1-800-FLOWERS.COM, Inc. (FLWS) Q4 2015 Earnings Report, Transcript and Summary

Welcome to the 1-800-FLOWERS.COM fiscal 2015 Fourth Quarter Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Joe Pititto, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

Thank you, Candace. Good morning, everyone and thank you for joining us today to discuss the 1-800-FLOWERS.COM's financial results for our fiscal 2015 fourth quarter and full year. 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 Kathy Gladkowsky 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 will 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 earlier 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 our 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 may be otherwise stated by the company. I'll now turn the call over to Jim McCann.

Good morning, everyone. Fiscal 2015 was a very exciting year for us. First and foremost during the year, we added the iconic Harry & David brand, along with Wolferman's and Moose Munch to our growing family of great gifting brands. The highly accretive acquisition helped us drive our revenues past $1.1 billion and significantly increased our EBITDA and EPS. Moreover, it has helped extend our position as a leading omnichannel provider of top quality gifts that resonate with our customers for an expanding range of their celebratory and gifting occasions. Adding Harry & David to our growing family of brands both illustrates and accelerates our strategy to leverage the leadership position we've built with 1-800-FLOWERS.COM in the floral gifting category to create what is fast becoming a leading position in the growing gourmet foods and gift basket category. Importantly, since we began our integration process of Harry & David back in January, we've made excellent progress toward leveraging our combined business platform so that we can capture the significant synergistic opportunities we see for both operating efficiencies and enhanced revenue growth, both near and long term. Chris will touch on some of the key operating in revenue synergies in his remarks in a few minutes. When I say our fiscal 2015 was exciting, believe me, some of that excitement was also very challenging. I already called back in our second quarter -- on Thanksgiving Day, we were faced with what could have been a catastrophic fire in our in our Fannie May warehouse and distribution facility in Ohio. Fortunately, no one was injured in the fire, but I can tell you that an awful lot of Fannie May chocolate and other products and packaging that we had built for the holiday seasons -- or some $30 million worth -- went in fact literally went up in smoke. I'm proud to tell you that the Fannie May team, with the help from across our enterprise, responded to this challenge in an exemplary fashion, overcoming the loss of a key distribution center and extremely limited inventory to deliver solid performance for the holiday season and the year. In addition to Fannie May, our gourmet foods and gift basket category benefited from continued strong performance in our Cheryl's bakery gifts brand, where we completed the facility expansion that we told you about in prior calls. We now have the ability to more than double our production capacity to support continued strong growth in the years ahead. We also benefited from enhanced performance in our 1-800-Baskets.com brand as well as from increased sales of gift baskets into the mass channel. Here we’re benefiting from our unique design and confection capabilities and see opportunities for continued growth. On the floral side of our business, 1-800-FLOWERS.COM continued to extend its market-leading position, driving strong bottom-line contributions from both the fourth quarter and for the full year. In our BloomNet business, we further expanded our market position versus our legacy wire service competitors, achieving top-line growth and strong bottom-line growth for the year. We believe BloomNet is well positioned to grow by leveraging our better value proposition and our innovative suite of products and services designed to help out florists grow their businesses profitably. Lastly, we finished the year with a strong balance sheet, including a low debt ratio and growing cash flows. Combined with our credit facility, we have significant flexibility to grow our business both organically as well as through strategic acquisitions and enhance our long-term shareholder value. I'll now turn the call over to Bill for a review of the financial and operating metrics for the quarter.

