Nervous investors sent Playboy Enterprises shares dropping today after the company released its quarterly report showing an $800,000 profit, but with overall revenue dropping by 2 percent.
The company’s profit for about 2 cents a share during the first quarter, ending March 30, shows Playboy’s turnaround is continuing, compared to a year ago when the company reported a $13.1 million loss or 39 cents a share.
But the bad news is that the operating income for the quarter was $3.5 million or about a third of year-ago figures while total revenue also dropped by 2 percent or by $82.1 million from $83.5 million a year ago.
The quarter also included $19.3 million in charges or 58 cents a share.
Playboy shares plunged $1.93 today to close at $10.88. The stock’s 52-week high is $15.88, reached on Nov. 18, and its 52-week low is $11.80, reached on May 13.
The company’s weaker than expected numbers prompted UBS analyst Lucas Binder to write in his report that Playboy’s shift to video-on-demand hurt its performance.
“We believe that Playboy must find a way to stem the declines while also lowering the cost of the domestic TV business to grow earnings per share,” Binder wrote.
Playboy acknowledges that its domestic television business is struggling since viewers are moving away from linear networks and toward video on demand where the company is still attempting to develop a strong presence. It’s also getting squeezed by Direct TV which is giving it less channel space.
Its Domestic Television unit reported a 1 percent revenue increase to $51.2 million from $50.5 million last year.
The company’s Entertainment Group reported income of $7.9 million compared to $11.9 million in 2005, due to the television unit’s weak performance. The company’s licensing business saw an 18 percent spike in revenue, going to $7.4 million from $6.0 million, due to primarily to licensing activity in Europe.
Christie Hefner, Playboy’s chairman and chief executive, said the company must improve its cost structure in order to continue its turnaround.
“Given the changing dynamics of the domestic TV business, combined with that challenges in the publishing industry, it is clear that we need to realign our cost structure to perform satisfactorily in this new environment,” she said in a statement.
The company expects a “substantial” second quarter loss and would likely not meet earnings forecasts for the year of 67 to 70 cents per share, Hefner said.
Playboy magazine itself saw its revenue drop by 13 percent to $23.5 million from a year ago. Its troubles will continue during the second quarter, the company said, projecting a 16 percent drop in advertising revenue over year-ago numbers.
But with the help of improving advertising numbers, new products and the debut of Playboy at the Palms Casino in Las Vegas, the company’s turnaround may still continue.
