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1-800-Flowers.com Inc (NASDAQ:FLWS)
Q3 2019 Earnings Call
April 30, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the 1-800-Flowers.Com.Inc Fiscal 2019 Third Quarter Results Conference Call. Today's conference is being recorded. After today's presentation there will be an opportunity to ask questions. (Operator Instructions)

I would now like to turn the conference over to Mr. Joe Pititto, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead sir.

Joseph Pititto -- Senior Vice President, Investor Relations and Corporate Communications

Thank you John. Good morning and thank you all for joining us today to discuss 1-800-Flowers.Com's financial results for our fiscal 2019 third quarter. For those of you who have not received the copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our corporate website at 1800flowersinc.com.

Our call today will begin with brief formal remarks and then we will open the call to your questions. Presenting today will be Chris McCann, CEO; and Bill Shea, CFO.

Before we begin, I need to remind everyone that some of the statements we will make today may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to our press release issued this morning as well as our SEC filings including the company's annual report on Form 10-K and quarterly reports on Form 10-Q.

In addition this morning we will discuss certain supplemental financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning.

Reconciliations for forward-looking figures with respect to our guidance, however, would require unreasonable efforts at this time because of uncertainity and variability of various necessary GAAP components. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call. Any recordings of today's call, the press release issued earlier today or in any of its SEC filings except as may be otherwise stated by the company.

I'll now turn the call over to Chris McCann.

Christopher G. McCann -- President and Chief Executive Officer

Good morning everyone. Thank you all for joining us. As you saw in our press release this morning during the fiscal third quarter we continued to drive strong revenue growth with total net revenues up 4.1% for the period. We also improved our gross profit margin and achieved bottom line results in terms of EBITDA and EPS ahead of our expectations. These results were achieved despite the shift of the Easter holiday into our fiscal fourth quarter compared with last year when the holiday fell in our fiscal third quarter.

The strong revenue growth for the quarter was driven by our floral businesses where the investments we have been making throughout the year enabled us to further extend our market leading position for the 1-800-Flowers brand, and continue to expand our market share position for BloomNet in the floral wire service business.

In Consumer Floral, the 1-800-Flowers brand achieved revenue growth of 7% for the quarter driven by a strong Valentine's holiday as well as the everyday gifting occasions. The strong growth reflected our ability to leverage our experience and expertise in digital marketing, our industry leading mobile platforms, our focused on delivering an unmatched customer experience and our truly original product designs including our new Magnificent Roses and our hot pink floral collection. Both big hits for the Valentine's Day and everyday occasions.

Our BloomNet business also continued its strong growth momentum with revenues up 15.1% for the quarter. This was driven primarily by double- digit growth in order volumes coming from the 1-800-Flowers brand, our member florist and third party online floral companies. In addition BloomNet's revenues for the quarter benefited from growth in its digital directory advertising sales, wholesale products and technology offerings including point-of-sale systems and digital marketing services.

In our Gourmet Foods and Gift Basket segment, where the shift of Easter has the largest impact, revenue for the quarter was down 3.8% compared with the prior year period. However, throughout the quarter, we saw strong revenue increases in everyday gifting occasions with Harry & David in 1-800 Baskets continuing to achieve strong growth in such occasions as birthday, sympathy, get well and thank you. We also continue to grow our customer files in both 1-800 Flowers and Harry & David, as well as growing membership in our Passport loyalty program.

In addition throughout the quarter we continued to invest in innovations designed to enhance the customer experience. We expanded our rollout of lightning fast PWA technology to our Cheryl's mobile site. And we implemented a new faster checkout flow in widescreen format for the Cheryl's site. Following our recent launch on Samsung's big speed digital assistant, we launched an Android app in the Samsung app store. We launched an interactive virtual assistant for customers who choose to interact with us by phone or actually from a web link. This application seamlessly integrates artificial intelligence and human understanding to reduce average handle time and increase overall customer satisfaction. And then in the spirit of experimentation, we continue to experiment with new forms of technology to help our customers express themselves.

We launched what we call smart message. An augmented reality gift message feature available on the iOS mobile app. Looking ahead, the strong revenue and customer file growth momentum that we are seeing across our business, position us well for solid top and bottom line performance in the current fiscal fourth quarter and the years ahead.

I'll now turn the call over to Bill for a more detailed review of our results. Bill?

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Thanks Chris. As Chris noted we are very pleased with our top and bottom line results for the fiscal third quarter. Despite the shift with Easter holiday, we achieved revenue growth of 4.1%. This was ahead of our expectations and reflected strong customer demand for both the Valentine's Day holiday and everyday gifting occasions in our Consumer Floral and Gourmet Food and Gift Basket segments. Additionally we continue to see significant order volume growth in BloomNet.

