1 800 FLOWERS COM INC Q1 2026 earnings call

Good morning and welcome to our fiscal 2026 first quarter earnings call. Joining us on today's call are Adolfo Villagomez, Chief Executive Officer, and James Langrock, Chief Financial Officer. Before we begin, I'd like to remind you that some of the statements we make on today's call are covered by the safe harbor disclaimer contained in our public documents. During this call, we will make forward-looking statements with predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission. The company disclaims any obligation to update any of the forward-looking statements that may be made or discussed during this call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. Now I'll turn the call over to Adolfo.

Thanks, Andy, and good morning, everyone. I am excited to share some of the early progress that we have made on the strategic initiatives that we discussed. In our last call.

As I mentioned in our last call, we view fiscal 2026 as a year of stabilization for the company focused on building a foundation for long term sustainable growth. We are only one quarter into our turnaround strategy, but we have already begun to move from identifying problems to taking actions. As James will discuss in more detail, our underlying profitability has begun to show a clear positive trend when we adjust for timing related items. While there is much more work to be done and inevitably there will be some challenges, we are beginning to see some benefits from the changes we have made. Before I share some updates, let me begin by quickly reviewing the strategic initiatives we outlined on our last call.

These include four key areas: strengthening our customer focus, enhancing talent and accountability, achieving cost savings and organizational efficiency, and expanding our reach beyond e-commerce into new channels. Let's begin with strengthening our customer focus. We began to make major changes in our customer acquisition and marketing strategy during the first quarter. Historically, our company relied too heavily on bottom of the funnel marketing activities that focus on driving revenues without fully taking into account the overall impact on profitability. This was highly inefficient and negatively impacted our financial performance. In Q1, we made a fundamental shift to focus on marketing contribution margin, which allows us to better allocate resources and optimize spending, ensuring that our marketing dollars drive measurable returns. As James will discuss further, we're already seeing positive results from this change.

In the short term, we could see additional pressure on the top line as we recalibrate our approach toward a positive marketing contribution margin on paid traffic. As we pivot toward a greater focus on contribution margin, we are placing a stronger emphasis on optimizing our marketing spend to drive profitable growth, not just higher sales. This optimization delivers a twofold financial benefit that improves both efficiency and effectiveness. Efficiency ensures we are maximizing our marketing dollars, reducing waste, and aligning spend with our highest return channels. Effectiveness, on the other hand, ensures our investments are more precisely targeted, driving stronger engagement and results. Together, these improvements directly impact our top and bottom lines by increasing awareness, accelerating customer acquisition, and improving retention. At the end of the day, this strategy positions us for stronger and more sustainable growth and profitability.

Additionally, this quarter we began testing a paid traffic consolidation strategy by redirecting visitors from our lower traffic websites to our main platforms, landing them on the same categories they were originally seeking. This approach is intended to improve productivity and maximize return on investment by increasing conversion and average order value as customers attach other categories merchandise on our primary platforms. Early results are promising, and we are confident that these efforts will help create a more scalable and efficient digital ecosystem. Expanding into new channels has been another key focus area for us. Historically, as a consumer products company with many selling options, we became too dependent on our own websites and on traffic coming directly from web browsers. The company didn't adjust its strategy as customer preferences shifted toward beginning their shopping journeys on third-party marketplaces.

I'm excited to announce that we are now selling our products through third-party marketplaces including Amazon and Walmart.com, making our offerings more accessible to a broader audience. Additionally, we have successfully opened our holiday pop-up shops, which have been well received by customers. These pop-ups will help us test and refine a physical retail concept that we can expand to multiple locations, leveraging our broad range of product categories. Having the right talent in the right roles is foundational to our transformation. Recently, we made a key hire to strengthen our leadership team. I am thrilled to welcome Melanie Babcock to our company as Chief Marketing and Growth Officer. This is a pivotal moment for our company, and Melanie is just the right leader to help us accelerate our transformation.

With a proven track record of building teams and businesses that deliver outsized, sustainable returns, she was key in leveraging AI to transform The Home Depot's marketing platforms from product focus to a customer-centric experience. Her proven ability to scale brands, build high-performing businesses, and create customer-centric growth strategies make her the perfect partner for this new chapter of our journey. In this newly created role, she will lead our marketing evolution across the enterprise and will be focused on building a full funnel marketing approach that drives awareness, acquisition, and retention, modernizing our digital experience to improve product discoverability, enhancing our merchandising strategy through stronger data infrastructure and AI, and streamlining our brand architecture to create a more intuitive and connected customer journey. This customer first approach will help us build a customer lifetime value flywheel where efficient acquisition and strong retention reinforce each other to drive profitable growth.

