1-800-FLOWERS.COM, Inc. (FLWS) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the 1-800-FLOWERS.COM Inc. Fiscal 2015 First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Joseph Pititto, Vice President of Investor Relations. Sir, you may begin.

Thank you, Destiny. Good morning, and thank you all for joining us today to discuss 1-800-FLOWERS.COM's financial results for our fiscal 2015 first quarter. 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 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 remarks, and then we will open the call to your questions. Presenting today will be Jim McCann, CEO; Chris McCann, President; and Bill Shea, CFO. 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, any recordings of today's call, the press release issued earlier today or any of its SEC filings, except as maybe be otherwise stated by the company. I'll now turn the call over to Jim McCann.

Thanks, Joe, and good morning, everyone. During this first quarter, we achieved total revenue growth of 3%, driven by solid performance on our 1-800-FLOWERS.COM brand and in our Gourmet Food and Gift Baskets segment. This growth more than offset slightly lower revenues in our BloomNet segment, which primarily reflected shipping delays caused by recent dock strikes. We anticipate some recovery of these sales during the current fiscal second quarter and throughout the remainder of the year. We have also achieved solid bottom line results. This reflected our revenue growth, combined with enhanced gross margins and continued leveraging of our operating platform. We believe these positive trends bode well for the key upcoming holiday season and for the full fiscal year. Before I turn the call over to Bill for his recap of the results and metrics, I'd like to cover a few highlights from the quarter. The first quarter is seasonally our smallest, and this reflects a lack of gifting holidays during the summer months. However, the period is anything but quiet. Throughout the quarter, all of our brands are busy laying the groundwork for the upcoming holiday season. We're building inventories, finalizing logistics plans with our suppliers, shipping partners and wholesale accounts and implementing marketing and merchandising programs. This summer, we were particularly busy on a number of fronts. We completed the first phase of the building expansion for our fast-growing Cheryl's bakery business, doubling the size of our facility in Ohio and increasing production capacity to accommodate strong customer demand for Cheryl's great cookies, brownies and other bakery gifts. We made excellent progress toward the rollout this quarter of our new multi-brand website. This will allow all of our brands to share the same multi-feature environment that we believe will enhance our customers' shopping experience and enable us to develop even deeper relationships with them as the destination for all of their gifting and celebratory occasions. I'll ask Chris to provide more color on this revenue in his remarks in just a few minutes. And of course, on September 30, we closed on our acquisition of Harry & David, a tremendous addition to our growing family of gift brands. The addition of the iconic Harry & David brand, with its flagship of Royal Riviera Pears and the tremendous FRUIT of the MONTH CLUB, Moose Munch and Wolferman's brands, significantly extends our position as a leader in the growing multi-billion-dollar gourmet gift space. The Harry & David team has been working diligently throughout the summer months harvesting its unique pears, building beautiful gift towers and assembling the millions of gifts that we will deliver during this key year-end holiday season, which now represents nearly 50% of our company's total annual sales. Based on all of these initiatives and many more underway throughout the company, we believe we are well positioned for a successful holiday season, and we are excited about the enhanced growth opportunities we see, both near and longer-term. Bill, would you please go over the financial and operating metrics for the quarter?

