EXHIBIT (13)













                 1996 ANNUAL REPORT TO SHAREHOLDERS
































                              24
<PAGE>

(Front cover of Annual Report to Shareholders)

(Pictures:  on this page are four picture groups.  Starting in
            the left hand corner and continuing counter-
            clockwise are: pictures of a small girl with a bow
            in her hair being displayed on studio monitor for
            customer selection through the Portrait Preview
            System(SM); three pictures of various sizes 
            selected from the monitor display for framing; near
            completed Portrait Creation; and a completed 
            Portrait Creation on display.)




CPI CORP.
1996 ANNUAL REPORT
Blending technology, ingenuity and customer service to define
our direction for tomorrow


































<PAGE>

AT A GLANCE
-----------
With almost 1,200 retail locations, CPI is the market leader
in two industries-preschool portrait photography and wall
decor retailing. Following three years of declining profits
due mainly to intense competition in its core business,
portrait photography, the Company recorded a turnaround in
operating earnings in 1994 and 1995. Although earnings again
fell in 1996, primarily due to increased expenses associated
with repositioning the portrait studios, management believes
that long-term profits will show increasing growth as a result
of the following:

CONTINUING INVESTMENT TO MAINTAIN ITS LEADING POSITION IN THE
PRESCHOOL PORTRAIT PHOTOGRAPHY MARKET
- As the exclusive Sears Portrait Studios operator, CPI         
  continues a 36-year partnership, with over 1,000 studios      
  (925 in all major Sears stores in the U.S. and Canada, and    
  103 in non-Sears shopping centers).
- Despite the high level of competition, the Company has        
  maintained market share while concurrently improving its      
  position by developing new marketing programs employing       
  digital imaging technology to significantly enhance products  
  and elevate customer service. CPI has invested approximately  
  $108 million thus far in a phased $150 million development    
  program. New technology has been installed in all studios,    
  and almost half have been enlarged and remodeled. Completion  
  of the development program will involve additional remodels   
  and technology upgrades.
- Further growth is anticipated as a result of enthusiastic     
  customer response to the new programs, which continue to be   
  enhanced and expanded.

CONTINUING INVESTMENT TO MAINTAIN ITS LEADING POSITION IN THE 
RETAIL WALL DECOR BUSINESS 
- Prints Plus is the leading company-owned retailer of          
  posters, prints and framing service in the U.S., offering a   
  very wide product selection tailored to local market          
  preferences, plus "while-you-wait" framing service.
- Acquired in May 1993, the new business has contributed to     
  CPI's operating earnings each year since then.  
- Management is developing a program of upgraded products and   
  services, some of which may employ new applications of
  digital imaging technology. 
- Plans call for continuing development of this business,
  adding stores in prime mall locations over the next several   
  years.

JOINT VENTURE WITH EASTMAN KODAK COMPANY IN THE INCREASINGLY
COMPETITIVE ONE-HOUR PHOTOFINISHING MARKET 
- Kodak purchased a 51% share of CPI's Fox Photo, Inc.          
  subsidiary in October 1996 with a cash payment of $56.1       
  million, while CPI retained a 49% interest in the business.
<PAGE>
- The objective of the joint venture is to move the
  photofinishing business from a routine photo processing
  procedure to a creative imaging operation offering a broad
  spectrum of specialized imaging services, combining Kodak's
  and CPI's diverse expertise in digital imaging technology
  and retail marketing.
- The Fox joint venture is developing a proven business model
  with a strong retail identity-Fox Photo/Kodak Image Center
  Solutions. After this is achieved, Kodak management intends
  to make the basic concepts available through trade licenses   
  to other specialty retailers.

A COMPANY-WITHIN-THE-COMPANY BRINGING THE LATEST IN DIGITAL
IMAGING TECHNOLOGY TO THE MARKET PLACE
- A deep reservoir of highly skilled software analysts, 
  spearheaded by the Strategic Development marketing
  application group, is actively engaged in translating the
  latest technology into consumer benefits. This development
  group has mainly benefitted CPI's portrait studios and
  Photofinish labs thus far, but it embodies a technical
  foundation capable of supporting other related imaging
  efforts outside the Company's current endeavors.

Capital for the expansion and upgrading of CPI's various
businesses will come from cash flow, with supplemental funding
from available short-term bank financing.



























<PAGE>

ACCOMPLISHMENTS AND HIGHLIGHTS
------------------------------
1996 ACCOMPLISHMENTS
- In Sears Portrait Studios, new product offerings resulted in
  moderate gains in customer traffic and division sales.
  Operating earnings, however, declined due to higher levels
  of expenses, along with continued investment related to
  enlarging and remodeling studios and continued development    
  of new technology-based products and services for             
  introduction in 1997 and beyond. 
- The Company expanded its Prints Plus operation with the net
  addition of 12 new locations, bringing the total to 156,
  with further expansion planned for 1997 and beyond. For the
  fourth consecutive year since acquisition, the division made  
  a contribution to corporate profits, although less than in    
  prior years. Prints Plus began tests of new products and      
  services with the objective of repositioning and upgrading    
  the business relative to competition.
- CPI entered a photofinishing joint venture with Kodak,        
  selling a 51% share in the Fox Photo division for $56.1
  million, while retaining a 49% share. This venture allows
  CPI to continue its participation in the rapidly evolving     
  photofinishing business, enjoying upside rewards while        
  minimizing risk.
- The Company repurchased 2.25 million shares of common stock   
  with proceeds from the joint venture, increasing the 
  proportionate value of continuing shareholders' interest.


























<PAGE>

<TABLE>
FINANCIAL HIGHLIGHTS (millions of dollars, except percents and
per share data, continuing operations only)

<CAPTION>
                                          One Year
                         1996     1995    % Change    1991
                        -------  -------  --------  -------
<S>                     <C>      <C>      <C>       <C>
Sales
------
  Portrait Studios      $289.8   $279.6     3.7 %   $279.0
  Photofinishing         114.5    188.4   (39.2)%    121.4
  Wall Decor              62.7     58.7     6.7 %        -
     Total              $467.0   $526.7   (11.3)%   $400.4
------------------------------------------------------------
Operating earnings
  Portrait Studios      $ 35.7   $ 42.6   (16.3)%   $ 56.5
  Photofinishing           0.1      3.3   (97.5)%      7.7
  Wall Decor               3.2      5.4   (39.3)%        -
     Total                39.0     51.3   (24.0)%     64.2
Net earnings,
  continuing operations   14.4*    17.6   (18.7)%     29.7
------------------------------------------------------------
Average shares 
  outstanding (millions)  13.5     14.0    (3.4)%     15.1
------------------------------------------------------------
Per Share:
  Earnings, continuing
    operations          $  1.06* $  1.26  (15.9)%   $  1.97
  Dividends                0.56     0.56      -        0.56
  Tangible book value     11.90     8.88   34.0 %      7.09
  Price:
      High              $ 21.13  $ 22.13      -     $ 34.75
      Low                 13.88    14.25      -       21.88
------------------------------------------------------------

<FN>
* includes $3.9 million after-tax gain ($0.29/share) on joint
  venture sale.
</FN>

</TABLE>

Caption on the above table:
- Portrait Studio and Wall Decor sales increased slightly in
  1996, although both divisions experienced declines in
  operating earnings. Photofinishing results are for first 35
  weeks of FY 1996 and do not include minority interest in
  joint venture for balance of the year.



<PAGE>
<TABLE>
SEGMENT RESULTS IN MILLIONS OF DOLLARS - SALES

<CAPTION>

                           Portrait    Photo-    Wall
                           Studios   finishing   Decor
<S>                        <C>        <C>        <C>
1996                       $ 290      $ 114      $ 63
1995                         280        188        59
1991                         279        121         -
</TABLE>

<TABLE>
SEGMENT RESULTS IN MILLIONS OF DOLLARS - OPERATING INCOME

<CAPTION>

                           Portrait    Photo-    Wall
                           Studios   finishing   Decor
<S>                        <C>        <C>        <C>
1996                       $ 35.7     $  .1      $ 3.3
1995                         42.6       3.3        5.4
1991                         56.5       7.7          -
</TABLE>

Caption on the above charts:
- Portrait Studio and Wall Decor sales increased slightly in
  1996, although both divisions experienced declines in
  operating earnings. Photofinishing results are for first 35
  weeks of FY 1996 and do not include minority interest in
  joint venture for balance of the year.

                         page 1



















<PAGE>

OVERVIEW
--------
A FOCUSED APPROACH TO SPECIALTY RETAILING - CPI's success over
its more than 50 years of retailing history is the result of
applying operating principles based on:
- aggressive maintenance of market leadership;
- innovative marketing programs;
- strategic partnering with industry leaders;
- significant performance incentives for management; and
- heavy reinvestment of cash flow to support growth
  initiatives.

BUSINESS PHILOSOPHY - The depth of experience and leadership
skills of CPI's senior management have helped develop a
philosophy of concentrating on long-term results, rather than
focusing on short-term achievements or setbacks. That
philosophy has been validated by the Company's repositioning 
of its Portrait Studio division over the past several years, a
period in which it maintained market leadership-at the cost of
temporarily reduced earnings-in a sustained competitive
struggle. Strong cash flow, even in this period, has enabled 
CPI to protect shareholder value through a combination of
expansion, acquisitions, dividends and repurchase of shares.

DISTINCT DIFFERENCES - CPI differs from typical retailers in
several significant aspects:  
- CPI has historically been at the forefront in developing
  and implementing new consumer marketing and operating
  programs that enhance products and services through the
  application of advanced technology.
- Whereas most retailers focus on the acquisition, display 
  and resale of products, CPI's businesses focus more on
  providing high value-added services. These services employ
  state-of-the-art technology and yield unusually high gross
  margins. The technology represents a significant investment
  in both software and production hardware, much of which was
  developed internally on a proprietary basis.  
- The management of inventory is a continuing challenge for
  most retailers. The three typical problems in this area are
  onerous working capital requirements, obsolescence and
  shrinkage. CPI's primary business-Portrait Studios-has
  significant freedom from each of these. Inventory consists
  primarily of production materials related to work in
  progress and is relatively small compared to that of 
  typical retailers.  Therefore, it is less burdensome on
  working capital.  Obsolescence is not a factor because 
  CPI's services take the form of personalized products, 
  i.e., photographs of a customer's baby. Finally, shrinkage
  is non-existent because those photos are of value only to
  the purchaser.  
- CPI's Portrait Studios may be less negatively affected by
  general economic downturns than are many retailers. This is
  because much of the activity is driven by time-specific
<PAGE>
  personal events, such as birthdays, graduations, or holidays.
  Customers do not tend to defer purchases for such occasions. 

CPI will continue to pursue new avenues of growth in
high-margin consumer businesses which are positioned (or can
be repositioned) at the high end of the market and are:
  - responsive to promotional marketing;
  - expandable on a broad geographic scale;
  - operated as small retail units;
  - controllable with system-wide monitoring; and
  - focused on high value-added technology-based services.

By applying its operating experience and financial strength to
new retailing opportunities, the Company hopes to continue to
build on its solid base, ensuring long-term growth.  

<TABLE>
SALES IN MILLIONS OF DOLLARS

<CAPTION>
                      Dollars  
<S>                   <C>      
1987                  $ 283
1988                    311
1989                    337
1990                    361
1991                    400
1992                    434
1993                    460
1994                    518
1995                    527
1996*                   467

<FN>
* 1996 includes only 35 weeks of Photofinishing revenues.
</FN>

</TABLE>

Caption on the above chart:
Since 1986, the compound annual sales growth rate has
averaged 6.3% through 1996.











<PAGE>
<TABLE>
EPS - CONTINUING OPERATIONS AND DIVIDENDS PER SHARE
<CAPTION>
                           Earnings     Dividends 
<S>                        <C>          <C>
1987                       $ 1.54       $ 0.17
1988                         1.95         0.25
1989                         2.15         0.42
1990                         2.28         0.50
1991                         1.97         0.56
1992                         1.69         0.56
1993                         1.03         0.56
1994                         1.18         0.56
1995                         1.26         0.56
1996                         1.06         0.56

</TABLE>

Caption on the above chart:
Since 1986, the compound annual sales growth rate has
averaged 6.3% through 1996.

                         page 2






























<PAGE>
FINANCIAL HIGHLIGHTS
--------------------
SALES AND EARNINGS - From the initial public offering in 1982
through fiscal 1990, CPI averaged a compound annual growth in
sales of 15.7% and in earnings per share of 19.7% from
continuing operations. Net earnings as a percentage of sales
averaged 8.3% during this period, and the average return on
equity was 30.7%. The growth was due primarily to the 
aggressive expansion of the Sears Portrait Studios operation
and, secondarily, to the 1982 launch and subsequent development
of the CPI Photofinish division. After peaking in 1990, net 
earnings declined in each of the following three years as a
result of an increasingly competitive environment in the
portrait industry. The earnings decline was reversed in 1994
and 1995, primarily due to significant sales and profit growth
in the Portrait Studio segment with the introduction of new
technology-based marketing programs, plus the full-year 
contribution of the Prints Plus wall decor business in 1994.

FISCAL 1996 - CPI's net sales from continuing operations
declined 11.3% to $467.0 million from $526.7 million due to the
inclusion of only partial-year photofinishing revenues in 1996.
Net earnings from continuing operations declined to $14.4
million in 1996 from the prior year's $17.6 million, and
earnings per share from continuing operations were $1.06
compared to $1.26. The 1996 earnings included a gain of $3.9
million, or $0.29 per share, from the sale of a 51% share of
the Photofinishing division. Including losses from discontinued
operations, 1995 net earnings and net earnings per share were
$14.3 million and $1.02, respectively.

Portrait Studios sales in 1996 increased 3.7% to $289.8 million
from $279.6 million, primarily as a result of aggressive
promotion, positive consumer response to the new technology-
based marketing programs, and the studio remodeling program.
Operating earnings declined to $35.7 million from $42.6
million, however, due mainly to high expenses related to the
new technology, plus increased studio labor costs. Operating
margin as a percentage of sales was 12.3% compared to the prior
year's 15.2%.

Photofinishing sales for the 35 weeks through the October 4,
1996 consummation of the joint venture with Kodak were $114.5
million compared to the full prior-year total of $188.4
million. CPI's pre-venture operating earnings were $82,000,
and its minority share of post-venture operations was a
$485,000 loss. In fiscal 1995, full-year earnings were $3.3
million.

Sales in the Wall Decor segment were $62.7 million, up from
$58.7 million, in the company's third full year operating the
Prints Plus chain since its 1993 acquisition.  The growth was
primarily from new stores opened in the year. Operating 
<PAGE>
earnings declined to $3.3 million from $5.4 million in 1995,
mainly due to reduced same-store sales from the weak fourth
quarter retail activity, plus start-up expenses related to the
new stores.

FINANCIAL STRENGTH - EBITDA-earnings before interest, income
taxes, depreciation and amortization-is a measure commonly used
and is presented to assist in understanding operating results. 
EBITDA has historically remained strong, even in periods of
lower earnings, averaging over $65 million during the last ten
years. This, along with a strong balance sheet, has enabled CPI
to pursue growth through enhancement of its product and service
offerings and location expansion, and increase shareholder
value through dividends and repurchase of shares. Cash
disbursements in 1996 included $34.7 million in capital
expenditures and $7.5 million in dividends.

STOCKHOLDERS' EQUITY - From $22.8 million at the end of fiscal
1982, stockholders' equity reached $139.5 million in 1996, 
primarily through retained earnings. Cash returned to
stockholders consisted of cumulative dividends of $71.3 million
since the initiation of a regular quarterly payment in December
1985 and $74.5 million used to purchase Company stock under
stock repurchase plans authorized in September 1988 and 1992.
Unrelated to those plans, another $43.6 million in cash
received from the sale of 51% interest in the Photofinishing
division to Kodak was used in 1996 to repurchase 2.25 million
shares.

<TABLE>
<S>                 <C>              <C>
Symbol/ Market:     CPY              (NYSE)
Market Price:       17 1/8           (4/14/97)
Price Range:        13 5/8 - 21 1/4  (12 months ended 4/14/97)
Market 
  Capitalization:   $200.9 million   (4/14/97)
Shares Outstanding: 11,730,333       (4/14/97)
12 Months Earnings 
  Per Share:        $1.06            (FY '96)*
Dividend Rate:      $0.56 per share
Current P/E:        16.16            (4/14/97)

<FN>
* Continuing operations
</FN>
</TABLE>







<PAGE>

<TABLE>
FINANCIAL RATIOS FYE
<CAPTION>
                            2/1/97     2/3/96
<S>                         <C>        <C>
Income from operations*      4.4%       6.0%
Tax rate                    37.0%      36.1%
Net earnings*                3.1%       3.4%
Return on assets*            4.8%       5.9%
Return on equity*            8.2%      10.6%
<FN>
* Continuing operations
</FN>
</TABLE>

<TABLE>
EBITDA AND NET EARNINGS IN MILLIONS OF DOLLARS

<CAPTION>
                           EBITDA       Net Earnings
<S>                        <C>          <C>
1987                       $ 61.7       $ 25.8
1988                         67.8         32.6
1989                         67.0         33.8
1990                         68.6         35.0
1991                         67.6         29.7
1992                         65.0         24.8
1993                         53.4         15.1
1994                         66.5         16.6
1995                         73.2         17.6
1996                         64.5         14.4

</TABLE>

Caption on the above chart:
- EBITDA has historically remained strong, even in periods of
  lower earnings.

                         page 3














<PAGE>

(Picture:  on this page is a picture of Alyn V. Essman
           captioned:  "Alyn V. Essman, CPI Chairman of the
           Board and Chief Executive Officer.")

TO OUR SHAREHOLDERS
-------------------
The past year was a tumultuous one in which we continued the
major repositioning effort that has consumed our attention for
the past five years.  While continuing the development of the
new portrait studio culture, we also restructured our interest
in photofinishing by creating with Eastman Kodak a new
partnership that provides the opportunity to rigorously test
new retail service concepts without straining capital resources
or risking serious loss.

The net result of the venture was a significant improvement in
our balance sheet, as we effectively monetized over $50 million
of goodwill and established a firm valuation on our remaining
49% ownership.  We now have the opportunity to participate in a
successful development of this business or exit profitably,
depending on the situation.

As a further result of this initiative, we applied much of the
cash received from Kodak to repurchase a large block of common
shares in a tender offer, which served our often-stated
objective of returning value to our shareholders as it is
created.

Following our exit last year from the copy services business,
these activities characterize an attitude of focused attention
on the businesses that represent the foundation of CPI's
future.  Although the 1996 operating results in the Sears
Portrait Studios were somewhat disappointing, the direction is
not.  The failure to achieve a level of revenue growth that
would have absorbed the extraordinary development expenses
is a temporary interruption in the profit recovery pattern,
but it is not a setback in our long-range plan.  During 1997
we will continue to address our attention to improving top
line results and controlling expenses that tend to grow out of
proportion in times of dramatic change.  We are confident in 
our ability to make significant progress on those fronts.