Regarding our bottom line results for the quarter, which were also ahead of our expectations. The slightly higher loss and adjusted EBITDA and the flat EPS for the quarter were achieved while absorbing the Easter shift as well as year-over-year operating expense increases associated with the assumption of a full bonus payout for fiscal 2019 compared with a significantly reduced payout in the prior year, and the increased investments we have discussed in past calls in marketing for the 1-800 Flowers and Harry & David brands to drive accelerated growth and the investment to launch our newest brand, Goodsey. These top and bottom line results illustrate the effective execution of our strategy to accelerate revenue growth as well as the enhanced leverage we have in our operating platform.

Now breaking down the third quarter results. In terms of revenues, total consolidated revenues of $248.4 million grew 4.1% compared with $238.5 million in the prior period. Gross margin for the quarter improved 10 basis points to 39.3% compared with 39.2% in the prior year period. This reflected increased gross margin in our Gourmet Food and Gift Basket segment which more than offset lower gross margins in our Consumer Floral and BloomNet segments. It is worth noting that Gourmet Food and Gift Basket margins in the second half of the year are not impacted by seasonal labor, which as we have noted in previous calls is the largest headwind impacting gross margins across the company.

Operating expenses as a percent of total revenues increased 70 basis points to 45.1% compared with 44.4% in the prior year period. This reflected year-over-year cost increases that I mentioned earlier as well as the impact of the Easter shift. The combination of our strong revenue growth, stable gross margin and higher operating costs resulted in adjusted EBITDA loss of $4.4 million compared with an adjusted EBITDA loss of $3.6 million in the prior year period.

Net loss for the quarter was $8.2 million or $0.13 per share, essentially unchanged compared with a net loss of $8.5 million or $0.13 per share in the prior year period.

In terms of category results. In our Gourmet Food and Gift Basket segment, revenues for the quarter was $75.4 million down 3.8% compared with $78.5 million in the prior year period reflecting the shift of the Easter holiday into our fourth quarter this year. The impact of the Easter shift, the majority of which occurs in this segment was somewhat offset by continued strong growth in everyday gifting and Harry & David and 100 Baskets.

Gross margin for the quarter increased 180 basis points to 35.6% compared with 33.8% in the prior year period. The improved gross margin reflected continuing benefits associated with our logistic initiatives to reduce shipping and transportation costs, as well as the digit pricing programs. As a result of these factors segment contribution loss improved 18.3% to $7.2 million compared with $8.8 million in the prior year period.

In Consumer Floral. Revenues increased 6.7% to $144.8 million compared with a $135.8 million in the prior year period. This reflected strong growth for the Valentine's holiday as well as for everyday gifting occasions throughout the -- throughout the quarter. Gross margin for the quarter was 38.9% down 70 basis points compared with 39.6% in the prior period. This reflected the increased promotional nature of the Valentine's Day holiday, combined with strong growth in our Passport program. Segment contribution margin was $15.4 million, down 5.3% compared with $16.2 million in the prior period. This primarily reflected the impact of Easter shift combined with our continued marketing investments to drive revenue growth and the launch of Goodsey, and higher bonus expense.

In BloomNet, revenues for the quarter increased 15.1% to $28.2 million compared with $24.5 million in the prior year period, primarily reflecting strong order volume growth. Gross margin for the quarter was 49.9% down 290 basis points compared with gross margin of 52.8% in the prior year primarily reflecting product mix and our continued investments to drive order volume growth. Segment contribution margin increased 12.3% to $9.5 million compared with $8.4 million in the prior year period.

In terms of corporate expense. Our segment contribution results exclude costs associated with the companies enterprise shared services platform which includes among other services IT, HR, finance, legal and executive. These functions are operated under a centralized management platform providing support services to the entire organization. For the fiscal third quarter, corporate expense including stock based compensation was $25.2 million compared with $20.4 million in the prior year period. The increase in corporate expense was largely attributable to year-over-year increases in performance based compensation of cash bonuses and stock based compensation.

Turning to our balance sheet. At the end of third quarter, our cash and investment position was $206.4 million. Our term debt balance net of deferred financing costs was $95.8 million and we had zero borrowings outstanding under the working capital line within our revolving credit facility. As a result, total net cash at the end of the quarter was $110.6 million. Inventory at the end of the quarter was $74.4 million and was in line with management's expectations.

Regarding guidance. We are updating our guidance for fiscal 2019 based on the strong results of the first nine months of the fiscal year and our expectation for solid performance in the current fiscal fourth quarter which includes Easter and a Mother's Day holiday. Updating guidance for fiscal 2019 is as follows. Consolidated revenue growth is now expected to be at the high end of our previously stated range of 7% to 8%. We are increasing our guidance for EPS to a range of $0.49 to $0.50 per diluted share from our previous range of $0.44 to $0.46 per diluted share. Adjusted EBITDA is now expected to be at the high end of our previously stated range of $80 million to $82 million, and free cash flow is now expected to be at the high end of our previously stated range of $30 million to $40 million.

