Quarterly Report

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

This "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-Q and in the Company's Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect the Company's plans, estimates and beliefs. The Company's actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption "Forward-Looking Information" and under Part II Item 1A - "Risk Factors".

Overview

1-800-FLOWERS.COM, Inc. is the world's leading florist and gift shop. For more than 30 years, 1-800-FLOWERS.COM, Inc. has been providing customers with fresh flowers and the finest selection of plants, gift baskets, gourmet foods, confections, balloons and plush stuffed animals perfect for every occasion. 1-800-FLOWERS.COM(R) (1-800-356-9377 or www.1800flowers.com), is one of the top 50 online retailers by Internet Retailer, as well as 2008 Laureate Honoree by the Computerworld Honors Program and the recipient of ICMI's 2006 Global Call Center of the Year Award. 1-800-FLOWERS.COM offers the best of both worlds:
exquisite arrangements created by some of the nation's top floral artists and hand-delivered the same day, and spectacular flowers shipped overnight "Fresh From Our Growerssm." As always, 100% satisfaction and freshness are guaranteed. The Company's BloomNet(R) international floral wire service (www.mybloomnet.net) provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably.

The 1-800-FLOWERS.COM, Inc. "Gift Shop" also includes gourmet gifts such as popcorn and specialty treats from The Popcorn Factory(R) (1-800-541-2676 or www.thepopcornfactory.com); cookies and baked gifts from Cheryl&Co.(R) (1-800-443-8124 or www.cherylandco.com); premium chocolates and confections from Fannie May Confections Brands(R) (www.fanniemay.com and www.harrylondon.com); gourmet foods from Greatfood.com(R) (www.greatfood.com); wine gifts from Ambrosia(R) (www.ambrosia.com); gift baskets from 1-800-BASKETS.COM(R) (www.1800baskets.com) and DesignPac Gifts(TM) (www.designpac.com); Celebrations(R) (www.celebrations.com), a new premier online destination for fabulous party ideas and planning tips; as well as Home Decor and Children's Gifts from Plow & Hearth(R) (1-800-627-1712 or www.plowandhearth.com), Wind & Weather(R) (www.windandweather.com), HearthSong(R) (www.hearthsong.com) and Magic Cabin(R) (www.magiccabin.com).

Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market under ticker symbol FLWS.

                                                 Three Months Ended                             Six Months Ended
                                      -----------------------------------------    --------------------------------------------
                                      December 28,   December 30,                  December 28,     December 30,
                                          2008           2007        % Change          2008             2007         % Change
                                      -------------- --------------  ----------    --------------   -------------   -----------
                                                                          (in thousands)

Net revenues:
  1-800-Flowers.com Consumer Floral      $97,082       $114,017          (14.9)%     $180,583         $201,669          (10.5)%
  BloomNet Wire Service                   15,151         12,732           19.0%        30,866           22,623           36.4%
  Gourmet Food & Gift Baskets            141,855        110,605           28.3%       179,039          133,767           33.8%
  Home & Children's Gifts                 77,757         98,013          (20.7)%      100,352          122,748          (18.2)%
  Corporate (*)                              597            585            2.1%           801            1,710          (53.2)%
  Intercompany eliminations               (3,114)        (1,750)         (77.9)%       (4,280)          (2,505)         (70.9)%
                                     -------------- --------------                --------------   -------------
Total net revenues                      $329,328       $334,202           (1.5)%     $487,361         $480,012            1.5%
                                     ============== ==============                ==============   =============

                                                  Three Months Ended                             Six Months Ended
                                       -----------------------------------------    --------------------------------------------
                                       December 28,   December 30,                  December 28,     December 30,
                                           2008           2007        % Change          2008             2007         % Change
                                       -------------- --------------  ----------    --------------   -------------   -----------
                                                                           (in thousands)
 Gross Profit:
   1-800-Flowers.com Consumer Floral      $35,918        $44,870         (20.0)%      $67,627          $79,020          (14.4)%
                                             37.0%          39.4%                        37.4%            39.2%

   BloomNet Wire Service                    8,766          7,273          20.5%        17,106           12,882           32.8%
                                             57.9%          57.1%                        55.4%            56.9%

   Gourmet Food & Gift Baskets             56,315         54,298           3.7%        68,328           63,781            7.1%
                                             39.7%          49.1%                        38.2%            47.7%

   Home & Children's Gifts                 37,579         46,591         (19.3)%       47,205           56,797          (16.9)%
                                             48.3%          47.5%                        47.0%            46.3%

   Corporate (*)                              168            256         (34.1)%          325              763          (57.4)%
                                             28.1%          43.8%                        40.6%            44.6%

