UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM 10-Q |X|     
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JULY 24, 2004 OR |_|     
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-10204 CPI Corp.(Exact name of registrant as specified in its charter) Delaware
  
  43-1256674(State of Incorporation)
  
  (I.R.S. Employer Identification No.)1706 Washington Ave., St. Louis, Missouri
  
  63103(Address of principal executive offices)
  
  (Zip Code) Registrants telephone number, including area
code: (314) 231-1575 Indicate by
  check mark whether the Registrant [1] has filed all reports required to be
  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months and [2] has been subject to such filing requirements
  for the past 90 days.|X| Yes     |_| NoIndicate by
  check mark whether the registrant is an accelerated filer (as defined in Rule
  12b-2 of the Exchange Act).|X| Yes     |_| No As of August 27, 2004, the Registrant had 7,750,198 common shares
outstanding.   CPI
CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
12 Weeks and 24 Weeks Ended July 24, 2004
PagePART 1.  FINANCIAL INFORMATIONItem 1.
  Financial StatementsInterim Condensed
  Consolidated Balance Sheets
  July 24, 2004 (Unaudited) and February 7, 2004
  1Interim Condensed
  Consolidated Statements of Operations (Unaudited)
  12 and 24 Weeks Ended July 24, 2004 and July 19, 2003
  3Interim Condensed
  Consolidated Statement of Changes in Stockholders Equity
  (Unaudited) 24 Weeks Ended July 24, 2004
  4Interim Condensed
  Consolidated Statements of Cash Flows (Unaudited) 
  24 Weeks Ended July 24, 2004 and July 19, 2003
  5Notes to Interim
  Condensed Consolidated Financial Statements (Unaudited)
  7Item 2.
  Managements
  Discussions and Analysis of Financial Condition and Results of Operations
  16Item 3.
  Quantitative and Qualitative
  Disclosures about Market Risk
  28Item 4.
  Disclosure Controls
  and Procedures
  28PART II.  OTHER INFORMATIONItem 4.
  Results of Votes of
  Security Holders
  29Item 6.
  Exhibits and Reports
  on Form 8-K
  30Signatures
  31Exhibit Index
  32CPI CORP.Interim Condensed Consolidated Balance Sheets  Assets
PART I. 
FINANCIAL INFORMATION

Item 1   Financial Statements

thousands
  
  July 24, 2004
  (Unaudited)
  
  February 7, 2004ASSETSCurrent assets:Cash and cash equivalents
  
  
  $
  14,826
  
  
  
  $
  51,011Accounts receivable:Due from licensor stores
  
  
  
  8,103
  
  
  
  
  7,447Other
  
  
  
  182
  
  
  
  
  59Inventories
  
  
  
  10,050
  
  
  
  
  11,858Prepaid expenses and other
  current assets
  
  
  
  6,795
  
  
  
  
  7,488Refundable income taxes
  
  
  
  7,741
  
  
  
  
  2,166Deferred tax assets
  
  
  
  7,896
  
  
  
  
  11,947Total current assets
  
  
  
  55,593
  
  
  
  
  91,976Property and equipment:Land
  
  
  
  2,765
  
  
  
  
  2,765Building improvements
  
  
  
  26,519
  
  
  
  
  26,520Leasehold improvements
  
  
  
  7,560
  
  
  
  
  6,571Photographic, sales and
  manufacturing equipment
  
  
  
  205,377
  
  
  
  
  210,745Total
  
  
  
  242,221
  
  
  
  
  246,601Less accumulated
  depreciation and amortization
  
  
  
  197,975
  
  
  
  
  193,866Property and equipment,
  net
  
  
  
  44,246
  
  
  
  
  52,735Assets of business
  transferred under contractual arrangements:Preferred Security
  
  
  
  7,000
  
  
  
  
  7,000Accrued dividends on
  Preferred Security
  
  
  
  350
  
  
  
  
  60Loan receivable
  
  
  
  3,539
  
  
  
  
  1,915Assets of supplemental
  retirement plan:Cash surrender value of
  life insurance policies (net of borrowings of $1,548 at February 7, 2004)
  
  
  
  
  
  
  
  
  11,396Other investments
  
  
  
  11,542
  
  
  
  
  95Other assets, net of
  amortization of $1,359 at both July 24, 2004 and February 7, 2004
  
  
  
  9,514
  
  
  
  
  2,052TOTAL
  ASSETS
  
  
  $
  131,784
  
  
  
  $
  167,229See
accompanying notes.
1


CPI
CORP.
Interim Condensed Consolidated Balance Sheets  Liabilities and Stockholders
Equity
thousands, except share and per share
  data
  
  July 24,
  2004
  (Unaudited)
  
  February 7, 2004LIABILITIESCurrent liabilities:Current maturities of
  long-term debt
  
  
  $
  8,580
  
  
  
  $
  8,580Accounts payable
  
  
  
  10,949
  
  
  
  
  15,294Accrued employment costs
  
  
  
  15,359
  
  
  
  
  12,297Customer deposit liability
  
  
  
  24,766
  
  
  
  
  24,897Sales taxes payable
  
  
  
  1,190
  
  
  
  
  2,524Accrued advertising
  expenses
  
  
  
  2,389
  
  
  
  
  1,803Accrued expenses and other
  liabilities
  
  
  
  2,808
  
  
  
  
  3,024Total current liabilities
  
  
  
  66,041
  
  
  
  
  68,419Long-term debt, less
  current maturities
  
  
  
  17,030
  
  
  
  
  25,589Accrued pension
  obligations
  
  
  
  10,364
  
  
  
  
  10,364Supplemental retirement
  plan obligations
  
  
  
  7,313
  
  
  
  
  3,547Customer deposit liability
  
  
  
  4,096
  
  
  
  
  4,769Other liabilities
  
  
  
  360
  
  
  
  
  2,715Total liabilities
  
  
  
  105,204
  
  
  
  
  115,403STOCKHOLDERS EQUITYPreferred stock, no par
  value. 1,000,000 shares authorized; no shares outstanding
  
  
  
  
  
  
  
  
  Preferred stock, Series A,
  no par value, 200,000 shares authorized; no shares outstanding
  
  
  
  
  
  
  
  
  Common stock, $0.40 par
  value. 50,000,000 shares authorized; 18,422,434 and 18,360,238 shares issued
  at July 24, 2004 and February 7, 2004, respectively
  
  
  
  7,369
  
  
  
  
  7,344Additional paid in capital
  
  
  
  53,167
  
  
  
  
  52,272Retained earnings
  
  
  
  209,896
  
  
  
  
  230,394Accumulated other
  comprehensive loss
  
  
  
  (9,818
  )
  
  
  
  (9,599
  )260,614
  
  
  
  
  280,411Treasury stock - at cost,
  10,672,236 and 10,292,503 shares at July 24, 2004 and February 7, 2004,
  respectively
  
  
  
  (234,031
  )
  
  
  
  (228,577
  )Unamortized deferred
  compensation- restricted stock
  
  
  
  (3
  )
  
  
  
  (8
  )Total stockholders equity
  
  
  
  26,580
  
  
  
  
  51,826TOTAL
  LIABILITIES AND STOCKHOLDERS EQUITY
  
  
  $
  131,784
  
  
  
  $
  167,229See
accompanying notes.
2


CPI CORP.Interim Condensed Consolidated
Statements of Operations(Unaudited)

12 Weeks
  Ended
  
  24 Weeks
  Endedthousands, except share and per share
  data
  
  July 24,
  2004
  
  July 19,
  2003
  
  July 24,
  2004
  
  July 19,
  2003Net sales
  
  $
  48,621
  
  $
  60,896
  
  $
  103,546
  
  $
  117,076Cost and
  expenses:Cost of sales (exclusive of
  depreciation and amortization shown below)
  
  
  6,579
  
  
  7,822
  
  
  14,229
  
  
  15,583Selling, general and
  administrative expenses
  
  
  42,650
  
  
  49,218
  
  
  88,365
  
  
  96,989Depreciation and
  amortization
  
  
  3,681
  
  
  3,763
  
  
  7,546
  
  
  7,771Other charges and
  impairments
  
  
  3,941
  
  
  
  
  
  13,504
  
  
  56,851
  
  
  60,803
  
  
  123,644
  
  
  120,343Income (loss) from
  continuing operations
  
  
  (8,230
  )
  
  93
  
  
  (20,098
  )
  
  (3,267
  )Interest expense
  
  
  532
  
  
  715
  
  
  1,131
  
  
  1,484Interest income
  
  
  269
  
  
  564
  
  
  550
  
  
  938Other income, net
  
  
  105
  
  
  31
  
  
  150
  
  
  78Loss from continuing
  operations before income tax benefit
  
  
  (8,388
  )
  
  (27
  )
  
  (20,529
  )
  
  (3,735
  )Income tax benefit
  
  
  (1,869
  )
  
  (10
  )
  
  (6,361
  )
  
  (1,441
  )Net loss from continuing
  operations
  
  
  (6,519
  )
  
  (17
  )
  
  (14,168
  )
  
  (2,294
  )Net loss from discontinued
  operations, net of income tax benefits of $1,520, $508, $2,195 and $792,
  respectively
  
  
  (2,588
  )
  
  (809
  )
  
  (3,737
  )
  
  (1,261
  )NET LOSS
  
  $
  (9,107
  )
  $
  (826
  )
  $
  (17,905
  )
  $
  (3,555
  )Net loss per share from
  continuing operations - diluted
  
