Good morning, and welcome to the 1800flowers.com Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Joseph Pititto.
Please go ahead.
Thank you, Kevin. Good morning and thank you all for joining us today to discuss 1-eight hundred FLOWERS.com, Inc. Financial Results for our fiscal 2021 Q3.
For those of you who
have not yet received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our corporate website at at 1800flowersinc.com. Our call today will begin with brief formal remarks and then we will open up the call to your questions. Presenting today will be Chris McGann, CEO and Bill Shea, CFO. Before we begin, I need to remind everyone Some of the statements we will make today may be forward looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties and could cause actual results to differ materially from those expressed or implied in the applicable statements.
For a detailed description of these risks and uncertainties, please refer to our press release issued this morning as well as our SEC filings, including the company's annual report on Form 10 ks and quarterly reports on Form 10 Q. In addition, this morning, we will discuss Certain supplemental financial measures not prepared in accordance with generally accepted accounting principles. Reconciliation of these non GAAP financial measures The most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning. The company expressly disclaims any intent or obligation to update any of the forward looking statements made in today's call and recording of today's call, a press release issued earlier today or in any of its SEC filings, except as may be otherwise stated by the company. I'll now turn the call over to Chris McCann.
Thank you, Joe, and thank you to everyone who's joined our call this morning. Today, we're pleased to another quarter of record top and bottom line results. Our revenue growth of 70%, driven by e commerce growth of more than 80%, Reflects continued strong growth across our three business segments. The growth momentum that we have in our business today has been building for several years And accelerated further since the start of the COVID-nineteen pandemic more than a year ago. What's more, we expect to continue to grow Which was dramatically accelerated during the pandemic is not likely to revert back.
As a company that has evolved our business In addition, our company has a singular mission, to help inspire more human expression, connection and celebration. These are sentiments that are more important than ever today, and we are uniquely positioned with a broad and continually expanding suite of products specifically designed to help our customers deliver smiles to the important people in their lives. Today, we're a bigger, better, stronger company than we were even 1 year ago. Over the past several years, we've invested The key elements of our e commerce platform, including our all star family of trusted brands, in particular, Our signature Harry and David and 1-eight 100 Flowers Brands and most recently our newest brand Personalization Mall. We've continued to invest in our advanced technology stack, our digital marketing programs, our customer care platform and our large and fast growing customer file.
As a result, we've grown our market share, expanding our leadership position in the floral space, becoming a leader in the Go Make Foods and Gift Baskets category And extending our platform with the addition of Personalization Mall, a leader in the fast growing area of personalized gifts, We've enhanced our technology stack. Leveraging our culture of innovation, we have built an advanced microservices platform And building brand recognition, always with a focus on analysis driven optimization for enhanced results. We've enhanced our customer care platform to provide an exemplary customer experience with an AI with an integrated AI powered virtual assistant, A proactive two way SMS program, and we recently released a new cognitive skill To our online and Apple Business Chat functionality that provides our customers with a personalized conversational experience In terms of our customer file, we've continued to see tremendous growth as well as enhanced customer behavior metrics. Our 12 month active customer file now exceeds 12,000,000 total customers. And in the 1st 9 months of the current fiscal year, We've already added nearly 5,000,000 new customers.
Even with the tremendous growth in new customers, demand from existing customers represented 65% of total revenues through the past 9 months. And our celebrations passport loyalty program continues to grow at a rapid rate, helping to drive increased frequency, retention and multi category, multi brand purchasing behavior. Passport membership has now achieved a significant milestone, adding 1,000,000 members and continues to grow at a strong double digit pace. The combination of all these assets and positive trends that we see across our business give us confidence in our outlook for continued strong growth despite the challenging comparisons that we have going forward. As such, we provided guidance today in our press release with double digit revenue growth revenue growth that we achieved in the Q4 last year, which was driven by a pandemic induced spike of nearly 80% in e commerce demand.
