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FTD Companies Inc. Lowers Its Outlook as the Florist Business Stumbles

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A surprising drop in flower sales knocked FTD Companies (NASDAQ: FTD) off its short-term growth outlook in its earnings report this week. The floral and gifting specialist announced on Thursday that revenue and profits took a hit as its U.S. florist sales fell short of management's expectations. The company also lowered its 2016 outlook to account for the latest operating trends.

More on that forecast in a minute, but first here's how the headline results stacked up against the prior-year period:

 Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$339 million

$366 million

(7%)

Net income

$12 million

$18 million

(33%)

Earnings per share

$0.43

$0.61

(30%)

YOY = year over year. Data source: FTD's financial filing.

What happened this quarter?

FTD's international and florist segments held steady this quarter, but declines in its consumer sales and in its Provide Commerce business pushed overall sales and profits lower. Some of the decline can be pegged to a shift in timing for the Easter holiday, which moved into the first quarter this year from the second quarter in 2015.

Here are the key highlights of the quarter:

  • Consumer revenue fell 7% overall, as a 9% drop in floral and gift order volume was only partially offset by a 2% uptick in average spending per order. However, those higher prices helped profitability expand to 12% of sales from 11% in the prior-year period.
  • Provide Commerce booked a 10% sales dip, marking an improvement over last quarter's 14% slump. Operating margin fell slightly, to 13% of sales.
  • Florist segment results were flat and continued to produce FTD's highest margins at 29% of division sales.
  • The international business reported no growth, but excluding currency exchange swings the segment saw a 5% sales boost amid flat order volume and a 4% spike in average order spending.
  • FTD held the line on expenses, with cost of sales, marketing, and general expenses all falling. As a result, operating margin didn't worsen by much, ticking down to 5.3% of sales from 5.5% a year ago.

What management had to say

"We are pleased with the growth in revenues across our International and Florist segments as well as our gifting brands," CEO Robert Apatoff said in a press release. "However, we faced topline headwinds in our U.S. floral businesses that impacted our overall second quarter financial performance."

Apatoff warned that while the company has plans in place to recover the lost market share, they won't result in an immediate rebound. "We expect it will take time to fully realize the benefits of our strategic initiatives across our floral businesses," he explained. Executives "remain confident in our ability to deliver future growth in revenues in these businesses, over the long-term," though.

Looking forward

For the full year, FTD now sees sales falling by 6% at the midpoint of guidance, compared to the 2% decline management forecast in early May. Profit figures also got pulled down, with net income expected to be just $6 million rather than the $10 million prior target.

The good news is that this outlook implies steady or even improving profitability, which these latest results demonstrate is achievable even as sales decline and despite the major challenges associated with integrating Provide Commerce into the business. Over the long term, though, FTD's future depends on management's ability to use its deep portfolio of gift brands to generate a sustained rebound in customer order volumes.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends FTD Companies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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