1-800-FLOWERS.COM, Inc.

Good morning and welcome to the 1-800-Flowers.com fiscal 2024 second quarter end year end earnings call. All participants will be in 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 your touchtone 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, Investor Relations. Please go ahead.

Good morning, and welcome to our fiscal 2024 second quarter earnings call. Joining us today are Jim McCann, Chairman and CEO, Tom Hartnett, President, and Bill Shea, our CFO. Hello. Before we begin, I'd like to remind you that some of the statements we make on today's call are covered by the Safe Harbor disclaimer contained in our press release and public documents. During this call, we will make forward-looking statements with predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission. The company disclaims any obligation to update any of the forward-looking statements that may be made or discussed during this call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. And now, I'll turn the call over to Jim.

Thanks, Andy, and good morning, everyone. Thank you for joining us. This morning I'll begin with a brief overview of our second quarter performance and then turn it over to Tom who will provide a business update. We will conclude with financial review from Bill and then we'll open the call for your questions. Heading into the second quarter, we expected our sales trends to improve, our gross profit margin recovery to continue, and our operating expenses to decline. Our performance was essentially in line with our expectations As our gross profit margin recovery and expense optimization efforts helped offset what turned out to be a softer than anticipated consumer environment. Most notably, our gross profit margin expanded nicely, and as Bill will highlight further, our pace of margin recovery is happening at a good rate. This was our fifth consecutive quarter of year-over-year margin expansion. and we are well on our path to returning to our historical mean annual gross margin rate in the low 40% range. Our gross profit margin is benefiting from a combination of a reversion to the mean of certain commodity costs and our work smarter initiatives that are centered on operating more efficiently. As Tom will highlight further, we are regularly evaluating opportunities to improve our top line through our relationship innovation initiatives and this performance will only further be void by the improvements we are seeing in our gross and operating margins. Before I ask Tom to provide the business update, I did want to take this opportunity to highlight a new organization that we are very proud to partner with this holiday season. As many of you know, Smile Farms is our signature philanthropic partner whose mission is to create meaningful work opportunities for people with disabilities. Their work generates purpose and pride and enhances life skills and fosters socialization. This holiday season, we are proud to partner with another organization whose mission is closely aligned with that of Smile Farms. During this past holiday season, we partnered with a nonprofit called the First Step Staffing to employ approximately 350 individuals in our Atlanta distribution facility. First Step Staffing is an organization that provides employment opportunities and resources to homeless individuals who want to reenter the workforce and improve their lives. They not only provide employment opportunities, but they also provide additional support services, such as providing transportation to and from work to position these individuals for success. They are a terrific organization that does great work, and we are glad to be able to partner with them. Now I'll turn the call over to Tom for the business update. Thanks, Jim, and good morning, everyone.