With this double digit growth in the 4th quarter, we anticipate achieving more than $2,000,000,000 in total revenues for the current fiscal year. And based on our expectation for the Q4 and what we see looking forward, we believe this momentum will continue, enabling us to achieve double digit growth in our next fiscal year as well. As I've stated in the past, our highly
Thank you, Chris. Our remarkable results for the fiscal Q3 were achieved despite several headwinds, including Sunday placement of the Valentine's holiday, which usually reduces demand by more than 20% severe weather during the Valentine period, including the complete shutdown of a 3rd party carrier's main hub due to freezing conditions and higher shipping costs from 3rd party providers, which unfortunately Despite these headwinds, our signature 1-eight 100 Flowers brand continued to far outpace the competition at Valentine's Day and throughout the quarter, further extending our significant market leadership position. During the quarter, we also saw continued strong performance in our newest brand, Personalization Mall. This reflected a combination of factors, including our broad product offering with thousands of items from wine glasses to picture frames, which can be customized using more than a dozen different personalization technologies. Our industry leading operational excellence unsurpassed ability to go from order entry to a finished personalized product ready to ship in as little as 24 hours or less and our ability We also saw a triple digit e commerce growth in our Gourmet Food and Gift Baskets segment, led by our iconic Harry and David brand, continues to leverage digital marketing programs to reach a younger demographic and drive gifting for everyday occasions.
These drivers and our record results for the quarter reflect the strength and flexibility of the e commerce platform that we have built. They are also a testament to the hard work and perseverance of our thousands of associates who continue to overcome a challenging environment to drive operational excellence Now breaking down a few highlights from the quarter. Our adjusted EBITDA of $15,400,000 An increase of nearly $18,000,000 compared to the prior year period reflects our 4th consecutive quarter of positive adjusted EBITDA. This includes 3 non holiday quarters, reflecting continued strong growth in everyday gifting, particularly in our Gourmet Food and Gift Basket brands, As well as a significant shift from the past years when we were only EBITDA positive in the calendar year end quarter. Our strong Q3 adjusted EBITDA was driven by a combination of total revenue growth of more than 70% with e commerce growth Turning to our segment results.
As I mentioned earlier, in our Gourmet Food and Gift Baskets segment, we achieved triple digit e commerce growth with a gross profit margin improvement of 500 basis points. This strong performance reflected a combination of enhanced operating leverage related to the strong revenue growth and reduced promotional marketing programs, partially offset by increased labor and shipping costs. As a result of the strong revenue growth, higher gross profit margin and increased operating leverage, Contribution margin in this segment increased more than $18,000,000 compared to the prior year period. In our Consumer Flaw and Gift segment, which includes our signature 1-eight 100 Flowers brand and personalization mall, we achieved revenue growth of more than 70% and segment contribution margin increase of 46%. This was achieved despite lower gross profit margin percent due to the higher shipping costs and the weather related incurred during the Valentine holiday period.
In our BloomNet business, revenue increased nearly 28% and segment contribution margin increased 20% despite a lower gross profit margin in the period, which primarily reflected product mix. Overall, we achieved exceptional top and bottom line results across our three business segments and solid momentum we head into our fiscal Q4. Turning to our balance sheet. Reflecting the significant cash that our business is generating, Our cash and investments position at the end of the quarter was $257,000,000 which represents an increase of $25,000,000 over the year ago period and includes having used more than $150,000,000 of cash on hand earlier this year to finance our acquisition of Personalization Mall. Inventory was $122,000,000 reflecting both our acquisition of Personalization Mall and our initiatives to build inventory to service the strong e commerce demand we are seeing.
In terms of debt, we had $184,000,000 in debt and 0 borrowings under our revolving credit facility. As we noted in the past, the strength of our balance sheet with strong cash position and minimal debt combined with our untapped revolving line of credit Gives us significant flexibility to continue to invest in our business platform and add accretive acquisitions. In addition, As we noted in our press release this morning, our Board of Directors has increased our authorization for stock buybacks to 40,000,000 The new authorization replenishes and increases our previous authorization under which we had returned approximately $26,000,000 to shareholders by repurchasing shares over the past 2 years. We believe our stock is a very compelling investment and that repurchasing our shares Enables us to return additional value to our shareholders. Regarding guidance, The unique complement of events that occurred in our Q4 last year created a very challenging comparison for us.
