1-800-FLOWERS.COM(R) Reports Strong Earnings Growth for Its Fiscal 2007 Second Quarter

1-800-FLOWERS.COM, Inc. (NASDAQ: FLWS), the world’s leading florist and a provider of specialty gifts for all occasions, today reported record revenues of $329.9 million for its fiscal second quarter ended December 31, 2006, representing an increase of 18.7 percent, or $52.0 million, compared with revenues of $277.8 million in the prior-year period. Revenue growth for the quarter was driven by double-digit growth in the Company’s key Consumer Floral, BloomNet Wire Service and Gourmet Food & Gift Basket business categories and included the contribution from Fannie May Confections Brands, which was acquired in May 2006. This revenue growth was achieved despite lower year-over-year sales in its Home & Children’s Gifts category reflecting the highly competitive nature of this category during the holiday period. During the fiscal second quarter, the Company improved its operating expense ratio (excluding depreciation and amortization) by 130 basis points to 35.8 percent compared with the prior year period. This reflects management’s focus on leveraging its operating platform. Gross margin for the quarter also improved, increasing 110 basis points to 46.1 percent compared with last year’s fiscal second quarter. Combined with the revenue growth in the quarter, these factors resulted in an EBITDA improvement of $11.8 million, or 54 percent, to $33.8 million compared with $22 million in the prior year period. Net income (GAAP) for the quarter increased 63.7 percent to $16.9 million, or $0.26 per share, compared with $10.3 million, or $0.16 per share, in the prior year period. Pro forma EPS, excluding the effect of stock-based compensation, was $17.6 million, or $0.27 per share. (*A reconciliation of EBITDA and pro forma EPS to GAAP net income is included as part of the attached tables.) Jim McCann, CEO of 1-800-FLOWERS.COM, said, "We are very pleased with our fiscal second quarter results, particularly the increase in gross margin and the continued improvement in our operating expense ratio. These factors enabled us to grow EBITDA 54 percent, or nearly $12 million, to $34 million and improve EPS more than 60 percent to $0.26 per share. Importantly, we achieved these results despite the highly competitive retail environment during the holiday period.” McCann noted that the Company achieved double-digit revenue growth and improved profit contribution in its Consumer Floral, BloomNet Wire Service and Gourmet Food and Gift Basket businesses. In addition, the Company achieved increased leverage from its enterprise-wide business process improvement initiatives. "Our positive results in these areas more than offset the weaker performance we saw in our Home and Children’s Gifts business during the period. This illustrates the strength of our business model, particularly our focus on growing businesses that can best leverage our operating platform and our collection of unique assets – including our database of more than 25 million customers, our brand strength and our extensive online and offline marketing programs.” McCann said the Company has taken proactive steps to address the performance of its Home and Children’s Gifts category. "We successfully managed inventories during the quarter in response to the lower demand thereby minimizing any impact on gross margins and working capital requirements going forward into the second half of FY07. In addition, we have implemented a management change and initiated a comprehensive review of all operations at this division as we develop our go-forward plans.” In terms of its key customer metrics, the Company said more than 2.6 million e-commerce customers placed orders during the fiscal second quarter of which 53 percent were repeat customers. This reflects the Company’s ongoing focus on deepening the relationship with its existing customers through its expanded gift offers as well as services such as its Fresh Rewards loyalty program, the first such program in the floral category. During the quarter, the Company attracted 1.2 million new customers of which 63 percent, or 780,000, came to the Company through its online channels. "Customers continue to be attracted by the strength of our brands, as well as our expanded offering of products and services that help them connect with the important people in their lives,” said McCann. CATEGORY RESULTS: FLORAL: 1-800-FLOWERS.COM Consumer Floral: During the fiscal 2007 second quarter, revenues in this category increased 10.9 percent to $114.6 million compared to $103.3 million in the prior year period. Gross margin for the quarter increased 160 basis points to 39.7 percent compared with 38.1 percent in last year’s second quarter. Reflecting strong revenue and margin growth and improved operating leverage, Category EBITDA improved 43 percent to $13.3 million compared with $9.3 million in the prior year period. The Company defines Category EBITDA as earnings before interest, taxes, depreciation and amortization and before allocation of corporate