                         page 4

The analysis of 1996 expenses - and even the planning for
1997 - must take into account the substantial investments we
continue to make in technology that will benefit the Portrait
Studios in the future.  These investments are embodied in a 
virtual company-within-the-company:  a highly skilled group
of software specialists pioneering new retail applications
of digital imaging technology, radically changing the ways
we conduct our business and how our customers view us.
This group has mainly benefitted our Portrait Studios and
<PAGE>
Photofinishing labs thus far, but it represents a technical
foundation capable of supporting other related imaging
efforts outside our current endeavors.

We recognize the difficulties in the Wall Decor business and
the necessity to overcome them in 1997.  We will moderate our
investment programs as we carefully examine opportunities and
obstacles.  None of us expect to run businesses without
encountering problems.  In fact, management's charge is not
to ride the waves of success, but rather to navigate the
shoals effectively.  CPI's management has demonstrated the
capacity to manage difficult situations effectively.  There
is no reason to expect any less of us in this case.

The past five years have been a trying time as we have 
redirected our efforts to the protection of existing values,
while providing ample opportunity for the development of new
values to the long-term benefit of our shareholders.  As we 
move to implement the technology in support of our viable 
ongoing businesses, we are looking for ways to commercialize 
that same technology to develop new revenue and profit 
opportunities.  Development expenses will continue to be
significant during 1997 and into 1998, but we are already 
beginning to see where we can realize the fruit of our
efforts.

We do not mean to imply that with the developments of the
past few years we will solve all problems, present and
future.  We are living in an age in which virtually all
industries are experiencing rapid evolution in basic
processes, sometimes causing structural changes.  In the
realm of digital imaging, new developments unfold with
breathtaking speed, so it is almost certain that we will
never be able to sit back and say, "We have arrived."
However, our journey to new performance heights will be
significantly enhanced by these initiative.

April 14, 1997
Alyn V. Essman


Alyn V. Essman
CPI Chairman of the Board and Chief Executive Officer

                         page 5








<PAGE>
(Pictures:  on this page are two pictures.  One picture is of
            a small girl holding a stuffed animal.  The second
            picture is of the Sears "Golden Opportunities"
            award, which CPI was awarded in 1996.

SEARS PORTRAIT STUDIOS
----------------------
CPI's major business is professional portrait photography of
babies, children, adults and family groups in 1,028 permanent
studios, which CPI operates in the U.S., Puerto Rico and Canada
as Sears' exclusive portrait photography concessionaire.

THE PRE-SCHOOL PORTRAIT MARKET - The Company believes it is the
largest participant in the over $1 billion portrait market of
children under six years old. Although earlier U.S. Census
Bureau population projections predicted declining preschool
population through the year 2000, for several years the birth
rate has been in the four million range annually, supporting
what should be a strong market for some time to come. Lending
further support, the population of grandparents-the most common
recipients of photos-is growing as Americans live longer.  

CPI's typical customer is a mother under 35 years old, with one
or two preschool children, and is a member of a middle-income
household. Research indicates that she values photographers who
are friendly and work well with children, taking the time to
make sure each photograph satisfies her needs.  

CPI-SEARS RELATIONSHIP - CPI is Sears' exclusive portrait
service and its leading concessionaire, with the over 35-year
relationship benefiting both companies. Throughout this long
period, CPI and Sears have worked together in creating the mass
portrait market, progressing from traveling photographers to
permanent studios, developing pre-printed full-color portrait
packages, and introducing services based on state-of-the-art
technology such as the Portrait Preview System(SM).  As evidence
of its ongoing contributions and importance to Sears, CPI has
been awarded the prestigious "Partners in Progress" award in
eleven of the past fourteen years, and in 1995, Sears bestowed
on CPI the first "Partners in Progress" award ever accorded a
concessionaire in Canada. Still more noteworthy, in 1994 Sears
honored CPI with the first "Chairman's Award" ever to be
awarded to a Sears 

                         page 6

(Pictures:  on this page are seven pictures.  Beginning at the
            top of the page and descending are six pictures
            of various sizes showing a small boy's portrait 
            with different backdrops or poses.  The seventh
            picture shows a mother holding her small boy while
            an employee displays the portraits on the Portrait
            Preview System(SM).)
<PAGE>
Licensed Business in recognition of the significance of CPI's
ground-breaking, technology-based marketing program. Most
recently, in 1996 CPI was the sole recipient of the newly
created Sears "Golden Opportunities" award for the most
responsive handling of customer complaints of all Sears
concessionaires. 

The trust and integrity that the Sears name confers are
powerful assets in CPI's dealings with customers. The value of
these assets has been further strengthened by the resurgence of
Sears as a formidable competitor in the department store arena.

Through its relationship with CPI, Sears receives substantial
license fees, but makes only minimal investment of its own
capital and management resources. Sears provides floor space
and basic services, and Sears' daily cash management and
accounting systems provide CPI with valuable control
mechanisms. CPI recruits, trains and manages its own personnel,
develops and executes its own advertising and marketing plans,
and makes its own investment in improvements and equipment. In
1996, CPI spent $39.4 million, representing 13.7% of sales, in
advertising the Sears name in connection with the portrait
studios. The advertising was primarily directed to women with
young children, a highly valued customer base for Sears.

RECENT DEVELOPMENTS - With CPI's Sears program as a model,
competition in the U.S. preschool photography market began
increasing dramatically in 1990. Concessionaires of other large
chain retailers- JCPenney, Kmart and Wal-Mart-began converting
their traveling photography operations to permanent studios,
while also installing studios in new stores being opened by
those retailers. The expansion continued unabated through 1996,
with the number of directly competing permanent studios
increasing from just over 600 to about 3,600 over the seven-
year period. During the same time span, the number of Sears
studios in the U.S. only increased from 840 to 909, including
studios added in malls without a Sears store.

The competitive expansion was supported by increasingly
aggressive promotions offering more and more portraits at very
low prices. The large advertised packages decreased the 
probability that a customer would purchase additional
portraits, and thereby significantly capped the profit
potential from additional sales. CPI responded to this
challenge with aggressive promotional campaigns to maintain its
leading position, and concurrently developed new technology-
based marketing programs that could provide a significant,
lasting competitive advantage to the Company. The architecture
of the computer system operating the programs was designed to
allow for expansion far into the future. CPI engineers and
programmers created almost all of the software for the
programs.

<PAGE>
The new marketing programs were developed by a special
Strategic Development (SD) task force which was charged with
achieving a full understanding of customers' desires and
influences motivating them. Extensive consumer research
revealed that while some customers at certain times are in the
market for a large number of portraits at a low price, at other
times those same customers base their decision on other factors
such as freedom of choice, and flexibility in poses, sizes and
quantity. The SD group, drawing on CPI's five-year experience
in digital imaging technology, embarked on extensive marketing
tests that led to the development of new tools and processes to
provide customers with a more rewarding, friendlier studio
experience and new products to heighten customer interest. The
resulting technology-based program was designated the Portrait
Preview System(SM).

Based on positive results of these tests, CPI committed to the
installation of the system in all studios in a five-year
upgrade program. The rollout in

                         page 7


(Pictures:  on this page are six pictures of various multiple
            portrait collages designed from the Portrait 
            Creations product line.)

the U.S. studios, which was accomplished from March to October
1994, was supported by the most comprehensive employee training
program in the Company's history. Installation in all 1,000-
plus studios, including those in Canada, was completed in only
18 months.

1996 OPERATING RESULTS - Throughout the year, advertising
focused on customer benefits provided by the new technology,
offering customers the choice of a large, pre-set assortment of
portraits at a competitive price, or a custom, personalized
selection with open-end unit pricing. Total revenues increased
3.7% to $289.8 million from the prior year's $279.6 million.
However, operating earnings declined to $35.7 million from
$42.6 million due to increased operating expenses and lower
than anticipated second-half sales, and operating margin fell
to 12.3% from 15.2%.

OUTLOOK - The Portrait Preview System provides great
flexibility that enables the photographer to involve the
customer in the selection of her favorite expressions and poses
of her child. In this process, which takes place in the studio
camera room, the photographer is a creative partner working in
the interests of the customer. After the camera room sitting, 
the customer can make an immediate selection from the video
screen and take home a set of full-color proofs of selected
poses. 
<PAGE>
Customer and employee response to the new portrait experience
has been extremely favorable, mainly due to the friendlier,
low-stress transaction, combined with the strong appeal of the
new technology-based products. The majority of customers
participating in research focus groups have indicated that the
system is very easy to use and that the portraits shown on the
screen are representative of their finished portraits. Most
said they prefer being left alone at the monitor while
selecting their portraits.

Positive customer reaction is the result of much more than just
the technology-based products and the ease with which they can
be selected and ordered. As a result of intensive training
programs, the very culture of the studio process has been
changed. An environment that many customers previously felt was
uncomfortable has been supplanted by one of support and
cooperation, as employee attitudes have refocused on total
customer satisfaction.

In 1995-96, CPI continued its tradition of innovative product
development through applied technology with a series of new
offerings-some of which are still evolving. One of these is
Portrait Creations-collages of multiple portraits, with each
grouping framed in an attractive colorful mat with a unifying
graphic theme, such as a personal event (birthday), a holiday
(Christmas), an activity (sports, for example) plus a variety 
of other attractive designs. The customer chooses three poses
from the sitting and views them on the video monitor in several
digitized Portrait Creations formats, then selects the design
she prefers, which is immediately printed for her to take home.
In addition to the generic thematic designs, tie-ins to
specific attractions are being developed, as well as designs
that feature regional themes. Portrait Creations products were
introduced after mid-year 1995, and met with immediate customer
approval.

Other new products include customized slimline greeting cards,
available in an expanding selection of designs suitable for
many occasions and situations, with French or Spanish captions
available (in addition to English) in selected markets where
appropriate. Another new program features graduation portraits
for seniors. A collection of new designer frames has also met
with favorable response. Longer-range developments

                         page 8

(Pictures:  on this page are three pictures showing a 
            remodeled Sears Portrait Studio.)

currently in the test phase include a new digital camera, as
well as digitized portrait backgrounds that are viewed and
selected at the video proofing stage following the sitting.

<PAGE>

To further enhance the total portrait experience, the Company
is significantly improving the functionality and ambiance of
the studios, increasing their size and installing new custom
fixtures and furniture. The decor features rich, vibrant
colors, bold graphics and dramatic lighting. A selection of
fresh posing backgrounds, new camera room lighting and new
child-themed props has also been added.

Recognizing the importance of this endeavor, Sears and CPI in
1994 entered into a new five-year licensing agreement and are
working together to coordinate the studio remodeling with
Sears' previously announced $4 billion capital expenditure
program in which the retailer is upgrading and remerchandising
its stores.  

Over the 1994-96 period, almost 400 of the 800-plus U.S.
studios were remodeled and upgraded, and about 120 more are
scheduled for 1997. The new design will also be incorporated in
all studios in new Sears stores that open in 1997. Capacity is
being further expanded by the installation of additional camera
rooms in existing studios, primarily those that are being
remodeled. Remodeling of the remaining U.S. locations will be
completed in conjunction with the Sears store-remodeling
schedule.

Through 1996, CPI's capital investment, including new
technology, training, studio remodeling and added enhancements,
has totaled over $108 million. While depreciation and
amortization expense from these investments has penalized
earnings in the past two years, management expects those
expenses to peak in 1998 and then decline. Going forward from
that date, capital investment should be limited to maintenance
of existing facilities, comfortably funded by continuing cash
flow from operations.

One other consideration relates to potential earnings
improvement. In recent research regarding portrait studio
market position, Sears Portrait Studio customers reported a
significant increase in overall satisfaction when compared to
previous benchmarks and compared to primary competitors. With
this perception of a higher level of satisfaction, management
is cautiously introducing tactical price increases as a means
of enhancing revenues.

Although competition is expected to continue at an intense
level in the foreseeable future, CPI management believes that,
within the portrait studio industry, the Company represents a
unique combination of marketing expertise, financial strength,
technological capability and in-depth understanding of customer
needs that will enable it to continue to build on recent
achievements and significantly increase its contribution to
overall corporate profits.

<PAGE>
<TABLE>
REVENUE GROWTH IN MILLIONS OF DOLLARS
<CAPTION>
<S>                        <C>
1987                       $ 195
1988                         219
1989                         235
1990                         253
1991                         251
1992                         256
1993                         237
1994                         275
1995                         278
1996                         288
</TABLE>

<TABLE>
OPERATING EARNINGS AS A PERCENT OF SALES
<CAPTION>
<S>                        <C>  
1987                       $ 27.7
1988                         28.2
1989                         26.7
1990                         25.1
1991                         23.1
1992                         18.9
1993                         12.6
1994                         13.9
1995                         15.2
1996                         12.3

</TABLE>
Caption on the above charts:
- The Sears Portrait Studios have recorded a long history of
  sales growth with few interruptions. Following a period of
  declining earnings, operating margins recorded a turnaround
  in 1994 and 1995. Management anticipates future improvement
  as a result of enthusiastic customer response to new
  programs, which continue to be enhanced and expanded.

                         page 9












<PAGE>

(Pictures:  on this page are three pictures of various sizes
            from the Fox Pet Photo Contest captioned: "Fox
            customers are serious about photography.  Several
            of the top winning photos from the 1996 annual Fox
            Pet Photo Contest are featured on left.")

FOX PHOTO
---------
CPI entered the photofinishing business in 1982 and, through a
combination of new store openings and acquisitions, expanded
the operation into the nation's largest specialty owner/
operator of stand-alone photofinishing minilabs. The most 
significant acquisition, that of Fox Photo in 1991, added over
300 locations and almost doubled the business' size. At the end
of fiscal 1993, the business peaked at 670 locations. With the
closing of a number of marginal labs in 1994 and 1995, and the
sale of still others in the first half of 1996, the total stood
at 554 locations at mid-year 1996.

Since October 5, 1996 the business has been operated as a joint
venture, 51% of which is owned by Kodak and 49% by CPI Corp.
Kodak acquired its majority interest with a cash payment of 
$56.1 million to CPI. The new business, Fox Photo, Inc.,
operates under a joint board of directors headed by Alyn V.
Essman, CPI chairman. Ted de Buhr is president-the position he
previously held with the CPI subsidiary-and chief executive
officer.

THE CHANGING MINILAB MARKET - In recent years, the one-hour
retail photofinishing industry has become increasingly
competitive as mass merchandisers, supermarkets and drug store
chains have added one-hour service, using in-store minilabs, to
their next-day service from central labs. Wal-Mart, Kmart and
Walgreens plus several large grocery store chains have been
especially active in the expansion. These chains have typically
promoted one-hour service at very competitive prices,
compounding the effect of the proliferation of locations, and
depressing profit margins throughout the industry.

As a partial consequence of the heightened competitive climate,
the industry has undergone a consolidation process over the
past several years. For example, in just the two-year 1992-93
period, specialty retailers-primarily stand-alone minilab
operators-closed about 1,500 locations, while mass merchandise
retailers opened a like number over the same period.

In the face of this increased competition, CPI's minilab
business maintained sales levels fairly well, but suffered
margin declines. Looking to achieve a turnaround in
profitability, CPI drew on its 

                         page 10

<PAGE>

(Pictures:  on this page are five pictures of various sizes
            captioned:  "With the Photo Preview system, the
            customer can view each exposure on a monitor, make
            cropping decisions, size selections and order
            decisions, then receive a proof sheet of the entire
            roll for future reference.")

recent experience with Sears, in which the two companies were
able to reposition the Sears Portrait Studios through a
partnership effort employing technology-based marketing
programs. CPI recognized the need for a similar initiative with
a strategic partner who shared the vision of re-energizing the
photofinishing industry through the development and marketing
of unique new consumer imaging services. Building on a 40-year
relationship, CPI formed the joint venture with Kodak, the
industry-leading innovator in technology.

1996 OPERATING RESULTS - Revenues for the 35 weeks through the
October 4, 1996 consummation of the joint venture were $114.5
million compared to the full prior-year total of $188.4
million. CPI recorded pre-venture operating earnings of
$82,000, and its minority share of post-venture operations
resulted in a loss of $485,000. In fiscal 1995, full-year
earnings were $3.3 million.

A LOOK TO THE FUTURE - The objective of the joint venture is to
move the photofinishing business from a routine photo
processing operation to a creative imaging operation offering a
broad spectrum of specialized imaging services, combining
Kodak's and CPI's diverse expertise in digital imaging
technology and retail marketing. After developing a proven
business model with a strong retail identity, Kodak then 
intends to make the basic concepts available through trade
licenses to other specialty retailers.

Prototype stores, called Fox Photo/Kodak Image Center
Solutions, have been developed based on these concepts, and a
full market test involving seven locations began in Austin,
Texas in the fourth quarter of 1996. In addition to a broad
selection of attractively displayed merchandise, including
cameras (35mm, Advanced Photo System and digital), frames,
batteries, albums and other accessories, the stores offer a
unique array of state-of-the-art digital work stations that
provide a wide variety of graphic products and services.

One such service developed by a CPI task force, called Photo
Preview, scans and digitally stores in the system's computer
memory all the exposures on the customer's roll, allowing the
customer to view, crop and modify the individual exposures on a
large color video monitor. The customer can then decide which
ones to have printed, and order prints in the quantity and
sizes desired of each exposure-mixing standard prints, wallet 

<PAGE>
photos, panoramics and enlargements. The customer pays only for
those selected and receives a proof sheet of the entire roll. 

                         page 11


(Pictures:  on this page are four pictures of various sizes
            showing Kodak Custom Creation multi-photo           
            collages.)

The stores also feature Kodak's Image Magic CopyPrint and
Enhancement stations that offer a variety of other digital
imaging services. Also, a Kodak Digital Enhancement Station
facilitates repair and restoration of damaged pictures, color
and contrast adjustment, and removal of reflections. Due to the
technical nature of such projects, the actual image
manipulation is usually performed by a highly trained associate
technician.

With the Kodak Custom Creation station, a customer can create
multi-photo collages, family photo-trees, wine bottle labels
and cassette boxes, choose from varied backgrounds, create
enlargements up to 11x14, and select from  a variety of
seasonal card templates, adding imprinted personalized
messages. The templates and backgrounds are changed
periodically to maintain variety and freshness.

Preliminary results in the Austin market test show that sales
could increase by as much as 25 to 30% per store as a result of
positive response to the unique new products and services
presented by highly trained personnel. Roll volume has also
increased significantly, apparently due to customers
correlating store employees' skills in operating the digital 
imaging systems with expertise in superior quality film
processing. As a result of the favorable outlook, other markets
are scheduled for broader testing of the new store prototype in
1997. To serve the needs of customers better, the new labs will
be enlarged as well as remodeled to accommodate the additional
equipment and expanded merchandising efforts.














<PAGE>
<TABLE>

FOX PHOTO, INC. PHOTOFINISHING REVENUE GROWTH* (in millions of
dollars)

<CAPTION>

<S>                        <C>  
1987                       $ 61
1988                         69
1989                         76
1990                         82
1991                        121
1992                        169
1993                        187
1994                        191
1995                        188
1996*                       114

<FN>
* 1996 results are for 35 weeks prior to formation of joint
  venture.
</FN>
</TABLE>

Caption on the above chart:
- Through a combination of new store openings and acquisitions,
  the business has recorded significant growth in revenues.

