----

----

*(Mark      One)*

**CPI      Corp.**

| **Delaware**(State                or other jurisdiction of incorporation or organization) 1706                Washington Ave., St. Louis, Missouri(Address                of principal executive offices) | **43-1256674**(I.R.S.                Employer Identification No.) 63103(Zip                Code) |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|

|  (Title                of each class)           |   |  (Name                of each exchange on which                Registered) |
|------------------------------------------------------|--------|---------------------------------------------------------------------------------|
|  **Common                Stock $.40 Par Value** |   |  **New                York Stock                Exchange**                 |

| Indicate by check mark if the registrant              is a              well-known seasoned issuer, as defined in Rule 405 of the Securities              Act. |   | [   ]  Yes |   | [X]               No |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|---------------------------|

| Indicate by check mark if the registrant              is              not required to file reports pursuant to Section 13 or Section 15(d)              of              the Act. |   | [   ]  Yes |   | [X]               No |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|---------------------------|

| **Note:** | Checking                the box above will not relieve any registrant required to file reports                pursuant to Section 13 or 15(d) of the Exchange Act from their obligations                under those Sections. |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Indicate by check mark whether the registrant                (1) has                filed all reports required to be filed by Section 13 or 15(d) of                the                Securities Exchange Act of 1934 during the preceding 12 months (or                for                such shorter period that the registrant was required to file such                reports), and (2) has been subject to such filing requirements for                the                past 90 days. |   | [X]  Yes |   | [                ]  No |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|--------|---------------------------------------|

| Indicate by check mark if disclosure of delinquent                filers pursuant to Item 405 of Regulation S-K is not contained herein,                and                will not be contained, to the best of registrant's knowledge, in                definitive proxy or information statements incorporated by reference                in                Part III of this Form 10-K or any amendment to this Form                10-K. |   | [X]  |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|

| Indicate by check mark whether the registrant              is a shell company (as defined in Rule 12b-2 of the Act). |   | [   ]  |   |   |
|----------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------|

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| PART                      I   |   |                                                                                                                                        |                                                     |                                                   |
|-------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------|--------------------------------------------------------|
|                          |   |                                                                                                                                        |                                                     |                                                   |
| Item                      1.  |   | Business                                                                                                                                    |                                                     | 4                                                      |
| Item                      1A. |   | Risk                      Factors                                                                                                           |                                                     | 9                                                      |
| Item                      1B. |   | Unresolved                      Staff Comments                                                                                              |                                                     | 11                                                     |
| Item                      2.  |   | Properties                                                                                                                                  |                                                     | 12                                                     |
| Item                      3.  |   | Legal                      Proceedings                                                                                                      |                                                     | 12                                                     |
| Item                      4.  |   | Submission                      of Matters to a Vote of Security Holders                                                                    |                                                     | 12                                                     |
|                          |   |                                                                                                                                        |                                                     |                                                   |
| PART                      II  |   |                                                                                                                                        |                                                     |                                                   |
|                          |   |                                                                                                                                        |                                                     |                                                   |
| Item                      5.  |   | Market                      for Registrant's Common Stock, Related Stockholder Matters                      and                      Issuer |                                                     |                                                   |
|                          |   |                                                                                                                                        | Purchases                      of Equity Securities |                                                   | 13 |
| Item                      6.  |   | Selected                      Consolidated Financial Data                                                                                   |                                                     | 14                                                     |
| Item                      7.  |   | Management's                      Discussion and Analysis of  Financial                      Condition and Results of Operations       |                                                     |                            16 |
|                          |   |                                                                                                                                        |                                                     |                                                   |   |
| Item                      7A. |   | Quantitative                      and Qualitative Disclosures About Market Risk                                                             |                                                     | 30                                                     |
|                          |   |                                                                                                                                        |                                                     |                                                   |   |
| Item                      8.  |   | Financial                      Statements and Supplemental Data                                                                             |                                                     | 31                                                     |
| Item                      9.  |   | Changes                      in and Disagreements with Accountants on                      Accounting and Financial Disclosure              |                                                     | 67                                                     |
|                          |   |                                                                                                                                        |                                                     |                                                   |   |
| Item                      9A. |   | Controls                      and Procedures                                                                                                |                                                     | 67                                                     |
| Item                      9B. |   | Other                      Information                                                                                                      |                                                     | 69                                                     |
|                          |   |                                                                                                                                        |                                                     |                                                   |
| PART                      III |   |                                                                                                                                        |                                                     |                                                   |
|                          |   |                                                                                                                                        |                                                     |                                                   |
| Item                      10. |   | Directors, Executive                      Officers and Corporate Governance                                                       |                                                     | 69                                                     |
| Item                      11. |   | Executive                      Compensation                                                                                                 |                                                     | 69                                                     |
| Item                      12. |   | Security                      Ownership of Certain Beneficial Owners and                      Management and Related Stockholder Matters    |                                                     | 69                                                     |
|                          |   |                                                                                                                                        |                                                     |                                                   |   |
| Item                      13. |   | Certain                      Relationships and Related Transactions, and Director                      Independence                         |                                                     | 70                                                     |
| Item                      14. |   | Principal                      Accounting Fees and Services                                                                                 |                                                     | 70                                                     |
|                          |   |                                                                                                                                        |                                                     |                                                   |
| PART                      IV  |   |                                                                                                                                        |                                                     |                                                   |
|                          |   |                                                                                                                                        |                                                     |                                                   |
| Item                      15. |   | Exhibits                      and Financial Statement Schedules                                                                             |                                                     | 71                                                     |
|                          |   | Signatures                                                                                                                                  |                                                     | 77                                                     |

**PART        I**

*Item        1.* *Business*

*Item        1A.* *Risk        Factors*

*We        are materially dependent upon Sears.*

*Our        business practices and operations need to be acceptable to        Sears.*

*Sears        or Sears Canada may terminate, breach, otherwise limit or increase our expenses        under our license agreements.*

*An        economic downturn, a reduction in consumer spending or decreased customer        traffic in our host stores could materially adversely affect our        business.*

*If        our key suppliers become unable to continue to provide us supplies under        our        current contracts, we will need to obtain an alternative source of supplies.        If        we enter into an agreement to obtain such supplies at less desirable terms,        our        financial condition and results of operations could be materially adversely        affected.*

*Our        inability to remain competitive could have a detrimental impact on our results        of operations. *

*If        we        lose our key personnel, our business may be adversely        affected.*

*Our        fourth quarter sales and income are disproportionately high and we are        vulnerable to downturns in consumer holiday spending that can adversely affect        our business.*

*A        significant increase in piracy of our photographs could materially adversely        affect our business, financial condition or results of        operations.*

*Any        disruption in our manufacturing process could have a material adverse impact        on        our business.*

*The        agreements governing our debt impose restrictions on our        business.*

*Item        1B.*
*Unresolved        Staff Comments*

*Item        2.* *Properties*

|                                      |   | APPROXIMATE                    |   |                                                                   |   |                        |   |
|-------------------------------------------|--------|--------------------------------|--------|------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                      |   | AREA                    IN     |   |                                                                   |   | OWNERSHIP                   |   |
| LOCATION                                  |   | SQUARE                    FEET |   | PRIMARY                    USES                                        |   | OR                    LEASE |   |
| St.                    Louis, Missouri    |   | 270,000                        |   | Administration                    and Portrait processing              |   | Owned                       |   |
|                                      |   |                           |   |                                                                   |   |                        |   |
| St.                    Louis, Missouri    |   | 155,000                        |   | Parking                    Lots                                        |   | Owned                       |   |
|                                      |   |                           |   |                                                                   |   |                        |   |
| St.                    Louis, Missouri    |   | 34,100                         |   | Warehousing                                                            |   | Leased                      | (1)    |
|                                      |   |                           |   |                                                                   |   |                        |   |
| Brampton,                    Ontario      |   | 40,000                         |   | Administration,                    Warehousing and Portrait processing |   | Owned                       |   |
|                                      |   |                           |   |                                                                   |   |                        |   |
| Thomaston,                    Connecticut |   | 25,000                         |   | Administration                    and Portrait processing              |   | Owned                       |   |

*Item        3.* *Legal        Proceedings*

*Item        4.* *Submission        of Matters to a Vote of Security Holders*

**PART        II**

| *Item                  5.* | *Market                  for Registrant's Common Stock, Related Stockholder Matters and                  Issuer                  Purchases of Equity Securities* |
|----------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Price        Range of Common Stock and Cash Dividends**

| FISCAL                    YEAR 2006          |   |   |   |   |   |     |   |
|----------------------------------------------|--------|--------|--------|--------|--------|----------|--------|
| (ending                    February 3, 2007) |   | HIGH   |   | LOW    |   | DIVIDEND |   |
| First                    Quarter             |   | $      | 21.19  |   | $      | 16.49    |   | $ | 0.16 |   |
| Second                    Quarter            |   |   | 34.85  |   |   | 21.20    |   |   | 0.16 |   |
| Third                    Quarter             |   |   | 50.00  |   |   | 28.50    |   |   | 0.16 |   |
| Fourth                    Quarter            |   |   | 54.65  |   |   | 41.06    |   |   | 0.16 |   |
|                                         |   |   |   |   |   |     |   |   |   |   |
|                                         |   |   |   |   |   |     |   |   |   |   |
| FISCAL                    YEAR 2005          |   |   |   |   |   |     |   |   |   |   |
| (ending                    February 4, 2006) |   |   | HIGH   |   |   | LOW      |   |   | DIVIDEND |   |
| First                    Quarter             |   | $      | 16.75  |   | $      | 14.80    |   | $ | 0.16 |   |
| Second                    Quarter            |   |   | 18.88  |   |   | 16.22    |   |   | 0.16 |   |
| Third                    Quarter             |   |   | 18.31  |   |   | 17.15    |   |   | 0.16 |   |
| Fourth                    Quarter            |   |   | 19.90  |   |   | 17.40    |   |   | 0.16 |   |

