EX-99.1 2 exh99_1.htm EXHIBIT 99.1 Exhibit 99.1
EXHIBIT 99.1

CPI Corp.
news for immediate release  FOR RELEASE May 30, 2006
 
 
FOR FURTHER INFORMATION, CONTACT:
 
 NAME   Jane Nelson   FROM   CPI Corp.
ADDRESS   1706 Washington Avenue   CITY   St. Louis
 STATE, ZIP   Missouri  63103   TELEPHONE   (314) 231-1575
 

CPI CORP. ANNOUNCES STRONG
2006 FIRST QUARTER GROWTH IN SALES, EARNINGS AND EBITDA -
BEGINS PROCESS TO EXPLORE STRATEGIC ALTERNATIVES

Key Highlights

·  
First quarter EPS improves to $0.29 versus 2005 loss per diluted share of ($0.26)

·  
Sales increasing compared to prior year
o  
First quarter sales grow 7%
o  
First four weeks of second quarter up 7%

·  
Board to explore strategic alternatives, including a potential sale of the Company

·  
Trailing twelve month adjusted EBITDA improves to $42.6 million from $36.2 million as of the 2005 fiscal year end.

St. Louis, MO, May 30, 2006 - CPI Corp. (NYSE-CPY) today reported earnings per share of $0.29 per diluted share for the 12-week first quarter ended April 29, 2006 compared to a ($0.26) loss per diluted share reported in the comparable quarter of fiscal 2005. Net income for the same periods increased to $1.8 million in 2006 from a ($2.1) million net loss in 2005.

Net sales for the first quarter of 2006 increased $3.9 million or 7% to $59.7 million from the $55.8 million reported in the first quarter of 2005. This increase resulted from a 41% increase in average sale per customer sitting partially offset by a 24% decrease in customer sittings. On a comparable studio basis, representing studios open at least twelve months, the first quarter sales growth totaled 6%.

The Company believes that its significant increase in average sale per customer sitting is principally attributable to its customers’ ongoing positive response to the differentiated value proposition created in the new digital studio environment and higher priced and added value upsell offers which were implemented in the second half of fiscal 2005. The digital conversion has resulted in an expanded assortment and related increased sales of higher-value, new and specialty products and services, including, for example, additional on-site printing and digital enhancement fees.

The rate of sittings decline experienced in the first quarter of 2006 compared to the comparable quarter of 2005 was the expected result of much lower-priced offers in effect for the first and second quarters of 2005 compared to significantly higher pricing initiated by the Company beginning in the second half of 2005 in anticipation of the completion of its digital conversion. As discussed in previous releases and shareholder communications, the Company has consciously ceded marginal and unprofitable business in pursuit of greater profitability and customer loyalty.
 
 
The growth in sales experienced in the first quarter has continued into the second quarter. Preliminary net sales for the first four weeks of fiscal 2006 which ended on May 27, 2006 represent an approximate 7% increase versus the comparable period ended May 28, 2005.

Income from operations for the first quarter of 2006 was $3.1 million compared to a loss of ($3.2) million in the comparable quarter of the prior year. The $6.3 million increase in income from operations is primarily the result of a $3.9 million increase in sales coupled with decreases in cost of sales and selling, general and administrative expenses of $1.6 million and $989,000, respectively.

The decrease in cost of sales, despite higher sales, resulted principally from lower overall production levels due to the decline in sittings, improved manufacturing productivity resulting from experience gained from operating in a fully digital environment in 2005 and savings on film and shipping costs that resulted from the completion of the digital conversion in the second half of fiscal 2005. In addition, the Company incurred significantly lower workers’ compensation costs in the first quarter of 2006 versus 2005. These decreases were partially offset by additional costs incurred related to increased same-day, in-studio fulfillment of portrait orders and increased sales of large-format, specialty products not previously available in the analog film environment.

Selling, general and administrative expenses decreased primarily as a result of reduced advertising spending of $894,000 and reductions totaling $631,000 in various other expense categories resulting from the Company’s on-going cost containment efforts. The decreased first quarter advertising spend resulted from the ongoing development and implementation of new marketing strategies designed to improve the efficiency and productivity of the Company’s customer acquisition and retention activities. Specifically, by devising new segmentation methods that better utilize its customer database and third-party information, the Company has been able to reduce and reallocate its marketing dollars to more efficient direct marketing vehicles. The above-mentioned decreases were partially offset by an increase of $558,000 in sales commissions paid to Sears resulting from higher sales. Despite the reported 7% increase in sales and an approximate 2% annualized increase in the overall rate of pay for our studio associates, studio labor costs, the single largest component of selling, general and administrative expenses, increased only $157,000 or 1% in the first quarter of 2006 compared to the comparable quarter of 2005.

