1-800-Flowers.Com Inc
NASDAQ:FLWS
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1-800-Flowers.Com Inc
Earnings Call Analysis
Summary
Q4-2024
In fiscal 2024, the company faced a revenue decline of around 9%, influenced by challenging macroeconomic conditions. However, gross margin significantly rebounded, increasing by 260 basis points to 40.1%, thanks to cost management and operational efficiencies. Despite a net loss of $6.1 million for the fiscal year, adjusted EBITDA grew to $93.1 million. Looking ahead, the company anticipates revenue trends to benefit from strategic investments and expects gross margin improvement to continue, albeit at a slower rate.
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Good morning, and welcome to the 1-800-FLOWERS.COM Fiscal 2024 Fourth Quarter and Year-End Earnings Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Andy Milevoj, Senior Vice President, Investor Relations. Please go ahead.
Good morning. and welcome to our fiscal 2024 fourth quarter and year-end earnings call. Joining us today are Jim McCann, Chairman and CEO; Tom Hartnett, President; Bill Shea, Chief Financial Officer; and James [ Langrock ], Chief Administrative Officer.
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 and 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. Thanks for joining us. Before we dive into our review, I wanted to begin with this morning's announcement that Bill Shea has confirmed his plans to retire this December. First and foremost, I'd like to congratulate Bill on his upcoming retirement and to thank him for his 3 decades of tireless commitment to our company. Bill has been a terrific partner to me and a tremendous asset to our company during a period of incredible growth and transformation. Bill was instrumental in overseeing our financial operations, fostering great relationships with our lending partners and maintaining a strong balance sheet. During Bill's tenure, our company grew from a multichannel floral retailer with approximately $150 million in revenue to a technology platform the thoughtful gifting comprised of all-star roster branch with over $1.8 billion in revenue. Bill, thank you for all that you've done for 1-800-FLOWERS.COM. We issue all the best on your retirement and hope your retirement is still with joyous time with your family and friends.
I also want to take this opportunity to introduce James [ Langrock ], who joined our company as Chief Administrative Officer earlier this year and will become our CFO upon Bill's retirement. James came to us with tremendous industry and financial background having been CFO of the public companies involved both in the food and technology industries. We're glad to have James on board to help lead the next chapter of our company's growth. James will get to know many of you in the days ahead. And now let's turn to our performance.
As we turn our sights on the fiscal year ahead, we think it's important to begin by reflecting on our performance and execution against our strategic initiatives over the past year and how it sets the stage for fiscal '25 and beyond. This includes a macro consumer environment that's been -- that we've been navigating, the resilience that we've demonstrated in our results and how we positioned ourselves for the future. Top line challenges for fiscal '24 certainly persisted longer than anticipated during this year. If we were to rewind the clock back 12 months, broader conversations we're focused on how many rate cuts we had to see throughout fiscal '24. Instead, we're still waiting for the first rate cut and we experienced a macro environment that remains challenging for many, especially lower-income households who were the most impacted by the higher interest rates and persistent inflation.
While our revenues declined in the face of those macro conditions, our gross margin was a real story in fiscal '24, having rebounded significantly. This is a testament to our focus on cost management and operational efficiencies, combined with a reversion to the mean of certain commodity costs. Our ability to adapt quickly to changing mark conditions has been crucial in this regard. As a result, our year-over-year EBITDA grew to $93 million. As we look to the future, we remain optimistic. Our gross margin recovery is well underway and our efforts to operate more efficiently are now evergreen. We've also been investing in our business. And this morning, you will hear how we plan to harvest these investments in fiscal 2025 to improve our top line trends.
While acknowledging of consumer discretionary spending environment that remains challenging, we believe that our strategic investments in key areas differentiate us and will increase frequency and retention as customers come to us as their gifting destination of choice. We are committed to driving long-term growth, pursuing innovation and enhancing shareholder value.
And now I'll turn the call over to Tom for a business update to discuss some of the opportunities that we're focused on to improve our revenue trends in fiscal '25 and drive our longer-term value creation.
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 development, which encompasses new or enhanced product offerings, our merchandising efforts as well as our user interface enhancements. Through these initiatives, we continuously evaluate our offerings, pricing and bundling opportunities to ensure we have appropriate price points for each of our customer segments. And that we are actively managing the pricing elasticity of our product portfolio.
