1-800-Flowers (FLWS) Q1 2025 Earnings Transcript

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DATE

Thursday, October 31, 2024 at 8 a.m. ET

CALL PARTICIPANTS

• Executive Chairman — James McCann
• Chief Executive Officer — Thomas Hartnett
• Chief Financial Officer — William Shea
• President, Consumer Floral & Gifts — Adolfo Villagomez

TAKEAWAYS

• Consolidated Revenue -- Declined 10%, with e-commerce revenue down 8%, order count down 6.5%, and average order value (AOV) down 1.5%.
• Gourmet Food and Gift Baskets Revenue -- Declined 14.4% to $84 million; $3 million of wholesale orders shifted to the following quarter (offset by OMS impacts).
• Consumer Floral and Gifts Revenue -- Decreased 4.9% to $135.2 million; sequential trend improved from Q4's 6.7% decline and 12.3% a year ago.
• BloomNet Revenue -- Dropped 20.1% to $23.1 million, including a $5.8 million reduction due to a partner merger; full impact will be lapped after the next quarter.
• Adjusted EBITDA -- Loss of $27.9 million, excluding nonrecurring charges and deferred compensation effects.
• Segment Margins -- Gourmet Food and Gift Baskets gross profit margin increased 50 basis points to 32%; Consumer Floral and Gifts rose 30 basis points to 39.9%; BloomNet fell 20 basis points to 50%.
• Operating Expenses -- Declined $4.3 million, when excluding one-time system implementation costs and deferred compensation plan impacts.
• Inventory and Debt -- Inventory at $275.3 million, down slightly from $280.6 million; total debt stable at $232.5 million, with $187.5 million term debt and $45 million on the revolver, expected to be fully repaid next quarter.
• Guidance for Fiscal 2025 -- Expects total revenue to range from flat to a mid-single digit decline, adjusted EBITDA between $85 million and $95 million, and free cash flow of $45 million to $55 million.
• AI and Technology Initiatives -- Implementation of AI-driven customer care and order management systems expected to lower labor and fulfillment costs, with system consolidation generating future license savings.
• Same-Day Delivery Expansion -- Continued rollout for non-floral gifts, with Cheryl's Cookies and Harry & David products now available in select markets; historically, 30%-40% of floral orders are same-day but non-floral remains a small proportion.
• Macy's Partnership -- Six exclusive Harry & David pop-up shops launched in Macy's stores for the holiday season, increasing customer brand engagement.
• Wholesale Revenue Outlook -- Orders already placed will drive an approximate $20 million increase in wholesale revenue over the prior year; timing of order shipment impacts quarterly comparability.
• Personalization Segment Momentum -- Things Remembered drove higher revenue, gross margin, and profit, attributed to an expanded assortment and higher-income customer appeal.
• Pear Crop Performance -- Harry & David's proprietary pear crop rose 20%-25% in volume and improved in quality, supporting extended seasonal supply and cost savings from reduced third-party sourcing.

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RISKS

• William Shea said, "we had to set up a valuation allowance this quarter because of the 3 years of cumulative losses."
• Ongoing double-up of service center license fees will continue for one more quarter, temporarily elevating operating costs.
• BloomNet's 20.1% revenue decline stemmed from a partner merger, with management expecting to lap this by the end of the next quarter.
• Thomas Hartnett noted, "In some cases, we did lose the trust of some of those customs that we fail. We take that very seriously and we're working to regain their trust," highlighting potential customer retention risks.

SUMMARY

Management reported that results matched company expectations, highlighting sequential improvement in order trends and a narrowing pace of declines across key segments. Strategic initiatives in relationship innovation and technology optimization are underway, with AI integration and same-day delivery expansion expected to drive cost efficiencies and new revenue streams. Partner collaborations, such as the Harry & David-Macy's pop-ups and the LoveShackFancy floral collections, have attracted younger and higher-income customers, while channel diversification onto Amazon and walmart.com is in early stages but showing positive performance. Inventory levels, debt position, and guidance were reiterated, emphasizing ongoing operational discipline and future-focused investment in marketing flexibility. Management cited a strong proprietary pear crop and improved product quality at Harry & David as key seasonal supply tailwinds.