Thank you, Jim. As we noted in our press release this morning, our fiscal 2015 top- and bottom-line results include a number of adjustments from one-time events that affected our year-over-year comparability. These events include the acquisition of Harry & David which we closed on September 30, 2014 and the one-time charges associated with that transaction. As well as the Fannie May fire that occurred on Thanksgiving Day last year. Before I provide specific financial and operating metrics for the quarter, it is important to point out that in today's press release and on the call, we provide our top- and bottom-line results, both as reported and on an as-adjusted basis. We believe the adjusted results provide a more comparable view of our business performance in the quarter and for the year by adding back one-time costs associated with the Harry & David acquisition integration, adjusting for the bottom-line impacts of the lost revenues associated with the Fannie May fire, and viewing our results with and without Harry & David. And regarding adjustments related to the Harry & David acquisition integration, during the fourth quarter, we incurred $3.4 million of integration-related costs, primarily related to severance and incremental costs incurred to help us achieve the operating cost synergies outlined in previous calls. For the year, we incurred $6.4 million of purchase accounting adjustments, $4.8 million of transaction costs -- basically accountants, lawyers and bankers -- and $5.5 million of integration-related costs. In terms of adjustments, with the impact of the Fannie May fire, during the fourth quarter, there was no impact. For the year, the impact was approximately $17 million of lost revenues and $6.6 million of lost EBITDA. We've included a table attached to this morning's press release that provides specific impacts of all these one-time events and reconciles our adjusted results to our reported or GAAP results. We've also posted a chart on the investor relations section of our website that illustrates this reconciliation. Now we'll go into specific financial results and key metrics for continuing operations. For the fiscal fourth quarter, total net revenues increased 21.8% to $228.3 million compared with $187.4 million in the prior-year period. The increase reflects contributions from Harry & David combined with revenue growth across all three of our business segments. Gross profit margin from continuing operations increased 40 basis points to 43% compared with 42.6% in the prior-year period. This reflects strong gross margins in our BloomNet and consumer floral segments which more than offset lower seasonal gross margins in the Harry & David business. Operating expense ratio for the quarter increased to 49.3% of total net sales compared with 40.5% in the prior-year period. This reflects operating expenses associated with the seasonality of the Harry & David business as well as one-time integration costs. As a result of these factors, reported EBITDA for the quarter, excluding stock-based compensation, was a loss of $5.2 million compared with a gain of $11.3 million in the prior-year period. Adjusted EBITDA, excluding stock-based compensation and one-time integration costs, was a loss of $1.8 million. Our reported net loss from continuing operations attributable to the company was $10.7 million or $0.16 per share compared with a gain of $3.1 million or $0.05 per diluted share in the prior-year period. Adjusted net loss from continuing operations attributable to the company for the quarter was $8.7 million or $0.13 per share compared with a gain of $3.1 million or $0.05 per share in the prior-year period. Excluding Harry & David, adjusted EBITDA for the quarter was $10.6 million compared with the $11.3 million in the prior-year period. The 6.5% year-over-year decline reflects the shift of some revenues associated with the early season Easter holiday into the company's fiscal third quarter, particularly in our gourmet food and gift basket segment. This was somewhat offset by strong contribution from BloomNet during the period. Excluding Harry & David, adjusted net income attributable to the company was $1.7 million or $0.03 per diluted share compared with $3.1 million or $0.05 per diluted share, reflecting the aforementioned shift of some Easter revenues into the company's third quarter. For the full year, revenues from continuing operations grew 48.3% to $1.12 billion compared with $756 million in the prior year, reflecting contributions from Harry & David combined with full-year growth across all 3 of our business segments. Gross margin increased 170 basis points to 43.4% compared with 41.7% in the prior year. This reflected gross margin improvements in all 3 of our business segments for the year. Operating expense ratio for the year was 40.1% compared with 38.5% in the prior-year period, reflecting increased operating expenses associated with Harry & David and the one-time costs associated with the acquisition and integration. Reported EBITDA, excluding stock-based compensation, was $72.7 million compared with $48.2 million in the prior-year period. Adjusted EBITDA, excluding stock-based compensation, was $95.3 million compared with $48.2 million in the prior year. Reported net income from continuing operations attributable to the company was $20.3 million or $0.30 per diluted share compared with $14.7 million or $0.22 per diluted share in the prior-year period. Adjusted net income from continuing operations attributable to the company was $34.7 million or $0.51 per diluted share compared with $14.6 million or $0.22 per diluted year in the prior year. Excluding Harry & David, adjusted EBITDA for the year increased 11.6% to $53.8 million compared with $48.2 million in the prior year. Excluding Harry & David, adjusted net income attributable to the company for the year was $15.9 million or $0.24 per diluted share compared with $14.6 million or $0.22 per diluted share. Free cash flow for the year was $93.1 million compared with $19.6 million in the prior year. The significant increase reflects the timing of the Harry & David acquisition which closed on September 30, 2014. As adjusted for this timing, free cash flow would have been approximately $37 million. In terms of customer metrics from continuing operations, for the quarter, e-commerce orders increased 12.6% to 2,688,000 compared with 2,388,000 in the prior-year period. For the year, e-commerce orders increased 31.5% to 11,992,000 compared with 9,113,000 in the prior year. Average order value for the fourth quarter increased 7.3% to $66.53 compared with $62.01 in the prior-year period and average order value for the year increased 17.9% to $70.87 compared with $60.09 in fiscal 2014. During the fourth quarter, we added 850,000 new customers, up 12.4% year over year, while concurrently stimulating repeat orders from existing customers, who represented 56.2% of total customers. And for the year, we added 3.4 million new customers, representing an increase of 31.4% compared with the prior year, with repeat orders representing 51.3% of total customers. In terms of category results, in our 1-800-FLOWERS.COM consumer floral business, fourth quarter revenues grew 0.8% to $131.5 million and full-year revenues grew 0.2% to $422.2 million compared with $130.4 million and $421.3 million in the respective prior-year periods. Revenue growth in the fourth quarter was impacted by the aforementioned shift of some revenues associated with the Easter holiday into the company's third quarter due to its early season day placement, while full-year revenue growth was impacted by the Saturday day placement of the Valentine's Day holiday. Gross profit margin increased 40 basis points to 40% for the quarter and 10 basis points to 39.2% the full year compared with 39.6% and 39.1% in the respective prior-year periods. And importantly, category contribution margin grew 1.5% to $14.2 million for the quarter and 8.1% to $43.5 million for full year compared with $14 million and $40.3 million in the respective prior-year periods. In our BloomNet wire service business, fourth quarter revenues increased 7.1% to $22.9 million and full-year revenues increased 2.1% to $86 million compared with $21.4 million and $84.2 million in the respective prior-year periods. Gross profit margin increased 460 basis points to 57.6% in the fourth quarter and 240 basis points to 55.7% for the year compared with 53% and 53.3% in the respective prior-year periods. Contribution margin increased 34% to $8.9 million in the fourth quarter and 10% to $29.4 million for the full year compared with $6.7 million and $26.7 million in the respective prior-year periods. The strong growth in gross margin and contribution margin primarily reflects the implementation of a new florist transaction program as well as sales mix. In our gourmet food and gift basket segment, fourth quarter revenues increased 106.7% to $74 million and full-year revenues grew 143.6% to $614 million compared with $35.8 million and $252 million in the respective prior-year periods. Revenue growth for the quarter reflected contributions from Harry & David. For the year, revenue growth reflected the Harry & David contributions as well as strong e-commerce growth in our Cheryl's and 1-800-Baskets.com brands as well as increased gift basket sales into the mass channel. Gross profit margin for the quarter declined 350 basis points to 43.3% compared with 46.8%, primarily reflecting seasonally lower gross margins associated with Harry & David. For the year, gross profit margin increased 270 basis points to 44.4% compared with 41.7% in the prior year. This was attributable to Harry & David which had strong gross margins in its fiscal second quarter, when it recorded more than 70% of its annual revenues, as well as increased operating leverage associated with very new growth across the overall segment. Contribution margin for the quarter was a loss of $7.7 million compared with a gain of $1.3 million the prior-year period, reflecting the aforementioned seasonality of the Harry & David business. For the year, contribution margin increased 176.1% to $74.9 million compared with $27.1 million in the prior year, reflecting contributions from Harry & David as well as enhanced year-over-year increased contributions of Cheryl's and 1-800-Baskets.com. Excluding one-time costs associated with the acquisition and integration of Harry & David, fourth quarter contribution margin was a loss of $6.6 million. And excluding these same one-time costs and the impact of the Fannie May fire, contribution margin for the full year was $91 million. In terms of corporate expense, as we've stated in the past, our category contribution margin excludes costs associated with the company's enterprise shared services platform which includes among other services our IT, HR, finance, legal and executive. These functions are operated under a centralized management platform providing support services to the entire organization. For the fiscal fourth quarter, corporate expense from continuing operations, including stock-based compensation, was $22.3 million compared with $10.6 million in the prior-year period. And for the full year, corporate expense from continuing operations, including stock-based compensation, was $81 million compared with $45.9 million in the prior year. The increased corporate expenses in both the fourth quarter and the year reflect the Harry & David business as well as the one-time integration and severance costs. Turning to our balance sheet, at the end of the year, we had term debt of $132.1 million and cash and equivalents of $27.9 million. During fiscal 2015, we used approximately $8.4 million in cash buying back approximately 1.1 million shares of our stock. It's worth noting that we now have a new $25 million authorization from our Board of Directors to enable us to continue our stock repurchase program. Inventory at year end was $93.2 million, reflecting the additional inventories associated with the Harry & David business as well as some pre-building of inventory in our gourmet food and gift basket brands in preparation for the upcoming holiday season. Capital expense for the year was approximately $32 million, including capital investments made as part of our Harry & David integration process. We anticipate CapEx for fiscal 2016 will remain at approximately $32 million as we invest behind the Harry & David business as well as initiatives we have underway across the enterprise related to integration and leveraging our combined business platform to drive both operating cost reductions and revenue growth synergies. Now regarding guidance. For fiscal 2016, we expect to achieve consolidated revenue growth for the year in the range of 5% to 7% compared with the $1.12 billion reported for fiscal 2015. In terms of bottom-line results, we expect to grow EBITDA approximately 10% and EPS in excess of 20% compared with the pro forma fiscal 2015 adjusted EBITDA of $80.5 million and pro forma fiscal 2015 adjusted EPS of $0.32 per fully diluted share. Pro forma fiscal 2015 adjusted EBITDA and adjusted EPS include the seasonal losses associated with the Harry & David business that were incurred in the fiscal 2015 first quarter. These losses were not captured in the company's fiscal 2015 results due to the close of the acquisition on September 30, 2014. Our guidance for top- and bottom-line results for fiscal 2016 includes the additional revenues and aforementioned losses associated with Harry & David's fiscal first quarter, increases in depreciation and amortization and interest expense in the first quarter, reflecting the timing of the Harry & David acquisition last year, and the anticipated impact of the Sunday day placement of the Valentine's Day holiday in 2016 on the company's consumer floral segment results. Lastly, we expect to generate approximately $35 million in free cash flow in fiscal 2016. This represents growth of more than 10% compared with fiscal 2015 adjusted cash flow after accounting for the fiscal Q1 Harry & David losses, offset by the one-time acquisition and integration costs. I'll now turn the call over to our President, Chris McCann.

