1-800-Flowers.com (FLWS) Q3 2021 Earnings Call Transcript

1-800-Flowers.com (FLWS 2.62%)
Q3 2021 Earnings Call
Apr 29, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the 1-800-FLOWERS.COM conference call. [Operator instructions] Note this event is being recorded. I'd now like to turn the conference over to Joseph Pititto. Please go ahead.

Joseph Pititto -- Vice President, Investor Relations

Thank you, Kelly. Good morning, and thank you all for joining us today to discuss 1-800-FLOWERS.COM, Inc.'s financial results for our fiscal 2021 third quarter. For those of you who have not yet received a copy of our press release issued earlier this morning, the release can be accessed at the investor relations section of our corporate website at https://www.1800flowersinc.com. Our call today will begin with brief formal remarks, and then we will open up 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 and 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 not prepared in accordance with generally accepted accounting principles. Reconciliation 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. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call and recording of today's call, a 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.

Chris McCann -- Chief Executive Officer

Thank you, Joe, and thank you to everyone who's joined our call this morning. Today, we're pleased to report another quarter of record top and bottom line results. Our revenue growth of 70%, driven by e-commerce growth of more than 80%, reflects continued strong growth across our three business segments. The growth momentum that we have in our business today has been building for several years and accelerated further since the start of the COVID-19 pandemic more than a year ago.

What's more, we expect to continue to grow even as our country begins to emerge from the pandemic. Consumer behavior has changed and the shift to e-commerce, which was dramatically accelerated during the pandemic is not likely to revert back. As a company we have evolved our business to an e-commerce platform built for growth, we are well positioned to benefit from this tectonic shift now and in the future. In addition, our company has a singular mission to help inspire more human expression, connection and celebration.

These are sentiments that are more important than ever today, and we are uniquely positioned with a broad and continually expanding suite of products specifically designed to help our customers deliver smiles to the important people in their lives. Today, we are a bigger, better, stronger company than we were even one year ago. Over the past several years, we've invested in the key elements of our e-commerce platform including our all-stock family of trusted brands, in particular, our signature Harry & David and 1-800-FLOWERS brands, and most recently, our newest brand, Personalization Mall. We've continued to invest in our advanced technology stack, our digital marketing programs, our customer care platform and our large and fast-growing customer file.

As a result, we've grown our market share, expanding our leadership position in the floral space, becoming a leader in the Gourmet Food and Gift Baskets category and extending our platform with the addition of Personalization Mall, a leader in the fast-growing area of personalized gifts. We've enhanced our technology stack, leveraging our culture of innovation. We have built an advanced micro services platform that resides in the cloud, providing us with enhanced performance, flexibility and scalability. We've leaned into effective digital marketing programs and search, display, video and social channels, expanding our reach and building brand recognition, always with a focus on analysis driven optimization for enhanced results.

We've enhanced our customer care platform to provide an exemplary customer experience with an AI -- with an integrated AI-powered virtual assistant, a proactive two-way SMS program, and we recently released a new cognitive skill to our online and Apple business chat functionality that provides our customers with a personalized conversational experience with chat bots that have specific skills such as understanding, reasoning and learning and can adapt on the fly. In terms of our customer file, we've continued to see tremendous growth, as well as enhanced customer behavior metrics. Our 12-month active customer file now exceeds 12 million total customers and in the first nine months of the current fiscal year, we've already added nearly 5 million new customers. Even with the tremendous growth in new customers, demand from existing customers represented approximately 65% of total revenues through the past nine months and our celebrations Passport loyalty program continues to grow at a rapid rate, helping to drive increased frequency, retention and multi-category, multi-brand purchasing behavior.

Passport membership has now achieved a significant milestone, hitting 1 million members and continues to grow at a strong double-digit pace. The combination of all these assets and positive trends that we see across our business, give us confidence in our outlook for continued strong growth despite the challenging comparisons that we have going forward. As such, we provided guidance today in our press release with double-digit revenue growth in our current fiscal fourth quarter and it's important to note that this anticipated double-digit growth is on top of the 61% revenue growth that we achieved in the fourth quarter last year, which was driven by a pandemic induced spike of nearly 80% in e-commerce demand. With this double-digit growth in the fourth quarter, we anticipate achieving more than 2 billion in total revenues for the current fiscal year and based on our expectation for the fourth quarter and what we see looking forward, we believe this momentum will continue.