                         page 12























<PAGE>

(Pictures:  on this page are two pictures of different sizes
            showing a Prints Plus Studio.)

PRINTS PLUS
-----------
The acquisition of Prints Plus in 1993 provided CPI with an
additional strong operating segment. As the leading company
owned-and-operated posters, prints and framing retailer in the
U.S., Prints Plus operates 156 locations in prime regional
shopping malls throughout the country. Instrumental to the
acquisition was the continuing direction of a strong, 
experienced management team whose operational criteria and
practices parallel those of CPI. As such, the business
represents a good strategic fit with CPI's existing
capabilities and provides an opportunity for rewarding
investment of the Company's resources.

Since acquiring Prints Plus, CPI has expanded the business by
opening 54 new locations. Like the original stores, the
additions are in prime locations within regional malls, access
to which is aided by the Company's ongoing contacts with mall
developers. The division has scheduled approximately six new
stores to open in 1997.  

1996 RESULTS - Prints Plus recorded sales of $62.7 million in
1996,  6.7% above the prior year's $58.7 million. Most of the
growth was due to the addition of new locations, as same-store
results were hampered by the soft retail environment during the
late-year holiday season-the period in which mall-based stores
typically generate the bulk of their sales and profits.
Operating earnings declined to $3.3 million from $5.4 million,
mainly due to reduced same-store sales, plus start-up expenses
associated with new stores and the conversion of selected
stores to an expanded custom framing format.  

EXPANDING POTENTIAL - At present, each store displays a very
wide selection of posters and prints reflecting current
decorating trends. While Prints Plus offers products for all
age groups, artistic taste among age groups and geographic
regions are different.  In view of this variety, management
tailors the merchandise mix of each location to a customer
profile for each area, considering its particular trends and
preferences.

In providing immediate framing service, Prints Plus holds a
significant edge over most competitors located in regional
malls and strip shopping centers. Prints Plus provides
"while-you-wait" custom framing for everyday value pricing that
few competitors can match.  

However, the lack of growth in same-store sales has prompted
management to examine a repositioning of the business through
an upgrade of its product and service offerings. This decision
<PAGE>
was strengthened when the broader home furnishings industry
reported gains in the 1996 year-end holiday season, contrary to
Prints Plus' lagging performance over the same period.  

In the first phase of repositioning, the selection of frames
and mats is being greatly expanded, to include a full line of
frame designs using new materials as well as a variety of woods
and metals. In an initial test, revenues have increased as a
result of positive customer response to the new offerings.  

The company is also contemplating tests of other services that
employ new technology in a variety of ways. In one service
being considered, a small photo would be scanned using digital
imaging, greatly enlarged, then printed on canvas and
framed-resulting in a high quality presentation at a very
competitive price. The same process could be used to feature a
child's first kindergarten art work or other personal images.  

Based on positive results from the expanded framing tests, plus
increasing returns expected as a result of economies of scale,
management plans to continue to invest in the Prints Plus
business through the continuing addition of new locations,
funding the expansion with ongoing cash flow.  

                         page 13




























<PAGE>

FINANCIAL BACKGROUND AND TRENDS
-------------------------------
In the planning, execution and evaluation of its long-term
strategies to create shareholder value, CPI management focuses
on:
- maximizing cash flow generated internally;
- reinvestment of a portion of excess cash into new and
  existing businesses at a rate of return above the Company's
  cost of capital;
- returning a portion of cash to shareholders through stock
  repurchases and dividends; and
- raising additional capital only when it can meet or exceed
  shareholder return expectations. 

The following comments describe how these strategies have been
applied, with special reference to the past five years. The
comments should be read in conjunction with the accompanying
tables and charts and the financial summary on page 16.

THE TRANSITION FROM PAST PERFORMANCE TO FUTURE OPPORTUNITY
During the 1986-1995 decade there were significant economic
changes, as well as changes in CPI's business strategies and
capital structure. CPI's 10-year performance was characterized
by double-digit growth rates in sales, total assets and total
equity. That time period reflected entry into new businesses;
the investment of cash flow to fund expansion; and management's
response to competitive forces, including programs to
strengthen the Company's market franchise. During the time
period from 1986 through 1995, profit margins on continuing
operations averaged 6.9%, return on assets averaged 13.3% and
return on equity averaged 20.1%.

During the five-year period 1991-1995, CPI's financial history
was influenced by unprecedented growth in portrait studio
competition. Facing pricing pressures in its core business, the
Company continued to fund development projects, make
acquisitions, significantly expand the Photofinishing segment
and repurchase stock. Declining profit margins in Portrait 
Studios were mainly responsible for lower average growth rates
and returns on sales.

The 1996 fiscal year was a significant turning point for CPI,
marking a major transition from the past to the future with the
sale of an interest in its Photofinishing segment to Kodak.









<PAGE>
<TABLE>
GROWTH RATE
<CAPTION>
                 1986-1995    1991-95 
<S>               <C>          <C>    
Sales             10.3%        7.9%   
Total assets      11.8%        6.6%   
Total equity      11.0%        2.8%   
</TABLE>
<TABLE>
GROWTH IN REVENUES PER SHARE
<CAPTION>
<S>               <C>
1992              $ 29.56
1993                31.36
1994                36.70
1995                37.65
1996*               34.55

<FN>
* 1996 sales included only 35 weeks of Fox Photo, Inc. results
  prior to formation of the joint venture.

</FN>
</TABLE>
Caption on the above chart:
- Revenues per share increased by 16.9% over the past five
  years, partly due to stock repurchases. Total corporate
  sales were up 7.7% over the same period, from $433.8
  million to $467.0 million.*

<TABLE>
EBITDA AND NET EARNINGS IN MILLIONS OF DOLLARS

<CAPTION>
                                    Net Earnings,
                     EBITDA     Continuing Operations
<S>                  <C>            <C>
1992                 $ 65.0         $ 24.8
1993                   53.4           15.1
1994                   66.5           16.6
1995                   73.2           17.6
1996                   64.5           14.4

</TABLE>

Caption on the above chart:
- Over the past five years, EBITDA (net income, before
  interest, income taxes, depreciation and amortization) has
  averaged over $64 million, even though earnings have varied
  significantly.


<PAGE>
<TABLE>
BALANCE SHEET COMPARISON REFLECTS CORE FOCUS (% Of Total
Assets)

<CAPTION>
                           February 3,    February 1,
                              1996*          1997**
                           -----------    -----------
<S>                        <C>            <C>
Property/equipment         56%            53%
Other                       3%             2%
Intangibles                17%             -
JV minority interest        -             19%
Current assets             24%            26%

<FN>
*  Before Fox Photo, Inc. transaction.
** After Fox Photo, Inc. transaction.
</FN>
</TABLE>

Caption on the above chart:
- With the Fox Photo, Inc. transaction, CPI converted
  substantially all of its $51 million in intangible assets,
  while retaining a minority interest in the photofinishing
  business.

                         page 14

<TABLE>
GROWTH IN TOTAL AND REMODELED PORTRAIT STUDIO SPACE

<CAPTION>
                    To Be                Remodeled-
             Remodeled-Sq. Ft (000)     Sq. Ft (000)
<S>          <C>                        <C>
1992         592                          -
1993         612                          -
1994         481                        206
1995         382                        405
1996         284                        564

</TABLE>

Caption on the above chart:
- Nearly 400 studios were remodeled through 1996. The average
  studio size and total studio space increased significantly
  in the process, which is continuing.





<PAGE>
<TABLE>
INVESTMENT IN TECHNOLOGY RESOURCES LABOR AND OVERHEAD (Index:
1992=100)

<CAPTION>
                  Index
<S>               <C>
1992              100
1993              117
1994              165
1995              224
1996              411

</TABLE>

Caption on the above chart:
- CPI's investment in evolving technology, embodied in a deep
  reservoir of highly skilled software analysts, has increased
  4-fold since 1992. The development group provides a technical
  foundation capable of supporting imaging efforts outside the
  Company's current endeavors.

<TABLE>
STUDIO CAPITAL EXPENDITURES (in millions of dollars)
<CAPTION>

<S>               <C>
1992               2.4
1993              19.0
1994              57.7
1995              24.8
1996              17.8

</TABLE>

Caption on the above chart:
- Portrait studio capital expenditures peaked in 1994 with the
  rapid roll-out of the technology-based Sears Portrait Preview
  System. Current investment is focused on the remodeling and
  expansion of studio facilities.

REBALANCING CORPORATE RESOURCES . . .
During the past year, CPI's management took advantage of the
opportunity to realize a return on assets in its Photofinishing
segment, while retaining a significant interest in a Kodak
joint venture to explore digital imaging in a new retail
format. As a result of the transaction, the Company:
- sold a 51% interest in Fox Photo to Kodak for $56.1 million,-
  converting substantially all of the $51 million in intangible
  assets 
- returned approximately $44 million to shareholders in a
  tender offer

<PAGE>
 . . .TO REFOCUS ON THE CORE BUSINESS
CPI is proud of its growth and the market shares of its
businesses. However, these measures by themselves do not ensure
continuing success. Management realized that to improve the
Company's competitive position in its core business-portrait
photography-it must achieve a quantum leap in the value
delivered to customers. Achieving a true transformation of the
Portrait Studio operation required a significant capital
expansion program, comprised of technology installation and
studio enhancements. Over the past five years, CPI's technology
development program has been marked by a number of milestones:
- 1992-Formation of the Strategic Development task force and
  development of the computerized freeze-frame Sears Portrait
  Preview system
- 1993-Installation of a new point-of-sale system and
  multiple-market test of the Sears Portrait Preview system in
  100 studios
- 1994-Installation of the Sears Portrait Preview system in all
  1,000 Sears Portrait Studios
- 1995-Technology enhancements and product expansion called
  Portrait Creations installed in all studios
- 1996-Development of a suite of software to create a flexible
  platform capable of being adapted to many businesses'
  requirements

Going forward, with a realigned balance sheet and renewed focus
on portrait studios, CPI anticipates improving performance
based on the continuous expansion in studio space; further
capital investment, although at a reduced rate; and high levels
of technology development and support services, now a
significant component of the Company's marketing efforts.

As the Company pursues revenue growth in the Portrait Studios,
management anticipates improving profit margins based on the
following factors: 
- higher volumes will contribute to better coverage of overhead
  costs; 
- growing acceptance of value-added services could result in
  higher average pricing; 
- opportunities exist for further cost control; and
- depreciation expenses should have a diminishing impact.
In addition, with fewer shares outstanding, the Company is
positioned to report rising earnings per share.

                         page 15








<PAGE>
<TABLE>

CONTINUING OPERATIONS
---------------------
<CAPTION>

                                        1996     1995     1994
<S>                                   <C>      <C>      <C>     
Per Share:
  Sales                               $ 34.55  $ 37.65  $ 36.70 
  Assets                                21.11    21.67    21.93 
  Equity                                11.94    12.56    12.12 
  Earnings                               1.06     1.26     1.18 
  Dividends                              0.56     0.56     0.56 
  Prices: high                          21.13    22.13    21.88 
          low                           13.88    14.25    13.88 
  P/E range: high                       19.93    21.70    20.83 
             low                        13.09    13.97    13.21 
  Dividend yield                         3.20%    3.08%    3.13%
Income Data (million $):
  Net sales                           $467.0   $526.7   $517.5  
  Income from operations                20.4     31.7     30.3  
  Net interest & other income(expense)  (3.3)    (4.1)    (3.9) 
  Gain on sale of interest in Photo-
   finishing segment                     6.2       -        -   
  Interest in joint venture             (0.5)      -        -   
  Earnings before income taxes,
   cumulative effect of accounting
   change and discontinued operations   22.8     27.6     26.4  
  Income taxes                           8.4     10.0      9.8  
  Earnings before accounting change
   and discontinued operations          14.4     17.6     16.6  
  Accounting change                       -        -        -   
  Net earnings from
   continuing operations                14.4     17.6     16.6  
  Avg. shares outstanding
   (in million shares)                  13.5     14.0     14.1  
Balance Sheet (million $):
  Current assets                      $ 63.7   $ 72.8   $ 82.0  
  Cash and equivalents                  21.9      8.3      9.2  
  Net fixed assets                     130.8    167.9    159.1  
  Total assets                         246.7    300.5    300.5  
  Employed assets                      224.8    292.2    291.3  
  Current liabilities                   50.8     64.0     69.8  
  Long-term debt                        44.9     54.8     59.7  
  Stockholders' equity                 139.5    174.2    166.0  
  Employed equity                      117.6    165.9    156.8  

</TABLE>




<PAGE>

<TABLE>

CONTINUING OPERATIONS (continued)
---------------------
<CAPTION>

                                        1996     1995     1994
<S>                                   <C>      <C>      <C>     
Funds Flow Data (million $):
  From operations                     $ 53.8   $ 53.7   $ 40.4  
  From (used for) investments           17.4    (43.7)   (51.7) 
  From (used for) financing             57.7    (11.1)   (15.3) 
  Effect of exchange rate changes        0.1      0.2     (0.3) 
  Change in cash & cash equivalents     13.6     (0.9)   (26.9) 
  Capital expenditures*
    (excluding acquisitions)            34.7     48.8     75.1  
  Acquisitions*                           -        -        -   
Ratio Analysis:
  Net margin (1)                         3.1      3.4      3.2  
  Asset turnover (2)**                   1.55x    1.75x    1.69x
  Return on assets (3)**                 4.78%    5.88%    5.44%
  Financial leverage (4)**               1.73x    1.81x    1.74x
  Return on equity (5)**                 8.25%   10.64%    9.47%
  Retention rate (6)                     0.480    0.459    0.465
  Implied growth rate (7)                3.96%    4.88%    4.40%

<FN>
*    To maintain capacity             **   Beginning fiscal year
(1)  Net margin: Net earnings/net sales
(2)  Asset turnover: Net sales/total assets (beginning)
(3)  Return on assets: Net margin x asset turnover
(4)  Financial leverage: Total assets (beginning)/stockholders'
     equity (beginning)
(5)  Return on equity: Return on assets x financial leverage
(6)  Retention rate: Net earnings less dividends on common 
     stock/net earnings
(7)  Implied growth rate: Return on equity x retention rate

</FN>
</TABLE>













<PAGE>
<TABLE>
CONTINUING OPERATIONS (continued)
---------------------
<CAPTION>
                                        1993     1992     1991
<S>                                   <C>      <C>      <C>     
Per Share:
  Sales                               $ 31.36  $ 29.56  $ 26.50 
  Assets                                20.92    16.25    16.25 
  Equity                                12.01    11.75    10.90 
  Earnings                               1.03     1.69     1.97 
  Dividends                              0.56     0.56     0.56 
  Prices: high                          20.75    26.38    34.75 
          low                           13.88    15.00    21.88 
  P/E range: high                       23.06    17.13    19.31 
             low                        15.42     9.74    12.15 
  Dividend yield                         3.23%    2.71%    1.98%
Income Data (million $):
  Net sales                           $460.0   $433.8   $400.4  
  Income from operations                22.0     38.5     43.4  
  Net interest & other income(expense)  (0.3)     1.6      4.0  
  Gain on sale of interest in Photo-
   finishing segment                      -        -        -   
  Interest in joint venture               -        -        -   
  Earnings before income taxes,
   cumulative effect of accounting
   change and discontinued operations   21.7     40.1     47.4  
  Income taxes                           8.7     15.3     17.7  
  Earnings before accounting change
   and discontinued operations          13.0     24.8     29.7  
  Accounting change                      2.1       -        -   
  Net earnings from
   continuing operations                15.1     24.8     29.7  
  Avg. shares outstanding
   (in million shares)                  14.7     14.7     15.1  
Balance Sheet (million $):
  Current assets                      $127.8   $ 73.2   $ 83.6  
  Cash and equivalents                  36.1     21.0     30.0  
  Net fixed assets                     114.3     97.6     97.7  
  Total assets                         305.8    237.8    238.9  
  Employed assets                      269.7    216.8    208.9  
  Current liabilities                   65.2     56.8     67.0  
  Long-term debt                        59.8      0.3      0.6  
  Stockholders' equity                 175.5    171.9    160.3  
  Employed equity                      139.4    151.0    130.3  

</TABLE>






<PAGE>

<TABLE>

CONTINUING OPERATIONS (continued)
---------------------
<CAPTION>

                                        1993     1992     1991
<S>                                   <C>      <C>      <C>     
Funds Flow Data (million $):
  From operations                     $ 38.2   $ 36.9   $ 51.6  
  From (used for) investments          (73.9)   (34.4)   (87.2) 
  From (used for) financing             51.6    (10.2)   (18.7) 
  Effect of exchange rate changes       (0.8)    (1.3)    (0.2) 
  Change in cash & cash equivalents     15.1     (9.0)   (54.5) 
  Capital expenditures*
    (excluding acquisitions)            28.9     12.0     19.8  
  Acquisitions*                         14.7     23.9     70.2  
Ratio Analysis:
  Net margin (1)                         3.3      5.7      7.4  
  Asset turnover (2)**                   1.93x    1.82x    1.83x
  Return on assets (3)**                 6.36%   10.39%   13.59%
  Financial leverage (4)**               1.38x    1.49x    1.44x
  Return on equity (5)**                 8.78%   15.47%   19.57%
  Retention rate (6)                     0.381    0.637    0.689
  Implied growth rate (7)                3.35%    9.86%   13.48%

<FN>
*    To maintain capacity             **   Beginning fiscal year
(1)  Net margin: Net earnings/net sales
(2)  Asset turnover: Net sales/total assets (beginning)
(3)  Return on assets: Net margin x asset turnover
(4)  Financial leverage: Total assets (beginning)/stockholders'
     equity (beginning)
(5)  Return on equity: Return on assets x financial leverage
(6)  Retention rate: Net earnings less dividends on common
     stock/net earnings
(7)  Implied growth rate: Return on equity x retention rate

</FN>

</TABLE>












<PAGE>
<TABLE>
CONTINUING OPERATIONS (continued)
---------------------
<CAPTION>
                                        1990     1989     1988
<S>                                   <C>      <C>      <C>     
Per Share:
  Sales                               $ 23.45  $ 21.46  $ 18.56 
  Assets                                14.48    12.74    12.03 
  Equity                                10.04     8.63     8.34 
  Earnings                               2.28     2.15     1.95 
  Dividends                              0.50     0.42     0.25 
  Prices: high                          32.88    33.88    22.25 
          low                           24.25    21.00    17.25 
  P/E range: high                       15.01    18.51    12.29 
             low                        11.07    11.48     9.53 
  Dividend yield                         1.75%    1.53%    1.27%
Income Data (million $):
  Net sales                           $360.7   $336.9   $310.5  
  Income from operations                49.3     47.3     48.1  
  Net interest & other income(expense)   6.4      5.5      5.7  
  Gain on sale of interest in Photo-
   finishing segment                      -        -        -   
  Interest in joint venture               -        -        -   
  Earnings before income taxes,
   cumulative effect of accounting
   change and discontinued operations   55.7     52.8     53.8  
  Income taxes                          20.7     19.0     21.2  
  Earnings before accounting change
   and discontinued operations          35.0     33.8     32.6  
  Accounting change                       -        -        -   
  Net earnings from
   continuing operations                35.0     33.8     32.6  
  Avg. shares outstanding
   (in million shares)                  15.4     15.7     16.7  
Balance Sheet (million $):
  Current assets                      $130.2   $106.4   $104.5  
  Cash and equivalents                  84.5     68.7     62.5  
  Net fixed assets                      80.7     81.4     78.0  
  Total assets                         218.7    196.5    197.0  
  Employed assets                      134.2    127.8    134.5  
  Current liabilities                   51.4     47.8     47.3  
  Long-term debt                         0.5      0.3      0.5  
  Stockholders' equity                 151.7    133.1    136.6  
  Employed equity                       67.3     64.4     74.1  