Thanks, Bill. Fiscal 2015 was indeed very exciting for our company and the addition of the iconic Harry & David brand was clearly the highlight of the year. As Jim noted earlier, the addition of Harry & David illustrates how we’re building our business, creating a unique ecosystem for all of our customers' celebratory and gifting needs. Toward this goal, we’re leveraging the leadership position that we built in the floral space with 1-800-FLOWERS.COM to now build a similar leadership position in the growing gourmet foods and gift baskets business. By adding Harry & David, Wolferman's and Moose Munch to our already great collection of gourmet brands, including Fannie May, Cheryl's, The Popcorn Factory, 1-800-Baskets.com, FruitBouquets.com and Stockyards, we now have an expanded offering of gift products and brands that are beloved by our customers for their ability to deliver smiles for all of their recipients, from family and friends to corporate clients and for every occasion, from birthdays and anniversaries to holidays and just because. When we launched the integration of Harry & David back in January, what we actually did was design a program to look at how we can enhance all aspects of our business across the enterprise. As a result of this approach, the various workstreams that we have underway -- from marketing and merchandising, manufacturing, distribution, finance, HR and more -- are all doing an excellent job of identifying opportunities for both operating efficiencies and revenue growth drivers across our brands. We have made very good headway towards identifying and going after the $15 million in cost synergies that we told you we were targeting over the next 3 years. And while we continue to focus on capturing those cost synergies, we've also now begun to focus on revenue opportunities in such areas as our combined customer database, where we have a tremendous amount of customer data and new software tools that can help us extract and use that data to significantly enhance the relevancy of our marketing messages so that we can expand and deepen our customer relationships. We look at the mass channel, where we can leverage our wholesale account relationships along with our manufacturing capabilities and expanded production capacities to grow our business, with brands like Moose Munch, Wolferman, The Popcorn Factory and Harry London -- brands and products that our mass channel customers are asking for. And our multi-branded website, where we’re creating a one-stop gift shop featuring all of our brands with a single shopping cart, a single address book, our Celebrations rewards and reminder programs and our Celebrations Passport free shipping program, all designed to take the friction out of our customers' gifting experience. And as we head into the key holiday season, we're very excited about the opportunities we see with all of our great gourmet brands. As we begin to gradually migrate Harry & David onto our multi-branded website, we see all of our brands and businesses coming together, both figuratively and literally, to help serve our customers better. Overall, we believe the initiatives we have underway to enhance our operating platform and deepen our customer relationships will enable us to drive top- and bottom-line performance in fiscal 2016 and in the years ahead. I'll now turn the call back to Jim.