Turning to our performance. Heading into fiscal 2024, we anticipated that the broader macro environment would improve as the year progressed, in turn, improving our top line trends. Additionally, we anticipated a sizable improvement in our gross margin. While our expectations for top line improvement has not occurred as quickly as we had anticipated. Our gross margin recovery on the other hand, occurred at a faster pace than initially expected. Our gross margin recovery benefited from our efforts to operate more efficiently, combined with the decline of certain commodity costs. As a result, we're able to grow adjusted EBITDA to $93.1 million despite the decline in revenues.
In fiscal '24, we had over 10 million customers and approximately 1.1 million Celebrations Passport members. By focusing on the frequency and retention of our existing customer base, sales from existing customers represented 74% of our revenue in fiscal 2024. We continue to believe there is tremendous opportunity in increasing the lifetime value of our existing customer base by converting them into multi-brand customers. Multi-brand customers currently represent approximately 13% of our customer base, yet they account for approximately 28% of our revenue. As we discussed in some detail over the past year, we saw a sizable stratification between our lower and higher income consumers. With our lower income consumers being more affected by higher interest rates, higher credit card debt and persistent inflation.
In response, we've been leaning into our pricing elasticity efforts to ensure we have gifts for customers throughout the income spectrum. Beyond pricing, we're focused on expanding our product portfolio both organically through the launch of adjacent products such as introducing [ Wolfe Mint ] New York Bagels and Cheryl's ice cream as well as through acquisitions such as the Card Isle acquisition that further propelled us into the greeting card category. We now have a thoughtful and personalized greeting card mailed through someone through our platform for essentially the same price as buying a greeting card at a convenience store.
As we turn to fiscal 2025, we expect our top line trends to benefit from our relationship innovation efforts and the acquisitions that we have made over the last couple of years that have expanded and enhanced our platform. As an example, we believe there is an opportunity to grow our corporate gifting business through our SmartGift initiative. Although the consumer environment remains complex and dynamic, we believe we can leverage these investments, which, when combined with marketing investments, can contribute to an improvement in our top line trends. Additionally, we expect our wholesale revenue to grow based on the orders our partners at place for the upcoming holiday season. Let's take a moment to discuss some of the revenue-driving initiatives in more detail.
As I mentioned earlier, in fiscal 2024, we experienced a bifurcation of our customer file by income level. In response, we further examined our pricing elasticity efforts and broaden our price points to ensure we are satisfying our customers' gifting needs. For our customers who are more price sensitive, we're providing more value offerings. A great example of this is our bouquet-the-month offering. This new offering features a bouquet flowers at all in price of $50, which is inclusive of our shipping fees. This program enables us not only to provide great value for our customers, but also provides a new way for us to partner with our farmers and provide more value to them by further leveraging our supply chain.
On the other end of the income spectrum, we will continue to lean into higher value bundles in some of our higher end brands. Since acquiring things remembered, we successfully integrated the brand onto our platform and have been building out its product portfolio, which appeals to a more affluent customer. With that in place, we plan to accelerate the sales growth that we've experienced since acquisition.
To further enhance our product portfolio in July, we acquired [ Schafenberger ] and produced high-end extraordinary chocolates. This is another great tuck-in acquisition for us. We plan to grow [ Schafenberger ] by introducing their legendary brand, which is well known to chocolatiers to our customers by including their chocolate and our gift assortments from our family of brands. Additionally, as I mentioned on our last call, we continue to lean into one of our main differentiators last mile delivery. Beyond flowers and Shari's Berries, we will continue to expand the availability of additional products from our family of brands, such as Cheryl's cookies and 100 baskets to offer more gifting options for those last minute occasions. I look forward to keeping you apprised of these in our other initiatives throughout the fiscal year. Now I'll turn it over to Bill to provide the financial review.
Thanks, Tom, and good morning, everyone. Fiscal 2024 proved to be the year of our gross margin recovery. On a fiscal year basis, our gross margin increased 260 basis points, bringing us to 40.1% for fiscal '24. For the fourth quarter, our gross margin improved to 38.4%, increasing 130 basis points as we began to lap the improvement of a year ago. We've now recovered a meaningful portion of our gross margin that had been eroded over the last few years due to the supply chain challenges and higher ocean freight commodity costs and labor costs. But the job is not done.
