1 800 FLOWERS COM INC Q3 2026 earnings call

Good morning, and welcome to our fiscal 2026 third 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 press release and 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 table of our earnings release. Now, I'll turn the call over to Adolfo.

Thanks, Andy. Good morning, everyone. As we move through fiscal 2026, we remain focused on stabilizing the business and building a stronger foundation for future growth. During the third quarter, we continued to make progress on the key initiatives we outlined earlier this year. We are starting to see early signs that our actions are improving execution and the overall customer experience. I want to start with our Valentine's Day performance, which is an important indicator of that progress. This year, we delivered a significantly improved customer experience with strong gains across our key service metrics. These results reflect better execution, stronger processes, and a clear focus across the organization on delivering a high-quality experience for our customers. Importantly, this progress validates many of the structural and operational changes we have been implementing.

We are now beginning to see tangible evidence that these actions are improving performance across key areas of the business. While there is still work to do, we are encouraged by these results and the direction of the business. From a category perspective, our Gourmet Foods & Gift Baskets segment performed better than our Consumer Floral & Gifts segment. As James will discuss in more detail, this reflects the Easter timing shift and the heavier level of inefficient marketing spend in our Consumer Floral & Gifts segment a year ago, combined with our focus on improving marketing contribution margin. As part of our efforts to broaden our customer reach, we also continue to expand our presence across third-party marketplaces. Ahead of Valentine's Day, we launched a new partnership with Instacart.

This builds on our strategy to meet customers where they are already shopping and to expand access to our floral and gifting value proposition. Through this partnership, our offerings are now available on the Instacart app, supported by our network of local florists. This increases speed and accessibility, particularly during peak occasions, while also supporting our florist partners and introducing our brands to new customers. At the same time, we're strengthening our focus on the customer experience across our digital platforms. During the quarter, we fully implemented AI-powered sorting and ranking on 1-800-Flowers.com. This brings customer-selected best sellers to the top of our product rankings and reflects a more AI-driven customer-first approach. This is an important step in modernizing the business. Historically, product placement was more heavily influenced by merchants.

Today, we are prioritizing the products customers choose, which improves the overall shopping experience and results in higher sales. We are simplifying the shopping experience by reducing choice in certain areas to make it easier for customers to find the right gift. In addition, we are evolving how we operate our floral business, including how we balance florist-fulfilled orders with shipments fulfilled from our distribution centers. We are now operating these areas in a more coordinated way, with our florist-fulfilled orders and direct shipment team working together on assortment decisions. This approach has multiple advantages. It improves the overall value proposition for our customers by simplifying the shopping experience, improving conversion, and better aligning pricing for similar bouquets. Importantly, we made significant progress on our cost savings initiatives, achieving our previously announced $50 million in savings two-year target in less than a year.

This reflects the discipline and execution across the organization and strengthens our ability to reinvest in the business while continuing to improve efficiency. As we realize these savings, we are beginning to thoughtfully reinvest a portion back into the business to support our strategic priorities, including marketing and customer experience. These results are driven by the continued progress we are making on our cost and efficiency initiatives. As part of our transition to a function-driven operating model, we have streamlined the organization, improving alignment, driving synergies, and enabling more efficient decision-making across the business. Since January 2025, we have reduced core headcount by approximately 20% as we align resources with our strategic priorities and improve efficiency across the organization. We're beginning to see cost savings from these actions, although in the short term, they are partially offset by consultant costs, incentive compensation, and tariffs.

Looking ahead, as our strategic initiatives take hold, we're beginning to shift toward a more balanced approach that includes targeted marketing investments to support future growth. Last year, our marketing efforts were heavily focused on bottom of the funnel activities, primarily focused on driving transactions, and we did not have the systems or infrastructure in place to effectively drive customer retention. Over the past nine months, we have made meaningful progress in developing those capabilities. We are now in a position to begin rebuilding our brands. We're also expanding our reach to younger customers through top and mid-funnel initiatives, including influencer marketing on platforms like Instagram and TikTok. At the same time, we're improving our ability to retain customers. As I mentioned earlier, we have significantly enhanced the customer experience by improving areas such as delivery fees and overall customer satisfaction, which are key drivers of long-term retention.

Beginning in the fourth quarter, we're accelerating and testing these targeted marketing investments. While these efforts are expected to take time to translate into revenue, they are an important step in rebuilding demand in a more sustainable way. As part of this shift, we expect marketing spend in the fourth quarter as a percent of sales to be approximately flat compared to the prior year period. In addition to these marketing investments, we're also beginning to invest in building out our martech stack. These investments will begin in the fourth quarter and continue into the next fiscal year as we strengthen the capabilities needed to support long-term growth. More broadly, while cost discipline remains a priority, we believe these actions, combined with our structural improvements, are strengthening the foundation to stabilize the business and enable long-term growth. I will turn the call over to James for the financial review.