• Integration of Scharffen Berger Chocolates into Harry & David is complete, with new boxed chocolate lines launching for the holidays.
• Personalization initiatives have increased revenue and profit at Things Remembered, leveraging targeted assortment expansions.
• Commodity cost trends had minimal net impact in the quarter; chocolate and eggs rose year-over-year while other key inputs remained stable or declined, partially offset by tariffs.
• Labor sourcing for seasonal peak periods has improved, aided by partnerships such as First Step Staffing in Atlanta, reducing labor shortfall and overtime costs experienced two years ago.
• The company expects to repay all outstanding revolver borrowings during the current quarter, improving financial flexibility entering the holiday season.
• E-commerce order declines have moderated from 16.1% (Q1 prior year) to 6.5%, supporting management's view of improving consumer undercurrents as holidays approach.

INDUSTRY GLOSSARY

• AOV (Average Order Value): Average dollar amount spent per order on the company’s e-commerce platforms.
• OMS (Order Management System): Technology platform used to track, route, and fulfill customer orders efficiently across brands and channels.
• Contribution Margin: Segment profit after direct expenses, excluding allocated corporate overhead and nonrecurring charges.
• Relationship Innovation: Company initiative focused on expanding product offerings, price points, and delivery options to meet evolving gifting behaviors and customer needs.
• Work Smarter Initiatives: Internal efficiency-focused projects leveraging process, technology, and AI to control costs and enhance operating leverage.

Full Conference Call Transcript

James McCann: Thanks, Andy, and good morning, everyone. This morning, I'll share my perspective on the current environment and our recent performance, and then I'll turn the call over to Bill and Tom, who will provide the business and financial updates. As we announced this morning, our first quarter performance generally came in line with our expectations. We began to see slight improvement in our e-commerce revenue trends, our gross profit margin continued to grow, and through our Work Smarter initiatives to operate more efficiently, we reduced our operating expenses.

Regarding the complexion of our e-commerce revenue, and benefiting from our relationship innovation initiatives, orders declined 6.5% as compared to an 11.5% decrease in the fourth quarter of fiscal '24 and a 16.1% decrease from the prior year period. AOV declined 1.5%, reflecting our plan to expand our offerings and broaden our price points. Additionally, several wholesale gift basket orders shifted from Q1 into Q2. This was simply timing, and we will ship and record those orders in Q2. We've always viewed and suggested that you view our fiscal year as consisting of two halves.

The first half consists of the inventory build in preparation for the holiday season that occurs during Q1, followed by the sales build leading up to the holiday during the second quarter. The second half of our fiscal year consists of the important holiday occasions, including Valentine's Day, which is in Q3, and Mother's Day in Q4. In just a moment, Tom will review our Q1 performance and share our view for the second quarter. As we turn to the holiday quarter, we expect our performance to improve, especially within our Gourmet Foods and Gifts businesses as consumers often see holiday gifting is more than an essential activity rather than a discretionary launch.

Through the relationship innovation initiatives that we implemented over the last 2 years, we have expanded our offerings and broadened our price points, providing gift givers with more choices at prices that span from budget-friendly to premium. We look forward to helping our customers connect and express their sentiments with the important people in their lives. And now Tom, if you'll go over the business update for us.

Thomas Hartnett: Thanks, Jim, and good morning, everyone. This morning, I'll review our results, highlight some of our strategic initiatives that we are executing against, and discuss some of the recent partnerships that we are excited about. As Jim highlighted, our first quarter performance generally came in line with our expectations. Our consolidated Q1 revenue declined 10%, essentially in line with our recent Q4 trends. More specifically, our e-commerce revenue declined 8% as we saw our relationship innovation efforts, which are focused on expanding our offerings and broadening our price points, drive more lower AOV transactions as anticipated. This resulted in a 6.5% decline in orders and a 1.5% decline in AOV.

Thomas Hartnett: Now let's take a moment to discuss our segments, beginning with our Gourmet Food and Gift Baskets business. During Q1, this segment's revenue declined 14.4%, which was slightly higher than the 12.8% decline in Q4. It's important to contextualize this performance. $3 million of wholesale orders shifted from Q1 to Q2, accounting for 3% of the revenue decline. These orders will be delivered and recorded during the second quarter. Excluding this timing impact, our revenue trends within this segment would have improved over Q4.

Thomas Hartnett: Turning to our relationship innovation efforts. We continue to leverage our last mile delivery capabilities to expand our same-day food-related offerings for customers. This perfectly illustrates how we can further leverage one of our primary differentiators and competitive advantages to offer more gifting options for same-day delivery. For example, during the quarter, Cheryl's Cookies expanded its selection available for same and next-day delivery. This positions us to be more competitive in their market on an everyday basis and is highly relevant going into Q2 as this will enable us to expand the shopping season and fulfill orders placed much closer to December 25. We also expanded our 1-800-Baskets same-day delivery program to more locations, offering more options.

