SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 17, 1994
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CPI CORP.
__________________________________________________________________
(exact name of registrant as specified in its charter)
Delaware 0-11227 43-1256674
__________________________________________________________________
(State or other jurisdiction (Commission file (IRS Employer
of incorporation) Number) Identification No.)
1706 Washington Avenue, St. Louis, Missouri 63103-1790
__________________________________________________________________
(Address of principal executive offices) (Zip code)
Registrants's telephone number, including area code (314) 231-1575
__________________________________________________________________
__________________________________________________________________
(Former name or former address, if changes since last report.)
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ITEM 5. OTHER EVENTS
On March 17, 1994, CPI Corp. issued the following Press Release:
CPI REPORTS PRELIMINARY FOURTH QUARTER AND FY 1993 RESULTS
* SIGNS NEW FIVE-YEAR SEARS CONTRACT
* CONFIRMS $75 MILLION STUDIO EXPANSION PLAN
* SEES 1994 EARNINGS IN $0.85 - $1.05 RANGE
* WILL PURCHASE STOCK UNDER PREVIOUS AUTHORIZED PROGRAMS
St. LOUIS, MO., March 17, 1994 - CPI Corp. (NYSE-CPY), a leading
operator of portrait photography studios, today reported
preliminary fourth quarter and full year results for FY 1993,
announced several developments that will affect FY 1994 and
projected FY 1994 earnings of $0.85 to $1.05 per share. The
company also reported the signing of a new five-year license
agreement with Sears, Roebuck and Co. and Sears' endorsement of a
$75 million studio enhancement program that includes the
installation of advanced technology, studio enlargement and
renovation and cooperative marketing programs. Furthermore, CPI
announced its decision to resume stock purchases under previously
authorized stock repurchase programs.
For the FY 1993 (ended February 5, 1994), net sales were
approximately $476 million, 6% above the $449.4 million recorded
in FY 1992. Net earnings from continuing operations were
approximately $11.1 million as compared with $22.6 million in FY
1992. Estimated earnings from continuing operations per share
were $0.76 compared with $1.54. Net earnings per share,
including a credit of 14 cents per share related to an accounting
change, were approximately $0.90 in 1993. Shares outstanding
were virtually unchanged at 14,615,000.
For the fourth quarter, net sales were an estimated $147 million
compared with $137.6 million, while net earnings from continuing
operations were an estimated $8.2 million compared with $10.6
million, and earnings from continuing operations per share were
approximately $0.56 compared with $0.72.
The company also released the attached letter to its shareholders
in which it elaborated on these announcements.
CPI Corp. is a consumer services company operating over 1,800
retail locations, including 995 Sears Portrait Studios in the
U.S., Puerto Rico and Canada, 688 CPI/Fox Photo/Proex one-hour
photofinishing locations, 103 Prints Plus wall decor locations,
and 45 high-tech copy stores.
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March 17, 1994
TO: CPI Shareholders
RE: AN OVERVIEW OF 1994
As we enter 1994, we look back over three consecutive years of a
pitched competitive battle in our portrait photography segment,
coupled with a generally soft economy and capped off by a January
fraught with natural disasters that shook up the West Coast,
froze the Midwest and dumped tons of snow and ice on the East
Coast. Of the three years, 1993 was the most trying, but in
terms of progress for the future, was the most satisfying. We
accomplished our basic objective of maintaining our market share
over the three years, even though the cost in foregone profits
was great. Second, and even more important, we reached a
decision, based on comprehensive testing during 1993, to install
new technology in all portrait studios as the first step in a
program that will greatly alter, if not change completely, the
mode in which we attract and serve portrait customers. During
this transition, we expect to maintain our competitive posture
and achieve reasonable profit performance.
We believe the studio enhancement program upon which we have
embarked is well-conceived and based on sound market and
technical research. Not only the concept, but also the
implementation has been the subject of comprehensive planning
with Sears, which endorses our efforts in a number of ways:
1. They have entered into a new five-year agreement with us
that further solidifies our mutual interest in the portrait
studio business.
2. They have endorsed our program of studio renovation and
space expansion to better serve our mutual customers.
3. They will cooperate in marketing programs to introduce
new products and services and to provide consistent messages and
value offerings at Sears.
Our decision to commit approximately $75 million to this program
was carefully considered at every level, including a rigorous
examination by the company's board of directors and appropriate,
objective, independent consultation. We anticipate strong
returns on our investment.
