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2016 Annual Report DELIVERING SMILES, DRIVING GROWTH n iona v tion Always Innovating 1-800-FLOWERS.COM and its brands have always been on the leading edge of innovation. An example is the creation of the world's first \"of the month\" gift club - the iconic Harry & David Fruit-of-the-Month Club. Other pioneering accomplishments include being the first company to adopt an 800 telephone number as its name, the first merchant to conduct a transaction on AOL, and the floral industry's first mobile commerce gift center. Today, the innovations continue with truly original product ideas such as the \"Fabulous Feline\" collection of floral cats and many other unique products designed to deliver smiles. In fiscal 2016, 1-800-FLOWERS.COM also adopted several exciting new technologies - including \"Bots\" for Facebook Messenger that interact with customers using natural language, as well as the ability for customers to place orders using voice commands via Amazon Alexa. In addition, the Company introduced \"Gwyn\" (Gifts When You Need) - an online personal gift concierge built on artificial intelligence and powered by IBM Watson. About 1-800-FLOWERS.COM, Inc. 1-800-FLOWERS.COM, Inc. is a leading provider of gourmet food and floral gifts for all occasions. For the past 40 years, 1-800-FLOWERS (1-800-356-9377 or www.1800flowers.com) has been helping deliver smiles for our customers with gifts for every occasion, including fresh flowers and the finest selection of plants, gift baskets, gourmet foods, confections, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee backs every gift. The company's Celebrations suite of services including Celebrations Passport Free Shipping/No Service Charge program, Celebrations Rewards and Celebrations Reminderssm, are all designed to engage with customers and deepen relationships as a one-stop destination for all celebratory and gifting occasions. In 2016, 1-800-Flowers.com was awarded a Silver Stevie \"e-Commerce Customer Service\" Award, recognizing the company's innovative use of online technologies and social media to service the needs of customers. In addition, 1-800-FLOWERS.COM, Inc. was recognized as one of Internet Retailer's Top 300 B2B e-commerce companies and was also recently named in Internet Retailer's 2016 Top Mobile 500 as one of the world's leading mobile commerce sites. The company was included in Internet Retailer's 2015 Top 500 for fast growing e-commerce companies. In 2015, 1-800-Flowers.com was named a winner of the \"Best Companies to Work for in New York State\" Award by The New York Society for Human Resource Management (NYS-SHRM). The Company's BloomNet international floral wire service (www.mybloomnet.net) provides a broad range of quality products and valueadded services designed to help professional florists grow their businesses profitably. The 1-800-FLOWERS.COM, Inc. \"Gift Shop\" also includes gourmet gifts such as premium, gift-quality fruits and other gourmet items from Harry & David (1-877-322-1200 or www.harryanddavid.com), popcorn and specialty treats from The Popcorn Factory (1-800-541-2676 or www.thepopcornfactory.com); cookies and baked gifts from Cheryl's(1-800-443-8124 or www.cheryls.com); premium chocolates and confections from Fannie May (www.fanniemay.com and www.harrylondon.com); gift baskets and towers from 1-800-Baskets.com (www.1800baskets.com); premium English muffins and other breakfast treats from Wolferman's (1-800-999-1910 or www.wolfermans.com); carved fresh fruit arrangements from FruitBouquets.com (www.fruitbouquets.com); and top quality steaks and chops from Stock Yards (www.stockyards.com). Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market, ticker symbol: FLWS. a Financial Highlights (From Continuing Operations) JULY 3, JUNE 28, JUNE 29, JUNE 30, JULY 1, 2016 2015 2014 2013\t2012 (in millions, except percentages and per share data) Total Net Revenues Gross Profit Margin Operating Expense Ratio Adjusted EBITDA(1) Adjusted EPS $1,173.0\t$1,121.5\t$756.3\t$735.5\t$707.5 44.1% 43.4% 41.7% 41.5% 41.4% 40.4% 40.1% 38.6% 38.0% 38.5% $ 85.8(2) $ 80.5(3) $ 48.2 $ 48.9 $ 44.3(4) $ 0.43(2) $ 0.34(3) $ 0.22 $ 0.24 $ 0.20 (1) Excluding stock-based compensation. (2) Adjusted EBITDA and Adjusted EPS for fiscal 2016 exclude one-time costs for severance and integration of Harry & David, as well as the settlement of litigation. Adjusted EPS for fiscal 2016 also excludes the loss incurred on the sale of iFlorist, the impairment of a foreign equity investment, and the gain from the Fannie May warehouse fire insurance recovery. Fiscal 2016 EPS as reported was $0.55. (3) Pro forma for comparability: Includes Harry & David's fiscal 2015 first quarter loss in order to present comparable full-year results: Adjusted EBITDA and Adjusted EPS for fiscal 2015 exclude one-time costs associated with the acquisition and integration of Harry & David and the impact of the Fannie May warehouse fire in November 2014; Fiscal 2015 Adjusted EBITDA as reported was $95.3MM and fiscal 2015 Adjusted EPS as reported was $0.51. (4) Fiscal 2012 EBITDA was adjusted to exclude a gain on the sale of Fannie May stores. FY16 % Revenues Total Revenues (From Continuing Operations In Millions) Adjusted EBITDA1 $735.5 $1.12B $1.17B $756.3 $707.5 $85.82 by Season by Category Gourmet Food & Gift Baskets July - September (Fiscal 1st Quarter) Consumer Floral October - December (Fiscal 2nd Quarter) BloomNet Wire Service January - March (Fiscal 3rd Quarter) April - June (Fiscal 4th Quarter) $80.53 13% $48.9 7% 57% $48.2 $44.3 4 FY12 FY13 FY14 FY15 FY16 7% 36% 47% 20% Fiscal 2016 Achievements Grew revenues 4.6 percent to $1.17 Billion Grew Adjusted EBITDA(2) (excluding stock-based compensation) 6.6 percent to $85.8 Million Grew Adjusted EPS(2) 26.5 percent to $0.43 Continued successful integration of Harry & David, increasing expected synergy savings to $20 Million Financial Report Insert See inside rear cover pocket 20% To Our Shareholders We are pleased to report another solid year of top and bottom line growth for our company. In fact, Fiscal 2016 was a good year on a number of fronts. First, we made excellent progress executing on our vision to build what we call our \"Celebratory Ecosystem\" which includes our all-star collection of gifting brands and an ever increasing suite of products and services designed to help our customers deliver smiles to the important people in their lives. We also continued to make progress in our integration initiatives, which began with our acquisition of Harry & David and has now evolved into a holistic approach to how we view and operate our entire company. A key feature of this approach is that we are focused on proactively identifying and sharing best practices across all of our operations and key functional areas. This focus free shipping program, Celebrations Rewards and Celebrations Reminders - programs that are all designed to enhance our customers' experience. Solid Performance Across All Three Segments In addition to the progress we achieved in these important areas, during the year we saw some positive trends in all three of our business segments. In Consumer Floral, 1-800-Flowers continued to extend its market leading position driving solid comparable revenue growth for the year and four more quarters of year-over-year increases in contribution margin. These results reflect several factors, including: our focus on truly original product designs - developed by On March 9, 2016 the Company announced that Jim McCann, Founder, Chairman and CEO, was transitioning to the position of Executive Chairman and Chris McCann, President, adding the title of Chief Executive Officer. The announcement coincided with the 40th anniversary of the Company's founding and is an integral part of its long-term succession plan. As Executive Chairman, Jim continues to be involved with the Company in his role overseeing its management talent evaluation and development, M&A