</TABLE>






<PAGE>

<TABLE>

CONTINUING OPERATIONS (continued)
---------------------
<CAPTION>

                                        1990     1989     1988
<S>                                   <C>      <C>      <C>     
Funds Flow Data (million $):
  From operations                     $ 50.0   $ 53.3   $ 42.5  
  From (used for) investments          (19.2)   (15.0)   (23.7) 
  From (used for) financing            (15.3)   (32.1)    (9.7) 
  Effect of exchange rate changes        0.3       -       0.4  
  Change in cash & cash equivalents     15.8      6.2      9.5  
  Capital expenditures*
    (excluding acquisitions)            15.1     18.5     12.1  
  Acquisitions*                          1.2      0.8     11.0  
Ratio Analysis:
  Net margin (1)                         9.7     10.0     10.5  
  Asset turnover (2)**                   1.84x    1.71x    1.84x
  Return on assets (3)**                17.83%   17.17%   19.30%
  Financial leverage (4)**               1.48x    1.44x    1.44x
  Return on equity (5)**                26.39%   24.72%   27.79%
  Retention rate (6)                     0.773    0.771    0.863
  Implied growth rate (7)               20.40%   19.06%   23.99%

<FN>
*    To maintain capacity             **   Beginning fiscal year
(1)  Net margin: Net earnings/net sales
(2)  Asset turnover: Net sales/total assets (beginning)
(3)  Return on assets: Net margin x asset turnover
(4)  Financial leverage: Total assets (beginning)/stockholders'
     equity (beginning)
(5)  Return on equity: Return on assets x financial leverage
(6)  Retention rate: Net earnings less dividends on common
     stock/net earnings
(7)  Implied growth rate: Return on equity x retention rate
</FN>
</TABLE>














<PAGE>
<TABLE>

CONTINUING OPERATIONS (continued)
---------------------
<CAPTION>

                                        1987     1986   
<S>                                   <C>      <C>      
Per Share:
  Sales                               $ 16.92  $ 15.50  
  Assets                                10.14     8.45  
  Equity                                 7.02     5.69  
  Earnings                               1.54     1.18  
  Dividends                              0.165    0.085 
  Prices: high                          27.75    21.88  
          low                           12.75    11.88  
  P/E range: high                       19.01    19.71  
             low                         8.73    10.70  
  Dividend yield                         0.81%    0.50% 
Income Data (million $):
  Net sales                           $283.2   $254.4   
  Income from operations                43.0     38.3   
  Net interest & other income(expense)   3.2      1.0   
  Gain on sale of interest in Photo-
   finishing segment                      -        -    
  Interest in joint venture               -        -    
  Earnings before income taxes,
   cumulative effect of accounting
   change and discontinued operations   46.2     39.3   
  Income taxes                          20.4     19.9   
  Earnings before accounting change
   and discontinued operations          25.8     19.4   
  Accounting change                       -        -    
  Net earnings from
   continuing operations                25.8     19.4   
  Avg. shares outstanding
   (in million shares)                  16.7     16.4   
Balance Sheet (million $):
  Current assets                      $ 90.5   $ 60.2   
  Cash and equivalents                  53.1     29.5   
  Net fixed assets                      68.8     68.0   
  Total assets                         168.7    139.3   
  Employed assets                      115.6    109.7   
  Current liabilities                   39.9     36.1   
  Long-term debt                         0.2      0.4   
  Stockholders' equity                 116.7     93.8   
  Employed equity                       63.7     64.2   

</TABLE>




<PAGE>

<TABLE>

CONTINUING OPERATIONS (continued)
---------------------
<CAPTION>

                                        1987     1986   
<S>                                   <C>      <C>      


Funds Flow Data (million $):
  From operations                     $ 47.4   $ 32.7   
  From (used for) investments          (23.3)   (30.6)  
  From (used for) financing             (0.7)    12.7   
  Effect of exchange rate changes        0.1      0.1   
  Change in cash & cash equivalents     23.5     14.9   
  Capital expenditures*
    (excluding acquisitions)            13.6     16.4   
  Acquisitions*                          3.2     15.5   
Ratio Analysis:
  Net margin (1)                         9.1      7.6   
  Asset turnover (2)**                   2.03x    2.58x 
  Return on assets (3)**                18.47%   19.61% 
  Financial leverage (4)**               1.49x    1.61x 
  Return on equity (5)**                27.52%   31.57% 
  Retention rate (6)                     0.888    0.924 
  Implied growth rate (7)               24.44%   29.17% 

<FN>
*    To maintain capacity             **   Beginning fiscal year
(1)  Net margin: Net earnings/net sales
(2)  Asset turnover: Net sales/total assets (beginning)
(3)  Return on assets: Net margin x asset turnover
(4)  Financial leverage: Total assets (beginning)/stockholders'
     equity (beginning)
(5)  Return on equity: Return on assets x financial leverage
(6)  Retention rate: Net earnings less dividends on common
     stock/net earnings
(7)  Implied growth rate: Return on equity x retention rate

</FN>

</TABLE>

                         page 16








<PAGE>
<TABLE>

                           INDEX

                      FINANCIAL REVIEW


<S>                                                   <C>
Management's Discussion and Analysis Overview         18-19

Consolidated Statements of Earnings                      20

Management's Discussion and Analysis -
     Results of Operation                             21-23

Consolidated Balance Sheets                              24

Management's Discussion and Analysis - 
     Financial Condition                                 25

Consolidated Statements of Cash Flows                    26

Management's Discussion and Analysis - 
     Cash Flows                                          27

Consolidated Statement of Changes in 
     Stockholders' Equity                                28

Notes to Consolidated Financial Statements            29-41

Independent Auditors' Report                             42

Selected Quarterly Financial Data and
     Stock Price and Volume                              43

Company Directors and Officers                           44

Investor Information                                     45


</TABLE>











                              17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS-OVERVIEW
---------------------------------------------
To enhance understanding of CPI Corp.'s (the Company's) 
financial results, the various components of Management's
Discussion and Analysis are presented near the pertinent
financial data. Accordingly, in addition to this overview,
separate analyses of the results of operations, financial
condition and cash flows appear on pages 21-23, 25 and 27,
respectively. Also, the analysis of each business segment's 
net sales and operating earnings is included on pages 22 and 
23, respectively. 

FISCAL YEARS
The Company's fiscal year ends the first Saturday of February.
Accordingly, fiscal years 1996, 1995 and 1994 ended February 1,
1997, February 3, 1996 and February 4, 1995, respectively, and
each consisted of 52 weeks. Throughout Management's Discussion
and Analysis and Notes to Consolidated Financial Statements,
reference to 1996, 1995 or 1994 will mean the fiscal year end
1996, 1995 and 1994, respectively.

BUSINESS SEGMENTS
The Company has continuing operations in two business segments:
Portrait Studios and Wall Decor. The Portrait Studios segment,
which functions as the exclusive operator of Sears Portrait
Studios, has 1,032 locations in the United States, Canada and
Puerto Rico. The Wall Decor segment, which operates under the
name Prints Plus and offers value-priced posters, prints, 
frames and framing services, operates in 156 locations 
throughout the United States. In addition, until the October 4,
1996 formation of a joint venture with Eastman Kodak Company,
the Company operated a third business segment, Photofinishing,
which operated under the Fox Photo, CPI Photo Finish, and Proex
names.  As of February 1, 1997, this joint venture had 484
locations in shopping centers and independent locations
throughout the United States.  (see JOINT VENTURE for further
discussion.)  Effective in 1995, the Company recorded the sale
of a fourth business segment, Electronic Publishing, which was
included in 1994's Other Products and Services segment
discussion.  (See DISCONTINUED OPERATIONS for further
discussion.)

STOCK REPURCHASE
In November 1996, the Company, as authorized by the Board of
Directors, completed a "Dutch Auction" tender offer by
purchasing 2,250,000 shares of the Company's common stock at
$19.00 per share for $43.6 million.  The Company used the
proceeds from the sale of common stock in the formation of the
joint venture to finance the tender offer.




<PAGE>
JOINT VENTURE
In October 1996, the Company entered into a joint venture with
Eastman Kodak Company ("Kodak").  The joint venture, which was
announced by the Company on August 8, 1996, now owns and 
operates the retail photofinishing business previously 
conducted by the Company's Fox Photo, Inc. ("Fox") and Proex
Photo Systems, Inc. ("Proex") subsidiaries.  Proex is a wholly
owned subsidiary of Fox.

In executing the Subscription Agreement, dated August 8, 1996,
by and among Kodak, the Company, Consumer Programs Holding,
Inc. (a wholly owned subsidiary of the Company) ("Holding") and
Fox,  Kodak agreed to purchase at closing new shares of Fox
constituting 51% of the then outstanding common stock of Fox 
for a cash purchase price of $56.1 million.  The Company
recognized a gain, net of taxes, of $3.9 million or $0.29 per
share.  On a prospective basis, the joint venture will be
reflected as an investment in Fox joint venture within the
financial statements. (See NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS for further discussion and pro forma
information.)

Pursuant to the terms of the Stockholders' Agreement (the
"Stockholders' Agreement") executed October 4, 1996 by Kodak,
the Company, Holding and Fox, at any time from and after
January 1, 1999, Kodak can require the Company to sell its
interest in Fox and the Company can require Kodak to purchase
the Company's interest in Fox for a price equal to 49% of (A)
Fox's "fair market value" (as determined pursuant to the
Stockholders' Agreement at the time such "put" or "call" right
is exercised) less (B) $30 million.  In no event, however, will
such purchase price for the Company's remaining interest in Fox
be less than $53.9 million.  Additionally, prior to January 1,
1999, the Stockholders' 

                              18

Agreement entitles Kodak to require the Company to sell its
remaining interest in Fox to Kodak for a purchase price of not
less than $53.9 million upon a "change in control" of the
Company as defined in the Stockholders' Agreement.  

The Stockholders' Agreement also provides that Kodak designate
four members and the Company designate three members of Fox's
seven-member Board of Directors.  Alyn V. Essman, the Company's
Chairman and Chief Executive Officer, is the Chairman of Fox's
Board of Directors.  Certain specified significant actions will
require the consent of both Kodak and the Company.

PHOTOFINISHING STORE SALE
In June 1996, the Company announced the sale to Wolf Camera,
Inc. of 50 one-hour photofinishing stores located in Florida,
Georgia, 
<PAGE>

Illinois and Tennessee for $1.9 million.  The Company did not
recognize a material gain or loss on the sale of these assets.

DISCONTINUED OPERATIONS
In May 1996, the Company completed the sale of certain assets
of its Electronic Publishing operations for $4.8 million. 
Additionally, the purchaser assumed certain liabilities of the
Electronic Publishing operation which aggregated approximately
$900,000.  A provision of $3.8 million was made in 1995 to
reflect the discontinued business at its estimated realizable
value.  The Company has classified the Electronic Publishing
operation as a discontinued operation in 1995 and reclassified
1994 financial statements to reflect the transaction.

Net sales of the discontinued business for 1995 and 1994 were
$16.7 million and $15.6 million, respectively.  Net assets held
for sale were $5.1 million at February 3, 1996.

STUDIO ENHANCEMENT PROGRAM
In March 1994, the Company announced a five-year Studio
Enhancement Program to provide customers an improved level of
service at Sears Portrait Studios. Through 1996, $108.2 million
has been spent on the program, with $12.9 million, $23.9 
million, and $54.9 million spent in 1996, 1995 and 1994,
respectively.  This program, which management believes is over
70% complete, includes: the introduction and modification of a
freeze-frame digital imaging camera system, the enlargement and
renovation of studios, the development and implementation of a
new store automation system and the installation of new
backgrounds, lighting equipment and props.

FORWARD LOOKING STATEMENTS
The statements contained in this report which are not 
historical facts are forward-looking statements that involve
risks and uncertainties.  Management wishes to caution the
reader that these forward-looking statements, such as the
Company's outlook for Sears Portrait Studios, Fox Photo and
Prints Plus, are only predictions; 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 and other risks described in the Company's filings with
the Securities and Exchange Commission, including its Form 10-K
for the year ended February 1, 1997.

                              19






<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars except per share amounts)
Fifty-two weeks ended February 1, 1997, February 3, 1996 and
February 4, 1995
<CAPTION>
                                  1996      1995      1994
<S>                             <C>       <C>       <C>
Net sales                       $467,034  $526,651  $517,521 
Costs and expenses:
  Cost of sales (exclusive of
   depreciation expense shown 
   below)                        110,013   135,559   142,343 
  Selling, administrative and
   general expenses              298,703   318,413   309,144 
  Depreciation                    34,454    35,457    30,282 
  Amortization                     3,492     5,550     5,444 
                                --------- --------- ---------
                                 446,662   494,979   487,213 
                                --------- --------- ---------
Income from operations            20,372    31,672    30,308 
Net interest expense               3,769     4,597     4,338 
Interest in joint venture loss      (485)        -         - 
Gain on sale of interest in 
  Photofinishing segment           6,180         -         - 
Other income                         501       563       443 
                                --------- --------- ---------
Earnings before income taxes
  and discontinued operations     22,799    27,638    26,413 
Income tax expense                 8,436     9,979     9,773 
                                --------- --------- ---------
Net earnings from continuing
  operations                      14,363    17,659    16,640 
                                --------- --------- ---------
Discontinued operations:
  Losses from operations, net
    of income tax benefit of 
    $507 and $1,068, 
    respectively                       -      (898)   (1,818)
  Loss on disposal, net of tax
    benefit of $1,372                  -    (2,428)        - 
                                --------- --------- ---------
Net losses from discontinued
  operations                           -    (3,326)   (1,818)
                                --------- --------- ---------
Net earnings                    $ 14,363  $ 14,333  $ 14,822 
                                ========= ========= =========
Earnings per common share:
  Net earnings from continuing
    operations                  $   1.06  $   1.26  $   1.18 
  Net losses from discontinued
    operations                         -     (0.24)    (0.13)
                                --------- --------- ---------
    Net earnings                $   1.06  $   1.02  $   1.05 
                                ========= ========= =========
Weighted average number of 
  common and common equivalent 
  shares outstanding              13,518    13,989    14,101 
                                ========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

                              20






<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS-RESULTS OF OPERATIONS
----------------------------------------------------------
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Fifty-two weeks ended February 1, 1997 and February 3, 1996
<CAPTION>
                                     1996 Versus 1995
                            1996     Amount    Percent    1995
                                     Change     Change        
<S>                       <C>      <C>       <C>       <C>    
Total operating earnings  $38,990  $(12,280)  (24.0)%  $51,270
General corporate
  expenses                 18,618       980     5.0     19,598
Interest in joint
  venture loss               (485)     (485) (100.0)         -
Gain on sale of interest
  in Photofinishing
  segment                   6,180     6,180   100.0          -
Interest expense            4,278       830    16.2      5,108
Interest income               509        (2)   (0.3)       511
Other income                  501       (62)  (11.0)       563
                          --------  --------           -------
Earnings before income
  taxes and discontinued
  operations              $22,799   $(4,839)  (17.5)%  $27,638
                          ========  ========           =======
</TABLE>

<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Fifty-two weeks ended February 3, 1996 and February 4, 1995
<CAPTION>
                                    1995 Versus 1994
                           1995     Amount   Percent    1994 
                                    Change    Change         
<S>                       <C>       <C>      <C>      <C>    
Total operating earnings  $51,270   $ 2,738     5.6%  $48,532
General corporate
  expenses                 19,598    (1,375)   (7.5)   18,224
Interest in joint
  venture loss                  -         -       -         -
Gain on sale of interest
  in Photofinishing
  segment                       -         -       -         -
Interest expense            5,108       188     3.5     5,295
Interest income               511      (446)  (46.6)      957
Other income                  563       120    27.1       443
                          -------   --------           -------
Earnings before income
  taxes and discontinued
  operations              $27,638   $ 1,225     4.6%   $26,413
                          =======   ========           =======
</TABLE>
<PAGE>
NET EARNINGS AND EARNINGS PER SHARE
Net earnings from continuing operations were $14.4 million in
1996, a decrease of 18.7% from the $17.6 in net earnings from
continuing operations recorded in 1995.  Before the considera-
tion of the $3.9 million (net of taxes) gain attributable to
the sale of 51% of the Company's interest in its Photofinishing
segment and the resulting joint venture formation, net
earnings from continuing operations declined 40.7% to $10.5
million in 1996 from 1995.  This decline reflects decreased
operating earnings and a loss recorded for the Company's 
interest in the joint venture, offset slightly by lower 
corporate expense, reflecting allocation through service and
consulting contracts with the joint venture of administrative
salaries and overhead costs, and lower net interest expense 
due to a portion of the proceeds of the sale of Fox common 
stock being used to pay down existing lines of credit.  In 
1995, net earnings from continuing operations increased 6.1%
to $17.6 million over the $16.6 million recorded in 1994,
reflecting improved operating earnings offset by increased
corporate expenses resulting from higher employee benefit 
costs.  After the losses from the discontinued Electronic
Publishing operations, net earnings in 1995 and 1994 were
comparable at $14.3 million and $14.8 million, respectively.

Over the last several years, interest expense has been higher
than the Company's historical levels due to increased 
borrowings to fund capital expenditure programs.  In addition,
the Company entered into an interest rate swap agreement in 
1993 which, due to the changes in short-term interest rates,
resulted in a decrease in interest expense in 1995 of $76,000
and an increase in interest expense in 1994 of $927,000.  The
swap agreement expired in August 1995.

The effective income tax rates were 37.0%, 36.1% and 37.0% in
1996, 1995 and 1994, respectively.  The increase in the 1996
effective income tax rate resulted primarily from the loss of
tax credits caused by the partial suspension of the targeted
job tax credits program.  The decrease in the 1995 effective
income tax rate resulted primarily from a decline in the
effective state income tax rate.  

Net earnings per share from continuing operations were $1.06 
per share in 1996, including a $0.29 per share gain 
attributable to the joint venture formation, as compared to
the $1.26 per share recorded in 1995.  In addition, net 
earnings per share in 1996 reflects a reduction in the number 
of shares outstanding as a result of the stock repurchase of
2,250,000 shares in November 1996.  In 1995, net earnings per
share, including net losses from discontinued operations of
$0.24, were $1.02 per share.  In 1994, net earnings per share, 



<PAGE>
including net losses from discontinued operations of $0.13, 
were $1.05 per share.