This is a great solution for customers that are on a short time frame and don't have the time to preplan a gift purchase. Whether it's an unexpected sympathy gift, a gift to celebrate a new baby or simply a last-minute occasion, we can now help our customers express their sentiments and deliver more gifts on the same day.

Thomas Hartnett: During Q1, we successfully completed the integration of Scharffen Berger Chocolates into Harry & David. Since we acquired Scharffen Berger, customers have been gravitating towards their baking, chocolate and bars. And as we head into Q2, we are excited to launch our new boxed chocolate collection that we expect to be a hit for the holidays and beyond. Our Harry & David brand is synonymous with holidays. And this year, we are thrilled to announce a new partnership with Macy's. We're opening 6 exclusive Harry & David pop-up shops in select Macy's stores this holiday season, including their Glendale Galleria and Herald Square locations to meet the growing demand for thoughtful gourmet holiday gifts.

These shops will run from October through early January, and we'll provide customers another avenue to engage with the Harry & David brand.

Thomas Hartnett: And now let's move to our Consumer Floral and Gifts segment. Our sequential trends have improved, with revenue declining 4.9% as compared with declines of 6.7% during Q4 and 12.3% a year ago. As part of our relationship innovation initiatives, we are actively pursuing and have entered into exciting partnerships to expand our customer reach and our product offerings. During the quarter, we entered into an exciting collaboration with LoveShackFancy to launch an exclusive collection of offerings that feature their exquisite floral designs. LoveShackFancy is known for their vintage-inspired hand-painted floral prints. Customers' response to this partnership was tremendous, and we quickly sold out of this floral offering.

It also drove a higher percentage of new, young and higher-income female customers to the brand.

Thomas Hartnett: Within our personalization businesses, we experienced good momentum in Q1 from our efforts to improve shopping experience and to elevate the product assortment that resulted in an increased revenue, gross margin and profit. This performance was driven primarily by Things Remembered which, since acquisition, has benefited from its addition to our platform and an expanded product selection that appeals to a higher-income customer.

Thomas Hartnett: Turning to our BloomNet business. Revenue declined 20.1% or $5.8 million as compared to a year ago. This included an expected decline in orders by one of our business partners who merged with a competitor. We will fully lap this impact by the end of fiscal second quarter and expect to begin to grow BloomNet revenues in the second half of this fiscal year. Gross profit margin decreased 20 basis points to 50% due to deleverage on the lower sales volume. As a result, segment contribution margin was $6.8 million compared with $9.4 million in the prior year period.

As we look ahead to the rest of the fiscal year, our strategic plan and priorities have been built to sharpen our customer experiences and industry positioning. While it's difficult to forecast when the consumer environment for discretionary spending will improve, we plan on leveraging our relationship innovation initiatives and increasing our marketing spend to improve our revenue trends during Q2. Additionally, as the orders have already been placed, we know that our wholesale revenues will increase by approximately $20 million over the prior year. We have improved the customer shopping experience, expanded our product range and broadened our price points to help consumers find the perfect gift for the important people in their lives.

We're confident that our strategic initiatives have positioned us well to serve our customers this holiday season. Now I'll turn it over to Bill for the financial review.

William Shea: Thanks, Tom, and good morning, everyone. During the first quarter, we experienced an improvement in the undercurrent of our e-commerce revenues, which included improving trends in order count and driving sales of our lower-priced items that contributed to a lower AOV. Our disciplined approach to managing the controllables, combined with our focused execution of strategic initiatives over the past 18 months, have enabled us to drive these trends and deliver Q1 results within our expectations. As Tom highlighted, our relationship innovation and Work Smarter initiatives have expanded and enhanced our offerings and positioned us to operate more efficiently. Today, I want to highlight two important work streams within our Work Smarter efforts to operate more efficiently.

Our organization has always been at the forefront of innovation, and AI is no different. Over the last few years, we implemented AI within our customer service chat tool, and we adopted it on our e-commerce platform to help customers better express their sentiments when they are at a loss for words. We've now taken AI a step further and implemented a new tool to power our customer care interactions. Our new customer care platform integrates AI to improve the customer experience, increase our efficiency and reduce overall labor costs. This implementation enabled us to consolidate multiple customer care systems into one, allowing more agents to assist customers across our brands as opposed to being brand-specific.

