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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

American Greetings (AM-OLD) Q1 2013 Earnings Call June 28, 2012 9:00 AM ET

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.

This quarter, we had our most successful customer acquisition campaign for Cardstore.com, fueled by a heavy push for new customers tied to the Mother's Day holiday. And this week, we continued our progress by launching the Cardstore.com application for smartphones that's built on the same principles and platform that have made justWink so successful.

Our momentum over the past year fuels our confidence that we will lead in an area with great potential, giving consumers multiple options to design and send their own paper cards through our digital hub.

In this sector, we are seeing 2 distinct product offerings evolve: the first is the bulk card segment, which is highly commoditized. However, we see a significant near-term opportunity to grow sales with appropriately priced product and margins. Second, and a longer-term opportunity, is a far more creative and expressive personal card offering where we believe we will enjoy margins that are based on our intellectual property.

Let me explain the difference. To us, bulk cards are simply a glorified photo processing business. This is the model Shutterfly minted and others have built their card business around, producing and selling multiples of the same card. There is limited intellectual property value added in this model, which is why the pricing is destined to significantly decline from dollars to dimes per card, similar to what we saw with photo prints a few years ago.

On the other end of the spectrum, providing consumers with the tools to create and send individual personal cards is about more than simply producing birth announcements or thank-you notes in bulk; any printer can do that. With the individual personal cards, consumers want to make meaningful specific connections. This is why we give consumers the ability to truly express themselves to the ones they love by creating individual cards at Cardstore.com like the "thinking of you card" a mom sends to her daughter who's away at college for the first time or the birthday card with the inside joke and photo a wife sends to her husband who is serving our country overseas. It's in the personal card space where margins will be driven by intellectual property and will not be commoditized. This is also a great opportunity precisely because personal products are highly valuable to consumers.

This is why I'm so enthused about the Cardstore.com smartphone application I mentioned a moment ago. Through our website and via our app, consumers can now personalize more cards more often whenever and wherever they want. Moreover with a click of a button, they can have these personal expressions sent directly to their loved ones' home.

We see value in offering both bulk and personal cards online, so our strategy incorporates both. We believe consumers will come to us for bulk cards and stay with us for more expressive personal cards. It's that simple.

Our supply chain is prepared to handle millions of print-on-demand bulk cards at a fair price and with free shipping this holiday season.

We're excited by the opportunities here and encouraged by the consumers' response we're seeing in the early stages of growth in this area. You'll be hearing more from us along the way as we continue to roll out our strategy.

Switching gears from the domestic market to the international market, let me share with you our thinking around Clinton Cards. Let me first offer some context on what occurred and why we took the actions we did and then share some preliminary thoughts on our next steps.

During our first fiscal quarter, we acquired the senior secured debt of Clinton Cards, one of the largest specialty retailers of greeting cards in the U.K., an important customer to our international business for approximately 40 years and one of the largest customers.

Leading up to the debt purchase, there had been numerous discussions with Clinton Cards concerning our credit exposure and its overall business strategy as Clinton Cards was not doing well. Clinton Cards defaulted in respect of numerous payment obligations under our supply arrangement and we, along with other suppliers, stopped or threatened to stop shipping product to them.

After extensive discussions with Clinton Cards management, board and financial and legal advisors, in an effort to more closely with all the involved parties, we acquired all of Clinton Cards' outstanding senior secured debt for approximately $56 million. Clinton Cards was then placed into administration, a procedure similar to bankruptcy. On June 7, after the end of our first fiscal quarter and while Clinton Cards was operating under administration, we acquired certain assets from Clinton Cards for about $37 million. The acquisition included approximately 400 stores and related overhead as well as the Clinton Cards brand, which despite the poor recent operating performance, has strong brand recognition amongst U.K. shoppers.

The asset acquisition is expected to result in a net increase in American Greetings' annual revenue of approximately $265 million, although the final number will depend on the ultimate number of stores acquired, which is subject to further negotiations with landlords.

While the debt purchase appears in our first quarter financials, the asset acquisition will appear in the second quarter. Steve will show -- Steve will share more on the effects of the transaction on our financials in a few minutes.