And now I'll turn the call back to Chris.

Christopher G. McCann -- President and Chief Executive Officer

Thanks Bill. So to sum up, we are pleased with our top and bottom line results for the fiscal third quarter. In terms of revenues, we achieved strong growth for the Valentine holiday, further expanding our market leading position for the 1-800-Flowers brand and growing our market share for BloomNet. In addition, we continue to see strong growth throughout the quarter in everyday gifting occasions for 1-800-Flowers, Harry & David and 1-800-Baskets. The combination of growth in these areas more than offset the impact of these to shift. Importantly, in addition to the solid revenue growth in the quarter, we also continue to grow our customer file across the enterprise. This revenue and customer file growth reflects our focus on providing truly original products which our customers are clearly resonating with, as well as innovative enhancements to the customer experience from our industry leading mobile platforms to our digital self-service portal.

In terms of our bottom line results, both for the quarter and the first nine months of the fiscal year, we are seeing good returns on our increased marketing investments, with growth continuing to exceed our expectations. This combined with the enhanced leverage we have in our business model is helping us achieve enhanced cash flows as well as increasing earnings. As we head into our fiscal fourth quarter which includes Easter and Mother's Day along with a long list of spring holidays and everyday gifting occasions, we have strong growth momentum across all three of our business segments. As a result, we are well positioned to deliver enhanced shareholder value for the quarter and for the full fiscal year.

I'd like to thank a moment -- take a moment to thank our team, including all of our associates across the company for their passion and their focus on continuing to expand our celebratory ecosystem, to help us deliver on our vision, to inspire more human expression, connection and celebration and help deliver smiles for our customers.

With that let me turn the call over to John, so that we can take your questions. John?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And we will now take our first question from Alex Fuhrman of Craig-Hallum Capital Group. Please go ahead, your line is open.

Alex Fuhrman -- Craig-Hallum Capital Group -- Analyst

Great. Thanks very much for taking my question. Congratulations on a really nice start to the calendar year here. You know, I'd love to just get a sense of as you talk about the different business segments obviously your guidance for the full year both on revenue and profitability has come up pretty nicely. Can you give us a sense of where that's coming from? Is it coming more from the Floral side, more from the Gourmet Food and Gift Basket side? And then just kind of related question as we think about kind of the March quarter and the June quarter together, kind of trying to eliminate the impact of the Easter shift. Can you give us a sense of how fast those two larger units and then I guess if you layer in BloomNet as well, how fast all of your your business segments have been growing so far in 2019?

Christopher G. McCann -- President and Chief Executive Officer

So, I'll take a stab at that to begin Alex, and thank you, and then I'll ask Bill to really cover the two quarters combined. The good news for us is where the growth is coming from is across the platform. I'll start with BloomNet, as you're seeing we're getting nice growth in BloomNet, we expect that to continue for some time to come yet. And on the consumer side it really is, as you saw in the first half of our fiscal year was really driven by the Gourmet Food side of the business.

The second half now you're seeing being driven by the Floral side of the business. So it gives us a nice balance there. And again the things that we did as we said, we were seeing really good customer behavior metrics in our file with probable focus -- focused programs on creating multi-brand customers, getting customers to sign up for Passport and other cross brand merchandising opportunities that we were giving our customers. So that gave us the impetus to really invest in the top of the funnel and bring more new customers into the ecosystem, really driven in the first half by Gourmet Food category, now really been driven in the second half by the Floral category. So you're seeing that kind of flywheel effect really start to work, and it's a combination of those things is what's propelling the growth. Bill do you want to comment on the two quarters combined?

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Yes. So, Alex, when you look at how we were on the first half of the year, we're a little above 8% growth where -- we're giving overall guidance now for the year at the high end of that 7% to 8% growth. So showing pretty consistent top line growth in the second half of the year. As Chris mentioned it does swing from a -- just from an overall concentration of where the revenue is onto the Floral side of the business in the second half of the -- second half of the year, but if you eliminate Easter with Q3 and Q4 combined, Consumer Floral is in that 7% range. BloomNet is in that mid-teen range and GFGB is probably as -- they are non season, so it's probably around like the 6% range. And those are pretty consistent numbers of what you saw in Q3 adjusted for the Easter -- the Easter holiday. You would have seen some of probably a little higher than that and it was indeed to be in that range adjusted for Easter.

Alex Fuhrman -- Craig-Hallum Capital Group -- Analyst

Okay. That's that's really helpful, thanks. And then just thinking about the Passport program that that you've been doing for the last couple of years here. See the full price is still about $30 per year. Is that something that you continue to be testing different price points and pulsing lower prices during key periods. Just curious as you think about opportunities to take market share in a more permanent basis over the next couple of years. How you view being promotional with the price of passport versus other forms of marketing?

