1-800-flowers.com (FLWS) Q2 2023 Earnings Call Transcript

1-800-flowers.com (FLWS 1.97%)
Q2 2023 Earnings Call
Feb 02, 2023, 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, Inc. fiscal 2023 second-quarter results conference call. [Operator instructions] And please note that this event is being recorded. I would now like to turn the conference over to Andy Milevoj, senior vice president of investor relations.

Please go ahead.

Andy Milevoj -- Vice President, Investor Relations

Good morning and welcome to our fiscal 2023 second-quarter earnings call. Joining us today are Chris McCann, CEO; Tom Hartnett, president; and Bill Shea, CFO. Before we begin the call, I'd like to remind you that some of the statements we make on today's call are covered by the Safe Harbor disclaimer contained in our press release and public documents. During this call, we will make forward-looking statements with predictions, projections, and other statements about future events.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission. The company disclaims any obligation to update any of the forward-looking statements that may be made or discussed during this call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release.

And now, I'll turn the call over to Chris.

Chris McCann -- Chief Executive Officer

Thank you, everyone, and good morning. Our second-quarter results reflect the successful holiday season and benefited from the strength of our food brands and improving gross margins. We did a good job projecting consumer demand for the quarter, particularly related to trends and sales curves. On a consolidated basis, revenue declined 4.8%.

Our gourmet foods and gift baskets business had a solid quarter, with revenue being relatively flat, while revenue within our consumer floral and gifts segment decreased 12%. This is in keeping with past trends in which consumers gravitate toward food gifting options from floral arrangements in challenging macroeconomic environments. Unlike a year ago when there was an unprecedented pull forward in holiday demand due to the global supply chain challenges, we had anticipated that customers would revert to their historical shopping patterns and shop much closer to the holidays. And that is what we experienced.

Beginning in October, we witnessed a very promotional retail environment. And those trends continued throughout the holiday period. Additionally, with some of our brands that offer a lower price point and appeal to a lower-income customer, we noticed that customers appeared to be more price-sensitive and were waiting for deals. We strategically utilized promotional pricing throughout the holiday period to entice customers while simultaneously reducing other offers, such as free shipping, that were not as impactful in the current economic environment.

Moving forward to November. Black Friday and Cyber Monday were once again big days for us and represented a kickoff to the holiday shopping season. In fact, Personalization Mall had its biggest revenue day ever on Cyber Monday. From there, we continued to see demand build throughout the month of December, with some of our greatest volume days coming during the two weeks before Christmas.

Customers traded up to higher-value, higher-price-point assortments within our food business, with the largest gains coming in at price points that were over $100. We also saw our customers gravitate toward our prepared meal offerings that make their lives and entertaining easier. Our heat-and-serve meals, appetizers, and side dishes allow customers to spend less time in the kitchen and more time with family and friends. And our charcuterie and cheese assortments also saw nice growth as more customers began to entertain for the holidays once again as compared to the past couple of years.

All told, Harry & David set new records for this holiday season, including its biggest sell day ever in December, breaking a record that was set in the pandemic year of 2020, its first $3 million mobile day, as more customers shifted from desktop and tablet into mobile, and record sales of our award-winning wines, all resulting in a record sales quarter for the brand, sustaining the growth that we have seen over the past few years. Cheryl's saw a strong performance from the holiday assortment, which included the introduction of candy cane, maple syrup, and cinnamon swirl cookies, helping offset softer everyday sales earlier in the quarter. And Wolferman's grew its e-commerce business, in part benefiting via a 6% increase in new customers. Turning to our floral business.

We continue to leverage our strong assortment of products and brands to meet our customers' needs. We saw strong growth in holiday plants that grew 10% over the prior-year period, and various floral and sweets pairings that include offerings from 1-800-FLOWERS and Shari's Berries saw a strong double-digit growth. However, as the floral business does not have the large spike at holiday, these successes were unable to offset the lower demand for everyday gifting throughout the quarter. Additionally, while our direct-to-consumer business across the enterprise remained fairly resilient to macroeconomic pressures this quarter, our B2B business was not immune.

