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Sunday, April 11, 2010

1-800-Flowers.com: 'Undercover Boss' Should Drive Awareness and Business

In case you haven't heard, Chris McCann, President of 1-800-Flowers.com (FLWS) is the executive featured on CBS's 'Undercover Boss' tonight.

A WSJ article from Friday points out that most companies featured on the program subsequently see higher share prices and/or higher Web site traffic:
We're not entirely surprised as increased media exposure for any business is usually a good thing (unless it's a product recall or some other negative news), not to mention that momentum oriented traders might latch onto news of the program to bid shares higher.

The CBS show enables consumer facing companies such as 1-800-Flowers.com to connect with customers and/or potential customers. The goal is to keep building the business and drive repeat business -- recall commentary from the company's last report:
  • "During the fiscal second quarter, the Company attracted 656,000 new customers, of whom 78 percent, or 512,000, came to the Company through its online channels. Approximately 1.7 million customers placed orders during the quarter, of which 60 percent were repeat customers. This reflects the Company's ongoing focus on deepening the relationship with its existing customers as their trusted gift provider for all of their celebratory occasions.
The 60% repeat business is one of the key reasons we like 1-800-Flowers.com and provides evidence of an established franchise.

The WSJ article notes that even before airing tonight's program, Chris McCann's "company's stock already has notched some heady gains." It is true that shares moved from the low 2s to the high 2s, yet shares continue to trade near a ten-year low despite being a much larger and diverse business than ever before:

By much larger and diverse, we mean the following (from recent presentation):

The "flowers" segment is less than 60% of total revenue and we believe certain units (chocolate) actually saw stable to slight growth revenue over the past year. These are good businesses with growth potential and significant operating leverage as the economy slowly recovers.

For heady gains, please see the 3-5x gains of many other mainstream retail companies over the past year: Whole Foods (WFMI), Starbucks (SBUX), Limited Brands (LTD), Williams-Sonoma (WSM) to name a few. Per our prior posts - where do flowers come from and,
Many Funds Simply Can't Buy FLWS Right Now; But, We Can Because We Can Wait, we've been increasing our exposure to the company.

We're not in it for a move from $2 to $3, but rather multiples of our average purchase price. A 10% current free cash flow yield implies a fair value of almost $5 today and, on a normalized earnings power basis, shares could garner more than $8.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long FLWS.

© 2010 Jeffrey Walkenhorst
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