Today I'll provide an update on our business performance, as well as an update on our relationship innovation developments, which encompasses new or enhanced product offerings, our merchandising efforts, as well as user interface enhancements. During the second quarter, we generated $130.1 million in adjusted EBITDA as our Work Smarter efficiency initiatives, combined with improving macroeconomic factors, contributed to a 230 basis point improvement in our gross profit margin. Our quarter over quarter revenue trends continue to improve. We encountered a softer consumer environment, especially amongst our lower income tier customers. As lower income customers continue to be most impacted by the macroeconomic pressures, we continue to see this customer cohort reduce purchases the most. Conversely, AOV increased approximately 3% As our upper-income customers continue to represent a greater portion of our overall population, they continue to gravitate towards our higher-priced bundled products that provide a great gift and value. During the first half of our fiscal year, we have been prudent with our marketing spend in a challenging consumer environment in which we didn't see an adequate return on investment. As Jim mentioned, under our relationship innovation efforts, We are regularly evaluating our offerings, pricing, and bundling opportunities to ensure we have appropriate price points for each of our customer segments, and we are actively managing the pricing elasticity of our product portfolio. Our focus on the customer journey, providing thoughtful gifting options, and having the appropriate pricing at all ends of the spectrum from value to luxury has never been greater. During the second quarter, we introduce lower price points and emphasize gifts that are in our lower price ranges to attract customers who may be more price sensitive. This includes providing new value offerings such as our Flowers and Fields collection at 100 flowers that features custom crafted bouquets that match an array of sentiments and provide great value beginning at $39.99. And we continue to lean into new products and bundling offerings for customers who were looking to wow their recipients. Bundles allow us to feature products from our different brands and conveniently ship them to the recipient in the same package. This is also a great way to introduce our customers to our family of brands and give us a competitive advantage by marketing these bundles across multiple brand websites. These gift bundles provide great value to our customers and we continue to see customers trade up in price points for these wonderful gifts. As an example, we leverage Personalization Mall to launch a set of food gifts with a personalized item, such as our Harry and David charcuterie gift bundled with a personalized maple cutting board. This program was launched as a test and it exceeded our expectations. We believe there's a lot of opportunity here And it once again demonstrates how our brands can compliment one another and give our customers an elevated experience compared to others in the market. As we look ahead to Valentine's Day, this year we have a slightly better day placement than we had a year ago, as it's midweek and a few days past the Super Bowl, which should be favorable to us. We are excited about our new trio bundle that features our 1-800-Flowers-Roses, Harry and David Wine, and Sherry's Berries to create a magnificent gift. This trio bundle combines gifts from three of our brands and ships them in a single box that can be delivered overnight. They are sure to provide an extraordinary experience for the recipient and is a great last-minute gift idea. Through our gift and more marketplace, which features curated items from local sellers, we can offer customers a broader assortment of gifts across a number of categories, including jewelry, spa, gardening, and home decor, to name a few. Providing customers with a variety of gifting options is a core strength of ours, and we have an amazing family of brands and products that we can leverage to help our customers express every sentiment. Now I'll turn it over to Bill to provide the financial review.

