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) Dec. 13, 1999
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' 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
A. On December 13, 1999, CPI Corp. issued the following press
release:
CPI CORP. ANNOUNCES THIRD QUARTER RESULTS
- Loss of 34 cents per share after special charge versus
EPS of 59 cents in FY 1998 quarter
- Sales down 6.8% mainly due to portrait studio results
- Share repurchase program expanded
ST. LOUIS, MO., DECEMBER 13, 1999 - CPI CORP. (NYSE - CPY)
today announced that net sales for the 16 weeks ended November
13, 1999 declined 6.8 percent to $115.6 million, compared with
last year's $124 million, with portrait studios down 8.1
percent. Net losses were $3.3 million, after a special charge,
as compared with earnings of $6.1 million in last year's third
quarter. The special charge of $3 million before tax primarily
represented the write-off of costs related to the failed merger
transaction with American Securities Capital Partners, L.P.
("ASCP") and was partially offset by the final $920,000 in
amortization of a 1997 two-year non-compete agreement with
Eastman Kodak Company ("Kodak"). Last year's amortization
of the Kodak agreement was $1.5 million. Diluted losses per
share were 34 cents for the quarter compared with 59 cents
earnings per share in 1998. The weighted average number of
common and equivalent shares outstanding declined 3.5 percent.
For the 40 weeks ended November 13, 1999, the company recorded
sales of $264.5 million compared with $268.4 million, 1.6
percent behind last year, and net losses of $4.2 million (43
cents loss per share) compared with the prior year's $6.9
million earnings (68 cents earnings per share). The current
40-week period includes $3.2 million income from amortization
(pre-tax) of the non-compete agreement compared to last year's
40-week period, which included $3.85 million in non-compete
amortization, and a $3.0 million merger transaction expense
write-off.
While third quarter sales and earnings were disappointing,
management believes that the fundamentals of its core Portrait
Studio business remain solid. The factors contributing to the
decline in third quarter Portrait Studio sales were a lower
average sale per customer and a slight reduction in the number
of customer sittings. Adversely affecting the customer sales
average was the Smile Savers program which was rolled out in
May of 1999 and is designed to increase repeat visits and
develop long-term customer loyalty by allowing customers to pay
a one-time fee for unlimited customer visits for a two year
period. The Smile Savers program reduced the average sale per
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customer because the fee paid at the time of enrollment had a
dampening effect on customer purchases of other products and
because Smile Savers customers visit the studios more
frequently but purchase fewer products per visit. In addition,
approximately 50 percent of the enrollment fee is deferred for
recognition as revenue over the two year program period, rather
than being recognized immediately. Management believes that
the Smile Savers program will ultimately increase sales as
Smile Savers visits increase and initial deferred sales are
recognized as revenue. Through the end of the third quarter, a
total of $7.7 million in Smile Savers revenue was deferred,
bringing projections for the total Smile Savers revenue
deferral through the end of the fiscal year to approximately
$11 million compared with $1.1 million at the end of fiscal
year 1998.
For the 52 weeks ended November 13, 1999, sales were $385.6
million compared with $388.2 million for the 53 weeks ended
November 14, 1998. Net earnings were $10.8 million ($1.05
earnings per share) compared with $21.4 million ($2.03 earnings
per share), including $4.4 million and $5.1 million in
amortization of the non-compete agreement for the respective
periods as well as the $3.0 million write off of transaction
expense.
The company also announced that its Board of Directors had
authorized the purchase of up to one million additional shares
of its common stock in the open market. Since resuming its
stock repurchase program on October 19, 1999, the company has
purchased nearly 870,000 shares, completing the purchase of all
previously authorized stock repurchases. As of December 10,
1999, a total of 9,057,939 shares of the company's common stock
were outstanding.
Discussing Sears Portrait Studio results, Alyn V. Essman,
chairman and chief executive officer, said, "We know that 1999
has been a year of significant activity, investment and
disruption and is disappointing from an earnings point of view.