Our corporate gifting business saw demand soften as companies began looking for more opportunities to cut expenses. And as more employees shifted to hybrid work environments over the past year, companies began hosting holiday parties once again in lieu of corporate gifting. While corporate gifting remained under pressure today, it is a focus of ours, and we see growth opportunities and market share gains in the future. Our second-quarter performance also benefited from our marketing efforts.

We are transforming our company from being a purely transactional e-commerce company to developing deeper relationships with customers through content and community. Our focus is on inspiring our customers to give more and to build better and more meaningful relationships in their lives. We built a company on knowing that people are naturally compelled to give. And it's no coincidence that we found our best customers to be the ones who enjoy giving the most.

Our initiatives include our weekly Celebrations Pulse email newsletters, our experiential programs such as floral design classes, and expanded content development across multiple social channels. Through these initiatives, we are focused on nurturing our relationship with existing customers, growing our multi-category customer cohort to increase their purchase frequency, and defining our company as the preferred destination for all of our customers' gifting needs. As could be expected, net sales per customer are highest among our multi-category customers, followed by our 1.4 million Celebrations Passport members. Turning to our margins.

During the second quarter, as we anticipated, our margins improved on lower inbound freight costs and strategic pricing initiatives. As Bill will discuss further, we expect this trend to continue in the second half of this year and into next year. As these costs continue to moderate, we anticipate that our margins will return to the historical levels over the next few years. As such, we expect to see a substantial recovery in EBITDA.

In summary, we anticipate that certain macro trends would help us, and, indeed, they have. While they have not reverted to their pre-COVID levels, certain cost inputs continue to be favorable, which gives us confidence in our ability to improve margins in the future. Based on our second-quarter performance and, in particular, our gross margin improvement and reduction in operating expenses, we are increasing our fiscal '23 adjusted EBITDA guidance to be in a range of 80 million to 85 million. As we look to the balance of the year, we are focused on executing for the upcoming holiday period.

We expect the consumer to remain cautious in this environment and reduce their spend on everyday gifting occasions while continuing to spend through the major holidays. Even in an uncertain environment, we are confident that our customers see value in our unique and one-of-a-kind gifts that make the perfect solution no matter who you are shopping for. As we look beyond Valentine's Day to the spring, we're focused on our giving is the gift campaign. For friends, family, teachers, and caregivers, this is a great time to remind those in your life that you appreciate all that they do for you and your family or business.

Before I turn it over to Bill for the financial review, I wanted to take a moment to highlight the newest addition to our family of brands. We are excited to welcome Things Remembered to our all-star roster. This is a perfect example of the tuck-in acquisitions that enables us to further expand our leadership position and product offerings in the personalization category. Things Remembered is very complementary to Personalization Mall and significantly grows the number and variety of personalized products that we can offer to our customers to help celebrate every occasion with personalized masterpieces.

We acquired the Things Remembered brand and related IP, including their customer lists and certain assets, for approximately $5 million shortly after the second quarter ended. This addition perfectly illustrates how our e-commerce platform was built for rapid growth as we seamlessly incorporate complementary brands onto our platform and grow them profitably. Now, I'll turn the call over to Bill for his financial review.

Bill Shea -- Chief Financial Officer

Thank you, Chris. As Chris highlighted, our second quarter performance was solid, benefiting from the resiliency of our gourmet foods and gift basket business. We were able to generate adjusted EBITDA of 131.4 million and offset the 4.8% revenue decline by improving gross margins, by managing our cost structure. Gross margin improvement was led by a 170-basis-point increase within our gourmet foods and gift basket business, which benefited from our strategic pricing initiatives, lower year-over-year ocean freight costs that continue to trend favorably, a more stable labor market which enabled us to reduce overtime pay, and our logistics optimization efforts that leverages our full distribution network to reduce shipping zones and deliver products closer to the recipients.

