Thoughtful Gifting Focused Growth - Media Corporate IR Net
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Thoughtful Gifting
Focused Growth
2000 Annual Report
About the Company
With one of the most recognized brands in multi-channel retailing, 1-800-FLOWERS.COM has become the trusted
guide to giftingsm for our customers. The Company provides a broad range of thoughtful gift products including flowers,
gourmet foods, candies, gift baskets and other unique gifts to customers around the world. The Company utilizes a "360
degree," multi-channel approach to providing convenient customer access to its product offerings through: its website
on the Internet (www.1800flowers.com), by calling 1-800-FLOWERS® (1-800-356-9377) 24 hours a day, its catalogs, or
by visiting one of its Company-operated or franchised stores.
The Company’s gift product line is complemented by the merchandise sold through its subsidiaries which include
Plow & Hearth, a direct marketer (catalog: 1-800-627-1712; and web: www.plowhearth.com) of home decor and garden
merchandise and GREATFOOD.COM (www.greatfood.com), an online retailer of gourmet food products.
1-800-FLOWERS.COM has strategic online relationships with America Online,Yahoo!, MSN, and NBCi, among
others. ClicksGuide.com, an online service that rates and reviews e-commerce sites, has named the Company’s website
the number one gift site on the Internet. The Company’s Class A Common Stock is listed on the NASDAQ National
Market under the symbol "FLWS."
Leveragable Assets
■ Powerful Brand Name
- A well known family of brands: 1-800-Flowers.comsm; Plow & Hearth®;
American Country Homesm; GREATFOOD.COM®
- Dominance in retail floral market; leveragable in "thoughtful" gift categories
■ Scalable Technology and Fulfillment Infrastructure
- Web retailing experience since 1992
- Peak order-taking and fulfillment capacity (at 300,000 orders per day and growing)
- State-of-the-art customer service (24x7 live agents and keyboard-to-keyboard chat)
■ Key Relationships
- Extensive portal relationships (AOL,Yahoo!, MSN, NBCi, and others)
- Thousands of vendors
- More than 30,000 online affiliates
- Growing corporate gifting channel
■ Solid Balance Sheet
- $100 million+ at fiscal 2000 year end
- Virtually no long-term debt
■ Strong Gross Margins
■ Growing Customer Database in Excess of 9 Million
Contents
■ Experienced Retail Management Team Financial Highlights 1
Letter to Shareholders 2
Expanding Our Product Offering 4
Special Note Regarding Forward Looking Statements
Extending Our Market Reach 6
A number of statements contained in this report are forward-looking within the meaning of the Private Proven “Hybrid” Fulfillment Resources 8
Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause
Connecting With Our Customers 10
actual results to differ materially from those expressed or implied in the applicable statements. These risks
and uncertainties include, but are not limited to: the Company’s ability to maintain and enhance its online Selected Financial Data 11
shopping Web sites, its telephonic network and its retail stores to attract customers; its ability to successfully Management’s Discussion and Analysis 12
introduce new products and product categories; its ability to execute its contracts and maintain good rela-
Consolidated Financial Statements 18
tions with key third party vendors; its reliance on third party vendors for a significant portion of its order ful-
fillment; its ability to cost effectively acquire and retain customers; its reliance on third parties for a portion Notes to Consolidated
of its online customer traffic; its ability to continue growing revenues; its ability to maintain gross margins; its Financial Statements 22
ability to attain positive EBITDA; and its ability to maintain its position as an industry leader in its retail busi-
Company Information 32
ness sectors. For a more detailed description of these and other risk factors, please refer to the Company’s
Securities and Exchange Commission filings on Forms 8-K and 10-Q and its Annual Report on Form 10-K.
Financial Highlights
Years Ended
July 2, June 27, June 28, June 29, June 30,
2000 1999 1998 1997 1996
(in thousands, except percentages and customer data)
Total Net Revenues $385,250 $295,873 $220,592 $186,430 $153,128
Telephonic Revenues 230,221 203,885 161,874 145,295 127,920
Online Revenues 119,019 52,886 26,748 16,092 9,936
Retail/Fulfillment Revenues 36,010 39,102 31,970 25,043 15,272
Non-floral Revenues as % of Total Virtual* Revenues 33% 26% 8% 2% 3%
Gross Profit 147,757 116,176 83,626 71,352 60,308
Gross Profit Margin Percentage 38.4% 39.3% 37.9% 38.3% 39.4%
Customer Base (millions) 9.3 6.8 5.0 n/a n/a
(*Virtual revenues include combined net online and telephonic revenues)
Fiscal 2000 Achievements
■ Increased total revenues 30 percent to record $385 million
■ Increased online revenues 125 percent to $119 million
■ Cost effectively acquired 2.7 million new customers
- Customer acquisition costs among lowest in our retail sector
- 9.3 million total customer base at fiscal year end
■ Successfully expanded thoughtful gift offering
- Increased non-floral revenues more than 50%
- represented 33% of total virtual revenues
■ Completed IPO, becoming a publicly traded company
- Raised sufficient capital to achieve business plan goals with ample cash cushion
Total Revenues Rapid Online Revenue Growth
(in $ millions) (in $ millions)
one
T o O u r S h a r e h o l d e r s
F
iscal 2000 was an exciting year for 1-800-FLOWERS.COM, 360 Degree "Next Age Retailer" that gives us significant leverage and flexibility going forward. Expanded Gift Offering = Year-round Retailer
one in which we achieved a number of important goals, 1-800-FLOWERS.COM has always been a company that embraces We have been able to invest effectively to grow our business While we continue to build on our dominant position in the
including continued strong revenue growth that has helped new technologies and business innovations – such as "800" numbers primarily because of the unique collection of leveragable assets floral business – both online and off – we believe the successful
establish our Company as a leading provider of floral prod- when they became a new phenomenon and, since 1992, on the that we have assembled during our many years of operation. expansion of our thoughtful gift offering has increased our value to
ucts and thoughtful gifts, both online and in traditional retail channels. Internet, where we were one of the very first retail merchants. We did These assets include: our customers. As a result, our customers are beginning to make
Since our Company’s inception, our goal has been to help our cus- not adopt these innovations to be "trendy" or just for the sake of change, more frequent purchases of both non-floral and floral products.
