Good day, everyone and welcome to the 1-800-Flowers.com Incorporated Fiscal 2009 Second Quarter Results Conference Call. This call is being recorded. At this for opening remarks and introduction I would like turn the call over to the company's Vice President of Investor Relations, Joseph Pititto. Please go ahead, sir.

Thanks Kim. Good morning and thank you all for joining us today to discuss 1-800-Flowers.com's financial results for fiscal 2009 second quarter. My name Joe Pititto, and I am Vice President of Investor Relations. Those of you who have not received the copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our website at 1800flowers.com or you can call Patty Altadonna at 516-237-6113 to receive a copy of the release by email or fax. In terms of structure our call today will begin with brief formal marks and then we will open the call to your questions. Presenting today will be Jim McCann, CEO; and Bill Shea, CFO. Also joining us today 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 may 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 supplemental 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 the 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, and recordings of today's call, the press release issued earlier today or in 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. For our fiscal second quarter total revenues came in below our expectations due to the unprecedented economic weakness, that forced consumers to dramatically reduce their spending during the key holiday shopping season. Revenue for the period, revenues were $329.3 million down 1.5% compared to the prior year. This included the contribution from DesignPac Gifts which we acquired last April, which performed well during the quarter. Excluding these contributions revenues declined 14% compared to the second quarter last year. Despite this we were able to achieve solid profitability including adjusted net income of approximately $50 million or $0.23 per share and an EBITDA margin of 10% or $33 million during the period in which many retailers were reporting losses. During the quarter we improved our operating expense ratio by 210 basis points. This reflects a combination of lower operating cost associated with the DesignPac Gifts business that was continuation of the programs that we initiated more than two years ago to reduce our operating expense ratio. These programs have enabled us to make more than $25 million, of fixed component $25 million of cost out of our operating platform. There by reducing our annual operating expense ratio by 290 basis point between the fiscal 2006 and 2008. We accomplished doing a number of initiatives including consolidating the service and supply vendors and the renegotiation of contracts, and by optimizing our customer service platform by expanding our home agent network and reducing our fixed utility and labor costs. I will tell though but we are better positioned to weather the current economic downturn and emerge being a more profitable company when the macro economy begins to improve. With I said we expect our current conditions will remain very challenging going forward. Therefore, we are taking additional actions necessary to…

Thank you, Jim. During the fiscal second quarter significant weakness in the consumer economy impacted our revenues and our gross margins. We were able to somewhat offset this from an improvement in our operating expenses by approximately $8 million. This was achieved despite absorbing the incremental operating expenses associated with our recent acquisitions. Also during the quarter we started seeing significant weakness in the Home Decor retail segment and our performance. We recorded a one-time non-cash charge of $20 million for goodwill and other intangible impairment in our Home and Children's gifts category. Adjusting for this charge we were able to achieve an EBITDA margin of 10% or $33 million and adjusted net income of approximately $50 million. Regarding specific financial results and key metrics for the second quarter. Total net revenues of $329.3 million down 1.5% compared with $334.2 million in the same period last year. During the quarter our E-commerce orders totaled 3,762,000 compared with 4,404,000 orders in the year ago period. Average order size during the quarter was $61.16 compared with $62.25 in the prior year period. During the quarter we added a 1,030,000 new customers. This was achieved while the currently stimulating repeat orders from existing customers who represented 57.1% total orders compared with 54.4% in the prior year period. Gross margin for the quarter was 42%, down 380 basis points. We are talking a combination of product mix associated with our recent acquisitions, which operated lower gross margins as well as the increased promotional nature of the holiday shopping period. The lower gross profit margin was somewhat offset by improvement of 210 basis points in our operating expense ratio of 32.1% compared with 34.2% in the prior year period. This primarily reflects the low operating expenses associated with the DesignPac Gifts business model and the…

