Business News

CPI Corp. Announces 2010 Fourth-Quarter Results

Wednesday 20. April 2011 - CPI Corp. (NYSE: CPY) today reported results for the fiscal fourth quarter and year ended February 5, 2011.

— Fiscal 2010 fourth-quarter sales declined 8% to $128.9 million from
$140.2 million in the prior-year fourth quarter.
— Fourth-quarter PictureMe Portrait Studio brand comparable store
sales, as described herein, decreased 11% versus the same period
last year.
— Fourth-quarter Sears Portrait Studio brand comparable store sales,
as described herein, decreased 17% versus the same period last year.
— Sales from newly opened Kiddie Kandids studios contributed $8.6
million, excluding net revenue recognition change, during the 2010
fourth quarter.
— Fiscal 2010 fourth-quarter Adjusted EBITDA and diluted EPS were $28.0
million and $2.06 per share, respectively, versus $37.6 million and
$3.07, respectively, in the prior-year fourth quarter. Excluding other
charges and impairments in both periods and a $2.0 million tax
adjustment in the prior year quarter related to foreign tax credits
recorded for a previous year, fourth-quarter diluted EPS declined to
$2.24 versus $2.74 in the prior-year fourth quarter.
— Full-year Adjusted EBITDA and diluted EPS were $41.6 million and $1.64
per share, respectively, versus $53.3 million and $1.97 in the
respective prior-year period. Excluding other charges and impairments
in both periods and a $2.0 million tax adjustment in the prior year
related to foreign tax credits recorded for a previous year, full year
diluted EPS increased to $2.07 versus $1.97 in the prior fiscal year.
— Net debt declined to $43.5 million as of the 2010 fiscal year end from
$58.6 million as of the 2009 fiscal year end.
— Newly acquired Bella Pictures, a leading provider of wedding
photography and videography through an extensive network of contract
photographers and videographers, substantially expands the Company’s
mobile (on location) photography capabilities and offers substantial
sales and fulfillment synergies with CPI’s core studio operations as
well as a strong growth platform.
Commenting on the fourth quarter, Renato Cataldo, CPI’s President and Chief Executive Officer said, “Although we are disappointed with our fiscal 2010 fourth quarter results which reflected very difficult industry and broader economic conditions in the period, we are pleased with the underlying fundamentals of our business. Amid a difficult operating environment in 2010, we improved service levels, loyalty plan enrollment and sales productivity, reduced operating costs, strengthened our balance sheet, solidified our host relationships, re-launched the Kiddie Kandids brand in 171 locations including 21 mall-based locations and 20 expansion stores, and substantially expanded our event and on-location photography capabilities with the acquisition of Bella Pictures, a potential game-changer as we seek to transform our relationships with customers.”
Continuing, Mr. Cataldo said, “Looking ahead to 2011, we expect continued top-line challenges, especially in view of the higher food and energy prices and job insecurity that are weighing especially heavily on our core customer. We are, nevertheless, encouraged about our prospects to sustain solid profitability and cash generation over the next year based on already identified cost reductions and operating income improvement expected from the Kiddie Kandids operations.”
Fourth-quarter 2010 Results
Net sales for the fourth quarter of fiscal 2010 decreased 8% to $128.9 million from the $140.2 million reported in the fiscal 2009 fourth quarter. Excluding the positive impacts of net store openings ($7.6 million), foreign currency translation ($1.0 million), E-commerce ($0.6 million) and other items totaling $0.4 million, and negative impacts of net revenue recognition change ($1.7 million) and revenue deferral related to the Company’s loyalty programs ($0.7 million), comparable same-store sales decreased approximately 14%.
Net income for the fourth quarter in fiscal 2010 was $14.9 million, or $2.06 per diluted share, compared with $21.7 million, or $3.07 per diluted share, reported for the fourth quarter of fiscal 2009. Earnings in the period were significantly affected by comparable store sales declines, an adverse commission adjustment related to greater than expected sales declines and increased employee insurance, pension and amortization expense. These negative earnings impacts were partially offset by lower production, labor and advertising costs as well as lower interest expense and depreciation. Foreign currency translation effects did not have a material impact on the Company’s net earnings in the fourth quarter of 2010. The Kiddie Kandids studio operations contributed approximately $1.8 million of operating income during the 2010 fourth quarter.
Net sales from the Company’s PictureMe Portrait Studio (PMPS) brand, on a comparable same-store basis, excluding impacts of net revenue recognition change, store closures, foreign currency translation and other items totaling ($0.6 million), decreased 11% in the fourth quarter of fiscal 2010 to $59.1 million from $66.4 million in the fourth quarter of fiscal 2009. The decrease in PMPS sales for the fourth quarter was the result of a 16% decrease in the number of sittings, offset in part by a 6% increase in average sale per customer sitting.
