10-Q 1 flws20240331_10q.htm FORM 10-Q flws20240331_10q.htm
0001084869 1 800 FLOWERS COM INC false --06-30 Q3 2024 0.01 0.01 10,000,000 10,000,000 0 0 0.01 0.01 200,000,000 200,000,000 58,781,134 58,273,747 0.01 200,000,000 32,348,221 32,348,221 21,514,159 20,565,875 5,280,000 5,280,000 2.6 0.6 21.0 21.0 21.0 3.2 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 false false false false 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. 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. 00010848692023-07-032024-03-31 xbrli:shares 0001084869us-gaap:CommonClassAMember2024-05-03 0001084869us-gaap:CommonClassBMember2024-05-03 thunderdome:item iso4217:USD 00010848692024-03-31 00010848692023-07-02 iso4217:USDxbrli:shares 0001084869us-gaap:CommonClassAMember2024-03-31 0001084869us-gaap:CommonClassAMember2023-07-02 0001084869us-gaap:CommonClassBMember2024-03-31 0001084869us-gaap:CommonClassBMember2023-07-02 00010848692024-01-012024-03-31 00010848692023-01-022023-04-02 00010848692022-07-042023-04-02 0001084869us-gaap:CommonClassAMemberflws:CommonStockOutstandingMember2023-12-31 0001084869us-gaap:CommonClassAMemberus-gaap:CommonStockMember2023-12-31 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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 31, 2024

 

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

flws20231231_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 3, 2024:

 

Class A common stock: 37,141,975

Class B common stock: 27,068,221

 

   

 

1-800-FLOWERS.COM, Inc.

FORM 10-Q

For the quarterly period ended March 31, 2024

TABLE OF CONTENTS

 

   

Page

Part I.

Financial Information

 

Item 1.

Condensed Consolidated Financial Statements

1

 

Condensed Consolidated Balance Sheets – March 31, 2024 (Unaudited) and July 2, 2023

1

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) – Three and Nine Months Ended March 31, 2024 and April 2, 2023

2

 

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) – Three and Nine Months Ended March 31, 2024 and April 2, 2023

3

 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended March 31, 2024 and April 2, 2023

5

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

     

Part II.

Other Information

36

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

Defaults upon Senior Securities

37

Item 4.

Mine Safety Disclosures

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

     

Signatures

 

 

 

 

 

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 31, 2024

  

July 2, 2023

 
  

(unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents

 $183,956  $126,807 

Trade receivables, net

  26,779   20,419 

Inventories

  159,458   191,334 

Prepaid and other

  26,437   34,583 

Total current assets

  396,630   373,143 
         

Property, plant and equipment, net

  223,939   234,569 

Operating lease right-of-use assets

  114,784   124,715 

Goodwill

  153,577   153,376 

Other intangibles, net

  116,783   139,888 

Other assets

  34,269   25,739 

Total assets

 $1,039,982  $1,051,430 
         

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Accounts payable

 $47,015  $52,588 

Accrued expenses

  138,004   141,914 

Current maturities of long-term debt

  10,000   10,000 

Current portion of long-term operating lease liabilities

  15,250   15,759 

Total current liabilities

  210,269   220,261 
         

Long-term debt, net

  179,432   186,391 

Long-term operating lease liabilities

  107,918   117,330 

Deferred tax liabilities, net

  22,599   31,134 

Other liabilities

  34,438   24,471 

Total liabilities

  554,656   579,587 
         

Commitments and contingencies (See 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, 58,781,134 and 58,273,747 shares issued at March 31, 2024 and July 2, 2023, respectively

  588   583 

Class B common stock, $0.01 par value, 200,000,000 shares authorized, 32,348,221 shares issued at March 31, 2024 and July 2, 2023

  323   323 

Additional paid-in capital

  396,109   388,215 

Retained earnings

  285,845   271,083 

Accumulated other comprehensive loss

  (170)  (170)

Treasury stock, at cost, 21,514,159 and 20,565,875 Class A shares at March 31, 2024 and July 2, 2023, respectively and 5,280,000 Class B shares at March 31, 2024 and July 2, 2023

