1-800-FLOWERS.COM, Inc.

Good day and welcome to the 1-800-Flowers.com, Inc. 2023 First Quarter Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Andy Millivoy, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on 1-800-Flowers.com's fiscal 2023 first quarter earnings call. For those of you who have not received a copy of our press release issued this morning, the release can be accessed at the investor section of our corporate website at www.1800flowersinc.com. We will begin today's call with brief formal remarks, and then we will open the call to your questions. Joining us today are Chris McCann, CEO, Tom Hartnett, President, and Bill Shea, CFO. Before we begin, I need to remind everyone that some of the statements we will make on today's call may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to our press release issued this morning as well as our SEC filings, including the company's Form 10-K and Form 10-Q reports. In addition, We will discuss certain supplemental financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recordings of today's call, the press release issued earlier today, or in any of its SEC filings, except as may be otherwise stated by the company. And now, I'll turn the call over to Chris McCann.

Chris McCann Thank you, everyone, and good morning. Before I begin my formal remarks on the quarter, I wanted to take this opportunity to congratulate Joe Petito on his upcoming retirement this December and to thank him for his more than two decades of tireless commitment to our company during a period of our company's tremendous growth and transformation. Joe's been a tremendous asset to our company, and his drive and passion for telling our growth story have been invaluable to us. We wish Joe all the best upon his retirement, and good luck, Joseph. I also wanted to take this opportunity to introduce Andy Millivoy, who joined our company as SVP of Investor Relations in September. So thank you again, Joe, and welcome, Andy. Thank you. And now let's review our results. As we noted in this morning's press release, our first quarter results were slightly better than our expectations. Overall, consumer behavior continues to reflect the significant inflationary pressures in the macroeconomy that are affecting both discretionary and non-discretionary spending. This reflects a continuation of the trends that we saw beginning last December. Our first quarter revenues declined 1.9% as we saw consumers purchasing fewer everyday gifts. We experienced softness in our consumer floral and gift business, which was somewhat offset by the growth of our gourmet foods and gift baskets business. By adding value and choice to our higher price point gift baskets, we encouraged customers to trade up in assortments and we strategically managed pricing. This resulted in an increase in average order value in our gourmet food and gift basket business. We were also encouraged by the year-over-year rebound in our wholesale business. By getting ahead of the supply chain challenges from last year, our team was able to build and deliver gift assortments to our wholesale customers earlier than a year ago. This enabled our wholesale business to increase market share. During the quarter, we added more than 775,000 new customers and existing customers represented 70% of total revenue. Now let's turn to what we see ahead. As we look forward to the holiday season and the balance of our fiscal year, we are cautiously optimistic that consumers will continue to spend on the major gift-giving holiday occasions, but we anticipate that they will remain cautious in their spending otherwise. During last year's holiday season, consumers were urged to shop much earlier in the period in response to supply chain constraints, which led to an unprecedented pull forward of business. This year we expect the consumers will shop later in the holiday and that it will be promotional. We're already seeing an extremely competitive and promotional environment with many companies promoting Black Friday-like events in early October. And in contrast to a year ago when most retailers struggled to get inventory on containers and through shipping ports, today many companies are flush with excess inventory and are being highly promotional to sell through that inventory. Not surprisingly, as we look at our customer base, customers in the lower income tier appear to be most affected. As consumers continue to respond to these macro pressures, our platform provides us the ability to offer customers a wide range of attractive price points for gifts to help them build better relationships in their lives. This includes our good, better, best offerings from 1-800-Flowers, our attractive entry price points from the personalization mall, and adding additional value offerings at Harry and David. Recognizing the strong consumer response to our bundled offerings, we've launched additional bundles this year that combine some of our best products, like our famous Royal Riviera pears and Cheryl's Holiday Cookie Collection. We are pairing our award-winning Harry and David wines with flowers from 1-800-Flowers, cookies from Cheryl's Cookies, and wild-caught seafood from Vital Choice. And at Personalization Mall, following the success of our Easter bundles, we've developed food products to bundle with our personalized Halloween trick-or-treat bags and Christmas mailbox tins. Additionally, we're always looking to expand our reach into new categories where we have identified customer trends. One of our goals as we grow our better-for-you selections is to have more options available for a wide variety of customers with dietary preferences or restrictions, such as our expanded organic and gluten-free selections. This includes our new line of Cheryl's vegan cookies. From a marketing perspective, our efforts are focused on developing and growing our multi-category customer cohort to increase purchase frequency and define our company as to the preferred destination for all of our customers' gifting needs. As could be expected, Net sales per customer are highest among our multi-category customers, followed by our celebrations passport members. We're utilizing innovative social and mobile technology to engage with our customers, including the use of video and engaging creative content, and we have expanded our content and influencer partnerships. As a result of these efforts, we are much better positioned to engage with our customers and be top of mind for the holiday season. This also enables us to reduce our reliance on more expensive forms of advertising and allocate more of our marketing dollars to the other areas of the funnel that provide a higher return on investment. Speaking of cost containment efforts, in addition to reducing our marketing spend on a dollar basis, we also expect ocean freight and commodities costs to decline throughout the year. In fact, ocean freight rates are already significantly lower today than they were during the second half of fiscal 22. We have also taken strategic actions to partially offset our labor and shipping costs. First, we increased the automation of our distribution facilities in Medford, Oregon, Hebron, Ohio, and more recently Atlanta, Georgia, which increases throughput at those facilities while reducing our reliance on seasonal labor. Second, as part of our efforts to optimize logistics, we've also strategically reduced shipping zones by shipping products to facilities that are closer to recipients enabling us to use a lower cost shipping method without impacting the speed at which we can deliver those smiles. We have also strategically built inventories of non-perishable items to get ahead of the global supply chain disruptions, ensuring that we have the products that are needed for the holiday season. As we sell through that inventory this fiscal year, we expect free cash flow to improve more than $135 million this year compared with last year, benefiting in large part from the working capital reduction as well as lower capital expenditures. While the current macro environment remains uncertain, I'm extremely proud of our team's efforts to address and influence the areas within our control. As we look ahead, our entire organization is focused on executing our key strategic priorities that position us as a leading gift-giving e-commerce platform. We have made significant strides in transitioning our company and our all-star family of brands into a platform that is focused on inspiring our customer community to give more, connect more, and build more and better relationships. We have proven our ability to identify, execute, and integrate accretive acquisitions that benefit from being on our platform, which drives accelerated revenue growth and enhanced profit contributions from those businesses. And in turn, we have created a highly scalable platform that enables solid top and bottom line long-term growth and expanding market share positions. We expect our margins to begin to improve in the second half of this year and even more so next year. As these costs continue to decline and our margins return to their historical levels over the next few years, we expect to see a substantial increase in EBITDAF. Looking beyond the current horizon, we are confident that we are positioned to emerge a bigger, better, and stronger company and in turn build shareholder value over the long term. Now let me turn the call over to Bill to his review of some of the key financial metrics for the quarter. Bill?