Enabling us to achieve double-digit growth in our next fiscal year as well. As I've stated in the past, our highly scalable and leverageable e-commerce platform is built for growth now and in the future. Now I'd like to turn the call over to Bill.

Bill Shea -- Chief Financial Officer

Thank you, Chris. Our remarkable results for the fiscal third quarter were achieved despite several headwinds, including the Sunday placement of the Valentine holiday, which usually reduces demand by more than 20%. Severe weather during the Valentine period, including the complete shutdown of a third-party carriers main hub due to freezing conditions and higher shipping costs from third-party providers, which unfortunately appears to be here to stay. Despite these headwinds, our signature 1-800-FLOWERS brand continued to far outpace the competition at Valentine's Day and throughout the quarter.

Further extending our significant market leadership position. During the quarter, we also saw a continued strong performance in our newest brand, Personalization Mall. This reflected a combination of factors, including our broad product offering with thousands of items from wine glasses to picture frames, which can be customized using more than a dozen different personalization technologies. Our industry-leading operational excellence and unsurpassed ability to go from order entry to a finished personalized product ready to ship in as little as 24 hours or less and our ability to leverage our enterprise customer files and digital marketing expertise to enhance their marketing programs and reach more new customers effectively and efficiently.

We also saw a triple-digit e-commerce growth in our Gourmet Food and Gift Baskets segment, led by our iconic Harry & David brand, which continues to leverage digital marketing programs to reach a younger demographic and drive gifting for everyday occasions. These drivers and our record results for the quarter reflect the strength and flexibility of the e-commerce platform that we have built. They are also a testament to the hard work and perseverance of our thousands of associates who continue to overcome a challenging environment to drive operational excellence across our company. Now breaking down a few highlights from the quarter.

Our adjusted EBITDA of 15.4 million, an increase of nearly 18 million compared to the prior-year period reflects our fourth consecutive quarter of positive adjusted EBITDA. This includes three non-holiday quarters, reflecting continued strong growth in everyday gifting, particularly in our Gourmet Food and Gift Baskets brands, as well as a significant shift from the past years when we were only EBITDA positive in the calendar year-end quarter. Our strong Q3 adjusted EBITDA was driven by a combination of total revenue growth of more than 70%, with e-commerce growth of more than 80%, higher gross profit margin despite rising costs, and operating leverage improvement of more than 400 basis points on an adjusted basis. In terms of our segment results, as I mentioned earlier, in our Gourmet Food and Gift Baskets segment, we achieved triple-digit e-commerce growth, along with a gross profit margin improvement of 500 basis points.

This strong performance reflected a combination of enhanced operating leverage related to the strong revenue growth and reduced promotional marketing programs, partially offset by increased labor and shipping costs. As a result of the strong revenue growth, higher gross profit margin and increased operating leverage, contribution margin in this segment increased more than $18 million compared to the prior-year period. In our Consumer Floral and gift segment, which includes our signature 1-800-FLOWERS brand and Personalization Mall, we achieved revenue growth of more than 70% and segment contribution margin increase of 46%. This was achieved despite lower gross profit margin percent due to the higher shipping costs and the weather-related costs incurred during the Valentine holiday period.

In our BloomNet business, revenue increased nearly 28% and segment contribution margin increased 20% despite a lower gross profit margin in the period, which primarily reflected product mix. Overall, we achieved exceptional top and bottom line results across our three business segments and solid momentum as we head into our fiscal fourth quarter. Turning to our balance sheet. Reflecting the significant cash that our business is generating, our cash and investments position at the end of the quarter was 257 million, which represents an increase of 25 million over the year ago period and includes having used more than 150 million of cash on hand earlier this year to finance our acquisition of Personalization Mall.

Inventory was 122 million, reflecting both our acquisition of Personalization Mall and our initiatives to build inventory to service the strong e-commerce demand we are seeing. In terms of debt, we had 184 million in debt and zero borrowings under our revolving credit facility. As we noted in the past, the strength of our balance sheet with strong cash position and minimal debt, combined with our untapped revolving line of credit, gives us significant flexibility to continue to invest in our business platform and add accretive acquisitions. In addition, as we noted in our press release this morning, our board of directors has increased our authorization for stock buybacks to 40 million.