Thank you, Jim. As we look at our first quarter results, we see a number of positive trends in our business. During what is seasonally our slowest period, our Consumer Floral business grew revenues 4% and increased category contribution margin by nearly 13%, benefiting from our continued focus on managing our operating expenses. Similarly, sales in our Gourmet Food and Gift Baskets segment grew 3.6% during the normally slow summer months, driven by strong e-commerce growth for our Cheryl's brand and continuing improvements on our Fannie May operations. And in BloomNet, despite the impact on revenues related to the delays in receiving products due to the West Coast dock strikes, we maintained a strong category contribution margin of more than 32%, with a continued focus on sales of higher-margin marketing services and other programs designed to help BloomNet's florists grow their businesses and their profitability. Regarding specific financial results and key metrics on continuing operations for the first quarter. Total net revenues increased 3% to $126.7 million compared with $123 million in the prior year period. During the quarter, our e-commerce orders grew 3.9% to $1,315,000 compared with $1,265,000 in the year-ago period. Average order size during the quarter was $63.92, up slightly compared with $63.70 in the prior year period. During the quarter, we added 385,000 new customers compared with 375,000 new customers in the prior year period. This was achieved while concurrently stimulating repeat orders from existing customers who represented 61.8% of total orders compared with 62.6% in the prior year period. Gross margin for the quarter was 42.1%, up 40 basis points compared with 41.7% in the prior year period. This was driven by increases of 230 basis points and 170 basis points in our BloomNet and Gourmet Food and Gift Baskets segments, primarily reflecting product mix. These increases more than offset a decline of 50 basis points in our Consumer Floral segment, which was primarily related to lower gross margins associated with the consolidation of the operating results of our iFlorist business in the U.K., in which we increased our ownership to a majority position last December, as well as some lower margin third-party marketing programs that ran during the summer months. Operating expense ratio, excluding $700,000 in net transaction expenses associated with the recent Harry & David acquisition, improved 70 basis points to 46.7% of total revenues compared with 47.4% in the prior year period. As a result of these factors, adjusted EBITDA, excluding stock-based compensation, improved $1.8 million to $0.5 million compared with a loss of $1.3 million in the prior year period. Stock-based compensation expense for the quarter was $1.3 million compared with $1.1 million in the prior year period. And adjusted net loss for the period improved $800,000 to a loss of $3.8 million, or $0.06 per share, compared with a loss of $4.6 million, or $0.07 per share in the prior year period. Adjusted EBITDA and adjusted EPS, excludes $700,000 in net transaction expenses, associated with the recent acquisition of Harry & David. In terms of category results, in our Consumer Floral segment, during the first quarter, revenues increased 4% to $74.4 million compared with $71.5 million in the prior year period. Gross margin for the quarter was 38.6% compared with 39.1% in the prior year period. Revenue growth and lower gross margin results for the period are partly attributable to the consolidation of iFlorist, our U.K. based floral and gift provider, in which the company increased its ownership to a majority position last December. The lower gross margin also reflects the impact of some third-party marketing programs that ran during the summer months. Reflecting the revenue growth, combined with the enhanced operating leverage, category contribution margin increased 12.8% to $7.3 million compared with $6.4 million in the prior year period. Company defines category contribution margin as earnings before interest, taxes, depreciation and amortization and before the allocation of corporate overhead expenses. In BloomNet, revenues were $20 million, down 1.6% compared with $20.3 million in the prior year period. Revenues in this category were impacted by delays in receiving product caused by the recent dock strikes on the West Coast. Gross profit margin increased 230 basis points to 55.3% compared with 53% in the prior year period, primarily attributable to product mix. And contribution margin increased to $6.5 million compared with $6.4 million in the prior year period. Now Gourmet Food and Gift Baskets segment. Revenues increased 3.6% to $32.4 million, compared with $31.2 million in the prior year period. This includes contributions from the 16 Fannie May retail stores that the company reacquired in June of 2014 from a franchisee. This was somewhat offset by delays in receiving products caused by the aforementioned dock strikes. Gross profit margin increased 170 basis points to 40.9% compared with 39.2% in the prior year period, primarily reflecting product mix. Contribution margin loss was $2.4 million compared with $2.1 million in the prior year period, primarily reflecting seasonal operating losses associated with the additional 16 Fannie May retail stores, as well as investments in personnel to drive continued growth throughout this category. In terms of corporate expense. As I stated earlier, category contribution margin results exclude costs associated with the company's enterprise shared services platform, which include among other services, IT, human resources, finance, legal and executive. These functions are operated under a centralized management platform providing support services to the entire organization. For the fiscal first quarter, corporate expense from continuing operations, including stock-based compensation, was $12.8 million compared with $13.2 million in the prior year period. Now turning to our balance sheet. At the end of the first quarter, our cash and investment position was $2.2 million. Borrowings for working capital under our revolving credit facility was $62 million, reflecting the significant seasonality of our Gourmet Food and Gift Basket brands. Specifically this reflects increased investments in inventory to support growth for the upcoming holiday period. Inventory of $96 million was within management's expectations and reflects the seasonal increases to support growth plus all of our Gourmet Food and Gift Baskets brands during the holiday season. On September 30, 2 days after the close of our fiscal quarter, we closed on the acquisition of Harry & David. Concurrently, we closed on a new credit facility comprised of a $142.5 million term loan, used to fund the transaction, and a $200 million revolving credit line for working capital needs and other corporate uses. You will see these changes reflected in our balance sheet at the end of the current fiscal second quarter. At that time, we anticipate inventories will be down significantly from the seasonal highs, and we will have 0 borrowings under our revolving credit line, as well as a very strong cash position. Regarding guidance. We are reiterating our recently updated guidance for fiscal 2015, which now includes contributions from the addition of the Harry & David business, which the company acquired on September 30, 2014. In terms of revenues, we anticipate generating total revenues from continuing operations in excess of $1.1 billion for fiscal 2015. Reflecting the highly seasonal nature of the Harry & David business, which has historically generated the majority of its revenues and all of its profits during the key, calendar-year-end holiday season, we expect the current fiscal second quarter ending on December 28, 2014, will represent approximately 46% to 50% of total revenues for the full fiscal year. Regarding bottom line results. We anticipate generating adjusted EBITDA of approximately $90 million for fiscal 2015. This excludes transaction costs and purchase accounting adjustments related to the Harry & David acquisition and the impact of stock-based compensation. Adjusted EPS for the year is expected to be in the range of $0.45 to $0.50 per fully diluted share, excluding the aforementioned transaction-related costs and purchase accounting adjustments, but including the impact of stock-based compensation. It is important to note that the top and bottom line guidance we have provided for fiscal 2015 does not include Harry & David's results for their fiscal first quarter of the year, which typically is their lowest in terms of revenues and includes a substantial bottom line loss. This reflects the seasonality of the Harry & David business and the timing of the close of the acquisition at the start of our current fiscal second quarter. I'll now turn the call over to our President, Chris McCann.