Importantly, because this was an asset purchase, the assets and liabilities of the remaining stores held in administration were not acquired by American Greetings. Those assets and liabilities will remain part of the administration process under the direction of the administrators and it is anticipated that those assets will be liquidated and proceeds used to repay Clinton Cards' creditors, including American Greetings, as the only senior secured lender.

Why did we take the actions we did with regard to Clinton's? As we've previously shared, we would like to see Clinton Cards continue as an important retailer in the specialty channel of distribution in the U.K. greeting card market. We believe that properly managed and with the appropriate capital structure, Clinton Cards can be both an important and profitable retailer in the specialty channel and distribution over the long term. The separation of the acquired assets and business from the undesirable legal entity, which was placed into administration by Clinton's board, was an important step in the turnaround process.

To facilitate the turnaround, we have lined up a leadership team to run the new U.K. subsidiary including some of our own team members, but primarily we have engaged the Schurman Retail Group. We have a minority investment in Schurman and have gotten to know their management very well as they have turned around the legacy retail operations we sold to them several years ago. We have been very impressed by a leadership team which not only makes quick decisions, but also we have been impressed by their merchandising capabilities as manifested in their highly productive PAPYRUS retail stores. Recall that we own the PAPYRUS name and licensed it to Schurman for them to operate PAPYRUS stores in North America.

The strategy to improve the operations includes reevaluating the overall product offering within the stores and re-merchandising the card assortment. The team is also planning to aggressively renegotiate leases, an opportunity arising from the administration process, as well as reducing overhead costs. We expect fiscal year 2013 to be a year of transition for these stores, which will require capital investment in the order of magnitude of $15 million, plus or minus $5 million.

Along with the capital investments, we will make a P&L investment in the form of a loss from operations that we are targeting to be less than $10 million on an operating income basis, but this is an early estimate. We expect the incremental capital expenditures to continue for approximately another 18 months beyond this fiscal year or roughly 24 months in total, but for the operating loss to reverse into an operating profit during our fiscal 2014 for the new business to be accretive to our consolidated earnings by fiscal 2015.

We believe the path hereon was the best option we had among several sub-optimal solutions, and now we must successfully execute our strategy to ensure a reasonable return on the investment.

We've had a lot of activity here in the first few months of the year and we are now eagerly looking forward to continuing the momentum in our core business while working through the transition with the new Clinton stores.

Now let me turn the call over to Steve who will provide a detailed review of the quarter, and then we'll take your questions. Steve?

Stephen J. Smith

Thanks, Zev. I have 3 components to my prepared remarks today. I will start with comments on a few large items that impacted our consolidated results this quarter; then move to a review of our reported segments; and finally, a quick walk-through of a few key components of our financials. We will then open the line for questions.

Our consolidated revenue was down about $11 million from last year's first quarter of $404 million compared to $393 million this year. Last year was negatively affected by about $2 million as a result of scan-based trading conversions. This year was also negatively affected by scan-based trading conversions by about $1 million.

In addition, this year was negatively affected by about $3 million of foreign exchange compared to the prior year's first quarter. We also recognized noncash impairment of about $4 million related to our supply agreement with Birthdays subsidiary of Clinton Cards, which is reflected in total revenue.

So holding aside the impact from scan-based trading conversions, FX and the contract impairment, revenue was down about $4 million or 1% quarter-on-quarter. The $4 million decline was primarily driven by $4 million of lower sales in our fixtures business. You'll see this revenue decline reflected in our non-reportable segment results.

Our operating income was about $20 million compared to $57 million in the prior year's first quarter. Last year included the negative effect of scan-based trading conversions of about $2 million. This year included the negative effect of scan-based trading conversions of about $1 million. However, this year's operating income was also negatively impacted by about $23 million due to the Clinton Cards transactions. The $23 million reduction in operating income includes about $17 million for a bad debt impairment, a $4 million impairment for a deferred cost asset related to our supply agreement and $2 million of transaction costs.

Separate from the $23 million effect of the Clinton Cards transaction on the quarter, we also recognized about $2 million of incremental expense related to the termination of an agency agreement within our licensing group. The contractual change allows us to in-source certain licensing services rather than relying on an outside partner and should benefit our licensing efforts long term.

Holding aside the effect of scan-based trading conversions, the Clinton Card transactions and the contract change in our licensing group, our operating income was down about $12 million quarter-on-quarter.