While sales for the 40 weeks ended November 13 are just 1.6
percent behind the comparable period for last year, our
full-year earnings will suffer as a result of several factors
that are related to events and developments peculiar to 1999:
1. Installation and training for new programs were
responsible for about $4 million increase in studio employment
and related expenses, as well as the temporary disruption of
normal selling and operating routines.
2. The termination of our agreement of merger with ASCP
caused the expensing of costs related to the terminated merger,
which amounted to $3 million.
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3. Operating results have been affected by the preparation
of the company's information systems and related operations for
the millennium (the Y2K issue). Further discussion of the
effects of Y2K issues for the company can be found in SEC
disclosure documents outlining those activities. Since those
efforts are substantially complete, continuing expenses should
be reduced accordingly.
4. Company-wide introduction of the Smile Savers program
reduced the customer sales average and resulted in deferral of
revenues as previously discussed."
Continuing, Mr. Essman said, "We look forward now to year 2000
when we will be able to return to more normal conditions as
we take a breather from the investment and disruption that has
characterized the last few years. We expect to improve
earnings next year as the Smiles Savers program begins to
mature, our field staff takes full advantage of their training
and we reduce expense levels, which naturally tend to escalate
during periods of high investment and operating disruption.
Additionally, we will reduce capital expenditures for the year
2000 as we defer installation of the full integration component
of the Store Automation System (SAS) until 2001 and the first
part of 2002. The impact of these activities should start to
appear as early as the first quarter of 2000. Our cost
reductions and efforts to drive revenue growth should provide
an opportunity for profit improvement next year."
Turning to the Wall Decor segment, Essman said, "Third quarter
sales in our Prints Plus business showed moderate growth to
$18.0 million from $17.8 million, and gross profit was
marginally lower, as operating losses increased to $1.0 million
from last year's $674,000 loss."
Looking forward, we expect 4th quarter Sears Portrait Studio
sales to be approximately the same as last year's record 4th
quarter. Fourth quarter earnings, however, are difficult to
predict and will be negatively affected by increased employment
expenses and the absence of amortization of the non-compete
agreement.
The statements contained in this report, which are not
historical facts, are forward-looking statements that involve
risks and uncertainties. Management wishes to caution the
reader that these forward-looking statements, such as the
company's outlook for Sears Portrait Studios and Prints
Plus, 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 ongoing ability to develop and introduce attractive
new products, the overall level of economic activity in
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the company's major markets, the effectiveness of marketing
activities of major competitors, manufacturing interruptions,
dependence on certain suppliers, fluctuations in operating
results, the attraction and retention of qualified personnel,
Year 2000 compliance issues 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
6, 1999.
CPI is a consumer services company with $389.5 million in
fiscal 1998 sales, operating approximately 1,200 retail
locations, including 1,033 Sears Portrait Studios in the U.S.,
Puerto Rico and Canada and 156 Prints Plus wall decor stores.
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<TABLE>
CPI CORP.
CONDENSED STATEMENTS OF EARNINGS - FOR THE SIXTEEN WEEKS ENDED
NOVEMBER 13, 1999 AND November 14, 1998
(in thousands of dollars except per share amounts) (Unaudited)
<CAPTION>
16 Weeks Ended
----------------------
11/13/99 11/14/98
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<S> <C> <C>
Net Sales:
Portrait studios $ 97,596 $ 106,171
Wall decor 17,967 17,834
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Total net sales $ 115,563 $ 124,005
========== ==========
Operating earnings:
Portrait studios $ 3,038 $ 13,577
Wall decor (1,045) (674)
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Total operating earnings 1,993 12,903
General corporate expense 4,583 4,879
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Income (loss) from operations (2,590) 8,024
Net interest expense 572 311
Other expense 3,000 -
Other income 1,019 1,596
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Earnings (loss) from
operations before income
taxes (5,143) 9,309
Income tax expense (benefit) (1,800) 3,258
---------- ----------
Net earnings (loss) $ (3,343) $ 6,051
========== ==========
Earnings (loss) per common
share:
Diluted $ (0.34) $ 0.59
Basic $ (0.34) $ 0.61
Weighted average number of
common and common equivalent
shares outstanding:
Diluted 9,838 10,200
Basic 9,838 9,961
</TABLE>
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<TABLE>
CPI CORP.
