1-800-FLOWERS.COM, Inc. (FLWS) Q4 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the 1-800-FLOWERS.COM Incorporated Fiscal Year 2017 Fourth Quarter Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joseph Pititto, Senior Vice President Investor Relations. Please go ahead.

Thank you, Gary. Good morning and thank you all for joining us today to discuss 1-800 FLOWERS.COM Inc.'s financial results for our fiscal 2017 fourth quarter and full year. For those of you who have not yet 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. 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, Chairman; Chris McCann, CEO; and Bill Shea, CFO. Before we begin, I need to remind everyone that certain 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 can be found in the definition section of Company’s press release issued this morning. Also where applicable, reconciliations of certain non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the tables accompanying this morning's press release. The Company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recording 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 We are pleased to report our results for the fourth quarter and full year of fiscal 2017. Before we dive into the details, I'd like to take a moment to reflect more broadly on fiscal year which just ended. Last year at this time when I commented on our results for fiscal 2016, I noted that our management team led by Chris and Bill along with our segment presidents and brand leaders had successfully managed through year both anticipated and unanticipated headwinds to deliver strong financial and operating results. Most important they successfully laid the groundwork for enhanced top and bottom line performance in fiscal 2017. Now a year later, I'm pleased to report the team did indeed deliver enhanced top and bottom-line results for the year. In terms of revenue, our comparable growth rate of more than 3% while below our original target represents an acceleration compared with the past few years something we expect to build on going forward. In terms of our bottom-line, we continue to grow EBITDA, EPS and free cash flow. In addition, we further strengthened our balance sheet adding more than $100 million in cash from the sale of Fannie May business. As a result, we finished the fiscal year solidly net cash positive. The strength of our balance sheet and are growing cash flows provides us with significant flexibility to invest and enhance our growth both organically, as well as through potential acquisitions. As I step back and view the business we are building I'm both pleased with our progress although we always looking to go faster and excited by the opportunities that I see ahead. On the product front, we continue to expand our offerings along what we call the gifting continuum. Our entry-level gifts such as our Wolferman’s breakfast treats, to unique inexpensive greetings such as our personalized message in the bottle and photo enhanced, Cheryl's Cookie Cards, to luxury items such as Stock Yards Prime Steaks and 4-foot tall premium roses. And you will see us expand our offering further in the months ahead as we unveil an exciting new chocolate marketplace and add the Personalization Universe brand to our multi-brand website. We have continued to invest in key areas to provide us with leverage to accelerate our growth including our operating capability such as manufacturing, distribution and product development, and our technology platforms including our robust website and our industry-leading mobile sites. We've also continue to build our reputation as an innovator and early adopter of new technologies that can enhance our customer engagement. This was illustrated by our initiatives in conversational commerce including our industry first applications of Facebook Messenger platform, our voice-enabled skill on Amazon's Alexa platform, and our own AI-powered gift concierge GWYN, which leverages IBM's Watson platform to help us engage customers in a natural language conversation to help guide them to the perfect gift across all of our brands. As always these initiatives are designed to make it easier for our customers to act on their thoughtfulness and help them connect and express themselves with the important people in their lives. As I noted in past calls, we have focused on executing our business plans by leveraging the unique set of assets that we have assembled. They include our all-star collection of brands, our large and growing customer base, our operating platform that we call BOLT or business operations logistic and technology, and are very strong balance sheet. Through the combination of these assets and our deepening customer relationships, we are well positioned to deliver strong top and bottom-line growth in the current fiscal year and we are excited about the opportunities which lay ahead. With that, I'll turn the call over to Chris to summarize our results and to discuss our outlook for fiscal 2018. Chris?

