised

    (321,700

)

  $ 2.63                  

Forfeited

    (15,000 )     20.72                  

Outstanding at March 27, 2022

    -     $ -       -     $ -  
                                 

Exercisable at March 27, 2022

    -     $ -       -     $ -  

 

8

 

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 and performance conditions and, in certain cases, holding periods (Restricted Stock). The following table summarizes the activity of non-vested restricted stock awards during the nine months ended March 27, 2022:

 

   

Shares

   

Weighted

Average Grant

Date Fair

Value

 

Non-vested at June 27, 2021

    1,638,806     $ 18.12  

Granted

    565,050     $ 31.72  

Vested

    (800,387

)

  $ 14.19  

Forfeited

    (483,913

)

  $ 29.59  

Non-vested at March 27, 2022

    919,556     $ 23.85  

 

The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of March 27, 2022, there was $13.7 million of total unrecognized compensation cost related to non-vested, restricted, stock-based compensation to be recognized over the weighted-average remaining period of 2.6 years.  

 

 

 

Note 4 Acquisitions

 

Acquisition of PersonalizationMall

 

On February 14, 2020, 1-800-Flowers.com, Inc., 800-Flowers, Inc., a wholly-owned subsidiary of 1-800-Flowers.com, Inc. (the “Purchaser”), PersonalizationMall.com, LLC ("PersonalizationMall"), and Bed Bath & Beyond Inc. (“Seller”), entered into an Equity Purchase Agreement (the “Purchase Agreement”) pursuant to which Seller agreed to sell to the Purchaser, and the Purchaser agreed to purchase from Seller, all of the issued and outstanding membership interests of PersonalizationMall for $252.0 million in cash (subject to certain working capital and other adjustments). On July 20, 2020, Purchaser, PersonalizationMall, and Seller entered into an amendment (the “Amendment”) to the Purchase Agreement to, among other things, amend the purchase price to $245.0 million (subject to certain working capital and other adjustments). On August 3, 2020, the Company completed its acquisition of PersonalizationMall, including its newly renovated, leased 360,000 square foot, state-of-the-art production and distribution facility, as well as its customer database, tradenames and website. After working capital and related adjustments, total consideration paid was approximately $250.9 million.

 

The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values on the acquisition date. The fair values assigned to PersonalizationMall’s tangible and intangible assets and liabilities assumed were considered preliminary and were based on the information that was available as of the date of the acquisition. As of June 27, 2021, the Company had finalized its allocation and this resulted in immaterial adjustments to the carrying value of the respective recorded assets and the determination of the residual amount that was allocated to goodwill. 

 

9

 

The following table summarizes the allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed:

 

   

PersonalizationMalls

Preliminary

Purchase Price

Allocation

   

Measurement

Period
Adjustments
(1)

   

PersonalizationMalls

Final Purchase Price

Allocation

 
   

August 3, 2020

           

June 27, 2021

 
   

(in thousands)

 
                         

Assets Acquired:

                       

Inventories

  $ 16,998     $ -     $ 16,998  

Other assets

    5,216       -1       5,215  

Property, plant and equipment, net

    30,792       -       30,792  

Operating lease right-of-use assets

    21,438       -       21,438  

Goodwill

    133,337       102       133,439  

Other intangibles, net

    76,000       -       76,000  

Total assets acquired

  $ 283,781     $ 101     $ 283,882  
                         

Liabilities assumed:

                       

Accounts payable and accrued expenses

  $ 11,400     $ 102     $ 11,502  

Operating lease liabilities

    21,438       -       21,438  

Total liabilities assumed

  $ 32,838     $ 102     $ 32,940  
                         

Net assets acquired

  $ 250,943     $ (1

)

  $ 250,942  

 

(1) The measurement period adjustments did not have a significant impact on the Company’s condensed consolidated statements of income for the year ended June 27, 2021.

 

The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. The estimates and assumptions include the projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows.

 

Acquired inventory, consisting of raw materials and supplies, was valued at book value, as there have not been any significant price fluctuations or other events that would materially change the cost to replace the raw materials.

 

Property, plant and equipment was valued at book value (cost less accumulated depreciation and amortization), due to the nature of the assets, which included recently acquired production equipment and leasehold improvements for PersonalizationMall's production facility, which became operational in September 2019.

 

Based on the valuation as of August 3, 2020, of the acquired intangible assets, $11.0 million was assigned to customer lists (4 years life), $65.0 million was assigned to tradenames (indefinite life), and the residual amount of $133.4 million was allocated to goodwill (indefinite life and deductible for tax purposes). The goodwill recognized in conjunction with the Purchaser’s acquisition of PersonalizationMall is primarily related to synergistic value created in terms of both operating costs and revenue growth opportunities, enhanced financial and operational scale, and other strategic benefits. It also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce.

 

The estimated fair value of the acquired trade names was determined using the relief from royalty method, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. The discount rate used in the valuation was based on PersonalizationMall's weighted average cost of capital, the riskiness of the earnings stream association with the trademarks and the overall composition of the acquired assets.

 

10

 

The estimated fair value of the acquired customer lists was determined using the excess earnings method under the income approach. This method requires identifying the future revenue that would be generated by existing customers at the time of the acquisition, considering an appropriate attrition rate based on the historical experience of the Company. Appropriate expenses are then deducted from the revenues and economic rents are charged for the return on contributory assets. The after-tax cash flows attributable to the asset are discounted back to their net present value at an appropriate intangible asset rate of return and summed to calculate the value of the customer lists.