  $
  (0.82
  )
  $
  
  
  $
  (1.76
  )
  $
  (0.28
  )Net loss per share from
  discontinued operations - diluted
  
  
  (0.32
  )
  
  (0.10
  )
  
  (0.46
  )
  
  (0.16
  )Net loss per share -
  diluted
  
  $
  (1.14
  )
  $
  (0.10
  )
  $
  (2.22
  )
  $
  (0.44
  )Net loss per share from
  continuing operations - basic
  
  $
  (0.82
  )
  $
  
  
  $
  (1.76
  )
  $
  (0.28
  )Net loss per share from
  discontinued operations - basic
  
  
  (0.32
  )
  
  (0.10
  )
  
  (0.46
  )
  
  (0.16
  )Net loss per share - basic
  
  $
  (1.14
  )
  $
  (0.10
  )
  $
  (2.22
  )
  $
  (0.44
  )Dividends per share
  
  $
  0.16
  
  $
  0.14
  
  $
  0.32
  
  $
  0.28Weighted average number of
  common and common equivalent shares outstanding-diluted
  
  
  7,988,186
  
  
  8,100,868
  
  
  8,044,379
  
  
  8,100,824Weighted average number of
  common and common equivalent shares outstanding-basic
  
  
  7,988,186
  
  
  8,100,868
  
  
  8,044,379
  
  
  8,100,824See
accompanying notes.
3


CPI CORP.
Interim Condensed Consolidated Statement of Changes in Stockholders Equity(Unaudited)

Twenty-four weeks ended July 24, 2004
thousands, except share andper
  share data
  
  Common
  stock
  
  Additional
  paid-in
  capital
  
  Retained
  earnings
  
  Accumulated
  other
  comprehensive
  loss
  
  Treasury
  stock,
  at cost
  
  Deferred
  compensation -
  restricted
  stock
  
  TotalBalance at February 7, 2004
  
  $
  7,344
  
  $
  52,272
  
  $
  230,394
  
  $
  (9,599
  )
  $
  (228,577
  )
  
  $
  (8
  )
  
  $
  51,826Net loss
  
  
  
  
  
  
  
  
  (17,905
  )
  
  
  
  
  
  
  
  
  
  
  
  
  (17,905
  )Total other comprehensive loss
  
  
  
  
  
  
  
  
  
  
  
  (219
  )
  
  
  
  
  
  
  
  
  
  (219
  )Total comprehensive loss
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (18,124
  )Issuance of common stock to employee benefit plans and option exercises (89,243 shares)
  
  
  25
  
  
  895
  
  
  
  
  
  
  
  
  554
  
  
  
  
  
  
  
  1,474Dividends ($.32 per common share)
  
  
  
  
  
  
  
  
  (2,593
  )
  
  
  
  
  
  
  
  
  
  
  
  
  (2,593
  )Purchase of treasury stock, at cost (406,780 shares)
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (6,008
  )
  
  
  
  
  
  
  (6,008
  )Amortization of deferred compensation - restricted stock
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  5
  
  
  
  5Balance at July 24, 2004
  
  $
  7,369
  
  $
  53,167
  
  $
  209,896
  
  $
  (9,818
  )
  $
  (234,031
  )
  
  $
  (3
  )
  
  $
  26,580See
accompanying notes.
4


CPI CORP.
Interim Condensed Consolidated Statements of Cash Flows(Unaudited)
24
        Weeks Endedthousands
    
    July
        24,
        2004
    
    July
        19,
        2003Reconciliation
        of net loss from continuing operations to cash flows provided by (used
        in) operating activities:Net
        loss from continuing operations
    
    $
    (14,168
    )
    $
    (2,294
    )Adjustments
        for items not requiring cash:Depreciation
        and amortization
    
    
    7,546
    
    
    7,771Loss
        on disposition of property, plant and equipment
    
    
    90
    
    
    108Deferred
        income taxes
    
    
    (2,967
    )
    
    (1,480
    )Deferred
        revenues and related costs
    
    
    (650
    )
    
    (315
    )Accrued
        interest on preferred security
    
    
    (290
    )
    
    (270
    )Impairment
        losses
    
    
    4,298
    
    
    Accelerated
        vesting of supplemental retirement plan benefits
    
    
    3,338
    
    
    Other
    
    
    385
    
    
    (191
    )(Increase)
        decrease in current assets:Receivables
        and inventories
    
    
    617
    
    
    (922
    )Refundable
        income taxes
    
    
    (3,380
    )
    
    4,131Prepaid
        expenses and other current assets
    
    
    250
    
    
    (107
    )Increase
        (decrease) in current liabilities:Accounts
        payable
    
    
    (4,345
    )
    
    1,346Accrued
        expenses and other liabilities
    
    
    988
    
    
    (791
    )Cash
        flows (used in) provided by continuing operations
    
    
    (8,288
    )
    
    6,986Cash
        flows used in discontinued operations
    
    
    (2,692
    )
    
    (2,329
    )Cash
        flows (used in) provided by operating activities
    
    $
    (10,980
    )
    $
    4,657See
accompanying notes.

5

CPI
CORP.
Interim Condensed Consolidated Statements of Cash Flows (continued)(Unaudited)

24
        Weeks Endedthousands
    
    July
        24,
        2004
    
    July
        19,
        2003Cash
        flows (used in) provided by operating activities
    
    $
    (10,980
    )
    $
    4,657Cash
        flows (used in) provided by financing activities:Repayment
        of long-term obligations
    
    
    (8,580
    )
    
    (8,580
    )Proceeds
        from issuance of common stock to employee stock plans and option exercises
    
    
    920
    
    
    53Cash
        dividends
    
    
    (2,593
    )
    
    (2,261
    )Purchase
        of treasury stock
    
    
    (6,008
    )
    
    Cash
        flows used in financing activities:
    
    
    (16,261
    )
    
    (10,788
    )Cash
        flows (used in) provided by investing activities:Additions
        to property and equipment
    
    
    (7,525
    )
    
    (8,382
    )Proceeds
        from sale of property and equipment
    
    
    215
    
    
    Redemptions
        of preferred security
    
    
    
    
    
    2,500Changes
        in loan receivable:Borrowings
    
    
    (22,220
    )
    
    (27,331
    )Repayments
    
    
    20,596
    
    
    23,625Purchases
        of investment securities in Rabbi Trust
    
    
    (456
    )
    
    (819
    )Proceeds
        from sales of investment securities in Rabbi Trust
    
    
    405
    
    
    2,273Cash
        flows used in investing activities
    
    
    (8,985
    )
    
    (8,134
    )Effect
        of exchange rate changes on cash and cash equivalents
    
    
    41
    
    
    328Net
        decrease in cash and cash equivalents
    
    
    (36,185
    )
    
    (13,937
    )Cash
        and cash equivalents at beginning of period
    
    
    51,011
    
    
    57,922Cash
        and cash equivalents at end of period
    
    $
    14,826
    
    $
    43,985Supplemental
        cash flow information:Interest
        paid
    
    $
    1,278
    
    $
    1,605Income
        taxes refunded
    
    $
    (114
    )
    $
    (3,179
    )Supplemental
        non-cash financing activities:Issuance
        of common stock under the employee profit sharing plan
    
    $
    
    
    $
    606Issuance
        of treasury stock under the employee profit sharing plan
    
    $
    554
    
    $
    Repayment
        of borrowings against cash surrender value of life insurance via liquidation
        of related policies
    
    $
    1,548
    
    $
    See
accompanying notes.

6

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements(Unaudited)
NOTE 1 
  DESCRIPTION OF BUSINESS AND INTERIM CONDENSED CONSOLIDATEDFINANCIAL STATEMENTSThe Company operates 1,016 professional portrait studios as of July 24,
2004 throughout the United States, Canada and Puerto Rico under license
agreements with Sears, Roebuck and Co. (Sears).    During the second quarter of 2004, as described in Note 9 to
the Interim Condensed Consolidated Financial Statements herein, the Companys
recently reconstituted Board of Directors made a strategic decision to exit
both the Mexican and mobile photography operations which began operations in
2002.  In addition, the Company operates
searsphotos.com, an on-line photofinishing service as well as a vehicle for the
Companys customers to archive, share portraits via email and order additional
portraits and products.
The Interim Condensed Consolidated Balance Sheet as of July 24, 2004,
the related Interim Condensed Consolidated Statements of Operations for the 12
and 24 weeks ended July 24, 2004 and July 19, 2003, the Interim Condensed
Consolidated Statement of Changes in Stockholders Equity for the 24 weeks
ended July 24, 2004 and the Interim Condensed Consolidated Statements of Cash
Flows for the 24 weeks ended July 24, 2004 and July 19, 2003, are
unaudited.  The interim condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring accruals), which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented. The
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the CPI Corp. 2003 Annual Report on Form 10-K for its fiscal year
ended February 7, 2004.  The results of
operations for the interim periods should not be considered indicative of
results to be expected for the full year.
Certain reclassifications have been made to the 2003 financial statements
to conform with the current year presentation.