Thank you, Chris. As Chris noted, our first quarter performance was slightly better than our expectations. Revenues declined 1.9%. as consumers continue to adapt to this inflationary environment. When comparing our first quarter results to the year-ago period, it is important to remember that we faced a difficult margin comparison, as the year-ago results had not yet been affected by the global supply chain challenges and the surge in shipping, commodity costs, labor, and fuel, which began to escalate and impact our fiscal second quarter last year. As we head into our fiscal second quarter, We expect our margins will begin to stabilize and then improve during the second half of the fiscal year. This expectation reflects the lower year-over-year ocean freight costs we are already seeing, commodity costs coming off their highs, a more stable labor market, as well as the initiatives that we have implemented that Chris highlighted. These initiatives include the increased automation of our warehouses to offset higher labor rates, and our logistics optimization initiatives that have enabled us to partially offset higher shipping rates while maintaining delivery speed to customers. As we have described in the past, in response to the unprecedented supply chain disruptions a year ago, and to ensure that we had the appropriate inventory on hand for the current fiscal year, we made the strategic decision to invest in working capital and increase our inventories of non-perishable items. As the global supply chain is improved, and as we sell through that inventory this year, We expect to bring inventories down and generate more than $75 million in pre-cash flow in the current year, representing an improvement of more than $135 million as compared to a year ago. Longer term, benefiting from these strategic initiatives, we believe that we are well positioned to gradually improve our gross margins and leverage the significant top line of the past few years to drive bottom line results. Now let's review our key metrics for the first quarter. All comparisons will be to the prior year unless otherwise stated. Total net revenues declined 1.9% to $303.6 million as compared to revenues of $309.4 million in the prior year. Excluding contributions from Vital Choice and Alice's Table, which we acquired in October and December of 2021, respectively, total revenue for the quarter declined 3.6%. Gross profit margin for the quarter declined 720 basis points from 40.6 percent to 33.4 percent, primarily reflecting significantly increased year-over-year costs for labor, shipping, and commodities. Operating expenses were 47 percent of total sales, as compared to 47.1 percent in the prior year period, reflecting lower marketing costs, partially offset by higher depreciation associated with our automation and technology projects. As a result, Our first quarter adjusted EBITDA loss was $28 million, compared with an adjusted EBITDA loss of $5.3 million a year ago. Net loss was $33.7 million, or $0.52 per share, compared with a net loss of $13.2 million, or $0.20 per share, and an adjusted net loss of $12.9 million, or $0.20 per share, in the prior year period. Regarding our segment results, the Gourmet Food and Gift Basket segment revenues grew 11%, to $108.2 million compared with $97.5 million in the prior year. Revenue benefited from the inclusion of Vital Choice and improved wholesale sales. This segment's gross profit margin declined to 23.2% from 35%, primarily reflecting increased labor, commodities, and transportation costs. Charges associated with perishable inventory write-offs as well as product mix, reflecting the sharp sales increase in the lower margin wholesale channel. This segment's contribution margin was a loss of $18.7 million, compared with a loss of $7.7 million a year ago. In our consumer floor and gift segment, revenue decreased 10.5% to $162.2 million, compared with $181.2 million a year ago, as consumers pulled back on everyday gift-giving occasions. Plus profit margin decreased to 38.2% compared with 41.9% in the prior year period, primarily due to increased transportation and commodity costs. Segment contribution margin was $10.8 million compared with $19.2 million in the prior year. In our Blue Met segment, revenue for the quarter increased 8.2% to $33.4 million due to an increase in their wholesale channel. Cost profit margin decreased to 43.4% compared to 50% in the prior year period, primarily due to product mix and higher shipping costs. And segment contribution margin was $9.5 million compared with $10.9 million in the prior year period. Turning to our balance sheet, our cash and investment position was $9.4 million at the end of the first quarter, seasonally low as we prepare for the holiday period. Inventory was $342.6 million compared with inventory of $282.4 million at the end of last year's first quarter as a result of the factors we discussed. In terms of debt, we had $158 million in term debt and borrowings of $140 million under our revolving credit facility in preparation for the upcoming holiday season. Borrowings under the revolver will be fully paid during the fiscal second quarter. Writing guidance for fiscal 2023. While the highly unpredictable nature of the current macro economy makes it difficult to forecast in this environment, we wanted to share our current outlook for the balance of the year. After growing revenues 77% over the last two fiscal years, we expect revenues to decline in the mid single digit range in fiscal 2023 on lower consumer confidence and cautious spending behavior. We expect to mitigate the impact of the revenue decline on our earnings through our strategic pricing programs, a moderation of cost inputs, and the investments we have and continue to make in our business platform. Based on these items, we do expect to gradually improve gross margins and bottom line results during the latter half of the current fiscal year. Our guidance also assumes the restoration of 100% bonus payout in fiscal 2023 compared with a limited payout in fiscal 2022. Based on these assumptions, we expect adjusted EBITDA to be in the range of $75 to $80 million. Additionally, we expect free cash flow to exceed $75 million. I will now turn the call back to Chris.

