1-800-FLOWERS.COM, Inc. (FLWS) Q3 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the 1-800-FLOWERS.COM, Inc. Q3 2020 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 of Investor Relations. Please go ahead.

Thanks, Sarah. Good morning, and thank you for joining us today to discuss 1-800-FLOWERS.COM, Inc's. financial results for our fiscal 2020 3rd quarter. For those of you who have not received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our corporate website at 1800flowersinc.com. Our call today will begin with brief formal remarks, and then we will open the call to your questions. Presenting today will be Chris McCann, CEO; and Bill Shea, CFO.Before we begin, I need to remind everyone that some of the statements that we will make today may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to our press release issued this morning as well as our SEC filings, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q.In addition, this morning, we will discuss certain supplemental financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recordings of today's call, the press release issued earlier today or in any of its SEC filings, except as may be otherwise stated by the company.I'll now turn the call over to Chris McCann.

Good morning, everyone. Thank you all for joining us this morning. I'd like to begin, certainly, by acknowledging the unprecedented and extremely challenging period that we're all living in as a result of this COVID-19 crisis. I'm sure that many of us on today's call know someone or even have family or friends who have suffered during this pandemic. And our hearts go out to them, especially to those who have lost loved ones. I'd also like to recognize all those people working on the front lines of this crisis. They are truly, truly our heroes.As you'll hear in our remarks today, we had a strong third quarter. Even with the challenges we face as the COVID crisis set in that impacted the last few weeks of the period. I'm proud of the way our team moved quickly to respond to these challenges from moving rapidly and enhancing the health and safety of our associates to managing our supply chain. As we enter the fiscal fourth quarter, what we have seen here is a very strong e-commerce demand, especially in our Gourmet Food brands. This demand acceleration has continued through the month of April, and you'll hear more about this later in the call this morning.In terms of the fiscal third quarter, our solid results for the period reflect a continuation of the momentum that we've seen throughout the year. The double-digit consolidated revenue growth we achieved was driven by increases across all 3 of our business segments. In our Gourmet Food and Gift Baskets segment, a strong 27% growth reflected continuing positive trends in everyday gifting occasions and increased self-consumption as well as contributions from Shari's Berries, which continues to perform ahead of expectations.Importantly, we saw our customer demand grow throughout the quarter and accelerate into our current fiscal fourth quarter in Harry & David, Cheryl's Cookies, The Popcorn Factory, 1-800-Baskets, Wolferman's Bakery, Stockyards, and Simply Chocolate, as customers have increasingly turned to our extensive and highly relevant product offerings to help them stay connected and express their feelings during this difficult time.In our Consumer Floral segment, where 1-800-Flowers brand continues to extend its market leadership with double-digit growth during the key Valentine's Day period. Revenue growth and contribution margin for the quarter in this segment would have been even stronger were it not for the softer consumer demand in the last few weeks of March when we saw the impact of the COVID-19 crisis.This first took the form in limitations on gathering of sympathy occasions, such as wakes and funerals. And restrictions on deliveries to hospitals for get-well occasions. Importantly, as we enter the current fiscal fourth quarter, we've seen this pattern reverse itself as customers are adapting to the new environment, and are sending gifts for these occasions and many more to their recipients' homes. As a result, we are seeing customers increasingly turn to the trusted 1-800-Flowers brand to help them express themselves and stay connected for holiday occasions such as Passover and Easter, as well as for everyday occasions.We're seeing similar patterns in our BloomNet business where we continue to grow our market share position during Q3 with solid top and bottom line results for the quarter that would have been even stronger were it not for the impact of the COVID-19 crisis. Here, we are keenly focused on working closely with BloomNet's independent local florists across the country to support their businesses and help them weather the current challenging environment.Before I ask Bill to share some insights on our quarterly results and our reaffirmed guidance for the year, I think it's important to note that as we navigate these trying and uncertain times, the health and safety of our thousands of associates across the company, our BloomNet florists across the country, our suppliers and vendors, and our customers, is paramount to us.We have made and continue to make necessary changes across our operations and facilities, including manufacturing, warehousing and distribution to provide for the safety and well-being of our associates while maintaining our business continuity. We're well-positioned to respond to the consumer demand for our products as evidenced by the growth we saw in our Gourmet Food and Gift Baskets segment during the third quarter.We will continue to be agile and maintain our ability to leverage our labor and manufacturing capacity, while simultaneously managing our supply chain. Overall, we are well-positioned to meet the challenges of this environment by leveraging our operating platform that we've built over the years, combined with our diverse product line and deepening relationships with our customers.We remain committed to our mission to engage with our customers to help them express and connect sentiments that are more important than ever in the current environment.Now let me turn the call over to Bill to share his insights and -- on our results, and discuss the drivers behind our outlook for continued growth. Bill?