   Intercompany eliminations                 (454)          (232)                        (476)            (306)
                                       -------------- --------------                --------------   -------------
 Total gross profit                      $138,292       $153,056          (9.6)%     $200,115         $212,937           (6.0)%
                                       ============== ==============                ==============   =============
                                             42.0%          45.8%                        41.1%            44.4%
                                       =============  ==============                ==============   ==============

                                                  Three Months Ended                             Six Months Ended
                                       -----------------------------------------    --------------------------------------------
                                       December 28,   December 30,                  December 28,     December 30,
EBITDA(**)                                 2008           2007        % Change          2008             2007         % Change
                                       -------------- --------------  ----------    --------------   -------------   -----------
                                                                           (in thousands)
 Category Contribution Margin:
   1-800-Flowers.com Consumer Floral       $8,851         13,561         (34.7)%      $19,593          $25,506          (23.2)%
   BloomNet Wire Service                    4,839          4,458           8.5%         9,258            7,022           31.8%
   Gourmet Food & Gift Baskets             26,107         24,912           4.8%        25,216           23,057            9.4%
   Home & Children's Gifts                  2,758          8,747         (68.5)%          552            6,451          (91.4)%
                                       -------------  --------------                --------------   -------------

 Category Contribution Margin Subtotal     42,555         51,678         (17.7)%       54,619           62,036          (12.0)%
     Corporate (*)                         (9,938)       (13,083)        (24.0)%      (24,013)         (26,792)         (10.4)%
                                       -------------  --------------                 --------------  -------------
        EBITDA                            $32,617        $38,595         (15.5)%      $30,606          $35,244          (13.2)%
                                       =============  ==============                 ==============  =============

(*) Corporate expenses consist of the Company's enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company's infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific category.

(**) Performance is measured based on category contribution margin or category EBITDA, reflecting only the direct controllable revenue and operating expenses of the categories. As such, management's measure of profitability for these categories does not include the effect of corporate overhead, described above, nor does it include depreciation and amortization, goodwill and intangible impairment, other income (net), and income taxes. Management utilizes EBITDA as a performance measurement tool because it considers such information a meaningful supplemental measure of its performance and believes it is frequently used by the investment community in the evaluation of companies with comparable market capitalization. The Company also uses EBITDA as one of the factors used to determine the total amount of bonuses available to be awarded to executive officers and other employees. The Company's credit agreement uses EBITDA (with additional adjustments) to measure compliance with covenants such as the interest coverage ratio and consolidated leverage ratio. EBITDA is also used by the Company to evaluate and price potential acquisition candidates. EBITDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of these limitations are: (a) EBITDA does not reflect changes in, or cash requirements for, the Company's working capital needs; (b) EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debts; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA does not reflect any cash requirements for such capital expenditures. Because of these limitations, EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company's performance.

                                                              Three Months Ended                   Six Months Ended
                                                          ---------------------------      ------------------------------
                                                           December 28,  December 30,       December 28,     December 30,
                                                              2008          2007                2008             2007
                                                          -------------  ------------      --------------  --------------
                                                                                  (in thousands)

Net (loss) income                                           ($5,111)      $19,256               ($10,415)        $13,466
Add:
 Interest expense                                             2,507         1,737                  3,666           3,282
 Depreciation and amortization                                5,797         4,967                 11,485           9,837
 Income tax expense                                           9,482        12,942                  6,033           9,162
 Goodwill and intangible impairment                          20,036             -                 20,036               -
Less:
 Interest income                                                 76           295                    172             473
 Other expense (income)                                          18            12                     27              30
                                                          -------------  --------------      --------------  --------------
EBITDA                                                      $32,617       $38,595                $30,606         $35,244
                                                          =============  ==============      ==============  ==============

                                 Three Months Ended                             Six Months Ended
                             -----------------------------------------  ------------------------------------------
                              December 28,   December 30,                December 28,    December 30,
                                 2008           2007        % Change        2008             2007        % Change
                             -------------- --------------  ----------  --------------   -------------   ---------
                                                          (in thousands)

Net revenues:
 E-Commerce                    $230,123         $274,168     (16.1)%       $337,872       $388,671        (13.1)%
 Other                           99,205           60,034      65.2%         149,489         91,341         63.7%
                             -------------- --------------              --------------   -------------
Total net revenues             $329,328         $334,202      (1.5)%       $487,361       $480,012          1.5%
                             ============== ==============              ==============   ==============

During the three months ended December 28, 2008, revenue declined by 1.5% in comparison to the prior year period, resulting from significantly reduced consumer spending during the key holiday period due to the overall weakness in the economy, which impacted the Company's Home & Children's Gift and Consumer Floral businesses particularly hard. The decline was offset in part by growth in the Company's BloomNet Wire Service category, which increased 19.0% over the prior year period due, in part, to the acquisition of Napco Marketing Corp. (Napco), a wholesaler of floral hardgoods, in July 2008, and the Gourmet Food & Gift Baskets category, which increased 28.3% over the prior year period due to the acquisition of DesignPac Gifts LLC (DesignPac), a wholesaler of gift baskets, in April 2008.