Exploration of Strategic Alternatives

CPI Corp. also announced today that its Board of Directors has begun a process to explore strategic alternatives to enhance shareholder value including, but not limited to, a potential sale of the Company. The Company said it has retained Peter J. Solomon Company as its financial advisor in this process, which it expects will take several months. Chairman of the Board David M. Meyer said: "CPI’s successful conversion to digital technology, implementation of more effective marketing and operating strategies, and significant turnaround in sales, profitability and cash flow have put us in a strong position to consider new ways to realize the full value of our franchise. Our decision to explore strategic alternatives is driven by a commitment to create value for our shareholders and provide exciting new opportunities for our employees while positioning the Company to deliver stronger performance in the future."

There can be no assurance that a transaction will result, and the Company does not intend to disclose developments regarding its exploration of strategic alternatives unless and until its Board of Directors has approved a specific transaction.

# # # # #

The Company will host a conference call and audio webcast Wednesday, May 31, 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 www.cpicorp.com as well as 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 9968609. The replay will be available through June 7 by phone and for 30 days on the Internet.

# # # # #

CPI is a portrait photography company offering photography services in the United States, Puerto Rico and Canada through Sears Portrait Studios. The Company also operates searsphotos.com, the vehicle for the Company's customers to archive, share portraits via email and order additional portraits and products.

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 "expect," "looking ahead," "anticipate," "estimate," "believe," "should," "intend," and similar expressions. Management wishes to caution the reader that these forward-looking statements, such as our 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 us. Such risks include, but are not limited to: the Company's dependence on Sears, the approval of our business practices and operations by Sears, the termination, breach or increase of the Company's expenses by Sears or Sears Canada 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, 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 4, 2006. The Company does not undertake any obligations to update any of these forward-looking statements.
 
Tables to follow…


 
CPI CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
                            
   
 12 Weeks
  
Vs
  
12 Weeks
  
52 Weeks
  
Vs
  
52 Weeks
  
thousands, except per share amounts
  
 April 29, 2006
      
April 30, 2005
  
April 29, 2006
      
April 30, 2005
  
                            
Net sales
  
$
59,670
        
$
55,804
  
$
295,849
        
$
282,743
  
                                       
Cost and expenses:
                                      
Cost of sales (exclusive of depreciation and
                                      
amortization shown below)
    
5,826
         
7,465
   
33,490
         
36,672
 
Selling, general and administrative expenses
    
46,141
         
47,130
   
221,104
         
220,834
 
Depreciation and amortization
    
4,187
         
4,273
   
19,866
         
16,789
 
Other charges and impairments
    
390
         
109
   
3,048
         
6,225
 
     
56,544
         
58,977
   
277,508
         
280,520
 
                                       
Income (loss) from continuing operations
    
3,126
         
(3,173
)
  
18,341
         
2,223
 
Interest expense
    
565
         
451
   
1,794
         
2,031
 
Interest income
    
58
         
175
   
579
         
1,121
 
Loss from extinguishment of debt
    
-
         
-
   
529
         
-
 
Impairment and related obligations of preferred
                                      
security interest
    
(300
)
        
-
   
(300
)
        
9,789
 
Other income, net
    
39
         
171
   
115
         
388
 
                                       
Income(loss) from continuing operations before
                                      
income tax expense (benefit)
   
2,958
         
(3,278
)
  
17,012
         
(8,088
)
Income tax expense (benefit)
   
1,114
         
(1,220
)
  
6,722
         
1,082
 
                                       
Net income (loss) from continuing operations
    
1,844
         
(2,058
)
  
10,290
         
(9,170
)
Net loss from discontinued operations, net of
                                      
income tax benefit
    
-
         
-
   
-
         
(2,597
)
                                       
Net income (loss)
 
$
1,844
        
$
(2,058
)
$
10,290
        
$
(11,767
)
                                       
Net income (loss) per common share - diluted
                                      
From continuing operations
  
$
0.29
        
$
(0.26
)
$
1.36
        
$
(1.17
)
From discontinued operations
    
-
         
-
   
-
         
(0.34
)
Net income (loss) - diluted
  
$
0.29
        
$
(0.26
)
$
1.36
        
$
(1.51
)
                                       
Net income (loss) per common share - basic
                                      
From continuing operations
  
$
0.29
        
$
(0.26
)
$
1.37
        
$
(1.17
)
From discontinued operations
    
-
         
-
   
-
         
(0.34
)
Net income (loss) - basic
  
$
0.29
        
$
(0.26
)
$
1.37
        
$
(1.51
)
                                       
Weighted average number of common and
                                      
common equivalent shares outstanding:
                                      
Diluted
    
6,378
         
7,810
   
7,545
         
7,821
 
Basic
    
6,365
         
7,810
   
7,521
         
7,821
 
 
 
CPI CORP.
ADDITIONAL CONSOLIDATED OPERATING INFORMATION
(Unaudited)
 
   
 12 Weeks
  
Vs.
  
12 Weeks
  
52 Weeks
  
Vs.
  
