- Third quarter 2007 loss per share was $(1.57) versus $(0.15) in the
comparable 2006 quarter
ST. LOUIS, Dec. 19 /PRNewswire-FirstCall/ -- CPI Corp. (NYSE: CPY) today
reported a loss per share of $1.57 per diluted share for the 16-week third
quarter ended November 10, 2007 compared to a $0.15 loss per diluted share in
the comparable quarter of fiscal 2006. The net loss for the third quarter of
2007 was $10.1 million versus a net loss of $1.0 million in the third quarter
of 2006. The Company's overall results were significantly negatively impacted
by transitional expenses associated with its recently acquired, and yet to be
fully integrated, PictureMe Studio brand (PM). The Company completed its
acquisition of the assets of PM on June 8, 2007. In accordance with purchase
accounting guidelines, PM's results of operations are included in the
Company's consolidated results from the date of acquisition and not in the
Company's historical results.
Net sales for the third quarter of 2007 increased $58.3 million to $135.4
million from the $77.1 million reported in the third quarter of 2006 as a
result of the inclusion of net sales of $63.0 million attributable to the
Company's PM brand. Sears Portrait Studio's (SPS) net sales for the third
quarter of 2007 declined $4.7 million, or approximately 6%, to $72.4 million
from the $77.1 million reported in the third quarter of 2006. The 2007 third
quarter SPS sales performance was the result of an approximate 14% decline in
sittings, partially offset by an approximate 9% increase in average sale per
customer sitting. The Sears Portrait Studio brand is experiencing lower
customer response to its direct marketing programs and significantly reduced
same-day business. PM reported $63.0 million in sales for the fiscal 2007
third quarter which represents an approximate 2% increase 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 11% increase in average sale per customer sitting, partially
offset by an approximate 8% decline in sittings. The Company believes that the
increase in year over year PM same store sales is significantly attributable
to its improved sales and marketing programs as well as the positive
translation impact of the stronger Canadian dollar.
Cost of sales was $15.1 million in the third quarter of 2007 compared to
$7.8 million in the comparable prior year period. The increase in cost of
sales is attributable to the inclusion of PM cost of sales in the third
quarter of 2007, 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 expenses were $120.8 million in the
third quarter of 2007 versus $65.1 in the third quarter of 2006. The increase
in third quarter 2007 SG&A costs is attributable to the inclusion of PM's
costs, partially offset by the net effect of lower studio and corporate
employment costs, reduced host sales commissions, increased advertising
spending and increased restricted stock amortization expense associated with
performance awards.
The relatively high level of third quarter 2007 costs in proportion to
sales reflect the acquired legacy cost structure of the former Portrait
Corporation of America organization, and in particular, the cost of operating
and supporting the PM brand's legacy, film-based delivery platform pending
conversion to digital.
Depreciation and amortization was $10.1 million in the third quarter of
2007 compared to $5.1 million in the third quarter of 2006. This increase is
attributable to the inclusion in the third quarter of 2007 of depreciation and
amortization related to the PM brand and includes $1.1 million of amortization
of intangible assets resulting from the PM acquisition.
Other charges and impairments totaled $1.9 million during the third
quarter of 2007 and represent severance accruals and other integration-related
costs relative to the PM acquisition.
PM Integration Update
The Company's integration efforts to date have focused on digital
conversion preparations (223 U.S. studios converted to digital technology
during the 2007 third quarter), transitioning of sales and marketing programs,
implementing new measurement, monitoring and incentive systems in the field,
integrating back-office/support functions, pruning unprofitable activities,
and driving film manufacturing efficiencies pending conversion to the
Company's digital platform.
The Company expects to transfer most PM operations to the Company's
existing support platforms during fiscal 2008 and plans to convert
substantially all of the US studios to digital technology prior to the 2008
holiday selling season.
2007 Fourth Quarter Preliminary Sales Update
SPS preliminary net sales for the first five weeks of the fiscal 2007
fourth quarter ended December 15, 2007 represent an approximate 8% decline
versus the comparable period ended December 16, 2006. This net decrease is
the result of an approximate 14% decline in sittings, partially offset by an
approximate 6% increase in average sale per customer sitting. As discussed
above, the Company is experiencing lower customer response to its Sears
Portrait Studio direct marketing programs and significantly lower same-day
business.