Thank you, Jim. During the fiscal fourth quarter, we achieved solid revenue growth across all three of our business segments. In our floral businesses, we continue to extend 1-800-FLOWERS brand's market leadership position growing approximately 3% on a comparable basis. BloomNet also continued its recent trend of revenue growth up nearly 2% for the quarter. Revenue growth in these segments was driven by strong everyday gifting demand combined with solid growth for the Mother's Day holiday period. For the 1-800-FLOWERS brand, revenue growth for Mother's Day was consistent with that of the overall quarter at approximately 3%. With that said, we had planned for and we spent against higher growth for the holiday period. The increased investments we made in marketing and customer service combined was somewhat softer than anticipated consumer demand resulted in lower year-over-year contribution margin for the quarter. We are confident that this decline and the first we've had in this segment in three years was an anomaly and that the investments we have made in marketing will provide benefits to 1-800-FLOWERS brand equity and further enhance its market leadership position going forward. In terms of our increased investments in customer service, we're already seeing the benefits in the form of historically high customer satisfaction metrics. This helps us deepen the relationships we have with our customers and increases their frequency and retention rates. For the full fiscal year, our consumer floral achieved 5.7% comparable revenue growth and increased contribution margin 2.1% to nearly $52 million. This represents a strong contribution margin of 12% for this segment. We did this by focusing on the key attributes of the 1-800-FLOWERS brand. Our truly original gifts that help our customers express themselves perfectly, a caring team that is obsessed with service, and a customer experience that is always being enhanced to make it easy to deliver smiles. We are pleased that we have extended the 1-800-FLOWERS brand's market leadership during fiscal 2017. We are confident that we can build on this while achieving both top and bottom-line growth in this segment in fiscal 2018. In BloomNet, fourth quarter revenues benefited from increased product sales in both as traditional florist channel, and new channels such as garden centers and nurseries. In addition, we saw positive results in directory ad sales and early acceptance of our new digital marketing services. For the full fiscal year, BloomNet increased its topline by 2.6% and grew its already strong contribution margin by 5.7% to $32.4 million. During the year, BloomNet laid the groundwork for further top and bottom-line growth. We opened the West Coast distribution center which is held on Harry & David campus where we leverage the available space and capabilities of the very talented team we have in Medford Oregon. We finalized plans to open a new showroom at the Las Vegas [indiscernible] which will give us added exposure to West Coast customers and we continue to innovate BloomNet's product offering adding a new Bayberry Road line of jewelry and accessories, the unique product line that helps our customers expand their offerings and grow their businesses. We believe these initiatives will enable BloomNet to build on the positive trends we are seeing in its business during fiscal '18. In our Gourmet Foods and Gift Baskets segments, revenue for the quarter grew 3.4% on a comparable basis. The growth in this segment reflected increasing sales for everyday gifting occasions. In our Cheryl's Cookies, the Popcorn Factory and 1-800-Baskets Brands, we saw strong growth for birthday, thank you, new baby, and sympathy occasions. This is being driven by an increased focus across all of our Gourmet Food brands, on innovative new products designed specifically to help our customers send smiles for every day celebrations, such as our celebrations boxes from the Cheryl's Cookies brand if this is birthday party in a box. It includes cookies, treats, a mini cake with candles all wrapped up with customizable message ribbons. While the Popcorn Factory's baby blocks tower our three-tiered collection of colorful alphabet boxes filled with popcorn and all sorts of wonderful treats. While from 1-800-FLOWERS baskets our caring thoughts, sweet and savory foods and nuts treat. Everyday occasions were also at the drive of strong growth in consumer demand for Harry & David particularly for sympathy and birthday occasions with shareable food gift items such as their signature Royal Verano Pears sympathy box, Wolferman's birthday breakfast banquet box, and Moose Munch's multi-flavor thank you themes. As we have told you in the past, increasing customers awareness of our everyday gifting offerings is a key focus of our gourmet food gift brands and we are pleased with the progress we're making in this area. For the full year, comparable growth in our gourmet food gift segment was 1.6% while this was below our original expectations for the year it primarily reflects the underperformance of Harry & David during the calendar year-end holiday season which we discussed with you back in our January call. Since that time, I am pleased to report we have seen Harry & David's consumer demand and customer file growing at a healthy rate reflecting the benefit to some of the changes we told you we were implementing after the holiday season. This include the consolidation of digital marketing responsibilities for Harry & David under our enterprise digital marketing team, an increase in digital advertising programs and display, video, affiliates, social and mobile, increased use of new software tools in our consolidated customer database to enhance targeting and to streamline catalog circulation. A numerous enhancements to our multi-brand website specifically to improve navigation for Harry & David's gift list functionality, a favorite customer feature that they are now ever increasingly using online. Harry & David also continued to enhance its product offering with the successful rebranding of its Moose Munch line. We've added hip new iconography to appeal to a younger customer demographic, and we're adding new snack size packaging to take advantage of the growth in the sales of premium popcorn treats. As a result, you should be seeing more and more Moose Munch products showing up on the shelves of convenience stores and other local retailers throughout the country. In terms of Fannie May, as previously announced we closed our sale of this business to Ferrero International at the end of May knitting more than 100 million in cash. The dealer Ferrero also includes a strategic commercial partnership that provides us access to Fannie May and Harry London products, as well as Ferrero's world-renowned chocolate confectionery brands. These brands will be part of a broad product offering and the exciting new chocolate marketplace that Jim alluded to in his earlier remarks. We plan to launch this marketplace during the upcoming holiday season and we’re confident that it will help us expand our position as a leader in the multibillion dollar gourmet food gift industry. So looking ahead, we're focused on building on the positive trends we are seeing in that business, we have initiatives underway to enhance performance across all three of our business segments, and we have a very experienced and proven management team combined with our talented and hard-working associates across the company who are focused on executing our plan to drive solid top and bottom-line growth in fiscal 2018. I'd like to just take a moment to thank every member of our team for their commitment to constantly improving our customers experience and helping them to deliver smiles to the important people in their life's. I'll now turn the call over to Bill to cover the metrics for the quarter and the year in more detail. Bill?