Thanks, Tom, and good morning, everyone. As you and Tom highlighted, we continue to see significant improvements in our gross profit margins. remain steadfast in our Work Smarter initiatives that are focused on operating more efficiently through the use of technology and automation, and also includes our logistics, labor, and inventory optimization efforts. This enabled us to offset what turned out to be a softer than expected second quarter top line performance. Going into the second quarter, we expected the consumer environment for discretionary spending to remain pressured, but to improve as compared to the past few quarters. Quarter-over-quarter sales trends did improve, with our total revenue declining 8.4%, and our e-commerce revenue declining 6.6%. But we had anticipated the pace of improvement to occur at a faster rate. Our gross margin improvement helped offset the softer top line. The pace of improvement is better than we anticipated. Second quarter gross margin improved 230 basis points to 43.3%, and this was on top of the 90 basis points improvement a year ago. This represents our fifth consecutive quarter of year-over-year improvement. As Jim said, we are well on our path to returning to our historical gross profit margin rate, and by the end of this fiscal year, we now expect to be at approximately 40%. Our gross margin benefited from lower inbound freight costs, a decline in certain commodity costs, lower labor costs, and our Work Smarter initiatives for the driving operational efficiencies. A great example of these efficiencies include the labor savings we've been able to produce through our automation efforts. Our main distribution facilities in Medford, Oprah, and Atlanta are all in their second or third year of automation, and we continue to achieve further productivity gains. We reduced the labor cost per package at these facilities by approximately 4% for the month of December and the first half of the current fiscal year. as compared to a year ago. Additionally, due to our inventory optimization efforts, our inventory levels were in good shape heading into and out of the holiday season, leading to fewer inventory write-offs. We also had a helping hand from Mother Nature, who provided us with good weather this holiday season, leading to fewer shipping delays and related customer credits. These factors helped offset a more promotional environment as well as a new fuel shipping surcharge that was introduced later in the holiday period. We also continued to optimize expenses, and excluding the impairment charge and the accounting impact of the non-qualified compensation plan on our P&L, we reduced our operating expenses by $10.8 million as compared to a year ago. As a result of these factors, our second quarter adjusted EBITDA was $130.1 million, as compared to $131.4 million in the prior year. Before we review net income for the quarter, I want to address the non-cash impairment charge we took in the consumer flow and gifts group segment related to the personalization mall trademark. As many of you know, we periodically review the value of our intangible assets. Our revenue forecast for personalization mall, combined with a higher discount rate resulting from the higher interest rate environment, required us to reevaluate the value of the intangibles on our balance sheet. Consequently, we recorded a $19.8 million non-cash impairment charge for our personalization mall business during the quarter. Income for the quarter was $62.9 million, or $0.97 per share, including the non-cash impairment charge of $19.8 million, or $0.30 per share. Adjusted net income was $82.7 million or $1.27 per share compared with adjusted net income of $82.7 million or $1.28 per share in the prior year period. Let's review segment results. Our gourmet food and gift basket segment revenues declined 8.2% to $540 million compared with $588.4 million in the prior year period. Contributed to this decline was our wholesale business. which declined $18.7 million as several retailers had reduced their orders last spring for the holiday season in light of the consumer environment. This segment's gross profit margin expanded 220 basis points to 43.2%, favored 41% in the prior year period, benefiting from lower freight costs, a decline in certain commodity costs, lower labor costs, and lower inventory write-offs. Segment contribution margin declined $5.4 million to $118.2 million, compared with segment contribution margin of $123.5 million in the prior year period, primarily due to the revenue decline. Now, consumer floor and gift segment. Revenues decreased 8% to $254.8 million, compared with $277 million a year ago. Profit margin expanded 230 basis points to 42.8%. compared with 40.5% in the prior year period, improving on lower freight and labor costs. Segment contribution margin, excluding the impairment charge, was $30.4 million, compared with segment contribution margin of $27.9 million in the prior year period. Revenues for the quarter decreased 17.1% to $27.2 million. Revenues were impacted by the lower order volume processed by Blumenet, which included the expected decline in orders by one of our business partners following their merger with a competitor. Profit margin was 47.6% compared with 42.2% in the prior year period, primarily reflecting lower freight costs as well as product mix. Segment contribution margin was $9.1 million compared with $9.3 million in the prior year period. Turning to our balance sheet, our cash and investment position was $312 million at the end of the second quarter. Inventory declined to $161.3 million, with inventory of $201.1 million at the end of last year's second quarter. In terms of debt, we had $195 million in term debt and no borrowings under our revolving credit facility. As a result, our net cash was $117 million. of over $34.7 million at the end of last year's second quarter. During the quarter, we entered into a 10b-5-1 stock repurchase plan and repurchased $5.4 million of our stock under this plan as of last Friday. This amounts to approximately 550,000 shares that were repurchased at an average cost of $9.73 per share. Let's turn to our guidance. We are lowering our fiscal 2024 revenue guidance while maintaining our adjusted EBITDA guidance as we expect our gross margin improvement, combined with our expense optimization efforts, to offset the softer revenue outlook. In fiscal 2024, we now expect total revenues on a percentage basis to decline in the 7% to 9% range as compared with the prior year. We are affirming our adjusted EBITDA guidance to be in the range of $95 to $100 million and our free cash flow to be in the range of $60 million to $65 million. I'll turn the call back to Jim for his closing comments before we open it up for Q&A.

Thanks, Bill. As we look back on the first half of the year and forward to the second half, our quarter-over-quarter sales trends continue to move in the right direction, albeit at a slower pace. We expect this to be offset by the gross profit margin recovery, which is now occurring at a faster pace than we expected. Combined with our relationship innovation and work smarter initiatives, we're having a clear and direct impact on our business. We expect these factors to further fuel how performance in a broader consumer discretionary environment improves. While it's difficult to predict when the consumer environment, and in particular for the lower income consumer, is going to become more favorable, we believe our results will only be further buoyed by our relationship innovation and work smarter initiatives that are evergreen and well underway. Now before I open the call to your questions, a public service announcement. The Valentine holiday is only a couple of weeks away and we suggest you place your orders for all those special people in your life today. Now your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speaker phone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Anthony Lebodzinski with Sudodian Company. Please go ahead.