Thank you, Chris. We are very pleased with our strong results for the fiscal third quarter and for the first three quarters of our fiscal year. While there is significant uncertainty in the overall consumer environment due to the COVID-19 crisis, we are seeing very strong e-commerce demand for our Gourmet Food and Gift Baskets and our floral products for holidays and everyday gifting occasions.As Chris noted, we saw a solid e-commerce growth throughout the third quarter, including a strong Valentine's Day holiday. As we ended the current fiscal fourth quarter, we saw an acceleration of demand for the Easter holiday period and this continued throughout the month of April.As we look forward, we expect e-commerce demand trends will remain strong. With that said, there are some headwinds that will affect us in the current quarter and in the future. These include: costs associated with the closing of our retail stores that took place in March in accordance with state and local regulations. In the case of our Harry & David retail stores, we recently made the difficult decision not to reopen 38 of the 39 locations.As an aside, our country village store in Medford, Oregon will remain open. This will result in a onetime charge in our fourth quarter for employee costs, lease obligations and other store closing costs. In addition, we have seen a reduction in our wholesale business. This will impact on our fourth quarter within our BloomNet and Gourmet Food and Gift Baskets segments.Additionally, we anticipate reduced wholesale orders for the year-end holiday season as our large wholesale customers are taking a cautious approach due to the uncertainty surrounding the impact of COVID-19 crisis on the overall consumer economy. We have also waived certain fees to our BloomNet members for the month of April to help them weather the COVID-19 crisis.Lastly, we are seeing some increased costs associated with the changes we have made, and continue to make to our manufacturing, warehouse and distribution facilities to provide for the safety and well-being of our associates. These include: acquired social distancing, enhanced facility cleaning and sanitizing schedules and staggering production shifts, among other changes that have an impact on our overall operating efficiencies. With that said, the strong e-commerce demand that we are seeing across our brands is offsetting the reduced revenues in these other channels as well as the incremental cost impacts.As a result, we are reaffirming our guidance for fiscal 2020, which I will discuss in a moment, and we continue to see opportunities to grow our business going forward. Now breaking down some of the key metrics for the third quarter.Total consolidated revenues grew 12.2% to $278.8 million compared with $248.4 million in the prior year period. This solid revenue growth across all 3 of our business segments, with the Gourmet Food and Gift Baskets up 27.1%, Consumer Floral up 5.4% and BloomNet growing 7.9%.Importantly, revenue growth in all 3 segments during the quarter reflected the initial impact of the COVID-19 crisis. In Gourmet Food and Gift Baskets, e-commerce demand was up strongly at the end of March with much of the increases related to the Easter holiday, most of which shipped and was recognized in April. In Consumer Floral, before dipping at the end of March, revenues were up approximately 9% throughout most of the quarter, including strong Valentine's holiday demand. And in BloomNet, revenues were up more than 10% throughout most of the quarter before it dipped in the last 2 weeks of the period.Consolidated gross profit for the quarter was 38.5%, down 80 basis points compared with 39.3% in the prior year period, primarily reflecting product mix. Operating expenses as a percent of total revenues improved 270 basis points to 42.4% compared with 45.1% in the prior year period.This primarily reflected the strong revenue growth in the period, combined with the benefit and OpEx from the company's nonqualified deferred compensation 401(k) plan. The combination of these factors resulted in an improvement of 45.5% in adjusted EBITDA loss for the quarter to $2.4 million compared with $4.4 million in the prior year period. Net loss for the quarter was $9.7 million or a loss of $0.15 per share.Excluding certain costs related to the company's planned acquisition of Personalization Mall, adjusted net loss for the quarter was $9 million or an adjusted loss of $0.14 per share compared with a net loss of $8.2 million or a loss of $0.13 per share in the prior year period.In terms of corporate expense. For fiscal third quarter, corporate expense, including stock-based compensation, improved to $21.4 million compared with $25.2 million in the prior year period. The improvement is related to a $3.9 million year-over-year impact associated with the company's nonqualified deferred 401(k) compensation plan.Turning to our balance sheet. At the end of the third quarter, our cash and investment position was $232.1 million. Our term debt balance, net of deferred financing cost, was $93.6 million, and we had 0 borrowings outstanding under the working capital line within our revolving credit facility. As a result, total net cash at the end of the quarter was $138.5 million. Inventory of approximately $74 million was in line with our expectations.Regarding guidance for the full fiscal year. As I stated earlier, we are reaffirming our guidance for the fiscal 2020 full year. This reflects this continued strong growth that we have achieved through the first three quarters of the year, combined with the strong e-commerce demand that we have seen through the first 4 weeks of the current fiscal fourth quarter. These positive trends are more than offsetting the headwinds that I mentioned earlier.As a result, our guidance for the year is as follows: total consolidated revenue growth of 8% to 9% compared with the prior year, including approximately 6% to 7% organic growth combined with the contributions from the Shari's Berries brand; EPS growth in the range of 15% to 17%; adjusted EBITDA growth in the range of 13% to 15%; and free cash flow for the year in the range of $45 million to $50 million.As we noted in our press release this morning, our guidance for EPS and adjusted EBITDA for the year excludes certain onetime costs associated with the decision we made this month not to reopen the Harry & David retail stores, and certain costs associated with the planned acquisition of PersonalizationMall.com.I'll now turn the call back to Chris.

