UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
_X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-26841
1-800-FLOWERS.COM, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3117311
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 Stewart Avenue, Westbury, New York 11590
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(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (516) 237-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, $0.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of voting common stock held by non-affiliates of
the Registrant, based on the closing price of the Class A common stock on
September 24, 2002 as reported on the Nasdaq National Market, was approximately
$142,468,000. Shares of common stock held by each officer and director and by
each person who owns 5% or more of the outstanding common stock have been
excluded from this computation in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. The Registrant does not have any
non-voting common equity outstanding.
28,286,737
(Number of shares of class A common stock outstanding as of September 24, 2002)
37,199,915
(Number of shares of class B common stock outstanding as of September 24, 2002)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders (the Definitive Proxy Statement), to be filed with the
SEC within 120 days of June 30, 2002, are incorporated by reference into Part
III of this Report.
1-800-FLOWERS.COM, INC.
FORM 10-K
For the fiscal year ended June 30, 2002
INDEX
PART I
Item 1. Business 1
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 21
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 35
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and Management 36
Item 13. Certain Relationships and Related Transactions 36
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 37
Signatures 39
Certifications 41
PART I
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON THE COMPANY'S CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT 1-800-FLOWERS.COM,
INC. AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
AS MORE FULLY DESCRIBED ELSEWHERE IN THIS REPORT. THE COMPANY UNDERTAKES NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
Item 1. BUSINESS
The Company
With one of the most recognized brands in gift retailing, 1-800-FLOWERS.COM,
Inc. provides a broad range of thoughtful gift products including flowers,
plants, gourmet foods, candies, gift baskets and other unique gifts to customers
around the world via the Internet at (www.1800flowers.com); by calling
1-800-FLOWERS(R) (1-800-356-9377) 24 hours a day, 7 days a week; or by visiting
one of its Company-owned or franchised stores. The Company's product line is
extended by the merchandise sold through its subsidiaries including The Plow &
Hearth, Inc. ("Plow & Hearth(R)") (phone: 1-800-627-1712 and web:
www.plowandhearth.com), a direct marketer of home decor and garden merchandise,
GreatFood.com, Inc. ("GreatFood.com(R)") (www.greatfood.com), an online retailer
of gourmet food products, The Popcorn Factory, Inc. ("The Popcorn Factory(R)")
(www.thepopcornfactory.com), a manufacturer and direct marketer of premium
popcorn and specialty food gifts, and The Children's Group, Inc., a direct
marketer of children's gifts, operating under the HearthSong(R)
(www.hearthsong.com) and Magic Cabin Dolls(R) (www.magiccabindolls.com) brands.
1-800-FLOWERS.COM(R) currently maintains strategic online relationships with AOL
Time Warner ("AOL"), Yahoo! Inc. ("Yahoo!"), Microsoft Corporation ("Microsoft")
and American Greetings Corporation, among others. The Company's website was
recently named one of "The Best Places to Shop Online" by The Wall Street
Journal.
The Company offers more than 2,400 varieties of fresh-cut and seasonal flowers,
plants and floral arrangements, approximately 2,700 stock keeping units ("SKUs")
of gifts and gourmet foods, approximately 5,700 home and garden products,
including garden accessories and casual lifestyle furnishings, and more than
3,200 items for children, comprised of unique toys, games and educational
products. The Company is committed to providing its customers the best possible
shopping experience through superior service and a 100% satisfaction guarantee.
At June 30, 2002, the Company has a database of 18.1 million customers.
In 1992, Teleway, Inc. was formed under the laws of the State of Delaware and
acquired a majority of the outstanding shares of the common stock of
800-FLOWERS, Inc., a Texas corporation, under which entity the telemarketing
business was operated. In 1995, Teleway, Inc. changed its name to 1-800-FLOWERS,
Inc. and in 1996, 800-FLOWERS, Inc. was merged into 1-800-FLOWERS, Inc.
Subsequently, in 1999, 1-800-FLOWERS, Inc. changed its name to
1-800-FLOWERS.COM, Inc.
References in this Annual Report on Form 10-K to "1-800-FLOWERS.COM" and the
"Company" refer to 1-800-FLOWERS.COM, Inc. and its subsidiaries. The Company's
principal offices are located at 1600 Stewart Avenue, Westbury, New York, 11590
and its telephone number at that location is (516) 237-6000.
The Origins of 1-800-FLOWERS.COM
The Company's operations began in 1976 when James F. McCann, its Chairman and
Chief Executive Officer, acquired a single retail florist in New York City,
which he subsequently expanded to a 14-store chain. Thereafter, the Company
modified its business strategy to take advantage of the rapid emergence of
toll-free calling. The Company acquired the right to use the toll-free telephone
number 1-800-FLOWERS, adopted it as its corporate identity and began to
aggressively build a national brand around it. The Company believes it was one
of the first companies to embrace this new way of conducting business.
To support the growth of its toll-free business and to provide superior customer
service, the Company developed an operating infrastructure that incorporated the
best available technologies. Over time, the Company implemented a sophisticated
transaction processing system that facilitated rapid order entry and
fulfillment, an advanced telecommunications system and multiple customer service
centers to handle increasing call volume.
To enable the Company to deliver products reliably nationwide on a same-day or
next-day basis and to market pre-selected, high-quality floral products, the
Company created BloomNet(R), a nationwide network of independent local florists
selected for their high-quality products, superior customer service and order
fulfillment and delivery capabilities.
In the early 1990s, the Company recognized the emergence of the Internet as a
significant strategic opportunity and moved aggressively to embrace this new
medium. By taking advantage of investments in its infrastructure, the Company
was able to quickly develop and implement an online presence. As a result, the
Company was one of the first companies to market products online through
CompuServe beginning in 1992 and AOL beginning in 1994 (keyword: flowers). In
April 1995, the Company opened its fully functional, e-commerce Web site
(www.1800flowers.com) and subsequently entered into strategic relationships with
AOL, Yahoo! and Microsoft, among others, to build its online brand and customer
base.
The Company's online presence has enabled it to expand the number and types of
products it can effectively offer. As a result, the Company has developed
relationships with customers who purchase products not only for gifting
occasions but also for everyday consumption. Since 1995, the Company has
broadened its product offerings of flowers, gourmet foods and gifts and added
complementary home and garden merchandise through its April 1998 acquisition of
Plow & Hearth, as well as unique and educational children's toys and games when
it acquired the HearthSong and Magic Cabin Dolls product lines in June 2001. In
order to further expanded its gourmet food line, in November 1999, the Company
completed its acquisition of GreatFood.com, and most recently, in May 2002, the
Company completed its acquisition of selected assets of The Popcorn Factory,
adding premium popcorn and specialty snack foods to the Company's product
offerings.
The Company's Strategy
The Company has built its brand as a source for thoughtful gift products and
expects to continue to introduce new products and services consistent with this
mission. As such, the Company's objective is to be the leading provider of
flowers, specialty and other socially expressive gifts, gourmet foods and
products for the home and garden. The key elements of its strategy to achieve
this objective are:
Aggressively Extend the Company's Brands. The Company believes that
1-800-FLOWERS.COM is one of the most recognized brands in the floral and gift
industry. The strength of its brand has enabled the Company to extend its
product offerings to complementary products, including giftware, gourmet foods,
home and garden merchandise, and children's toys and games. This extension of
product offerings, through its brands, has enabled the Company to increase the
frequency of purchases by existing customers who have come to trust the
1-800-FLOWERS.COM brand, as well as attract a significant number of new
customers.
The Company believes its brands are characterized by:
o Convenience. All of the Company's product offerings can be purchased
either via the Company's toll-free telephone numbers from their home or
office 24 hours a day, seven days a week, or via the web for those
customers who prefer a visual representation of their product selection.
The Company offers a variety of delivery options, including same-day or
next-day service throughout the world.
o Quality. High-quality products are critical to the Company's continued
brand strength and are integral to the brand loyalty that it has built
over the years. The Company offers its customers a 100% satisfaction
guarantee on all of its products.
o Delivery. The Company has developed a market-proven fulfillment
infrastructure that allows delivery on a same-day, next-day and any-day
basis. Key to the Company's fulfillment capability is an innovative
"hybrid" model which combines BloomNet(R)(comprised of independent
florists operating retail flower shops and Local Fulfillment Centers
("LFC's"), Company-owned stores and fulfillment centers, and franchise
stores), with the Company owned distribution centers in Madison,
Virginia, Vandalia, Ohio and Lake Forest, Illinois and brand-name vendors
who ship directly to to the Company's customers. These fulfillment
points are connected by the Company's proprietary "Bloomlink(R)"
communication system, an internet-based system through which orders and
related information are transmitted.
o Selection. Over the course of a year, the Company offers over 2,400
varieties of fresh-cut and seasonal flowers, plants and floral
arrangements, over 2,700 SKUs of gifts and gourmet foods, approximately
5,700 home and garden products, including garden accessories and casual
lifestyle furnishings, and over 3,200 items for children, comprised of
unique and educational toys and games.
o Customer Service. The Company ensures that customer service, whether
online, via the telephone, or in one of its retail stores is of the
highest caliber. The Company operates four customer service facilities
to provide helpful assistance on everything from advice on product
selection to the monitoring of the fulfillment and delivery process.
The Company's goal is to make the 1-800-FLOWERS.COM brands synonymous with
thoughtful gifting. To do this, the Company intends to continue to invest in its
brands through the use of selective media, public relations and strategic
Internet portal relationships, while capitalizing on the Company's large and
loyal customer base through cost-effective customer retention programs.
As part of the Company's continuing effort to serve the thoughtful gifting needs
of its customers, the Company intends to market other high-quality brands in
addition to 1-800-FLOWERS.COM. The Company intends to accomplish this through
internal development, co-branding arrangements, strategic relationships and/or
acquisitions of complementary businesses. In keeping with this strategy, in May
2002, the Company acquired The Popcorn Factory, a manufacturer and direct
marketer of giftable premium popcorn and related products food gift, and in June
2001, the Company acquired The Children's Group, including its two brands of
unique and educational children's toys and games. In fiscal 2000 the Company
acquired GreatFood.com and TheGift.com, Inc. ("TheGift"), online retailers of
gourmet foods and specialty gift products, respectively, and in 1998, the
Company acquired Plow & Hearth, a direct marketer of home decor and garden
merchandise. As a complement to the Company's own brands and product lines, the
Company has formed strategic relationships with Lenox(R), Waterford(R),
Godiva(R), Hershey's(R), Sharper Image(R), American Greetings Corporation(R),
Things Remembered(R) and The San Francisco Music Box Company(R), among others,
in order to provide our customers with an even broader selection of products to
further its position as a destination for all of their gifting needs.