Good morning. This is Alex on for Anthony. My first question is regarding the celebration's passport members. Could you share a little bit more about spending of those members during the holiday season versus non-members and give a little bit of color around passport membership and order frequency and whether that changed much from the prior year?

Good morning, Alex. This is Jim. Too bad Anthony isn't here. That was the best pronunciation of his name we've heard so far, and he missed it. But to your question, Alex, Tom will give you the details on your question. But I would say overall, the PassFloid customer is behaving as it has and as it continues now for quite a number of years. I think you'll hear later on that we have a lot of programmatic plans to enhance the PassFloid program. It's gradually moving from just a free shipping capability to now a loyalty program, special So, this is a special group of people, and we're trying to treat them in the special way that we should. So, we have a stream of programs that you'll see introduced throughout the course of this year.

But, Tom, as to the specifics of Alex's question, trending patterns of the- Yeah, so trend lines year over year are the same as a year ago. We continue to see that passport customer purchasing two to three times more than our average customer. And so, you know, all those signs are continuing to move in the same direction.

And a passport customer represents about 20% of our revenues. Right.

I appreciate the color. Thank you, guys. And I think you commented that, you know, commodity costs are, you know, normalizing to the mean. Curious about one other cost regarding ocean freight. Given some of the footee attacks in the Red Sea, are you seeing any significant freight cost increases?

Alex, Bill will give you the color on that. But who would have thought a year ago that we'd be talking about footees? But we are. And we're anticipating some impact, but we haven't yet. Bill, specifically, what's going on with ocean freight costs?

Yeah, William. Due to the attacks in the Red Sea, certainly the spot markets have jumped up pretty dramatically on ocean freight. We have contracted rates that basically carry us to the end of the fiscal year, and so far the carriers have honored those rates. The bigger unknown is how long the issues in the Red Sea persist and whether that affects future negotiations and next year's holiday season. We begin negotiations for those rates in a few months, and a lot will depend on what happens in that area.

So, Alex, an overall color on that, too, is like so many companies that are U.S.-based, we're taking the steps we can, longer range. to lessen our dependency for those commodity items that we do import so that we can source them domestically. I think pretty much every company in the U.S. has started a program like that. We'll continue to pursue that. But if the tensions in the Red Sea area continue into the summertime, we would anticipate that they would have an impact on our holiday imports that primarily arrive in the summertime. But we're, as Bill said, through the end of the fiscal year, the June fiscal year end, we don't anticipate a hit.

Appreciate the color there. And last question from me. Curious how you guys are thinking about acquisition opportunities for 24, 25.

Well, I'd say we're always in the market looking to see if there's a way that we can flesh out the offerings we have for our customers or find a a service that would be beneficial to our suite of service offerings we have for our customers. And the third area that we look for acquisitions to help us is with talent acquisitions. I would say there's a lot available right now because I think the cost of capital, which has changed so dramatically in the last 12 months, 24 months, has really put a hurt on so many companies. So there's lots available. but we're being very judicious about what we look at and really being disciplined about does it genuinely help us, does it genuinely make us a better company, does it improve our service offering for our customers. So we're active. There's a lot available, but I wouldn't expect that we're going to be doing anything too dramatic.

I appreciate all the context there. Thanks for taking questions.

Sure.

Thanks, Alex. And our next question comes from Michael Kapinski with Noble Capital Markets. Please go ahead.

Thank you, and thank you for taking my questions, a couple of them. Can you talk about maybe I'm going to parse the commodity price opportunity there. Can you talk about how commodity prices and where they are relative to the mean in terms of maybe a percent so you can kind of give us a sense of what are the opportunities left yet from where we are right now in terms of commodity prices relative to the means?

