Good day everyone and welcome to the 1-800-FLOWERS.COM fiscal 2008 third quarter results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the company's Vice President of Investor Relations, Mr. Joseph Pititto. Please go ahead, sir.

Good morning and thank you all for joining us today to discuss 1-800-FLOWERS.COM's financial results for our fiscal 2008 third quarter. My name is Joseph Pititto and I'm Vice President of Investor Relations. For those of you who have not received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our web site at 1-800-FLOWERS.COM or you can call Patty Afthana [ph] at 516-237-6113 to receive a copy of the release by e-mail or fax. In terms of structure, our call today will begin with brief formal remarks and then we will open the call to your questions. Presenting today will be Jim McCann, CEO and Bill Shea, CFO. Also joining us for the Q&A section of our call is Chris McCann, our President. Before we begin, I need to remind everyone that a number of the statements that we will make today can be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to our press release issued this morning as well as our SEC filings, including the company's Annual Report on Form 10-K, and quarterly reports on Form 10-Q. In addition, this morning we will discuss certain supplementary financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in tables accompanying the company's press release issued this morning. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recordings of today's call, the press release issued earlier today or any of the SEC filings except as may be otherwise stated by the company. I will now turn the call over to Jim McCann.

Good morning everyone. As we announced in this morning's press release, during the fiscal third quarter, we achieved strong bottom line results. We did this by continuing to focus on a strategy of leveraging our business platform to reduce our operating expense ratio and targeting our marketing programs to achieve profitable growth. During the period, we improved our operating expense ratio by 70 basis points. We increased gross profit margin by 30 basis points. We achieved EBITDA growth of 28% and we grew net income by more than 200%. These strong bottom-line results, coming in an economic environment in which top line growth is challenged, reflect our focus on managing our marketing investments to seek profitable growth while continuing to leverage our business platform. We believe that by managing our business in this fashion, we can continue to do well even in the current economy. And when the economy recovers, we believe these efforts, combined with our strong balance sheet, will enable us to accelerate top line growth further and further enhance our profitability. Before I turn the call over to Bill for his review of the metrics, I'd like to highlight a few additional points. First, in the floral category – in our core 1-800-FLOWERS.COM business, total revenue growth for the quarter was approximately 1%, reflecting the softer consumer economy. Easter holiday sales, which were included in the third quarter last year, were hampered by the calendar shift that resulted in the holiday occurring on its earliest date in 95 years. An early Easter typically reduces consumer focus on the holiday and this was compounded by the inclement weather across most of the country. Demand for the Valentine holiday period benefited from our good-better-best merchandising strategy in the form of stronger sales on our Expert Designer product category, which…

Thank you, Jim. During the fiscal third quarter, we achieved strong EBITDA and EPS growth, driven by our focus on achieving further improvements in our operating expense ratio and gross profit margin. In addition, the quarter benefited from the shift of Easter into the period compared with fiscal '07 where it occurred in the fiscal fourth quarter. However, as Jim mentioned in his remarks, the early Easter date reduces consumer focus on the holiday and this was compounded by inclement weather, thereby impacting sales. Regarding specific financial results and key metrics for the third quarter, total net revenues reached $219.6 million, an increase of 2.7% or $5.8 million compared with $213.8 million in the same period last year. During the quarter, our e-commerce orders totaled 2,739,000 compared with 2,684,000 orders in the year ago period. Average order value during the quarter was $64.79 compared with $65.42 in the prior year period. During the quarter, we added 853,000 new customers while concurrently stimulating repeat orders from existing customers who represented 59.4% of total customers compared with 58.6% in the prior year period. Gross profit margin for the quarter increased 30 basis points to 40.8% compared with 40.5% in the same period last year, primarily reflecting enhanced sourcing and product mix. Operating expenses as a percent of revenue, excluding depreciation and amortization, improved 70 basis points to 36.1% compared with 36.8% in the prior year period. As we have previously stated, this is a key area of focus and we can continue to expect to drive year-over-year improvements in operating leverage. EBITDA for the quarter increased 28.2% or $2.3 million to $10.3 million compared with $8 million in the prior year period. For the quarter, depreciation and amortization was $5 million compared to $4.5 million in the same period last year. Net…

