Playboy's Quarterly Results Show Significant Improvement

Bob Johnson

CHICAGO — Although Playboy Enterprises, Inc. today announced a $1 million net loss for the first quarter ended March 31, the company’s financial state appears to be improving thanks to across-the-board cost-cutting measures.

The first quarter loss was significantly less than the $13.7 million loss for the same period last year.

The company also reported first quarter income of $3.2 million, a $4.5 million improvement from the $1.3 million segment loss reported in the 2009 first quarter.

Revenues declined to $52.1 million from the $61.6 million in the same time periods, as anticipated, primarily reflecting changes implemented to improve the profitability of Playboy magazine.

Playboy CEO Scott Flanders said, "We are clearly making progress in our efforts to more effectively monetize the Playboy brand and return the company to sustained profitability. The extensive cost-reduction initiatives implemented over the last 18 months were responsible for the improved first quarter results and contributed to the significant narrowing of losses in our domestic magazine, the increase in Entertainment Group operating margins and the Licensing Group returning to its highest level of profitability since mid-2008. All of these improvements occurred against a backdrop of lingering economic weakness globally and continuing secular challenges, particularly in the print and TV industries."

First quarter Entertainment Group income was $3.6 million, up 21percent from $3 million last year on an eight percent decline in revenues to $24 million from $26.2 million. Cost-reduction efforts and lower programming amortization expense were responsible for the profit growth in the quarter, the company said.

Domestic TV revenues were essentially flat at $13.4 million in the 2010 first quarter compared to the 2009 first quarter, as gains in Playboy TV monthly subscription sales offset declines in video-on-demand buys.

International TV revenues were $10 million in the first quarter, down 12 percent from $11.3 million last year, reflecting increased competition in Europe. Revenues from other entertainment businesses also declined in the 2010 first quarter compared to the prior year in part due to lower licensing fees for third-party productions.

Playboy also posted a significant improvement in results from the U.S. edition of Playboy magazine which was responsible for the narrowing of the Print/Digital Group's first quarter segment loss to $1.1 million this year from $3.6 million last year.

The Group's revenues were down 30 percent in the same time periods to $18.2 million from $26.1 million, reflecting the company's decisions to lower Playboy magazine's rate base and to combine the first issue of 2010 with the last issue of 2009 into one editorial package, which was recorded in the 2009 fourth quarter.

Although domestic magazine revenues in the 2010 first quarter declined 48 percent to $7.1 million from $13.5 million in last year's first quarter as a result of these measures, the magazine's first quarter results improved due to the resulting reduction in manufacturing and shipping costs, as well as lower subscription promotion costs and the implementation of other expense-control measures, Playboy said.

According to the company, it has returned to publishing 12 separate issues annually and will record revenues for three issues in the 2010 second quarter compared to four last year, when two issues were combined into a summer bonus package. As a result of that unfavorable comparison as well as the lower rate base, the company said that it expects to report a 26 percent decline in second quarter 2010 advertising revenues versus the same period last year.

First quarter digital revenues decreased $1 million to $8.3 million in 2010, largely reflecting reduced pay site sales. Cost-reduction initiatives offset the revenue decline.

Playboy’s Licensing Group income rose 17 percent to $6.5 million in the 2010 first quarter compared to the prior year on a six percent increase in revenues to $9.9 million. Royalties from two global licensing agreements and increased sales in Asia were largely responsible for the top and bottom-line improvement.

The company added that corporate expense declined seven percent to $5.8 million in the 2010 first quarter versus $6.3 million last year due to a range of cost-savings initiatives.

The company recorded $1.1 million in restructuring and impairment charges in the 2010 first quarter, primarily related to real estate lease obligations. This compares to the first quarter of 2009 when the company reported a total of $8.7 million in restructuring and impairment charges.

"With expenses better under control, we are focusing our energies on effectively executing our business strategy," Flanders said. "Our goal is to transition Playboy to a brand management company, and our first priority is to outsource, partner or license those of our operations that can be more efficiently handled by other companies. Already we have completed two major deals, and we are pleased with what we are seeing from our partners thus far. The outsourcing model not only streamlines our organization, it also allows us to reduce our focus to strengthening our core competencies and to growing the high-margin, high-potential businesses that we will continue to operate."

He added, "We believe that 2010 will be a transitional year and that the true benefits of our strategy will be more fully evident next year. Revenues are expected to decline this year, primarily due to changes at Playboy magazine, but segment income and operating margins should improve. We believe that Licensing, our most profitable business, will record solid revenue and profit growth, although the media businesses will remain challenged, showing only marginal improvement over last year."