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Good morning, and welcome to the 1-800-FLOWERS.COM, Inc. Fiscal 2025 Fourth Quarter Earnings Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Andy Milevoj, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to our fiscal 2025 fourth quarter and year-end 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 tables in our earnings release. And now, I'll turn the call over to Adolfo.

Thanks, Andy, and good morning, everyone. I'm honored to step into the CEO role at such an important time for our company, and I am very optimistic about our future. I want to start by thanking Jim for his support and the autonomy he has given me during this transition. Since joining in May, I have focused on gaining a deep understanding of our business by engaging with employees at every level and listening closely to customer feedback. These conversations have given me valuable insight into where we stand today, what's working, and what we need to change. They have helped us stabilize the business and identify both the immediate and long-term actions needed to set us on the right path. 1-800-FLOWERS.COM, Inc. is an iconic brand, and we have the privilege of being part of our customers' most meaningful moments. But customer expectations are evolving, technology is advancing quickly, and competition is intensifying. We didn't fully keep pace with this environment. And as a result, we haven't reached our full potential. As we discussed on our last call, our celebration strategy is designed to change that. It represents a fundamental shift in how we engage with customers and run our business. By leaning into this approach, we intend to address the factors that matter most to our growth and financial performance and position the company for long-term success. Looking ahead, I see significant opportunities to improve our performance by becoming a leaner, more agile, customer-centric, and data-driven organization. To return to revenue growth, we are modernizing the customer experience, sharpening how we acquire and retain customers, and expanding our reach beyond our e-commerce sites. At the same time, we are building greater operational discipline, driving efficiency, and enhancing accountability. I will share more of my thoughts in just a moment. But first, I would like to turn it over to James to review our fiscal 2025 fourth quarter and year-end financial results. James?

Thanks, Adolfo, and good morning, everyone. This morning, I will review our fiscal 2025 fourth quarter and year-end performance. Please note that all comparisons are made to the prior year period and represent adjusted results unless otherwise stated. Challenges we experienced throughout fiscal 2025 persisted during the fourth quarter. Our top line remained pressured, and we continue to navigate an evolving customer acquisition landscape. Traditional SEO continued to decline, and our bottom-of-the-funnel marketing investments did not yield their expected results. As a result, our consolidated fourth quarter revenue declined 6.7%. This was comprised of an 8.8% decline in our Consumer Floral and Gifts segment, a 3.6% decline in our Gourmet Foods and Gift Baskets segment, and a 0.6% decline in our BloomNet segment. This is primarily due to a 5.6% decrease in transactions and, to a lesser extent, a 1.6% decrease in AOV. This was partly mitigated by the Easter shift from Q3 a year ago into Q4 this year. For the fiscal year-end, our consolidated revenue declined 8%. This included an 8.2% decline in transactions and a 1.1% decline in AOV, which was partially offset by gains in our wholesale business. At the end of fiscal 2025, we had 9,500,000 customers, over 900,000 Passport members, and 74% of our revenue came from existing customers. As compared to the prior year, our customer count declined in line with our revenue decline, while our Passport membership declined at a greater rate. Multi-branded customers and Passport members continue to represent our best-performing customers. During fiscal 2025, multi-branded customers represented 13% of our customers and 29% of our revenues, while Passport members represented 9% of our customer base and 19% of our revenues. As Adolfo will touch on in just a few moments, we clearly recognize the affinity of these customers. We are reviewing opportunities to improve our loyalty program along with the overall shopping experience to increase membership and promote multi-branded selling. Turning to gross margin, our fourth quarter gross margin declined 290 basis points to 35.5% compared with 38.4% in the prior year period. This decline was primarily due to our highly promotional sales environment and deleveraging on the sales decline. On a full-year basis, excluding costs associated with the OMS system implementation challenges, our gross margin declined 100 basis points to 39.1%. Now let's review our fourth quarter operating margins. Excluding non-recurring charges and the impact of the company's non-qualified deferred compensation plan in both periods, operating expenses declined $3,700,000 to $159,700,000. On a full-year basis, our adjusted operating expenses declined $10,900,000 to $695,200,000. During fiscal 2025, we invested in marketing that did not yield the top-line results we were targeting. We've begun to optimize our marketing spend during the fourth quarter, and as Adolfo will discuss in more detail, we see significant opportunity to become more efficient and effective with our marketing efforts going forward. Based on these factors, our fourth quarter adjusted EBITDA loss was $24,200,000 as compared with a loss of $8,800,000 in the prior year period. On a full-year basis, adjusted EBITDA was $29,200,000 compared with $93,100,000 in the prior year period. On our last call, we reported the initiation of a cost reduction plan aimed at achieving approximately $40,000,000 in annualized savings, which included $17,000,000 in reductions that already have been implemented. As Adolfo will expand on, we recently engaged an external consultant to assist in identifying and prioritizing additional efficiency opportunities. Now turning to our balance sheet. At fiscal year-end, net debt was $114,000,000 compared with $31,000,000 a year ago. Our cash balance was $47,000,000. Inventory was $177,000,000 in line with a year ago. In terms of our debt, we had $160,000,000 in term debt and no borrowings under our revolving credit facility as compared with $190,000,000 in term debt a year ago. Looking ahead to fiscal 2026, we are approaching the year as a pivotal period of foundation setting. As we discussed on our last call, our celebration strategy is a multi-year strategy, and our strategic priorities are focused on positioning the company for long-term growth. These priorities include driving cost savings and organizational efficiencies, building a customer-centric and data-driven organization, broadening our reach beyond our e-commerce sites into new channels, and strengthening our team through enhanced talent and accountability. With a renewed commitment to agility and customer centricity, we believe these foundational steps will set the stage for sustainable revenue and profit growth in the years to come. Now, I'll turn the call back to Adolfo.