Expand its Product Offerings. The Company's wide selection of products creates
the opportunity to have a relationship with customers who purchase items not
only for gift-giving occasions but also for everyday consumption. The Company's
merchandising team works closely with manufacturers and suppliers to select and
design its floral, gourmet food, home and garden and children's toys, as well as
other gift-related products that accommodate our customers' needs to celebrate a
special occasion, convey a sentiment or cater to a casual lifestyle. As part of
this continuing effort, the Company intends to increase the number of, as well
as expand its relationships with its existing product manufacturers or, where
appropriate, acquire businesses with complementary product lines.
Enhance its Customer Relationships. The Company intends to deepen its
relationship with its customers and be their trusted resource to fulfill their
need for quality, tasteful gifts. The Company plans to encourage more frequent
and extensive use of its Web site, by continuing to provide product-related
content and interactive features. The Company will also continue to improve its
customers' shopping experience by personalizing the features of its Web site
and, in compliance with the Company's privacy policy, utilizing customer
information to target product promotions, identify individual and mass market
consumption trends, remind customers of upcoming occasions and convey other
marketing messages. As of June 30, 2002, the Company's total database of
customers numbered approximately 18.1 million, 6.0 million of which have
transacted business with the Company online.
In addition, the Company believes it has a significant opportunity to expand its
corporate accounts and intends to focus greater resources on developing
customized plans for its corporate customers, such as its existing programs with
IBM, JPMorgan Chase, Ford, Carnival Cruise Lines and Paramount Pictures to meet
their corporate gifting needs and those of their employees.
Increase the Number of Online Customers. To increase the number of customer
orders placed through its cost-effective Web site, the Company intends to
continue to:
o actively promote its Web site through Web portals, online networks and
search engines;
o aggressively expand its online affiliate program, in which
independent Web sites link directly to the Company's Web site;
o aggressively market the Company's Web site in its advertising campaigns;
o facilitate access to the Company's Web site for its corporate
customers by implementing direct links from their internal corporate
networks.
Capitalize upon the Company's Technology Infrastructure. The Company believes
it has been and continues to be a leader in implementing new technologies and
systems to give its customers the best possible shopping experience, whether
online or over the telephone.
The Company's online and telephonic orders are fed directly from the Company's
secure Web site, or with the assistance of a floral and gift counselor, into a
transaction processing system which captures the required customer and recipient
information. The system then routes the order to the appropriate Company
warehouse, or for florist fulfilled or drop-shipped items selects a vendor to
fulfill the customer's order and electronically transmits the necessary
information to assure timely delivery. In addition, the Company's customer
service representatives are electronically linked to this system, enabling them
to assist in order fulfillment and subsequently track other customer and/or
order information. During the past several years, the Company has invested
heavily in building a scalable technology platform to support the Company's
growing order volume. During fiscal 2002, the Company's technology cost
structure benefited by bringing its Web-hosting and development capabilities
in-house, resulting in significant year-over-year savings. In-sourcing also
provided improved operational flexibility, additional capacity and system
redundancy. Although the Company will continue to make significant investments,
and use the best available technologies in order to improve its operations, the
Company plans to leverage its existing information technology infrastructure
capabilities, thereby allowing for continued reduction in overall technology
spending as a percentage of revenues while providing resources to focus on
customer specific projects to ensure that our customers are provided an
enjoyable shopping experience. In particular, the Company intends to:
o continue to improve functionality, speed and ease of use of its Web
sites, including the implementation of an integrated shopping cart
to aid in cross-brand selling and optimization of site capabilities;
o enhance order tracking and provide for real-time delivery confirmation
capabilities;
o provide improved search options and gift lists and reminder programs;
o implement certain B2B client platforms to accommodate incremental
corporate business;
o improve its ability to analyze its database of customer and recipient
information and conduct personalized one-to-one marketing;
o further expand the functionality and features of BloomLink; and
o integrate the Lake Forest, Illinois distribution facility's warehouse
management system, acquired in May 2002 as part of the Company's
acquisition of The Popcorn Factory, to improve product flow and shipping
capabilities.
Continue to Improve the Company's Fulfillment Capabilities. A majority of the
Company's customers' purchases of floral and floral-related gift products are
fulfilled through one of approximately 1,500 fulfillment centers in BloomNet(R).
This allows the Company to deliver its floral products on a same-day or next-
day basis to ensure freshness and to meet its customers' need for prompt
delivery. In addition, the Company is better able to ensure consistent product
quality and presentation and offer a greater variety of arrangements, which
creates a betterexperience for its customers and gift recipients. The Company
selects BloomNet(R) members for their high-quality products, superior customer
service and order fulfillment and delivery capabilities.
The Company fulfills most of its gift basket and gourmet food items, other than
its premium popcorn and related products (which are shipped from the Company's
148,000 square foot manufacturing and distribution center located in Lake
Forest, Illinois), primarily through members of BloomNet(R) or third-party gift
vendors that ship products directly to the customer by next-day or other
delivery options chosen by the customer. The Company selects its third-party
gift vendors based upon the quality of their products, their reliability and
ability to meet volume requirements. The Company primarily packages and ships
its home and garden products from its 300,000 square foot distribution center
located in Madison, Virginia, or through the Company's 200,000 square foot
distribution center in Vandalia, Ohio. Shipment of children's merchandise is
primarily facilitated through the Vandalia distribution center.
Beginning in fiscal 2001, the Company began entering into Order Fulfillment
Agreement(s) with selected BloomNet(R) members to operate LFC's to facilitate
the fulfillment of the Company's floral and gift orders, improving the economics
of florist fulfilled transactions, and improving the Company's ability to
control product quality and branding.
To ensure reliable and efficient communication of online and telephonic orders
to its BloomNet(R) members and third party gift vendors, the Company created
BloomLink, a proprietary Internet-based communications system. All BloomNet(R)
members and third-party gift vendors have adopted BloomLink. The Company also
has the ability to arrange for international delivery of floral products through
independent wire services and direct relationships.
The Company intends to improve its fulfillment capabilities to make its
operations more efficient by:
o strengthening relationships and increasing the number of its vendors
and BloomNet(R) member florists and to ensure geographic coverage and
shorten delivery times;
o implementing alternative means of fulfillment, including centralized
production and strategic expansion and logistical positioning of
Company owned fulfillment centers and LFC's;
o continuing to improve warehousing operations and reduce fulfillment
times in support of its gift, gourmet food, home and garden and
children's product lines;
o integrating the Company's Lake Forest, Illinois distribution
facility within the Company's existing fulfillment network to improve
shipping rates and delivery capabilities.
The Company's Products
The Company offers a wide range of products, including fresh-cut and seasonal
flowers, floral arrangements, gifts, gourmet foods, home and garden merchandise
and unique toys and games for children. In addition to selecting its core
products, the Company's merchandising team works closely with manufacturers and
suppliers to select and design products that meet the seasonal, holiday and
other special needs of its customers. For the years ended June 30, 2002, July 1,
2001, and July 2, 2000 the flowers category represented 54.2%, 59.3%, and 67.6%
of total net revenues, respectively.
Over the course of a year, the Company's product selection consists of:
Flowers. The Company offers more than 1,700 varieties of fresh-cut and seasonal
flowers and floral arrangements for all occasions and holidays, available for
same-day delivery.
Plants. The Company also offers approximately 700 varieties of popular
plants to brighten the home and/or office, and accent the gardens and
landscapes.
Gourmet Food. Through The Popcorn Factory and GreatFood.com brands, the Company
offers more than 2,700 premium popcorn and specialty snack products, as well as
carefully selected gourmet food and sweet products from around the world,
including candies, chocolates, nuts, cookies, fruit, imported cheeses and
giftable surf-and-turf dinners. The Company's most popular items are offered in
beautiful and innovative gift baskets, providing customers with an assortment of
over 500 baskets. Through the acquisition of The Popcorn Factory in May 2002,
the Company now offers premium popcorn and related products packaged in
seasonal, occasion specific, decorative tins, fitting the "giftable" requirement
of our individual customers, while also adding the capability to customize the
tins with corporate logos and other personalized features for the Company's
corporate customer's gifting needs.
Unique and Specialty Gifts. The Company offers 1,100 specially selected gift
items, including plush toys, balloons, bath and spa items, candles, wreaths,
ornaments, collectibles, home accessories, giftware and fine jewelry.
Home and Garden. Through its Plow & Hearth brand, the Company offers more than
3,700 SKUs for home, hearth and outdoor living, including casual lifestyle
furniture and home accessories, clothing, footwear, candles and lighting, vases,
kitchen items and accents and approximately 2,000 gardening items, including
tools and accessories, pottery, nature-related products, books and related
products.
Children's Gifts. Through the HearthSong and Magic Cabin Dolls brands the
Company offers over 3,200 products, including environmentally friendly toys,
plush stuffed animals, crafts and books with educational, nature and art themes,
as well as, natural-fiber soft dolls, kits and accessories for children ages 3
through 12.
Greetings. Through its relationships with American Greetings Corporation and
Cardstore.com, the Company provides its customers the ability to send
personalized electronic and printed greeting cards with hundreds of fun and
creative ways to express emotions, offer congratulations, or just keep in touch.
In addition to giving its customers the ability to send electronic greetings
through AmericanGreetings.com, the online greetings division of American
Greetings Corporation, the revenue sharing agreement provides that the Company
will be the exclusive floral provider on American Greetings.com,
BlueMountain.com and Egreetings.com.
The Company's Web Sites
The Company offers floral, gift, gourmet food and home and garden products
through its 1-800-FLOWERS.COM Web site (www.1800flowers.com). Customers may come
to the Web site directly or may be referred to the Company by one of the
Company's portal providers. These providers include AOL (keyword:flowers),
Yahoo! and Microsoft and approximately 40,000 members of its online affiliate
program. The Company also offers home and garden products through the Plow &
Hearth Web site (www.plowandhearth.com), gourmet food products through
GreatFood.com (www.greatfood.com), premium popcorn and specialty food products
through The Popcorn Factory (www.thepopcornfactory.com) and children's gifts
through its Hearthsong (www.hearthsong.com) and Magic Cabin Dolls
(www.magiccabindolls.com) Web sites. As of June 30, 2002, approximately 6.0
million customers had made a purchase through the Company's online sales
channel.