**Shareholders        of Record**

**Dividends**

**Issuer        Repurchases of Equity Securities**

*Item        6.* *Selected Consolidated Financial Data*

| *thousands                    except per share data*                            |   |   |    |   |   |    |   |   |    |   |   |
|---------------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|
|                                                                            |   | 2006   |    | 2005   |   | 2004    |   | 2003   |    | 2002   |   |
| STATEMENT                    OF OPERATIONS (1)                                  |   |   |    |   |   |    |   |   |    |   |   |
| Net                    sales                                                    |   | $      | 293,803 |   | $      | 291,984 |   | $      | 281,865 |   | $      | 299,044 |   | $ | 308,625 |   |
| Cost                    of sales                                                |   |   | 28,128  |   |   | 32,651  |   |   | 33,855  |   |   | 37,742 |   |   | 38,278 |   |
| Selling,                    general and administrative expenses                 |   |   | 221,446 |   |   | 224,572 |   |   | 222,425 |   |   | 229,579 |   |   | 230,810 |   |
| Depreciation                    and amortization                                |   |   | 16,922  |   |   | 19,952  |   |   | 16,377  |   |   | 16,793 |   |   | 20,042 |   |
| Other                    charges and impairments (2)                            |   |   | 1,240   |   |   | 2,767   |   |   | 15,679  |   |   | 5,515 |   |   | 6,042 |   |
|                                                                            |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
| Income                    (loss) from operations                                |   |   | 26,067  |   |   | 12,042  |   |   | (6,471  | )      |   | 9,415 |   |   | 13,453 |   |
| Interest                    expense, net                                        |   |   | 1,664   |   |   | 983     |   |   | 954     |   |   | 1,240 |   |   | 1,569 |   |
| Impairment                    (recovery) and related obligations of             |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
| preferred                    security interest (3)                              |   |   | (887    | )      |   | -       |   |   | 9,789   |   |   | - |   |   | - |   |
| Loss                    from debt extinguishment (4)                            |   |   | -       |   |   | 529     |   |   | -       |   |   | - |   |   | - |   |
| Other                    income, net (5)                                        |   |   | 144     |   |   | 247     |   |   | 263     |   |   | 850 |   |   | 111 |   |
| Income                    tax expense (benefit)                                 |   |   | 9,107   |   |   | 4,388   |   |   | (2,189  | )      |   | 3,183 |   |   | 4,212 |   |
|                                                                            |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
| Income                    (loss) from continuing operations                     |   |   | 16,327  |   |   | 6,389   |   |   | (14,762 | )      |   | 5,842 |   |   | 7,783 |   |
| Net                    loss from discontinued operations (1)                    |   |   | -       |   |   | -       |   |   | (3,746  | )      |   | (4,624 | ) |   | (1,243 | ) |
|                                                                            |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
|  Net                    earnings (loss)                                    |   | $      | 16,327  |   | $      | 6,389   |   | $      | (18,508 | )      | $      | 1,218 |   | $ | 6,540 |   |
|                                                                            |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
| SHARE                    AND PER SHARE DATA (1)                                 |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
| Net                    earnings (loss) from continuing operations - diluted (6) |   | $      | 2.56    |   | $      | 0.81    |   | $      | (1.87   | )      | $      | 0.72 |   | $ | 0.96 |   |
| Net                    earnings (loss) from continuing operations - basic (6)   |   |   | 2.57    |   |   | 0.81    |   |   | (1.87   | )      |   | 0.72 |   |   | 0.97 |   |
| Net                    earnings (loss) - diluted                                |   |   | 2.56    |   |   | 0.81    |   |   | (2.35   | )      |   | 0.15 |   |   | 0.80 |   |
| Net                    earnings (loss) - basic                                  |   |   | 2.57    |   |   | 0.81    |   |   | (2.35   | )      |   | 0.15 |   |   | 0.81 |   |
|                                                                            |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
| Dividends                                                                       |   | $      | 0.64    |   | $      | 0.64    |   | $      | 0.64    |   | $      | 0.60 |   | $ | 0.56 |   |
| Average                    shares outstanding - diluted                         |   |   | 6,376   |   |   | 7,881   |   |   | 7,888   |   |   | 8,148 |   |   | 8,086 |   |
| Average                    shares outstanding - basic                           |   |   | 6,353   |   |   | 7,854   |   |   | 7,888   |   |   | 8,082 |   |   | 8,040 |   |
|                                                                            |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
| CASH                    FLOW DATA (continuing operations only)                  |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
| Net                    cash provided by operating activities                    |   | $      | 37,950  |   | $      | 18,697  |   | $      | 16,477  |   | $      | 32,118 |   | $ | 29,386 |   |
| Net                    cash used in financing activities (6)                    |   | $      | (43,567 | )      | $      | (1,223  | )      | $      | (24,827 | )      | $      | (13,929 | ) | $ | (10,644 | ) |
| Net                    cash used in investing activities                        |   | $      | (2,358  | )      | $      | (17,633 | )      | $      | (6,597  | )      | $      | (14,840 | ) | $ | (6,131 | ) |
|                                                                            |   |   |    |   |   |    |   |   |    |   |   |   |   |   |   |   |
| Capital                    expenditures (7)                                     |   | $      | 2,760   |   | $      | 20,235  |   | $      | 15,157  |   | $      | 19,405 |   | $ | 8,878 |   |

*Item        6. *
*        Selected Consolidated Financial Data (continued)*

| *thousands*                                                   |   |   |   |   |   |    |   |   |    |   |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|
|                                                          |   | 2006   |   | 2005   |   | 2004    |   | 2003   |    | 2002   |   |
| BALANCE                    SHEET                              |   |   |   |   |   |    |   |   |    |   |   |
| Cash                    and cash equivalents                  |   | $      | 26,294 |   | $      | 34,269  |   | $      | 33,883  |   | $      | 51,011 |   | $ | 57,922 |   |
| Current                    assets                             |   |   | 55,071 |   |   | 69,629  |   |   | 72,868  |   |   | 93,215 |   |   | 96,522 |   |
| Net                    fixed assets                           |   |   | 26,693 |   |   | 41,282  |   |   | 41,658  |   |   | 52,735 |   |   | 47,502 |   |
| Assets                    of business transferred under       |   |   |   |   |   |    |   |   |    |   |   |   |   |   |   |   |
|  contractual                    arrangements (8)         |   |   | -      |   |   | -       |   |   | -       |   |   | 8,975 |   |   | 10,041 |   |
| Assets                    of supplemental retirement plan (9) |   |   | 3,588  |   |   | 3,706   |   |   | 6,141   |   |   | 11,491 |   |   | 13,761 |   |
| Other                    assets                               |   |   | 4,975  |   |   | 9,044   |   |   | 14,433  |   |   | 2,052 |   |   | 11,464 |   |
| Total                    assets                               |   |   | 90,327 |   |   | 123,661 |   |   | 135,100 |   |   | 168,468 |   |   | 179,290 |   |
| Current                    liabilities                        |   |   | 49,407 |   |   | 56,065  |   |   | 69,448  |   |   | 67,288 |   |   | 65,000 |   |
| Other                    liabilities                          |   |   | 22,857 |   |   | 25,739  |   |   | 25,716  |   |   | 23,765 |   |   | 25,991 |   |
| Long-term                    debt, less current maturities    |   |   | 7,747  |   |   | 15,747  |   |   | 17,050  |   |   | 25,589 |   |   | 34,116 |   |
| Stockholders'                    equity (6)                   |   |   | 10,316 |   |   | 26,110  |   |   | 22,886  |   |   | 51,826 |   |   | 54,183 |   |

| (1)    |   | Following                    are business areas classified as discontinued operations and                    for which                    prior years' consolidated financial statements were reclassifed                    to reflect                    these                    changes: |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | -                                                                                                                                                                                                                                                                                            | In                    2004, mobile photography operations and the Mexican Portrait                    Studio                    business |
|   |   | -                                                                                                                                                                                                                                                                                            | In                    2002, the former Technology Development segment |
|   |   |                                                                                                                                                                                                                                                                                         |   |
| (2)    |   | Other                    charges and impairments:                                                                                                                                                                                                                                            |

| *thousands*                                                                |   |   |   |   |   |   |   |   |   |   |   |
|----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                       |   | 2006   |   | 2005   |   | 2004   |   | 2003   |   | 2002   |   |
| Accruals                    related to accelerated vesting of supplemental |   | $      | -      |   | $      | -      |   | $      | 3,656  |   | $      | - |   | $ | - |   |
| retirement                    plan benefits and guaranteed bonuses         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| for                    2004 (a)                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Impairment                    charges (b)                                  |   |   | 179    |   |   | 567    |   |   | 6,516  |   |   | - |   |   | 4,171 |   |
| Reserves                    for severance and related costs (c )           |   |   | 878    |   |   | 2,546  |   |   | 3,430  |   |   | 1,346 |   |   | 889 |   |
| Pension                    plan curtailment (d)                            |   |   | -      |   |   | -      |   |   | -      |   |   | 2,385 |   |   | - |   |
| Consent                    solicitation costs (e)                          |   |   | -      |   |   | -      |   |   | 816    |   |   | 1,663 |   |   | - |   |
| Production                    facility closure (f)                         |   |   | -      |   |   | -      |   |   | -      |   |   | 121 |   |   | 982 |   |
| Contract                    terminations and settlements (g)               |   |   | -      |   |   | (346   | )      |   | 1,261  |   |   | - |   |   | - |   |
| Strategic                    alternative review costs (h)                  |   |   | 183    |   |   | -      |   |   | -      |   |   | - |   |   | - |   |
|                                                                       |   | $      | 1,240  |   | $      | 2,767  |   | $      | 15,679 |   | $      | 5,515 |   | $ | 6,042 |   |
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (a)    |                                                                                                                                                                                                                                               | Consists                  of costs related to accelerated vesting of executive benefits and                  bonuses.                                                                                                                                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)    | Consists                  of 2002 and 2004 write-offs and write-downs of certain previously                  capitalized technology costs, 2005 parts and film inventory and                  other                  asset write-offs              |
|   |                                                                                                                                                                                                                                               | resulting                  from an analog film environment to the full digital format and                  a 2006                  write-off of certain legacy equipment that will no longer be used                  in the                  business. |
| (c)    |                                                                                                                                                                                                                                               | Consists                  principally of expenses and related costs for employee severance,                  retirements and repositioning.                                                                                                             |
| (d)    | Represents                  the charge related to the freeze of future benefit accruals under                  the                  pension plan.                                                                                                  |
| (e)    |                                                                                                                                                                                                                                               | Consists                  of professional fees relative to the proxy consent                  solicitation.                                                                                                                                             |
| (f)    |                                                                                                                                                                                                                                               | Consists                  of expenses related to employee severance and retirement, asset                  abandonment write-offs and a remaining lease obligation                  accrual.                                                            |
| (g)    | Consists                  of expenses related to non-refundable loan commitment fees as well                  as                  charges related to early contract terminations and settlements                  with                  certain of |
|   |                                                                                                                                                                                                                                               | the                  Company's vendors and consultants.                                                                                                                                                                                                 |
| (h)    | Represents                  investment banking and legal services in connection with the strategic                  alternative review.                                                                                                            |