NOTE 2  CONTINGENCIES
Contingent Lease Obligations
In July 2001, the Company announced the completion of the sale of its
Prints Plus Wall Decor segment (Prints Plus), which included the ongoing
guarantee of certain operating real estate leases of Prints Plus.  As of July 24, 2004, the maximum future
obligation to the Company under these guarantees is $7.5 million before any
negotiation with landlords or subleasing. 
Based on scheduled lease payments, the maximum future obligations will
decrease an additional $2.4 million by the end of fiscal 2004, then by $2.9
million in 2005 and approximately $2.2 million over the next two years. To
recognize the risk of potential defaults associated with these leases, a $1.0
million reserve was established in 2001. 
The $1.0 million reserve was established assuming an average of 75 days
of lease payments for each of the 56 leases then guaranteed by the Company.  The 75 day estimate was based upon the
Companys historical experiences in settling lease obligations resulting from
early terminations of leases, taking into account the nature of prime mall
space represented by the guaranteed leases. 
The Company has recognized no losses to date related its obligations
under these guarantees.  At July 24,
2004, the Company had made no further allowances for defaults under these
operating leases as, in the opinion of management, Prints Plus is meeting the
performance standards established under the operating leases.
7

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Prints Plus Financial Covenants
In conjunction with the above-mentioned transaction, the Company
received an $11.0 million Preferred Security (Preferred Security), which as
of July 24, 2004 has been paid down to $7.0 million as a result of voluntary
redemptions by Prints Plus.  In
addition, the Company agreed to provide Prints Plus with a $6.4 million
revolving credit facility on which they have drawn $3.5 million as of July 24,
2004.  The agreements governing both
instruments contain certain operating and financial covenants.  During the Companys second quarter of 2004
(Prints Plus fourth fiscal quarter of 2003), Prints Plus failed to achieve the
minimum EBITDA covenant, which requires maintenance of trailing four quarters
EBITDA of not less than $3.0 million and the fixed charge coverage ratio
covenant which requires a coverage ratio of 1.1 to 1.  Prints Plus trailing four quarters EBITDA was $970,000 and its
fixed charge coverage ratio was 1.02 to 1. 
The Company has provided Prints Plus with a waiver of these covenant
violations.
Based on Prints Plus operating forecast for its fiscal year ending July
23, 2005, we expect them to continue to fail to achieve both the minimum EBITDA
covenant and the fixed charge coverage ratio covenant throughout their fiscal
year.  To address this, the Company has
provided Prints Plus with a prospective waiver of the minimum EBITDA and fixed
charge coverage ratio covenants through July 23, 2005 as long as they meet or
exceed the projected operating results in their operating forecast.  The achievement of the operating forecast
should result in Prints Plus being able to continue to meet its obligations,
including those to the Company, as they come due.

In assessing the
recoverability of its recorded investment in the Preferred Security and the
revolving credit facility, the Company reviews whether events or changes in
circumstances indicate that the carrying value of the Preferred Security and
the amount advanced under the revolving line of credit may not be
recoverable.  This review includes an
analysis of the current operating performance of Prints Plus, including the
amounts of free cash flow being generated providing for interest and debt
service, as well as their compliance with the performance standards included
within the covenants of the Preferred Security and revolving line of
credit.  Based on this review, no
valuation allowance is deemed necessary at July 24, 2004.
Standby Letters of Credit
As of July 24, 2004, the Company had outstanding standby letters of
credit in the principal amount of $6.0 million used in conjunction with the
Companys self insurance programs.
Litigation
The Company is a defendant in various lawsuits arising in the ordinary
course of business.  It is the opinion
of management that the ultimate liability, if any, resulting from such lawsuits
will not materially affect the consolidated financial position or results of
operations of the Company.
8

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements(Unaudited)
NOTE 3  OTHER CHARGES AND IMPAIRMENTS

Other charges and impairments for the periods ended July 24, 2004
included the following:

12 Weeks
  Ended
  
  24 Weeks
  Endedthousands
  
  July 24,
  2004
  
  July 24,
  2004Accruals
  related to accelerated vesting of supplemental retirement plan benefits and
  guaranteed bonuses for 2004
  
  
  $
  76
  
  
  
  $
  3,490Impairment
  charges
  
  
  
  2,078
  
  
  
  
  5,145Reserves for
  severance and related costs
  
  
  
  1,147
  
  
  
  
  3,183Consent
  solicitation costs
  
  
  
  
  
  
  
  
  846Other
  
  
  
  640
  
  
  
  
  840Total Other
  Charges and Impairments
  
  
  $
  3,941
  
  
  
  $
  13,504There were no similar charges in the same prior year periods.
Accelerated Vesting of Supplemental
Retirement Plan Benefits and Guaranteed Bonuses for 2004

In the first quarter of 2004, change of control provisions in executive
employment contracts were triggered as a result of the change in the
composition of the Companys Board of Directors resulting from the completion
of the consent solicitation.  As a
result, the Company accrued $3.3 million in the first quarter related to the
accelerated vesting of executives benefits covered by the Companys
supplemental retirement plan and guaranteed bonuses provided for in employment
contracts of $76,000 in each of the first and second quarters for those covered
executives whose employment continues with the Company.

Impairment Charges
During the first quarter of 2004, the Companys recently reconstituted
Board along with its new management leadership in the technology function, made
a decision to materially alter the Companys previously planned and recently
in-process technology platform that was to serve as the foundation for the
eventual conversion to full digital technology in the portrait studios.  As a result of this decision, certain
previously capitalized software development costs related to the development of
the previous platform no longer have future utility to the Company and,
accordingly, have been written off.
During the second quarter of 2004, additional strategic decisions were
made regarding the Companys technology platform that necessitated the
write-off or write-down of certain other technology-related assets to their
anticipated fair value.  As of July 24,
2004, the Company reported $1.3 million as assets held for sale as a component
of Other assets in the Companys Interim Condensed Consolidated Balance Sheet.  These assets consist primarily of computer
equipment which is being actively marketed.
Reserves for Severance and Related Costs
During the first quarter of 2004, the Company established a reserve for
severance and related costs consisting principally of potential benefits
related to severance pay and supplemental retirement plan costs associated with
the dismissal of certain executives. 
The amounts recorded in the second quarter relate to severance accruals
associated with corporate headquarters staff reductions that occurred during
the quarter.
9


CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements(Unaudited)
Consent Solicitation Costs
In the first two quarters
of 2004, the Company incurred $846,000 of professional services costs related
to the then-ongoing consent solicitation.  These costs included $148,000 of total consent-related costs
incurred by the Knightspoint Group, which the Company has reimbursed.
Other
In early March 2004, prior to the change of control, the Company
received a lending commitment related to the proposed refinancing of its
then-existing debt structure.  In
exchange for that commitment, the Company paid a $200,000 non-refundable loan
commitment fee.  Subsequent to the receipt
of the commitment and prior to its funding, the consent solicitation was completed
resulting in the installation of a new Board of Directors and the lending
commitment expired, necessitating the write-off of the previously capitalized
non-refundable fee during the first quarter of 2004.  The second quarter charges relate to accruals of $640,000
resulting from early contract terminations and settlements with certain of the
Companys vendors as a result of strategic decisions to modify such
relationships.
NOTE 4  STOCKHOLDERS EQUITY
The following table shows the computation of comprehensive income:
12 Weeks
  Ended
  
  24 Weeks
  Endedthousands
  
  July 24,
  2004
  
  July 24,
  2004Net loss
  
  
  $
  (9,107
  )
  
  
  $
  (17,905
  )Other
  comprehensive income (loss):Foreign
  currency translation adjustments
  
  
  
  356
  
  
  
  
  (219
  )Total
  accumulated other comprehensive income (loss)
  
  
  
  356
  
  
  
  
  (219
  )Total
  comprehensive loss
  
  
  $
  (8,751
  )
  
  
  $
  (18,124
  )The following table displays
the components of accumulated other comprehensive loss as of July 24, 2004 and
February 7, 2004.
thousands
  
  July 24,
  2004
  
  February
  7, 2004Foreign
  currency translation adjustments
  
  
  $
  2,424
  
  
  
  $
  2,205Minimum pension
  liability, net of taxes
  
  
  
  7,394
  
  
  
  
  7,394Accumulated
  other comprehensive loss
  
  
  $
  9,818
  
  
  
  $
  9,59910

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements(Unaudited)

NOTE 5  STOCK-BASED COMPENSATION PLANS

At July 24, 2004, the Company had various stock-based employee
compensation plans, which are described more fully in Note 7 of the Notes to
Consolidated Financial Statements in the Companys 2003 Annual Report on Form
10-K.  The Company accounts for those
plans in accordance with APB No. 25, Accounting For Stock Issued to
Employees, and related Interpretations. 
No stock-based employee compensation cost was reflected in net income,
as no options granted under those plans had an exercise price less than the
market value of the underlying common stock on the date of grant.  The following table illustrates the effect
on net loss and loss per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation.

12
        Weeks Ended
    
    24
        Weeks Endedthousands,
        except per share data
    
    July
        24, 2004
    
    July
        19, 2003
    
    July
        24, 2004
    
    July
        19, 2003Net
        loss - as reported
    
    
    $
    (9,107
    )
    
    
    $
    (826
    )
    
    
    $
    (17,905
    )
    
    
    $
    (3,555
    )Less:
        Total stock-based employee compensation expense determined under fair
        value based method for all awards, net of related taxes
    
    
    
    (97
    )
    
    
    
    (50
    )
    
    
    
    (130
    )
    
    
    
    (69
    )Net
        loss - pro forma
    
    
    $
    (9,204
    )
    
    
    $
    (876
    )
    
    
    $
    (18,035
    )
    
    
    $
    (3,624
    )Loss
        per common share - basicAs reported
    
    
    $
    (1.14
    )
    
    
    $
    (0.10
    )
    
    
    $
    (2.22
    )
    
    
    $
    (0.44
    )Pro forma
    
    
    $
    (1.15
    )
    
    
    $
    (0.11
    )
    
    
    $
    (2.24
    )
    
    
    $
    (0.45
    )Loss
        per common share - dilutedAs reported
    
    
    $
    (1.14
    )
    
    
    $
    (0.10
    )
    
    
    $
    (2.22
    )
    
    
    $
    (0.44
    )Pro forma
    
    
    $
    (1.15
    )
    
    
    $
    (0.11
    )
    
    
    $
    (2.24
    )
    
    
    $
    (0.45
    )NOTE 6  RECENTLY ISSUED ACCOUNTING STANDARDS
There were no accounting standards issued during the second quarter of
2004, which will impact the Companys consolidated financial statements.