Over the next few fiscal years, we expect to return to our historical gross margin rate in the low 40% range as certain commodity costs continue to revert to their [ mean ] and our evergreen Work smarter initiatives focused on operating more efficiently continues to yield future benefits. Our gross margin recovery helped mitigate the dynamic consumer environment that we have been navigating throughout fiscal 2024. Jim highlighted, we had expected the broader macro environment to become more supportive as fiscal 2024 progress, which did not occur and had a disproportionate impact on our lower income customers. As a result, our revenues declined 9.5% and 9.2% for the fourth quarter and fiscal year, respectively.
As more price-sensitive consumers continue to pull back our higher income customers comprised a greater portion of our revenues and they gravitated towards our higher priced items that led to a 2.9% increase in our AOV for the quarter and 2.7% for the fiscal year. As a component of our work smarter initiatives, our organization remains steadfast in managing expenses. And despite the inflationary environment we are operating within, we reduced operating expenses by $22.2 million for the fiscal year, when excluding our impairment and other nonrecurring charges as well as the impact of our nonqualified deferred compensation plan in both periods. As a result of our gross margin recovery and expense optimization efforts, our fiscal '24 adjusted EBITDA improved $1.9 million to $93.1 million, offsetting the decline in revenue. For the fourth quarter, the adjusted EBITDA loss increased by $2.2 million to $8.8 million. Net loss was $20.9 million or $0.32 per share and $6.1 million or $0.09 per share for the fourth quarter and fiscal year, respectively. For the quarter, the adjusted net loss was $21.8 million or $0.34 per share. And the adjusted net income for the fiscal year was $11.6 million or $0.18 per share. Now let's review our segment results.
For the fourth quarter, our Gourmet Food and Gift Baskets segment revenues declined 12.8% to $105.2 million. Gross profit margin increased 190 basis points to 30% and benefiting from lower freight costs, the company's inventory and labor optimization efforts as well as a decline in certain commodity costs. As a result, the segment contribution margin loss was $14.4 million compared with a loss of $13.4 million in the prior year period. For the full fiscal year, revenues declined to $874.3 million. Gross profit margin increased 340 basis points to 38.3%, once again benefiting from lower freight costs company's inventory and labor optimization efforts as well as a decline in certain commodity costs. Adjusted segment contribution margin increased to $85 million compared with $77.5 million in the prior year. For the fourth quarter, our consumer floral and gift segment revenues declined 6.7% to $231.6 million. Gross profit margin increased 20 basis points to 40.8%, improving on lower fulfillment costs and our logistics optimization efforts. As a result, segment contribution margin declined to $25.7 million compared with $30.7 million in the prior year.
For the fiscal year, revenues decreased 7.7% to $849.8 million, is profit margin increased 130 basis points to 40.8%, benefiting from lower fulfillment costs and our logistic optimization efforts. As a result, segment contribution margin was $87.7 million compared with $95.5 million in the prior year. Turning to our BloomNet segment.
Revenues for the quarter and fiscal year were impacted for the lower order volume processed by BloomNet, which included an expected decline in orders by one of our business partners following their merger with a competitor. For the fourth quarter, revenues declined 18.7% to $24.4 million. Profit margin increased 710 basis points to 49.7%, also benefiting from lower ocean freight costs as well as product mix. As a result, seven contribution margin was $7.8 million compared with $7.4 million in the prior year period. For fiscal year revenues decreased 19.1% to $107.8 million. Gross profit margin increased 550 basis points to 48.2%, primarily reflecting lower volume of lower-margin orders, lower ocean freight costs as well as product mix. Adjusted segment contribution margin was $33.8 million compared with $37.2 million in the prior year. Turning to our balance sheet at fiscal year-end.
Our cash and investment position was $159.4 million compared with $126.8 million a year ago. Inventory declined to $176.6 million compared with inventory of $191.3 million at the end of last fiscal year. And in terms of debt, we had $190 million in term debt and no borrowings under our revolving credit facility. As a result, our net debt was $30.6 million compared with $73.2 million at the end of last year. Now let's turn to our fiscal '25 guidance.
Over the last few years, our company has made investments to significantly expand our offerings and improve the customer experience through organic growth and acquisitions. For fiscal '25, we expect our top line trends to benefit from these investments that have expanded and enhanced our platform. While it's difficult to predict when consumers will increase their discretionary spending, we plan to leverage our pricing elasticity to ensure we have gifts to serve each of our customer segments. Additionally, our wholesale business is expected to rebound as our partners have already placed and increase their gift basket holiday season orders as compared to fiscal 2024.