Furthermore, our warehouse automation efforts have enabled us to meaningfully improve efficiencies. Our Haven, Ohio facility is in the second year since we installed automation, and we processed over 1.8 million packages in December, increasing throughput by 8% over last year while reducing expenses. And we completed our next phase of automation in Atlanta, Georgia facility that enabled us to fulfill orders for multiple food brands and increase throughput by 42% for the month of December over last year. Longer term, we believe that we will gradually restore our gross margins to their historical levels and leverage the significant top-line growth of the past few years to drive bottom-line results.

You may recall that the gourmet food and gift basket business was the most impacted by the negative macro cost inputs for the past 18 months. Our consumer floral and gifts segment was less impacted, and thus, its recovery is subject to certain macro trends that have not yet improved. Now, let's review our key metrics for the second quarter. Total net revenues declined 4.8% to 897.9 million, as compared to revenues of 943 million in the prior year.

Gross profit margin for the quarter improved 90 basis points from 40.1% to 41%, driven by the aforementioned improvements in our gourmet food and gift basket business. Operating expenses were 28.1% of total sales, as compared to 27.9% in the prior-year period. On a dollar basis, operating expenses declined 10.1 million, primarily reflecting lower marketing costs as we shifted our advertising investments to lower-cost, higher return-on-investment areas of the marketing funnel. As a result, our second-quarter adjusted EBITDA was 131.4 million, as compared with adjusted EBITDA of 133.1 million a year ago.

Net income was 82.5 million, or $1.27 per share. And adjusted net income was $82.7 million, or $1.28 per share, compared with net income of 88.5 million, or $1.34 per share, and adjusted net income of 88.6 million, or $1.34 per share in the prior-year period. Regarding our segment results. Our gourmet food and gift basket segment revenues decreased 0.4% to 588.4 million, compared to 590.9 million in the prior year.

Revenue benefited from the resiliency of our consumer food gifting businesses, which helped mitigate some of the softness in our corporate gifts business. This segment's gross profit margin increased 170 basis points to 41% from 39.3%, benefiting from our strategic pricing initiatives, lower inbound transportation costs, improved labor availability, and our automation efforts. This segment's contribution margin was 123.5 million, compared with 110.5 million a year ago. Our consumer floral and gifts segment revenue decreased 12.1% to 277 million, compared with 315.1 million in the prior-year period.

This decline is reflective of the softness we have been experiencing in everyday gifting and the shift by our customers from flower gifts toward our gourmet food gifts during the holiday period. Gross profit margin decreased to 40.5%, compared with 41.3% in the prior-year period, primarily due to higher fulfillment costs and outbound transportation costs. Segment contribution margin was 27.9 million, compared with 38.2 million in the prior-year period. In our BloomNet segment, revenues for the quarter decreased 13.4% to 32.9 million, compared with 37.9 million in the prior-year period.

Profit margin of 42.2% was flat with the prior year. Segment contribution margin was 9.3 million, compared with 11.9 million in the prior-year period. Turning to our balance sheet. Our cash and investment position was 189.7 million at the end of the second quarter.

Inventory was 201.1 million, compared with inventory of 191.1 million at the end of last year second quarter. In terms of debt, we had 152.8 million in term debt and no borrowings under our revolving credit facility. Turning to guidance for fiscal 2023. This morning, we increased our fiscal 2023 guidance based on our second-quarter performance.

Before I share our views, it's important to note that the current macro economy is still highly unpredictable, making it difficult to forecast consumer behavior with any certainty in this environment. After growing revenue 77% over the last three fiscal years, we expect revenues to decline in the mid-single-digit range in fiscal 2023 on cautious consumer behavior. We expect to mitigate the impact of the revenue decline on our earnings through our strategic pricing programs, a moderation of certain cost inputs, and the investments we have and continue to make in our business platform. As a result, we expect to continue to gradually improve gross margins and bottom-line results during the latter half of the current fiscal year.

Based on these assumptions and our year-to-date performance, we now expect adjusted EBITDA to be in the range of 80 million to 85 million. We expect to generate more than 75 million in free cash flow in the current year, representing an improvement of more than 135 million as compared to a year ago as we continue to sell through our inventory balance. I will now turn the call back to Chris.

