What happened
Shareholders of retailing specialist 1-800-Flowers.com (FLWS) lost ground to a rising market this week. The e-commerce specialist's stock fell 8% through Thursday trading, according to data provided by S&P Global Market Intelligence, compared to a 2% boost in the S&P 500. The drop added to significant losses for investors, with shares down roughly 70% so far in 2022.
It came as Wall Street digested the retailer's latest earnings report, which showed increasing challenges around growth and profitability.
So what
1-800-Flowers.com is focused on cutting costs to better align its business with today's tough selling environment. Revenue ticked lower in the fiscal fourth quarter, which ended in early July, management said in a filing on Sept. 1.
Inflation, plus a shift in demand away from products and toward experiences like travel, have hurt the growth profile. The retailer also blamed a rapid rise in costs for pushing profit margin below its expectations in Q4.
Now what
1-800-Flowers.com is raising prices and reducing expenses in areas like warehouse stocking labor. Yet management isn't expecting a quick return to profitability, saying in a conference call with investors that a gradual improvement in gross profit margin won't arrive until the second half of the newly started fiscal 2023.
The prospect for continued net losses until then has many on Wall Street looking toward other growth stocks, especially those that have maintained sales growth and profitability through the pandemic-related demand swings. Betting on a rebound in this stock might seem attractive given its slumping stock price.
However, with the prospects for a tough holiday shopping season ahead, investors might want to watch this stock from the sidelines for a while. Firming demand trends will be a bullish sign in the coming months, especially if they arrive in the context of a lower expense burden. But these wins won't be apparent -- if they develop -- for another few quarters.
