Published:
CPI Corp. Announces First Quarter 2008 Results
ST. LOUIS, June 3 /PRNewswire-FirstCall/ -- CPI Corp. (NYSE: CPY) today
reported that net sales for the first quarter of 2008 increased $45.6 million
or 79.0% to $103.4 million from the $57.8 million reported in the first
quarter of 2007 as a result of the inclusion of net sales of $50.3 million
attributable to the company's PMPS brand. The company also reported a net
loss of $256,000 or $0.04 per diluted share for the 12-week first quarter
ended April 26, 2008 compared to net earnings of $2.6 million or $0.40 per
diluted share reported in the comparable quarter of fiscal 2007. The
company's first quarter 2008 results reflect higher borrowings associated with
the acquisition of the PictureMe Portrait Studio ("PMPS") business in June
2007 as well as increased depreciation and amortization and one-time charges
and impairments.
During the first quarter of 2008, net sales from the company's Sears
Portrait Studio ("SPS") decreased $4.7 million or 8.0% to $53.1 million from
the $57.8 million reported in the first quarter of 2007. The 2008 first
quarter SPS sales performance was the result of a 10.2% decline in sittings,
partially offset by a 2.6% increase in average sale per customer sitting.
PMPS's $50.3 million in sales represents an approximate 12% decrease in same
store sales versus the comparable period of the prior year (such results not
reported in the Company's historical results). This sales performance
resulted from an approximate 25% decline in sittings, offset by an approximate
17% increase in average sale per customer sitting. The Company believes that
the comparison of year-over-year PMPS same store sales was significantly
affected by prior year efforts to launch the PMPS brand through discounted
offers.
The Company believes that both brands' initial first quarter results were
negatively impacted by the timing of Easter, a seasonally important time for
portraiture sales, which fell two weeks earlier in 2008 than in 2007.
Historically, earlier Easters translate into lower sales due to their closer
proximity to the preceding Christmas holiday season during which customers are
most portrait-active. The Company also believes the results reflect a
challenging economic environment including a substantial rise in gasoline and
food prices which is affecting discretionary purchases such as portraiture.
Costs and expenses were $102.7 million in the first quarter of 2008,
compared with $53.7 million in the comparable prior year period. Cost of
sales, excluding depreciation and amortization expense, was $10.5 million in
the first quarter of 2008 compared with $5.0 million in the comparable prior
year period. The increase in cost of sales is attributable to the inclusion
of PMPS cost of sales in the first quarter of 2008, partially offset by
decreased production costs resulting from lower overall manufacturing
production levels, additional gains in manufacturing productivity and an
improved product mix.
Selling, general and administrative ("SG&A") expenses were $83.9 million
and $45.2 million for first quarter of 2008 and 2007, respectively. The
increase in first quarter 2008 SG&A costs is attributable to the inclusion of
PMPS's costs. Additionally, expense increased due to $1.2 million of digital
training and travel related to the conversion of PMPS studios during the
quarter and a 2007 non-recurring reduction of approximately $838,000
attributable to a change in the Company's vacation and sick pay. These
increases were partially offset by decreased advertising spending and lower
studio employment costs. Reduced host sales commissions, partially offset by
an accrual for contingent commissions due to Sears as a result of the PMPS
acquisition, also resulted in lower SG&A cost for the quarter as compared to
the prior year.
Depreciation and amortization increased to $7.5 million in the first
quarter of 2008, compared to $3.4 million in the comparable quarter of 2007.
This increase is attributable to the inclusion in the first quarter of 2008 of
depreciation and amortization related to the PMPS brand and includes $664,000
of amortization of intangible assets resulting from the PMPS acquisition.
One-time charges and impairments reflect costs incurred from strategic
actions implemented by the Company to restructure its operations, costs that
are unpredictable and atypical of the Company's operations and additional
charges due to asset impairments. In the first quarter of 2008 and 2007, the
Company recognized $794,000 and $29,000, respectively, in one-time charges and
impairments. Expense in 2008 primarily represents costs associated with the
PMPS acquisition, which include severance costs, severance accruals and other
integration-related costs relative to the PMPS acquisition.
PMPS Integration Update
As of June 2, 2008, 919 U.S. studios have been converted to digital
technology. The installation of a new digital lab sufficient to handle the
worldwide fulfillment requirements of the PictureMe Portrait Studio business
was substantially completed last month. The Company is also testing new sales
and marketing programs and studio work processes, implementing new performance
management systems in the field, integrating back-office/support functions,
and driving additional operating efficiencies in production and studio labor
management.
The Company expects to transfer most remaining PMPS operations to the
Company's existing support platforms during fiscal 2008, plans to convert all
of its U.S. studios to digital technology prior to the 2008 holiday selling
season and plans to convert substantially all of its Canadian and Mexican
studios to digital technology by the end of fiscal 2008.
First quarter results reflect anticipated initial progress eliminating
corporate support costs and driving production and studio labor productivity.
