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The Rise of Flower Power

Aided by strong Mother's Day sales and its own cost-cutting efforts, New York-based 1-800-Flowers.com reported a profit, albeit not much of one, for its fiscal fourth quarter.

The news sent the company's stock up at the opening, to $13.75 after closing at $13.35 on Wednesday. It was sinking back in mid-morning trading, down to $12.85.

Westbury, N.Y.-based 1-800-Flowers.com posted net income of $226,000 or slightly above break-even on a per diluted share basis (2 cents per diluted share) on record revenues of $132.3 million for its fiscal 2001 fourth quarter ended July 1. That compared with a loss of $12.9 million or 20 cents per share reported in the fourth quarter of fiscal 2000.

Combined online and telephonic revenues increased 9.1 percent to $124.3 million compared with $113.9 million in the prior year period.

It was the first profitable quarter for the company since June of 1998. For the year 2000, the company lost $1.10 per share.

Interestingly, the company's cost-cutting efforts have not involved layoffs, a spokesman told atNewYork sister site InternetNews.com.

One of the metrics for this quarter shows in part how they did it: the company's cost to acquire a new customer declined to $16.88 during fiscal 2001 compared with $23.34 in fiscal 2000. And, approximately 36 percent of combined online and telephonic revenues came from non-floral products, showing that product diversification is paying off.

1-800-Flowers.com also said that it continued to reduce operating expenses, specifically in the areas of marketing and selling, even as online traffic grew 30 percent during the quarter.

Full-year fiscal 2001 revenues increased 16.5 percent to $442 million compared with $380 million in fiscal 2000. For the year, the company posted a loss of $41.3 million, compared to a year earlier loss of $66.8 million.

"Despite what continues to be a very challenging economy for retail companies, during our fourth quarter we were able to achieve a solid rate of revenue growth," said Jim McCann, chairman and CEO of 1-800-Flowers.com. "During the period, we reduced all of our operating expenses not only as a percentage of sales, but also in absolute dollars..."

The company said it anticipates total revenue growth for fiscal 2002 to be 16-to-20 percent year over year. . This includes a contribution of approximately $25 million from the Children's Group, a closely held seller of children's gifts recently acquired by the Company.

The Children's Group is a multi-channel direct marketer of children's gifts including natural material toys, games, arts and crafts and dolls that had approximately $30 million in revenues during calendar-year 2000.

McCann said the company's current fiscal first quarter is traditionally its smallest in terms of revenue due to the lack of any major gift-giving holidays during the summer months.

"Because it's a slower period for us, it is the quarter in which we traditionally implement technology upgrades and begin ramping up our marketing efforts for the calendar fourth quarter holiday shopping period," he said. "As a result of this seasonality, for the current quarter we anticipate an EBITDA loss of approximately $6 million to $7 million with a return to positive EBITDA in quarters two, three and four and positive EPS in quarters two and four."

1-800-Flowers began its retail flower business in 1976, using toll-free phone numbers and running a call center operation. In 1999 the company went dot-com did an IPO.



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