                              21

<TABLE>
NET SALES (in thousands of dollars)
Fifty-two weeks ended February 1, 1997 and February 3, 1996
<CAPTION>
                                  1996 Versus 1995
                        1996      Amount    Percent    1995 
                                  Change    Change          
<S>                   <C>        <C>        <C>      <C>
Portrait Studios      $289,840   $ 10,322     3.7%   $279,518
Photofinishing         114,518    (73,890)  (39.2)    188,408
Wall Decor              62,676      3,951     6.7      58,725
                      --------   ---------           --------
Total net sales       $467,034   $(59,617)  (11.3)%  $526,651
                      ========   =========           ========
</TABLE>
<TABLE>
NET SALES (in thousands of dollars)
Fifty-two weeks ended February 3, 1996 and February 4, 1995
<CAPTION>
                                  1995 Versus 1994
                        1995      Amount   Percent    1994 
                                  Change   Change          
<S>                   <C>        <C>       <C>       <C>   
Portrait Studios      $279,518   $ 3,128     1.1%    $276,390
Photofinishing         188,408    (2,779)   (1.5)     191,187
Wall Decor              58,725     8,781    17.6       49,944
                      --------   --------            --------
Total net sales       $526,651   $ 9,130     1.8%    $517,521
                      ========   ========            ========
</TABLE>
NET SALES
In 1996, sales decreased 11.3% to $467.0 million from $526.7
million in 1995.  This decrease is primarily due to the 
formation of the joint venture with Kodak in October 1996, 
which resulted in only 35 weeks of Photofinishing sales being
included in total net sales compared to 52 weeks of
Photofinishing sales included in the prior year.  This sales
decrease was partially offset by increased sales in the 
Portrait Studios and Wall Decor segments for 1996.  In 1995,
sales increased 1.8% to $526.7 million from $517.5 million in
1994.  This increase is attributable to increased sales in the
Portrait Studios and Wall Decor segments, while the
Photofinishing segment sales declined slightly when compared to
the prior year's results.  

Portrait Studios sales were $289.8 million, $279.6 million 
and $276.4 million for 1996, 1995 and 1994, respectively,
increasing 3.7% in 1996 and 1.1% in 1995. In 1996, both 
<PAGE>
Portrait Studios' customer volume and sales per customer 
increased slightly while in 1995, higher sales per customer
were partially offset by decreased customer volume during the
important Christmas season and during the subsequent month of
January due to adverse weather conditions.

Sales for the Photofinishing segment decreased to $114.5 
million in 1996 compared to $188.4 million recorded in 1995
primarily due to the formation of the joint venture in 
October 1996.  Sales decreased 7.5% during the comparable 
weeks of 1996 reflecting the sale of 50 locations in June of
1996 and the net closure of 10 locations from the end of 1995
until the joint venture formation.  Sales also declined in
comparable stores due to decreases in the number of rolls of
film developed, offset slightly by higher average sales per 
roll.  In 1995, Photofinishing sales decreased 1.5% to $188.4
million from $191.2 million in 1994.  A decrease in the number
of locations due to the net closure of 49 stores, partially
offset by a higher average sales per roll, accounted for the
sales decrease in 1995.

Wall Decor sales were $62.7 million, $58.7 million and $49.9
million for 1996, 1995 and 1994, respectively, increasing 6.7%
in 1996 and 17.6% in 1995.  These increases resulted from the
net addition of 12 locations during 1996 and 24 locations 
during 1995.  Actual same store sales decreased 2.9% and 1.5%
in 1996 and 1995, respectively, due to decreased transaction
counts offset slightly by higher average ticket prices.

                              22

<TABLE>
OPERATING EARNINGS (in thousands of dollars)
Fifty-two weeks ended February 1, 1997 and February 3, 1996
<CAPTION>
                                  1996 Versus 1995
                       1996       Amount    Percent    1995
                                  Change    Change         
<S>                  <C>        <C>         <C>      <C>   
Portrait Studios     $ 35,656   $ (6,956)   (16.3)%  $ 42,612
Photofinishing             82     (3,219)   (97.5)      3,301
Wall Decor              3,252     (2,105)   (39.3)      5,357
                     --------   ---------            --------
Total operating
 earnings            $ 38,990   $(12,280)   (24.0)%  $ 51,270
                     ========   =========            ========
</TABLE>
<TABLE>
OPERATING EARNINGS (in thousands of dollars)
Fifty-two weeks ended February 3, 1996 and February 4, 1995
<CAPTION>
                                   1995 Versus 1994
                       1995       Amount     Percent    1994 
                                  Change     Change          
<S>                  <C>        <C>         <C>      <C>     
Portrait Studios     $ 42,612   $ 4,142      10.8%   $ 38,470
Photofinishing          3,301    (1,270)    (27.8)      4,571
Wall Decor              5,357      (134)     (2.4)      5,491
                     --------   --------             --------
Total operating 
 earnings            $ 51,270   $ 2,738       5.6%   $ 48,532
                     ========   ========             ========
</TABLE>
INCOME FROM OPERATIONS AND OPERATING EARNINGS
Income from operations decreased 35.7% to $20.4 million in
1996 from $31.7 million recorded in 1995, resulting from
decreases in operating earnings in each of the Company's 
business segments.  Income from operations increased 4.5% to
$31.7 million in 1995 from $30.3 million recorded in 1994.
The 1995 increase was attributable to an increase in the 
Portrait Studio segment operating earnings, while the 
<PAGE>
Photofinishing and Wall Decor segments' operating earnings
decreased.  

Portrait Studios operating earnings were $35.7 million, $42.6
million and $38.5 million for 1996, 1995 and 1994, 
respectively.  The 16.3% decrease in operating earnings in 
1996 was due primarily to increased fixed charges and 
increased cost of sales resulting from the costs associated 
with maintaining the newer, more sophisticated technologies
introduced in the Company's Studio Enhancement Program.  For
1996, depreciation and amortization costs increased $3.5 
million over 1995.  In addition, due to the higher customer
volume in Portrait Studios and the increased service levels
associated with the development and maintenance of the new
technologies, employment costs were up $3.8 million in 1996
compared to 1995.  These increases were offset slightly as
advertising costs for 1996 decreased $2.9 million as a result
of not repeating a one-time advertising awareness campaign
conducted in 1995 for the Custom Portraits by Sears program.
The 10.8% increase in operating earnings in 1995 was the 
result of the implementation of the Portrait Preview System
(SM) and Custom Portraits by Sears programs introduced through
the Studio Enhancement Program.  These programs resulted in
reducing manufacturing costs and the increased sale of other
products for immediate delivery to customers.

In the Photofinishing segment, primarily as a result of the
formation of the new joint venture in October 1996, operating
earnings of $82,000 representing 35 weeks are shown against
full year operating earnings of $3.3 million recorded in 1995. 
In addition, a decrease in same store operating earnings for
1996 from the comparable 35 week period in 1995 was due to an
unfavorable sales mix and a decrease in roll volume, which was
partially offset by higher average sales per roll in comparable
stores.  In 1995, operating earnings of $3.3 million were down
27.8% from the $4.5 million recorded in 1994 as a result of
continuing competitive pricing of photographic prints and
processing services, a decline in roll processing volume and
the closure of 49 stores in 1995.

In the Wall Decor segment, operating earnings were $3.3 
million, $5.4 million and $5.5 million for 1996, 1995 and 
1994, respectively, decreasing 39.3% in 1996 and 2.4% in 1995. 
The decreases are attributed to a decrease in same-store 
sales.

                              23
























<PAGE>

<TABLE>
CONSOLIDATED BALANCE SHEETS - ASSETS
(in thousands of dollars except per share amounts)
<CAPTION>
                                      February 1, February 3,
                                         1997        1996   
<S>                                   <C>         <C>  
Current assets:
  Cash                                $  5,226    $  3,815
Short-term investments                  16,697       4,516
Receivables, less allowance of
    $382 and $1,216, respectively       13,378      17,994
Inventories                             19,280      33,937
Deferred income taxes, net                   -       1,830
Prepaid expenses and other
    current assets                       9,104      10,733
                                      ----------- -----------
    Total current assets                63,685      72,825
                                      ----------- -----------
Net property and equipment             130,762     167,944
Investment in Fox joint venture         48,105           -
Net assets of business held for sale         -       5,055
Other assets:
  Intangible assets, net                   491      51,071
Other long-term assets                   3,677       3,593
                                      ----------- -----------
    Total assets                      $246,720    $300,488
                                      =========== ===========
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>





















<PAGE>

<TABLE> 
CONSOLIDATED BALANCE SHEETS-LIABILITIES AND STOCKHOLDERS'
EQUITY
(in thousands of dollars except per share amounts)

<CAPTION>
                                       February 1, February 3,
                                          1997        1996   
<S>                                    <C>         <C>       
Current liabilities:
  Short-term borrowings                $      -    $  2,875  
  Current maturities of long-term
    obligations                          10,000       5,000  
  Accounts payable                       15,263      22,783  
  Accrued expenses and other 
    liabilities                          21,394      25,710  
  Income taxes                            3,926       7,645  
  Deferred income taxes, net                264           -  
                                       ---------   --------- 
      Total current liabilities          50,847      64,013  
                                       ---------   --------- 
Long-term obligations, less current
  maturities                             44,888      54,804  
Other liabilities                         5,473       5,476  
Deferred income taxes, net                5,987       2,027  
Stockholders' equity:
   Preferred stock, no par value,
    1,000,000 shares authorized, no
    shares issued and outstanding             -           -  
   Preferred stock, Series A, 
    no par value                              -           -  
   Common stock, $0.40 par value,
    50,000,000 shares authorized;
    17,238,873 and 17,169,402 shares
    outstanding at February 1, 1997
    and February 3, 1996, respectively    6,896       6,868  
  Additional paid-in capital             33,283      32,071  
  Retained earnings                     219,905     213,015  
  Cumulative foreign currency
    translation adjustment               (1,860)     (2,109) 
                                       ---------   --------- 
                                        258,224     249,845  
  Treasury stock at cost, 5,552,548
    and 3,302,548 shares at February
    1, 1997 and February 3, 1996,
    respectively                       (118,136)    (74,533) 
  Unamortized deferred compensation-
    restricted stock                       (563)     (1,144) 
                                       ---------   --------- 
  Total stockholders' equity            139,525     174,168  
                                       ---------   --------- 
  Total liabilities and stockholders'
    equity                             $246,720    $300,488  
                                       =========   ========= 
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

                              24











<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS-FINANCIAL CONDITION
--------------------------------------------------------
<TABLE>
IDENTIFIABLE ASSETS (in thousands of dollars)
<CAPTION>
                        February 1,  %     February 3,   %
                           1997    Total     1996      Total
<S>                     <C>        <C>     <C>         <C>  
Portrait Studios        $ 115,591   46.9%  $ 118,649    39.5%
Photofinishing                  -      -     113,983    37.9 
Wall Decor                 42,557   17.2      35,577    11.9 
Discontinued Electronic
  Publishing                    -      -       5,055     1.7 
Corporate:
  Cash and marketable
    securities             20,867    8.5       8,331     2.7 
  Other                    19,600    7.9      18,893     6.3 
  Investment in Fox
    joint venture          48,105   19.5           -       - 
                        ---------- ------  ----------  ------
Total Assets            $ 246,720  100.0%  $ 300,488   100.0%
                        ========== ======  ==========  ======
</TABLE>
ASSETS
In 1996, total assets decreased from 1995 due in part to the
sale of 51% of the Fox Photo, Inc. stock from the Company to
the new joint venture.  As the Company owns a 49% interest in
the joint venture, such assets are now excluded from the
Company's consolidated financial statements.  In addition,
total assets reflect the transfer of assets held for sale from
the 1995 balance sheet.  The balance of cash and short-term
investments increased in 1996 from 1995 due primarily to
investing the remaining proceeds from the sale of Fox Photo, 
Inc. common stock.

LIABILITIES
In 1996, total liabilities decreased from 1995 due mainly to 
the sale of Fox Photo, Inc. stock from the Company to the new
joint venture.  In addition, short-term borrowings decreased in
1996 due in part to the use of proceeds from the sale of Fox
Photo, Inc. stock and the scheduled repayment of senior debt.

In 1993, the Company entered into an agreement with two 
insurance companies for the private placement of Senior Notes
in the amount of $60.0 million. The notes mature over a seven-
year period with an average maturity of 5.42 years, with the
first principal payment made in 1996.  Interest on the notes 
is payable semi-annually at an average effective rate of 
6.44%.  The Note Agreement requires the Company to maintain
certain financial ratios and to comply with certain restrictive
covenants.  Future dividend payments could be restricted if the


<PAGE>
Company does not meet certain earnings requirements. 
Additionally, the Company has a $60.0 million revolving Credit 
Agreement with three domestic banks which has substantially
the same financial ratios and restrictive covenants as those
set forth in the Note Agreement.  The Company is in the 
process of restructuring its financing to modify the 
restrictive covenants.

STOCKHOLDERS' EQUITY
Stockholders' equity decreased 19.9% to $139.5 million in 1996
due mainly to the purchase of 2,250,000 shares of the 
Company's common stock for $43.6 million in November 1996, as
approved by the Company's Board of Directors.  This repurchase
was in addition to the 3,302,548 shares of the Company's 
common stock purchased for $74.5 million under the 1992 and 
1988 stock repurchase programs authorized by the Company's 
Board of Directors.  Total shares of the Company's common 
stock authorized by the 1992 and 1988 programs were 4,500,000
shares.

                              25
































<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Fifty-two weeks ended February 1, 1997, February 3, 1996 and
February 4, 1995
<CAPTION>
                                  1996      1995      1994  
<S>                             <C>       <C>       <C>     
Cash flows provided by
  operating activities          $53,840   $53,675   $40,425
Cash flows used in financing 
  activities:
  Proceeds (repayment) of
    short-term borrowings        (2,875)   (3,975)    6,850 
  Repayment of long-term
    obligations                  (5,000)     (150)     (318)
  Issuance of common stock to
    employee stock plans          1,240       812     2,073 
  Cash dividends                 (7,473)   (7,758)   (7,930)
  Purchase of treasury stock    (43,603)       (2)  (15,975)
                                --------  --------  --------
    Cash flows used in
      financing activities      (57,711)  (11,073)  (15,300)
                                --------  --------  --------
Cash flows provided by (used
  in) investing activities:
  Purchases of short-term
    investments                       -   (10,134)   (9,172)

  Proceeds from maturing of
    short-term investments            -    15,270    34,303 
  Additions to property and
    equipment                   (34,728)  (48,794)  (75,117)
  Advance to venture             (4,000)        -         - 
  Proceeds from sale of Fox
    common stock                 56,100         -         - 
  Issuance of restricted stock        -         -    (1,684)
                                --------  --------  --------
    Cash flows provided by (used
      in) investing activities   17,372   (43,658)  (51,670)
                                --------  --------  --------
Effect of exchange rate changes
  on cash and equivalents            91       173      (311)
                                --------  --------  --------
Net increase (decrease) in cash
  and cash equivalents           13,592      (883)  (26,856)
Cash and cash equivalents at
  beginning of year               8,331     9,214    36,070 
                                --------  --------  --------
Cash and cash equivalents at
  end of year                   $21,923   $ 8,331   $ 9,214 
                                ========  ========  ========
Supplemental cash flow 
  information:
  Interest paid                 $ 4,468   $ 5,120   $ 4,513 
                                ========  ========  ========
  Income taxes paid             $ 9,366   $10,421   $ 9,318 
                                ========  ========  ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

                              26







<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Fifty-two weeks ended February 1, 1997, February 3, 1996 and
February 4, 1995
RECONCILIATION OF NET EARNINGS TO CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 
<CAPTION>
                                  1996      1995      1994  
<S>                             <C>       <C>       <C>     
Net earnings from continuing
  operations                    $14,363   $17,659   $16,640 

Adjustments for items not
  requiring cash:
  Depreciation and amortization  37,946    41,007    35,726 
  Deferred income taxes           3,351     1,187    (2,294)
  Deferred compensation              (2)    1,129      (502)
  Interest in joint venture loss    485         -         - 
  Gain on sale of interest in
    Photofinishing segment       (6,180)        -         - 
  Other                          (1,886)   (1,812)   (1,622)
Decrease (increase) in current
  assets:
  Receivables and inventories      (509)    2,627    (7,310)
  Deferred costs applicable to
    unsold portraits                  -       173     2,650 
  Assets held for resale          5,055         -         - 
  Prepaid expenses and other
    current assets                 (631)   (2,633)     (937)
Increase (decrease) in current
  liabilities:
  Accounts payable, accrued
    expenses and other 
    liabilities                   5,566    (4,026)     (814)
  Income taxes                   (3,718)   (2,124)    1,001 
                                --------  --------  --------
Cash flows from continuing 
  operations                     53,840    53,187    42,538
Cash flows from discontinued
  operations                          -       488   (2,113)
                                --------  --------  --------
Cash flows provided by
  operating activities          $53,840   $53,675   $40,425 
                                ========  ========  ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>




<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS-CASH FLOWS
-----------------------------------------------

During the period 1994 through 1996, the Company generated 
$147.9 million in internal funds from operations.  Investing
activities, including capital expenditures of $158.6 million
which were offset by proceeds from the joint venture of $56.1
million, amounted to $78.0 million during this three year
period.  The Studio Enhancement Program accounted for $91.7
million or 57.8% of the capital expenditures.  Financing
activities during this period included the repurchase of $59.6
million in treasury stock, the payment of $23.2 million in
dividends and the payment of $5.5 million in repayment of 
long-term obligations.  The net result of these transactions 
was a $14.1 million decrease in cash and cash equivalents 
during the three-year period.

Planned capital expenditures for fiscal year 1997 are expected
to be lower than 1996 levels. Included in fiscal year 1997
capital spending plans are: the continuation of the Studio
Enhancement Program, the addition of stores to the Wall Decor
and Portrait Studios segments and equipment upgrades and
enhancements in the Company's information systems.  The 
Company believes it has sufficient liquidity over the course 
of the year to fund the planned capital expenditure program
through borrowings under the revolving credit agreement and
operating cash flows.