Thanks, Bill. So to sum up, we've seen strong growth momentum continuing through the first three quarters of our fiscal year. We achieved solid revenue growth across all three of our segments during the quarter, growth that, as Bill noted, would have been even stronger were it not for the impact of the COVID-19 crisis in the last two weeks of the period.Through the first 4 weeks of the current fiscal fourth quarter, we're seeing strong e-commerce demand across our brands as customers, both new and existing, are turning to our expanded product offerings to help them express and connect. As we look ahead, the scale and overall economic impact of the crisis is still very difficult to assess. With that said, we are well-positioned to continue to grow our business. As a company with a focus on inspiring and enabling people to express and connect, we're well-positioned for the current and emerging consumer sentiment.This, coupled with our platform, our product diversification, our ability to engage our customers and our highly experienced management team, give us confidence in our ability to manage our business in this unprecedented and rapidly changing environment. We remain focused on 3 key elements of our business strategy: taking care of the health and safety of our associates, our BloomNet florists and our customers; maintaining our financial strength and flexibility; and continuing to invest in areas of our business that will help drive future growth.Now before I turn the call over to Sarah to begin Q&A, I'd like to thank all of our associates for their dedication and hard work during this incredibly challenging period. It is their commitment and it's their innovative thinking that enables us as a company to engage with our customers to help them express themselves and connect, sentiments that are increasingly important during this difficult time.Sarah, if you could please repeat the Q&A instructions?

[Operator Instructions]. Our first question comes from Alex Fuhrman with Craig-Hallum.