and business development and long-term strategic planning. Chris, who has been steering the Company's day-to-day operations as President since 2000, has expanded his responsibilities for overseeing the Company's operational and organization processes, including the development and execution of the Company's annual and longer-term operating and financial plans. has already provided benefits, enabling us to exceed our original estimates for operating synergies, which is now at $20 million over three years - $10 million of which we have already captured. Pursuing Multiple Revenue Growth Synergies While continuing to execute against our initiatives to drive operating cost synergies, during the year we also began to turn more focus on pursuing the numerous revenue synergies that we see across our business platform, including: n increased cross-brand marketing and merchandising; n improved customer data analytics and an expanded suite of CRM tools for our growing customer database; n new brand and product introductions for our wholesale channels; n and new initiatives to accelerate growth in corporate gifting. During the year, we also enhanced our ability to increase multi-brand customers - a key long-term growth strategy - by completing the migration of all of our brands onto the multibrand website. This enables us to enhance our cross-brand marketing and merchandising programs - and begin to accelerate our marketing initiatives, including Celebrations Passport working directly with our talented local BloomNet florists; our disciplined approach to efficient and effective marketing programs; and, our intense focus on always enhancing our customers' experience - from shopping to delivery - which helped drive exemplary customer satisfaction metrics. We expect to build on these positive trends going forward and we are confident that the 1-800-Flowers brand can accelerate its revenue growth and further expand its market leadership in fiscal 2017. In our BloomNet business, revenues were essentially flat year-over-year however we continued to drive strong bottomline performance, reaching a record high contribution margin of 36 percent of total revenues. This reflects both effective cost management, as well as BloomNet's focus on being the quality and innovation leader in the wire service business. We are confident that BloomNet is well positioned to achieve both top and bottom-line growth in fiscal 2017 when it will benefit from several factors, including: increasing order volumes from growing 1-800-Flowers and florist shop-to-shop orders in everyday occa- sions, such as Sympathy, as well as from the favorable Valentine'sday placement; increased product sales to an expanded range of wholesale customers; and new web marketing services and digital directory advertising offerings. In our Gourmet Food segment, strong revenue growth for the year was driven primarily by Harry & David. Here we are gradually building momentum as we begin to pursue the multiple revenue synergy opportunities that we see in our business. Harry & David's revenue contributions, combined with continued solid growth in our Cheryl's and 1-800-Baskets businesses, more than offset lower performance in our Fannie May brand, which is still working its way back from the fire at its warehouse in fiscal 2015. To address Fannie May's performance - and return it to its strong, pre-fire top and bottom-line levels - we've instituted a number of changes, including: significant reductions to the brand's cost structure; enhanced product assortments; new packaging designs; and enhanced store merchandising and local marketing programs. We believe these changes will enable Fannie May to grow its top line, enhance its gross margin and drive significantly improved bottom-line contribution. Strong Balance Sheet Enables Investments In Key Growth Areas We finished fiscal 2016 with a strong balance sheet including a low debt ratio and growing cash flows. Inventory at year-end was $103.3 million, reflecting the rebuilding of Fannie May's inventories as well as our decision to build forward some inventory for the upcoming holiday season to help mitigate increasing costs associated with seasonal labor recruitment and wages in the first half of fiscal 2017. A Culture of Innovation Importantly, during fiscal 2016 we further illustrated a key feature of our corporate culture - our focus on Innovation. Simply put: innovation is part of our DNA. We have always been intensely focused and committed to being at the forefront of technological innovation and social trends that help shape consumer behavior. During fiscal 2016 we began to leverage some exciting new developments in machine-learning or artificial intelligence (A.I.). We launched the first commerce \"bot\" on Facebook's Messenger platform, where they now have more than 1 billion monthly active users. We were one of the first external commerce brands integrated onto the Amazon Alexa voice-enabled platform. And, we launched \"Gwyn\" - our own AI-based gift concierge service, partnering with IBM's Watson platform. These initiatives have positioned us as a first mover in the fast emerging world of \"conversational commerce.\" In addition, we continued to innovate within the rapidly changing landscape for payments, becoming one of the launch partners for Apple on their Apple Pay for desktop and mobile web. All of these innovations help position us at the forefront of the fast evolving changes we see in customer access, engagement and experience. In addition, they also demonstrate how Facebook, Amazon, IBM and Apple are interested in having our great brands in their ecosystems. Focus on Sustainable Growth It's important to note that over the past several years we have nearly doubled our top line through a combination of solid organic growth and our disciplined approach to M&A. We have also, concurrently, more than doubled our bottom line in terms of EBITDA, EPS and Free Cash Flow. We have achieved these results despite rising labor costs and a tightening market for seasonal labor; increasing commodity prices; and unfavorable day placements for the Valentine holiday. As we look ahead, we know there will always be headwinds that we need to manage through, however we are now seeing some nice tailwinds in our business as well. These include the successful integration of Harry & David which is generating both operating synergies as well as significant revenue growth opportunities; the strong momentum in our 1-800-Flowers business, where we now have favorable Valentine's-day placements for the next several years; and the recently completed migration of our brands onto the multi-brand platform, which enables us to drive more cross-brand marketing and merchandising programs and create more multibrand customers. Looking Ahead: Accelerating Organic Revenue Growth We have numerous opportunities available to us that we will seize upon as we move into fiscal 2017. We will carry forward and build upon the momentum we have in our 1-800-Flowers, Harry & David, Cheryl's and 1-800-Baskets brands. We will execute against our initiatives to return Fannie May to its strong, pre-fire performance levels. We will further expand our multi-brand strategy to capture more of our customer's gifting purchases and drive lifetime-value. We will continue to invest in and implement innovative, customer-centric solutions to enhance customer experience. We will further expand best practice initiatives across the company to drive incremental cost and revenue synergies. And, we will continue to differentiate our company as the leader in providing gifting solutions for all occasions. By executing against these opportunities, we are confident that we will drive accelerated organic revenue growth - leverage that growth to further expand margins - and continue to build long-term shareholder value. We thank you for your continued support. Jim McCann Executive Chairman Chris McCann President and CEO january 2017 Innovation is engrained in