Preliminary net sales for the PM brand on a comparable store basis for the
first five weeks of the fiscal 2007 fourth quarter which ended December 15,
2007 represent an approximate 3% decline versus the comparable period (not
included in the Company's historical results) ended December 16, 2006.
In connection with the acquisition of the assets of PCA on June 8, 2007
during the Company's second fiscal quarter which ended July 21, 2007, the
Company had not conformed certain of the accounting methods of the acquired
entity to those of the Company. This process was completed during the
Company's third fiscal quarter and, as a result, the Company will amend its
previously-filed second quarter Form 10-Q to reflect the conforming entries to
deferred revenues and related deferred cost. This will result in increases to
previously-reported net loss from continuing operations and net loss by $1.8
million and $1.2 million, respectively. This amendment has no impact on the
Company's financial results reported in this release as of November 10, 2007
and for the sixteen and forty week periods then-ended. The Company plans to
file a Form 8-K on Thursday December 20, 2007 disclosing its intent to amend
its second quarter 2007 Form 10-Q as discussed above.
The Company will host a conference call and audio webcast on Thursday,
December 20, 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
28238292. The replay will be available through December 27 by phone and for
30 days on the Internet.
CPI is the leading portrait studio operator in North America offering
photography services in approximately 3,100 locations in the United States,
Puerto Rico, Canada and Mexico, principally in Sears and Wal-Mart stores.
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 "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 3, 2007 and its Form 10-Q for the 24 weeks ended July 21, 2007.
The Company does not undertake any obligations to update any of these
forward-looking statements.
CPI CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
16 16 40 40 52 52
Weeks Vs Weeks Weeks Vs Weeks Weeks Vs Weeks
Nov. 10, Nov. 11, Nov. 10, Nov. 11, Nov. 10, Nov. 11,
2007 2006 2007 2006 2007 2006
Net sales $135,391 $77,050 $261,256 $193,064 $361,994 $296,049
Cost and expenses:
Cost of sales
(exclusive of
depreciation
and
amortization
shown
below) 15,072 7,841 27,719 19,216 36,630 28,851
Selling,
general and
administrative
expenses 120,787 65,129 224,654 156,311 289,637 220,147
Depreciation and
amortization 10,079 5,086 19,669 13,318 23,273 18,012
Other charges
and
impairments 1,937 678 3,228 1,212 3,256 1,600
147,875 78,734 275,270 190,057 352,796 268,610
(Loss) income
from continuing
operations (12,484) (1,684) (14,014) 3,007 9,198 27,439
Interest expense 3,365 701 5,374 1,867 5,886 2,282
Interest income 537 128 1,254 260 1,558 546
Loss from
extinguishment
of debt - - - - - 529
Impairment
(recovery) and
related obligations
of preferred
security interest - (587) - (887) - (887)
Other income
(expense), net 43 25 48 92 100 111
(Loss) earnings
from continuing
operations
before income
tax (benefit)
expense (15,269) (1,645) (18,086) 2,379 4,970 26,172
Income tax
(benefit)
expense (5,311) (694) (6,290) 846 1,970 10,078
Net (loss)
earnings from
continuing
operations (9,958) (951) (11,796) 1,533 3,000 16,094
Net earnings
(loss) from
discontinued
operations
net of income
tax expense
(benefit) (117) - (287) - (287) -
Net (loss)
earnings ($10,075) ($951) ($12,083) $1,533 $2,713 $16,094
Net earnings
(loss) per
common share -
diluted
From continuing
operations ($1.55) ($0.15) ($1.85) $0.24 $0.47 $2.39
From
discontinued
operations (0.02) - (0.04) - (0.04) -
Net (loss)
earnings-
diluted ($1.57) ($0.15) ($1.89) $0.24 $0.43 $2.39
Net earnings
(loss) per
common share -
diluted
From continuing
operations ($1.55) ($0.15) ($1.85) $0.24 $0.47 $2.40
From
discontinued
operations (0.02) - (0.04) - (0.04) -
Net (loss)
earnings-
diluted ($1.57) ($0.15) ($1.89) $0.24 $0.43 $2.40
Weighted average
number of
common and
common
equivalent
shares
outstanding:
Diluted 6,402 6,351 6,386 6,374 6,404 6,727
Basic 6,402 6,351 6,386 6,353 6,378 6,705
CPI CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 10, 2007 AND NOVEMBER 11, 2006
(In thousands)
(Unaudited)
NOV. 10, NOV. 11,
2007 2006
Assets
Current assets:
Cash and cash equivalents $36,030 $6,852
Other current assets 55,283 44,452
Net property and equipment 57,873 30,240
Intangible assets 65,369 513
Other assets 17,881 14,035
Total assets $232,436 $96,092
Liabilities and stockholders' equity
(deficit)
Current liabilities $92,541 $64,205
Long-term debt obligations 110,738 11,833
Other liabilities 29,131 25,983
Stockholders' equity (deficit) 26 (5,929)
Total liabilities and stockholders'
equity (deficit) $232,436 $96,092
CPI CORP.