The new authorization replenishes and increases our previous authorization, under which we had returned approximately 26 million to shareholders by repurchasing shares over the past two years. We believe our stock is a very compelling investment and that repurchasing our shares enables us to return additional value to our shareholders. Regarding guidance. The unique complement of events that occurred in our fourth quarter last year created a very challenging comparison for us.

In the prior-year period, we saw the explosion of e-commerce growth at the start of the pandemic that drove triple-digit growth in our Gourmet Food and Gift Baskets segment and a record Mother's Day holiday in our floral business. This resulted in e-commerce growth of more than 80% compared with the prior-year period. In addition, we saw a dramatic increase in our adjusted EBITDA with growth of $35 million over the prior-year period. This reflected both a record revenue growth and historically low digital marketing costs as many advertisers pulled back.

Despite this challenging comparison, we anticipate driving double-digit revenue growth and strong bottom line performance in this year's fiscal fourth quarter. For the quarter, we anticipate achieving total consolidated revenue growth in a range of 10 to 15% compared with last year's record quarter. Based on this revenue growth and considering the higher year over year digital marketing costs, we anticipate achieving adjusted EBITDA for the quarter in the range of 25 to 30 million and EPS in the range of $0.18 to $0.20 per share. Combined with our record results for the first three quarters of the year, we anticipate achieving the following results for the full 2021 fiscal year.

Revenue growth of more than 40% to total revenue for the year of approximately 2.1 billion compared with 1.49 billion in the prior year. Adjusted EBITDA in the range of 208 to 213 million, compared with 129.5 million in the prior year. EPS in a range of $1.75 to $1.80 compared with EPS of $0.98 in the prior year and free cash flow of more than 100 million and as we stated in this morning's release, we also anticipate driving double-digit revenue growth in our 2022 fiscal year. I will now turn the call back to Chris.

Chris McCann -- Chief Executive Officer

Thanks, Bill. So as Bill just shared with you, our third quarter results clearly demonstrate the strong and continuing momentum in our business. Growth in our business is driven by several factors. First is the addition of millions of new customers added to our file.

Second is the increasing penetration of our existing customer base, along with enhanced behavior metrics, including frequency and retention. Third is strong growth in the number of customers who are purchasing from multiple product categories, resulting from our cross-brand merchandising and marketing programs and the continued expansion of new product categories such as the addition of Personalization Mall and fourth is the continued expansion of our Passport loyalty program with over 1 million members, driving increased frequency and retention, cross-category and cross-brand purchasing and enhanced lifetime value. In addition, our outlook for continued strong growth reflects both the secular shift to increased online purchasing, as well as the increased need of consumers to connect and express themselves, sentiments that are at the very core of our business. As we look toward the final quarter of our current fiscal year, we anticipate driving double-digit top line growth on top of what was an extraordinary fourth quarter last year, and we expect to close this fiscal year with more than 2 billion in revenue and over 200 million in adjusted EBITDA.

We have built a highly scalable e-commerce platform for growth, and we are very excited for what the future brings. With that, I'd like now to turn the call over to Kelly, and we can take your questions.

Questions & Answers:

Operator

[Operator instructions] The first question comes from Alex Fuhrman from Craig-Hallum. Please go ahead.

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

Great, thanks very much for taking my question and congratulations on another really strong quarter. It sounds like you're really firing on all cylinders with both new customers and existing customers and I think you'd mentioned, Chris, in the prepared remarks that existing customers have been about 65% of your business year-to-date. How does that compare to a normal year for you? And what does that suggest for you about the opportunity heading into next year to both continue acquiring new customers and to really capitalize on the new customers that you've acquired this year?

Chris McCann -- Chief Executive Officer

Great, Alex, and thank you for that question, and thanks for the recognition of the strong performance we've been having. So the 60 -- so the existing customers representing 65% of our revenue in the first nine months. I would say it's up slightly from what it has been previously as we're seeing more penetration into our Passport program, more customers buying from more than one category, thus increasing their frequency, their average spend. So the spend of an existing customer is higher naturally than the new customer.