CONDENSED STATEMENTS OF EARNINGS - FOR THE FORTY WEEKS ENDED
JULY 24, 1999 AND JULY 25, 1998
(in thousands of dollars except per share amounts) (Unaudited)
<CAPTION>
40 Weeks Ended
----------------------
11/13/99 11/14/98
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<S> <C> <C>
Net Sales:
Portrait studios $ 221,152 $ 224,646
Wall decor 43,302 43,710
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Total net sales $ 264,454 $ 268,356
========== ==========
Operating earnings:
Portrait studios $ 7,715 $ 20,099
Wall decor (3,006) (2,620)
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Total operating earnings 4,709 17,479
General corporate expense 10,297 10,056
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Income (loss) from operations (5,588) 7,423
Net interest expense 1,279 823
Other expense 3,000 -
Other income 3,361 4,065
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Earnings (loss) from
operations before income
taxes (6,506) 10,665
Income tax expense (benefit) (2,277) 3,733
---------- ----------
Net earnings (loss) $ (4,229) $ 6,932
========== ==========
Earnings (loss) per common
share:
Diluted $ (0.43) $ 0.68
Basic $ (0.43) $ 0.70
Weighted average number of
common and common equivalent
shares outstanding:
Diluted 9,880 10,246
Basic 9,880 9,963
</TABLE>
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<TABLE>
CPI CORP.
CONDENSED STATEMENTS OF EARNINGS - FOR THE FIFTY-TWO WEEKS
ENDED NOVEMBER 13, 1999 AND THE FIFTY-THREE WEEKS ENDED
NOVEMBER 14, 1998
(in thousands of dollars except per share amounts) (Unaudited)
<CAPTION>
52 Weeks 53 Weeks
Ended Ended
---------- ----------
11/13/99 11/14/98
---------- ----------
<S> <C> <C>
Net Sales:
Portrait studios $ 322,053 $ 322,689
Wall decor 63,555 65,543
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Total net sales $ 385,608 $ 388,232
========== ==========
Operating earnings:
Portrait studios $ 31,891 $ 44,824
Wall decor 617 (389)
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Total operating earnings 32,508 44,435
General corporate expense 16,159 15,594
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Income (loss) from operations 16,349 28,841
Net interest expense 1,373 598
Other expense 3,000 -
Other income 4,612 5,381
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Earnings (loss) from
operations before income
taxes 16,588 33,624
Income tax expense (benefit) 5,805 12,228
---------- ----------
Net earnings (loss) $ 10,783 $ 21,396
========== ==========
Earnings (loss) per common
share:
Diluted $ 1.05 $ 2.03
Basic $ 1.09 $ 2.08
Weighted average number of
common and common equivalent
shares outstanding:
Diluted 10,223 10,541
Basic 9,871 10,265
</TABLE>
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<TABLE>
CPI CORP.
CONDENSED BALANCE SHEETS - FOR NOVEMBER 13, 1999 AND
NOVEMBER 14, 1998 (in thousands - unaudited)
<CAPTION>
11/13/99 11/14/98
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 48,333 $ 10,247
Other current assets 61,624 96,566
Net property and equipment 112,397 113,183
Other assets 7,659 8,905
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Total assets $ 230,013 $ 228,901
========= =========
Liabilities and stockholders' equity
Current liabilities $ 50,664 $ 50,650
Long-term obligations 59,624 59,547
Other liabilities 26,395 16,856
Stockholders' equity 93,330 101,848
--------- ---------
Total liabilities and
stockholders' equity $ 230,013 $ 228,901
========= =========
</TABLE>
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SIGNATURE
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
-----------------------------
Barry Arthur
Authorized Officer and
Principal Financial Officer
Dated: December 15, 1999
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