the DNA of 1-800-FLOWERS.COM, Inc., illustrated by a history of firsts in adopting new technologies that enhance customer engagement and the customer experience. In fiscal 2016, the Company collaborated with IBM to introduce \"Gwyn\" (Gifts When You Need), a game-changing conversational commerce technology powered by IBM Watson artificial intelligence. Gwyn interacts with online customers via natural language text chat, serving as a gift concierge and learning about customers' unique gifting needs to assist them in choosing the perfect gift for every occasion. Also during fiscal 2016, the Company embarked on several other innovative technology initiatives, including becoming the first third-party ecommerce retailer to be deployed on the Amazon Alexa voiceenabled platform as well as launching the floral industry's first text-based \"bot\" for Facebook Messenger. S U N D AY 1 M O N D AY T U E S D AY 2 31 8 9 10 15 16 22 23 24 29 30 31 New Year's Day Martin Luther King Jr.'s Birthday (observed) 17 THURSDAY W E D N E S D AY F R I D AY S AT U R D AY 41 51 6 7 11 12 13 14 18 19 20 21 25 26 27 28 u b fe r ary 2017 Of all the gifting occasions throughout the year, perhaps none can compare to the romance of Valentine's Day when it comes to connecting with that special someone in our lives. Helping to create an exceptional customer experience on Cupid's big day and every other day all year long is the Company's customer service team. Our highly trained customer service representatives ensure that every customer receives the highest caliber of assistance on everything from advice about selecting the ideal gift, to monitoring the fulfillment of each order. During fiscal 2016, the Company achieved its best customer satisfaction metrics ever - fostering loyalty, generating important customer recommendations and increasing opportunities for repeat business. Underscoring these achievements, 1-800-Flowers.com was awarded a Silver Stevie \"e-Commerce Customer Service\" Award, recognizing our innovative use of online technologies and social media in servicing customer needs. 1 S U N D AY M O N D AY T U E S D AY 1 5 6 7 12 13 14 19 20 26 27 Presidents' Day 21 28 Valentine's Day THURSDAY W E D N E S D AY 1 2 8 F R I D AY S AT U R D AY 3 4 9 10 11 15 16 17 18 22 23 24 25 Groundhog Day a h c mr 2017 BloomNet, the floral industry's leading wire service innovator, offers products and services designed to help thousands of local, professional florists grow their business. In addition to technology solutions designed to enhance productivity and profitability for retail florists, BloomNet is a go-to source for knowledge that can expand florists' revenues. An example is the Floriology InstituteTM in Jacksonville, Florida which provides hands-on courses in floral design taught by several of the world's leading design experts...enabling florists to widen their sales possibilities with exciting new floral arrangements reflecting the latest design trends. During fiscal 2016, Floriology Institute began offering florists the opportunity to earn coveted American Institute of Floral Designers \"Certified Floral Designer\" (CFD) designation. Also an important resource for florists is Floriology magazine, featuring a wide spectrum of design ideas, best business practices and inspiring success stories highlighting flower shop owners. 2 S U N D AY M O N D AY T U E S D AY 5 6 7 12 13 14 19 20 26 27 First Day of Spring 21 28 THURSDAY W E D N E S D AY F R I D AY S AT U R D AY 1 2 3 4 8 9 10 11 15 16 17 22 23 24 29 30 31 St. Patrick's Day 18 25 2017 Millions of customers look to the Company's multi-brand website as a one-stop gifting destination. The site introduces customers to our entire family of brands, helping them solve for more of their year-round gifting needs and thereby generating increased retention and frequency. Complementing this strategy is our \"Celebratory Ecosystem\" focused on deepening customer relationships through our \"All Star\" collection of brands and our Celebrations suite of customer engagement services, including: Celebrations Passport providing free delivery across all our brands for one low annual fee; Celebrations Rewards enabling customers to build and use points across all brands; and Celebrations RemindersSM which helps customers remember all the important celebratory and gifting occasions in their lives. S U N D AY M O N D AY 2 3 9 10 16 4 Passover Begins at Sunset 17 Easter 23 24 30 T U E S D AY 11 18 Administrative Professionals' Week Begins 25 W E D N E S D AY THURSDAY F R I D AY S AT U R D AY 01 2 5 6 7 8 12 13 14 15 19 20 21 22 27 28 29 26 Administrative Professionals' Day 1 April Fools Day a my 2017 Thoughtful gifts, unlike just about any other expression of love and kindness, have a special way of making an emotional connection with recipients... delivering smiles to their faces that can light up a room. Of course, Mother's Day offers a great opportunity to express the perfect sentiments. Whether it's an indulgent assortment of spa products, a beautiful floral arrangement, delectable gourmet foods, or a vast range of truly original gifts for Mom's day and for virtually every occasion throughout the year, 1-800-FLOWERS.COM, Inc. makes it easy for customers to create fond memories that can last a lifetime. Adding to the possibilities is a continuously growing spectrum of personalize-able products that can bring a distinctive touch to any gifting experience. 2 S U N D AY M O N D AY T U E S D AY 11 21 8 9 15 16 21 22 23 28 29 7 14 Mother's Day Memorial Day (observed) 30 THURSDAY W E D N E S D AY F R I D AY S AT U R D AY 31 4 5 10 11 12 13 17 18 19 20 24 25 26 27 29 30 31 Cinco d Mayo 6 2017 1-800-FLOWERS.COM, Inc. is honored to have been included in Internet Retailer's 2016 Top Mobile 500 as one of the world's leading mobile commerce sites. Keeping with our commitment to remaining on the forefront of new innovations by adopting state-of-the-art technologies in the mobile world and embracing many other emerging technologies, in fiscal 2016 the Company began offering its customers the convenience of Apple Pay on desktop and mobile web. Using this technology, which is available in Safari on iPhone, iPad and Mac, customers can easily and quickly complete a secure and private payment on www.1800flowers.com with a single touch - enhancing the customer experience by simplifying the checkout process. S U N D AY M O N D AY 1 2 4 5 6 11 12 13 19 20 26 27 18 Father's Day 25 T U E S D AY THURSDAY W E D N E S D AY F R I D AY S AT U R D AY 1 2 3 8 9 10 15 16 17 21 22 23 24 28 29 30 7 14 Flag Day First Day of Summer july 2017 Everyday gifting is one of the strongest growth areas for 1-800-FLOWERS.COM, Inc. In addition to relying on our family of brands for an immense selection of gifts to celebrate holidays, customers are increasingly coming to us for gifts that can turn any day into a special celebration. For instance, many of our gifts are perfect for sharing at summer gatherings...from a succulent assortment of freshly carved Fruit Bouquets by 1800flowers.comSM , to tempting Fannie May fine chocolates, to mouthwatering Cheryl's cookies, as well as many more gourmet treats. Also a growing opportunity is the market for shareable food gifts appropriate for sympathy occasions. With Harry & David, Fannie May, 1-800-Baskets.com, Cheryl's, and more, we offer a uniquely broad range of shareable gourmet gifts that can be conveniently delivered to the home to be appreciated and enjoyed by family and friends. 