Playboy reports $5.4 m net loss in Q2

Chicago : Playboy Enterprises, Inc. (PEI) (NYSE: PLA, PLAA) has announced a net loss for the second quarter ended June 30, 2010, of $5.4 million, or $0.16 per basic and diluted share, which compares to a net loss in the prior year’s quarter of $8.7 million, or $0.26 per basic and diluted share. The 2010 second quarter results included a restructuring charge of $1.6 million, while the 2009 second quarter included a $9.1 million restructuring charge, which primarily was related to the closing of the company’s New York office.

Second quarter 2010 segment income was $0.4 million, down from $3.6 million in the prior year, on a 10% decline in revenues to $56.0 million from $62.2 million last year. Licensing Group segment income increased by 35%, but these gains were more than offset by a loss in the Print/Digital Group, which was due in part to litigation expense related to one of the company’s international editions. The year-over-year comparison of Print/Digital results also was unfavorably affected by the company’s decision to publish the equivalent of four issues last year versus three in the current year.

Playboy’s Chief Executive Officer Scott Flanders said: “The Licensing Group’s strong performance in the quarter demonstrates the viability of our strategy to transform Playboy from a business operator into a brand management company. Through the years, we have successfully built a brand with unrivalled global appeal, and our future success hinges on finding partners who can best exploit that popularity. We already are seeing the benefits of our recent partnerships with AMI and IMG, and additional agreements are in development.

“Our goal of reducing overhead expense is a priority, and previous cost reduction initiatives helped offset the revenue decline in the second quarter,” Flanders said. “These efforts continue, and the staff reductions we made in the second quarter should yield annual savings of approximately $3.0 million.

“Looking to the second half of 2010, we expect the Print/Digital Group to return to modest profitability and to see continued solid growth in the Licensing Group’s results. In TV, competition remains intense, and we are likely to see a decline in second half Entertainment Group profits compared to last year as a result. Although we are developing a new look and programming for Playboy TV, we do not expect to launch the new shows until the fourth quarter. We continue to make progress across our businesses in this transition year and look forward to building on our accomplishments,” Flanders said.

The Entertainment Group’s second quarter 2010 segment income was $1.6 million, down $0.4 million from $2.0 million in the same period last year on a $1.1 million decline in revenues to $22.7 million from $23.8 million. Ongoing cost reduction measures helped offset the lower revenue base.

An increase in subscription revenues led to improved 2010 second quarter Playboy TV revenues versus the prior year. This growth was more than offset by continued weakness in video-on-demand sales, resulting in a 4%, or $0.4 million, decline in domestic TV revenues. Second quarter international TV revenues were off 9% to $9.4 million versus last year, reflecting softness in some European markets and increased competition from other providers.

Improved digital results were more than offset by $1.6 million of higher litigation expense and the resulting loss in the print business, which contributed to a second quarter 2010 Print/Digital Group segment loss of $1.2 million. This compares to segment profit of $2.3 million in the prior year quarter when the company published the equivalent of four issues of Playboy magazine versus three in the current year. The Group’s year-over-year second quarter revenues declined to $20.9 million from $28.3 million.

In the 2010 second quarter, Playboy magazine circulation and advertising revenues declined as expected compared to last year reflecting both the company’s decision to lower the magazine’s rate base by 42% and to publish last year a combined double issue. As a result, second quarter domestic magazine revenues were off by $6.2 million, a 38% decline from the prior year. The magazine’s expense structure benefited from the savings in production, circulation and marketing expense that resulted from the lower rate base, which helped offset the revenue decline.

The company said that it expects to record a 20% increase in third quarter advertising pages compared to last year in part because it will be publishing three issues of Playboy magazine this year versus two in the 2009 third quarter.

As a result of litigation expense, the international publishing business recorded a loss in the 2010 second quarter compared to a profit last year. The lawsuit related to the termination of a contract for a Mexican edition of Playboy magazine, and, during the quarter, a jury returned a verdict in the company’s favor.

Second quarter 2010 digital results improved compared to the prior year, despite an 8% decline in revenues to $8.2 million. A reduced cost structure and lower content costs contributed to the year-over-year profit improvement.

Segment income for the Licensing Group rose 35% to $6.4 million in the 2010 second quarter compared to $4.8 million last year on 24% growth in revenues to $12.4 million from $10.1 million. Higher sales of consumer products in Europe, Asia and Latin America primarily were responsible for the top- and bottom-line growth in the 2010 second quarter compared to last year.

Second quarter 2010 corporate expense rose 17% to $6.4 million from $5.5 million in the same quarter last year.

The company also recorded a restructuring charge of $1.6 million in the 2010 second quarter mainly related to the elimination of 18 positions in Corporate and the Entertainment and Print/Digital Groups. In the comparable 2009 quarter, the company recorded a restructuring charge of $9.1 million primarily due to the closing of its New York office.

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