Thanks, Bill. As Jim mentioned earlier, it's been a very busy summer across all of our brands, and it's about to get a lot busier as we enter the key holiday shopping period. In terms of our newest business, we are extremely pleased to have added the iconic Harry & David brand to the expanded 1-800-FLOWERS.COM family of great gift brands. We are equally pleased to add the very talented and passionate Harry & David team of associates to our enterprise. They've done a remarkable job over the past few years of driving solid top and bottom line growth in what has been a challenging consumer environment. We have what we believe is an excellent plan in place to build on that growth during the key holiday season this quarter. To that end, we are all keenly focused on executing gifts as planned as our #1 priority. At the same time, I'm also very pleased with the initial discussions that have taken place between our teams to identify ideas and opportunities to take advantage of our combined business platforms to drive enhanced revenue growth and operational efficiencies across the company. As we head into the holiday season, I am increasingly excited by the opportunities I see ahead of us. Throughout the first quarter, our very talented teams in product development, merchandising and marketing, PR, IT, have been working to lay the foundations for a successful holiday season this year and enhance top and bottom line performance for years to come. One particular area that has required a highly coordinated effort is our multi-brand website initiative. I'm pleased to report that we've made significant progress and, as of today, the majority of our customer traffic across our brands has been migrated over to one unified platform on our new code-base. What this means is that over the coming weeks, we'll be providing our customers with a uniquely enhanced gift shopping experience. Regardless of which brand door they enter, they will find themselves in a unified gift shop where they will be introduced to all of our great gifting options that we offer. Once in our shop, they'll be able to take advantage of a growing suite of features and functions designed to help them act on their thoughtfulness and expressly connect with the important people in their lives for everything from everyday "just because" occasions to all of their holiday gifting needs. Among these features are one shopping cart, one customer sign in, one recipient address book, a unique points-based Celebrations rewards program and our new Celebrations passport service that provides free year-round shipping across all of our brands for one annual fee. We believe all of these features will enable us to deepen our relationship with our customers as their destination of choice for all of their gifting and celebratory needs and further set us apart from the competition. I'll now turn the call back to Jim.

