Playboy Enterprises Announces Second Quarter Results

CHICAGO, Tuesday, August 8, 2006--Playboy Enterprises, Inc. (PEI) (NYSE: PLA, PLAA) today reported a net loss of $3.3 million, or $0.10 per basic and diluted share, for the second quarter ended June 30, 2006, in line with its updated guidance range. As a result of the company’s previously announced cost reduction plan, second quarter results include a net restructuring charge of $1.9 million, or $0.06 per basic and diluted share. In the same period last year, the company reported net income of $4.6 million, or $0.14 per basic and diluted share.

In the 2006 second quarter, PEI reported an operating loss of $1.2 million, which included the net restructuring charge, compared to operating income of $7.3 million in the prior year quarter. The company said that, excluding the effects of the restructuring expense, the decline in second quarter operating results reflected lower Entertainment Group results combined with increased Corporate Administration expense. In the quarter, revenues declined by $2.3 million to $80.5 million.

PEI Chairman and Chief Executive Officer Christie Hefner said: "During the second quarter we took a number of actions to better align our cost structure with our digital media strategy. These moves, which we announced last month, included both expense reductions in our mature businesses and the elimination of approximately 30 positions, roughly half of which were open. While we have improved our cost structure, we will continue to prudently invest in our expanding international, online, wireless and licensing businesses to ensure we are optimally positioned to capitalize on growth opportunities.

“The challenges we face center around our two largest businesses of domestic publishing and domestic TV, each of which is in the midst of significant industry-wide structural changes. On the magazine side we are seeing lower revenues stemming from shifts in advertising spending to other media and a difficult newsstand market combined with higher paper and postage expenses. We’ve already taken actions to address these issues and the results are evident in the narrowing of the loss despite the lower revenue base,” Hefner said.

"The year-over-year negative variance in our second quarter results stems from a significant revenue shortfall in our domestic television business, where an increasingly competitive environment has combined with a technology shift to VOD from linear networks to create a difficult operating environment. We believe that our performance will begin to improve in the fourth quarter as a result of the rollout of Playboy as a subscription video-on-demand product, the opening of our venues at the Palms, the leveraging of our recent CJI acquisition and reductions in spending. As a result of having only one strong quarter, we now expect net income for the year of approximately $0.05 to $0.10 per share including the restructuring charge and an expected loss in the third quarter.

“The positive is that all of the contributors to the fourth quarter in terms of both deals and trends will carry forward into 2007 and beyond,” Hefner said. “We believe that we have the strategies in place to take advantage of the value of our brand, appeal of our content and loyalty of our audiences and that the actions we are taking will result in significant improvements in future results.”

Entertainment
Second quarter segment income for the Entertainment Group declined to $4.9 million in 2006 from $9.8 million last year. Group revenues declined 3% to $47.5 million.

The quarter-over-quarter downturn was due primarily to lower revenues and profits in the domestic television business. The company said that challenges in the domestic television business included the loss of exclusivity on DirecTV as well as increased competition on the cable platforms. In addition, second quarter 2005 results benefited from the accelerated recognition of deferred revenues related to the discontinuation of the VOOM satellite television service. In late June 2006, Playboy began to significantly increase its video-on-demand carriage when the nation’s largest cable operator began to rollout Playboy and the company’s movie product as VOD services.

While second quarter revenues and profits from online subscriptions rose compared to last year, the gains were more than offset by lower e-commerce results. The e-commerce decline primarily reflected the receipt in the prior-year period of a one-time payment for the termination of a direct-marketing alliance.

Revenues from international TV, wireless and online increased during the 2006 second quarter compared to the prior year, primarily due to higher revenues from the company?s U.K networks and increased wireless royalties. The revenue gains coincided with increased investments in distribution and marketing.

Second quarter 2006 programming expense was essentially flat compared to the prior year quarter.

Publishing
Despite a 7% decline in revenues to $23.8 million, the Publishing Group narrowed the second quarter 2006 segment loss to $1.8 million, $0.5 million better than the same period last year. Effective cost reduction measures were primarily responsible for the improved year-over-year results. The company said that it expects advertising revenues to be down approximately 17% in the 2006 third quarter compared to the same period last year.

Licensing
The Licensing Group’s second quarter 2006 segment income rose 4% to $4.1 million compared to the 2005 second quarter. Higher international and domestic revenues were responsible for the group’s 8% increase in revenues to $9.2 million.

