CPI ANNOUNCES FISCAL YEAR 1999 RESULTS
ST. LOUIS, MO, April 7, 2000 - CPI Corp. (NYSE-CPY) today announced results from the full 1999 fiscal year, which ended February 5, 2000, were well below fiscal 1998 results. In making the announcement, Alyn V. Essman, chairman and chief executive officer said, "Results indicate sales for fiscal 1999 for the Portrait Studio segment are down 2.0% to $319.1 million versus last year's $325.5 million. Also, full year 1999 Portrait Studio operating earnings are $21.2 million, down from the $44.3 million reported in fiscal 1998. Net earnings from continuing operations are $4.9 million before taxes, down from the $32.7 million before taxes recorded in fiscal 1998 while earnings per share on a diluted basis from continuing operations are $0.32 in fiscal 1999, compared to $2.08 recorded in fiscal 1998." "In addition," Essman said, "in our continuing effort to concentrate closely on the core photography business, we are in the process of selling the Wall Decor business. In so doing, we have executed a letter of intent to sell the Prints Plus business to a holding company formed by top management of Prints Plus and Huron Capital Partners, LLC, a Detroit-based private equity firm. We plan to complete the transaction this summer. As a result of our decision to exit this business, in fiscal 1999 we provided $10.1 million before taxes to recognize anticipated losses on the sale. The Wall Decor segment has been treated as a discontinued operation in fiscal 1999." The net loss of $3.2 million for fiscal 1999 is down from the $21.9 million net income for fiscal 1998. Accordingly, the loss per share, on a diluted basis, is $0.32 in fiscal 1999, compared to net earnings per share of $2.15 in fiscal 1998. The company also announced its Board of Directors had authorized the purchase of up to 500,000 additional shares of its common stock in the open market. Since resuming its stock repurchase program on October 19, 1999, the Company has purchased 1.9 million shares for $45.0 million, completing the purchase of all previously authorized stock repurchases. As of April 5, 2000, a total of 8,091,046 shares of the Company's common stock were outstanding. Essman continued saying, "A confluence of loosely connected events uniquely affected fiscal 1999, including: major upgrade of studio personnel; installation and training related to the new Store Automated System (SAS); introduction of the Smile Savers Plan(R) customer loyalty program; negotiation, due diligence and termination of a proposed merger; along with Y2K and other software initiatives." "Aside from the obvious direct effect, these activities and interruptions diverted management's attention from the main job of producing revenue growth to supporting the special programs we undertook this year. As has been recited in previous quarterly releases, the most significant activity was a planned increase in studio employment of approximately $10 million over fiscal 1998 that included:
"In addition," Essman said, "we introduced a major new customer loyalty program in 1999 called "Smile Savers Plan(R)" that allowed us to maintain our market position and should contribute substantially to customer loyalty in the future. However, because this is a two-year program, a significant portion of the revenue is deferred for recognition over the life of the program. At the end fiscal 1999, approximately $12.0 million of gross revenues remained to be amortized over the next 1.6 years - the remaining weighted average life of the enrollment." In discussing the aborted merger with American Securities Capital Partners, L.P., Essman said, "The transaction demanded extraordinary management attention during the "due diligence" process and months of preparation for closing and then resulted in transaction and on-going litigation costs of about $3.5 million in fiscal 1999." "Following the breakup of the transaction, we were able to refocus our attention on the core business, instituting a modest restructuring that generated severance costs of $1.0 million in fiscal 1999. We also completed our Y2K conversions, redirected our archiving initiatives, and completed our SAS phase one installations, which resulted in recognition of the abandonment and write-off of old software and computer hardware, which together resulted in additional expenses of $2.6 million before taxes." Essman concluded, "With these activities behind us, we can look forward to a more favorable cost structure. Having planned no significant software or training introductions for year 2000, we expect that the employment increases will abate. In fact, despite our increased pay structure, we plan an actual reduction this year in field employment expenses. Finally, we expect the Smile Savers Plan(R) customer loyalty program to pay dividends in terms of repeat visits allowing us to reduce advertising expenditures. As this program matures, we expect no significant increase this year in deferred revenue." "Now with our attention fully devoted to efficient operations instead of new program installations or other unusual transactions, portrait studio operating earnings should return to normal profit levels generally similar to fiscal 1998. Corporate administrative expenses are under control, and we no longer expect to be diverted by the Wall Decor business. With a net of 1.8 million fewer shares outstanding since 1998, EPS should improve dramatically." 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 Portrait Studios and Wall Decor, 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 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, 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 Corp. is a consumer services company with $319.1 million in fiscal 1999 sales from continuing operations, operating 1,024 Sears Portrait Studios in the United States, Puerto Rico and Canada.
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