In the prior year period, we saw the explosion of e commerce growth at the start of the pandemic that drove triple digit growth in our Gourmet Food and Gift Baskets segment a record Mother's Day holiday in our floral business. This resulted in e commerce growth of more than 80% compared with the prior year period. In addition, we saw a dramatic increase in our adjusted EBITDA with growth of $35,000,000 over the prior year period. This reflected both the record revenue growth and historically low digital marketing costs as many advertisers pulled back. Despite this challenging comparison, we anticipate driving double digit revenue growth and strong bottom line performance in this year's fiscal Q4.
For the quarter, we anticipate achieving total consolidated revenue growth in a range of 10% to 15% compared with last year's record quarter. Based on this revenue growth and considering the higher year over year digital marketing costs, we anticipate achieving adjusted EBITDA for the quarter Combined with our record results for the 1st 3 quarters of the year, we anticipate achieving the following results for the full 2021 fiscal year: Revenue growth of more than 40 percent to total revenue for the year of approximately $2,100,000,000 compared with $1,490,000,000 in the prior year. Adjusted EBITDA in the range of $208,000,000 to $213,000,000 compared with $129,500,000 in the prior year. EPS in a range of $1.75 to $1.80 compared with EPS of $0.98 in the prior year And free cash flow of more than $100,000,000 And as we stated in this morning's release, we also anticipate driving double digit revenue growth in our 2022 fiscal year. I will now turn the call back to Chris.
Thanks, Bill. So as Bill just shared with you, our 3rd quarter results clearly demonstrate the strong and continuing momentum in our business. Growth in our business is driven by several factors. 1st is the addition of millions of new customers added to our file. 2nd The increasing penetration of our existing customer base along with enhanced behavior metrics, including frequency and retention.
3rd, the strong growth in the number of customers who are purchasing from multiple product categories resulting from our cross brand merchandising and marketing programs and the continued expansion of new product categories such as the addition of personalization mall And 4th is the continued expansion of our Passport loyalty program with over 1,000,000 members, driving increased frequency and retention, cross category and cross brand purchasing and enhanced lifetime value. In addition, our outlook for continued strong growth reflects both the secular shift to increased online purchasing As well as the increased need of consumers to connect and express themselves, sentiments that are at the very core of our business. As we look towards the final quarter of our current fiscal year, we anticipate driving double digit top line growth On top of what was an extraordinary Q4 last year, and we expect to close this fiscal year with more than $2,000,000,000 in revenue And over $200,000,000 in adjusted EBITDA. We have built a highly scalable e commerce platform for growth, And we are very excited for what the future brings. With that, I'd like now to turn the call over to Talia, and we can take your questions.
Thank you, sir. We will now begin the question and answer The first question comes from Alex Fuhrman from Craig Hallum. Please go ahead.
Great. Thanks very much for taking my question and congratulations on another really strong quarter. It like you're really firing on all cylinders with both new customers and existing customers. And I think you'd mentioned, Chris, in the prepared remarks that Existing customers have been about 65% of your business year to date. How does that compare To a normal year for you and what does that suggest for you about the opportunity heading into next year to both continue Acquiring new customers and to really capitalize on the new customers that you've acquired this year.
Great, Alex, and thank you for that question, and thanks for the recognition of the strong performance we've been having. So the 60 so the existing customers representing 65% of our revenue in the 1st 9 months, I would say, is up slightly from what it has been previously. As we're seeing more penetration into our Passport program, More customers buying from more than one category, thus increasing their frequency, their average spend. So the spend of an existing customer is higher naturally than the new customer. As we look forward, we and that's why we wanted to share some of that information with you.
We see our customer base, the large file that we have, which is Significantly grown over the last couple of years, again, growing the file nicely prior to the pandemic and accelerating into the pandemic. It's become one of our greatest assets and the main asset that we look at and predictability for future sustained growth. So it's that, coupled with what we see in Q4, coupled with how we can read the team leads going forward, gives us the confidence in that guidance of double digit growth.
Yes, but Alex, this is Bill. We want to get the point across that strong new customer growth as well New customers are performing better than new customers performed pre pandemic and our existing customers are performing better Now on a pre pandemic basis.