Well, a good year for us. We acquired Harry & David and grew our revenues north of $1.1 billion while delivering strong bottom-line results. We launched an enterprise-wide integration program that is already delivering benefits and where we’re identifying more opportunities seemingly every day. Our Fannie May business literally survived a trial by fire and emerged stronger than ever, poised to accelerate its growth and deliver strong contributions. We completed the expansion of our Cheryl's bakery facility, expanding our production capacity to keep pace with the strong customer demand. We further extended 1-800-FLOWERS' leadership position in the consumer floral space and grew BloomNet's market position, delivering top-line and strong bottom-line contributions in both areas. And we continue to innovate and invest for the future in our multi-branded website, our industry-leading mobile and search commerce initiatives and our operations from the Harry & David facilities in our distribution fulfillment platform. As we look ahead, we’re more excited than ever about the opportunities to see the leverage in our business platform and drive long-term growth and increase our shareholder values. That concludes our formal remarks and we'll now turn it over to Q&A. I'll ask Candace, if you would regive the instructions for how people can dial in for questions.

[Operator Instructions]. And our first question comes from Jeff Stein of Northcoast Research. Your line is now open.

Couple of questions for you. First of all, it seems like there was a lot of moving parts in the fourth quarter. And consequently wondering if you could give us a little bit more clarity first of all on the effect of the Easter shift on some of your businesses from a revenue and operating income standpoint. And then also perhaps can you isolate for us the effect of Harry & David's revenue and operating loss in the fourth quarter so we can get some understanding in terms of how the core business performed. Thank you.

I'll ask Bill to give you the details on that. But just to give an overall comment on the third and fourth quarters when it comes to Easter. Easter, the day place makes a big difference in our business, that's why we always point out for the past several years now that you should look at the third and fourth quarters combined to get the best picture of our overall performance. Obviously, it was good, we had good organic growth and we had good expense management. So the contributions for the two quarters combined were quite strong. The biggest impact on the Easter shift this year was on the food group. A little less so on the flowers group because our flowers business is much more approximate to Easter itself. Bill, would you give Jeff some color on the Easter shifts impact and on the Harry & David questions?

Yes, as Jim mentioned, the bigger impact is on the food brands. But overall from a company perspective, it's probably north of $8 million from a top-line perspective and close to $3 million from an EBITDA perspective. And we provided some of the results without. Excluding Harry & David that you saw from a bottom-line perspective, we were down about $600,000 or $700,000 in overall contribution margin. If you obviously took out the Easter impact, that would be probably plus about $2.5 million in EBITDA from that standpoint. And from Harry & David, I think on a pro forma basis, Harry & David fourth quarter and for the full year was in line with our expectations, essentially up low single-digits for the year. But it obviously has significant losses on the three non-holiday quarters. That's why we've been providing information with regard to both with and without Harry & David.

Okay. And just looks to me on the surface that you are looking for a fairly conservative top-line growth forecast for the upcoming year. I'm wondering if you could just kind of give us some thoughts in terms of where you see this 5% to 7% coming from, what you're looking for in terms of kind of an organic growth rate for the core business and then how you see Harry & David's revenues growing and the factors affecting that growth.

Bill, I'll start again and Bill can pick it up -- Bill and Chris can chip in. The overall what we're looking at here is that if you normalize things for day placement and such, we've been growing the flowers business 2% to 3% for the last several years. Bottom line obviously a lot better at that. So when you take in the fact that the flowers business will be impacted this year by the day shift from Saturday for Valentine's Day to Sunday this year, it has deleterious impact on top line. In spite of that, we’re still projecting a good bottom-line improvement in our operational capabilities across the enterprise. And so when we say 5% to 7% organic growth, that includes the new acquisition of Harry & David and also takes into account the negative impact that the Valentine Day placement will have on us. So we see that as actually an acceleration of our organic growth rate.

I think if you just look where we have been the last couple of years, 5% to 7% is clearly an acceleration of that.

Okay. Are you beginning to see any benefits from the multi-brand [Technical Difficulty]. Can you talk a little bit about the wholesale business and how you see that shaping up? I presume that most of your orders for the holiday season have been booked? [Technical Difficulty].

And our next question comes from the line of Dan Kurnos of The Benchmark company. Your line is now open.

Jeff was still asking questions. Are you guys still around? I think the management team has disappeared on us.