Well, I would say this, Jim. Michael, I would say two years ago, it was a peak in terms of how we got hit with commodity prices. It started, of course, with fuel when it went to well over $100 a barrel. Surcharges were high. Bill already mentioned that we did have a surcharge hit that came at the very beginning of December this year that cost us a few million dollars this year. The other commodities that are important to us, we bake a lot, we prepare a lot of food. So butter, flour, eggs are all commodities that we use a lot of. Bill, where would you say we are on that scheme? I know we're not back to the 2019 kind of levels. Labor, by the way, is one. It's not a commodity, but it's a cost ingredient. And that's not going to come back. Whatever we did in terms of increases are going to stay. But the pressure there is alleviated. Where are we on actual commodities now, Bill?

Yeah, it's split. You know, there's certain commodities you mentioned, you know, butter and eggs. Those are certainly back to more their historical means. But there are others like sugar and cocoa that are still, you know, still very high. I think if you take a step back from a gross margin standpoint, you know, we're actually exceeding where our expectations were, you know, up 230 base points for the quarter, up 280 base points. year-to-date, the first two quarters of the year. You can kind of split those gains into almost two buckets, some of the macro items, ocean freight, some of those commodity costs that you mentioned. Labor availability and having labor availability just gives us a lot of flexibility, so allows us our automation efforts, our operational efficiencies. logistics initiatives, you know, inventory planning, inventory go both in and out of the quarter without, you know, the proper levels that, you know, we needed it to be at, which led to, you know, less inventory, you know, write-offs.

But last year on the inventory side, like so many companies, we inventoried up because of the logistic challenges, so we were sure we had the product. This year we didn't have to buy so much so early.

That's right. So, again, as a result of maybe some of the macro trends and the you know, us being able to, you know, manage inventory at the appropriate level, which led to less inventory by us, which led to, you know, improved, you know, margins. So really a combination of both macro as well as internal work smarter initiatives that we have.

So overall, commodity costs are still higher than the mean we talked about, but have been improving.

That's correct. Certain components of commodity costs have come back to the mean, but others are still at very high levels.

Okay. And when do we begin to comp against the substantial portion of the Work Smarter initiatives you implemented?

Work Smarter is an ongoing, you know, effort. So we continue to add to that. But certainly, you know, You know, an example is, you know, our automation efforts. We're, you know, in many of our distribution facilities, we're now in the second year. In one facility, we're in the third year of those automation efforts. Yet our labor efficiencies are down, and, you know, our labor costs per package are down like 4% this year over last year.

So our efficiencies are up. our labor efficiencies are up, but our labor costs are down because of the automation. And we'll continue, Michael, with those automation efforts. So as Bill mentioned, we're in a third and or second year, depending on the facility, and we're implementing new programs on top of that now.

So this is an ongoing effort, Michael, and we're going to continue to get savings into the future.

Gotcha. And then can you talk a little bit about personalization, Malvin, in terms of its performance and how you are looking at personalization mall for the balance of this year and what expectations you might have there?

There's a combination of things that have happened with personalization mall. Tom will give you the full color on that.

Yeah, Michael. The personalization mall business was roughly in line with the segment, maybe a little bit better performance than the segment for the quarter. And we're expecting... just like our other segments that the rate of the sales trend for the second half of the year will be in a better direction than they were in the first half of the year.

One program you introduced there in personalization mall is we launched the rechristened IP around Things Remembered. So that's a new brand with a new product line. and a different range of product. That brand is a well-known brand, and it gives us the opportunity to be in a broader range of products. higher price points, really fancy items, like the vase we have. Tell Michael about that.

Yeah, so that's one of our better sellers every day. I mean, it's a vase that I think retails for over $150, and obviously it's personalized, and it's a wonderful, beautiful item. So our AOVs, and again, we're just kind of getting started there, because when we We acquired the IP as taking some time to build up the inventory and their best sellers. So, you know, we got to a portion of that this holiday season. But the average ticket is, you know, 175 basis points higher or 175 times, you know, the personalization mall of AOD. a good price point, great gifts in dealing and addressing a different cohort of customers, whether it be weddings or retirements or special moments in people's lives.