During the six months ended December 28, 2008, the Company's revenues increased by 1.5% over the prior year period as a result of: (i) growth within the BloomNet Wire Service category, which increased 36.4% over the prior year period due, in part, to the acquisition of Napco, a wholesaler of floral hardgoods, in July 2008, and (ii) Gourmet Food & Gift Baskets category, which increased 33.8% over the prior year period, due to the acquisition of DesignPac, a wholesaler of gift baskets, in April 2008. Organic revenue, including post acquisition growth of DesignPac and Napco, and adjusted for the transition of Company-owned retail stores to franchise operations, declined approximately 14.1% and 10.7% during the three and six months ended December 28, 2008, reflecting the challenging economic environment and its impact on consumer spending.

The Company fulfilled approximately 3,762,000 and 5,317,000 orders through its E-commerce sales channels (online and telephonic sales) during the three and six months ended December 28, 2008, respectively, a decrease of 14.6% and 12.2%, over the respective prior year periods, reflecting a decline in consumer spending during the key holiday period. The Company's E-commerce average order values during the three and six months ended December 28, 2008, of $61.16 and $63.54, decreased 1.8% and 1.0 % in comparison to the respective prior year

periods. Other revenues, for the three and six months ended December 28, 2008, increased in comparison to the same periods of the prior year, as a result of the Company's recent acquisitions of Napco and DesignPac, and through the growth of BloomNet.

The 1-800-Flowers.com Consumer Floral category includes the operations of the 1-800-Flowers brand which derives revenue from the sale of consumer floral products through its E-Commerce sales channels (telephonic and online sales) and company-owned and operated retail floral stores, as well as royalties from its franchise operations. Net revenues during the three and six months ended December 28, 2008 decreased 14.9% and 10.5%, respectively, over the prior year periods, due to lower order volume as a result of the decline in demand throughout the consumer sector, combined with the continued transition of Company owned retail stores to franchise operations, and a decline in average order value in comparison to the prior year periods.

The BloomNet Wire Service category includes revenues from membership fees as well as other product and service offerings to florists. Net revenues during the three and six months ended December 28, 2008 increased 19.0% and 36.4%, respectively, over the prior year period, primarily as a result of the incremental revenue generated by the acquisition of Napco in July 2008, and continued growth within the category as a result of market share improvements, as well as expanded product and service offerings and pricing initiatives.

The Gourmet Food & Gift Baskets category includes the revenues of Cheryl & Co., Fannie May, Popcorn Factory, The Winetasting Network and DesignPac brands. Revenue is derived from the sale of cookies, baked gifts, premium chocolates and confections, gourmet popcorn, wine gifts and gift baskets through its E-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Cheryl & Co. and Fannie May brands, as well as wholesale operations. Net revenue during the three and six months ended December 28, 2008 increased by 28.3% and 33.8%, respectively, over the prior year periods as a result of incremental wholesales revenue generated by DesignPac, acquired in April 2008, offset in part by decreased net revenue from the category's E-Commerce and retail stores channels as a result of reduced consumer spending during the key holiday period.

The Home & Children's Gifts category includes revenues from Plow & Hearth, Wind & Weather, HearthSong and Magic Cabin brands. Revenue is derived from the sale of home decor and children's gifts through its E-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Plow & Hearth brand. Net revenue during the three and six months ended December 28, 2008 decreased by 20.7% and 18.2%, respectively, over the prior year periods as a result of: (i) lower order volume from its E-commerce sales channel, due to a combination of significantly reduced consumer spending, particularly in the home decor product category, and a planned reduction in catalog circulation designed to improve category contribution, (ii) as well as lower retail store sales due to a decline in customer traffic during the holiday. As a result of this weak performance, the Company is implementing a plan to downsize the operations of its Home & Children's Gift category, including a reduction in catalog marketing, resizing the business to align its infrastructure with the expectation of continued weakness in the home decor retail sector.

The Company expects economic conditions for consumers to continue to be very challenging. Based on this outlook, and combined with its first half results, the Company now anticipates that revenues for the full fiscal year 2009 will be down approximately 5-to-10 percent compared with the prior year. In order to mitigate the impact of the revenue decline, the Company plans to continue its operating expense reduction programs which, from fiscal 2006 through fiscal 2008, reduced its operating expense ratio by 290 basis points.