Thanks, Chris. To wrap up, our fiscal first quarter results reflect a number of positive trends that are particularly important as we head into the key holiday season, including solid top line growth and enhanced gross profit margins and increasing bottom line contributions. As we enter the key holiday season, we are excited by the opportunities we see to deepen our relationship with our customers through our expanded product offerings, including Harry & David and its great collection of gift brands, and through our continued focus on innovation, such as the new multi-brand website that is designed specifically to make it easy for our customers to express and connect with the important people in their lives. We believe these initiatives, among others, help make us a unique one-stop destination for increasing range of our customers' gifting and celebratory occasions and will enable us to drive enhanced top and bottom line growth and, therefore, build shareholder value. That concludes our formal remarks, and I'll ask Destiny, if you would please restate the instructions for the Q&A portion of our call. Destiny?

[Operator Instructions] And our first question comes from Jeff Stein of Northcoast Research.

Couple of questions for you. First off, does the dock workers' strike pose any risk to the second quarter in your opinion in either the Gourmet Food and Gift business or at Harry & David?

We've already, I think, felt the brunt of the impact of the dock workers' strike. We had some things built in, Jeff, for this contingency, and I would say I think we've minimized any impact at Harry & David. I think we've already absorbed any impact we'd have. I guess the only lingering possibility would be in things that got out to customers later than they would have liked and we would have liked because we were waiting for materials that it could conceivably impact sell throughs. But we haven't seen any sign of that yet. So I think the guidance expectations have all reflected what the experience we're going to have with the dock workers' strike. Maybe Bill, in BloomNet, we might not be able to catch completely up there but we'll get close, do you think?

Yes, BloomNet sales in the first quarter were certainly impacted by that. We think we're going to get some of that back in the second quarter and the second half of the year, but I'm not sure we're going to get it all back.

Got it. And the -- Chris, I'm wondering if you could address the issue of kind of the timing of when consumers are going to be able to see the new multi-brand portal when they log on and go to one of your gift brands.

Sure, Jeff. Yes, we're very excited about this. We've been working on this and bringing it to fruition. So I think in the next coming weeks, we'll be kind of migrating the brands into this new exposure, migrating the customers into this new exposure. As I mentioned, we're all on the same platform right now, we're all on one codebase, and as we migrate, the main thing I mentioned even in our last call, we have to be conscious of making sure we don't interrupt any SEO implications, any SEO links that we have. So I think, really, in the next coming weeks, as you go onto Cheryl's, maybe one day Cheryl's will be 30% traffic on, and we might bring it back down then ramp it back up to 50%. So during the next couple of weeks we'll be migrating on, and our customers will increasingly see that day by day.

So the way we would summarize that, Jeff, is we're happy that all the brands are on the same codebase. That was a big, big milestone for us. All the different departments, merchandising, obviously, IT, the brand management people, getting us to a point where we could have it all on one site. Now the things that they're testing into would be the concerns to make sure that we don't lose our good rankings in search as a result of the new codebase, so all of those testings will be going on day by day, and we want to make sure we introduce the new, much improved experience to customers on a gradual basis, so that they don't get startled because we're really happy to have gotten this far and you'll see enhancements day by day, week by week now.

Got it. And 2 more questions, real quick. First, wondering if you could address the performance of Harry & David during the September quarter. How did they perform compared to the prior year, both from a revenue and EBITDA standpoint? And then maybe you can address the issue of commodity cost in the back half of the year, both on the food side and also the fuel side of the business. It would seem that lower fuel prices might benefit your fuel surcharges this year?

Sure, Jeff. I'll ask Bill to give you the specifics here. I'll go out of turn though on your list of questions there. We've been dealing with commodity variable cost for a long time, so we go into the year with a budget that anticipates changes in prices. We didn't anticipate the benefit you mentioned in terms of fuel prices, which will be reflected in the next couple of months based on what happens in September and October. It's a forward-looking calculation. So we anticipate variables and costs, so we're not changing our guidance on anything. Everything's within the brackets we expected. There are a few places it might be outside. We think we've had the opportunity to catch up on savings elsewhere. But Bill, the questions about Harry & David in the first quarter? And did I characterize it correctly in terms of the commodity variables?

