1-800-FLOWERS.COM Reports Revenues of $230 Million for its Fiscal 2005

1-800-FLOWERS.COM Reports Revenues of $230 Million for its Fiscal 2005 Second Quarter Driven by Online Revenue Growth of 18 Percent

    Business Editors

    WESTBURY, N.Y.--(BUSINESS WIRE)--Jan. 18, 2005--1-800-FLOWERS.COM(R), Inc. (NASDAQ: FLWS)

--	Net income was $8.7 million, or $0.13 per fully diluted share. On a comparative basis, pre-tax net income was $14.9 million, or $0.22 per fully-diluted share compared with $14.0 million, or $0.20 per fully diluted share, in the prior year period.
--	The Company issued revised guidance for fiscal 2005 stating pre-tax income for the year will be flat compared with the prior year as it increases investments in marketing, infrastructure and new business development to achieve accelerated revenue growth.

    1-800-FLOWERS.COM(R), Inc. (NASDAQ: FLWS), a leading multi-channel retailer of thoughtful gifts for all occasions, today reported record revenues of $230 million in its recent fiscal second quarter ended December 26, 2004. The revenue figure represents total growth of 7.9 percent compared with revenue of $213.2 million in the prior year period. Online revenues increased 18.5 percent to $107.7 million compared with $90.9 million in the second quarter of 2004. Telephonic revenues were $109.6 million, down 3.4 percent compared with $113.4 million reported in the prior year period, reflecting the increased utilization of the Company's online channels. Retail and Fulfillment revenues increased 42.9 percent to $12.8 million compared with $8.9 million in the prior year period, primarily reflecting increased sales of products and services to the Company's Bloomnet network of florists and fulfillment services revenues associated with the Wine Tasting Network business acquired during the quarter.
    The Company said a strong December finish to the holiday shopping season enabled it to achieve double-digit sales growth for the quarter in several of its key gift categories including its gourmet food gifts, unique children's gifts, and expanded line of gift baskets. Sales of the Company's home decor gift items increased 1.8 percent for the quarter, aided by an increase of 11.0 percent in December which reversed the negative sales trend experienced in this category during fiscal 2004 and into early fiscal 2005. Floral gift sales for the quarter increased 6.0 percent and represented 33.7 percent of total revenues, essentially unchanged from the prior year.
    The Company's gross profit margin for the quarter was 44.6 percent, compared with 44.9 percent in the prior year period. The slightly lower gross profit margin primarily reflects the effect of increased shipping costs and holiday-season promotional pricing. During the quarter, the Company also increased its marketing investments in evolving areas including search and affiliate marketing, as well as in a variety of direct marketing and broadcast advertising programs. Despite these increased marketing investments, the Company was able to improve its operating expense ratio by 10 basis points to 38.2 percent. The combination of revenue growth and improved operating expense ratio, somewhat offset by lower gross profit margin, enabled the Company to achieve net income of $8.7 million, or $0.13 per fully diluted share. This compares with net income of $13.7 million, or $0.20 per fully diluted share in the prior year period. Importantly, in the prior year period, the Company was not required to provide for income taxes as it was prior to the recognition of our deferred tax asset which occurred in last years fiscal fourth quarter. On a comparative basis, pre-tax net income for the quarter was $14.9 million, or $0.22 per fully-diluted share compared with $14.0 million, or $0.20 pre fully-diluted share, in the second quarter last year.
    Jim McCann, CEO of 1-800-FLOWERS.COM, said, "During the fiscal second quarter, we grew our business by approximately 8 percent. Importantly, this growth was driven by our online channel which increased more than 18 percent compared with the prior year period. In addition, we saw double digit revenue increases in several of the gift categories that we have identified as primary growth areas for the future, particularly our expanded food, wine and gift baskets category." McCann also noted that, during the quarter, the Company achieved a turnaround in its home decor business, which grew revenues 11 percent in December. "This reflects the significant progress we have made in successfully implementing changes to enhance the creative look and feel, the product offering and the overall marketing programs in this category," he said.
    The Company's multi-channel customer access and its expanded gift offerings helped attract more than 1.2 million new customers during the second quarter, 54 percent of whom (approximately 650,000) came to the Company online. Approximately 2.5 million customers placed orders during the period of which 51.3 percent were repeat customers, up from 48.7 percent in the second quarter of fiscal 2004. This reflects the Company's emphasis on deepening its relationship with existing customers through all of its marketing and selling efforts.

    Company Guidance:

    The Company said it plans to increase investments in three areas that it believes offer significant opportunities for revenue and profit growth. These include: (1) marketing programs including search, affiliate marketing and broadcast advertising in an effort to increase customer acquisition and thereby accelerate revenue growth during the second half of its fiscal year and beyond; (2) infrastructure investments, primarily personnel-related, in support of its Bloomnet(R) business-to-business operations to grow revenues and market share in this area of the floral gift industry; and (3) investments in the technology platform, marketing programs and personnel for its recently acquired wine business to enhance both its winery services capabilities and expand its direct-to-consumer wine gift and wine club businesses. As a result of these increased investments, the Company said that it has targeted:

    -- Revenue growth of approximately 10 percent during the second
    half of fiscal 2005.