The next question comes from Michael Kupinski from NOBLE Capital Markets.
Thank you. And I would like to add my congratulations as well. A couple of quick questions here. Can you just talk a little bit about the potential shifts Consumer buying patterns versus last year, obviously, during the pandemic. Are you seeing customers starting to shift more towards larger ticket items, for instance, Certain categories, specific products, kind of give us a flavor of what consumers are buying these days.
Sure, Michael. 1st and foremost, the secular shift that we've seen, right, is the movement from just offline to online, which has been a tremendous movement. From a product kind of point of view, What we've seen is during the pandemic well, actually, some of this is pre pandemic as well and again, just accelerated. As we've seen, the pandemic Basically accelerated change in many different areas of our lives and our behavior. So what we saw was plants, As an example, in one product category, we had good growth going in, and it's taken off since then and continues to grow, and we The Gourmet line under Harry and David has had tremendous growth this past year.
And again, that continues as people were recognizing the ability for Harry and David to help with their entertaining and celebrating in the home needs, etcetera. And then what we saw prior to and why we made the acquisition of Personalization Mall, the growing product category We define as personalized products. And as Bill pointed out in his comments, the very broad assortment of products that we have that can be personalized in a number of different ways. So those are a couple of key shifts that we've seen, but they started really before the pandemic
And it's just been accelerated since. And can you give us a little color
on your digital marketing spend for the upcoming quarter? Is this related to any particular segment, like personalization mall, for instance? Or is it related to just increased prices for keywords? Or Just kind of give us a flavor of what the marketing spend is for.
Yes. So when we look at the marketing spend, Michael, what we see is obviously This is a floral quarter for us with the Mother's Day holiday. So a lot of the marketing spend that we look at right now is focused on the floral brand. But we see Good growth coming from personalization mall as well as from our gourmet food categories. And when we look at the digital marketing space, What we're doing and we've said this previously is we're not playing as aggressively in the bottom of the funnel part of the game where many of our competitors play from a discounting point of view.
But really kind of moving mid and upper funnel tactics as well, which is working very well for us. And the marketing costs have gotten more expensive. We've seen that this quarter last year, marketing costs were extremely low, probably about a 50% reduction from normal. That returned to normal really beginning back in August, September. So we've been dealing with that increased cost, but we've been managing it effectively.
Just last question. You mentioned the severe weather in Texas in the quarter. Can you talk a little bit about your experience? I know it happened right
after Valentine's Day, but can you talk a little bit about your
experience there? What is Can you talk a little bit about your experience there? What have there been any particularly lasting benefits that you may have had as a result maybe of your Competition not faring as well. Can you just kind of give us a flavor of maybe what even the impact you might have seen in terms of dollar wise, whether that might have been?
The impact of the weather and it did start happening actually Valentine's week and then lasted really for the week after Valentine's week and we saw parts of the country like Texas, the Northwest and nearly right through the center of the country with major freezes and some of the big third party Shipping companies all had to close down their hubs as they couldn't get employees into work. So that did create some delays in packages getting their to consumers and created a higher level of credits, which impacted our gross margin for the Valentine's Day holiday and for the Q3. You saw that in the Consumer Floral and Gift segment. It's returning back to more normalized. What the new normal is at least right now, The 3rd party carriers are not delivering packages as timely as they did historically pre pandemic in dealing with the With overall e commerce demand exceeding the ability for them to fulfill on a timely basis, But it's back to that more normalized level.
So we don't see any long term implications of what happened to the weather at Valentine's
And one of the things, Michael, to keep in mind too, while weather was an impact, as Bill just pointed out, we also saw the benefit of our distribution network and our fulfillment network Not being one channel focus. So where most of the challenges were on the 3rd party carriers and their hubs, etcetera, that were Frozen during that time period, we were able to utilize our florist network, not in every area. Texas obviously was challenged, We utilize our florist network to a greater degree. So having the flexibility between those multiple channels is a real benefit to our company.
The next question comes from Linda Bolton Weiser from D.