                              27
























<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands of dollars except per share amounts) Fifty-two
weeks ended February 1, 1997, February 3, 1996 and 
February 4, 1995
<CAPTION>
                                           Add'l
                                  Common  Paid-In  Retained
                                  Stock   Capital  Earnings
<S>                               <C>     <C>      <C>     
Balance at February 5, 1994       $6,791  $29,262  $199,548
                                  ------- -------- ---------
 Issuance of common stock:
  Profit sharing plan and trust
   (19,887 shares)                     8      328         - 
  Stock bonus plan (3,694 shares)      2       55         - 
  Employee stock plans 
   (121,150 shares)                   48    1,633         - 
 Foreign currency translation          -        -         - 
 Dividends ($0.56 per common 
   share)                              -        -    (7,930)
 Net earnings                          -        -    14,822 
 Purchase of treasury stock, at 
   cost                                -        -         - 
 Amortization of deferred
  compensation-restricted stock        -        -         - 
                                  ------- -------- ---------
Balance at February 4, 1995       $6,849  $31,278  $206,440 
                                  ------- -------- ---------
 Issuance of common stock:
  Profit sharing plan and trust
   (40,459 shares)                    16      707         - 
  Stock bonus plan (1,429 shares)      1       20         - 
  Employee stock plans 
   (3,915 shares)                      2       66         - 
 Foreign currency translation          -        -         - 
 Dividends ($0.56 per common 
   share)                              -        -    (7,758)
 Net earnings                          -        -    14,333 
 Purchase of treasury stock, at 
   cost                                -        -         - 
 Amortization of deferred
  compensation-restricted stock        -        -         - 
                                  ------- -------- ---------
Balance at February 3, 1996       $6,868  $32,071  $213,015 
                                  ------- -------- ---------
 Issuance of common stock:
  Profit sharing plan and trust
   (40,725 shares)                    16      754         - 
  Stock bonus plan (6,825 shares)      3       96         - 
  Employee stock plans 
   (21,921 shares)                     9      362         - 
 Foreign currency translation          -        -         - 
 Dividends ($0.56 per common 
   share)                              -        -    (7,473)
 Net earnings                          -        -    14,363 
 Purchase of treasury stock, at 
   cost                                -        -         - 
 Amortization of deferred
  compensation-restricted stock        -        -         - 
                                  ------- -------- ---------
Balance at February 1, 1997       $6,896  $33,283  $219,905
                                  ======= ======== =========

<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>



<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued) (in thousands of dollars except per share 
amounts) Fifty-two weeks ended February 1, 1997, 
February 3, 1996 and February 4, 1995
<CAPTION>
                                       Cumulative
                                        Foreign
                                        Currency    Treasury 
                                       Translation    Stock     
                                       Adjustment    At Cost 
<S>                                    <C>         <C>      
Balance at February 5, 1994            $(1,380)    $ (58,556)
                                       --------    ----------
 Issuance of common stock:
  Profit sharing plan and trust
   (19,887 shares)                           -             - 
  Stock bonus plan (3,694 shares)            -             - 
  Employee stock plans (121,150 shares)      -             - 
 Foreign currency translation             (899)            - 
 Dividends ($0.56 per common share)          -             - 
 Net earnings                                -             - 
 Purchase of treasury stock, at cost         -       (15,975)
 Amortization of deferred
  compensation-restricted stock              -             - 
                                       --------    ----------
Balance at February 4, 1995            $(2,279)    $ (74,531)
                                       --------    ----------
 Issuance of common stock:
  Profit sharing plan and trust
   (40,459 shares)                           -             - 
  Stock bonus plan (1,429 shares)            -             - 
  Employee stock plans (3,915 shares)        -             - 
 Foreign currency translation              170             - 
 Dividends ($0.56 per common share)          -             - 
 Net earnings                                -             - 
 Purchase of treasury stock, at cost         -            (2)
 Amortization of deferred
  compensation-restricted stock              -             - 
                                       --------    ----------
Balance at February 3, 1996            $(2,109)    $ (74,533)
                                       --------    ----------
 Issuance of common stock:
  Profit sharing plan and trust
   (40,725 shares)                           -             - 
  Stock bonus plan (6,825 shares)            -             - 
  Employee stock plans (21,921 shares)       -             - 
 Foreign currency translation              249             - 
 Dividends ($0.56 per common share)          -             - 
 Net earnings                                -             - 
 Purchase of treasury stock, at cost         -       (43,603)
 Amortization of deferred
  compensation-restricted stock              -             - 
                                       --------    ----------
Balance at February 1, 1997            $(1,860)    $(118,136)
                                       ========    ==========

<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>










<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued) (in thousands of dollars except per share 
amounts) Fifty-two weeks ended February 1, 1997, 
February 3, 1996 and February 4, 1995
<CAPTION>
                                      Deferred
                                    Compensation-
                                     Restricted
                                        Stock         Total
<S>                                 <C>           <C>      
Balance at February 5, 1994         $  (156)      $175,509 
                                    --------      ---------
 Issuance of common stock:
  Profit sharing plan and trust
   (19,887 shares)                        -            336 
  Stock bonus plan (3,694 shares)         -             57 
  Employee stock plans (121,150 
   shares)                           (1,681)             - 
 Foreign currency translation             -           (899)
 Dividends ($0.56 per common share)       -         (7,930)
 Net earnings                             -         14,822 
 Purchase of treasury stock, at cost      -        (15,975)
 Amortization of deferred
  compensation-restricted stock          80             80 
                                    --------      ---------
Balance at February 4, 1995         $(1,757)      $166,000 
                                    --------      ---------
 Issuance of common stock:
  Profit sharing plan and trust
   (40,459 shares)                        -            723 
  Stock bonus plan (1,429 shares)         -             21 
  Employee stock plans (3,915 
   shares)                                -             68 
 Foreign currency translation             -            170 
 Dividends ($0.56 per common share)       -         (7,758)
 Net earnings                             -         14,333 
 Purchase of treasury stock, at cost      -             (2)
 Amortization of deferred
  compensation-restricted stock         613            613 
                                    --------       --------
Balance at February 3, 1996         $(1,144)       $174,168
                                    --------       --------
 Issuance of common stock:
  Profit sharing plan and trust
   (40,725 shares)                        -            770 
  Stock bonus plan (6,825 shares)         -             99 
  Employee stock plans 
   (21,921 shares)                        -            371 
 Foreign currency translation             -            249 
 Dividends ($0.56 per common share)       -         (7,473)
 Net earnings                             -         14,363 
 Purchase of treasury stock, at cost      -        (43,603)
 Amortization of deferred
  compensation-restricted stock         581            581 
                                    --------      ---------
Balance at February 1, 1997         $  (563)      $139,525 
                                    ========      =========

<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

                              28






<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS OF THE COMPANY AND PRINCIPLES OF CONSOLIDATION 
CPI Corp. (the Company) is a holding company engaged, through
its majority or wholly owned subsidiaries, partnerships and
joint ventures, in developing and marketing consumer services
and related products through a network of centrally-managed,
small retail locations. The Company operates professional
portrait studios and posters, prints and framing outlets
throughout the United States, Canada and Puerto Rico.  Also,
through the Fox Photo, Inc. joint venture, the Company operates
photographic finishing laboratories throughout the United
States.  The Company holds a 49% interest in the joint venture. 
Company management has made a number of estimates and
assumptions related to the reporting of assets and liabilities
in the preparation of financial statements.  Actual results
could differ from these estimates. All significant intercompany
transactions have been eliminated.

TRANSLATION OF FOREIGN CURRENCY 
Assets and liabilities of foreign operations are translated
into U.S. dollars at the exchange rate in effect on the balance
sheet date, while equity accounts are translated at historical
rates. Income and expense accounts are translated at the
average rates in effect during each fiscal period. The Company
recognizes that its Canadian operating results are subject to
variability arising from foreign exchange rate movements. The
Company does not believe such risk is material to the results
of operations or the financial position of the Company and as
such does not engage in derivative activities in order to hedge
against foreign currency fluctuations.

CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, cash and cash
equivalents consist primarily of cash on hand and highly liquid
investments with insignificant interest-rate risk and original
maturities of three months or less at date of acquisition.
Remaining short-term investments consist of investments with
original maturities beyond three months but less than twelve
months. 

SHORT-TERM INVESTMENTS
Short-term investments consist of treasury bills, bankers
acceptances, commercial paper, term deposits, government agency
notes, repurchase agreements and government money market funds
which are stated at cost, adjusted for discount accretion and
premium amortization. The securities in the Company's portfolio
are short-term in nature and are classified as
"held-to-maturity," as management has the intent and ability to
hold those securities to maturity.  

<PAGE>
Total interest income for 1996, 1995 and 1994 was $509,000,
$511,000, and $957,000, respectively.

INVENTORIES
Inventories are stated at the lower of cost or market, with
cost of the majority of inventories being determined by the
first-in, first-out (FIFO) method and the remainder by the
last-in, first-out (LIFO) method. 

PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost when acquired.
Expenditures for improvements are capitalized, while normal
repair and maintenance are expensed as incurred.  When
properties are disposed of, the related cost and accumulated
depreciation are removed from the accounts, and gains or losses
on the dispositions are reflected in results of operations.  
Depreciation is computed principally using the straight-line
method over estimated service lives of the respective assets. A
summary of estimated useful lives is as follows:
<TABLE>
<S>                         <C>
Building improvements       15 to 19 years
Leasehold improvements      5 to 15 years
Furniture and fixtures      5 to 8 years
Machinery and equipment     3 to 10 years
</TABLE>

                              29

REVENUE RECOGNITION
Portrait Studio sales revenue is recognized at the time the
customer approves photographic proofs and makes a firm
commitment for a portrait order. Incremental costs of
production are accrued at the time sales revenue is recognized. 
Appropriate reserves for cancelability are maintained by the
Company.

RETIREMENT PLAN
The Company has a noncontributory defined-benefit retirement
plan covering substantially all full-time employees. Pension
expense, which is funded as accrued, includes current costs and
amortization of prior service costs over a period of ten years.

INTANGIBLE ASSETS
Intangible assets acquired through acquisitions were accounted
for by the purchase method of accounting and include the excess
of cost over fair-value of net assets acquired, favorable lease
rights, covenants not to compete and a signing bonus. The
excess of cost over fair value of net assets acquired and
favorable lease rights are being amortized on a straight-line
basis over periods ranging from five to forty years. The
covenants not to compete and signing bonus have been amortized
on a straight-line basis over the respective one to five year 
<PAGE>
periods of the agreements.

The Company analyzes excess of cost over fair-value of net
assets acquired periodically to determine whether any
impairment has occurred in the value of such assets. Based upon
the anticipated future income and cash flow from operations, in
the opinion of Company management, there has been no
impairment.

EARNINGS PER COMMON SHARE AND OTHER SHARE INFORMATION
Earnings per common share are computed by dividing net earnings
by the sum total of the weighted average number of shares of
common stock outstanding plus contingently issuable shares
under the employee stock plans. Fully diluted earnings per
common share are not presented, as the differences between
primary and fully diluted earnings per common share are not
material.  

RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform
with the 1996 presentation.

FAIR VALUE OF FINANCIAL INSTRUMENTS 
A financial instrument is defined as cash or a contract that
both imposes on one entity a contractual obligation to deliver
cash or another financial instrument to a second entity and
conveys to that second entity a contractual right to receive
cash or another financial instrument from the first entity.  

IMPACT OF NEW ACCOUNTING STANDARDS
Prior to February 4, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related interpretations.  As such,
compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price.  On February 4, 1996, the Company
adopted Statement of Financial Accounting Standards (SFAS) No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits
entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. 
Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years
as if the fair-value based method defined in SFAS No. 123 had
been applied.  The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123. 

The Company adopted the provisions of SFAS No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, on February 4, 1996.  This Statement
<PAGE>
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment 

                              30

whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. 
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset.  If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. 
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.  Adoption of
this Statement did not have a material impact on the Company's
financial statements.

In June 1996, the Financial Accounting Standards Board issued
SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES.  SFAS No.
125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be applied prospectively.  This
Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments
of liabilities based on consistent application of a financial
components approach that focuses on control.  It distinguishes
transfers of financial assets that are sales from transfers
that are secured borrowings.  Management of the Company does
not expect that adoption of SFAS No. 125 will have a material
impact on the Company's financial statements.

2.  JOINT VENTURE
On October 4, 1996, the Company entered into a joint venture
with Eastman Kodak Company ("Kodak").  The joint venture, plans
for which were announced by the Company on August 8, 1996, now
owns and operates the retail photofinishing business previously
conducted by the Company's Fox Photo, Inc. ("Fox") and Proex
Photo Systems, Inc. ("Proex") subsidiaries.  Proex is a wholly
owned subsidiary of Fox.

In executing the Subscription Agreement, dated August 8, 1996,
by and among Kodak, the Company, Consumer Programs Holding,
Inc. (a wholly owned subsidiary of the Company) ("Holding") and
Fox, Kodak agreed to purchase at closing new shares of Fox
constituting 51% of the then outstanding common stock of Fox
for a cash purchase price of $56.1 million.  The Company
recognized a gain, net of taxes, of $3.9 million or $0.29 per
share.  On a prospective basis, the joint venture will be
reflected as an investment in Fox joint venture within the
financial statements.

<PAGE>
The information below summarizes the unaudited pro forma
results of operation for 1996 and 1995 assuming the joint
venture results had been prepared for comparative purposes only
and do not purport to be indicative of the results of
operations which actually would have resulted had the
combination been in effect on the dates indicated, or which may
result in the future.
<TABLE>
PRO FORMA RESULTS 
(in thousands of dollars except per share amounts)
<CAPTION>
                                1996            1995
                            -----------     -----------
<S>                         <C>             <C>        
Net sales                   $  352,516      $  338,243 
                            ===========     ===========

Earnings from continuing    $   15,690      $   18,703 
  operations                ===========     ===========

Net earnings                $   15,690      $   15,377 
                            ===========     ===========
Earnings per common share:
    Continuing operations   $     1.16      $     1.34 
                            ===========     ===========
    Net earnings            $     1.16      $     1.10 
                            ===========     ===========
</TABLE>

                              31

Going forward, the Company's 49% ownership of the combined
joint venture will be accounted for under the equity method. 
The summarized financial information for the joint venture for
the 17 weeks from October 5, 1996 through January 31, 1997 is: 

<TABLE>
FOX PHOTO, INC. SELECTED FINANCIAL INFORMATION, 
OCTOBER 5, 1996 - JANUARY 31, 1997 (in thousands of dollars)

<S>                           <C>

Net sales                     $ 55,543
                              ========
Operating loss                $  1,490
                              ========
Assets                        $111,554
                              ========
Liabilities                   $ 21,975
                              ========
</TABLE>


<PAGE>
3. PROPERTY AND EQUIPMENT

<TABLE>

PROPERTY AND EQUIPMENT (in thousands of dollars)

<CAPTION>   
                                     February 1,  February 3,
                                         1997         1996  
<S>                                  <C>          <C>       
Land and land improvements           $  2,803     $  2,911  
Building improvements                  26,544       26,452  
Leasehold improvements                 26,857       43,467  
Furniture and fixtures                 63,293       72,251  
Machinery and equipment               107,946      187,355  
                                     ---------    --------- 
                                      227,443      332,436  
Less accumulated depreciation          96,681      164,492  
                                     ---------    --------- 
Net property and equipment           $130,762     $167,944  
                                     =========    ========= 

</TABLE>

The Company leases various premises and equipment under
noncancellable operating lease agreements with initial terms in
excess of one year and expiring at various dates through fiscal
2007. Substantially all leases require the Company to pay 
maintenance, insurance and taxes.

<TABLE>

MINIMUM RENTAL PAYMENTS UNDER OPERATING LEASES WITH INITIAL
TERMS IN EXCESS OF ONE YEAR AT FEBRUARY 1, 1997
(in thousands of dollars)
<CAPTION>

      <S>                  <C>      
      1997                 $ 15,759 
      1998                   14,271 
      1999                   12,180 
      2000                   10,271 
      2001                    8,809 
      Thereafter             24,549 
                           ---------
                           $ 85,839 
                           =========
</TABLE>
Rental expense during 1996, 1995 and 1994 on all operating
leases was $27.8 million, $32.3 million and $31.5 million,
respectively.


<PAGE>
4. INVENTORIES
The Company's inventory is comprised of raw material
inventories of film, paper, chemicals and portraits-in-process.
Certain inventories are accounted for under the LIFO method.
Such inventories aggregated approximately $835,000 and $1.1
million at February 1, 1997 and February 3, 1996, respectively.
The excess of replacement cost of these inventories over their
stated LIFO value was $269,000 and $316,000 at February 1, 1997
and February 3, 1996, respectively. 

Portraits-in-process include the cost of film, laboratory
labor, paper, processing chemicals and supplies, and other
items directly associated with the production of portraits that
have not been approved or committed to by the customer and have
not been recognized as sales. 

5.  ADVERTISING
The Company expenses the production costs of advertising the
first time the advertising takes place, except for direct-
response advertising, which is capitalized and amortized over 
its expected period of future benefits.

                              32

Direct-response advertising consists of direct mail
advertisements that include coupons for the Company's products
and, in interim financial reporting periods, of certain
broadcast costs.  The capitalized costs of the advertising are
amortized over the expected period of future benefits following
the delivery of the direct mail in which it appears. 

Total advertising reported as a capitalized cost for direct-
response advertising and classified with other assets for 1996
and 1995 was $1.6 million and $1.9 million respectively. 
Advertising expense for 1996 and 1995 was $45.5 million and
$52.3 million, respectively.

6.  INTANGIBLE ASSETS
<TABLE>
Intangible Assets and Related Amortization
(in thousands of dollars)
<CAPTION>                                                       

                         Unamortized
                         Balance at          Amortization
                         Feb. 1, 1997   1996     1995    1994  
<S>                      <C>            <C>      <C>     <C>   
Excess of cost over fair
  value of net assets
  acquired               $    491       $  935   $1,467  $1,471
Favorable lease rights          -           10       57      93
Covenants not to compete        -          250      990   1,049
Signing bonus                   -            -    1,111   1,333
                         --------       ------   ------  ------
                         $    491       $1,195   $3,625  $3,946
                         ========       ======   ======  ======
</TABLE>
Accumulated amortization of intangible assets was $18.8 million
and $17.6 million at February 1, 1997 and February 3, 1996,
respectively.

7. CREDIT AGREEMENTS AND OUTSTANDING DEBT
On August 31, 1993, the Company privately placed Senior Notes
in the amount of $60.0 million (the Note Agreement) with two
insurance companies. The notes, issued pursuant to the Note
Agreement, mature over a seven-year period with an average
maturity of 5.42 years and with the first principal payment due
at the end of the third year.  Interest on the notes is payable
semi-annually at an average effective fixed rate of 6.44%. The
Note Agreement requires the Company maintain certain financial
ratios and comply  with certain restrictive covenants including
<PAGE>
a limitation on dividend payments, purchase of treasury stock
and certain restricted investments, the total of which is not
to exceed $25.0 million plus 50% of net earnings (or less 100%
of net losses) credited at the end of each fiscal year. The
Company incurred $459,000 in issuance costs associated with the
private placement of the notes. These costs are being amortized
ratably over the seven-year life of the notes. 

On July 13, 1995, the Company terminated its existing $50.0
million revolving credit agreement and two separate $5.0
million credit agreements of its wholly-owned subsidiary,
Consumer Programs Incorporated, and entered into a new, $60.0
million revolving credit agreement (the Credit Agreement) with
three domestic banks.  The Credit Agreement, which will expire
on August 31, 1997, has interest charged at the lower of a
quoted interest rate or the banks' prime lending rate.  A
commitment fee of 0.1875% per annum is payable on the unused
portion of the Credit Agreement. The Company is not required to
maintain compensating balances in connection with the Credit
Agreement and has substantially the same financial covenants in
the Credit Agreement as those set forth in the Company's $60.0
million Note Agreement. Under a covenant of the Credit
Agreement, the Company is required to reduce the balance held
under the Credit Agreement to $5.0 million for 30 consecutive
days during the year. 

As of February 1, 1997, the Company had outstanding letters of
credit for the principal amount of $3.9 million. 