Most importantly, AI will empower our agents with the customers' order information and history as the call comes in so that the agent is better prepared to help a customer. This will create a better customer experience and enable the agent to become more efficient, driving lower labor costs.

William Shea: Turning to our logistics optimization efforts. During Q1, we launched an enhanced back-end order management system at Harry & David that enables us to further optimize logistics through optimal least cost routing. As we move beyond the implementation phase, the new OMS system will enable us to lower fulfillment costs for Harry & David orders.

William Shea: And now let's dive into the Q1 results. As Jim and Tom highlighted, our first quarter revenue declined 10% from the prior year period. This included the previously discussed timing of certain wholesale orders that shifted into the second quarter. Our e-commerce revenue declined 8% in Q1 with order count down 6.5% and AOV down 1.5% as anticipated. For perspective, this compares to year-over-year order counts declining 11.5% and 16.1% during the fourth quarter and first quarter of last year, respectively.

This was offset by a slightly stronger gross margin rate of 38.1% and our disciplined approach to operate more efficiently that led to a $4.3 million decline in operating expenses when excluding nonrecurring charges associated with the system implementations as well as the impact of the company's nonqualified deferred compensation plan in both periods. Altogether, the adjusted EBITDA loss was $27.9 million.

William Shea: Now let's review our segment results. Our Gourmet Food and Gift Baskets revenues declined 14.4% from the prior period to $84 million. This decline reflects the timing of approximately $3 million of wholesale orders, which shifted from the first quarter into the second quarter. Revenues were also impacted by the implementation of the new order management system. Gross profit margin increased 50 basis points to 32%, benefiting from the company's inventory optimization efforts and a decline in certain commodity costs. As a result, adjusted segment contribution margin loss was $11.3 million as compared to a loss of $11 million in the prior year period.

William Shea: In our Consumer Floral and Gifts segment, revenues declined 4.9% from the prior year period to $135.2 million. Gross profit margin increased 30 basis points to 39.9%. This quarter, we strategically invested in a range of marketing channels to test different aspects of the sales funnel in preparation for the holiday season. Altogether, this resulted in segment contribution margin of $4.9 million compared with $8.8 million in the prior year period.

William Shea: In our BloomNet segment, revenues declined 20.1% to $23.1 million. As Tom mentioned, this included an expected decline in orders by one of our business partners who merged with a competitor. We will fully lap this impact at the end of the fiscal second quarter and expect BloomNet revenues to begin to grow in the second half of the fiscal year. Gross profit margin decreased 20 basis points to 50% due to deleverage on the lower sales volume. As a result, segment contribution margin was $6.8 million compared with $9.4 million in the prior year period.

William Shea: Inventory was $275.3 million compared with inventory of $280.6 million at the end of the same time last year, benefiting from a component of the Work Smarter initiative that is focused on operating more efficiently with lower inventory. Our total debt was $232.5 million, essentially flat as compared with the prior year. We had $187.5 million in term debt and borrowings of $45 million under our revolving credit facility in preparation for the upcoming holiday season. We expect borrowings under the revolver to be fully repaid during the fiscal second quarter.

William Shea: Regarding guidance for fiscal 2025. We continue to expect total revenues on a percentage basis to be in the range of flat to a decline in the mid-single digits as compared to the prior year, adjusted EBITDA to be in the range of $85 million to $95 million, and free cash flow to be in the range of $45 million to $55 million.

William Shea: Now I'll turn the call back to Jim for his closing comments before we open it up for Q&A.

James McCann: Thanks, Bill. In summary, our first quarter performance generally came in line with our expectations. In this still uncertain consumer environment, we are encouraged by the undercurrents and our e-commerce trends as we move closer to the holiday season. And the orders for our wholesale business are higher than they were a year ago, which will be booked during this second quarter. Customers generally view holiday gifting as more of a necessity, and we have expanded our breadth of products and our price points to offer them an even greater array of thoughtful gifts for everyone on their holiday list.

Before we move to the Q&A session, I want to take a moment to acknowledge and celebrate our incredible team members whose hard work and dedication have been instrumental in earning us the recognition as one of America's Most Admired Workplaces by Newsweek. This prestigious accolade reflects not only our commitment to fostering a supportive and innovative workplace but also the incredible dedication of our team members. Being named among the top companies in this category is a testament to the culture we have built together. Thank you for being an essential part of our journey and helping us deliver smiles every day. And now for the Q&A. Operator, please?

