A Bargain Ready to Blossom
11/08/2011 9:22 am EST
This online retailer has similar growth potential to big fish like Amazon…but trades at much more affordable levels, writes Marc Gerstein of the Forbes Low-Priced Stock Report.
It would be nice if we could always invest in companies that are growing briskly, but economic conditions don’t always allow for that. Assuming we want to be in equities at all during difficult times, we should at the very least aim to own shares of likely survivors.
But we don’t have to settle for that. We can take it up a notch and look for companies actively working to strengthen their businesses, recognizing that such efforts may pay off modestly at best in the near term, but quite handsomely when better times return.
1-800-FLOWERS (FLWS) is an example of the latter.
Generally, this company is doing for gift-giving something similar to what Amazon (AMZN) had done initially for books, and lately for other kinds of merchandise. I suppose that in the world of online retailing, we must always worry about competition from Amazon the way every brick-and-mortar retailer has to think about Wal-Mart (WMT).
But just as there’s room for more than just Wal-Mart in the 3D world, there’s room for more than just Amazon online. Flowers and gifts, including chocolates, cookies, etc. is FLWS’ specialty—and although Amazon does it, FLWS does it better, and has a pretty strong and recognizable brand image in its own right.
In the fiscal year ended July 2011, 4.8 million online customers placed orders with FLWS, and many of these (61% in the fourth quarter) were repeat customers, a good sign considering that most gifting occasions recur.
One of the things the company has long been doing to strengthen its business has been to broaden the range of its offerings and selling occasions. The days when the company was all flowers are long gone.
The 1-800-FLOWERS.com online store also accommodates 1-800baskets.com, Cheryl’s, Fannie May Fine Chocolates, and The Popcorn Factory, all of which are visible from each of the Web sites.
Also, all sites participate in strategic relationships through which products from companies like Yankee Candle, Waterford, Evelyn & Crabtree, Lenox, and Junior’s Cheesecake can be purchased outright or combined with products from one of the FLWS brands.
FLWS acquired Winetasting.com, which enables it to reach consumers even when they aren’t in gift-giving mode. Celebrations.com further enhances the range of opportunities FLWS has to make contact with customers.
Given the large percentage of repeat buying, there’s a strong return on investment in new-customer acquisition. Other measures being taken by FLWS include improved sourcing and strengthening of the balance sheet (the company is consistently cash-flow positive and has been paying down debt).
FLWS is also building up its business-to-business BloomNet international wire service that helps independent florists expand their businesses.
As the 2010s progress, we’re likely to see e-commerce entrench itself much more deeply, as consumers become more habituated to the variety of ways to transact business, and as brick-and-mortar merchants find it harder to flourish a generally overbuilt segment.
Shares of big names like Amazon are expensive. FLWS, a strong niche name available at 0.25 times cyclically-sluggish trailing 12 month sales, is not. 1-800-FLOWERS is a buy.