10-Q 1 flws20230402_10q.htm FORM 10-Q flws20230402_10q.htm
0001084869 1 800 FLOWERS COM INC false --07-02 Q3 2022 0.01 0.01 10,000,000 10,000,000 0 0 0.01 0.01 200,000,000 200,000,000 58,260,197 57,706,389 0.01 0.01 200,000,000 200,000,000 32,348,221 32,529,614 20,560,401 20,418,396 5,280,000 5,280,000 3.5 21.0 2020 2021 2016 2017 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2.9 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. Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment. 00010848692022-07-042023-04-02 xbrli:shares 0001084869us-gaap:CommonClassAMember2023-05-05 0001084869us-gaap:CommonClassBMember2023-05-05 thunderdome:item iso4217:USD 00010848692023-04-02 00010848692022-07-03 iso4217:USDxbrli:shares 0001084869us-gaap:CommonClassAMember2023-04-02 0001084869us-gaap:CommonClassAMember2022-07-03 0001084869us-gaap:CommonClassBMember2023-04-02 0001084869us-gaap:CommonClassBMember2022-07-03 00010848692023-01-022023-04-02 00010848692021-12-272022-03-27 00010848692021-06-282022-03-27 0001084869us-gaap:CommonClassAMemberus-gaap:CommonStockMember2023-01-01 0001084869us-gaap:CommonClassBMemberus-gaap:CommonStockMember2023-01-01 0001084869us-gaap:AdditionalPaidInCapitalMember2023-01-01 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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 April 2, 2023

 

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

flws20230402_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 May 5, 2023:

 

Class A common stock: 37,707,872

Class B common stock: 27,068,221

 

 
 

 

1-800-FLOWERS.COM, Inc.

FORM 10-Q

For the quarterly period ended April 2, 2023

TABLE OF CONTENTS

 

   

Page

Part I.

Financial Information

 

Item 1.

Condensed Consolidated Financial Statements

1

 

Condensed Consolidated Balance Sheets  April 2, 2023 (Unaudited) and July 3, 2022

1

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) – Three and Nine Months Ended April 2, 2023 and March 27, 2022

2

 

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) – Three and Nine Months Ended April 2, 2023 and March 27, 2022

3

 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended April 2, 2023 and March 27, 2022

4

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

39

     

Part II.

Other Information

 

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Defaults upon Senior Securities

41

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

41

Item 6.

Exhibits

41

     

Signatures

42

 

 

 

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)

 

  

April 2, 2023

  

July 3, 2022

 
  

(unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents

 $51,598  $31,465 

Trade receivables, net

  36,792   23,812 

Inventories

  191,894   247,563 

Prepaid and other

  39,183   45,398 

Total current assets

  319,467   348,238 
         

Property, plant and equipment, net

  231,476   236,481 

Operating lease right-of-use assets

  128,746   129,390 

Goodwill

  153,376   213,287 

Other intangibles, net

  141,002   145,568 

Other assets

  24,720   21,927 

Total assets

 $998,787  $1,094,891 
         

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Accounts payable

 $21,825  $57,386 

Accrued expenses

  147,750   175,392 

Current maturities of long-term debt

  20,000   20,000 

Current portion of long-term operating lease liabilities

  15,517   12,919 

Total current liabilities

  205,092   265,697 
         

Long-term debt, net

  128,112   142,497 

Long-term operating lease liabilities

  121,568   123,662 

Deferred tax liabilities, net

  31,352   35,742 

Other liabilities

  20,665   17,884 

Total liabilities

  506,789   585,482 
         

Commitments and contingencies (See Note 13 and Note 15)

          
         

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, 58,260,197 and 57,706,389 shares issued at April 2, 2023 and July 3, 2022

  583   577 

Class B common stock, $0.01 par value, 200,000,000 shares authorized, 32,348,221 and 32,529,614 shares issued at April 2, 2023 and July 3, 2022