■ Our highly recognized and trusted family of brand names;
tomers connect with all of the important people in their lives. We but to enhance our relationship with our customers. In doing so, we Because our customers have come to embrace 1-800-FLOWERS.COM
■ Our large and growing customer database;
accomplish this by providing a broad selection of thoughtful have evolved into what some industry pundits are calling a "Next as their trusted guide to gifting, we now derive an increasing portion
■ Our proven hybrid fulfillment system – including same day
gifts for all occasions as well as a suite of services Age Retailer" – a retail company with a 360 degree approach to its of our sales from non-floral products – approximately 33 percent
delivery capabilities;
designed to make the task of selecting and sending business. We provide convenient, multi-channel access for our in fiscal 2000 and 40 percent anticipated in fiscal 2001.As a result,
■ Our reliable and scalable technology infrastructure;
those gifts convenient, personal and reliable. Today, customers wherever, whenever and however they wish to 1-800-FLOWERS.COM is unlike many retail companies who rely on
■ Our strong relationships with our marketing partners, thousands
customers come to 1-800-FLOWERS.COM in ever access our services – whether it be from their desk- the calendar fourth quarter holiday shopping period for the majority
of vendors, more than 30,000 members of our online affiliate
increasing numbers and with increasing frequency top computer, on a cell phone in a taxi heading of their annual sales. We now have not one, but two very strong
network, and a growing list of industry-leading corporate
because we have become their trusted guide to giftingsm. to the airport, through catalogs, by walking into revenue quarters – our traditional Spring quarter, which includes
business partners;
any of our retail stores and, eventually, via the Mother’s Day, Easter, Father’s Day and graduations, among others,
■ Our experienced retail management team;
Key Strategic Achievements new web appliances and wireless technologies and the increasingly important calendar fourth quarter holiday
■ Our strong gross margins and solid balance sheet.
This past fiscal year represented currently under development. shopping period.
the second year of our aggressive plan Cost-effective Customer Acquisition
to build our business by leveraging Accelerated Revenue Growth Profitable Experience
Another characteristic that differentiates 1-800-FLOWERS.COM
the assets and experience we have Total net revenues for fiscal 2000 grew We believe the investments we have made, and continue to
from many retail companies is our disciplined, cost effective approach
acquired over the past 24 years as a 30.2 percent to $385.3 million compared make, in our technology platform, our fulfillment system, our product
to customer acquisition. During fiscal 2000 – the highest marketing
successful retail operation. In so doing, with revenues of $295.9 million in fiscal and service offerings and our operating infrastructure, will provide
spending year in our business plan – our customer acquisition cost
I believe we have positioned our com- 1999. This continued, strong growth was increasingly strong returns, both over the relative short-term as well
increased from our historical range of approximately $17-$18 to
pany as a leader in the "new" retail fueled by the accelerated growth of our as the long-term. Based on the benefits from these investments that
approximately $23.00 – a level we believe is still among the lowest
economy, both today and for the future. online business where we achieved revenues we are already beginning to experience, we have a high degree of
in the retail sector, online or off. Importantly, we are already seeing
During the year we set out to: of $119.0 million, an increase of 125.0 confidence in our ability to attain our stated goal of positive EBITDA
customer acquisition costs declining and we anticipate returning
percent compared with $52.9 million in the in the fourth quarter of fiscal 2001 and for full fiscal year 2002.
■ further build our brand; to our historical levels during fiscal 2001 as we utilize the leverage
prior year. Online revenues in fiscal 2000 By doing what we have always done best – embracing new
■ cost effectively increase our customer base; provided by our strong brand name as well as enhanced marketing
represented 30.9 percent of total net revenues, business innovations and technologies that can help us enhance our
■ expand our product offerings; knowledge and capabilities.
up from 17.9 percent of total net revenues in the prior relationships with our customers – we believe 1-800-FLOWERS.COM
■ expand our fulfillment and customer service A significant portion of the marketing expenses incurred during
year. This growth illustrates the successful positioning of has become a model for the "Next Age" retail company. Our proven
infrastructure; fiscal 2000 can be directly attributed to our successful online efforts.
1-800-FLOWERS.COM as a leading source for thoughtful gifts on the business model continues to evolve, providing us with increasing
■ enhance our technology platform; During the year, we effectively executed our strategy regarding portal
Internet during a period of rapidly growing customer acceptance of leverage and excellent opportunities to grow our return on invested
■ extend and add to our business relationships; and deals, including traffic building, brand reinforcement and competitive
online shopping. Worth noting is the fact that during fiscal 2000, our capital and thereby help build shareholder value. We thank all of our
■ become a publicly traded company, which we did to raise capital blocking. The strength of our brand can be seen in the more than
telephonic sales increased a very healthy 12.9 percent to $230.2 million customers, investors, associates, vendors and business partners for
in support of our aggressive growth plan, create a currency and 70 percent of our online orders derived from customers who come
compared with $203.9 million in fiscal 1999. Overall, our combined their support.
provide a way for everyone in our company to have an equity directly to our URLs, up from approximately 40 percent a year ago.
participation in our long-term growth. "virtual businesses" – telephone and online – increased 36.0 percent to This was accomplished during a period of intense spending by online
I am very pleased to report that we successfully accomplished $349.2 million compared with $256.8 million in fiscal 1999. start-up companies fueled with inexpensive capital from both the
all of these objectives and did so while recording significantly private and public sectors. Sincerely,
better-than-anticipated revenue growth and lower-than-anticipated Leveragable Assets For fiscal 2001, we anticipate our total marketing expenses, both
operating costs.We were able to do this because we have a Through our May 1999 private placement and our August 1999 in terms of actual dollars as well as a percent of total revenues, will
proven business model, one that has successfully evolved throughout IPO, we believe we raised more than sufficient capital to achieve our decline significantly.What’s more, we expect to achieve these cost
our history. business plan. Thus, at fiscal year-end, our balance sheet boasted cash reductions without impacting our growth plans which include again Jim McCann
and cash equivalents of more than $110 million – a solid position acquiring more than 2.5 million new customers. Chairman and CEO
1976 1986 1994 1998 2000
Purchase of first Acquisition of Move to AOL as their Acquisition of Acquisition of
retail florist shop “800-FLOWERS” number exclusive florist Plow & Hearth GREATFOOD.COM;
in NYC and adoption as brand launch of expanded
gift strategy
Expansion to Entry onto Internet Launch of Renamed company 1-800-FLOWERS.COM;
14 retail stores via CompuServe 1-800-FLOWERS IPO on NASDAQ; expansion of product
website line into “thoughtful gift” categories
1976–85 1992 1995 1999
two three
marketplace. As a result, the Company of eight+ minutes shopping the site during their first M e rc h a n t Pa r t n e r s
has emerged as an industry leader and the visit – a testament to the broad range of gifts available. Another avenue of product expansion for
1-800-FLOWERS.COM brand name has 1-800-FLOWERS.COM is our merchant partner
come to represent a trusted guide to gifting M o re G i f t C h o i c e s program, launched at the start of fiscal 2001.