Thank you, Chris. As we indicated in this morning's press release, we had several timing issues that impacted results throughout the quarter and the year. First, the Easter holiday moved into the fourth quarter during fiscal 2017 compared with the prior year when it fell in the third quarter. This provided a benefit to our results for quarter particularly on our Gourmet Foods and Gift Baskets segment. Second, the sale of Fannie May which closed at the end of May resulting in a after-tax gain of $15.4 million or $0.23 a share. Based on the timing of this transaction we recorded only two months and 11 months of Fannie May results for the fourth quarter and full-year respectively. Third the company's fiscal fourth quarter and full-year results include the normal 13-week and 52-week time period respectively compared with fiscal 2016 which included 14 weeks and 53 weeks respectively due to our retail calendar. Also impacting results for the fourth quarter and full year was the timing of the Harry & David Fruit-Of-The-Month Club cherry shipments which moved to the first quarter of 2018 due to a late harvest. As such we had one fewer Fruit-Of-The-Month Club shipments in the fourth quarter than was originally expected and only 11 shipments in fiscal 2017 compared with the usual 12 shipments. As we noted in our press release this morning we computed our comparable revenue growth for the quarter and the year by adjusting the prior periods to account for the aforementioned timing issues. This resulted in comparable revenue growth of 2.9% for the fiscal 2017 fourth quarter and 3.1% for the full fiscal year. Additionally our adjusted EPS for the quarter and the full year reflected the removal of the gain on the sale of Fannie May. We believe providing comparable revenue and adjusted EPS for the fiscal fourth quarter and full-year presents a better measurement of our performance. Now breaking down our fourth quarter and full-year results, total consolidated revenues for the quarter grew 2.2% to $239.5 million compared with $234.4 million in the prior period. On a comparable basis growth for the quarter was 2.9%. Total consolidated revenue for the year was $1.9 billion compared with $1.17 billion in the prior year looking growth of 1.8%. On a comparable basis growth for the year was 3.1%. Gross margin for the quarter declined 190 basis points to 41% compared with 42.9% in the prior year period. This primarily reflected a combination of product mix the impact of the promotional environment at Mother's Day and increased shipping expenses. Gross margin for the year was 43.6% down 50 basis points compared with 44.1% in the prior year period. We anticipate consolidated gross profit margin will be up in fiscal 2018 based upon initiatives we are implementing in manufacturing and supply chain, as well as reducing expenses associated with promotional programs and shipping. Operating expenses for the quarter improved 400 basis points to 45.6% of total revenues compared with 49.6% in the prior year period. For the year operating expenses improved 70 basis points to 39.7% compared with 40.4% in the prior year. The improvement in operating expenses reflects our focus on leveraging our business platform to enable us to offset the normal cost increases we incur each year in areas such as raw materials labor and health insurance. Additionally, the prior year included several nonrecurring charges. The combination of these factors resulted in EBITDA loss for the quarter excluding stock-based compensation of $2.2 million compared with a loss of $6 million in the prior year period. Adjusted EBITDA excluding stock-based compensation for the quarter with a loss of $1.7 million compared with the loss of $2.9 million in the prior year period. The year-over-year improvement in EBITDA and adjusted EBITDA reflect the aforementioned benefit of the Easter shift offset in part for the timing of the close of the Fannie May sale and the Harry & David Fruit of the Month Club cherry shipment. EBITDA excluding stock-based compensation for the full year was $85.4 million compared with $82 million in the prior year and adjusted EBITDA excluding stock-based compensation was $87.2 million and was $85.7 million in the prior year. Net income attributable to the company for the quarter was $8 million or $0.12 per share compared with a net loss of $11.1 million or loss $0.17 per share in the prior year period. Adjusted net loss for the quarter excluding the gain on the sale of Fannie May was $7.2 million or loss of $0.11 per share compared with an adjusted net loss of $9 million or loss of $0.14 per share in the prior year period. Net income for the full fiscal year was $44 million $0.65 per share compared $36.9 million or $0.55 per share in the prior-year and adjusted net income for the year was $29.2 million $0.43 per share compared with $28.5 million or $0.43 per share in the prior-year. It is worth noting that our results for the quarter and the year include only 11 months of Fannie May contributions and 11 Harry & David Fruit of the Month Club shipment. In terms of category results Gourmet Food and Gift Baskets segment fourth quarter revenues increased 3.9% to $78.4 million compared with $75.4 million in the prior year period. On a comparable basis revenues for the period increased 3.4%. For the year revenues in this segment were essentially flat year-over-year at $670.7 million and on a comparable basis revenues for the year increased 1.6%. Gross profit margin for the quarter was 37.6% compared with 39.9% in the prior year period reflecting product mix and increased shipping costs. Gross profit margin for the year was 43.6% compared with 44.4% in the prior year period. We expect both profit margin in this segment to increase in fiscal 2018 based on initiatives we have underway in our manufacturing warehouse and distribution operations adjusted contribution margin for the quarter improved 23.9% to a loss of $7 million compared with a loss of $9.2 million in the prior year period. An adjusted contribution margin for the year was $78.1 million compared with $79.4 million in the prior-year. Once again the contribution margin for the quarter and full year were impacted by the timing of the Fannie May sale and the Fruit of the Month Club cherry shipments. In Consumer Floral fourth quarter revenues grew 1.4% to $139.4 million compared with $137.5 million in the prior year period. On a comparable basis revenues grew 2.9% for the quarter. Full-year revenues increased 4.5% to $437.1 million compared with $418.5 million in the prior year period. On a comparable basis revenues grew 5.7% for the year. Gross profit margin was 40.2% for the quarter and 40.6% for the full year compared with 41.9% and 40.8% in a respective prior year periods. Gross profit margin in the quarter was impacted by the promotional nature of the Mother's Day holiday combined with higher shipping expenses. We are confident that we can mitigate these factors going forward and maintain a strong gross profit margin in this segment in fiscal 2018. Contribution margin was $14.7 million for the quarter and $51.9 million for the year compared with $17.7 million and $50.8 million in a respective prior year periods. Fiscal fourth quarter results in this segment reflect a shift of Easter holiday into the period offset by a 13-week quarter versus a 14-week quarter in the prior year period. Full-year results reflect a 52-week year in fiscal 2017 versus a 53-week year 2016. In our BloomNet business fourth quarter revenues increased 1.8% to $22.1 million compared with $21.7 million in the prior year period. Full-year revenues increased 2.6% to $87.7 million compared with $85.5 million in the prior year period. Gross profit margin was 56.6% for the quarter and 56.5% for the full-year compared with 58.9% and 56.3% in the respective prior year periods. And contribution margin was $8.7 million in the fourth quarter and $32.4 million for the full-year compared with $8.6 million and $30.6 million in the respective prior year period. In terms of corporate expense, our category contribution margin results exclude cost associated with the company's enterprise shared services platform which includes among the other services 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, including stock-based compensation was $19.2 million compared with $24.6 million in the prior year period. And for the full year corporate expense including stock-based compensation was $81.8 million compared with $85.1 million in the prior-year. The decrease in corporate expense for the quarter and full-year plus a combination of factors including one few week of operations in both period compared with the prior year our ability to leverage our business platform to reduce costs and several non-recurring charges in the prior year period. Turning to our balance sheet, at the end of the year our cash and investment position was $149.7 million compared with $27.8 million at the end of the prior year. Our term debt balance net of deferred financing costs was $108.6 million and we had zero borrowings outstanding under our working capital line within our revolving credit facility. Importantly our net cash position at the end of fiscal year was $41.1 million compared with a net debt position of $84.3 million at the end of the prior year. This represents a year-over-year improvement of $125.4 million or nearly $2 per share in cash. Inventory of $75.9 million is down from $103.3 million at the end of the prior year. The strengthening of our balance sheet reflects our free cash flow from operations as well as the sale of Fannie May. Regarding guidance, for fiscal 2018 the company is providing guidance for revenue and bottom-line results as follows; consolidated revenue in a range of $1.14 billion to $1.16 billion. EBITDA in the range of $90 million to $93 million, EPS in the range of $0.46 to $0.48 this includes an anticipated normalized effective tax rate of 35% and free cash flow for the year in the range of $30 million to $40 million. Our guidance for top and bottom-line results reflects the sale of Fannie May in fiscal 2017. I’ll now turn the call back to Chris.