overhead expenses. BloomNet Wire Service: Revenues increased 45.5 percent to $9.6 million compared with $6.6 million in the year ago period. Gross margin increased 710 basis points to 59.9 percent compared with 52.8 percent in the prior year period. Category EBITDA increased 114 percent to $3.3 million compared with $1.5 in last year’s second quarter, reflecting the growth in florist membership and product and service offerings compared with the prior year. SPECIALTY BRANDS: Gourmet Food and Gift Baskets: Revenues increased 74.6 percent to $108.9 million compared with $62.4 million in the prior year period. Gross margin increased 90 basis points to 48.4 percent compared with 47.5 percent in the year ago first quarter. Category EBITDA increased 139 percent to $25.3 million compared with $10.6 million in the prior year period. Results in this category reflect revenue contribution of $42 million from the Fannie May Confections Brands business which was acquired in May 2006. Home and Children’s Gifts: Revenues declined 7.7 percent to $98.0 million compared with $106.2 million in the prior year period. Gross margin was 48.8 percent, down 50 basis points, compared with 49.3 percent in the same period last year. Category EBITDA was down 65.8 percent to $3.8 million compared with $11.2 million in the prior year period. The category EBITDA reflects the impact of lower revenues and gross margin as well as increased marketing costs associated with efforts to expand the category. Company Guidance: The Company reiterated its guidance for growth of more than 100 percent in EBITDA and EPS reflecting its stated focus on achieving continued improvements in gross margin and operating leverage. Based on the lower revenues from its Home and Children’s Gifts category, the Company said it anticipates total revenue growth for fiscal 2007 at the low end of its previous guidance range of approximately 17-to-20 percent. Regarding its current fiscal third quarter, which includes the Valentine holiday; the Company expects the period will represent approximately 22-to-24 percent of full-year revenues. Definitions: Pro Forma EPS: To supplement its consolidated financial statements presented in accordance with GAAP, the Company has presented pro forma EPS. The Company defines pro forma EPS as GAAP net income per common share excluding stock-based compensation expense, net of the related tax effect, as calculated under FAS No. 123R. The Company believes pro forma EPS provide a meaningful measure of year-to-year period comparative performance; however, its use and corresponding per share results do not lessen the importance of GAAP net income per common share. EBITDA: Net income before interest, taxes, depreciation and amortization. The Company presents EBITDA because it considers such information a meaningful supplemental measure of its performance and believes it is frequently used by the investment community in the evaluation of companies with comparable market capitalization. The Company also uses EBITDA as one of the factors used to determine the total amount of bonuses available to be awarded to executive officers and other employees. The Company’s credit agreement uses EBITDA (with additional adjustments) to measure compliance with covenants such as interest coverage and debt incurrence. EBITDA is also used by the Company to evaluate and price potential acquisition candidates. EBITDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of these limitations are: (a) EBITDA does not reflect changes in, or cash requirements for, the Company's working capital needs; (b) EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debts; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA does not reflect any cash requirements for such capital expenditures. Because of these limitations, EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company's performance. About 1-800-FLOWERS.COM® For more than 30 years, 1-800-FLOWERS.COM Inc. – "Your Florist of Choicesm” – has been providing customers around the world with the freshest flowers and finest selection of plants, gift baskets, gourmet foods, confections and plush stuffed animals perfect for every occasion. 1-800-FLOWERS.COM® offers the best of both worlds: exquisite, florist-designed arrangements individually created by some of the nation’s top floral artists and hand-delivered the same day, and spectacular flowers shipped overnight "Fresh From Our Growerssm.” Customers can "call, click or come in” to shop 1-800-FLOWERS.COM twenty four hours a day, 7 days a week at 1-800-356-9377 or www.1800flowers.com. Sales and Service Specialists are available 24/7, and fast and reliable delivery is offered same day, any day. As always, 100 percent satisfaction and freshness are guaranteed. The 1-800-FLOWERS.COM collection of brands also includes home decor and children’s gifts from Plow & Hearth® (1-800-627-1712 or www.plowandhearth.com), Problem Solvers® (www.problemsolvers.com), Wind & Weather® (www.windandweather.com), Madison Place® (www.madisonplace.com), HearthSong® (www.hearthsong.com) and Magic Cabin® (www.magiccabin.com); gourmet gifts including popcorn and specialty treats from The Popcorn Factory® (1-800-541-2676 or www.thepopcornfactory.com); exceptional cookies and baked gifts from Cheryl&Co.