Chris McCann -- Chief Executive Officer

Thanks, Bill. To recap our performance this quarter, we had a successful holiday season. However, consumers continue to be challenged by inflationary pressures. We believe that the macro environment will remain challenging throughout the remainder of our fiscal year, and we're proactively addressing these trends with compelling, high-value bundle assortments that appeal to a wide variety of customers.

Nonetheless, we remain very bullish about our long-term prospects. Our foundation, built on our all-star family of brands, is strong and positions us to perform well as the macro environment improves. The diversification of our portfolio helps mitigate and provides resiliency to seasonality. Our core customer remains loyal, and we continue to deepen our relationships with them through our innovative marketing and engagement efforts.

This is what distinguishes us in the marketplace because we care about nurturing our relationships with our customers. As I noted earlier, we built the company on knowing that people are naturally compelled to give. And it's no coincidence that we found our best customers to be the ones who enjoy giving the most. A single thread runs through all the giving.

It brings joy to everyone involved, and that's why we say giving is the gift. Now, I'd like to open the call for any questions that you may have. Thank you.

Questions & Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] And our first question today won't come from Dan Kurnos with The Benchmark Company. Please go ahead.

Dan Kurnos -- The Benchmark Company -- Analyst

Great. Thanks. Good morning. Nice job on the bottom line, guys, in the quarter.

Couple things for me, maybe just on some of the noise around mix here. You did talk about PMall having a strong Cyber Monday. You just talked how it did overall in the quarter. And I think, in the past, we kind of talked about some pricing inelasticity within PMall.

On the gifting side, which you keep separate for now, you know, you got some price uplift. But just in general, like either consumer floral or PMall, how are you thinking about kind of pricing and promotional activity given kind of the consumer backdrop right now? And, you know, as we go into Q1, with a bunch of excess inventory built up kind of all throughout e-comm, how are you thinking about that backdrop?

Chris McCann -- Chief Executive Officer

Sure. Thanks, Dan. Good to hear from you. Yeah, and we're very happy with the quarter and the performance that we had, especially on how we manage the cost structure of the company throughout the quarter.

So, thank you for that. As we look forward, you know, from a PMall perspective, we were thrilled to see that Cyber Monday be a record day for P Mall. And, Bill, overall PMall performance.

Bill Shea -- Chief Financial Officer

Yeah, PMall was, you know, down, you know, that mid-single-digit, you know, kind of range from a -- you know, from a top-line perspective. Again, it's seeing the same kind of trends we're seeing throughout the business and that every day is soft. It had a strong Cyber Monday, you know, a little softness in the early part of December, and then a very strong finish.

Chris McCann -- Chief Executive Officer

And, Tom, what are we looking at really from a pricing initiatives from PMall and consumer floral point of view as we look forward now?

Tom Hartnett -- President

Yeah, I mean, I think -- good morning, Dan. Tom. You know, certainly, we talked about our strategic pricing initiatives on some of the -- our lower price point products, whether it be Personalization Mall, Shari's, Cheryl's cookies. Those consumers where their household incomes are a little bit more challenged in this environment, we have seen the need to be promotional.

But as Chris mentioned in his remarks, we've been able to pull away from some of the shipping discounts we've done in the past. So, we've been able to maintain margins pretty well on that, I mean. And with flowers and -- we're, you know, certainly blessed with our largest brands, Harry & David flowers, where we have a broad range of consumers. So many of them are in the higher, you know, household demographic incomes.

And that allows us to move customers up on value and pricing and take advantage of the bundles and create-your-own products that we have, you know, to increase prices to those consumers.

Chris McCann -- Chief Executive Officer

Yeah, and I think -- and when you look at this past quarter, I think it's a good example there were through pricing initiatives, strategic pricing initiatives, as well as just merchandising mix and featuring more bundles and higher price point items, we're able to lift AOV by 6%.

