Good day everyone and welcome to the 1-800-FLOWERS.COM, Inc. Fiscal 2010 Third Quarter Results Conference Call. This call is been 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, Joseph Pititto. Mr. Pititto, please go ahead, sir.

Thanks Jonathan. Good morning and thank you all for joining us today to discuss the 1-800-FLOWERS.COM fiscal results for our 2010 third quarter. Those of you who have not received the copy of our press release earlier this morning, the release can be accessed at the Investor Relation Section of our website at 1-800-FLOWERS.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 remarks and then we'll open the call for your questions. Presenting today will be Jim McCann, CEO, Chris McCann, President and Bill Shea, Chief Financial Officer. Before I begin, I need to remind everyone that a number of the statements that we'll make today maybe 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 adjusted results and supplemental financial measures that are 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, any recordings of today's call, the press release issued earlier today or any of it’s SEC filings except as maybe otherwise stated by the company. I'll now turn the call over to Jim McCann.

Good morning everyone, as you know our fiscal third quarter is dominated by our consumer floral business which represented a majority of our revenue in contribution margin for the period due primarily to the Valentines Day holiday. During the quarter we saw a number of positive trends that I will discuss in a moment. However, our overall financial results for the period were impacted by the unsatisfied performance of the promotional programs that we deployed to offset the anticipated affects of the Valentine Sunday day-placement. As we headed into this year’s Valentine’s holiday we made the decision to step up our marketing spending and provide consumers with free shipping on no service charge promotion to incent early ordering for early delivery. On a positive note we did see an increase in order volume for the holiday period. This is a continuation of the improving trend that we have seen in our consumer floral category since the 20% decline in last year's Valentine period. We also achieved an increase in the number of customers we attracted which were up approximately 6% for the quarter. However, the listed orders for the holiday was insufficient to offset the impact of our gross margin average order value related to these promotions. This combined with the increase in advertising spending to drive the promotion resulted in significantly lower category contribution which impacted overall EBITDA and EPS for the quarter. It is important to note that this promotional program was a one-time effort directly related to this year's day placement of Valentine's Day and not something we will repeat going forward. With that said, we drive a number of very key learning’s from the program which I'll ask Chris to describe in more detail in his remarks later on in this call. As I mentioned earlier,…

Thank you, Jim. Regarding specific financial results the key metrics for the third quarter, total net revenues from continuing operations were $155.5 million, up approximately 1% compared with $154.5 million in the prior year period. During the quarter our e-commerce orders totaled nearly $2 million, up 3.2% compared with $1.9 million in the year ago period. Average order value was $56.96, down 5.1% compared with $60.04 in the prior year period, primarily reflecting the impact of the Valentine promotions in the consumer floral category. During the quarter, we added 644,000 new customers, up 5.6%, compared with 610,000 new customers in the year ago period. This was achieved while comparatively stimulating repeat orders from existing customers who represented 60% of total revenues, essentially unchanged compared with the prior year period. Gross margin is 38.2%, down 170 basis points compared with 39.9% in the prior year period. This primarily affected the aforementioned Valentine promotions in our consumer floral category. Operating expenses from continuing operations before depreciation and amortization increased approximately $1.7 million to $62.2 million compared with $60.5 million in the prior year period, affecting our increased marketing spending associated with the Valentine promotions. Excluding this increase operating expenses would have been down for the quarter compared with the prior year. For the quarter depreciation and amortization was $5.5 million, compared with $5.6 million in the prior year period. As a result of these factors, EBITDA from continuing operations was a loss of $2.8 million compared with a loss of $75.3 million in the prior year period. For the prior year period, adjusted EBITDA was $2.4 million, excluding a pre-tax non cash charge of $76.5 million for the write down of goodwill and intangibles associated with our gourmet food and gift baskets segment and the one time pre-tax charge of $1.2 million…