for our customers. Because of our collection of leveragable assets,
Today, customers are coming to 1-800-FLOW-
ERS.COM for an ever widening collection of thought- 1-800-FLOWERS.COM has become an increasingly
G i f t s Fo r A l l O c c a s i o n s attractive partner for a variety of established companies
ful gifts, including holiday specific as well as everyday
While flowers remain our signature occasion gifts. A visitor to our website will find that have product offerings in categories in which our
offering – particularly around such tradi- choices ranging from floral arrangements, plants, gift customers have indicated an interest.
tionally floral holidays as Valentine’s Day, baskets and plush toys to home accessories and The merchant partner program allows us to cost
Mother’s Day and Easter – customers gourmet treats such as imported cheeses, caviar and efficiently add product categories while minimizing
have been increasingly turning to even giftable "surf and turf" dinners from our our operating risk and capital investment. Our mer-
1-800-FLOWERS.COM for more of GREATFOOD.COM® brand. chant partners are responsible for all inventory invest-
E x p a n d i n g O u r P r o d u c t O f f e r i n g
C h a n g i n g T h e Way Pe o p l e B u y G i f t s their gift-giving occasions. In surveys we’ve conducted To continually keep our product selection fresh ment and management as well as for handling order
Since inception, 1-800-FLOWERS.COM has with our customers, they have consistently told us and exciting, we are always adding new gifts. For exam- fulfillment. They also support necessary investments
been helping people make connections with all of the that they would like to buy a broader range of gift ple, during fiscal 2000 we successfully launched our own in technology integration and provide merchandising
important people in their lives. Whether it’s for a products from a company whose brand they have branded line of Fleur de Chocolate™ candies, selling
celebration of love or friendship, recognition of a come to trust. As a telephonic direct marketer and more than 30,000 one-pound boxes in just a few short
business or personal accomplishment or an expression retail store operator, 1-800-FLOWERS.COM months. Our new "specialty boutiques" category offers
of condolence, flowers have always been the universal has always offered a mix of gift products great giftware and beautiful jewelry, while our "sweet
gift of sentiment and the cornerstone of the in addition to flowers and plants. shoppe" boasts a vast selection of delectables such as
Company’s product offerings. Historically, however, the limitations cheesecakes and chocolates from all over the world.
The annual domestic market for flowers and inherent in a telephonic operation and In addition to our extensive gift offering, the
floral gifts is estimated at more than $15 billion (source: the inventory requirements associated 1-800-FLOWERS.COMsm brand is complemented
Society of American Florists) with a growth rate of with "brick-and-mortar" stores had limited the scope by the merchandise sold under our family of
approximately five percent per year. This is a large of any product expansion. brands, including Plow & Hearth, a direct mar-
and fragmented market, with thousands of individual The Internet changed all that. In fact, keter of home decor and garden merchandise.
retail florists throughout the country. From our origins 1-800-FLOWERS.COM was literally a company just Plow & Hearth sells a broad range of
as a single flower shop in Manhattan, New York, waiting for the World Wide Web. Online retailing has "country lifestyle" products through its
1-800-FLOWERS.COM has revolutionized the floral allowed us to offer our customers an extensive array signature catalogs, including Plow &
industry by providing customers with a level of conve- of gift ideas presented in a virtual shopping environ- Hearth® and American Country
nience and consistency previously unavailable in the ment in which they can see the items they plan to Homesm, as well as its fast growing
send. Our typical online customer spends an average website (www.plowhearth.com).
four five
expertise for their specific product categories. In 1-800-FLOWERS.COM is focused on providing the before in our history, as we added a record 2.7 mil- Growing Customer Base
return, we provide them with access to our millions convenience and confidence that our customers need lion new customers to our database, growing our
of customers, our award-winning website, our robust to act on their thoughtfulness. total number of customers to more than 9.3 million.
technology platform and our superior customer We have always embraced new technologies We also expanded our Corporate Gifting Program, 2.7 million new
customers added
service capabilities. that can help us provide added convenience for our firmly establishing 1-800-FLOWERS.COM as a leading FY2000
Since the start of fiscal 2001, we have signed customers. Our name literally tells our story. While site for business to business gift giving for some of
merchant partner agreements with Finlay Jewelry – toll-free "800" telephone numbers may be common- America’s leading corporations, including IBM,
a billion dollar provider of jewelry products to place today, at one time they represented an untested American Express, MCI Worldcom, Sears, and Existing
customers
department stores throughout the country – and new technology – just as the Internet was only a American Airlines.
