1-800 Flowers (NASDAQ: FLWS) Unexpected Pandemic Winner That May Have More Room to Run

1-800 Flowers NASDAQ: FLWS set all-time highs on Thursday before edging slightly higher in Friday’s session. It’s been a volatile past month for FLWS, especially considering the low volatility of the S&P 500 over the same period.

The company actually deals in more than flowers. FLWS has a Gourmet Foods & Gift Baskets segment, and its BloomNet Wire Service offers products and services for florists.

On June 18, shares surged more than 10% in pre-market trading as the company raised its full-year fiscal 2020 guidance for revenue, profit, and cash flow. But the gains were short-lived and shares actually closed lower than the previous day’s close. Shares dipped a further 10% over the next week but are now up more than 30% over the last three weeks.

There’s a lot to unpack here. Let’s start with the company’s performance last quarter.

1-800 Flowers Q3 2020 Earnings

1-800 Flowers’ 2020 fiscal year ends on June 30. Its last earnings report was for Q3 – the first three months of 2020.

Revenue came in at $278.8 million, up 12.2% yoy. Let’s look at the breakdown of its three segments:

1. Consumer Floral

The Consumer Floral segment saw 5.4% yoy revenue growth. Valentine’s Day weekend saw double-digit growth, though it was before the onset of the pandemic. Once the pandemic started to alter American life, consumer floral demand decreased, and the last few weeks of March provided a drag on the quarterly results. In particular, limitations on gatherings for wakes and funerals and restrictions on deliveries to hospitals were responsible for the lower numbers.

2. Gourmet Food & Gift Baskets

This segment was the big winner of the quarter, with 27% yoy revenue growth. Demand for gourmet food and gift baskets actually increased as the virus took hold of the country, as self-consumption and everyday gifting occasions are major drivers. 

3. BloomNet Wire Service

The BloomNet business saw revenue increase by 7.9% yoy, but like the Consumer Floral segment, the pandemic provided a drag on results. CEO Christopher G. McCann said, “We are keenly focused on working closely with BloomNet's independent local florists across the country to support their businesses and help them weather the current challenging environment.”

Overall, gross profit margin for Q3 was 38.5%, down 80 basis points. On the other hand, operating expenses decreased to 42.4% as a percentage of total revenue, down 270 basis points yoy. The revenue growth combined with the decrease in operating expenses to improve adjusted EBITDA by 45.5% yoy, which equated to a $2.4 million adjusted EBITDA loss compared to a $4.4 million loss in Q3 2019.

As has been the case for many retailers, 1-800 Flowers’ e-commerce business has been strong since the onset of the pandemic, while it has seen weakness in the wholesale channels.

1-800 Flowers Q4 2020 is Looking Great

Last month, 1-800 Flowers raised guidance across the board for its full-year fiscal 2020 (which has one quarter remaining). Here are some of the highlights:

• Revenue growth raised from 8-9% to 16-18%.
• Adjusted EPS growth increased from 15-17% to 75-85%.
• Free cash flow is now expected to be $75-85 million, up from $45-50 million.

The company pointed to a record Easter period and a “very strong” Mother’s Day as two keys to its success. Furthermore, reduced marketing costs are responsible for the expected huge adjusted EPS growth.

The market’s reaction to the news was a bit curious, but it likely means that investors had already priced in the news.

1-800 Flowers is now trading at around 29x projected 2020 earnings and 1.19x projected 2020 sales. Revenue and EBITDA growth have been modest, each at around 4% annualized over the past three years, but the company’s recent performance provides optimism that it can grow into its valuation.

1-800 Flowers - Interesting Chart

FLWS shares didn’t dip much at the onset of the pandemic as markets around the world tanked. Now, during a sideways month for the S&P 500, FLWS has had a mini V-shaped move.

The price action on June 18 was definitely bearish, especially considering the high volume. But since then, the stock has had light volume down days and higher volume up days.

But is now a good time to get in?

I would wait. The chart is extended after the 30%+ move over the last three weeks and the RSI is now in overbought territory. What I’d like to see before getting in is a tight and low-volume two-week consolidation followed by a strong breakout on high volume.

But Is 1-800 Flowers a Good Long-Term Value?

1-800 Flowers isn’t a screaming buy based on its past numbers and the chart has some work to do. But the company has provided indications that flowers and gifts are some of the last things to go during tight economic times. You may not think of 1-800 Flowers as a recession-proof company – but it sure seems like one.

Growth potential combined with apparent safety during tough times means you should look to get into FLWS if the chart shapes up.