On the Record with Jim McCann

With many retailers lowering their earnings estimates after disappointing holidays, 1-800-FLOWERS.com
is actually bucking the trend. Is the stock about to bloom?

We shall see. One thing we do know is that 1-800-FLOWERS.com announced earlier this week that its fiscal second quarter loss would be smaller than analysts had expected. The company now expects to post a loss per share of between $0.16 and $0.18 cents for the quarter compared to Wall Street’s consensus estimate of a loss of $0.24 cents.

1-800-FLOWERS.com’s expected loss of between $10.5 million and $11.5 million for the quarter would represent at least a 35% smaller loss than the company experienced in the corresponding period a year ago. In addition, revenue is expected to have jumped 19% to $134 million for the quarter. Finally, 1-800-FLOWERS.com also expects its gross profit margin to have increased one or two percentage points during the period as well.

Of course, 1-800-FLOWERS.com is not expected to report official fiscal second quarter results until January 24th. In any case, though, these preliminary results make it hard for anyone to argue that the company isn’t on an accelerated path back to profitability. Throw in the over $97 million in cash that 1-800-FLOWERS.com had on its balance sheet at the end of the fiscal first quarter and this looks like one e-tailer still on extremely solid footing.

Regardless, the stock is still trading at a lowly less than one times trailing twelve-month sales. With investors having been so badly snake bitten by consumer e-commerce stocks last year, it looks like the stock market will continue to have trouble warming up to the 1-800-FLOWERS.com story until the company once again reaches profitability.

Thus, we recently caught up with 1-800-FLOWERS.com founder and CEO Jim McCann to better understand his company’s path to profitability and to find out exactly where he sees his company’s growth coming from going forward.

ISR: Let’s start things off with a brief overview of your business today. You’re doing a lot more than just selling flowers now.

McCann: 1-800-FLOWERS is a company that helps our customers connect to the other people in their lives that are important to them, whether they are business associates, family members or social acquaintances. We do that through an offering that includes social expressions and thoughtful gifting.

ISR: So the company has moved pretty significantly beyond its original floral offerings?

McCann: I think that is the case, but only because our primary gift that we have always dealt in, floral gifts, are very special ways for people to connect with other people in their lives. So people have been using our primary gift to express themselves in a very special way to people for forever. Because of the advent of different technologies, it has now made it practical for us to serve our customers in a broader way in response to their request inquiries.

ISR: It’s no big secret that consumer e-commerce stocks have been out of favor for a long while now. What do you think it’s going to take for investors to regain confidence in a company like 1-800-FLOWERS?

McCann: Well, I think we’ve already started to see that change take place. It’s been about a solid year and a half that the pendulum went from one extreme to the other. As that capital pendulum swings, it is mighty in both directions! It was euphoric and unrealistic twenty-four months ago and then it got a little unrealistic in recent times to the point that good companies became capital starved because people just avoided the whole sector. I think we are seeing the early signs of people sorting through the category again and taking away the generalizations.

ISR: In other words, investors are learning that every e-tail stock was not created equal.

McCann: Yes. So a company like ours has appropriately been pushed out of the classification of being a

technology company – because we are not. What we are is a retailer that has made effective use of technology to serve our customers with a broader range of gifts and services. We are not a technology company, which some people saw us as last year. We are a retail company that has made very early and very effective use of technology.

ISR: If an individual investor wants to own one retail stock right now that is leveraging technology efficiently, why should they go with 1-800-FLOWERS?

McCann: Well, I don’t know that I would be bold enough to say that we are “the one”, but there are some reasons why people should take a look at a company like ours for their portfolio. Number one – the Internet is real and not going away. Number two- we have a proven business model. We were proven to be profitable for twenty-three years now. Third, we have already demonstrated our ability to use technology not only to attract new customers, but also to do this in a cost effective way. Finally, our brand has come out of the past few years bigger and brighter in the sky then ever before.

ISR: Let’s switch to a discussion of your growth prospects moving forward. You’re already very dominant in the retail floral category, so how much bigger can your company really get?

McCann: The floral business is a $15 billion category and we’re a company that is approaching a half a billion dollars in sales. But because of the success we’ve had in the last three years of broadening our offerings into the gift category, we’re told that the gift category is an $81 billion market. In other words, we’re such a pipsqueak in this larger market that we don’t even register on the scale. So the good news is that we are a pipsqueak and the even better news is that the category is absolutely huge!

News Around the Web