What Management Said
Read the full Q2 2026 transcript ↗Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. We believe this approach is important to building a more sustainable and disciplined demand generation model. During the second quarter, we continued to make steady progress on the key initiatives we outlined earlier this year to stabilize the business and support future growth. Marketing contribution margin in Q2 was impacted by the scale of the holiday quarter and the decline in direct traffic.
While this approach can create some pressure on the top line in the near term, we believe it is an important step toward building a more sustainable and profitable demand generation model. Based on the results of these tests, we concluded that the return on invested capital for the temporary pop-up stores was not attractive. Instead, as part of our testing culture, we are redesigning our retail approach to evaluate a full-year store concept that is better suited for a permanent year-round location. Together, these efforts are helping us build a more stable foundation for future growth over time.
During the second quarter, revenue came in below our prior view, driven by a continued focus on improving marketing contribution margin and changes in search engine results pages that negatively impacted direct traffic. As a result, our e-commerce revenue declined, which was partially mitigated by growth in our wholesale business. Our gross margin declined due to lower fixed cost absorption, higher commodity costs, and the impact of tariffs. This included a 22.7% decline in Consumer Floral & Gifts segment, a 3.8% decline in the Gourmet Foods & Gift Baskets segment, and a 3.1% decline in the BloomNet segment.
What went well
- Holiday season was operationally strong with systems running smoothly throughout, addressing the prior-year order management system (OMS) issues and representing a clear and substantial improvement in stability.
- Completed a major organizational simplification, moving from a brand-based to a function-based operating structure that is already driving greater efficiency, clearer ownership, and improved collaboration, and added Alex Zelikovsky as Chief Information Officer.
- Improved the ad spend-to-sales ratio as marketing spend was reduced on a dollar basis, advancing a more disciplined and profitable demand generation model.
- Achieved approximately $15 million in annualized run-rate cost savings to date for fiscal 2026, with operating expenses down $25.9 million (adjusted) to $213.2 million from lower marketing and labor costs.
- B2B and wholesale businesses performed strongly, partially offsetting the decline in direct e-commerce traffic during the holiday period.
What went wrong
- Consolidated revenue declined 9.5%, coming in below the company's prior view, driven by the disciplined marketing shift and a greater-than-expected decline in direct traffic from search engine results page changes (increased paid placements and AI-driven content).
- Gross margin decreased 120 basis points to 42.1% from 43.3%, due to deleveraging on the sales decline plus higher tariff, commodity, and shipping costs.
- Adjusted EBITDA fell to $98.1 million from $116.3 million in the prior-year period.
- Consumer Floral & Gifts segment declined 22.7%, with Personalization Mall down more than flowers due to prior-year inefficient marketing spend that was pulled back.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Revenue | second half FY2026 | expected to decline in the low double-digit range |
| Adjusted EBITDA | second half FY2026 | expected to decline slightly year-over-year; on a normalized basis expected to increase slightly year-over-year excluding approximately $12 million of incentive compensation and consultant costs |
| Total cost savings (run-rate) | across FY2026-FY2027 | reaffirmed approximately $50 million, with ~$15 million already achieved in FY2026 |
| Consultant costs | FY2026 | roughly $11 million this year, running through June then stopping in FY2027 (not added back to adjusted EBITDA) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Consolidated revenue | -9.5% | Strategic shift toward more efficient marketing spend and a greater-than-expected decline in direct traffic from search engine results page changes. |
| Consumer Floral & Gifts segment revenue | -22.7% | Pullback of prior-year inefficient marketing spend, especially on Personalization Mall, plus the direct traffic decline. |
| Gourmet Foods & Gift Baskets segment revenue | -3.8% | More disciplined prior-year marketing and stronger B2B/wholesale exposure relative to floral. |
| BloomNet segment revenue | -3.1% | Broader strategic marketing shift and traffic pressure. |
| Gross margin | -120 bps to 42.1% | Deleveraging on the sales decline combined with higher tariff, commodity, and shipping costs. |