Thanks, Bill. As Jim mentioned earlier in his remarks, as we headed into this year's Valentine's holiday we had seen consistent improvement in consumer demand with revenues in the category bouncing back from double-digit declines a year ago with. This in mind and an effort to offset the challenge of a Sunday day-placement, we made the decision to offer a free shipping, no service charge promotion backed up with additional advertising to incent customers to place their Valentine's orders early and for early delivery. While the impact of these initiatives reduced gross margins and average order volume more than the increased order volumes could offset, we did gain a number of important learning’s from the effort. First, while free shipping can be an attractive incentive, it is not the most important factor in our customer's purchase decision. Our customers are attracted to the key brand values of 1-800-FLOWERS.COM, quality, convenience and selection along with reliable, everyday service, and value. Second, our customers want the great shopping experience whether it's online, on their mobile device, or in a store. Customers are looking for a personal touch. This is where we believe our family florist heritage gives us a distinct competitive advantage as we continue to expand our efforts to engage our customers in a direct dialogue and recreate that personal florist experience. For this goal our focus on social commerce sets us apart as a leading innovator, including our initiatives on Facebook where we were the first e-commerce company of any kind to enable customers to shop and place an order without leaving their Facebook page, our expanded presence on Twitter, and in the blogosphere, and in the fast growing mobile commerce space where we recently received the Retail Info System's 2010 Mobile App of the Year award in the Best…

Thanks, Chris. As we told you in our previous calls, we are focused on three key strategic priorities that drive our business. First, knowing and taking care of our customers, second maintain and enhance our financial strength and flexibility, and, finally, continue to innovate and invest for the future. In terms of knowing and taking care of our customers, we are pleased with the results of our customer engagement programs. Throughout the year, we have enhanced our efforts in social commerce, through our initiatives on Facebook, Twitter and in the blogosphere and to our innovative mobile applications. Our customers are interacting directly with us through these channels sharing their personal stories about connecting and expressing themselves with the important people in their lives. The product of this interaction can be seen in our new book titled "Celebrating Mom" which features stories submitted by our customers about all of the special moms in their lives. The book which is the first of many planned celebration titles was published with Andrew McNeilly and is available at Amazon, Barnes & Noble, Borders as well as independent book stores across the country. It will also be featured on our gift sites, in the Fannie May retail stores and in the BloomNet retail flower shops. In terms of enhancing our financial strength and flexibility we finished the fiscal third quarter with a solid balance sheet including $38 million in cash, no debt outstanding on our revolving credit line. Our business continues to generate strong cash flows enabling us to aggressively reduce our debt. For the past 18 months, we have strengthened our balance sheet by paying down approximately $70 million in our long-term debt. In, addition we enhanced the flexibility of our balance sheet with our new bank credit facility, reducing our term loan debt…

(Operator Instructions). Our first question comes from Eric Bedder from Brean Murray. Your question, please?

I want to talk to you about the promotional environment that you are seeing now as we enter the week before Mother's Day. What are you seeing in terms of that environment? Obviously, it was a little bit aggressive in terms of Valentine's Day. But how does it look for Mother's Day?

I think we’re seeing a continuation of an aggressive promotional environment. Our competitors are spending heavily. The difference is I think we're managing our business different than we did Valentine's Day. As we headed into, as we said a difficult day placement that we knew would pose challenges we tried something different. Here we're kind of sticking to our knitting a little bit, doing what we know has worked historically for us, repeating our Spot a Mom Campaign from last Mother's Day. So, we're managing the promotional environment much better than certainly our Valentine's Day.

When you look at integrating your food and gift basket categories into the 1-800-BASKETS piece, how is that going and kind of where do you think you're going to end up in terms of how much of your own product you're going to have in the basket assortment?