Certainly, wishing everyone at 1-800-Flowers out in New York and around the country, all the best during these tough times. I wanted to ask about the -- how your business has progressed over the past 6 to 8 weeks? It sounds like business kind of got softer there in late March and has now come back in many regards as, as stronger than before. Can you kind of walk us through how that's been impacting the different brands? It would seem like Gourmet Foods and floral and certainly, your foods brands kind of range from sweets to prepared meals. Just curious how each of those brands has performed in March and then in April? And then how you're expecting them to perform in your fourth quarter?

Great, Alex. I'll make a start at that, and then Bill could chime in as -- definitely as he seems fit. Well, if we look back when this really started to hit, I think the first thing we noticed was that our food brands, and that's one of the things that we're really proud of is the product diversification that we have and how well-positioned we are for different impacts to our society and our economy. So our food brands started to perform well as soon as the crisis started to hit and have just really accelerated since then.The floral brands really took a hit in the first couple of weeks of the crisis, really those last two weeks or so of March. So we were scrambling as we're trying to manage that and put out the fires that were happening across the company. And again, rapidly, rapidly changing. So management team meeting a couple of times a day on a regular basis and things changing by the hour. So those were some crazy times. But well, as we've seen business continue, the floral business then start to pick up really as we moved into April and has been really accelerating since then. And again, for all of the different reasons that people are looking to express and connect, as a society, when we go into this form of isolation, we really yearn for those connections, and we're making all of these efforts that connects. So our product line, both floral and food brands, are fitting that consumer sentiment perfectly. And Bill, do you want to chime in some there?

Yes. My only point, Alex, on top of that -- on top of Chris' comments, would be -- so we were impacted at the end of the third quarter on Consumer Floral and BloomNet. I kind of indicated that in my formal remarks that we were trending Consumer Floral towards 9% growth and BloomNet double-digit growth before the last two weeks of March.As Chris mentioned, the food brands did get a benefit almost immediately, but a lot of that was Easter demand. So that didn't really ship out until April. So while we got some benefit in the third quarter, most of the benefit that we saw immediately from the food brands, is really going to be -- you'll see in the -- ultimately in the fourth quarter. And as Chris mentioned, there was a nice rebound of Consumer Floral almost at the turn of the calendar on April 1.

And that's on the e-commerce side. And even if we look at Harry & David, with the stores being closed and as we moved into March, that certainly put a hit on revenue. But with Harry & David, we've been shifting so much to be an e-commerce business anyway. And that's where we're leaning into the strength that we see. On the -- and the Harry & David business, I would say, really started showing strength earlier on then followed by Cheryl's and The Popcorn Factory, and 1-800-Baskets. And they're all really -- the e-commerce demand is outpacing our ability to keep up with it at this point.

Great. That's really helpful. And then if I could just ask, as a quick follow-up, all the strength you're seeing at Harry & David and the other Gourmet Foods brand. Has that been primarily your existing customers just ordering more frequently and bigger? Or are you getting a lot of new customers coming into those brands as well?

Sure, Alex. It's a combination of both. And new customer growth is really, really strong, but so is existing customer activity. Passport customer activity has been fantastic. So we're seeing that across the board. If we look even at Q3, we had new customer growth in Q3 of 30%. That's accelerated since then. So what we're seeing happening to our customer file really positions us well as we move forward, especially what we're seeing with Passport, multi-brand customer behavior, really strengthening the customer file.

Our next question comes from Dan Kurnos with The Benchmark Company.

Chris, may be you can just go a little bit deeper on your comments in sort of the marketplace. And I think people are looking at e-com right now. We had eBay out last night talking about sort of a tailing off of trail winds -- tailwinds, excuse me. And just curious sort of what you guys are doing to maintain may be the influx of customers or the tailwind that you're seeing, so incremental incentives? Or what you're doing to make sure that you retain sort of the bump that you're seeing in the marketplace right now?And then secondly, may be what you're seeing from a competitive standpoint? Are your competitors struggling more in this environment? And is this helping you build your lead, build that mode that you've been doing for pretty much the last 24, 36 months?