Following a significant rebound in fiscal 2024, we expect our gross margin to continue to improve but at a slowing rate of improvement. We expect the improvement to be in the tens of basis points, which is on top of the 260 basis point improvement in fiscal 2024. This reflects the cross currents we are experiencing in the commodities markets. Certain commodity prices have reverted to the mean or others remain relatively high, including cocoa prices, which have actually increased. Additionally, we plan to increase our marketing spend to further enhance our relationship innovation investments.
Lastly, our guidance assumes increased incentive compensation expense in fiscal '25 and as compared to a partial bonus payout in fiscal '24. Based on these assumptions, we expect total revenue on a percentage basis to be in the range of flat to a low single-digit decline as compared with the prior year. We expect our revenue trends to improve as the year progresses with some minus sequential improvement in Q1 of fiscal '25 that accelerates as the year progresses. Adjusted EBITDA is expected to be in the range of $85 million to $95 million, and free cash flow will continue to be strong in an expected range of $45 million to $55 million.
Before I turn the call back to Jim for his closing remarks and Q&A. And to follow up on Jim's comments earlier on this call, I'd like to take a moment to say thank you. for everyone at 1-800-FLOWERS for so many great years and memories. I'd also like to thank many of you who have come to know quite well over the many years that we have worked together. It's been an absolute honor to work for such a great company whose mission is to bring people together and deliver smiles.
I'd also like to take this moment to welcome James on board. James is a tremendous addition, who brings a wealth of experience to 1-800-FLOWERS leadership team. I'll be partnering with James over the next 4 months to ensure a seamless transition as he takes over the CFO role upon my retirement at the end of December. Now I'll turn the call back to Jim for his closing remarks before we open it up for Q&A.
Thank you, Bill, and thanks again for your great partnership over these several decades now. But before I turn the call over for our Q&A, I'd like to briefly ask James if you take this opportunity to introduce yourself to our investor community. James?
Thanks, Jim, and good morning, everyone. I'd like to start by saying how excited I am to be part of the team. I look forward to meeting many of you in the months ahead as well as reconnecting with those whom I know from my prior roles. The entire 1-800-FLOWERS organization has been incredibly welcoming since my arrival. I look forward to partnering with Bill and the rest of our management team as I transition into the CFO role. .
Since joining this organization, I observed the growth-oriented mindset of the entire enterprise, providing our customers with a growing number of opportunities to express their sentiments and stay connected with the most important people in their lives. Over the last few months, I've been visiting our various facilities to get a much deeper appreciation of the scope of our businesses, including how we harvest pairs and peaches from our own orchards, take many of our own goods create personalized products within hours of an order being received and partner with thousands of florists to help deliver smiles. Through these visits, I quickly saw how our market-leading family of brands combined with our cutting-edge technology, positions us very well to be the gifting destination of choice for our customers and for continued long-term growth. I look forward to keeping all of you apprised on our performance and progress. Now back to Jim.
Thanks, James. It's great to have you on board. As we go through this transition period, Bill and James will both be on our next earnings call towards the end of October, and then James will lead the following earnings call that we host toward the end of January. And with that, I'll open the call up for questions and invite the operator to please give instructions now.
We will now begin the question-answer session. [Operator Instructions]. The first question today comes from Anthony Lebiedzinski with Sidoti.
Bill, congratulations on your pending retirement. I certainly enjoyed working with you for many years, and James I look forward to working with you as well. So I guess, first, just looking at the quarter here, so GFGB revenue decline of 13% was most surprising to us. And Harry and David is the largest brand within that segment, which generally targets a higher-income consumer. So you guys talked about seeing weakness in lower-income consumers, which is understandable. But I just wanted to kind of like as you look at the different brands, maybe you could just talk more a little bit as far as where you're seeing the biggest kind of weakness? And then where are you seeing some signs of strength?
Thanks for your question. It's Jim. By the way, the best pronunciation of your last name we ever heard.
Great.
I'll ask Tom to start the [indiscernible] and Bill, I want to contribute to it.
Yes, I think part of it, Anthony, was just the shift in the Easter placement. So the Q3 was stronger with just the Easter placement. And with the...