  323   325 

Additional paid-in capital

  385,822   379,885 

Retained earnings

  293,630   315,785 

Accumulated other comprehensive loss

  (211

)

  (211

)

Treasury stock, at cost, 20,560,401 and 20,418,396 Class A shares at April 2, 2023 and July 3, 2022, and 5,280,000 Class B shares at April 2, 2023 and July 3, 2022

  (188,149

)

  (186,952

)

Total stockholders’ equity

  491,998   509,409 

Total liabilities and stockholders’ equity

 $998,787  $1,094,891 

 

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

 
  

April 2,

2023

  

March 27,

2022

  

April 2,

2023

  

March 27,

2022

 
                 

Net revenues

 $417,566  $469,576  $1,619,047  $1,721,993 

Cost of revenues

  277,126   315,485   1,009,383   1,063,938 

Gross profit

  140,440   154,091   609,664   658,055 

Operating expenses:

                

Marketing and sales

  106,472   130,645   390,077   432,795 

Technology and development

  14,837   14,456   44,529   41,369 

General and administrative

  25,922   22,553   81,075   78,491 

Depreciation and amortization

  13,267   12,693   40,276   36,251 

Goodwill and intangible impairment

  64,586   -   64,586   - 

Total operating expenses

  225,084   180,347   620,543   588,906 

Operating income (loss)

  (84,644

)

  (26,256

)

  (10,879

)

  69,149 

Interest expense, net

  1,712   1,226   8,676   4,477 

Other expense, net

  1,404   4,007   2,474   954 

Income (loss) before income taxes

  (87,760

)

  (31,489

)

  (22,029

)

  63,718 

Income tax expense (benefit)

  (16,767

)

  (8,080

)

  126   11,858 

Net income (loss) and comprehensive net income (loss)

 $(70,993

)

 $(23,409

)

 $(22,155

)

 $51,860 
                 

Basic net income (loss) per common share

 $(1.10

)

 $(0.36

)

 $(0.34

)

 $0.80 
                 

Diluted net income (loss) per common share

 $(1.10

)

 $(0.36

)

 $(0.34

)

 $0.79 
                 

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

                

Basic

  64,767   65,028   64,660   65,086 

Diluted

  64,767   65,028   64,660   65,849 

 

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 April 2, 2023 and March 27, 2022 

 

  

 

  

 

  

 

  

 

Accumulated

  

 

  

 

 
               Additional     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 January 1, 2023

  58,256,031  $583   32,348,221  $323  $383,335  $364,623  $(211

)

  25,838,644  $(188,127

)

 $560,526 

Net loss

  -   -   -   -   -   (70,993

)

  -   -   -   (70,993

)

Stock-based compensation

  4,166   -   -   -   2,487   -   -   -   -   2,487 

Conversion – Class B into Class A

  -   -   -   -   -   -   -   -   -   - 

Acquisition of Class A treasury stock

  -   -   -   -   -   -   -   1,757   (22

)

  (22

)

Balance at April 2, 2023

  58,260,197  $583   32,348,221  $323  $385,822  $293,630  $(211

)

  25,840,401  $(188,149

)

 $491,998 
                                         

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 

 

  

Nine Months Ended April 2, 2023 and March 27, 2022

 
                          

Accumulated

             
  

Common Stock

  

Additional

      

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 July 3, 2022

  57,706,389  $577   32,529,614  $325  $379,885  $315,785  $(211

)

  25,698,396  $(186,952

)

 $509,409 

Net loss

  -   -   -   -   -   (22,155

)

  -   -   -   (22,155

)

Stock-based compensation

  372,415   4   -   -   5,937   -   -   -   -   5,941 

Conversion – Class B into Class A

  181,393   2   (181,393

)

  (2

)

  -   -   -   -   -   - 

Acquisition of Class A treasury stock

  -   -   -   -   -   -   -   142,005   (1,197

)

  (1,197

)

Balance at April 2, 2023

  58,260,197  $583   32,348,221  $323  $385,822  $293,630  $(211

)

  25,840,401  $(188,149

)