                              33

The Company's performance of the conditions of the Note
Agreement and the previous $50.0 million Credit Agreement and
the underlying notes issued under both agreements was secured
by a pledge of the stock of the Company's direct subsidiaries. 
As the Company achieved the stipulated financial ratios
required by both agreements to release the stock, on June 5,
1995, all pledged stock of the Company's direct subsidiaries
was released.
<TABLE>
DEBT OBLIGATIONS OUTSTANDING (in thousands of dollars)
<CAPTION>
                                    February 1,     February 3,
                                        1997            1996    

<S>                                 <C>             <C>        
Senior notes, net of unamortized 
  issuance costs                    $ 54,831        $ 59,747   
Revolving credit agreement                 -           2,875   
Notes payable and obligations
  under capital leases                    57              57   
Less current maturities               10,000           7,875   
                                    ---------       ---------  
                                    $ 44,888        $ 54,804   
                                    =========       =========  
</TABLE>
<TABLE>
AGGREGATE LONG-TERM DEBT MATURITIES AS OF FEBRUARY 1, 1997
(in thousands of dollars)
        <S>                          <C>      
        1997                         $ 10,000 
        1998                           15,000 
        1999                           15,000 
        2000                           15,057 
                                     ---------
                                       55,057 
        Unamortized issuance costs       (169)
                                     ---------
                                     $ 54,888 
                                     =========
</TABLE>
<PAGE>
Interest expense for 1996, 1995 and 1994 was $4.3 million, $5.1
million and $5.3 million, respectively.

8. FINANCIAL INSTRUMENTS
To manage its exposure to fluctuations in interest rates, in
1993 the Company entered into an interest rate swap agreement
(the "swap agreement") for a notional principal amount of $40.0
million, which matured August 28, 1995. Swap agreements involve
the exchange of interest obligations on fixed and floating
interest-rate debt without the exchange of the underlying
principal amount.  The differential paid or received on the
swap agreement was recognized as an adjustment to interest
expense. The swap agreement provided a fixed rate of 4.54% with
a floating rate payment equal to the 6-month London Interbank
Offered Rate (LIBOR) determined on a semi-annual basis with
settlement occurring on a specific date.  For 1995 and 1994,
the rate realized averaged 6.04% and 5.70%, respectively.  Net
interest expense on the swap agreement was $927,000 for 1994
while the swap agreement resulted in income of $76,000 in 1995. 
The  $927,000 in interest expense recorded in 1994 included an
unrealized loss as the Company recorded the swap agreement at
its market value in that year.

The Company has not entered into any other derivative
instruments or off-balance-sheet transactions. 

9. ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
ACCRUED EXPENSES AND OTHER LIABILITIES (in thousands of
dollars)
<CAPTION>
                                February 1,      February 3,
                                   1997            1996     
  <S>                           <C>              <C>        
  Accrued employment costs      $ 10,297         $ 13,023   
  Sales taxes payable              2,556            2,674   
  Accrued advertising expense      3,064            3,204   
  Accrued license fees             1,015            2,879   
  Accrued interest                 1,480            1,688   
  Other                            2,982            2,242   
                                ---------        ---------  
                                $ 21,394         $ 25,710   
                                =========        =========  

                              34

10. INCOME TAXES

</TABLE>
<TABLE>
EARNINGS BEFORE INCOME TAXES BY U.S. AND CANADIAN SOURCES
(in thousands of dollars)
<CAPTION>
                      1996           1995           1994      
  <S>              <C>            <C>            <C>          
  U.S.             $ 23,597       $ 23,382       $ 21,619     
  Canada               (798)          (949)         1,908     
                   ---------      ---------      ---------    
                   $ 22,799       $ 22,433       $ 23,527     
                   =========      =========      =========    
</TABLE>












<PAGE>
<TABLE>
COMPONENTS OF INCOME TAXES (in thousands of dollars)
<CAPTION>
                                1996       1995       1994   
<S>                           <C>        <C>        <C>      
Current:
  Federal                     $ 5,399    $ 8,336    $ 9,144  
  State and local               1,010        594      1,684  
  Canada                       (1,324)      (645)       171  
                              --------   --------   -------- 
                                5,085      8,285     10,999  
Deferred                        3,351       (185)    (2,294) 
                              --------   --------   -------- 
                              $ 8,436    $ 8,100    $ 8,705  
                              ========   ========   ======== 
</TABLE>
<TABLE>
RECONCILIATION BETWEEN INCOME TAXES (in thousands of dollars)
<CAPTION>
                                1996       1995       1994   
<S>                           <C>        <C>        <C>      
Taxes at U.S. federal
  corporate statutory rate    $ 7,980    $ 7,852    $ 8,235  
State and local income
  taxes, net of federal tax
  benefit                         849        461        933  
Other                            (393)      (213)      (463) 
                              --------   --------   -------- 
                              $ 8,436    $ 8,100    $ 8,705  
                              ========   ========   ======== 
</TABLE>
<TABLE>
SOURCES OF TAX EFFECTS (in thousands of dollars)
<CAPTION>
                                      February 1,   February 3,
                                          1997          1996
<S>                                    <C>           <C>  
Deferred tax assets:
  Deferred compensation and other
    employee benefits                  $ 2,131       $ 1,785 
  Expense accruals                       1,385           461 
  Allowance for doubtful accounts          132           470 
  Net operating loss carryforward          209         1,164 
  Reserve for discontinued operations       85         1,373 
  Intangible assets                        832         1,795 
  Other                                    364             - 
                                       --------      --------
Total deferred tax assets                5,138         7,048 
                                       --------      --------
</TABLE>





















<PAGE>

<TABLE>
SOURCES OF TAX EFFECTS (in thousands of dollars) (Continued)
<CAPTION>
                                     February 1,  February 3,
                                        1997         1996
<S>                                  <C>          <C>        
Deferred tax liabilities:
  Property and equipment              (7,597)       (5,273)   
  Gain on interest in Photofinishing
   segment                            (2,287)            -    
  Employee pension plan               (1,420)       (1,557)   
  Intangible assets                        -          (327)   
  Other                                  (85)          (88)   
                                     --------      --------   
    Total deferred tax liabilities   (11,389)       (7,245)   
                                     --------      --------   
    Net deferred tax liabilities     $(6,251)      $  (197)   
                                     ========      ========   
Current deferred income taxes        $  (264)      $ 1,830    
                                     ========      ========   
Long-term deferred income taxes      $(5,987)      $(2,027)   
                                     ========      ========   
</TABLE>

A valuation allowance would be provided on deferred tax assets
when it is more likely than not that some portion of the assets
will not be realized. The Company has not established a
valuation allowance as of February 1, 1997, due to management's
belief that all criteria for recognition have been met,
including the existence of a history of taxes paid sufficient
to support the realization of deferred tax assets.  The Company
has $3.3 million of total net operating loss carryforwards
available for state income tax purposes.

United States income taxes have not been provided on $13.9
million of undistributed earnings of the Canadian subsidiary
because of the Company's intention to reinvest these earnings.
The determination of unrecognized deferred U.S. tax liability
for undistributed earnings of international subsidiaries is not
practicable. However, it is estimated that foreign withholding
taxes of $1.4 million may be payable if such earnings were
distributed. 

                              35

11. RETIREMENT PLAN
The Company maintains a qualified, noncontributory pension plan
that covers all full-time 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 earlier of the hire date or January 1, 1985 (if
January 1, 1985 precedes the hire date) 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 cash equivalents, a marketable
equity securities fund, guaranteed interest contracts,
immediate participation guarantee contracts and government
bonds.

In 1996, the Company recognized a $295,000 curtailment gain in
conjunction with the sale of 51% of the Fox Photo, Inc. stock
in the formation of the Fox joint venture.







<PAGE>
<TABLE>
NET PERIODIC PENSION EXPENSE OF THE DEFINED BENEFIT PLAN
(in thousands of dollars)
<CAPTION>
                                  1996       1995       1994  
<S>                             <C>        <C>        <C>     
Service cost-benefits earned
  during the period             $ 1,124    $   962    $ 1,064 
Interest cost on projected
  benefit obligation              1,432      1,261      1,148 
Return on plan assets            (2,802)    (3,298)      (351)
Net amortization and deferral     1,435      2,220       (611)
Curtailment (gain) loss            (295)         -          - 
                                --------   --------   --------
Net periodic pension expense    $   894    $ 1,145    $ 1,250 
                                ========   ========   ======== 
</TABLE>

<TABLE>
FUNDED STATUS OF DEFINED BENEFIT PLAN AS OF DECEMBER 31, 1996 
AND DECEMBER 31, 1995 (in thousands of dollars)
<CAPTION>
                                   1996       1995    
<S>                              <C>        <C>       
Actuarial present value of
  vested benefit obligation      $ 15,747   $ 14,950  
                                 =========  ========= 
Accumulated benefit obligation   $ 16,797   $ 16,942  
                                 =========  ========= 
Projected benefit obligation     $(18,827)  $(19,366) 
Plan assets at fair value          22,635     19,431  
                                 ---------  --------- 
Plan assets in excess of
  (less than) projected
  benefit obligations               3,808         65  
Unrecognized net loss              (1,113)     1,513  
Unrecognized prior service cost       487        867  
Net transition obligation              15         21  
                                 ---------  --------- 
Prepaid pension cost recognized
  in the consolidated balance
  sheet                          $  3,197   $ 2,466   
                                 =========  ========= 
</TABLE>









<PAGE>
<TABLE>
ASSUMPTIONS ON FUNDED STATUS AT DECEMBER 31, 1996, DECEMBER 31,
1995 AND DECEMBER 31, 1994
<CAPTION>
                                 1996       1995       1994    
<S>                              <C>        <C>        <C>     
Discount rate in determining
   benefit obligations           8.0%       7.5%       8.5%    
Rate of increase in
   compensation levels           5.5%       5.0%       6.0%    
Expected long-term rate of
   return on assets              8.0%       8.0%       8.0%    
</TABLE>

12. EMPLOYEE STOCK PLANS
Expenses recognized for 1996, 1995 and 1994 with respect to
these plans were $1.5 million, $2.2 million and $1.3 million,
respectively

RESTRICTED STOCK PLAN
In January 1988, the Company's Board of Directors adopted the
CPI Corp. Restricted Stock Plan with an effective date of
February 7, 1988. Under the plan, 250,000 shares of CPI common
stock are reserved for issuance to key employees.  In 1993,
4,000 restricted shares  were issued and vest ratably over a
four-year period. In 1994, 121,419 restricted shares were
issued and vest over a three-year period. Of the grants issued,
no shares were forfeited in 1996, 1995 and 1994.  As of
February 1, 1997, 58,347 shares are reserved for issuance under
this plan.  Expenses related to the restricted stock plan are
accrued periodically, based on the fair market value of the
Company's common stock on the grant date.

                              36

PROFIT-SHARING PLAN 
Under the Company's profit-sharing plan, eligible employees may
elect to invest from 1% to 15% of their base compensation in a
trust fund, the assets of which are invested in securities
other than Company stock. Effective January 1, 1994, the
Company amended the Plan to set the Company match at 50% of the
employee's investment contributions, up to a maximum of 5% of
the employee's base compensation, as long as the Company
remains profitable. An additional 10% match was granted for
1994 fourth-quarter contributions up to a maximum of 5% of a
participating employee's fourth-quarter base compensation for
employees who increased, joined or rejoined the plan during the
1994 fourth quarter. The Company's matching contributions are
made in shares of its common stock which vest 100% once an
employee has five years of service with the Company. The
difference between the market value of forfeited shares at the
dates of their original contribution and their market value at
the dates used to satisfy subsequent requirements have been 
<PAGE>
charged to expense, with a corresponding credit to additional
paid-in capital. Expenses related to the profit-sharing plan
are accrued in the year to which the awards relate, based on
the fair market value of the Company's common stock to be
issued, determined as of the date earned.  The Company provided
41,439, 40,725 and 40,459 shares to satisfy its obligations
under the plan for 1996, 1995 and 1994, respectively. For 1996,
1995 and 1994, the Company matched the employee's investment at
a rate of 50%. 

STOCK-BONUS PLAN
Under the Company's stock-bonus plan, shares of the Company's
common stock are reserved for issuance to key employees, based
on attainment by the Company of predefined earnings levels
established annually. Each year, employees receive one-third of
the shares which were awarded in each of the previous three
years. For 1996,1995 and 1994, 6,825,1,429 and 3,694 shares,
respectively, were distributed under this plan. In 1994 there
were discretionary awards of 725 shares. Of the 725 shares
awarded in 1994, 558 shares were forfeited due to terminations.
As of February 1, 1997, 51,545 shares are reserved for issuance
under this plan.  Expenses related to the stock-bonus plan are
accrued in the year to which the awards relate, based on the
fair market value of the Company's common stock to be issued,
determined as of the date earned. 

STOCK-OPTION PLAN
The Company has a non-qualified stock-option plan, under which
certain officers and key employees may receive options to
acquire shares of the Company's common stock.  Awards of stock
options and the terms and conditions of such awards are subject
to the discretion of the Stock Option Committee created under
the plan and consisting of members of the Compensation
Committee of the Board of Directors, all of whom are
disinterested directors.  A total of 1,700,000 shares has been
authorized for issuance under the plan. 

















<PAGE>
<TABLE>
OPTIONS AWARDED UNDER THE STOCK OPTION PLAN - 1996
<CAPTION>
                                              1996    
                                     Number of   Per Share
                                     Shares      Option Price 
<S>                                  <C>         <C>          

Outstanding at beginning of year       808,961   $13.88-$21.75
                                       480,000    30.00- 35.00
                                     ----------  -------------
Total outstanding at beginning
 of year                             1,288,961    13.88- 35.00
Granted                                 13,704    14.38- 15.00
Cancelled                              (35,075)   14.75- 24.50
Exercised                              (20,285)   14.75- 18.88
                                     ----------               
At end of year:
  Total outstanding                  1,247,305   $13.88-$35.00
                                     ==========               
  Total exercisable                    452,695                
                                     ==========               
</TABLE>
<TABLE>
OPTIONS AWARDED UNDER THE STOCK OPTION PLAN - 1995
<CAPTION>
                                              1995    
                                     Number of   Per Share    
                                     Shares      Option Price 
<S>                                  <C>         <C>          
Outstanding at beginning of year     1,022,011   $13.88-$21.75
                                       480,000    30.00- 35.00
                                     ----------  --------------
Total outstanding at beginning 
 of year                             1,502,011    13.88- 35.00 
Granted                                100,139    14.75- 21.63 
Cancelled                             (309,274)   14.75- 29.00 
Exercised                               (3,915)   15.50- 17.75 
                                     ----------               
At end of year:
  Total outstanding                  1,288,961   $13.88-$35.00 
                                     ==========               
  Total exercisable                    391,454                
                                     ==========               
</TABLE>








<PAGE>
<TABLE>
OPTIONS AWARDED UNDER THE STOCK OPTION PLAN - 1994
<CAPTION>
                                              1994    
                                     Number of   Per Share
                                     Shares      Option Price
<S>                                  <C>         <C>        


Outstanding at beginning of year       432,154   $15.63-$29.00
                                       780,000    30.00- 35.00
                                     ----------  -------------
Total outstanding at beginning 
 of year                             1,212,154    15.63- 35.00
Granted                                597,108    13.88- 18.63
Cancelled                             (307,251)   17.00- 35.00
Exercised                                    -               -
                                     ----------               
At end of year:
  Total outstanding                  1,502,011   $13.88-$35.00
                                     ==========               
  Total exercisable                    345,283                
                                     ==========               
</TABLE>

                              37

Under the plan, 339,920 options granted become exercisable at a
rate of one-fourth a year commencing one year after award and
expiring from four to eight years after award.  An additional
667,385 options granted under the plan are cliff-vested and
become exercisable from four to five years after award and
expire six to eight years after award.  As of February 1, 1997,
there were 448,579 shares reserved for issuance under this
plan. 

The Company has adopted the disclosure-only provisions of SFAS
No. 123.  Accordingly, no compensation cost has been recognized
for the stock option plans.  Had compensation cost for the
Company's stock option plan been determined based on the fair
value at the grant date for awards in 1996 and 1995 consistent
with the provisions of SFAS No. 123, the Company's net earnings
and earnings per common share would have been: 
<TABLE>
<CAPTION>
(in thousands of dollars except per share amounts)

                                 1996           1995
<S>                            <C>            <C>
Net earnings - as reported     $ 14,363       $ 14,333
                               ========       ========
Net earnings - pro forma       $ 14,324       $ 14,303
                               ========       ========
Earnings per common share -
  as reported                  $   1.06       $   1.02
                               ========       ========
Earnings per common share -
  pro forma                    $   1.06       $   1.02
                               ========       ========
</TABLE>
Pro forma net income reflects only options granted in 1996 and
1995.  Therefore, the full impact of calculating compensation
cost for stock options under SFAS 123 is not reflected in the
pro forma net income amounts presented above because
compensation cost is reflected over the options' vesting period
of four years and compensation cost for options granted prior 
to January 1, 1995 is not considered.

The fair value of each option grant for 1996 and 1995 is
estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted average assumptions 
<PAGE>
used for the grants: expected volatility of 30.0%, risk-free
interest rate of 6%, expected lives of four to five years, 
and an expected dividend yield of between 2.6% and 3.9%.

The pro forma information is provided for informational
purposes only and is not necessarily indicative of the results
of operations that would have occurred or of the future
anticipated results of operations of the Company.

VOLUNTARY STOCK-OPTION PLAN
The Company has a non-qualified voluntary stock-option plan,
under which certain key officers may receive options to acquire
shares of the Company's common stock in exchange for a
voluntary reduction in base salary.  Options were granted as
participants elected, pursuant to their Stock Option Agreement,
to reduce their compensation for 1993 and 1994. A total of
1,000,000 shares has been authorized for issuance. As of
February 1, 1997, 240,284 options at an exercise price of
$18.38 for 1993 salary reduction and 262,247 options at an
exercise price of $15.50 for 1994 salary reduction have been
issued.  For 1996 and 1995, this plan was not offered. Options
granted are exercisable after three years and expire at the end
of eight years.

DEFERRED COMPENSATION AND STOCK APPRECIATION RIGHTS PLAN
On February 1, 1986, the Company's Board of Directors approved
a Deferred Compensation and Stock Appreciation Rights Plan
designed to attract and retain certain key employees.  Under
the Deferred Compensation Plan, as amended and restated, within
thirty days prior to the beginning of the fiscal year, eligible
employees may irrevocably elect by written notice to the
Company to defer the payment of a portion (not to exceed 50% or
less than $5,000 in the aggregate) of an incentive bonus.  The
participant may choose to have payments made either in a lump
sum or in a specified number of annual installments, not to
exceed ten.  For 1996, 1995 and 1994, certain key executives
elected to participate in this plan.  All stock appreciation
rights previously granted under the Plan have expired.