NOTE 7  EMPLOYEE BENEFIT PLANS
The Company maintains a qualified, noncontributory pension plan that
covers all full-time United States employees meeting certain age and service
requirements.  The plan provides pension
benefits based on an employees length of service and the average compensation
earned from the later of the hire date or January 1, 1998 to the retirement
date. The Companys funding policy is to contribute annually at least the
minimum amount required by government funding standards, but not more than is
tax deductible.  Plan assets consist
primarily of marketable equity securities funds, guaranteed interest contracts,
cash equivalents, immediate participation guarantee contracts and government
bonds.
11

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements(Unaudited)
The Company also maintains a noncontributory defined benefit plan
providing supplemental retirement benefits for certain current and former
executives.  The cost of providing these
benefits is accrued over the remaining expected service lives of the active
plan participants.  The supplemental
retirement plan is unfunded and as such does not have a specific investment
policy or long-term rate of return assumptions.  However, certain assets will be used to finance these future
obligations and consist of investments in a Rabbi Trust.
The following table sets forth the components of net periodic benefit
cost for the defined benefit plans:
12 Weeks
  Ended
  
  24 Weeks
  EndedPension
  Plan
  
  Supplemental
  Retirement Plan
  
  Pension
  Plan
  
  Supplemental
  Retirement Planthousands
  
  July 24, 2004
  
  July 24, 2004
  
  July 24, 2004
  
  July 24, 2004Components of net periodic
  benefit cost:Service cost
  
  
  $
  118
  
  
  
  $
  47
  
  
  
  $
  471
  
  
  
  $
  83Interest cost
  
  
  
  623
  
  
  
  
  89
  
  
  
  
  1,247
  
  
  
  
  174Expected return on plan
  assets
  
  
  
  (677
  )
  
  
  
  
  
  
  
  
  (1,354
  )
  
  
  
  Amortization of prior
  service cost
  
  
  
  10
  
  
  
  
  9
  
  
  
  
  20
  
  
  
  
  9Amortization of net loss
  
  
  
  101
  
  
  
  
  
  
  
  
  
  420
  
  
  
  
  Accelerated vesting
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  3,338Settlement expense
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  86Curtailment expense
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  230Net periodic benefit cost
  
  
  $
  175
  
  
  
  $
  145
  
  
  
  $
  804
  
  
  
  $
  3,920NOTE 8  CHANGE OF CONTROL
On November 6,
2003, Knightspoint Partners I, L.P. and other entities participating with them
(Knightspoint Group) filed with the SEC preliminary consent materials
relating to the Knightspoint Groups commencement of a solicitation of the
Companys stockholders.  The purpose of
the consent solicitation was to, among other things, remove seven of the nine
members of the Companys Board of Directors, decrease the size of the Board to
eight directors and elect six Knightspoint Group nominees to the Board.  On January 23, 2004, the Knightspoint Group
filed with the SEC definitive consent solicitation materials.  The Company also filed definitive proxy
materials with the SEC on February 20, 2004 relating to its opposition to the
Knightspoint Groups consent solicitation. 
On March 18, 2004, the Knightspoint Group delivered to the Company
written consents.  On March 24, 2004, an
independent inspector certified that the consents delivered by Knightspoint
Group represented a majority of the Companys outstanding common stock
consenting to the election of the Knightspoint Groups nominees as directors of
the Company, the removal of seven of the nine members of the sitting Board and
the adoption of the Knightspoint Groups proposals included in such consents.

12

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements(Unaudited)
The material change in the composition of the Board resulting from the
Knightspoint Groups successful consent solicitation triggered change of
control provisions in various employment and stock option agreements between
the Company and certain of its executives and employees.  As described in Note 3 of the Notes to
Interim Condensed Consolidated Financial Statements included herein, in the
first quarter of 2004 the Company accrued $3.3 million related to the
accelerated vesting of executives benefits covered by the Companys
supplemental retirement plan.  In the
first and second quarters of 2004, the Company also accrued guaranteed bonuses
provided for in employment contracts of $76,000 for those covered executives
whose employment continues with the Company.
NOTE 9  DISCONTINUED OPERATIONS
During the second quarter of 2004, the Companys recently reconstituted
Board of Directors made a strategic decision to exit both the Mexican and
mobile photography operations which began operations in 2002.  This decision was made to allow the Company
to enhance focus on the core Sears Portrait Studios business as well as to
eliminate the ongoing operating dilution associated with these businesses.

The Company executed and completed its plan to exit both its Mexican
and mobile photography operations during the second quarter and recorded the
combined losses on the operations of its Mexican and mobile operations,
including the loss on disposition, net of tax, of $2.6 million, as a separate
component after net loss from continuing operations.  This $2.6 million loss in 2004 compares to an $809,000 loss from
such operations in the comparable quarter of 2003.  The prior years operating activities for these operations have
been reclassified to discontinued operations in the accompanying Interim
Condensed Consolidated Statements of Operations.
13

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements(Unaudited)

Sales and operating results for the Mexican and mobile photography
operations included in discontinued operations are presented in the following
table:
Mexico12 Weeks
  Ended
  
  24 Weeks
  Endedthousands
  
  July 24,
  2004
  
  July 19,
  2003
  
  July 24,
  2004
  
  July 19,
  2003Discontinued operations:Net sales
  
  
  $
  225
  
  
  
  $
  56
  
  
  
  $
  783
  
  
  
  $
  65Operating loss
  
  
  $
  (410
  )
  
  
  $
  (258
  )
  
  
  $
  (928
  )
  
  
  $
  (538
  )Loss on disposition
  
  
  
  (2,528
  )
  
  
  
  
  
  
  
  
  (2,528
  )
  
  
  
  Tax benefit
  
  
  
  (1,087
  )
  
  
  
  (100
  )
  
  
  
  (1,279
  )
  
  
  
  (207
  )Net loss from discontinued
  operations
  
  
  $
  (1,851
  )
  
  
  $
  (158
  )
  
  
  $
  (2,177
  )
  
  
  $
  (331
  )Mobile Photography12 Weeks Ended
  
  24 Weeks Endedthousands
  
  July 24, 2004
  
  July 19, 2003
  
  July 24, 2004
  
  July 19, 2003Discontinued operations:Net sales
  
  
  $
  493
  
  
  
  $
  137
  
  
  
  $
  1,020
  
  
  
  $
  203Operating loss
  
  
  $
  (249
  )
  
  
  $
  (1,059
  )
  
  
  $
  (1,555
  )
  
  
  $
  (1,515
  )Loss on disposition
  
  
  
  (921
  )
  
  
  
  
  
  
  
  
  (921
  )
  
  
  
  Tax benefit
  
  
  
  (433
  )
  
  
  
  (408
  )
  
  
  
  (916
  )
  
  
  
  (585
  )Net loss from discontinued
  operations
  
  
  $
  (737
  )
  
  
  $
  (651
  )
  
  
  $
  (1,560
  )
  
  
  $
  (930
  )Total Discontinued Operations12 Weeks Ended
  
  24 Weeks Endedthousands
  
  July 24, 2004
  
  July 19, 2003
  
  July 24, 2004
  
  July 19, 2003Discontinued operations:Net sales
  
  
  $
  718
  
  
  
  $
  193
  
  
  
  $
  1,803
  
  
  
  $
  268Operating loss
  
  
  $
  (659
  )
  
  
  $
  (1,317
  )
  
  
  $
  (2,483
  )
  
  
  $
  (2,053
  )Loss on disposition
  
  
  
  (3,449
  )
  
  
  
  
  
  
  
  
  (3,449
  )
  
  
  
  Tax benefit
  
  
  
  (1,520
  )
  
  
  
  (508
  )
  
  
  
  (2,195
  )
  
  
  
  (792
  )Net loss from discontinued
  operations
  
  
  $
  (2,588
  )
  
  
  $
  (809
  )
  
  
  $
  (3,737
  )
  
  
  $
  (1,261
  )14

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements(Unaudited)

The loss on disposition of the Mexican and mobile photography
operations consist of the following exit costs:

Total Exit Costs
  
  Non-cash Charges
  
  Cash Payments/Proceeds
  
  Reserve Balance at
  July 24, 2004Mexico
  
  Mobile
  
  Mexico
  
  Mobile
  
  Mexico
  
  Mobile
  
  Mexico
  
  MobilethousandsAsset disposals,
  impairments and write-offs
  
  $
  2,136
  
  $
  848
  
  $
  2,136
  
  $
  848
  
  $
  
  
  $
  
  
  $
  
  
  $
  Proceeds on sale of assets
  
  
  (120
  )
  
  (94
  )
  
  
  
  
  
  
  
  (120
  )
  
  (94
  )
  
  
  
  
  Lease settlements
  
  
  92
  
  
  
  
  
  
  
  
  
  
  
  92
  
  
  
  
  
  
  
  
  Severance
  
  
  407
  
  
  154
  
  
  
  
  