So to sum up, we're well-positioned to drive top and bottom-line growth across all three of our business segments in fiscal 2018. We have momentum in our Consumer Floral business with a 1-800-Flowers.com brand continues to extend its market leading position. We have momentum in our BloomNet business where our unique offerings of innovative products and services and unsurpassed quality continues to separate BloomNet from the legacy wire services and we have positive trends in our gourmet food and gift basket business including growing customer demand for Harry & David, increasing traction in everyday gifting across all of the brands. And solid growth in our gift baskets business in both direct-to-consumer and our wholesale channel and a very important asset that we manage is our customer file. Here we are also seeing positive trends we are growing the active customer file across the company and we are increasing the lifetime value metrics within the file including their purchase frequency, retention and average spend. We’re doing this by being laser focused on constantly enhancing our customers experience by introducing them to our brands all of our all-star family of brands, by providing them with value added loyalty programs including celebrations rewards, reminders and of course our passport program. And by always investing an innovating in how and where we engage with our customer. So we are excited about the year ahead of us, we have a solid plan in place to drive top and bottom-line growth across the company and to build shareholder value. With that let me turn the call over to Gary so that we may take any questions you may have. Gary?

[Operator Instructions] The first question comes from Jeff Stein with Northcoast Research. Please go ahead.

First of all with respect to consumer floral, why do you believe that your performance during the quarter was an anomaly. I mean if you look at your competitors’ performance it was absolutely abysmal. And clearly you're taking market share from them but is the market for floral slowing because I mean your competitors’ results were down about 12% revenue and this would suggest between the two of you there may be a contraction going on. So can you address that and then I have a couple of follow-ups?

So look at the market Jeff we don't see any real change in the consumer floral market. What we see is a good stable market that has been growing around 1% and that’s been consistent now for the past several years. I think if you look at our results, I mean if you look at consumer floral for the year we grew about 6% to the year. So as a category leader we’re growing about six times that of the industry average. So we think that puts us in a very strong position. And then if you just step back and look at the quarter and where we spent our dollars, we spent our dollars into marketing and customer service. And when you look at where we spent them in marketing, where we spent them in customer service the results that we got growing 3% and then also there is a highest customer satisfaction metrics we've ever had all give us strong confidence that we’ll be able to continue this trend of top and bottom-line growth into fiscal 2018.

But where did you fall short, where did you miss I guess because it was disappointing as you indicated in your prepared remarks?

Jeff let me first break it down a little bit first kind of the gross margin, so gross margin was down 170 basis points during the quarter. We mentioned there is some impact of product mix, shipping expenses and it was a promotional environment and we are competing against some competitors that are very promotional, but let me dig into that a little bit. We mentioned we invested incremental marketing dollars to drive market share and to drive growth. This was based on success we had at Mother's Day a year ago. We had a phenomenal Mother's Day a year ago and the success we had at Valentine's Day this past year where we grew 16% at Valentine's Day. We had the tailwind of the day placement but the 16% number was wild number. And we still grew 3% but we expected more. As a result of expecting more we invested in some inventory to support the higher growth. When demand came in a little lower than that, we had to adjust our pricing and price our products appropriately and took a little bit less margin on those sales. The good news is that as we sold through all that inventory and we have no hangover of that. And then one final point that I just touched on, Mother's Day - the fourth quarter for the consumer floral that we’re comping against was a phenomenal quarter. You see the 41.9% gross margins a year ago. Remember talking with this group over the years that we're looking to achieve - get the consumer floral margins up to the 40% and we’re consistently delivering over 40% gross margins in this category now. Even this quarter we're at 40.2% for the year we’re at 40.6% but we’re comping against a 41.9% historically high never achieved that before, haven’t achieved it since. I think we’re very confident that going forward we can grow our overall gross margins and deliver consistent margins above 40%.

Chris on the types of advertising in the category?

As we look - we look at the year category and we see what different types of advertising is coming into the categories from the competitive set. We look at two types of advertising – as the type of advertising that draws people's attention to your products, to your brands, to the reasons to give, ultimately attracts new customers to you and the category. That’s the type of advertising that we welcome. And as a category leader, we will always get our fair share of the benefit of that type of advertising. But then you have other advertising that is just highly promotional discount, discount, discount advertising that we think is - it can be detrimental to the industry and is certainly detrimental to the brands that do that.