 $491,998 
                                         

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 

 

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

 
  

April 2, 2023

  

March 27, 2022

 
         

Operating activities:

        

Net income (loss)

 $(22,155

)

 $51,860 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

        

Goodwill and intangible asset impairment

  64,586   - 

Depreciation and amortization

  40,276   36,251 

Amortization of deferred financing costs

  998   943 

Deferred income taxes

  (4,390

)

  (1,678

)

Bad debt expense

  2,997   (873

)

Stock-based compensation

  5,941   6,803 

Other non-cash items

  (245

)

  1,352 

Changes in operating items:

        

Trade receivables

  (15,977

)

  (18,570

)

Inventories

  57,031   (51,928

)

Prepaid and other

  2,706   7,174 

Accounts payable and accrued expenses

  (59,806

)

  6,847 

Other assets and liabilities

  1,102   547 

Net cash provided by operating activities

  73,064   38,728 
         

Investing activities:

        

Acquisitions, net of cash acquired

  (5,000

)

  (22,105

)

Capital expenditures, net of non-cash expenditures

  (31,351

)

  (47,945

)

Net cash used in investing activities

  (36,351

)

  (70,050

)

         

Financing activities:

        

Acquisition of treasury stock

  (1,197

)

  (34,788

)

Proceeds from exercise of employee stock options

  -   846 

Proceeds from bank borrowings

  195,900   125,000 

Repayment of notes payable and bank borrowings

  (210,900

)

  (140,000

)

Debt issuance cost

  (383

)

  (284

)

Net cash used in financing activities

  (16,580

)

  (49,226

)

         

Net change in cash and cash equivalents

  20,133   (80,548

)

Cash and cash equivalents:

        

Beginning of period

  31,465   173,573 

End of period

 $51,598  $93,025 

 

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 April 2, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending July 2, 2023. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 3, 2022, 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, is expected to generate over 40% of the Company’s annual revenues, and all of its earnings. Due to the number of major floral gifting occasions, including Valentine’s Day, Easter, Administrative Professionals Week, and Mother's Day, 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.

 

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. 

 

5

 

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 July 3, 2022 was $33.7 million (included in “Accrued expenses” on our consolidated balance sheets), of which $5.7 and $32.5 million was recognized as revenue during the three and nine months ended April 2, 2023. The deferred revenue balance as of April 2, 2023 was $41.7 million.  

 

Interim Impairment Evaluation

 

During the quarter ended April 2, 2023, the Company evaluated whether events or circumstances had changed such that it would indicate it was more likely than not that its goodwill, intangible and other long-lived assets of the Gourmet Foods & Gift Baskets reporting units fair values were less than their carrying amounts. After considering the continuing pressures on consumer discretionary spending, ongoing geopolitical events, the current inflationary macro-economic conditions, related cost input headwinds that have negatively impacted the Company’s gross margins, and resulting downward revisions to its forecast, the Company concluded that a triggering event had occurred for its Gourmet Foods & Gift Baskets reporting unit. As such, the Company performed an impairment test of the reporting unit’s goodwill, intangibles and long-lived assets as of April 2, 2023, and fully impaired the related goodwill, and partially impaired certain tradenames within the reporting unit. The Company concluded that the definite-lived and other long-lived assets of the reporting unit were not impaired. See Note 6 – Goodwill and Intangible Assets, Net for further information.

 

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.

 

 

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 (loss) per common share is computed by dividing the net income (loss) during the period by the sum of the weighted-average number of common shares outstanding during the period and the potentially dilutive common shares (consisting of employee stock options and unvested restricted stock awards).