Lenox Collections, the venerable manufacturer of few short years ago. The development of the While the expansion of our customer base has
fine giftware and collectibles. Going forward, we 1-800-FLOWERS.COM business model has been an been impressive and will continue to be part of our
anticipate adding new merchant partners in a variety evolutionary process, incorporating the newest and future growth plan, our strategy also involves carefully
of thoughtful gift categories. most advanced technologies where they can be used coordinating the different aspects of our retailing 9.3 Million Total Customer Database
E x t e n d i n g O u r M a r k e t R e a c h
Making Connections to enhance convenient customer access. Meanwhile, model so that each aspect complements the others. direct marketing and retail store – we’ve also recog-
In today’s fast moving world, people are finding we’ve continued to nurture all of our existing methods Much of this is accomplished with specifically themed nized the potential of the new computer "appliances"
it increasingly difficult to maintain their personal of customer access. marketing vehicles that coincide with some of the and mobile web-access technologies that are being
connections with all the people who are important busiest gifting seasons of the year:Thanksgiving and developed. Eventually, these wireless devices will give
in their lives. The incredible mobility of our society Leveraging Our Brands 360 Degrees Christmas holidays in late Fall and early Winter and consumers the freedom to visit online stores such as
often separates families, friends and business acquain- Indeed, our approach to reaching customers is Mother’s Day in Spring. Our website product offering ours from almost anywhere the consumer happens to
tances. As a result, people need to find new ways well-rounded, encompassing not only the power of during those times reflects gifts that are selected to be – whether it’s driving on a backroad in Southern
to express their thoughts the Internet, but also a variety of convenient cus- target customer gifting needs for each respective California or camping on a mountaintop in Northern
and feelings. tomer access channels – from our namesake toll-free seasonal occasion. Similarly, the design of our Plow & Vermont – all without the traditional restrictions of
800 telephone number, to catalogs and retail stores. Hearth and American Country Home catalogs, as well hardline modem hookups.
Our "Next Age" multi-channel retail model as our retail stores, feature seasonal themes, thereby As with other components of the 1-800-FLOW-
enables us to keep the 1-800-FLOWERS.COMsm tying all of our marketing vehicles together to deliver ERS.COM multi-channel model, next generation
brand name in front of customers, making one cohesive message. wireless technologies will be integrated seamlessly
it easy for them to associate our name within our overall customer access strategy. Perhaps
with thoughtful giving and making it A d d re s s i n g A n I n c re a s i n g l y the best way of describing it all is with the following
convenient for them to purchase W i re l e s s Wo r l d analogy: the 1-800-FLOWERS.COM website can be
the perfect gift for the people they Embracing new technologies has always been viewed as our fully-stocked and beautifully merchan-
care about. In fiscal 2000, our an important element of the 1-800-FLOWERS.COM dised gift department store with a broad range of
multi-channel marketing approach business model. While extending our market reach thoughtful gift products and a superior shopping
proved more successful than ever through our core access channels – online, telephonic, experience; our telephone access is our convenience
six seven
store for quick, easy access when a customer knows floral, same day delivery orders throughout the cally for in market product deliveries. These facilities vendor to
just what they are looking for and needs to act quickly country. Our mutually beneficial relationship with supplement the BloomNet network, particularly in the consumer.
from wherever they may be; and soon we’ll be adding these floral retailers is longstanding – in many cases high volume markets. In addition, we are making the 1-800-FLOWERS.COM branded packaging leverages
a "drive-thru window" in the form of the wireless 10 years or more. 1-800-FLOWERS.COM is an our name while furthering the confidence and knowl-
web appliances and communications devices that important and growing part of these florists’ businesses, edge among our customers that they can look to us
are now being developed – again always stressing representing a significant portion of their total annual for all of their gift needs.
convenient customer access when, where and how revenue. In addition, because of the large and growing
the customer prefers. order volume that we generate for our partners, Fo c u s O n S e r v i c e
they gain considerable buying power for all of their Whether customers come to 1-800-FLOWERS.COM
S a m e - d ay, N e x t - d ay, A ny - d ay product inventory, thus helping them improve the via their computer, their telephone or in one of our
1-800-FLOWERS.COM has developed a market- profitability of their businesses and ensuring the retail stores, we know that they expect the very best
proven fulfillment infrastructure that allows us to highest quality and service for 1-800 FLOWERS.COM customer service experience. Online shoppers,
deliver customer orders with speed and efficiency few customers. because of the relative newness of the medium and
P r o v e n “ H y b r i d ” F u l f i l l m e n t Resources
companies can match. In fact, we’re proud to say that State-of-the-Art Distribution Centers most of our assets and retail expertise by increasingly because it provides multiple contact points
getting products "from here to there" is one of the The second element of our hybrid fulfillment utilizing many of our company owned retail stores as (e.g., email and chat) often require
things that we believe we do as well, or perhaps better, model is our collection of company-owned, state-of- mini-distribution centers, with 1-800-FLOWERS.COM even more customer service
than anyone else in the retail sector – including both the-art distribution facilities. Our primary "brown-box" branded vans making deliveries on a local basis. "touches" than traditional shoppers.
online and traditional brick and mortar retailers. distribution center is a 300,000 square foot facility As a 360 degree retailer,
Key to our fulfillment architecture is our innova- located in Madison,Virginia. This facility is managed by Ve n d o r D i re c t P rog r a m with the advantage of our
tive "hybrid" model which includes our "BloomNet " ®
our Plow & Hearth subsidiary and has been expanded Part three of our hybrid fulfillment model
network of florists, our company owned distribution several times in recent years to accommodate the is our carefully selected network of industry leading
centers, and brand name vendors who ship directly. strong growth of both 1-800-FLOWERS.COM and brand name vendors who fulfill 1-800-FLOWERS.COM
Most of these entities are connected by our advanced Plow & Hearth branded product sales.The facility orders in a variety of non-floral product lines. These
"BloomLink®" communications system, an Internet- utilizes the very latest warehouse management system vendors fulfill orders direct from their own warehouses,
based "extranet" through which orders and related technologies and has ample space available for future allowing us to offer our customers some of the very
information are transmitted. expansion. best gift products available without incurring added
More than 1.2 million packages were shipped inventory expenses. Each vendor is connected via the
B l o o m N e t F l o r i s t N e t wo r k from the Madison facility in fiscal 2000, up from BloomLink extranet, and orders are electronically
At the core of the hybrid fulfillment model is our 800,000 in the prior year. We anticipate that ship- communicated for rapid fulfillment. Top quality and
unique BloomNet network of approximately 1,500
®
ments will surpass 1.7 million packages in FY 2001. unique gift products, such as gourmet foods, candles,
florists, including independent local florists as well as Complementing the Madison distribution center are plush stuffed animals and even Adirondack chairs for
our company-owned and franchise stores. These several smaller "satellite" fulfillment centers – each dad on Father’s Day, are shipped directly from the
BloomNet shops fulfill a majority of our fresh-cut ten to fifteen thousand square feet – designed specifi-
eight nine
telephone-based customer relationship expertise, hanced online cus-
1-800-FLOWERS.COM is uniquely positioned to pro- tomer service
vide superior and highly scalable customer service. tools that put
Among the many initiatives we implemented during the focus on
fiscal 2000 to further expand our capabilities in this personalization.