52 Weeks
  
thousands
  
 April 29, 2006
      
April 30, 2005
  
April 29, 2006
      
April 30, 2005
  
                            
Capital expenditures
  
$
1,045
        
$
6,200
  
$
15,079
        
$
16,452
  
                                       
EBITDA is calculated as follows:
                                      
Net earnings (loss) from continuing operations
    
1,844
         
(2,058
)
  
10,290
         
(9,170
)
Income tax expense (benefit)
    
1,114
         
(1,220
)
  
6,722
         
1,082
 
Interest expense/loss from debt extinguishment
    
565
         
451
   
2,323
         
2,031
 
Depreciation and amortization
    
4,187
         
4,273
   
19,866
         
16,789
 
Other non-cash charges
    
316
         
218
   
604
         
4,311
 
                                       
EBITDA (1) & (5)
  
$
8,026
        
$
1,664
  
$
39,805
        
$
15,043
  
                                       
Adjusted EBITDA (2)
  
$
8,116
        
$
1,773
  
$
42,553
        
$
27,390
  
                                       
EBITDA margin (3)
    
13.45
%
        
2.98
%
  
13.45
%
        
5.32
%
                                       
Adjusted EBITDA margin (4)
    
13.60
%
        
3.18
%
  
14.38
%
        
9.69
%
 
(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:

   
 12 Weeks
  
Vs.
  
12 Weeks
  
52 Weeks
  
Vs.
  
52 Weeks
  
thousands
  
 April 29, 2006
      
April 30, 2005
  
April 29, 2006
      
April 30, 2005
  
                            
EBITDA
  
$
8,026
        
$
1,664
  
$
39,805
        
$
15,043
  
EBITDA adjustments:
                                      
Accruals related to accelerated vesting of 
                                      
 supplemental retirement plan benefits
                                      
 and guaranteed bonuses for 2004
    
-
         
-
   
-
         
242
 
Impairment charges 
    
179
         
-
   
746
         
-
 
Reserves for severance and related costs 
    
69
         
134
   
1,340
         
1,529
 
Executive retirements/repositioning 
    
142
         
-
   
1,314
         
-
 
Consent solicitation costs 
    
-
         
-
   
-
         
(30
)
Contract terminations and settlements 
    
-
         
(25
)
  
(352
)
        
817
 
Accruals for remaining lease obligations 
    
-
         
-
   
-
         
-
 
Impairment reserve and related obligations 
                                      
 of preferred security interest
    
(300
)
        
-
   
(300
)
        
9,789
 
                                       
Adjusted EBITDA
 
$
8,116
        
$
1,773
  
$
42,553
        
$
27,390
  
                                       


CPI CORP.
ADDITIONAL CONSOLIDATED OPERATING INFORMATION (Continued)
(Unaudited)
 
 
(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 Weeks
  
Vs.
  
12 Weeks
  
52 Weeks
  
Vs.
  
52 Weeks
  
thousands
  
 April 29, 2006
      
April 30, 2005
  
April 29, 2006
      
April 30, 2005
  
                            
EBITDA
  
$
8,026
        
$
1,664
  
$
39,805
        
$
15,043
  
Income tax (expense) benefit
   
(1,114
)
        
1,220
   
(6,722
)
        
(1,082
)
Interest expense
    
(565
)
        
(451
)
  
(2,323
)
        
(2,031
)
Adjustments for items not requiring cash:
                                      
Deferred income taxes
    
958
         
(984
)
  
4,295
         
(5,680
)
Deferred revenues and related costs
    
811
         
1,205
   
(4,250
)
        
(1,787
)
Impairment reserve and related obligations
                                      
of preferred security interest 
    
(300
)
        
-
   
(300
)
        
9,789
 
Other, net
    
782
         
668
   
3,022
         
274
 
Decrease (increase) in current assets
    
(526
)
        
(1,880
)
  
3,499
         
(2,157
)
Increase (decrease) in current liabilities
    
(1,896
)
        
(2,808
)
  
(9,178
)
        
(8,592
)
Increase (decrease) in current income taxes
    
762
         
(231
)
  
(615
)
        
8,167
 
                                       
Cash flows from continuing operations
  
$
6,938
        
$
(1,597
)
$
27,233
        
$
11,944
  
                                       
 
 
 
 
 

 
CPI CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 

thousands
  
April 29, 2006
  
April 30, 2005
  
           
Assets
          
           
Current assets:
          
Cash and cash equivalents 
  
$
7,502
  
$
30,925
  
Other current assets 
    
33,399
   
38,094
 
Net property and equipment
    
37,824
   
43,350
 
Other assets
    
13,495
   
18,406
 
               
Total assets 
  
$
92,220
  
$
130,775
  
               
               
Liabilities and stockholders' equity (deficit)
              
               
Current liabilities 
  
$
57,892
  
$
70,324
  
Long-term obligations 
    
15,789
   
17,058
 
Other liabilities 
    
23,414
   
23,033
 
Stockholders' equity (deficit) 
    
(4,875
)
  
20,360
 
               
Total liabilities and stockholders' 
              
 equity (deficit)
  
$
92,220
  
$
130,775