                              38

KEY EXECUTIVE DEFERRED COMPENSATION PLAN
On April 6, 1995, the Board of Directors established a deferred
base salary plan for key executives which allows deferral of 
base salary on substantially the same terms as bonus
compensation may be deferred under the Deferred Compensation
and Stock Appreciation Plan.  On July 14, 1995, this plan was
amended and restated.  Under this plan, a participant may elect
by written notice to the Company to defer up to 50% of his base
salary for the fiscal year, but not less than $5,000 in the
aggregate.  Payment shall not commence earlier than six months
and one day after the initial year of deferral.  The
participant may choose to have payments made either in a lump 
<PAGE>
sum or in a specified number of annual installments, not to
exceed ten.  For 1996 and 1995, certain key executives elected
to participate in this plan.

13. INDUSTRY SEGMENT INFORMATION
The Company is engaged in developing and marketing products and
services for consumers in the United States and Canada through
a network of centrally managed retail locations. The Company
operates in two business segments: Portrait Studios and Wall
Decor.  In addition, the Company operated a third business
segment, Photofinishing, until October 4, 1996.  This segment,
comprised of Fox Photo, CPI Photo Finish and Proex, was made
part of a joint venture with Kodak on October 4, 1996.  Also,
in May 1996, the Company sold its Electronic Publishing segment
(CopyMat and CopyUSA).  

The Portrait Studios segment operates a professional portrait
photography business, primarily through fixed location studios.
The Wall Decor segment markets an assortment of custom print
reproductions and related accessories and provides custom
framing services.  Sales and operating earnings segment
information is included in "Management's Discussion and
Analysis-Results of Operations" and is incorporated by
reference herein from pages 22 and 23 of this document.  

Substantially all of the Company's Portrait Studio business
operates in the United States under a Sears, Roebuck and Co.
("Sears") license agreement that is terminable by either the
Company or Sears upon 90 days notice. Except in connection with
store closings, Sears has never terminated the operations of
any of the Company's portrait studios. The Company's
relationship with Sears is long-standing, and management has no
reason to believe that Sears will exercise its rights under the
agreement to materially reduce the scope of the Company's
business with Sears.  For 1996, approximately 62% of net sales
and 91% of operating earnings (before deduction of general
corporate expenses, net interest income (expense), other income
and income tax expense) were derived from the Sears Portrait
Studio business.














<PAGE>

<TABLE>
SELECTED INDUSTRY SEGMENT INFORMATION (in thousands of dollars) 
<CAPTION>
                                    1996      1995      1994   
<S>                                <C>       <C>       <C>     
DEPRECIATION AND AMORTIZATION:
 Portrait Studio                   $ 21,081  $ 17,553  $ 12,256
 Photofinishing                       9,494    16,231    17,557
 Wall Decor                           4,181     3,556     2,918
 Corporate                            3,190     3,668     2,995
 Discontinued Electronic Publishing       -     1,820     2,170
                                   --------  --------  --------
                                   $ 37,946  $ 42,828  $ 37,896
                                   ========  ========  ========
IDENTIFIABLE ASSETS:
 Portrait Studio                   $115,591  $118,649  $111,326
 Photofinishing                           -   113,983   118,593
 Wall Decor                          42,557    35,577    27,094
 Corporate                           40,467    27,224    32,765
 Discontinued Electronic Publishing       -     5,055    10,703
 Investment in Fox Joint Venture     48,105         -         -
                                   --------  --------  --------
                                   $246,720  $300,488  $300,481
                                   ========  ========  ========
CAPITAL EXPENDITURES:
 Portrait Studio                   $ 17,820  $ 24,817  $ 57,723
 Photofinishing                       9,098    14,732    10,347
 Wall Decor                           9,085     9,627     8,030
 Corporate                            1,050     1,005       884
 Discontinued Electronic Publishing       -       472     2,029
                                   --------  --------  --------
                                   $ 37,053  $ 50,653  $ 79,013
                                   ========  ========  ========
</TABLE>

                              39

14. STOCK REPURCHASE PLAN
The Company's Board of Directors has authorized the Company to
purchase up to 4,500,000 shares of its outstanding common stock
through purchases at management's discretion from time to time
at acceptable market prices.  Acquired shares are held as
treasury stock and will be available for general corporate
purposes.  As of February 1, 1997, the Company had purchased
3,302,548 shares of stock for $74.5 million at an average stock
price of $22.57.

On November 12, 1996, the Company announced the completion of
the previously announced "Dutch Auction" tender offer.  The
Company, as authorized by the Board of Directors, purchased
2,250,000 shares of the Company's common stock at $19.00 per
share.  The total cost incurred was $43.6 million.  The Company

<PAGE>
used the proceeds from the sale of Fox's common stock to
finance the tender offer.

15. SHAREHOLDER RIGHTS PLAN
The Board of Directors of the Company established a
Shareholders Rights Plan (Rights Plan) through the declaration
of a dividend distribution of one preferred stock purchase
right for each outstanding share of common stock.  The Rights
Plan entitles holders of common stock to purchase one
one-hundredth of a share of Series A Participating Preferred
Stock in the Company, or an acquirer of the Company, in the
event of certain hostile efforts, as defined in the Rights
Plan, to gain control of the Company. The rights issued expire
on May 11, 1999, unless redeemed earlier.  In addition, the
rights will be exercisable if any person or group (other than
certain entities affiliated with the Company) becomes the
beneficial owner of 15% or more of the Company's common stock. 
On August 3, 1995, the Board of Directors adopted an amendment
to the Rights Plan to clarify that no person would be deemed an
"Acquiring Person" as defined in the Rights Plan if that person
acquired beneficial ownership of 15% or more of the Company's
stock solely as a result of the Company's repurchase of stock,
provided that the person did not subsequently acquire
additional shares.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time,
based on relevant market information and information about the
financial instrument.  These estimates are subjective in nature
and involve uncertainties and matters of significant judgement
and, therefore, cannot be determined with precision.  Changes
in assumptions could significantly affect the estimates. 

CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, RECEIVABLES,
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The carrying amounts approximate fair value at February 1, 1997
and February 3, 1996 due to the short maturity of these
financial instruments.

SHORT-TERM BORROWINGS AND LONG-TERM DEBT
The fair value of the Company's debt is estimated based on
quoted market prices for similar debt issues with the same
remaining maturities. On February 1, 1997, the carrying value
and estimated fair market value of the Company's debt was $54.9
million and $53.7 million, respectively. On February 3, 1996,
the carrying value and estimated fair market value of the
Company's debt was $62.7 million and $62.8 million,
respectively.

17. CONTINGENCIES
The Company is a defendant in various lawsuits arising in the
natural course of business. It is the opinion of management
that the ultimate liability, if any, resulting from the 
<PAGE>
resolution of such lawsuits will not have a material effect on
the consolidated financial position or the results of
operations of the Company.

                              40

18. DISCONTINUED OPERATIONS AND SUPPLEMENTAL CASH FLOW
INFORMATION
On April 4, 1996, the Company announced its intention to sell
certain assets of its Electronic Publishing operations. On May 
3, 1996, the Company completed the transaction for $4.8
million.  Additionally, the purchaser assumed certain
liabilities of the Electronic Publishing operation which
aggregate approximately $900,000.  A provision of $3.8 million
was made in 1995 to reflect the discontinued business at its
estimated realizable value. The Company classified the
Electronic Publishing operation as a discontinued operation and
reclassified the prior years' financial statements to reflect
this transaction.

Net sales of the discontinued business for 1995 and 1994 were
$16.7 million and $15.6 million, respectively.  Net assets held
for sale were $5.1 million at February 3, 1996.
<TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION FROM DISCONTINUED OPERATIONS
(in thousands of dollars)
<CAPTION>
                                            1995       1994    
<S>                                       <C>        <C>       
Losses from discontinued
 operations, net of income tax
 benefit of $507 and $1,068, respectively $  (898)   $(1,818)  
Net loss on disposal, net of
 tax benefit of $1,372                     (2,428)         -   
Adjustments for items not requiring cash:
  Depreciation and amortization             1,821      2,170   
Decrease (increase) in current assets:
  Receivables and inventories                  19       (165)   
 Prepaid expenses and other current
   assets                                     520       (210)  
Reserve for closing                         3,800          -   
Increase (decrease) in current
 liabilities:
  Accounts payable, accrued
   expenses and other liabilities            (502)       (61)  
Deferred tax benefit                       (1,372)         -   
Capital expenditures                         (472)    (2,029)   
                                          --------   --------  
Cash flows from discontinued operations   $   488    $(2,113)   
                                          ========   ========  
</TABLE>
                              41

<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------

THE BOARD OF DIRECTORS AND STOCKHOLDERS
CPI CORP.:

We have audited the accompanying consolidated balance sheets of
CPI Corp. and subsidiaries as of February 1, 1997 and February
3, 1996, and the related consolidated statements of earnings,
changes in stockholders' equity and cash flows for each of the
fiscal years in the three-year period ended February 1, 1997
appearing on pages 20, 24, 26, 27 and 28 through 41. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of CPI Corp. and subsidiaries at February 1,
1997 and February 3, 1996, and the results of their operations
and their cash flows for each of the fiscal years in the
three-year period ended February 1, 1997, in conformity with
generally accepted accounting principles.



/s/  KPMG  Peat Marwick LLP



St. Louis, Missouri
April 3, 1997

                         42






<PAGE>

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
---------------------------------------------

The Company's photography business is seasonal, with the
largest sales volume during the third and fourth quarters, the
period preceding and including the Thanksgiving and Christmas
seasons.

Additionally, in October 1996, the Company recorded a $6.2
million gain before taxes ($3.9 million gain after taxes) on
the sale of its interest in the Photofinishing segment. The
Company also recorded the repurchase of 2,250,000 shares of
common stock for $43.6 million in November 1996.

The tables presented set forth selected financial data for the
quarters of the Company's fiscal years ended February 1, 1997
and February 3, 1996. Although this information is unaudited,
in the opinion of the Company, it reflects all adjustments
(consisting only of normal recurring adjustments) necessary for
a fair presentation of the results of operations for such
periods.

Since April 17, 1989, the Company's common stock has been
traded on the New York Stock Exchange under the symbol CPY. 
The adjacent tables set forth the high and low last-sale prices
of the common stock reported by the New York Stock Exchange
during the Company's last two fiscal years. 


























<PAGE>

<TABLE>
SELECTED QUARTERLY FINANCIAL DATA - F.Y. 1996 (UNAUDITED)
<CAPTION>
                                       Quarter Ended:            

                          (in thousands except per share amounts)
                          ---------------------------------------
                          Apr. 27,  July 20,  Nov. 9,    Feb. 1, 
                            1996     1996       1996      1997   
                          (12 wks)  (12 wks)  (16 wks)  (12 wks) 
<S>                       <C>       <C>       <C>       <C>
Fiscal Year 1996
Net sales from
 continuing operations    $104,668  $105,440  $145,435  $111,491 
Earnings from continuing
 operations before
 income taxes               (3,366)   (1,291)    8,007    19,449 
Net earnings (loss) from
 continuing operations      (2,120)     (813)    5,044    12,253 
Net losses from
 discontinued operations       -         -         -         -   
    Net earnings (loss)     (2,120)     (813)    5,044    12,253 

Earnings (loss) per
 common share:
 From continuing
  operations              $  (0.15) $  (0.06) $   0.36  $   1.03 
 From discontinued
  operations                   -         -         -         -   
    Net earnings (loss)      (0.15)    (0.06)     0.36      1.03 

Weighted average number
  of common and common
  equivalent shares         13,963    14,001    14,066    11,861 

Dividends                 $   0.14  $   0.14  $   0.14  $   0.14 

Stock Price and Volume
High                      $  16.88  $  18.25  $  21.13  $  18.50 
Low                          14.63     14.75     13.88     16.38 
Volume (in thousands
 of shares)                  3,302     9,046     5,149     1,445 

</TABLE>









<PAGE>

<TABLE>
SELECTED QUARTERLY FINANCIAL DATA - F.Y. 1995 (UNAUDITED)

<CAPTION>
                                       Quarter Ended:            

                          (in thousands except per share amounts)
                          ---------------------------------------
                          Apr. 29,  July 22,  Nov. 11,   Feb. 3, 
                            1995     1995       1995      1996   
                          (12 wks)  (12 wks)  (16 wks)  (12 wks) 
<S>                       <C>       <C>       <C>       <C>
Fiscal Year 1995
Net sales from
 continuing operations    $103,394  $107,056  $166,156  $150,046 
Earnings from continuing
 operations before
 income taxes                 (688)    4,067     5,193    19,066 
Net earnings (loss) from
 continuing operations        (433)    2,562     3,270    12,260 
Net losses from
 discontinued operations      (241)     (310)      (94)   (2,681)
    Net earnings (loss)       (674)    2,252     3,176     9,579 

Earnings (loss) per
 common share:
 From continuing
  operations              $  (0.03) $   0.18  $   0.24  $   0.88 
 From discontinued
  operations                 (0.02)    (0.02)    (0.01)    (0.19)
    Net earnings (loss)      (0.05)     0.16      0.23      0.69 

Weighted average number
  of common and common
  equivalent shares         13,897    13,930    14,090    14,005 

Dividends                 $   0.14  $   0.14  $   0.14  $   0.14 

Stock Price and Volume
High                      $  17.75  $  21.75  $  22.13  $  21.13 
Low                          14.25     16.88     17.75     14.50 
Volume (in thousands
 of shares)                  3,214     2,007     2,529     1,869 

</TABLE>

                         43






<PAGE>


DIRECTORS AND OFFICERS
----------------------

Milford Bohm*
Retired founder and Chairman Emeritus, CPI Corp.

Alyn V.  Essman
Chairman of the Board and Chief Executive Officer, CPI Corp.

Russell Isaak
President, CPI Corp.

Mary Ann Krey*
Chief Executive Officer, Krey Distributing Co.

Lee Liberman
Chairman Emeritus, Laclede Gas Company

Nicholas L. Reding
Vice Chairman, Monsanto Company

Martin Sneider
Former President,  Edison Brothers Stores, Inc.

Robert L. Virgil*
Principal, Edward D. Jones & Co.

Chairman, Chief Executive Officer 
Alyn V. Essman

President
Russell Isaak

Senior Executive Vice President
Patrick J. Morris

Secretary and General Counsel
Jane E. Nelson

CORPORATE OFFICERS
Barry Arthur-Executive Vice President, Finance-Chief Financial
Officer
Edmund J. Chase-Executive Vice President, Strategic Development
William F. Cronin-Executive Vice President, Marketing
Fran Scheper-Executive Vice President, Human Resources
Richard Tarpley-Executive Vice President, Manufacturing






<PAGE>





DIVISION PRESIDENTS
Arthur Padovese-Prints Plus
Harry Stecher-Sears Portrait Studios and Canadian Operations


* Member of the Audit Committee of the Board of Directors




                         44






































<PAGE>

NOTICE TO SHAREHOLDERS
----------------------

Beginning with the first quarter of Fiscal Year 1996, we have not
published a formal quarterly earnings report, thereby saving your
Company tens of thousands of dollars.  Instead, we offer the
option of three formats with which you can receive quarterly
earnings information on a more timely basis than with the
previous reports.

The scheduled release dates are:  1st quarter-May 28, 1997; 2nd
quarter-August 19, 1997; 3rd quarter-December 9, 1997.

Your options - on an ongoing basis as long as you remain a
shareholder - are:

1.  You can access the news release on the Internet via the CPI 
    Corp. home page address:  http://www.cpicorp.com
2.  We can automatically E-Mail to you the day of the media     
    release.
3.  We can mail you a printed copy of the quarterly news release 
    within 7 working days after its release to the news media.

Please indicate your choice of formats 2 or 3 by completing the
information in the appropriate spaces below:


                       E-Mail Transmission
Name __________________________________________________________
E-Mail Address ________________________________________________


                  Printed Copy of News Release
Name __________________________________________________________
Address  ___________________City ________ State _____ Zip _____


                      PLEASE MAIL THIS FORM TO:
                 CPI Corp., Shareholder Relations, 
           1706 Washington Ave., St. Louis, MO   63103-1717













<PAGE>
INVESTOR INFORMATION
--------------------

MOST RECENT ANALYST REPORTS
First Honolulu  Securities, Inc., John Roberts, December 16, 1996
McDonald & Company, Jeffrey S. Stein,  April 7, 1997
Smith Barney, Inc., Peter J. Enderlin, December 17, 1996
Value Line, Jacob Arbitman, February 28, 1997

STOCK TRANSFER, REGISTRAR, DIVIDEND REINVESTMENT AND RIGHTS
AGENT
Boatmen's Trust Company, 510 Locust Street, P. O. Box 14768, St.
Louis, MO 63178-4768, (314) 466-1357, or (800) 456-9852

10-K REPORT
Single copies of the Company's Form 10-K, filed with the
Securities and Exchange Commission, are available at no charge to
shareholders upon written request.

ANNUAL MEETING/CORPORATE HEADQUARTERS
The annual meeting of stockholders' will convene at 10:00 a.m.,
Thursday, June 12, 1997 at the Corporate Headquarters, 1706
Washington Avenue, St. Louis, MO 63103-1717.

INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, St. Louis, MO 

AUTOMATIC DIVIDEND REINVESTMENT
The automatic dividend reinvestment plan is a convenient way for
shareholders to increase their investment in the Company, with
all brokerage commissions and service charges paid by CPI Corp.
Cash contributions in the amount of $10 to $10,000 per quarter
can also be made toward the purchase of additional shares. For a
plan description, enrollment card or other information, write or
call the Shareholder Service Department at CPI Corporate
Headquarters.

AT THE COMPANY
Alyn V. Essman
   Chairman
   CPI Corp., 1706 Washington Avenue, St. Louis, MO 63103-1717
   (314) 231-1575, Extension 3240

AT THE FINANCIAL RELATIONS BOARD, INC.
George Zagoudis
   Senior Vice President and Account Division Manager
   John Hancock Center, 875 N. Michigan Avenue, Chicago, IL 60611
   (312) 266-7800
Direct line: (312) 640-6663
David Mandy
   Associate and Market Intelligence Executive
   675 Third Avenue, New York, NY 10017, (212) 661-8030

<PAGE>
INVESTOR INFORMATION (continued)
--------------------

FOR INFORMATION ON THE INTERNET
CPI Corp.: http://www.cpicorp.com
CPI Human Resources: http://www.cpicorp.com/jobs
CPI Photo: http://www.cpiphoto.com
Fox Photo: http://www.foxphoto.com
Prints Plus: http://www.printsplus.com
Sears Portrait Studio: http://www.searsportrait.com
and
George Zagoudis at the Financial Relations Board, Inc.:
grz@chi.frbd.com

                         45






































<PAGE>
(Back cover of Annual Report to Shareholders)


CPI CORP.
ON THE INTERNET

(Picture of Sears Portrait Studio website)
Sears Portrait Studios
http://www.searsportrait.com

(Picture of CPI Photo/Fox Photo website)
CPI Photo/Fox Photo
http://www.foxphoto.com

(Picture of CPI Corp. corporate website)
CPI Corporate
http://www.cpicorp.com

(Picture of Prints Plus website)
Prints Plus
http://www.printsplus.com

(Picture of CPI Human Resources website)
CPI Human Resources
http://www.cppicorp.com/jobs


CPI Corp., 1706 Washington Avenue, St. Louis, 
Missouri 63103-1717
314-231-1575