Operator: [Operator Instructions] And today's first question comes from Alex Fuhrman with Craig-Hallum.

Alex Fuhrman: I wanted to ask about same-day delivery. It seems like this is something you guys have been investing quite a bit in ahead of this holiday season. Can you talk about how much of your business in the past during peaks have been same-day delivery? And what are you expecting this holiday season, I guess, in terms of same-day delivery utilization and what that could do to your margin?

James McCann: Thanks, Alex. Thanks for your question. The answer is, on the floral side, it's always been an important part of our business. And depending on the seasonal range, 30% to 40% of our business will be the same day on the flowers side. On the non-floral side, almost none of our business historically has been same day.

So what we're doing is leveraging the infrastructure that we've built over the years on the flowers side of the business on a slow but sure pace to introduce more and more of the products we have that are great gifting products, for example, our Cheryl's Cookies products, which are a great gift at the right price point and just put smiles on faces every day. We've introduced a limited collection of those products into a portion of our same-day network. Tom, would you want to give a little bit more color on what the plan is in terms of rolling out the products? You mentioned in your remarks, the same-day Harry & David Gift Basket program.

Thomas Hartnett: Yes. Alex, we're continuing to look at products within the food group's portfolio that we can leverage for same-day delivery. We mentioned Cheryl's Cookies and we're expanding the products there. We introduced several of the Harry & David's gift baskets lines, and we're rolling those out kind of across the country as we have the capabilities in market. So this will be something that we'll be after for -- this is a program. It's something that we will be after for the next couple of years as we continue to build out our capabilities on replenishment and expand many of those products from our food brand.

What we're saying is we've seen the success of this on our floral side and we see this ample opportunity for same day for the rest of our business.

James McCann: And it's a way to leverage to the unique fulfillment we have, Alex, with our retail floral partners, so giving them the opportunity to up their capabilities in terms of refrigeration capacity, freezer capacity. And so in select markets, as we predict the demand would be strongest, we've been introducing these products. And it's been really well received by our floral partners and, of course, by our consumers.

William Shea: And it's already been successful with us on our chocolate-coated strawberries through Shari's Berries as well.

James McCann: Yes. And our Fruit Bouquets, yes.

Alex Fuhrman: Okay. That's really helpful, guys. I appreciate the thorough explanation. And then if I could just ask one more. It sounds like you're expecting revenue trends to improve as you start to spend a little bit more on marketing going into the holidays. Can you talk about where those dollars are going to go? Is it pretty similar to what you've done for past holiday marketing campaigns?

James McCann: I'll start and ask Tom to give you some of the specifics there, Alex. But in general, two things. One is we kept some powder dry to make sure we had it available for this important holiday season, number one. Number two, as Bill mentioned in his remarks, we think the spend in this quarter, which is all around Thanksgiving and Christmas, is a little less discretionary than everyday business because people feel like they have to and want to buy a gift. Whereas if they had a choice to buy something on a spur of the moment, not on a holiday, they might, in this past couple of years, passed on that.

We think less discretionary when there's a specific calendar gifting occasion. Tom, a little color on what you expect to spend?

Thomas Hartnett: I think it will be similar to prior years. I mean, obviously, we're deploying dollars in top, mid and bottom of the funnel activities. And I think the most important thing we focus on is making sure those dollars are relatively flexible so that within the period, we can redeploy and shift dollars pretty quickly. So we're constantly looking at the returns on those efforts.

William Shea: Alex, also just on Jim's point of discretionary at holiday time versus every day, sequentially, we always move better from Q1 into Q2. Like, a year ago, our e-commerce numbers in Q1 were down 12%. In Q2, they were down 6%. So it just naturally improves as we get towards the holidays.

Operator: And the next question comes from Anthony Lebiedzinski with Sidoti & Company.

Anthony Lebiedzinski: So first, I just wanted to follow up on the same-day delivery market. So can you just maybe go over like how many markets or what percentage of your markets you're able to actually deliver non-floral gifts? And kind of what's the expectation for the holiday season, whether that's going to change much from where it is right now? And then I have a couple of other questions, if I could.