2 S U N D AY M O N D AY T U E S D AY 1 2 3 4 9 10 11 16 17 18 24 25 23 Parents' Day 30 31 Independence Day THURSDAY W E D N E S D AY F R I D AY S AT U R D AY 1 1 2 5 6 7 12 13 14 19 20 21 22 26 27 28 29 8 Bastille Day 15 2017 Flower shops are home to some of the most creative people to be found anywhere. Through the 1-800-Flowers.com Local Artisan program, local floral designers are given an opportunity to showcase their artistic talents and promote their truly original products to millions of consumers via the 1-800-Flowers.com website. The program is highly popular, enabling florists to take advantage of the enormous reach of the 1-800-Flowers.com site to gain widespread exposure and increased sales for their products. In fiscal 2016, a Local Artisan landing page was added on www.1800flowers.com where the stories of the artisans and their unique products are featured. Besides benefiting local florists, the program also plays an integral role in the Company's development of new products, continuously simulating innovative ideas in floral design. S U N D AY M O N D AY T U E S D AY 1 6 7 13 14 15 20 21 22 27 28 29 National Friendship Week Begins 8 THURSDAY W E D N E S D AY F R I D AY S AT U R D AY 3 4 5 9 10 11 12 16 17 18 19 23 24 25 26 30 31 02 e t r b p se m e 2017 The 1-800-Flowers.com brand has long been a leader in gifts for all occasions. Through the merchandising strength of our multi-brand website, we are uniquely positioned to introduce millions of customers to our expanded collection of gourmet food brands including Harry & David, The Popcorn Factory, Fannie May chocolates, Cheryl's cookies, and Stock Yards steaks and chops, along with Fruit Bouquets by 1800flowers.comSM and 1-800-Baskets.com. This strategy is helping to drive the creation of new products across our entire family of brands while also increasing the opportunities for everyday gifting, celebrating such occasions as birthdays, new babies and anniversaries, and for expressing get well and sympathy sentiments. S U N D AY M O N D AY T U E S D AY 1 3 10 4 Labor Day 5 11 12 17 18 19 24 25 26 Grandparents Day Patriot Day THURSDAY W E D N E S D AY 2 F R I D AY S AT U R D AY 1 2 6 7 8 9 13 14 15 16 21 22 First Day of Fall 23 28 29 Yom Kippur Begins at Sunset 30 20 27 Rosh Hashanah Begins at Sunset b octo er 2017 Business gifting is a thoughtful way for bosses, colleagues and associates to recognize achievements, provide incentives, say thank you, and offer condolences. During fiscal 2016, the Company's Corporate Gifts division created partnerships with several top companies. Among these is Service Corporation International (SCI), North America's largest provider of funeral and cemetery services. Through SCI's Dignity Memorial brand, an exclusive new online sympathy gift program was launched offering distinctive, personalized sympathy gift options. Partnerships were also established with the Citi ThankYou Rewards program and with Capital One. Citi customers can redeem points for flowers and other gifts in our family of brands, and Capital One service agents can offer gifts to customers as part of a \"just because\" program. Exclusive agreements were also created to provide gifts to many other well-known companies and organizations, including Southwest Airlines, AAA, AARP, Caesar Total Rewards, and Bank of America. S U N D AY 1 1 8 M O N D AY 3 2 National Children's Day 9 T U E S D AY Columbus Day (observed) 10 15 16 22 23 24 29 30 31 National Boss's Day 17 Halloween THURSDAY W E D N E S D AY F R I D AY S AT U R D AY 4 52 6 7 11 12 13 14 18 19 20 21 25 26 27 28 Sweetest Day 2017 A fresh chill is in the air, guests are arriving, and it's time to celebrate the late autumn start of another festive holiday season. Helping to make fall celebrations extra memorable is the Company's \"All Star\" line-up of leading gift brands. Floral centerpieces from 1-800-Flowers.com adorn tables and mantels. And whetting appetites is our expansive portfolio of delicious gourmet food gifts from Harry & David, Cheryl's cookies, The Popcorn Factory, and Fannie May chocolates, plus juicy Fruit Bouquets by 1800flowers.comSM and overflowing gift baskets from 1-800-Baskets.com. 1-800-FLOWERS.COM, Inc. has built this extraordinary collection of gift possibilities through a combination of birthing brands internally and strategic acquisitions - enhancing our relationships with customers who know and trust us to provide exactly what they want for an increasingly broad range of celebratory occasions. 2 S U N D AY M O N D AY T U E S D AY 1 2 5 6 7 12 13 14 19 20 21 26 27 28 Election Day THURSDAY W E D N E S D AY F R I D AY S AT U R D AY 1 2 3 4 8 9 10 11 15 16 17 18 22 23 24 25 29 30 Thanksgiving Day Veterans Day 2017 'Tis the season for bountiful gifts, and for many people no gift is more eagerly awaited than world famous Royal Riviera pears from Harry & David. As far as the eye can see, our own orchards cascade across the southern Oregon countryside, ready for harvest in late summer/early fall - ultimately yielding what are arguably the most flavorful and juiciest pears anywhere on the planet. Also helping to make the holidays joyous are several other Harry & David brands including Moose Munch premium popcorn, Wolferman's baked goods and specialty foods, and the newly introduced Orchard Table brand of prepared gourmet foods designed to make entertaining and the enjoyment of delicious meals effortless and inviting. S U N D AY M O N D AY T U E S D AY 1 3 4 5 10 11 12 17 18 19 24 25 31 Christmas Day 26 Hanukkah Begins at Sunset First Day of Kwanzaa THURSDAY W E D N E S D AY 02 F R I D AY S AT U R D AY 1 2 6 7 8 9 13 14 15 16 20 21 22 23 27 28 29 30 First Day of Winter Board of Directors James F. McCann Executive Chairman 1-800-FLOWERS.COM, Inc. Christopher G. McCann President and Chief Executive Officer 1-800-FLOWERS.COM, Inc. Geralyn R. Breig Former President Clarks, Americas Region James A. Cannavino IBM Company Senior Vice President Retired Eugene F. DeMark C.P.A. Area Managing Partner KPMG, LLP, Retired BankUnited Director Leonard J. Elmore Network Television Sports Analyst Attorney at Law Celia R. Brown Former EVP Group HR Director Willis Group Larry Zarin Express Scripts, Inc. Senior Vice President Chief Marketing Officer Retired Sean P. Hegarty Managing Partner Hegarty & Company Fiscal Year 2016 Financial Report Selected Financial Data 1-800-FLOWERS.COM, Inc. and Subsidiaries The selected consolidated statement of operations data for the years ended July 3, 2016, June 28, 2015 and June 29, 2014 and the consolidated balance sheet data as of July 3, 2016 and June 28, 2015, have been derived from the Company's audited consolidated financial statements included elsewhere in this Annual Report. The selected consolidated statement of operations data for the years ended June 30, 2013 and July 1, 2012, and the selected consolidated balance sheet data as of June 29, 2014, June 30, 2013 and July 1, 2012, are derived from the Company's audited consolidated financial statements which are not included in this Annual Report. The following tables summarize the Company's consolidated statement of income and balance sheet data. The Company acquired Harry & David in September 2014, 16 franchised stores from GB Chocolates in June 2014, iFlorist in December 2013 (subsequently disposed in October 2015), Pingg Corp. in May 2013 (subsequently disposed of in June 2015), Flowerama in August 2011, and Fine Stationery, Inc. in May 2011 (subsequently disposed of in June 2015). The following financial data reflects the results of operations of these subsidiaries since their respective dates of acquisition. On September 6, 2011, the Company completed the sale of certain assets of its wine fulfillment services business operated by its Winetasting Network subsidiary. During the fourth quarter of fiscal 2013, the Company made the strategic decision to divest the e-commerce and procurement businesses of its Winetasting Network subsidiary in order to focus on growth opportunities in its Gourmet Foods and Gift Baskets business segment. The Company closed on the sale of its Winetasting Network business on December 31, 2013. As a result, the Company has classified the results of its wine fulfillment services business as a discontinued operation for fiscal 2012, and the results of the e-commerce and procurement businesses as discontinued operations for fiscal 2014, 2013 and 2012. This information should be read together with the discussion in \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" and the Company's consolidated financial statements and notes to those statements included elsewhere in this Annual Report. Years Ended July 3, June 28, June 29, June 30, July 1, 2016 2015 2014 2013 2012 (in thousands, except per share data) Consolidated Statement of Income Data: Net revenues $1,173,024 Cost of revenues 655,566 Gross profit 517,458 Operating expenses: Marketing and sales 318,175 Technology and development 39,234 General and administrative 84,383 Depreciation and amortization 32,384 Total operating expenses 474,176 -- Gain on sale of stores Operating income 43,282 Interest expense, net 6,674 Other (income) expense, net (14,839) Income from continuing operations before income taxes 51,447 Income tax expense from continuing operations 15,579 Income from continuing operations 35,868 Income (loss) from discontinued operations, -- net of tax Net income 35,868 Less: Net loss attributable to noncontrolling interest (1,007) Net income attributable to 1-800-FLOWERS.COM, Inc. $ 36,875 Basic net income (loss) per common share attributable to 1-800-FLOWERS.COM, Inc. From continuing operations $ 0.57 From discontinued operations -- Basic net income per common share $ 0.57 Diluted net income (loss) per common share attributable to 1-800-FLOWERS.COM, Inc. From continuing operations $ 0.55 From discontinued operations -- Diluted net income per common share $ 0.55 Weighted average shares used in the calculation of net income (loss) per common share: Basic 64,896 Diluted 67,083 $1,121,506 634,311 487,195 $756,345 440,672 315,673 $735,497 430,305 305,192 $707,517 414,940 292,577 299,801 34,745 85,908 29,124 449,578 194,847 22,518 54,754 19,848 291,967 186,720 21,700 52,188 18,798 279,406 181,199 20,426 51,474 19,540 272,639 -- -- -- 3,789 37,617 5,753 1,550 23,706 1,305 52 25,786 1,713 (722) 23,727 2,675 (40) 30,314 22,349 24,795 21,092 10,930 19,384 8,403 13,946 9,073 15,722 7,771 13,321 -- 19,384 729 14,675 (3,401) 12,321 4,325 17,646 (903) (697) -- -- $ 20,287 $ 15,372 $ 12,321 $ 17,646 $ 0.31 0.00 0.31 $ $ $ $ 0.24 (0.05) 0.19 0.30 $ 0.24 (0.05) 0.19 $ $ $ 0.00 $ 0.30 64,976 67,602 2 $ 0.23 0.01 0.24 0.22 0.01 0.23 64,035 66,460 $ $ $ 64,369 66,792 $ $ 0.21 0.07 0.27 0.20 0.07 0.27 64,697 66,239 Selected Financial Data (continued) 1-800-FLOWERS.COM, Inc. and Subsidiaries July 3, 2016 Consolidated Balance Sheet Data: Cash and cash equivalents Working capital Total assets Long-term liabilities Total 1-800-FLOWERS.COM, Inc. stockholders' equity June 28, 2015 As of June 29, 2014 June 30, 2013 July 1, 2012 (in thousands) $ 27,826 45,798 506,514 143,067 $ 27,940 36,361 501,946 168,083 $ 5,203 17,511 267,569 7,144 242,586 208,449 183,228 $ 154 16,886 250,073 5,039 $ 28,854 29,721 262,213 17,080 169,271 161,748 Management's Discussion and Analysis of Financial Condition and Results of Operations 1-800-FLOWERS.COM, Inc. and Subsidiaries Business Overview from Cheryl's (1-800-443-8124 or www.cheryls.com); premium chocolates and confections from Fannie May (www.fanniemay.com and www.harrylondon.com); gift baskets and towers from 1-800- Baskets.com (www.1800baskets.com); premium English muffins and other breakfast treats from Wolferman's (1-800-999-1910 or www.wolfermans.com); carved fresh fruit arrangements from FruitBouquets.com (www.fruitbouquets.com); and top quality steaks and chops from Stock Yards (www.stockyards.com). 1-800-FLOWERS.COM, Inc. and its subsidiaries (collectively, the \"Company\") is a leading provider of gourmet food and floral gifts for all occasions. For the past 40 years, 1-800-FLOWERS (1-800-356-9377 or www.1800flowers.com) has been helping deliver smiles for our customers with gifts for every occasion, including fresh flowers and the finest selection of plants, gift baskets, gourmet foods, confections, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee backs every gift. The company's Celebrations suite of services including Celebrations Passport Free Shipping program, Celebrations Rewards and Celebrations RemindersSM, are all designed to engage with customers and deepen relationships as a one-stop destination for all celebratory and gifting occasions. In 2016, 1-800-Flowers.com was awarded a Silver Stevie \"e-Commerce Customer Service\" Award, recognizing the company's innovative use of online technologies and social media to service the needs of customers. In addition, 1-800-FLOWERS.COM, Inc. was recognized as one of Internet Retailer's Top 300 B2B e-commerce companies and was also recently named in Internet Retailer's 2016 Top Mobile 500 as one of the world's leading mobile commerce sites. The Company was included in Internet Retailer's 2015 Top 500 for fast growing e-commerce companies. In 2015, 1-800FLOWERS.COM was named a winner of the \"Best Companies to Work for in New York State\" award by The New York Society for Human Resource Management (NYS-SHRM). As a provider of gifts to consumers and wholesalers for resale to consumers, the Company is subject to changes in consumer confidence and the economic conditions that impact our customers. Demand for the Company's products is affected by the financial health of our customers, which, in turn, is influenced by macro economic issues such as unemployment, fuel and energy costs, trends in the housing market and availability of consumer credit. While consumers appear more upbeat about the economy, during the recent economic downturn, the demand for our products had been adversely affected by the reduction in consumer spending, and the Company expects that its revenues will continue to be closely tied to changes in consumer sentiment. On September 30, 2014, the Company completed its acquisition of Harry & David Holdings, Inc. (\"Harry & David\"), a leading multi-channel specialty retailer and producer of branded premium gift-quality fruit, gourmet food products and other gifts marketed under the Harry & David, Wolferman's and Cushman's brands. The Company's BloomNet international floral wire service (www.mybloomnet.net) provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably. The 1-800-FLOWERS.COM, Inc. \"Gift Shop\" also includes gourmet gifts such as premium, gift-quality fruits and other gourmet items from Harry & David (1-877-322-1200 or www.harryanddavid.com), popcorn and specialty treats from The Popcorn Factory (1-800-541-2676 or www.thepopcornfactory.com); cookies and baked gifts During fiscal 2016, the Company was able to achieve a number of operational and financial milestones: 3 Integration of Harry & David - During fiscal 2016, the Company made significant progress towards achieving its primary goal of integrating Harry & David, whose iconic brands have helped transform the Company into a source for premier gifting, executing upon identified initiatives that have been Management's Discussion and Analysis (continued) 1-800-FLOWERS.COM, Inc. and Subsidiaries estimated to achieve over $20.0 million of annual synergy savings within three years of the acquisition. date placement, to Sunday in fiscal 2016, recognized in the e-commerce floral industry as the worst date placement within the week. This shift presented not only logistical challenges related to Sunday deliveries, but also reduced overall demand as customers may forgo flowers in favor of other options such as dining out or going to the movies. Fiscal 2016 was also negatively impacted by a year-over-year reduction in store count, as well as significant increases in labor costs associated with the tightening employment market for seasonal workers and mandated minimum wage increases. Multi-Brand Customer Initiatives - The Company continued to expand its multi-brand customer initiatives, a key ingredient in our strategy to enhance customer engagement and long-term growth, by completing the migration of all of the Company's brands onto the multi-brand website. This will provide the ability to enhance the customer experience by providing for cross-brand marketing and merchandising programs and ease of access to