Yes, I think, again, going reverse order from a commodity standpoint, cocoa prices, which is one of our biggest commodities has been under pressure for a long time. We've seen that for over -- probably over a year. We've done a very good job of minimizing the impact of that by locking in pricings early. I mean, we're coming to this quarter. It will have an impact now that we've tied the purchase of cocoa with Ebola and with the West Coast issues -- the West Coast of Africa issues. It could be a little more prolonged on that, but I think we do a very good job of managing kind of commodity prices. We saw big spikes in butter and sugar, we've seen them come down, we've taken advantage of the downward spikes in that. And as you mentioned, Jeff, fuel is working in our favor. Jim mentioned the 2-month lead time with regard to fuel surcharges for the month of October, we'll -- the actual fuel prices in the month of October, and what we've seen at 4-year lows will benefit us in the holiday season. So that's -- we have some offsetting factors with regard to…

And before that I think that our management team in the Gourmet Foods group, which is the ones that are primarily impacted by the commodity cost have done a good job of managing through that. And when they can't capture it all back on anticipated increases, Jeff, beyond what we might have budgeted for, they have done a good job of managing other expenses. I think they'll be able to get us close to our forecast as we go through this holiday season.

Yes, and H&D, with regards to their performance in their first quarter prior to our acquisition was on their plan. The numbers were pretty comparable to the prior year from a top and bottom line perspective. Up a little bit on the top line, I think comfortable on the bottom line. But in accordance with their plan. Their obviously big season is the second quarter, and they're prepped for that.

And our next question comes from Dan Kurnos with The Benchmark Company.

Just first an industry question. With the launch of Apple paying some of the numerous payment processes, we've seen an accelerated shift in the SMB market to tablet-based point-of-sale systems. I know you guys have been trying to make some headway in that market and push your solution. I'm wondering, given the entrenched nature of the legacy wire business, how reticent the iFlorist market is to switch to modern tech or if they've seen sort of that same nodes that the broader SMB market is seeing.

Well, I think -- I don't think you would say that the our -- those of us in the flower business are the most progressive in adopting new technologies, Dan. We have a terrific application and a terrific platform in terms of our tablet-based system, and those that -- the shops that have installed that love it, and it gives them so much more selling opportunity. Chris, what about in terms of payment technologies, adoption rates there?

So I would say, just overall, we continue to make good progress with our BloomNet management system, including the tablet aspect of that. I think, in general, what we see is that small businesses are reticent to change technology platforms. Not necessarily because of the change of innovative technologies but necessarily just because of change of way of doing business. So it's always a little slower than we would like to see in the small business market. As far as payments, again, at this point, we don't see that accelerating anything in the retail floral industry. It's different capabilities that we'll always stay on top of. I think you've seen 1-800-FLOWERS, especially, be very innovative in that space working with companies like PayPal, working with Affirm and others to make sure that we're always out in front where the consumer chooses to ultimately make their purchasing decisions. So we'll continue to do that.

I mean, I assumed that was the answer but with some of the news that's been coming out, it seemed at least worth asking the question. Bill, could you just -- I don't recall if you actually gave a specific number. And I don't know if you can quantify. But did you -- can you quantify the actual impact of the dock strikes on both the GFGB and the BloomNet top line?

Yes, I think with respect to both of the items there, BloomNet would have been positive growth for the quarter, probably would have been up in the low-, mid-single digits in growth for the quarter if not for the dock strike and the wholesale impact of -- on GFGB really was the offset to that was the 16 stores that we added on Fannie May. So that was probably in the $0.5 million to $1 million range.

Great. And then just one more for me. I know -- in terms of marketing, I know you've said you're sticking with Harry & David's plan for the holiday period, but are you at least leveraging your existing marketing channels or contemplating, planning to do so to try and bolster their sales? And should we expect any jointly branded marketing campaigns?