*Item        6. **        Selected Consolidated Financial Data (continued)*

| (3)    |   | In                    2004, the Company recorded a $7.7 million valuation reserve against                    the                    carrying value of its preferred security interest and $2.1 million                    of                    additional accrued                                           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | lease                    liability obligations relating to its lease guarantees on certain                    of                    Prints Plus' retail stores.  As the total guarantee related to these                    leases had decreased with                                                   |
|   |   | the                    passage of time, the payment of rents by Prints Plus and the                    settlement by                    the Company of certan leases rejected in bankruptcy, the related                    liability                    was                                                 |
|   |   | reduced                    by $887,000 in 2006 to reflect management's revised esitmate                    of remaining                    potential loss.                                                                                                                                                   |
|   |
| (4)    |   | Consists                    of a make-whole fee totaling $457,000 and the write-off of unamortized                    fees, both related to the early redemption of the Company's Senior                    Notes                    in November                    2005.                                    |
|   |
| (5)    |   | In                    2003, the Company recognized $503,000 in other income related                    to a                    liquidating distribution of the Company's membership interest                    in General                    American Life                                                  |
|   |   | Insurance                    Co. ("GA") when GA's stock was sold to MetLife and $118,000 in                    other                    income realted to death benefits received from a company-owned                    life                    insurance policy                    on a former executive. |
|   |
| (6)    |   | The                    Company recorded the repurchase of:                                                                                                                                                                                                                                                   |
|   |   | -                                                                                                                                                                                                                                                                                                            | 1,658,607                    shares of common stock for $32.4 million in 2006 |
|   |   | -                                                                                                                                                                                                                                                                                                            | 406,780                    shares of common stock for $6.0 million in 2004, and |
|   |   | -                                                                                                                                                                                                                                                                                                            | 54,200                    shares of common stock for $935,000 in 2003. |
|   |
| (7)    |   | 2003                    includes $7.3 million representing an accrued commitment for                    computer                    equipment and peripherals that were purchased in the fourth quarter                    of                    2003 and                    paid for in 2004.               |
|   |
| (8)    |   | Assets                    of business transferred under contractual arrangements resulted                    from the                    sale of the discontinued Wall Décor operation of Prints Plus.  As a                    result                                                             |
|   |   | of                    the deteriorating financial performance of Prints Plus and its                    subsequent                    bankruptcy declaration, in 2004 certain assets related to the                    Company's                    perferred                                                |
|   |   | security                    interest in Prints Plus totaling $7.7 million were written off                    and the                    Company's revolving line of credit to Prints Plus was repaid                    in full and                    then terminated.                                     |
|   |
| (9)    |   | Represents                    a benefit trust established in 2000 to fund supplemental retirement                    benefits for certain current and former                    executives.                                                                                                                  |

*Item        7.* *Management's        Discussion and Analysis of Financial Condition and Results of        Operations*

***EXECUTIVE          OVERVIEW***

**The          Company’s Operations**

|                                                   |   | 2006   |   | 2005   |   | 2004   |   |
|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                   |   |   |   |   |   |   |   |
| United                      States and Puerto Rico:    |   |   |   |   |   |   |   |
| Within                      full-line Sears stores     |   |   | 854    |   |   | 858    |   |   | 860 |   |
| Within                      Sears Grand stores         |   |   | 40     |   |   | 36     |   |   | 4 |   |
| Locations                      not within Sears stores |   |   | 35     |   |   | 38     |   |   | 40 |   |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Canada                                                 |   |   | 112    |   |   | 114    |   |   | 117 |   |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Total                                                  |   |   | 1,041  |   |   | 1,046  |   |   | 1,021 |   |
|                                                   |   |   |   |   |   |   |   |   |   |   |

**Competitive          Factors/Trends/Challenges**

| ·   | Exited                    businesses that were draining scarce managerial and financial                    resources                    from the core Sears Portrait Studio                    business. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Continually                    evaluate and optimize coverage, training and retention hours                    in the                    studios. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Successfully                    converted all of the U.S. studios to full digital format, including                    related hardware upgrades and the outsourcing of related                    software. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Leveraged                    our digital technology to provide customers greater variety in                    posing and                    effects, speedier (including same-day) fulfillment of portrait                    orders, a                    range of new product and service options, and an improved overall                    experience. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Implemented                    on-going extensive changes in our marketing program designed                    to transition                    to everyday value, reduce dependence on coupons and promotional                    activity                    and prepare the way for a repositioning of the Sears Portrait                    Studio brand                    in conjunction with the completion of the digital rollout. At                    the same                    time, we have broadly tested various offer changes designed to                    reflect the                    differentiated value proposition offered in our digital                    studios. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Implemented                    various field initiatives to drive improvement in quality, customer                    service, productivity and customer                    retention. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***RESULTS          OF OPERATIONS***

| *thousands,                      except share and per share data*                                                                         |   | 2006   |    | 2005   |   | 2004    |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                                                                      |   |   |    |   |   |    |   |
| **Net                      sales**                                                                                                        |   | $      | 293,803 |   | $      | 291,984 |   | $ | 281,865 |   |
|                                                                                                                                      |   |   |    |   |   |    |   |   |   |   |
| **Cost                      and expenses:**                                                                                               |   |   |    |   |   |    |   |   |   |   |
| Cost                      of sales (exclusive of depreciation and amortization shown                      below)                          |   |   | 28,128  |   |   | 32,651  |   |   | 33,855 |   |
|  *Cost                      of sales as a percentage of net sales*                                                                   |   |   | 9.6     | %      |   | 11.2    | %      |   | 12.0 | % |
|  *Gross                      margin as a percentage of net sales*                                                                    |   |   | 90.4    | %      |   | 88.8    | %      |   | 88.0 | % |
| Selling,                      general and administrative expenses                                                                         |   |   | 221,446 |   |   | 224,572 |   |   | 222,425 |   |
|  *Selling,                      general and administrative expenses as a percentage of net                      sales*               |   |   | 75.4    | %      |   | 76.9    | %      |   | 78.9 | % |
| Depreciation                      and amortization                                                                                        |   |   | 16,922  |   |   | 19,952  |   |   | 16,377 |   |
| Other                      charges and impairments                                                                                        |   |   | 1,240   |   |   | 2,767   |   |   | 15,679 |   |
|                                                                                                                                      |   |   | 267,736 |   |   | 279,942 |   |   | 288,336 |   |
|                                                                                                                                      |   |   |    |   |   |    |   |   |   |   |
| Income                      (loss) from continuing operations                                                                             |   |   | 26,067  |   |   | 12,042  |   |   | (6,471 | ) |
|                                                                                                                                      |   |   |    |   |   |    |   |   |   |   |
| Interest                      expense                                                                                                     |   |   | 2,229   |   |   | 1,680   |   |   | 2,180 |   |
| Interest                      income                                                                                                      |   |   | 565     |   |   | 697     |   |   | 1,226 |   |
| Impairment                      (recovery) and related obligations of preferred security                      interest                    |   |   | (887    | )      |   | -       |   |   | 9,789 |   |
| Loss                      from debt extinguishment                                                                                        |   |   | -       |   |   | 529     |   |   | - |   |
| Other                      income, net                                                                                                    |   |   | 144     |   |   | 247     |   |   | 263 |   |
| Earnings                      (loss) from continuing operations before income tax expense                      (benefit)                  |   |   | 25,434  |   |   | 10,777  |   |   | (16,951 | ) |
|                                                                                                                                      |   |   |    |   |   |    |   |   |   |   |
| Income                      tax expense (benefit)                                                                                         |   |   | 9,107   |   |   | 4,388   |   |   | (2,189 | ) |
|                                                                                                                                      |   |   |    |   |   |    |   |   |   |   |
| Net                      earnings (loss) from continuing operations                                                                       |   |   | 16,327  |   |   | 6,389   |   |   | (14,762 | ) |
|                                                                                                                                      |   |   |    |   |   |    |   |   |   |   |
| Net                      loss from discontinued operations, net of income tax benefit                      of                      $2,201 |   |   | -       |   |   | -       |   |   | (3,746 | ) |
|                                                                                                                                      |   |   |    |   |   |    |   |   |   |   |
| **NET                      EARNINGS (LOSS)**                                                                                              |   | $      | 16,327  |   | $      | 6,389   |   | $ | (18,508 | ) |
|                                                                                                                                      |   |   |    |   |   |    |   |   |   |   |
| **Net                      earnings (loss) per share - diluted**                                                                          |   | $      | 2.56    |   | $      | 0.81    |   | $ | (2.35 | ) |

