ST. LOUIS, June 3 /PRNewswire-FirstCall/ -- CPI Corp. 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 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.
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