The primary drivers of this change year-on-year are: more marketing expenses in North America; the loss of the variable margin associated with reduced sales at Clinton Cards as they struggled financially; and lower earnings within our non-reportable segment, which includes both our licensing unit and our fixtures business. More detail on these items will be shared in a few minutes during our segment review.

Before I walk through our segment performance, I would like to mention the Clinton Cards-related charge that is recorded below the operating income line. As we've previously mentioned, we still have a senior secured claim of about $19 million. However, based on the estimated recovery information provided by the U.K. administrators, which estimates total net proceeds net of administration costs, we recorded a loss of about $8 million, which recognizes that until the estate is completely liquidated, we have an expectation that the $56 million investment in April has an $8 million or roughly 15% impairment.

I'll now review our reported segments and how they differ from the prior year's results.

Our North American segment's revenues of $309 million were up about $4 million compared to the prior year's first quarter. The increase was driven by increased sales of seasonal greeting cards as we had a strong performance for Mother's Day. Our North American segment's earnings of $56 million were down about $3 million versus the prior year. This year, we had about $4 million of higher marketing costs that were partially offset by lower base trading costs compared to the prior year's quarter.

Switching now to our International segment. Revenues were about $63 million, a decrease of about $8 million versus the prior year. The decrease was driven by about $2 million of unfavorable foreign exchange and a noncash impairment of about $4 million related to our supply agreement with the Birthdays subsidiary of Clinton Cards. The balance of the revenue decline was driven primarily by lower sales to Clinton Cards during the quarter, which were only partially offset by increased revenues with our other international retail partners.

Staying within the International segment, we reported a loss of $22 million this year, which included the $17 million of bad debt expense and the $4 million impairment of our supply agreement. Foreign exchange negatively impacted segment earnings by about $1 million. The loss of the favorable margin associated with the reduced sales to Clinton Cards was the primary driver of the remaining reduction in operating income within the segment during the quarter.

Our AG Interactive segment's revenues of $15.5 million were about $1 million lower than the prior year. This was driven primarily by lower advertising revenues. However, earnings for the segment were up about $1 million versus the prior year's first quarter due to reduced back office costs.

Let me shift from the segment analysis to briefly comment on the status of our licensing performance.

Licensing revenue for the quarter, which is reported on our income statement as other revenue, was about $4 million, which is down almost $2 million compared to the prior year. Licensing expenses were about $3 million, which is down about $1 million compared to the last year. So for the first quarter, the company's net licensing effort or revenues less expenses was about $1 million lower than the prior year's first quarter.

Now let me move to the third part of my comments today, a review of several of the key components of our financial statements. The company's manufacturing, labor and other production costs were up about $6 million compared to last year's first quarter. The increase was driven primarily by a change in sales mix, shifting toward a higher proportion of lower-margin value cards.

Selling, distribution and marketing expenses were up about $2.5 million versus the prior year's first quarter. The increase was driven by about $4 million of increased marketing expenses, which were partially offset by lower costs in our field service organization. Last year, we had incurred additional expenses in our field service organization related to the opening of new retailer doors and those additional expenses did not repeat this year.

The administrative and general expenses were up $15 million versus the prior year's first quarter. The increase was driven by the bad debt expense and the transaction costs associated with Clinton Cards. These increased expenses were partially offset by lower bad debt expense in North America.

Other operating expense was $1.6 million this year compared to other operating income of $900,000 in the prior year's first quarter. This variance is primarily a result of the termination of an agency agreement within our intellectual property licensing group. As I previously mentioned, the contractual change that caused a $2 million charge in the quarter allows us to in-source certain licensing services rather than relying on an outside partner and should benefit our licensing efforts long term.

Other nonoperating expenses was about $6 million this year. In the quarter, we recognized about $8 million of expense associated with an impairment of the senior debt of Clinton Cards. As we previously mentioned, we still have a senior secured claim of about $19 million. However, based on the estimated recovery information provided by the administrators, which estimates total proceeds net of administration costs, we recorded an impairment in that debt position of about $8 million.

The next item I will cover is taxes. Our effective tax rate for the quarter was 30.4%. We had a couple minor adjustments within our tax accounts in the quarter, but the rate impact appears large due to the relatively low pretax income in the quarter. While this quarter's ETR was slightly lower than the statutory tax rate, we expect our full year's fiscal tax rate to be in the mid- to upper 30% range.