| Operating expenses (adjusted) | -$25.9M to $213.2M | Lower marketing and labor costs from cost reduction initiatives. |
| Adjusted EBITDA | $98.1M vs $116.3M | Revenue decline and gross margin pressure partially mitigated by cost actions. |
| Average order value (AOV) | +5.2% | Pricing and merchandising discipline; order volume was down about 16%. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Operating model | Began centralizing marketing and improving cross-function coordination | Fully moved to a function-based operating structure with workforce reductions and leadership realignments, replacing the prior brand-based organization | — |
| Cost savings program | Identified additional $50 million over two years | Approximately $15 million annualized run-rate achieved in FY2026; ~$50 million two-year target reaffirmed, with consultant costs ~$11 million front-loaded through June | — |
| Physical retail | Holiday pop-up shops opened to test a scalable physical retail concept | Concluded pop-up ROI was not attractive and will not pursue more; pivoting to evaluate a permanent full-year store concept with disciplined capital deployment | — |
| Marketing efficiency | Shift to marketing contribution margin focus | Continued discipline improving ad-to-sales ratio; contribution margin pressured in Q2 by holiday scale and direct traffic decline, but viewed as a step toward sustainable demand generation | — |
| Third-party marketplaces | Began selling on Amazon and Walmart.com | Expanding rapidly across Uber, DoorDash, Amazon, and Walmart.com to reach customers where they shop | — |
Q&A Summary
Was the larger-than-expected Consumer Floral & Gifts decline mostly driven by PMall?
PMall was down more than flowers during the quarter, driven largely by the pullback of inefficient marketing spend that improved its ad-to-sales ratio and contribution margin. PMall was a bigger component of the decline than the flowers business.
Are Passport members still outperforming, and is there movement in membership?
Passport members continue to perform much better than non-members and remain the most loyal customers. Customer feedback indicates the loyalty program's value proposition needs to improve, and the team has invested and is preparing to significantly improve the program over the coming months.
Which segments will perform better in the back half, and why is floral lagging?
Performance order of marketing-spend exposure in FY2025 was PMall, flowers, then food. Back-half performance should be consistent or slightly improving versus the first half, driven mainly by a mix shift, as the flowers business (vs. Harry & David in the first half) represents the majority of second-half revenue.
Will Valentine's Day on a Saturday change the marketing approach?
The merchandising and marketing strategy was adjusted for the less favorable Saturday placement, and the company is actively preparing to reverse that trend rather than assuming the impact will simply occur.
What were order volumes and AOV for the quarter?
AOV was up 5.2% and order volume was down about 16%.
Outside of PMall, what is driving the floral decline and how do initiatives change competitive positioning?
The focus is on the bottom line through better marketing and merchandising; this is a transition year. The flowers business is proactively managed to minimize impact on the florist network, and the shift to profitable traffic over revenue-driving traffic is pressuring the top line short term but expected to strengthen the company longer term.
What are the commodity price trends going forward?
Cocoa remains up significantly year-over-year, but eggs, butter, and sugar are coming down and stabilizing and should no longer be a headwind in the back half assuming they hold.
What are the biggest swing factors for full-year performance and capital allocation priorities?
The main controllable lever is accelerating cost savings (with $15 million implemented in Q2); top-line upside also helps. Capital allocation is focused on stabilization and building capabilities for profitable growth, deploying capital toward operational efficiency, customer experience, and technology, while remaining open to opportunistic M&A; everything is on the table including potential divestitures.
How long will consultant costs run and are they in adjusted profit?
Consultant costs are included in adjusted profit (not added back), are front-loaded, total roughly $11 million this year, and will run through June then stop in FY2027, though they could return for specific future initiatives.
Does an earlier Easter shift timing between Q3 and Q4?
Yes, Easter falls around April 4th, so many orders come in at the end of March, shifting into Q3. Easter falling further from Mother's Day is a favorable day placement for the company.
More on 1 800 Flowers Com Inc
Reported 2026-01-29 · figures from the 1 800 Flowers Com Inc Q2 2026 earnings call.
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