Thank you, Bill. To recap our performance for this quarter, our results were slightly better than our expectations. However, consumers continue to be challenged by inflationary pressures. We believe that the macro environment will remain challenged through the remainder of the fiscal year and are proactively addressing these trends with strategic pricing and compelling high-value bundle assortments that appeal to a wide variety of customers. Our core customer remains loyal, and we continue to deepen our relationship with them through our innovative marketing and engagement efforts. We believe that as we enter this holiday season, we are well positioned to engage with our customers and drive sales with our cross-category and cross-branded merchandise programs. As we look forward, we know that the macroeconomy remains uncertain, but we have been diligently focused on reducing costs throughout our business. We have reduced our labor requirements by improving efficiency in our facilities, partially mitigating shipping costs by optimizing logistics, and strategically building inventory to avoid supply chain issues, particularly for this holiday season. As a result, we are confident that over time, we will see our costs decline further, particularly shipping and commodities, and we expect to see our margins normalize back to historical levels over time. We are proud of what we have built, which is a strong, unique e-commerce business platform supported by a very experienced team. Over the past 10 years, we've tripled our business through organic growth and strategic acquisitions. Today, we have emerged out of the pandemic a bigger, better, and stronger company, providing an all-star family of brands, an advanced technology stack, strong manufacturing, distribution, and logistics capabilities, extensive digital marketing experience, and an expanded customer file and loyalty program. We believe our future is bright and that we will grow our business and improve our profitability and build solid shareholder value over the long term. And now I'd like to open the call for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question will come from Michael Kapinski with Noble Capital Markets. Please go ahead.

