American Greetings Management Discusses Q1 2013 Results - Earnings Call Transcript

American Greetings (AM)

Q1 2013 Earnings Call

June 28, 2012 9:00 am ET

Executives

Gregory M. Steinberg - Director of Investor Relations and Treasurer

Zev Weiss - Chief Executive Officer, Director and Member of Executive Committee

Stephen J. Smith - Chief Financial Officer and Senior Vice President

Jeffrey M. Weiss - President, Chief Operating Officer, Director and Member of Executive Committee

Analysts

Jeffrey S. Stein - Northcoast Research

Michael Schechter

Carla Casella - JP Morgan Chase & Co, Research Division

Sean O'Malley

Presentation

Operator

Good day, and welcome to the American Greetings Corporation First Quarter Fiscal 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Gregory Steinberg. Please go ahead, sir.

Gregory M. Steinberg

Thank you, Melanie. Good morning, everyone. As Melanie mentioned, welcome to our first quarter conference call. Joining me today on the call are Zev Weiss, our CEO; Jeff Weiss, our COO; and Steve Smith, our CFO.

We released our earnings for the first quarter fiscal 2013 this morning. If you do not yet have our first quarter press release, you can find a copy within the Investors section of the American Greetings website at investors.americangreetings.com.

As you may expect, some of our comments today include statements about projections for the future. Those projections involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. We cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward-looking statements.

If you would like more information on our risks involved in forward-looking statements, please see our annual report or our SEC filings. Previous earnings releases as well as our 10-Qs, 10-Ks and annual report are available on the Investors section of the American Greetings website.

We will now proceed with comments from both our CEO and CFO, followed by a question-and-answer session. Zev?

Zev Weiss

Thank you, Greg, and good morning, everyone. Today, I will cover 4 main topics. I will share a few brief thoughts on our first fiscal quarter results. Second, I will comment on our product leadership strategy. Third, a few comments about our online distribution of greeting cards through Cardstore.com. And lastly, a few comments on our acquisition of certain assets of the U.K. retailer, Clinton Cards.

I am pleased with the overall performance of our core business in the first fiscal quarter. Holding aside the impact of Clinton Cards in the quarter, our operating margin was slightly ahead of our internal expectations, which was admittedly a margin target below our prior year.

Versus our internal plan, we experienced a strong Mother's Day. Also during the quarter, we carefully managed expenses such that we were favorable to our internal expectations. Though due to both healthy sell-through of product at retail, as well as well-controlled costs in getting our market-leading product to retail, we had a good quarter in our core business.

At the beginning of the year, we offered guidance for cash flow from operations minus capital expenditures, estimating that it would be approximately $45 million to $65 million for this fiscal year. Holding aside the impact of Clinton Cards, we seem to be on pace to achieve that level of cash flow. However, we recognize that this year's cash flow will be impacted by the Clinton Cards transaction. And as a result, we are not prepared to affirm or update our guidance at this time. Later during the year, we hope to provide additional context on our cash flow and how some of our larger projects may affect our cash flow including Clinton Cards as well as our systems refresh and headquarters projects.

Now let me switch gears to our product leadership effort, which continues to yield exciting results, as our Mother's Day holiday showed. Our breadth of product, variety of brands and innovation pipeline continue to position us as the card company that sells more cards in more places than any other company in the world.

Electronically, we continue to have a leadership role as well. Our justWink mobile application recently surpassed the 1 million download milestone, showing how we are setting the pace when it comes to connecting the digital and paper world for greeting cards. As a reminder, justWink is a great example of how we can leverage our third-party retail presence, offering consumers the convenience of a quick purchase with the personalization options of the digital world. This unique combination offers consumers the flexibility to add their pictures, verse and signature to the same product. Our mobile application helps connect the 2, extending the retail experience into the digital world and vice versa.

I'd now like to shift to discuss our online distribution of greeting cards through Cardstore.com, another example of our success at innovating where paper and digital cards intersect. In response to investor feedback over the past few quarters, we have decided to share with you additional details about our various investments in general and this particular quarter. We will specifically highlight our online greeting card distribution strategy. Going forward, we will continue to weigh investor interests with the competitive risks we take and sharing that information in order to find the right balance in our disclosures.

As we have discussed in the past, Cardstore.com allows consumers to purchase paper greeting cards on the Internet and then have the physical cards directly delivered to the recipient. With the strength of our creative studios and the scale of our supply chain, we believe that we are well positioned to meet the needs of consumers in any channel in which they shop, including the Internet and the various mobile platforms.

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