Ladies and gentlemen, please stand by. Your conference call will resume momentarily. Once again, thank you for your patience and please continue to stand by. Speakers, you are now reconnected.

Okay. One more question real quick and then I'll pass it on. Your wholesale business -- can you talk a little bit about the advanced bookings for gift baskets with your wholesale accounts for the upcoming holiday season? I presume most of that is now booked and how you see revenue growth for that category looking ahead? Thank you.

We’re encouraged by what we've seen to date and the bookings to date on the wholesale gift basket business which we do have a lot of visibility towards them. So that business has been growing nicely over the last couple of years and we think it will grow another 10% this year.

And our next question comes from the line of Dan Kurnos of The Benchmark Company. Your line is now open.

I'm going to ask Jeff's questions, at least his first couple questions, in a little bit of different manner here. Because I think, frankly, the stock reaction today is a frustration for the really perceivable lack of acceleration after the Harry & David acquisition on the top-line. And clearly your bottom line is fine, although we're maybe a little bit surprised there wasn't more flow through on the EBITDA side after the beat in Q4. So let's just take the top line first. I understand, Jim, you talked about sort of the underlying consumer trends. I know consumer floral is going to have another challenging year with the Valentine Sunday day placement. But consumer floral has been kind of flattish the last couple years. And with Harry & David and the integrated multi-branded platform which should be totally integrated with Harry & David by Q4. If I strip out the Q1 2016 contribution from Harry & David, I get to sort of an organic growth rate of 2.5% to 3% for the core business. And then depending on what your estimates are for Harry & David. So maybe Chris, if you want to chime in, just on the opportunities for revenue synergies here. I am assuming you guys aren't baking in anything on the top line for revenue synergies. Just like to hear your thoughts on just where do we start to see sort of that pickup towards what I think people are hoping for more of a 7%-plus percentage top-line growth rate, understanding that next year from consumer floral could be a bit challenged.

When you say people are looking for 5% to 7% growth rate organic growth rate that we’re projecting, that's on the existing business and the acquired business with Harry & David, right?

So I would say it this way. I would say that if you strip out Harry & David's first quarter, your core business including Harry & David for the back half of the year when you have fair comps is going to be up some 2.5%, 3%. So call that pro forma year-over-year growth because the first quarter of Harry & David I am assuming is some $35 million or so in revenue because of the pull forward last year when they had some sales. So I'm just trying to get a sense of where you guys see the acceleration for the total business and include Harry & David. And if you want to talk about core trends X Harry & David, that's fine. If there is GFGB strength that you can leverage with the multi-branded platform. But just how you get sort of total combined business to get towards the 7% -- more towards the 7% or even above the 7% once -- now that you've got sort of a national brand and getting that revenue to accelerate through synergies.

Well, I think there's a couple of things to factor in. Yes, let's look at just our floral consumer segment first. Floral consumer segment is separate from us, that is, the whole category hasn't been growing and the competitors have been contracting. We've been growing pro forma at that 2% to 3% range. We expect that to be the norm for us. And we do anticipate that in the Valentine period this year, it will be a retardation on sales this year because of the Sunday day placement. All of that is baked in, obviously. In terms of Harry & David, we do pick up the losses in the first quarter this year that we didn't have last year. We have declining sales in the retail division because we’re shedding stores that after we make an evaluation when leases come up. So you saw a little bit of an impact on that and you'll see that. In the core business, separate stores, we haven't baked in any growth synergies because they'll take more time to achieve. The primary efforts from the growth synergies will be in the direct marketing CRM capabilities, our enhanced search capabilities and in our multi-branded portal which we'll very deliberately get into testing throughout this holiday period. So you shouldn't expect a big bounce from that this holiday. So I would say this is the holiday season where we'll digest Harry & David, that we'll have our operating arms around it this year, whereas we did not last year, as you know. So our targeted efforts are continue to take the costs out and continue to identify the $15 million that we promised and more if we can. And then to step on the gas pedal from a growth side point of view when we have the opportunity to implement the cross-branded marketing opportunities, the direct marketing opportunities and the list database marketing opportunities.

All righty. I guess then for me just on the cost side. You guys had about $3 million upside for the year versus where consensus was. And you guys sort of matched our 2016 estimate on the EBITDA side. You know, has it taken you longer to achieve certain synergies or is there any -- you just mentioned it, but it doesn't sound like there's any real change to that $15 million. But I don't know if there's a timing issue in that? So just a little surprised there wasn't some more flow through on the bottom line. Not that it's been an issue and it's going to grow nicely year over year on a pro forma basis, but just your thoughts on achieving those cost synergies and where there might be some additional cost synergies, whether it's using Harry & David as a West Coast distribution center. Or just thoughts on that would be helpful.

Sure, Dan. Overall, we’re very, very happy where we’re on the integration process. We have -- I think we mentioned before, there's 18 different workstreams we have going across the company looking at it. We’re again stressing our confidence level in achieving that $15 million number that we told you we would achieved by year 3. As we move forward on identifying, implementing and then realizing all of those cost synergies, they flow in at different times throughout the next three years. Clearly we’re not running into any challenges with that. Our confidence level remains high and we’re focused on achieving those. And I'll just ask Bill to comment there. But then again, as I mentioned earlier, with that under our belt, so to say and our confidence level there, we're now beginning to turn our attention to the revenue synergies. As Jim mentioned and we talked before, revenue synergies do take longer to get. But we’re turning our attention to those now and we expect to start to come into our business over the coming two or three years.