Thank you, James. Our performance this quarter is disappointing, and it is clear that we need to fundamentally transform our strategy in order to return to sales and profit growth. When I accepted this role, I did so with the belief that 1-800-FLOWERS.COM, Inc. is an iconic company with products customers love and with a unique place in their most meaningful celebrations. That belief has only grown stronger in my first few months as CEO. At the same time, I have identified several areas that require real change. Some issues can be addressed quickly, while others will take more time. This morning, I want to share my early observations and highlight the areas where the leadership team and I are focused. Over the past five years, our company experienced rapid revenue growth, followed by significant declines. While macroeconomic headwinds played a role, internal challenges also contributed. Our customer retention approach was ineffective, our marketing spend was inefficient, and expenses did not come down in line with revenues. So where do we go from here? We are transforming 1-800-FLOWERS.COM, Inc. into a customer-centric, data-driven organization with clear priorities and ROI-driven decision-making. Our plan centers on four key areas: achieving cost savings and organizational efficiency, strengthening our customer focus, expanding our reach beyond e-commerce into new channels, and enhancing talent and accountability. On our cost structure, the company has not sufficiently adjusted expenses to reflect lower revenues. We have launched a comprehensive review of our structure, supply chain, procurement, and IT costs to simplify how we work, eliminate redundancy, and build greater agility. We have also engaged an external consultant to help us accelerate time to impact. Procurement is one clear example of improvement. Today, sourcing is fragmented across brands. By centralizing it, we can leverage scale, lower costs, and improve consistency. Similarly, we are reviewing level planning and our end-to-end supply chain to drive further efficiencies. On the customer side, our focus is to simplify and modernize the digital experience, enhance our data infrastructure, and transform marketing into a full-funnel engine that balances awareness, acquisition, and retention. Historically, our brands operated independently, but by aligning merchandising to categories and streamlining our brand architecture, we can capture synergies and present a more unified, intuitive experience. We will also use algorithm-driven merchandising to personalize the journey and respond to customer needs in real-time. Improving marketing efficiency and retention is central to this effort. Our prior approach spread dollars across too many brands, competing against ourselves in key channels, and it was primarily focused on bottom-up funnel spend. We are shifting towards smarter, more efficient marketing that builds brand awareness and demand while creating a flywheel around acquisition, retention, and lifetime value. Our marketing framework will also shift from a focus on gross margin to emphasizing variable contribution margin and its direct impact on the bottom line. Enhancing our loyalty program is also a major opportunity. Today, it functions primarily as a free shipping program. By improving the value proposition, we can drive more frequent purchases and increase awareness of our broader product categories. We also see a significant opportunity in broadening our reach. While gifting will always remain at the heart of our business, many of our products also lend themselves to self-consumption. Expanding into occasions where customers purchase for themselves opens the door to new growth. Beyond our e-commerce sites, we will look to diversify our distribution, making our products more accessible in the places customers already shop and creating new entry points to experience our brands. Together, these initiatives will allow us to reach new audiences, deepen engagement, and drive incremental growth. Finally, talent and accountability are critical. We are aligning our team with the company's strategic goals and strengthening how we hire, develop, and retain talent. We are building a culture that values agility, accountability, and execution. This is essential to ensure that our strategy translates into results. As we said on our last call, our celebration strategy represents the next phase of our company's evolution. Many of the areas I have outlined today are central to that multi-year transformation, expanding into other channels, improving frequency and conversion, broadening in price points, improving marketing efficiency, leveraging technology to create a better customer experience, and strengthening loyalty. These priorities will guide us as we work toward long-term success. Based on what I have seen and learned so far, I am energized and optimistic about our company's future. While the transformation will take time, I'm confident that the actions we're taking will return 1-800-FLOWERS.COM, Inc. to growth and create meaningful long-term value for our shareholders. I look forward to sharing more in the quarters ahead. With that, we'll now open the call for Q&A. Operator, please provide instructions.