[indiscernible] that Easter was the last -- the Easter itself is the first day of the fourth quarter. So all of the sales that happened in GFGB for Easter happen in the third quarter. So that will skew it some. But Tom?
And I think the other part of it is as we were moving into the holiday, I mean, moving into the fourth quarter, we were seeing A lot of our advertising efforts not be formative and working as well as we like on the GFGB side. And so we chose to make certain adjustments in a marketing schedule in order to focus there on the bottom line there.
Anthony, I think if you take a bigger picture of where our revenue trends are pretty comfortable year-over-year down about 9% both years. But if you pull out wholesale, was wholesale, we had a very good year in...
Disproportionately in GFGB.
Yes. Right. But wholesale was a strong year in '23, a down year in '24, and then we have a bouncing back in the upcoming a year. If you look at e-com pull wholesale and you look at kind of just the e-commerce trends, we were down 9.8% in '23. We were down 7.5% this past year. And if you break up, and we've talked about this a lot, you got to always look at us as two different halves of the year, the first half of the year and the second half of the year. our e-commerce in the first half of the year was down 7.9%. E-commerce actually overall in the second half of the year, down 6.8%. So wholesale kind of distorts the numbers a little bit, but the e-commerce trend is actually improving in the second half of the year versus the first half of the year.
Got it. All right. That's very helpful. And just a follow-up on the wholesale side. So glad to hear that you expect that component of your revenue to be up in fiscal '25. As far as timing of that, I know that can fluctuate between 1Q and 2Q. What is your general sense as to when you'll see that pickup in revenue, whether it's going to be more 1Q or 2Q? Or is it too early to say for sure?
Definitely be Q2. There's always the timing at the end of Q1 into Q2. So we're still -- and that's sometimes dictated by the big box guys. -- but the growth will all be in Q2. A large majority of those revenues are in Q2 anyway.
So the good news is we know it's coming because we've booked the business. just a question of shipping dates that they request, and that's right around the end of the first quarter. So as Bill said, you're going to see the improvement that we've budgeted for a planned and now have come in second quarter.
Got you. Okay. And then just overall, in terms of the different initiatives that you've laid out, Abid, I guess how would you rank them as far as being the most impactful for you guys? As far as how revenue will improve as the year progresses maybe if you could just kind of walk us through and prior, like give us a sense as to like which of the initiatives will be the most impactful and so on.
Well, overall, I'd say that the things that the initiatives that we have the most promise and are betting behind the most are all around our relationship innovation efforts, the way that we interact with our customers the way they interact with us. A lot of it on the direct marketing side, so as the engagement efforts we have, it's the tools we're introducing throughout this fiscal year to give them more and more sophisticated tools in terms of managing relationships and the like. So I would say primarily the improvements that we see going forward will be relationship innovation side. Of course, we're always focused and Bill will touch more on some of the operating efficiency efforts we have our work smarter initiatives. Work Smarter initiatives, as we described in the opening remarks, we now consider evergreen. And Bill will be focusing a lot of his time leading up to his retirement on really ramping up our Work Smarter initiatives. Want to touch on some of those?
Yes. But even with back on the revenue side, just the pricing elasticity that we've been efforting both on the high end, but also on the value oriented Tom made some comments in his formal remarks about the $50 kind of all-in floor bundles. But we have a lot of more products to address kind of the value consumer that's out there that has struggled the most. With respect to work smarter, we're continuing to implement initiatives, automation initiatives in our distribution centers are using AI on both the front end of the website to create a better customer journey and really on the back end with our customer service platform to reduce labor and be more efficient. But that's -- as Jim and Tom have indicated, those are kind of evergreen initiatives that will continue to generate savings for us going forward.
Got you. Okay. And then lastly for me before I pass it on to others. So you made a small acquisition of a high-end cholate company. Can you comment as far as like how to think about the impact of that? And plus also what is your appetite for additional acquisitions?
Sure, Anthony. Our appetite, I'll start with our appetite is kind of robust and the buffet is getting nicer. What I mean is because of the capital environment we're in, companies that have struggled to find a bottom line and don't have very close prospects are turning profitable, as you would well imagine, or struggling to find capital. that's made the inbound efforts to us a quite robust of late. So I think there'll be some opportunities, and certainly, there'll be some opportunities. We always have to manage our effort that to see if they really do pay off for us. There's always integration risk. There's obviously the capital side of things. But I think there's going to be a robust set of opportunities.