Net sales from the Company’s Sears Portrait Studio (SPS) brand, on a comparable same-store basis, excluding impacts of net revenue recognition change, store closures, loyalty program revenue deferral and other items totaling ($1.7 million), decreased 17% in the fourth quarter of fiscal 2010 to $52.3 million from $63.1 million in the fourth quarter of fiscal 2009. The decrease in SPS sales for the fourth quarter of fiscal 2010 was the result of a 14% decline in the number of sittings and a 4% decline in average sale per customer sitting.
Net sales from the Company’s Kiddie Kandids studio operations, excluding the impact of net revenue recognition change totaling ($0.3 million), contributed $8.6 million in net sales in the fourth quarter of fiscal 2010. The Company has opened 171 Kiddie Kandids locations as of April 18, 2011. The Company plans to open an additional 25 locations during fiscal 2011.
Cost of sales, excluding depreciation and amortization expense, declined to $8.4 million in the fourth quarter of fiscal 2010, from $9.0 million in the fourth quarter of fiscal 2009 due to lower overall production levels, as well as continuing productivity improvements.
Selling, general and administrative (SG&A) expense decreased to $92.6 million in the fourth quarter of fiscal 2010 from $93.7 million in the prior-year quarter, primarily due to reductions in SPS and PMPS studio employment costs from improved scheduling, selected operating hour reductions and studio closures, a decline in host commission expense due to lower sales levels, a reduction in corporate bonuses for fiscal 2010 and reduced advertising costs. These decreases were offset significantly by costs associated with the newly opened Kiddie Kandids studios, an adverse commission adjustment ($0.4 million) arising from greater than expected sales declines, higher employee insurance and pension costs due to unfavorable claim activity and changes in discount rates, respectively, and increased expenses amortized as the result of a higher level of stock-based compensation performance awards made for the 2009 fiscal year.
Depreciation and amortization expense was $3.9 million in the fourth quarter of fiscal 2010, compared with $4.8 million in the fourth quarter of fiscal 2009. Depreciation expense decreased as a result of the full depreciation of certain assets acquired in connection with the 2007 acquisition of PCA and the closure of certain PMPS locations during the past two fiscal years.
In the fourth quarter of fiscal 2010, the Company recognized a $2.2 million charge in other charges and impairments, compared with a credit of $0.5 million in the fourth quarter of fiscal 2009. The current-quarter charge primarily includes certain litigation costs, costs incurred in connection with the acquisition of assets of Bella Pictures, Inc. and severance costs. The prior-year credit primarily related to the gain on sale of the production facility based in Connecticut.
Interest expense declined $0.7 million in the fourth quarter of fiscal 2010 to $0.6 million from $1.3 million in the fourth quarter of fiscal 2009. The decrease is primarily a result of lower average borrowings and favorable interest rates as a result of the new credit facility.
Fiscal 2010 Full-Year Results
For the fiscal year ended February 5, 2011, the Company reported that net sales decreased 4% to $407.0 million from the $422.4 million reported in the fiscal year 2009. Excluding the positive impacts of net store openings ($15.3 million), foreign currency translation ($4.9 million), E-commerce ($1.5 million) and other items totaling $0.2 million, comparable same-store sales decreased approximately 9%.
The Company also reported net income of $11.9 million, or $1.64 per diluted share, for fiscal 2010 compared with $13.8 million, or $1.97 per diluted share, for fiscal 2009. Earnings in the period were significantly affected by comparable store sales declines, an adverse commission adjustment related to greater than expected sales declines and increased employee insurance, pension and amortization expense. These decreases were offset in part by lower production, labor and advertising costs as well as lower interest expense and depreciation. Foreign currency translation effects did not have a material impact on the Company’s net earnings in fiscal 2010. The Kiddie Kandids studio operations contributed approximately $0.9 million in operating income in fiscal 2010.
Net sales from the Company’s PictureMe Portrait Studio (PMPS) brand, on a comparable same-store basis, excluding impacts of store closures, foreign currency translation, E-commerce, net revenue recognition change and other items totaling $2.7 million, decreased 5% in fiscal 2010 to $208.0 million from $219.1 million in fiscal 2009. The decrease in PMPS sales in fiscal 2010 was the result of a 10% decline in the number of sittings, offset in part by a 6% increase in average sale per customer sitting.
Net sales from the Company’s Sears Portrait Studio (SPS) brand, on a comparable same-store basis, excluding impacts of store closures, foreign currency translation, net revenue recognition change and other items totaling ($0.7 million), decreased 13% in fiscal 2010 to $171.2 million from $197.3 million in fiscal 2009. The decrease in SPS sales in fiscal 2010 was the result of an 11% decline in the number of sittings and a 3% decline in average sale per customer sitting.
Net sales from the Company’s Kiddie Kandids studio operations, excluding the impact of net revenue recognition change and other items totaling ($0.9 million), contributed $20.8 million in net sales in fiscal 2010.