  
  
  
  407
  
  
  133
  
  
  
  
  
  21Other
  
  
  13
  
  
  13
  
  
  
  
  
  
  
  
  12
  
  
  8
  
  
  1
  
  
  5Total Exit Costs
  
  $
  2,528
  
  $
  921
  
  $
  2,136
  
  $
  848
  
  $
  391
  
  $
  47
  
  $
  1
  
  $
  26The combined reserve balance of $27,000 as of July 24, 2004 is included
with Accrued expenses and other liabilities in the Companys Interim
Condensed Consolidated Balance Sheet.
15


Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations
Managements Discussion and Analysis of Financial Condition and Results
of Operations is designed to provide the reader of the financial statements
with a narrative on the Companys results of operations, financial position and
liquidity, significant accounting policies and critical estimates, and the
future impact of accounting standards that have been issued but are not yet
effective.   Managements Discussion and
Analysis is presented in the following sections:  Executive Overview; Results of Operations; Liquidity and Capital
Resources; and Accounting Pronouncements and Policies.  It is useful to read Managements Discussion
and Analysis in conjunction with the interim condensed consolidated financial
statements and related notes thereto contained elsewhere in this document.
EXECUTIVE
OVERVIEW
The Companys Operations
CPI Corp. is a long-standing leader, based on sittings and related
revenues, in the professional portrait photography of young children and
families.  From the single studio opened
by its predecessor company in 1942, we have grown to 1,016 studios throughout
the United States, Canada and Puerto Rico under license agreements with
Sears.  We have provided professional
portrait photography for Sears customers since 1959 and have been the
exclusive Sears portrait studio operator since 1986.
As of the end of the
second quarter in fiscal 2004 and 2003, July 24, 2004 and July 19, 2003,
respectively, the Companys Sears Portrait Studio counts were:
July 24, 2004
  
  July 19, 2003United
  States and Puerto Rico:Within
  full-line Sears stores
  
  863
  
  
  860Locations
  not within Sears stores
  
  36
  
  
  41Canada
  
  117
  
  
  120Total
  
  1,016
  
  
  1,021In 2002, the Company commenced operations of a Mexican portrait studio
business and a mobile photography operation. 
During the second quarter of 2004, the Companys recently reconstituted
Board of Directors made a strategic decision to exit both the Mexican and
mobile photography operations.  This
decision was made to allow the Company to enhance focus on the core Sears
Portrait Studios business as well as to eliminate the ongoing operating
dilution associated with these businesses. 
During the first half of 2004, the Mexican and mobile photography
operations reported revenues of $783,000 and $1 million and losses, net of
associated tax benefits, of $2.2 million and $1.6 million, respectively.  The Company recorded pre-tax exit costs in
the second quarter of 2004 of $2.5 million and $921,000 related to the Mexican
and mobile photography operations, respectively.
16


RESULTS OF
OPERATIONS

A summary of consolidated results of operations and key statistics were
as follows:

12 Weeks Ended
  
  24 Weeks Endedthousands, except per share data and average sales per customer sitting
  
  July 24, 2004
  
  July 19, 2003
  
  July 24, 2004
  
  July 19, 2003Net sales
  
  
  $
  48,621
  
  
  
  $
  60,896
  
  
  
  $
  103,546
  
  
  
  $
  117,076Cost and expenses:Cost of sales
  
  
  
  6,579
  
  
  
  
  7,822
  
  
  
  
  14,229
  
  
  
  
  15,583(exclusive of depreciation and amortization shown below)Cost of sales as a percentage of net sales
  
  
  
  13.5
  %
  
  
  
  12.8
  %
  
  
  
  13.7
  %
  
  
  
  13.3
  %Gross margin as a percentage of net sales
  
  
  
  86.5
  %
  
  
  
  87.2
  %
  
  
  
  86.3
  %
  
  
  
  86.7
  %Selling, general and administrative expenses
  
  
  
  42,650
  
  
  
  
  49,218
  
  
  
  
  88,365
  
  
  
  
  96,989Selling, general and administrative expenses as a percentage of sales
  
  
  
  87.7
  %
  
  
  
  80.8
  %
  
  
  
  85.3
  %
  
  
  
  82.8
  %Depreciation and amortization
  
  
  
  3,681
  
  
  
  
  3,763
  
  
  
  
  7,546
  
  
  
  
  7,771Other charges and impairments
  
  
  
  3,941
  
  
  
  
  
  
  
  
  
  13,504
  
  
  
  
  56,851
  
  
  
  
  60,803
  
  
  
  
  123,644
  
  
  
  
  120,343Income (loss) from continuing operations
  
  
  
  (8,230
  )
  
  
  
  93
  
  
  
  
  (20,098
  )
  
  
  
  (3,267
  )Interest expense
  
  
  
  532
  
  
  
  
  715
  
  
  
  
  1,131
  
  
  
  
  1,484Interest income
  
  
  
  269
  
  
  
  
  564
  
  
  
  
  550
  
  
  
  
  938Other income, net
  
  
  
  105
  
  
  
  
  31
  
  
  
  
  150
  
  
  
  
  78Loss from continuing operations before income tax benefit
  
  
  
  (8,388
  )
  
  
  
  (27
  )
  
  
  
  (20,529
  )
  
  
  
  (3,735
  )Income tax benefit
  
  
  
  (1,869
  )
  
  
  
  (10
  )
  
  
  
  (6,361
  )
  
  
  
  (1,441
  )Net loss from continuing operations
  
  
  
  (6,519
  )
  
  
  
  (17
  )
  
  
  
  (14,168
  )
  
  
  
  (2,294
  )Net loss from discontinued operations, net of income tax benefit
  
  
  
  (2,588
  )
  
  
  
  (809
  )
  
  
  
  (3,737
  )
  
  
  
  (1,261
  )NET LOSS
  
  
  $
  (9,107
  )
  
  
  $
  (826
  )
  
  
  $
  (17,905
  )
  
  
  $
  (3,555
  )Net loss per share from continuing operations - diluted
  
  
  $
  (0.82
  )
  
  
  $
  
  
  
  
  $
  (1.76
  )
  
  
  $
  (0.28
  )Net loss per share from discontinued operations - diluted
  
  
  
  (0.32
  )
  
  
  
  (0.10
  )
  
  
  
  (0.46
  )
  
  
  
  (0.16
  )Net loss per share - diluted
  
  
  $
  (1.14
  )
  
  
  $
  (0.10
  )
  
  
  $
  (2.22
  )
  
  
  $
  (0.44
  )The Company reported a net loss for the 12-week second quarter ended
July 24, 2004 of $9.1 million, or $1.14 per diluted share compared to a net
loss of $826,000, or $0.10 per diluted share for the comparable quarter in
fiscal 2003.  As is discussed more fully
in the following paragraphs, the timing of Easter in 2004 versus 2003 had a
significant negative impact on the comparability of reported second quarter
sales in 2004 compared to 2003.  In
addition, the overall results of the second quarter of 2004 were also
significantly impacted by the recording of other charges and impairments and
the completion of the Companys previously announced plans to exit both its
Mexican and mobile photography operations which began operations in 2002.  Other charges and impairments totaling $3.9
million, $2.9 million on an after-tax basis or $0.36 per diluted share were
recorded in the second quarter of 2004 consisting principally of severance
accruals related to previously announced corporate headquarters staff
reductions, asset write-downs and write-offs resulting from ongoing changes in
strategic technology direction and accruals related to early contract
terminations and settlements.  During
the second quarter of 2004, the Company recorded a loss
17


from discontinued operations, net of income tax benefits, of $2.6
million related to the discontinuance of its Mexican and mobile photography
operations.  The $2.6 million recorded
in the second quarter of 2004 related principally to exit costs, a substantial
portion of which were non-cash charges relating to asset write-offs and
write-downs, to effectuate the operational shut down of the businesses and to a
much lesser extent ongoing operating losses during the period of operation
during the second quarter prior to shut down. 
This $2.6 million loss in 2004 compares to an $809,000 loss from such
operations in the comparable quarter of 2003.
Net sales totaled $48.6 million and $60.9 million in the second quarter
of fiscal 2004 and 2003, respectively.

  Consolidated
  net sales for the second quarter of 2004 decreased $12.3 million or 20.2% to
  $48.6 million from the $60.9 million reported in the second quarter of
  2003.  The timing of Easter, a
  seasonably important time for portraiture sales, had a significant impact on
  the timing of recognition of sales revenues between the Companys first and
  second quarters.  Most of the
  Companys Easter-related sales in 2004, an earlier Easter, were recognized as
  revenues, in accordance with the Companys revenue recognition policies, in
  the first fiscal quarter while such sales in 2003, a later Easter, were
  principally recognized in the second fiscal quarter. The comparability impact
  on the Companys first and second quarter sales related to the timing of
  Easter in 2003 and 2004 is eliminated in the to year-to-date sales
  comparisons for the 24-week periods ended July 24, 2004 and July 19, 2003
  which reflect a $13.5 million decrease or 11.6% to $103.5 million from the
  $117.1 million recorded in the first 24 weeks of 2003.
  During the
  second quarter of 2004, the Companys Sears Portrait Studios reported an
  18.4% decrease in sittings from 905,000 to 739,000 and a 2.9% decrease in
  average sale per customer sitting from $66.86 to $64.94.  After excluding the effects of the timing
  of Easter as discussed above, the Company believes that the continuing
  decline in second quarter sittings is attributable to several external and
  internal factors.  Among the external
  factors are the impacts of continuing competitive pressures, including the
  opening of new competitor locations and severe price discounting.  In addition, we believe the rate at which
  customers continue to adopt amateur digital photography technologies has
  accelerated which may be impacting the frequency of studio visits.  Internal factors potentially negatively
  impacting sittings include the Companys decision, beginning in the second
  half of 2003, to reduce studio employment costs through lower allocations of
  hours toward coverage and training/retention, which allocation is currently
  being partially restored, as well as the potential effect from reduced
  advertising spending in the fourth quarter of 2003, which is being addressed
  by implementation of a more targeted and focused marketing approach in the
  second half of 2004.  In addition, it
  is likely that some customers visiting our studios are receiving a less than
  optimal experience as a result of certain technology and support challenges
  caused by our aging studio infrastructure which also is currently under
  review as part of the reconstituted Boards review of options to transition
  the studios to full digital technology.The net
  decrease in average sale per customer sitting is the result of increased
  discounting in the early part of the year, which has now been substantially
  reversed, and the elimination of sitting fees on certain offers targeted at
  new customer acquisition, partially offset by the positive impact of a
  continuing mix shift toward the higher value custom offer.18

Costs and expenses were $56.9 million in the second quarter of 2004,
compared with $60.8 million in the comparable prior year period.