As we look forward, we -- and that's why we wanted to share some of that information with you. We see our customer base, the large file that we have, which is a significantly grown over the last couple of years, again, growing the file nicely prior to the pandemic and accelerating into the pandemic it's become one of our greatest assets and the main asset that we look at and predictability for future sustained growth. So it's that, coupled with what we see in Q4, coupled with how we can read the two leads going forward, gives us the confidence in that guidance of double-digit growth.

Bill Shea -- Chief Financial Officer

Yes. But Alex, this is Bill. We're right at the point across that strong new customer growth as well and new customers are performing better than new customers performed pre pandemic, and our existing customers are performing better now than on a pre pandemic basis.

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

Great, that's really helpful guys. Thank you both very much.

Bill Shea -- Chief Financial Officer

Thank you, Alex.

Operator

Thank you. The next question comes from Michael Kupinski from NOBLE Capital Markets. Please go ahead Michael.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Thank you and I would like to add my congratulations as well. A couple of quick questions here. Can you just talk a little bit about the potential shifts in consumer buying patterns versus last year, obviously, during the pandemic, are you seeing customers starting to shift more toward larger ticket items, for instance, certain category-specific products? Kind of give us a flavor of what consumers are buying these days?

Chris McCann -- Chief Executive Officer

Sure, Michael. First and foremost, the secular shift that we've seen, right, is the movement from just off-line to online, which has been a tremendous movement. From a product kind of point of view, what we've seen is during the pandemic, well, actually, some of this is pre pandemic as well and again, just accelerated, as we see in the pandemic basically accelerated change in many different areas of our lives and our behavior. So what we saw was plants as an example, in one product category, we have good growth going in.

It's taken off since then and continues to grow, and we continue to expand our plants offerings. The Gourmet line under Harry & David has had tremendous growth this past year and again, that continues as people were recognizing the ability for Harry & David to help with their entertaining and celebrating in the home needs, etc. and then what we saw prior to and why we made the acquisition of Personalization Mall, the growing product category that we define as personalized products and as Bill pointed out in his comments, the very broad assortment of products that we have that can be personalized in a number of different ways. So those are a couple of key shifts that we've seen, but they started really before the pandemic and have just been accelerated since.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Can you give us a little color on your digital marketing spend for the upcoming quarter? Is this related to any particular segment like Personalization Mall, for instance? Or is it related to just increased prices for keywords or just kind of give us a flavor of what the marketing spend is for?

Chris McCann -- Chief Executive Officer

Yes. So when we look at the marketing spend, Michael, the -- what we see is, obviously, this is a floral quarter for us with the Mother's Day holiday. So a lot of the marketing spend that we look at right now is focused on the floral brand, but we see good growth coming from Personalization Mall, as well as from our gourmet food categories and when we look at the digital marketing space, what we're doing, and we've said this previously, is we're not playing as aggressively in the bottom of the funnel part of the game, where many of our competitors play from a discounting point of view. But really kind of moving mid and upper funnel tactics as well, which is working very well for us and the marketing costs have gotten more expensive.

We've seen that this quarter last year, marketing costs were extremely low, probably about a 50% reduction from normal. That returned to normal, really beginning back in August, September. So we've been dealing with that increased cost but we've been managing it effectively.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Just last question. You mentioned the severe weather in Texas in the quarter. Can you talk a little bit about your experience? I know it happened right after Valentine's Day, but can you talk a little bit about your experience there? What -- have there been any particularly lasting benefits that you may have had as a result, maybe of your competition not faring as well? Can you just kind of give us a flavor of maybe what even the impact you might have seen in terms of dollar-wise, what that might have been?

Bill Shea -- Chief Financial Officer

The impact of the weather, and this started happening actually Valentine's week and then lasted really for the week after Valentine's week and we saw parts of the country like Texas, the Northwest and really right through the center of the country with major freezes and some of the big third-party shipping companies all had to close down their hubs, as they couldn't get employees into work. So that did create some delays in packages getting to consumers and created a higher level of credits, which impacted our gross margin. For the Valentine's Day holiday and for the third quarter, you saw that in the Consumer Floral and gift segment. It's returning back to more normalized, what the new normal is, at least right now.