Dan, some of the cost synergies that we’re already starting to realize and we've enacted already would be the ones kind of the blocking and tackling that you would expect, as we kind of looked at our shared services platform and kind of the back office areas of finance, HR, IT and rightsizing the businesses for that. You know, sourcing, vendor consolidation in certain areas. These are the things that are already well underway.

And the costs related to those have already been absorbed.

Exactly. On a longer-term basis, you're right. We're looking at things like Midwest and West Coast manufacturing and distribution are overall our small package outbound parcel costs and consolidation of those. You know, those type of contracts, looking at commodities and the combination of the buying power of the combined unit. Getting back to your first point, though, is you have seen flow through. You know, if you remember, our original guidance for this year was $90 million of EBITDA and $0.45 to $0.55 of EPS. And we ultimately achieved $95 million of EBITDA and $0.51 of EPS. So we've obviously beat our original and we're taking people up throughout the year as we were achieving better performance.

And I want to come back and just talk about as we look at the revenue side of things and we talk about the floral categories. Jim mentioned, we continue to grow in the floral category, but most importantly, we're pleased at how we're managing the growth in that floral category for the past four quarters, increasing our contribution margin and growing the contribution margin by approximately 8% for the year while in that challenged environment, especially with the day shifting of Valentine's Day. Our gourmet food category, we continue to grow nicely. And now we're very happy within the first year of owning Harry & David to take up our revenue guidance from where it's been in that 4% to 5% range to the 5% to 7% range.

So if we're not going to get specifics on the revenue synergy opportunity, can you maybe give us some color on the dummy tabs and some of the testings you've done already, since Harry & David and Wolferman's are on the multi-branded portal already, even though they are not back-end integrated?

Yes, so what we've done and consistent with how you've seen us do that in the past, we take these boutique tabs, right. And what we've done -- and really just implemented those in the past several weeks, both Harry & David and Wolferman's. So we've put those boutiques up on the multi-branded portal, where we're getting the traffic in from the other brands. It's a way for us to cautiously and slowly start to introduce our existing customer base to those new brands that are part of our family. That's gone well so far and we'll continue to develop that and continue to develop the capabilities. As we move into the quarter, we'll then start to test moving some of the Harry & David traffic and exposing those Harry & David/Wolferman's customers to the expanded family of brands. Again, if you go back to last year, you can count on the fact that you'll see us do that in a very predictable, very cautious fashion as we move into the holiday season. The last thing we want to do is disrupt any sort of customer flow or enact any sort of customer confusion. When we see the customers and what we've been seeing is a good steady increase in cross-brand shopping and cross-brand kind of exposure with our customer base. And to reiterate, when we see that cross-brand engagement, we see increases in retention, frequency and average spend, both within brand and across brands. And we continue to move forward on our steps towards that opportunity that's front of us.

As we said originally, Dan, on the integration of Harry & David, Wolferman's, Moose Munch onto the multi-branded portal, we said we'd only be in very light test mode for this holiday season, that you won't see the full integration until next year. But it's the original and the foremost of our premise and why the Harry & David acquisition would provide us with gross synergies. Everything we've seen to date affirms that. So we're very pleased with that, but we're not going to rush in headstrong because we think it's going to work. We'll test our way into that to make sure it works and works right.

Just two housekeeping questions then and I'll get off. Just, Bill, to kind of re-ask what Jeff asked first. Maybe can you give us what the GFGB decline was for revenue in the quarter, X Harry & David?

Yes, it was down about 1% or 2%.

The follow-up on that I'll ask is, if you put Q3 and Q4 together, what was GFGB?

GFGB for the full year without Harry & David was 8%.

Growth.

Or 8% top-line growth without Harry & David for the full year. And Q3 and Q4, if you combine those two, it would be in that kind of mid to upper middle single-digit growth.

Not meant as a negative, just trying to parse together the quarter on growth. Understand there was some pull-forward. And just on -- can you remind everybody, Bill, so that everybody has this right, what the fiscal first-quarter 2015 loss was for Harry & David, the way you have it, so people can understand where the synergies are coming from. And kind of what to expect in Q1 from the loss from H&D?

So their EBITDA loss in Q1 of last year which was not captured in our numbers, was just under $15 million, at $14.8 million. Additionally, though, they have about $3 million worth of depreciation expense that we now have to cover. And then we will have this year incremental interest expense because we obviously have the debt this year, where we didn't have any debt in the first quarter last year. So probably all in, about $19 million worth of pre-tax costs.

And our next question comes from Anthony Lebiedzinski of Sidoti & Company. Your line is now open.

So just wanted to follow up in regards to Harry & David. I think Jim said that part of the revenue outlook is because some stores will be closed. So can you give us as far as how many stores are you closing, what's the revenue from those stores. And I assume those stores were unprofitable, so what will be the EBITDA contribution as you have less of a drag from these stores?

Just to give you some context -- this is Jim, Bill will follow on. We have -- at this stage, we have 46 -- only 46 stores. We had 2 stores whose leases came up. The evaluation was that they didn't make sense to keep. We have a few different concepts, Anthony, in the retail store mix. Some look quite promising, some we have some questions on. We’re making some changes in them and we'll evaluate the retail stores in the context of we're an omnichannel retailer, we like retail and it plays an effective role for us that have a mishmash of different kinds of operations within retail. They didn't really have any management focus on it in the past, to their own admission. We do now. So as we operate through this holiday season, we'll be testing, we'll be looking at the different models seeing which makes sense which don't which should go and which should we put some more -- some energy behind. I don't anticipate there will be any other store closings. We have some leases come up early next year and then throughout the next two years, all of the leases come up. So we'll have to A, make decisions as to whether or not we keep them and B, in which style and which form. Right now, it's not profitable, the retail store division and -- but we think that it can be at a different size.