Bill Shea -- Chief Financial Officer

So, average order was about $90, up around 6%. Probably half of that was due to the strategic pricing initiatives that we put in place. And about half of it is due to, you know, kind of mix and seeing the more affluent consumer, you know, buying up and, you know, some of our bundles and higher-priced items being very attractive.

Dan Kurnos -- The Benchmark Company -- Analyst

Got it. That's really helpful. Funny, isn't it, how we're going into a recession and consumers now willing to pay for shipping and returns, whereas those were the things they wanted most free when things were better? Alternatively, you guys talked about record for Harry & David, and I think that is really important. Obviously, it's been a great brand for you guys.

And the vast majority of the upside in the quarter came from GFGB. So, you know, BIll, is there any incremental color on sort of Harry & David's outperformance relative to the rest of GFGB? And then, you know, I think you guys did this kind of exercise before. And, Bill, you touched on it a little bit in your prepared remarks, but it'd be really helpful to kind of understand. How much of the early action you guys took to avoid sort of the repeat of last year grows the margin upside versus how much was sort of your organic improvement from whether it's optimization or what have you, versus kind of the lower input costs that are out of your control, like shipping? If you could kind of parse that out for us, that would be super helpful.

Bill Shea -- Chief Financial Officer

Well, first off, you know, what drove the quarter certainly was the performance of our food brands, relatively flat from a top-line perspective. Harry & David is the biggest brand, and Harry & David performed the best of all from -- you know, from -- certainly from a top-line perspective and kind of low single-digit growth year over year. We did make the investments in inventory to offset the supply chain challenges that we experienced last year. It's certainly made for more operational efficiencies, you know, that we had.

Because both having the inventory on hand and having access to labor availability was there, allowed us to, you know, a much more efficient, you know, operation. So, that helped -- certainly helped, was a component of the 170-basis-point improvement in gross margins that we saw on the food brands.

Dan Kurnos -- The Benchmark Company -- Analyst

OK. I'll follow up with you more on that offline. The last one for me and I'll step away. I always ask you this, Chris.

You know, just kind of looking out ahead, you know, understanding that there's consumer uncertainty. But the way that you oriented everything, the pricing initiatives, like, good to get confidence on the margin side, just from a revenue perspective, you know. If things were more stable, I mean, how would you kind of view potential for top-line progress? If you want to parse that out between sort of consumer floral versus food, that would be helpful too. Thanks.

Chris McCann -- Chief Executive Officer

Sure, Dan. I think, you know, we have a lot of confidence as we look forward with our business. You know, as I mentioned in our remarks, with the platform that we built providing the operating leverage that we're showing, the -- you know, the benefits and the improvement we're seeing in opex spend, coupled with the gross margin improvement, really gives us some confidence as we go forward. And what we're doing is we're building off of the strength that we've built over the last couple of years.

Bill mentioned in his comments that over the last two or three years, we've grown, like, 77%. We've doubled the size of our customer base. So, we're leveraging that capability to product catalog that we continue to expand and, certainly with our newest acquisition, moving deeper into the personalization category. So, as we look even in a challenging environment going forward, we see -- because, as we've stated, we see softness still in the everyday business and that's where customers are, you know, still pulling back a bit.

But we have our Valentine's Day holiday, you know, next week -- week, 10 days, whatever might be at this point. And, you know, we're -- so, we're seeing the consumer still come back for the holiday periods like that. And then we move into the spring holidays of graduations and Mother's Day, etc. So, we think we're in a really good position to finish out the year where we anticipated we would.

Dan Kurnos -- The Benchmark Company -- Analyst

All right. Great. Thanks for all the color. Appreciate it.

And congrats again.

Bill Shea -- Chief Financial Officer

Thank you.

Operator

And our next question will come from Michael Kupinski with Noble Capital Markets.

Michael Kupinski -- Noble Capital Markets -- Analyst

Yeah. Thank you and congrats on your solid quarter. Couple of questions. Can you talk about the tone of the market for Valentine's Day? Is it more competitive than years past, or your competitors being more rational, less promotional? Or has the economic conditions warranted being promotional at this time? Can you just kind of give me a tone of the market?