But all leveraging off the same fixed cost, same fixed facility that we have there at Personalization Mall, Michael.

One last question, if you don't mind. In terms of your revenue guidance for the year, what expectations are baked into your guidance in terms of the general economy? Are you Can you kind of give us some sense of what those expectations are?

Bill? Well, Michael, you know, we revised our, you know, our revenue guidance, you know, to be down 7% to 9%, you know, with the first half of the year, you know, being down around, you know, 9%. So applying a, you know, slightly better trend, you know, into the second half of the year. I think we've modified our guidance, I think, at the, you know, beginning of the year. We were, you know, we were hopeful, you know, that the improvements that we're seeing would even be more accelerated both to the second quarter and into the second half of the year. So it is improving at a slower pace than what we originally anticipated, and that is tied to the macro environment not being as robust as we hoped it would be.

So baked into that is the trend continues to improve, just not at the pace we were hoping for.

Gotcha. Okay, that's all I have. Thank you.

Thank you, Michael.

And our next question today comes from Linda Bolton-Weiser with DA Davidson. Please go ahead.

Yes, hello. Hi. So I was wondering, you know, just your comments about the consumer environment. I mean, consumer sentiment, Michigan consumer sentiment has been below 70 now for, like, two years. So it just seems like we're stuck in this – this low consumer sentiment thing, which is not good for your business, obviously. But if it just persists, let's say for another year, what would you do different in your business? Is there anything additional you could do in terms of cost structure? Or how would you think about things if this just continued on like this with revenue declines like this for another year? How would you think about, what would you think about doing differently?

Thanks for your question, Linda. We missed you the last quarter. Really good question and one we've talked a lot about over the last month or two. And the answer is a couple of things. One is we're still recovering from the COVID bounce that so many of our e-commerce kinds of companies like us experience. So we're still in that back end of the wave of that. The second thing is that I think the consumer sentiment generally is pretty good, but it's bifurcated. And categories like ours are seeing it. We look very hard at the competitive data that we have, that we buy. And the good news, bad news. Bad news is everyone in our categories has gotten hit with the back end of this COVID wave. The good news is that we're holding share or gaining share. So good and bad. And what we think, if this trend didn't continue on the pace that it is for recovery, and it went the other way, we have several levers that we could pull to make sure that we continued on the profitability trend that we're on, which is quite healthy, but we think if the consumer trend continues on this pace and maybe improves a little bit, then it's really good. declines from the trend we're on and gets worse, then we have quite a bit of leverage in our operating model to make that, to make up for that and to make sure our bottom line continues to be strong. Bill, what else would you add to that?

Yeah, you know, just from a, you know, a top-line perspective, you know, we continuously evaluate, you know, our offerings, our pricing, our bundling opportunities to ensure we have the appropriate price points, you know, for each of our consumer, you know, segments. And we have some pricing elasticity in that. So we are very consumer-focused, trying to improve the consumer experience on that, ultimately to buck against some of those macro trends.

So when you talk about elasticity, you mean price points both at the higher end and the lower end?

From a costing perspective, you know, Our trend lines on our gross margin are moving at an accelerated pace, you know, back towards our, you know, the mean of the, you know, kind of the low 40. So we continue to expect that gross margins will improve and our expense optimization. You've seen that for the last, you know, the last year and a half, and we're going to continue those efforts.

So, in summary, we hope it doesn't happen, but we do have the capability and plans that if the trend were to turn negative, that we'd have the ability to respond to it appropriately.

Thanks. Can I ask one more about... Sure. The Google, I think they've made some additional changes with regard to their blast email marketing that some of my consumer companies have mentioned. You know, they're trying to figure out what that means for them. Have you analyzed what those changes mean for your marketing processes?