Cost of sales, excluding depreciation and amortization expense, as a
percentage of net sales was 13.5% in the second quarter of 2004, compared to
12.8% in the comparable quarter in 2003. 
Correspondingly, gross margin rates were 86.5% and 87.2% in the second
quarter of 2004 and 2003, respectively. 
The increase in cost of sales, as a percentage of sales, from the second
quarter of 2003 to the second quarter of 2004 was primarily the result of
reduced leverage on fixed manufacturing costs due to the substantially lower
sitting volumes experienced during the quarter.

  Selling,
  general and administrative expenses were $42.7 million and $49.2 million for
  second quarter of 2004 and 2003, respectively. As a percentage of sales,
  these expenses were 87.7% in 2004 and 80.8% in 2003.Selling,
  general and administrative expenses decreased $6.6 million in the second
  quarter of 2004 compared to 2003.  The
  decrease is primarily attributable to a reduction in employment costs of $1.5
  million ($1.1 million related to studio employment and $442,000 related to
  corporate headquarters employment costs), a reduction to commission expense
  of $1.9 million due to declining sales, a reduction in advertising expense of
  $851,000, and a reduction in pension expense of $419,000 due to a freeze on
  the accrual of future benefits which was effective late in the first quarter
  2004. The remaining decrease is a result of overall net decreases in various
  other categories of expenses resulting from the Companys cost reduction
  initiatives.
  Depreciation
  and amortization was $3.7 million in the second quarter of 2004, unchanged
  from the comparable quarter of 2003.
  Other
  charges and impairments reflect costs incurred from strategic actions
  implemented by the Company to restructure its operations, costs that are
  unpredictable and atypical of the Companys operations and additional charges
  due to asset impairments. In the second quarter of 2004, the Company
  recognized $3.9 million in other charges and impairments consisting of the
  following:12 Weeks
  Endedthousands
  
  July 24,
  2004Accruals
  related to guaranteed bonuses for 2004
  
  
  $
  76Impairment
  charges
  
  
  
  2,078Reserves for
  severance and related costs
  
  
  
  1,147Other
  
  
  
  640Total Other
  Charges and Impairments
  
  
  $
  3,941There were
  no similar charges in the same prior year period.19

o
  Guaranteed Bonuses for 2004In the first quarter of
  2004, change of control provisions in executive employment contracts were
  triggered as a result of the change in the composition of the Companys Board
  of Directors resulting from the completion of the consent solicitation.  As a result, in the second quarter of
  2004, the Company accrued additional guaranteed bonuses provided for in
  employment contracts of $76,000 for those covered executives whose employment
  continues with the Company.o
  Impairment ChargesDuring the second quarter
  of 2004, additional strategic decisions were made regarding the Companys
  technology platform that necessitated the write-off or write-down of certain
  other technology related assets to their anticipated fair value.o
  Reserves for Severance and
  Related CostsDuring the second quarter
  of 2004, the Company established a reserve for severance associated with
  previously announced headquarters staff reductions that occurred during the
  quarter.o
  OtherThe second quarter charges
  relate to accruals resulting from early contract terminations and settlements
  with certain of the Companys vendors as a result of strategic decisions to
  modify such relationships.
  Interest
  expense was $532,000 in the second quarter of 2004 compared to $715,000 in
  the comparable period of the prior year. 
  The reduction in interest expense is primarily a result of scheduled
  annual principal payments totaling $8.6 million made in June 2004 reducing
  the outstanding balance of the Senior Notes.
  Interest
  income was $269,000 in the second quarter of 2004 compared to $564,000 in the
  second quarter of 2003.  The decrease
  is primarily due to interest of $208,000 received in 2003 on an income tax
  refund, which did not occur in the current year.  The remaining decrease in interest income is due to declines in
  interest rates, the shortening of maturities in certain investments and lower
  average invested cash balances resulting from significant cash outlays for
  equipment purchases funded in the second quarter of 2004, a repurchase of
  company stock and principal and interest payments on the Companys senior
  notes.
  Income tax
  benefits on losses from continuing operations were $1.9 million and $10,000
  in the second quarter of 2004 and 2003, respectively.  These benefits resulted in effective tax
  rates of 22.3% in 2004 and 37.0% in 2003. 
  The lower effective income tax rate in the second quarter of 2004 was
  attributable to permanent differences associated with taxable gains primarily
  resulting from the surrendering of company owned life insurance policies held
  by a Rabbi Trust and previously used as funding vehicles for the Companys
  supplemental executive retirement plan and non-deductible expenditures
  related to the termination of certain Company executives.20

24 weeks ended July 24, 2004 compared to 24
weeks ended July 19, 2003

The Company reported a net loss for the 24-week first half of 2004 of
$17.9 million, or $2.22 per diluted share, compared to a net loss of $3.6
million, or $0.44 per diluted share for the comparable first half of fiscal
2003.  The overall results of the first
half of 2004 were significantly impacted by the $3.7 million net after-tax loss
recorded on the discontinuation of the Mexico and mobile photography operations
and by the recording of other charges and impairments.  Other charges and impairments during the
first half of 2004 totaled $13.5 million, $9.1 million on an after-tax basis or
$1.14 per diluted share.  The other
charges and impairments consist principally of additional costs incurred by the
Company in the first half of 2004 related to the then-ongoing consent
solicitation contest, accruals triggered by various change of control
provisions included in certain executive employment contracts and accruals, and
reserves and charges resulting from personnel and strategic direction decisions
made by the Companys recently reconstituted Board of Directors.

Net sales totaled $103.5 million and $117.0 million in the first half
of fiscal 2004 and 2003, respectively.

  Total net
  sales for the first half of 2004 decreased $13.5 million or 11.6% to $103.5
  million from the $117.1 million recorded in the first half of 2003.  This sales decline was driven by a 9%
  decrease in sittings from 1,794,000 to 1,638,000 coupled with a 4% decline in
  average sales per customer sitting from $64.91 to $62.39.  The Company believes that the continuing
  decline in first half sittings is attributable to several external and
  internal factors.  Among the external
  factors are the impacts of continuing competitive pressures, including the opening
  of new competitor locations and severe price discounting.  In addition, we believe the rate at which
  customers continue to adopt amateur digital photography technologies has
  accelerated which may be impacting the frequency of studio visits.  Internal factors potentially negatively
  impacting sittings include the Companys decision, beginning in the second
  half of 2003, to reduce studio employment costs through lower allocations of
  hours toward coverage and training/retention, which allocation is currently
  being partially restored, as well as the potential effects from reduced
  advertising spending in the fourth quarter of 2003 which is being addressed
  by implementation of a more targeted and focused marketing approach in the
  second half of 2004.  In addition, it
  is likely that some customers visiting our studios are receiving a less than
  optimal experience as a result of certain technology and support challenges
  caused by our aging studio infrastructure which also is currently under
  review as part of the new Boards review of options to transition the studios
  to full digital technology.The net
  decrease in average sale per customer sitting is the result of increased
  discounting in the early part of the year, which has now been substantially
  reversed, and the elimination of sitting fees on certain offers targeted at
  new customer acquisition, partially offset by the positive impact of a
  continuing mix shift toward the higher value custom offer.Costs and expenses were $123.6 million in the first half of 2004,
compared with $120.3 million in the comparable prior year period.