The Company's Web site allows customers to easily browse and purchase its
products, promotes brand loyalty and encourages repeat purchases by providing an
inviting customer experience. The Company's Web site offers customers detailed
product information, complete with photographs, personalized shopping services,
contests, home decorating and how-to tips, information on floral trends,
gift-giving suggestions and information about special events and offers. The
Company has designed its Web sites to be fast, secure and easy to use and allows
customers to order products with minimal effort. The Company's 1-800-FLOWERS.COM
Web site includes the following key features in addition to the variety of
delivery and shipping options (same day/next day) and 24 hour/7 day customer
service that are available to all its customers:
Product Search and Order Tracking. The Company has implemented sophisticated
search capabilities, which enable customers to search for products by occasion,
category/department, price point, flower type, brand or keyword. The Company
also has a "Gift Finder" search tool that provides popular gift ideas for each
occasion. The Company's online order tracking capabilities allows customers to
quickly and easily view the delivery status of their purchase, while its
"Delivery Wizard" provides customers with expected delivery dates for each
product selection.
Personalization. The Company utilizes its Web site to enhance the direct
relationship with its customers, including greeting customers by name and
personalized Web pages tailored to its registered customers. The "Member
Benefits" provide customers with an online address book for names and addresses
of their gift recipients, access to their purchasing history and e-mail
notification of special promotions, product previews and events. The Company's
registered customers can also utilize its "Gift Reminder Program," which sends
e-mail reminders prior to any pre-selected occasion and offers suggestions to
specific flower and/or gift products.
Multiple Channel Access to Gifting Consultants. The Company's Web site offers
customers the ability to use e-mail, real-time online keyboard-to-keyboard chat
messaging and "click-to-talk" capability to reach one of the Company's gift
consultants who can answer product questions, provide gifting suggestions or
resolve order issues.
Security. The Company provides a safe and secure shopping experience within its
Web site through the use of secure server software, which encrypts the
customer's credit card number to protect against interception as the information
is transmitted over the Internet.
Privacy. The Company recognizes the importance of maintaining the privacy of its
customers. The Company uses the information gathered on its Web site from time
to time to send promotional materials and to enhance the customer's shopping
experience. The Company periodically makes certain information available to
selected third parties for direct marketing purposes. However, customers may
elect not to receive promotional information and/or instruct the Company not to
make their information available to third parties. The Company's current online
privacy policy, which is updated to continuously reflect current industry
guidelines, is set forth on its Web site.
Marketing and Promotion
The Company's marketing and promotion strategy is designed to strengthen the
1-800-FLOWERS.COM brands, build customer loyalty, increase the number of
customers, encourage repeat purchases and develop additional product revenue
opportunities. The Company also intends to develop and market other high-quality
brands in addition to its current 1-800-FLOWERS.COM, Plow & Hearth,
GreatFood.com, The Popcorn Factory, TheGift.com, Hearthsong and Magic Cabin
Dolls brands through internal development, co-branding arrangements, strategic
relationships and/or acquisitions of complementary businesses. The Company
markets and promotes its brands and products as follows:
The Company's Strategic Online Relationships. The Company promotes its products
through strategic relationships with leading Web portals and online networks.
The Company's relationships include, among others, AOL, Yahoo!, Microsoft,
American Greetings Corporation and various search engines.
The Company's Online Affiliate Program. In addition to securing alliances with
frequently visited Web sites, the Company developed an affiliate network that
has grown to approximately 40,000 Web sites operated by third parties.
Affiliates may join this program through the Company's Web site and their
participation may be terminated by them or by the Company at any time. These Web
sites earn commissions by referring customers from their sites to the Company's
Web site. The affiliates include such Web sites as Looksmart.com, Upromise.com,
Ebates.com, iWon.com, BizRate.com and SchoolPop.com.
Traditional Media. The Company utilizes traditional media, including television,
radio, print and outdoor advertising, to market its brand and products.
Traditional media allows the Company to reach a large number of customers and to
target particular market segments.
Direct Mail and Catalogs. The Company uses its direct mail promotions and
catalogs to increase the number of new customers and to introduce additional
products to its existing customers. Through the use of the Plow & Hearth,
HearthSong and Magic Cabin Dolls catalogs the Company has cross-promoted its
floral and gift products to its home and garden customers and the Company
similarly cross-promotes the home and garden products to its floral and gift
customers. The same cross-promotional efforts are being planned for The Popcorn
Factory brand, as the customer profiles for this brand matches well with the
Company's established brands. In addition to providing a direct sale mechanism,
the Company believes that these catalogs will attract additional customers to
the Company's Web sites. For the year ended June 30, 2002, the Company mailed in
excess of 85 million branded catalogs.
E-mails. The Company is able to capitalize on its customer database of
approximately 18.1 million customers, 6.0 million of which have transacted
business with the Company on-line, by utilizing cost-effective, targeted e-mails
to notify customers of product promotions, remind them of upcoming gifting
occasions and convey other marketing messages.
Co-Marketing and Promotions. The Company has established a number of
co-marketing relationships and promotions to advertise its products. For
example, the Company has established co-marketing arrangements with American and
Delta Airlines as well as OfficeMax, Cablevision, American Express, VISA and
MasterCard, among others.
Fulfillment Operations
The Company's customers primarily place their orders either online or over the
telephone. The Company's development of a hybrid fulfillment system which
enables the Company to offer same-day, next-day and any-day delivery, combines
the use of BloomNet(R)(independent florists operating retail flower shops
and LFC's, Company-owned stores and fulfillment centers, and franchise stores),
with the Company owned distribution centers and brand-name vendors who ship
directly to the Company's customers. While providing a significant competitive
advantage in terms of delivery options, the Company's fulfillment system also
has the added benefit of reducing the Company's capital investments in inventory
and infrastructure. Fulfillment of products is as follows:
Flowers. A majority of the Company's floral orders are fulfilled through
BloomNet(R). The Company selects retail florists for BloomNet(R) based upon the
historical volume of floral deliveries in a particular geographic area, the
number of BloomNet(R) florists currently serving the area and the florist's
design staff, facilities, quality of floral processing, ability to fulfill
orders in sufficient volume and delivery capabilities. The Company regularly
monitors BloomNet(R) florists' performance and adherence to the Company's
quality standards to ensure proper product branding and packaging.
By fulfilling floral orders through BloomNet(R), the Company is able to deliver
floral products on a same-day, next-day or any day basis to ensure freshness and
to meet the customers' need for prompt delivery. Because the Company selects
these florists and receives customer feedback on their performance in fulfilling
orders, it is able to ensure consistent product quality and presentation and
offer a greater variety of arrangements, which the Company believes creates a
better experience for its customers and gift recipients.
The Company's relationships with its BloomNet(R) members are non-exclusive. Many
florists, including many BloomNet(R) florists, also are members of other floral
fulfillment organizations. The BloomNet(R) agreements generally are cancelable
by either party with ten days notification and do not guarantee any orders,
dollar amounts or exclusive territories from the Company to the florist. As of
June 30, 2002, the Company had entered into 28 Order Fulfillment Agreements with
selected BloomNet(R) members to operate LFC's. Generally, these agreements
provide for a three-year term, terminable upon 30 days notice upon breach and
immediately by the Company in the event of certain specified defaults by the
operator of the LFC. In consideration of the operator's satisfactory
performance, the Company agrees to use reasonable efforts to forward orders with
a specified minimum merchandise value during each year of the agreement. The
Company has not granted an exclusive territory to any operator.
In certain instances, the Company is required to fulfill orders through
non-BloomNet(R) members, and transmits these orders to the fulfilling florist
using the communication system of an independent wire service. In addition, to
orders fulfilled by BloomNet(R) and non-BloomNet(R) member florists, the Company
ships overnight via common carrier to its customers directly from growers and
through its fulfillment centers.
As of June 30, 2002, the Company operates 24 floral retail stores, located
primarily in the New York and Los Angeles metropolitan areas and 7 fulfillment
centers. In addition, the Company has 83 franchised stores, located primarily in
California. Company owned stores serve as local points of fulfillment and enable
the Company to test new products and marketing programs. The Company does not
expect to materially increase the number of owned or franchised retail stores.
Plants, Gift Baskets, Gourmet Food, Premium Popcorn and Unique Gifts. The
Company's plants, gift baskets, gourmet food, premium popcorn and unique gifts
are shipped directly to the customer by members of BloomNet(R), third-party
product suppliers or through its Madison, Virginia, Vandalia, Ohio and Lake
Forest, Illinois fulfillment centers using next-day or other delivery option
selected by the customer. The Company's business is not dependent on any single
third-party supplier. During fiscal 2003, the Company will be integrating its
Lake Forest, Illinois distribution facility into the Company's overall
fulfillment plan to improve product flow and shipping capabilities.
Home and Garden and Children's Toys. The Company fulfills purchases of home and
garden merchandise from its Madison, Virginia and Vandalia, Ohio fulfillment
center or by third-party product suppliers using next-day or other delivery
option selected by the customer. In fiscal 2002, the Company shipped
approximately 2.1 million packages from these facilities which employ advanced
technology for receiving, packaging, shipping and inventory control.
Technology Infrastructure
The Company believes it has an advanced technology platform. Its technology
infrastructure, primarily consisting of the Company's Web site, transaction
processing, customer databases and telecommunications systems, is built and
maintained for reliability, security, scalability and flexibility. To minimize
the risk of service interruptions from unexpected component or
telecommunications failure, maintenance and upgrades, the Company has built full
back-up and system redundancies into those components of its systems that have
been identified as critical. In recent years the Company installed an
Oracle-based order processing and database management system, developed
BloomLink, and upgraded its telecommunications network, including its call
management system. The Company plans to continue to invest in technologies that
will improve and expand its e-commerce and telecommunication capabilities.
During the latter half of fiscal 2001, the Company brought its primary
Web-hosting and development capabilities in-house, resulting in significant cost
savings, while also providing improved operational flexibility and additional
back-up capacity and system redundancy. During fiscal 2002, the Company opened
up a secondary hosting location to house its back-up operations, previously
handled by a third party, thereby providing additional control and load
balancing capabilities.