Sure. Thank you, Dan. As I look at what's taking place in the marketplace, I think, first and foremost, we look at consumer sentiment, and not necessarily consumer confidence. So we're going to go through some challenges as we see consumer confidence dipping as the economy struggles a bit. But overall, consumer sentiment is really moved to a place that fits our business and fits our mission of inspiring people to connect and express.We expect that to be a lasting change coming out of this crisis. And as you look at the different crises that we've gone through, this is one that's affected everybody. And was really -- so being well-positioned in front of that consumer sentiment, plus all of the other capabilities of our company, I think, we're in a good position to sustain that.As we look at what we're doing to do so, clearly, right now, we're in the midst of ramping up on the -- more on the floral side, but also on the Gourmet Food side of the Mother's Day holiday and then moving beyond that. And we're seeing that we need to be less promotional than we have in the past. And we're seeing the ability to lean into our marketing efforts because we're seeing good efficiency and effectiveness. When Alex talked about the customer acquisition rates that we're seeing and the repeat rates that we're seeing from our customers, is really giving us the ability to lean into that, both as we move into the Mother's Day holiday and then coming out of the Mother's Day holiday, we see great growth opportunity. So we see this as a sustainable sentiment that's well-positioned for our businesses and our ability to stay with that.

Have you seen any uptick in Passport usage as a result of this? Are you trying to funnel people more into that program? And then just may be if you could also update us on where we stand on PMall, that would be helpful.

So first on Passport. Yes, we're seeing great uptick on both people signing up to Passport as well as to Passport utilization from purchasing from Passport members as an increasing percentage of our overall active customer base. So that's growing very nicely, just as we're seeing the overall customer file continually grows. Again, with the new customers coming in, existing customers, et cetera. So we're seeing really good participation there.As we look at the competitive set, we're not seeing anything special on the competitive market. And again, for us, what we do is especially being the leader that we are, we focus on our brands, we focus on our customer experience, on product. And I think the product diversification is a key element from a competitive positioning point of view. You talked about the mall that we've been building.The fact that when we move into -- if we move into a time period where the economy will be softer, our food businesses will perform better than our floral, most likely, which is very different from where we were back in the '08, '09 crisis and the financial crisis back then. So again, we're very confident where we stand today in our abilities, the product line that we bring to the customers, to the consumers, the sentiment that's out there and the world driving to an e-commerce world, which is, again, consistent with the decisions that we've been making.

And PMall, Chris, just any update there?

Yes. So the update, as you saw, our statement that we filed back in April when litigation was commenced on this transaction is unfortunately, all that we can say at this point, because it would be irresponsible of us to comment beyond that statement that we put out due to the fact that we're in current litigation.

Our next question comes from Anthony Lebiedzinski with Sidoti & Company.

So Chris, you mentioned that when you look at your business now versus the last recession of 2008, 2009, you do have a very strong food business now. So I mean, is that what gives you confidence and conviction that you can maintain your guidance? Just again, for those who may not be as familiar with the business, but just looking at your business now versus the last recession. I just wanted to get your conviction level as to your ability to maintain guidance.

Yes. I think it's a couple of things, Anthony. It certainly is the broader product line that we have out there that gives the customers more opportunities for us to solve their gifting needs. I think it's a combination also of the different sentiment that exists in the marketplace today. I think it's a combination of that. As we look at the quarter specifically, and we look at some of the challenges that we had in the quarter that Bill referenced with either retail stores being closed or our wholesale businesses taking a bit of a hit in the quarter, being completely offset by the strong e-commerce demand that we see as sustainable, gives us all the confidence to reaffirm our guidance. Bill, any other color on the guidance there?