 

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

 

  

Three Months Ended

  

Nine Months Ended

 
  

April 2,
2023

  

March 27,
2022

  

April 2,
2023

  

March 27,
2022

 
  

(in thousands, except per share data)

 

Numerator:

                

Net income (loss)

 $(70,993

)

 $(23,409

)

 $(22,155

)

 $51,860 
                 

Denominator:

                

Weighted average shares outstanding

  64,767   65,028   64,660   65,086 

Effect of dilutive securities:

                

Employee stock options

  -   -   -   63 

Employee restricted stock awards

  -   -   -   700 
   -   -   -   763 
                 

Adjusted weighted-average shares and assumed conversions

  64,767   65,028   64,660   65,849 
                 

Net income (loss) per common share

                

Basic

 $(1.10

)

 $(0.36

)

 $(0.34

)

 $0.80 

Diluted

 $(1.10

)

 $(0.36

)

 $(0.34

)

 $0.79 

 

 

 

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 July 3, 2022, 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

 
  

April 2,
2023

  

March 27,
2022

  

April 2,
2023

  

March 27,
2022

 
  

(in thousands)

 

Stock options

 $982  $(57

)

 $1,575  $(39

)

Restricted stock

  1,505   1,564   4,366   6,842 

Total

  2,487   1,507   5,941   6,803 

Deferred income tax benefit

  609   372   1,455   1,678 

Stock-based compensation expense, net

 $1,878  $1,135  $4,486  $5,125 

 

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

 

  

Three Months Ended

  

Nine Months Ended

 
  

April 2,
2023

  

March 27,
2022

  

April 2,
2023

  

March 27,
2022

 
  

(in thousands)

 

Marketing and sales

 $1,144  $600  $2,718  $2,933 

Technology and development

  199   63   506   274 

General and administrative

  1,144   844   2,717   3,596 

Total

 $2,487  $1,507  $5,941  $6,803 

 

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 April 2, 2023:

 

  

Options

  

Weighted

Average

Exercise

Price

  

Weighted

Average

Remaining

Contractual

Term

  

Aggregate

Intrinsic

Value

 
          

(in years)

  

(in thousands)

 

Outstanding at July 3, 2022

  -  $-         

Granted

  2,346,416  $8.59         

Exercised

  -  $-         

Forfeited

  (42,412

)

  8.59         

Outstanding at April 2, 2023

  2,304,004  $8.59   9.6  $6,705 
                 

Exercisable at April 2, 2023

  -  $-   -  $- 

 

As of April 2, 2023, the total future compensation cost related to non-vested options, not yet recognized in the statement of income, was $10.2 million and the weighted average period over which these awards are expected to be recognized was 2.6 years.

 

7

 

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 April 2, 2023:

 

  

Shares

  

Weighted

Average Grant

Date Fair

Value

 

Non-vested at July 3, 2022

  929,709  $21.82 

Granted

  735,754  $8.44 

Vested

  (372,415

)

 $17.66 

Forfeited

  (51,638

)

 $19.56 

Non-vested at April 2, 2023

  1,241,410  $15.23 

 

The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of April 2, 2023, there was $12.2 million of total unrecognized compensation cost related to non-vested, restricted, stock-based compensation to be recognized over the weighted-average remaining period of 2.7 years.  

 

 

Note 4 Acquisitions

 

Acquisition of Things Remembered

 

On January 10, 2023, the Company completed its acquisition of certain assets of the Things Remembered brand, a provider of personalized gifts, whose operations will be integrated within the PersonalizationMall.com brand, in the Consumer Floral & Gifts segment. The Company used cash on hand to fund the $5.0 million purchase, which included the intellectual property, customer list, certain inventory, and equipment. The acquisition did not include Things Remembered retail stores. Things Remembered’s annual revenues from its ecommerce operations, based on its most recently available unaudited financial information was $30.4 million for the twelve months ended November 30, 2022.

 

The total consideration of $5.0 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 $1.7 million (deductible for income tax purposes), trademarks of $0.8 million (indefinite life), customer lists of $0.8 million (3-year life), inventory of $1.3 million, and equipment of $0.4 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.

 

Acquisition of Vital Choice

 

On October 27, 2021, the Company completed its acquisition of all of the membership interests in 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 $20.0 million, and was preliminarily allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values, as a result of information that was available as of the date of the acquisition. During the quarter ended January 1, 2023, the Company finalized its purchase price allocation, resulting in immaterial adjustments to the preliminary carrying value of the respective recorded assets and the residual amount that was allocated to goodwill. 