Let us now shift gears from the review of the income statement to a brief look at our inventory. On our balance sheet, inventories increased by about $11 million compared to the prior year. The primary reason for the increase is due to the increase in domestic scan-based trading inventory quarter over prior comparable quarter and increased inventory in the U.K. as a result of the lower sales to the Clinton Cards group during the third quarter.

So that concludes our prepared comments for today. I would now like to turn the call over to the operator to handle our question-and-answer period. Melanie?

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Jeff Stein with Northcoast Research.

Jeffrey S. Stein - Northcoast Research

A couple questions for you. First, starting with the North American Social Expressions business, if you look at the total revenue increase for the first quarter, it sounds like, anecdotally, you're telling us that the business was good but now revenue's only up 1.2%, so I'm wondering how you're measuring the success of that business. And also, I would think that perhaps maybe you would have seen a larger lift given the fact that a year ago, at this time, you had not fully rolled out the new doors from Dollar General. So maybe you could kind of talk us through what's going on in terms of retail takeaway, where are some of the strengths, where are some of the weaknesses.

Zev Weiss

Yes, Jeff. A couple of things. First of all, Mother's Day this year we were very pleased with and I think that drove some of what's making us feel good about the first quarter. Admittedly, some of that had to do with some of the timing around Mother's Day this year versus last year and the way Easter and Mother's Day fell out and so we had expected that it would be a good holiday, and it was definitely better than I expected. And so that caused us to be pleased. When you look at the overall takeaway in our card business from a revenue perspective, also continue to feel very good about the way consumers are responding to our product and then the performance we're seeing overall in retail. And so when you combine that with the fact that on the expense side, we -- I believe we managed things very tightly even though there was a significant amount of activity going on with the launching of justWink, getting that out into the marketplace and a number of other activities. Overall, I feel very good about it.

Jeffrey S. Stein - Northcoast Research

Okay. Let's talk for a moment about Cardstore.com. First of all, the increase in marketing spend for the quarter of $4 million, is that primarily related to Cardstore?

Zev Weiss

Yes, it is.

Jeffrey S. Stein - Northcoast Research

Okay. And can you talk at all about the level of revenues you're generating at this point from Cardstore?

Zev Weiss

No, we're not going to get into specifics around the revenue. At this point, given the size of the company, it's not significant enough that I think we will be disclosing it individually.

Jeffrey S. Stein - Northcoast Research

Okay. And you mentioned the fact that your P&L -- I want to make sure I understand the P&L impact of Clinton for the year. You mentioned a $10 million number. Now is that what you estimate the operating income, or should I say, the operating income loss to be from Clinton this year? Or is that an investment that you're making, for example, in severance costs, hiring of people and so forth? I just want to clarify that.

Zev Weiss

Yes. So the combined operating results, including all the transition costs that we have, so severance and other things, what we're saying is at this point, given where we estimate the revenue to be and I should share that, that right now it's very volatile because we're going through a period of time where their inventory was turned off by a number of suppliers and inventory's just getting turned back on. And so it's hard to estimate exactly where the revenue will level out. But based on everything that we see now, what we're saying is for all that, we believe, it will be less than $10 million of an operating loss.

Jeffrey S. Stein - Northcoast Research

Okay. And it sounds like you would expect also some operating loss the following fiscal year and then profitability the following year. So we're looking at profitability 2 years out?

Zev Weiss

We're saying 2 years out, we believe, it will be accretive.

Jeffrey S. Stein - Northcoast Research

Got it. Is the plan to continue to run this business indefinitely or would you rather fix the business, get it back on track and then perhaps try to sell it maybe to somebody like Schurman and let them run it and be back...

Zev Weiss

Right now, we have a -- I'm sorry, Jeff, I didn't mean to interrupt. Go ahead and finish.

Jeffrey S. Stein - Northcoast Research

No, no. That's okay. I think you kind of got the gist of the question. So it sounds to me like your plan is to run it?

Zev Weiss

Our singular focus right now is to turn around the business, and that's all we're focused on.