| **·  ** | Net                  sales for 2006 increased $1.8 million, or 0.6%, to $293.8 million                  from the                  $292.0 million reported in 2005. The overall increase in sales                  is due to a                  22.4% increase in average sales per customer sitting, partially                  offset by                  a 17.7% year-over-year decline in sittings.  The                  Company believes that its increase in                  average sale per customer sitting is principally attributable to                  its                  customers’ positive response to the differentiated value proposition                  created in the digital studio environment, the result of selected                  price                  increases and suppression of marketing to low-spending customers                  as well                  as increased sales of higher value products and services such as                  digitally-enhanced and specialty products, portraits on CD, and                  on-site                  printing made possible by the Company’s digital conversion. The                  rate of sittings decline experienced in 2006 compared to 2005 was                  largely                  the impact of selected price increases instituted late in 2005                  as well as                  the reduction of marketing directed at customer segments determined                  to be                  unprofitable. |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·  ** | Net                  sales for 2005 increased $10.1 million, or 3.6%, to $292.0 million                  from                  the $281.9 million reported in 2004. The overall increase in sales                  is due                  to a 22.9% increase in average sales per customer sitting, partially                  offset by a 16.0% year-over-year decline in sittings.  The                  Company believes its increase in average sale per customer sitting                  in 2005                  was principally attributable to its customers’ positive response to the                  differentiated value proposition created in the new digital studio                  environment. This resulted in an expanded assortment and related                  increased                  sales of higher-value, new and specialty products and services,                  as well as                  additional on-site printing and digital enhancement                  fees. The                  Company attributes the sittings decline to several internal and                  external                  factors. The Company’s marketing program had undergone extensive changes                  designed to transition to everyday value, reduce dependence on                  coupons and                  promotional activity and prepare the way for a significant repositioning                  of the Sears Portrait Studio brand in conjunction with the completion                  of                  the digital rollout. At the same time, the Company broadly tested                  various                  offer changes designed to reflect the differentiated value proposition                  offered in its digital studios.  While                  positively impacting average transaction size, these offer changes                  resulted in a decrease in sittings.  The Company also believes                  the continuing proliferation of amateur digital photography is                  reducing                  portrait activity, especially during periods such as the Company’s third                  quarter, which are marked by the absence of significant holidays.                  Finally,                  sittings were also negatively impacted by the severe hurricane                  season that                  principally affected studios in Alabama, Florida, Louisiana, Mississippi                  and Texas. |
|------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Cost                  of sales, excluding depreciation and amortization expense, as a                  percentage                  of net sales was 9.6% in 2006 compared to 11.2% in 2005 and 12.0%                  in 2004.                  Correspondingly, gross margin rates were 90.4% in 2006, 88.8% in                  2005 and                  88.0% in 2004.  The                  decrease in cost of sales from 2005 to 2006 resulted principally                  from                  lower overall production levels due to the decline in sittings,                  improved                  manufacturing productivity resulting from experience gained from                  operating                  in a fully digital environment for the entire fiscal year, improved                  product mix and savings on film and shipping costs that resulted                  from the                  completion of the digital conversion in the second half of fiscal                  2005.                  These decreases were partially offset by additional costs incurred                  related                  to increased same-day, in-studio fulfillment of portrait orders                  and                  increased sales of large format, specialty products not previously                  available in the analog film environment. The                  decrease in cost of sales from 2004 to 2005, despite higher sales,                  resulted primarily from lower overall production levels due to                  the decline                  in sittings and savings on film and shipping costs that resulted                  directly                  from the digital conversion. These decreases were partially offset                  by                  increased costs associated with the production and shipping of                  new and                  specialty products not previously available in the analog film                  environment                  and increased third party production costs related to outsourced                  greeting                  card production in 2005. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Selling,                  general and administrative expenses were $221.4 million, $224.6                  million                  and $222.4 million for fiscal years 2006, 2005 and 2004, respectively.                  As                  a percentage of sales, these expenses were 75.4% in 2006, 76.9%                  in 2005                  and 78.9% in 2004. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Depreciation                    and amortization was $16.9 million in 2006, compared to $20.0                    million in                    2005 and $16.4 million in 2004. The decrease in depreciation and                    amortization during 2006 is principally attributable to reduced                    capital                    spending beginning in the fourth quarter of 2005 and continuing                    throughout                    2006 following the significant digital investments made in 2004                    and the                    first three quarters of 2005. The increase in depreciation and                    amortization during 2005 was attributable to significant investments                    that                    were made in connection both with a studio-wide hardware and                    printer                    upgrade in 2004 and the digital conversion of U.S. studios. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Other                  charges and impairments reflect costs incurred from strategic actions                  implemented by the Company to restructure its operations, costs                  that are                  unpredictable and atypical of the Company’s operations and additional                  charges due to asset impairments. Actions taken over the past three                  years                  are as follows: |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *thousands*                                                                                                        |   | 2006   |   | 2005   |   | 2004   |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                               |   |   |   |   |   |   |   |
| Recorded                    as a component of income (loss) from operations:                                       |   |   |   |   |   |   |   |
| Impairment                    charges                                                                              |   | $      | 179    |   | $      | 567    |   | $ | 6,516 |   |
| Accruals                    related to accelerated vesting of supplemental retirement                              |   |   |   |   |   |   |   |   |   |   |
| plan                    benefits and guaranteed bonuses for 2004                                                   |   |   | -      |   |   | -      |   |   | 3,656 |   |
| Reserves                    for severance and related costs                                                        |   |   | 878    |   |   | 2,546  |   |   | 3,430 |   |
| Contract                    terminations and settlements                                                           |   |   | -      |   |   | (346   | )      |   | 1,261 |   |
| Consent                    soliciation costs                                                                       |   |   | -      |   |   | -      |   |   | 816 |   |
| Strategic                    alternative review costs                                                              |   |   | 183    |   |   | -      |   |   | - |   |
|                                                                                                               |   |   | 1,240  |   |   | 2,767  |   |   | 15,679 |   |
| Recorded                    as a component of other (income) expense following                                     |   |   |   |   |   |   |   |   |   |   |
| income                    (loss) from operations:                                                                  |   |   |   |   |   |   |   |   |   |   |
| Impairment                    (recovery) and related obligations of preferred security                    interest |   |   | (887   | )      |   | -      |   |   | 9,789 |   |
|                                                                                                               |   |   |   |   |   |   |   |   |   |   |
| Total                    Other Charges and Impairments                                                             |   | $      | 353    |   | $      | 2,767  |   | $ | 25,468 |   |
|                                                                                                               |   |   |   |   |   |   |   |   |   |   |

| ·   | Impairment                  Charges |
|--------------------|-------------------------------------|
| ·   | Accelerated                  Vesting of Supplemental Retirement Plan Benefits and Guaranteed                  Bonuses                  for 2004 |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Reserves                  for Severance and Related Costs |
|--------------------|-----------------------------------------------------------|
| ·   | Contract                  Termination and Settlements |
|--------------------|-------------------------------------------------------|
| ·   | Consent                  Solicitation Costs |
|--------------------|---------------------------------------------|
| ·   | Strategic                  Alternative Review Costs |
|--------------------|-----------------------------------------------------|
| ·   | Impairment                  and Related Obligations of Preferred Security                  Interest |
|--------------------|-----------------------------------------------------------------------------------------------------|
| ·   | Interest                  expense was $2.2 million in 2006, compared to $1.7 million in 2005                  and $2.2 million in 2004. The increase in interest expense in 2006                  is                  primarily the result of increased amortization of debt financing                  fees                  resulting from 2005 refinancing activities along with increased                  average                  borrowings in 2006 as compared to 2005. In 2005, the reduction                  in interest                  expense was principally the result of scheduled annual principal                  payments                  of $8.6 million made in June on the Company’s Senior Notes which have                  since been refinanced. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Interest                  income was $565,000 in 2006 as compared to $697,000 in 2005 and                  $1.2 million in 2004. In 2006, the decrease is primarily attributable                  to lower invested balances subsequent to the purchase of stock                  in the                  Dutch Auction self-tender offer for $32.4 million, which was funded                  in                  early February 2006. This decrease is partially offset by higher                  interest                  rates earned on invested balances. The decrease in interest income                  in 2005                  compared to 2004 is principally the result of the absence of any                  income in                  2005 related to the Company’s preferred security interest in its former                  Wall Décor segment, Prints Plus, partially offset by the impact of higher                  interest rates earned on investable cash balances in 2005. In 2004,                  interest income related to the Company’s preferred security interest in                  Prints Plus amounting to $628,000 was recorded and then fully reserved                  along with the preferred security by recording an expense for impairment                  of related obligations of preferred security interest in the accompanying                  Consolidated Statements of Operations. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | The                  loss from extinguishment of debt recorded in 2005 totaling $529,000                  represents the payment of a make-whole fee of $457,000 and the                  write-off                  of unamortized fees of $72,000, both related to the refinancing                  of the                  Company’s Senior Notes in the fourth quarter of 2005. This is more fully                  discussed in the section of Management’s Discussion and Analysis entitled                  “Net Cash Used in Investing Activities” which follows. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | The                  income tax expense on earnings from continuing operations totaled                  $9.1                  million and $4.4 million in 2006 and 2005, respectively. The provision                  for                  income taxes from continuing operations in 2004 was a benefit of                  $2.2                  million. These provisions/benefits resulted in effective tax rates                  of                  35.8% in 2006, 40.7% in 2005 and 12.9% in 2004. Tax expense in                  2006 was                  impacted by favorable settlements of two state tax audits and refunds                  of                  previously paid penalties and interest. The initiation of a dividend                  reinvestment plan to repatriate qualified earnings related to the                  Company’s Canadian subsidiary and amounting to $4.6 million increased the                  2005 effective tax rate by approximately 3.6%. The lower 2004 effective                  income tax rate resulted from the recording of a valuation allowance                  on                  the Company’s foreign tax credit and capital loss carry forwards, the tax                  effects of the Company’s foreign operations and a realignment of the                  Company’s officer life insurance program. These benefit reductions were                  partially offset by an increased current provision relating to                  an                  assessment of taxes on prior years resulting from an Internal Revenue                  Service exam. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Net                  losses from discontinued operations were $3.7 million in 2004.                  These                  discontinued operations relate to the Company’s previously existing                  Mexican and mobile photography operations and are further discussed                  below. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***LIQUIDITY          AND CAPITAL RESOURCES***

| *thousands*                                                  |   | 2006   |    | 2005   |   | 2004    |   |
|--------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
|                                                         |   |   |    |   |   |    |   |
| Net                      cash provided by (used in):         |   |   |    |   |   |    |   |
| Operating                      activities (1)                |   | $      | 37,950  |   | $      | 18,697  |   | $ | 13,738 |   |
| Investing                      activities (2)                |   |   | (2,358  | )      |   | (17,633 | )      |   | (6,626 | ) |
| Financing                      activities                    |   |   | (43,567 | )      |   | (1,223  | )      |   | (24,827 | ) |
| Effect                      of exchange rate changes on cash |   |   | -       |   |   | 545     |   |   | 587 |   |
| Net                      increase (decrease) in cash         |   | $      | (7,975  | )      | $      | 386     |   | $ | (17,128 | ) |
|                                                         |   |   |    |   |   |    |   |   |   |   |

| (1)   | Includes                  cash flows used in discontinued operations of $2,739 in                  2004 |
|-----------------|---------------------------------------------------------------------------------------------------------|
| (2)   | Includes                  cash flows used in discontinued operations of $29 in                  2004 |
|-----------------|------------------------------------------------------------------------------------------------------|

**Net          Cash Provided By Operating Activities**

**Net          Cash Used In Investing Activities**

**Net          Cash Used In Financing Activities**

| ·   | earnings                  before interest, taxes, depreciation and amortization, as defined,                  (“EBITDA”), |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------|
| ·   | the                  ratio of Funded Debt, as defined, to                  EBITDA, |
|--------------------|------------------------------------------------------------------------------------|
| ·   | net                  worth, adjusted for issuance and repurchase                  activities, |
|--------------------|-----------------------------------------------------------------------------------------------|
| ·   | capital                  expenditures, and |
|--------------------|--------------------------------------------|
| ·   | the                  ratio of EBITDA to certain Fixed Charges, as defined, for the most                  recent                  four fiscal quarters, calculated on the last day of each fiscal                  quarter. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Off-Balance          Sheet Arrangements**