ADDITIONAL CONSOLIDATED OPERATING INFORMATION
(In thousands)
(Unaudited)
16 16 40 40 52 52
Weeks Vs Weeks Weeks Vs. Weeks Weeks Vs. Weeks
Nov. 10, Nov. 11, Nov. 10, Nov. 11, Nov. 10, Nov. 11,
2007 2006 2007 2006 2007 2006
Capital
expenditures $8,889 $955 $12,504 $2,625 $12,638 $3,025
EBITDA is
calculated as
follows:
Net earnings
(loss) from
continuing
operations ($9,958) ($951) ($11,796) $1,533 $3,000 $16,094
Income tax
expense
(benefit) (5,311) (694) (6,290) 846 1,970 10,078
Interest
expense/loss
from debt
extinguishment 3,365 701 5,374 1,867 5,886 2,811
Depreciation
and amortization 10,079 5,086 19,669 13,318 23,273 18,012
Other non-cash
charges 62 - 79 25 96 92
EBITDA (1) & (5) $(1,763) $4,142 $7,036 $17,589 $34,225 $47,087
Adjusted
EBITDA (2) $174 $4,234 $10,264 $17,914 $37,481 $47,800
EBITDA
margin (3) -1.30% 5.38% 2.69% 9.11% 9.45% 15.91%
Adjusted EBITDA
margin (4) 0.13% 5.50% 3.93% 9.28% 10.35% 16.15%
(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 $(1,763) $4,142 $7,036 $17,589 $34,225 $47,087
EBITDA
adjustments:
Impairment
charges - - 7 179 7 327
Reserves for
severance and
related costs - 594 1 679 29 918
Executive
retirements
/repositioning - 7 6 171 6 172
Cost associated
with
acquisition 1,937 - 3,187 - 3,187 -
Contract
terminations and
settlements - - - - - -
Cost associated
with strategic
alternative
review - 78 - 183 - 183
Impairment
(recovery)
and related
obligations
of preferred
security
interest - (587) - (887) - (887)
Other - - 27 - 27 -
Adjusted EBITDA $174 $4,234 $10,264 $17,914 $37,481 $47,800
(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:
16 16 40 40 52 52
Weeks Vs. Weeks Weeks Vs. Weeks Weeks Vs. Weeks
Nov. 10, Nov. 11, Nov. 10, Nov. 11, Nov. 10, Nov. 11,
2007 2006 2007 2006 2007 2006
EBITDA $(1,763) $4,142 $7,036 $17,589 $34,225 $47,087
Income tax
(expense) benefit 5,311 694 6,290 (846) (1,970) (10,078)
Interest expense (3,365) (701) (5,374) (1,867) (5,886) (2,811)
Adjustments
for items not
requiring cash:
Deferred income
taxes (2,080) (611) (2,469) 877 6,010 6,456
Deferred
revenues
and related
costs 5,670 3,902 10,170 2,583 4,469 (4,277)
Impairment
(recovery) and
related obligations
of preferred
security
interest - (587) - (887) - (887)
Other, net 1,389 746 5,317 2,522 5,151 2,334
Decrease
(increase)
in current
assets (10,590) (14,658) (11,072) (12,105) 913 (298)
Increase
(decrease)
in current
liabilities 12,471 7,755 7,093 5,151 (614) (4,591)
Increase (decrease)
in current
income
taxes (4,678) (619) (5,403) 96 (5,873) (436)
Cash flows from
continuing
operations $2,365 $63 $11,588 $13,113 $36,425 $32,499
SOURCE CPI Corp.
Jane Nelson of CPI Corp., +1-314-231-1575
