Jun 11, 2007

CPY Q1:2007 Earnings Analysis

CPY reported first quarter earnings on 6/5/2007. Based on my previous post this is what I was looking for while reading the release:

“…….trend in Sears sitting and sales per customer, difference between CAPEX and reported dep/amor, insider trading by Knightspoint. Obviously any new information regarding PCA …..”


The trend in Sears sitting continues to be negative with sittings down 13% while the trend in sales per customer continues to be positive with sales per customer up 11%. Overall, net sales were down 4% and the fact that the increase in sales per customer is not offsetting sittings decline is a bearish sign. However, I can make a strong case (at least to myself) to own the stock at the right price without growth in Sears sales so this continued sales decline is not monumental.

EPS increased 40% YoY to $0.40 per share with most of the increase due to a mysterious 9c benefit for a “change in vacation policy.” Its unclear to me if we can expect an additional 9c in each of the remaining quarters or is this a one time deal.

It looks like the second quarter is going to experience the same trends in sitting declines. The company reported that for the first 5 weeks of the second quarter sitting are down 10% YoY and total sales are down 4%.

On the PCA front nothing groundbreaking was disclosed. If you listen to the conference call the only thing worth noting is that it looks like management will start working on converting the studios to digital right away. It looks like the expectation is to do some in 2007 and finish up most if not all by 2008. I mentioned this in my earlier post as “a given” but it’s nice to have a confirmation on this anyway.

The only other thing that was mentioned is that management feels they have the capacity in place already to service all of PCA’s digital infrastructure. The implication is that margins are going to improve with addition of PCA. While this is a nice thought, I am waiting to see the numbers to incorporate this into my projections.

Knightspoint did not sell any shares and GAAP dep/amort continues to be substantially higher than maintenance CAPEX.

Overall, this quarter did not provide any info that would cause me to change my opinion on the stock. If the stock falls below $65 per share before any meaningful PCA info is disclosed I am going to start nibbling, otherwise I am taking a wait and see approach.

Things I will be watching for in Q2:2007 remain the trend in Sears sitting and sales per customer, difference between CAPEX and reported dep/amor, insider trading by Knightspoint, new info regarding PCA. Also, I will be looking to see if the vacation policy change will have the same positive effect on Q2 as it did on Q1.

Oh yeh ….. it looks like CPY continues to be underfollowed. Only two people asked question on the conference call despite the big announcements and sharp share price increase in the last 3 months. There maybe an opportunity for us in CPY yet …….


* DISCLOSURE: I or accounts I manage may be long or short any and/or all stocks mentioned in this post. This is not a recommendation to buy or sell any security. For informational and educational purposes only.

No comments: