CPI Corp. Announces 2009 Third-Quarter Results

ST. LOUIS, Dec. 22  /PRNewswire-FirstCall/ -- CPI Corp. (NYSE:CPY) today reported results for the third quarter ended November 14, 2009.

  --  Comparable same-store sales, excluding impacts of revenue deferral
      adjustments, foreign currency translation, loyalty program revenue
      deferral and store closures, decreased 7% versus the prior-year third
      quarter.
      --  Third-quarter PictureMe Portrait Studio® brand comparable store
          sales, as adjusted, increased 5% year-over-year due, in large
          part, to the successful integration and digital conversion of the
          acquired studios.
      --  Third-quarter Sears Portrait Studio brand comparable store sales,
          as adjusted, decreased 18% year-over-year.
  --  Third-quarter Adjusted EBITDA improved to a loss of ($0.6) million
      versus a loss of ($4.8) million in the prior-year period.
  --  Third-quarter diluted EPS improved to a loss of ($0.97) compared with
      a loss of ($2.06) a year ago reflecting the impact of cost reductions
      and productivity improvements implemented throughout the organization.
  --  LTM Adjusted EBITDA improved to $50.8 million from $46.7 million as of
      the end of the last quarter




"Overall, we are pleased with our third quarter performance. Although we faced top-line challenges in the quarter, which we are addressing, we significantly improved our financial strength through our continuing productivity and cost control efforts.  We also made considerable progress on several key longer-term initiatives to leverage our expanded digital platform. During the quarter, even as we reduced costs by more than 12% versus the prior year's third quarter, we improved customer service levels and the overall value proposition to customers, refined and expanded our customer acquisition and retention programs, and made progress on efforts to develop additional revenue opportunities through expanded services and targeting of additional customer categories," said Renato Cataldo, president and chief executive officer.

Net sales for the fiscal 2009 third quarter decreased 7%, to $107.3 million from the $115.7 million reported in the 2008 third quarter.  Excluding the negative impacts of net revenue recognition change of ($3.5) million and store closures of ($2.7) million and the positive effect of a shift in the calendar end of the quarter, comparable same-store sales decreased approximately 7%.  The calendar adjustment accounts for the shift in the Veteran's Day week from the fourth quarter in 2008 to the third quarter in 2009.  Veteran's Day week initiates the holiday season for portrait activity, and therefore, this adjustment was necessary to achieve comparability.

Net sales from PMPS, on a comparable same-store basis, excluding impacts of net revenue recognition change, loyalty program revenue deferral, store closures and other items, totaling $0.9 million, increased 5% in the third quarter of 2009 to $60.7 million from $58.1 million in the third quarter of 2008.  The improved PMPS sales performance for the third quarter was the result of an approximate 25% increase in average sale per customer sitting, offset in part by an approximate 16% decline in the number of sittings.

During the third 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, loyalty program revenue deferral, store closures and other items, totaling $1.1 million, was $52.9 million, a decrease of 18% from $64.4 million in the third quarter of 2008.  SPS sales performance for the third quarter was the result of a decline of approximately 19% in the number of sittings, offset slightly by an increase of 2% in sales per sitting.

The Company also reported a net loss of ($6.8) million, or ($0.97) per diluted share, for the fiscal 2009 third quarter, versus a net loss of ($13.3) million, or ($2.06) per diluted share, reported for the third quarter of fiscal 2008.  Third-quarter adjusted EBITDA increased to a loss of ($0.6) million versus ($4.8) million in the prior-year period.  The improvements in net income and adjusted EBITDA year-over-year reflect the impact of cost reductions and productivity improvements implemented throughout the organization.

Costs and expenses were $115.4 million in the third quarter of 2009, down significantly from the $131.5 million recorded in the third quarter of 2008.  The Company remains committed to its cost-reduction initiatives and will continue its financial discipline heading into 2010.

Cost of sales, excluding depreciation and amortization expense was $8.0 million in the third quarter of 2009, compared with $11.3 million in the third quarter of 2008.  The decrease is principally attributable to lower overall manufacturing production levels, improved productivity due to lab consolidations, 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 $99.9 million for the third quarter of 2009, compared with $109.6 million in the third 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; reduced employee insurance costs due to lower participation and claims levels; reduced workers' compensation expense due to improved claims management; and other cost reductions attributable to cost control initiatives, operating efficiencies, lower sales levels and positive exchange rate impacts.  These decreases were offset in part by increases in higher average hourly studio rates in connection with new studio and field initiatives; an increase due to a change in the estimate method used for recognizing advertising cost; and increased host commissions under contractual arrangements.

Depreciation and amortization expense was $6.3 million in the third quarter of 2009, compared with $8.6 million in the third quarter of 2008.  Depreciation expense decreased due to a reduction in expense related to the streamlining of manufacturing facilities as well as certain assets from the SPS digital conversion that have become fully depreciated in fiscal 2009; however, it was offset in part by an increase as a result of the digital equipment purchased for the PMPS digital conversion throughout fiscal 2008.