  Cost of
  sales, excluding depreciation and amortization expense, as a percentage of
  net sales was 13.7% in the first half of 2004, compared to 13.3% in the
  comparable period in 2003. Correspondingly, gross margin rates were 86.3% and
  86.7% in the first half of 2004 and 2003, respectively. The increase in cost
  of sales, as a percentage of sales, from the first half of 2003 to the first
  half of 2004 was primarily the result of increased markdowns on merchandise
  sales of frames and accessories that occurred during the first quarter in an
  effort to reduce inventory levels in the field and the reduced leverage on
  fixed manufacturing costs due to the lower sitting volumes experienced during
  the half.21


  Selling,
  general and administrative expenses were $88.4 million and $97.0 million for
  the first half of 2004 and 2003, respectively. As a percentage of sales,
  these expenses were 85.3% in 2004 and 82.8% in 2003.Selling,
  general and administrative expenses decreased $8.6 million in the first half
  of 2004 compared to 2003. The decrease in selling, general and administrative
  expenses is primarily attributable to decreases in employment costs of $3.2
  million ($2.6 million related to studio employment costs and $600,000 related
  to corporate headquarters employment costs), decreased commission expense of
  $2.2 million and overall net decreases in various other categories of
  expenses resulting from the Companys cost reduction initiatives. The decline
  in studio employment costs is the result not only of lower sitting and sales
  volumes but is also partially attributable to the Companys previously-discussed decision beginning in the second half of 2003 to reduce studio
  employment costs through lower allocation of hours toward coverage and
  training. The decline in corporate headquarters employment costs is the
  result of previously discussed executive and staff reductions that took place
  near the end of the first quarter and during the second quarter of 2004.
  Depreciation
  and amortization was $7.5 million in the first half of 2004, compared to $7.8
  million for the comparable period of 2003.
  Other
  charges and impairments reflect costs incurred from strategic actions
  implemented by the Company to restructure its operations, costs that are
  unpredictable and atypical of the Companys operations and additional charges
  due to asset impairments.  Other
  charges and impairments recorded in the first half of 2004 are as follows:12 Weeks
  Ended
  
  12 Weeks
  Ended
  
  24 Weeks
  Endedthousands
  
  May 1, 2004
  
  July 24, 2004
  
  July 24, 2004Accruals related to accelerated vesting of supplemental retirement plan benefits and guaranteed bonuses for 2004
  
  
  $
  3,414
  
  
  
  $
  76
  
  
  
  $
  3,490Impairment charges
  
  
  
  3,067
  
  
  
  
  2,078
  
  
  
  
  5,145Reserves for severance and related costs
  
  
  
  2,036
  
  
  
  
  1,147
  
  
  
  
  3,183Consent solicitation costs
  
  
  
  846
  
  
  
  
  
  
  
  
  
  846Other
  
  
  
  200
  
  
  
  
  640
  
  
  
  
  840Total Other Charges and Impairments
  
  
  $
  9,563
  
  
  
  $
  3,941
  
  
  
  $
  13,504There were no similar charges in the same prior year periods.
o
  Accelerated
  Vesting of Supplemental Retirement Plan Benefits and Guaranteed Bonuses for
  2004In the first
  quarter of 2004, change of control provisions in executive employment
  contracts were triggered as a result of the change in the composition of the
  Companys Board of Directors resulting from the completion of the consent
  solicitation.  As a result, the
  Company accrued $3.3 million related to the accelerated vesting of
  executives benefits covered by the Companys supplemental retirement plan
  and guaranteed bonuses provided for in employment contracts of $76,000 in the
  first and second quarters for those covered executives whose employment
  continues with the Company.o
  Impairment
  ChargesDuring the
  first quarter of 2004, the Companys new Board along with its new management
  leadership in the technology function, made a decision to materially alter
  the Companys22

previously
  planned and recently in-process technology platform that was to serve as the
  foundation for the eventual conversion to full digital technology in the
  portrait studios.  As a result of this
  decision, certain previously capitalized software development costs related
  to the development of the previous platform no longer have future utility to
  the Company and, accordingly, have been written off.During the
  second quarter of 2004, additional strategic decisions were made regarding
  the Companys technology platform that necessitated the write-off or
  write-down of certain other technology related assets to their anticipated
  fair value.o
  Reserves for
  Severance and Related CostsDuring the
  first quarter of 2004, the Company established a reserve for severance and
  related costs consisting principally of potential benefits related to
  severance pay and supplemental retirement plan costs associated with the
  dismissal of certain executives.  The
  amounts recorded in the second quarter relate to severance accruals
  associated with corporate headquarters staff reductions that occurred during
  the quarter.o
  Consent
  Solicitation CostsIn the first
  quarter of 2004, the Company incurred $846,000 of professional services costs
  related to the then-ongoing consent solicitation.  These costs include $148,000 of total consent-related costs
  incurred by the Knightspoint Group, which the Company has reimbursed.o
  OtherIn early
  March 2004, prior to the change of control, the Company received a lending
  commitment related to the proposed refinancing of its then-existing debt
  structure.  In exchange for that
  commitment, the Company paid a $200,000 non-refundable loan commitment
  fee.  Subsequent to the receipt of the
  commitment and prior to its funding, the consent solicitation was completed
  resulting in the installation of a new Board of Directors and the lending
  commitment expired, necessitating the write-off of the previously capitalized
  non-refundable fee during the first quarter of 2004.  The second quarter charges relate to
  accruals of $640,000 resulting from early contract terminations and
  settlements with certain of the Companys vendors as a result of strategic decisions
  to modify such relationships.
  Interest
  expense was $1.1 million in the first half of 2004 compared to $1.5 million
  in the comparable period of the prior year. 
  The reduction in interest expense is primarily a result of scheduled
  annual principal payments totaling $8.6 million made in June 2004 reducing
  the outstanding balance of the Senior Notes.
  Interest
  income was $550,000 in the first half of 2004 compared to $938,000 in the
  first half of 2003.  The decrease is
  primarily due to interest of $208,000 received in 2003 on an income tax
  refund, which did not occur in the current year.  The remaining decrease in interest income is due to declines in
  interest rates, the shortening of maturities in certain investments and lower
  average invested cash balances resulting from significant cash outlays for
  equipment purchases funded in the second quarter of 2004, a repurchase of
  Company stock and principal and interest payments on the Companys senior
  notes.23


  Income tax
  benefits on losses from continuing operations were $6.4 million and $1.4
  million in the first half of 2004 and 2003, respectively.  These benefits resulted in effective tax
  rates of 31.0% in 2004 and 39.0% in 2003. 
  The lower effective income tax rate in the second quarter of 2004 was
  attributable to permanent differences associated with taxable gains primarily
  resulting from the surrendering of company owned life insurance policies held
  by a Rabbi Trust and previously used as funding vehicles for the Companys
  supplemental executive retirement plan and non-deductible expenditures
  related to the termination of certain Company executives.LIQUIDITY AND
CAPITAL RESOURCES
The following table presents a summary of our cash flows used for the
first half of 2004 and 2003.

24 Weeks Endedthousands
    
    July 24, 2004
    
    July 19, 2003Net
        cash (used in) provided by:Operating activities
    
    
    $
    (10,980
    )
    
    
    $
    4,657Investing activities
    
    
    
    (8,985
    )
    
    
    
    (8,134
    )Financing activities
    
    
    
    (16,261
    )
    
    
    
    (10,788
    )Effect
        of exchange rate changes on cash
    
    
    
    41
    
    
    
    
    328Net
        decrease in cash
    
    
    $
    (36,185
    )
    
    
    $
    (13,937
    )Net Cash Used In Operating Activities
Net cash used in operating activities was $11.0 million during the first
half of 2004 compared to net cash provided by operating activities of $4.7
million in the first half of 2003.  The
increase in cash used in 2004 compared to 2003 resulted primarily from
increased net losses, which included expenses and charges related to the change
of control of the Companys Board of Directors and strategic and leadership
changes implemented by the recently reconstituted Board, and decreases in
accrued expenses resulting from funding payments for computer hardware,
peripherals and software development accrued in the fourth quarter of
2003.  These increases in cash used were
partially offset by $4.3 million in impairment charges and $3.3 million related
to the accelerated vesting of executives benefits covered by the Companys
supplemental retirement plan both of which did not require cash.  In addition, operating cash flows for the
first half of 2004 were also impacted by net changes in current assets from
2003, principally receivables from Sears and refundable income taxes.  The receivable from Sears decreased in 2004
due to declining sales.  Refundable
income taxes increased in 2004 as a result of the first half loss and the
receipt in the first quarter of 2003 of an income tax refund totaling $4.4 million.  Cash flows used in discontinued operations
in the first half of 2004 were $2.7 million versus $2.3 million used in the
comparable period of 2003.

Net Cash Used In Investing Activities
Net cash used in investing activities during the first half of 2004 was
$9.0 million compared to $8.1 in the first half of 2003.  The increase in cash used for investing
activities is primarily related to a reduction of $1.5 million in the Rabbi
Trust assets during the first half of 2003 resulting from funding lump sum
payments to certain former executives  
This was offset by a decrease in capital expenditures of $857,000.  In addition, there was a decrease of $2.1
million in net borrowings by Prints Plus under our revolving line of credit
offset by no voluntary redemptions in 2004 by Prints Plus on the Preferred
Security compared to $2.5 million of such redemptions in the first quarter of
2003.
24

Net Cash Used In Financing Activities
Net cash used in financing activities was $16.3 million in the first
half of 2004 compared to $10.8 million in the comparable prior year
period.  The increase in net cash used
in the first half of 2004 was primarily related to a $6.0 million repurchase of
Company shares in a negotiated transaction.  Also, there was a $332,000 increase in cash
dividends which resulted from the Board of Directors June 3, 2003 decision to
increase the annual dividend rate paid on the Companys common stock from $.56
per share to $.64 per share effective with the third quarter 2003 dividend
payment.  The increase in net cash used
was partially offset by an increase in proceeds from the issuance of common
stock for option exercises of $868,000.

