UPDATE 1-American Greetings 1st-qtr earnings drop

* Q1 EPS $0.20 vs $0.78 a year earlier

* Revenue fell 2.2 pct to $393.1 mln

June 28 (Reuters) - American Greetings Corp reported sharply lower first-quarter earnings, hurt by costs related to the bankruptcy of its British distributor Clinton Cards PLC.

Clinton Cards, which trades from 767 stores under the Birthdays and Clinton Card brands, was placed under the control of administrators last month because it could not repay a 35 million pounds loan to its biggest supplier American Greetings.

American Greetings earlier this month bought 397 stores of Clinton Cards providing headroom for retailer to liquidate its remaining assets and pay off creditors.

American Greetings said costs related to writing off bad debt at Clinton Cards hurt earnings by 35 cents per share in the first quarter.

The company's earnings fell to $7.25 million, or 20 cents a share, from $32.5 million, or 78 cents a share, a year earlier.

Sales fell 2.2 percent to $393.1 million, hurt by an impairment charge related to a supply agreement with Clinton Cards' Birthdays unit.

The Cleveland, Ohio-based company's shares were down 0.77 percent in premarket trading. They closed at $14.26 on Wednesday on the New York Stock Exchange.