The third-party carriers are not delivering packages as timely as they did historically pre pandemic in dealing with overall e-commerce demand exceeding the ability for them to fulfill on a timely basis. But it's back to that more normalized level. So we don't see any long-term implications of what happened to the weather at Valentine's Day.

Chris McCann -- Chief Executive Officer

And one of the things, Michael, to keep in mind, too, while the weather was an impact, as Bill just pointed out, we also saw the benefit of our distribution network and our fulfillment network not being one channel focused. So where most of the challenges we're on the third-party carriers and then the hubs, etc., that were frozen during that time period. We were able to utilize our florist network, not in every area, Texas, obviously, was challenged but utilized our florist network to a greater degree. So having the flexibility between those multiple channels is a real benefit to our company.

Michael Kupinski -- NOBLE Capital Markets -- Analyst

Great, thank you that's all I have. Thanks.

Chris McCann -- Chief Executive Officer

Thank you, Michael.

Operator

Thank you. The next question comes from Linda Bolton-Weiser from D.A. Davidson. Please go ahead Linda.

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

Yes, hi. Congratulations great quarter and great outlook. Can you talk about the online floral gifting industry was kind of one of the first ones to kind of shift to online. Can you give us some estimate as to what percentage of the floral industry is now off-line versus online? And maybe what that was a couple of years ago?

Chris McCann -- Chief Executive Officer

Thank you, Linda and a thank you for congratulations. We appreciate that. The online floral category really has been one of the early ones to move online and we started that back in 1991 when we moved on to [Inaudible]. So you're right, the industry has been represented online for a long time.

I'm not sure really if I can quantify for you how much of the business is online versus off-line. But if we really look at it, the best generalization I can say is that it's about a two -- the gifting business is about a $9 billion category offline and about $2.5 billion category online is probably a very broad estimation. But what we see is the opportunity, and we continue to see the opportunity working with our florists, working with BloomNet is the ability to continue to migrate and we're seeing that more customers migrating online but still having that local component with our BloomNet floral serves us very, very well and I think we're extremely well positioned. Again, as we've seen this overall shift, and we saw it in our floral business as well this past year, this overall shift from offline to online that we saw in all of our product categories, which is very well positioned to benefit from that shift.

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

And then can I ask you kind of a longer-term question. I do get this from investors sometimes. Questions over your EBITDA margin targets long term, you've always talked about having to share the profit with florists, on the floral side, but I imagine there is more of an upside maybe margin potential on the gifts -- on the food side. So can you talk about that? And you've talked about your 10% EBITDA margin target goal, but it seems like that's a goal that you should be targeting higher.

So can you talk about that?

Chris McCann -- Chief Executive Officer

So, Bill, do you want to address that, please?

Bill Shea -- Chief Financial Officer

Yes, Linda, for a number of years. We always had the target out there of a 10% EBITDA margin. Check that box. We're doing that this year.

We're going to continue to look as to drive greater EBITDA margins going forward. We look at our margins, our gross margins, we look at our operating expenses. We know there's headwinds associated with both. We've been operating in higher cost environments with labor.

With the shipping costs, and we've been managing that and we continue to look to automate a number of processes to offset those cost increases and to drive increased margins. So we are going to continue to drive improved margins going forward. We haven't set a new target yet what that will be. But just like we've achieved the 10% margins that we had set out before, we'll set a new target, and we'll strive to achieve that.

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

And then finally, you've talked about your higher shipping costs and everything. Can you talk about other inflationary pressures? And also just are you actually having trouble getting actual components or materials like from Asia? Are there any areas where you're just not getting what you need?

Chris McCann -- Chief Executive Officer

Thank you, Linda. What we're seeing as far as getting suppliers from Asia or other international destinations, fortunately, most from a hard good point of view, while we do source product from Asia, it's not a significant part of our business. So we're able to manage that effectively and have for the last couple of years as those challenges have been with us for a while now and certainly, the most recent challenge was the blockage in the Suez Canal and the blockage in some of the parts, we've been able to manage our way through that effectively. Bill, anything to add on that as far as other inflationary costs?

