Goldman Downgrade Wilts 1-800-Flowers

Shares sagged on Valentine's Day after analyst Anthony Noto cut his rating to sell

Investors have been chasing 1-800-Flowers (FLWS) for too long, Goldman Sachs says. Instead of feeling neutral about the online flower seller, analyst Anthony Noto now thinks the stock is an overvalued sell. After this rejection, the company's share price was depressed on Valentine's Day.

In Eastern cities such as New York, you had to trudge through snow to deliver your lover's gifts this year. Noto says the Northeast makes up about 30 to 35% of the Carle Place (N.Y.) company's sales volume and the bad weather could make it harder to deliver flowers on time. "Higher expenses associated with Valentine's Day sales and deliveries could hurt profits," Noto warned in a research note Feb. 13.

But 1-800-Flowers has been working hard to keep customers interested. CEO and founder Jim McCann has been investing in expanding his company's retail florist network BloomNet, for example. He's also been trying to make 1-800-Flowers have more to offer - for example, in April 2006 the company announced plans to buy the chocolate maker Fannie May Confections Brands, Inc. for $85 million. The two hope that together they can grow 1-800-Flowers' food, wine and gift basket business.

Noto is still dubious, especially when it comes to spending to grow sales. The analyst thinks the stock's value will hit $6.50 per share within 12 months. It already nearly did in one day; on Feb. 14, 1-800-Flowers' share price fell almost 8% to $6.91 per share on the Nasdaq.

"The current share price may reflect an overly optimistic outlook for V-Day, Easter and Mother's Day," Noto had said Feb. 13. So much for optimism. (Goldman Sachs does business with companies covered in its reports.)

1-800-Flowers represenatives weren't immediately available for comment.

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