ST. LOUIS, Aug. 28 /PRNewswire-FirstCall/ -- CPI Corp. (NYSE:CPY) today reported a loss per share of $0.53 per diluted share for the 12-week quarter ended July 21, 2007 compared to earnings per share of $0.10 per diluted share in the comparable quarter of fiscal 2006. The net loss for the second quarter of 2007 was $3.4 million versus net income of $0.6 million in the second quarter of 2006. As discussed more fully below, purchase accounting associated with the Company's acquisition of the operating assets of Portrait Corporation of America, Inc. (PCA) on June 8, 2007 had a significant negative impact on the Company's reported results for the quarter. The acquisition negatively impacted second quarter diluted per share results and net earnings by $1.00 per share and $6.4 million, respectively. Hereafter and throughout this release, the results related to the PCA acquisition will be referred to as those of the PictureMe Studio Division (PM).
Due to the recency of the PCA acquisition and to facilitate a better understanding of the 2007 second quarter results, the Company has prepared the attached Condensed Consolidating Statements of Operations that separates out the results of the acquired PictureMe Studio Division.
Sears Portrait Studio Division
SPS net sales for the second quarter of 2007 declined $3.1 million, or approximately 6%, to $53.2 million from the $56.3 million reported in the second quarter of 2006. The 2007 second quarter sales performance was the result of an approximate 9% decline in sittings partially offset by an approximate 5% increase in average sale per customer sitting.
Income from operations for the second quarter of 2007 improved to $4.7 million from $1.5 million in the second quarter of 2006. The $3.2 million increase in income from operations is the result of decreases in cost of sales, selling, general and administrative expenses, depreciation and amortization, and other charges and impairments of $1.2 million, $3.9 million, $0.9 million and $0.1 million, respectively, partially offset by a $3.1 million decline in sales.
The decrease in cost of sales resulted principally from lower overall production levels as a result of declines in sittings, additional gains in labor productivity resulting from the continuing refinement of digital manufacturing processes, and an improved product mix.
Selling, general and administrative expenses decreased primarily as a result of lower studio and corporate employment costs totaling $2.8 million and net other reductions totaling $1.1 million in various other cost categories reflecting the continued focus on adjusting the legacy cost structure to reflect the new operating environment. Studio employment costs declined $1.6 million principally due to a focused initiative to improve labor scheduling and productivity. Corporate employment declined $0.4 million resulting principally from a flattening of the executive management ranks that took place in the third quarter of 2006. Studio and corporate employment costs declined an additional $0.8 million during the 2007 second quarter as a result of a change in the Company's vacation policy announced in the first quarter of 2007.
The decrease in depreciation and amortization is principally attributable to reduced capital spending beginning in the fourth quarter of 2005 and continuing to date following the significant digital investments made in 2004 and the first three quarters of 2005.
Preliminary net sales for the first four weeks of the fiscal 2007 third quarter ended August 18, 2007 represent an approximate 5% decline versus the comparable period ended August 19, 2006.
PictureMe Studio Division
The Company completed its acquisition of PM on June 8, 2007. Accordingly, the Company's consolidated financial statements reflect the results of operations of the PM division only for the six-week period from June 8, 2007 through July 21, 2007.
In accordance with purchase accounting guidance, PM's deferred revenue balance at the June 8, 2007 date of acquisition was reduced by a purchase accounting adjustment to record deferred revenue at its fair value in PM's beginning, post-acquisition balance sheet. This purchase accounting adjustment has the effect of reducing revenue in periods subsequent to the acquisition for approximately one year. The deferred revenue adjustment resulted in lower net sales of $8.1 million and an increased pre-tax loss from operations of $3.4 million for the 2007 second quarter.
In addition, as reflected in the attached Condensed Consolidated Statement of Operations, PM results for the period June 8, 2007-July 21, 2007 were also negatively impacted by the following:
-- Other charges and impairments totaling $1.2 million relating
principally to severance accruals and cure costs associated with
contracts assumed by the Company.
