Last quarter, Rich Smith warned investors to be wary of a company that boasts of its revenues, rather than discussing its profits. He was referring to 1-800-Flowers.com
Yesterday, the online retailer proclaimed that revenue increased by 17%, and quietly mentioned that earnings were cut $2 million, or $0.03 per share, in its fiscal third quarter. It also mentioned that gross profit margins were down to 37.6% from 40.8% a year ago.
Management offered a plethora of reasons for why the quarter was unprofitable, but the main culprit was increased marketing costs. The spending obviously hampered earnings growth in the quarter, but should help the company grow long term. 1-800-Flowers was sure to point that out several times, repeatedly ensuring that the losses were temporary and the marketing costs will begin to pay off soon.
While reading the press release, I was left feeling that the company was perhaps piling on the fertilizer a bit thick. It was focusing on revenues, rather than earnings, and emphasizing the long-term benefits of its increased marketing, rather than the short-term costs that were incurred. Perhaps equally significant, 1-800-Flowers must focus on keeping or ensuring repeat customers, because bringing in new customers might well prove futile if customer service is compromised in favor of marketing efforts (return customers represented 58% of orders in the third quarter). The inherent question is whether the means justify the ends -- the cards are out on that one, but future earnings should be telling.
Having said that, I do think the company deserves some credit for its initiative. It did have 800,000 new customers in the quarter. And, it continues to invest in its recently acquired wine business, doing all it can to make it successful.
Investors might want to overlook the weeds -- though they've been around for the past two quarters -- and focus on the flowers that seem poised to blossom. In fact, many may view yesterday's 5% drop in the stock price as a good buying opportunity. I'd be more inclined, however, to wait for some signs of buds before buying in just yet.
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Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of 1-800-Flowers.com.