Bill Shea -- Chief Financial Officer

Yes. Again, we've been dealing with labor and shipping cost increases for the last several years. Again we continue to look to offset those costs through operational efficiencies, through automation. Whether it be in our distribution centers, whether it be in our call center of operations to offset those -- to offset those costs.

Chris McCann -- Chief Executive Officer

Great. Thank you.

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

Thank you.

Bill Shea -- Chief Financial Officer

Thank you, Linda.

Operator

Thank you. The next question comes from Dan Kurnos from The Benchmark Company. Please go ahead Dan.

Dan Kurnos -- The Benchmark Company -- Analyst

Great, thanks. Good morning. Obviously, a nice quarter end guys. Bill, really just kind of -- to follow up first on the margin question, because it's not always linear.

Obviously, there's weather in the quarter. But just comping some of the pandemic benefits, are you basically saying that even though you have incredibly easy sort of marketing, let's call it back in the June quarter of '20. As we look out maybe over the next 12 to 24 months, that your -- you found ways to continue and granted you'll have PMall driving some mix benefits there as well. But you can kind of keep margins improving even as you lap some of the pandemic benefits.

Bill Shea -- Chief Financial Officer

Well, Dan, we're very pleased to be giving not only double-digit top line growth guidance for Q4. But also being able to extend that into fiscal 2022. In our August call, we're going to give more details as to guidance going forward, and that would include guidance on both gross margin and operating leverage. But over the longer term, we believe we can drive improved margins.

Dan Kurnos -- The Benchmark Company -- Analyst

Did you give a number in the quarter for growth ex PMall and in the June quarter, obviously, it's hard to handicap that you guys just crushed Q2 with PMall relative to expectations. But if you were on a normalized trajectory, your guidance would imply that you're pretty darn close to organic growth ex PMall in June quarter? My guess is PMall is doing a little better than I thought. But is there any way you can give some color around that?

Bill Shea -- Chief Financial Officer

Well, back in the third quarter, PMall did about $40 million or so in revenue, so the Consumer Floral and gift segment which showed 70% growth, still grew at 44% despite the challenges of Valentine's Day. So the 1-800-FLOWERS brand, grew nicely and grew over 50% in January and March and overall as a company, we grew over 55% organically in the third quarter. PMall is going to be a nice contributor to the fourth quarter. Again, coming off an incredible quarter that we had a year ago, we're very pleased to be giving guidance to double-digit growth in the fourth quarter and that is inclusive of PMall.

Dan Kurnos -- The Benchmark Company -- Analyst

Yes, I think the point I'm making though is that you're close to organic growth off of the 60% comp. I mean, you're not quite there, probably. PMall is doing better, and there's some -- there's got to be some sequential improvement. But I mean that's just staggeringly high and then maybe for Chris, just to include you, I guess, you obviously want to get deeper into personalization, a lot of opportunities.

We actually heard interesting with eBay talking last night about getting into some of the customization categories, although they sound like they're competing more with Etsy on that front. I am curious -- I know you guys would like to buy something. But in the meantime, there are plenty of companies out there that might be able to provide some ancillary opportunities. How are you thinking about partnerships if you can't scale it deeper? Are there areas that you can attack right away with tuck-ins? Just help us think about how quickly you can expand sort of your breadth within the personalization category.

Chris McCann -- Chief Executive Officer

Great, Dan. Thank you, and you're right. There is lots of opportunity for us and we look -- we approach the opportunity in a number of different ways across our categories, but then I'll come back to personalization. As we look at the business, we look to constantly expand our product offerings and whether we do that through kind of internal development, all working with different partners around the country, around the world and more of a marketplace model that we've spoken about in the past.

So we've been adding capabilities there, especially within the flowers brand right now, if you look under the gifts and accessories channel, you've seen the product offerings grow more and more there. As we look at personalization space, what we said from the very beginning was that Personalization Mall was a great platform for us to add into our platform. So we look to be able to grow Personalization Mall as we expanded kind of that land and expand strategy that we've talked about and a small example of that is we recently launched a personalized candy product on Personalization Mall and that's when the third with a partner that we're working with that has that capability. We didn't need to bring that capability in-house.

So that's just a small example. But we see -- we've identified and see several key category growth opportunities within the personalization space that Personalization Mall gives us a great platform to build upon.