Christopher G. McCann -- President and Chief Executive Officer

Yes. Passport we continue to experiment with what the optimal price point at different points in time Alex. We will run Passport at $19.99 promotion to bring in more customers into the fold than we do at $29.99. We're looking at saying how can we maybe test higher price points as well what else can we add in value. So it's an ongoing management of that program and development of that program. But what we're really thrilled to see is the growth -- the continued growth there. The customer behavior metrics continue to hold up. And then you really combine the Holy Grail right is kind of when we get a customer that's buying for more than one brand and they're joining Passport. We're seeing those retention rates up in the 80% to 90% range. That's just fantastic. So the more we can drive that kind of behavior, the more we will accelerate our growth rate.

Alex Fuhrman -- Craig-Hallum Capital Group -- Analyst

That's great. Thank you very much.

Operator

We will now take our next question from Linda Bolton wiser from D.A. Davidson. Please go ahead. Your line is open.

Linda Bolton Weiser -- D. A. Davidson & Co. -- Analyst

Hi. Congratulations on a strong quarter. So can I just ask in the corporate expense line, I think you did note it was a little -- it was up year-over-year because of increased compensation etc. But I thought a lot of the compensation increases were allocated to the business segments. So was there anything else in the corporate expense line that made it a little bit unusually high or is it just mainly the comp? Thanks.

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Linda it is mainly the comp, while there is some of the of the bonus dollars that actually gets allocated back to the individual segments, a big piece of it sits in corporate, in all of our stock based compensation sits in the corporate expense and again with our performance of a year ago we weren't really granting any performance shares a year ago. So our stock based compensation has increased this year as well and that all sits in corporate expense.

Linda Bolton Weiser -- D. A. Davidson & Co. -- Analyst

Okay. And then can I just ask you on the GFGB, I mean growth was pretty good, I think it was about 4% excluding the shift. Is that about right? And that's good but it's a little bit less growth than we saw last quarter. Is there anything in particular that slowed down and can you give us a little rank order just which brands grew the fastest and which were a little less fast? Thanks.

Christopher G. McCann -- President and Chief Executive Officer

So I'll start off and our style and I'll see if Bill add some details. This GFGB, again I think adjusted for Easter was in that mid single-digit range, if you adjust for Easter...

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

5% to 6%.

Christopher G. McCann -- President and Chief Executive Officer

It will be about 5% to 6%. And yes, well that's down a little bit from the last quarter. It is the slowest -- one of the slowest quarters of the year for GFGB just coming off the holiday season. We were thrilled to see the great momentum we had there in the holiday season, again that growth exceeding our expectations. So that was clearly in line, if not a little bit better than we expected for this quarter Q3 as well.

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Yes. And the drivers of that continue to be -- Harry & David is a big driver of the overall GFGB and 1-800-Baskets continues to perform extremely well. So those are the two kind of leaders in the overall growth.

Christopher G. McCann -- President and Chief Executive Officer

Especially the Harry & David e-commerce growth.

Linda Bolton Weiser -- D. A. Davidson & Co. -- Analyst

Okay. And then there seems to be some information out about a company called Terra Flowers taking a minority position in FTD. Can you tell us like what do you know about this Terra Flowers and do you have any suspicion as to why they may be taking an ownership in FTD, and does this affect like you're thinking on the competitive landscape at all in terms of this development? Thanks.

Christopher G. McCann -- President and Chief Executive Officer

Sure. So, Terra Flowers is a grower. Sole Farms, and the owner of Sole Farms or a grower in the industry but that's all we really know at this point and we've worked with them over the years. So I don't know of anything else new there. And really as we look at the competitive landscape, we're always going to see the competitive landscape change over time. If you look at us for the past several years now we've been taking market share as that landscape has been changing and shifting and we continue to do that. We continue to do that Linda by focusing on really what we do best. Our truly original products bringing great customer experience to the table, a caring team of people that are obsessed with customer service. So as we focus on those things and focus on growing our customers into our ecosystem, we're well positioned really as the competitive landscape starts to shift and perhaps we're driving some of that change.

Linda Bolton Weiser -- D. A. Davidson & Co. -- Analyst

And then finally can I just ask you on the BloomNet business, which is -- continues to be very strong. Are you seeing a change in the trend of the increase or decrease in your number of florist members? Is there any kind of change in that trend occurring yet?

Christopher G. McCann -- President and Chief Executive Officer

No, I wouldn't say we've seen any real change in trend of membership. I think you know what we've spoken about in the past is we're seeing their membership start to get more orders as we're attracting more orders coming into the system. And then as time goes on, we'll start to sell more products and services into the BloomNet shops -- and some of them into those BloomNet shops. Some of which I spoke to earlier in my formal remarks where we're seeing some growth in our wholesale product sales, in our digital directory sales we're seeing increases start to happen there, in our digital marketing services we're seeing increases happening there. So we're starting to see those and that's really what we need to do now as we go forward is monetize that increased order flow as we help out BloomNet members with products and services to compete more effectively in their local markets.

