Playboy Into the Red

[gonzo]

Playboy Enterprises Inc. on Tuesday reported a loss of nearly $9 million for the second quarter because of a restructuring charge largely related to the closure of its New York office.


Excluding the charge, the Chicago adult-entertainment company posted a small profit as its aggressive cost-cutting efforts offset revenue declines in its television, licensing and publishing units.


The loss of $8.7 million, or 26 cents per share, compares with a loss of $3.2 million, or 10 cents per share, in the second quarter last year. Total revenue for the quarter declined 15% to $62.2 million.


The results are the first under Chief Executive Scott Flanders, the former CEO of Freedom Communications who was hired after Christie Hefner resigned late last year. Mr. Flanders inherited a company whose diminishing share of the market for adult entertainment has increased the possibility that it will change hands after more than a half-century under founder Hugh Hefner's control. The company in February indicated it was "willing to listen" to offers. Since then, a number of private-equity firms have explored a possible acquisition.


In a conference call Tuesday, Mr. Flanders declined to comment on the possibility of a sale, saying only that the company has a "fiduciary responsibility" to consider all offers. He said his focus is on continuing to cut costs and returning the company's various business segments to growth.
For years, growth in the entertainment and licensing divisions helped offset the namesake magazine's diminishing stature in publishing. In recent quarters, though, those segments also have taken a hit, increasing the pressure on the company to cut costs.


Revenue in the entertainment division, which includes Playboy TV, fell nearly 20% to $23.8 million for the quarter, as the popularity of video-on-demand continues to erode Playboy's market share. Licensing revenue fell 22% to $4.8 million, although company executives said they expect licensing growth in the second half due to expansion into new categories, like body sprays and "nutriceuticals," and new territories, such as India.
Publishing is a steeper climb. The company's namesake magazine posted income gains in the second quarter, but that was largely because of the decision to combine the July and August issues. Playboy expects to report a 47% decline in ad pages in the third quarter, when it will publish one fewer issue.


Company executives have said they intend to cut the magazine's rate base, the number of copies it guarantees advertisers it will deliver. The monthly has been hit hard by the proliferation of magazines aimed at young men.


Mr. Flanders said he still believes the property can be viable. "I'm not convinced the magazine has to be a money loser," he said.


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