Clearly this was a tough quarter. I think that you can see that we have been responding to the changed environment, both within the second fiscal quarter, but especially at the beginning of this third fiscal quarter. Total revenues were $329 million or 1.5% during a period of unprecedented weakness in the consumer economy. We benefited from the continued strength of our BloomNet business as well as the contribution from DesignPac Gifts and our Gourmet Food and Gift Baskets category. This illustrates our strategy to grow our business through a combination of organic initiatives and strategic acquisitions that help position us for future growth opportunities. The combination of DesignPac gives strong performance in our ongoing program to leverage our business platform, enable us to achieve a 210 basis point improvement in our operating expense ratio. This sub model offset the revenue and gross margin pressures during the period. As a result, we were able to achieve adjusted EPS of $0.23per share, and EBITDA of approximately $33 million. Importantly, unlike many other retail companies, we have two solid revenue quarters ahead our concluding this Valentine holiday, the Valentine holiday, in this current fiscal third quarter as well as Easter, Professional Secretaries Week, Father's Day, and the key Mother's day holiday in our fiscal fourth quarter. As a result, we expect to continue to be profitable in the second half of our fiscal 2009 and for the full fiscal year. Looking ahead we believe the consumer environment remains challenging and we are moving quickly to scale our operating expenses appropriately. We expect that these initiatives will provide $50 million in cost savings in addition to the more than $25 million in operating expense reductions that we have removed from our business platform during the past two years. However, we will continue to…

Thank you. (Operator Instructions). Our first question for today (ph) is from Jennifer Watson from Goldman Sachs.

Thank you. Two questions, first, when we look at the $50 million in costs savings, plenty to implement. In fiscal year 2010, it seems without a rebound or a significant rebound in fiscal year 2010 revenue growth. Would you anticipate margins to be below levels for fiscal year '08 or do you think you can get them back up to the levels we saw them?

We anticipate what Jen?

Yes, Jen we didn't hear you.

With the cost savings of $50 million, do you anticipate that, you think that margin is back up to the level that they were in fiscal year 2008, with or without a rebound in revenue growth in 2010?

We are clearly sizing the business and taken the operating costs appropriately out. We think we have identified significant cost cuts that will certainly improve our operating margins over our fiscal '09 levels. I think, the upside is when the economy turns and we start getting some revenue growth. We think we can be significantly more profitable than we were in fiscal '08.

Okay, got it. And then also just what marketing channels did you find to be the most and/or least successful in the December quarter? And what are you depending on, heading into the Valentine's Day period. And if you can comment on any changes in the rates of that different advertising medium that will be helpful also.

I think on the marketing channels the least productive channel we have is catalog marketing especially on the prospecting side when you see us that's where most of the reduction that come from on a go forward basis especially as we resize the Home and Children category. So as we look into the Valentine holiday, clearly it's the best marketing efforts that are producing the ROI for us right now or any marketing efforts aimed at our existing customer base. So while we are still able to attract new customer to get a higher acquisition rate, so you see us... increased repeatedly that you saw... other things you could expect to see as we go forward into the Valentine holiday as well.

Okay. So where does it email marketing on targeting of that nature?

Correct, four overtimes have been addressed to the consumer and the work of course is as you can see in the Home and Children's Group which was the amount dramatically dependent on our catalog marketing. There we just don't see the returns any longer and they were really scaling back. Our marketing efforts is focusing on our increased marketing spend in that category within the overall reduction. Something that we don't direct launch (ph) between customers but not necessarily with catalog almost totally not with catalog offering.

Great. Thank you.

Moving on our next question comes from Jeff Stein from Soleil.

Guys, I am wondering if you could talk about the thought process that went into the $50 million cost reduction program. In other words, was is it a bottom's up saying let's just take $50 million out or did you have kind of a revenue number in mind for gearing the expense reduction to? And if so can you just share that with us?

So, Jeff it's Chris. I would tell you I mean as you are familiar we have been providing this cost enhancement our pep efforts for a while now and throughout last, this past year we have already said as calendar year even though back of the last holiday season, as we saw the consumer start to tighten up back then. We have been making the appropriate adjustments as we moved along. Once we have followed this year, we head into the mid-October timeframe that's when the consumer behavior really started to drop and we saw that with consumer confidence indexes. We ratcheted it up the management team, took a small group of the management team that then worked with each business units to identify based on where we predict, where the revenue projections would be for the remainder of this year and then moving into fiscal '10. And then now that's based of that and we adjusted that as we moved through the quarter. As we saw consumer behavior deteriorate further into November and December, we made adjustments for that target which is based on that revenue target what are the OpEx ratios we need to get to therefore what's the number until any other breakdown --

I think that's right I mean (inaudible) that we are going to share what the target were but we are going to, we projected out what the rest of this fiscal year is? We took efforts to that and then we targeted some, OpEx ratio that we were comfortable with, that all added up to this $50 million. We obviously have to continue to monitor where the consumer demand is. And, consumer demand or since we have to continue to look at those operating costs.

I think we have always taken a number of those steps have already been executed in terms of our saving. If we can view them across our service platform, on technology capabilities, our marketing spend and labor so that the painful reduction in forms that we experienced this month, earlier this month, took a big chunk of that probably a 25% to 30% of that total savings are going to come from that labor reduction of about 300 people plus the scaling of the variable labor to accommodate what the anticipated the revenue number would be.