Michael? We can't hear Michael.

First of all, I wanted to say, Joe, congratulations on your retirement. I've greatly enjoyed working with you over the years. You're going to be greatly missed. So please keep in touch. I got a couple questions here. Can you give me the number in terms of what was the contribution from Vital Choice in the quarter? And if you could just give me the same store revenue for the gourmet food and gift.

Sure, Michael. I'll ask Bill to provide that.

So Vital is small, but what... Yeah, so basically Vital Choice, we really don't break down individual brands, but because Vital Choice is the first year, we kind of gave the, with our guidance, both the revenue kind of with and without, so you can compute it anyway, but basically around $5 million or so in the quarter. Again, it's a small acquisition. It did about $25 million or so annually on the last year prior to our acquisition.

Gotcha. And I understand that there are floral suppliers that have decided not to plant given the price of energy prices. I was wondering if you've noticed any issues with your suppliers for flowers or any disruptions given issues with energy prices, that sort of thing. If you can just talk a little bit about that.

Tom, you want to take that? Artnett, we have not seen any disruption with our suppliers. We've had supplier relationships for decades and very stable, and we haven't seen any challenges at all with Laurel Supply.

Yeah, Michael, I would add, you know, even last year when there was a little bit of challenge, we were fine because of the relationships that Tom referenced and all. But even overall, we're not aware of any issues in the floral supply chain side of things.

Gotcha. I appreciate that. And then can you talk a little bit about, you mentioned $75 million of free cash flow. Can you talk a little bit about capital allocation at this point, what your thoughts are?

I guess as we look at capital allocation in business, we really haven't changed much. I mean, first and foremost, we look to invest in our business, to use the capital that we're raising to invest in the business. We've done that over time. And I think we've done very well through strategic acquisitions and how we integrate those to allocate the capital appropriate for integration as well as the cost of the acquisition itself. Then you see us doing things like we've done in the last year or two and adding automation into the facilities where we can, really automating some of our distribution centers and gaining traction there. And then we'll always be looking to see what other opportunities are there for us to return shareholder value. to return value to the shareholders. Stock repurchase, we've been doing that to basically mitigate share creep over the past couple of years, and I think that will continue.

Gotcha. And just on the wholesale business and gourmet foods, I know that business has kind of been pretty wide fluctuations year over year, given whether or not the product has been soon enough into the marketplace and whether or not there's been demand for that type of product. Can you just kind of give us a sense of what your thoughts are in terms of wholesale business this year versus last year, maybe the years before, and how you see that business shaping up this year versus some of those periods in the past?