Yes. Now with respect to fourth quarter and beyond is that the e-commerce is strong and offsetting the -- that is by far, our biggest channel. And that's very strong right now and that's offsetting the downside in wholesale and retail. With regard to the impact of the recession, again, we built a very strong balance sheet that ensures kind of our financial stability and flexibility, and we have a management team that has really managed -- weathered challenging economic environments before. And knows how to react and plan accordingly, and we've been doing that over the last 6 weeks. And we feel very comfortable that we're going to be able to weather any sort of economic downturn.

And would you say the competitive landscape now versus the last recession is more in your favor?

Tough to say, but I would probably say yes. I think not just the competitive landscape, but the position that we are in as a company. And the leadership position that we've been in the last several years on the floral side of the business, the leadership position we've built now on the Gourmet Food and Gift Baskets segment of our business, really positions us well right now.

Got it. And then as far as the Harry & David store closings, Bill, do you have an estimate as to what the costs -- I know they're onetime, but just if you could -- do you have any sense as to what those costs will be? And also, while we're on that subject, can you give us a sense as to what kind of revenue those stores generated? And I assume that they were unprofitable, and that's why you're closing them. So if I'm correct with that assumption, how much of a lift can you get the next fiscal year once you're done with the store closings?

Yes. The charge in the fourth quarter will probably be between $4 million and $5 million. The impact on an annual basis on the revenues of probably $33 million to $35 million top line, but about a $2 million EBITDA pickup.

As I look -- as we go to the Harry & David stores, as we look at that, always a difficult decision for something like that, and especially as it affects the people that have been with the company for a long period of time. The challenges at the Harry & David business, since we borrowed the business, we've been migrating it to really being an e-commerce driven business.So as we look at the future and talk about leaning into growth opportunities, the ability to exit out of the retail stores and put our focus on the e-commerce business where we're seeing such strong growth in the Harry & David business, earlier throughout the first three quarters of the year but certainly accelerating now in the fourth quarter, just made all the right sense for us from a business point of view.

Our next question comes from Linda Bolton-Weiser with D.A. Davidson.

I guess one big difference in your business now versus in the last recession is that you own Harry & David now. Can you talk about how Harry & David performed in the last recession? And it is pretty high-end positioned in terms of the pricing and positioning. Are you thinking about modifying the product line or may be offering some lower end, lower price type offerings as we hit the recession here?

Sure, Linda. Thank you. I think the key factor here is, Harry -- we didn't own Harry & David during the last recession. So I'm not going to comment on that. But what we've really been seeing is the continued growth of the Harry & David product line as we expand the product line. Now one of the areas that we moved into in the last year or two, which is really benefiting us well today, is the whole Harry & David Gourmet prepared meals and meats and different things like that.I think if you look at not just the Harry & David product line, but if you look at how we evolved as a company overall, really from the platform that we've built across our brands, we have ways for you to express and connect from things that are free like an e-card, which we promote, different activities to a $5 cookie card from Cheryl's to a $9.99 cards with pop from The Popcorn Factory, our tins with pop, our sentiment expressions that we're seeing. And that's one of the great things that we're seeing now. A lot of -- any item that we have with the sentiment on it, and especially in those lower price points, are giving people the opportunity to connect with people in a much more frequent manner.So I think your question regarding the Harry & David product line really extends across our platform and our family of brands. And again, we've been building that so you can utilize our brands to express yourself for free, ride up to having yourself a prepared hand meal from Harry & David.

Our next question comes from Doug Lane with Lane Research.

Just a couple of things. First is in the Food and Gift Baskets, how much of that 27% growth was the acquisition of Shari's Berries?

It's of probably about half. So we saw it generate probably about 13% of the 27% of Shari's Berries, and about half of it is organic growth during the quarter.

Yes. So that shows that our organic growth is growing double digits during the quarter. And as we said, we've seen an acceleration on the e-commerce side of that since then.

