Knobias Clip Report (12-23-2008) AM
Submitted By Knobias ClipReport
AM: Discusses Q3 Results and Withdraws Guidance; Sees More Store Closings
By Fain Hughes, fhughes@knobias.com
Shares of American Greetings Corporation (AM) declined to a multi-year low during Tuesday’s session after the Company announced its third quarter results for the third quarter ended November 28, 2008.
The Company reported total revenue of $454.1 million, a pre-tax loss from continuing operations of $228.7 million, and a loss from continuing operations of $193.3 million or $4.25 per share. For the third quarter of fiscal 2008, the Company reported total revenue of $485.8 million, pre-tax income from continuing operations of $44.1 million, and income from continuing operations of $29.1 million or $0.52 cents per share.
Zev Weiss, CEO of American Greetings, commented in a conference call today, “We saw a significant impact from the economic downturn in the economy and saw decreased revenues for the first time in several quarters. Our margins were also depressed. While our total revenues were down, our sales performance within our everyday greeting cards in North America was essentially flat versus a year ago. This is an encouraging sign in the current environment. The consolidated revenue decline was driven primarily from a reduction in our gift packaging products. We also continued to experience lower yielding sales as a result of mixed shift toward lower margin products and increased distribution costs.”
He explained, “Our previous full-year EPS guidance of $1.60-$1.85 and $60-$80 million of cash flow from operating activities, less capital expenditures, is no longer appropriate. There are a number of factors that we considered as we looked at the balance of the year. General economic conditions are putting significant pressure on our sales, both domestic and international, and cutting into our earnings performance more than we previously anticipated. Retail traffic is materially down and affects our sales through the mass channel and specialty channel. On the internet side of the business, our online advertising sales have dropped meaningfully in the last quarter. As a result of the rapid changes in the economy and resulting variability to our earnings, together with the potential for additional retail store closings and possible adjustments to estimated goodwill impairment charges, accurately forecasting future earnings, even in the near term, is very difficult.”
Stephen Smith, CFO of American Greetings, added, “We are evaluating the retail store base due to the significant and recent deterioration in foot traffic in our stores. We will be deciding in Q4 if further store closures are appropriate, especially in the U.S. market. Earlier this year, we had forecast closing approximately 25-30 stores this fiscal year. Based on our recent performance, we now expect to close approximately 60 stores. That number could be increased as we are actively considering a much larger door closure.”
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