Wild Cards
Flowers, like chocolate, are bought throughout the year and the biggest sales day is also not Valentine’s Day, even though 196 million roses are currently produced for the day of love. Christmas and Mother’s Day, take the top 2 spots with 30% and 24% of all flower sales annually, respectively. Cards usually take the top spot for all holiday occasions, and Valentine’s Day is no exception with 52.1% of all gifts given for the day being cards. In terms of publicly traded stocks, the selection is limited with 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) and American Greetings Corporation (NYSE:AM) representing both categories. I call both of these stocks ‘wild cards’ because the stocks have performed overall mediocre at best, the potential is always there based on society’s trends, and I’m a Hallmark guy.
1-800 Flowers represents the best of the best when it comes to seasonal stocks. Every other quarter is a negative in net income and every 4th quarter (Oct-Dec) they see a double digit jump in sales. The major problem with this, and what has played a big part in the share price dropping by half the last 5 years, is that the 4th quarter does not make up for the first 3 lousy quarters. The average quarterly net income for the company is -$3 million the last 5 years of quarters. Like net income, profit margins follow the same patterns of fluctuation. This leads me to believe there is a problem with the business model and not the products. Something is wrong with the hiring or overhead and I’m guessing that over 75% of the time, the cash is being burned away on payrolls and dead flowers.
One of the positives 1-800-Flowers has going for it are the constant around the clock advertising partnerships they have with some of the biggest radios shows today including many on ESPN. It is a great strategy in targeting one of the largest male audiences around and maintaining the brand. Their most recent earnings results show revenues grew 5.5% to $253 million with expected growth in all 3 of their business segments for 2013. The growth was primarily due to progress in the Gourmet Food and Gift Baskets segment. This leads me to believe the company should change their name a la Research In Motion Ltd (NASDAQ:BBRY) because even though I have heard a 1-800-Flowers commercial every day the past month, I had no clue they sold gourmet food, baskets, chocolate, and popcorn until I read through their earnings release.
American Greetings is only marginally better as a stock with their consistently growing dividend that is now 3.6%. This is good because the stock has basically done nothing the past decade otherwise. One would think that with the ridiculous prices for many cards these days, margins would be astronomical. However, the past 5 years of quarterly results for American Greetings show an average of 0.43% per quarter.
Statistically, 80% of cards are purchased by women. For Valentine’s Day the value goes up to 85%. It makes one wonder if men are sending chocolates and flowers with Post-It notes attached. Nevertheless, these statistics favor American Greetings because from what I’ve seen when it comes to gift-giving, women are far more consistent and reliable on gifts than men. One thing to consider when looking at this stock though is that in mid-January the founders were debating on taking the company private. This could help the company go up in the coming months on speculation and this makes this stock a true wild card.
AM Total Return Price data by YCharts
Final Thoughts
Yes, diamonds are still the preferred choice of jewelry and everyday thousands of diamond rings and other jewelry are exchanged between couples. However, far more chocolate is bought and the future looks far better for a company like Hershey than any of the dozens of jewelry stocks like Tiffany & Co. As for flowers or cards, it appears companies like American Greetings is the better buy. With the growing laziness in the gift-giving world it seems like gift cards and greeting cards go together like lock and key. In the end, it just comes down to common sense. Make a list of occasions, celebrations, and special events in your life. Ask yourself how often you receive diamonds, chocolate, flowers, or cards. I don’t know any ‘Get Well’ or “It’s a Baby” occasions accompanied by a princess cut diamond.
The article Chocolate, Not Diamonds Are Forever originally appeared on Fool.com and is written by Michael Carter.
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