No, that's a pretty good strong organic growth rate. That's what I was going for there. And then sort of stepping back here, a lot's changed in the last 4 to 6 weeks, and we're not too far away from you having the plan for the December quarter, which, of course, is your big quarter from a profitability standpoint. Can you walk us through may be early thinking on how you're going to approach the fourth quarter this year, perhaps differently than you might have in the past?

Sure. So I think at this point in time with what the visibility that we have going into the fourth quarter in our planning is looking -- first and foremost, saying, okay, how is the supply chain? What's our capacity of manufacturing? What's our capacity of distribution? How do we expand that? How do we lean into the demand that we expect to be there as we move into the holiday season? So really, that's how we're approaching the holiday from. We expect the demand will be there, how much of it can we capture? How agile can we be without different manufacturing capabilities, the local partners that we utilize, the local florist we utilize, the vendors we utilize on the food side of the business? And just expanding out our marketplace.

Yes. I think it's just a shift in our business. It's, again, going to be, we're going to be more dominant on the e-commerce side of the business. We continue to grow and see very strong demand there. We expect that to continue. Wholesale will be down because of the cautious nature of some of the retailers that are out there, and retail with the closing of Harry & David stores will be down. But e-commerce, we expect to be strong.

Any incremental spending you're thinking of, may be CapEx or technology or marketing that may not have been there a month or so ago?

No, not really. I wouldn't say so. The plans -- the CapEx plans were in place prior to that. And that really hasn't necessarily changed at this point in time. And our technology spend, again, those plans have been in place. We haven't seen any need to change those plans at this point. So no real change in that approach, no.

Yes. I mean the world is -- the world continues to change almost daily. So we're in the planning process for the holiday season and for fiscal '21 right now and we continue to take more data points each day and modify our plans as we see appropriate.

[Operator Instructions]. Our next question comes from Michael Kupinski with NOBLE Capital Markets.

I'm sorry that I got dropped from the call there briefly. There was a line problem. And so I apologize if these questions were answered. But first of all, before I get into my questions, I want to congratulate you on some impressive numbers and outlook given this crisis. I mean, I follow companies that are not faring so well. And so it's quite remarkable that you're doing so well.First of all, I was wondering if you could talk about the cost impact that you may have had from COVID in the first -- in the last quarter, particularly, you talked a little bit about the revenue potential impact. But were there any extra costs in the quarter?

Sure. I think as we -- the team had to rapidly respond to changes on a continuous basis, the impact of social distancing and things like that. But Bill, why don't you give a little more color on the cost impact? But first of all, thank you, Mike.

Yes, we saw a little impact in the -- in Q3 as this happened, obviously, towards the end of Q3. And we did spend a little bit extra dollars at the end of Q3. A little bit of the margin impact that you saw at the end of Q3, a little bit of it was product mix because we didn't have the high retail gross margins, even though it loses money this time of year, but high retail gross margins. But we had some incremental operating costs.And we will have some operating costs -- we will have some costs -- incremental costs with regard to our -- that impact gross margin going forward. We have raised the wages of some of our hourly employees. We've -- because of social distancing, we're not as operating as efficiently as we are in a normal environment. We've moved to multiple shifts to adhere to social distancing. So we're not as efficient. With that said, the strong e-commerce demand is still very strong. So we're driving incremental gross margin dollars, but the gross margin percent could be down.And I think from an OpEx standpoint, we're managing out our discretionary spend. We're looking at all those types of items and holding back on that. So you saw some leverage in the third quarter on OpEx. You'll continue to see leverage in the fourth quarter on our operating expense line.

And you haven't identified what the dollar amount was in the last quarter?

We did not, no.

Okay. And then I was wondering if you could talk a little bit on -- regarding the last question about the marketing efforts. It seems like across the board and media, it has -- costs have come down significantly. Can you talk a little bit about your marketing efforts? Have you made any specific changes in your marketing budget? I would assume your customer acquisition costs are coming down, even search word costs are down as much as 50%. Can you just talk a little bit about may be the efficiencies of your marketing efforts and may be some of your changes in marketing?