Chris McCann -- Chief Executive Officer

Well, I'll turn this to Tom to see if he could give you a tone of the market. Keep in mind, it's -- you know, Valentine's is a last-minute holiday. And just as we saw customers revert back in during the Christmas holiday to pre-pandemic shopping trends and curves, we expect to see the same thing. So, the holiday is still in front of us.

But, Tom, what are we seeing in the marketplace?

Tom Hartnett -- President

Yeah, I mean, I think it is early. I think, you know, in some cases, we are seeing -- I'd say it's always a competitive environment, but it's the same players. So, it's -- you know, I think the same rules apply. And, you know, we've been playing this out for many years.

I'd say, you know, just, you know, the uncertainty of the consumer, I'd say there's more focus on, you know, bottom-of-the-funnel tactics. That's what we would have, you know, expected, etc. So, you know, obviously, our overall marketing strategies are taking that into account.

Michael Kupinski -- Noble Capital Markets -- Analyst

Got you. And can you talk a little bit about Things Remembered? I know it's a relatively small acquisition, but it seems reminiscent of Shari's Berries and in that acquisition, which was very successful. Can you talk about the revenue opportunity you have there, what type of margins you anticipate going forward?

Chris McCann -- Chief Executive Officer

Well, we'll give you as much color as we can, Michael. And it's you're right, it's a relatively small acquisition but one that really demonstrates, you know, how we have the leverage of the platform that we've built and can bring acquisitions like that that maybe warrant working as a stand-alone business. We could put them on our platform, inject some growth into them, and manage them appropriately with the gross margin capabilities that we have as well as our opex capabilities. So, it's a good example of how we can do these tuck-in acquisitions as we move along.

Tom, why don't you talk a little bit just about the market positioning of Things Remembered versus Personalization Mall?

Tom Hartnett -- President

Yes, certainly, from a product price point of Things Remembered, it is at a different tier of pricing than Personalization Mall. And, you know, I think it is focused right now. We're looking at brand positioning very closely around, you know, so many of life's important occasions, whether it be weddings, anniversaries, religious milestones, graduations. So, it fit the whole product catalog.

As we bring this stuff to bear, it will benefit our personalization space. It also fits really well in our overall enterprise assortment and our customers. So, feel good about that. And we have such a strong operations team at Personalization Mall to be able to take their -- all the operations that exist in Things Remembered and bring that into those -- their facilities and lever that up.

I guess just some color, you know, with the transaction, we were getting over 1 million active email -- e-commerce customers, and we think that's going to be very leverageable. And, you know, it's early days, but we're bullish that we're going to be able to, you know, grow this revenue nicely. But as we're starting, we're creating a brand-new e-commerce site which will be leveraging obviously our platforms. So, we're looking, in the next couple of months, to launch the brand again.

Chris McCann -- Chief Executive Officer

Yeah. And the key factor here, Michael, is, you know, as I mentioned, you know, similar to what we did with -- as you point out, similar to what we did with Shari's Berries, similar to what we did with -- and, you know, the food stand, the food space with Vital Choice, this gives us the ability to just kind of land and expand in the personalization category. So, as we built and appended the personalization capabilities to our platform, now, we're able to leverage that part of the platform and expand as well. And I think it's just consistent with our overall growth strategy, continue to get, you know, organic growth where we can at affordable cost and complement it with good M&A opportunities as we see these tuck-in opportunities.

And when we see a larger opportunity like we did last with Personalization Mall, we're in position to do that as well based on the strength of the business and the strength of the balance sheet that we have.

Michael Kupinski -- Noble Capital Markets -- Analyst

Thanks for the color. On the automation of their distribution facilities, is that all behind the company now, or is that fully reflected in this last quarter?

Bill Shea -- Chief Financial Officer

Michael, there'll always be automation opportunities for us, but the, you know, the big spend, you know, is behind us. You know, as we've discussed in the past, with our capital, you know, two years ago, we were at about 55 million. Last year, we were at 65 million. And those were higher than our historical, you know, averages.

