FLWS - 1-800-Flowers.com (FLWS) - Is The Glass Half Empty?
A surprise miss. Fiscal Q2 total revenues were $943 million, up a solid 7.5% from the year earlier quarter, but missed expectations. Adj. EBITDA was $133 million, down 17%, missing our estimate of $179 million. The miss was due to cancelled orders, higher than expected costs for ocean freight, inbound and outbound shipping costs and labor. Gross margins take a hit. Gross profit margin declined 530 basis points from 45.4% in the prior year quarter to 40.1% due to increased inbound and outbound shipping costs as well as the rising cost of labor. All three operating segments took a hit to margins on a year-over-year basis: gross margins for Gourmet Foods and Gift Baskets declined 660 basis points, Consumer Floral and Gifts declined 270 basis points, and BloomNet declined 720 basis points. Adj. EBITDA margin was 14% in the quarter compared with our estimate of 18%.Fiscal full year guidance lowered. Management expects full-year fiscal 2022 revenue to grow 7% to 9% from the prior year, which is roughly on pace with the growth of 7.5% reported in the latest quarter. Adj. EBITDA is expected to be $140 million to $150 million, below our previous adj EBITDA guidance of $175 million. Management’s EPS forecast for 2022 is $0.90-$1.00 per diluted share compared to our previous estimate of $1.29. We have adjusted estimates lower.Lower price target. Our previous price target was based on industry comps, but we have moved toward a more conservative multiple in line with its expected growth rate. In addition, our revised price target reflects lowered expectations. We are lowering our target from $50 to $25, which would reflect an EV to our fiscal 2023 Adj. EBITDA multiple of 8.6 times. Sell-off overdone? The shares dropped nearly 30% upon the quarterly release. Near current levels, we believe that there is a favorable risk/reward relationship, with the shares trading at a compelling 4.9 times EV to our fiscal 2023 adj. EBITDA estimate. In our view, the key catalyst toward higher stock valuations will be demonstration that the company has control over costs and can maintain favorable high single digit revenue growth. Read More >>