GS report reiterates STRONG BUY, $34 price target
-- Courtesy Jordanite_98 from Yahoo's message board
DETAILS OF THE SECOND FISCAL QUARTER, 2000: 1-800-Flowers.com's 2Q'00 results demonstrate the
effectiveness of the company's strategy to drive online and non-floral sales, delivering higher gross and operating
margins. 2Q00 sales increased 34% YOY to $118.8m from $88.8m a year ago (YOY comps are the relevant metric
given FLWS's seasonality). Online sales grew 176% YOY to $29.7m from $10.8m in 2Q99. Telephone sales
increased 14% YOY to $77.6m from $68.0m in 2Q99, and retail sales increased 14% to $11.5m from $10.1m in
2Q99. Strong sales gains were driven by 806,000 new customers during the company's second strongest quarter
(behind the June quarter). Importantly, the stronger than expected growth in online sales did not come at the
expense of strong growth of phone sales, but was incremental, which highlights the convenience appeal of being able
to place an order via multiple channels. FLWS increased its online customer account base by 20% sequentially to
1.65 million customer accounts from 1.37 million customers at the end of the 1Q00 quarter (not restated). Online
sales, which provide better operating margins, increased to 25% of total sales up from 12% in 2Q99 and 20% last
quarter. Gross Margins were at 40.1%, better than our 39.6% estimate, and up from 37.1% last quarter. Non-floral
sales increased to 35.6% of total sales, triple the 10.9% in the year-ago quarter, and up from 25% last quarter. Non-floral
gross margins at 45% are better than floral at 39%, and we expect the mix to continue to shift toward greater
non-floral and online sales, as demonstrated this quarter. The non-floral market opportunity is $66 billion of the
company's $80 billion market. The company's balance sheet is strong with $153 million in cash & equivalents at
quarter, and FLWS has sufficient cash on hand through fiscal 2001.
OUTLOOK AND CATALYSTS: Near-term stock
catalysts include Valentine's Day, Mother's Day, secretary's week, Easter and Father's Day, increases in online sales
(which carry higher operating margins) and in non-floral sales (which carry higher gross margins).
VALUATION: FLWS presents an attractive risk/reward ratio, trading at a significant discount to our $34 price target,
which we arrived at based on the midpoint of three valuation techniques: DCF, sum of the parts price to sales, and price to gross profit.
INVESTMENT OPINION: In our view, FLWS has established itself as one of the top-tier e-Tailing companies with a
proven concept, solid management team that is poised to capture significant market share in the floral and gift
segments of e-Tailing. As the largest online floral retailer with a powerful and established brand name, integrated
network of florists, large and leverageable customer base, established fulfillment system and technology
infrastructure, and proven scalability, FLWS has the core capabilities for online selling in the $80 billion floral and gift
market as portions of the floral, garden, gift, home and gourmet categories move online. As the company executes
on its strategy of growing online and non-floral sales, 1-800-flowers.com will benefit from higher margins and
increasing ROIC. |