Linda Bolton Weiser -- D. A. Davidson & Co. -- Analyst

Okay. Thank you so much.

Christopher G. McCann -- President and Chief Executive Officer

Thank you.

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Thanks Linda.

Operator

We would now move to our next question from Michael Kupinski of Noble Capital Markets. Please go ahead your line is open.

Michael Kupinski -- Noble Financial Capital Market -- Analyst

Thank you and congratulations on a great quarter. Just following up on that last question real quick, the move by Terra Flowers with FTD, I know I asked them last quarter about the prospect of you guys maybe taking a look at some of the growers, and you -- I believe felt that it was a fragmented market. Does the move by Terra Flowers change that dynamic at all?

Christopher G. McCann -- President and Chief Executive Officer

No it doesn't. You know strategically as we look at our business and the way to go forward we have great relationships with the grower community. Tom Hartnett and I were just visiting with our primary growers a couple of weeks ago and just making sure things were ready for the Mother's Day season of course, but really looking at long-term strategic relationships that we have as well. So again, I'm not familiar with the move exactly being referenced. I'm not sure what that is. But it wouldn't change any of our strategic plans at all.

Michael Kupinski -- Noble Financial Capital Market -- Analyst

Got you. And in terms of how many shares did the company repurchase in the latest quarter. I don't know you may have said that, I may have missed it?

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Michael we actually were not in the market in this current quarter. We had purchased about 1.1 million shares and spent about $13 million in the first half of the year. We thought the stock was undervalued at that point in time and thought it was a good investment on our part to buyback the shares. So we'll buyback more shares than we needed to offset our stock based compensation which is always our goal, and we just did it in the first half of the year.

Michael Kupinski -- Noble Financial Capital Market -- Analyst

Got you. And you still have $12 million under your share repurchase authorization is that right?

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

That's correct.

Michael Kupinski -- Noble Financial Capital Market -- Analyst

Okay. And then what is your thought on the company's capital allocation at this point that I know that you've been building a pretty sizable cash award there. What are your thoughts? And maybe if you can add some color on your M&A pipeline?

Christopher G. McCann -- President and Chief Executive Officer

Sure. As I think as we look at our capital allocation right now really we're using it. We're using our cash to really help accelerate organic growth with the investments that we've made into our marketing initiatives, new brands that we've launched etc. So we're doing that. But at the same time I think over the years we've been very good stewards of our balance sheet and we'll continue to do so. We'll be judicious and thorough as we look at M&A opportunities.We see opportunities out there and we constantly are looking at them. And again it's -- we're looking for opportunities that can leverage our ecosystem or can add to our ecosystem. It's really helping with a focus on serving our customer base and expanding our customer base as well as -- as we're doing with the new customer acquisition we're doing, as well as expanding the number of times our customers will turn to our ecosystem for their -- all of their gifting needs.

So that seems to be working well and that's what we'll continue to focus our M&A investments. But keep in mind, we are focused on utilizing our under balanced -- our under leveraged balance sheet to make sure that we really return value to the shareholders.

Michael Kupinski -- Noble Financial Capital Market -- Analyst

Got you. And then...

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Hey Michael just...

Michael Kupinski -- Noble Financial Capital Market -- Analyst

Yes. I'm sorry.

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

I was just -- I was just going to say just that we did not buy in the third quarter does not mean we're not going to be in the market going forward. We will continue our premises, we'll buyback shares to offset any sort of share creep, so as we enter fiscal '20 we will be in the market again.

Michael Kupinski -- Noble Financial Capital Market -- Analyst

Got you. And I know that you guys have been spending a little bit more on marketing in your Consumer Floral but what's interesting is that your marketing and sales expenses as a percent of total company revenues has been consistent to actually slightly lower as a percent of revenues for the past couple of years. And I know that technology and development expenses have trended up as a percent of revenues. And I was just wondering if you could talk about that dynamic and the trends that you expect going forward, maybe as you go into the subsequent quarters?

Christopher G. McCann -- President and Chief Executive Officer

Yes. I think that's you know due to the fact that we -- what we stated is we're seeing good returns on our investments and they are a little ahead of our expectations on the first year of increasing and marketing investments in behind new customer acquisition. So we're seeing those good returns in producing the appropriate percentage that you're referencing. And again we're constantly utilizing our technology platform to increase the customer experience, to increase how we work with our customers, how we attract our customers, focusing on the mobile platform where the customer clearly is moving. So I think that trend will continue for a while where investments in technology help really enhance the customer experience which then makes our investments in new customer acquisition now much more fruitful.