In summary, we achieved strong bottom line growth in our fiscal third quarter. We increased gross profit margin by 30 basis points. We improved our operating expense ratio by 70 basis points. We increased EBITDA 28%. We improved EPS more than 200% and we improved our net cash position, as Bill just mentioned, by approximately $38 million over the past year, further strengthening our balance sheet. Looking ahead, we are mindful of the challenging economic environment where consumers are being more cautious in their discretionary spending. We are managing our marketing investments, focusing on specific areas and initiatives that we believe will enable us to achieve profitable revenue. Furthermore, we have successfully demonstrated our ability over the past several years to drive cost out of our business model and improve our operating expense ratio. As a result, we are confident that we will emerge from the current economic period bigger and more profitable company. We will do this by leveraging both our operating platform and our legacy as a leading innovator in our key business categories. In the Consumer Floral category, we were the first to introduce the Expert Designer product line several years ago and our customers have responded enthusiastically. We continue to see double-digit growth in this category at a higher price point compared with our core product offering. Now, we have taken this concept to a whole new level with the recent launch of our partnership with Martha Stewart Living Omnimedia. This co-branded relationship leverages Martha Stewart's unparalleled design talent with our leadership position in the Floral Gift category, her relationship and our relationship with millions of customers as their florists, and our unique distribution capabilities. As a leading innovator in the floral industry, we believe it is absolutely essential, particularly in this current economy, to have…

Thank you, sir. (Operator instructions) Gentlemen, we'll take our first question from Jennifer Watson and Goldman Sachs.

Good morning and thanks for taking my question. Can you just discuss the drivers of gross margin and contribution margin pressure on a year-over-year basis in both the Consumer and Home and Children's categories, and whether we should anticipate this again in the fourth quarter?

Bill?

In particular, Consumer Floral and Home and Children's, is that the question or – ?

Yes, Consumer Floral and the Home and Children's categories.

Yes, what we see – you see pressure on gross margin. It's a tough retail environment. We're seeing promotional pricing rampant out there. So we have to participate to some degree. We try and be as strategic as we can in our promotional offerings, but trying to incent or motivate our consumer to increase their average order size by offering free shipping or half-rate shipping or reduced shipping to increase average order size in those areas. But you can see both margins under pressure in those categories, especially as we continue to have fuel surcharges and fuel rising up to $4.00 a gallon as well. So, we have those pressures on gross margins. And with respect to Consumer Floral, around specific holidays, we are the largest brand out there. We continue to support marketing efforts around key floral holidays. We're not getting the revenue growth that we hoped for, but we have to position ourselves so that as the economy improves, we will start accelerating that growth. So, we will continue to invest behind the key 1-800-FLOWERS brand, although be prudent and smart about where we invest our marketing dollars. But that's where the two – the pressure on gross margin and it's – the marketing is just not driving the revenue that we hoped in the short term.

Okay, great. And then, just one more on the G&A line. It looked like it declined on an absolute basis from quarter-to-quarter. Can you just talk about if that's a good run-rate going forward or if there was a one-time item this quarter?

Certainly what we've said in the past with regard to G&A is, we're not afraid to invest behind G&A if it's going to drive benefits throughout the other parts of our P&L, so that we'll make investments on the corporate line from time to time, if it fits within G&A, if it's driving improved gross margin or operating expense efficiencies within the other categories. But there are some discretionary spends within that area which, in this economy, we've pulled back on. We should see that again in the fourth quarter, that that will be low in the fourth quarter and we'll continue to evaluate as we move forward, whether investments in that line can help drive performance in the other categories.

Okay, great, thanks, Bill.

We'll take our next question from Eric Beder at Brean Murray.

Good morning, congratulations.

Thank you.

Let's talk a little bit about – I'd like to have a little more depth in terms of what drove the Specialty Brands. You talked about the Easter shift. What particular products are you talking about in the Specialty Brands business that drove the double-digit top line growth?

I would say the single biggest contributor there, from my point of view, was the direct-to-consumer business on the Fannie May brand. You remember that's a recent effort of ours. We acquired that less than two years ago and in the last year, we really birthed the Fannie May direct-to-consumer business and that contributed very well with the Easter shift. So the e-commerce part of Fannie May is, I think, the single biggest contributor.

Okay. I think I have two other questions. One, how has the initial response been to Martha and what kind of things are you going to learn to take from that? Let's just do that question.

