ST. LOUIS, Aug. 25 /PRNewswire-FirstCall/ -- CPI Corp. today reported:
Key Highlights -- Second quarter net sales increased 32% to $89.6 million in 2008 from $68.1 million in 2007 due to the full-quarter contribution of the PictureMe Portrait Studio ("PMPS") business acquired in June 2007 -- Second quarter Sears Portrait Studio ("SPS") net sales declined 10% to $47.8 million in 2008 from $53.2 million in 2007 -- Second quarter PictureMe Portrait Studio net sales totaled $41.8 million in 2008, an estimated same-store sales decline of 5% from comparable 2007 levels -- Second quarter adjusted EBITDA declined to $1.6 million from $2.3 million in 2007. Trailing 52 week adjusted EBITDA declined to $50.1 million from $50.7 million reported in the first quarter. -- Second quarter EPS loss narrowed to ($0.56) from ($0.72) in the prior year period due principally to the absence of a purchase accounting adjustment recorded in the prior year period as well as reduced depreciation and amortization and restructuring charges. The results also reflect an improved operating contribution from the PMPS brand due to reduced overheads, increased operating efficiencies, and an improved product mix and customer transaction average which more than offset the impact of decreased PMPS net sales and extraordinary spending on digital conversion and training. -- The PictureMe Portrait Studio digital conversion effort is now nearly complete in the U.S. and Canada with 1,583 studios converted as of August 21, 2008. The Company expects to convert the remainder of its PMPS U.S. and Canadian studios in the third quarter of 2008 and substantially all of its Mexican studios prior to the end of 2008.
Net sales for the second quarter of 2008 increased $21.5 million, or 32%, to $89.6 million from the $68.1 million reported in the second quarter of 2007 as a result of the increase in net sales of $27.0 million attributable to the Company's PMPS brand. The Company also reported a net loss of $3.6 million, or ($0.56) per diluted share, for the 12-week second quarter ended July 19, 2008 compared to a net loss of $4.6 million, or ($0.72) per diluted share, reported in the comparable quarter of fiscal 2007. The operations of the PMPS brand are included for the full twelve weeks of second quarter 2008 but only for the six-week period of ownership in second quarter 2007. The Company believes that both brands' second quarter results reflect a challenging economic environment including a substantial rise in gasoline and food prices, which is affecting discretionary purchases such as portraiture.
During the second quarter of 2008, net sales from the Company's Sears Portrait Studio decreased $5.4 million, or 10%, to $47.8 million from the $53.2 million reported in the second quarter of 2007. The 2008 second quarter SPS net sales performance was the result of an 11% decline in sittings, partially offset by a 2% increase in average sale per customer sitting.
Net sales related to the Company's PMPS brand increased to $41.8 million in the second quarter of 2008 from $14.9 million in the second quarter of 2007. Second quarter 2008 includes twelve weeks of net sales as compared to only six weeks for the second quarter 2007. Additionally, a purchase accounting adjustment related to the deferred revenue at the date of acquisition resulted in a one-time decrease in net sales of $8.2 million for the 2007 second quarter. On a comparable basis, PMPS net sales for the fiscal 2008 second quarter represent an approximate 5% decrease in same store sales versus the comparable period of the prior year (results from the period February 4, 2007 to June 8, 2007 not reported in the Company's historical results). This sales performance resulted from an approximate 20% increase in average sale per customer sitting attributable to the digital studio conversion of the PictureMe Portrait Studios, offset by an approximate 21% decline in sittings. The Company believes, based on customer surveys, that higher gas and food prices are having a relatively greater impact on the PMPS business due to a generally more price-sensitive customer base.
Costs and expenses were $94.3 million in the second quarter of 2008, compared with $73.9 million in the comparable prior year period. Cost of sales, excluding depreciation and amortization expense, was $8.5 million in the second quarter of 2008 compared with $8.0 million in the comparable prior year period. The increase in cost of sales is attributable to the inclusion of twelve weeks of PMPS cost of sales in the second quarter of 2008, compared to only six weeks for the second quarter of 2007, partially offset by decreased production costs resulting from lower overall manufacturing production levels, additional gains in manufacturing productivity, improved product mix and savings on film and shipping costs that result directly from the PMPS digital conversion.