**Future          Cash Flows**

|                                                  |   |  **PAYMENTS                      DUE BY PERIOD** |
|-------------------------------------------------------|--------|-------------------------------------------------------|
| *thousands*                                           |   |                                                  |   |   |   |   |   |   |   | 2012                      & |   |
|                                                  |   | Total                                                 |   | 2007 |   | 2008-09 |   | 2010-11 |   | Beyond |   |
| Contractual                      obligations:         |   |                                                  |   |   |   |   |   |   |   |   |   |
|                                                  |   |                                                  |   |   |   |   |   |   |   |   |   |
| Long-term                      debt                   |   | $                                                     | 16,667 |   | $ | 8,333 |   | $ | 8,334 |   | $ | - |   | $ | - |   |
| Interest                      expense (1)             |   |                                                  | 1,591 |   |   | 1,161 |   |   | 430 |   |   | - |   |   | - |   |
| Operating                      leases                 |   |                                                  | 1,642 |   |   | 831 |   |   | 706 |   |   | 105 |   |   | - |   |
| Purchase                      obligations for         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  materials                      and services (2) |   |                                                  | 3,297 |   |   | 2,378 |   |   | 919 |   |   | - |   |   | - |   |
| Other                      liabilities (3)            |   |                                                  | 619 |   |   | 398 |   |   | 109 |   |   | 87 |   |   | 25 |   |
|                                                  |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL                                                 |   | $                                                     | 23,816 |   | $ | 13,101 |   | $ | 10,498 |   | $ | 192 |   | $ | 25 |   |

|                                                  |   | **AMOUNT                      OF COMMITMENT EXPIRATION PER PERIOD** |
|-------------------------------------------------------|--------|---------------------------------------------------------------------|
| *thousands*                                           |   |                                                                |   |   |   |   |   |   |   | 2012                      & |   |
|                                                  |   | Total                                                               |   | 2007 |   | 2008-09 |   | 2010-11 |   | Beyond |   |
| Other                      commitments:               |   |                                                                |   |   |   |   |   |   |   |   |   |
|                                                  |   |                                                                |   |   |   |   |   |   |   |   |   |
| Standby                      letters of credit (4)    |   | $                                                                   | 5,755 |   | $ | 5,755 |   | $ | - |   | $ | - |   | $ | - |   |
| Contingent                      lease obligations (5) |   |                                                                | 744 |   |   | 744 |   |   | - |   |   | - |   |   | - |   |
|                                                  |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL                                                 |   | $                                                                   | 6,499 |   | $ | 6,499 |   | $ | - |   | $ | - |   | $ | - |   |

| (1) | Amounts represent the expected cash payments                    of the                    Company’s interest expense on its long-term debt, calculated                    based on the LIBOR variable rate in effect at February 3,                    2007. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Amount                    represents outstanding purchase                    commitments at February 3, 2007. The purchase commitments relate                    principally to photographic paper, frames and accessories,                    telecommunication services and database maintenance                    contracts. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Amounts                    consist primarily of accruals for severance and related costs,                    which are                    recorded at the contractual amounts due. The Company is contesting                    one                    severance arrangement, which has the potential for reduction                    through                    settlement negotiations and                    litigation. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | We                        primarily use stand-by letters of credit to support our various                        self-insurance programs. The letters of credit generally                        have a one-year                        maturity and are renewed annually. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | In                    July 2001, the Company announced the completion of the sale of                    its Wall                    Décor segment, Prints Plus, which included the ongoing guarantee                    of                    certain operating real estate leases of Prints Plus. As of February                    3,                    2007, the maximum future obligation to the Company under its                    guarantee of                    remaining leases is approximately $1.0 million before consideration                    of replacement tenant  income. To recognize the risk associated                    with these leases based upon the Company’s past experience with                    renegotiating lease obligations and management’s evaluation of remaining                    leases, all of which is more fully described in Note 13 to the                    Consolidated Financial Statements, the Company has recorded lease                    obligation reserves totaling approximately $744,000 at February                    3, 2007.                    Based on the status of remaining leases, the Company believes                    that the                    $744,000 reserve is adequate to cover the potential losses to                    be realized                    under the Company’s operating lease guarantees. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Liquidity**

***ACCOUNTING          PRONOUNCEMENTS AND POLICIES***

**Adoption          of New Accounting Standards**

*.*

**Application          of Critical Accounting Policies**

*Item          7A.*
*Quantitative          and Qualitative Disclosures About Market Risk*

*Item          8.*
*Financial          Statements and Supplemental Data*

| (a)    | FINANCIAL                      STATEMENTS |   | PAGES  |
|--------|-------------------------------------------|--------|--------|
|   |                                      |   |
|   |                                      | -      |   | Report                      of Independent Registered Public Accounting Firm |   | 32 |
|   |                                      | -      |   | Consolidated                      Balance Sheets as of February 3, 2007 and February 4, 2006 |   | 33-34 |
|   |                                      | -      |   | Consolidated                      Statements of Operations for the fiscal years ended |   |   |
|   |                                      |   |   |   | February                      3, 2007, February 4, 2006 and February 5, 2005 |   | 35 |
|   |                                      | -      |   | Consolidated                      Statements of Changes in Stockholders' Equity |   |   |
|   |                                      |   |   |   | for                      the fiscal years ended February 3, 2007, February 4, 2006 and                      February 5,                      2005 |   | 36 |
|   |                                      | -      |   | Consolidated                      Statements of Cash Flows for the fiscal years ended February                      3,                      2007, |   |   |
|   |                                      |   |   |   | February                      4, 2006 and February 5, 2005 |   | 37-39 |
|   |                                      | -      |   | Notes                      to Consolidated Financial Statements |   | 40-66 |

**Report          of Independent Registered Public Accounting Firm**

*Internal          Control - Integrated Framework*

*Share-Based            Payment*

*Employers’            Accounting for Deferred Benefit Pension and Other Postretirement            Plans*

**CPI          CORP.**

**Consolidated          Balance Sheets - Assets**

| *thousands*                                                                         |   | February                      3, 2007 |    | February                      4, 2006 |   |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|---------|---------------------------------------|--------|
|                                                                                |   |                                  |    |                                  |   |
| **ASSETS**                                                                          |   |                                  |    |                                  |   |
| Current                      assets:                                                |   |                                  |    |                                  |   |
| Cash                      and cash equivalents                                      |   | $                                     | 26,294  |                                  | $      | 34,269 |   |
| Restricted                      cash                                                |   |                                  | 1,000   |                                  |   | 1,000 |   |
| Accounts                      receivable:                                           |   |                                  |    |                                  |   |   |   |
| Due                      from licensor stores                                       |   |                                  | 7,308   |                                  |   | 7,944 |   |
| Other                                                                               |   |                                  | 489     |                                  |   | 289 |   |
| Inventories                                                                         |   |                                  | 9,067   |                                  |   | 9,271 |   |
| Prepaid                      expenses and other current assets                      |   |                                  | 5,157   |                                  |   | 4,958 |   |
| Deferred                      tax assets                                            |   |                                  | 5,756   |                                  |   | 11,898 |   |
|                                                                                |   |                                  |    |                                  |   |   |   |
| Total                      current assets                                           |   |                                  | 55,071  |                                  |   | 69,629 |   |
|                                                                                |   |                                  |    |                                  |   |   |   |
| Property                      and equipment:                                        |   |                                  |    |                                  |   |   |   |
| Land                                                                                |   |                                  | 2,765   |                                  |   | 2,765 |   |
| Building                      improvements                                          |   |                                  | 26,485  |                                  |   | 26,472 |   |
| Leasehold                      improvements                                         |   |                                  | 4,383   |                                  |   | 4,531 |   |
| Photographic,                      sales and manufacturing equipment                |   |                                  | 123,518 |                                  |   | 126,132 |   |
| Total                                                                               |   |                                  | 157,151 |                                  |   | 159,900 |   |
| Less                      accumulated depreciation and amortization                 |   |                                  | 130,458 |                                  |   | 118,618 |   |
| Property                      and equipment, net                                    |   |                                  | 26,693  |                                  |   | 41,282 |   |
| Assets                      of business transferred under contractual arrangements: |   |                                  |    |                                  |   |   |   |
| Preferred                      security                                             |   |                                  | -       |                                  |   | 7,000 |   |
| Accrued                      interest on preferred security                         |   |                                  | -       |                                  |   | 1,317 |   |
| Impairment                      reserve related to preferred security interest      |   |                                  | -       |                                  |   | (8,317 | ) |
| Other                      investments - supplemental retirement plan               |   |                                  | 3,588   |                                  |   | 3,706 |   |
| Deferred                      tax assets                                            |   |                                  | 4,005   |                                  |   | 7,727 |   |
| Other                      assets, net of amortization of $1,359 at both            |   |                                  |    |                                  |   |   |   |
| February                      3, 2007 and February 4, 2006                          |   |                                  | 970     |                                  |   | 1,317 |   |
|                                                                                |   |                                  |    |                                  |   |   |   |
| **TOTAL                      ASSETS**                                               |   | $                                     | 90,327  |                                  | $      | 123,661 |   |