You know, this year, we're bringing it back down to about 45 million. In that 45 million, during the first half of this year, there was still the completion of our Atlanta, Georgia, you know, kind of major phase of -- you know, of automation there. So -- but there will always be projects that we have to continue to automate and improve our operations, whether it be in our distribution centers, whether it be in our service center. But, you know, just ways to improve our operations.

Michael Kupinski -- Noble Capital Markets -- Analyst

OK. And then, just regarding capital allocation, will we see share buybacks, or is the focus still debt reduction or both? Or can you give us a flavor of what the capital allocation is there?

Bill Shea -- Chief Financial Officer

Yeah, I think, first and foremost, you know, we always look at how we can bring, you know, the best, you know, shareholder value. But, you know, as we've been discussing and we've had just the smaller acquisitions in the last couple of years, but, you know, strategic M&A is our first priority. We think the best way to bring shareholder value is to -- you know, is to grow this -- you know, is to grow this business. So, M&A, you know, capex, where we see investments in the business that we believe can either drive up, you know, operating performance or, you know -- or help just drive performance, you know, debt repayments.

And then, stock buybacks are always a component of -- you know, of our capital allocation.

Michael Kupinski -- Noble Capital Markets -- Analyst

Great. Thanks. That's all I have. Thank you.

Chris McCann -- Chief Executive Officer

Thank you, Michael.

Operator

And our next question will come from Alex Fuhrman with Craig-Hallum. Please go ahead.

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

Great. Thanks very much for taking my question. And congratulation on a nice holiday season. You know, I wanted to ask about the trajectory of getting gross margin back to historical levels over the longer term.

As you think about kind of what your gross margin will be in the future, how is that going to compare to historical levels in terms of the components within that, things like product margin, freight, labor? Do you anticipate it being a similar mix to what you had historically, or is there going to be kind of a different way to get to the same number when things start to normalize for you?

Bill Shea -- Chief Financial Officer

Alex, thanks for the question. You know, first of all, I do think we've hit an inflection point with respect to gross -- you know, gross margins. You know, we anticipated that we would see stabilization of our margins in the -- you know, in the second quarter, and we achieved that. You know, we got the 90 basis points improvement overall, 170 basis points improvement from our food brands.

You know, that was a combination of, you know, strategic pricing initiatives, you know, the reduction in inbound freight costs, which continues to trend favorably for us. The improvement in labor availability, and as I mentioned before, you know, to -- you know, to Dan, that just allowed for operating efficiency and automate -- and certainly automation, you know, that we have. I think, you know, over the -- you know, we expect the second half of this year we're going to continue to show improvement in gross margins year over year. Certainly, that's going to continue into, you know, fiscal '24 and -- you know, and beyond.

As you point out, I think over the long term, we expect to get back to our, you know, gross margins. If you look over, you know, 10 years prior to last year, give or take, 50 basis points, and we were in that 42% gross margin, you know, range. And we anticipate getting -- you know, getting back to that, you know. That's going to be, you know, a combination of commodity costs coming back into their more normalized range.

They're still very high. You know, inbound freight, we are already seeing, you know, significant drops in inbound freight. We haven't gotten the full benefit of that yet because, you know, we bought at higher levels that still have to flush through, you know, the P&L. But we got some benefit, you know, on that.

Pricing initiatives, we have certain pricing initiatives that we've been able to put through. But as the economy improves, you know, and as the consumer comes back, you know, we'll be able to do some of that. Labor, you know, we're driving -- or spending capital to drive labor out of our -- you know, labor hours, out of our model. But labor rates are high and they're not coming back.

So, there will be a little bit of a mix shift because I think, you know, labor is high and labor rates are just, you know, 50% higher than they were a few -- you know, few years ago. Commodity costs are high today. Those will come back -- you know, come back down. Inbound freight will come back down.

Outbound freight will not come back down. Outbound freight will still be high. So, we have to drive other efficiencies to, you know, do our operations to drive margins and -- as well as some pricing initiatives to offset some of the components that will not come back down to historical levels.

