It's time to see what all the little bunnies hopping around the expansive grounds of the Playboy (NYSE: PLA) mansion and see what they're up to. The media company reported results for the first quarter; let's see how sexy the numbers are.
To get the really bad news out of the way first: Playboy saw a net loss for the quarter, totaling $13.1 million ($0.39 per share) on a middling 3% increase in revenues. Reporting a loss never inspires investor confidence, but not all losses are created equal -- this loss isn't so terrible, because it was done for a very Foolish reason: debt refinancing.
The company retired some higher-interest debt with the issuance of economically friendlier notes, which will lead to lower interest expenses down the road. If we exclude that element from the GAAP scenario, Playboy is seen to have achieved Q1 net earnings of $6.2 million ($0.19 per share) compared to $1.9 million ($0.06 per share) one year ago.
Operating income made a hot jump of 46%, equaling $10.9 million. But not everything is well in all of Playboy's operating segments, and we see a recurring theme or two that have negatively challenged Mr. Hefner's empire for a while now. Subscriptions to Playboy magazine are down, as well as its advertising and sales at the newsstand, which helped lead to a loss of $0.4 million in the publishing segment (higher paper costs were also cited). In addition, the company expects advertising pages to decline by 14% in the next quarter, which is quite dismal. On the other hand, the entertainment segment -- which includes television, online assets, and wireless markets -- saw its operating income jump 58%, to $11.9 million. Plus, the brand still has legs, as the performance of the licensing segment shows, with a 40% appreciation in operating income, at $3.6 million.
Playboy's important challenge is to successfully energize Playboy magazine, which we all know has been stifled by the stiff competition of racy-but-not-quite-adult fare like Maxim. Playboy is not only a drag, but arguably a woeful element that could eventually affect the growth of the other sanguine segments. Some might argue that the TV product, for instance, won't necessarily be impacted by the magazine's dilemma, since growth in adult video content isn't tied to the fortunes of the magazine's brand equity. After all, the experience of watching adult fare on video is different from seeing it in the magazine.
I would counter such a proposition by saying that the health of Playboy's core holding must be preserved, since the magazine is the gateway for many to the rest of the company's assets. I also am still a believer in the company (I sort of have to be, considering I'm a guy) and think that the stock contains long-term value on pullbacks. I do concede, however, that Playboy needs to report better publishing results in the near future so that complete confidence can be justified.
Read these Fool takes on Playboy-- just for the articles, of course:
Fool contributor Steven Mallas doesn't own any of the companies mentioned. He also sighs with wonder while wistfully musing on the subject of the Playboy Mansion.
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