Michael Kupinski -- Noble Financial Capital Market -- Analyst

And then just -- thank you for that. I was just wondering if you could talk a little bit about -- you mentioned about the borrowings being up and that's contributing to BloomNet and that's also as a function of your 1-800-Flowers. I was wondering is the number of flower shops in your network have -- can you talk a little bit about the trends there? I know that at one point I think you had 1,200 in your network and then you thought that there might be an opportunity to grow that. Where do you stand on that? Have you started to grow the number in your network or what -- where do we stand on that?

Christopher G. McCann -- President and Chief Executive Officer

So that number in our network has been stable for a while. That's usually generally in the 5,000 to 6,000 membership range. And that's kind of where we manage it to, because we really want to focus on the quality of the membership and the quality of the product that get -- ultimately gets delivered to the end user, to the recipients for our customers. And that's why when I mentioned earlier, where we start to turn our focuses, OK with that membership we want to keep it stable where it is making sure everybody is getting a good amount of orders to be happy with the membership they have. And then what other products and services can we bring to the table to help them compete more effectively in their local markets, whether it's leveraging our scale for wholesale product purchases, whether its marketing services to help them with search engine marketing, SEO optimization or it could be technology like websites or point-of-sale systems. So really that's what we're doing is looking at membership. We'll keep stable in that range and then increase the participation rate we have with our other products and services.

Michael Kupinski -- Noble Financial Capital Market -- Analyst

Got you. Okay. That's all I have. Thank you.

Christopher G. McCann -- President and Chief Executive Officer

Thank you Michael.

Operator

We will now move on to our next question from Dan Kronos of The Benchmark Company. Please go ahead. Your line is open.

Daniel Kurnos -- The Benchmark Company -- Analyst

Great thanks. Good morning. Chris, it's kind of a perfect segway into something I wanted to ask on sort of the tech stack. I know you gave a pretty good answer to Mike on his question on M&A, but I want to get a little bit deeper here on sort of the path forward. Look, you guys have a great track record here. You've taken a bunch of share, stocks worked phenomenally well and now the question is what we're seeing in a lot of other e-com plays right now, particularly in the hospitality space to name, one sort of poignant example right now are guys getting more vertically integrated into kind of the merchant touch points.

So I am curious sort of how you're weighing, spending your money and or flexing that balance sheet and expanding your customer profile so you get more touch points with a customer versus say getting more involved on merchant processing and just sort of remind us of kind of the five key tenants we know you touch point-of-sale and analytics, is that as deeply integrated as you are on sort of the merchant side and would you be willing to make a larger deal to get more involved on that side of the equation?

Christopher G. McCann -- President and Chief Executive Officer

No, as we look at our M&A strategy, I think as I mentioned we're always going to be very judicious in how we look at it. And we look at it in a series of adjacencies. So we really kind of first as -- what's -- what fits in the core. So, all the floral opportunities for us -- opportunities in the floral space. And if there are and that makes sense we'll look to make those acquisitions.

In the Gourmet Food category, clearly there are more opportunities for us to add more brands and products in the Gourmet Food category as well. We've seen a start to move into other product adjacencies with personalization universe, Goodsey, Simply Chocolate moving into other product adjacencies and we're always looking at what are those next level of adjacencies, as we start to get to the adjacency level two or three is where I think you'll start to see us look at other types of service offerings that our customers will find attractive.

Again, if you stick to the vision of looking for us to inspire more human expression, connection and celebration, what other tools whether it be technology tools or capabilities that we can bring besides the floral and gift products that we have to help our customers express themselves. So, that we can deepen the relationship we have with them even further. And what we see as that starts to pay off for us and we've begun to do that through Goodsey which is a marketplace platform. So, you know don't look at Goodsey so much as a brand that you would expect to see grow more and more. But look at it as a platform that allows us to bring more product categories onto our ecosystem to put in front of our customers. And as we're doing that, it's either through the marketplace concept and or through an M&A strategy.

Daniel Kurnos -- The Benchmark Company -- Analyst

How is the fact that almost anything that you would buy now will be value creative. Has that changed the parameters of what you're willing to look at from an M&A perspective. And I know that you want to be diligent sort to your existing shareholder base, but if the right deal came along obviously have plenty of room on the balance sheet. I mean, are you willing to use equity as a currency to go after something much larger if you could find something? Harry & David plus out they are not saying that it exists but just hypothetically?

Christopher G. McCann -- President and Chief Executive Officer

I think it's the responsibility to our shareholders. We would be open to that. We see if there was a big opportunity for us that could really create value. Certainly in the immediate term but if not in the short-term, we would love to utilize both combination of those stock and cash if that was what was necessary to get the deal done and provided the best wealth value creation opportunity, certainly we would look at that.

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Yes. But then just you know the combination of the cash we have on our balance sheet plus the under leverage balance sheet that we have we do have significant borrowing capacity based upon the performance of the company. So there is the ability to leverage our balance sheet and to transact a very large transaction just with cash if needed.