In the third quarter of 2009, the Company recognized $1.1 million in other charges and impairments, compared with $2.1 million recognized in the third quarter of 2008.  The current-year charges are primarily associated with lab closures.  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.

As a result of the improving financial strength of the Company and the early busy season results, subsequent to the end of the third quarter, the Company elected to make a voluntary debt prepayment of $19.0 million toward the $7.0 million required amortization payment due on December 31, 2009 and a portion of its estimated excess cash flow payment due May 7, 2010.

Fourth-Quarter Preliminary Sales Update

The Company's preliminary net sales for the first five weeks of the fourth quarter, on a comparable same-store point-of-sale basis, excluding the impacts of foreign currency translation, decreased 3% compared with the corresponding period in the prior year.  PMPS and SPS net sales for the first five weeks of the fourth quarter were +5% and -9%, respectively.  Sales comparisons to the prior year have improved in each successive week of the fourth quarter leading up to the holiday, moving from -10% in the first week of the quarter to +5% in the most recent week.

Conference Call/Webcast Information

The Company will host a conference call and audio webcast on Tuesday, December 22, 2009, at 10:00 a.m. Central time to discuss the financial results and provide a Company update.  To participate on the call, please dial 800-901-5259 or 617-786-4514 and reference passcode 84576601 at least five 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 websites as well as by dialing 888-286-8010 or 617-801-6888 and providing passcode 11175376.  The replay will be available through January 5 by phone and for 30 days on the Internet.

CPI Corp. uses the Investor Relations page of its website at http://www.cpicorp.com/ to make information available to its investors and the public.  You can sign up to receive e-mail alerts whenever the Company posts new information to the website.

About CPI Corp.

For more than 60 years, CPI Corp. (NYSE:CPY) has been dedicated to helping customers conveniently create cherished photography portrait keepsakes that capture a lifetime of memories.  Headquartered in St. Louis, Missouri, CPI Corp. provides portrait photography services at approximately 3,000 locations in North America, principally in Sears and Walmart stores.  CPI's conversion to a fully digital format allows its studios to offer unique posing options, creative photography selections, a wide variety of sizes and an unparalleled assortment of enhancements to customize each portrait - all for an affordable price.

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. The Company identifies 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 the Company's outlook for 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 the Company.  Such risks include, but are not limited to: the Company's dependence on Sears and Walmart, the approval of the Company's business practices and operations by Sears and Walmart, the termination, breach, limitation or increase of the Company's expenses by Sears under the license agreements, or Walmart under the lease and license agreements, customer demand for the Company's products and services, the economic recession and resulting decrease in consumer spending, 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, high level of indebtedness, implementation of marketing and operating strategies, outcome of litigation and other claims, impact of declines in global equity markets to pension plan and impact of foreign currency translation.  The risks described above do not include events that the Company does not currently anticipate or that it currently deems immaterial, which may also affect its results of operations and financial condition.  The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

  Tables to follow:






                                  CPI CORP.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands except per share amounts)



                          16 Weeks  Vs. 16 Weeks   40 Weeks  Vs. 40 Weeks
                          --------      --------   --------      --------
                          November      November   November      November
                          14, 2009      8, 2008    14, 2009      8, 2008


  Net sales               $107,286      $115,688   $282,130      $308,619

  Cost and expenses:
    Cost of sales
     (exclusive of
     depreciation and
     amortization shown
     below)                  8,032        11,288     21,643        31,412
    Selling, general and
     administrative
     expenses               99,940       109,551    245,480       269,761
    Depreciation and
     amortization            6,320         8,616     17,913        21,673
    Other charges and
     impairments             1,144         2,093      3,751         4,946
                             -----         -----      -----         -----
                           115,436       131,548    288,787       327,792

  Income (loss) from
   continuing operations    (8,150)      (15,860)    (6,657)      (19,173)

  Interest expense           2,542         3,866      5,961         6,753

  Interest income              130            87        370           567

  Other income (expense),
   net                         236            56        253            59
                               ---           ---        ---           ---

  Loss from continuing
   operations before
   income tax benefit      (10,326)      (19,583)   (11,995)      (25,300)

  Income tax benefit        (3,524)       (6,508)    (4,094)       (8,727)
                            ------        ------     ------        ------


  Net loss from
   continuing operations    (6,802)      (13,075)    (7,901)      (16,573)

  Net loss from discontinued
   operations net of income
   tax benefit                   -          (266)         -          (625)
                               ---          ----        ---          ----

  Net loss                 ($6,802)     ($13,341)   ($7,901)     ($17,198)
                           =======      ========    =======      ========


  Net loss per common
   share - diluted
     From continuing
      operations            ($0.97)       ($2.02)    ($1.13)       ($2.56)
     From discontinued
      operations              0.00         (0.04)      0.00         (0.10)
                              ----         -----       ----         -----
        Net loss - diluted  ($0.97)       ($2.06)    ($1.13)       ($2.66)
                            ======        ======     ======        ======


  Net loss per common
   share - basic
     From continuing
      operations            ($0.97)       ($2.02)    ($1.13)       ($2.56)
     From discontinued
      operations              0.00         (0.04)      0.00         (0.10)
                              ----         -----       ----         -----
        Net loss - basic    ($0.97)       ($2.06)    ($1.13)       ($2.66)
                            ======        ======     ======        ======


  Weighted average number
   of common and common
   equivalent shares
   outstanding:
     Diluted                 7,004         6,479      6,988         6,467

     Basic                   7,004         6,479      6,988         6,467









                                  CPI CORP.
                         CONSOLIDATED BALANCE SHEETS
                   NOVEMBER 14, 2009 AND NOVEMBER 8, 2008
                               (In thousands)



                                      November 14, 2009  November 8, 2008
                                      -----------------  ----------------
  Assets

    Current assets:
     Cash and cash equivalents                   $8,286            $8,176
     Other current assets                        55,170            50,439
    Net property and equipment                   37,759            63,424
    Intangible assets                            61,108            62,561
    Other assets                                 18,973            22,944
                                                 ------            ------

     Total assets                              $181,296          $207,544
                                               ========          ========


  Liabilities and stockholders' equity

    Current liabilities                         $86,437           $76,268
    Long-term debt obligations                   75,458           104,866
    Other liabilities                            25,994            32,618
    Stockholders' equity                         (6,593)           (6,208)
                                                 ------            ------

     Total liabilities and stockholders'
      equity                                   $181,296          $207,544
                                               ========          ========









                                  CPI CORP.
                ADDITIONAL CONSOLIDATED OPERATING INFORMATION
                                (In thousands)


                                16 Weeks Vs. 16 Weeks  40 Weeks Vs. 40 Weeks
                                --------     --------  --------     --------
                                November     November  November     November
                                14, 2009     8, 2008   14, 2009     8, 2008


  Capital expenditures            $2,274      $6,210     $4,508     $31,198

  EBITDA is calculated as follows:
  Net loss from continuing
   operations                    ($6,802)   ($13,075)   ($7,901)   ($16,573)
  Income tax benefit              (3,524)     (6,508)    (4,094)     (8,727)
  Interest expense                 2,542       3,866      5,961       6,753
  Depreciation and amortization    6,320       8,616     17,913      21,673
  Other non-cash charges             180         253        596         637
                                     ---         ---        ---         ---

  EBITDA (1) & (5)               ($1,284)    ($6,848)   $12,475      $3,763
                                 =======     =======    =======      ======

  Adjusted EBITDA (2)              ($603)    ($4,756)   $15,347      $8,709

  EBITDA margin (3)                -1.20%      -5.92%      4.42%       1.22%

  Adjusted EBITDA margin (4)       -0.56%      -4.11%      5.44%       2.82%


  (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                         $(1,284)    $(6,848)   $12,475      $3,763
     EBITDA adjustments:
        Cost associated with PMPS
         acquisition                 914       1,247      1,645       2,296
        Translation gain            (283)          -       (283)          -
        Proxy contest fees           (73)          -        904           -
        Litigation costs             104         119        532         882
        Sears contract settlement
         costs                         -         689          -       1,667
        Other                         19          37         74         101
                                     ---         ---        ---         ---

  Adjusted EBITDA                  $(603)    $(4,756)   $15,347      $8,709
                                   =====     =======    =======      ======

  (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:


                                16 Weeks Vs. 16 Weeks  40 Weeks Vs. 40 Weeks
                                --------     --------  --------     --------
                                November     November  November     November
                                14, 2009     8, 2008   14, 2009     8, 2008


  EBITDA                         $(1,284)    $(6,848)   $12,475      $3,763
  Income tax benefit               3,524       6,508      4,094       8,727
  Interest expense                (2,542)     (3,866)    (5,961)     (6,753)
  Adjustments for items not
   requiring cash:
     Deferred income taxes        (3,915)     (7,034)    (4,452)     (9,753)
     Deferred revenues and
      related costs                5,264       2,508      6,078        (279)
     Other, net                    2,574       1,666      2,475       2,680
  Decrease (increase) in
   current assets                 (8,410)     (9,174)   (11,537)     (5,224)
  Increase (decrease) in
   current liabilities             2,417       7,500     (2,932)     (5,839)
  Increase (decrease) in
   current income taxes              250         252        (98)       (440)
                                     ---         ---        ---        ----
  Cash flows from continuing
   operations                    $(2,122)    $(8,488)      $142    $(13,118)
                                    ====     =======       ====    ========


DATASOURCE: CPI Corp.



CONTACT:  Jane Nelson of CPI Corp., [phone]



Web Site:  http://www.cpicorp.com/ 

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