And as far as the multi-branded portal, can you just give us a sense as to what the benefits that you've seen so far and what are your expectations for the holiday quarter?

Yes, so again, Anthony, what we're seeing is a good, slow steady increase in cross-brand activity between our -- amongst our customers that are coming to the portal and being exposed to the different brands. And again, now with the addition of Wolferman's and Harry & David. And again, keep in mind, this is within weeks that we just introduced those boutiques in front of our existing customer base. So new activity and what we continue to see is a good steady increase in cross-brand activity. In addition to that, what we’re now beginning to do and we've just begun really this summer, but it will pick up in the fall -- is really utilize some of the cross-brand marketing programs of the Celebrations relaunch program, the reminder program and our Celebrations Passport program, introducing those to the expanded customer base. It's really within this past quarter, this current quarter, that we've introduced and started selling Passport and exposing Passport to customers of Cheryl's, The Popcorn Factory, Fannie May, etc. And what we see very early is similar behavior characteristics of when they joined those programs, when it was just really Flowers only. So as we move into the holiday season, we'll continue to do that. We'll continue to drive that exposure, continue to drive the recognition amongst our customers that we have all of these great brands, this echo system of brands, to solve their gifting needs. And thus increase our share of wallet with them as they recognize that we have these brands for more occasions and more recipients in their life. Regard specifically to Harry & David/Wolferman's, we'll have these boutique tabs up. And as I mentioned, as we move a little bit further now into the next quarter, we'll start to experiment by exposing some traffic. What we see and the risk factor will determine how far we go there. But as Jim mentioned, we’re always -- as you have seen and I think respective of that in the past -- we'll always do so in a very predictable, cautious fashion.

And also as far as the AOV increase that you talked about, is that mostly because of Harry & David? And also what is your outlook for AOV for fiscal 2016?

Yes, Anthony, it's all related to the Harry & David. So it's really all just with regard to mix. Right now without Harry & David, kind of the core brands were relatively flat. We go into the year expecting AOV to be flat.

[Operator Instructions]. And our next question comes from Juan Bejarano of Noble Financial. Your line is now open.

Just want to get your thoughts around the competitive landscape in the gourmet food and gift baskets business now that you added Harry & David. And also maybe you can talk about the competitive landscape on the floral side as well and the potential floral startups. Have you seen any evidence of these startups taking share at all? Or is it mostly hype?

There is a couple of different questions in there. I'll start with the floral landscape. Our floral landscape has always been a very competitive landscape and one of the things that has troubled us has been the very competitive and promotional nature of the competition in the last few years. We indicated last quarter and I'll say it again this quarter, there seems to be a better breadth of rationality in the marketplace. We think that's a good thing, it's good for us, it's good for our competitors and it is especially good for our customers. But most importantly, it's good for the category when it's not positioned as a discounted commodity category with our value-add. We tend to focus on the truly unique and original products that we have. Our customers have clearly voted that that's the kind of merchandising that they want to see that helps them to satisfy their gifting needs. So we see a rationale developing -- a more rational approach developing in the competitive landscape in the floral category. As concerns startups, we've been at this for a long time. We see lots of startups every year, year in and year out. They're spending a little bit more money on public relations in this environment because it's about attracting capital and that's good and interesting. And we watch them all. Some of them are taking features that we've had for years and making it the cornerstone of their business. We do not see any evidence of market share loss to any of these companies. Frankly, if you put them all together, everyone that we follow and know of, it's just not a lot of revenue. So it's not going to impact us. But it does give us thought to say is there anything that we’re not doing that we could do in a different kind of way to appeal to customers. And so, we'll continue to experiment. We'll continue to adjust our product offering, our service mix, etc., to make sure that we’re always on our toes and engage with our customers as we do in a social environment to make sure we get their input so that we know which of those features are very important. I'll point out one for example that seems to be gaining more and more traction. We have a community artisan program now for the last couple of few years which allows our participating florists to merchandise their own site for their own community. So if they have a terrific designer, let's say her name is Linda. And Linda went to market this morning and found some great local product available and designed this beautiful arrangement, Linda can merchandise that on the 1-800-FLOWERS site in front of all of that traffic on behalf of her shop and exclusively available in her community. We've been doing that, as I say, for the last couple of few years now. A couple of those startups are making that the only differentiated that they have as they introduce new product. We're flattered that they think that our program is a good one and that they would want to mimic it. And it's having good effects for us, too. Whether or not it's causing the startup community to have any traction isn't clear to us, but it is clear to us that our florists love it and they are embracing it more and more. So that's an example of one thing that we innovated a couple years ago that others are starting to copy now.

And Juan, I would add is we take kind of that similar approach when you look at the gourmet food category. As we stated, what we're doing there is what we've done in the floral category. We've looked at the floral category that we've been it throughout the years and have built a market leadership position by focusing on brand, value, brand integrity, brand relevance and providing a good gifting equation to our customers. We're doing the same thing in the gourmet food category, where we clearly have become a leader there. And we continue to look at all the competition to see what we need to do in that category. From an overall point of view, however, when you look at the competitive landscape, we think we’re in a much enhanced position with our celebratory ecosystem of all-star brands that solve all of our customers' gifting solutions as opposed to just about all of our customers who really are single threaded in the options they provide to their customers.

