Good day and welcome to the 1-800-FLOWERS.COM, Inc. Full Year Q1 Conference Call. Please note this event is being recorded. I would like to turn the conference over to Joseph Pititto. Please go ahead..

Good morning and thank you for joining us today to discuss 1-800-FLOWERS.COM’s financial results for our fiscal 2022 first quarter. For those of you who have not received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our corporate website at 1800flowersinc.com.

Our call today will begin with brief formal remarks and then we will open the call to your questions. Presenting today will be Chris McCann, CEO and Bill Shea, CFO. Before we begin, I need to remind everyone that some of the statements we will make today maybe forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements.

For a detailed description of these risks and uncertainties, please refer to our press release issued this morning as well as our SEC filings, including the company’s annual report on Form 10-K and quarterly reports on Form 10-Q.

In addition, this morning, we will discuss certain supplemental financial measures that were not prepared in accordance with generally accepted accounting principles.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company’s press release issued this morning.

The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today’s call, any recordings of today’s call, the press release issued earlier today or in any of its SEC filings, except as maybe otherwise stated by the company. I will now turn the call over to Chris McCann..

Thank you, Joe and thank you to everyone for joining our call this morning. We are very pleased to kickoff our fiscal ‘22 year with strong revenue growth in our first quarter. As we mentioned back in our August call, the first quarter this year represented one of our most challenging year-over-year comparisons.

This reflects the year ago period surge in overall e-commerce demand, combined with the steep drop in marketing rates as much of the country was still in lockdown during the early stages of the pandemic.

It’s important to note that our 9% revenue growth in the quarter was on top of the 51.5% growth we reported in last year’s first quarter and represents more than – growth of more than 65% compared with our fiscal ‘20 first quarter.

This illustrates the strong growth momentum that we have been building over the past several years as we have essentially doubled the size of our company, transforming from the collection of specialty brands into unique e-commerce platform that inspires and enables our customers to express, connect and to celebrate.

As we had anticipated, the first quarter this year started out somewhat slowly in July and August as people across the country took advantage of the warm summer weather to act on their long pent-up desire to get out and about.

As a result, we saw demand gradually ramp up as we headed toward back-to-school season, culminating in solid double-digit revenue growth throughout the month of September. This positive growth trend reflects the significantly increased recognition and relevance of our brands and our expanded product offerings for everyday gifting.

For example, in our Harry & David brand, we saw double-digit revenue growth during the quarter in our Sympathy. Thank you and our new encouragements collections as well as continued strong growth for the award-winning Harry & David Wines.

In our Consumer Floral and Gift segments, the double-digit revenue growth in the quarter was driven by the strong performance of PersonalizationMall, along with continued growth in the 1-800-FLOWERS brand, including additional bundling of our best-selling floral arrangements with Shari’s Berries products that are already proving to be customer favorites.

In the expansion of our floral subscription programs, including additional frequency and duration options, along with a new self-service portal that allows customers to self-manage their subscriptions.

In PersonalizationMall, we further expanded our already broad product offering, adding more than 2,500 new items, including a new licensed personalized sports collection.

During the quarter, PersonalizationMall saw strong revenue growth for Halloween, back-to-school, travel, gifts and weddings, reflecting a strong rebound in those collections after being down last year due to the pandemic. We anticipate personalized gifts for travel and weddings to show strong growth throughout fiscal ‘22.

As we head towards the key holiday season, it’s worth noting that PersonalizationMall is in a uniquely strong position to meet growing demand from customers for the upcoming holiday season. We were able to stock up on our inventory items for personalization prior to the widely reported challenges that we see in the supply chain.

In addition, we further expanded PersonalizationMall’s highly automated production and distribution facility to increase fulfillment. Another area where we’ve stepped up our efforts ahead of the holiday season is in corporate gifting, where we have further expanded our capabilities with the launch of our new Hero platform powered by SmartGift.

We continue to see strong growth across our brands in corporate gifting as companies across the country look for ways to stay connected with their employees and their clients in the new hybrid workplace.

The Hero platform is now embedded in our existing corporate gifting portal, providing an engagement as a service offering, that helps companies achieve their rewards and recognition goals and gives them the ability to track their campaigns to measure their success and provide recommendations for future efforts.