Thanks, Adolfo. Good morning, everyone. During the third quarter, revenue came in line with our expectations, reflecting continued execution against our disciplined marketing approach and the ongoing impact of changes in search engine results and pressure on direct traffic. Valentine's Day was consistent with our expectations, particularly given the difficult day placement as the holiday fell on a Saturday and during President's Day weekend. As we progressed into March, we began to see a moderation in the rate of revenue decline in our Consumer Floral & Gifts segment as we anniversaried some of the strategic shifts in our marketing approach. From a category perspective, our Gourmet Foods & Gift Baskets segment performed meaningfully better than our Consumer Floral & Gifts segment during the quarter. Gourmet Foods & Gift Baskets segment benefited from an approximate 5% revenue lift from the timing of Easter.

This performance also reflects the more pronounced impact of prior year inefficient marketing spend in our Consumer Floral & Gifts segment, along with ongoing changes in search engine results and pressure on direct traffic. During the quarter, we recorded a non-cash goodwill and trade name impairment charge related to our Consumer Floral & Gifts segment and the Personalization Mall trade name. While this impacted earnings, it did not affect cash flow. From a profitability standpoint, we saw improvement in our ad to sales ratio and marketing contribution margin compared to last year. Overall, our contribution margin improved year-over-year, reflecting stronger pricing discipline and improved marketing efficiency. Our efforts to streamline operations and manage costs are beginning to have a positive impact on the business.

As of the third quarter, we have achieved a full $50 million in annualized run rate cost savings that we had initially targeted across fiscal year 2026 and fiscal year 2027, ahead of plan. Building on this progress, we are now targeting an incremental $15 million-$20 million in additional run rate cost savings over the next fiscal year. This brings our total identified cost savings opportunity to approximately $65 million-$70 million, spanning both cost of goods sold and operating expense reductions, reflecting continued opportunities to streamline the business and improve efficiency. Importantly, we are being thoughtful about how we deploy these savings. As we move into the fourth quarter and into next fiscal year, we are transitioning from a primary focus on marketing contribution margin toward a more balanced approach that includes strategic investment. This shift is expected to impact our fourth quarter performance.

As part of this shift, we are accelerating and testing targeted marketing investments, including top and mid-funnel initiatives, which are intended to support longer-term demand generation and may take time to translate into revenue. Consistent with this approach, we expect total marketing spend as a percentage of sales in the fourth quarter to be approximately flat compared to the prior year period. In addition, we are beginning to invest in enhancing our digital experience and expanding our martech capabilities, which will support improved customer acquisition, retention, and overall marketing effectiveness over time. These investments will begin in the fourth quarter and continue into the next fiscal year. This approach reflects our focus on building a stronger and more sustainable operating foundation by balancing profitability with the investments needed to stabilize the business and position it for future growth. Now let's review our third quarter performance.

Consolidated revenue for the quarter decreased 11.6%. Our Gourmet Foods & Gift Baskets segment was essentially flat. Our Consumer Floral & Gifts segment declined 18.7%, and our BloomNet segment declined 5.9% for the reasons discussed earlier. Excluding the impact of system-related issues in the prior year period, our gross margin improved 10 basis points to 33.2%, reflecting benefits from our cost reduction initiatives, partially offset by tariffs, commodity costs, and fixed cost absorption. Excluding items affecting period-to-period compatibility and the impact of the company's non-qualified deferred compensation plan in both periods, operating expenses declined $16.4 million as compared to prior year to $144.3 million.

As a result of these factors, our third quarter adjusted EBITDA loss was $31.2 million, compared with an adjusted EBITDA loss of $34.9 million in the prior year period, reflecting a modest year-over-year improvement. Now, turning to our balance sheet. At quarter end, net debt was $94.3 million, compared with $75.3 million a year ago. Our cash balance was $51 million at the end of the third quarter. Inventory was $146 million, compared with $160 million a year ago. In terms of our debt, we had $145 million in term debt and no borrowings under our revolving credit facility as compared with $160 million a year ago.

As we look ahead, we continue to view fiscal 2026 as a foundational year focused on stabilizing the business, improving execution, and building a stronger platform for long-term growth. Our strategic priorities remain centered on enhancing our customer-first approach, expanding third-party distribution, improving marketing efficiency, and driving structural cost savings. We believe these actions are strengthening the foundation for sustainable revenue and profit growth over time. For fiscal year 2026, we expect revenue to decline by approximately 10%-12% as compared with the prior year and adjusted EBITDA to be approximately break even within a range of ±$2 million, which includes approximately $22 million of anticipated incentive compensation and consultant costs incurred during the fiscal year.

These expectations reflect our more disciplined marketing strategy, ongoing changes in search engine results affecting organic traffic, and our transition toward a more efficient demand generation model. Now, we'll open the call for Q&A. Operator, please provide instructions for those interested in asking a question.