*See          ccompanying notes to consolidated financial statements.*

**CPI          CORP.**

**Consolidated          Balance Sheets - Liabilities and Stockholders’ Equity**

| *thousands,                      except share and per share data*                                                                                    |   | February                      3, 2007 |     | February                      4, 2006 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------|---------------------------------------|--------|
|                                                                                                                                                 |   |                                  |     |                                  |   |
| **LIABILITIES**                                                                                                                                      |   |                                  |     |                                  |   |
| Current                      liabilities:                                                                                                            |   |                                  |     |                                  |   |
| Current                      maturities of long-term debt                                                                                            |   | $                                     | 8,333    |                                  | $      | 8,333 |   |
| Accounts                      payable                                                                                                                |   |                                  | 3,317    |                                  |   | 3,872 |   |
| Accrued                      employment costs                                                                                                        |   |                                  | 12,770   |                                  |   | 13,016 |   |
| Customer                      deposit liability                                                                                                      |   |                                  | 15,468   |                                  |   | 18,315 |   |
| Income                      taxes payable                                                                                                            |   |                                  | 890      |                                  |   | 1,263 |   |
| Sales                      taxes payable                                                                                                             |   |                                  | 2,564    |                                  |   | 2,435 |   |
| Accrued                      advertising expenses                                                                                                    |   |                                  | 684      |                                  |   | 768 |   |
| Accrued                      expenses and other liabilities                                                                                          |   |                                  | 5,381    |                                  |   | 8,063 |   |
|                                                                                                                                                 |   |                                  |     |                                  |   |   |   |
| Total                      current liabilities                                                                                                       |   |                                  | 49,407   |                                  |   | 56,065 |   |
|                                                                                                                                                 |   |                                  |     |                                  |   |   |   |
| Long-term                      debt, less current maturities                                                                                         |   |                                  | 7,747    |                                  |   | 15,747 |   |
| Accrued                      pension plan obligations                                                                                                |   |                                  | 14,367   |                                  |   | 15,813 |   |
| Supplemental                      retirement plan obligations                                                                                        |   |                                  | 3,472    |                                  |   | 3,833 |   |
| Customer                      deposit liability                                                                                                      |   |                                  | 2,508    |                                  |   | 3,335 |   |
| Other                      liabilities                                                                                                               |   |                                  | 2,510    |                                  |   | 2,758 |   |
|                                                                                                                                                 |   |                                  |     |                                  |   |   |   |
| Total                      liabilities                                                                                                               |   |                                  | 80,011   |                                  |   | 97,551 |   |
|                                                                                                                                                 |   |                                  |     |                                  |   |   |   |
| **STOCKHOLDERS'                      EQUITY**                                                                                                        |   |                                  |     |                                  |   |   |   |
| Preferred                      stock, no par value, 1,000,000 shares authorized; no shares                      outstanding                          |   |                                  | -        |                                  |   | - |   |
| Preferred                      stock, Series A, no par value, 200,000 shares authorized;                                                             |   |                                  |     |                                  |   |   |   |
| no                      shares outstanding                                                                                                           |   |                                  | -        |                                  |   | - |   |
| Common                      stock, $.40 par value, 50,000,000 shares authorized; 16,975,343                      and                      18,569,964 |   |                                  |     |                                  |   |   |   |
| shares                      issued at February 3, 2007 and February 4, 2006,                      respectively                                       |   |                                  | 6,790    |                                  |   | 7,428 |   |
| Additional                      paid-in capital                                                                                                      |   |                                  | 25,510   |                                  |   | 55,588 |   |
| Retained                      earnings                                                                                                               |   |                                  | 220,460  |                                  |   | 208,183 |   |
| Accumulated                      other comprehensive loss                                                                                            |   |                                  | (9,387   | )                                     |   | (11,171 | ) |
|                                                                                                                                                 |   |                                  | 243,373  |                                  |   | 260,028 |   |
| Treasury                      stock - at cost, 10,618,090 and 10,639,543 shares at                                                                   |   |                                  |     |                                  |   |   |   |
| February                      3, 2007 and February 4, 2006, respectively                                                                             |   |                                  | (233,057 | )                                     |   | (233,541 | ) |
| Unamortized                      deferred compensation- restricted stock                                                                             |   |                                  | -        |                                  |   | (377 | ) |
|                                                                                                                                                 |   |                                  |     |                                  |   |   |   |
| Total                      stockholders' equity                                                                                                      |   |                                  | 10,316   |                                  |   | 26,110 |   |
|                                                                                                                                                 |   |                                  |     |                                  |   |   |   |
| **TOTAL                      LIABILITIES AND STOCKHOLDERS' EQUITY**                                                                                  |   | $                                     | 90,327   |                                  | $      | 123,661 |   |

*                 See          ccompanying notes to consolidated financial statements.*

**CPI          CORP.**

**Consolidated          Statements of Operations**

| *thousands,                      except share and per share data*                                                                         |   | 2006   |      | 2005   |   | 2004      |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|
|                                                                                                                                      |   |   |      |   |   |      |   |
| **Net                      sales**                                                                                                        |   | $      | 293,803   |   | $      | 291,984   |   | $ | 281,865 |   |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| **Cost                      and expenses:**                                                                                               |   |   |      |   |   |      |   |   |   |   |
| Cost                      of sales (exclusive of depreciation and amortization shown                      below)                          |   |   | 28,128    |   |   | 32,651    |   |   | 33,855 |   |
| Selling,                      general and administrative expenses                                                                         |   |   | 221,446   |   |   | 224,572   |   |   | 222,425 |   |
| Depreciation                      and amortization                                                                                        |   |   | 16,922    |   |   | 19,952    |   |   | 16,377 |   |
| Other                      charges and impairments                                                                                        |   |   | 1,240     |   |   | 2,767     |   |   | 15,679 |   |
|                                                                                                                                      |   |   | 267,736   |   |   | 279,942   |   |   | 288,336 |   |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| Income                      (loss) from continuing operations                                                                             |   |   | 26,067    |   |   | 12,042    |   |   | (6,471 | ) |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| Interest                      expense                                                                                                     |   |   | 2,229     |   |   | 1,680     |   |   | 2,180 |   |
| Interest                      income                                                                                                      |   |   | 565       |   |   | 697       |   |   | 1,226 |   |
| Impairment                      (recovery) and related obligations of preferred security                      interest                    |   |   | (887      | )      |   | -         |   |   | 9,789 |   |
| Loss                      from debt extinguishment                                                                                        |   |   | -         |   |   | 529       |   |   | - |   |
| Other                      income, net                                                                                                    |   |   | 144       |   |   | 247       |   |   | 263 |   |
| Earnings                      (loss) from continuing operations before income tax expense                      (benefit)                  |   |   | 25,434    |   |   | 10,777    |   |   | (16,951 | ) |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| Income                      tax expense (benefit)                                                                                         |   |   | 9,107     |   |   | 4,388     |   |   | (2,189 | ) |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| Net                      earnings (loss) from continuing operations                                                                       |   |   | 16,327    |   |   | 6,389     |   |   | (14,762 | ) |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| Net                      loss from discontinued operations, net of income tax benefit                      of                      $2,201 |   |   | -         |   |   | -         |   |   | (3,746 | ) |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| **NET                      EARNINGS (LOSS)**                                                                                              |   | $      | 16,327    |   | $      | 6,389     |   | $ | (18,508 | ) |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| **NET                      EARNINGS (LOSS) PER COMMON SHARE**                                                                             |   |   |      |   |   |      |   |   |   |   |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| Net                      earnings (loss) per share from continuing operations -                      diluted                              |   | $      | 2.56      |   | $      | 0.81      |   | $ | (1.87 | ) |
| Net                      loss per share from discontinued operations - diluted                                                            |   |   | -         |   |   | -         |   |   | (0.48 | ) |
| Net                      earnings (loss) per share - diluted                                                                              |   | $      | 2.56      |   | $      | 0.81      |   | $ | (2.35 | ) |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| Net                      earnings (loss) per share from continuing operations -                      basic                                |   | $      | 2.57      |   | $      | 0.81      |   | $ | (1.87 | ) |
| Net                      loss per share from discontinued operations - basic                                                              |   |   | -         |   |   | -         |   |   | (0.48 | ) |
| Net                      earnings (loss) per share - basic                                                                                |   | $      | 2.57      |   | $      | 0.81      |   | $ | (2.35 | ) |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| Dividends                      per share                                                                                                  |   | $      | 0.64      |   | $      | 0.64      |   | $ | 0.64 |   |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| Weighted                      average number of common and common equivalent                                                              |   |   |      |   |   |      |   |   |   |   |
| shares                      outstanding-diluted                                                                                           |   |   | 6,375,709 |   |   | 7,881,060 |   |   | 7,888,404 |   |
| Weighted                      average number of common and common equivalent                                                              |   |   |      |   |   |      |   |   |   |   |
| shares                      outstanding-basic                                                                                             |   |   | 6,352,975 |   |   | 7,854,192 |   |   | 7,888,404 |   |
|                                                                                                                                      |   |   |      |   |   |      |   |   |   |   |
| *See                      accompanying notes to consolidated financial                      statements.*                                  |   |   |      |   |   |      |   |   |   |   |

