The resounding improvement in profits has sent shares up almost 9% since last week's announcement. It also compares favorably to other retailers that depend on Valentine's Day and Mother's Day to boost sales during the late winter and early spring. For example, jewelers Zale
The biggest takeaway from management's conference call was the notion that it is running a tight ship from an operations standpoint. Operating expenses decreased by 5.6% versus Q1 2007, as the company reduced scrap, moved to eliminate lower-margin products, and increased its focus on controlling spending in general. Management also noted that it had closed four unprofitable stores during the quarter and expects to close as many as 20 over the course of the entire fiscal year.
These closings obviously are not indicative of the company as a whole, but rather represent a sound management decision to streamline operations. American Greetings has not been bashful about selling off its lower-margin product lines as it completed the sale of its candle products line in January and then sold its child-education products line in March.
The company noted that its international sales decreased 7% for the quarter versus a year ago, as the organization has experienced a difficult selling environment in the UK and Europe in general. Going forward, American Greetings plans to reduce its expenses in that region.
One area where the company has spent its coin in abundance has been on share repurchases. During the quarter, American Greetings bought back $3.4 million of its own shares. Over the past two fiscal years, the company has repurchased 30% of its common shares. Share repurchases are typically positive for investors; they not only increase the percentage ownership that each outstanding share represents, but they also boost EPS. Share buybacks are also usually an indication that management believes the shares of its company are reasonably priced.
Shareholders should remain optimistic for the foreseeable future. Management has reaffirmed its full-year earnings guidance and the company plans to roll out a fresh line of reality-based humor cards that will hit shelves this month.
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