Yeah, just a reminder, Michael, wholesale is still a relatively small piece of mobile business. It represents only around 5%, a little more than 5% of our overall revenues. But we have a good book of business with wholesale this year. We had that going into the year. You saw some of that benefit Q1 in that the challenges of the global supply chain that we had a year ago kind of deferred all wholesale into the second quarter and a little bit into the third quarter. And this year we were able to shift some of that in Q1 this year. But we have a strong book of business on wholesale.

Great. I'll let others ask questions. Thank you so much.

Thank you, Michael. Our next question will come from Anthony Libidinsky with Sidoti & Company. Please go ahead.

Yes, good morning, and thank you for taking the questions. And likewise, Joe, it's been certainly a pleasure to work with you for a long time, and best of luck in your pending retirement here. So I guess, you know, first – Just in terms of the bonus payout headwind, Bill, can you quantify that, how much you think that will be for the year?

Yeah, so a year ago, basically executives got zero bonuses. We did limited payouts to non-executives. This year we obviously hope to pay bonuses at 100%. It's probably about a $12 million year-over-year impact. And it's only if we perform.

Of course, right, right, okay. And was any of that accrued in the first quarter or not yet?

No, we accrue it on a straight line basis. So, you know, we're looking at it right now.

Got it. Okay, perfect. Okay. And then did you guys quantify how much the wholesale revenue? I may have missed this, but the wholesale revenue was up in the first quarter here. If you did, I apologize for missing that, but if you could just talk about wholesale in the quarter. No, we didn't.

But it was the driving force of the growth in the gourmet food and gift basket, the 11% growth, and that was primarily due to wholesale.

Okay, got it, okay. And then in terms of the automation efforts, you guys have done a lot there in terms of upgrading your infrastructure. Is there more to do there in terms of those efforts? Should we expect the additional automation initiatives?

Sure, there's always additional automation initiatives that we'll be looking at, Anthony. But, Bill, you put a good expectation together on that over the next year or two, right?

Yeah, so we completed the automation of the Atlanta facility this first quarter, slightly into the second quarter here. And overall, we're taking our CapEx down around $20 million. So the last couple of years, we had – $55 million, then we had $66 million last year, and this year we're going to be more in the mid-40s. So the big efforts on automation are behind us. Now, as we grow into the future, there's always going to be needs for further automation, but we're at a good spot right now.

And again, we continually look to automate the customer contact center. and how we're doing that utilization of AI technologies, IVR, voice recognition technologies, et cetera. So we'll continue that type of automation as well.

Got it. Okay. And then, you know, lastly, in terms of passport membership and just overall behavior, are you still seeing passport members spending, you know, more than, I think, twice as much as non-members?

Yeah, this is Tom. We are continuing to see passport members that, you know, purchasing it two to three times. The amounts of non-passport members were happy with the membership growth we saw in the quarter. It grew over, you know, the beginning of the year. And on an everyday basis, we're seeing, you know, 18 to 20% of our revenue coming from our passport customers. So, you know, good stuff there.

Got it. All right, well, thank you and best of luck.

Thank you, Anthony. Again, if you have a question, please press star then one. Our next question will come from Alex Furman with Craig Hallam Capital Group. Please go ahead.

Hey, guys. Thanks very much for taking my question. I wanted to ask about the big push that you saw last year really across the industry to get orders in early given a lot of anticipated supply chain changes. problems. Have you seen any sort of repeat of that behavior? Just wondering how you think about that. I'm sure that must be a challenge from a forecasting standpoint, given that a lot of orders that might have already come in last year are probably going to be trickling in here over the next couple of weeks.

Sure. Thank you, Alex. I'll start with that answer a little bit, turn it to Bill and Tom. I think if we look at coming out of Q1, again, we're pleased that we exceeded the expectations that we had going into Q1. And keep in mind, Q1 is, as we've been stating, where we've seen softness from the consumer has been in those everyday occasions. And that's all Q1 is. There are no holiday occasions. So we're cautiously optimistic as we move forward into the holiday season that what we saw last year of business being pushed forward, we're not seeing as much of that this year and We're expecting business to come in closer to the holiday, more like consumer behavior from the pre-pandemic point of time. So we're expecting that to shift a little bit later. But I think we're in a really good position that what we see from our customer file, what we see from the products that we've added to the position, I think we're in a really good position to handle that, especially with the automation that we were just talking about. Bill or Tom, you want to add any color to that?