Thank you. We will now begin the question and answer session. Our first question will come from Michael Kupinski with NOBLE Capital Markets. Please go ahead.

Thank you. A couple of questions. Regarding your marketing, I know that you said that some of it has been ineffective. And I was just wondering, is it a change in like the use of technology that's causing that? For instance, I know that there's been a decline in search traffic on the likes of Google and so forth. And I was just wondering if there was a dynamic shift in the use of the way that people use technology given AI-driven and voice-type search use. And I was just wondering if that's what you're referring to in terms of the ineffective marketing?

Hi, Michael. This is Adolfo. Let me put it like this. It's two things. Number one, and in the short term, in the past, we would spend marketing to drive revenues, and we were not fully conscious of the variable contribution margin that that transaction would generate. So the cost of acquiring customers, in some cases, was higher than the margin that that transaction was generating. That led to very, I mean, instead of increasing bottom line, you actually were decreasing the more you spend marketing. So in the short term, we are focusing on variable contribution margin at the expense of revenues to focus on bottom line increases. To your second question, I mean, as technology shifts, I think overall what you see, I mean, these days, it's all about AI and LLMs. But really, I think you need to step back and think about where customers are buying products today. And let's just say that not everybody goes into the search engines to look for product. Our strategy historically has been focused on bottom of the funnel, and it has led us to spend a significant amount of our marketing spend on search engines and in a way we didn't spend in other areas. We're also changing that. So to summarize, it's the focus on variable contribution margin dollars for every transaction we have. And as I mentioned in the call, expanding our marketing strategy from bottom of the funnel into a full funnel approach where we actually generate awareness and drive demand.

Got you. Thanks for that color. And can you talk a little bit about the competitive dynamic in Consumer Floral? Is there like a bad actor there? Or is it just general competition? I was just wondering if you could just kind of add some color there.

I wouldn't say there is a bad actor. I think I would go towards more general competition. We need to become more agile. And as I mentioned in the call, I think today we are in an environment in which we manage products and we are trying to sell them on our website or on our e-commerce property. And as I mentioned before, everything starts with the customer and the customers are buying now in different channels. So, you need to have your products where the customers are. And that is impacting our business in the short term because we were not agile to go into these other channels. But as we speak, we're expanding into other channels to actually drive sales. We're in the process of expanding our products to other delivery platforms, to marketplaces, and other opportunity areas. You're talking about Flowers, but if I expand into Harry and David and some of our other brands, physical retail is also important and we are moving there and other retailers. We are I'm trying to drive the company to separate product, brand from channels. It doesn't mean that they need to be the same, but you have products that can be sold using different brands and products that can be sold through different channels. So we're looking at this end to end. And as I said, I think the number one focus here is let's offer our products wherever the customers are already buying them.

Got you. And my final question, I know I'm going let others ask questions. To what degree have commodity prices normalized? I mean, I know that in the past you talked a little bit about where we are in that journey towards getting towards more normalized commodity prices. And I know that cocoa prices have been exceptionally high. I was just wondering if you see the prospect for continued improvement at least on the commodity price side?