the Company's Celebrations suite of services, including Celebrations Passport free shipping, Rewards and Reminders membership programs. Recognizing the need to balance the Company's short and long-term operating and financial objectives, a key tenet of the Company's fiscal 2017 strategy, now that Harry & David has been substantially integrated, is to continue to focus on execution of its identified cost synergy savings opportunities, which are expected to generate annual savings in excess of $20.0 million by fiscal 2018, while now pursuing revenue generating synergies such as cross-brand marketing, mining of customer databases through our expanded suite of CRM tools and in business gift services and wholesale channels. Tempered by the continuing challenging economic climate, the Company expects consolidated revenue growth in the range of 4-to-5% during fiscal 2017. In terms of bottom-line results, the Company expects EBITDA growth in a range of 8-10%, and EPS growth in a range of 5-10%, compared with Adjusted EBITDA of $85.8 million and Adjusted EPS of $0.43 reported for fiscal 2016 (Fiscal 2016 Adjusted EBITDA and Adjusted EPS exclude the impact of certain onetime costs - see Category Information below for details of the adjustments). Strengthening balance sheet and investment in business platforms - Throughout fiscal 2016, the Company continued its responsible stewardship of shareholders' capital, further strengthening its balance sheet by reducing long-term debt while continuing to invest in business platforms, categoryleading mobile and social efforts, and the Company's innovate focus as a \"first mover\" in the fast evolving areas of artificial intelligence and conversational commerce. However, there were also a number of significant headwinds that the Company had to address during fiscal 2016. While working to integrate Harry & David and achieve synergy savings, the Company was still dealing with both the operational and financial ramifications of its Fannie May warehouse fire. Although the entire enterprise came together and was able to return to full capabilities within 5 months of the fire, the Company experienced unforeseen longer term consequences on its revenue base, especially within the brand's e-commerce and retail channels. With the benefit of 20/20 hindsight, it appears that the negative impact on revenues from the fire continued to drag beyond the Company's initial estimates, well into fiscal 2016. While the pace of Fannie May's recovery was below expectations throughout the year, the Company was able to offset this impact to earnings as it recovered its inventory lost to the fire through its property and business interruption policies, recognizing a gain of $19.6 million upon settlement in the first quarter of fiscal 2016. In addition to the lingering effects of the fire, the Company effectively steered its way through the challenging date placement of Valentine's Day, which moved from Saturday in fiscal 2015, already a difficult Category Information The following table presents the net revenues, gross profit and category contribution margin from each of the Company's business segments, as well as consolidated EBITDA and Adjusted EBITDA. As noted previously, the Company's e-commerce and procurement businesses of its Winetasting Network subsidiary, which had previously been included within its Gourmet Foods & Gift Baskets category, have been classified as discontinued operations and therefore excluded from category information below for fiscal 2014. (Due to certain onetime items, the following Non-GAAP reconciliation tables have been included within MD&A.) 4 1-800-FLOWERS.COM, Inc. and Subsidiaries Management's Discussion and Analysis (continued) Management's Discussion and Analysis (continued) 1-800-FLOWERS.COM, Inc. and Subsidiaries Reconciliation of GAAP net income to Adjusted income attributable to 1-800-FLOWERS.COM, Inc.: Years Ended July 3, 2016 GAAP net income $ 35,868 Less: Net loss attributable to noncontrolling interest (1,007) Income attributable to 1-800-FLOWERS.COM, Inc. 36,875 Adjustments to reconcile income attributable to 1-800-FLOWERS.COM, Inc. to Adjusted income attributable to 1-800-FLOWERS.COM, Inc. Add back: Annualization of net loss attributable to Harry & David -- Add back: Loss on sale/impairment of iFlorist 2,121 Add back: Impairment of foreign equity investment 1,728 Add back: Litigation costs 1,500 Add back: Harry & David integration costs 828 Add back: Harry & David acquisition costs -- Add back: Severance costs 1,437 Add back: Harry & David Purchase accounting adjustment to deferred revenue -- Add: Purchase accounting adjustment for inventory fair value step-up -- Add back: Impact of warehouse fire -- Deduct: Gain from insurance recovery on warehouse fire (19,611) Income tax effect of adjustments 3,633 Adjusted income attributable to 1-800-FLOWERS.COM, Inc. $ 28,511 June 28, 2015 (in thousands, except per share data) June 29, 2014 $ 19,384 (903) 20,287 $ 13,946 (697) 14,643 (18,812) -- -- -- 3,039 4,148 2,457 1,621 4,760 6,556 -- (1,369) $ 22,687 -- -- -- -- -- -- -- -- -- -- -- -- $ 14,643 GAAP income (loss) per common share attributable to 1-800-FLOWERS.COM, Inc. Basic Diluted $ $ 0.57 0.55 $ $ 0.31 0.30 $ $ 0.23 0.22 $ $ 0.44 0.43 $ $ 0.35 0.34 $ $ 0.23 0.22 Adjusted income (loss) per common share attributable to 1-800-FLOWERS.COM, Inc. Basic Diluted Weighted average shares used in the calculation of GAAP income and Adjusted income per common share attributable to 1-800-FLOWERS.COM, Inc. Basic Diluted 64,896 67,083 64,976 67,602 64,035 66,460 Discontinued operations: Years Ended July 3, 2016 Net revenues from discontinued operations Gross profit from discontinued operations EBITDA from discontinued operations $ $ $ 6 -- -- -- June 28, 2015 (dollars in thousands) $ $ $ -- -- -- June 29, 2014 $ $ $ 1,669 429 (868) Management's Discussion and Analysis (continued) 1-800-FLOWERS.COM, Inc. and Subsidiaries Reconciliation of GAAP net income attributable to 1-800-Flowers.com, Inc. to Adjusted EBITDA, excluding stock-based compensation(b): Years Ended July 3, 2016 Income attributable to 1-800-FLOWERS.COM, Inc. Add: Interest expense and other, net Depreciation and amortization Income tax expense Loss on sale/impairment of iFlorist Impairment of foreign equity investment Less: Net loss attributable to noncontrolling interest Income tax benefit Gain from insurance recovery on warehouse fire EBITDA Add: Impact of warehouse fire Add: Purchase accounting adjustment to deferred revenue Add: Purchase accounting adjustment for inventory fair value step-up Add: Litigation settlement Add: Acquisition costs Add: Integration costs Add: Severance costs Add: Harry & David Q1 2015 EBITDA loss (pre-acquisition: 3 months ended 9/28/14) Adjusted EBITDA Add: Stock-based compensation Adjusted EBITDA, excluding stock-based compensation June 28, 2015 (in thousands) June 29, 2014 $36,875 $20,287 $14,643 7,597 32,384 15,579 2,121 1,728 7,303 29,124 10,930 -- -- 1,357 19,848 8,403 -- -- 1,007 -- 19,611 903 -- -- 697 -- -- 75,666 -- -- -- 1,500 -- 828 1,437 66,741 6,556 1,621 4,760 -- 4,148 3,039 2,457 43,554 -- -- -- -- -- -- -- -- 79,431 6,343 $85,774 (14,838) 74,484 5,962 $80,446 -- 43,554 4,664 $48,218 (a) Corporate expenses consist of the Company's enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company's infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment. (b) Performance is measured based on segment contribution margin or segment Adjusted EBITDA, reflecting only the direct controllable revenue and operating expenses of the segments. As such, management's measure of profitability for these segments does not include the effect of corporate overhead, described above, depreciation and amortization, other income (net), nor does it include one-time charges or gains. Management utilizes EBITDA, and adjusted financial information, as a performance measurement tool because it considers such information a meaningful supplemental measure of its performance and believes it is frequently used by the investment community in the evaluation of companies with comparable market capitalization. The Company also uses EBITDA and adjusted financial information as one of the factors used to determine the total amount of bonuses available to be awarded to executive officers and other employees. The Company's credit agreement uses EBITDA and adjusted financial information to measure compliance with covenants such as interest coverage and debt incurrence. EBITDA and adjusted financial information is also used by the Company to evaluate and price potential acquisition candidates. EBITDA and adjusted financial information have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of these limitations are: (a) EBITDA does not reflect changes in, or cash requirements for, the Company's working capital needs; (b) EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debts; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA does not reflect any cash requirements for such capital expenditures. Because of these limitations, EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company's performance. 