The Company's transaction processing system captures customer profile and
history in a customized Oracle database and selects the florist, third-party
vendor, or Company-owned warehouse to fulfill the order. Through the use of
customized software applications, the Company is able to retrieve, sort and
analyze customer information to enable it to better serve its customers and
target its product offerings. The Company has acquired technology applications
that have significantly expanded its ability to analyze and use this
information.
The Company's customer service centers and third-party outsourcers are connected
electronically to its transaction processing system to permit the rapid
transmission of, and access to, critical order and customer information. In
addition, BloomLink electronically connects the Company to its BloomNet(R)
members and non-floral vendors.
The Company's operations center is located in its headquarters in Westbury, New
York. The Company provides comprehensive facility management services, including
human and technical monitoring of all production servers, 24 hours per day,
seven days per week.
Competition
The growing popularity and convenience of e-commerce has continued to give rise
to established businesses on the Internet. In addition to selling their products
over the Internet, many of these retailers sell their products through a
combination of channels by maintaining a Web site, a toll-free phone number and
physical locations. Additionally, several of these merchants offer an expanding
variety of products and some are attracting an increasing number of customers.
Certain mass merchants have expanded their offerings to include competing
products and may continue to do so in the future. These mass merchants, as well
as other potential competitors, may be able to:
o undertake more extensive marketing campaigns for their brands and services;
o adopt more aggressive pricing policies; and
o make more attractive offers to potential employees, distributors and
retailers.
In addition, the Company faces intense competition in each of its individual
product categories. In the floral industry, there are many other providers of
floral products, none of which is dominant in the industry. The Company's
competitors include:
o retail floral shops, some of which maintain toll-free telephone numbers;
o online floral retailers;
o catalog companies that offer floral products;
o floral telemarketers and wire services; and
o supermarkets, mass merchants and specialty retailers with floral
departments.
Similarly, the plant, gift basket, gourmet food, unique gifts, children's toys
and home and garden categories are highly competitive. Each of these categories
encompasses a wide range of products, is highly fragmented and is served by a
large number of companies, none of which is dominant. Products in these
categories may be purchased from a number of outlets, including mass merchants,
telemarketers, retail specialty shops, online retailers and mail-order catalogs.
The Company believes the strength of its brands, product selection, customer
relationships, technology infrastructure and fulfillment capabilities position
it to compete effectively against its current and potential competitors in each
of its product categories. However, increased competition could result in:
o price reductions, decreased revenues and lower profit margins;
o loss of market share; and
o increased marketing expenditures.
These and other competitive factors may adversely impact the Company's business
and results of operations.
Government Regulation and Legal Uncertainties
The Internet is rapidly evolving and there are laws and regulations directly
applicable to e-commerce. Legislatures are also considering an increasing number
of laws and regulations pertaining to the Internet, including laws and
regulations addressing:
o user privacy;
o pricing;
o content;
o connectivity;
o intellectual property;
o distribution;
o taxation;
o liabilities;
o antitrust; and
o characteristics and quality of products and services.
Further, the growth and development of the market for online services may prompt
more stringent consumer protection laws that may impose additional burdens on
those companies conducting business online. The adoption of any additional laws
or regulations may impair the growth of the Internet or commercial online
services. This could decrease the demand for the Company's services and increase
its cost of doing business. Moreover, the applicability to the Internet of
existing laws regarding issues like property ownership, taxes, libel and
personal privacy is uncertain. Any new legislation or regulation that has an
adverse impact on the Internet or the application of existing laws and
regulations to the Internet could have a material adverse effect on the
Company's business, financial condition and results of operations.
States or foreign countries might attempt to regulate the Company's business or
levy additional sales or other taxes relating to its activities. Because the
Company's products and services are available over the Internet anywhere in the
world, multiple jurisdictions may claim that the Company is required to do
business as a foreign corporation in one or more of those jurisdictions. Failure
to qualify as a foreign corporation in a jurisdiction where the Company is
required to do so could subject it to taxes and penalties. States or foreign
governments may charge the Company with violations of local laws.
Intellectual Property and Proprietary Rights
The Company regards its service marks, trademarks, trade secrets, domain names
and similar intellectual property as critical to its success. The Company has
applied for or received trademark and/or service mark registration for, among
others,"1-800-FLOWERS.COM", "1-800-FLOWERS", "Plow & Hearth", "GreatFood.com",
"The Popcorn Factory", "TheGift.com", "HearthSong" and "Magic Cabin Dolls." The
Company also has rights to numerous domain names, including www.1800flowers.com,
www.800flowers.com, www.flowers.com, www.plowandhearth.com, www.greatfood.com,
www.thepopcornfactory.com, www.hearthsong.com and www.magiccabindolls.com. In
addition, the Company has developed transaction processing and operating systems
as well as marketing data, and customer and recipient information databases.
The Company relies on trademark, unfair competition and copyright law, trade
secret protection and contracts such as confidentiality and license agreements
with its employees, customers, vendors and others to protect its proprietary
rights. Despite the Company's precautions, it may be possible for competitors to
obtain and/or use the Company's proprietary information without authorization or
to develop technologies similar to the Company's and independently create a
similarly functioning infrastructure. Furthermore, the protection of proprietary
rights in Internet-related industries is uncertain and still evolving. The laws
of some foreign countries do not protect proprietary rights to the same extent
as do the laws of the United States. The Company's means of protecting its
proprietary rights in the United States or abroad may not be adequate.
The Company intends to continue to license technology from third parties,
including Oracle, Microsoft, MCI and AT&T, for its communications technology and
the software that underlies its business systems. The market is evolving and the
Company may need to license additional technologies to remain competitive. The
Company may not be able to license these technologies on commercially reasonable
terms or at all. In addition, the Company may fail to successfully integrate
licensed technology into its operations.
Third parties have in the past infringed or misappropriated the Company's
intellectual property or similar proprietary rights. The Company believes
infringements and misappropriations will continue to occur in the future. The
Company intends to police against infringement or misappropriation. However, the
Company cannot guarantee it will be able to enforce its rights and enjoin the
alleged infringers from their use of confusingly similar trademarks,
servicemarks, telephone numbers and domain names.
In addition, third parties may assert infringement claims against the Company.
The Company cannot be certain that its technologies or its products and services
do not infringe valid patents, trademarks, copyrights or other proprietary
rights held by third parties. The Company may be subject to legal proceedings
and claims from time to time relating to its intellectual property and the
intellectual property of others in the ordinary course of its business.
Intellectual property litigation is expensive and time-consuming and could
divert management resources away from running the Company's business.
Employees
As of June 30, 2002, the Company had a total of approximately 2,500 full and
part-time employees. During peak periods, the Company substantially increases
the number of customer service, manufacturing and retail and fulfillment
personnel. The Company's personnel are not represented under collective
bargaining agreements and the Company considers its relations with its employees
to be good.
Risk Factors that May Affect Future Results
The risks and uncertainties described below are not the only risks and
uncertainties the Company faces. Additional risks and uncertainties not
presently known to the Company or that are currently deemed immaterial may also
impair its business operations. If any of the following risks actually occur,
the Company's business, financial condition or results of operations may suffer.
The Company has incurred losses in recent years, and no assurances can be made
that positive net income can be achieved in the foreseeable future. After a
period of significant investment in the Company's systems and infrastructure, as
well as brand name building and product line extensions, the Company expects to
return to profitability during fiscal 2003. However, the Company has incurred
losses in recent years, and no assurances can be made that positive net income
can be achieved on this schedule or in the foreseeable future. In order to
achieve and maintain profitability, the Company will need to generate revenues
exceeding historical levels and/or reduce operating expenditures. Management
cannot assure you that the Company will generate revenues or reduce operating
expenses sufficiently to achieve positive profitability. Even if the Company
does achieve profitability, it may not sustain or increase profitability on a
quarterly or annual basis in the future.
The Company's quarterly operating results may significantly fluctuate and you
should not rely on them as an indication of its future results. The Company's
future revenues and results of operations may significantly fluctuate due to a
combination of factors, many of which are outside of management's control. The
most important of these factors include:
o seasonality;
o the retail economy;
o the timing and effectiveness of marketing programs;
o the timing of the introduction of new products and services;
o the timing and effectiveness of capital expenditures;
o the Company's ability to enter into or renew online marketing agreements;
and
o competition.
The Company may be unable to reduce operating expenses quickly enough to offset
any unexpected revenue shortfall. If the Company has a shortfall in revenue
without a corresponding reduction to its expenses, operating results may suffer.
The Company's operating results for any particular quarter may not be indicative
of future operating results. You should not rely on quarter-to-quarter
comparisons of results of operations as an indication of the Company's future
performance. It is possible that results of operations may be below the
expectations of public market analysts and investors, which could cause the
trading price of the Company's Class A common stock to fall.
Consumer spending on flowers, gifts and other products sold by the Company may
vary with general economic conditions. If general economic conditions
deteriorate further and the Company's customers have less disposable income,
consumers may spend less on its products and its quarterly operating results may
suffer.
The Company's operating results may suffer if revenues during the Company's peak
seasons do not meet its expectations. Sales of the Company's products are
seasonal, concentrated in the fourth calendar quarter, due to the Thanksgiving
and Christmas-time holidays, and the second calendar quarter, due to Mother's
Day and Administrative and Professionals' Week. In anticipation of increased
sales activity during these periods, the Company hires a significant number of
temporary employees to supplement its permanent staff and the Company increases
its inventory levels. If revenues during these periods do not meet the Company's
expectations, it may not generate sufficient revenue to offset these increased
costs and its operating results may suffer.
If the Company's customers do not find its expanded product lines appealing,
revenues may not grow and net income may decrease. The Company's business
historically has focused on offering floral and floral related gift products.
Although the Company has been successful in the introduction of its expanded
product lines including plants, gift baskets, gourmet food, unique or specialty
gifts, home and garden accessories and children's gifts, it expects to continue
to incur significant costs in marketing these new products. If the Company's
customers do not find its expanded product lines appealing, the Company may not
generate sufficient revenue to offset its related costs and its results of
operations may be negatively impacted.
If the Company fails to develop and maintain its brands, it may not increase or
maintain its customer base or its revenues. The Company must continue to develop
and maintain the 1-800-FLOWERS.COM brands to expand its customer base and its
revenues. In addition, the Company has introduced and acquired other brands in
the past, and may continue to do so in the future. The Company believes that the
importance of brand recognition will increase as it expands its product
offerings. Many of the Company's customers may not be aware of the Company's
non-floral products. If the Company fails to advertise and market its products
effectively, it may not succeed in establishing its brands and may lose
customers leading to a reduction of revenues.