Chris McCann -- Chief Executive Officer

Right. So, as you can see, we expect our gross margin -- as Bill just said, we expect our gross margin to improve all the time back to historical levels. And then, that, coupled with our opex management, puts us in a strong position going forward.

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

Great. That's really helpful. Thank you both.

Operator

And our next question will come from Linda Bolton-Weiser with D.A. Davidson. Please go ahead.

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

Yes. Hi. Thank you. Just on that point with the freight, can you just -- I think you had said that freight costs were lower in the food business but higher in floral and gifts.

So, I guess that's the difference between inbound and outbound freight. Can you just clarify that? And also, just with gasoline -- oil and gasoline prices being costs being lower, why wouldn't that kind of make the outbound freight lower as well?

Chris McCann -- Chief Executive Officer

Sure. Let me see if you can break that down a little bit.

Bill Shea -- Chief Financial Officer

Yeah. Inbound freight is -- you know, is down dramatically. And what we're paying on containers today is significantly below what we were paying, you know, a year ago. That hasn't fully flushed through, you know, the P&L yet.

We certainly saw some benefit of that in Q2. We'll see more of that in the second year. And certainly, as we head into fiscal '24 as we replenish inventory, it will be even -- it will be even lower. It just impacts -- the food side of the business, more inbound freight because -- and floral is not as impacted as much by inbound freight as the food brands are.

Outbound freight affects everybody. You know, it affects, you know, the food brands. It affects our Personalization Mall and it affects 1-800-FLOWERS. From a fuel perspective, we're still paying a higher -- so, you know, fuel is off its high, but fuel surcharges in the second quarter were still higher than they were a year ago.

You know, so again, off their highs of maybe March, April, but certainly still significantly higher than where they were in December of -- you know, November and December of a year ago. So, that was still a headwind as we went through the second quarter.

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

OK. Thank you. That's helpful. And then, I'm just curious about, like, some of these competitors that have been out there.

And I know they're all small, but some of these small up-and-coming, I guess mostly in the floral side, they're venture capital-backed-type operations. Have you seen any of them kind of go away because of the softness in just everyday gifting? Like, what have you seen in that kind of competitive landscape out there?

Chris McCann -- Chief Executive Officer

So, Linda, I think, you know, over time -- as you've seen with us in the floral industry, over time, if we go back a number of years, there seems to always be a few new entries that come in and, you know, wind up fading away. And we've seen that with a couple of businesses. Some of the start-ups out there now, I don't know their current status, but I want -- you know, any business that's out there right now that needs to raise cash, I think, is in trouble. And if you're going to need to raise cash right now, you're going to pay dearly for it.

So, I think that could -- that could, but I'm not saying we have seen it yet, but that could help with some of the competition we see on the floral side or on the food side as well and even in the personalization space, for that matter. It's just kind of across category for us. So, we're not seeing -- as Tom said, Valentine's Day continues to be a competitive scenario. It's the same players we've seen in the last year.

Nobody's come or gone, really new, you know, in the past year or so. No real change on the competitive landscape. But I question their go-forward viability in this environment.

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

OK. Thank you very much. I appreciate it.

Chris McCann -- Chief Executive Officer

Thank you, Linda.

Operator

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Chris McCann for any closing remarks.

Chris McCann -- Chief Executive Officer

Cole, thank you. And thank you all for your time and participation this morning. As we stated, we had a very successful holiday season. And we're, you know, well positioned -- as we've been saying, well positioned to a bigger, better, stronger company than we were pre-pandemic.

And we're very bullish on the future outlook of the company. So, I want to thank you for your time. And again, a reminder, it's not too early to order your Valentine's orders. And we all have many Valentines in our lives.

So, we're here to help you if you need it. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Duration: 0 minutes

Call participants:

Andy Milevoj -- Vice President, Investor Relations

Chris McCann -- Chief Executive Officer

Bill Shea -- Chief Financial Officer

Dan Kurnos -- The Benchmark Company -- Analyst

Tom Hartnett -- President

Michael Kupinski -- Noble Capital Markets -- Analyst

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

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

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