AMERICAN GREETINGS POISED TO GROW AT RETAIL

CHRISTINA VEIDERS

NEW YORK -- In its first presentation to analysts as a New York Stock Exchange listed company, American Greetings, Cleveland, set forward a sound financial basis to drive its growth strategy in which supermarkets are a prized target.

As the $2.5 billion social expressions company neared the close of its 1998 fiscal year on Feb. 28, it reported its 92nd consecutive year of revenue increases. "We expect to see high single-digit revenue growth from our internal businesses," William Meyer, chief financial officer, told the gathering here last month.

Fiscal 1997 ended with net sales up 8% to a record $2.16 billion, up from $2 billion a year earlier. The company reported net income of $167 million, or $2.23 per share, up 45% from net income of $115 million, or $1.54 per share in fiscal 1996.

During the 12-month period, American Greetings' stock soared 60% from $27 to $44 a share. "We continue to improve margins to drive shareholder value and reap the benefit of cost reduction. Our direction is to leverage the company up, fueling our growth strategy," stated Meyer.

The company, which now supplies chains such as Albertson's, H.E. Butt Grocery Co., Hannaford Bros. and Pathmark, maintains a 33% share in the food channel and about a 30% market share overall, said Morry Weiss, chairman and chief executive officer.

Presently, the three big greeting card companies, which include Hallmark, Kansas City, Mo., and Gibson Greetings, Cincinnati, control nearly equal shares of the supermarket business, according to Weiss. He believes some shakeups will occur in the channel. Supermarket outlets in the United States and around the world offer American Greetings "the best and fastest opportunities," said Weiss.

"Because of the profit margins supermarkets make on greeting cards, they will continue to devote more and more space to the category. After all, they have the consumer coming in. It's the store people shop more frequently than either the drug store or the mass merchant."

Weiss said the key to gaining greater share in mass-market retailing is proper management of space, which drives sales and profits.

This is being achieved through pretested captions that produce higher turns and diversification into other product areas such as partyware, candles, stationery, educational products and eyeglasses.

The company also has made significant investment in lowering production costs, reducing inventory levels and improving delivery of products to retail. The results are quality products manufactured at retail price points slightly higher than inflation.

American Greetings is devoting much research to understanding consumer buying habits. Last year, it launched "The All New American Way," a line that replaces 80% of the company's everyday card offering. The line, which keys in on lifestyle changes, was designed to make card purchases as convenient as possible, said Weiss.

"'The All New American Way allows alternative product to be merchandised with the traditional, saving the consumer time [in the selection process]. It allows her to make the card purchase more effectively."

The company also is mastering space management through cost reductions in production and better efficiency in delivering product in a timely manner. It is technologically advanced with a fully automated order fulfillment distribution center that is said to be 98% accurate. It has invested heavily in advanced printing presses that have quicker change-over times for shorter press runs. The result is better inventory management. "You see us cut costs out of the operation, expand the margin and drive that 10% earnings on an ongoing basis," commented Meyer.

On the global front, outside of the United Kingdom, American Greetings dominates with a 40% or better market share, said Weiss. In 1996, American Greetings bought John Sands, a greeting card company servicing Australia and New Zealand. The investment in Sands is proving a profitable one, said Weiss. American Greetings now holds a 44% market share in both countries.

It expects to pursue a similar strategy in the United Kingdom where it has just an 11% market share. Worldwide, greeting cards represents 66% of American Greetings sales. "It's a business we understand domestically and we think we understand overseas," said Weiss.

Going forward, said Weiss, the company's goal is 10% pretax growth on the bottom line and top-line growth in the mid-to-high single digits.

With all three major card companies aligned competitively for mass-market accounts, Weiss said the test is in looking at the performance of the company and the performance of the space.

"Without exception," he said, "American Greetings continues to outperform its competition or other products in that space." This is because American Greetings understand retailers and is responsive to them, he added. "We drive space productivity and that will drive us for the future."