Well, I think we're doing a couple of things, Eric. This is Jim. One is 1-800-BASKETS is a business that we're growing on the back of the brand relationship we have with 1-800-FLOWERS.COM. We have 35 million customer database there. We're exposing those customers to the 1-800-BASKETS brand, we're doing it in a way that is efficient from a marketing spend. So, that we don't have to a big third-party spend on marketing to grow their brand, to grow it to be quite a large. In terms of integration of other products as you can see in the mix that we have now we're both integrating the other brand products and expanding the brand product categories that we're in by introducing other third-party products, gives us a great environment to test without a lot of capital behind those programs. So, I think you'll continue to see good steady solid integration; good steady aggressive growth as a result of our ability to market to the 1-800-FLOWERS.COM customers, and the exploration and development of our opportunities in the product category with the experimentations that are going on.

And finally, how is Martha Stewart doing? How is that going?

The Martha Stewart program continues to develop for us. It has not met the expectations that we had never yet set out for it.

We're actively involved with the Martha team. We're constantly taking our learning’s and applying it to what we believe can be a strong go forward plan for us in Martha Stewart Living.

Okay. Thanks.

Thank you. Our next question comes from Ronald Bookbinder from Global Hunter. Your question, please?

That's Ronald Bookbinder. Yes, good morning. When looking at the gross margin on a product basis, basically excluding the promotional free shipping. How was gross margin year-over-year?

Material to the free shipping offer? Well, there's a combination that we guys have had during the quarter. You saw that the flowers, the consumer floral margins were down fairly dramatically during the third quarter. It was the free shipping but it was also the lack of demand that the free shipping generated. We expected higher demand. Obviously, that's why we spent behind. We also had some higher than planned inventory write-offs as a part of that. The entire margin impact relates really to that. If it was not for that program --

Separate from that is what he's asking.

But if you look at it really on a product basis I think you see the continuing trends that we have had where gross margin is improving. So, other than the Valentine's Day issue, the trends continue to show improvement in both the floral category and the food category.

Good point, Chris. If you've seen the first half of our year you've see the trends where gross margin has improved Q1 and Q2 over prior years. We expect gross margin to be strong going forward as well.

Okay and we've been hearing stories about flower inventories backing up in Columbia due to flights not being able to get the flowers to Europe. Have you been able to take advantage of that? And could we see a little bit of a boost to gross margin in this fourth quarter?

No, you wouldn't expect to see much of an impact on us in this quarter from anything like that happening, Ronald, because we've already contracted long in advance for our prices, we contract with farms to grow specific products. So, we're not playing spot market. So no, I don't think it will have much of an impact on this quarter.

Okay and on the baskets, how many stock-keeping units are you planning for the 1-800-BASKETS in the fall? And how does that compare to last year?

Yeah. Ronald, I'm not sure of the number was at the top of my head on the number of SKUs for the fall. It was more than last year, last year it was just out of the gate so it will be significantly more than last year. Again it's all built on the learning’s that we have from our customers as far as making sure we're giving them the broad price range that we want to book the lower end but also adding in more higher end products than we booked market last year. Again taking the learning’s that we're seeing from our customers as to what they're looking to buy. So, it will certainly be an increase SKUs over last year.

And lastly, the order value was down this quarter because of the Valentine's promo. But once again, excluding that promo would those order values have been up with a little bit better consumer discretionary spending?

I think we have been seeing kind of positive trend lines in AOV. Yes, Valentine's Day was the impact why AOV was overall was down. We do certainly see some opportunities as Chris mentioned within baskets and within some of our product categories to take some pricing up and to take AOV up. So, excluding the Valentine's Day promotional campaign, AOV probably would have been relatively flat but we like the trend lines that we're seeing. And we expect AOV to increase as we go forward.

Okay. Great. Thank you.

(Operator Instructions). Our next question comes from Anthony Lebiedzinski from Sidoti & Company. Your question?

Yes. Good morning. Currently you have a free shipping, no service charge promotion on your website for Mother's Day. How does this compare to last year? Also can you talk about number of SKUs that you're offering versus Mother's Day a year ago?