On the Martha business, we're very excited about it. What we've done to introduce it so far is the appearance on her show, the press releases we've done, and media day when we opened up the NASDAQ and we did – Martha and I did some media exposure that day, CNBC, MSNBC, things like that. So it's just been introduced. We're very happy with how it's been received by the consumers. This thing will build over the next 24 months in terms of marketing. We have some – frankly, some TV advertising that will launch next week featuring Martha and her product line. So we'll see how that's received. But so far the initial reception is quite good, both by the consumer and especially by the florists because the florists are going to hear it more. BloomNet florists are very excited about it. We've had about a hundred of our BloomNet florists in town over the last two weeks to meet with the Martha design team internally here to review the product, to see our plans for the future. What we're seeing is our florists are all charged up. So, over the next 24 months, we think we have a real game changer here that'll benefit not only 1-800-FLOWERS, but frankly the whole category.

Great, congratulations again, thank you.

We will go next to Heath Terry with Credit Suisse.

Thanks. Jim, you've obviously been in the floral industry long enough to have seen several of these kind of economic cycles in the past. How would you –

Do you want to know how old I am?

Not at all, not at all. How would you characterize what you're seeing in this one relative to others that we've seen in the past and is there any feel that you can see being kind of an early indicator, or viewed by some as being an early indicator, as to what stage we're in so far?

Frankly, the people that are so much smarter than I am in the finance area that I've chatted with just in the last two or three days are telling me that they see signs of the credit cycles beginning to loosen up, that the banks may be playing through their backlog, etc., those kind of things. But from a consumer point of view, which is much more important to us, you're right, we've seen these before. Frankly, I don't want to sound like it's an opportunity for us because it's not. I'd rather have a great, burgeoning, growing consumer economy, but I think we're going to do well in it. I think the things we started a couple of years ago in terms of our Pep [ph] improvement programs are really starting to show the benefit. I think we're a bigger, stronger company now than any other downturn in the consumer economic cycle that we've experienced before, which enables us to take advantage of an opportunity like this. Frankly, some of the bolt-on acquisitions that we might wanted to have done in the last 12 to 24 months, we were outbid on because of the robust private equity community and the credit that was around, (inaudible) a tolerance for risk that we can't and won't. Now, some of those things are coming back to us. So I'm not predicting that we'll do any acquisitions, but I think the environment is better for us. So I think internally, our cost control programs are really starting to show their benefit. I think our attention to the customer and the customer relationships are helping us. I think the breadth of our product offerings, being so much more deeper now, having over $200 million business in the Gift Food category, the Gourmet Food category, the Gift Basket category, is helping us because a consumer that might be reluctant to do a little floral gift might go for a popcorn gift, or a Fannie May gift, or a Cheryl & Co. gift, and our ability to cross-pollinate those brands is showing its value. So, we continue to manage our costs, grow our customer depth and relationship, and at the same time perhaps have an opportunity to append other things to us to make us bigger and stronger and even leverage our operating expenses more, we will emerge in the next three to six months as a better, stronger, bigger company.

All right. I appreciate that. And then, you mentioned the television advertising campaign that you've got coming up around Mother's Day. Can you talk just a little bit about what you're seeing in your online ad spend? You guys are obviously big search spenders, can you talk about what you're seeing from an ROI perspective in your online spend and how it rates against the television and other direct mail and other forms of spend that you've worked with?

I'll ask Chris to answer that for you.

Sure. I think as Bill kind of alluded to in his question earlier with the pressures on gross margins, from an overall point of view, our marketing spend and our ROI is under pressure in an economic environment like we're in. So, we're not getting returns that we would like. I think as we look at the different elements of the marketing spend, we saw coming in this past quarter, Valentine's Day, as will be any floral holiday, a very competitive environment, especially in the search area where shops can jump in and be more competitive on a short-term basis. We will be disciplined in our spend in that area to make sure that we stay consistent with our strategy of going after profitable growth. So, where we see the returns, we'll spend there. But overall, everything's a little bit under pressure as far as the ROI and it's our ability to always look to – and balance off between online and offline spending, where we're seeing the different benefits. So, I think this coming holiday, as Jim alluded to, we're looking for some of our offline media to drive some benefits, especially regarding the launch of our Martha Stewart program.

Sounds great, thank you.

Our next question comes from Jim Leahy in Morgan Joseph.