The Company expects to realize substantial savings from these activities by
the end of fiscal 2008/ early fiscal 2009.
Host Contractual Update
The Company is currently in the final year of a 10-year contract with
Sears that governs the operations of its U.S. Sears Portrait Studios. The
Company and Sears are currently in discussions regarding a new, multi-year
agreement.
2008 Second Quarter Preliminary Sales Update
SPS preliminary net sales for the first four weeks of the fiscal 2008
second quarter, which ended May 24, 2008, represent an approximate 7% decline
versus the comparable period ended May 26, 2007. This net decrease is the
result of an approximate 9% decline in sittings, partially offset by an
approximate 3% increase in average sale per customer sitting.
Preliminary net sales for the PMPS brand on a comparable store basis for
the first four weeks of the fiscal 2008 second quarter which ended May 24,
2008 represent an approximate 5% decline versus the comparable period (not
included in the Company's historical results) ended May 26, 2007. This net
decrease is the result of an approximate 20% decline in sittings, partially
offset by an approximate 18% increase in average sale per customer sitting.
The Company believes that the current economic climate, including reduced
discretionary spending, is negatively impacting portrait activity.
About CPI Corp.
CPI is the leading portrait studio operator inNorth America offering
photography services in approximately 3,100 locations inthe United States,
Puerto Rico,Canada andMexico, principally in Sears and Wal-Mart stores.
Forward-Looking Statements
The statements contained in this press release that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, and involve risks and uncertainties.
We try to identify forward-looking statements by using words such as
"preliminary," "plan," "expect," "looking ahead," "anticipate," "estimate,"
"believe," "should," "intend," and other similar expressions. Management
wishes to caution the reader that these forward-looking statements, such as
our outlook for the integration of the PCA Acquisition, portrait studios, net
income, future cash requirements, cost savings, compliance with debt
covenants, valuation allowances, reserves for charges and impairments and
capital expenditures, are only predictions or expectations; actual events or
results may differ materially as a result of risks facing us. Such risks
include, but are not limited to: the Company's dependence on Sears and
Wal-Mart, the approval of our business practices and operations by Sears and
Wal-Mart, the termination, breach or increase of the Company's expenses by
Sears or Wal-Mart under our license agreements, customer demand for the
Company's products and services, manufacturing interruptions, dependence on
certain suppliers, competition, dependence on key personnel, fluctuations in
operating results, a significant increase in piracy of the Company's
photographs, widespread equipment failure, compliance with debt covenants,
increased debt level due to the acquisition of Portrait Corporation of
America, Inc ("PCA"), the ability to successfully integrate the PCA
acquisition, implementation of marketing and operating strategies, and other
risks as may be described in the Company's filings with the Securities and
Exchange Commission, including its Form 10-K for the year ended February 2,
2008. The Company does not undertake any obligations to update any of these
forward-looking statements.
The Company will host a conference call and audio webcast on Wednesday,
June 4, at 10:00 a.m. central time to discuss the financial results and
provide a Company update. To participate on the call, please dial 888-260-4537
or 706-634-1012 at least 5 minutes before start time.
The webcast can be accessed on the Company's own site at
http://www.cpicorp.com as well as http://www.earnings.com. To listen to a live
broadcast, please go to these websites at least 15 minutes prior to the
scheduled start time in order to register, download, and install any necessary
audio software. A replay will be available on the above web sites as well as
by dialing 706-645-9291 or 800-642-1687 and providing confirmation code
50259147. The replay will be available through June 11 by phone and for 30
days on the Internet.
CPI CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
12 Weeks Vs. 12 Weeks 52 Weeks Vs. 52 Weeks
April 26, April 28, April 26, April 28,
2008 2007 2008 2007
Net sales $103,443 $57,761 $469,708 $291,894
Cost and expenses:
Cost of sales
(exclusive of
depreciation and
amortization shown
below) 10,492 5,018 50,232 27,947
Selling, general and
administrative
expenses 83,910 45,232 371,057 219,759
Depreciation and
amortization 7,512 3,413 31,427 16,147
Other charges and
impairments 794 29 5,959 879
102,708 53,692 458,675 264,732
Income from continuing
operations 735 4,069 11,033 27,162
Interest expense 1,521 414 11,759 2,228
Interest income 362 306 1,890 813
Impairment (recovery)
and related
obligations of
preferred security
interest - - - (587)
Other income (expense),
net 6 (48) 229 56
Earnings (loss) from
continuing operations
before income tax
expense (benefit) (418) 3,913 1,393 26,390
Income tax expense
(benefit) (162) 1,359 432 9,351
Net earnings (loss)
from continuing
operations (256) 2,554 961 17,039
Net loss from
discontinued operations
net of income tax
benefit - - (197) -
Net earnings (loss) ($256) $2,554 $764 $17,039
Net earnings (loss) per
common share - diluted
From continuing
operations ($0.04) $0.40 $0.15 $2.67
From discontinued
operations - - (0.03) -
Net earnings
(loss) - diluted ($0.04) $0.40 $0.12 $2.67
Net earnings (loss) per
common share - basic
From continuing
operations ($0.04) $0.40 $0.15 $2.68
From discontinued
operations - - (0.03) -
Net earnings
(loss) - basic ($0.04) $0.40 $0.12 $2.68
Weighted average number of
common and common
equivalent shares
outstanding:
Diluted 6,450 6,388 6,431 6,378
Basic 6,450 6,363 6,411 6,353
CPI CORP.
