1-800-Flowers Q3 Numbers

[CHR]

The Jan - March numbers were released this morning.

My take-away after a quick read? Discounting isn't a sure-fire way to improve sales or the bottom line.

Consumer Floral

During the third quarter, revenue in this category declined 5.7 percent to $95.3 million compared with $101.1 primarily reflecting the weak Valentine-holiday which was impacted by several factors, including the Sunday day-placement, severe snow storms across much of the country and continued soft demand from consumers. Gross margin for the quarter was 33.2 percent compared with 35.6 percent in the prior year period, reflecting the impact of the Valentine holiday free shipping/ no service charge promotion. The combination of the lower sales and gross profit margin, along with higher marketing spending and the loss of approximately $1.1 million of contribution margin due to the termination of a third party marketing program, resulted in a decline in category contribution* to a loss of $241,000 compared to a gain of $7.4 million in the prior year period.

Emphasis mine.

From Jim McCann:

"As we planned for the Sunday day-placement of the holiday, we made the decision to step up our marketing spending as well as offer consumers expanded promotional offers designed to incent early ordering for early delivery. While we did see an increase in order volume for the Valentine holiday, the lift was insufficient to offset the impact that the promotions had on our gross margin and average order value.

“This, combined with the increase in advertising, resulted in significant underperformance in terms of category contribution in our Consumer Floral category."

It's a real-life cautionary lesson about 'lower your prices and the increased sales will off-set the discounts.' Some in this industry loudly preach this approach and here's a prime example of how it actually damaged both the top and bottom lines.

I'm kind of surprised they're still running 'free shipping/no service charge for Mother's Day. AFAICT, it's primarily on florist-delivered products for the holiday.

Would love to hear from some BloomNet members on how the $6 extra per-order cost (assessed on all orders sold as 'no service charge') affected their bottom lines.

 

[CHR]

From the conference call transcript:

On 'Free Shipping'

Ronald Bookbinder - Global Hunter
When looking at the gross margin on a product basis, basically excluding the promotional free shipping. How was gross margin year-over-year?

Bill Shea (1-800-Flowers)
Material to the free shipping offer? Well, there's a combination that we guys have had during the quarter. You saw that the flowers, the consumer floral margins were down fairly dramatically during the third quarter. It was the free shipping but it was also the lack of demand that the free shipping generated. We expected higher demand.

Interesting. 'Free shipping' didn't seem to move the needle.

Anthony Lebiedzinski - Sidoti & Company
Currently you have a free shipping, no service charge promotion on your website for Mother's Day. How does this compare to last year? Also can you talk about number of SKUs that you're offering versus Mother's Day a year ago?


Chris McCann
Yes. So, again, what we’ve learned as I mentioned for Valentine's Day is that doing it from an overall perspective isn't enough to drive the volume to offset the impact on AOV. Free shipping does have a place as a marketing vehicle from time to time and you'll see us do that where it makes sense to certain aspects. In our offering now we have a collection that's available for Mother's Day free shipping again to incent early ordering but, again, it's not the over-arching campaign that we did at Valentine's Day. So, we're managing that very closely and we'll make determinations as we move through the holiday when to offer it and when to not offer it. From a SKUs point of view in the floral category, it’s very similar to the number of SKUs we had offered last year.


Jim McCann
One of the learning’s we saw from Valentine's Day with the free ship offer was the two weeks out, the two weeks leading up to Valentine's Day we saw strong revenue growth. It was as we got closer to the holiday that it did not work. So, we're taking some of those learning’s and implementing those promotional campaigns where they make sense.

Sounds like 'free shipping' was good to drive early (2 weeks ahead) orders but then just served to undermined profits as the holiday grew closer. Again, interesting from a marketing tactic perspective.

On BloomNet:

Anthony Lebiedzinski - Sidoti & Company
Okay and in terms of BloomNet, where do you see opportunities there that talk about increasing your market penetration? So, can you just give us an update there, please?


Jim McCann
We're quite pleased with how BloomNet is doing, Anthony. We saw good performance again this quarter, good margins. I think we are really very confident about where BloomNet can go in the future. One of the outgrowths of the experience that we had with Undercover Boss was a dramatic outpouring of sentiment from not only BloomNet networks but in particular BloomNet, our franchisees, and florists around the country, in fact around North America, saying how pleased they were with our involvement in the program, how they thought it reflected them in such a very good light, and that they were pleased with the emphasis that was placed on our retail florist component, the fact that we're a multi-channel company and that we celebrated our retail flower shops.



So, there's been tremendous outpouring from BloomNet in that regard. I think that's something we can build on. I think they were pleased and we're getting great reaction to the continuing suite of services that we're rolling out, the product opportunities. We have a program that's been particularly well embraced where we introduce our whole glass container buying program which reduces their costs, gives them the opportunity to improve their margins, service their customers better, and so both from a service and product category I think we're more enthusiastic than ever in terms of how we can deepen our relationship with our existing customer base in BloomNet.

There's also a section where Chris McCann talks about being on Under Cover Boss.

 

[Kristine]

so anotherwords, our blooomnet members have been giving us the most margins$$$ and we can look forward to getting more $$ from them in the way of overprice containers and other services to increase our margins and shrink thiers.

also love the comments from Jim on the under cover boss. strange he didn't mention all the folk who commented on how less than nice he was. Oop shouldn't have mentioned that.