  (197,369)  (188,191)

Total stockholders’ equity

  485,326   471,843 

Total liabilities and stockholders’ equity

 $1,039,982  $1,051,430 

 

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 31,

  

April 2,

  

March 31,

  

April 2,

 
  

2024

  

2023

  

2024

  

2023

 
                 

Net revenues

 $379,405  $417,566  $1,470,509  $1,619,047 

Cost of revenues

  240,688   277,126   874,167   1,009,383 

Gross profit

  138,717   140,440   596,342   609,664 

Operating expenses:

                

Marketing and sales

  105,828   106,472   376,903   390,077 

Technology and development

  15,291   14,837   45,417   44,529 

General and administrative

  32,295   25,922   87,938   81,075 

Depreciation and amortization

  13,232   13,267   40,578   40,276 

Goodwill and intangible impairment

  -   64,586   19,762   64,586 

Total operating expenses

  166,646   225,084   570,598   620,543 

Operating income (loss)

  (27,929)  (84,644)  25,744   (10,879)

Interest expense, net

  881   1,712   8,974   8,676 

Other (income) expense, net

  (3,574)  1,404   (5,836)  2,474 

Income (loss) before income taxes

  (25,236)  (87,760)  22,606   (22,029)

Income tax (benefit) expense

  (8,333)  (16,767)  7,844   126 

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

  (16,903)  (70,993)  14,762   (22,155)
                 

Basic net income (loss) per common share

 $(0.26) $(1.10) $0.23  $(0.34)
                 

Diluted net income (loss) per common share

 $(0.26) $(1.10) $0.23  $(0.34)
                 

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

                

Basic

  64,489   64,767   64,703   64,660 

Diluted

  64,489   64,767   65,057   64,660 

 

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 31, 2024 and April 2, 2023

 
                          

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 December 31, 2023

  58,743,969  $588   32,348,221  $323  $392,849  $302,748  $(170)  26,369,336  $(192,978) $503,360 

Net loss

  -   -   -   -   -   (16,903)  -   -   -   (16,903)

Stock-based compensation

  12,262   -   -   -   3,046   -   -   -   -   3,046 

Exercise of stock options

  24,903   -   -   -   214   -   -   -   -   214 

Acquisition of Class A treasury stock

  -   -   -   -   -   -   -   424,823   (4,391)  (4,391)

Balance at March 31, 2024

  58,781,134  $588   32,348,221  $323  $396,109  $285,845  $(170)  26,794,159  $(197,369) $485,326 
                                         

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 

 

 

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

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

 

  

Nine Months Ended March 31, 2024 and April 2, 2023

 
                          

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 2, 2023

  58,273,747  $583   32,348,221  $323  $388,215  $271,083  $(170)  25,845,875  $(188,191) $471,843 

Net income

  -   -   -   -   -   14,762   -   -   -   14,762 

Stock-based compensation

  477,374   5   -   -   7,636   -   -   -   -   7,641 

Exercise of stock options

  30,013   -   -   -   258   -   -   -   -   258 

Acquisition of Class A treasury stock

  -   -   -   -   -   -   -   948,284   (9,178)  (9,178)

Balance at March 31, 2024

  58,781,134  $588   32,348,221  $323  $396,109  $285,845  $(170)  26,794,159  $(197,369) $485,326 
                                         

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 

 

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 31,

  

April 2,

 
  

2024

  

2023

 
         

Operating activities:

        

Net income (loss)

 $14,762  $(22,155)

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

        

Goodwill and intangible impairment

  19,762   64,586 

Depreciation and amortization

  40,578   40,276 

Amortization of deferred financing costs

  541   998 

Deferred income taxes

  (8,535)  (4,390)

Bad debt expense

  418   2,997 

Stock-based compensation

  7,641   5,941 

Other non-cash items

  (122)  (245)

Changes in operating items:

        

Trade receivables

  (6,778)  (15,977)

