Valentine's Day Special: A 7.2 Percent Dividend You'll Love
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Valentine's Day has come and gone, but the battle for market share in the flower-delivery business remains. Let’s compare two of the largest floral delivery companies to see which one is the better buy.
The First Contender: 1-800-Flowers.com (NASDAQ: FLWS)
It’s obvious by the name that this business has been around since long before the Internet. Launched in the 1980’s, 1-800-Flowers held a $7 million debt and contemplated bankruptcy before new owner and CEO Jim McCann engineered a turnaround. The company added “.com” to its name when it went public in 1999.
1-800-Flowers.com’s growth has largely come through acquisitions: the company owns eight florist shops and gift basket makers. McCann, who remains the CEO, says this helps the company expand into gourmet food and gifts, including high-end chocolate and popcorn, as well as develop closer ties with its suppliers by owning – among other things –the industry’s first online digital floral directory.
But acquisitons can lead to one of two results: they can either create boons or busts. Unfortunately, this company's high acquisition rate has done nothing to help its bottom line.
Despite all its acquisitions, 1-800-Flowers is plagued by declining revenue. Flower delivery appears to be an industry that flops during recessions, and this company has taken a huge hit: the group earned $584 million in fiscal year 2007-08, but its revenue slid to $498 million the following year, and sank further, to $469 million, in 2010.
It posted a slight improvement in 2011, but it’s about $100 million dollars shy of regaining its pre-recession glory. CEO McCann hasn't figured out a way to recession-proof his business. Unfortunately for him, the overall American economy still has a high unemployment rate and a lack of consumer confidence, which means that unless he can figure out a solution, 1-800-Flowers is positioned for weak revenue for several more years.
Given it's weak revenue and the management's inability to cope with the broader economy, there's no good reason why anyone should buy 1-800-Flowers.com stock. So I find it particularly shocking that this stock is so expensive, trading at whopping 23 times P/E. There's absolutely nothing that can justify that stock price.
The Second Contender: FTD.com
About the Company:
Here’s some trivia that’ll impress the ladies: the FTD Group, Inc. is one of the oldest existing flower delivery groups, originating in 1910 as the Florists’ Telegraph Delivery Association. (It has since changed its acronym to “Florists’ Transworld Delivery”). The company expended worldwide in 1920 through its “Interflora” brand, which originally allowed FTD to send telegraphs to London and Glasgow to order a local florist to make a delivery.
These days, parent company United Online (NASDAQ: UNTD) owns both FTD.com and Interflora. The company delivers flowers in 140 countries, mostly through franchisees.
United Online is a MUCH better stock buy than 1-800-Flowers. For one thing, United Online is much better diversified than 1-800-Flowers. In addition to sending flowers, United Online owns a series of “online nostalgia” businesses, such as Memory Lane, Inc., a website that sells nostalgic baseball cards. Its business portfolio also includes websites that serve as retail portals, such as MyPoints.com, which rewards customers with gift cards for shopping through its affiliate portal.
That diversification helps United Online recession-proof its business. The same weak consumer confidence that diminishes consumer demand for luxuries like flower delivery and gourmet popcorn will also cause customers to flock to websites like MyPoints.com. And with business operations in so many countries worldwide, political or economic strife in one country can be counter-balanced by a boom in another country.
With a market cap of $498 million, as opposed to 1-800-Flower’s market cap of $195 million, United Online is also the bigger player.
Given its greater diversity and its global reach, I expected United Online to trade at a higher stock price than 1-800-Flowers. Fortunately, it doesn't. In fact, it may even be a "value" buy.
While 1-800-Flowers trades at a hefty P/E of 23, United Online trades at a much more reasonable P/E of 9.2. United Online also offers a dividend of 10 cents per share, which works out to a whopping 7.2 percent dividend rate. 1-800-Flowers doesn’t offer a dividend.
With its strong dividend, low P/E, and recession-proof business model, United Online is obviously the better buy.
What Companies Did I Leave Out?
Of course, there are a number of flower delivery companies that I've left out. I’ve been thinking about Teleflora ever it aired that stunning SuperBowl commercial starring supermodel Adriana Lima. Yeah, you remember the one.
Unfortunately for you, popular floral companies like Teleflora (a subsidiary of Roll International) and Proflowers.com (owned by Provide Commerce, Inc.) are privately held. That means you can’t buy your sweetheart stock in those two companies for Valentine’s Day. Guess you’ll have to buy her roses instead.
If you're feeling charitable, you might even order them from 1-800-Flowers. That poor company needs your business.
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