1-800-Flowers.com Inc. (FLWS, Financial) caugt my attention because the company's CEO and chief financial officer, among others, have been buying shares, which have been beaten down.
I particularly pay attention to CFO purchases because, unlike the CEO, they are typically not as rich and usually are employees, not founders or substantial owners of the company. They also have deep understanding of the finances of the company. For a CFO to step out and make an open-market purchase is a promising sign there is good value present.
Ticker | Insider | Position | Date | Buy/Sell | Shares | Shares Owned | Trade Price($) | Trade Percentage(%) | Cost($1,000) | Price change since trade(%) | Share ownership details | Filing Date |
| FLWS | Thomas G. Hartnett | President | 2023-09-07 | Buy | 25,000 | 280,333 | 6.09 | 8.92 | 152.25 | +17.08 | 280,333 (Direct) | 2023-09-11 |
| FLWS | William E. Shea | CFO & SVP | 2023-09-07 | Buy | 30,000 | 274,883 | 6.34 | 10.91 | 190.20 | +12.46 | 274,883 (Direct) | 2023-09-11 |
| FLWS | Thomas G. Hartnett | President | 2022-09-16 | Buy | 25,000 | 245,266 | 6.12 | 10.19 | 153.00 | +16.50 | 245,266 (Direct) | 2022-09-19 |
About 1-800-Flowers
Founded by James Francis McCann in 1976, the Jericho, New York-based company has grown from a single florist shop in New York City. McCann's original innovation was acquiring the 1-800-FLOWERS toll-free number, which is easy to remember, and then migrating the busiess over to the internet when it became popular in the 1990s. McCann and his family and trusts still control over 50% of the shares in the company.
Also known as simply Flowers, the iconic flower and gifting e-commerce company operates in the U.S. through the following segments: Consumer Floral and Gifts, BloomNet, Gourmet Foods and Gift Baskets.
The Consumer Floral and Gifts segment focuses on the operation of 1-800-Flowers.com, PersonalizationMall, Alice's Table and Things Remembered. The BloomNet segment includes memberships, service offerings to florists and other products. The Gourmet Foods and Gift Baskets segment involves the management of Harry & David, Wolferman's, Cheryl's Cookies, The Popcorn Factory, 1-800- Baskets/DesignPac, Shari's Berries and Vital Choice.
Flowers has a roll-up acquisition strategy. The company likes to acquire small e-commerce businesses that it can put onto its platform. From there, it seeks to invest in the acquired businesses while also improving their gross margins and lowering their overall operating expenses. Many of these businesses are in the gifting space, but the company has also moved into the gourmet food category with its acquisitions of Stock Yards (meats) and Vital Choice (sea food).
Source: Company's website
Recent performance
Flowers did very well during the pandemic, hitting a high of over $36 a share in 2021, and has now come down to about $7. This is about half of the pre-pandemic stock price. While the pandemic supercharged remote gift giving while people were stuck at home and a bust was inevitable in hindsight, after the unprecedented boom, this bust now appears to be overdone.
Observe from the chart below that the price-sales ratio has hit an all-time low. This appears to be a gross overreaction and the insider purchases made by executives appear to confirm the stock price is now attractive.
After a huge run up in 2021, Flowers suffered during 2022 when it ran into severe inflationary pressures and profit margins got hit. This, in turn, hurt the stock price. Gross margins fell from 42.1% in 2019 to 37.2% in 2022. Thus, margin recovery is another opportunity for the company in the coming years as its operations normalize after the turbulence caused by the pandemic and its aftermath.
The company also has a sophisticated and personalized marketing program to upsell its customers to multiple brands. It continuously increases its offerings and has a multi-brand shopping app and a loyalty program to make shopping and gifting easier and to encourage greater frequency of use and spend.
Valuation
The valuation chart for Flowers shows solid value potential. The GF Value shows the projected intrinsic value is more than twice the current stock price.
This is supported by the median price-sales value over the last 15 years.
Financial strength also looks good with a strong Altman Z-Score of 2.83, which indicates the risk of insolvency is low.
Conclusion
1-800 Flowers.com is an interesting, opportunistic idea. It is a play on reversion to the mean. Investing legend Bob Farrell said that markets tend to return to the mean over time. Excesses in one direction will lead to an opposite excess in the other direction. There are no new eras — excesses in both directions are never permanent. We have had an excess in bull direction in this stock and then an excess in the bear direction. Now, I anticipate the stock getting back to the long-term mean.
The company has long history and is a pioneer in e-commerce and personalized marketing. I like the fact it is family controlled with the founder still firmly in charge. This brings an entrepreneurial flair to Flowers as well as strong financial stewardship with a view to the long-term benefit of the shareholder. The fact that insiders (apart from the founder) are buying the stock is a good indicator of value. Before the pandemic, the shares traded in the $15 range. I think that level is probable again in the medium term (one to three years). The risk to my thesis is a worse-than-expected recession, which will crimp discretionary consumer spending.