Inventories

  31,674   57,031 

Prepaid and other

  4,761   2,706 

Accounts payable and accrued expenses

  (6,077)  (59,806)

Other assets and liabilities

  1,426   1,102 

Net cash provided by operating activities

  100,051   73,064 
         

Investing activities:

        

Acquisitions, net of cash acquired

  -   (5,000)

Capital expenditures

  (26,482)  (31,351)

Net cash used in investing activities

  (26,482)  (36,351)
         

Financing activities:

        

Acquisition of treasury stock

  (9,178)  (1,197)

Proceeds from exercise of employee stock options

  258   - 

Proceeds from bank borrowings

  82,000   195,900 

Repayment of bank borrowings

  (89,500)  (210,900)

Debt issuance cost

  -   (383)

Net cash used in financing activities

  (16,420)  (16,580)
         

Net change in cash and cash equivalents

  57,149   20,133 

Cash and cash equivalents:

        

Beginning of period

  126,807   31,465 

End of period

 $183,956  $51,598 

 

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 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2024. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 2, 2023, 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 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.

 

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. 

 

6

 

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 2, 2023 was $30.8 million (included in “Accrued expenses” on our consolidated balance sheets), of which $2.8 million and $29.6 million was recognized as revenue during the three and nine months ended March 31, 2024, respectively. The deferred revenue balance as of  March 31, 2024 was $31.7 million.

 

Impairment Evaluation

 

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 quarter ended December 31, 2023, as a result of a decline in the actual and projected revenue for the Company’s PersonalizationMall tradename (indefinite-lived intangible asset), as well as a higher discount rate resulting from the higher interest rate environment, the Company determined that an impairment assessment was required for this tradename. This assessment resulted in the Company recording a non-cash impairment charge of $19.8 million to reduce the recorded carrying value of the PersonalizationMall tradename.

 

The Company concluded that goodwill and other indefinite-lived intangible assets, excluding its PersonalizationMall tradename, did not require an impairment assessment. See Note 5 – Goodwill and Intangible Assets, Net for further information.

 

Recently Issued Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires enhanced disclosures about significant segment expenses, includes enhanced interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 is to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements and related disclosures.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires the disclosure of additional information with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes and requires greater detail about significant reconciling items in the reconciliation. Additionally, the amendment requires disaggregated information pertaining to taxes paid, net of refunds received, for federal, state, and foreign income taxes. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and allows for either a prospective or retrospective approach on adoption. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements and related disclosures.

 

 

7

 
 

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 reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.

 

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

 

  

Three Months Ended

  

Nine Months Ended

 
  

March 31,

  

April 2,

  

March 31,

  

April 2,

 
  

2024

  

2023

  

2024

  

2023

 
  

(in thousands, except per share data)

 

Numerator:

                

Net income (loss)

 $(16,903) $(70,993) $14,762  $(22,155)
                 

Denominator:

                

Weighted average shares outstanding

  64,489   64,767   64,703   64,660 

Effect of dilutive stock options and unvested restricted stock awards

  -   -   354   - 
                 

Diluted weighted-average shares outstanding

  64,489   64,767   65,057   64,660 
                 

Net income (loss) per common share

                

Basic

 $(0.26) $(1.10) $0.23  $(0.34)

Diluted

 $(0.26) $(1.10) $0.23  $(0.34)

 

 

Note 3 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 are 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 e-commerce 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 allocated to the identifiable assets acquired and liabilities assumed based on our estimates of their fair values on the acquisition date, including: goodwill of $1.9 million (deductible for income tax purposes), trademarks of $0.8 million (indefinite life), customer lists of $0.8 million (3-year life), inventory of $1.1 million, and equipment of $0.4 million. During the quarter ended December 31, 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.

 

Operating results of the Things Remembered business are reflected in the Company’s consolidated financial statements from the date of acquisition within the Consumer Floral & Gifts segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.