Yes, I think for the most part really, we want to make sure that we execute the plan that was in place, and that we keep everybody's attention focused on that plan. With that said, especially from a marketing and merchandising point of view, we did work together as a collective team to take some short-term opportunities that we can put things in place to get some learnings this quarter, some tests this quarter. So you'll see some different things. You'll see some of our products appear on the Harry & David website and from a merchandising perspective, so Harry & David products appear on the 1-800-FLOWERS platform. So we could test just different ways of presenting that to the consumer and their acceptance of the brands going both ways. They'll see us do some things from a marketing side of or doing some catalog blow-ins from different brands in different markets, basically putting a CRM matrix of testing in place. So don't expect anything dramatic. What we're trying to do is get some learning out of this season without being disruptive to the plan that was in place.

Got it. And let me ask -- let me just ask one more, if I could. Just, I know you guys have been out to the facilities several times, including recently out in Oregon. I'm just wondering about your thoughts on manufacturing and how you might either shift some of the capabilities from Oregon to maybe Canton or even possibly some of your existing manufacturing, ship that out to Oregon and how that might play out over time.

Dan, this is Jim. A couple of things there. One is being out in Medford, the whole Rogue Valley, touring facilities, meeting with people, seeing the depth of talent there, Chris and I flew back one day and we were each in different airports, making connecting flights, chatting on the phone, and we were both talking about just how pumped we were about the depth in talent there, the wonderful capabilities, the processes. I mean, these folks are really good at what they do. The orchards, the manufacturing process, the processing, everything is really first grade. So we were more pumped than ever, even though we had to write a rather sizable check to have this wonderful fun experience, but we -- it's rare that you come back after a trip like that and you tour every nook and cranny of the facilities and you're more excited than you were at the beginning, but that was the case for us. So for us, I would say that we went into the process with a list of expectations in terms of things we could achieve on the growth side and on the efficiency side. And we're doing our very best to keep our hands and thoughts off of the team, so that they can execute this important plan that they built over the last couple or few years to execute and deliver this. But you can't help but think about all the different possibilities, and I get excited when I hear about the follow-up even since our more recent visit where our popcorn manufacturing people from both Medford and from Lake Forest, Illinois where we manufacture for the Popcorn Factory, were talking about, "Wow, you have capacity needs here, and I have availability and I have capacity needs there and you have availability. Boy, this could really work nicely." And "Oh, we have some customers out here that were shipping all the way from the Midwest, could you…" So there was a lot of that kind of banter back and forth. So I think the list of ideas we had is getting larger, not smaller, and again, doing our best to keep our hands off of the operations now. But I can tell you that there are those kinds of conversations going on in terms of the logistics people. Those kinds of conversations going on in terms of our bakery capacity, in terms of popcorn, as I mentioned, manufacturing and especially distribution. So we're excited about the ways that we can increase our manufacturing capability without CapEx because of just good load-balancing between the facilities we now have as a collective.

Our next question comes from Michael Kupinski of Noble Financial.

This is actually Juan Bejarano in for Michael Kupinski. Just continuing with Harry & David, I know we've discussed this before a little bit, but what are some ways where you can smooth out Harry & David seasonality? I know they have a big EPS quarter coming up and, obviously, that will continue. But in your view, can we maybe see the company have better performance in other quarters?

I think a broad answer to that question is, yes, we think we can assist smoothing it out, but frankly, the first effort will be to exaggerate it. What I mean by that is, we think they have a lot of growth opportunities in this fourth calendar, our second fiscal quarter, that together we can go after more aggressively. So I do not mind one bit if we exaggerate the seasonality of business with good growth. Now as concerns the other quarters, there's a leveraging of facilities and capabilities. There, as I mentioned in the last call, they have a terrific customer service operation with people who they furlough in the spring because they're not busy enough. Well, there's an obvious way that we can go after that because the Flowers brands and some of our other Gourmet brands are actually very busy during that time frame, and so there's a good load balancing of effort. So that will save on the efficiency side, and we have identified probably a half a dozen deliberate growth areas that we can go after with all of our brands now to develop more business in the everyday gifting segment. Keep in mind that 1-800-FLOWERS, our #1 occasion is birthday, which is obviously distributed around the calendar. Anniversaries are a strong occasion for us, wedding anniversaries, and sympathy expression is a strong occasion for us. And we think that Harry & David has a terrific product line that can help people in those special times when words are not enough and you want to express yourself with somebody who's experienced a loss, so we use all of those tools to try and do 2 things: grow our business during the peak periods we already have, which we think we can do in an accelerated fashion; and secondly, introduce new products and new services collectively that help our customers express and connect during the other quarters where we don't have the big fourth quarter holiday spike.