    -- Fiscal third quarter pre-tax earnings to be break-even and
    fiscal fourth quarter and full-year pre-tax earnings to be
    relatively flat compared with fiscal 2004.

    "As we enter the second half of our fiscal year, we are stepping up our marketing investments, particularly in evolving areas including search, affiliate marketing and broadcast advertising where we have been seeing some good results. We believe this will enable us to accelerate our revenue growth rate toward achieving sustainable double digit growth, both for the second half of this year and beyond. These investments reflect our strategy to become more aggressive in terms of customer acquisition as well as our response to the increasingly competitive marketplace, particularly in our core floral gift category," said McCann.
    McCann also noted that the Company will make investments to grow its business-to-business operations in the floral gift category. "The strength of our Bloomnet Network of fulfilling florists and our Bloomlink communications system positions us well to begin to grow our market share in the B2B side of the floral industry. We believe that, over the next several years, we can add significantly to our revenue and profitability in this area through sales of an expanding range of products and services to our floral network members. We are also investing in our recently acquired wine gift business to enhance its technology platform and its marketing and personnel to expand its winery services capabilities and its direct-to-consumer wine gift and wine club businesses. We believe the wine gift market is poised for significant growth over the next several years and the investments we are making in this platform will enable us to build a leadership position in this business." said McCann.

    About 1-800-FLOWERS.COM(R)

    For more than 25 years, 1-800-FLOWERS.COM, Inc. (NASDAQ: FLWS) has been the leading innovator in the floral industry, taking the extra step to help people connect and express themselves quickly and easily with exquisite floral gifts crafted with care by renowned artisans and the nation's leading florists, as well as distinctive non-floral gifts appropriate for any occasion or sentiment. The Company provides gift solutions same day, any day, offering an unparalleled selection of flowers, plants, gourmet foods and confections, gift baskets and other impressive unique gifts. As always, satisfaction is guaranteed, and customer service is paramount with quick, convenient ordering options, fast and reliable delivery, and gift advisors always available. Customers can shop 1-800-FLOWERS.COM 24-hours a day, seven-days a week via the Internet (http://www.1800flowers.com); by calling 1-800-FLOWERS(R) (1-800-356-9377); or by visiting a Company-operated or franchised store. The 1-800-FLOWERS.COM family of brands also includes home decor and garden merchandise from Plow & Hearth(R) (1- 800-627-1712 or http://www.plowandhearth.com); premium popcorn and specialty treats from The Popcorn Factory(R) (1-800-541-2676 or http://www.thepopcornfactory.com); gourmet foods from GreatFood.com(R) (http://www.greatfood.com); children's gifts from HearthSong(R) (http://www.hearthsong.com) and Magic Cabin(R) (http://www.magiccabin.com) and wine gifts from The Wine Tasting Network (www.ambrosiawine.com and www.winetasting.com).

    Special Note Regarding Forward-Looking Statements:

    A number of statements contained in this press release, other than statements of historical fact, are 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. These risks and uncertainties include, but are not limited to: the Company's ability to profitably grow its business during the second half of its fiscal year; its ability to integrate and profitably grow the businesses of its acquired companies; its ability to maintain and enhance its online shopping web sites to attract customers; its ability to successfully introduce new products and product categories; its ability to provide timely fulfillment of customer orders; its ability to cost effectively acquire and retain customers; its ability to compete against existing and new competitors; its ability to cost efficiently manage inventories and general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company's products. For a more detailed description of these and other risk factors, please refer to the Company's SEC filings including the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company expressly disclaims any intent or obligation to update any of the forward looking statements made in this release, or in any of its SEC filings except, as may be otherwise stated by the Company.

1-800-FLOWERS.COM, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands)

December 27, June 27, 2004 2004 ------------- --------- (unaudited) Assets Current assets: Cash and equivalents $86,794 $80,824 Short-term investments 19,086 22,550 Receivables, net 20,660 9,013 Inventories 27,675 19,625 Deferred income taxes 18,522 16,463 Prepaid and other 2,137 1,517 ------------- --------- Total current assets 174,874 149,992

Property, plant and equipment, net 41,642 42,460 Investments 3,687 8,260 Goodwill 42,189 34,529 Other intangibles, net 2,266 2,598 Deferred income taxes 9,146 13,548 Other assets 8,714 10,165 ------------- --------- Total assets $282,518 $261,552 ============= =========

Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued expenses $81,017 $63,266 Current maturities of long-term debt and obligations under capital leases 2,925 3,022 ------------- --------- Total current liabilities 83,942 66,288