The Company's success in promoting and enhancing the 1-800-FLOWERS.COM brands
will also depend on its success in providing its customers high-quality products
and a high level of customer service. If the Company's customers do not perceive
its products and services to be of high quality, the value of the
1-800-FLOWERS.COM brands would be diminished and the Company may lose customers
and its revenues may decline.
A failure to establish and maintain strategic online relationships that generate
a significant amount of traffic could limit the growth of the Company's
business. Although the Company expects a significant portion of its online
customers will continue to come to its Web site directly, it will also rely on
third party Web sites with which the Company has strategic relationships,
including AOL Time Warner, Yahoo! and Microsoft Corporation, for traffic. If
these third-parties do not attract a significant number of visitors, the Company
may not receive a significant number of online customers from these
relationships and its revenues from these relationships may decrease or not
grow. There continues to be strong competition to establish or maintain
relationships with leading Internet companies, and the Company may not
successfully enter into additional relationships, or renew existing ones beyond
their current terms. The Company may also be required to pay significant fees to
maintain and expand existing relationships. The Company's online revenues may
suffer if it fails to enter into new relationships or maintain existing
relationships or if these relationships do not result in traffic sufficient to
justify their costs.
If local florists and other third-party vendors do not fulfill orders to the
Company's customers' satisfaction, its customers may not shop with the Company
again. In many cases, floral orders placed by the Company's customers are
fulfilled by local independent florists, a majority of which are a members of
BloomNet(R). The Company does not directly control any of these florists. In
addition, many of the non-floral products sold by the Company are manufactured
and delivered to its customers by independent third-party vendors. If customers
are dissatisfied with the performance of the local florist or other third-party
vendors, they may not utilize the Company's services when placing future orders
and its revenues may decrease.
If a florist discontinues its relationship with the Company, the Company's
customers may experience delays in service or declines in quality and may not
shop with the Company again. Many of the Company's arrangements with local
florists for order fulfillment may be terminated with 10 days notice. If a
florist discontinues its relationship with the Company, the Company will be
required to obtain a suitable replacement located in the same geographic area,
which may cause delays in delivery or a decline in quality, leading to customer
dissatisfaction and loss of customers.
If a significant amount of customers are not satisfied with their purchase, the
Company will be required to incur substantial costs to issue refunds, credits or
replacement products. The Company offers its customers a 100% satisfaction
guarantee on its products. If customers are not satisfied with the products they
receive, the Company will either replace the product for the customer or issue
the customer a refund or credit. The Company's net income would decrease if a
significant number of customers request replacement products, refunds or credits
and the Company is unable to pass such costs onto the supplier.
Increased shipping costs and labor stoppages may adversely affect sales of the
Company's non-floral products. Non-floral products are delivered to customers
either directly from the manufacturer or from the Company's fulfillment centers
located in New York, Virginia, Ohio and Illinois. The Company has established
relationships with the United States Postal Service, Federal Express, United
Parcel Service and other common carriers for the delivery of these products. If
these carriers were to raise the prices they charge to ship the Company's goods,
its customers might choose to buy comparable products locally to avoid shipping
charges. In addition, these carriers may experience labor stoppages, which could
impact the Company's ability to deliver products on a timely basis to our
customers and adversely affect its customer relationships.
If the Company fails to continuously improve its Web site, it may not attract or
retain customers. If potential or existing customers do not find the Company's
Web site a convenient place to shop, the Company may not attract or retain
customers and its sales may suffer. To encourage the use of the Company's Web
site, it must continuously improve its accessibility, content and ease of use.
Customer traffic and the Company's business would be adversely affected if
competitors' Web sites are perceived as easier to use or better able to satisfy
customer needs.
Competition in the floral, plant, gift basket, gourmet treat, specialty gift,
children's toys and games and home and garden industries is intense and a
failure to respond to competitive pressure could result in lost revenues. There
are many companies that offer products in these categories. In the floral
category, the Company's competitors include:
o retail floral shops, some of which maintain toll-free telephone numbers;
o online floral retailers;
o catalog companies that offer floral products;
o floral telemarketers and wire services; and
o supermarkets, mass merchants and specialty gift retailers with floral
departments.
Similarly, the plant, gift basket, gourmet food, specialty gift, children's toys
and home and garden categories are highly competitive. Each of these categories
encompasses a wide range of products and is highly fragmented. Products in these
categories may be purchased from a number of outlets, including mass merchants,
retail specialty shops, online retailers and mail-order catalogs.
Competition is intense and the Company expects it to increase. Increased
competition could result in:
o price reductions, decreased revenue and lower profit margins;
o loss of market share; and
o increased marketing expenditures.
These and other competitive factors could materially and adversely affect the
Company's results of operations.
If the Company does not accurately predict customer demand for its products, it
may lose customers or experience increased costs. In the past, the Company did
not need to maintain a significant inventory of products. However, as the
Company expands the volume of non-floral products offered to its customers, the
Company will be required to increase inventory levels and the number of products
maintained in its warehouses. If the Company overestimates customer demand for
its products, excess inventory and outdated merchandise could accumulate, tying
up working capital and potentially resulting in reduced warehouse capacity and
inventory losses due to damage, theft and obsolescence. If the Company
underestimates customer demand, it may disappoint customers who may turn to its
competitors. Moreover, the strength of the 1-800-FLOWERS.COM brands could be
diminished due to misjudgments in merchandise selection.
If the supply of flowers for sale becomes limited, the price of flowers could
rise or flowers may be unavailable and the Company's revenues and gross margins
could decline. A variety of factors affect the supply of flowers in the United
States and the price of the Company's floral products. If the supply of flowers
available for sale is limited due to weather conditions or other factors, prices
for flowers could rise and customer demand for the Company's floral products may
be reduced, causing revenues and gross margins to decline. Alternatively, the
Company may not be able to obtain high quality flowers in an amount sufficient
to meet customer demand. Even if available, flowers from alternative sources may
be of lesser quality and/or may be more expensive than those currently offered
by the Company.
Most of the flowers sold in the United States are grown by farmers located
abroad, primarily in Colombia, Ecuador and Holland, and the Company expects that
this will continue in the future. The availability and price of flowers could be
affected by a number of factors affecting these regions, including:
o import duties and quotas;
o agricultural limitations and restrictions to manage pests and disease;
o changes in trading status;
o economic uncertainties and currency fluctuations;
o severe weather;
o work stoppages;
o foreign government regulations and political unrest; and
o trade restrictions, including United States retaliation against
foreign trade practices.
A failure to manage its internal operating and financial systems could lead to
inefficiencies in conducting the Company's business and subject it to increased
expenses. The Company's expansion efforts may strain its operational and
financial systems. To accommodate the Company's growth, the Company continues to
improve its operating infrastructure through technology initiatives and any
failure to integrate these initiatives in an efficient manner could adversely
affect its business. In addition, the Company's systems, procedures and controls
may prove to be inadequate to support its future operations.
A failure to integrate the systems and operations of any acquired business with
the Company's operations may disrupt its business. The Company has acquired
complementary businesses and selected assets and may continue to do so in the
future. If the Company is unable to fully integrate The Popcorn Factory
acquisition, or any future acquisitions into its operations, its business and
operations could suffer, management may be distracted and its expenses may
increase. Moreover, the expected benefits from any acquisition may not be
realized, resulting in lost opportunities and loss of capital.
The Company's franchisees may damage its brands or increase its costs by failing
to comply with its franchise agreements or its operating standards. The
Company's franchise business is governed by its Uniform Franchise Offering
Circular, franchise agreements and applicable franchise law. If the Company's
franchisees do not comply with its established operating standards or the terms
of the franchise agreements, the 1-800-FLOWERS.COM brands may be damaged. The
Company may incur significant additional costs, including time-consuming and
expensive litigation, to enforce its rights under the franchise agreements.
Additionally, the Company is the primary tenant on certain leases, which the
franchisees sublease from the Company. If a franchisee fails to meet its
obligations as subtenant, the Company could incur significant costs to avoid
default under the primary lease. Furthermore, as a franchiser, the Company has
obligations to its franchisees. Franchisees may challenge the performance of the
Company's obligations under the franchise agreements and subject it to costs in
defending these claims and, if the claims are successful, costs in connection
with their compliance.
If third parties acquire rights to use similar domain names or phone numbers or
if the Company loses the right to use its phone numbers, its brands may be
damaged and it may lose sales. The Company's Internet domain names are an
important aspect of its brand recognition. The Company cannot practically
acquire rights to all domain names similar to www.1800flowers.com, whether under
existing top level domains or those issued in the future. If third parties
obtain rights to similar domain names, these third parties may confuse the
Company's customers and cause its customers to inadvertently place orders with
these third parties, which could result in lost sales and could damage its
brands.
Likewise, the phone number that spells 1-800-FLOWERS is important to the
Company's brand and its business. While the Company has obtained the right to
use the phone numbers 1-800-FLOWERS, 1-888-FLOWERS and 1-877-FLOWERS, as well as
common toll-free "FLOWERS" misdials, it may not be able to obtain rights to use
the FLOWERS phone number as new toll-free prefixes are issued, or the rights to
all similar and potentially confusing numbers. If third parties obtain the phone
number which spells "FLOWERS" with a different prefix or a toll-free number
similar to FLOWERS, these parties may also confuse the Company's customers and
cause lost sales and potential damage to its brands. In addition, under
applicable FCC rules, ownership rights to phone numbers cannot be acquired.
Accordingly, the FCC may rescind the Company's right to use any of its phone
numbers, including 1-800-FLOWERS (1-800-356-9377).
The Company's net sales and gross margins would decrease if it experiences
significant credit card fraud. A failure to adequately control fraudulent credit
card transactions would reduce its net sales and gross margins because it does
not carry insurance against this risk. The Company has developed technology to
help detect the fraudulent use of credit card information. Nonetheless, to date,
the Company has suffered losses as a result of orders placed with fraudulent
credit card data even though the associated financial institution approved
payment of the orders. Under current credit card practices, the Company is
liable for fraudulent credit card transactions if it does not obtain a
cardholder's signature.