With the innovative Hero platform and our expanded product offering, we anticipate continued strong growth in our corporate gifting business for the holiday season. During the first quarter, we also continued to see strong growth in our customer file.

We added 900,000 new customers while continuing to see strong demand from existing customers who represented more than 65% of our revenue during the quarter. We also saw continued strong growth in our Celebrations Passport loyalty program. This helps, as you know, to drive increased purchase frequency, retention and lifetime value.

Along with solid growth in new members, we saw a more than 50% year-over-year increase in customers, new and existing, using the Celebrations Passport program during the quarter.

Celebrations Passport also continues to be one of the key drivers of strong growth in our best-performing customer cohort of multi-category, multi-brand customers, which increased more than 15% year-over-year during the quarter.

In terms of customer engagement, we continue to see great engagement in our e-commerce channels where we are doing more to allow our customers to watch and learn and not just shop. During the quarter, we reached nearly 20 million engagements, an increase of 75% over the prior year period and more than our entire fiscal 2020.

We’re doing this by creating more helpful content, social videos and events, recipes, cooking demonstrations to name just a few examples. We’re also providing tips of how people can better express themselves when sending a gift. This is a valuable role that we play to enhance the gifting process and cement relationships.

Our opportunity as we go forward is to continue to take this great content and weave it into our experiences to better engage with our customers, and you’ll see us do more and more of this throughout the fiscal year.

Regarding our current fiscal second quarter, which includes the upcoming holiday season, we are cognizant of several significant headwinds impacting the overall retail landscape. I’ll ask Bill to cover these and our initiatives to address them in his remarks in just a moment.

With that said, we believe the combination of the positive trends in our business that I’ve just described, along with our unique business platform with our expanded product offering and the tremendous momentum that we’ve built over the past several years positions us well as our customers’ destination for the solutions they need to connect, express and celebrate with the important people in their lives.

We are confident that this will enable us to drive strong growth in the current fiscal second quarter and achieve our guidance of double-digit revenue growth for the full fiscal year on top of the tremendous growth that we saw in the prior year.

Now before I turn the call over to Bill, I’d really like to take a moment to welcome the team from Vital Choice to the 1-800-FLOWERS family. As we announced yesterday, we are excited to have acquired Vital Choice, a trusted provider of exceptional quality, premium, wild-caught seafood and hundreds of other great better-of-you products.

This acquisition illustrates our focus on further expanding our offerings in the highly on-trend, better-for-you food and gifting category. We look forward to integrating Vital Choice into our great family of brands and using the strength of our business platform to accelerate its growth going forward. I’d now like to turn the call over to Bill..

Thank you, Chris. As Chris mentioned, we are very pleased with the start of fiscal 2022. It’s worth repeating that the 9% revenue growth we achieved in the quarter was on top of 51.5% growth that we achieved prior year period and represent 65.2% growth compared with the first quarter of fiscal 2020.

Essentially, the first quarter played out as we expected, with soft demand in July and August, reflecting the increases in travel and other activities in the macro environment this summer versus a year ago, combined with the significantly higher marketing rates this year versus last year’s record lows.

As we expected, consumer demand improved significantly post Labor Day, and we are very pleased with the double-digit organic growth we achieved in September. We provided our guidance for the full fiscal 2022 year back in August, we said that.

Our first quarter revenue growth would be below the double-digit growth rate that we anticipate for the full year and bottom line results for the quarter would be down year-over-year due to higher marketing rates and other cost increases.

Our results for the quarter both top and bottom line, were ahead of the guidance illustrating the strength of our brands and expanded product offerings, particularly for everyday occasions.

Looking ahead, as we move into the important holiday season, we are encouraged by the significant increase in consumer demand we saw in September which is carried over into October, and we anticipate higher revenue growth and improved bottom line performance going forward.

With that said, we all wear several significant headwinds facing the overall retail landscape, including limited availability and increased cost of labor, rising commodity costs and higher rates of marketing and a vexing combination of widespread transportation delays for components and finished products along with significantly higher shipping costs.

