FLWS Q2 Deep Dive: Transformation Plan Targets Efficiency, Channel Expansion Amid Revenue Decline

E-commerce florist and gift retailer 1-800-FLOWERS (NASDAQ:FLWS) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, but sales fell by 6.7% year on year to $336.6 million. Its non-GAAP loss of $0.69 per share was 22.1% below analysts’ consensus estimates.

Is now the time to buy FLWS? Find out in our full research report (it’s free).

StockStory’s Take

1-800-FLOWERS’ second quarter results showed continued revenue pressure, with management attributing performance to declines in both transactions and average order value across key segments. CEO Adolfo Villagomez openly acknowledged the company’s need to address internal inefficiencies, stating, “Our performance this quarter is disappointing, and it is clear that we need to fundamentally transform our strategy in order to return to sales and profit growth.” Efforts to stabilize the business have focused on improving marketing effectiveness and adjusting cost structures in response to lower sales, as well as addressing operational setbacks from the previous year’s order management system implementation.

Looking ahead, management believes the company’s multi-year transformation will rely on a more customer-centric, data-driven approach, with investments in loyalty, product assortment, and new distribution channels. Villagomez emphasized, "Our plan centers on four key areas: achieving cost savings and organizational efficiency, strengthening our customer focus, expanding our reach beyond e-commerce into new channels, and enhancing talent and accountability." The leadership team expects that these foundational steps—paired with a shift toward profitability-focused marketing and experimentation in physical retail—will position 1-800-FLOWERS for sustainable, long-term growth despite ongoing market challenges.

Key Insights from Management’s Remarks

Management attributed the quarter’s underperformance to continued weakness in customer acquisition, inefficient marketing spend, and delayed adaptation to shifting consumer behaviors.

• Marketing inefficiency highlighted: The company’s marketing investments failed to generate expected returns, with CEO Villagomez noting that prior strategies often spent more on customer acquisition than the profit generated by those sales. This prompted a shift toward focusing on transactions that deliver positive variable contribution margin, rather than simply driving top-line growth at any cost.
• Customer retention and loyalty under review: While multi-branded customers and Passport loyalty members continue to represent the most valuable segments, management acknowledged that Passport membership declined at a greater rate than the overall customer base. The team is prioritizing improvements to the loyalty program to drive more frequent purchases and increase cross-brand selling.
• Channel expansion prioritized: Villagomez detailed plans to move beyond traditional e-commerce by expanding into physical retail, marketplaces, and on-demand delivery platforms. This includes pop-up stores at Macy’s, permanent and mall-based Harry and David locations, and exploring product placements in third-party retail environments.
• Operational discipline and efficiency: CFO James Langrock outlined ongoing cost reduction efforts, including a comprehensive review of supply chain, procurement, and IT expenses. The company has engaged an external consultant to accelerate efficiency initiatives and centralize procurement, aiming to better align expenses with current revenue levels.
• Product and technology modernization: Management is investing in digital experience upgrades, algorithm-driven merchandising, and AI-powered product recommendations to improve discoverability and personalization. Addressing last year’s order management system issues, Villagomez reported that system performance has been restored and redundancies in customer care are now in place to prevent future disruptions.

Drivers of Future Performance

Management’s outlook centers on foundational changes to marketing, customer experience, and omnichannel reach as the main levers for future growth and profitability.

• Profitability-focused marketing: The team is shifting to a full-funnel marketing approach that balances brand awareness with acquisition and retention. By prioritizing variable contribution margin, management expects to improve overall profitability, even if it means slower top-line growth in the near term.
• Channel and product diversification: Expansion into physical retail, third-party digital marketplaces, and self-consumption occasions is expected to broaden the company’s addressable market. Management believes these efforts, combined with an updated product assortment and subscription models, will drive incremental growth and reduce dependency on seasonal gifting.
• Cost structure and operational agility: The company intends to further centralize procurement, simplify operations, and enhance organizational accountability. While macroeconomic headwinds and tariffs remain risks, management expects these efficiency improvements to help offset external pressures and support margin stabilization over time.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the impact of marketing strategy changes on both customer acquisition efficiency and bottom-line profitability, (2) evidence of successful expansion into physical retail and third-party digital channels, and (3) progress in modernizing the digital experience, including the effectiveness of AI-driven merchandising and loyalty program improvements. The pace of cost reduction and alignment of expenses to revenue will also be key to tracking the company’s turnaround.

1-800-FLOWERS currently trades at $5.13, down from $5.34 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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