The Company's revenues may not grow if the Internet is not accepted as a medium
for commerce. The Company expects to derive an increasing amount of its revenue
from electronic commerce, and intends to extensively market its non-floral
products online. If the Internet does not continue to gain acceptance as a
medium for commerce, its revenues may not grow as the Company expects and its
business may suffer. A number of factors may inhibit Internet usage, including:
o inadequate network infrastructure;
o consumer concerns for Internet privacy and security;
o inconsistent quality of service; and
o lack of availability of cost-effective, high-speed service.
If Internet usage grows, the infrastructure may not be able to support the
demands placed on it by that growth and its performance and reliability may
decline. Web sites have experienced interruptions as a result of delays or
outages throughout the Internet infrastructure. If these interruptions continue,
Internet usage may decline.
A lack of security over the Internet may cause Internet usage to decline and
cause the Company to expend capital and resources to protect against security
breaches. A significant barrier to electronic commerce over the Internet has
been the need for secure transmission of confidential information and
transaction information. Internet usage could decline if any well-publicized
compromise of security occurred. Additionally, computer "viruses" may cause the
Company's systems to incur delays or experience other service interruptions.
Such interruptions may materially impact the Company's ability to operate its
business. If a computer virus affecting the Internet in general is highly
publicized or particularly damaging, the Company's customers may not use the
Internet or may be prevented from using the Internet, which would have an
adverse effect on its revenues. As a result, the Company may be required to
expend capital and resources to protect against or to alleviate these problems.
Unexpected system interruptions caused by system failures may result in reduced
revenues and harm to the Company's brand. In the past, particularly during peak
holiday periods, the Company has experienced significant increases in traffic on
its Web site and in its toll-free customer service centers. The Company's
operations are dependent on its ability to maintain its computer and
telecommunications systems in effective working order and to protect its systems
against damage from fire, natural disaster, power loss, telecommunications
failure or similar events. The Company's systems have in the past, and may in
the future, experience:
o system interruptions;
o long response times; and
o degradation in service.
The Company's business depends on customers making purchases on its systems, its
revenues may decrease and its reputation could be harmed if it experiences
frequent or long system delays or interruptions or if a disruption occurs during
a peak holiday season.
If AT&T and MCI do not adequately maintain the Company's telephone service, the
Company may experience system failures and its revenues may decrease. The
Company is dependent on AT&T and MCI to provide telephone services to its
customer service centers. Although the Company maintains redundant
telecommunications systems, if AT&T and MCI experience system failures or fail
to adequately maintain the Company's systems, the Company may experience
interruptions and its customers might not continue to utilize its services. If
the Company loses its telephone service, it will be unable to generate revenue.
The Company's future success depends upon these third-party relationships
because it does not have the resources to maintain its telephone service without
these or other third parties. Failure to maintain these relationships or replace
them on financially attractive terms may disrupt the Company's operations or
require it to incur significant unanticipated costs.
Interruptions in FTD's Mercury system or a reduction in the Company's access to
this system may disrupt order fulfillment and create customer dissatisfaction. A
portion of the Company's customers' orders are communicated to the fulfilling
florist through FTD's Mercury system. The Mercury system is an order processing
and messaging network used to facilitate the transmission of floral orders
between florists. The Mercury system has in the past experienced interruptions
in service. If the Mercury system experiences interruptions in the future, the
Company could experience difficulties in fulfilling its customers' orders and
those customers might not continue to shop with the Company.
The Company's operating results may suffer due to economic, political and social
unrest or disturbances. Like other American businesses, the Company is unable to
predict what long-term effect, the terrorist attacks on the World Trade Center
and the Pentagon, or similar future events, may have on its business. The
Company's results of operations and financial condition could be adversely
impacted if such events cause a downturn in the economy, or other negative
effects that cannot now be anticipated.
If the Company is unable to hire and retain key personnel, its business and
growth may suffer. The Company's success is dependent on its ability to hire,
retain and motivate highly qualified personnel. In particular, the Company's
success depends on the continued efforts of its Chairman and Chief Executive
Officer, James F. McCann, and its President, Christopher G. McCann as well as
its senior management team which help manage its business and growth. The loss
of the services of any of the Company's executive management or key personnel or
its inability to attract qualified additional personnel could cause its business
and growth to suffer and force it to expend time and resources in locating and
training additional personnel.
Many governmental regulations may impact the Internet, which could affect the
Company's ability to conduct business. Any new law or regulation, or the
application or interpretation of existing laws, may decrease the growth in the
use of the Internet or the Company's Web site. The Company expects there will be
an increasing number of laws and regulations pertaining to the Internet in the
United States and throughout the world. These laws or regulations may relate to
liability for information received from or transmitted over the Internet, online
content regulation, user privacy, taxation and quality of products and services
sold over the Internet. Moreover, the applicability to the Internet of existing
laws governing intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment, personal privacy and
other issues is uncertain and developing. This could decrease the demand for the
Company's products, increase its costs or otherwise adversely affect its
business.
Regulations imposed by the Federal Trade Commission may adversely affect the
growth of the Company's Internet business or its marketing efforts. The Federal
Trade Commission has proposed regulations regarding the collection and use of
personal identifying information obtained from individuals when accessing Web
sites, with particular emphasis on access by minors. These regulations may
include requirements that the Company establish procedures to disclose and
notify users of privacy and security policies, obtain consent from users for
collection and use of information and provide users with the ability to access,
correct and delete personal information stored by the Company. These regulations
may also include enforcement and redress provisions. Moreover, even in the
absence of those regulations, the Federal Trade Commission has begun
investigations into the privacy practices of other companies that collect
information on the Internet. One investigation resulted in a consent decree
under which an Internet company agreed to establish programs to implement the
principles noted above. The Company may become a party to a similar
investigation, or the Federal Trade Commission's regulatory and enforcement
efforts, or those of other governmental bodies, may adversely affect its ability
to collect demographic and personal information from users, which could
adversely affect its marketing efforts.
Unauthorized use of the Company's intellectual property by third parties may
damage its brands. Unauthorized use of the Company's intellectual property by
third parties may damage its brands and its reputation and may likely result in
a loss of customers. It may be possible for third parties to obtain and use the
Company's intellectual property without authorization. Third parties have in the
past infringed or misappropriated the Company's intellectual property or similar
proprietary rights. The Company believes infringements and misappropriations
will continue to occur in the future. Furthermore, the validity, enforceability
and scope of protection of intellectual property in Internet-related industries
is uncertain and still evolving. The Company may be unable to register its
intellectual property in some foreign countries and, furthermore, the laws of
some foreign countries are uncertain or do not protect intellectual property
rights to the same extent as do the laws of the United States.
Defending against intellectual property infringement claims could be expensive
and, if the Company is not successful, could disrupt its ability to conduct
business. The Company cannot be certain that the products it sells, or services
it offers, do not or will not infringe valid patents, trademarks, copyrights or
other intellectual property rights held by third parties. The Company may be a
party to legal proceedings and claims relating to the intellectual property of
others from time to time in the ordinary course of its business. The Company may
incur substantial expense in defending against these third-party infringement
claims, regardless of their merit. Successful infringement claims against the
Company may result in substantial monetary liability or may materially disrupt
its ability to conduct business.
If states begin imposing broader guidelines to state sales and use taxes, the
Company may lose sales or incur significant expenses in satisfaction of these
obligations. In addition to the Company's retail store operations, the Company
collects sales or other similar taxes in states where the Company's online and
telephonic sales channels have applicable nexus. Our customer service and
fulfillment networks, and any further expansion of those networks, along with
other aspects of our evolving business, may result in additional sales and use
tax obligations. One or more states may seek to impose sales or other tax
collection obligations on out-of-jurisdiction companies which engage in
e-commerce. A successful assertion by one or more states that we should collect
sales or other taxes on the sale of merchandise could result in substantial tax
liabilities for past sales, decrease our ability to compete with traditional
retailers, and otherwise harm our business.
Currently, decisions of the U.S. Supreme Court restrict the imposition of
obligations to collect state and local sales and use taxes with respect to sales
made over the Internet. However, a number of states, as well as the U.S.
Congress, have been considering various initiatives that could limit or
supersede the Supreme Court's position regarding sales and use taxes on Internet
sales. If any of these initiatives addressed the Supreme Court's constitutional
concerns and resulted in a reversal of its current position, we could be
required to collect additional sales and use taxes. The imposition by state and
local governments of various taxes upon Internet commerce could create
administrative burdens for us and could decrease our future sales.
Product liability claims may subject the Company to increased costs. Several of
the products the Company sells, including perishable food products, home and
garden products, or children's toys may expose it to product liability claims in
the event that the use or consumption of these products results in personal
injury. Although the Company has not experienced any material losses due to
product liability claims to date, it may be a party to product liability claims
in the future and incur significant costs in their defense. Product liability
claims often create negative publicity, which could materially damage the
Company's reputation and its brands. Although the Company maintains insurance
against product liability claims, its coverage may be inadequate to cover any
liabilities it may incur.
The Company's stock price may be highly volatile and could drop unexpectedly,
particularly because it has Internet operations. The price at which the
Company's Class A common stock will trade may be highly volatile and may
fluctuate substantially. The stock market has from time to time experienced
significant price and volume fluctuations that have affected the market prices
of securities, particularly securities of companies with Internet operations. As
a result, investors may experience a material decline in the market price of the
Company's Class A common stock, regardless of the Company's operating
performance. In the past, following periods of volatility in the market price of
a particular company's securities, securities class action litigation has often
been brought against that company. The Company may become involved in this type
of litigation in the future. Litigation of this type is often expensive and
diverts management's attention and resources.
Item 2. PROPERTIES
Square
Location Type Principal Use Footage Ownership
- ------------------ -------------------- ------------------------------------------------ --------------- -----------------
Westbury, NY Office Headquarters & customer service 77,000 leased
Alamogordo, NM Office Customer service 23,000 owned
Ardmore, OK Office Customer service 24,000 leased
Madison, VA Office & warehouse Distribution, marketing, administrative
& customer service 300,000 owned
Lake Forest, IL Office, plant & Manufacturing, distribution,
warehouse & administrative 148,000 leased
Vandalia, OH Warehouse Distribution 200,000 owned
In addition to the above properties, the Company leases approximately 311,000
square feet for owned or franchised retail stores and local fulfillment centers
with lease terms typically ranging from 5 to 20 years. Some of its leases
provide for a minimum rent plus a percentage rent based upon sales after certain
minimum thresholds are achieved. The leases generally require the Company to pay
insurance, utilities, real estate taxes and repair and maintenance expenses.