No, I think just, you know, the investments that we made in inventory, we had the inventory a year ago. There was challenges with the global supply chain, so it created operational challenges. From a labor perspective, you know, we've seen a moderation of labor rates, and access to labor is much more available this year than it was a year ago. Plus, as Chris mentioned, you know, the automation efforts had to have you know, needing less, you know, less seasonal labor. So we're in a very good position operationally to execute this holiday season.

Great. That's really good to hear. And then I could just touch on the $75 million of free cash flow. I think last quarter you were saying, you know, something better than break even. So obviously a huge jump. I don't know if maybe you were just being a little bit conservative before, but is the decline in freight and labor, I mean, is that really the bulk of where that free cash flow is coming from over the past couple of months?

I think with respect to, you know, Last quarter, we really didn't give annual guidance, right? So we just were giving kind of the message that, hey, it's going to be positive. We're coming off a year where we made a big investment in working capital, and that's what created the negative cash flow last year. And we just wanted to make sure the message got out that cash flow would be positive. Now that we've shifted, we're a little further along. We have a little more visibility into some of the macro trends. We wanted to give annual guidance and state really where we believe at this point in time where the year will turn out from both the top and bottom line perspective and where cash flow. The big driver of the cash flow and the $135 million is related to kind of the working capital swings where it was an investment last year and this year. We will be taking inventory down year over year. The global supply chain, you know, has improved as we sell through this inventory. We're not going to have to keep it at these type of levels. But certainly the overall guidance with, you know, with EBITDA being between, you know, 75 and 80 million, you saw where Q1 was, right? That was the, you know, that was the quarter where, you know, we took the big hit. So our guidance implies that we're, you know, You know, we're relatively flat from an EBITDA year-over-year basis, you know, going forward. And the consumer is still tough. So, you know, top line is going to be a challenge. You know, we have it, you know, guided at, you know, down, you know, mid-single digits. So we've got to get it back on, you know, from a margin perspective and from an OPEX perspective. And certainly, you know, some of those inputs of freight coming down, labor stabilizing, all helping to, you know, improve our gross margins. And that's why we're, you know, We've kind of stated that we believe gross margins stabilize in Q2 and then actually improve in the second half of the year.

Okay, that's really helpful. Thank you, and a big congratulations to Joe.

Thank you, Alex.

Our next question will come from Dan Kernos with The Benchmark Company. Please go ahead.

Great, thanks. Good morning. Joe, best suspenders by far across all of the industry. Wish you the best in your retirement. Obviously, it's been a pleasure working with you all these years. You were a mainstay in the industry. Chris, I don't want to frame it this way, but I just What gives you the confidence in kind of the return to more normal spending patterns? Because every single e-com and advertising company we've seen suggests that there's going to be some kind of spending cliff after the election. And I get that, you know, there are mixed signals across the space. But, you know, Amazon, regardless of the maybe overinflated outlook we all had for them, having early prime days, obviously is the signal that they think the holiday season is shifting forward again. And we've seen, you know, other things out there suggesting that there's probably as much as five to 10 points of the season shifting into the front half. So is it around like orders, order volumes, indications, like what kind of helps inform the way that you're thinking about the consumer specifically spending patterns heading into the holiday period?