Yes. So, again, what we’ve learned as I mentioned for Valentine's Day is that doing it from an overall perspective isn't enough to drive the volume to offset the impact on AOV. Free shipping does have a place as a marketing vehicle from time to time and you'll see us do that where it makes sense to certain aspects. In our offering now we have a collection that's available for Mother's Day free shipping again to incent early ordering but, again, it's not the over-arching campaign that we did at Valentine's Day. So, we're managing that very closely and we'll make determinations as we move through the holiday when to offer it and when to not offer it. From a SKUs point of view in the floral category, it’s very similar to the number of SKUs we had offered last year.

One of the learning’s we saw from Valentine's Day with the free ship offer was the two weeks out, the two weeks leading up to Valentine's Day we saw strong revenue growth. It was as we got closer to the holiday that it did not work. So, we're taking some of those learning’s and implementing those promotional campaigns where they make sense.

Okay. And then currently on your website you have the dual basket feature between 1-800-FLOWERS and 1-800-BASKETS. Do you also plan to add Cheryl and Company, The Popcorn Factory, and Fannie May to that so that people can cross shop the brands?

I think what we're doing right now is focused on getting all the learning’s as we can between 1-800-FLOWERS and 1-800-BASKETS, how to navigate the customers through the website so they're seeing a full product line, how to navigate the use of single checkout, single customer database, single gift reminder program, etcetera. So, we're really focused on the learning. You will see in time and more of the other product categories in under the baskets and depending on the learning’s we’ll depend on where we go in the future.

Okay and in terms of BloomNet, where do you see opportunities there that talk about increasing your market penetration? So, can you just give us an update there, please?

We're quite pleased with how BloomNet is doing, Anthony. We saw good performance again this quarter, good margins. I think we are really very confident about where BloomNet can go in the future. One of the outgrowths of the experience that we had with Undercover Boss was a dramatic outpouring of sentiment from not only BloomNet networks but in particular BloomNet, our franchisees, and florists around the country, in fact around North America, saying how pleased they were with our involvement in the program, how they thought it reflected them in such a very good light, and that they were pleased with the emphasis that was placed on our retail florist component, the fact that we're a multi-channel company and that we celebrated our retail flower shops. So, there's been tremendous outpouring from BloomNet in that regard. I think that's something we can build on. I think they were pleased and we're getting great reaction to the continuing suite of services that we're rolling out, the product opportunities. We have a program that's been particularly well embraced where we introduce our whole glass container buying program which reduces their costs, gives them the opportunity to improve their margins, service their customers better, and so both from a service and product category I think we're more enthusiastic than ever in terms of how we can deepen our relationship with our existing customer base in BloomNet.

Okay. And also I did see that you guys noted in your gourmet food and gift basket business, talking about the wine contribution, I was just curious. Is there a significant margin difference between wine and your other products within that category?

What we're seeing with the wine business, the wine business is a small business for us. We expect a growth in the wine category be primarily in 1-800-BASKETS category. There's a slightly less margin in the wine piece of that basket because of just the cost of the products. But our wine business has grown to be a nice size. It's a nice contributor. It's a good platform. We will not grow it a lot larger than it is now. Just like we do in BloomNet, in the wine business we'll just continue to deepen our relationship with our customers. But it's a great platform to help 1-800-BASKETS grow. Its gift baskets that contain wine.

Okay. Thank you.

Thank you, Anthony.

Thank you. (Operator Instructions). I'm not showing any further questions in the queue at this.

Thank you, Jonathan. And thank you all for your questions and your interest. And if you have any additional questions please don't hesitate to contact us. I just want to remind you that with Mother's Day fast approaching we have our Spot a Mom campaign, so you can come and say something very nice about the moms in your life. And if it's something our judges really like you could wind up in next year's book called "Celebrating Mom" so with Mother's Day right around the corner please visit 1-800-FLOWERS.COM whether to place an order or to nominate a mom in your life and certainly visit our 1-800-BASKETS collection while you're there. Thank you and we look forward to our follow-up discussions with you all.

Thank you ladies and gentlemen for your participation in today's program. This does conclude the program. You may now disconnect. Good day.