Item 3. LEGAL PROCEEDINGS
There are various claims, lawsuits, and pending actions against the Company
incident to the operations of its businesses. It is the opinion of management,
after consultation with counsel, that the ultimate resolution of such claims,
lawsuits and pending actions will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
1-800-FLOWERS.COM's Class A common stock trades on The Nasdaq National Stock
Market under the ticker symbol "FLWS." There is no established public trading
market for the Company's Class B common stock. The following table sets forth
the reported high and low sales prices for the Company's Class A common stock
for each of the fiscal quarters during the fiscal years ended June 30, 2002 and
July 1, 2001.
High Low
-------------- --------------
Year ended June 30, 2002
July 2, 2001 - September 28, 2001 $ 14.78 $ 9.90
October 01, 2001 - December 28, 2001 $ 16.50 $ 8.20
December 31, 2001 - March 28, 2002 $ 17.86 $ 10.72
April 01, 2002 - June 30, 2002 $ 14.68 $ 9.85
Year ended July 1, 2001
July 3, 2000 - October 1, 2000 $ 6.13 $ 4.50
October 2, 2000 - December 31, 2000 $ 5.13 $ 2.55
January 1, 2001 - April 1, 2001 $ 8.13 $ 4.13
April 2, 2001 - July 1, 2001 $ 15.50 $ 5.96
Rights of Common Stock
Holders of Class A common stock generally have the same rights as the holders of
Class B common stock, except that holders of Class A common stock have one vote
per share and holders of Class B common stock have 10 votes per share on all
matters submitted to the vote of stockholders. Holders of Class A common stock
and Class B common stock generally vote together as a single class on all
matters presented to the stockholders for their vote or approval, except as may
be required by Delaware law. Class B common stock may be converted into Class A
common stock at any time on a one-for-one share basis. Each share of Class B
common stock will automatically convert into one share of Class A common stock
upon its transfer, with limited exceptions.
Holders
As of September 24, 2002, there were approximately 100 shareholders of record of
the Company's Class A common stock, although the Company believes that there is
a significantly larger number of beneficial owners. As of September 24, 2002,
there were approximately 17 shareholders of record of the Company's Class B
common stock.
Dividend Policy
The Company has never declared or paid any cash dividends on its Class A or
Class B common stock, and intends to retain future earnings, if any, to provide
funds to finance the expansion of its business. As a result, the Company does
not anticipate paying any cash dividends in the foreseeable future.
Resales of Securities
45,730,302 shares of Class A and Class B common stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market from time to time only if
registered or if they qualify for an exemption from registration under Rule 144
or 701 under the Securities Act. As of September 24, 2002, all of such shares of
the Company's common stock could be sold in the public market pursuant to and
subject to the limits set forth in Rule 144. Sales of a large number of these
shares could have an adverse effect on the market price of the Company's Class A
common stock by increasing the number of shares available on the public market.
Stock Repurchase Plan
On September 16, 2001, the Company's Board of Directors approved the repurchase
of up to $10.0 million of the Company's Class A common stock. Any such purchases
could be made from time to time in the open market and through privately
negotiated transactions, subject to general market conditions. The repurchase
program will be financed utilizing available cash. No repurchases have been made
as of June 30, 2002.
Equity Compensation Plan Information
The following table gives information about the Company's common stock that may
be issued upon the exercise of options under all of the Company's equity
compensation plans as of June 30, 2002. The table includes the 1-800-FLOWERS.COM
1997 Stock Option Plan and the 1-800-FLOWERS.COM, Inc. Stock Incentive Plan.
Number of
securities
remaining
available for future
Number of issuance under
securities to be Weighted- equity
issued upon average compensation
exercise of exercise price plans (excluding
outstanding of outstanding securities reflected
Plan Category options options in column (a))
______________________________________________________________________________________________
(a) (b) (c)
__________________ ________________ ________________
Equity compensation plans
approved by security holders 8,113,144 $8.95 7,789,412
Equity compensation plans
not approved by security
holders - - -
__________________ ________________ ________________
Total 8,113,144 $8.95 7,789,412
================== ================ ================
Item 6. SELECTED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended June
30, 2002, July 1, 2001 and July 2, 2000, and the consolidated balance sheet data
as of June 30, 2002 and July 1, 2001, have been derived from the Company's
audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. The selected consolidated statement of operations data for
the years ended June 27, 1999 and June 28, 1998, and the selected consolidated
balance sheet data as of July 2, 2000, June 27, 1999 and June 28, 1998, are
derived from the Company's audited consolidated financial statements which are
not included in this Annual Report on Form 10-K.
The following tables summarize the Company's consolidated statement of
operations and balance sheet data. The Company acquired The Popcorn Factory in
May 2002, The Children's Group in June 2001, disposed of Floral Works in January
2000, acquired GreatFood.com and TheGift.com in November 1999 and acquired Plow
& Hearth 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. This information should be read together
with the discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements and notes to those statements included elsewhere in this Annual
Report on Form 10-K.
Years ended
-----------------------------------------------------------------------
June 30, July 1, July 2, June 27, June 28,
2002 2001 2000 1999 1998
------------- ------------- -------------- ------------ --------------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues:
Telephonic $ 248,931 $ 230,723 $227,380 $201,467 $159,715
Online 218,179 182,924 116,810 52,668 26,684
Retail/fulfillment 30,095 28,592 35,338 38,717 31,813
------------- ------------- -------------- ------------ --------------
Total net revenues 497,205 442,239 379,528 292,852 218,212
Cost of revenues 293,269 267,779 237,493 179,697 136,966
------------- ------------- -------------- ------------ --------------
Gross profit 203,936 174,460 142,035 113,155 81,246
Operating expenses:
Marketing and sales 150,638 154,321 155,353 89,126 53,037
Technology and development 13,723 16,853 16,809 8,067 1,794
General and administrative 28,179 27,043 28,975 15,748 15,832
Depreciation and amortization 15,061 21,716 16,479 8,385 4,168
------------- ------------- -------------- ------------ --------------
Total operating expenses 207,601 219,933 217,616 121,326 74,831
------------- ------------- -------------- ------------ --------------
Operating (loss) income (3,665) (45,473) (75,581) (8,171) 6,415
Other income (expense), net 1,448 4,152 7,422 (1,183) 1,654
------------- ------------- -------------- ------------ --------------
(Loss) income before income taxes and
minority interests (2,217) (41,321) (68,159) (9,354) 8,069
Benefit (provision) for income taxes 706 - 1,286 2,715 (3,181)
------------- ------------- -------------- ------------ --------------
(Loss) income before minority interests (1,511) (41,321) (66,873) (6,639) 4,888
Minority interests - - 43 (207) 186
------------- ------------- -------------- ------------ --------------
Net (loss) income (1,511) (41,321) (66,830) (6,846) 5,074
Redeemable Class C common stock dividends - - - (5,215) (1,608)
------------- ------------- -------------- ------------ --------------
Net (loss) income applicable to common
stockholders $ (1,511) $ (41,321) $(66,830) $(12,061) $ 3,466
============= ============= ============== ============ ==============
Net (loss) income per common share
applicable to commom stockholders
Basic $(0.02) $(0.64) $ (1.10) $(0.27) $0.08
============= ============= ============== ============ ==============
Diluted $(0.02) $(0.64) $(1.10) $(0.27) $0.07
============= ============= ============== ============ ==============
Shares used in the calculation of net
(loss)income per common share
Basic 64,703 64,197 60,889 44,035 44,120
============= ============= ============== ============ ==============
Diluted 64,703 64,197 60,889 44,035 46,610
============= ============= ============== ============ ==============
As of
------------- ------------ ------------- --------------- -------------
June 30, July 1, July 2, 2000 June 27, 1999 June 28,
2002 2001 1998
------------- ------------ ------------- --------------- -------------
(in thousands)
Consolidated Balance Sheet Data:
Cash and equivalents and short term $ 63,399 $ 63,896 $111,624 $99,183 $ 8,873
investments
Working capital 23,301 27,409 82,129 85,619 1,950
Investments 9,591 16,284 1,918 984 1,383
Total assets 207,157 195,257 224,641 182,355 81,746
Long-term liabilities 15,939 16,029 12,947 37,766 35,359
Redeemable class C common stock - - - - 17,692
Total stockholders' equity 123,908 117,816 158,918 109,003 672
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward-Looking Statements
Certain of the matters and subject areas discussed in this Annual Report on Form
10-K contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other than statements
of historical information provided herein are forward-looking statements and may
contain information about financial results, economic conditions, trends and
known uncertainties based on the Company's current expectations, assumptions,
estimates and projections about its business and the Company's industry. These
forward-looking statements involve risks and uncertainties. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of several factors, including those more fully described
under the caption "Risk Factors that May Affect Future Results" and elsewhere in
this Annual Report. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis, judgment,
belief or expectation only as of the date hereof. The forward-looking statements
made in this Annual Report on Form 10-K relate only to events as of the date on
which the statements are made. The Company undertakes no obligation to publicly
update any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
Overview
1-800-FLOWERS.COM, Inc. is a leading gift retailer, providing a broad range of
thoughtful gift products including an extensive array of flowers, plants,
gourmet food, gift baskets, candies, home decor, garden merchandise, unique
children's toys and other specialty products. With one of the most recognized
brands in retailing and a history of successfully integrating technologies and
business innovations, the Company has become the trusted guide to gifting for
our customers, providing convenient, multi-channel access for customers via the
Internet, telephone, catalogs and retail stores.
The Company's product offering reflects a carefully selected assortment of high
quality merchandise chosen for its unique "thoughtful gifting" qualities which
accommodate customer needs in celebrating a special occasion or conveying a
personal sentiment. Many products are available for same-day or overnight
delivery and all come with the Company's 100% satisfaction guarantee. In
addition to the Company's selection of thoughtful gifts, the Company's product
line is extended by its other brands which include Plow & Hearth, home decor and
garden merchandise, (www.plowandhearth.com), GreatFood.com, gourmet food
products, (www.greatfood.com), The Popcorn Factory, premium popcorn and
specialty food gifts (www.thepopcornfactory.com) and HearthSong
(www.hearthsong.com) and Magic Cabin Dolls (www.magiccabindoll.com), unique and
educational children's toys and games.
