Some Investors May Be Worried About 1-800-FLOWERS.COM's (NASDAQ:FLWS) Returns On Capital
AInvestSunday, Jan 5, 2025 9:40 am ET
3min read


As an investor, it's essential to keep a close eye on the companies in your portfolio and understand their financial health. One such company that has been under scrutiny is 1-800-FLOWERS.COM (NASDAQ:FLWS), a leading provider of gifts designed to help inspire customers to give more, connect more, and build more and better relationships. FLWS has been facing concerns regarding its returns on capital, which is a crucial metric for evaluating a company's profitability and efficiency.

FLWS's capital structure and debt levels have a significant impact on its returns on capital. The company has a debt-to-equity ratio of 0.81, indicating that it has more debt than equity in its capital structure. This higher debt level can lead to higher interest expenses, which can negatively impact the company's returns on capital. Additionally, FLWS's debt-to-EBITDA ratio is 3.16, which is relatively high compared to other companies in the industry. This high debt level can also lead to higher interest expenses, which can negatively impact the company's returns on capital.

Furthermore, FLWS's interest coverage ratio is 0.49, which is relatively low compared to other companies in the industry. This low interest coverage ratio indicates that the company may struggle to pay its interest expenses, which can negatively impact its returns on capital.

Operating expenses and cost management play a significant role in FLWS's returns on capital. The company has been focusing on reducing expenses and operating more efficiently through its "Work Smarter" initiatives. In the fiscal 2025 first quarter, operating expenses declined by $0.2 million to $139.3 million compared to the prior year period. Excluding the impact of non-recurring charges and the Company's non-qualified deferred compensation plan, operating expenses declined by $4.2 million to $135.8 million. This reduction in operating expenses contributed to the company's improved gross profit margin, which increased by 20 basis points to 38.1% compared to the prior year period.

The company's focus on cost management and reducing operating expenses has also helped to improve its return on invested capital (ROIC). In the fiscal 2024 annual report, the company's ROIC was 1.9%, which indicates that the company is generating a return on its invested capital. The company's efforts to reduce operating expenses and improve cost management have contributed to this positive ROIC.

1-800-FLOWERS.COM's pricing strategies and market positioning have a significant impact on its returns on capital. The company operates in the specialty retail industry, offering a wide range of products, including fresh-cut flowers, floral and fruit arrangements, plants, gifts, personalized products, dipped berries, popcorns, gourmet foods and gift baskets, cookies, chocolates, candies, wines, and gift-quality fruits. To maintain its competitive edge and attract customers, 1-800-FLOWERS.COM employs various pricing strategies and market positioning tactics.

Firstly, the company offers a broad range of price points to cater to different customer segments. By providing budget-friendly to premium options, 1-800-FLOWERS.COM appeals to a wider audience, increasing its customer base and potential revenue. This strategy is evident in the company's Relationship Innovation initiatives, which have expanded its product offerings and broadened its price points (1-800-FLOWERS.COM, Inc. Reports Fiscal 2025 First Quarter Results, 2024).

Secondly, 1-800-FLOWERS.COM leverages its e-commerce platform to reach a larger audience and offer competitive pricing. The company's e-commerce business platform features a family of brands, including 1-800-Flowers.com, 1-800-Baskets.com, CherylG's Cookies, Harry & David, PersonalizationMall.com, ShariG's Berries, FruitBouquets.com, Things Remembered, Moose Munch, The Popcorn Factory, Wolferman's Bakery, Vital Choice, Scharffen Berger, and Simply Chocolate. This diverse portfolio of brands allows the company to target different customer segments and offer tailored pricing options (1-800-FLOWERS.COM, Inc. Reports Fiscal 2025 First Quarter Results, 2024).

Thirdly, 1-800-FLOWERS.COM's market positioning as a leading provider of gifts designed to help inspire customers to give more, connect more, and build more and better relationships has enabled it to command a premium in the market. The company's strong brand recognition and reputation for quality and convenience allow it to charge higher prices for its products compared to competitors (1-800-FLOWERS.COM, Inc. Reports Fiscal 2025 First Quarter Results, 2024).

However, these pricing strategies and market positioning have not translated into high returns on capital for 1-800-FLOWERS.COM. The company's return on invested capital (ROIC) is relatively low at 0.40%, indicating that its capital investments have not generated significant returns (1-800-FLOWERS.COM, Inc. Reports Fiscal 2025 First Quarter Results, 2024). This low ROIC could be attributed to various factors, such as intense competition in the specialty retail industry, high operating expenses, and the company's focus on expanding its product offerings and market reach rather than optimizing its capital investments.

In conclusion, 1-800-FLOWERS.COM's capital structure and debt levels, operating expenses and cost management, and pricing strategies and market positioning have a significant impact on its returns on capital. The company's higher debt levels and lower interest coverage ratio can lead to higher interest expenses, which can negatively impact its returns on capital. Additionally, the company's intense competition in the specialty retail industry, high operating expenses, and focus on expanding its product offerings and market reach rather than optimizing its capital investments have contributed to its low returns on capital. Investors may be concerned about FLWS's returns on capital, but by addressing these factors and implementing the suggested strategies, 1-800-FLOWERS.COM can improve its returns on capital and overall financial performance.
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