Summary: ON SALE
Score: 17/20
MOS: 70%
Share Price: $30
Sticker Price: $105
Is 1-800-Flowers a good buy?
1-800-Flowers is an international floral and food gifts retailer founded in 1982 and based out of New York, NY.
The beginnings of 1-800-Flowers are inspirational. Founder, Jim McCann, grew up in an entrepreneurial family. His father, a painting contractor, inspired McCann to start something on his own. While going to school in 1974, McCann worked at a local bar. He invested in a rundown commercial building, fixed it up, and sold it for $10,000. At the time he was about 25 years old and he noticed a flower shop going out of business in his neighborhood. He decided to buy this business but he had much bigger plans than just the one shop. He noticed there wasn’t a McDonald’s for the flower industry and set his sights on a franchise model. Within six months he opened a second shop and soon after he already opened 30 more shops.
Before “.com” was popular, businesses were trying to get creative with phone numbers. Through a series of legal battles with other companies, including a trucking brokerage and another floral company, McCann eventually acquired the phone number 1-800-356-9377 (1-800-Flowers) but he also inherited $7M in liabilities. He was originally advised to file for bankruptcy to remove the liabilities but instead, he talked to the creditors and worked out a deal to pay them as he could, without suffocating the business. This strategy worked and he paid off the liabilities within 5 years.
In the 1990’s, two events launched 1-800-Flowers to national status. First, AT&T created an advertising campaign featuring 1-800-Flowers during the 1992 Summer Olympics. Second, during the Persian Gulf War, many advertisers pulled out of CNN, assuming viewership would decline. The exact opposite occurred and viewership skyrocketed and 1-800-Flowers capitalized on the opportunity to get in front of a large audience.
They registered the .com in 1995 and went public in 1999. Today, some of their brands include 1-800-baskets.com, BloomNet, Cheryl’s Cookies, Florists.com, Napco, The Popcorn Factory, and Shari’s Berries.
1-800-Flowers currently has over 125 retail locations in 31 states but they partner with 5,000 – 6,000 florists around the world to serve customers internationally. The company serves customers in about 120 countries including Australia, Canada, UK, Germany, Italy, the Philippines, Switzerland, Thailand, France, Japan, Mexico, and the US.
About 40% of revenue comes from flowers and 60% comes from gourmet food and gift baskets. You not only may gift flowers or gift baskets but you may also gift giant teddy bears, personalized keepsakes, chocolate-covered berries, and cookies.
1-800-Flowers is a repeat purchase business model that is popular every day of the year. Birthdays, weddings, funerals, holidays, corporate events, etc. With a highly intuitive eCommerce experience, customers from all over the world can deliver meaningful gifts with just a few simple clicks.
Here is what the news has to say.
This article from Yahoo Finance states that 1-800-Flowers has a strong earnings outlook. The EPS is expected to increase over the coming years.
This article from Yahoo Finance references a brilliant quote from Warren Buffett “If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.” This quote, and article, take a jab at investors that get caught up with stocks they know nothing about. Especially stocks with terrible financials. That’s why it’s important to invest in businesses you know and one business that isn’t too hard to understand is 1-800-Flowers. Not only is this a simple business model, but the article also makes reference to the increasing revenues and net income which are great signs for investors.
Here is how they stack up against the competition.
1-800-Flowers
Public
Revenue: $1.4B
teleflora
Private
Revenue: $353M
FTD
Private
Revenue: $1B
Gift Tree
Private
Revenue: $40M
Bloomnation
Private
Revenue: $15M
There doesn’t seem to be any major public competition. From a revenue standpoint, FTD is the only major competitor.
Now let’s take a look at the 4 M’s.
MOS (Margin of Safety): Tykr shows the financials are very strong. A score of 17/20 is impressive. When you take a closer look within Tykr, you’ll see the ROIC is 6/6, Equity GR is 3/3, EPS GR is 3/3, and Sales GR is 2/3. On top of the score, you can see the MOS is 70% which shows this stock has some upside potential.
Meaning: Will flowers and gifts be around in 10 years? Absolutely. Gifting will definitely be a business model in the future.
Moat: There are a few competitors in this space but the major differentiator is the network of 5,000 – 6,000 florists globally. As long as 1-800-Flowers provides strong financial incentives and a streamlined process, they will continue to work well with these partners. This is the key factor that makes this company a global powerhouse.
Management: Jim McCann founded the company but handed the reigns over to his brother Chris McCann in 2016. Prior to serving as CEO, Chris also served as President where he was a key driver in transforming 1-800-Flowers eCommerce, mobile, and social presence. Today, Jim serves as Executive Chairman and still provides some guidance as his younger brother Chris leads the company. They both have a strong focus on making an enjoyable customer experience which has been a key factor to the popularity of the company.
Now let’s take a look at the financials. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.
Revenue (Found on the Income Statement)
2017: $1.1B
2018: $1.1B
2019: $1.2B
2020: $1.4B
Revenue increased consistently.
Net Income (Found on the Income Statement)
2017: $44M
2018: $40M
2019: $34M
2020: $59M
Net Income increased significantly in 2020.
EPS (Found on the Income Statement)
2017: .65
2018: .61
2019: .54
2020: .92
EPS also increased significantly in 2020.
Free Cash Flow (Found on the Cash Flow Statement)
2017: $27M
2018: $25M
2019: $45M
2020: $104M
Free Cash Flow more than doubled in 2020. This is a healthy sign.
Total Assets (Found on the Balance Sheet)
2017: $552M
2018: $570M
2019: $606M
2020: $774M
Total Assets have increased significantly in 2020.
Total Liabilities (Found on the Balance Sheet)
2017: $270M
2018: $255M
2019: $263M
2020: $374M
Total Liabilities have increased which is okay.
Total Debt (Found on the Balance Sheet)
2017: $108M
2018: $102M
2019: $96M
2020: $95M
Total Debt has been decreasing which is a good sign.
Total Equity (Found on the Balance Sheet)
2017: $282M
2018: $314M
2019: $342M
2020: $399M
Total Equity has increased consistently which is a good sign.
With a score of 17/20 and a MOS of 70%, the financials are strong. When you look at the meaning, we know the flower and gifting industry will be around in 10 years. When you look at the moat, we do see a few competitors but nothing threatening at the public level today. When you look at the management, CEO Chris McCann is doing a great job leading this company.
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