® (1-800-443-8124 or www.cherylandco.com); premium chocolates and confections from Fannie May Confections Brands® (www.fanniemay.com and www.harrylondon.com); gourmet foods from GreatFood.com® (www.greatfood.com); wine gifts from Ambrosia.com (www.ambrosia.com); gift baskets from 1-800-BASKETS.COM® (www.1800baskets.com) and the BloomNet® international floral wire service, which provides quality products and diverse services to a select network of florists. 1-800-FLOWERS.COM, Inc. stock is traded on the Nasdaq market under ticker symbol FLWS. Special Note Regarding Forward-Looking Statements: The statements in this press release regarding current and future expectations 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 achieve its revenue and profitability growth guidance for fiscal 2007; its ability to improve operating leverage and enhance its profit margins; its ability to manage the increased seasonality of its businesses; its ability to effectively integrate and grow its acquired companies; its ability to cost effectively acquire and retain customers; its ability to compete against existing and new competitors; its ability to manage expenses associated with sales and marketing and necessary general and administrative and technology investments; 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. Conference Call: The Company will conduct a conference call to discuss the attached financial results today, Wednesday, January 24, 2007 at 11:00 a.m. ET. The call will be "web cast” live via the Internet and can be accessed from the Investor Relations section of the 1-800-FLOWERS.COM web site. An indexed recording of the call will be posted on the Investor Relations section of the Company’s web site within 2 hours of the call’s completion. A replay of the call can be accessed via telephone for twenty four hours beginning at 1:00 p.m. (ET) on 1/24/07 at: 1-888-286-8010 (domestic) or 1-617-801-6888 (international). Enter pass code #18237664. [Note: Attached tables are an integral part of this press release without which the information presented in this press release should be considered incomplete.] 1-800-FLOWERS.COM, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands)   December 31,2006 July 2,2006 (unaudited) Assets Current assets: Cash and equivalents $ 25,998  $ 24,599  Receivables, net 30,413  13,153  Inventories 58,787  52,954  Deferred income taxes 10,596  17,427  Prepaid and other   11,183    10,347  Total current assets 136,977  118,480    Property, plant and equipment, net 63,366  59,732  Goodwill 105,548  131,141  Other intangibles, net 54,055  29,822  Deferred income taxes 6,224  6,224  Other assets   1,624    1,235  Total assets $ 367,794  $ 346,634    Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 93,133  $ 63,870  Current maturities of long-term debt and obligations under capital leases   10,089    10,360  Total current liabilities 103,222  74,230    Long-term debt and obligations under capital leases 73,084  78,063  Other liabilities   2,212    1,158  Total liabilities 178,518  153,451  Total stockholders’ equity   189,276    193,183  Total liabilities and stockholders’ equity $ 367,794  $ 346,634  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 31, January 1, December 31, January 1, 2006  2006  2006  2006    Net revenues: E-commerce (combined online and telephonic) $ 270,159  $ 258,484  $ 379,418  $ 359,139  Other   59,707    19,345    87,580    31,455      Total net revenues 329,866  277,829  466,998  390,594      Cost of revenues   177,889    152,837    260,207    219,576      Gross profit 151,977  124,992  206,791  171,018    Operating expenses: Marketing and sales 99,037  87,874  141,407  126,098  Technology and development 5,201  4,797  10,362  9,566  General and administrative 13,931  10,357  27,274  20,993  Depreciation and amortization   3,834    3,809    8,578    7,333      Total operating expenses   122,003    106,837    187,621    163,990      Operating income 29,974  18,155  19,170  7,028      Other income (expense): Interest income 254  141  591  356  Interest expense (2,425) (113) (4,253) (197) Other   (7)   (143)   4    (137)     Total other income (expense), net   (2,178)   (115)   (3,658)   22      Income before income taxes 27,796  18,040  15,512  7,050  Income taxes   (10,874)   (7,704)   (6,009)   (3,340)   Net income   16,922  $ 10,336  $ 9,503  $ 3,710    Net income per common share: Basic $ 0.26  $ 0.16  $ 0.15  $ 0.06  Diluted $ 0.26  $ 0.16  $ 0.14  $ 0.06  Weighted average shares used in the calculation of net income per common share: Basic   65,094    65,065    65,144    65,076  Diluted   66,089    66,395    66,103    66,395  1-800-FLOWERS.COM, Inc. and Subsidiaries Selected Financial Information Consolidated Statements of Cash Flows (In thousands) (unaudited)     Six Months Ended December 31, January 1, 2006  2006    Operating