                                             Three Months Ended                              Six Months Ended
                                --------------------------------------------- ------------------------------------------------
                                December 28,     December 30,                  December 28,     December 30,
                                    2008             2007         % Change         2008             2007          % Change
                                --------------  --------------- ------------- ---------------  --------------- ---------------
                                                                (in thousands)

Gross profit                      $138,292        $153,056         (9.6)%         $200,115        $212,937        (6.0)%
Gross margin %                        42.0%           45.8%                           41.1%           44.4%

Gross profit decreased during the three and six months ended December 28, 2008, primarily as a result of the decline in revenues described above, offset in part by the incremental gross profit generated by the DesignPac and Napco acquisitions. Gross margin percentage during the three and six months ended December 28, 2008, decreased by 380 and 330 basis points, respectively, primarily reflecting a combination of product mix associated with revenues from the Company's most recent acquisitions, which are primarily wholesale businesses, as well as increased promotional activity during the holiday period to improve sales.

The 1-800-Flowers.com Consumer Floral category gross profit and gross profit margin percentage decreased during the three and six months ended December 28, 2008 by 20.0% and 240 basis points, and 14.4% and 180 basis points, respectively, over the prior year periods, as a result of decreased sales volume and promotional pricing, which characterized the retail sector during this past holiday period.

The BloomNet Wire Service category gross profit increased during the three and six months ended December 28, 2008, by 20.5% and 32.8%, respectively, as compared to the prior year periods, as a result of the aforementioned revenue from the Napco acquisition in July 2008, as well as increased revenue resulting from market share gains and expanded products and service offerings and pricing initiatives. Gross profit margins during the three months ended December 28, 2008, increased by 80 basis points in comparison to the prior year as a result of product mix, whereas gross profit margins decreased by 150 basis points during the six months ended December 28, 2008, reflecting the impact of the wholesale margins associated with the Napco product line during its heavy selling period which falls within the Company's first fiscal quarter.

The Gourmet Food & Gift Basket category gross profit increased during the three and six months ended December 28, 2008, by 3.7% and 7.1%, respectively, over the prior year periods, primarily as a result of the incremental gross profit generated by DesignPac, acquired in April 2008, which also had the effect of decreasing gross margin percentage as DesignPac products carry lower wholesale margins. Further negatively impacting the decreased gross profit margins during the three and six months ended December 28, 2008 was the increased promotional activity during the key holiday shopping period within the category's E-Commerce and retail store sales channels, in comparison to the prior year periods.

The Home & Children's Gifts category gross profit during the three and six months ended December 28, 2008, decreased by 19.3% and 16.9%, respectively, over the prior year periods as a result of the aforementioned revenue declines, offset in part by a higher gross margin percentage, which increased 80 basis points to 48.3% and 70 basis points to 47.0%, respectively, benefiting from enhanced product sourcing.

During the remainder of fiscal year 2009, the Company expects its gross margin percentage will improve slightly in comparison to the prior year from product mix, and anticipated gross margin improvements in most of its existing businesses through a combination of product sourcing, fulfillment improvements, fuel cost reductions and pricing initiatives, partially offset by reduced margin percentage contribution from DesignPac, which carries a lower wholesale gross margin, but a strong overall contribution margin due to its efficient high volume packaging and distribution operations.

                                             Three Months Ended                              Six Months Ended
                                --------------------------------------------- ------------------------------------------------
                                December 28,     December 30,                  December 28,     December 30,
                                    2008             2007         % Change         2008             2007          % Change
                                --------------  --------------- ------------- ---------------  --------------- ---------------
                                                                (in thousands)

Marketing and sales                $88,370          $93,594        (5.6)%        $131,018        $136,373          (3.9)%
Percentage of net revenues            26.8%            28.0%                         26.9%           28.4%

During the three and six months ended December 28, 2008, marketing and sales expenses decreased 5.6% and 3.9% respectively, and declined to 26.8% and 26.9% of net revenues, from 28.0% and 28.4% of net revenues, as a result of brand mix, including the impact of DesignPac, which has low operating costs relative to its revenue, and the Company's expense reduction initiatives. These programs, which began in 2006, were designed to improve operating leverage across the Company's brands, reducing the Company's operating expense ratio by 290 basis points through fiscal 2008, and have been expanded and accelerated to mitigate the revenue reductions that have been associated with the current economic decline. Within marketing and sales, the Company has undertaken programs that have reduced media, portal spending, and customer prospecting through catalogs, which were not expected to generate sufficient returns in this challenging economic environment. In addition, initiatives such as catalog printing and co-mailing, e-mail pricing reductions and further virtualization of our consumer service platform to reduce fixed facility and labor, have enabled the Company to improve its cost structure.