**CPI          CORP.**

**Consolidated          Statements of Changes in Stockholders' Equity**

|                                                                                                     |   |   |   |       |   |     |   | Accumulated                        |    |                         |   | Deferred                            |   |   |     |
|----------------------------------------------------------------------------------------------------------|--------|--------|--------|------------|--------|----------|--------|------------------------------------|---------|------------------------------|--------|-------------------------------------|--------|--------|----------|
|                                                                                                     |   |   |   | Additional |   |     |   | other                              |    | Treasury                     |   | compensation                      - |   |   |     |
| *thousands,                      except share and per share data*                                        |   | Common |   | paid-in    |   | Retained |   | comprehensive                      |    | stock,                       |   | restricted                          |   |   |     |
|                                                                                                     |   | stock  |   | capital    |   | earnings |   | income                      (loss) |    | at                      cost |   | stock                               |   | Total  |     |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |
| Balance                      at February 7, 2004                                                         |   | $      | 7,344  |       | $      | 52,272   |   | $                                  | 230,394 |                         | $      | (9,599                              | )      | $      | (228,577 | ) | $ | (8 | ) | $ | 51,826 |   |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| Net                      loss                                                                            |   |   | -      |       |   | -        |   |                               | (18,508 | )                            |   | -                                   |   |   | -        |   |   | - |   |   | (18,508 | ) |
| Total                      other comprehensive loss, net of tax effect                                   |   |   | -      |       |   | -        |   |                               | -       |                         |   | (906                                | )      |   | -        |   |   | - |   |   | (906 | ) |
| Total                      comprehensive loss                                                            |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   | (19,414 | ) |
| Issuance                      of common stock to employee benefit plans,                                 |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| restricted                      stock awards and option exercises                                        |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| (99,588                      shares), net of tax effect                                                  |   |   | 29     |       |   | 1,029    |   |                               | -       |                         |   | -                                   |   |   | 554      |   |   | (70 | ) |   | 1,542 |   |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| Dividends                      ($0.64 per common share)                                                  |   |   | -      |       |   | -        |   |                               | (5,074  | )                            |   | -                                   |   |   | -        |   |   | - |   |   | (5,074 | ) |
| Purchase                      of treasury stock, at cost (406,780 shares)                                |   |   | -      |       |   | -        |   |                               | -       |                         |   | -                                   |   |   | (6,008   | ) |   | - |   |   | (6,008 | ) |
| Amortization                      of deferred compensation - restricted stock                            |   |   | -      |       |   | -        |   |                               | -       |                         |   | -                                   |   |   | -        |   |   | 14 |   |   | 14 |   |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| Balance                      at February 5, 2005                                                         |   | $      | 7,373  |       | $      | 53,301   |   | $                                  | 206,812 |                         | $      | (10,505                             | )      | $      | (234,031 | ) | $ | (64 | ) | $ | 22,886 |   |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| Net                      earnings                                                                        |   |   | -      |       |   | -        |   |                               | 6,389   |                         |   | -                                   |   |   | -        |   |   | - |   |   | 6,389 |   |
| Total                      other comprehensive loss, net of tax effect                                   |   |   | -      |       |   | -        |   |                               | -       |                         |   | (666                                | )      |   | -        |   |   | - |   |   | (666 | ) |
| Total                      comprehensive income                                                          |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   | 5,723 |   |
| Issuance                      of common stock to employee benefit plans,                                 |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| restricted                      stock awards and option exercises                                        |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| (169,878                      shares), net of tax effect                                                 |   |   | 55     |       |   | 2,287    |   |                               | -       |                         |   | -                                   |   |   | 490      |   |   | (1,041 | ) |   | 1,791 |   |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| Dividends                      ($0.64 per common share)                                                  |   |   | -      |       |   | -        |   |                               | (5,018  | )                            |   | -                                   |   |   | -        |   |   | - |   |   | (5,018 | ) |
| Amortization                      of deferred compensation - restricted stock                            |   |   | -      |       |   | -        |   |                               | -       |                         |   | -                                   |   |   | -        |   |   | 728 |   |   | 728 |   |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| Balance                      at February 4, 2006                                                         |   | $      | 7,428  |       | $      | 55,588   |   | $                                  | 208,183 |                         | $      | (11,171                             | )      | $      | (233,541 | ) | $ | (377 | ) | $ | 26,110 |   |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| Net                      earnings                                                                        |   |   | -      |       |   | -        |   |                               | 16,327  |                         |   | -                                   |   |   | -        |   |   | - |   |   | 16,327 |   |
| Total                      other comprehensive earnings, net of tax effect                               |   |   | -      |       |   | -        |   |                               | -       |                         |   | 2,128                               |   |   | -        |   |   | - |   |   | 2,128 |   |
| Adoption                      of SFAS 158, net of tax                                                    |   |   | -      |       |   | -        |   |                               | -       |                         |   | (344                                | )      |   | -        |   |   | - |   |   | (344 | ) |
| Total                      comprehensive income                                                          |   |   | -      |       |   | -        |   |                               | -       |                         |   | -                                   |   |   | -        |   |   | - |   |   | 18,111 |   |
| Reclassification                      of deferred compensation account                                   |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| upon                      adoption of SFAS 123R                                                          |   |   | -      |       |   | (377     | )      |                               | -       |                         |   | -                                   |   |   | -        |   |   | 377 |   |   | - |   |
| Purchase                      of treasury stock                                                          |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   | (32,635  | ) |   | - |   |   | (32,635 | ) |
| Retirement                      of 1,658,607 common shares acquired                                      |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| through                      Dutch Auction self-tender offer                                             |   |   | (663   | )          |   | (31,875  | )      |                               | -       |                         |   | -                                   |   |   | 32,538   |   |   | - |   |   | - |   |
| Issuance                      of common stock to employee benefit                                        |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| plans,                      restricted stock awards, option exercises                                    |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| and                      option modification (90,414 shares)                                             |   |   | 25     |       |   | 494      |   |                               | -       |                         |   | -                                   |   |   | 581      |   |   | - |   |   | 1,100 |   |
| Stock-based                      compensation recognized                                                 |   |   | -      |       |   | 776      |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   | 776 |   |
| Excess                      tax benefit related to stock-based compensation                              |   |   | -      |       |   | 904      |   |                               | -       |                         |   | -                                   |   |   | -        |   |   | - |   |   | 904 |   |
| Dividends                      ($0.64 per common share)                                                  |   |   | -      |       |   | -        |   |                               | (4,050  | )                            |   | -                                   |   |   | -        |   |   | - |   |   | (4,050 | ) |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| Balance                      at February 3, 2007                                                         |   | $      | 6,790  |       | $      | 25,510   |   | $                                  | 220,460 |                         | $      | (9,387                              | )      | $      | (233,057 | ) | $ | - |   | $ | 10,316 |   |
|                                                                                                     |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |
| *See                      accompanying notes to consolidated financial                      statements.* |   |   |   |       |   |     |   |                               |    |                         |   |                                |   |   |     |   |   |   |   |   |   |   |

**CPI          CORP.**

**Consolidated          Statements of Cash Flows**

| *thousands*                                                                                                                     |   | 2006   |   | 2005   |   | 2004   |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                                            |   |   |   |   |   |   |   |
| Reconciliation                      of net earnings (loss) to cash flows provided by operating                      activities: |   |   |   |   |   |   |   |
|                                                                                                                            |   |   |   |   |   |   |   |   |   |
| Net                      earnings (loss)                                                                                        | $      | 16,327 |   | $      | 6,389  |   | $      | (18,508 | ) |
|                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjustments                      for items not requiring cash:                                                                  |   |   |   |   |   |   |   |   |   |
| Depreciation                      and amortization                                                                              |   |   |   |   |   | 16,922 |   |   | 19,952 |   |   | 16,377 |   |
| Loss                      from discontinued operations                                                                          |   |   |   |   |   | -      |   |   | - |   |   | 3,746 |   |
| Stock-based                      compensation expense                                                                           |   |   |   |   |   | 776    |   |   | 811 |   |   | 190 |   |
| Loss                      from extinguishment of debt                                                                           |   |   |   |   |   | -      |   |   | 529 |   |   | - |   |
| Loss                      on disposition of property, plant and equipment                                                       |   |   |   |   |   | 220    |   |   | 554 |   |   | 1,437 |   |
| Gain                      on sale of assets held for sale                                                                       |   |   |   |   |   | (47    | )      |   | (9 | ) |   | (391 | ) |
| Deferred                      income tax provision                                                                              |   |   |   |   |   | 9,357  |   |   | 2,353 |   |   | (5,653 | ) |
| Pension,                      supplemental retirement plan and profit sharing expense                                           |   |   |   |   |   | 2,337  |   |   | 2,198 |   |   | 2,457 |   |
| Accelerated                      vesting of supplemental retirement plan benefits                                               |   |   |   |   |   | -      |   |   | - |   |   | 3,338 |   |
| Accrued                      interest on Preferred Security                                                                     |   |   |   |   |   | -      |   |   | - |   |   | (629 | ) |
| Impairment                      (recovery) and related obligations of preferred security                      interest          |   |   |   |   |   | (887   | )      |   | - |   |   | 9,789 |   |
| Other                      impairment charges                                                                                   |   |   |   |   |   | -      |   |   | - |   |   | 5,083 |   |
| Other                                                                                                                           |   |   |   |   |   | 446    |   |   | 323 |   |   | 40 |   |
|                                                                                                                            |   |   |   |   |   |   |   |   |   |
| Increase                      (decrease) in cash flow from operating assets and                      liabilities:               |   |   |   |   |   |   |   |   |   |
| Receivables                      and inventories                                                                                |   |   |   |   |   | 517    |   |   | 709 |   |   | 683 |   |
| Refundable                      income taxes                                                                                    |   |   |   |   |   | -      |   |   | - |   |   | 2,166 |   |
| Prepaid                      expenses and other current assets                                                                  |   |   |   |   |   | (636   | )      |   | 1,436 |   |   | (345 | ) |
| Accounts                      payable                                                                                           |   |   |   |   |   | (555   | )      |   | (4,983 | ) |   | (3,306 | ) |
| Contribution                      to pension plan                                                                               |   |   |   |   |   | -      |   |   | (2,050 | ) |   | - |   |
| Supplemental                      retirement plan payments                                                                      |   |   |   |   |   | (283   | )      |   | (989 | ) |   | (1,517 | ) |
| Accrued                      expenses and other liabilities                                                                     |   |   |   |   |   | (2,003 | )      |   | (2,945 | ) |   | 1,031 |   |
| Income                      taxes payable                                                                                       |   |   |   |   |   | (373   | )      |   | (1,609 | ) |   | 2,872 |   |
| Deferred                      revenues and related costs                                                                        |   |   |   |   |   | (3,118 | )      |   | (3,856 | ) |   | (2,899 | ) |
| Other                                                                                                                           |   |   |   |   |   | (1,050 | )      |   | (116 | ) |   | 516 |   |
|                                                                                                                            |   |   |   |   |   |   |   |   |   |
| Cash                      flows provided by continuing operations                                                               |   | 37,950 |   |   | 18,697 |   |   | 16,477 |   |
| Cash                      flows used in discontinued operations                                                                 |   | -      |   |   | -      |   |   | (2,739 | ) |
| Cash                      flows provided by operating activities                                                                | $      | 37,950 |   | $      | 18,697 |   | $      | 13,738 |   |
|                                                                                                                            |   |   |   |   |   |   |   |   |   |
| *See                      accompanying notes to consolidated financial                      statements.*                        |   |   |   |   |   |   |   |   |   |