So Michael, this is James. So yes, as you mentioned, the cocoa remains elevated, but a lot of our other commodities have started to kind of revert closer to their mean. But the one headwind that we're still dealing with, it's obviously a lot better. When we spoke three months ago, the tariffs, right, we have a $15,000,000 headwind with tariffs based on the current tariff structure that is out there. Now that's down significantly from the $55,000,000 when tariffs first came out back in when we spoke in May. But again, we have that headwind. But overall, the commodities are starting to revert to their mean.

Okay, great. That's all I have. Thank you.

And your next question will come from Anthony Lebiedzinski with Sidoti and Company. Please go ahead.

Good morning and thank you for taking the questions. So first question just in terms of the quarter here. Can you comment on the sales for the major holidays like Easter and Mother's Day versus everyday gifting? Did you see the same kind of bifurcation between the two? Just wondering if you can comment on that.

So on the Mother's Day holiday, that came in line with what we were forecasting. It was obviously down on a year-over-year basis, but that one of the things that we did, as you recall, back in Valentine's Day, Anthony, we were investing heavily in marketing to try to drive top line. So from a Mother's Day perspective, we pulled back on getting back to what Adolfo mentioned on the variable contribution margin. We're more focused on variable contribution margin and not driving unprofitable sales. So Mother's Day was down year-over-year and came in line with our expectations.

Thank you, James. Okay. And thinking about the different strategies, Adolfo, that you mentioned, can you give us maybe a sense as to the timing of some of these initiatives? And what's kind of like the low hanging fruit, so to speak? And which of these strategies that you talked about will take more time to come to fruition?

Thank you, Anthony. As James said, we are seeing this year as a pivotal year to set the foundation for future growth. If you just step back for a moment and just say, hey, what was driving the EBITDA decline on this company? I can point you to three factors: volume decline combined with fixed overhead, the OMS issue we had back during the holidays and then unproductive increases in marketing spend. In the short term, we're addressing those issues to change the trajectory of the business, where we start planting seeds to drive future growth. And the future growth will come from two sources: fixing the core business. And as we have been talking about it, it's everything starts with products, so you need to make sure that you have the right value proposition. We were talking a lot about the customer. And I want to emphasize that the marketing strategy related to the customer, it is going to be less about the initial transaction and just capturing these customers at the bottom of the funnel. And it's more about how we are capturing these customers, what is the retention strategy to minimize the marketing fee as we acquire these customers, and therefore, increase the customer lifetime value over time. That's what we are calling the customer flywheel. And the third component is related to I call it the product discoverability, but it's helping the customer find our product. It's a combination of bringing AI to our websites, modernizing the navigation, search, product recommendations. So, the way to think about it is, in the short term, we're stabilizing the business, trying to change the trajectory, focus on the three things I mentioned is, okay, if your volume is declining, then your cost needs to change and we're working on that. The OMS issue, I think we are the way to think about it is, it's a combination of two things. The systems performance with then once the customers were not receiving the products, they would call customer care and we were not ready for those calls. We are quite confident that we solved all of the systems performance issues that we know of. Actually, the system today is performing better than before we implemented versus the previous system. And from a customer care perspective, we are building redundancies just in case something happens. So, are very confident about that. And then marketing, as I said in the short term, is focusing on the variable contribution margin. Parallel to that, we are planting seeds and making targeted investments on the future growth, which as I mentioned is the product assortment's value proposition, the customer flywheel and the product discoverability on our platforms. So it's a transition year followed with coupled with investments to drive future growth, Anthony.

Got you. And so I guess my last question before I pass it on to others. So as you look to execute your strategy, how do we think about CapEx spending for this year? It does sound like you're also looking to perhaps bring back some physical retail stores. I know a few years ago, you guys closed pretty much all of your Harry and David stores. I don't know if you would be looking to reconsider that decision and but just maybe help us understand how do you guys think about CapEx spending as you look to execute this strategy here?

So Anthony, is James. So from a CapEx perspective, we had the big implementation of OMS last year. So right now, we're not giving guidance, but we believe CapEx will be slightly down this year from last year. But included investment in some of the physical retail locations. So that's already included in that. So we do have CapEx set aside for the expansion into some Harry and David and Things Remembered locations.