During the three and six months ended December 28, 2008, the Company added approximately 1,030,000 and 1,490,000 new E-commerce customers. Of the 2,402,000 and 3,442,000 total customers who placed E-commerce orders during the three and six months ended December 28, 2008, approximately 57.1% and 56.7% were repeat customers, compared to 54.4% and 53.9% during the respective prior year periods, reflecting the Company's ongoing focus on deepening the relationship with its existing customers as their trusted source for gifts and services for all of their celebratory occasions.

During the remainder of fiscal 2009, the Company expects that marketing and sales expense will continue to decrease in comparison to the prior year, but increase slightly as a percentage of net revenues due to the anticipated continued decline in sales. This decline is expected to be mitigated by the aforementioned expense reduction initiatives, which include a 10% reduction in the Company's salaried, full-time labor force, implemented at the beginning of January 2009, as well as reductions in variable labor commensurate with lower order volumes.

                                             Three Months Ended                              Six Months Ended
                                --------------------------------------------- ------------------------------------------------
                                December 28,     December 30,                  December 28,     December 30,
                                    2008             2007         % Change         2008             2007          % Change
                                --------------  --------------- ------------- ---------------  --------------- ---------------
                                                                (in thousands)

Technology and development          $5,169          $5,419          (4.6)%        $10,839           $10,654          1.7%
Percentage of net revenues             1.6%            1.6%                           2.2%              2.2%

During the three months ended December 28, 2008, although consistent as a percentage of net revenue, technology and development expense decreased by 4.6% as a result of the Company's cost saving initiatives, which included labor and consulting costs reductions, as well as contract re-negotiations of maintenance/license agreements. During the six months ended December 28, 2008, although consistent as a percentage of net revenues, technology and development expense increased by 1.7% in comparison to the prior year period, as a result of the incremental technology and integration costs associated with the acquisitions of DesignPac and Napco.

During the three and six months ended December 28, 2008, the Company expended $9.6 million and $21 million on technology and development, of which $4.4 million and $10.3 million has been capitalized.

The Company believes that continued investment in technology and development is critical to attaining its strategic objectives, and as a result of the Company's revised revenue expectations for the remainder of the year, the Company expects that its spending for the remainder of fiscal 2009 will increase slightly, as a percentage of net revenues, in comparison to the prior year.

                                             Three Months Ended                              Six Months Ended
                                --------------------------------------------- ------------------------------------------------
                                December 28,     December 30,                  December 28,     December 30,
                                    2008             2007         % Change         2008             2007          % Change
                                --------------  --------------- ------------- ---------------  --------------- ---------------
                                                                (in thousands)

General and administrative         $12,136          $15,448         (21.4%)        $27,652         $30,666           (9.8%)
Percentage of net revenues             3.7%             4.6%                           5.7%            6.4%

General and administrative expense decreased 21.4% and 9.8% during the three and six months ended December 28, 2008, respectively, and by 90 basis points and 70 basis points of net revenues in comparison to the respective prior year periods, as the prior year periods reflect the achievement of certain cash and equity performance based bonus targets, which are not expected to be earned in fiscal 2009, (refer to Note 3 for further information on equity based compensation), as well as cost reduction initiatives, offset in part by the incremental expenses of DesignPac and Napco.

Although the Company has accelerated its cost reduction initiatives, as a result of the Company's revised revenue expectations, and the incremental expenses associated with DesignPac and Napco, the Company expects that its general and

administrative expenses for the remainder of fiscal 2009 will increase as a percentage of net revenues in comparison to the prior year.

                                             Three Months Ended                              Six Months Ended
                                --------------------------------------------- ------------------------------------------------
                                December 28,     December 30,                  December 28,     December 30,
                                    2008             2007         % Change         2008             2007          % Change
                                --------------  --------------- ------------- ---------------  --------------- ---------------
                                                                (in thousands)

Depreciation and amortization       $5,797           $4,967          16.7%         $11,485          $9,837           16.8%
Percentage of net revenues             1.8%             1.5%                           2.4%            2.0%

Depreciation and amortization expense increased by 16.7% and 16.8% during the three and six months ended December 28, 2008, in comparison to the prior year, as a result of capital additions for technology platform improvements and the incremental amortization related to the intangibles established as a result of the acquisition of DesignPac in April 2008.