Selling, general and administrative ("SG&A") expenses were $79.9 million and $58.3 million for the second quarter of 2008 and 2007, respectively. The increase in second quarter 2008 SG&A costs is primarily attributable to the inclusion of twelve weeks of PMPS costs, compared to only six weeks for the second quarter of 2007. The comparison is also affected by $1.8 million of digital training and travel costs related to the conversion of PMPS studios incurred during the quarter, the recording of contingent commissions due to Sears as a result of the PMPS acquisition as well as non-recurring reductions in SG&A in the prior year period of approximately $4.4 million resulting from the deferred revenue purchase accounting adjustment and $0.8 million attributable to a change in the Company's vacation and sick pay policy. These increases were partially offset by a reduction in expense due to the elimination of duplicate costs and the streamlining of operations related to the PMPS brand, as well as reduced host sales commissions due to lower sales.
Depreciation and amortization was $5.6 million in the second quarter of 2008, compared to $6.2 million in the comparable quarter of 2007. Depreciation expense declined as certain assets acquired for the 2004-2005 SPS digital conversion and with the 2007 PCA Acquisition are now fully depreciated. This is offset by the inclusion of twelve weeks of PMPS costs compared to only six weeks in the second quarter of 2007.
In the second quarter of 2008 and 2007, the Company recognized $0.3 million and $1.4 million, respectively, in other charges and impairments associated with the PMPS Acquisition, which include severance costs, severance accruals, cure costs related to contracts assumed and other integration- related costs relative to the PMPS Acquisition.
PMPS Integration Update
As of August 21, 2008, 1,583 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 completed in the first quarter of 2008 and has been in operation for the full second quarter. As of the end of the quarter, the Company has transferred all material PMPS operations to the Company's existing support platforms and plans to convert to digital technology the remainder of its U.S. and Canadian studios in the third quarter of 2008 and substantially all of its Mexican studios prior to the end of 2008 at which time the Company plans to discontinue its analog film fulfillment operations.
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 Third Quarter Preliminary Sales Update
SPS preliminary net sales for the first four weeks of the fiscal 2008 third quarter, which ended August 16, 2008, represent an approximate 13% decline versus the comparable period ended August 18, 2007. This net decrease is the result of an approximate 10% decline in sittings and an approximate 3% decrease 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 third quarter which ended August 16, 2008 represent an approximate 12% decline versus the comparable period ended August 18, 2007. This net decrease is the result of an approximate 29% decline in sittings, partially offset by an approximate 23% increase in average sale per customer sitting.
About CPI Corp.
CPI is the leading portrait studio operator in North America offering photography services in approximately 3,061 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 success of the digital conversion of PMPS studios, 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 convert remaining PMPS studios to the digital platform and effectively streamline the operations of the PMPS business, 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 Tuesday, August 26, 2008, 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 60994072. The replay will be available through September 2 by phone and for 30 days on the Internet.
Financial tables to follow . . . CPI CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts) (Unaudited) 12 12 24 24 52 52 Weeks Vs Weeks Weeks Vs Weeks Weeks Vs Weeks July 19, July 21, July 19, July 21, July 19, July 21, 2008 2007 2008 2007 2008 2007 (Restated) (Restated) (Restated) Net sales $89,630 $68,103 $193,073 $125,864 $491,235 $303,652 Cost and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 8,496 7,981 18,988 13,000 50,746 30,019 Selling, general and administrative expenses 79,853 58,316 163,764 103,513 392,628 233,361 Depreciation and amortization 5,584 6,176 13,096 9,589 30,834 18,278 Other charges and impairments 318 1,418 1,112 1,447 4,861 2,153 94,251 73,891 196,960 127,549 479,069 283,811 (Loss) income from continuing operations (4,621) (5,788) (3,887) (1,685) 12,166 19,841 Interest