 

8

 
 

Note 4 Inventory

 

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:

 

  

March 31, 2024

  

July 2, 2023

 
  

(in thousands)

 

Finished goods

 $86,503  $92,582 

Work-in-process

  22,299   33,818 

Raw materials

  50,656   64,934 

Total inventory

 $159,458  $191,334 

 

 

Note 5 Goodwill and Intangible Assets, Net

 

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

 

          

Gourmet

     
  

Consumer

      

Foods &

     
  

Floral &

      

Gift

     
  

Gifts

  

BloomNet

  

Baskets

  

Total

 
  

(in thousands)

 

Balance at July 2, 2023

 $153,376  $-  $-  $153,376 

Measurement period adjustment for Things Remembered Acquisition

  201   -   -   201 

Balance at March 31, 2024

 $153,577  $-  $-  $153,577 

 

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

 

     

March 31, 2024

  

July 2, 2023

 
     

Gross

          

Gross

         
  

Amortization

  

Carrying

  

Accumulated

      

Carrying

  

Accumulated

     
  

Period

  

Amount

  

Amortization

  

Net

  

Amount

  

Amortization

  

Net

 
  

(in years)

  

(in thousands)

 

Intangible assets with determinable lives

                           

Investment in licenses

 14 - 16  $7,420  $6,648  $772  $7,420  $6,569  $851 

Customer lists

 3 - 10   29,071   24,830   4,241   29,071   21,611   7,460 

Other

 5 - 14   2,946   2,649   297   2,946   2,604   342 

Total intangible assets with determinable lives

     39,437   34,127   5,310   39,437   30,784   8,653 

Trademarks with indefinite lives

     111,473   -   111,473   131,235   -   131,235 

Total identifiable intangible assets

    $150,910  $34,127  $116,783  $170,672  $30,784  $139,888 

 

Future estimated amortization expense is as follows: remainder of fiscal 2024 - $1.1 million, fiscal 2025 - $1.9 million, fiscal 2026 - $1.3 million, fiscal 2027 - $0.5 million, fiscal 2028 - $0.2 million and thereafter - $0.3 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.

 

9

 

During the quarter ended December 31, 2023, as a result of a decline in the actual and projected revenue for the Company’s PersonalizationMall tradename (indefinite-lived intangible asset), as well as a higher discount rate resulting from the higher interest rate environment, the Company determined that an impairment assessment was required. The Company’s impairment test for the indefinite-lived intangible asset encompassed calculating a fair value of the indefinite-lived intangible asset and comparing that result to its carrying value. To determine fair value of the indefinite-lived intangible asset, 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. Based on the impairment assessment performed for the quarter ended  December 31, 2023, the Company recorded a non-cash impairment charge of $19.8 million to reduce the recorded carrying value of the PersonalizationMall tradename to its estimated fair value. This impairment charge was recorded in the Company’s Consumer Floral & Gifts reporting unit. The Company concluded that goodwill and other indefinite-lived intangible assets, excluding its PersonalizationMall tradename, did not require an impairment assessment.

   

 

Note 6 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 equity investments without a readily determinable fair value was $2.6 million as of  March 31, 2024 and July 2, 2023, 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 9 - Fair Value Measurements). 

   

 

Note 7 Debt, Net

 

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

 

  

March 31, 2024

  

July 2, 2023

 
  

(in thousands)

 

Revolver

 $-  $- 

Term Loans

  192,500   200,000 

Deferred financing costs

  (3,068)  (3,609)

Total debt

  189,432   196,391 

Less: current maturities of long-term debt

  10,000   10,000 

Long-term debt, net

 $179,432  $186,391 

 

On June 27, 2023, the Company, certain of its U.S. subsidiaries, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent entered into a Third Amended and Restated Credit Agreement (the “Third Amended Credit Agreement”). The Third Amended Credit Agreement amends and restates the Company’s Second Amended and Restated Credit Agreement, dated as of May 31, 2019 (as amended by the First Amendment, dated as of August 20, 2020, the Second Amendment, dated as of November 8, 2021, and the Third Amendment, dated as of August 29, 2022). The Third Amended Credit Agreement, among other modifications: (i) increases the amount of the outstanding term loan (“Term Loan”) from approximately $150 million to $200 million, (ii) decreases the amount of the commitments in respect of the revolving credit facility from $250 million to $225 million, subject to a seasonal reduction to an aggregate amount of $125 million for the period from January 1 to August 1, (iii) extends the maturity date of the outstanding term loan and the revolving credit facilities by approximately 48 months to June 27, 2028, and (iv) increases the applicable interest rate margins for SOFR and base rate loans by 25 basis points.

