The Market Looks Past Inc's Loss -- So Can You

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of 1-800-FLOWERS.COM rose as much as 21% on Tuesday morning (they were up 10% at 11:50 a.m. EDT) after the company came in ahead of Wall Street estimates with regard to revenues and earnings per share in its fiscal third quarter and, crucially, lifted its earnings per share guidance for its full fiscal year.

So what: Here's how the numbers shake out:

*Adjusted. Source: Thomson Financial Network, PROS Holdings

The quarterly loss must be understood in the context of a business that is highly seasonal the earnings release is littered with references to this (although one must remain skeptical, as managements often abuse this phenomenon as an excuse for poor performance).

In this instance, while the newly acquired Harry & David's business (part of the Gourmet Foods and Gift Baskets segment) contributed significantly to revenue growth, its own seasonality dragged the company's bottom line into the red. Excluding Harry & David, eked out adjusted earnings per share on a diluted basis of $0.01.

Now what: Despite the accounting loss, remained profitable on a free cash flow basis (Foolish investors know that free cash flow trumps net income.) This looks like a decent (though not outstanding) business, with a narrow competitive advantage. Furthermore, the shares appear to be reasonably priced. Although they're not the sort of shares I would own (my preference is for outstanding franchises), I think shareholders can continue holding

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Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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