As part of our effort to drive greater efficiency and agility across the organization, we have made great progress partnering with our external consultants to identify and prioritize additional efficiency opportunities. We have already started to implement targeted organizational changes, including centralizing our marketing team and improving coordination between customer service and website development. These adjustments are designed to streamline operations, eliminate unnecessary complexity, and better align our teams with strategic priorities. We have also taken steps to increase accountability at all levels of our organization, ensuring that decision making is faster and more closely tied to bottom line results. We believe these changes position us to execute with greater focus and deliver improved results over the long term. As we enter the critical holiday period, our primary focus is on providing an exceptional experience for our customers during this important season.

While we remain committed to driving organizational change, continuously refining our marketing approach, and improving agility and efficiency, we recognize the importance of maintaining stability and delivering a seamless customer experience through the holiday rush. Therefore, we are prioritizing our turnaround roadmap accordingly. We look forward to keeping you updated on our progress. Now I will turn it over to James for the financial review.

Thanks Adolfo and good morning everyone. This morning I will review our fiscal 2026 first quarter performance. Please note that all comparisons are made to the prior year period and represent adjusted results unless otherwise stated. During the first quarter of fiscal 2026, we saw a clear and immediate benefit from our strategic shift in marketing spend toward a marketing contribution margin focus. This metric is calculated as gross profit, less credit card fees, and marketing fees expressed as a percentage of sales. Both the first and second months of the quarter experienced profitability improvements as our marketing resources were more efficiently allocated, driving higher returns on investment. The third month of the quarter also benefited from this approach. The results were impacted by timing items, including the shift of certain wholesale orders from Q1 in the prior fiscal year into Q2 of this fiscal year.

After adjusting for timing related items, the trend in adjusted EBITDA was slightly positive for the quarter. Notably, this represents the first year-over-year improvement in adjusted EBITDA trends over the past seven quarters. By focusing on marketing contribution margin, optimizing spend, and streamlining operations, we're able to partially mitigate the effects of softer sales. As is the case for many companies, a portion of our cost of goods sold is fixed, which creates some gross margin pressure due to sales deleveraging. We believe the changes we are implementing provide a strong foundation for stabilization as we progress through the remainder of the fiscal year and position us for future growth. Looking ahead, we will remain disciplined in our marketing investments while becoming more effective. We will continue to partner with our external consultants to explore additional opportunities for operational efficiency.

We are encouraged by the early positive momentum generated by our new approach and are confident that these efforts will drive sustainable financial performance as we progress through fiscal 2026. Now, let's review our performance. Consolidated revenue for the first quarter decreased by 11.1%. This included a 14.6% decline in the Consumer Floral and Gift segment and an 8.6% decline in the Gourmet Foods and Gift baskets segment. Revenues in our BloomNet segment were essentially flat with the prior year period. These results were primarily driven by a strategic shift toward emphasizing positive marketing contribution margin and to a lesser extent changes in wholesale order timing, which shifted from the first quarter of the previous year to the second quarter of this fiscal year. Now turning to gross margin, our first quarter gross margin decreased 240 basis points to 35.7% compared with 38.1% in the prior year period.

This was primarily due to deleveraging on the sales decline combined with the impact of higher tariffs. Operating expenses decreased $12 million to $127.3 million, primarily due to lower marketing and labor costs, excluding non-recurring charges and the impact of the company's non-qualified deferred compensation plan. In both periods, operating expenses declined $10.9 million as compared to prior year to $124.9 million. As a result of these factors, our first quarter adjusted EBITDA loss was $32.9 million as compared with a loss of $27.9 million in the prior year period. Before I review our balance sheet, I want to briefly update you on our cost reduction efforts. We continue to collaborate with external consultants to streamline operations and drive greater efficiency across the business. As we shared last quarter, we have already implemented $17 million in annualized cost reductions.

We are beginning to see the early benefits of our cost reduction initiatives flow through the P&L. However, those savings are currently being offset by the impact of tariffs, investments in people, and higher transportation costs. Based on the analysis we have done in collaboration with our external consultants, we anticipate we can achieve an incremental $50 million in cost savings over the next two years on a run-rate basis. Please note, this figure excludes one-time expenses such as consultant fees and severance costs. Additionally, this amount does not account for savings associated with improvements in marketing spend efficiency. Now turning to our balance sheet. At quarter end, net debt was $259.3 million compared with $224.1 million a year ago. Our cash balance was $7.7 million. Inventory was $269.8 million, compared with $275.3 million a year ago.

In terms of our debt, we have $157 million in term debt and borrowings of $110 million under our revolving credit facility. In preparation for the upcoming holiday season, we expect borrowings under the revolver to be fully repaid during fiscal second quarter. We will open the call for Q and A. Operator, please provide instructions for those interested in asking a question.