And then regarding BloomNet, you mentioned your prepared remarks that a new florist transaction program. Can you expand on that little bit, please?

Sure. One of the things that we do is to encourage our florists. When a florist has in order in their local community that originates in their community and it's going to another community that they can't fulfill it, they have options as to how they transact and transmit that order. There are three major wire services. BloomNet is one of them. And so we put in a program to encourage them to send their orders from one shop to another shop through the BloomNet network. And it seems to be having a very positive impact.

And then just finally in regards to acquisitions. I know you will likely continue to make acquisitions, but do you have anything lined up or how does the pipeline look?

I think you see that -- Chris used the word earlier when describing what we're doing in the multi-branded portal, is we’re deliberate. There are some things that tickle our interest in terms of how we can flesh out our product offerings and our service offerings to our customers. We monitor the marketplace all the time. We have -- we’re very excited that we now have our arms around Harry & David. And you can see and hear that it will take us some time to digest that. But it still gives us bandwidth and it still gives us bandwidth from a managerial point of view and from a capital point of view to do others. So we're always active in the marketplace, looking to see if there are other things that will help us to broaden our offering for our customer base, to deepen our relationships with our customers. And we have the resources to do it. So nothing I could tell you that we’re about to do now. I'll save that for another opportunity, should that occur to announce it separately. But in general, that's how we pursue the marketplace. We're generating good free cash flow. That's accelerating. We’re projecting a 10% increase on our free cash flow generation on a pro forma basis this year. That gives us more flexibility. Our credit facilities, banking relationships in general are in very good position. Our debt ratio is very good and getting better every quarter. So we have the capacity and yes, we’re interested and active in the marketplace, but I couldn't predict when or if we'll have something to announce in that regard.

And our next question comes from Dan Kurnos of The Benchmark Company. Your line is now open.

Just a quick follow-up, maybe on what you talked on BloomNet. Was that, Jim, that opportunity to circumvent the other wire services, was that what drove the upside in EBITDA in the quarter? And was that also a contributor to top line gaining traction through the wire service?

I would say primarily that was the primary contributed to both the top and bottom line growth, but not only.

Were there any other one-offs in the quarter?

Not one offs, just a traction across our sales programs in general.

And our next question comes from Jeff Stein of Northcoast Research. Your line is now open.

Thank you. Not to dwell on the BloomNet upside, but it produced a 460 basis point improvement in gross margin in that division. I know it's a small division from a revenue standpoint, but if you were to continue to see that kind of improvement, could have a fairly nice impact on your gross margin for the upcoming year. So can you amplify in terms of how exactly that program works? How do you actually encourage your member florists to direct orders through the BloomNet system? How does it actually work? And should we expect to see that material gross margin improvement flow through as we look ahead?

Jeff, I think an answer to the last question first. We’re confident that we'll improve gross margin in that area, as that program was only introduced recently. So yes, we think that our gross margin improvement will continue. We think it will have a lasting effect. We have other programs that won't have that same gross margin opportunity. You've seen in the quarters and years gone in BloomNet that the growth will be lumpy terms of sales growth without a lot of margin. This is one that has good margin opportunity. I think we’re confident that that will have a very positive effect continuing through this year, those programs and those sales efforts. But for competitive reasons, I'm not going to get into the particulars on how the program works, but for obvious reasons. But we have confidence that our gross margin will continue to improve and we have other programs in the queue that we think will have good benefit on top- and bottom-line results as well.

Can you talk about FruitBouquets and how that business performed in the fourth quarter? And your expectations for fiscal 2016?

Chris, you want to handle it?

Yes, FruitBouquets I think is a really good example of how we identify a product category that our customers are looking for. And we figure out how to go and position us in front of that product category. So whether it be FruitBouquets or 1-800-Baskets is both good examples of that. FruitBouquets, we continue to make good solid progress. We're continuing to grow our revenues there. And I think again FruitBouquets, 1-800-Baskets, when we identify category like that, position in front of our customers, you see them both contribute to our overall growth.

I think to the point on the contribution there that Chris mentioned, Jeff, I think the reason why we’re able to organically grow our flower business, that normalized pro forma of 2% to 3% or more, is because we introduce new products like that in the category and the FruitBouquet product would be counted in the floral sales. So while others are not growing their business and their overall category doesn't seem to be growing, we’re growing on f the biggest base in the industry because of introductions of things like FruitBouquets.

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

Well, I thank you for your time and attention today. We're pleased that we were able to deliver solid an organic growth rate and forecasting to do that again. We’re seeing good acquisition, good contributions from our primary acquisition this year which was Harry & David. We overcame some big challenges with the fire this year. And as we said, that piece of our gourmet food and gift basket business, the Fannie May transactions brand, is back. It's stronger than ever. The aforementioned FruitBouquets and other programs like that, our new products are doing well and expanding our portfolio. And we have an improving environment, it seems, in terms of consumer confidence, in terms of the craziness in the general world markets is one thing. But at the level that we work at terms of primarily U.S., primarily consumer-focused, we’re pleased with the environment and expect it will give us a good opportunity to deliver against our guidance that we have for this year and hopefully better. So we're pleased with the quarter and pleased with the opportunity in front of us. And we're happy that you dialed in today and look forward to any other questions and comments you may have.

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