Hey, guys. Question on competition, ProFlowers, and FTD, Teleflora have all been pretty active in the marketing arena around the holidays. Just an update of how you guys have seen their competition and how you think your share is in the marketplace right now.

This is Jim. I would say that they've not been really that active. There's very little in terms of non-online, terrestrial kinds of advertising by any of our competitors. Not a lot, some market focus here and there. Overall, I would say that the trend continues. We're the largest and getting larger. It's happened both in the B2B segment of our business and the consumer segment of our business. And when you view the consumer segment, you also have to view that in the last couple of years we created this $200 million capability in our gift business, direct to the consumer, which includes or Gourmet Food and Gift Basket business. So I think the trend is that we're continuing to outgrow our competition.

Okay, thanks.

(Operator instructions) We'll go next to Kristine Koerber with JMP Securities.

Hi this is Jennifer Bennett filling in for Kristine. A couple of questions. Do you guys still plan on rolling out more Fannie May stores? And if so, what's your long-term target, whether it be company-owned or franchise locations? My second question is where do you stand with your Home and Children's Gift category? Has the strategy changed or would you consider holding on to this segment?

There are two pieces to that, Jennifer. The first piece on Fannie May, the Fannie May business is not [ph] doing quite well. In the 18, 19 months, 20 months that we've owned that business now, we've introduced an e-commerce component which is doing terrific. We're continuing its core business and we've added about 15 stores in the last two years, or 18 months, to their store count in and around the Chicago area. It should be almost 20 stores, I guess now. That's been a good economic return for us. But going forward, we haven't articulated our plan because we have a couple of components of a test going on. We still have the same steady program we have in terms of store acquisitions that don't tax our capital. But in addition, we'll test a few special relationship opportunities to extend to markets beyond Chicago where we leverage the capabilities of a couple of parties that we know that are good at doing retail concepts on more of a franchise kind of model on a market-by-market basis. I would still call that a test for the next year or so. We think this is a big opportunity, but our focus now is on growing its core business and, especially growing its e-commerce business, and we'll continue to test our way into a store strategy that best complements our ability, our interest, and our most efficient use of capital. And Bill, did you want answer the second part of the question regarding our Children's Gift business?

I think just with respect to the Children's Gift category, our focus has been to improve its operating results, first and foremost, in that category. And just a reminder that what the Home and Children's Gift product line and size allows us to have is, from a lot of our enterprise-wide contracts, we get benefits that the other categories receive. We have contracts, enterprise-wide contracts on paper, print, third-party carrier rates and that all benefits us right now. So, our focus with the Home and Children's Gift category is to continue to drive better operating performance of that business.

Okay. And then, one quick question. The impact from weather, could you explain that a little bit more? I wouldn't think that it would have any impact but –

It's not a big item but what happened, for example, with Easter being moved up, Easter being, frankly, a week of – on the same week that St. Patrick's Day was. So, our Gift Food businesses, for example, where we had good growth, it could have been better growth except for the fact that our 60 Fannie May stores are all in Chicago. Chicago had a snow storm that weekend which had a deleterious effect on our business at retail there. Still good, but it would have been much better if we weren't dealing with a snow storm. And both Fannie May, Cheryl and Popcorn usually have a St. Patrick's Day business and an Easter business. But with them occurring in the same week, the appetites of people to make two purchases in such close proximity, so in addition to the weather, had a retardant effect on business. If Easter is in the spring, all the signals around us are much more spring-like and bring to home the idea that Easter is coming, but it sneaks up on people. So that has a retardant effect as did the weather, particularly in the Fannie May brand this year.

Thank you.

And gentlemen, there appear to be no further questions at this time. I'd like to turn the conference back to Mr. McCann for any additional or closing comments.

Well, thank you again for your interest and your questions and we'll be happy to handle any other questions that you may have. Feel free to contact us. We look forward to that. And I would also like to give you a public service reminder that there are only two days left in this Administrative Professionals & Secretaries Week. Fortunately with our same-day, any-day delivering capabilities, it's not too late to recognize that special professional in your life who keeps you from ending up in that middle seat in the last row on your next business trip. Also, Mother's Day Week begins a week from Monday. Now is the time to visit 1-800-FLOWERS.COM to see our wonderful selection of gifts, including our new Martha Stewart collection. So, don't wait. Call, click, or come in today. And we look forward to talking to you again soon.

And again, that does conclude today's conference call. We thank you for your participation and you may disconnect at this time.