Sure, Dan. And, you know, there's a couple of things there. So thanks for the question, first of all, and great comments on Joe. So as we look forward, I think, you know, again, we're cautiously optimistic as we look forward. Clearly, as consumers continue to respond to the broader economic pressures, our platform provides us ability to have a wide range of price points. And that's why even, you know, what we're saying is we see weakness, more weakness in the lower tier end of our customer file but yet we need to make sure we have a wide range of products to satisfy that customer. Why we're seeing the bundles that we talk about take off with our higher-end customers and helping to drive AOV hires working for us. I think you're right. We're seeing mixed signals of, you know, we're seeing Amazon, certainly with all these Black Friday events that we're seeing already. So we're seeing promotional activity try to move business earlier, We don't see that happening to the extent that it happened, certainly to the extent that it happened last year. We see UPS and others talking about business coming closer to the holiday, other retailers that we talk with are seeing similar trends. But really what gives us the confidence, again, is the platform, the good, better, best offerings that we have, the health of our customer file, the operation, operating more efficiently, seeing what we – the benefits of the investments that we made that Bill just spoke about on the automation front. And, again, the fact of what we've seen really since last year is the consumer weakness that we're experiencing is in those everyday occasions. We saw the consumer come back at Valentine's Day last year. We saw the consumer come back at Mother's Day last year. We saw it just this quarter really with a decent Halloween business, and we're seeing the customers responding to Halloweens. So all of those factors, our capabilities plus our read on the market, gives us confidence that we can see the consumer take care of what they need to take care of with their gift-giving needs this holiday season.

And I think, Dan, you know, also if you remember back to a year ago, you know, every media story was about the global supply chain challenges and that inventory may not be on the shelf, you know, for Christmas. So it kind of, you know, forced the consumer to buy early. And we saw very strong October and November sales last year, and then we saw it drop off in December. This year is just the opposite scenario. It is a promotional environment out there, but everybody has inventory, and there's no talk of inventory not being on the shelf at Christmastime. So the consumer can wait, try and get their best deal, but the consumer can wait and buy late. And that was the trend we saw basically, you know, for years leading up to last year, the global supply chain challenges that push it forward.

Got it. Yeah, that's helpful. I mean, hopefully the consumer doesn't wait until Q1 when they can get really great deals. But I think another question is, Chris, you made, I think, And I assume you guys are trying to highlight this. You made a lot more positive commentary just around the margin trajectory in general and into the future. I think you guys got the message that that's sort of a concern. And you guys have given some good color around sort of the near-term or 12-month-plus trajectory, which is really helpful, I guess, just to sort of nitpick on your comment or highlight your comment, Chris, just to say getting back to historical margin trajectory levels, given everything that you're seeing in the market now, like, I mean, are we still aiming over time? It was sort of like 10% plus was kind of the, the goal, um, with everything that you've put in place and sort of getting a better handle on what you think happens with the labor market and everything else. Is that still the target? Is there upside from some of the automation and sort of incremental efficiencies you can take or. You know, not to say that, you know, high singles is anything to see that. Is that more a realistic target over, say, the medium term, just given everything that's going on in the marketplace?

Sure, Dan. I think that, you know, clearly that is our objective, and I think it is achievable. As we look at, you know, some of the reductions in the, you know, starting with the gross margin, right, getting the gross margin back to where it needs to be, as we're starting to see some of the input costs on shipping freight, you know, commodities, et cetera, start to show some signs of recovery, certainly in the shipping environment. We're seeing that. In addition to that, as we look to continue to improve our operating efficiencies, that helps us get to the gross margin or to the net margin that we're looking to get to as well. So I think we have all confidence that, you know, in time we'll get back to the historical levels that we've been at.

Yeah, Dan, if you look at, you know, any year in the last 10 years, up until last year, you know, you would see our gross margins at, you know, in that 42%, you know, range. You know, last year, obviously, you know, we were down 500 basis points on it. But, you know, no matter, we've bought and sold companies over the years, but we've always been pretty consistent with that gross margins and that, you know, that 42% range. So, again, over the longer term, and, you know, the consumer is a, you know, is a challenge in this macro environment is, is certainly a challenge, but over the longer term, we expect to get back to historical margins. If we can get those margins back up to those levels, there's no reason we can't get the EBITDA margins back up.

Okay. I appreciate all the color, guys. Thanks very much, and again, best of luck, Joe.

Thank you, Dave.

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

So I'd just like to thank everyone for their time this morning. And clearly, as you see, our business is performing well and we're well positioned for the upcoming holiday season. Holiday season starts with Thanksgiving. And I urge all of you, giving is the gift. So I urge all of you to make sure you're taken care of and thanking the appropriate people in your life for this Thanksgiving season. And certainly we know a few brands that can help you and a platform that can help you do that. So thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.