We have implemented several initiatives designed to mitigate the impact of these issues and enable us to take advantage of the strong e-commerce demand we anticipate during the key holiday season.

These include strategic price increases across our brands and product offering, along with significant investments that we have made in our operating platform, including pre-building inventory, which leverages our expanded cold storage facilities, and installation of automation in our warehouse and distribution facilities, which increases throughput and reduces our alliance on seasonal labor.

As a result, we are well positioned to help our customers connect and express themselves with the important people in their lives, both everyday occasions and the key holiday season and drive solid top and bottom line performance.

Now, breaking down some of the highlights from our first quarter, as we have noted, total consolidated revenues increased 9% to $309.4 million compared with $283.8 million in the prior year period.

Excluding the non-comparable 5 weeks of contribution from PersonalizationMall, which we acquired on August 3 last year, total consolidated growth was 4.3%. This growth was driven by strong e-commerce demand, which increased 10.3% for the quarter, including contributions from PersonalizationMall.

Gross profit margin for the period was 40.6%, a decline of 10 basis points compared with the prior year period. Operating expenses as a percent of total revenue increased 170 basis points to 47.1% compared to 45.4% in the prior year period. This reflected the higher marketing rates compared with the prior year period.

As a result of these factors, adjusted EBITDA loss for the quarter was $5.3 million compared with an adjusted EBITDA of $3.2 million in the prior year period.

Net loss for the quarter was $13.2 million or $0.20 per share and adjusted net loss was $12.9 million or $0.20 per share compared with a net loss of $9.8 million or $0.15 per share and adjusted net loss of $6.5 million or $0.10 per share in the prior year period.

Regarding our segment results, in our Gourmet Food and Gift Baskets segment, revenues for the quarter increased 8.4% to $97.5 million compared with $89.9 million in the prior year period.

The strong growth was driven by increased demand for everyday occasions illustrating the increased customer recognition of our brands, such as Harry & David, Cheryl’s Cookies and Sherry’s Berries as highly relevant for everyday gifting occasions.

Gross profit margin in this segment was down 390 basis points at 35% compared with 38.9% in the prior year period, reflecting increased costs for labor and transportation.

Importantly, we have already implemented a series of strategic price increase initiatives as well as other strategies to help offset the increased labor and transportation costs going forward.

As a result of these factors as well as higher year-over-year marketing costs, Segment contribution margin for the quarter was a loss of $7.7 million compared with a loss of $2.6 million and an adjusted loss of $3 million in the prior year period.

In our Consumer Floral and Gift segment, total revenues increased 12.2% to $181.2 million compared with $161.5 million in the prior year period. Excluding the non-comparable 5 weeks of contribution from PersonalizationMall total revenues increased 3.9%.

Gross profit margin increased 130 basis points to 41.9% compared with 40.6% in the prior year period, primarily reflecting contributions from PersonalizationMall. As a result, segment contribution margin was $19.2 million, essentially unchanged compared with the prior year period.

This primarily reflected increased marketing costs, offset by the incremental contributions from PersonalizationMall. In BloomNet, revenues for the quarter were $30.8 million, a decline of 5.8% compared with $32.7 million in the prior year period.

This reflected delays in hard goods shipments as well as reduced order volume from third-party online floral companies. Profit margin increased 470 basis points to 50% compared with 45.3% in the prior year period.

This reflected product mix with lower shipments of wholesale margin hard goods and fewer low-margin orders from third-party floral companies in the quarter. As a result, segment contribution margin increased 4.2% to $10.9 million compared with $10.4 million in the prior year period.

Turning to our balance sheet, our cash and investment position was $3.8 million at the end of the first quarter, seasonally low as we prepare for the holiday period. Inventory was $282.4 million, we with inventory of $192.6 million at the end of last year’s first quarter.

The significant increase in inventory reflects a conscious effort on the part of our management team to invest early, to pre-build inventory, to mitigate the supply chain and seasonal labor issues we are seeing across the retail landscape. In terms of debt, we had $181.8 million in term debt and 0 borrowings under our revolving credit facility.