Corporate Administration and Promotion
Second quarter Corporate Administration and Promotion expense increased to $6.5 million, up from $4.2 million last year. The increase primarily reflects the elimination of intra-company agreements related to trademark, content and administrative services as a result of the company’s late 2005 repurchase of the minority interest in Playboy.com as well as increased marketing expense.

Click on links below to view supplemental investor information.
Note: PDF files will open in a new window.

* Earnings - quarter (8K): www.playboyenterprises.com/home/files/2006Q2_earning_6mth.pdf
* Earnings - 6 months (8K): www.playboyenterprises.com/home/files/2006Q2_earning_qrt.pdf
* Supplements (13K): www.playboyenterprises.com/home/files/2006Q2_supplements.pdf

Additional information regarding second quarter 2006 earnings will be available on the earnings release conference call, which is being held today, August 8, at 11:00 a.m. Eastern /10:00 a.m. Central. The call may be accessed by dialing 877-707-9632 (for domestic callers) or 1-785-830-1921 (for international callers) and using the password: Playboy. In addition, the call will be webcast. To listen to the call, please visit http://www.peiinvestor.com and select the Investor Relations section.

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Playboy Enterprises is a brand-driven, international multimedia entertainment company that publishes editions of Playboy magazine around the world; operates Playboy and Spice television networks and distributes programming globally via DVD and a network of web sites including Playboy.com, a leading men’s lifestyle and entertainment web site; and licenses the Playboy trademark internationally for a range of consumer products and services.

FORWARD-LOOKING STATEMENTS

This release contains “forward-looking statements,” including statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations, as to expectations, beliefs, plans, objectives and future financial performance, and assumptions underlying or concerning the foregoing. We use words such as “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “anticipates,” “intends,” “continues” and other similar terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which could cause our actual results, performance or outcomes to differ materially from those expressed or implied in the forward-looking statements. The following are some of the important factors that could cause our actual results, performance or outcomes to differ materially from those discussed in the forward-looking statements:

1) Foreign, national, state and local government regulation, actions or initiatives, including:
a) attempts to limit or otherwise regulate the sale, distribution or transmission of adult-oriented materials, including print, television, video and online materials,
b) limitations on the advertisement of tobacco, alcohol and other products which are important sources of advertising revenue for us, or
c) substantive changes in postal regulations or rates which could increase our postage and distribution costs;
2) Risks associated with our foreign operations, including market acceptance and demand for our products and the products of our licensees;
3) Our ability to manage the risk associated with our exposure to foreign currency exchange rate fluctuations;
4) Changes in general economic conditions, consumer spending habits, viewing patterns, fashion trends or the retail sales environment which, in each case, could reduce demand for our programming and products and impact our advertising revenues;
5) Our ability to protect our trademarks, copyrights and other intellectual property;
6) Risks as a distributor of media content, including our becoming subject to claims for defamation, invasion of privacy, negligence, copyright, patent or trademark infringement, and other claims based on the nature and content of the materials we distribute;
7) The risk our outstanding litigation could result in settlements or judgments which are material to us;
8) Dilution from any potential issuance of common or convertible preferred stock or convertible debt in connection with financings or acquisition activities;
9) Competition for advertisers from other publications, media or online providers or any decrease in spending by advertisers, either generally or with respect to the adult male market;
10) Competition in the television, men’s magazine, Internet and product licensing markets;
11) Attempts by consumers or private advocacy groups to exclude our programming or other products from distribution;
12) Our television, Internet and wireless businesses’ reliance on third parties for technology and distribution, and any changes in that technology and/or unforeseen delays in its implementation which might affect our plans and assumptions;
13) Risks associated with losing access to transponders and competition for transponders and channel space;
14) Failure to maintain our agreements with multiple system operators and direct-to-home operators on favorable terms, as well as any decline in our access to, and acceptance by, direct-to-home and/or cable systems and the possible resulting deterioration in the terms, cancellation of fee arrangements or pressure on splits with operators of these systems;
15) Risks that we may not realize the expected increased sales and profits and other benefits from acquisitions;
16) Any charges or costs we incur in connection with restructuring measures we may take in the future;
17) Risks associated with the financial condition of Claxson Interactive Group, Inc., our Playboy TV-Latin America, LLC, joint venture partner;
18) Increases in paper, printing or postage costs;
19) Risks associated with revenue guarantees under our cable distribution agreements;
20) Effects of the national consolidation of the single-copy magazine distribution system; and
21) Risks associated with the viability of our primarily subscription- and e-commerce-based Internet model.

Contact Information

Linda Marsicano

Media Contact

Playboy Enterprises, Inc.

Contact via E-mail