A majority of the Company's floral orders are fulfilled through BloomNet(R)
(comprised of independent florists operating retail flower shops and Local
Fulfillment Centers ("LFC's"), Company-owned stores and fulfillment centers and
franchise stores). The Company transmits its orders either through BloomLink,
its proprietary Internet-based electronic communication system, or the
communication system of a third-party. A portion of the Company's floral and
gift merchandise as well as its home and garden merchandise, non-floral gift
products and gourmet food merchandise are shipped by the Company, members of
BloomNet(R) or third parties directly to the customer using common carriers.
Most of the Company's home and garden products are fulfilled from its Madison,
Virginia fulfillment center or its Vandalia, Ohio distribution facility, while
the Company's children's merchandise is fulfilled from its Vandalia facility.
The Company's gourmet popcorn and related merchandise is fulfilled primarily
from its Lake Forest, Illinois manufacturing facility.
As of June 30, 2002 the Company owned retail fulfillment operations consisted of
28 retail stores and 7 fulfillment centers. Retail fulfillment revenues also
include revenues attributable to the Company's Floral Works wholesale floral
subsidiary through the date of its disposition in January 2000, fees paid to the
Company by members of its "BloomNet(R)" network and royalties, fees and sublease
rent paid to the Company by its 83 franchise stores. Company owned stores serve
as local points of fulfillment and enable the Company to test new products and
marketing programs. As such, a significant percentage of the revenues derived
from Company owned stores and fulfillment centers represent fulfillment of its
telephonic and online sales channel floral orders and are eliminated as
inter-company revenues.
After a period of significant investment in the Company's systems and
infrastructure, as well as brand name building and product line extensions, the
Company expects to return to profitability during fiscal 2003. However, the
Company has incurred losses in recent years, and no assurances can be made that
positive net income can be achieved on this schedule or in the foreseeable
future. In order to achieve and maintain profitability, the Company will need to
generate revenues exceeding historical levels and/or reduce operating
expenditures. The Company's prospects for achieving profitability must be
considered in light of the risks, uncertainties, expenses, and difficulties
encountered by companies in the rapidly evolving market of online commerce,
including those described under the caption "Additional Risk Factors that May
Affect Future Results" and elsewhere in this Annual Report.
Results of Operations
The Company's fiscal year is a 52- or 53-week period ending on the Sunday
nearest to June 30. Fiscal years 2002 and 2001, which ended on June 30, 2002 and
July 1, 2001, respectively, consisted of 52 weeks, while fiscal year 2000, which
ended July 2, 2000, consisted of 53 weeks. As such, the Company's fiscal year
2000 revenues, and associated variable expenses, contained an additional week of
activity in comparison to fiscal year 2001 or 2002.
Net Revenues
Years Ended
----------------------------------------------------------------------
June 30, July 1, 2001 July 2, 2000
2002 % Change % Change
------------ --------------- ------------- ------------- -------------
(in thousands)
Net revenues:
Telephonic $248,931 7.9% $230,723 1.5% $227,380
Online 218,179 19.3% 182,924 56.6% 116,810
Retail/fulfillment 30,095 5.3% 28,592 (19.1%) 35,338
------------ ------------- ------------
$497,205 12.4% $442,239 16.5% $379,528
============ ============= ============
Net revenues consist primarily of the selling price of the merchandise, service
or outbound shipping charges, less discounts, returns and credits. The Company's
combined telephonic and online revenue growth during the fiscal years ended June
30, 2002 and July 1, 2001 was due primarily to an increase in order volume and
average order value, which resulted from efficient marketing efforts, strong
brand name recognition and the Company's continued expansion of its non-floral
product offerings, including a broad range of items such as plants, candies and
gourmet foods, as well as items for the home and garden, children's toys and
other specialty gifts. Non-floral gift products accounted for 45.8%, 40.7% and
32.4% of total combined telephonic and online net revenues during the fiscal
years ended June 30, 2002, July 1, 2001 and July 2, 2000, respectively.
The Company fulfilled approximately 7,172,000, 6,520,000, and 5,616,000 orders
through its combined telephonic and online sales channels during the fiscal
years ended June 30, 2002, July 1, 2001, and July 2, 2000, respectively,
representing increases of 10.0%, and 16.1% over the respective prior fiscal
years. The growth was primarily the result of increases in online order volume
driven by traffic both directly to the Company's URL's ("Universal Resource
Locators") and through third-party portals and Websites, and telephonic order
volume resulting primarily from the addition of the Company's children's gifts
product line in June 2001. Additionally, the Company's combined telephonic and
online sales channel average order value increased 2.5% to $65.02 and 3.6% to
$63.42 during the fiscal years ended June 30, 2002 and July 1, 2001. The Company
intends to continue to drive revenue growth through its online business, and
continue the migration of its customers from the telephone to the Web for
several important reasons: (i) online orders are less expensive to process than
telephonic orders, (ii) online customers can view the Company's full range of
gift offerings - including non-floral gifts, which yield higher gross margin
opportunities, (iii) online customers can utilize all of the Company's services,
such as the various gift search functions, order status check and reminder
service, thereby deepening its relationship with them and leading to increased
order rates, and (iv) when customers visit the Company online, it provides an
opportunity to engage them in an electronic dialog via cost efficient e-mail
marketing programs.
Revenues derived from The Popcorn Factory, which is included in the Company's
results of operations since it was acquired on May 3, 2002, was immaterial in
relation to consolidated revenues for the fiscal year ended June 30, 2002.
Retail/fulfillment revenues for the fiscal year ended June 30, 2002 increased in
comparison to the prior fiscal year primarily due to the November 2001 opening
of a new home and garden outlet store in Williamsburg, VA, and an increase in
same store sales, offset in part by the reduction in retail stores late in the
fiscal year. The decrease in retail/fulfillment revenues for the fiscal year
ended July 1, 2001 was primarily due to a reduction in floral wholesale net
revenues of $7.2 million as a result of the Company's disposition of its Floral
Works subsidiary in January 2000, partially offset by an increase in net
revenues resulting from addition of three company-owned retail locations.
Gross Profit
Years Ended
-----------------------------------------------------------------------
June 30, July 1, July 2,
2002 % Change 2001 % Change 2000
------------- ------------- ----------- ------------- --------------
(in thousands)
Gross profit $203,936 16.9% $174,460 22.8% $142,035
Gross margin % 41.0% 39.4% 37.4%
Gross profit consists of net revenues less cost of revenues which is comprised
primarily of florist fulfillment costs (fees paid directly to florists and fees
paid to wire services that serve as clearinghouses for floral orders, net of
wire service rebates), the cost of floral and non-floral merchandise sold from
inventory or through third parties, and associated costs including inbound and
outbound shipping charges. Additionally, cost of revenues include labor and
facility costs related to direct-to-consumer merchandise production operations,
as well as facility costs on properties that are sublet to the Company's
franchisees. Gross profit increased during the fiscal years ended June 30, 2002
and July 1, 2001 as a result of increased order volume, and an improved gross
margin percentage. Gross margin percentage increased by 160 basis points and 200
basis points during the fiscal years ended June 30, 2002 and July 1, 2001,
respectively, primarily as a result of the continued growth in non-floral
product sales, which in fiscal 2002, was further complemented by the addition of
the Company's children's gifts product line, which generate a higher gross
margin, and an increase in online service and shipping charges, aligning them
with industry norms. In addition, the Company's continued focus on customer
service and operational efficiencies further enhanced the gross margin
percentage through the implementation of stricter quality control standards and
enforcement methods which reduced the rate of credits/returns and replacements.
As the Company continues to expand its higher margin, non-floral business, the
Company expects that gross margin percentage, while varying by quarter due to
seasonal changes in product mix, will continue to increase.
Marketing and Sales Expense
Years Ended
-----------------------------------------------------------------------
June 30, July 1, July 2,
2002 % Change 2001 % Change 2000
------------- ------------- ------------- -------------- -------------
(in thousands)
Marketing and sales $150,638 (2.4)% $154,321 (0.7)% $155,353
Percentage of sales 30.3% 34.9% 40.9%
Marketing and sales expense consists primarily of advertising and promotional
expenditures, catalog costs, online portal agreements, retail store and
fulfillment operations (other than costs included in cost of revenues) and
customer service center expenses, as well as the operating expenses of the
Company's departments engaged in marketing, selling and merchandising
activities. Marketing and sales expenses decreased to 30.3% of net revenues
during the fiscal year ended June 30, 2002, compared to 34.9% (33.3%, exclusive
of the non-recurring charge discussed below) during the prior fiscal year, as a
result of volume related cost, operating efficiencies and cost-effective
advertising, coupled with the Company's strong brand name and savings realized
from successful renegotiations of certain of its portal agreements. In fiscal
2001, the Company incurred a non-recurring charge of $7.3 million ($0.11 per
share), as a result of the modification of an interactive marketing agreement
with one of the Company's portal providers. As a result of the Company's cost
efficient customer retention programs, of the 4,934,000 customers who placed
orders during the fiscal year ended June 30, 2002, approximately 39.2%
represented repeat customers compared to 33.5% in the prior fiscal year. In
addition, despite the overall reduction in spending, as a result of the strength
of the Company's brands, combined with its cost effective marketing programs,
the Company added approximately 3.0 million new customers during each of the
fiscal years ended June 30, 2002 and July 1, 2001.
Although the Company incurred a non-recurring charge of $7.3 million (as
discussed above) during fiscal 2001, marketing and sales expense during the
fiscal year ended July 1, 2001, decreased to 34.9% of net revenues, compared to
40.9% of net revenues during the fiscal year ended July 2, 2000 as a result of
volume related efficiencies and cost effective advertising, coupled with the
Company's strong brand name and savings realized from successful renegotiations
of certain of its portal agreements.
In order to continue to execute its business plan, the Company expects to
continue to invest in its marketing and sales efforts to acquire new customers,
while also leveraging its already significant customer base through cost
effective, customer retention initiatives. Such spending will be within the
context of the Company's overall marketing plan, which is continually evaluated
and revised to reflect the results of the Company's most recent market research,
including changing economic conditions, and seeks to determine the most
cost-efficient use of the Company's marketing dollars. Such evaluation includes
the ongoing review of the Company's strategic relationships with its internet
portal providers to ensure that such relationships continue to generate
cost-effective incremental volume. As such, although the Company expects
spending will increase due to the incremental marketing efforts associated with
the acquisition of The Popcorn Factory in May 2002, and volume related expenses
associated with the Company's customer service operations, spending as a
percentage of net revenues is expected to continue to decrease in comparison to
prior fiscal years.
Technology and Development Expense
Years Ended
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