 

8

 

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

 

  

Vital Choice
Preliminary
Purchase Price
Allocation

  

Measurement
Period Interim
Adjustments

  

Vital Choice
Purchase Price
Allocation

 
  

October 27,

      

January 1,

 
  

2021

      

2023

 
  

(in thousands)

 
             

Inventory

 $8,653  $-  $8,653 

Other current assets

  929   (474

)

  455 

Property, plant and equipment

  205   (205

)

  - 

Intangible assets

  9,800   (600

)

  9,200 

Goodwill

  4,383   634   5,017 

Total assets acquired

  23,970   (645

)

  23,325 
             

Current liabilities

  3,621   (256

)

  3,365 

Net assets acquired

 $20,349  $(389

)

 $19,960 

 

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, $4.3 million was assigned to customer lists, which is being amortized over the estimated remaining life of 5 years, $4.9 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.

 

9

 

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 and on demand floral, culinary and other experiences to guests across the country. 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 for the fiscal year ended July 3, 2022. 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, as a result of information that was available as of the date of the acquisition. During the quarter ended January 1, 2023, the Company finalized its purchase price allocation, resulting in immaterial adjustments to the preliminary carrying value of the respective recorded assets and the residual amount that was allocated to goodwill. The consideration transferred was allocated to: goodwill of $0.8 million, trademarks of $0.5 million (indefinite life), customer lists of $0.2 million (4-year life), and liabilities of $0.2 million.   

 

 

Note 5 Inventory, Net

 

The Company’s inventory, valued at the lower of cost or net realizable value, 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:

 

  

April 2, 2023

  

July 3, 2022

 
  

(in thousands)

 

Finished goods

 $95,067  $128,760 

Work-in-process

  29,208   29,270 

Raw materials

  67,619   89,533 

Total inventory

 $191,894  $247,563 

 

 

Note 6 Goodwill and Intangible Assets, Net

 

The following table presents goodwill by segment and the related change in the net carrying amount:

 

  

Consumer

Floral &

Gifts

  

BloomNet

  

Gourmet

Foods &

Gift
Baskets

  

Total

 
  

(in thousands)

 

Balance at July 3, 2022

 $151,600  $-  $61,687  $213,287 

Measurement period adjustment for Vital Choice Acquisition

  -   -   600   600 

Measurement period adjustment for Alice's Table Acquisition

  112   -   -   112 

Acquisition of Things Remembered

  1,664   -   -   1,664 

Goodwill impairment

  -   -   (62,287

)

  (62,287

)

Balance at April 2, 2023

 $153,376  $-  $-  $153,376 

 

10

 

The Company’s other intangible assets consist of the following:

 

       

April 2, 2023

  

July 3, 2022

 
  

Amortization

Period

  

Gross

Carrying

Amount

  

Accumulated
Amortization

  

Net

  

Gross

Carrying

Amount

  

Accumulated
Amortization

  

Net

 
  

(in years)

  

(in thousands)

 

Intangible assets with determinable lives

                             

Investment in licenses

 14-16  $7,420  $6,543  $877  $7,420  $6,464  $956 

Customer lists

 3-6   29,071   20,538   8,533   28,509   17,473   11,036 

Other

 5-14   2,946   2,589   357   2,946   2,543   403 

Total intangible assets with determinable lives

       39,437   29,670   9,767   38,875   26,480   12,395 

Trademarks with indefinite lives

       131,235   -   131,235   133,173   -   133,173 

Total identifiable intangible assets

      $170,672  $29,670  $141,002  $172,048  $26,480  $145,568 

 

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Future estimated amortization expense is as follows: remainder of fiscal 2023 - $1.1 million, fiscal 2024 - $4.5 million, fiscal 2025 - $1.9 million, fiscal 2026 - $1.3 million, fiscal 2027 - $0.5 million and thereafter - $0.5 million.

