Playboy Enterprises posts first quarter net income of $1.0 million

Business Wire, Nov 7, 1995

CHICAGO--(BUSINESS WIRE)--Nov. 7, 1995--Playboy Enterprises, Inc. (NYSE, PSE: PLA A, PLA) today reported net income of $1.0 million, or $.05 per share, for the fiscal 1996 first quarter ended September 30, 1995, compared to a net loss of $1.2 million, or $.06 per share, for the same period last year. The results reflected a 9% increase in revenues to $62.3 million and operating income of $1.4 million, a significant improvement over the $.9 million operating loss incurred in the first quarter of last year. The Entertainment Group's strong performance and revenue growth from Playboy-related businesses were the driving forces behind the first quarter operating improvement.

Publishing

The Publishing Group reported operating income of $2.8 million for the first quarter of fiscal 1996, up 30% from $2.1 million in the previous year quarter. The growth was primarily attributable to higher revenues from Playboy-related businesses. Additionally, lower editorial costs and operating expenses mostly offset a $2.1 million increase in Playboy magazine's manufacturing costs, essentially related to higher paper prices. Total revenues for the Publishing Group in the first quarter of fiscal 1996 were up 3% to $32.9 million.

Operating income for Playboy magazine declined nearly in half to $.6 million, reflecting the paper price increases and lower costs mentioned above. Playboy magazine revenues were down 1% to $24.9 million largely due to a 6% decline in circulation revenues, mostly offset by a 14% increase in advertising revenues. A sluggish retail environment contributed to a 23% decline in newsstand sales revenues. Subscriptions, which account for approximately two thirds of total circulation revenues, were up 2% over the prior year period. Advertising revenues increased 14% due to higher average net revenue per page and a 4% increase in ad pages.

The company anticipates that Playboy magazine will continue to be impacted by the higher paper and postage prices and will face a slow second quarter for advertising, both of which will erode the publication's operating margins going forward. After two consecutive quarters of ad page growth, Playboy magazine expects to report a 17% decline in ad pages next quarter.

Operating income for Playboy-related businesses rose 52% to $3.2 million on a 17% increase in revenues to $8.0 million. The revenue and profit growth was largely due to a cover price increase for newsstand specials that went into effect in May 1995 and higher international publishing royalties from Brazil and Germany.

Catalogs

The Catalog Group reported first quarter operating income of $.7 million, down from $1.4 million, on a 6% increase in revenues to $14.1 million. The results reflected lower response rates and higher paper and postage costs for Critics' Choice Video, offset in part by a higher gross profit margin. In spring 1995, the video catalog tested a competitive pricing strategy in order to compete more effectively with other direct sellers and mass marketers and, based on favorable results, began rolling out the strategy in October.

The company also boosted the circulations of all three of its catalogs during the first quarter. Collectors' Choice Music and Playboy catalogs both reported higher revenues and incurred higher costs and expenses, which resulted in increased first quarter operating income for Collectors' Choice Music and lower profits for the Playboy catalog.

Entertainment

The Entertainment Group posted a $1.2 million profit in the first quarter of fiscal 1996 compared to a loss of $1.0 million in the previous year quarter primarily due to substantial growth in the domestic pay television business. Revenues for the group rose 33% to $13.7 million for the same period.

Domestic pay television revenues, which include Playboy TV and the company's new pay service, AdulTVision, increased 45% over the prior year period to $9.4 million. Contributing largely to the improvement were Playboy TV's 16% increase in average pay-per-view buy rates from the previous year quarter, including the impact of the continued rollout of Playboy TV to a 24-hour service, and significant growth in satellite direct-to-home (DTH) sales, both from DirecTV and PrimeStar.

At September 30, 1995, Playboy TV was available in 10.9 million cable addressable households, up 10% from the end of the first quarter last year and 3% from the end of the previous quarter. Currently, 3.1 million households, or 28% of the 10.9 million cable addressable households, have access to the service on a 24-hour basis.

Playboy TV was available to 14.6 million cable and satellite DTH households, including 340,000 monthly subscribers, at the end of the first quarter. The combined equivalent average buy rate for this audience (converting monthly subscriptions to their equivalent pay-per-view buy rates), was 10% for the quarter ended September 30, 1995.

The Entertainment Group launched a second domestic cable service, AdulTVision, as a flanker channel on July 1, 1995. This service is available to cable systems that also offer Playboy TV and is now available to 1.1 million cable addressable homes and to the DTH market.