Regarding guidance, we are reaffirming the guidance we provided in our August call for the full fiscal 2022 year, which includes total revenue growth of 10% to 12% compared with the prior year. Adjusted EBITDA growth of 5% to 8% compared with the prior year.

EPS in line with fiscal 2021 as improved EBITDA is offset by higher depreciation and a higher effective tax rate and free cash flow to exceed $100 million. I will now turn the call back to Chris..

Thanks, Bill. And to sum up, we are very pleased with the strong growth that we achieved in our first quarter against what was a challenging comparison. This reflects the significant momentum that we’ve been building in our business for the past several years.

That stems from our laser focus on providing our customers with an expanded range of solutions designed to help them stay connected and express themselves sentiments that are more important than ever today.

This is combined with our ability to leverage our unique e-commerce platform, which includes our all-star family of brands, our advanced technology stack, our manufacturing, distribution and logistics capabilities, digital marketing expertise, and of course, our growing customer file.

As I mentioned earlier and it bears repeating, over the past several years, we have doubled the size of our business and significantly transformed our company, becoming a unique e-commerce platform that inspires and enables our customers to express, connect and celebrate.

As such, we are well positioned to continue to deliver strong growth going forward. Our guidance for this year and our outlook for continued strong growth in the years ahead is based on several factors, including the significant increase in consumers shopping online, a trend that we do not see going backwards.

The significant expansion of our product offering, both organically and through strategic acquisitions like PersonalizationMall, Shari’s Berries and now Vital Choice, the significant growth of our customer file along with continued positive customer behavior trends and the continued strong growth in our Celebrations Passport loyalty program, which is helping to drive increased frequency, retention and lifetime value.

In addition, I am extremely proud of our team, all our associates across the company who have continued to overcome the challenges that we have seen and continue to see in the macro environment. We’ve done this through a combination of hard work and innovative thinking that have become the core of our culture as a company.

Looking ahead, we are well positioned to deepen the relationship we have with our customers by engaging with them, across a broad range of communication channels as we work to build a true community and offer our customers the most robust online gifting assortment.

We are confident that we will continue to drive long-term shareholder value as we continue to leverage the strength of our platform. Now I’d like to turn the call back over to the operator so that we can take your questions. Thank you..

We will now begin the question-and-answer session. The first question is from Michael Kupinski with NOBLE Capital Markets. Please go ahead..

Thank you and congratulations on your quarter. So, just a couple of quick housekeeping things and then a couple of other questions.

Does the revenue guidance include Vital Choice?.

Yes, Michael, it does. We didn’t adjust our guidance, because of the size of Vital Choice. Vital Choice is on an annual basis, about a $25 million revenue business. We expect as we integrate to accelerate its growth and double-digit growth going forward, but obviously, it maybe a point to annual revenues at those numbers.

So, we didn’t change our guidance as a result..

Okay.

And then can you just kind of give us a sense of how Vital Choice performs in the quarter? Is it profitable each quarter? Just kind of give us a sense of how it performs?.

Yes. About 30% of its revenue is normally in the holiday quarter. We are picking it up effectively 1 month into the quarter, so, a pretty minor impact on this quarter..

Okay.

And then does the supply chain issues affect any one of your segments more so than the others?.

Yes. Supply chain issue affects more of our wholesale business than our e-commerce business, primarily the – you read a lot about the significant issues on ocean freight. We are not as susceptible to the ocean freight issues and the imports from Asia that many companies are, but a number of our wholesale products do come in from there.

So it affects that piece of business, if you remember, that’s about a maybe a 5% component of our overall revenue. So, it’s not a big piece of our business. With that said, we are feeling some pain with regards to the supply chain issues..

But as you said, Bill, mostly in the wholesale channel more than in the e-commerce channels..

Got it. And then I am hearing supply chain issues are starting to affect the economies of the larger markets in the U.S., which in turn is affecting advertising. Are you seeing – I know that advertising is up year-over-year in marketing and so forth.

Are you starting to see marketing rates begin to drop a little bit as you kind of head into this quarter?.

We have not seen that yet, Michael. As you just pointed out, marketing rates had returned to normal. We don’t face the same headwinds that we faced in the past quarters as we look at this year. We’re optimistic that we see marketing rates start to drop a little bit, but we have not seen that at this point..

