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Purchasers praise Harry & David's turnaround

The pending acquisition of Harry & David comes with opportunities and challenges for the leadership of 1-800 Flowers.com.

"We've been obviously watching (Harry & David) for a long time, CEO Jim McCann told analysts during a Thursday conference call. "We've been interested in it for a long time, and our interest was piqued recently ... . The employee base led by a really good management team have done a good job since they emerged from their experience in 2011 to really put the company on the right path."

President Christopher McCann marveled at how quickly Harry & David got back on its feet following the bankruptcy forced by the Medford-based company's previous owners, a private equity firm. He also said the acquisition will enhance his organization's performance.

"We don’t know how they have got their act together and done really well over the last two or three years," he said. "It just seems like the stars are lining up for us."

The difficulty Christopher McCann laid out is much the same as that faced by Harry & David's executives for decades — developing revenue outside the principal Thanksgiving and Christmas holiday period.

"The challenge for the Harry & David business often has been in the past that they make more than 100 percent of their profits in the fourth calendar quarter, or second fiscal quarter," he said. "But we are looking forward to staff utilization capabilities, our mix of different holidays where we have different complements ... we think the one-plus-one equals something more than two here."

1-800-Flowers, based in Long Island, reported a fourth-quarter profit of $3.4 million after losing $1.7 million a year earlier. Revenue rose 8.3 percent, pushing fourth-quarter revenue to $187.4 million compared to $173 million. For the fiscal 2014, revenue grew 2.8 percent to $756.3 million, up from $735.5 million.

Analysts peppered 1-800-Flowers executives with a variety of questions about Harry & David. Most of the answers were vague.

"There are growth synergies that we can realize both on the e-commerce side of the business as well as the wholesale side of the business as we bring these entities together," Jim McCann said. " And we think there are operating cost synergies."

 Among those synergies 1-800-Flowers foresees is connecting Harry & David's distribution and warehouse facilities in Hebron, Ohio, with its own.

"They have a very big facility in the Greater Columbus, Ohio area, so do we," Jim McCann said. "So we are excited about our teams working together there. So from a growth perspective we think we have assets in place that will sustain our growth without really having to add to that just by optimizing the footprint we already have."

Harry & David closed about two-thirds of its retail stores during its journey in Chapter 11 reorganization in 2011. Asked whether his firm would reverse that trend, Jim McCann suggested they would take a cautious approach.

"I think the management team there has done a good job rationalizing their store count and shrinking down the store count from over 150 to the 48 or so that they have now," he said. "... Our teams are very excited about what they can do with the existing store footprint."

"But first of all I think with any mergers of two companies, the first thing you do is make sure we don’t mess up the existing businesses and our focus here is to lead the plan in place for this holiday season that Harry & David has, which we are very confident in. So I think with this holiday season we’ll run as is and then we will start making some implementation on the growth side beyond that."

Reach reporter Greg Stiles at 541-776-4463 or business@mailtribune.com. Follow him on Twitter at www.twitter.com/GregMTBusiness, on Facebook at https://www.facebook.com/greg.stiles.31, and read his blog at www.mailtribune.com/Economic Edge.