ADDITIONAL CONSOLIDATED OPERATING INFORMATION
(In thousands)
(Unaudited)
12 Weeks Vs. 12 Weeks 52 Weeks Vs. 52 Weeks
Apr. 26, Apr. 28, Apr. 26, Apr. 28,
2008 2007 2008 2007
Capital expenditures $11,299 $772 $27,641 $2,488
EBITDA is calculated
as follows:
Net (loss) earnings
from continuing
operations ($256) $2,554 $961 $17,039
Income tax (benefit)
expense (162) 1,359 432 9,351
Interest expense 1,521 414 11,759 2,228
Depreciation and
amortization 7,512 3,413 31,427 16,147
Other non-cash charges 133 3 203 36
EBITDA (1) & (5) $8,748 $7,743 $44,782 $44,801
Adjusted EBITDA (2) $9,542 $7,772 $50,741 $45,093
EBITDA margin (3) 8.46% 13.41% 9.53% 15.35%
Adjusted EBITDA
margin (4) 9.22% 13.46% 10.80% 15.45%
(1) EBITDA represents net earnings from continuing operations before
interest expense, income taxes, depreciation and amortization and
other non-cash charges. EBITDA is included because it is one liquidity
measure used by certain investors to determine a company's ability to
service its indebtedness. EBITDA is unaffected by the debt and equity
structure of the company. EBITDA does not represent cash flow from
operations as defined by GAAP, is not necessarily indicative of cash
available to fund all cash flow needs and should not be considered an
alternative to net income under GAAP for purposes of evaluating the
Company's results of operations. EBITDA is not necessarily comparable
with similarly-titled measures for other companies.
(2) Adjusted EBITDA is calculated as follows:
EBITDA $8,748 $7,743 $44,782 $44,801
EBITDA adjustments:
Impairment charges 32 7 282 7
Reserves for
severance and
related costs - - 1 638
Executive
retirements/
repositioning - 6 - 34
Cost associated
with acquisition 762 - 5,607 -
Contract terminations
and settlements - - - -
Cost associated with
strategic alternative
review - 16 - 200
Impairment (recovery)
and related
obligations of
preferred security
interest - - - (587)
Other - - 69 -
Adjusted EBITDA $9,542 $7,772 $50,741 $45,093
(3) EBITDA margin represents EBITDA, as defined in (1), stated as a
percentage of sales.
(4) Adjusted EBITDA margin represents Adjusted EBITDA, as defined in (2),
stated as a percentage of sales.
(5) As required by the SEC's Regulation G, a reconciliation of EBITDA, a
non-GAAP liquidity measure, with the most directly comparable GAAP
liquidity measure, cash flow from continuing operations follows:
12 Weeks Vs. 12 Weeks 52 Weeks Vs. 52 Weeks
Apr. 26, Apr. 28, Apr. 26, Apr. 28,
2008 2007 2008 2007
EBITDA $8,748 $7,743 $44,782 $44,801
Income tax benefit
(expense) 162 (1,359) (432) (9,351)
Interest expense (1,521) (414) (11,759) (2,228)
Adjustments for items
not requiring cash:
Deferred income taxes (329) 1,033 93 9,431
Deferred revenues and
related costs (731) 323 1,600 (3,606)
Impairment
(recovery) and
related obligations
of preferred
security interest - - - (587)
Other, net (42) 729 8,910 2,108
Decrease (increase) in
current assets 2,174 1,068 1,670 1,475
Increase (decrease) in
current liabilities (11,409) (3,990) (10,052) (4,762)
Increase (decrease) in
current income taxes (362) 439 (1,801) (697)
Cash flows from
continuing operations $(3,310) $5,572 $33,011 $36,584
CPI CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 26, 2008 AND APRIL 28, 2007
(In thousands)
(Unaudited)
APRIL 26, APRIL 28,
2008 2007
Assets
Current assets:
Cash and cash equivalents $43,332 $30,676
Other current assets 31,391 25,740
Net property and equipment 60,577 24,043
Intangible assets 61,624 512
Other assets 25,076 11,245
Total assets $222,000 $92,216
Liabilities and stockholders' equity
Current liabilities $71,227 $46,859
Long-term debt obligations 102,893 7,825
Other liabilities 32,258 22,908
Stockholders' equity 15,622 14,624
Total liabilities and stockholders'
equity $222,000 $92,216
SOURCE CPI Corp.
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