7 Management's Discussion and Analysis (continued) 1-800-FLOWERS.COM, Inc. and Subsidiaries Results of Operations lost revenue from the Fannie May warehouse fire, increased 2.8% during the year ended June 28, 2015, despite the loss of revenue from the shift in the Valentine's Day Holiday to a Saturday in fiscal 2015. The Company's fiscal year is a 52- or 53-week period ending on the Sunday nearest to June 30. Fiscal year 2016, which ended on July 3, 2016, consisted of 53 weeks, while fiscal years 2015 and 2014, which ended on June 28, 2015 and June 29, 2014, respectively, consisted of 52 weeks. E-commerce revenues (combined online and telephonic sales channels) increased 3.9%, during the year ended July 3, 2016 compared to the prior year, due to growth within the Gourmet Food and Gift Baskets segment, as a result of the incremental revenue generated by Harry & David, which was acquired on September 30, 2014, the impact on prior year revenues of the Thanksgiving Day Fannie May warehouse fire, organic growth within the 1-800-Flowers.com Cheryl's brands, and the impact of the 53rd week, and partially offset by the impact of the dispositions of iFlorist and Fine Stationery in October 2015 and June 2015, respectively, and the anticipated decline in revenues due to the Sunday date placement of Valentine's Day. The Company fulfilled approximately 12.2 million e-commerce orders, with an average order value of $72.64, representing increases of 1.4% and 2.4%, respectively, compared to fiscal 2015. Net Revenues Years Ended July 3, June 28, 2016 % Change 2015 % Change June 29, 2014 (dollars in thousands) Net revenues: E-Commerce $ 882,782 Other 290,242 $1,173,024 3.9% $ 849,853 6.8% 271,653 4.6% $ 1,121,506 54.8% 31.0% 48.3% $548,976 207,369 $756,345 Net revenues consist primarily of the selling price of the merchandise, service or outbound shipping charges, less discounts, returns and credits. E-commerce revenues increased by 54.8% during the year ended June 28, 2015, primarily as a result of the incremental e-commerce revenue generated by the recent acquisition of Harry & David, as well as organic growth from the Company's Gourmet Food and Gift Baskets segment, offset by the estimated loss of revenues from the warehouse fire. E-commerce revenues from the Consumer Floral segment were flat in comparison to fiscal 2014 as growth during the balance of the year was offset by a decline in Valentine's Day revenue resulting from the shift in the date placement of holiday from Friday in fiscal 2014 to Saturday in fiscal 2015. Reflecting the incremental sales from Harry & David, during fiscal 2015, the Company fulfilled approximately 12.0 million ecommerce orders, with an average order value of $70.87, representing increases of 31.5% and 17.9%, respectively, compared to fiscal 2014. During the year ended July 3, 2016, net revenues increased 4.6% in comparison to the prior year, as a result of growth within the Gourmet Food and Gift Baskets segment due to the incremental revenue generated by Harry & David, which was acquired on September 30, 2014 (pre-acquisition revenues generated by Harry & David during the quarter ended September 28, 2014 was $29.4mm), the impact on prior year revenues of the Thanksgiving Day Fannie May warehouse fire (estimated to be $17.3mm), organic growth of 1-800-Flowers.com, Cheryl's and 1-800-Baskets wholesale gift business, and the impact of the 53rd week in fiscal 2016, partially offset by the impact of the Sunday date placement of Valentine's Day, and the dispositions of the iFlorist and Fine Stationery businesses in October 2015 and June 2015, respectively (which generated a combined $12.1 million of incremental revenues in the prior year), slower recovery by the Fannie May brand after the fire, and a year-over-year reduction in the Harry & David store count. Adjusted for the impact of the timing of the Harry & David acquisition and purchase accounting adjustments in fiscal 2015, and the estimated revenue lost as a result of the fire in 2015, pro forma net revenues increased 2.8% compared to the prior year. During the year ended June 28, 2015, net revenues increased 48.3% in comparison to the prior year primarily as a result of the incremental revenue generated by Harry & David, which was acquired on September 30, 2014, as well as growth across all three of the Company's business segments. After adjusting for lost revenue associated with the Thanksgiving Day fire at the Company's Fannie May warehouse and distribution center, estimated to be $17.3 million during the year ended June 28, 2015, and for the impact of purchase accounting adjustments to reduce the acquired value of Harry & David's deferred revenue of $1.6 million during the year ended June 28, 2015, pro forma revenue increased by 50.8% during the year ended June 28, 2015. Excluding the impact of acquisitions, organic revenue, adjusted for the estimated Other revenues, comprised of the Company's BloomNet Wire Service segment, as well as the wholesale and retail sales channels of its 1-800-Flowers.com Consumer Floral and Gourmet Food and Gift Baskets segments, increased by 6.8% and 31.0% during fiscal 2016 and fiscal 2015, respectively. The increase in fiscal 2016 was due to growth within the Gourmet Food and Gift Baskets segment, resulting from the incremental revenue generated by Harry & David, which was acquired on September 30, 2014, organic growth of Cheryl's and 1-800-Baskets wholesale gift business, and the impact on prior year revenues of the Thanksgiving 2014 Fannie May warehouse fire, partially offset by the Sunday date placement of Valentine's Day and a year-over-year reduction in the Harry & David store count. The increase in fiscal 2015 was primarily due to the addition of Harry & David's retail and wholesale operations, and to a lesser extent, growth within BloomNet, partially offset by the sales lost as a result of the Thanksgiving Day warehouse fire. The 1-800-Flowers.com Consumer Floral segment includes the operations of the 1-800-Flowers.com brand, which derives revenue from the sale of consumer floral 8 Management's Discussion and Analysis (continued) 1-800-FLOWERS.COM, Inc. and Subsidiaries products through its e-commerce sales channels (telephonic and online sales) and royalties from its franchise operations, as well as iFlorist, a UK based e-commerce retailer of floral products (through the date of its disposition in October 2015), and Fine Stationery, an e-commerce retailer of stationery products (through the date of its disposition in June 2015). Net revenues during the fiscal year ended July 3, 2016 decreased 0.9% as a result of lower order volume resulting from the Sunday date placement of Valentine's Day, and the dispositions of iFlorist and Fine Stationery, partially offset by organic growth by the 1-800-Flowers.com brand and the impact of the 53rd