As discussed in the Companys Annual Report on Form 10-K for its fiscal
year ended February 7, 2004, the Company has a $60.0 million Senior Note
Agreement and $15 million Revolving Credit Facility.  Since the Company has current minimal operating borrowing needs
other than to support $6.0 million in outstanding letters of credit as of July
24, 2004, the Company has reduced the Revolving Credit Facility to $7.5
million.  As of July 24, 2004, the
Company was in compliance with all covenants under both the amended Revolving
Credit Facility and the Senior Note Agreement.
Off-Balance Sheet Arrangements
Other than stand-by letters of credit to support our various
self-insurance programs and the ongoing guarantee of certain operating real
estate leases of Prints Plus, both of which are more fully discussed in the
following Contingencies section, the Company has no additional off-balance
sheet arrangements.
Contingencies
In July 2001, the Company announced the completion of the sale of its
Prints Plus Wall Decor segment, which included the ongoing guarantee of certain
operating real estate leases of Prints Plus. 
As of July 24, 2004, the maximum future obligation to the Company under
these guarantees is $7.5 million before any negotiation with landlords or
subleasing.  Based on scheduled lease
payments, the maximum future obligations will decrease an additional $2.4
million by the end of fiscal 2004, then by $2.9 million in 2005 and
approximately $2.2 million over the next two years. To recognize the risk of
potential defaults associated with these leases, a $1.0 million reserve was
established in 2001.  The $1.0 million
reserve was established assuming an average of 75 days of lease payments for
each of the 56 leases then guaranteed by the Company.  The 75 day estimate was based upon the Companys historical
experiences in settling lease obligations resulting from early terminations of
leases, taking into account the nature of prime mall space represented by the
guaranteed leases.  The Company has
recognized no losses to date related to their obligations under these
guarantees.  At July 24, 2004, the
Company had made no further allowances for defaults under these operating
leases as, in the opinion of management, Prints Plus is meeting the performance
standards established under the operating leases.
25


The Company uses stand-by letters of credit to support its various
self-insurance programs.  Letters of
credit are issued under CPI Corp.s revolving credit facility, generally having
a one-year maturity and are renewed annually. 
As of July 24, 2004, the Company had outstanding standby letters of
credit in the principal amount of $6.0 million.
Liquidity
Cash flows from operations and cash and cash equivalents on hand
represent our expected sources of funds in 2004 to meet our obligations and
commitments, including debt service, annual dividends to shareholders, planned
capital expenditures and normal operating needs.
Despite the trend of declining cash flows from operations and the
continuing challenging and competitive sales environment, we expect to generate
sufficient cash flow from operations in 2004, when coupled with cash on hand,
to meet the Companys obligations and commitments.
However, as referred to in the Executive Overview section of
Managements Discussion and Analysis in the Companys 2003 Annual Report on
Form 10-K for its fiscal year ended February 7, 2004, our recently
reconstituted Board is evaluating the possibility of effecting a significant
return of capital.  To effectuate such a
return of capital would require either debt covenant relief from our existing
Senior Note holders or a refinancing of the Senior Notes and an increase in our
existing revolving credit facility to handle potential seasonal cash flow
needs.  Based on our discussions to
date, our Senior Note holders have advised us that they are unwilling to grant
the debt covenant relief necessary to effectuate a significant return of
capital.  We have initiated preliminary
discussions with several banks regarding a potential refinancing of our
existing debt structure to determine the availability of adequate funding
sources on terms acceptable to the Company.
ACCOUNTING
PRONOUNCEMENTS AND POLICIES
Adoption of New Accounting Standards
There were no accounting standards issued during the second quarter of
2004, which will impact the Companys consolidated financial statements.
26


Application of Critical Accounting Policies
The Companys significant accounting policies are discussed in the
Notes to the Consolidated Financial Statements that are included in the
Companys 2003 Annual Report on Form 10-K that is filed with the Securities and
Exchange Commission.  In most cases, the
accounting policies utilized by the Company are the only ones permissible under
U.S. Generally Accepted Accounting Principles for businesses in our
industry.  However, the application of
certain of these policies requires significant judgments or a complex
estimation process that can affect the results of operations and financial
position of the Company, as well as the related footnote disclosures.  The Company bases its estimates on
historical experience and other assumptions that it believes are reasonable. If
actual amounts are ultimately different from previous estimates, the revisions
are included in the Companys results of operations for the period in which the
actual amounts become known.  The
accounting policies and estimates that can have a significant impact on the
operating results, financial position and footnote disclosures of the Company
are described in the Management Discussion and Analysis of Financial Condition
and Results of Operations in the Companys 2003 Annual Report on Form 10-K.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
The statements contained in this report, and in particular in the
Managements Discussion and Analysis of Financial Condition and Results of
Operations section that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, and involve risks and uncertainties. 
Management wishes to caution the reader that these forward-looking
statements, such as the Companys outlook for portrait studios, future cash
requirements, compliance with debt covenants, valuation allowances, and capital
expenditures, are only predictions or expectations; actual events or results
may differ materially as a result of risks facing the Company.  Such risks include, but are not limited
to:  customer demand for the Companys
products and services, the overall level of economic activity in the Companys
major markets, competitors actions, manufacturing interruptions, dependence on
certain suppliers, changes in the Companys relationship with Sears and the
condition and strategic planning of Sears, fluctuations in operating results,
the condition of Prints Plus Inc., the attraction and retention of qualified
personnel, unforeseen difficulties arising from installation and operation of
new equipment in our portrait studios and other risks as may be described in
the Companys filings with the Securities and Exchange Commission, including
its Form 10-K for the year ended February 7, 2004.
27


Item 3.  Quantitative and Qualitative Disclosures
About Market Risk
Market risks relating to the Companys operations result primarily from
changes in interest rates and changes in foreign exchange rates.  The Companys debt obligations have
primarily fixed interest rates, therefore, the Companys exposure to changes in
interest rates is minimal. The Companys exposure to changes in foreign
exchange rates relates to its Canadian operations and is also minimal, as these
operations constitute 10.1% of the Companys total assets at July 24, 2004 and
7.0% of the Companys total sales for the 24 weeks then ended.
Item 4.  Disclosure Controls and Procedures
An evaluation of the Companys disclosure controls and procedures (as
defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the
Act) was carried out under the supervision and with the participation of the
Companys Chief Executive Officer, Chief Financial Officer and several other
members of the Companys senior management as of the end of the period
reported. The Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures as currently in
effect are effective in ensuring that the information required to be disclosed
by the Company in the reports it files or submits under the Act is (i)
accumulated and communicated to the Companys management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.
In the quarter ended July 24, 2004, the Company did not make any
significant changes in, nor take any corrective actions regarding, its internal
controls or other factors that could significantly affect these controls.  In addition, since the date of this evaluation
to the filing date of this Quarterly Report, there have been no significant
changes in the Companys internal controls or in other factors that could
significantly affect internal controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
28


PART II.   OTHER INFORMATION
Item 4. Results of Votes of
Security Holders
The Annual meeting of Shareholders was held in St. Louis, Missouri on
Thursday, July 22, 2004.  The following
items were voted on and the results are listed below:
1.
  The
  following individuals were elected to the Companys Board of Directors:Name
  
  Shares For
  
  Shares
  WithheldJames J. Abel
  
  7,501,682
  
  82,265Michael S. Koeneke
  
  7,503,251
  
  80,696John M. Krings
  
  7,510,999
  
  72,948David M. Meyer
  
  7,502,457
  
  81,490Mark R. Mitchell
  
  7,512,595
  
  71,352Steven J. Smith
  
  7,490,988
  
  92,959John Turner White IV
  
  7,499,871
  
  84,0762.
  The Board of
  Directors appointment of KPMG LLP to audit the Companys financial statements
  for the 2004 fiscal year:For
  
  Against
  
  Abstain7,477,934
  
  104,313
  
  1,7003.
  Modifications
  to the CPI Corp. Restricted Stock Plan:For
  
  Against
  
  Abstain4,071,182
  
  940,114
  
  2,572,65129


Item 6.  Exhibits and Reports on Form 8-K
a.
  ExhibitsAn Exhibit
  Index has been filed as part of this Report on Page E-1.b.
  Reports on
  Form 8-K.-
  
  On May 21,
  2004, CPI Corp. filed an 8-K Current Report on the issuance of a press
  release dated May 19, 2004 announcing the decision to exit its mobile
  photography and Mexican operations.-
  
  On June 7,
  2004, CPI Corp. filed an 8-K Current Report on the issuance of a press
  release dated June 2, 2004 announcing 2004 first quarter results.-
  
  On June 23,
  2004, CPI Corp. filed an 8-K Current Report on the issuance of a press
  release dated June 22, 2004 announcing that it had purchased 406,780 shares
  of its common stock in a negotiated transaction.30

CPI CORP.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CPI Corp.
  (Registrant)By:
  /s/ Gary W.
  DouglassGary W.
  DouglassExecutive
  Vice President, Finance and Chief Financial Officer
  (Principal Financial Officer)Dated:
  September 2, 2004By:
  /s/ Kimberly
  A. LaBelleKimberly A.
  LaBelleVice
  President, Corporate Controller
  (Principal Accounting Officer)Dated:  September 2, 200431

CPI CORP.

E-1
EXHIBIT INDEX



Exhibit No.3.11
  
  Amendment to
  Bylaws of the Company11.1
  
  Computation
  of Per Share Earnings - Diluted - for the 12 and 24 weeks ended July 24, 2004
  and July 19, 200311.2
  
  Computation
  of Per Share Earnings - Basic - for the 12 and 24 weeks ended July 24, 2004
  and July 19, 200331.1
  
  Certification Pursuant to
  Rule 13a-14(a) Under the Securities and Exchange Act of 1934 by the Chief
  Executive Officer31.2
  
  Certification Pursuant to
  Rule 13a-14(a) Under the Securities and Exchange Act of 1934 by the Chief
  Financial Officer32.0
  
  Certification Pursuant to
  18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Chief Financial
  Officer32