key area is a full-scale computer telephony integration For instance,
(CTI) platform.This advanced technology package gift reminder
contains a suite of applications for all of our service services – some-
centers and is built on a highly scalable architecture thing we traditionally did telephon-
to accommodate our growing customer needs. The ically – are now available to our customers via email.
system’s features allow us to more quickly direct We also offer our customers the convenience and
customer calls to skilled and knowledgeable sales and personalized communication of keyboard-to-keyboard
service agents who can then speak on a one-to-one chat – a technology we actually helped develop in
basis utilizing pop-up screens that provide customer- response to customer needs – as well as product
Connecting With Our Customers
specific information such as ordering history. specific search tools to assist customers in making
Using the advanced CTI technology, our customer the perfect gifting choices.
service associates and our customers can browse our
website together, allowing us to address and respond to S c a l i n g U p Fo r Pe a k Pe r i o d s
customer requests virtually immediately.
The ability to scale up our customer service
In addition to our advanced telephonic customer
capacity during peak selling periods such as Mother’s
service resources, we are now utilizing en-
Day, Easter, Christmas and Valentine’s Day is as much
an art as it is a science. During these busy periods
we often triple our average service associate count
from approximately 1,000 to 3,000 representatives.
This scaling effort requires extraordinary coordination
between hiring, training and scheduling and repre-
sents a legacy skill that few retailers can emulate.
Our ability to successfully scale up our customer
service capacity ensures that 1-800-FLOWERS.COM
customers will receive consistent, dependable
customer service – particularly important when they
are searching for just the right gift for that special
someone in their lives.
ten
Selected Financial Data
1-800-FLOWERS.COM, Inc. and Subsidiaries
The following tables summarize the Company’s consolidated statement of operations and balance sheet data. The Com-
pany disposed of Floral Works, Inc. in January 2000, acquired GreatFood.com, Inc. and TheGift.com, Inc. in November 1999
and acquired The Plow & Hearth, Inc. in April 1998. The following financial data reflects the results of operations of these
subsidiaries since their respective dates of acquisition and up through the date of disposition. You should read this information
together with the discussion in “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and the
Company’s consolidated financial statements and notes to those statements included elsewhere in this Annual Report.
Years Ended
July 2, June 27, June 28, June 29, June 30,
2000 1999 1998 1997 1996
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues:
Telephonic $230,221 $203,885 $161,874 $145,295 $127,920
Online 119,019 52,886 26,748 16,092 9,936
Retail/fulfillment 36,010 39,102 31,970 25,043 15,272
Total net revenues 385,250 295,873 220,592 186,430 153,128
Gross profit 147,757 116,176 83,626 71,352 60,308
Operating (loss) income (75,581) (8,171) 6,415 6,852 2,702
Net (loss) income (66,830) (6,846) 5,074 4,387 1,297
Net (loss) income applicable to
common stockholders $ (66,830) $ (12,061) $ 3,466 $ 2,925 $ 268
Net (loss) income per common share
applicable to common stockholders:
Basic $ (1.10) $ (0.27) $ 0.08 $ 0.07 $ 0.01
Diluted $ (1.10) $ (0.27) $ 0.07 $ 0.06 $ 0.01
As of
July 2, June 27, June 28, June 29, June 30,
2000 1999 1998 1997 1996
(in thousands)
Consolidated Balance Sheet Data:
Cash and equivalents $111,624 $ 99,183 $ 8,873 $ 11,443 $ 6,639
Working capital (deficit) 82,129 85,619 1,950 1,975 (2,452)
Total assets 224,641 182,355 81,746 44,130 36,884
Long-term liabilities 12,947 37,766 35,359 9,456 17,804
Redeemable class C common stock –– –– 17,692 16,084 14,622
Total stockholders’ equity (deficit) 158,918 109,003 672 (2,670) (5,615)
11Management’s Discussion and Analysis
of Financial Condition and Results of Operations
1-800-FLOWERS.COM, Inc. and Subsidiaries
Overview
1-800-FLOWERS.COM, Inc. is a leading multi-channel The Company’s home and garden merchandise
source of thoughtful gift products, offering an extensive and non-floral related gift products and gourmet foods
array of fresh-cut flowers, plants, gift baskets, gourmet are shipped by the Company, members of BloomNet or
foods, home décor and garden merchandise and other third parties directly to the customer. The Company
unique products. With one of the most recognized brands ships non-floral gift items by Federal Express, United
in retailing and a history of successfully integrating tech- Parcel Service, United States Postal Service or other
nologies and business innovations, the Company has common carriers. Most of the Company’s home and
evolved into a “next age” retailer providing convenient, garden products are fulfilled from its Madison, Virginia
multi-channel access for customers via the Internet, fulfillment center.
telephone, catalogs and retail stores.
The Company’s retail fulfillment operations primarily
1-800-FLOWERS.COM offers thousands of stock consist of 39 owned and 83 franchised stores. Retail
keeping units (“SKUs”) including flowers, plants, specialty fulfillment revenues also include revenues attributable to
gifts, gourmet foods, gift baskets, garden accessories, and the Company’s Floral Works wholesale floral subsidiary
home décor items. The Company’s product offering reflects (through the date of its disposition in January 2000), fees
a carefully selected assortment of high quality merchan- paid to the Company by members of its BloomNet network
dise chosen for its unique “thoughtful gifting” qualities and royalties, fees and sublease rent paid to the Company
which accommodate customer needs in celebrating a by its franchised stores. Company owned stores serve as
special occasion or conveying a personal sentiment. local points of fulfillment and enable the Company to test
Many products are available for same-day or overnight new products and marketing programs. As such, a majority
delivery and all come with the Company’s 100% satisfac- of the revenues derived from Company owned stores
tion guarantee. In addition to the Company’s selection represent fulfillment of its floral orders and are eliminated
of thoughtful gifts, the Company’s product line is further as intercompany revenues.
complemented by its subsidiaries which include
Plow & Hearth, a direct marketer (catalog and web: The Company expects to incur losses for the foresee-
www.plowhearth.com) of home décor and garden able future as a result of the significant operating and
products, and GreatFood.com (www.greatfood.com) capital expenditures required to achieve its objectives.