Great. And just looking at the consumer. Well, I guess consumer confidence keeps picking up as we saw this morning, but maybe -- how are you seeing the consumer react to all the geopolitical issues in healthcares? Have you noticed anything in particular? Or do you feel things are still going strong?

Juan, we enter a period like this with apprehension every year. What I mean by that is, we know what kinds of things that are within our grasp to control. It's those big geopolitical or news kinds of stories that concern us that there could be distraction. Is there a love storm at Valentine's Day? Is there a big election cycle that distracts people like it did several years ago when there was an undetermined outcome of an election, and people were distracted for 30 days. But with all the things that are in the news today: a, we haven't seen any of that distraction; b, we're hoping that we don't; and c, the consumer confidence rising is the most important indicator that impacts our business because during this holiday and gifting season what is more intimate and personal to give than a gift you're going to enjoy like flowers or a gift that you're going to experience and consume like a food gift? So we think we're well positioned. We don't know what the big news scare could be, or if there'll be one. But right now we feel well positioned with the right products, and no indication of a consumer being anything other than ready for a good holiday season.

[Operator Instructions] And our next question comes from Anthony Lebiedzinski of Sidoti & Company.

Just wanted to clarify, as far as the multi-branded portal, will you be including actually Harry & David with that? Or will you wait until after the Christmas season?

So I think, Anthony, it gives us a really good opportunity. We will not be including it this holiday season. And it gives us really a good opportunity to test and learn how the consumer reacts and responds to then shape our plans going forward post holiday.

And keep in mind, with Harry & David, it's not just the Harry & David brand, but it's our other collection of brands, things like Wolferman's, which are the terrific muffins and bakery product, the Moose Munch product line. So there are a number of brands that are up for consideration, as Chris just mentioned, after this holiday.

And just for point for clarity, as I mentioned in a previous question, we will be selling some Harry & David products under the 1-800-FLOWERS website, under the 1-800-FLOWERS brand, but it's not an integrated website.

Got it. Okay. That's helpful. And can you just give us an update on fruit bouquets? How is that segment doing? And what percentage of the country is now covered by fruit bouquets?

Sure. We're very pleased with the continued steady growth of fruit bouquets. We're north of 50% coverage now and what we've begun to do, really didn't do too much during the summer months just because of being a slower quarter. But now we're starting to move into some of those targeted geographic marketing tests that I spoke about previously. So we're kind of doing that ramping up. We continue to get great consumer response. One of the things we track is that kind of same zip code sale where we have products available last year, how that's doing this year. And in those zip codes we're continuing to see good positive growth. So on both fronts, that front, as well as steady growth on coverage, we're very pleased with the progress we're making.

Okay. And also can you give us a sense as to the amount of the transaction expenses that will flow through your second fiscal quarter?

Bill?

Yes. Well, we incurred in the first quarter a lot of the -- some of the legal and accounting costs. And the second quarter will be like a lot of the banking-related, I think, that were contingent upon the sale. Probably in that $5 million to $6 million range or so.

Additional this quarter.

Additional this quarter, yes.

And I'm showing no further questions at this time. I'd like to turn the call back over to Jim McCann for closing remarks.

Well, thank you all. This is an important quarter for us, one we're excited about, one that we think we're in a pretty good position and we're thrilled to see the consumer feeling better about things. That bodes well for us all. And as a reminder, it's never too early to start your holiday shopping, and we know just where you can go to find the broadest range of truly original gifts to help deliver smiles this holiday season. Thanks for your interest and we look forward to your follow-up.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.