week. Adjusted for the sale of iFlorist and Fine Stationery, net revenues in this segment grew 2.0% in fiscal 2016 compared to the prior year. Net revenues during the fiscal year ended June 28, 2015 increased 0.2% primarily due to the incremental volume provided by iFlorist, which was acquired in December 2013, offset by lower order volume resulting from the Saturday placement of Valentine's Day. Excluding the impact of the acquisition of iFlorist, revenue of the 1-800-Flowers.com Consumer Floral segment decreased by 0.2% in comparison to fiscal 2014. revenue lost as a result of the fire in 2015, pro forma net revenues increased 1.3% compared to the prior year, as post-fire recovery of the Fannie May brand has been slower than originally anticipated. Net revenue during the fiscal year ended June 28, 2015 increased 143.6% in comparison to the prior year, driven primarily by the incremental revenue generated by Harry & David, which was acquired on September 30, 2014, complemented by strong organic e-commerce growth from Cheryl's and 1-800-Baskets, partially offset by reduced revenue from Fannie May due to the Thanksgiving Day warehouse fire. After adjusting for the estimated lost revenue from the warehouse fire, and for the impact of purchase accounting adjustments to reduce the acquired value of Harry & David's deferred revenue, pro forma revenue for the Gourmet Food & Gift Baskets segment increased 151.0% during the year ended June 28, 2015. Excluding the revenue contribution of Harry & David, Gourmet Food & Gift Baskets, revenue growth, adjusted for the estimated lost revenue from the Fannie May warehouse fire, increased 7.8% during the year ended June 28, 2015. In fiscal 2017, the Company expects to grow revenues across all three of its business segments with consolidated revenue growth for the year anticipated to be in the range of 4-to-5 percent. The BloomNet Wire Service segment includes revenues from membership fees as well as other product and service offerings to florists. Net revenues during the fiscal year ended July 3, 2016 decreased 0.6% due to lower transaction and ancillary fee revenues as a result of unfavorable shop to shop order volume sent through the network due in part to the Sunday date placement of Valentine's Day, partially offset by increased revenue as a result of BloomNet initiatives including the annualization of a florist transaction program implemented in the 3rd quarter of fiscal 2015. Net revenues during the fiscal year ended June 28, 2015 increased 2.1%, as a result of higher membership and transaction fees, including the implementation of a new florist transaction program, and increased ancillary service revenue including directory advertising, partially offset by lower product sales as a result of decreased demand and the west coast dock strike. Gross Profit Years Ended July 3, June 28, 2016 % Change 2015 % Change Gross profit $517,458 Gross margin % 44.1% (dollars in thousands) 6.2% $487,195 54.3% 43.4% June 29, 2014 $315,673 41.7% Gross profit consists of net revenues less cost of revenues, which is comprised primarily of florist fulfillment costs (fees paid directly to florists), the cost of floral and non-floral merchandise sold from inventory or through third parties, and associated costs including inbound and outbound shipping charges. Additionally, cost of revenues include labor and facility costs related to direct-toconsumer and wholesale production operations. The Gourmet Food & Gift Baskets segment includes the operations of Harry & David, Wolferman's, Stockyards, Cheryl's, Fannie May, Harry London, The Popcorn Factory and 1-800-Baskets/DesignPac. Revenue is derived from the sale of gourmet fruits, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, gift baskets, and prime steaks and chops through the Company's e-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Harry & David, Cheryl's and Fannie May brand names, as well as wholesale operations. Net revenue during the fiscal year ended July 3, 2016 increased 9.2% in comparison to the prior year, as a result of the incremental revenue generated by Harry & David, which was acquired on September 30, 2014, and the impact on prior year revenues of the Thanksgiving Day Fannie May warehouse fire, organic growth of Cheryl's and 1-800-Baskets wholesale gift business, and the impact of the 53rd week. Adjusted for the impact of the timing of the Harry & David acquisition and purchase accounting adjustments in fiscal 2015, and the estimated Gross profit increased 6.2% during the fiscal year ended July 3, 2016 in comparison to the prior year, primarily as a result of the incremental revenue and associated gross margins generated by Harry & David, which was acquired on September 30, 2014, the impact on prior year gross margin of the Thanksgiving Day Fannie May warehouse fire, organic revenue growth, the impact of the 53rd week, and sourcing and logistics synergy savings, partially offset by the impact of the Sunday date placement of Valentine's Day, the dispositions of the iFlorist and Fine Stationery businesses during October 2015 and June 2015, respectively (which generated $4.4 million of incremental gross margin in the prior year period), and a year-over-year reduction in Harry & David store count. Adjusted for the impact of the timing of the Harry & David acquisition and purchase accounting adjustments in fiscal 2015, and the estimated revenue lost as a result of the fire in 2015, pro forma 9 Management's Discussion and Analysis (continued) 1-800-FLOWERS.COM, Inc. and Subsidiaries gross profit decreased 0.2% compared to the prior year, as post-fire recovery of the Fannie May brand has been slower than originally anticipated. Gross margin percentage increased 70 basis points to 44.1% during the fiscal year ended July 3, 2016, primarily due benefits of enhanced sourcing and logistics, the mix of sales associated with the recovery from the warehouse fire, higher margins earned by Harry & David, and the dispositions of iFlorist and Fine Stationery businesses which carried lower gross margins. Adjusted for the impact of the Harry & David acquisition, and the lost revenue from the fire in the prior year, pro forma gross margin increased 20 basis points to 44.1%. fiscal year ended June 28, 2015 in comparison to the prior year, due to the higher revenue, as described above. Excluding the impact of the acquisition of iFlorist, gross profit within the 1-800-Flowers.com Consumer Floral segment increased by 0.3%. Gross margin percentage increased 10 basis points to 39.2% during the fiscal year ended June 28, 2015 in comparison to the prior year as sourcing and logistics improvements were offset by lower margins earned by iFlorist. BloomNet Wire Service segment's gross profit increased by 0.5% during the fiscal year ended July 3, 2016 in comparison to the prior year, while gross margin percentage increased 60 basis points, as a result of sales mix and lower rebates associated with the decline in shop-to-shop order volume. BloomNet Wire Service segment's gross profit increased by 6.7% and gross margin percentage increased 240 basis points during the fiscal year ended June 28, 2015, as a result of an increase in higher margin BloomNet membership, directory and transaction fees, as well as newly implemented transaction fees, offset in part by a reduction in lower margin wholesale product revenues. Gross profit increased 54.3% during the fiscal year ended June 28, 2015 in comparison to the prior year, primarily as a result of the incremental revenue and associated gross margins generated by Harry & David, which was acquired on September 30, 2014, as well as organic growth across all segments, partially offset by the impact of the revenues lost as a result of the Thanksgiving Day fire at the Company's Fannie May warehouse and distribution center. After adjusting for estimated lost gross profit from the warehouse fire of $6.8 million during the year ended June 28, and for the impact of Harry & David p