Q1 2025 Earnings Summary
- The company expects significant improvement in revenue trends in Q2, including an increase of $20 million in wholesale revenues compared to the prior year, providing a natural tailwind for growth.
- The substantial increase in the pear crop size, being more than double last year's crop, allows the company to reduce costs by utilizing its own high-quality product instead of purchasing from third parties, potentially improving margins. Additionally, the company has improved storage capabilities to extend the pear selling season to Mother's Day, further enhancing sales.
- The completion of key system implementations will result in cost savings of several million dollars in license fees, as well as improved operational efficiencies and a better customer experience, leading to lower costs and potential margin improvement.
- Elevated media rates due to the election are increasing marketing costs, as the company acknowledges that both digital and traditional media costs are higher during the election period, impacting expenses in the December quarter.
- Shifting towards lower-priced items to stimulate demand from less affluent consumers may pressure margins or indicate weaker demand for higher-priced products. The company is broadening offerings at lower price points to engage consumers who have been "sitting on the sidelines".
- Higher commodity costs, particularly cocoa, are locked in at prices above historical levels, which could pressure margins. The company has locked in cocoa prices "at prices that are above what we historically paid for" through next holiday season.
-
Revenue Guidance and Q2 Expectations
Q: Will revenue improve in Q2 to meet guidance?
A: Management expects significant improvement in revenue trends in the second quarter. They anticipate e-commerce revenues to improve sequentially, supported by a wholesale tailwind of about $20 million, aligning with their full-year guidance of flat to down low single digits. -
Impact of Inflation on Consumer Behavior
Q: Is inflation a risk to revenue guidance?
A: While acknowledging the challenging macro environment, management notes positive recent data on jobs, inflation, and consumer confidence. They believe that lower gas prices and the less discretionary nature of holiday spending will support revenue, mitigating risks from persistent inflation. -
Gross Margin Trends and Cost Management
Q: Any updates on costs and gross margins?
A: They anticipate gross margins to improve modestly this year, with the first quarter showing a 20 basis point improvement, slightly above expectations. Fuel costs are favorable, with year-over-year surcharges lower and negotiated caps on fuel surcharges with FedEx. Labor fill rates are good, and efficiencies are expected from new system implementations. -
Same-Day Delivery Expansion
Q: How is same-day delivery for non-floral gifts progressing?
A: Same-day delivery for non-floral gifts, like Cheryl's Cookies and Harry & David gift baskets, is currently a very small percentage but is expanding in select markets. They are leveraging their floral infrastructure and plan to roll this out over the next few years, positively impacting brands like Cheryl's. -
Marketing Spend and Media Rates Impact
Q: How will marketing spend impact revenue trends?
A: Marketing dollars will be deployed similarly to prior years, focusing on top, mid, and bottom funnel activities with flexible deployment. They have reserved funds for the important holiday season. Media rates are higher due to the election but are expected to moderate post-election, supporting improved revenue trends in Q2. -
Retail Strategy with Harry & David Pop-Ups
Q: Are you expanding into brick-and-mortar retail?
A: The company has opened six Harry & David holiday pop-up stores in partnership with Macy's. Management is excited about their performance and is considering the potential role of retail in their mix, potentially expanding this initiative. -
BloomNet Network Trends
Q: What's the outlook for the number of floral shops?
A: The number of BloomNet floral shops has remained stable. The company focuses on deepening relationships and adding value, such as through popular programs like Card Isle. They expect a slight increase in membership moving forward and anticipate BloomNet to grow in the second half of the year. -
Commodity Costs, Especially Cocoa
Q: What's the cocoa cost outlook?
A: They have locked in cocoa prices through next holiday season at rates above historical but below current market prices. The cocoa market remains higher than historical norms but is declining. This helps manage costs, especially in the first half when usage is highest for holiday gift assortments.