Dan Kurnos -- The Benchmark Company -- Analyst

All right. Fair enough. Thank you, guys I appreciate the color and obviously, congratulations. Great to see the momentum continuing.

Chris McCann -- Chief Executive Officer

Thanks, Dan.

Operator

[Operator instructions] The next question comes from Anthony Lebiedzinski from Sidoti & Company. Please go ahead Anthony.

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Yes, good morning and thank you for taking the questions and certainly very impressive results. So great job with everything. So just wondering as far as the Passport, information that you provided, certainly nice to see that you're quantifying that. As far as -- if you could give us some sense as to the order frequency that you're seeing from Passport members, along with just overall retention, AOV metrics, if you could perhaps quantify any of that that would be very helpful.

Chris McCann -- Chief Executive Officer

Thank you, Anthony. Yes, we wanted to share a little bit of color on the Passport growth because it's been phenomenal and it's really helping to drive the increased behavior metrics that we're seeing in our file. So we wanted to let people know it's grown to a significant number, passing the 1 million membership mark, and what we see from Passport customers and there are customers that buy from more than one category, more than one product category, is their frequency generally starts to increase by two to two and a half times what the average customer is, and their retention rates increased by about 40 to 50%, so significantly enhancing the lifetime value and again, we see that from customers who are Passport who stay single threaded, single product category threaded or more importantly, we see them because of our communications then start to migrate to more than one category and when you have a customer who is Passport and buying for more than one category, those numbers I just referenced increase even further. So it's a very valuable program for us and as we continue to expand our platform, with more product categories through partnerships like we just talked about, was that just candy company, as an example or through acquisitions, as we did in a major way with Personalization Mall, we're bringing more and more products, more and more solutions to help our customers express, connect and celebrate and the value of that Passport membership gets greater and greater all the time.

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Got it. OK and then in terms of the AOV for a Passport member versus a non-member, is that noticeably different or consistent with the company average?

Chris McCann -- Chief Executive Officer

Yes. AOV is pretty consistent with the average.

Bill Shea -- Chief Financial Officer

And overall, Anthony, AOV for the quarter was basically flat. We see it rising a little bit on the food side, especially with Harry & David, PMall is a lower ticket. So as an enterprise on a blended basis or AOV is relatively flat. So basically, the growth is all unit growth.

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Got it. OK, and then just wondering, so as far as your cash flow priorities? I know you talked a little bit about the -- you had a separate press release about the buyback, and you mentioned that as well. So just wondering as far as your main capital allocation priorities? And maybe if you want to just touch on your appetite for additional M&A activity?

Chris McCann -- Chief Executive Officer

Right. Thanks, Anthony, you recognizing, as you see our results, we're generating good, very good amounts of cash and our balance sheet is extremely strong and it's one of our core -- one of our greatest assets, really, as we look at the platform that we've built and more importantly, the platform that we will continue to build. So we'll continue to invest in our core business, invest in the platform and all elements of the platform, the technology side, right through the distribution and manufacturing capabilities that we have, as Bill referenced, that we continue to enhance with automation, etc. and then as well through acquisitions, like you've seen us in the last two years, acquiring Shari's Berries and Personalization Mall, we'll continue to look at that and we're thrilled that our board gave us this new authorization as we believe our stock has compelling value, and this gives us that added flexibility to return value to shareholders in a different way.

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Got it. OK and then last question, more or less kind of a housekeeping here. So as far as the tax rate that's embedded in the Q4 guidance, is that -- does that imply a more normalized tax rate versus what we saw here in the third quarter?

Bill Shea -- Chief Financial Officer

Yes, Anthony. Overall, our effective tax rate for the year is 21 -- between 21 and 22%, and that's what should be factored into the fourth quarter. The benefit we got in the third quarter, again, as we continue to make more money, some of the discrete items or permanent items that we have get -- have less of an impact and so our effective tax rate has gone up throughout the year and we had to get the annual tax rate in the sync at 21 to 22% and therefore, we got the benefit in the third quarter.

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Got it. All right well thank you and best of luck.

Bill Shea -- Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Doug Lane from Lane Research. Please go ahead Doug.