 

The Company performs its annual assessment of goodwill and indefinite-lived intangible impairment during its fiscal fourth quarter, or more frequently if events occur or circumstances change such that it is more likely than not that an impairment  may exist. During the year ended  July 3, 2022, the Company experienced a sustained decline in its share price and a resulting decrease in its market capitalization, primarily due to the overall macroeconomic environment. Inflationary cost increases, which began during the first half of our fiscal year, were exacerbated by geopolitical events, further pressuring the Company’s gross margin and operating expenses. Due to this overall market decline and the Company’s operating performance, the Company completed impairment assessments of the goodwill and intangible assets of its three reporting units. The quantitative impairment tests as of July 3, 2022 did not indicate an impairment.

 

Although originally projected to be transitory, through the three months and nine months ended April 2, 2023, the trend of adverse macroeconomic conditions and geopolitical pressures continued, and there was a sustained decline in the Company’s market capitalization. As the expected duration of these factors changed during the three months ended April 2, 2023, the Company made downward projections to its business forecasts, and therefore determined a triggering event had occurred that required an interim impairment assessment of the goodwill, intangibles and other long-lived assets of the Gourmet Foods & Gift Baskets reporting unit as of April 2, 2023.

 

The Company performed its goodwill impairment test by comparing the fair value of its Gourmet Foods & Gift Baskets reporting unit to its respective carrying value. The Company estimated the fair value of the Gourmet Foods & Gift Baskets reporting unit using an equal weighting of the income and market approaches, and a discount rate of 13%. The Company used industry accepted valuation models and set criteria that were reviewed and approved by various levels of management. Under the income approach, the Company used a discounted cash flow methodology which required 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 used the guideline public company method. Under this method, the Company utilized information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that were applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values. The Company also reconciled the aggregate fair values of its reporting units to its current market capitalization.

 

The Company’s impairment test for indefinite-lived intangible assets encompassed calculating a fair value of the indefinite-lived intangible asset and comparing that result to its carrying value. To determine fair value of indefinite-lived intangible assets, the Company used 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. 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.

 

11

 

The Company’s impairment test for definite-lived intangibles was performed through a recoverability test, comparing projected undiscounted cash flows from the use and eventual disposition of the asset or asset group to its carrying value.

 

Based on the impairment assessment performed for the period ending April 2, 2023, the Company recorded a goodwill and intangible impairment charge against its Gourmet Foods & Gift Baskets reporting unit of $64.6 million, comprised of $62.3 million which was attributable to goodwill and $2.3 million which was attributable to certain tradenames within the same reporting unit. The Company concluded that the definite-lived and other long-lived assets of the reporting unit were not impaired.

 

 

Note 7 Investments

 

Equity investments without a readily determinable fair value

 

Investments in non-marketable equity instruments of private companies, where the Company does not possess the ability to exercise significant influence, are accounted for at cost, less impairment (assessed qualitatively at each reporting period), adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. These investments are included within “Other assets” in the Company’s consolidated balance sheets. The aggregate carrying amount of the Company’s cost method investments was $3.5 million as of April 2, 2023 and July 3, 2022, respectively. 

 

Equity investments with a readily determinable fair value

 

The Company also holds certain trading securities associated with its Non-Qualified Deferred Compensation Plan (“NQDC Plan”). These investments are measured using quoted market prices at the reporting date and are included within the “Other assets” line item in the consolidated balance sheets (see Note 10 - Fair Value Measurements).

 

 

 

Note 8 Debt, Net

 

The Company’s current and long-term debt consists of the following:

 

  

April 2, 2023

  

July 3, 2022

 
  

(in thousands)

 

Revolver

 $-  $- 

Term Loans

  150,000   165,000 

Deferred financing costs

  (1,888

)

  (2,503

)

Total debt

  148,112   162,497 

Less: current debt

  20,000   20,000 

Long-term debt

 $128,112  $142,497 

 

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 $