And the company has historically been very good in terms of the price elasticity to raise prices during periods of inflation and things like that.

I was just wondering, do you think that this is a little different than the times that you’ve seen in the past? How receptive is consumers been to the price increases that you’ve had on some of your select products and things like that? Can you just kind of give us a sense on how the consumer is reacting?.

Yes. So we’ve been taking, as Bill pointed out in his formal remarks, we’ve been taking price increases where we can and doing so strategically, as you point out, that we’ve done very effectively in the past. At this point, I think we’re seeing consumers respond appropriately or respond favorably to the price increases that we’ve taken.

And we’re certainly looking at the opportunities going forward. I think we also – the market is being shaped by what we see in the general press and the consumer is seeing that there are price increases coming.

That’s also helping the consumer to step up and start to order early as well as we’re seeing that as a general message in the macro community..

Yes, Michael, we have the ability. We have dynamic pricing. So we have the ability to adjust pricing up, look at how that’s impacting conversion and adjust it back if need be. But as a kind of a macro comment, we saw a softer consumer demand in July and August.

We – what we expected and what we guided to back in our August call, we expected and then we saw a nice uptick in the business post Labor Day as kids went back to school, everyone went back to work, and we saw double-digit growth in the month of September that’s continued into October.

That’s at the time that we really started to implement some strategic pricing, right? We didn’t do it in July and August when consumer demand was a little softer, and it did not impact demand..

Got it. Thank you so much. Appreciate all the questions. Thanks..

Thanks. Thank you, Michael..

The next question is from Dan Kurnos with The Benchmark Company. Please go ahead..

Great, thanks. Yes, good morning. Chris, I guess just as we think about some of Mike’s comments on advertising and marketing. Obviously, the pressures haven’t abated if anything. Performance has gotten messier, given the supply chain issues and kind of maybe competing down funnel. You guys had been pretty flexible with your sort of go-to-market strategy.

And the interesting thing is even with elevated rate, you guys are seeing still strong growth.

So maybe kind of two-part question, which is, one, how are you thinking about channel spend going into the holiday period? And two, obviously, you spent a lot of money over the past couple of years sort of building your moat here and taking share but you’re seeing maybe the fruits of that labor now.

Is there – are there any thoughts to kind of starting to let some of the growth just flow through here, maybe since the inefficiencies are gone? Or is it really just more a reallocation to different channels as we think of going into ‘22 here throughout the course of the year?.

Thank you, Dan. As we look at things to your first part of your question really on how we look at the different channel spend.

First and foremost, as you pointed out in your question, we’re very good and we have good flexibility, even as Bill discussed on the dynamic pricing point, we have the same capabilities really on our advertising spend for the most part, so much of our advertising spend is in the digital channels, and we can dial back and dial up as we’re seeing the effectiveness move up and down.

I think we continue to look at – especially our lead brands more upper funnel where we’re starting to do more TV, whether it be connected TV, linear TV, we’re seeing good opportunities in those markets right now. So that’s broadening our capabilities.

And then as you get really into the closer to the holiday, it becomes more kind of lower funnel and where we can really be flexible and take advantage of the efficiencies that we see in the market. So to your point on building the moat, we see the opportunity to continue to grow the business.

So that I think as things become – or even this holiday season, we expect it to be less promotional. So that provides us some opportunities as well. But we’re in a growth mode right now. So we’re looking to see where we can expand that mode and how we can continue to grow our customer file.

As I pointed out in my remarks this past quarter when we grew our customer file by 900,000 people. And at the same time, 65% of our revenue still came from existing customers with good metrics from our Passport customers, good metrics from our multi-brand customers, multi-category customers. So we’re continuing to lean into that..

Got it. And maybe just to kind of follow-up on that and at the risk of being wrong in my math here, I still think in the September quarter, if you exclude PMall from both periods, you still had some, I don’t know, 4% consumer floral growth off of, I don’t know, 55% or so percent growth last year, something like that.

Do you have tremendous kind of underlying momentum and Bill, feel free to tell me I did that wrong.

But I guess I’m just trying to understand how much of that is sort of marketing driven? How much of that is Passport? How much of that is just kind of in the expansion of product lines here? And just do we feel the need to continue marketing at the same level to maintain that growth – Or do you have kind of substantial momentum where the investment in product expansion and things like Vital Choice becomes maybe more of a better lever to continue driving the elevated growth rates you’re seeing?.

I don’t think Bill is going to correct you. I think your map is fairly accurate. But I think to your question, it really is overall, and it is the momentum that we’ve been building up as we’ve been speaking about not just in the consumer floral but the momentum been building for several years in our businesses and really leveraging the platform.

So when you look at different product expansions, we talk about the Shari’s Berries product expansion and how that really leveraged our platform and is helping to drive some of this momentum innate growth that you referenced. Vital Choice will be similar.

We will bring that product line onto our platform, look to accelerate its growth capabilities bring that product catalog in with the Harry & David Gourmet line, which is such a nice complementary fit. So it’s the customer base that we’ve had that we’ve built up over time.

It’s the product expansion passport numbers, everything kind of working together to give us that momentum..

Fair enough. Yes, go ahead..

Just with your numbers, both on consumer flow and overall, we highlighted it in the formal remarks about overall 9% growth on top of last year’s over 50% growth, which got us a 65% growth over 2 years ago, and very similar numbers in the consumer floral category, over 4% organic growth consumer flow on the 1-800-FLOWERS brand over last year is well over 50%, bringing us 60% growth over 2 years ago..

Yes. No, it’s an unusual story line in this market to the upside. So you guys should be commended for that. Thanks for all the color. I appreciate it..

Thank you, Dan..

The next question is from Linda Bolton Weiser with D.A. Davidson. Please go ahead..

Yes, thank you.

Hi, so can you just comment on is there any issues at all in terms of supply chain with availability or pricing of flower supply? Are you seeing anything unusual there?.

I wouldn’t say very unusual, Linda. There have been challenges as was reported last spring is just really mostly in the freight side of the flower availability. So there is some small challenges just like we’re seeing in every sector. But we’ve got that under control. We’ve mitigated that.

We were in good inventory position as we go forward into this coming holiday season..

Okay. Great.

And then maybe I missed it, but did you actually give the increase in the number of Passport members the year-over-year increase in the quarter?.

No, we did not break that out on a quarterly basis, but I would say that we’re continuing to grow Passport at double-digit rates. And what’s really important pointed out in my remarks is if you look at Q1, we saw a 50%, 51% increase in customers, both new and existing, utilizing the Passport program. So that’s a good metric.

That’s really shows the traction that Passport is gaining in our everyday sales..

Okay.

And then in terms of Vital Choice, how integrated will you be able to get it in time for the holiday season? I mean, is it going to be completely integrated on the multi-brand platform? Like, how much progress can you make on that by the holidays?.

Yes. At this point in time, Linda – thanks for that question on it. And as you’ve seen us do in the past, the first thing that we do when we look at an acquisition and on the integration plan is don’t mess with the existing business. And as we move into the holiday season, we won’t rush things there.

So what you’ll see us do is merchandise the top-selling products within the Harry & David Gourmet line. And that’s about the extent that you’ll see in addition to starting to do some customer database exposure, etcetera. But from an integration point very limited preholiday and really focused from a merchandising on our platform point of view..

Okay. And then I had a question just about the longer term. You had a target of a 10% EBITDA margin for several years, and you’ve hit it. You’ve been successful in that.

So going forward, over the next few years, are you seeing that you’re more of a top line growth story with more of a flattish EBITDA margin? Or do you think there can be some EBITDA margin expansion beyond kind of this 10% level?.

Yes, Linda, I think over the longer term, we do see that there is the ability to improve our EBITDA margin, whether it be on the gross margin line or even on the OpEx line. Over time as Passport becomes a bigger component as multi-category purchases, become a bigger component of our revenue, more revenue will come from our existing customer base.

Thus, there will be some leveraging on the marketing side of the business. So we do think over time, there will be an expansion in the.

And that’s as we get benefits from the overall platform that we’ve built, as Bill said, both on the marketing side, the customer database side as well as the operations capabilities the automation we’re building into our platform, etcetera. So the more we invest and build that platform, the better you’ll see returns in the future..

