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Bear of the Day: FTD Companies (FTD)

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With the Mother’s Day holiday approaching, it might be surprising to find a company in the business of flower delivery as the Zacks Bear of the Day, but FTD Companies has actually been on life support for quite a while.

Like so many other traditional businesses that enjoyed near-monopoly status for years on the basis of strong brand recognition and extensive networks, FTD has fallen victim to the great equalizing power of the internet and now finds itself barely treading water in the flower delivery business.

Founded in 1910, “FTD” originally stood for “Florist’s Telegraph Delivery” and the nationwide association of florists used the hottest technology of the day to offer the delivery of festive floral gifts across the country.

The telegraph was eclipsed by the telephone and FTD continued to add to its network, changing the name to “Florist’s Transworld Delivery” after expanding internationally in the 1960’s.

The very nature of the floral arrangement business guaranteed FTD’s success for a long time. People naturally want to send a floral gift to friends and loved ones who live far away, but flowers don’t travel well. A network of local businesses that could communicate orders with each other represented great value to customers as well as bringing new business to individual florists.

It wouldn’t be uncommon for a small florist to personally create the floral arrangement that the customer ordered and then also personally deliver it to the intended recipient.

In 1910, FTD was the basically the equivalent of a modern technology company, using the telegraph to transmit orders long distances and serve customers they’d never see in person. Fast-forward 100 years and the company was apparently taken by surprise as their business was decimated by internet-based competition.

That local florist – long the foundation of FTD’s network – has largely gone the way of the dodo bird and all sorts of other sole-proprietor, brick and mortar small businesses.

Large, modern operations can use the scale of the internet to take orders from all over the country (and the globe) and fill those orders from vast, efficient warehouse locations rather than expensive retail spaces.

Delivery methods have evolved as well, with flowers being transported by everything from established giant global shipping companies to local ride-share drivers. It has literally never been easier for a merchant to get its products to the end customer.

Restructuring and Warning

FTD made expensive acquisitions of private companies ProFlowers and Sheri’s Berries almost 5 years ago, but has yet to see those investments bear any fruit.

In March, the company issued a warning to investors that after restructuring $218M in debt, it would be left with only enough operating capital to continue operations through July.

The company posted net losses of $225M in 2018 - or $1.37/share. Estimates for full-year 2019 had been as high as $0.61/share just 60 days ago, but fell to just $0.13/share after the company’s latest warning, earning FTD a Zacks Rank #5 (Strong Sell).

With a share price barely north of a dollar, FTD is hardly a good candidate for a short position, but owning those shares doesn’t make much sense either.

Flower arrangement and delivery remains a great industry, but today’s leaders are leveraging technology and infrastructure to offer consumers a better product and experience at a lower price than FTD. (FLWR) has expanded its offerings beyond just flowers to include other gifts, food and gardening supplies. The company is on much firmer financial footing and is currently a Zacks Rank #2 (BUY).

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