Jeffrey S. Stein - Northcoast Research

Got it. And with respect to the incremental revenues from Cardstore.com, $265 million, but you're going to be losing the benefit of the revenues that you were selling in on a wholesale basis. So net-net, are we looking at incremental revenues of something less than $265 million?

Zev Weiss

So for the Clinton stores, the $265 million was the net number.

Jeffrey S. Stein - Northcoast Research

Okay. And can you give us any assistance in terms of how you see Clinton affecting revenues in the second quarter and how the revenues would kind of lay out on a quarter-by-quarter basis?

Zev Weiss

No, we do not have that for this call at this time.

Operator

[Operator Instructions] We'll go next to William Reuter with Bank of America Merrill Lynch.

Unknown Analyst

This is actually Spencer in for Bill. With the addition of Clinton Cards, can you guys talk about how that will affect your gross margins just kind of directionally?

Stephen J. Smith

Well, in the first year, Bill -- Spencer, sorry. In the first year, the expectation is it'll put pressure against our margins. Because of the operating loss, we'll incur expenses throughout the P&L for severance and for other costs of transition. And we haven't forecast publicly beyond that level.

Unknown Analyst

Right. And then would you guys think that there would be opportunity there in 2014, and I guess, into 2015 as well?

Zev Weiss

Yes, that would be the hope. I mean if we're going to turn it into an accretive acquisition, we would need to be able to do that, yes.

Unknown Analyst

Okay, great. And then one last one. Do you have any -- an update on the headquarter costs?

Zev Weiss

No, no update. We're still working through the architectural designs. And I would expect that, that would become -- those numbers would become a little bit more clear in the back half of the year.

Unknown Analyst

Okay. And then I would assume it's kind of the same thing for the sale price of your current facility?

Zev Weiss

Yes, we have nothing new to update on that, yes.

Operator

And we'll go next to Michael Schechter with Mentor.

Michael Schechter

Do you have an estimate of how much revenue you lost on -- didn't occur because of the events at Clinton? I know you talked about the $4 million forecast there. Think about forgone revenue?

Zev Weiss

Yes, so I think what you're referring to is because when things were getting -- when they were getting challenging and we had turned the inventory off, is that the -- what you're referring to?

Michael Schechter

Yes. I mean if I just look at your revenue, it's down, but some of it's got to be because Clinton was in the can and then the revenue you were booking last year versus this year.

Zev Weiss

It was about $10 million in the quarter.

Michael Schechter

Okay. And if I heard all the numbers right, you put $56 million of cash into the asset. You've got $15 million of CapEx coming this year. You've got $10 million of losses on the P&L coming this year. That's $81 million. Another $15 million of CapEx. So all in, you'll have about $100 million?

Stephen J. Smith

Do it again, Michael. I think the correct figures are $56 million; the $15 million of CapEx, plus or minus $5 million; a loss of $10 million, which would be the total amount. I think you may have double counted one of the figures.

Michael Schechter

Well, then you said you're going to have to have CapEx over the 24 months so another $15 million after that.

Stephen J. Smith

Well, beyond. Beyond the first year. Very good.

Michael Schechter

Yes. So about $100 million of capital into this?

Zev Weiss

I mean I think we don't know the numbers yet beyond where we're at. I think the numbers that we're looking at right now are lower than that and then it will remain to be seen how the next couple of years play out.

Michael Schechter

And I noticed that you were buying back a lot of stock. What's left on the buyback and have you thought about a few authorization?

Zev Weiss

Well, at the end of the quarter, there was about $5 million left in the authorization, Michael. And I'll let Jeff comment on future thoughts.

Jeffrey M. Weiss

Yes. I think in terms of moving forward, we're going to continue to look at it the way we've looked at it in the past. And we're going to look at the balance sheet, look at the growth opportunities that we have and that we're investing in and try to identify where we think there's some excess capital in the event we think giving money back to shareholders is the right thing to do. You're right, the past year -- in the past 12 months, the -- we've given a significant amount of money back to shareholders, somewhere in the neighborhood of $140 million. And we continue to believe that our stock is a value and that's going to be a consideration as we look at it going forward.

Operator

[Operator Instructions] We'll go next to Carla Casella with JPMorgan.

