How is 1-800-FLOWERS.COM’s earnings quality from 2013 – 2015?

Harry London factory and store in North Canton, Ohio (by W. Tietz)

Harry London, a steelworker in Canton, Ohio, started making chocolates for his family and friends around the start of the 20^th Century. By 1922, he had enough demand for his fine chocolates that he left his steel-working job and started Harry London Candies. Harry London used the kitchen in his home to create his chocolates until a home fire in the 1950s. Harry London then opened its first candy store and factory, also in Canton, Ohio.

In 2006, Harry London Candies joined the 1-800-FLOWERS.COM, Inc., corporation (FLWS). In addition to Harry London Candies, 1-800-FLOWERS.COM owns and operates Fannie May (chocolates), The Popcorn Factory, 1-800-Baskets.com, Harry & David (gourmet pears and other fruit), Cheryl’s (cookies), FruitBouquets, and its flagship florist brand, 1-800-Flowers.

In the last few months, some stock analysts have rated 1-800-FLOWERS.COM favorably. As of December 31, 2015, the company’s stock price was $7.28. On April 15, 2016, its stock price was $7.72, which represented an increase of more than 6% in less than four months.

See an adapted and condensed version of 1-800-FLOWERS.COM’s income statement (statement of operations) from 2013 – 2015 here.

Questions

1. Calculate 1-800-FLOWERS.COM’s cost of goods sold to net sales ratio for each of the three years presented in the income statement for 2013 – 2015. (Divide the company’s cost of revenues by its net revenues.) From 2013 to 2015, did the company’s cost of goods sold to sales ratio improve, deteriorate, or remain the same?
2. Calculate 1-800-FLOWERS.COM’s gross margin to net sales ratio for each of the three years presented in the income statement for 2013 – 2015. (Divide the company’s gross margin by its net revenues.) From 2013 to 2015, did the company’s gross margin to sales ratio improve, deteriorate, or remain the same?
3. Calculate 1-800-FLOWERS.COM’s operating expenses to net sales ratio for each of the three years presented in the income statement for 2013 – 2015. (Divide the company’s operating expenses by its net revenues.) From 2013 to 2015, did the company’s operating expenses to sales ratio improve, deteriorate, or remain the same?
4. Based on just the calculations you made, what is your opinion of 1-800-FLOWERS.COM’s earnings quality? Does your opinion agree with the analysts’ favorable ratings?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

• Student handout (pdf) (word) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)

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