Couple of follow-up questions. Can you address the issue of organic growth expectations and maybe help us a little bit understand how Fannie May impacted each of the quarters in fiscal 2017 and how we should be looking at things kind of on an apples-to-apples comparison by quarter?

It’s just the way we gave you the guidance and we gave a revenue range we thought that was the best way to present it. We’re nearly $1.2 billion this year, a $1.194 but that included Fannie May for 11 months. Fannie May was about $85 million or $86 million so we had to kind of back out that amount and then project what our growth rate was and we have about 3% to 5% in our guidance built in for next year that gets us to that $1.140 billion to $1.160. Fannie May also generated $7 million of EBITDA for the 11 months so that had to be back out of the $87 million we reported this year. And then we build all that to get to the $90 million to $93 million. When you breakdown Fannie May by quarter, it is a seasonal business like many of our food businesses. So we do about 15% of its revenue in Q1 almost 50% of its revenue in Q2, 20% in Q3 and then probably about 15% in Q4 normally it does in Q4 more than that but we only had it for two months so it’s about 15% this past year that the seasonality of it. From an EBITDA perspective, it makes all of it money and then some in Q2. So it loses a fair amount of money in Q1 makes money in Q2, it loses a little bit money in Q3 and about breakeven in Q4. And Jeff or Joe and I’ll will work with you on the models.

Just in general, do you believe you're getting the benefits from the portal, because when you look at all of the growth initiatives that you just discussed in your prepared remarks and then you consider the fact that this is kind of year three going into the portal and you really should be starting to see some traction from cross-marketing and so forth. Is 3% to 5% really a - I mean is it indicative of the benefits you're getting from the portal or are you just not seeing it?

So Jeff I think there is a couple of things there, first when you state the portal I think you really mean the full multi-brand customer strategy and the portal was one aspect of it, but let me start there and fuel back a little bit. We continue to see a good amount of cross brand exploration, cross brand awareness coming out of people, coming to one shop and jumping over and looking to the other. It’s a loan percentage number but that just continues on a steady basis. Then we start to layer in our cross brand merchandising capabilities and marketing capabilities and we start to move that awareness and brand interaction further. Then we layer in with the loyalty programs the reward programs, the reminder programs, the passport program et cetera to continue to drive that. So I think that the results that we’re seeing here while still early is what has helped us contribute to the acceleration of growth that we have had going from where we were a year or so ago to now 3% growth range, so all things contributing. I think we're also seeing – and reflected in why I referenced in my remarks what we’re seeing in the customer file. We’re seeing growth in the customer file an overall and we’re seeing growth in the retention lifetime value metrics of the customer file. And part of that is the benefit of still a small percentage of that file having the great lifetime value metrics that we've attributed in the past to rather be the passport customers while the multibrand customers. So we’re seeing the benefits of it, it's moving in the right direction. We’ve always said this is not a rocket ship it's more of an evolution as we move forward, but I think we’re seeing the benefits of that. I look at passport, we continue to get good robust sign-ups into our passport program. The customers in passport continue to really show the same type of behavior metrics that we've been seeing for a while in their frequency increased spend increased retention rates all of that still holding up. The challenge for us is always, okay, how do we grow it faster? One of the programs that we were really excited about was in July now there's another company out there that has created a new e-commerce holiday call prime day. And I was thrilled to see our team really rally up coordinate across our brands and work together in a coordinated go-to-market strategy to promote Passport Day piggybacking on the tailwind of prime day. In fact I was thrilled that Internet retailer and NerdWallet both reported on us as being one of the few companies to jump on early on this new holiday in the middle of July which all retailers welcome. And we had really good results. We saw enrollments to passport up over 300% that week, conversion rate of our passport offering up over 250% to 300% range. Revenue from our passport customer is up about 150% that week. So with things like that that give us the opportunity - it was kind of a test to show us there are other types of campaigns that we can and will run throughout the year to try and accelerate our growth in passport.

The next question comes from Dan Kurnos with The Benchmark Company. Please go ahead.

Just a quick follow-up in consumer floral yes it clear you’re taking share I just want to be clear on your comments though as it relates to margins. And I know Joe and I we’re talking a little bit about this earlier, but just want to make sure that the spending ramp at FTD is not going to permanently or you don't think will permanently depress margins in the consumer floral space because obviously they have a desperate need to return to growth and they have a got a lot of back end investment to make. And I'm wondering if you guys are going to have to defend your market share gains or if you think spending will kind of normalize over time given that they clearly got no return on their investment spend this past holiday period?

When we look at competitors spend and I think they’re from time-to-time there is always somebody kind of jumping into the fray looking to try and buy market share. And we have to be cognizant of that understand the impact it have in the marketplace. But when we look at that I think if you look historically as we performed in the face of higher spend in the past and still always growing in that 3%, 4% range even in the face of higher spend. The reasons why is because we continue to manage our business by focusing on our strengths, our brand, out obsession with the customer experience, our truly original product that we’re constantly bringing to the forefront and introducing to our customers. Our innovation, innovation and product, innovation in how we engage with our customers, and most importantly is our team Dan we have a very experienced team in all areas of the company. One of those areas is marketing and in marketing when we are faced with an increased competitive spend, I’m very happy that our marketing team is always experimenting, testing new things, always on the forefront of engaging and testing new technologies in marketing but always with a very disciplined and data-driven approach. And that's how we plan on competing in an increased competitive market with the similar results that we produced in the past.

