Business News

CPI Corp. Announces 2009 Second-Quarter Results

Tuesday 01. September 2009 - Comparable same-store sales, excluding impacts of revenue deferral adjustments, foreign currency translation, loyalty program revenue deferral and store closures, decreased 8% versus the prior-year second quarter.

— Second-quarter PictureMe Portrait Studio brand comparable store
sales, as adjusted, increased 7% year-over-year due, in large
part, to the successful integration and digital conversion of the
acquired studios

— Second-quarter Sears Portrait Studio brand comparable store sales,
as adjusted, decreased 20% year-over-year


— Second-quarter Adjusted EBITDA increased to $4.5 million versus $2.9
million in the prior-year period.


— Second-quarter diluted EPS improved to a loss of ($0.49) compared with
a loss of ($0.56) a year ago reflecting the impact of cost reductions
and productivity improvements implemented throughout the organization.
EPS in the quarter was significantly affected by special charges in
connection with the recently completed proxy contest and litigation
costs.


— Company entered into a new six-year license agreement with Sears
Canada, effective August 19, 2009. Under the new agreement, the
Company will convert all remaining Sears Canada film studios to an
all-digital format.




CPI Corp. (NYSE:CPY) today reported results for the second quarter ended July 25, 2009.

“We continue to see positive results from our digital platform conversion, which we completed in the third quarter of last year. We have also successfully reduced our costs by over 11% since last year’s second quarter reflecting anticipated benefits from our integration process as well as strong overall cost containment,” said Renato Cataldo, president and chief executive officer. “Although difficult economic conditions continue to pressure results, we are pleased with our progress on several longer-term initiatives, and we continue to improve upon the Company’s sales and performance management processes, including our customer acquisition and retention programs.”

Net sales for the fiscal 2009 second quarter decreased $8.2 million, or 9%, to $81.4 million from the $89.6 million reported in the 2008 second quarter. Excluding impacts of net revenue recognition change of $3.0 million, foreign currency translation ($1.8 million), revenue deferral related to positive response to the Company’s loyalty programs ($1.5 million), store closures ($1.7 million) and other net adjustments of $300,000, comparable same-store sales decreased $6.5 million or 8%.

Net sales from the Company’s PictureMe Portrait Studio brand (PMPS), on a comparable same-store basis, excluding impacts of net revenue recognition change, foreign currency translation, loyalty program revenue deferral, store closures and other items, totaling ($2.3 million), increased 7% in the second quarter of 2009 to $42.6 million from $39.8 million reported in the second quarter of 2008. PMPS sales performance for the second quarter was the result of an approximate 25% increase in average sale per customer sitting, offset in part by an approximate 14% decline in the number of sittings. The Company attributes its increase in average sale per customer sitting primarily to customers’ positive response to the new offerings made possible by the recently completed digital conversion and the implementation of new sales and performance management processes. The Company believes the sittings decline reflects the difficult economic environment, which has especially pressured customer demand in lower income categories.

During the second quarter of 2009, net sales from the Company’s Sears Portrait Studio brand (SPS), on a comparable same-store basis, excluding impacts of net revenue recognition change, foreign currency translation, loyalty program revenue deferral, store closures and other items, totaling $600,000, was $37.3 million, a decrease of 20% from $46.6 million reported in the second quarter of 2008. SPS sales performance for the second quarter was the result of declines in the number of sittings and sales per sitting of approximately 19% and 1%, respectively. The Company believes the decline in SPS brand sales reflects the difficult economic environment which pressured sittings volumes (particularly in the off-season) and led to an especially pronounced reduction in walk-in business not tied to the Company’s direct marketing programs. The Company believes declines have been mitigated in part by improving execution of the Company’s customer outreach and loyalty programs.

The Company also reported a net loss of $3.4 million, or ($0.49) per diluted share, for the fiscal 2009 second quarter, versus a net loss of $3.6 million, or ($0.56) per diluted share, reported for the second quarter of fiscal 2008. EPS in the quarter was significantly affected by special charges in connection with the recently completed proxy contest of $977,000 and litigation costs of $536,000. Second-quarter Adjusted EBITDA increased to $4.5 million versus $2.9 million in the prior-year period. The improvements in net income and Adjusted EBITDA year-over-year include the impact of cost reductions and productivity improvements implemented throughout the organization.

Costs and expenses were $84.8 million in the second quarter of 2009, down significantly from the $93.9 million recorded in the second quarter of 2008.

Cost of sales, excluding depreciation and amortization expense, was $6.7 million in the second quarter of 2009, compared with $8.9 million in the second quarter of 2008. The decrease is principally attributable to lower overall manufacturing production levels, improved product mix, increased manufacturing productivity, the elimination of film and related shipping costs stemming from the PMPS digital conversion, and decreased overhead costs resulting from the integration of the PMPS operations.

Selling, general and administrative (SG&A) expenses were $70.3 million for the second quarter of 2009, compared with $78.1 million in the second quarter of 2008. The decrease in SG&A expenses primarily relates to lower studio employment costs due to scheduling improvements and selected operating hour reductions; fiscal 2008 nonrecurring costs associated with the PMPS digital conversion; elimination of duplicative costs in connection with the PMPS integration; favorable foreign exchange rate translation; and reduced workers’ compensation expense due to improved claims management. These decreases were offset in part by increases in higher average hourly studio rates and increased sales incentives in connection with new studio and field initiatives.

Depreciation and amortization expense was $5.6 million in the second quarter of 2009, unchanged from a year ago. Depreciation expense increased as a result of the digital equipment purchased for the PMPS digital conversion throughout fiscal 2008; however, it was equally offset by a reduction in expense related to the streamlining of manufacturing facilities and closure of unprofitable studios.

In the second quarter of 2009, the Company recognized $2.2 million in other charges and impairments, compared with $1.3 million recognized in the second quarter of 2008. The current-year charges are primarily associated with the recently completed proxy contest, certain PMPS integration charges, including severance and lab closure costs, and litigation costs. The prior-year charges are primarily associated with litigation costs, certain fees incurred in connection with the settlement of the previous Sears license agreement, and certain PMPS integration charges, including severance and lab closure costs.

In the second quarter of 2009, the Company made a voluntary prepayment of $5.0 million of outstanding principal of the debt. Additionally, the Company applied proceeds of approximately $1.0 million in the second quarter of 2009 from the sale of the Charlotte, North Carolina warehouse to the outstanding principal of the debt in connection with certain mandatory prepayment requirements under its credit agreement.

Company Enters Into New Six-Year License Agreement with Sears Canada

Effective August 19, 2009, the Company entered into a new six-year license agreement with Sears Canada, pursuant to which the Company will operate professional portrait studios in approximately 110 Sears locations in Canada. The terms of the agreement provide greater operating flexibility than the previous contract. As a result of this new agreement, CPI Corp. will convert all remaining Sears Canada film studios to an all-digital format by the end of the 2009 third quarter. “We are pleased to continue our relationship with Sears Canada, which has been a mutually rewarding partnership over many years,” said Cataldo. “By implementing our proven digital model within this network of high-quality stores and leveraging the additional operating flexibility afforded by our new agreement, we expect to improve significantly the operating contribution of our Canadian operations.”

Third-Quarter Preliminary Sales Update

The Company’s preliminary net sales for the first five weeks of the third quarter, on a comparable same-store point-of-sale basis, excluding the impacts of foreign currency translation, decreased 6% compared with the corresponding period in the prior year. PMPS and SPS net sales for the first five weeks of the third quarter were +10% and -20%, respectively.