Okay. Great. And then, just finally, I mean, with your guidance for double-digit growth, revenue growth for the year, I think if you look at Street estimates, there is an expectation for double-digit revenue growth in the big holiday quarter, the second quarter.

So are you seeing that that’s possible with the trends you’re seeing now? Is that the ballpark range of what you’re kind of expecting for the holiday quarter?.

Yes, Linda, by reiterating our guidance of 10% to 12% growth for the year, with where and we were below that in Q1. The remainder of the year, we certainly have to be at the double-digit level with Q2 being our largest quarter by a significant margin. We do expect to achieve double-digit growth in the second quarter..

Okay. Great. Thank you so much and good luck with everything..

Thank you. Thank you, Linda..

Good luck, Chris..

The next question is from Alex Fuhrman with Craig-Hallum. Please go ahead..

Great. Thank you very much for taking my question. Obviously, it sounds like you guys have a really good handle on the supply chain, given that you’re reiterating your guidance for the full year.

But as you look at the headwinds that you are facing and the obstacles ahead with the supply chain, what are the areas that you’re most concerned about? Are there any overseas inputs that are critical to the construction of your gift baskets and towers or set perhaps outbound shipping delays, risking some of your fresh products soiling in transit.

And I guess just from a big picture? Are there any concerns about being able to fulfill orders and meet demand for holiday? Or is it really just a matter of having to pay a little bit more for things like labor and shipping?.

Alex, that’s a mouthful. And supply chain is all over the news these days. Certainly, the ocean freight side of it gets a lot of news. Luckily, we’re less susceptible to ocean freight than many other companies as we don’t import a significant amount of items from Asia.

With that said, we are susceptible to it, and it does impact the wholesale part of our business more than e-commerce. It really doesn’t have much impact on e-commerce. But when you talk about supply chain, there is a lot of factors there, right? There is the ocean freight, there is trucking availability and it’s outbound freight.

So it’s a wide category. This is why we’ve been investing for a number of years in automation. We wanted to lessen our alliance on seasonal labor, but also be able to get ahead of some of the challenges.

You saw on our balance sheet that our inventory is up $90 million over a year ago, right? And that’s a comp to comp, right? We already own PersonalizationMall a year ago.

That was a conscious effort on management’s part to bring the inventory in early to put us in a better position than we were a year ago and to address some of the issues with supply chain. So there are certainly headwinds out there that will keep Chris and I up at night.

But we think we’re in a pretty good position as we head into the important 2 months ahead of us and why we’re confident and reiterated the guidance..

That’s terrific. Thanks, Bill..

The next question is from Doug Lane with Lane Research. Please go ahead..

Yes. Hi, good morning, everybody. Just talk about the December quarter, the holiday quarter? If I remember right, there were capacity constraints in the year ago quarter. So where are we on those capacity issues? What have we done to alleviate them to free up some demand requests this quarter that maybe were fulfilled last quarter..

Sure, Doug. There is a couple of things. And Bill, I’ll ask you to chime in as well. We looked last year, some of the capacity constraints that we were dealing with are more on the inventory side than pure capacity capabilities. So as Bill pointed out, we’ve addressed and looking to mitigate that with the increased inventory position that we’re in.

In addition to that, we’ve built in automation into some of our distribution facilities to increase throughput. I mentioned some of the new equipment we added into, for example, our PersonalizationMall to increased fulfillment capabilities there.

In addition, as Bill pointed out just a minute ago, the additional inventory that we brought in PersonalizationMall, new items – over 2,500 new items that we’ve introduced at PersonalizationMall. So those are most of the things that we’ve done to really address those issues.

Bill, anything else you think of?.

Yes. I mean, obviously, from an operational standpoint, this is very fluid, right? It’s a tough environment, both from a supply chain and from a labor availability.

But that’s, again, why we – you did a lot of the things that Chris just spoke about from an inventory standpoint, from an automation standpoint to put us in the best position we could be in to take advantage of what we believe is going to be a strong consumer demand as we head into Q2.