This is Jim, Dan I would point out - underscore a couple of points that Chris made now an earlier that as if you look at our spent in the quarter the two areas that Bill talk about that we increased our spent on marketing and in customer service. At those peak holiday period times we’re cognizant of the kind of experience we want to deliver to our customers and I think our focus on the everyday business is starting to bear real fruit for us and that's a good thing across the board. But the spend we made in the quarter on marketing and on customer service. So we were the best-in-class customer service provider in what is a very difficult customer service category. We’re not just popping a brown box into the mail and it shows up on your doorstep. This is a hand-delivered gift and not just something dropped at the mailroom. So it's a difficult category, we were the best-in-class to begin with and the investments that Chris and Bill and the teams made in customer service over the last six months will bear fruit well beyond the quarter. It improves your customer experience, the customer retention efforts, the third-party recognition that you see in the press release that we’ve gotten for being best-in-class and always improving in customer service. And the type of marketing that Chris mentioned that we did in the quarter will have benefits well beyond the quarter. So you see in spite of our competitors talking about increasing their spend and decreasing their budgets for the technology upgrades that they so desperately need they say we don't have that comparison because we've made those investments. So our spent is on catch-up, our spent are in leap ahead in terms of the innovations we can introduce in terms of our technology. And so I think that puts us in awfully good shape and you see last year our growth rate accelerating in the floral category over the year before we’d expect as Chris said that to continue.

I was just…

Go ahead sorry.

I was just going to add Dan I think it's all of those reasons and what we saw in Q4 that really gives us the confidence to be able to say that we are going to grow both top and bottom-line in this segment in fiscal 2018.

No, it’s helpful I get it. I mean I think you're certainly positioned well competitively just trying to get a sense of margin trends over time. So then just let me shift sort of since you brought up prime day obviously the other thing that Amazon is unfortunately or fortunately depending on which side of the equation you’re on driving is retail footprint reduction. So I'm wondering if there's any impact to the gifting space whether it's through less shelf space or sort of you are pushed to go more e-com centric I’m just trying to get a sense of how kind of this retail footprint compression is impacting the way that you guys are trying to feature products particularly Harry & David and the wholesale business?

The impact that Amazon is having on the world is obvious to us all. We spend a good part of all of days whether we enjoyed day Dan around thinking about it, talking about it – trying to anticipate what the impacts will be clearly we are able as Chris mentioned to piggyback on their prime promotion during July that was a good thing we were able to do. We work with Amazon in many ways, we certainly respect and admire them and as we watch them most recent big acquisition with Whole Foods our Whole Foods was good floral provider and one that we done some promotions within the past, our – multitiered relationship with Amazon I think should stand us in very well and in very good position and give us some opportunity as they integrate that business. In terms of shelf space yes we’re conscious of the fact that what's happening in retail it was a contributing factor not a big one but a contributing factor when we decided to take Ferrero off on their offer to acquire the Fannie May assets we had 85 retail stores there which had suffered from the fire experience we had and the lack of inventory to a whole holiday season or a full inventory to a holiday season. And our stores need constant upgrading and it's one of the contributing factors when we analyze that opportunity that made us decide there. So we have very little retail exposure and anyplace else. And we actually are e-commerce centric kind of business and I think it just emphasizes that where we have been going over the last several years positions us well not just to be defensive in the category but to use our now muscle in the technology area to leap ahead. And I think a couple of those examples you should watch two that were pointed out earlier. One is as we move what is an organic business that we marketplace by business that we have been nurturing and now we’ll put on a platform – by November that is Personalization Universe. And then the other one we’ll be launching on the same time which is broadening our chocolate offering to not just Harry & David actually be a Harry London and Fannie May and Harry & David chocolates but also to include the other brands that consumer's might be interested in a marketplace kind of environment. So taking that all in we’re conscious that what’s happening in retail we’re certainly watching closely what goes on the general e-commerce space. I think we are uniquely well positioned with our large database, our both platform, our technology capabilities to take advantage of those strengthens and that's exactly what we feel we’re charged with doing as a management team is to watch anticipate, plan and take advantage of larger macro trends.

And then just I guess two real quick housekeeping questions since you brought up Personalization Universe obviously I think it's no secret you guys like to use the cash to purchase something probably and its food space or something around there. Obviously your stock is not expensive and clearly there is a call from investors to buyback significant amount of stock at these levels. So just kind of give us a sense of sort of what you're thinking on that balance and sort of what you might be willing to pay. And then I don't know Bill if you break this out, but if you could give us a sense of what the Harry & David EBITDA loss was in the quarter. I’m just trying to get a sense of kind of the efficiencies you're getting or not getting based on the initial acquisition targets at this point? Thanks.

So I’ll take the first part of that question Dan which is and I’ll reinterpreted as what we do with the good position really in terms of having good cash on our balance sheet, the net cash positive and a great deal of leverage there. Not only do we have that but the other assets the large database we have the bulk platform, our technology capabilities when we put those all together I think we have really good flexibility. In terms of growth we're excited to have the – be in a position that were in and have the flexibility that we have. So we look at growth in two ways what organic things can we do things like creating Personalization Universe creating the chocolate marketplace, growing the other businesses we're in a position that we have the wherewithal to do that and we’re pleased with that. So we’ll be looking to grow our business by investing in organic efforts or in birthing new efforts like we are with Personalization Universe and yes we have the flexibility and the capability to do acquisition should we find the right opportunities that we think help us accelerate our path into – the gifting continuum that Chris describes in the whole celebratory echo system that we live. So we have flexibility in terms of buybacks we maintain that flexibility we've been buying our stock over the last couple years. We’ll continue to do that and should the circumstances dictate that we ramp that up we have the flexibility to do that as well. So we’re maintaining our flexibility we like the position we’re in we’ve development the team of people that are helping us develop, analyze and execute against the business strategy opportunities we have with our strategy and business development opportunities which include those internal efforts and our possibility is on acquisitions. So we have the wherewithal to do the organic to do acquisition should we – find the opportunities and clearly we’ve been disciplined and good stewards of our balance sheet and our cash that we have. And then finally being able to have the opportunity to accelerate the buyback should we determined that to be a good and prudent way for us to proceed.