Cost of sales, excluding depreciation and amortization expense, declined to $28.3 million in fiscal 2010, from $30.6 million in fiscal 2009 due to lower overall production levels, as well as continuing productivity improvements. These declines were offset in part by a change in product mix and an increase in carrier rates.
Selling, general and administrative (SG&A) expense decreased to $337.5 million in fiscal 2010 from $339.1 million in the prior year, primarily due to reductions in SPS and PMPS studio employment costs from improved scheduling, selected operating hour reductions and studio closures, reduced advertising costs, a decline in host commission expense due to lower sales levels and a reduction in corporate bonuses for fiscal 2010. These decreases were offset significantly by costs associated with the newly opened Kiddie Kandids studios, increased expenses amortized as the result of a higher level of stock-based compensation performance awards made for the 2009 fiscal year, an adverse commission adjustment ($1.5 million) arising from greater than expected sales declines and higher pension, employee insurance and worker’s compensation costs due to changes in discount rates, unfavorable claim activity and loss experience adjustments, respectively.
Depreciation and amortization expense was $18.0 million in fiscal 2010, compared with $22.7 million in fiscal 2009. Depreciation expense decreased as a result of the full depreciation of certain assets acquired in connection with the 2005 digital conversion of SPS and 2007 acquisition of PCA and the closure of certain PMPS locations during the past two fiscal years.
In fiscal 2010, the Company recognized $5.1 million in other charges and impairments, compared with $3.3 million in fiscal 2009. The current-year charge includes a $1.9 million downward adjustment to the carrying value of a large facility previously classified as “held for sale”, the write-off of $1.1 million of debt fees related to the Company’s former credit facility as a result of its new revolving credit facility, certain litigation costs, costs incurred in connection with the Kiddie Kandids asset acquisition and acquisition of assets of Bella Pictures, Inc. and severance costs. These charges were offset in part by a gain on sale of the production facility based in Brampton, Ontario and an early termination fee received from Walmart in relation to certain early PMPS store closures. The prior-year charge primarily related to certain PMPS integration charges, including severance and lab closure costs and impairment, proxy contest costs and litigation costs; offset in part by a gain on sale of the production facility based in Connecticut.
Interest expense declined $3.1 million in fiscal 2010 to $3.9 million from $7.0 million in fiscal 2009. The decrease is primarily a result of lower average borrowings and favorable interest rates as a result of the new credit facility, as well as a change in the interest rate swap value, which expired in the third quarter of fiscal 2010.
Income tax expense was $3.4 million and $5.8 million in fiscal 2010 and 2009, respectively. The resulting effective tax rates were 22% and 30% in 2010 and 2009, respectively. The overall decrease in the effective tax rate in fiscal 2010 was primarily due to certain tax benefits recognized related to a previous uncertain tax position and miscellaneous tax return adjustments.
Acquisition of Assets of Bella Pictures, Inc.
As previously announced, on January 26, 2011, the Company’s subsidiary, Bella Pictures Holdings, LLC acquired substantially all of the assets of Bella Pictures, Inc. (the “Seller”), a leading provider of branded wedding photography services. In consideration for the assets purchased, the subsidiary issued to the Seller shares representing a 5% ownership in the subsidiary and also assumed certain liabilities (net of cash of $1.5 million), consisting primarily of specified customer fulfillment obligations for both booked and completed weddings.
The acquisition significantly expands the Company’s mobile (on location) photography capabilities and offers customers high-quality wedding photography and videography services and products in most major U.S. markets through a network of certified photographers and videographers. The Company’s strong digital capabilities and infrastructure combined with the outstanding customer service skills of Bella Pictures will allow the Company to provide exceptional value to both wedding and non-wedding customers across a wide spectrum of offerings and price points.
Capital Structure
As of February 5, 2011, the Company has reduced net debt to $43.5 million from $58.6 million as of February 6, 2010.
As previously announced, the Company has a share repurchase program in place to purchase up to 1.0 million shares through August of 2011. During the fourth quarter of fiscal 2010, the Company repurchased 324,716 shares of common stock under this program for a total purchase price of $7.2 million. As of April 18, 2011, the Company has repurchased 377,653 shares of common stock under this program for a total purchase price of $8.3 million.
Preliminary First-Quarter Net Sales
The Company’s preliminary net sales on a point-of-sale (POS) basis for the first 10 weeks of the first quarter of fiscal 2011 declined 11% to $73.7 million from $83.2 million in the same period last year due significantly to the shift in the Easter holiday (Easter 2011 is three weeks later than in 2010). On a comparable same-store POS basis, excluding the impacts of the Kiddie Kandids operations and foreign currency translation, preliminary net sales for the first 10 weeks declined approximately 17% compared with the corresponding period in the prior year. PMPS and SPS net sales for the first 10 weeks of the first quarter declined 14% and 20%, respectively. The Company expects the negative trend to moderate moving through the Easter 2011 holiday but still expects to report negative comparisons for the first quarter.