What we've done in the last 1.5 years or so on the acquisition side is buy things that really do rev up our primary initiatives. Our Work Smarter initiatives and our platform, they lever our platform. So let me turn to the 1 you mentioned [ Schafenberg ]. This is a brand, frankly, I looked at 15 years ago because of its terrific brand position, it's unique as it's high-quality product offerings. Another company, beat us to the punch there and bought back company. Fortunately, for us, it came back around. So it's very small. But everything about the story, everything about the brand, everything about its recipes, its unique product are still intact, has great people there. And coincidentally, it's only 10 minutes away from our facilities in Medford, Oregon where it was most recently located. So very easy for us to tuck in. And what do they need? They need the things that we have. our huge customer base, our e-commerce marketing capability or what we call House Media Anthony. So what I mean by that is inexpensive marketing opportunities that we have that are already a part of what we do. including them in our e-mail communications on our other websites, putting their products and our packaging, they're already working on where it's needed and necessary. So our gift baskets when they need a component of a high-end chocolate product, guess who it's going to be. So we have a number of ways of growing our brands. So we take a kernel that is a great brand, great recipes, great history we have. They have a good facility, but it can't handle much more volume than the couple of million dollars that they do now. We are going to have a 1 million square foot facility down the road with state-of-the-art very highly automated equipment that can take their very unique recipes and do it in a high-scale volume with no additional capital cost to us. So we have the things that they need.
And in terms of scale, that was the first part of your question. That will be a double or triple right out of the gate in terms of top line, but it's inconsequential when you think about our size. But in the 3 to 5 years from now, that will become a substantial business and be done capital efficiently with very little in marketing spend because we're able to lever the things we already do. That's a perfect example of the kind of things that are coming in more frequency to us now and makes us very excited because they are low risk, great extensions for our consumer our existing customer base wants a product like that, and we have the wherewithal to make it grow very efficiently and grow it into a substantial business. If we don't see a path to get a business on our platform, to $50 million to $100 million business in a 5-year time frame, we probably wouldn't spend any time on it. But I think that brand has the opportunity to grow over time to be a substantial contributor.
Yes. So Anthony, this year, it's going to be introduced to a lot of our customers via inclusion in the gift baskets that we sell. So modest this year, but then growing, as Jim indicated, we believe, substantially over the future.
The next question comes from Michael Kupinski with Noble Capital Markets.
Bill, let me offer my congratulations on your retirement. I can tell you that it's been a tremendous pleasure working with you over the years. and I'm going to miss you. And I want to welcome James as well. I look forward to working with you more closely, James. A couple of questions.
In terms of your guidance for 2025, Consumer confidence has always been a metric that we've always looked at in terms of revenue growth. And if you look at the consumer confidence has most recently been improving. And at the same time, your revenue growth for at least your initial guidance was pretty positive and instructive on looking for rate decreases, and it now appears that we're going to have rate decreases a little bit more timely now. It looks like the timetable has been set relatively set. I was wondering in terms of what gives you pause in terms of your revenue outlook for 2025 given those metrics that we've more closely watched in the past?
Thanks, Michael. It's Jim. I think the main thing that gives us pause is we were feeling pretty good until the last 3 weeks when we heard everybody else, be so cautious about the fourth calendar quarter, our second fiscal quarter. So just psychologically, it caused us to say, should we feel as good as we do. And -- but Bill, why don't you give Michael a little more color what went into the recipe for our guidance.
Yes. So our guidance is really based upon all the initiatives that we've been outlining and discussing over the last year or so that we think start coming to fruition this year. It's not based on an improvement in the macro economy. Certainly, when consumer confidence is high, companies like us that sell discretionary products do better. But we have not built that into our guidance. It really is based on our initiatives.
Yes. I layer on there, Michael, it's Tom. Again, I think our focus here in our -- what we put forth is based upon our relationship innovation efforts. It's those things that were within our control, our category expansion, our broadening price points or increase in same-day delivery of products or user experience. All those things are what is giving us confidence where we're portraying and putting forth our recommendation for this forthcoming year.