Can you talk about the online floral gifting industry was kind of one of the first ones to kind of shift to online. Can you give us some estimate as to what percentage of the floral industry is now offline versus online
Thank you, Linda, and then thank you for the congratulations. We appreciate that. The online floral category really has been one of the early ones to move online, and we started that back in 1991 when we moved on to CompuServe. So you're right. The industry has been represented online for a long time.
I'm not sure really if I can quantify for you how much of the business It's online versus offline. But if we really look at it, the best generalization I can say is that it's about a 2nd, the gifting business It's about a $9,000,000,000 category off line and about $2,500,000,000 category online. It's probably a very broad estimation. But what we see is the opportunity and we continue to see the opportunity working with our florists, working with BloomNet The ability to continue to migrate and we're seeing that more customers migrating online, but still having that local with our Blunden Florist serves us very, very well. And I think we're extremely well positioned again as we've seen this overall shift and we saw it in our floral business Well, this past year, this overall shift from offline to online that we saw in all of our product categories, which is very well positioned to benefit from that shift.
Thanks. And then can I ask you kind of a longer term question? I do get this from investors sometimes. Question is over your EBITDA margin targets long term. You've always talked about having to share The profit with florist on the floral side, but I imagine there's more of an upside maybe margin potential on the gifts on the food So can you talk about that?
And you've talked about your 10% EBITDA margin target goal, but it seems like that's a goal that you should be targeting higher. So can you talk about that? Thanks.
Bill, do you want to address that, please?
Yes. Linda, for A number of years, we always had a target out there of a 10% EBITDA margin. Check that box. We're doing that this year. We're going to continue to look as to drive greater EBITDA margins going forward.
We look at our margins, our gross margins, we look at our operating expenses. We know there's headwinds associated with both. We've been operating in higher cost environments with labor, with shipping costs, and we've been managing that. And we continue to look to automate Number of processes to offset those cost increases and to drive increased margins. So we are going to continue to drive improved margins Going forward, we haven't set a new target yet at what that will be.
But just like we've achieved the 10% margins that we had set out before, we'll set a new target and we'll strive to achieve that.
Thanks. And then finally, You've talked about your higher shipping costs and everything. Can you talk about other inflationary pressures? And also just are you actually having trouble getting actual components or materials Like from Asia, are there any areas where you're just not getting what you need? Thanks.
Thank you, Linda. What we're seeing as far as getting supplies from Asia or other international destinations, fortunately, most from a hardgood point of view, While we do source product from Asia, it's not a significant part of our business. So we're able to manage that effectively and have for the last couple of years As those challenges have been with us for a while now, and certainly the most recent challenge with the blockage in the Suez Canal and the blockage at the sum of the parts, We've been able to manage our way through that effectively. Bill, anything to add on that as far as other inflationary costs?
Yes. Again, we've been dealing with labor and shipping cost increases for the last several years. Again, we continue Triple easy
sort of marketing, Let's call it back in the June quarter of 2020, as we look out maybe over the next 12 to 24 months that You found ways to continue and granted you'll have PMOL driving some mix benefits there as well. But you can kind of keep margins Improving even as you lap some of the pandemic benefits?
Dan, we're very pleased to
be giving not only double digit top line growth guidance for Q4, but also being able to extend that into fiscal 2020 2. In our August call, we're going to give more details as to guidance going forward, and that would include guidance on Both gross margin and operating leverage. But over the longer term, we believe we can drive improved margins.
Did you give a number in the quarter for growth ex PMOL? And in the June quarter, obviously, It's hard to handicap since you guys just crushed Q2 with PMOL relative to expectations. But if you were on a normalized trajectory, your guidance would imply that you're pretty darn close to organic growth ex Tmall in the June quarter. My guess is is doing a little better than I thought, but is there any way
you can get some color around that? Well, back in the Q3, PMOL You did about $40,000,000 or so in revenue. So the consumer flow in gift segment, which showed 70% growth still grew at 44% despite the challenges of Valentine's Day. So the 1-eight 100 Flowers brand grew nicely and grew over 50% in January And margin overall as a company, we grew over 55% organically in the 3rd quarter. PMOL is going to be a nice contributor to the Q4.
But again, coming off the incredible quarter that we had a year ago, we're very pleased to be giving guidance to double digit growth in the Q4, and that is inclusive for Pmall.