With that background, it's time to look at 1994. Bluntly, while
we believe 1994 will be a better earnings year than 1993, it
will not achieve a satisfactory level. However, we owe our loyal
shareholders a better explanation than that. We fully recognize
the patience and confidence we have asked of you over the last
three years. We understand the discomfort that arises from
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uncertainty, and in consideration of your patience we will, for
1994 only, outline our planning in some detail. We will not
provide statistics, specific marketing plans or other information
which might weaken our competitive posture, but we will give you
our best estimate of results for the coming year with the caution
that earnings estimates are highly uncertain in this transition
phase. If we find, as the year unfolds, that our outlook has
changed in any major way, we will inform you as promptly as
possible.
Let's first deal with the least complex issues:
PHOTOFINISHING - Though we still envision a highly
competitive environment, we expect some help from the
cost-reduction efforts of 1993. Proex continues to perform well
and there will be some reduction in the amortization of
acquisition expenses. We anticipate an improvement in segment
operating earnings and a continuation of very strong cash flows.
OTHER PRODUCTS AND SERVICES - Prints Plus will be included
in the operating results for the full year. Though we expect
earnings growth, the results will be muted by seasonal losses
expected in the early, non-comparable months. We expect some
improvement in Copy Services, but the net result will be
continued losses in 1994. So for the segment, management expects
earnings to decrease in the first half, but to increase for the
year as a whole.
CORPORATE EXPENSE should be relatively consistent except for
the inevitable increase in health care in the 6% range and an
increase in net interest expense of approximately $1.5 million
resulting from 1993's mid-year note placement.
PORTRAIT STUDIOS - The major uncertainty in 1994's earnings
outlook relates to the massive changes-in-progress in our core
portrait photography segment. On the one hand, we have the
benefit of our new long-term contractual relationship with Sears
and Sears' endorsement of the changes we are making. The costs
of installation, training, and initial depreciation of the new
equipment will, however, all affect the first half
disproportionately. Though we expect positive results to follow
the installation, most of those advantages will occur in the
second half of the year and relate primarily to the marketing of
the benefits emanating from the technology.
Given the considerations addressed above, we expect a significant
reduction in portrait studio earnings for the first two quarters
and a turnaround in the second half, leading to an increase for
the year which is totally dependent on the second half earnings
increase. Should these plans materialize as expected, we
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anticipate achieving continuing earnings improvement for future
years. It's important to recognize that the substantial capital
investment will increase the proportion of fixed costs for at
least the next five years, thereby tightening profit margins
during the seasonally slower first half of each year. But it is
also important to realize that the cash flow emanating from
future earnings will be much greater than in the past due to the
increased depreciation charges.
Based on the foregoing discussion, our current 1994 estimate is
earnings per share in the $0.85 to $1.05 range. Achieving the
midpoint projection would produce approximately $14 million of
net income, which, when combined with known depreciation and
amortization, yields $54 million in gross cash flow after taxes.
We expect capital expenditures to approximate $60 million,
primarily a result of the major investment in the studios, and as
we know of no extraordinary working capital changes, 1994 fiscal
year end cash would be projected at approximately $50 million
prior to any share repurchase. Shareholders must remain aware
that these projected earnings are subject to the uncertainties of
estimating in a year of rapid change and cannot be gauged until
the company experiences its peak sales period in November and
December.
With these thoughts in mind, we should focus our attention on
cash management. Our company is very strong and we are confident
of the wisdom and effectiveness of the path we have chosen.
Management has demonstrated their confidence for the second
consecutive year by significant participation in the salary
reduction stock option plan. Our responsibility is to manage
CPI's resources in such a way as to reward loyal shareholders and
managers through stock performance. We believe the current
valuation of the stock by the market presents an attractive
opportunity for the company to increase shareholder value through
share repurchases. We therefore have decided to mount a
consistent and continuing repurchase program as long as loan
covenants and cash resources permit and the stock price justifies
purchase. We believe this is an effective way to contribute to
long-term shareholder returns.
We hope you will find this information helpful and constructive.
Thanks for your time and your support.
Sincerely,
Alyn V. Essman
Chairman, Chief Executive Officer
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CPI CORP.
(Registrant)
/s/ Barry Arthur
Executive Vice President -
Finance
Principal Financial Officer
Dated: March 24, 1994
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