Sure, Michael. And again, thank you for the question. I think as we look at our marketing efforts, we've been leaning into the marketing of our different brands in this time period because we're seeing such good efficiencies in those. We are seeing significant ramp-ups in customer acquisitions. I mentioned earlier that we brought -- in Q3, we had a 30% growth in new customers and that's accelerated through the first 4 weeks or so now of Q4. So we're getting really good returns on our marketing efforts.And now -- and as we manage the marketing, it's just a matter of marrying the marketing, which is generating the demand, which -- with the distribution and supply capabilities, the inventory capabilities that we have. So we're chasing that demand, and it's working well for us. And then what we know, what the key focus for us, though, in our marketing efforts is customer acquisition, then we get them into the family, get them into the family of brands. Markets such as the Passport program, which has seen really good growth rates. Get them to introduce -- introduce the customers across our family of brands, getting them to buy from more than one brand, developing that customer lifetime value that we're looking for.So when we look at our marketing efforts, it's, okay, what's the initial spend? What's the initial ROI? But most importantly, what do we think the CLV opportunity is with those customers?

Got you. And then can you talk a little bit about the BloomNet wire service a little bit? It -- what has happened in terms of the number of affiliated shops? And if you could just talk a little bit about the trends there.

So I think the BloomNet business is -- as we look at BloomNet, our purpose for BloomNet, first and foremost, is to help our local BloomNet florists to compete successfully in their local markets. These are small businesses, generally family-owned businesses, local businesses that are so important and are fabric of our American society. So it's an important aspect for us.We put together the mix to help them weather this time -- challenging time. Our florist support program that has some financial benefits with the florist, marketing benefits, supply benefits that we could bring to them, et cetera. So we're working well with our BloomNet florists to prepare them not just for this Mother's Day surge that we expect, but also for the business beyond Mother's Day and through the summer months.

And are most of the shops now are still open? I'm just wondering, what percentage -- I mean, you had to have some disruption with some closures, I would imagine with -- are all those shops pretty much open at this point?

Sure. A good question. That's been different according to local municipalities, different states. But I think things have eased up. The good news is that the floral industry, a, is being seen more and more as an essential business. And the florists are able to operate very much like the restaurant businesses would be able to operate, where may be the front door isn't open but you're doing your deliveries out of the backdoor. Now again, they'll have challenges because of social distancing.But the good news is that most of them have reopened those that were closed. Wholesalers that were closed have reopened. So things are moving better in the floral side of the business.

And Michael, one last point is that the large majority of florists are open.

Yes.

Got you. And then can you talk a little bit about the inventory, potential disruption, supplies from China? I know it's a topical question. But as you head into your strong season here, I was just wondering about your sourcing for products. What -- are you still getting favorable pricing? Is it coming from China? Are you looking at other suppliers? Just kind of give us a flavor of what's happening there?

Yes. Michael, first of all, the tariff issues of -- are way back when, I guess, now. It kind of prepared us a little bit for what's coming -- what's been coming now. And early on, there was some -- there was a little difficulty getting things out of China with all the issues. And they shut down the factories. So that the China is back open, and the supply chain is really -- has opened up, albeit it may be a little slower than we have. So we're not foreseeing an issue from that standpoint.As Chris has mentioned several times, e-commerce, demand has been so strong, which -- we're chasing inventory a little bit. But we've been able to continue to secure product, manufacture the product and get the product and get the product at the top.

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

So thank you all for joining us today. We appreciate your support and your questions. If you have any additional questions, please don't hesitate to contact us. And don't forget, Mother's Day is coming soon. And today, moms certainly matter more than ever. I encourage you to reach out and connect with all of the moms in your life. Let them know how much they mean to you. Thank you.

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