But we do believe, Michael, that this is going to build as the year goes on. The trend lines and we're not expecting much change in the trend lines in Q1 versus what we saw in the second half of last year. But as we build towards holiday, and we always do better at holiday and then in the second half of the year, we feel the trend lines will be much better.
Got you. And then regarding margins, obviously, you're expecting some improvement even though not as much as what we've had more recently. But some of the commodity prices, as you mentioned, have been kind of stubbornly high, cocoa, milk, eggs and so forth. And I was just wondering in terms of commodity prices, specifically, what are your thoughts in terms of how that goes into 2025?
Yes. I mean certain commodity costs, as you mentioned, have reverted back to the mean, wheat, corn, actually eggs, even sugar has come down and reverted back to the mean. But you also mentioned coco. Coco is at all-time highs or was at all-time highs. We luckily did lock in some pricing. It's an increase year-over-year, but we've locked in pricing for the next two holiday seasons at more modest increases, but it is an increase. Fuel continues to be high. And inbound and outbound freight continue to be cost us more year-over-year. Inbound freight, again, we've locked in pricing that are competitive, but the spot market is very high now. So it's hard if you go outside your contractual volumes in any particular month not to have increases on the inbound. So we factor all those items into the guidance for margin improvement, but much more modest than we saw last year. Again, last year, we increased 260 basis points well ahead of our original plan. So we already achieved over 40% gross margin. .
So we said it wouldn't be a linear march to return to our historical gross margins. We had a big jump last year -- we'll have a small improvement in gross margin this year. And Bill gave you the factors on the commodity impacts. In addition, we're going to spend more money on marketing this year because we're thinking the opportunity there is to improve our overall revenue trends. And that's going to be at the expense of more marketing spend.
The next question comes from Alex Fuhrman with Craig Allam Capital Group.
Bill, congratulations on your retirement. It's been great getting to know you over the last decade or so. I wanted to ask you guys, what have you been seeing in terms of customer acquisition costs? Obviously, there's been a lot going on with the Olympics and now the election. Curious if you think there might be an opportunity to accelerate efforts to go after new customers after the election?
I think that's very much the case. We've looking historically, we've been at this for a long time, elections, especially when they're very contentious and I can't remember the last one that wasn't, are distraction. Distraction from a public attention point of view, and there's so much money pouring to the markets to buy media space in radio, TV and certainly in every online media. So we're not expecting much of a change in our trend lines before the election, but we do think there's a significant opportunity post election for us to step a bit of market more meaningfully. Overall, I think, as we said, our marketing spend is budgeted to be up this year, and we think there's real good reason and a real opportunity there. We continue to gain market share in our core businesses. And I think the cost of acquisition of customers is one of the reasons for that because it is historically high and likely to stay there.
Yes, that's really helpful.
Yes, we see -- Alex, you see it moderating, but it won't be universally moderating. We -- I mean, obviously, we have a tremendous amount of lines in the water all the time, and we're measuring each one of those activities. So we have a pretty good idea what our playbook is going to be post election year.
The next question comes from Doug Lane with Water Tower Research.
Congratulations, Bill on the retirement. Just wanted to drill down on guidance here a little bit. The wholesale orders are encouraging for the December quarter. It's important for that quarter. And you mentioned in the first quarter, the September quarter is likely to be sort of continuing the trends in the second half of the last fiscal year. So that implies we'll see, hopefully, positive signs in front of some sales numbers in the last 3 quarters of this fiscal year. Do you think it could be as soon as the December quarter?
Yes. We saw -- we expect that the trend lines will start to improve in the second quarter, yes.
I mean actually, to have positive sales growth? Or is that more of a back half phenomenon?
Yes. We don't really break it down. I think it could be a meaningful improvement in the trend. We're not ready to declare victory yet though.
No. I get it. It's still a very uncertain environment out there. And also on the margins, I think it was asked earlier about commodity costs. And certainly, in the June quarter, the margins in the gourmet food and gift baskets were -- the one what I was expecting, I just wondered how much of that was because the sales were lower than expected or how much of that is because of some sort of a rise in the input cost front that you're unexpected -- that you were not expecting.
Well, again, I would say margins came in where we were expecting the top line was softer than we hoped for. But margins for the year came in very nicely. We're comping against in the fourth quarter already nicely improved margins a year ago in the fourth quarter. So the moderation of the improvement was expected on our side. certainly, as with greater sales, there's some leverage of fixed costs that help margins, but much more the impacts of margins of everything from commodity costs, inbound and outbound freight, labor, et cetera.