Got it. Well, thank you very much and best of luck.

Thank you. Thank you.

Your next question will come from Doug Lane with Water Tower Research. Please go ahead.

Hi. Good morning, everybody. Staying on the retail stores, you did open that Long Island store earlier this year. Can you give us an update on what you've learned there? And how that's going to impact your strategy going forward in maybe opening additional retail stores?

So, let me separate the question from two perspectives. Like number one, as I mentioned, I think in the midterm, we believe that expanding our channels is fundamental to our strategy and that includes physical retail. This year, as you probably saw in the announcement, we are going to have three pop-up stores at Macy's, five in malls for Harry and David and one for Things Remembered. The way to think about those is we are experimenting and trying to find out what is the right assortment for those stores. The Huntington store combines, I would say, the best assortment we have within our brands. Harry and David goes beyond baskets into a lot of products that are of everyday consumption. And if you were to walk that store, you find those products there. And those products actually drive conversion when you get the traffic and drive transactions. That store, given our expectations, is doing quite well. Now keep in mind, it's a lower traffic store. It's not located in a shopping mall. In general, you to locate where traffic is located. But we are learning a lot from that store, and we are leveraging those learnings for our pop-up stores. If things go well, our intention is to continue expanding, not only exploring pop-up stores, but actually permanent physical stores. But as I said, next year is all about experimentation. We are learning and preparing for growth.

So the way I understand it then, there could be two paths here as you expand beyond e-commerce. One is Harry and David and Things Remembered branded stores, whether they're standalone like in Long Island or whether they're in the mall? Or would you also pursue on a parallel track permanent placement in Macy's and other department stores? Would you go to mass margins? Just a little bit more granularity on where in retail you think the brand can go.

I would say all of the above and that's what we are experimenting. And I would go beyond physical retail into also digital, including marketplaces and on-demand delivery. The way we're thinking about it is, wherever the customer is, we have products for them. We as I mentioned, it's I think beyond gifting, we're also focusing on self-consumption. And we have a lot of products for self-consumption. So, we're experimenting our way to grow. So, all of the things you mentioned, Doug, are options. We are fact-based. We are data-driven. So whatever delivers the best performance, that's where we are going to invest our capital. I think number one priority for me and for the team is, let's make sure that we drive profitable growth and the return on invested capital we provide to our shareholders is above their expectations.

Your comment about self-consumption makes a lot of sense to me. I know that you're positioned as a gifting platform, but certainly a lot of that product would be consumption. Do you have any data yet on what you think your current percentage of sales are that go to self-consumption versus gifting?

I would say it varies by brand. It's a lot higher on Harry and David, lower in Flowers and lower in Tmall. Honestly though, part of this is self-inflicted. One of the things the merchants are working on, on 1-800-FLOWERS.COM, Inc. is to tailor the assortment for self-consumption, e.g., something as simple as selling flowers without the vase. If you're buying flowers for your house, you are not buying vases, you just want the flowers. Launching a subscription model, we're experimenting with all of these things. But today, naturally, the products and the brands that we have acquired over the years that are sitting under the umbrella of Harry and David are tailored for self-consumption. We have cookies. We have coffee. We have chocolate. We're about to launch olive oil and vinegar. I mean, we have a lot of things that you can find on your average retail store. And as I said also, we're planning to have our own stores. So that's what we are unlocking here. I think in the past, we had this approach of, oh, it's our brand and it needs to be sold on our website, we're basically saying no, separate the brand from the product on our website. I'll give you an example, cookies. I can sell cookies on the Cheryl's brand. I can sell cookies on the Harry and David. I can sell private label cookies. I can sell all of those on the Harry and David website. I can sell all of that on the 1-800-FLOWERS.COM, Inc. website. I can sell that on marketplaces. I can sell that on physical retail. The sky is the limit. And we're experiment we're testing our way to find out what drives the most profitable growth for the company in the short term.

That's good color. Thanks, Adolfo.

Thank you.

With no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Adolfo Villagomez for any closing remarks.

Thank you all once again for taking the time to join us on today's call and for your continued support of 1-800-FLOWERS.COM, Inc. I am very excited to lead this company during such a transformational period in its history, and I look forward to keeping you updated on our progress in the quarters ahead. Thank you.