the #1 online destination (Time magazine 12/99) for However, the Company expects to achieve positive Earn-
gourmet food products. ings Before Interest Taxes Depreciation and Amortization
(“EBITDA”) for the fourth quarter of fiscal 2001 and full year
A majority of the Company’s floral and floral-related of fiscal 2002. No assurances can be made that positive
gift products are fulfilled through one of approximately EBITDA can be achieved on this schedule or at all. In order
1,500 fulfillment centers, including the BloomNet network to achieve and maintain profitability, the Company will need
of independent florists and the Company’s owned or to generate revenues significantly above historical levels.
franchised stores. The Company transmits its orders either The Company’s prospects for achieving profitability must
through BloomLink, its proprietary Internet-based elec- be considered in light of the risks, uncertainties, expenses,
tronic communication system, or the communication and difficulties encountered by companies in the rapidly
system of a third-party. Remittance to the fulfilling florist is evolving market of online commerce.
processed either through a third-party wire service that
reconciles and effects payments between sending and
fulfilling florists, called a clearinghouse, or is directly paid Results of Operations
by the Company. Consistent with industry practice, the
Company remits 80% of the value of the merchandise sold The Company’s fiscal year is a 52- or 53-week period
to a wire service for settlement with the fulfilling florist. It is ending on the Sunday nearest to June 30. Fiscal year
customary for the wire service to retain a 7%-9% fee for its 2000, which ended July 2, 2000 consisted of 53 weeks,
services. Additionally, when settling directly with the while fiscal years 1999 and 1998, which ended on June 27,
fulfilling florist, the Company remits between 71% and 1999 and June 28, 1998, respectively, consisted of 52
74% of the value of the merchandise sold. It is also weeks. As such, a portion of the increase in the
industry practice for the clearinghouse to credit back to Company’s fiscal year 2000 revenues, and associated
the originating florist a rebate for payments processed variable expenses, was attributable to the additional week
through the clearinghouse. of activity during the period.
12Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Net Revenues wholesale net revenue as a result of the Company’s
Years Ended divestiture of Floral Works in January 2000, offset by an
July 2, June 27, June 28, increase in retail net revenue due to growth in the number
2000 % Change 1999 % Change 1998 of owned retail stores from 36 at June 27, 1999 to 39 at
Net Revenues: (in thousands) July 2, 2000, and an increase in same store sales. The
increase in retail/fulfillment revenues during the year ended
Telephonic $230,221 12.9% $203,885 26.0% $161,874
June 27, 1999, in comparison to the year ended June 28,
Online 119,019 125.0% 52,886 97.7% 26,748
1998, was primarily due to the growth in the number of
Retail/fulfillment 36,010 (7.9%) 39,102 22.3% 31,970
owned retail stores from 23 to 36.
$385,250 30.2% $295,873 34.1% $220,592
In accordance with the Company’s redeployment plan
Net revenues consist primarily of the selling price of discussed below, the Company does not expect to materi-
merchandise and service and shipping charges, net of ally increase the number of owned retail stores in the
returns and credits. Growth in both telephonic and online foreseeable future.
revenues during the years ended July 2, 2000 and June 27,
1999 was due to an increase in order volume and average
Gross Profit
net revenue per order as a result of increased marketing
Years Ended
spending, an increase in repeat purchases from existing
July 2, June 27, June 28,
customers, and the Company’s continued expansion into
2000 % Change 1999 % Change 1998
non-floral products, including a broad range of items such
as online greeting cards, candies and gourmet items, as (in thousands)
well as unique gifts for the home and garden. Non-floral Gross Profit $147,757 27.2% $116,176 38.9% $83,626
gift products accounted for 29.6%, 21.4% and 5.3% of total Gross Margin % 38.4% 39.3% 37.9%
merchandise sold during the years ended July 2, 2000,
June 27, 1999 and June 28, 1998, respectively. During the Gross profit consists primarily of net revenues less cost
fiscal years ended July 2, 2000 and June 27, 1999, the of revenues which consist primarily of florist fulfillment
Company added approximately 2.7 million and 2.2 million costs (fees paid to wire services that serve as clearing-
new customers, respectively, bringing its cumulative houses for floral orders, net of rebates), the cost of floral
customer accounts, at July 2, 2000, to over 9.3 million, 2.2 and non-floral merchandise sold from inventory or through
million of which have transacted business either through third parties, and the associated costs of inbound freight
the 1-800-flowers.com Web site or one of its affiliated and outbound shipping. Additionally, cost of revenues
portal partners. In addition, online revenue growth contin- includes labor and facility costs related to direct-to-con-
ues to be driven by increased traffic coming directly to the sumer operations and to properties that are sublet to the
Companys’ URL’s (“Universal Resource Locators”), which Company’s franchisees. During the years ended July 2,
accounted for 69.0%, 45.9% and 37.1% of total online 2000 and June 27, 1999, gross profit increased as a result
orders during the years ended July 2, 2000, June 27, 1999 of increased sales volume and average net revenue per
and June 28, 1998, respectively. The continued growth of order. Gross margin percentage during the year ended
telephonic revenues demonstrates the benefits of providing July 2, 2000 declined 0.9 percentage points in comparison
customers with multiple channel access to products and to the prior year due to certain introductory product pricing,
services. Additionally, a large component of the growth in including promotions related to the successful launch of
the telephonic revenues during the year ended June 27, the Company’s exclusive line of “Fleur de Chocolate”
1999 was attributable to the Company’s April 1998 acquisi- branded Belgian candies, a higher credit and replacement
tion of Plow & Hearth. rate on floral orders during the Valentine’s and Mother’s
Day holidays to increase customer satisfaction and loyalty,
Revenue derived from the Company’s GreatFood.com and an increase in the average merchandise sales price on
subsidiary, which is included in the Company’s results of florist fulfilled orders which, while generating higher
operations since it was acquired on November 24, 1999, absolute gross profit dollars, results in a lower gross
was not material in relation to consolidated revenue for the margin percentage since the Company’s fixed service
year ended July 2, 2000. charge is spread over a higher sales price. The gross
margin percentage increase during June 27, 1999 was
The decrease in retail/fulfillment revenues during the primarily attributable to the April 1998 acquisition of Plow &
year ended July 2, 2000 in comparison to the year ended Hearth, whose product line carries a higher margin than
June 27, 1999 was due to a $5.1 million reduction in floral floral products.
13Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Marketing and Sales Expense In order to continue to execute its business plan, in
Years Ended future periods, the Company expects to continue to invest
July 2, June 27, June 28, significantly in its marketing and sales efforts to continue to
2000 % Change 1999 % Change 1998 acquire new customers, while also leveraging its already
(in thousands) significant customer base through cost effective, customer
Marketing and retention initiatives. Such spending will be within the
sales $161,075 74.8% $92,147 66.3% $55,417 context of the Company’s overall marketing plan which is
Percentage of continually evaluated and revised to reflect the results of
net revenues 41.8% 31.1% 25.1%
the Company’s market research, which seeks to determine
the most cost efficient use of the Company’s marketing
Marketing and sales expense consists primarily of dollars. Such evaluation includes the ongoing review of the
advertising and promotional expenditures, catalog costs, Company’s strategic relationships with its internet portal
fees paid to establish and maintain strategic relationships partners to ensure that such relationships continue to
with Internet portal companies, costs associated with retail generate cost-effective incremental volume.
stores, customer service center and fulfillment center
operations and the operating expenses of the Company’s
departments engaged in marketing, selling and merchan- Technology and Development Expense
dising activities. The increases in marketing and sales Years Ended
expense during the years ended July 2, 2000 and June 27, July 2, June 27, June 28,
1999 were primarily attributable to higher discretionary 2000 % Change 1999 % Change 1998
spending in traditional media advertising, relationship and (in thousands)
direct marketing, additions to the Company’s marketing Technology and
and merchandising staff, as well as additional sales development $16,809 108.4% $8,067 349.7% $1,794
personnel in support of order fulfillment and customer Percentage of
net revenues 4.4% 2.7% 0.8%
service activities, and additional online portal expenses as
a result of the Company’s expanded agreement with
America Online, contract renewal with Excite and Microsoft Technology and development expense consists prima-
Network and new agreements with Snap.com and Yahoo!. rily of expenditures incurred by the Company to maintain,
In addition, in June 2000, in connection with management’s monitor and manage the Company’s Web site, including
plan to reduce costs and improve operating efficiencies, design, content development and third-party hosting, as
the Company recorded a redeployment charge of approxi- well as maintenance, support, and licensing costs pertain-
mately $2.1 million. The principal reasons for the charge ing to its associated order entry, customer service, fulfill-
include the closure of certain retail stores in connection ment and database systems. The increase in technology
with the Company’s strategic redeployment of its retail and development expense during the years ended July 2,
network of direct fulfillment centers and the relocation of 2000 and June 27, 1999 was primarily attributable to
certain customer service centers, enabling the Company development costs incurred to enhance the content and
to meet increasing call volume requirements, while reduc- functionality of the Company’s Web site and transaction
ing costs per call. The redeployment will be completed in processing systems, and additional payroll, recruiting and
phases during fiscal year 2001. The major components of related expenses associated with the staffing of the
the redeployment charge include the estimated provision technology department to accommodate the Company’s
for the present value of future lease obligations and related growth. During the years ended July 2, 2000 and June 27,
facility shut down costs in the amount of approximately 1999, the Company expended $35.3 million and $16.2
$1.0 million (charged to marketing and sales expense), million on technology and development, of which $18.5
and the estimated unrecoverable book value of abandoned million and $8.1 million have been capitalized, respectively.
fixtures, equipment and leasehold improvements in the The Company believes that continued investment in
amount of approximately $1.1 million (charged to deprecia- technology and development is critical to attaining its
tion and amortization-see below). In addition to the above, strategic objectives and, as a result, technology and
a significant portion of the increase during the year ended development costs are expected to continue to increase in
June 27, 1999 was due to incremental catalog printing and comparison to prior years, particularly in the areas of Web
circulation expenditures resulting from Plow & Hearth. site development and database management.
14Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
General and Administrative Expenses $1.1 million, included within depreciation and amortization,
Years Ended to reserve for the estimated unrecoverable book value of
July 2, June 27, June 28, abandoned fixtures, equipment and leasehold improve-
2000 % Change 1999 % Change 1998 ments associated with the Company’s redeployment plan.
(in thousands) The Company expects that depreciation and amortization
General and will continue to increase in fiscal year 2001 due to recent
administrative $28,975 84.0% $15,748 (0.5%) $15,832
expenditures on short-lived information systems hardware
Percentage of and software and the full-year impact of the amortization of
net revenues 7.5% 5.3% 7.2%
goodwill related to the Company’s acquisitions of
GreatFood.com and TheGift.com.
General and administrative expense consists of payroll
and other expenses in support of the Company’s executive,
finance and accounting, legal, human resources and other Other Income (Expense)
administrative functions, as well as professional fees and Years Ended
other general corporate expenses. The increase in general July 2, June 27, June 28,
and administrative expenses during the year ended July 2, 2000 % Change 1999 % Change 1998
2000 was the result of costs associated with additions to (in thousands)
the management team and administrative increases Interest income $ 8,645 508.8% $ 1,420 10.1% $1,290
associated with operating as a public company. In addition, Interest expense (1,444) (44.7%) (2,610) 121.8% (1,177)
$3.1 million of the increase during the year ended July 2, Other, net 221 3,057.1% 7 99.5% 1,541
2000 was attributable to the effect of the management put
liability associated with the Plow & Hearth acquisition.
During the year ended July 2, 2000, the Company re- Other income (expense) consists primarily of interest
corded a charge of $1.5 million to increase the liability in earned on the cash proceeds from the Company’s IPO in
accordance with the acquisition valuation formula con- August 1999 and private placement of preferred stock in
tained in the Plow & Hearth stockholders’ agreement May 1999, offset by interest expense attributable to the
between the Company, Plow & Hearth and Plow & Hearth Company’s mortgage notes, capital leases, credit facility,
management shareholders. Conversely, in accordance with and promissory notes issued to sellers in certain acquisi-
the agreement, during the year ended June 27, 1999, the tions. The Company’s credit facility, including a term loan
Company recorded a benefit of $1.6 million to reduce the ($18.0 million) and line of credit ($3.0 million) was repaid
related liability. The Company believes that its current with the proceeds of the Company’s IPO in August 1999,
general and administrative infrastructure is sufficient to while certain seller financed acquisition obligations ($2.5
support existing requirements and, as such, while increas- million) associated with the Company’s franchise opera-
ing in absolute dollars, general and administrative ex- tions were repaid in November 1999. During the year
penses should, on a seasonally adjusted basis, begin to ended June 28, 1998, the Company recorded other income
decline as a percentage of net revenues in fiscal year 2001. net, of approximately $1.7 million, consisting primarily of a
$1.5 million dividend from a minority investment.