-- Amortization of intangible assets totaling $0.4 million pursuant to the
purchase price allocations.
-- Interest expense totaling $1.1 million associated with the refinancing
of the Company's previously existing debt to fund the PM acquisition.
Preliminary net sales for the PM division on a comparable store basis for the first four weeks of the fiscal 2007 third quarter which ended August 18, 2007 represent an approximate 5% decline versus the comparable period (not included in the Company's historical results) ended August 19, 2006.
PCA Integration Update
The Company plans to convert up to 400 PM studios to digital technology before the 2007 holiday selling season. The balance of the U.S. studios are planned to be converted prior to the 2008 busy season with conversions of the Canadian and Mexican studios to follow in 2009. Preliminary estimates of the capital required to complete the PM integration, principally the digital conversion, are as follows: 2007 - $15 million and 2008 - $23 million.
In addition to digital conversion preparations, integration efforts are presently focused on overhauling sales and marketing programs, implementing new measurement, monitoring and incentive systems in the field, integrating a wide array of back office/support functions, pruning unprofitable activities and driving manufacturing efficiencies through best practices sharing.
The Company will host a conference call and audio webcast on Wednesday, August 29, 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 14796404. The replay will be available through September 5 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 as well as the United Kingdom, 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 Acqusition, 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 12 weeks ended April 28, 2007. The Company does not undertake any obligations to update any of these forward-looking statements.
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 21, July 22, July 21, July 22, July 21, July 22,
2007 2006 2007 2006 2007 2006
Net sales $68,642 $56,345 $126,403 $116,014 $304,191 $297,469
Cost and
expenses:
Cost of sales
(exclusive of
depreciation
and
amortization
shown below) 7,776 5,806 12,673 11,375 29,426 29,966
Selling, general
and
administrative
expenses 57,547 44,822 102,866 91,181 232,980 222,076
Depreciation
and
amortization 6,177 4,046 9,590 8,232 18,279 19,135
Other charges
and
impairments 1,261 143 1,290 534 1,997 1,725
72,761 54,817 126,419 111,322 282,682 272,902
Income (loss)
from operations (4,119) 1,528 (16) 4,692 21,509 24,567
Interest expense 1,561 563 2,008 1,166 3,221 2,068
Interest income 410 74 716 131 1,150 508
Loss from
extinguishment
of debt - - - - - 529
Impairment (recovery)
and related
obligations of
preferred security
interest - - - (300) (587) (300)
Other income
(expense), net 56 27 8 67 85 105
Earnings (loss)
from operations
before income
tax expense
(benefit) (5,214) 1,066 (1,300) 4,024 20,110 22,883
Income tax
expense
(benefit) (1,812) 426 (453) 1,540 7,113 8,936
Net earnings
(loss) ($3,402) $640 ($847) $2,484 $12,997 $13,947
Net earnings
(loss) per
common share -
diluted ($0.53) $0.10 ($0.13) $0.39 $2.03 $1.94
Net earnings
(loss) per
common share -
basic ($0.53) $0.10 ($0.13) $0.39 $2.04 $1.94
Weighted average
number of common
and common
equivalent shares
outstanding:
Diluted 6,386 6,369 6,375 6,374 6,388 7,194
Basic 6,386 6,342 6,375 6,354 6,363 7,173
CPI CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
12 Weeks Ended
CPI/SPS Picture Me Total
July 21, July 22, July 21, July 21, July 22,
2007 2006 2007 2007 2006
Net sales $53,194 $56,345 $15,448 $68,642 $56,345
Cost and expenses:
Cost of sales
(exclusive of
depreciation and
amortization shown
below) 4,564 5,806 3,212 7,776 5,806
Selling, general and
administrative
expenses 40,891 44,822 16,656 57,547 44,822
Depreciation and
amortization 3,076 4,046 3,101 6,177 4,046
Other charges and
impairments 12 143 1,249 1,261 143
48,543 54,817 24,218 72,761 54,817
Income (loss) from
operations 4,651 1,528 (8,770) (4,119) 1,528
Interest expense 460 563 1,101 1,561 563
Interest income 406 74 4 410 74
Loss from extinguishment
of debt - - - - -
Impairment (recovery)
and related obligations
of preferred security
interest - - - -
Other income (expense), net 37 27 19 56 27
Earnings (loss) from
operations before
income tax expense
(benefit) 4,634 1,066 (9,848) (5,214) 1,066
Income tax expense
(benefit) 1,615 426 (3,427) (1,812) 426
Net earnings (loss) $3,019 $640 ($6,421) ($3,402) $640
EBITDA $8,178 $5,691 $(5,646) $2,532 $5,691
Adjusted EBITDA $8,190 $5,834 $(4,397) $3,793 $5,834
24 Weeks Ended
CPI/SPS Picture Me Total
July 21, July 22, July 21, July 21, July 22,
2007 2006 2007 2007 2006
Net sales $110,955 $116,014 $15,448 $126,403 $116,014
Cost and expenses:
Cost of sales
(exclusive of
depreciation and
amortization shown
below) 9,461 11,375 3,212 12,673 11,375
Selling, general and
administrative
expenses 86,210 91,181 16,656 102,866 91,181
Depreciation and
amortization 6,489 8,232 3,101 9,590 8,232
Other charges and
impairments 41 534 1,249 1,290 534
102,201 111,322 24,218 126,419 111,322
Income (loss) from
operations 8,754 4,692 (8,770) (16) 4,692
Interest expense 907 1,166 1,101 2,008 1,166
Interest income 712 131 4 716 131
Loss from extinguishment
of debt - - - - -
Impairment (recovery)
and related obligations
of preferred
security interest - (300) - (300)
Other income (expense),
net (11) 67 19 8 67
Earnings (loss) from
operations before
income tax expense
(benefit) 8,548 4,024 (9,848) (1,300) 4,024
Income tax expense
(benefit) 2,974 1,540 (3,427) (453) 1,540
Net earnings (loss) $5,574 $2,484 ($6,421) ($847) $2,484
EBITDA $15,961 $13,447 $(5,646) $10,315 $13,447
Adjusted EBITDA $16,002 $13,681 $(4,397) $11,605 $13,681
52 Weeks Ended
CPI/SPS Picture Me Total
July 21, July 22, July 21, July 21, July 22,
2007 2006 2007 2007 2006
Net sales $288,743 $297,469 $15,448 $304,191 $297,469
Cost and expenses:
Cost of sales
(exclusive of
depreciation and
amortization shown
below) 26,214 29,966 3,212 29,426 29,966
Selling, general and
administrative
expenses 216,324 222,076 16,656 232,980 222,076
Depreciation and
amortization 15,178 19,135 3,101 18,279 19,135
Other charges and
impairments 748 1,725 1,249 1,997 1,725
258,464 272,902 24,218 282,682 272,902
Income (loss) from
operations 30,279 24,567 (8,770) 21,509 24,567
Interest expense 2,120 2,068 1,101 3,221 2,068
Interest income 1,146 508 4 1,150 508
Loss from extinguishment
of debt - 529 - - 529
Impairment (recovery)
and related obligations
of preferred
security interest (587) (300) - (587) (300)
Other income (expense),
net 66 105 19 85 105
Earnings (loss) from
operations before
income tax expense