Christopher G. McCann -- President and Chief Executive Officer

All right. But sometimes stock might help the value creation model behind it so we would look at that.

Daniel Kurnos -- The Benchmark Company -- Analyst

Yes. Now I got it. Clearly most of stuff you're looking at you could do with cash or just trying to get a sense of where you're headed that. And then just last question from me on the investment front. One short-term, one long-term, just looking at kind of the remainder of the guide for the year and taking into account your historical conservatism here, it does seem like you're stepping on the gas a little bit on marketing around Mother's Day to get to sort of the high end of the guide with the implied revenue that you've got.

So I guess I want to ask Chris just you know obviously you're seeing better than expected returns on the top line. When does that kind of -- when does that volume translate through into incremental -- into more incremental leverage? Or do you have to keep sort of spending, ramping spend to keep revenue growth at the same level and then longer term we've talked about distribution. I mean is there a push. Is that an area of short term investment and long term return where you could dump a whole bunch of money into distribution and get over a two to three year period a significant uplift in that line item if you sort of enhance the efficiency in that process?

Christopher G. McCann -- President and Chief Executive Officer

So I think as we look at the marketing investment that we're seeing and I think you'll see that start to mature a little bit really as we move into our next fiscal year from a comp point of view. As I tried to reference earlier, we expect to keep our investment levels at the same. And again we're seeing better than we expected returns which should produce -- and that's why I'm specific on the floral side, really should produce an increasing gross margin where right now for the last quarter or two it decreased the gross margin percentage and we'll find doing that with what we're seeing from the customer behavior metrics. So as short term I think you can continue to see us do what we're doing now. Longer term that starts to again perform better from a bottom line as we comp that investment going forward. But I don't think it will change the top line trajectory at all. Bill?

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Yes, Dan, just a couple of points. One, obviously we updated -- we upgraded our guidance again and it's great to be updating our guidance for the second time this fiscal year. We've done that based upon the strong performance we had in the first nine months of the year plus our expectation for solid performance in the fourth quarter with Easter and Mother's Day in this quarter.

We've baked into our guidance for this year and our updated guidance, the investment plans that we've outlined in the past and investing behind 1-800-Flowers, investing behind having David, launching Goodsey and we've talked about the year-over-year comps that we have with some of the incentive comp that we have. That's all baked into our guidance and our updated guidance.

I think what we also discussed back on our Investor Day and we even stated at the beginning of the year that this year was going to be more of kind of the initial investment year while we want to continue to drive top line growth between Harry & David and 1-800-Flowers and take advantage of what's out there in the marketplace, we will start seeing better bottom line returns in fiscal '20 and '21 as we march toward that $100 million target in two years. So you will start seeing more of it come down to the bottom line.

Christopher G. McCann -- President and Chief Executive Officer

And a big contributor there is what we've been saying that investments been going behind building the customer file, and then getting the performance out of that customer file that we're seeing today. So that gives us sustainability.

Daniel Kurnos -- The Benchmark Company -- Analyst

All right. I get it. It makes sense, guys, I'm just -- you're in a position that dominate the marketplace and make sure that you have that stickiness. So I'm just trying to get a sense of whether or not it's worth it to invest a little bit more up front now for sort of that longer term return and I appreciate all the color and just -- so before I jump off Bill, did you actually mention what Harry & David e-com growth was in the quarter?

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

We did not. It continues to be very strong obviously because of the shift of Easter. It's below where that trend line has been, but if you account for kind of the Easter shift or you back out Easter from last year it's kind of -- it's still growing at a very nice pace, high single-digit almost double-digit e-commerce growth rate.

Daniel Kurnos -- The Benchmark Company -- Analyst

Got it. Thanks for all the color guys. I appreciate it.

Christopher G. McCann -- President and Chief Executive Officer

Thanks Dan.

Operator

(Operator Instructions) We will now take our next question from Anthony Lebiedzinski of Sidoti and Company. Please go ahead your line is open.

Anthony Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Yes. Good morning. And thank you for taking the questions. So obviously you've done a great job in all three of your segments particularly in BloomNet growing sales double-digits. A lot of that growth, last few quarters has come from increased florist orders. And I think you'll be anniversarying that actually pretty soon here. So as we move beyond that, how should that segment grow in your view kind of on a go forward basis after you get past the big surge in florist to florist orders?

Christopher G. McCann -- President and Chief Executive Officer

I think if you look at this over time Anthony, BloomNet is benefiting from the increased order volumes from again several different sources. The strong growth of 1-800-Flowers brand, the third-party online floral companies we've attracted, as well as our local florist BloomNet members in their shop-to-shop sending. We anticipate BloomNet will achieve strong growth going forward based on these rising order volumes and the subsequent opportunities to further monetize these through programs like we've mentioned, our enhanced digital marketing programs, offering SEO and SCM capabilities.