The Company believes that continued investment in its infrastructure, primarily in the areas of technology and development, including the improvement of the technology platforms, are critical to attaining its strategic objectives. Although the Company has begun reducing its capital expenditure plan for the remainder of fiscal 2009, as a result of the Company's revised revenue expectations and the increase in amortization expense associated with intangibles established as a result of recent acquisitions, the Company expects that depreciation and amortization for the remainder of fiscal 2009 will increase slightly as a percentage of net revenues in comparison to the prior year.

Goodwill and Other Intangibles Impairment

During the second quarter of fiscal 2009, the Company assessed the recent performance of its Home & Children's Gift category businesses and its plan to resize this category based on the expectation of continued weakness in the home decor retail sector. The Plow & Hearth, Wind & Weather, HearthSong and Magic Cabin brands experienced lower revenue growth than anticipated with deteriorating operating margins. This shortfall was primarily attributable to decreased consumer spending as a result of the challenging economic environment. As a result of this analysis, impairment charges related to goodwill and other intangibles totaling $20.0 million were recorded. (Refer to Note 6 for further details).

                                   Three Months Ended                Six Months Ended
                               ---------------------------   ------------------------------
                                December 28,  December 30,    December 28,     December 30,
                                   2008          2007            2008             2007
                               -------------  ------------   --------------  --------------
                                                     (in thousands)

Interest income                      $76           $295             $172            $473
Interest expense                  (2,507)        (1,737)          (3,666)         (3,282)
Other                                 18             12               27              30
                               -------------  ------------   --------------  --------------
                                 ($2,413)       ($1,430)         ($3,467)        ($2,779)
                               =============  ============   ==============  ===============

Other income (expense) consists primarily of interest income earned on the Company's investments and available cash balances, offset by interest expense, primarily attributable to the Company's long-term debt and revolving line of credit.

Net borrowing costs increased during the three and six months ended December 28, 2008, in comparison to the prior year periods, primarily as a result of incremental borrowings and related financing costs associated with the Company's 2008 Credit Facility (as defined below).

On August 28, 2008, the Company entered into a $293.0 million Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a group of lenders (the "2008 Credit Facility"). The 2008 Credit Facility provides for borrowings of up to $293.0 million, including: (i) a $165.0 million revolving credit commitment, (ii) $60.0 million of new term loan debt, and (iii) $68.0 million of existing term loan debt associated with the

Company's 2006 Credit Facility. Outstanding amounts under the 2008 Credit Facility will bear interest at the Company's option at either: (i) LIBOR plus a defined margin, or (ii) the agent bank's prime rate plus a margin. The applicable margins for the Company's existing term loan and revolving credit facility will range from 1.50% to 2.50% for LIBOR loans and 0.50% to 1.50% for base rate loans, and the Company's new term loan will range from 2.00% to 3.00% for LIBOR loans and 1.00% to 2.00% for base rate loans in each case with pricing based upon the Company's leverage ratio. At closing of the 2008 Credit Facility, the Company utilized the proceeds of the new term loan to pay down amounts outstanding under its previous revolving credit facility.

Income Taxes

During the three and six months ended December 28, 2008, the Company recorded income tax expense of $9.5 million and $6.0 million, respectively, compared to $12.9 million and $9.2 million during the three and six months ended December 30, 2007. The Company's effective tax rates for the three and six months ended December 28, 2008 were 216.9% and 137.7%, respectively, compared to 40.2% and 40.5% during the comparative periods of the prior year. The effective rates during the three and six months ended December 28, 2008, reflect the impact of non-deductible goodwill and other intangible impairment charges of $20.0 million. Excluding these charges, the effective rates during the three and six months ended December 28, 2008 would have been 39.4% and 39.3%, respectively. The adjusted effective rates during the three and six months ended December 28, 2008 and December 30, 2007, differed from the U.S. federal statutory rate of 35% primarily due to state income taxes, partially offset by various tax credits.

Liquidity and Capital Resources

At December 28, 2008, the Company had working capital of $72.2 million, including cash and equivalents of $51.1 million, compared to working capital of $33.4 million, including cash and equivalents of $12.1 million, at June 29, 2008.

Net cash provided by operating activities of $13.6 million for the six months ended December 28, 2008 was primarily attributable to net income, adjusted for non-cash charges related to goodwill and other intangible charges (approximately $20.0 million), and depreciation and amortization, as well as seasonal changes in working capital including higher accounts payable and accrued expenses associated with inventory purchases related to the previous and upcoming holiday periods, and increases in receivables due to the timing of customer payments related to DesignPac's wholesale business, as well as increases in inventory due to acquired businesses, and timing of purchases for the upcoming holidays.

