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1-800-FLOWERS.Com (FLWS) Completes Acquisition of Harry & David Holdings; Increases FY15 Outlook

September 30, 2014 5:09 PM EDT

1-800-FLOWERS.Com (NASDAQ: FLWS) announced the closing of its acquisition of Harry & David Holdings, Inc., (“Harry & David”) a leading 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.

Jim McCann, CEO of 1-800-FLOWERS.COM, Inc., said, “The addition of the iconic Harry & David name to our growing family of great gifting brands, helps extend our position as a leading, omni-channel provider of gifts that resonate with our customers, making us a destination for all of their celebratory occasions. This combination will propel our total annual revenues to more than $1.1 billion and offers numerous opportunities to accelerate our top and bottom-line growth going forward.”

McCann noted that the signature Harry & David® product offering includes its flagship Royal Riviera® pears, Fruit-of-the-Month Club® products, Tower of Treats® gifts, Moose Munch® caramel and chocolate popcorn snacks, Wolferman’s® specialty English muffins and other breakfast products, and Cushman’s® HoneyBells citrus gifts, among other gift products. “Combined with our expanded family of great gourmet gift brands, including: Fannie May, Cheryl’s, The Popcorn Factory, FruitBouquets, 1-800-Baskets.com and Stockyards.com, the acquisition of Harry & David will increase our revenues in the gourmet food gift space to nearly $650 million, making us a leading player in this growing, multi-billion dollar category.”

The acquisition includes Harry & David’s brands and websites as well as its headquarters, manufacturing and distribution facilities and orchards in Medford, Oregon, a warehouse and distribution facility in Hebron, Ohio and 48 Harry & David retail stores located throughout the country.

To fund the all-cash deal, the Company has entered into a new credit facility, led by JP Morgan Chase Bank, N.A. and Wells Fargo Bank. N.A., consisting of a $142.5 million five-year term loan and a co-terminus $200 million revolving credit line to be used for working capital and other business needs. Borrowings under the new credit facility will be at an interest rate of LIBOR plus a range of 175-to-250 basis points, based on the Company’s leverage ratio. Also participating in the new bank facility are, Bank of America, N.A., Capital One, N.A., Citibank, N.A., TD Bank, N.A., KeyBank, National Association, MUFG Union Bank, N.A, BBVA Compass and HSBC Bank USA, N.A. All borrowings under the new credit facility are guaranteed by the material subsidiaries of the Company and secured by assets and stock of its subsidiaries.

McCann noted that the senior management team of Harry & David, led by Craig Johnson, is remaining with the company. “One of the most valuable assets that we are getting with this acquisition is Harry & David’s talented and passionate team of associates in Medford, Oregon and in the company’s facilities around the country. This team has done a remarkable job over the past several years of rebuilding the iconic Harry & David brand and driving both top and bottom-line growth in a challenging consumer environment. We are looking forward to building on that success as we combine our operations and leverage our business platforms to drive enhanced shareholder value.”

Revised Guidance:

Based on the addition of the Harry & David business, the Company is providing revised guidance for its expected top and bottom-line results for Fiscal 2015:

  • Regarding revenues:
    • The Company now anticipates generating total net revenues from continuing operations in excess of $1.1 billion for fiscal 2015. (The Street is at $800 million.)
    • Reflecting the highly seasonal nature of the Harry & David business (which has historically generated the majority of its revenues and all of its profits during the key, calendar-year-end holiday season) the Company now anticipates that the current fiscal second quarter, ending December 28, 2014, will represent approximately 46-to-50 percent of total revenues for the fiscal year.
  • Regarding bottom-line results:
    • The Company now anticipates generating Adjusted EBITDA of approximately $90 million for fiscal 2015 (excluding transaction costs and purchase accounting adjustments related to the Harry & David acquisition and the impact of stock-based compensation).
    • Adjusted EPS for the year is now expected to be in a range of $0.45-to-$0.50 per fully-diluted share (excluding the aforementioned transaction-related costs and purchase accounting adjustments, but including the impact of stock-based compensation). (The Street sees FY15 EPS of $0.28.)
    • The new guidance for fiscal 2015 top and bottom-line results does not include Harry & David’s results for the fiscal first quarter of the year which is typically their lowest in terms of revenues and includes a substantial bottom-line loss. This reflects the seasonality of the Harry & David business and the timing of the close of the acquisition at the start of the Company’s current fiscal second quarter.

McCann noted that the acquisition of Harry & David is significantly accretive to the Company’s top and bottom line results before including any potential benefits from operating or revenue generating synergies. “We believe there are a number of complimentary and highly leveragable assets resulting from this acquisition that will provide additional opportunities for both revenue growth and operational efficiencies. We plan to identify and pursue these opportunities when we begin our full integration efforts after completing the upcoming, key holiday season,” he said.

Wells Fargo Securities served as exclusive financial advisor to 1-800-FLOWERS.COM, Inc. and Centerview Partners, LLC and Piper Jaffray & Co. served as co-exclusive financial advisors to Harry & David Holdings, Inc. Cahill Gordon & Reindel LLP and Jones Day served as legal counsel for 1-800-FLOWERS.COM, Inc. and Harry & David Holdings, Inc., respectively.



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