And, two other questions real quickly; can you talk about the composition of the inventory at the end of the quarter, it looks like year-on-year, it was up over 25%. And, wondering, is this long life product with no fashion risk to it, or it's... what potential exposure could we have if sales weaken even further?

Sure. Bill has done a lot of work in there where do they come from.

Yes, Jeff, you realize we mentioned in our formal remarks, inventory is higher than where we wanted it to be. Obviously, demand fell off during the second quarter. With that said, we did a very detailed review of where our inventory is. It is not fashion sensitive, so there is a combination of work were long in some areas. But we will be able to sell it through to our normal channel without taking impact on our margins There is some seasonal inventory related to the holiday season. But it's carry over inventory that we carry over into the next fiscal year.

Final question, guys. Can you talk a little bit about what's happening on the gross margin line? I know that it's very promotional out there. But, at the same time, I'm sure you guys will be getting to see the benefits of lower fuel surcharges. So as we move forward, what is your thought process on capturing some of that gross margin windfall versus giving it back to the customer in promotion. And how do you see that kind of playing into year-over-year gross margin comparison over the balance of the year?

So, I'll let Bill comment on the fuel question and as part of your question first Joe Pititto (ph) to speak about the gross margin.

Yes, Jeff, specifically with fuel, everybody sees at the comp, the significant drop in gasoline prices, fuel prices back in October. The index is that similar those or kind of a lag indicator. So there is about 60 day lag between when you see that and when we get it in our fuel surcharges. So we started to see the benefit of that in the month of December. But for the quarter, we still had... quarter-over-quarter, fuel surcharges were higher this year than they were a year ago. If fuel charges remain stable at the current levels, we will see second half of the year, we will see a benefit on the fuel surcharge front.

And this is... on the gross margin, I would say as we move forward, we expect to be able to gain some of that back. A couple of factors there as we look, clearly, we move into the remainder of this year into a somewhat less competitive arena than we were during the holiday season when every single retailer was a competitive balance (ph). But also, it's more of an opportunity from an planning point of view. As we mentioned, once we moved into October, November timeframe, things dramatically changed than we will more reactionary in protecting the transaction base and we can be on a go forward planning basis. If you look at the decisions we made for example, we protected the margin in the Home and Children's category throughout the quarter, because we were much less focused on protecting above the top-line in that category. As we said, it's not a strategic growth category for us at this point in time. On the Gourmet Food and Gift Baskets category, that is the strategic growth area for us. And our focus was much more on protecting the transaction or protecting the customer base. So if we look there... we actually were flat to slightly increase in total customer activity there. While at the same time the economy certainly force the consumer to spend less on average ticket and also to buy less gifts per customer. But yes, we kept that customer counts active. And that was intentional, and there by doing that, we gave up some margin. On a go forward basis, I think we can start to gain some of that back.

And two last points, Jeff also during the quarter because of the mix with DesignPac, and they have MLO (ph) wholesale margins that they have and the big contribution they have in the second quarter. That obviously, took our volumes down. With that said, about half of the overall margin. The second is in gross margin percentage was due to DesignPac. So the rest of it was promotion in, as Chris mentioned, there should be some reconnect. But, it's still a very tough consumer demand economy out there, and we will have to be promotional out there.

Promotional, we're making sure they are often price points that are appropriate for the consumer in this economy.

(Operator Instructions). Our next question is from Kristine Koerber from JMP securities.

Yes, hi. A few questions. First, can you just comment on the CapEx. I mean you mentioned that you are planning to reduce CapEx for the remainder of FY 09 and then bring it down for 2010. What should we be modeling?

Kristine, this is Bill. A lot our CapEx is fund ordered this year. We started to building CapEx actually a year ago really at this point in time. So we saw a heavy CapEx amount for them last year and through the first part of this year. But in this environment, we know it's prudent to take another look at that. Obviously, there is maintenance CapEx and there is some areas like our Fresh Digital platform where we want to continue to invest behind. But other parts of Cap Ex are more discretionary in nature and we are going to pull them back. So the second half of the year, we're going to take, we are going to take a reduction. We spend about $13 million in CapEx in the first half of the year. Second half of the year is going to be in that $4 million to $5 million range. We really going to bring it back and then we're going to, and we're taking a very hard look at fiscal '10 to take it down even further than that.