And Bill the Harry & David question?

Dan with Harry & David, and Harry & David had a tough year but we spoke about a lot of this in our Q2 call we’re really late into the holiday season, the second half of the year.

The second half of the fiscal year, the first half of this calendar year.

It’s correction, we’ve been encouraged by the consumer demand for the Harry & David product on our last call we spoke through the Easter holiday Harry & David consumer demand was up 2.2% for the second half of the year through June consumer demand for Harry & David was up 4% so obviously there is acceleration in our fourth quarter.

And what’s nice to hear Bill if that is the customer file is moving right along in step with that so.

With respect to some of the targets that you mentioned – talking about the synergies that we’ve announced the $20 million in synergies that we guided to did we achieve those yes we did. We’ve achieved those and then some and let me give a little color on that. We just reported revenues is just under $1.2 billion we have costs whether it would be operating costs or cost of goods that are well over $1 billion just with normal inflationary increases we’re facing every year our $30 million bogie to achieve – to address. I think we’ve done a good job over the years and kind of proven that we have the ability to drive cost out of our operating platform and drive down our operating cost as a percent of revenues which we saw once again this year. So from a bottom line standpoint the Harry & David transaction has been huge success for us and it has help drive significant synergies some of which sit on the Harry & David brand P&L and some grow across the enterprise because we drive in price savings.

So its convinced not only do we achieve the $20 million but when you consider – over the last three years would be three years soon that we own Harry & David that’s a $90 million headwind we’ve had to face offset and then some so yes achievable. It also told us that scale does matter and that we’re very happy that we doubled our size over the last couple of years through organic growth and with the one acquisition even with the disposition of Fannie May so scale dose mighty good help us to achieve those synergies.

The next question comes from Eric Beder with FBR and Company. Please go ahead.

Could you talk a little about the gift basket business and what are you seeing for holiday in terms of demand for gift basket?

I think in our gift basket business we’ve been seeing as I mentioned some good trends in both the direct to consumer through the past fiscal year especially the last two quarters. And then really on to the wholesale side I think and I look to Bill to give a little visibility. We’re seeing some good trends and we have some good early insight into how the year is shaping up. Bill?

Yes it is holiday quarter looks to be very good quarter for us with regards to the wholesale gift baskets as you know that process thoughts in the early spring and runs through now as we’re getting all those orders finalized. And we’re very encouraged with the year-over-year growth in that.

And that's on top of what was a strong year in that channel last year as well. So we’re very happy there.

In terms of Harry & David you mentioned the chocolate you mentioned Personalization Universe what do you see as the key new products for Harry & David for the holiday season to help drive traffic?

So on Harry & David I think we’re always looking at new innovative products one of the things that which we’re seeing now is some good early response to our food sales and we’re seeing some good progress there against staying consistent with the good consumer demand we've been seeing since January so we’re happy with that. We also look at as we move forward part of the driver now and certainly will be for the next couple months is the everyday gifting occasions that we’re seeing and good products being designed for sympathy, good product being designed for birthday occasions that’s where we’re getting the most traction on the everyday occasions of Harry & David. We have some really great products and - just not recalling some of the names but I reviewed for this upcoming holiday season. Our wine business is a growing category for us, Moose Munch is a growing category we’re doing pretty well on the Moose Munch side the prepared foods the line that we talked to you about last year continuing to grow well for us so that's a combination of our protein business as well as things like turkeys, chicken popeyes, lobster popeyes et cetera that people buy to use for entertaining. We’re seeing good growth there and importantly also good growth in the core business. You heard us talk about the clubs a little bit and clubs give us – move around sometimes from one quarter to another, but we’re a big business in clubs and we see good growth opportunities in clubs going forward as well.

The next question comes from Alex Fuhrman with Craig-Hallum Capital Group. Please go ahead.

Wanted to ask a little bit more about the ecosystem of different brands and categories that you're rolling into your multibrand site. It sounds like, correct if I miss heard you but it sounds like you’re adding a Personalization business this year. Can you give us a little bit more color on are you partnering with an existing company out there is it something that your starting in-house and when perhaps we could expect to see that up and running. And then similarly for the chocolate marketplace. I’ll be curious what you could share with us in terms of which brands will be on there and if you expect the assortment to be as big, bigger not quite as big and how we should think about that assortment as comparing to what you use to have through the Fannie May product line. And I think you said the chocolate marketplace should be up sometime around the holiday season is it your intention to have that fully up and running and live prior to Thanksgiving or is that something that will kind of be phased in throughout the season?