James McCann: Thanks, Anthony. In answer to this question, it's a very small percentage of our non-floral packaged gifts business, Cheryl's, Harry & David, popcorn, chocolates. A very small percentage is available now for same day. What we're rolling in our markets, as Tom said, based on our capabilities, our partners' capabilities, to do the last-mile fulfillment and anticipated demand. This is something we'll be doing, as Bill said, for the next few years rolling this out. But it's already beginning to make an impact because the Cheryl's business is doing better, because up until this past year, they didn't have same-day delivery.

But with all the different infrastructure options we've developed to do exactly now at the last day, it's had the biggest impact so far on that brand. Harry & David has been much newer, but with a large customer base of that brand and a terrific set of products they have, particularly around people wanting to express themselves on holiday occasions and on sympathy occasions, we'd expect it will have a big impact on Harry & David's business in the next year or two.

Anthony Lebiedzinski: That's very helpful color, Jim. And then in terms of the AOV, so you guys have talked to a lot over the last few quarters about offering more multi-branded bundles. Obviously, this quarter, the AOV came down because of a broader price point. But as far as the bundles themselves, are you still seeing customers gravitate towards those? And whether anything has changed from your thinking about those?

Thomas Hartnett: No, we haven't seen anything change, Anthony. The excitement we have around when we create bundles in the product assortment, we see the efficiency of those products, the conversion of those products, and it is a big focus of the team, the merchandising team, to create more bundles and the logistics around that, so it gets delivered as one complete gift package.

Anthony Lebiedzinski: Got you. Okay. And then lastly for me, in terms of the system implementation costs that you guys talked about impacting the quarter here, was this isolated to the September quarter? Or do you think some of this may spill over to future quarters? Just wanted to get a sense of that.

William Shea: Yes, there were two kind of large implementations we've been working on. The new order management system for Harry & David, that is behind us. Those implementation costs are behind us. On the service center platform, where we've combined all the systems into one, ultimately, we're going to save money, and we're all saving money on some licenses as we're moving, as we're eliminating those other platforms. But we still have a double-up for the first 6 months of the year. So it did weigh 1 more quarter of a double-up of license fees.

With that said, it's going to lead to more efficient -- enable the agents to be more efficient, which is going to save dollars on labor going forward and ultimately provide a better customer experience.

James McCann: So quarter-over-quarter, this over next year's quarter, several million dollars in license savings. We anticipate serving the customer to improve from good to even better. And as Bill said, with the new technology in place, and trust me, cutting all the systems that have been developed over the decades, has been painful and fatiguing in terms of all the time that's been put into it. But the outcome, we're already quite happy to see the benefit in terms of how we are able to serve our customers and to do it more efficiently.

Anthony Lebiedzinski: So for the customers that cancel their orders because of these issues, do you plan to do a specific marketing outreach to them to make sure you don't lose those customers permanently? Just wondering how you're thinking about that from a marketing perspective?

Thomas Hartnett: Yes, Anthony, absolutely. I mean, we've reached out already to those customers. We plan -- we have a win-back program going on. We're extremely focused.

James McCann: That will go on throughout the year.

Thomas Hartnett: Yes. There'll be much -- multiple touch points with those customers throughout the year. It's extremely important to us. In some cases, we did lose the trust of some of those customs that we fail. We take that very seriously and we're working to regain their trust.

Anthony Lebiedzinski: Got you. Okay. And then lastly for me, in terms of the system implementation costs that you guys talked about impacting the quarter here, was this isolated to the September quarter? Or do you think some of this may spill over to future quarters? Just wanted to get a sense of that.

William Shea: Yes, there were two kind of large implementations we've been working on. The new order management system for Harry & David, that is behind us. Those implementation costs are behind us. On the service center platform, where we've combined all the systems into one, ultimately, we're going to save money, and we're all saving money on some licenses as we're moving, as we're eliminating those other platforms. But we still have a double-up for the first 6 months of the year. So it did weigh 1 more quarter of a double-up of license fees.

With that said, it's going to lead to more efficient -- enable the agents to be more efficient, which is going to save dollars on labor going forward and ultimately provide a better customer experience.

James McCann: So quarter-over-quarter, this over next year's quarter, several million dollars in license savings. We anticipate serving the customer to improve from good to even better. And as Bill said, with the new technology in place, and trust me, cutting all the systems that have been developed over the decades, has been painful and fatiguing in terms of all the time that's been put into it. But the outcome, we're already quite happy to see the benefit in terms of how we are able to serve our customers and to do it more efficiently.

Anthony Lebiedzinski: Understood. Okay. And then for the quarter, you guys had a small tax expense. Normally, you guys have a tax benefit in the quarter. Can you talk about what happened there? And what should we expect for the tax rate for the fiscal year?