Digital directory features that we add that our florists are finding very useful to attract new opportunity, new orders -- new incoming orders. Expanded hard good offerings that we can provide florist, again, utilizing BloomNet scale to do that. So, these factors have allowed BloomNet to capture market share in the wired service space. And we believe this momentum will carry forward and we'll be able to continue to take market share if we stay diligent on what we're doing and focus on growing the 1-800-Flowers brand which helps focus, while it helps grow the BloomNet brand as well. So I think, you'll see that continue.

Anthony Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Got it. Thanks for that. And also I was wondering if you could provide some more details about the customer file growth that you mentioned at a few times that has grown but that I don't think you gave any specific numbers? And also any color on your AOV metrics?

Christopher G. McCann -- President and Chief Executive Officer

Yes. So I'm not sure on the AOV. I'll turn it to Bill, I don't know if we have that. But, yes, we didn't give any specific metrics. I think last quarter we gave a couple of metrics about the new customer file growth that we were seeing up around 12% at the end of last quarter. We didn't update it for this quarter again because the Easter shift would skew that anyway. But the trend continues for us. We're seeing good customer file growth overall for the enterprise, really being fed by a combination of our efforts to increase new customer acquisition, but also there's good strong efforts we're seeing behavior, we're seeing from existing customers as well as reactivated customers.

And then you feed that into what we're seeing with the Passport customer growth, the multi-brand customer growth, like I said, at the very high end, we've got a customer who's buying more than one brand in a joint support. We see that in the 80% to 90 % range which is just phenomenal. Now that's clearly at the very top of the pyramid, but the more we drive metrics like that through the file, and what we're seeing is the behavior to do so and the ability to do so, it takes time. But we're seeing it contribute to our growth rate now. So we're very happy with what we're seeing and what that pertains for the future years to come.

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

When you look at AOV, I mean AOV, is up slightly within each of the brands. So if you look at 1-800-Flowers or Harry & David in particular it's up in that, probably up like 1% or so. There is as a result of some mix with growth of some brands versus others when we -- when you compute a enterprise wide it's up actually a little bit more, so a couple of points. It's where we want it to be.

Anthony Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Got it. Yes. That's very helpful. And also I think Bill you mentioned that seasonal labor is your biggest issue. Anything else that you want to call out us as far as cost pressures that we should think about?

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Well while seasonal labor is our biggest headwind. Overall labor rates even for our core staff is a headwind because we're facing rising minimum wages as well. So labor continues to be a headwind throughout the year. Seasonal labor is the biggest one and that obviously affects Q1 and Q2. Tariffs have been kind of abated right now. So we've implemented some strategies. We took on inventory early on in the second quarter to address it in case tariffs kicked in for the second half of the year. So we have the second half of the year covered and Q4 covered. But if obviously if ultimately those come back into into play the round three kind of tariffs, that kind of get pushed off. If those come back into play in 2020, we'll have to deal with the issues of tariffs. And we've looked at various strategies on how to mitigate that. But that is a headwind that we continue to monitor.

Anthony Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Got it. So you also talked about the GFGB taking some strategic pricing actions or initiatives. Should we expect more of these on a go forward basis?

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

As we continue to face cost pressures ourselves, such as what we just described, we will always look at strategic price increases whether it be within GFGB or within the Consumer Floral to see where we could take those increases, and how does that impact -- how does that impact demand. So we have some strategic price increases at various times during the year to see how it impacts demand. And we look to continue to do that.

Christopher G. McCann -- President and Chief Executive Officer

Yes. But let's keep in mind to that, as that can be part of the answer that we'll never be all of the answer for us in mitigating costs. There has to be operating efficiencies that we bring to the table.

Anthony Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Sure. Okay. Well thank you and best of luck.

Christopher G. McCann -- President and Chief Executive Officer

Thanks Anthony.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over Mr. Chris McCann, President and CEO for any closing remarks.

Christopher G. McCann -- President and Chief Executive Officer

Thank you all for joining us on the call today and for your questions. If you have any additional questions, please don't hesitate to contact us. As a reminder, Mother's Day is here just around the corner. We have everything you need to make it special. So visit us online on your mobile device or through your favorite social channel and trust us to make all the moms in your life feel loved. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation.

Duration: 63 minutes

Call participants:

Joseph Pititto -- Senior Vice President, Investor Relations and Corporate Communications

Christopher G. McCann -- President and Chief Executive Officer

William E. Shea -- Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer

Alex Fuhrman -- Craig-Hallum Capital Group -- Analyst

Linda Bolton Weiser -- D. A. Davidson & Co. -- Analyst

Michael Kupinski -- Noble Financial Capital Market -- Analyst

Daniel Kurnos -- The Benchmark Company -- Analyst

Anthony Lebiedzinski -- Sidoti & Company, LLC -- Analyst

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