PLAYBOY ENTERPRISES, INC. reports first quarter 2009 results
Benefits of Cost Cutting Efforts Help Offset Revenue Declines;
Results Impacted by Restructuring and Impairment Charges
CHICAGO, Monday. - Playboy Enterprises, Inc. (PEI) (NYSE: PLA, PLAA) today reported a net loss for the first quarter ended March 31, 2009 of $13.7 million, or $0.41 per basic and diluted share, which included $8.7 million, or $0.26 per basic and diluted share, of impairment and restructuring charges. This compares to a net loss in the same period last year of $4.2 million, or $0.13 per basic and diluted share, which included a $0.6 million restructuring charge.
First quarter 2009 revenues totaled $61.6 million, down $16.9 million from the prior year period, primarily reflecting the outsourcing of operations, asset sales and the effects of the global economic slowdown on advertising and consumer spending. The quarter’s segment loss was $1.3 million versus segment income of $0.1 million last year.
Playboy Interim Chairman and Chief Executive Officer Jerome Kern said: “We are beginning to see the results of the extensive restructuring and cost-reduction work that we began implementing in last year’s fourth quarter. These initiatives allowed us to offset all but $1.4 million of the nearly $17 million revenue decline and led to improved margins in our TV and digital businesses, despite a lower revenue base. In addition to closing the New York office and integrating our print and digital operations, we continue to look for ways to further reduce our cost structure and improve operating efficiencies. Since last October, we have reduced headcount by more than 25% and taken approximately $18 million in annual personnel-related costs out of the company.”
"In our business segments, we are focused on capitalizing on the growth potential of our digital and licensing businesses. A revamped Playboy.com free site, which we recently introduced, creates a web experience that is more attractive to both consumers and advertisers. In spite of the difficult economy, we believe that the new web site coupled with cost reduction measures we’ve implemented will create a trend of improving margins and higher profits in the digital business by year end.
“While the global economic slowdown is hampering the Licensing Group’s growth through the first half of this year, we are signing new deals and are pleased with the continued rollout of our men’s fragrance line,” Kern said. “Consistent with other consumer products companies, we are seeing the downward sales trends begin to flatten, and we believe that we will see year-over-year revenue and profit growth in the 2009 second half. In addition, it now appears that our second entertainment venue, which we announced in February and expected to come on line in early 2010, will open before the end of 2009.”
“The publishing business remains a key focus of our attention, as the print industry continues to face significant challenges on both the circulation and advertising fronts. Despite a first quarter that was weaker than last year, reflecting the negative impact of a change in how we record direct response advertising costs, we believe the magazine’s bottom line will improve in 2009 versus last year. This performance is still not acceptable, however, and we expect to continue making changes that will lead to further improvements in the magazine’s financial results,” Kern said.
Cost reduction initiatives contributed to the 25% increase in the Entertainment Group’s first quarter 2009 segment income to $3.0 million from $2.3 million in last year’s first quarter. Revenues in the same period were down 20% to $26.2 million, primarily due to the sale of the Andrita television studio assets in 2008 and the effects of a stronger U.S. dollar on international TV revenues.
First quarter 2009 domestic TV revenues declined to $13.3 million from $16.5 million. Modest growth in video on demand was more than offset by the loss of revenues related to the studio sale and lower pay-per-view revenues resulting from the continued migration of consumers from linear networks to on-demand programming.
The Print/Digital Group reported a first quarter 2009 segment loss of $3.6 million, $0.8 million worse than the same period last year, as improved digital performance was more than offset by weaker magazine results both domestically and internationally. The outsourcing of e-commerce was the largest factor in the group’s 26% decline in revenues to $26.1 million during the same time period.
First quarter 2009 Playboy magazine revenues were down 16% to $13.5 million compared to last year’s first quarter due to softer circulation and advertising sales. In the first quarter, the company began expensing as incurred direct response advertising costs related to subscription acquisitions that previously had been deferred and amortized over the life of the subscriptions. Excluding this unusual increase in expense, the decline in magazine revenues was more than offset by the results of cost reduction efforts.
The company expects to report a 39% decline in Playboy magazine advertising revenues in the 2009 second quarter compared to last year.
The outsourcing of e-commerce combined with lower paysite sales led to a 39% decline in first quarter 2009 digital revenues to $9.3 million. The decline was more than offset by lower costs across the online and mobile businesses, contributing to improved first quarter 2009 digital operating results compared to last year’s first quarter.
Licensing Group segment income was down $1.1 million to $5.6 million in the 2009 first quarter compared to last year on a $1.2 million decline in revenues to $9.3 million. The top- and bottom-line weakness reflected the effects of the global economic slowdown and the resulting downturn in royalties from Europe compared to the prior year. Partially offsetting this decline was an increase in royalties from Latin America.
Corporate and Other
First quarter 2009 Corporate expense rose by $0.2 million to $6.3 million compared to last year. As previously announced, additional charges recorded during the first quarter included a $3.2 million restructuring charge, compared to $0.6 million in the prior year, and a non-cash impairment charge on goodwill of $5.5 million, as a result of the reclassification of reporting segments.
On May 1, PEI closed its New York office and, as a result, expects to record in the 2009 second quarter additional restructuring charges of approximately $4 million, largely related to vacating that office space.
As a result of its adoption of a new accounting pronouncement relating to cash-settlement convertible debt, the company began recording additional non-cash interest expense effective with the first quarter 2009 and retrospectively. This pronouncement will effectively double recorded interest expense to approximately $9 million annually.
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