FLWS - 1-800-Flowers Could Surpass Modest FQ3 Expectations

2023-04-25 04:21:04 ET

Summary

• A solid Valentine's Day could propel FLWS' FQ3 results past modest analyst expectations.
• Longer term, the stock is largely a roll-up story.
• The valuation looks attractive, but the stock is best left to aggressive investors.

1-800-Flowers.com ( FLWS ) shares could rally if it the company can beat modest expectations for FQ3. Longer term, the stock or more of a roll-up story.

Company Profile

FLWS is a florist and gift company. In addition to selling floral arrangements, it sells gift baskets, fruit baskets, chocolate, gourmet popcorn, cookies, wine gifts, fruit bouquet arrangements, and dipped berries.

The company operates through a number of brands. In addition to its namesake 1-800-FLOWERS.COM brand, some of its other well-known brands include Harry & David, Shari's Berries, The Popcorn Factory, Cheryl's Cookies, and Simply Chocolate, among others. It also offers personalized gifts and keepsakes through Personalization Mall. In addition, it also sells steaks and chops through its Stock Yards brand and wild seafood and sustainably farmed shellfish via its Vital Choice brand.

FLWS also operates BloomNet, which provides business tools, advertising & marketing, and technology solutions to professional florists that become members of the BloomNet network. The majority of FLWS' orders are fulfilled by BloomNet florists. FLWS collects membership fee from BloomNet members.

Opportunities and Risks

In many ways, FLWS is a roll-up story. The company likes to acquire small e-commerce businesses that it can put onto its platform. From there it looks to invest in the businesses while also improving their gross margins and lowering their overall opex. Many of these businesses are in the gifting space, but the company has also moved into the food category with its acquisitions of Stock Yards and Vital Choice.

It also has really built out its offerings in the personalization category. Personalization Mall was a larger acquisition in 2020, and its most recent acquisition is Things Remembered, which it bought for $5 million. Personalization Mall was acquired for $252 million from Bed Bath & Beyond ( BBBY ).

On its Q2 call , CEO Christopher McCann said:

We wanted to take a moment to highlight the newest addition to our family of brands. We are excited to welcome Things Remembered to our all-star roster. This is a perfect example of a tuck-in acquisition that enables us to further expand our leadership position and product offerings in the personalization category. Things Remembered is very complementary to Personalization Mall and significantly grows the number and variety of personalized products that we can offer to our customers to help celebrate every occasion with personalized masterpieces. We acquired the Things Remembered brand and related IP, including their customer list in certain assets for approximately $5 million shortly after the second quarter ended. This addition perfectly illustrates how our e-commerce platform was built for rapid growth as we seamlessly incorporate complementary brands onto our platform and grow them profitably...

And you're right, it's a relatively small acquisition, but one that really demonstrates how we have the leverage of the platform that we've built and can bring acquisitions like that, that maybe weren't working as a stand-alone business. We can put them on our platform, inject some growth into them and manage them appropriately with the gross margin capabilities that we have as well as our OpEx capabilities. So it's a good example of how we can do these tuck-in acquisitions as we move along."

Acquisitions are the company's #1 priority, and thus the big long-term growth driver for FLWS. The company also has a pretty loyal customer base, with current customers representing about 70% of its sales. It also has been building a nice loyalty program. Getting its current customers to spend more and adding new customers will be a key for the company moving forward. However, I think acquisitions is the bigger story than organic growth when looking at FLWS long term.

Margin recovery is another big opportunity. FY22 was a pretty poor year for the company after a strong FY21, largely due to weak margins. Pricier hikes and moderating inflation could go a long way to helping the company in this regard. Lower in-bound freight costs will also help.

When looking at risks, the company certainly isn't immune to the economy, as gifts and flowers are very discretionary items. In addition, the company has seen pressure in the corporate gift giving category. Inflation has also taken its toll on the company and its gross margins.

Earnings Preview

As primary a seller of gifts and flowers, FLWS' business is very holiday driven. As it's diversified away from being just a florist service, the traditional Christmas holiday season has become its biggest revenue period (fiscal Q2). However, its fiscal Q3, where Valentine's Day falls, is also important. The company will report its fiscal Q3 results in May, a little later than usual.

Valentine's Day is obviously a huge flowering giving holiday, but the company generally has little visibility into how the holiday with shape up, as it tends to be very last minute gift giving occasion. The National Federation of Retailers ((NRF)) was predicting robust Valentine's Day sales , but notably total February retail sales fell on the month.

Meanwhile, one large florist indicated it was a difficult Valentine's Day , although it went mostly how it expected. The florist noted that energy prices drove up costs on flowers, which need to be heated in greenhouses. Meanwhile, remote work trends have also put pressure on traditional florists. The reason for this is that flowers are often sent to places of work in a showy fashion, and it's cheaper to pick up flowers at a grocery store and bring them home if someone isn't in the office.

Analysts aren't exactly looking for a big quarter from FLWS, with the consensus for revenue to fall over -9% to $426.8 million. EPS, meanwhile, is projected to be flat at a loss of -36 cents.

It's also notable that while Easter falls out of the quarter, it was earlier this year, and close enough to the end of the quarter where some gift sales could fall into the quarter.

FLWS can make big moves around its Valentine's Day quarter dropping -16.6% the day it reported earnings last year. Two years ago, shares spiked 28.9%.

In my view, the analyst forecast for fiscal Q3 doesn't look too difficult, especially with the earlier Easter.

Valuation

FLWS stock currently trades around 9.7x the FY24 (ending in June) consensus EBITDA of $82.6 million and 7.7x the FY25 consensus of $104.1 million.

It trades at a forward PE of 27x the FY25 consensus of 40 cents.

It's projected to see revenue decline over -6% this year, and to grow 3% next year.

There aren't really any great compares for the stock, but it is trading towards the low-end of its historical valuation.

Conclusion

While FLWS stock has performed well over the past six months, the stock has taken a beaten the past few years, having traded over $35 a share in 2021. The results for the company were poor in FY22 due to weak margins, and its results over the first two quarters of FY23 have been pretty lackluster. That said, FLWS has a decent roll-up business model and the stock is trading at a reasonable price.

If the company can leap over some easy analyst estimates in FQ3 and put up a solid Valentine's Day quarter, the stock will likely continue its nice rally. Margin recovery will also be a key driver. The stock is a "Buy," but only for very aggressive investors.

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