 

10

 

For each borrowing under the Third Amended Credit Agreement, the Company may elect that such borrowing bear interest at an annual rate equal to either: (1) a base rate plus an applicable margin varying 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) an adjusted SOFR rate plus an applicable margin varying based on the Company’s consolidated leverage ratio. The adjusted SOFR rate includes a credit spread adjustment of 0.1% for all interest periods.

 

The Third Amended Credit Agreement requires that while any borrowings or commitments are outstanding the Company comply with certain financial covenants and affirmative covenants as well as certain negative covenants that, subject to certain exceptions, limit the Company’s ability to, among other things, incur additional indebtedness, make certain investments and make certain restricted payments. The Company was in compliance with these covenants as of March 31, 2024. The Third Amended Credit Agreement is secured by substantially all of the assets of the Company.

 

The principal of the Term Loan is payable at a rate of $2.5 million for the first 8 quarterly installments beginning on September 29, 2023, increasing to a quarterly payment of $5.0 million, commencing on September 26, 2025, for the remaining 11 payments, with the remaining balance of $125.0 million due upon maturity on June 27, 2028.

 

Future principal term loan payments under the Third Amended Credit Agreement are as follows: $2.5 million – remainder of Fiscal 2024, $10.0 million – Fiscal 2025, $20.0 million – Fiscal 2026, $20.0 million – Fiscal 2027, and $140.0 million – Fiscal 2028.

   

 

Note 8 Property, Plant and Equipment, Net

 

The Company’s property, plant and equipment consists of the following:

 

  

March 31, 2024

  

July 2, 2023

 
  

(in thousands)

 

Land

 $33,827  $33,866 

Orchards in production and land improvements

  20,604   20,401 

Building and building improvements

  68,911   67,647 

Leasehold improvements

  30,973   29,524 

Production equipment

  130,890   125,297 

Furniture and fixtures

  9,294   9,102 

Computer and telecommunication equipment

  42,832   41,859 

Software

  192,837   181,085 

Capital projects in progress

  17,608   18,205 

Property, plant and equipment, gross

  547,776   526,986 

Accumulated depreciation and amortization

  (323,837)  (292,417)

Property, plant and equipment, net

 $223,939  $234,569 

 

 

Note 9 Fair Value Measurements

 

Cash and cash equivalents, trade and other receivables, prepaids, accounts payable and accrued expenses are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. Although no trading market exists, the Company believes that the carrying amount of its debt approximates fair value due to its variable nature (these are level 2 investments). The Company’s investments in non-marketable equity instruments of private companies are carried at cost and are periodically assessed for other-than-temporary impairment when an event or circumstances indicate that an other-than-temporary decline in value may have occurred. The Company’s remaining financial assets and liabilities are measured and recorded at fair value (see table below). The Company’s non-financial assets, such as definite lived intangible assets and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. Goodwill and indefinite lived intangibles are tested for impairment annually, or more frequently, if events occur or circumstances change such that it is more likely than not that an impairment may exist, as required under the accounting standards.

 

11

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below:

 

Level 1

Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2

Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3

Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The following table presents by level, within the fair value hierarchy, financial assets and liabilities measured at fair value on a recurring basis:

 

  

Carrying

  

Fair Value Measurements

 
  

Value

  

Assets (Liabilities)

 
      

Level 1

  

Level 2

  

Level 3

 
  

(in thousands)

 

As of March 31, 2024

                

Trading securities held in a “rabbi trust” (1)

 $31,160  $31,160  $-  $- 

Total assets (liabilities) at fair value

 $31,160  $31,160  $-  $- 
                 

As of July 2, 2023

                

Trading securities held in a “rabbi trust” (1)

 $22,617  $22,617  $-  $- 

Total assets (liabilities) at fair value

 $22,617  $22,617  $-  $- 

 

 

(1)

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. 