Net cash used in investing activities of $22.8 million for the six months ended December 28, 2008 was attributable to capital expenditures, primarily related to the Company's technology and distribution infrastructure, and the acquisition of Napco in July 2008. The purchase price of approximately $10.9 million, includes an up-front cash payment of $9.3 million, net of cash acquired, and potential "earn-out" incentives, which amount to a maximum of $1.6 million through the years ending July 2, 2012, upon achievement of specified performance targets.

Net cash provided by financing activities of $48.1 million for the six months ended December 28, 2008 was primarily from bank borrowings related to the Company's 2008 Credit Facility, net of the repayment of bank borrowings on outstanding debt and long-term capital lease obligations, as well as debt issuance costs.

In order to fund the increase in working capital requirements associated with DesignPac, and to provide operating flexibility, on August 28, 2008, the Company entered into a $293.0 million Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a group of lenders (the "2008 Credit Facility"). The 2008 Credit Facility provides for borrowings of up to $293.0 million, including: (i) a $165.0 million revolving credit commitment,
(ii) $60.0 million of new term loan debt, and (iii) $68.0 million of existing term loan debt associated with the Company's previous credit facility. Outstanding amounts under the 2008 Credit Facility will bear interest at the Company's option at either: (i) LIBOR plus a defined margin, or (ii) the agent bank's prime rate plus a margin. The applicable margins for the Company's existing term loan and revolving credit facility will range from 1.50% to 2.50% for LIBOR loans and 0.50% to 1.50% for base rate loans, and the Company's new term loan will range from 2.00% to 3.00% for LIBOR loans and 1.00% to 2.00% for base rate loans in each case with pricing based upon the Company's leverage ratio. At closing of the 2008 Credit Facility, the Company utilized the proceeds of the new term loan to pay down amounts outstanding under its previous revolving credit facility. The repayment terms of the existing term loan remain unchanged, while the new term loan is required to be repaid in equal quarterly installments of $3.0 million beginning in December 2008, with the final installment payment due on August 28, 2013.

At December 28, 2008, the Company had no outstanding amounts under its revolving credit facility.

On January 21, 2008, the Company's Board of Directors authorized an increase to its stock repurchase plan which, when added to the funds remaining on its earlier authorization, increased the amount available for repurchase to $15.0 million. Any such purchases could be made from time to time in the open market and through privately negotiated transactions, subject to general market conditions. The repurchase program will be financed utilizing available cash. As of December 28, 2008, $13.6 million remains authorized but unused.

At December 28, 2008, the Company's contractual obligations consist of:

                                                                      Payments due by period
                                        -----------------------------------------------------------------------------------
                                                                          (in thousands)
                                                          Less than 1           1-2                            More than 5
                                             Total               year         years       3 - 5 years                years
                                        -----------    ---------------    ------------   -------------     ----------------

Long-term debt, including interest        $129,330            $28,167         $65,239          $35,924                  $-
Capital lease obligations                       45                  6              21               18                   -
Operating lease obligations                 74,656             13,249          22,897           18,970              19,540
Sublease obligations                         7,293              1,340           3,387            1,625                 941
Marketing Agreement                         12,489              2,489          10,000
Purchase commitments (*)                    20,958             20,958               -                -                   -
                                        -----------    ---------------    ------------   --------------    ----------------
  Total                                   $244,771            $66,209        $101,544          $56,537             $20,481
                                        ===========    ===============    ============   ==============    ================

(*) Purchase commitments consist primarily of inventory, equipment purchase orders and online marketing agreements made in the ordinary course of business.

Critical Accounting Policies and Estimates

The Company's discussion and analysis of its financial position and results of operations are based upon the consolidated financial statements of 1-800-FLOWERS.COM, Inc., which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, inventory and long-lived assets, including goodwill and other intangible assets related to acquisitions. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in preparation of its consolidated financial statements.

Revenue Recognition

Net revenues are generated by E-commerce operations from the Company's online and telephonic sales channels as well as other operations (retail/wholesale) and primarily consist of the selling price of merchandise, service or outbound shipping charges, less discounts, returns and credits. Net revenues are recognized upon product shipment. Shipping terms are FOB shipping point. Net revenues generated by the Company's BloomNet Wire Service operations include membership fees as well as other products and service offerings to florists. Membership fees are recognized monthly in the period earned, and products sales are recognized upon product shipment with shipping terms of FOB shipping point.

Accounts Receivable

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers or franchisees to make required payments. If the financial condition of the Company's customers or franchisees were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventory

The Company states inventory at the lower of cost or market. In assessing the realization of inventories, we are required to make judgments as to future demand requirements and compare that with inventory levels. It is possible that changes in consumer demand could cause a reduction in the net realizable value of inventory.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and is evaluated annually for impairment. The cost of intangible assets with determinable lives is amortized to reflect the pattern of economic benefits consumed, on a straight-line basis, over the estimated periods benefited, ranging from 3 to 16 years.