We do also get a little bit of a benefit of a shift from Q1 into Q2 on some wholesale orders. We spoke about it with BloomNet. But because of the supply chain challenges on that wholesale product, we have some orders that typically would have gone out in Q1 that are going to come into Q2..

Okay. That’s helpful, thank you. And while we’re on PersonalizationMall, we anniversaried the acquisition, so we’re going to lose visibility on the numbers there, but as far as I can tell, the growth there has been more than double digits. It’s been something 30%.

So I don’t know if you want to confirm that number and kind of what kind of growth rates you’re seeing on the top ..

So PersonalizationMall, Doug, as you pointed out, continues to perform very well. We continue to increase the capabilities there, new product introductions position were there. So we’re very comfortable with this continued growth rate, as you mentioned..

And the integration? Is it fully integrated or I mean where do we stand there?.

There is still integration to be done there on some of the technology platforms, etcetera. But one of the big things that we did this past quarter or recently anyway, was really integrating their product catalog. So everything is – the whole product catalog is integrated with our product information management system.

So what we’re seeing now is much more cross-merchandising being done across our other brands of the PersonalizationMall product. So that’s one of the most recent and significant achievements in the integration plan..

The next question is from Timothy Vierengel with Northcoast Research. Please go ahead..

Thank you and good morning. Only one question after Alex and Doug got some good color from theirs. And it is on Vital Choice. It is a small tuck-in acquisition. I know you guys have stockyards already on your kind of product offering.

I was wondering if this kind of better for you category, is kind of the new target vertical for you? If you guys can maybe size that vertical, I don’t know. I’m not very familiar with what that kind of market looks like.

I was just wondering if you could provide some more color on why you’re targeting the better-for-you category? What you like about it? And if you could maybe size it a little bit better for us. Thanks..

Thanks for that question, Tim. As we look at the better-for-you category, we’ve been in that category already with some of the product line from Harry & David, whether it be some organic food or organic capabilities or organic vegetables that we’ve had. We’ve had some from Cheryl’s gluten-free cookies, sugar-free cookies, etcetera.

And it’s a category that’s been on trend for a while now and continues to be a hot trend, especially after a younger demographic. So when we saw the opportunity with Vital Choice, it’s more than just a product expansion for us, which, again, the product is just fantastic.

And it’s great product and well positioned, but really positions and it’s a brand that we think we can grow into the better-for-you category. I don’t have the numbers off the top of my head, but it’s a very large category for us to grow into and for us to continue to expand our footprint and our position in there. So we’re pretty excited about that.

And if you take a look at the Vital Choice side, if you’ve had a chance, you see how they really promote the whole better-for-you, the healthier conscious aspect of wildcard, seafood and sustainably farmed shellfish.

That’s – so that flavor of branding and positioning is what you’ll see us do as we expand the Vital Choice brand over the coming years..

No, I appreciate that color and something maybe we can expand on later. One other kind of quick question. The supply chain issues of last year, wholly different, I think, than this year. I think last year, it was more fulfillment due to all the e-commerce demand.

From my notes, I have, I think, a number you guys gave us last year, which was I think you were able to fill 96% of your orders. I was wondering what a normal metric is for fulfillment of the orders you get. And if you feel comfortable that you’re going to get back to 100% or whatever that normal fulfillment rate is this holiday? Thank you..

Yes, Tim, I mean we did discuss last year that in December, we left demand on the table, the combination of the availability of inventory as well as FedEx capacity issues. We have worked very hard with FedEx throughout the year. We do feel confident that FedEx will be able to fulfill the demand that we have.

You’ve heard us talk about some of the supply chain and labor issues with the strategies we’ve implemented to offset that. We think we’re in good shape, but this is a top operational environment to be in. So we’re going to do our best to fulfill every order that we can get..

Alright. Thanks, guys, and good luck..

Thanks, Tim..

This concludes our question-and-answer session. I would like to turn the conference back over to Chris McCann for any sort remark..

I’d just like to thank everyone for joining this morning. I appreciate your comments and your questions. If you have any additional follow-up questions, please don’t hesitate to we’d be glad to engage. And I urge all of you to try our new product line for Vital Choice. I guarantee you’ll love it. Thank you very much..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..