Yes. I think that I see the point I'm making though is that you're close to organic growth off of the 60% comp. I mean, you're not quite there probably. PMOL is doing better and there's got to be some sequential improvement, but I mean that's just staggeringly high. And then maybe For Chris, just to include you, I guess, you obviously want to get deeper into personalization, a lot of opportunities.
We actually heard interesting with eBay talking last night Getting into some of the customization categories, although they sound like they're competing more with Etsy on that front. I am curious, I know you guys would like to buy something, but in the meantime, there are plenty of companies out there that might be able to provide some ancillary opportunities. How are you thinking about partnerships if you can't scale it deeper? Are there areas that you can attack right away with tuck ins? Just help us think about how quickly you can And sort of your breadth within the personalization category.
Great, Dan. Thank you. And you're right. There is lots of opportunity for us. We approach the opportunity in a number of different ways across our categories, but then I'll come back to Steve for personalization.
As we look at the business, We look to constantly expand our product offerings and whether we do that through kind of internal development or working with different partners around the country, around the world In more of a marketplace model that we've spoken about in the past. So we've been adding capabilities there, especially within the Flowers brand right now. If you look under the gifts in Personalization Mall as we expanded kind of that land and expanded strategy that we've talked about. And a small example of that is we recently launched a personalized candy product on personalization mall. And that's what the 3rd was a partner that we're working with That has that capability.
We didn't need to bring that capability in house. So that's just a small example, but we see we've identified and see several Key category growth opportunities within the personalization space that personalization more gives us a great platform to build upon.
All right, fair enough. Thank you, guys. I appreciate the color and obviously,
The next question comes from Anthony Lebiedzinski from Sidoti and Company. Please go ahead, Anthony.
Yes, good morning and thank you for taking the questions and certainly very impressive results. So great job with everything. So Just wondering as far as the Passport information that you provided, it's certainly nice see that you're quantifying that. As far as if you could give us some sense as to the order frequency that you're from Passport members along with just overall retention AOV metrics. If you could perhaps quantify any of that, that would be very helpful.
Thank you.
Thank you, Anthony. Yes, we wanted to share a little bit of color on the Passport growth because it's been phenomenal. It's really helping to Driving on the increased behavior metrics that we're seeing in our file. So we wanted to let people know it's grown to a significant number, passing the 1,000,000 membership mark. What we see from Passport customers and or customers that buy from more than one category, more than one product category, percent, so significantly enhancing the lifetime value.
And again, we see that from customers who are passport, who stay single Threaded, single product category threaded or more importantly, we see them because of our communications staff start to migrate to more than one category. When you have a customer who's passed on and buying from more than one category, those numbers I just referenced increase even further. So it's a very valuable program for us. And as we continue to expand our platform with more product categories Through the partnerships like we just talked about, was that Just Kandi Company as an example, or Through acquisitions as we did in a major way with Personalization Mall, we're bringing more and more products, more and more solutions To help our customers express, connect and celebrate and the value of that Passport membership gets greater and greater all the time.
Got it. Okay. And then in terms of the AOV for a Passport member versus a non member, is that noticeably different or Consistent with the company average?
Yes. AOV is pretty consistent with the average. And
Overall, Anthony, AOV for the quarter was basically flat. We see it rising a little bit on the food side, especially with Harry David, PMO is a lower ticket. So as an enterprise on a blended basis, our AOV is relatively flat. So basically, the growth is all unit growth.
Got it. Okay. Thanks for that. And then just wondering, so as far as your Cash flow priorities, I know you talked a little bit about the you had a separate press release about the buyback and you mentioned that as well. So just wondering as far as your Main capital allocation priorities and maybe if you want to just touch on your appetite for additional M and A activity.
Thanks, Neil and Anthony. We're recognizing as you see our results, we're generating good, very good amounts of cash. And our balance sheet is extremely strong. And it's one of our core one of our greatest assets really as we look at The platform that we've built and more importantly, the platform that we will continue to build. So we'll continue to invest in our core business, invest in the platform and In all elements of the platform, the technology side right through the distribution and manufacturing capabilities that we have, as Bill referenced, We continue to enhance with automation, etcetera.