activities Net income $ 9,503  $ 3,710  Reconciliation of net income to net cash provided by operations: Depreciation and amortization 8,578  7,333  Deferred income taxes 6,831  3,070  Bad debt expense 734  160  Stock based compensation 2,009  1,997  Other non-cash items 199  166  Changes in operating items: Receivables (17,994) (4,455) Inventories (6,182) (8,190) Prepaid and other (836) (1,316) Accounts payable and accrued expenses 29,263  33,840  Other assets (734) 4  Other liabilities   1,054    (452)   Net cash provided by operating activities 32,425  35,867    Investing activities Acquisitions, net of cash acquired (347) (4,959) Dispositions 630  -  Capital expenditures (10,477) (13,083) Proceeds from sale of investments -  6,695  Other   (163)   86    Net cash used in investing activities (10,357) (11,261) Financing activities Acquisition of treasury stock (15,689) (1,324) Proceeds from employee stock options 270  179  Proceeds from bank borrowings 65,000  -  Repayment of notes payable and bank borrowings (69,954) (1,815) Repayment of capital lease obligations   (296)   (735)   Net cash used in financing activities   (20,669)   (3,695)   Net change in cash and equivalents 1,399  20,911  Cash and equivalents: Beginning of period   24,599    39,961    End of period $ 25,998  $ 60,872  1-800-FLOWERS.COM, Inc. and Subsidiaries Selected Financial Information Category Information (in thousands) (unaudited)   Three Months Ended Six Months Ended December 31, 2006 January 1, 2006 % Change  December 31, 2006 January 1, 2006 % Change              Net revenues: 1-800-Flowers.com Consumer Floral $ 114,609  $ 103,300  10.9% $ 197,134  $ 179,575  9.8% BloomNet Wire Service 9,640  6,625  45.5% 16,806  11,141  50.8% Gourmet Food & Gift Baskets 108,898  62,364  74.6% 131,074  70,951  84.7% Home & Children’s Gifts 97,975  106,169  (7.7%) 122,570  128,845  (4.9%) Corporate (*) 418  500  (16.4%) 1,796  1,899  (5.4%) Intercompany eliminations   (1,674)   (1,129)   (2,382)   (1,817) (31.1%) Total net revenues $ 329,866  $ 277,829  18.7% $ 466,998  $ 390,594  19.6% Three Months Ended Six Months Ended December 31, 2006 January 1, 2006 % Change  December 31, 2006 January 1, 2006 % Change              Gross profit: 1-800-Flowers.com Consumer Floral $45,504  39,349  15.6% $76,877  $68,550  12.1% 39.7% 38.1% 39.0% 38.2%   BloomNet Wire Service 5,777  3,496  65.2% 9,877  6,109  61.7% 59.9% 52.8% 58.8% 54.8%   Gourmet Food & Gift Baskets 52,706  29,611  78.0% 61,193  33,379  83.3% 48.4% 47.5% 46.7% 47.0%   Home & Children’s Gifts 47,841  52,367  (8.6%) 58,007  62,057  (6.5%) 48.8% 49.3% 47.3% 48.2%   Corporate (*) 208  243  (14.4%) 940  1,039  (9.5%) 49.8% 48.6% 52.3% 54.7%         Intercompany eliminations (59) (74) (103) (116) Total gross profit $151,977  $124,992  21.6% $206,791  $171,018  20.9% 46.1% 45.0% 44.3% 43.8% Three Months Ended Six Months Ended   December 31, 2006 January 1, 2006 % Change  December 31, 2006 January 1, 2006 % Change              Category Contribution Margin: 1-800-Flowers.com Consumer Floral $ 13,260  $ 9,275  43.0% $ 21,101  $ 15,191  38.9% BloomNet Wire Service 3,256  1,523  113.8% 4,958  2,196  125.8% Gourmet Food & Gift Baskets 25,326  10,590  139.2% 23,720  9,162  158.9% Home & Children’s Gifts   3,838    11,231  (65.8%)   1,783    9,289  (80.8%) Category Contribution Margin Subtotal 45,680  32,619  40.0% 51,562  35,838  43.9% Corporate (*)   (11,872)   (10,655) (11.4%)   (23,814)   (21,477) (10.9%) EBITDA $ 33,808  $ 21,964  53.9% $ 27,748  $ 14,361  93.2% (*) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Share-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific category. 1-800-FLOWERS.COM, Inc. and Subsidiaries Selected Financial Information Appendix A – Reconciliations of Historical Information (In thousands) (unaudited)   Reconciliation of Net Income to EBITDA:   Three Months Ended Six Months Ended December 31, 2006 January 1, 2006 December 31, 2006 January 1, 2006   Net income $ 16,922  $ 10,336  $ 9,503  $ 3,710  Add: Interest expense 2,425  113  4,253  197  Depreciation and amortization 3,834  3,809  8,578  7,333  Income tax expense 10,874  7,704  6,009  3,340  Other expense (income) 7  143  (4) 137  Less: Interest income   254    141    591    356      EBITDA $ 33,808  $ 21,964  $ 27,748  $ 14,361  Reconciliation of Net Income Per Common Share to Pro Forma Net Income Per Common Share:     Three Months Ended Six Months Ended December 31, 2006 January 1, 2006 December 31, 2006 January 1, 2006   Net income $ 16,922  $ 10,336  $ 9,503  $ 3,710  Add: Share-based compensation expense, net of tax   672    819    1,410    1,546      Income before share-based compensation expense $ 17,594  $ 11,155  $ 10,913  $ 5,256            Net income per common share Basic $ 0.26  $ 0.16  $ 0.15  $ 0.06  Diluted $ 0.26  $ 0.16  $ 0.14  $ 0.06  Add: Share-based compensation expense, per basic and diluted common share $ 0.01  $ 0.01  $ 0.02  $ 0.02  Net income per common share before share-based compensation expense         Basic $ 0.27  $ 0.17  $ 0.17  $ 0.08  Diluted $ 0.27  $ 0.17  $ 0.17  $ 0.08