William Shea: Yes. So Anthony, what's happened is we've had 3 years of cumulative losses. So typically, we would have a tax benefit in Q1. But being that we've had 3 years of cumulative losses, we are now setting up a valuation allowance for those deferred tax assets. So it's more of an accounting thing. Obviously, as we return to profitability, we'll be able to start using those benefits, but it was a -- due to -- we had to set up a valuation allowance this quarter because of the 3 years of cumulative losses.

Anthony Lebiedzinski: Understood. And then as far as your move into Amazon and walmart.com. I know it's recent, but can you give us any early read on what you're seeing in terms of sales coming through those sites?

Adolfo Villagomez: So what I would say, it's early days, but it is going quite well. I see the benefit of selling on Amazon and Walmart, not only incremental top and bottom line, which -- I mean, it's a small number, but it is growing very nicely. But the other thing is the best practices that those websites have -- the team is learning those. And as we are learning, we are also -- you are going to see us adjust our websites to better align with best practices these days. So I'm very optimistic about where that is going. We haven't even started to optimize our value proposition, pricing offering.

All the team is working on right now is our top sellers are being sold on those websites. And we are seeing early traction. It's actually quite positive from the traffic that those websites have, which is why we're doing this. They already have the traffic. We're putting our value proposition in front of them and conversion happens. So far, so good.

Anthony Lebiedzinski: All right. That's good to hear. And my last question before I pass it on to others. Can you also just on the increased commodity costs, what was the impact of that? And how do you see that going forward?

Adolfo Villagomez: So Anthony, on the commodities, as I mentioned, on a year-over-year basis for the quarter, chocolate is up year-over-year. We also have -- eggs are up slightly on a year-over-year basis. And then the other major commodities are either flat or down with the prior year. So it's a little bit of a mixed bag. So it didn't have a significant impact on our Q1. Obviously, it had more of an impact was the tariffs, but the commodities kind of almost netted themselves out.

Operator: Our next question comes from Doug Lane with Water Tower Research.

Douglas Lane: Bill, can we go back to that shift in wholesale orders from the September to December quarter? Can you reiterate what the dollar amount was and the reasoning behind that shift?

William Shea: Yes, it's about $3 million on the food wholesale side of the business. And the reason is these are gift baskets for Costco and Sam's, they dictate when they want the orders. Sometimes it comes in at the end of September or starts at the end of September. Other times, it starts in the beginning of October. So clearly, just a shift. As we've talked about even in our August call, we have a strong book of business in kind of the food wholesale business this year. It's going to be a great tailwind for us. The large majority of it happens in the second quarter anyway, and it just happened to shift.

Some of those dollars had shifted from Q1 to Q2.

James McCann: And to add to that, Doug, the first quarter, the summertime, is when we're getting the majority of our inventory in for those presold items. We're assembling and packing those baskets, and then they're ready to ship. And then they'll notify us. It could be a 5- or 6- or 7-day swing, but that's right over the quarter's end. So all of that's now shipped.

Douglas Lane: Got it. That makes sense. And then to your point about looking at two halves of the year for 1-800-FLOWERS, you talked a little bit about the cost trends in cocoa, but can you just give us any update, has there been any significant shift in your cost trends anywhere else, energy, shipping, labor costs? Can you talk about your seasonal labor hiring this year versus prior years? Just try to touch base on the cost front a little bit, if you would.

James McCann: Well, I'll start on the labor side. Bill and Tom will give you more color on the other components. But on the labor side of things, 2 years ago, it was very tough. We couldn't find people to work those seasonal jobs. Our logistics jobs, our shipping, warehouse jobs, we couldn't find enough people. So we were 2,000 positions short of where we would have liked to have been. The consequence of that was that we have paid a lot more overtime, which impacted us. Labor rates have been steady now, last year and this year. The fill rate has been very good. We have a program.

We have distribution centers around the country to optimize our shipping costs, which Bill will give you some more color on. And 2 years ago, we've had real difficulty with our newest facility in the Atlanta area. Last year and this year, that's gone really well. We have a terrific labor partner in Atlanta, an agency called First Step Staffing, which is one an offer profit, which is a not-for-profit, which is staffing company that wraps a social services component around it. So that's really helped us. We have good quality labor for us there, and we feel really good about giving 350 or so people an opportunity to get back into the workforce.