We have, Linda. There's lots of changes. And there's both the changes that Google is implementing or talking about implementing, what they have implemented. And there's also big macro trends that are happening in the marketplace that we feel we're in an awfully good position to weather and respond to. And frankly, some of the things we experienced during the last quarter give us hope that we're going to be less dependent on the big search engines in the future than we were. One of the big assets we've accumulated through the COVID burst was a huge increase in our database. And that gives us some flexibility and less dependency on search engine activity. But, Tom, you know really well the specifics of Linda's question.

Yeah, I mean, I think we're chalking up Linda as just another change for Google, which is a very dynamic business and always has changes going on. Certainly, we also saw some significant changes in just the SERP and how – You know, the landing pages for Google showed up this year, which, you know, we're always reacting to. You know, overall, this was, you know, a competitive environment. Our CPMs and CPAs, you know, were up, et cetera, and, you know, we kind of expected that to occur.

And if all of your marketing budget or a substantial part of your marketing budget is at that bottom of the funnel kind of activity there, it's going to have big ramifications on you. Fortunately for us, that's not the case.

Thank you very much. I appreciate it.

Thanks, Linda. And as a reminder, if you'd like to ask a question, please press star then 1. Today's next question comes from Alex Furman with Craig Allum. Please go ahead.

Hey, guys. Thanks very much for taking my question, and congratulations on the strong bottom line results in the quarter. Bill, I was wondering if you could unpack the lower revenue guidance a little bit more. It seems like the Q2 results were not very far off from what we were all expecting, but the change to the full-year revenue guidance is not insignificant. So is it something maybe you're seeing in kind of the lull period between Christmas and Valentine's Day that was maybe a little bit disappointing or just curious if you're seeing any kind of early trend lines into Valentine's Day now or if that's maybe too early?

Well, I would say definitely too early. Valentine's Day is a real pain in the neck because it's very, very busy for several days. Mother's Day, it's a two-week ramp up. The holiday quarter, it's from Thanksgiving on. It's maybe a week or two before Thanksgiving. But Valentine's Day, it's a big burst of business. Customer dynamic changes. It goes from majority women to majority men. which are wonderful customers, but they don't come back as regularly and frequently as female customers do. So it's something it's expensive to prepare for. Our cost of goods jumps way up, and we have this big burst of business. So, yes, it's a little difficult for us to project exactly what will happen at Valentine's Day. But as Tom mentioned, day placement is critical for Valentine's Day. And last year, for the first time, The Super Bowl was right before Valentine's Day. So Valentine's Day was Tuesday last year, and the Super Bowl was at Sunday. They moved it back a week from its normal schedule to allow more time for the extra regular season game and still have two weeks from the regional playoffs until the Super Bowl. So we think that we're still going to have that this year, so it's still close to Valentine's Day. But now you have three selling days, Monday, Tuesday, and Wednesday, with people in their normal work routines and not having the distraction of the Super Bowl just 48 hours before Valentine's Day. So we're expecting all of those things will endure to our benefit. Also, we have to watch the weather carefully because that's a big variable. So nothing, we're excited that Valentine's Day is coming. It's a pain in the neck. As I've mentioned, I've been through a few of these. but we don't see anything trend-wise that would give us any concern or, frankly, any reason to get up and kick our heels.

Yeah, but Alex, you know, I mean, while our sales trend did improve in the second quarter, it didn't move, you know, at the pace of recovery that, you know, that we had anticipated. So it's still a little softer than we wanted it to be. And, you know, as a result, you know, our second half of the year, which we had, you know, originally thought to be, you know, at a faster improvement than we currently see. That's why we changed our guidance.

Okay, that's very helpful. Thank you both.

Thanks, Alex.

And, ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Jim McCann for any closing remarks.

Well, thanks so much for your time and interest today. Please let us know if you have any other questions. We're available to answer them for you. Please reach out. And do remember, as Alex just mentioned, Valentine's Day is fast approaching. Today is February 1st. Valentine's Day is the 14th. Valentine's weekend begins around the 8th or 9th. So make sure the people in your life that you care about know how much you care for them. Thanks for your time today.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.