 

As required by ASC 805, “Business Combinations,” the following unaudited pro forma financial information for the three and nine months ended March 28, 2021, give effect to the PersonalizationMall acquisition as if it had been completed on July 1, 2019. The unaudited pro forma financial information is prepared by management for informational purposes only in accordance with ASC 805 and is not necessarily indicative of or intended to represent the results that would have been achieved had the acquisition been consummated as of the dates presented, and should not be taken as representative of future consolidated results of operations. The unaudited pro forma financial information does not reflect any operating efficiencies and/or cost savings that the Company may achieve with respect to the combined companies. The pro forma information has been adjusted to give effect to nonrecurring items that are directly attributable to the acquisition.

 

   

Three months ended

March 28, 2021

   

Nine months ended

March 28, 2021

 
   

(in thousands)

 

Net Revenues

  $ 474,234     $ 1,651,255  

Net Income

    1,427       111,848  

 

The unaudited pro forma amounts above include the following adjustments:

 

-  

A decrease of operating expenses by $0 and $5.4 million during the three and nine months ended March 28, 2021, to eliminate transaction and litigation costs directly related to the transaction that do not have a continuing impact on operating results. 

-

An increase of operating expenses by $0.2 million during the nine months ended  March 28, 2021 to reflect the additional amortization expense related to the increase in definite lived intangible assets.

An increase in interest expense of $0.6 million during the nine months ended March 28, 2021, which is comprised of incremental interest and amortization of deferred financing costs associated with the New Term Loan (as defined below). The interest rate used for the purposes of these pro forma statements, of 3.5%, was the rate in effect at loan inception.  

The combined pro forma results were tax effected using the Company's effective tax rate for the respective periods.   

 

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.

 

After working capital and related adjustments, total consideration was approximately $20.3 million, and was preliminarily allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values on the acquisition date. The Company is in the process of finalizing its allocation and has booked certain immaterial adjustments during the current quarter. The final allocation may result in additional adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain additional intangible assets, revisions of useful lives of intangible assets, and the determination of any residual amount that will be allocated to goodwill.

 

11

 

The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition:

 

   

Vital Choice Preliminary Purchase Price Allocation

   

Measurement Period Interim Adjustments

   

Vital Choice Preliminary Purchase Price Allocation

 
    October 27, 2021             March 27, 2022  
   

(in thousands)

 
                         

Inventory

  $ 8,653     $ -     $ 8,653  

Other current assets

    929       (447 )     482  

Property, plant and equipment

    205       (205 )     -  

Intangible assets

    9,800       -       9,800  

Goodwill

    4,383       652       5,035  

Total assets acquired

    23,970       -       23,970  
                         

Current liabilities

    3,621       -       3,621  

Net assets acquired

  $ 20,349     $ -     $ 20,349  

 

 

The estimated fair value of the acquired work in process and finished goods inventory was determined utilizing the income approach. The income approach estimates the fair value of the inventory based on the net retail value of the inventory, less operating expenses and a reasonable profit allowance. Raw materials inventory was valued at book value, as there have not been any significant price fluctuations or other events that would materially change the cost to replace the raw materials.

 

Of the acquired intangible assets, $4.5 million was assigned to customer lists, which is being amortized over the estimated remaining life of 5 years, $5.3 million was assigned to tradenames (indefinite life), and $5.0 million was assigned to goodwill (indefinite life), which is expected to be deductible for tax purposes. The goodwill recognized is primarily related to synergistic value created in terms of both operating costs and revenue growth opportunities, enhanced financial and operational scale, and other strategic benefits.

 

The estimated fair value of the acquired tradenames was determined using the relief from royalty method, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. The discount rate used in the valuation was based on the Company’s weighted average cost of capital, the riskiness of the earnings stream associated with the trademarks and the overall composition of the acquired assets.

 

The estimated fair value of the acquired customer lists was determined using the excess earnings method under the income approach. This method requires identifying the future revenue that would be generated by existing customers at the time of the acquisition, considering an appropriate attrition rate based on the historical experience of the Company. Appropriate expenses are then deducted from the revenues and economic rents are charged for the return on contributory assets. The after-tax cash flows attributable to the asset are discounted back to their net present value at an appropriate intangible asset rate of return and summed to calculate the value of the customer lists.

 

Operating results of the Vital Choice business are reflected in the Company’s consolidated financial statements from the date of acquisition within the Gourmet Foods & Gift Baskets segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.

 

Acquisition of Alices Table

 

On December 31, 2021, the Company completed its acquisition of Alice’s Table, Inc. (“Alice’s Table”), a lifestyle business offering fully digital livestreaming floral, culinary and other experiences. The Company utilized existing cash of $0.8 million, contributed accounts receivable due from Alice’s Table of $0.3 million, and converted its cost method investment in Alice’s Table of $0.3 million, in order to acquire 100% ownership in Alice’s Table, which included tradenames, customer lists, websites and operations. Immediately prior to completing the acquisition, the Company wrote down its previous cost method investment in Alice’s Table to its $0.3 million fair value, on the date of the acquisition, resulting in an impairment of $0.7 million, which is recorded in the “Other (income) expense, net” line item on the Statement of Operations. Alice’s Table revenues were approximately $3.8 million during its most recent fiscal year ended September 30, 2021.

 

The resulting total consideration of $1.3 million was preliminarily allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values on the acquisition date, including: goodwill of $0.7 million, trademarks of $0.5 million, customer lists of $0.2 million (4 year life) and deferred revenue of $0.1 million. The Company is in the process of finalizing its allocation and this may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain additional intangible assets, revisions of useful lives of intangible assets, and the determination of any residual amount that will be allocated to goodwill.

 

 

Note 5 Inventory, Net

 

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 manufactured products and associated manufacturing labor, and is classified as follows:

 

   

March 27, 2022

   

June 27, 2021

 
   

(in thousands)

 

Finished goods

  $ 110,145     $ 72,267  

Work-in-process

    27,794