expense 1,366 1,561 2,887 2,009 11,530 3,222 Interest income 118 410 480 716 1,598 1,150 Recovery of related obligations of preferred security interest - - - - - (587) Other income (expense), net (2) 52 4 5 174 81 (Loss) earnings from continuing operations before income tax (benefit) expense (5,871) (6,887) (6,290) (2,973) 2,408 18,437 Income tax (benefit) expense (2,270) (2,391) (2,433) (1,032) 552 6,535 Net (loss) earnings from continuing operations (3,601) (4,496) (3,857) (1,941) 1,856 11,902 Net loss from discontinued operations net of income tax expense (benefit) - (105) - (105) (92) (105) Net (loss) earnings ($3,601) ($4,601) ($3,857) ($2,046) $1,764 $11,797 Net earnings (loss) per common share - diluted From continuing operations ($0.56) ($0.70) ($0.60) ($0.30) $0.29 $1.86 From discontinued operations - (0.02) - (0.02) (0.01) (0.02) Net (loss) earnings - diluted ($0.56) ($0.72) ($0.60) ($0.32) $0.28 $1.84 Net earnings (loss) per common share - basic From continuing operations ($0.56) ($0.70) ($0.60) ($0.30) $0.29 $1.87 From discontinued operations - (0.02) - (0.02) (0.01) (0.02) Net (loss) earnings - basic ($0.56) ($0.72) ($0.60) ($0.32) $0.28 $1.85 Weighted average number of common and common equivalent shares outstanding: Diluted 6,468 6,386 6,459 6,375 6,445 6,388 Basic 6,468 6,386 6,459 6,375 6,430 6,363 CPI CORP. ADDITIONAL CONSOLIDATED OPERATING INFORMATION (In thousands) (Unaudited) 12 12 24 24 52 52 Weeks Vs Weeks Weeks Vs Weeks Weeks Vs Weeks July 19, July 21, July 19, July 21, July 19, July 21, 2008 2007 2008 2007 2008 2007 (Restated) (Restated) (Restated) Capital expenditures $13,690 $2,843 $24,990 $3,615 $38,488 $4,705 EBITDA is calculated as follows: Net earnings (loss) from continuing operations ($3,601) ($4,496) ($3,857) ($1,941) $1,856 $11,902 Income tax expense (benefit) (2,270) (2,391) (2,433) (1,032) 552 6,535 Interest expense/loss from debt extinguishment 1,366 1,561 2,887 2,009 11,530 3,222 Depreciation and amortization 5,584 6,176 13,096 9,589 30,834 18,278 Other non-cash charges 250 8 384 17 453 34 EBITDA (1) & (5) $1,329 $858 $10,077 $8,642 $45,225 $39,971 Adjusted EBITDA (2) $1,647 $2,276 $11,189 $10,089 $50,086 $41,538 EBITDA margin (3) 1.48% 1.26% 5.22% 6.87% 9.21% 13.16% Adjusted EBITDA margin (4) 1.84% 3.34% 5.80% 8.02% 10.20% 13.68% (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 $1,329 $858 $10,077 $8,642 $45,225 $39,971 EBITDA adjustments: Impairment charges 71 - 103 7 352 7 Reserves for severance and related costs - 1 - 1 - 622 Executive retirements/ repositioning - - - 6 - 13 Cost associated with acquisition 184 1,406 946 1,406 4,386 1,406 Contract terminations and settlements - - - - - - Cost associated with strategic alternative review - - - - - 79 Impairment (recovery) and related obligations of preferred security interest - - - - - (587) Other 63 11 63 27 123 27 Adjusted EBITDA $1,647 $2,276 $11,189 $10,089 $50,086 $41,538 (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 12 24 24 52 52 Weeks Vs Weeks Weeks Vs Weeks Weeks Vs Weeks July 19, July 21, July 19, July 21, July 19, July 21, 2008 2007 2008 2007 2008 2007 (Restated) (Restated) (Restated) EBITDA $1,329 $858 $10,077 $8,642 $45,225 $39,971 Income tax (expense) benefit 2,270 2,391 2,433 1,032 (552) (6,535) Interest expense (1,366) (1,561) (2,887) (2,009) (11,530) (3,222) Adjustments for items not requiring cash: Deferred income taxes (2,390) (1,422) (2,719) (389) (876) 7,479 Deferred revenues and related costs (2,056) 4,735 (2,787) 5,058 (5,190) 3,260 Impairment (recovery) and related obligations of preferred security interest - - - - - (587) Other, net 879 1,418 1,015 2,139 8,544 2,864 Decrease (increase) in current assets 1,775 (1,419) 3,949 (351) 4,863 (3,023) Increase (decrease) in current liabilities (2,001) (523) (13,339) (4,512) (11,459) (4,607) Increase (decrease) in current income taxes (330) (1,744) (692) (1,306) (387) (2,395) Cash flows from continuing operations $(1,890) $2,733 $(4,950) $8,304 $28,638 $33,205 CPI CORP. CONDENSED CONSOLIDATED BALANCE SHEETS JULY 19, 2008 AND JULY 21, 2007 (In thousands) (Unaudited) JULY 19, JULY 21, 2008 2007 (Restated) Assets Current assets: Cash and cash equivalents $19,277 $42,641 Other current assets 32,644 36,965 Net property and equipment 67,224 60,897 Intangible assets 64,946 63,204 Other assets 23,409 16,365 Total assets $207,500 $220,072 Liabilities and stockholders' equity Current liabilities $60,998 $69,098 Long-term debt obligations 102,798 110,862 Other liabilities 32,271 30,752 Stockholders' equity 11,433 9,360 Total liabilities and stockholders' equity $207,500 $220,072