(benefit) 29,958 22,883 (9,848) 20,110 22,883
Income tax expense
(benefit) 10,540 8,936 (3,427) 7,113 8,936
Net earnings (loss) $19,418 $13,947 ($6,421) $12,997 $13,947
EBITDA $47,290 $44,885 $(5,646) $41,644 $44,885
Adjusted EBITDA $47,451 $46,310 $(4,397) $43,054 $46,310
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 21, July 22, July 21, July 22, July 21, July 22,
2007 2006 2007 2006 2007 2006
Capital
expenditures $2,843 $626 $3,615 $1,670 $4,705 $8,170
EBITDA is calculated
as follows:
Net earnings (loss)
from operations ($3,402) $640 ($847) $2,484 $12,997 $13,947
Income tax
expense (benefit) (1,812) 426 (453) 1,540 7,113 8,936
Interest expense/
loss from debt
extinguishment 1,561 563 2,008 1,166 3,221 2,597
Depreciation and
amortization 6,177 4,046 9,590 8,232 18,279 19,135
Other non-cash
charges 8 16 17 25 34 270
EBITDA(1)&(5) $2,532 $5,691 $10,315 $13,447 $41,644 $44,885
Adjusted EBITDA(2) $3,793 $5,834 $11,605 $13,681 $43,054 $46,310
EBITDA margin(3) 3.69% 10.10% 8.16% 11.59% 13.69% 15.09%
Adjusted EBITDA
margin(4) 5.53% 10.35% 9.18% 11.79% 14.15% 15.57%
(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 $2,532 $5,691 $10,315 $13,447 $41,644 $44,885
EBITDA
adjustments:
Impairment
charges - - 7 179 7 492
Reserves for
severance and
related costs 1 16 1 85 622 1,282
Executive
retirements/
repositioning - 21 6 164 13 236
Cost associated
with
acquisition 1,249 - 1,249 - 1,249 -
Contract
terminations
and settlements (16) - - - - (391)
Cost associated
with strategic
alternative review - 106 - 106 79 106
Impairment
(recovery) and
related obligations
of preferred
security interest - - - (300) (587) (300)
Other 27 - 27 - 27 -
Adjusted EBITDA $3,793 $5,834 $11,605 $13,681 $43,054 $46,310
(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 21, July 22, July 21, July 22, July 21, July 22,
2007 2006 2007 2006 2007 2006
EBITDA $2,532 $5,691 $10,315 $13,447 $41,644 $44,885
Income tax
(expense) benefit 1,812 (426) 453 (1,540) (7,113) (8,936)
Interest expense (1,561) (563) (2,008) (1,166) (3,221) (2,597)
Adjustments for
items not
requiring cash:
Deferred income
taxes (1,422) 530 (389) 1,488 7,479 6,342
Deferred revenues
and related costs 4,265 (2,130) 4,589 (1,319) 2,790 (3,555)
Impairment
(recovery) and
related
obligations of
preferred security
interest - - - (300) (587) (300)
Other, net 1,417 655 2,137 1,634 2,861 2,741
Decrease (increase)
in current assets (2,728) 3,079 (1,660) 2,553 (4,331) 4,031
Increase (decrease)
in current
liabilities (523) (678) (4,512) (2,463) (4,607) (9,804)
Increase (decrease)
in current income
taxes (1,165) (47) (726) 716 (1,815) (301)
Cash flows from
operations $2,627 $6,111 $8,199 $13,050 $33,100 $32,506
CPI CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 21, 2007 AND JULY 22, 2006
(In thousands)
(Unaudited)
JULY 21, JULY 22,
2007 2006
Assets
Current assets:
Cash and cash equivalents $42,641 $8,098
Other current assets 38,373 28,971
Net property and equipment 60,897 34,379
Intangible assets 63,204 513
Other assets 14,432 13,354
Total assets $219,547 $85,315
Liabilities and stockholders' equity
(deficit)
Current liabilities $69,346 $52,934
Long-term debt obligations 110,862 11,718
Other liabilities 30,753 25,501
Stockholders' equity (deficit) 690 (4,838)
Total liabilities and
stockholders'
equity (deficit) $211,651 $85,315
Source: CPI Corp.
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