The Company performs an annual impairment test as of the first day of its fiscal fourth quarter, or earlier if indicators of potential impairment exist, to evaluate goodwill. Goodwill is considered impaired if the carrying amount of the reporting unit exceeds its estimated fair value. In assessing the recoverability of goodwill, the Company reviews both quantitative as well as qualitative factors to support its assumptions with regard to fair value. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and other assumptions, including revenue growth and operating margins, discount rates and future market conditions, among others. Judgment regarding the existence of impairment indicators is based on market conditions and operational performance of the Company. Future events could cause the Company to conclude that impairment indicators exist and that goodwill and other intangible assets associated with our acquired businesses is impaired.

Capitalized Software

The carrying value of capitalized software, both purchased and internally developed, is periodically reviewed for potential impairment indicators. Future events could cause the Company to conclude that impairment indicators exist and that capitalized software is impaired.

Stock-based Compensation

SFAS No. 123R requires the measurement of stock-based compensation expense based on the fair value of the award on the date of grant. The Company determines the fair value of stock options issued by using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate and employee exercise behavior. Expected volatilities are based on historical volatility of the Company's stock price. The dividend yield is based on historical experience and future expectations. The risk-free interest rate is derived from the US Treasury yield curve in effect at the time of grant. The Black-Scholes model also incorporates expected forfeiture rates, based on historical behavior. Determining these assumptions is subjective and complex, and therefore, a change in the assumptions utilized could impact the calculation of the fair value of the Company's stock options.

Income Taxes

The Company has established deferred income tax assets and liabilities for temporary differences between the financial reporting bases and the income tax bases of its assets and liabilities at enacted tax rates expected to be in effect when such assets or liabilities are realized or settled. The Company has recognized as a deferred tax asset the tax benefits associated with losses related to operations, which are expected to result in a future tax benefit. Realization of this deferred tax asset assumes that we will be able to generate sufficient future taxable income so that these assets will be realized. The factors that we consider in assessing the likelihood of realization include the forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets.

It is the Company's policy to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more-likely-than-not to be sustained upon examination by taxing authorities. To the extent that the Company prevails in matters for which a liability for an unrecognized tax benefit is established or is required to pay amounts in excess of the liability, the Company's effective tax rate in a given financial statement period may be affected.

Recent Accounting Pronouncements

In December 2007, the FASB issued Statement No. 141 (Revised), "Business Combinations" ("SFAS No. 141R") and SFAS 160, "Non-controlling Interests in Consolidated Financial Statements" ("SFAS 160"). SFAS No. 141R and SFAS 160 revise the method of accounting for a number of aspects of business combinations and non-controlling interests, including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), the impacts of partial and step-acquisitions (including the valuation of net assets attributable to non-acquired minority interests), and post acquisition exit activities of acquired businesses. SFAS 141R and SFAS 160 will be effective for the Company during the fiscal year beginning June 29, 2009. The Company cannot anticipate whether the adoption of SFAS No. 141R will have a material impact on its results of operations and financial condition as the impact is solely dependent on the terms of any business combination entered into by the Company after June 29, 2009.

On April 25, 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, "Determination of the Useful Life of Intangible Assets." This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets," or SFAS 142. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other generally accepted accounting principles. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the impact, if any, that this FSP will have on its results of operations, financial position or cash flows.

Forward-Looking Information and Factors that May Affect Future Results

Our disclosure and analysis in this report contain forward-looking information about the Company's financial results and estimates and business prospects that involve substantial risks and uncertainties. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "will," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "forecast" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance, new products and product categories, the outcome of contingencies, such as legal proceedings, and financial results. Among the factors that could cause actual results to differ materially are the following:

o the Company's ability:
o to achieve revenue and profitability;
o to reduce costs and enhance its profit margins;
o to manage the increased seasonality of its business;
o to effectively integrate and grow acquired companies;
o to cost effectively acquire and retain customers;
o to compete against existing and new competitors;
o to manage expenses associated with sales and marketing and necessary general and administrative and technology investments;
o to cost efficiently manage inventories; and
o leverage its operating infrastructure;
o general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company's products; and
o competition from existing and potential new competitors.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements. We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date of this report.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Annual Report on Form 10-K filing for the fiscal year ended June 29, 2008 listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading "Cautionary Statements Under the Private Securities Litigation Reform Act of 1995". We incorporate that section of that Form 10-K in this filing and investors should refer to it. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.