Long-term debt and obligations under capital leases 4,614 6,062 Other liabilities 3,108 2,812 ------------- --------- Total liabilities 91,664 75,162 Total stockholders' equity 190,854 186,390 ------------- --------- Total liabilities and stockholders' equity $282,518 $261,552 ============= =========

1-800-FLOWERS.COM, Inc. and Subsidiaries Selected Financial Information Consolidated Statements of Income (Unaudited) (In thousands, except for per share data)

Three Months Ended Six Months Ended ------------------- ------------------- December December December December 26, 28, 26, 28, 2004 2003 2004 2003 --------- -------- ---------- --------

Net revenues: Online $107,686 $90,878 $160,772 $139,814 Telephonic 109,570 113,374 147,156 153,745 Retail/fulfillment 12,758 8,930 19,600 14,783 --------- -------- --------- --------- Total net revenues 230,014 213,182 327,528 308,342

Cost of revenues 127,402 117,550 185,344 173,643 --------- -------- --------- ---------

Gross profit 102,612 95,632 142,184 134,699

Operating expenses: Marketing and sales 72,841 66,762 102,733 95,608 Technology and development 3,292 3,503 6,396 6,934 General and administrative 7,954 7,577 15,556 15,356 Depreciation and amortization 3,770 3,843 7,666 7,760 --------- -------- --------- --------- Total operating expenses 87,857 81,685 132,351 125,658 --------- -------- --------- --------- Operating income 14,755 13,947 9,833 9,041

Other income (expense): Interest income 275 223 657 415 Interest expense (124) (186) (265) (419) Other 21 (14) 25 (213) --------- -------- --------- --------- Total other income (expense), net 172 23 417 (217) --------- -------- --------- --------- Income before income taxes 14,927 13,970 10,250 8,824 Income taxes (6,223) (292) (4,256) (292) --------- -------- --------- ---------

Net income $8,704 $13,678 $5,994 $8,532 ========= ======== ========= ========= Net income per common share: Basic $0.13 $0.21 $0.09 $0.13 ========= ======== ========= ========= Diluted $0.13 $0.20 $0.09 $0.12 ========= ======== ========= ========= Weighted average shares used in the calculation of net income per common share: Basic 66,061 65,881 66,135 65,828 ========= ======== ========= ========= Diluted 67,637 69,074 67,627 68,811 ========= ======== ========= =========

Calculation of pre-tax income per share:

Income before income taxes $14,927 $13,970 $10,250 $8,824 ======== ======== ======== ======= Income before income taxes per common share: Basic $0.23 $0.21 $0.15 $0.13 ======== ======== ======== ======= Diluted $0.22 $0.20 $0.15 $0.13 ======== ======== ======== ======= Weighted average shares used in the calculation of income before income taxes per common share: Basic 66,061 65,881 66,135 65,828 ======== ======== ======== ======= Diluted 67,637 69,074 67,627 68,811 ======== ======== ======== =======

1-800-FLOWERS.COM, Inc. and Subsidiaries Selected Financial Information Consolidated Statements of Cash Flows (In thousands) (unaudited)

Six Months Ended ----------------- December December 26, 28, 2004 2003 -------- -------- Operating activities: Net Income $5,994 $8,532 Reconciliation of net income to net cash provided by operations: Depreciation and amortization 7,666 7,760 Deferred income taxes 4,256 - Bad debt expense 146 279 Other non-cash items - 157 Changes in operating items: Receivables (11,078) (8,198) Inventories (7,719) 1,941 Prepaid and other (620) (542) Accounts payable and accrued expenses 15,765 16,154 Other assets 1,592 619 Other liabilities 296 219 -------- -------- Net cash provided by operating activities 16,298 26,921

Investing activities: Purchase of investments (32,866) (23,018) Sale of investments 40,903 36,250 Acquisition of business (9,674) - Capital expenditures, net of non-cash expenditures (5,653) (4,296) Other 2 145 -------- -------- Net cash (used in) provided by investing activities (7,288) 9,081 Financing activities: Acquisition of treasury stock (2,175) - Proceeds from employee stock options/purchase plan 645 1,005 Repayment of notes payable and bank borrowings (654) (528) Payment of capital lease obligations (856) (862) -------- --------

Net cash used in financing activities (3,040) (385) -------- -------- Net change in cash and equivalents 5,970 35,617 Cash and equivalents: Beginning of period 80,824 49,079 -------- -------- End of period $86,794 $84,696 ======== ========

--30--JM/ny*

CONTACT: 1-800-FLOWERS.COM, Inc. Investor Contact: Joseph D. Pititto, 516-237-6131 invest@1800flowers.com or Media Contacts: Ken Young, 516-237-6102 kyoung@1800flowers.com

KEYWORD: NEW YORK INDUSTRY KEYWORD: CONSUMER/HOUSEHOLD RETAIL INTERNET E-COMMERCE EARNINGS SOURCE: 1-800-FLOWERS.COM, Inc.

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