Carla Casella - JP Morgan Chase & Co, Research Division

One question on Clinton. Pre this acquisition and bankruptcy, what percentage of your sales were to Clinton? And how much would you say that has changed through the bankruptcy process and how much do you think you can probably get back as you take over the stores?

Stephen J. Smith

We -- they were not a reporting unit, meaning we did not have to disclose them as being more than 10% in our consolidated sales. Just to be directional, they were in the neighborhood of 5% of the total consolidated group's sales. And we won't know how much our continuing sales will be until we know the number of doors that will remain open through administration. We're targeting $400 million. We're in the process of aggressively negotiating, Carla, the rents on those stores. And depending on how landlords react, that will determine the number of doors that remain open going forward with us.

Carla Casella - JP Morgan Chase & Co, Research Division

Okay, great. And then Mother's Day you mentioned was strong and partly that was the timing of it. Is it also -- is it any indication of any general trend in terms of maybe your amount of space in the stores? And did you see the same kind of a trend through graduation or Father's Day?

Zev Weiss

I'd like to tell you that, in general, in the first quarter, we're just -- we continue to be pleased not just with the seasonal card performance but with our everyday performance as well. And I think Mother's Day had -- a lot of it was on our own doing from a product perspective. There was some benefit from a timing perspective. But when you look at overall, whether it's the spring holidays or our everyday card business, I'm very pleased with what I saw in the first quarter.

Carla Casella - JP Morgan Chase & Co, Research Division

Okay, great. And does that also go for the, I guess, the margin on cards that you're seeing, is it that people are buying, what are higher-margin cards for you?

Zev Weiss

I think in general, not a lot has changed from a trend perspective around margins when we look at the first quarter. I think it's very similar to what we've seen in the past number of years.

Operator

We'll go next to Sean O'Malley with Wedge Capital Management.

Sean O'Malley

A couple questions. First off, looking at the segment-level reporting. The fees affiliated with the Clinton transaction and the mark on the senior debt for a total of, I guess, about $9.8 million, is it safe to assume that those costs were booked into your unallocated segment?

Stephen J. Smith

Correct, Sean.

Sean O'Malley

Okay. So then the bad debt expense went against your International Social Expression segment, correct?

Zev Weiss

It did, as well as the asset impairment, too, up in sales in International.

Sean O'Malley

Right. The $4 million plus the $17 million. Got it.

Zev Weiss

Yes.

Sean O'Malley

And I'm not sure if I heard the answer to the question correctly when Michael asked about revenue impacts in International, above and beyond the $4 million. But did you say it was an additional $10 million you estimate?

Zev Weiss

It was around that. That's correct.

Sean O'Malley

So without the problems at Clinton, International would have had about $14 million in revenues for the quarter -- $14 million in additional revenues for the quarter?

Zev Weiss

Yes, that's right.

Sean O'Malley

Okay, good. And then given the resources, both capital and human, that Clinton has absorbed so far and looks like it will be absorbing and looking at your CapEx for the first quarter x Clinton, it looks like the -- given your earlier guidance, CapEx is a little -- the pace is a little lower for this quarter than I would have expected. Have you -- are you adjusting plans outside of Clinton now as far as CapEx goes to reflect the additional resources that Clinton is going to require?

Zev Weiss

Well, the big driver for that is the work we're doing through what we're referring to as 1 AG [ph], our implementation around SAP. And because there's so much effort going on, we're sort of in the middle of the implementation, it would be a very difficult thing for us to turn down. Other more discretionary things we're obviously going to take a look at. Because between what's going on at Clinton's and the IT implementation, it's consuming a lot of people time as well as capital time. And so, we are scrutinizing some of the, what I’d call now more discretionary capital items given those 2 things.

Sean O'Malley

And would you put the headquarters project into that category at least as far as timing goes?

Zev Weiss

Yes. What I would say there is we're scrutinizing those costs as well. And as we would be doing, it's obviously a much longer-term time frame.

Operator

[Operator Instructions] That will conclude today's question-and-answer session. I'd like to turn the conference back over to Mr. Steinberg for any additional or closing remarks.

Gregory M. Steinberg

Thank you, Melanie. That does conclude the question-and-answer portion of today's call. And we look forward to speaking with you again at our second quarter conference call in late September. We thank you for joining us this morning.

Operator

That concludes today's conference. We thank you for your participation.

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