   

 

Note 10 Income Taxes

 

The Company computed the interim tax provision using an estimated annual effective rate, adjusted for discrete items. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The Company’s effective tax rate for the three and nine months ended March 31, 2024 was 33.0% and 34.7%, respectively, compared to 19.1% and -0.6% in the same periods of the prior year. The Company’s effective tax rate for fiscal 2024 and fiscal 2023 differed from the U.S. federal statutory rate of 21.0% primarily due to impairment charges within the respective periods, thus reducing the amount of income reflected in the Company’s estimated annual effective tax rate. Further impacting the effective tax rate for fiscal 2024 and fiscal 2023 were tax deficiencies (shortfalls) from stock-based compensation, state income taxes and non-deductible executive compensation, partially offset by tax credits.

 

On a regular basis, the Company evaluates the recoverability of deferred tax assets and the need for a valuation allowance. Such evaluations involve the application of significant judgment. The Company considers multiple factors in its evaluation of the need for a valuation allowance, including reversal of deferred tax liabilities, available tax planning strategies that could be implemented to realize the deferred tax assets, and forecasted future taxable income.  A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. At both  March 31, 2024 and July 2, 2023, the Company had valuation allowances of approximately $3.2 million, primarily related to certain state and foreign net operating losses.

 

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Company’s fiscal years 2020, 2021, and 2022 remain subject to U.S. federal examination. Due to ongoing state examinations and nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from fiscal 2016. The Company's foreign income tax filings from fiscal 2017 are open for examination by its respective foreign tax authorities, mainly Canada and Brazil.

 

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At March 31, 2024, the Company has an unrecognized tax benefit, including accrued interest and penalties, of approximately $3.2 million. The Company believes that $0.4 million of unrecognized tax positions will be resolved over the next twelve months. 

 

12

   
 

Note 11 Business Segments

 

The Company’s management reviews the results of its operations by the following three business segments:

 

Consumer Floral & Gifts,

BloomNet, and

Gourmet Foods & Gift Baskets

 

Segment performance is measured based on contribution margin, which includes only the direct controllable revenue and operating expenses of the segments. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead (see (a) below), nor does it include depreciation and amortization, other (income) expense, net and income taxes, or stock-based compensation, which are included within corporate overhead. Assets and liabilities are reviewed at the consolidated level by management and not accounted for by segment.

 

  

Three Months Ended

  

Nine Months Ended

 
  

March 31,

  

April 2,

  

March 31,

  

April 2,

 
  

2024

  

2023

  

2024

  

2023

 
  

(in thousands)

 

Net Revenues:

                

Segment Net Revenues:

                

Consumer Floral & Gifts

 $221,207  $233,019  $618,236  $672,248 

BloomNet

  27,314   36,968   83,420   103,187 

Gourmet Foods & Gift Baskets

  130,989   147,863   769,061   844,522 

Corporate

  167   36   716   152 

Intercompany eliminations

  (272)  (320)  (924)  (1,062)

Total net revenues

 $379,405  $417,566  $1,470,509  $1,619,047 
                 

Operating Income:

                

Segment Contribution Margin:

                

Consumer Floral & Gifts

 $22,190  $26,136  $41,609  $64,832 

BloomNet

  7,506   10,982   25,981   29,847 

Gourmet Foods & Gift Baskets

  (8,172)  (78,480)  98,953   26,313 

Segment Contribution Margin Subtotal

  21,524   (41,362)  166,543   120,992 

Corporate (a)

  (36,221)  (30,015)  (100,221)  (91,595)

Depreciation and amortization

  (13,232)  (13,267)  (40,578)  (40,276)

Operating income

 $(27,929) $(84,644) $25,744  $(10,879)

 

(a) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-based compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.

 

13

 

The following tables represent a disaggregation of revenue from contracts with customers, by channel: 

 

  

Three Months Ended

 
  

Consumer Floral &