So it's helped us, and we're happy to be helping them. Bill, I know Doug, he asked about like fuel cost. We haven't seen the benefit yet of this decline in the fuel cost in terms of our shipping costs, have we, Bill?

William Shea: No, we've seen some. Our year-over-year surcharge is lower now than it's been and we've been able to negotiate with FedEx caps on certain of the fuel surcharges. So overall, Doug, if you recall, 2024 was kind of the year of the gross margin recovery. We're up 260 basis points last year and climbed back over 40%. And this year, our guidance for the year is to be up modestly this year as we always have various offsetting [ files ], but we're continuing to move margins forward. The 20 basis points we improved in the first quarter was actually slightly above where we expected. We knew, later in the year, the margins would improve even more.

From a commodity standpoint, there's always puts and calls. We talked a little bit about cocoa, and Jim mentioned eggs. We've got pluses and minuses. Fuel is a positive for us and should be through the holiday season for us. And the OMS implementation that we have, we're able to automate some of our least cost routing. That is ultimately our ability to optimize the shipping methods that we use. We always have cost increases from the third-party carriers, right? And that's a significant cost to us.

So we have been doing a good job, and we continue to do a good job of coming up with ways to offset those actual cost increases that we have, and that should be a slight benefit to us this year as well.

Douglas Lane: Okay. That's very helpful. And just lastly, I've heard you talk about a favorable pear crop this year. Can you elaborate on that and how that impacts your business plans this year?

James McCann: We all learned in the last decade of owning Harry & David that we have more reasons to lose sleep than we did even prior to that acquisition. We grow our own food product there in Southwest Oregon, in the Rogue Valley and Medford, Oregon. And we've suffered through some real tough natural weather patterns in the last several years, which caused us to really have struggles on the quality and the quantity of our product. This year, weather was more favorable. The snowpack was good. Our ag team here has done a terrific job. The crop is, frankly, terrific this year, not the biggest we've ever had but more than double last year's crop size.

So we have inventory enough to fill what we anticipate will be demand and then a little bit more.

Thomas Hartnett: So to give you a little dimension, probably increase to 20%, 25% more crop there.

James McCann: And a higher quality.

Thomas Hartnett: Higher quality. And as you can imagine, the infrastructure we have, whether the crop is extra white is really the same cost. So when we have a better crop of those products, we don't have to go out and purchase third-party products. We utilize our pears, which is our marquee product anyway. We want to use that product. So we're pretty excited about the quality of the product this year and the abundance.

James McCann: And it wasn't just the pears. Pears are a key crop, as Tom mentioned. But our peach, obviously, this year was fantastic; apples, all of our products were good. The pears are what Harry & David is most known for. And we've been eating them around here for the last couple of weeks. So we can attest to the fact that they're as good as they've ever been.

William Shea: And we've continued to work on extending the life of the pears. And so we have the pears now. Historically, it took us through a holiday and into maybe the January time frame. Last year, we were able to extend that into the March, April time frame. We think this year, we're going to actually be able to extend that even further, maybe even get to Mother's Day with our pears. Again, as Tom was referencing, by having the ability to do that, we don't have to source third-party pears during that time of the year, and it saves us money.

James McCann: So two things here. Good crop this year, quantity, and especially quality. And the second thing is the capital expenditures we've made on our storage facilities to optimize our ripening capabilities gives us a little bit of extension in the season, as Bill mentioned.

Operator: This concludes our question-and-answer session. I would now like to turn the conference back over to Jim McCann for any closing remarks.

James McCann: Well, Happy Halloween, everyone. I hope those of you who can get away with some little ones enjoy it today, whether it's your children or your grandkids or just fun in the office place. As we mentioned in our Q&A session, if you are near one of the 6 Macy's stores that we have holiday shops in, 3 here in the New York area, Roosevelt Field, Queens Center Mall and, of course, the Herald Square marquee flagship store for Macy's and 3 great locations in California, stop by and take a look. You'll see the breadth of our product offerings.

And even though it's very intimate and proximate to us, when you see it all beautifully merchandised like it is, you get a sense of how we really do help people celebrate the holiday. We have a great assortment of product there. So go take a look. Hopefully, we all get out and vote in the next few days, and we know by this time next week who the next president is, and we can get on to making people happy and satisfying their gifting and celebratory needs for this exciting upcoming holiday season.

So thank you for your time, your interest, your questions, and we stand by to further answer any questions and engage with you as we go after the next couple of days.

Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

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