And then as well through acquisitions, Mike, you've seen us in the last compelling value, and this gives us that added flexibility to return value to shareholders in a different way.
Got it. Okay. And then last question, more or less kind of a housekeeping here. So as far as the tax rate embedded in the Q4 guidance, Does that imply a more normalized tax rate versus what we saw here in the Q3?
Yes, Anthony. Overall, our effective tax rate for the year is Between 21% 22%, and that's what should be factored into the Q4. The benefit we got In the Q3, again, as we continue to make more money, some of the discrete items or permanent items That we have had less of an impact and so our effective tax rate has gone up throughout the year. We had to get the annual tax rate In sync at 21% to 22%, and therefore we got the benefit in the Q3.
Got it. All right. Well, thank you and best of luck.
Thank you. Thank you.
The
next question comes from Doug Lane from Lane Research. Please go
ahead, Doug. Yes. Hi. Good morning, everybody. I just want to stay on the acquisition topic here.
Can you give I know you can't say anything until you announce something, but could you give us just a Qualitative assessment of the M and A front and other properties that you're looking at actively now?
Thank you, Doug, and Thank you for the question. We're always actively looking and we spend a lot of time making sure that we're networking in the space that we want to Be in the spaces that we're currently in and maybe adjacency categories we might want to move into. So we're always actively looking. I would say the landscape right now, you see companies that are looking to sell based on really the phenomenal year that they had last year, which would Certainly, always that needs to be normalized when you look at valuations. So that presents a challenge.
So it's an active market today, I think, With some challenges in it, as I just mentioned, in a scenario where we continue to look, are there tuck ins like we had with Sherry's Berries? Are there platform
additions like we did with Personalization Mall?
And why do all the additions like we did with Personalization Mall and what are the capabilities, the tools and capabilities our customers are looking for To help them express, connect and to celebrate.
Yes. I think that's Chris' last point. That kind of shows over the last 18 to 20 months kind of the 2 Bookends of the type of acquisitions we can buy, whether it's like Sherry Berries where it's truly a kind of a tuck in, not buying really any of the hard assets, Just buying kind of the IP and placing it on our platform and having it grow and grow very profitably that way or whether it is a standalone operation, Bigger acquisition and a standalone operation with PMOL that brings us a new product category that we can get into and then leverage as Chris mentioned So that shows the kind of the two sides of the spectrum of types of companies we look for.
And in that, I think that shows our capabilities. We're very proud of the teams that we've put at the being very judicious on the diligence front as well as them being very focused on the integration front, and we've been Building some great capabilities there. So that's a strength of ours we look at and how do we leverage that going forward.
Okay. That makes sense. Thanks. And Bill, obviously, you mentioned labor costs, you mentioned shipping costs, but inflation is Ramp it. So where else are we thinking about inflationary pressures as we model fiscal 2022?
Well, those are the big ones because those are the big Cost drivers, if you look at our P and L, you see kind of the cost of goods and shipping costs are A big piece of that and labor rolls into both our cost of goods, that's the major part as well as some down on our operating Expenses. We obviously continue to look at marketing costs and where marketing costs, digital marketing rates will be. They've normalized after The big dropped last year and then they surge as the during November, during the national elections and During the holiday period and then it will normalize now, but we continue to monitor where marketing rates are. Those are kind of the big categories. What we have as offsets to that is our continual Investment in automation to help drive down labor costs, what we've experienced, we've pulled back Significantly on promotions, as a result to offset these costs and not throughout this whole year, we've been able to drive Gross margin improvement despite these operating despite these cost increases.
Okay, that's helpful. Thanks guys.
Closing remarks.
Thank you, Kalia, and thank you all. Thanks for joining us on the call today. As always, please don't hesitate to e mail us with any additional questions you may have about our outlook for continued strong growth. And lastly, don't forget, Mother's Day is just around the corner, and I really urge you to do that and see the wonderful content that the teams are bringing to market and really telling the story and engaging with our customers in a much deeper fashion. I think you'll be very pleased with YJ.
Thank you, and we look forward to talking further.
Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.