Okay. And then looking at the 25% guidance with sales flat to down and your EBITDA at or below this year's number. It seems like you're not really expecting much EBITDA margin improvement this year, maybe even some degradation despite modest gross margin improvement. So my reading is right that there's going to be an increase in marketing expenses over and above what you're going to gain from the gross profit margin improvement?
I think it's fair to say, Doug, that's fluid. We have given our guidance, and we've been broaden our range because we think there's some opportunity for growth. We're not able to exactly book the gain from that increased marketing spend, so you don't see much of that in there at all. So there is upside to what we're saying. It all depends on what the yield on that increased marketing spend will be.
Okay. Fair enough. That's helpful. Yes. That makes sense. And then you haven't really talked about personalization mall. That was a big acquisition for you. Maybe it hasn't worked out quite as well as you anticipated, but still a big business. Can you just comment maybe, Tom, on how Personalization Mall is going, what your outlook is there for fiscal '25?
Yes. So certainly, the Personalization Mall brand was more impacted than many of our brands by the stratification of customers where we do have a higher portion of customers who are in that the lower household income for customers and personalization. We were -- we've been starting to see that gain traction. And I think the introduction of things remembered in the product portfolio where both brands and even though we go to market with both brands as separate brands. The product line is pretty fluid between those brands. And that's where we've also seen a nice pick up here. So it provides some more aspirational products for the Personalization Mall customer, and then like we said, we're seeing great promise for the things remembered brand and products in general.
So we go to market with the personalization business. with a few different brands. things, remember, being the most recent addition, Doug. And it's very much like [ Schafenberger ]. All we got was the IP, the intellectual property, the brand, the database of past customers and a couple of terrific people who came over to us, the Personalization Mall brand and business that we acquired, yes, a larger acquisition that we did that struggled, as Tom said, a little bit more than the rest of the house brands because of its focus on a more modest income customer. But with the introduction of things, remember, Tom and his team have positioned that as a more aspirational higher-end brand. And so what we have is we got the box, the facility, the high-tech, very well-run facility. And we were able to take an intellectual property acquisition bolted on the front of that. And as we've had time now to source the inventory, get it into stock, use that same efficient, very well-run machine we're able to grow that. So Tom and all of us are optimistic about our personalization businesses this year, but it's a multi-brand strategy using one core asset and facility to grow those businesses inexpensively in the same way we do in [ Schafenberger ], and with differentiation between brands.
The next question comes from Linda Bolton-Weiser with D.A. Davidson.
Yes. So Bill, congratulations on your great career and I certainly will miss you as well, and welcome to James in the new role. I was curious about -- just two questions for me. On BloomNet, can you remind us kind of when that impact of the loss of that customer or partnership or whatever, when does that anniversary? Like what's the time frame when that will be anniversaried? And then my second question is what your outlook is for kind of like the holiday labor situation this year, both in terms of rates and availability?
In on the first one, basically January 1, the contract ended December of last year. So we expect -- so the first two quarters, BloomNet will be down because of the lower orders. We're building more flow orders into BloomNet, and we think second half of the BloomNet will grow out. With respect to the labor situation, we've had last year, it's been was strong, and we're anticipating it being strong again. Early signs are that it is -- that seasonal labor force will be readily available for us.
We've already begun our harvest just about 8 days ago now on our per crop. We already peaches are coming to end. So we already have our labor in place and it seems it's good as last year.
And with steady economics, I guess, is the other piece of the that's the question you're asking.
This concludes our question-and-answer session. I would like to turn the conference back over to Jim McCann for any closing remarks.
Thank you, folks. And any additional questions, we're here to engage with you and help you in any way we can. I just want to add my thanks again. I appreciate all of you expressing your congratulations to Bill on his retirement. But enough about Bill. Bill has been my partner in out for more than 3 decades. He's been a terrific partner, and he's done a terrific job of helping us source his replacement, reenergize and reorganize our finance team. So we're in after good shape. James, you come into an easy role because everything is already set up for you. So you can coast in your first year in a row because Bill put us in terrific shape. So thank you, Bill. Congratulations, and welcome, James. Thank you. Thank you all again. We look forward to engaging with you on any questions or follow-up you may have.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.