It’s an area we’re pretty excited about and I’ll break it into two and get started. So first is Personalization Universe, personalized product is something that we've been growing in our portfolio of brands now for a couple of years. So each of our brands whether it would be Harry & David flowers, whether it would Cheryl’s have been increasing their ability to add personalization to their existing product lines. And that's helping to spur some of the growth we’re seeing there especially in the everyday occasions. So for example the celebrations boxes for the Cheryl’s brand that I talked about and you could put a personalized message on it, the cookie cards you can put a personalized message on it. So we’ve been doing that. In addition we’re seeing is a whole category of personalizable products out there that our customers have told us they will buy from us. So we looked at the landscape and was there any acquisitions for us to do at the time and at the time they weren't. So about 18 to 24 months ago we launched personalizationuniverse.com but we launched it kind of off grid not on our e-commerce stack because we wanted to just get it out. There was more in R&D efforts focused on getting the merchandising selection right and getting the vendor network the marketplace network in place so that we knew when we brought it Main Street so to say into our multibrand platform, we’ll be ready to go and really feel comfortable and confident in introducing those products and those vendors into our customer base. So we’re ready to do that we’re pretty excited and will be launching that sometime at the end of October early November timeframe. That timeframe will be the same for the chocolate marketplace the reason being is because a very similar technology development for the two. So they go hand-in-hand. So the chocolate marketplace we’re going to be building on the relationship that we have with the Ferrero International which gives us access to have Fannie May, Harry London and the Ferrero Rocher confectionery brands. But in addition to that we’ll expand and bring on other brands. And I think in the beginning there is going to have to be some trial and error to really find out why would all the chocolate brands that the consumer is looking for. We want to give them a very robust selection and we’ll probably do it a little overkill maybe in the beginning to really find out what they respond to. So then it's fine tunes our merchandising strategy but in the past consumer would come to us and we basically will be offering them Fannie May, Harry London or Harry & David now they’re going to have a much broader selection and staying consistent with what we always do really in a good’ better, best merchandising strategy. So they’ll be a representation of high-end chocolate brands kind of midrange chocolate brands is both gifting in self consumption, as well as more entry-level brands as well. We want to make sure we’re providing a spectrum of price points along that gifting continuum for our chocolate bars.

[Operator Instructions] The next question comes from Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

So, I guess first to just clarifying more of modeling type of questions so looking at fiscal 2018 are there any sort of timing issues that we should be aware of looking at the quarter obviously there is a lot of noise with the just reported fourth fiscal quarter and fiscal 2017 anything there that we should be aware of so looking at fiscal 2018?

Anthony this is Bill and thank you for the question. Yes Easter shifts back to Q3 next year. Easter is on April 1, so and our fiscal year end is - will be Easter Sunday. So that will result in a shift back from Q4 to Q3. I think Jim has mentioned and I have mentioned in the past that second half of the year you almost have to look at on a combined basis, because of the shift of Easter. We seem to be jumping back and forth between Q3 and Q4 over the last couple of years.

We get another impact to Valentine's Day the date placement improves a little bit this year than later within the week it gets better. And we always encourage you look at us as two halves the things that can impact the quarter - between three and four is primarily Easter. And the thing that could impact the first half is our third-party sales that will ship sometimes from the summer quarter to the second quarter holiday quarter in terms of when we’re shipping that product out at the request of our customers. And also in the first quarter as building inventory earlier and earlier to meet that increasing demand from third-party sales. So that's why we encourage you to always look at us as two halves.

And then you’ve spoken a lot about the traction that you're getting in everyday gifting. Could you perhaps give us a sense of the growth trends that you've been seeing in everyday gifting versus growth around the major holidays?

So it's somewhat difficult to do that Anthony but if I look at it and the reason I say that is because there is different growth rates for different occasions by the different brands right. So Harry & David as I said is doing really well in sympathy, birthday Cheryl is doing really well.

Ship the anniversary not one item and birthday…

Cheryl is doing really well on the thank you categories as an example, but if I just take a look at the gourmet food results from the Q4, that growth was driven primarily by the everyday occasions in Q4 more so than the Mother's Day holiday so that's very encouraging for us. A little bit different with the flowers business, flowers business yes always performs well with the everyday occasions, but also performed well at the Mother's Day holiday too.

And there you’d probably showing a light on simply birthday the two big everyday occasions that we’re seeing the most growth in.

Correct yes.

As far as the reasoning for your increasing traction is it - that our marketing, are more traction with the multibranded portal anything else that you would like to add?

I would step back a little bit first and why this even took a little more time to get to is as we said in the past. In the food brands, we really need to do a cycle of product development. We didn't have the right products for these everyday occasions previously so that took a while, but that's now started to come through fruition this year and why we’re starting to see the results. In addition to them taking those products putting them in the right places, merchandising them right and the cross brand website the multibrand website certainly helps that as someone comes onto birthday and they can jump over and then look at birthday products from shelves or look at birthday products from Harry & David. A year ago you really didn't have that ability. So all of those things are contributing to this good traction and we'll just look to continue to grind the wheel and how we can expose our customers to more and more solutions for that everyday celebratory needs.

And lastly taking a step back now that you have divested Fannie May and if you look at the business now I mean what are your long-term expectations for your operating margins and what level of revenue you need to achieve to get to that target operating margin?

I think we’ve always spoke about achieving a 10% EBITDA margin that’s our goal. We’re also looking to get to a 5% consistent organic growth rate and I think we’ve made some progress this year you know moving it up to the 3.1% and our guidance for next year has that growing beyond that. So I think those are consistent I think the sale of Fannie May helps us achieve those. Fannie May was a low-margin business for us. And as a result our EBITDA margin - so our EBITDA margins do take a step-up about 50 basis points with that sale.

This concludes our question-and-answer session. I would like to turn the conference back over to Chris McCann for any closing remarks.

So first of all thank you all for joining us today for the call and for your questions. And I'll leave you with this three thoughts really, as we look at the year going forward there are certain several things that give us confidence but three primary things give us confidence as we move into fiscal 2018. It's the multiyear momentum, we have in Consumer Floral, BloomNet’s continued solid performance and a really positive trends we’re seeing in our Gourmet Food category that we spoke with you about today. So I thank you for your time and for those of you who are looking to trying some truly original gifts from our Gourmet Food categories, Harry & David recently completed the harvest of the unique Oregold Peaches. The Oregold Peaches are some of the best this summer has to offer, and they’re shipping now and they always sell out quickly. So please visit our site today. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.