Depreciation and Amortization Income Taxes
Years Ended
July 2, June 27, June 28, For the years ended July 2, 2000 and the June 27,
2000 % Change 1999 % Change 1998 1999, the Company incurred a loss that provided a tax
(in thousands)
benefit of $1.3 million and $2.7 million, respectively. For the
Depreciation and year ended July 2, 2000, the effective tax rate differed from
amortization $16,479 96.5% $8,385 101.2% $4,168 the combined U.S. statutory tax rate as a result of providing
Percentage of a full valuation allowance on that portion of the Company’s
net revenues 4.3% 2.8% 1.9% deferred tax assets, consisting primarily of net operating
loss carryforwards, that exceeded the amount of recover-
Increases in depreciation and amortization expense able income taxes due to allowable carryback claims,
during the years ended July 2, 2000 and June 27, 1999 because of the uncertainty regarding its realizability. For
resulted from additional capital expenditures in short-lived the year ended June 27, 1999, the effective tax rate
information systems hardware and software, as well as differed from the combined U.S. statutory tax rate primarily
amortization of goodwill resulting from the Company’s as a result of the non-deductibility of certain goodwill
acquisitions of GreatFood.com and TheGift.com in Novem- amortization and the provision of a valuation allowance on
ber 2000 and Plow & Hearth in April 1998. In addition, for state tax benefits. For the year ended June 28, 1998, the
the year ended July 2, 2000, as described further above, Company provided for taxes of $3.2 million at an effective
the Company recorded a one-time charge of approximately rate of 39.4%.
15Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Liquidity and Capital Resources approximately $26.5 million and were comprised of fees
related to online marketing agreements (including the new
At July 2, 2000, the Company had working capital of AOL agreement), co-marketing fees related to airline
$82.1 million, including cash and equivalents of $111.6 frequent flier programs, expenses under its operating
million, compared to working capital of $85.6 million, leases, interest expense and the current portion of long
including cash and equivalents of $99.2 million at June term debt and capital lease obligations.
27, 1999.
The Company intends to continue to invest heavily to
Net cash used in operating activities of $34.4 million for support its growth strategy. These investments include
the year ended July 2, 2000 was principally attributable to continued advertising and marketing programs designed to
net losses, reduced by non-cash charges of depreciation enhance the Company’s brand name recognition with
and amortization and working capital changes comprised customers, continued expansion of its product lines to
primarily of increases in accounts payable and accrued include a broad variety of specialty gift and gourmet items,
expenses, offset by increases in inventory associated with and the further development of its Web site operating
the Company’s expansion into non-floral product lines, infrastructure. The Company believes that current cash
and other assets resulting from increases of deferred and equivalents will be sufficient to meet these anticipated
catalog costs. cash needs for at least the next twelve months. However,
any projection of future cash needs and cash flows are
Net cash used in investing activities of $45.7 million for subject to substantial uncertainty. If current cash and cash
the year ended July 2, 2000 consisted primarily of capital that may be generated from operations are insufficient to
expenditures and the acquisitions of GreatFood.com and satisfy the Company’s liquidity requirements, the Company
all of the remaining outstanding shares of common stock may seek to sell additional equity or debt securities or to
and stock options from the minority shareholders of the obtain lines of credit, in addition to the $5.7 million credit
Company’s Plow & Hearth subsidiary, partially offset by line currently available. The sale of additional equity or
the sale of the Company’s floral wholesale subsidiary, convertible debt securities could result in additional dilution
Floral Works, in January 2000. to the Company’s stockholders. In addition, the Company
will, from time to time, consider the acquisition of or
Net cash provided by financing activities of $92.5 million investment in complementary businesses, products,
for the year ended July 2, 2000 resulted from the net services and technologies, which might impact the
proceeds from the issuance of Class A common stock in Company’s liquidity requirements or cause the Company
the Company’s IPO, less repayments of amounts outstand- to issue additional equity or debt securities. There can be
ing under the Company’s credit facilities, seller financed no assurance that financing will be available in amounts or
acquisition obligations and capital lease obligations. on terms acceptable to the Company, if at all.
The Company’s material capital commitments consist of:
• obligations outstanding under capital and operating Recently Issued Accounting Pronouncements
leases as well as commercial notes related to obligations
arising from, and collateralized by, the construction of the In December 1999, the Securities and Exchange
Company’s warehousing/fulfillment facility in Madison, Commission staff released Staff Accounting Bulletin No.
Virginia. 101, Revenue Recognition in Financial Statements (“SAB
• online marketing agreements with America Online, Inc. No. 101”), which provides guidance on the recognition,
(“AOL”). On September 1, 2000, the Company entered into presentation and disclosure of revenue in financial state-
a new five year, $22.1 million interactive marketing agree- ments. Management believes that the provision of SAB
ment with AOL that effectively extends and enhances the No. 101 will not impact the Company’s revenue recognition
term of the Company’s previous agreement with AOL for an policies.
additional two years, through August 2005. Under the
terms of the new agreement, the Company will continue as In June 1998, the Financial Accounting Standards
the exclusive marketer of fresh-cut flowers across six AOL Board issued Statement No. 133, Accounting for Derivative
properties including AOL, AOL.com, CompuServe, Instruments and Hedging Activities, as amended, which is
Netscape Netcenter, Digital City and ICQ and receive required to be adopted in years beginning after June 15,
increased promotions across several of the AOL properties. 2000. Because of the Company’s minimal use of deriva-
tives, management does not anticipate that the adoption of
At July 2, 2000, the Company’s significant known the new Statement will have a significant effect on earnings
commitments for the subsequent twelve months totaled or the consolidated financial position of the Company.
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