We don't have a specific number yet in mind for fiscal '10, but obviously being very prudent, while at the same time making sure that we do continue to move our footprint onto that Fresh Digital platform where we're seeing good benefits.

Okay, that's helpful. Looking at the $50 million in cost savings, I mean do you think there is more room beyond that $50 million as far as reigning in expenses?

Yes, Kristine we do and we're constantly monitoring our operations to best identify those. So that's what we identified to be and then we will have a hard plan to implement. It has been substantially addressing that with the things that we've always done this month and including the end of last quarter. But clearly we have responsibility, we still anticipate acknowledge the tough times we're in, but to buy in for even tougher times and better times and so we have adjustable plans and adjustable projects based on what we see the consumer buy them. If it got worse than it is today, we do have the ability to ratchet, build expenses down further.

You began the low hanging fruit as far as looking for expense cuts, right?

Clearly.

Okay. And then just briefly. Martha Stewart, did Martha Stewart perform during the quarter?

Well, as we're still pretty early in that multi-year relationship with the Martha Stewart product. It think it was impacted as we were overall by two facts, one we had a low to large range, but a broad range of SKUs in the Martha line and there was a higher average price points. The average higher price points were the area we were most impacted by, although on two of the initiatives lower price points did much better. So what we could see around the course of this calendar year an increase in the marketing and the joint venture of marketing with the markets to a company through its calendar year. So it wasn't up to our expectation certainly in the last quarter. The Gift Baskets we introduced clearly wasn't up to our expectations. It did quite well. The flower pack was facing a couple of initiatives to narrow the range of SKUs and to moderate the price point that we think will help us to do quite a bit better got a better even promptly during this second half of the fiscal year and beyond.

And what about on the advertising front going forward with the multi-store brand?

:We'll continue to promote with Martha Stewart Living on the media. The introduction of the products that we have, the introductions of new products that we have planned strictly in the Gift Baskets and Food Gifts area. So we'll continue to ramp those efforts off those joint venture marketing efforts throughout the course of this calendar year.

Okay. And then lastly can you just talk about the Home and Children's Group. I mean what are your longer term plans at this point. I know you're resizing the business, but what you're thinking longer term?

Sure, Kristine this is Chris. As we look at this category, we continue to adjust it and calling to the marketplace. And what our plan for this past year or so was really kind of maintain the top-line and improve the profitability of the business units. As the marketplace for that category deteriorate further, we're changing our direction. Let's reduce the size of the business to eliminate the skill set earlier. And when they are going to do this take that risk will be in the business catalog marketing size and in the prospecting aspects of it to make sure that we can produce decent profitability in that business. As we do... as we are doing that, obviously lot of changes and we continue to evaluate all of our options with that business category and as we look to the future we will do exactly that.

Would I mean how view them, can shutting it down or starting to sell off some of the assets?

Well clearly, in an environment like we are in with that category performing as poorly as it done Kristine, on the overall category and those brands were typically for us. Clearly we have to explore every object so you can trust to be assured they were looking at all the options we have available and they go forward plan working on as we pursue all the options is to dramatically scale back the size of business, reduce the risk as much as we can. Focus on marketing efforts on the things what we have to adjust but they are not catalog related, reduce our catalog marketing significantly. Continue to work with our existing customer base in the direct marketing ways that we've established in all other brands that are effective running the smaller business with good cash contribution as we explore for.

Okay, great, thank you.

And moving on, our next question will come from David Coven from Midwood Capital.

All my questions actually has been answered.

And we will take our next question from Ronald Bookbinder from Global Hunter Securities.

Good morning. What percentage of your business is now wholesale and how has that credit environment impacted the independent retailer and is there an opportunity to pick up some of that business directly?

Well, with very little of that has been wholesale, you have to look at it frame-by-frame but we have manufacturing capability where we have good brands that have retail deal we'll always explore our wholesale objective as a way to extend our brand contributes some margin dollars and to (inaudible) on next banking facility. So we will explore more but it's not as the current state of our business today.

Yes. Is this is proportional, this quarter versus the other quarters because of DesignPac is having business and the food branches clearly may having a piece. But rest of the year it's a very small, obviously it's a very strong component.

As I said to the point of DesignPac is a company that only does sales through other retail outlets at wholesale price business. We knew that going in, it has a lower gross margin contribution but also has a significantly lower operating expense ratio as well. So that was the business, we bought the platform to build our consumer business upon which has a higher gross margin obviously. So we review any wholesale opportunities for example, in DesignPac is an opportunity to built, to lever our facilities to extend the brand and to contribute gross margin dollars where appropriate. And then your second question Ronald was?