Doug Lane -- Lane Research -- Analyst

Yes, hi. Good morning everybody. Just want to stay on the acquisition topic here. Can you give -- I know you can't say anything until you announce something, but could you give us just a qualitative assessment of the M&A front? And are there properties that you're looking at actively now?

Chris McCann -- Chief Executive Officer

Thank you, Doug, and thank you for the question. We're always actively looking and we spend a lot of time making sure that we're networking in the space that we want to be in the spaces that we're currently in and maybe adjacency categories we might want to move into. So we're always actively looking. I would say the landscape right now, you see companies that are looking to sell based on really the phenomenal year that they had last year, which would certainly always needs to be normalized when you look at valuations.

So that presents a challenge. So it's an active market today, I think, with some challenges in it. As I just mentioned, and it's an area where we continue to look. Are there tuck-ins like we had with Shari's Berries? Are there platform additions like we did with Personalization Mall? And what are the capabilities, the tools and capabilities, our customers are looking for to help them express, connect and to celebrate.

Bill Shea -- Chief Financial Officer

Yes. I think that's -- Chris' last point. That kind of shows over the last 18 to 20 months kind of two bookends of the type of acquisitions we can buy, whether it's Shari's Berries, where it's truly kind of a tuck-in, not buying really any of the hard assets just buying kind of the IP and placing it on our platform and having it grow and grow very profitably that way or whether it is a stand-alone operation, a bigger acquisition and a stand-alone operation with PMall that brings us a new product category that we can get into and then leverage, as Chris mentioned earlier. So that shows the kind of the two sides of the spectrum of types of companies we look for.

Chris McCann -- Chief Executive Officer

And in that, I think that shows our capabilities. We're very proud of the teams that we've put at the -- being very judicious on the diligence front, as well as then being very focused on the integration front, and we've been building some great capabilities there. So that's a strength of ours as we look at and how do we leverage that going forward.

Doug Lane -- Lane Research -- Analyst

OK. That makes sense and Bill, obviously, you mentioned labor costs, you mentioned shipping costs, but inflation is rampant. So where else are we thinking about inflationary pressures as we model fiscal '22?

Bill Shea -- Chief Financial Officer

Well, those are the big ones because those are the big cost drivers, if you look at our P&L, you see kind of the cost of goods and shipping costs are a big piece of that and labor rolls into both our cost of goods, that's the major part, as well as some down in our operating expenses. We obviously continue to look at marketing costs and where marketing costs, digital marketing rates will be. They've normalized after the big drop last year and then they surged as the -- during November, during the national elections and during the holiday period, and then they're more normalized now. But we continue to monitor where marketing rates are.

Those are kind of the big categories. What we have as offsets to that is our continual investment in automation to help drive down labor costs. What we've experienced, we've pulled back significantly on promotions as a result to offset these costs. Throughout this whole year, we've been able to drive gross margin improvement despite the -- despite these cost increases.

Doug Lane -- Lane Research -- Analyst

OK. That's helpful. Thanks guys.

Bill Shea -- Chief Financial Officer

Thanks Doug.

Operator

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Chris McCann for closing remarks.

Chris McCann -- Chief Executive Officer

Thank you, Kelly, and thank you all. Thanks for joining us on the call today. As always, please don't hesitate to call or email us with any additional questions you may have about our outlook for continued strong growth and lastly, don't forget Mother's Day, it's just around the corner, and you can visit our special Love Makes a Family and #NoLimitsOnLove sites. To post your heartfelt video, celebrating all the important moms in your life and I really urge you to do that and see the wonderful content that the teams are bringing to market and really telling the story and engaging with our customers in a much deeper fashion.

I think you'll be very pleased with what you see. Thank you, and we look forward to talking further.

Operator

[Operator signoff]

Duration: 46 minutes

Call participants:

Joseph Pititto -- Vice President, Investor Relations

Chris McCann -- Chief Executive Officer

Bill Shea -- Chief Financial Officer

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

Michael Kupinski -- NOBLE Capital Markets -- Analyst

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

Dan Kurnos -- The Benchmark Company -- Analyst

Anthony Lebiedzinski -- Sidoti & Company -- Analyst

Doug Lane -- Lane Research -- Analyst

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