How has the credit environment impacted the independent retailer and is there an opportunity for you to pick up some of that business directly?

No, I think everyone is suffering constrained credit environment. Clearly, we are hearing from a acquisition point of view, there are lots of folks who are in businesses adjacent to our food businesses, that they are suffering and are being told by their banks that there really is an opportunity for them to borrow to sustain them. So they are gearing ahead before we get to another selling cycle many of them had just one selling quarter. We are fortunate that we have three quarters where we have good sales opportunity including the swing in the quarter which is our biggest in the flower business and to this current quarter which has Valentine's Day. So I don't know what the opportunities are except on the acquisition front but frankly we are going to be very, very careful in monitoring these ensuring these very impressive assets we have with a strong balance sheet. So anything that we look to do in that area will be opportunistic and very, very seriously considered.

Okay, thank you.

Okay.

(Operator Instructions). We will take a follow-up question from Jeff Stein, from Soleil.

Guys could you talk a little bit about the credit risk amongst your floral shop customers. It looks to me like you really saw very dramatic slowdown in revenue growth in that category in the quarter if you back out the acquisition you made, so I am wondering number one, how much of the slowdown is due to just florist in your network just shutting down and going away. How much of the slowdown is due to perhaps just a lack of additions of new floors? And the thirdly, are any of them either scaling back, I mean, number of services they are taking from you or are they just cutting out one of the wire service?

Overall, Jeff I'm focused on (inaudible) and growing to start the network. We think, you're right that the number of retail florists will continue to contract. That's why we are not focused on growing the network, we already have the scale we want, we already have the coverage we want, we already have the capabilities in terms of the quality and performance. And we want to improve that overtime. But, it's not working by growing business in top-line number of course. That's been inside, we think that there is still some decline in common in number of retail for us. So we're very, very sensitive on the credit side to not increasing our exposure there. The good news is, we're on the positive side of the flow with regard to open the florist because we have such a large of number of volumes that we're putting into those shops on the basis, which is a big focus of our to continue to improve that. Then we have an increasing number of shops who send their orders have to delivered in other markets exclusive from that network. In fact, increasing the number of orders in the system with that kind of a rotation. But, what we saw in this quarter, when you say an increase, an increase in the number of credit service to the base purchase amount, this is not a quarter where we expect it this being the top-line growth because we're not growing the top-line number. We didn't have a special product that you might have seen throughout the last quarter of last fiscal year a new directory. So overall, our BloomNet steady, consistent, growing with the depth of our relationship with our customers. And you'll see us increasing our development efforts in term of major products and services. We just introduced the whole new line of products and service products for them that were introduced through BloomNet products to our florist, which has been very well received in the first step, first few weeks, it was new offering.

Questions for Bill on the issue of severance; I am wondering, will all the severance charges and any other charges associated with this $50 million cost cutting program be booked in the current fiscal year, and I presume that when you gave the guidance that you expect to make money the rest of year that, that would also include any severance costs?

Yes and yes. Yes, basically what we've done is, we're being, we're scaling back of variable labor for us throughout the first half of the year in accordance with the business as people have left the organization those severance cost have been incurred as we... Jim mentioned earlier this month, we've done larger reduction in workforce. Those severance costs will be accounted for in this quarter. And yes the guidance that we're giving for the second half of the year includes the fact that there is severance cost would be paid this year. It will be all paid and it will accounted for this year.

Anything further Mr. Stein?

No, that's all. Thank you.

(Operator Instructions). And it appears there are no further questions today. Gentlemen, I'll turn the conference back to you.

Thank you. And we will be finishing a very tough third quarter a tough environment for us. We think we've made good adjustments within the quarter as best we could. And now, and now in this second... third fiscal quarter making a great deal for abilities adjustment. We see our operating expenses variable improvements as a good achievement for our field working on many more accounts. We have a good solid balance sheet. We have the tools in our place I think we can continue to adjust the environment around us. And we're continuing as Chris and Bill mentioned, actions (ph) in future in terms of great marketing efforts, our 1-800-Baskets business, our Fresh Digital platform and our BloomNet services and taking advantage of the environment as presented to us in terms of a creative media partnerships so we can achieve this well. So I think we are doing the things, we look to continuing our conversion with you. I'd like to remind you that. And we have broad range of gifts and a great value of design to say I Love You to your special someone in your life so don't hesitate for (inaudible).

And that does conclude our conference call today. Thank you all for your participation.