**CPI          CORP.**

**Consolidated          Statements of Cash Flows (continued)**

| *thousands*                                                                                                        |   | 2006   |    | 2005   |   | 2004    |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
|                                                                                                               |   |   |    |   |   |    |   |
| Cash                      flows provided by operating activities                                                   |   | $      | 37,950  |   | $      | 18,697  |   | $ | 13,738 |   |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| Cash                      flows provided by (used in) financing activities:                                        |   |   |    |   |   |    |   |   |   |   |
| Purchase                      of treasury stock                                                                    |   |   | (32,635 | )      |   | -       |   |   | (6,008 | ) |
| Repayment                      of long-term obligations                                                            |   |   | (8,333  | )      |   | (25,680 | )      |   | (8,580 | ) |
| Proceeds                      from long-term borrowings                                                            |   |   | -       |   |   | 25,000  |   |   | - |   |
| Payment                      of debt issuance costs                                                                |   |   | -       |   |   | (1,087  | )      |   | - |   |
| Make-whole                      payment to extinguish long-term debt                                               |   |   | -       |   |   | (457    | )      |   | - |   |
| Restricted                      cash - collateral for outstanding letters of credit                                |   |   | -       |   |   | 6,154   |   |   | (6,154 | ) |
| Restricted                      cash - compensating balance under Credit Agreement                                 |   |   | -       |   |   | (1,000  | )      |   | - |   |
| Cash                      dividends                                                                                |   |   | (4,050  | )      |   | (5,018  | )      |   | (5,074 | ) |
| Issuance                      of common stock to employee stock plans and option                      exercises    |   |   | 589     |   |   | 865     |   |   | 989 |   |
| Excess                      tax benefits from stock-based compensation                                             |   |   | 904     |   |   | -       |   |   | - |   |
| Other                                                                                                              |   |   | (42     | )      |   | -       |   |   | - |   |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| Cash                      flows used in financing activities                                                       |   |   | (43,567 | )      |   | (1,223  | )      |   | (24,827 | ) |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| Cash                      flows (used in) provided by investing activities:                                        |   |   |    |   |   |    |   |   |   |   |
| Additions                      to property and equipment                                                           |   |   | (2,760  | )      |   | (20,235 | )      |   | (15,157 | ) |
| Proceeds                      from sale of property and equipment                                                  |   |   | 80      |   |   | 118     |   |   | 362 |   |
| Proceeds                      from sale of assets held for sale                                                    |   |   | 204     |   |   | 49      |   |   | 932 |   |
| Changes                      in loan receivable:                                                                   |   |   |    |   |   |    |   |   |   |   |
|  Borrowings                                                                                                   |   |   | -       |   |   | -       |   |   | (43,380 | ) |
|  Repayments                                                                                                   |   |   | -       |   |   | -       |   |   | 45,295 |   |
| Increase                      in assets held by Rabbi Trust                                                        |   |   | (177    | )      |   | (286    | )      |   | (455 | ) |
| Proceeds                      from Rabbi Trust used for supplemental retirement plan                      payments |   |   | 295     |   |   | 891     |   |   | 2,006 |   |
| Distribution                      of Rabbi Trust funds in excess of related obligations                            |   |   | -       |   |   | 1,830   |   |   | 3,800 |   |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| Cash                      flows used in investing activities - continuing operations                               |   |   | (2,358  | )      |   | (17,633 | )      |   | (6,597 | ) |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| Cash                      flows used in investing activities - discontinued                      operations        |   |   | -       |   |   | -       |   |   | (29 | ) |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| Cash                      flows used in investing activities                                                       |   |   | (2,358  | )      |   | (17,633 | )      |   | (6,626 | ) |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| Effect                      of exchange rate changes on cash and cash equivalents                                  |   |   | -       |   |   | 545     |   |   | 587 |   |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| Net                      increase (decrease) in cash and cash equivalents                                          |   |   | (7,975  | )      |   | 386     |   |   | (17,128 | ) |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| **Cash                      and cash equivalents at beginning of year**                                            |   |   | 34,269  |   |   | 33,883  |   |   | 51,011 |   |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| **Cash                      and cash equivalents at end of year**                                                  |   | $      | 26,294  |   | $      | 34,269  |   | $ | 33,883 |   |
|                                                                                                               |   |   |    |   |   |    |   |   |   |   |
| *See                      accompanying notes to consolidated financial                      statements.*           |   |   |    |   |   |    |   |   |   |   |

**CPI          CORP.**

**Consolidated          Statements of Cash Flows (continued)**

| *thousands*                                                                                                        |   | 2006   |   | 2005   |   | 2004   |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                               |   |   |   |   |   |   |   |
| Supplemental                      cash flow information:                                                           |   |   |   |   |   |   |   |
| Interest                      paid                                                                                 |   | $      | 1,979  |   | $      | 1,496  |   | $ | 2,236 |   |
| Income                      taxes paid                                                                             |   | $      | 1,311  |   | $      | 4,668  |   | $ | 321 |   |
| Supplemental                      non-cash financing activities:                                                   |   |   |   |   |   |   |   |   |   |   |
| Issuance                      of treasury stock under the employee Profit Sharing Plan                             |   | $      | 440    |   | $      | 490    |   | $ | 554 |   |
| Issuance                      of restricted and unrestricted stock to employees and                      directors |   | $      | 785    |   | $      | 1,300  |   | $ | 70 |   |
| Repayment                      of borrowings against cash surrender value of life                                  |   |   |   |   |   |   |   |   |   |   |
|  insurance                      via liquidation of related policies                                           |   | $      | -      |   | $      | -      |   | $ | 1,548 |   |
| Executive                      retirement stock option modifications                                               |   | $      | 71     |   | $      | 177    |   | $ | - |   |
|                                                                                                               |   |   |   |   |   |   |   |   |   |   |
| *See                      accompanying notes to consolidated financial                      statements.*           |   |   |   |   |   |   |   |   |   |   |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**NOTE            1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Description            of Business**

**Basis            of Presentation**

**Fiscal            Year**

| Fiscal                        year |   | Ended                                   |   | Weeks  |
|------------------------------------|--------|-----------------------------------------|--------|--------|
|                               |   |                                    |   |   |
| 2006                               |   | February                        3, 2007 |   | 52     |
| 2005                               |   | February                        4, 2006 |   | 52     |
| 2004                               |   | February                        5, 2005 |   | 52     |

**Business            Concentrations**

** **

**CPI            CORP.**

**Notes            to Consolidated Financial Statements **

**Use            of Estimates**

**Foreign            Currency Translations **

**Cash            and Cash Equivalents**

**Accounts            Receivable**

**Inventories**

**Property            and Equipment**

|  Building improvements                                              |   |   15                      to 19 years                           |
|--------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|
|  Leasehold improvements                                             |   |    5                      to 15                      years |
|  Photographic, sales and manufacturing                    equipment |   |                        2 to 7                      years             |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements **

**Long-lived            Asset Recoverability**

**Self-Insurance            Reserves**

**Revenue            Recognition and Deferred Costs**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**Advertising            Costs**

**Defined            Benefit Plans**

**Income            Taxes**

**Stock-based            Compensation Plans**

* *
* *

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

| *thousands,                          except per share data*                                                                |   | 2005   |   | 2004   |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                                                                                       |   |   |   |   |   |
| Net                          earnings (loss) - as reported                                                                 |   | $      | 6,389  |   | $      | (18,508 | ) |
| Less:                          Additional stock-based employee compensation expense                          determined    |   |   |   |   |   |   |   |
|  under                          fair value based method for all awards, net of related                          taxes |   |   | (27    | )      |   | (621 | ) |
|                                                                                                                       |   |   |   |   |   |   |   |
| Net                          earnings (loss) - pro forma                                                                   |   | $      | 6,362  |   | $      | (19,129 | ) |
|                                                                                                                       |   |   |   |   |   |   |   |
| Earnings                          (loss) per common share - basic                                                          |   |   |   |   |   |   |   |
| As                          reported                                                                                       |   | $      | 0.81   |   | $      | (2.35 | ) |
| Pro                          forma                                                                                         |   | $      | 0.81   |   | $      | (2.42 | ) |
| Earnings                          (loss) per common share - diluted                                                        |   |   |   |   |   |   |   |
| As                          reported                                                                                       |   | $      | 0.81   |   | $      | (2.35 | ) |
| Pro                          forma                                                                                         |   | $      | 0.81   |   | $      | (2.42 | ) |

**Per            Share Calculations**

**NOTE            2 - RECENTLY ISSUED ACCOUNTING STANDARDS**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**NOTE            3 - CHANGE OF CONTROL**

**NOTE            4 - DISCONTINUED OPERATIONS**

**Mexican            and Mobile Photography Operations**

| *thousands*                                                  |   | Mexican                        Operation |   | Mobile                        Photography Operation |   | Total                        Discontinued Operations |   |
|--------------------------------------------------------------|--------|------------------------------------------|--------|-----------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                         |   |                                     |   |                                           |   |                                            |   |
| Net                        Sales                             |   | $                                        | 781    |                                                | $      | 1,020                                                |   | $ | 1,801 |   |
|                                                         |   |                                     |   |                                                |   |                                                 |   |   |   |   |
| Operating                        loss                        |   | $                                        | (948   | )                                                   | $      | (1,550                                               | )      | $ | (2,498 | ) |
| Loss                        on disposition                   |   |                                     | (2,528 | )                                                   |   | (921                                                 | )      |   | (3,449 | ) |
| Tax                        benefit                           |   |                                     | 1,287  |                                                |   | 914                                                  |   |   | 2,201 |   |
|                                                         |   |                                     |   |                                                |   |                                                 |   |   |   |   |
| Net                        loss from discontinued operations |   | $                                        | (2,189 | )                                                   | $      | (1,557                                               | )      | $ | (3,746 | ) |
|                                                         |   |                                     |   |                                                |   |                                                 |   |   |   |   |

|                                                               |   |  Non-cash                        Charges |   |  Accruals/Proceeds |   |  Total                        Loss on Disposition |   |
|--------------------------------------------------------------------|--------|-----------------------------------------------|--------|-------------------------|--------|--------------------------------------------------------|--------|
| *thousands*                                                        |   |  Mexico                                  |   | Mobile                  |   |  Mexico                                           |   | Mobile |   |  Mexico |   |  Mobile |   |
|                                                               |   |                                     |   |                    |   |                                              |   |   |   |    |   |    |   |
| Asset                        disposals, impairments and write-offs |   | $                                             | 2,136  |                    | $      | 848                                                    |   | $ | - |   | $ | - |   | $ | 2,136 |   | $ | 848 |   |
| Proceeds                        on sale of assets                  |   |                                          | -      |                    |   | -                                                      |   |   | (120 | ) |   | (94 | ) |   | (120 | ) |   | (94 | ) |
| Lease                        settlements                           |   |                                          | -      |                    |   | -                                                      |   |   | 92 |   |   | - |   |   | 92 |   |   | - |   |
| Employee                        severance                          |   |                                          | -      |                    |   | -                                                      |   |   | 407 |   |   | 154 |   |   | 407 |   |   | 154 |   |
| Other                                                              |   |                                          | -      |                    |   | -                                                      |   |   | 13 |   |   | 13 |   |   | 13 |   |   | 13 |   |
|                                                               |   |                                          |        |                    |   |                                                        |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total                        loss on disposition                   |   | $                                             | 2,136  |                    | $      | 848                                                    |   | $ | 392 |   | $ | 73 |   | $ | 2,528 |   | $ | 921 |   |
|                                                               |   |                                          |   |                    |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**NOTE            5 - INVENTORIES**

| *thousands*                                                |   | February                        3, 2007 |   | February                        4, 2006 |   |
|------------------------------------------------------------|--------|-----------------------------------------|--------|-----------------------------------------|--------|
|                                                       |   |                                    |   |                                    |   |
| Raw                        materials - paper and chemicals |   | $                                       | 4,086  |                                    | $      | 4,110 |   |
| Portraits                        in process                |   |                                    | 777    |                                    |   | 939 |   |
| Finished                        portraits pending delivery |   |                                    | 369    |                                    |   | 407 |   |
| Frames                        and accessories              |   |                                    | 1,118  |                                    |   | 1,069 |   |
| Studio                        supplies                     |   |                                    | 2,083  |                                    |   | 2,143 |   |
| Other                                                      |   |                                    | 634    |                                    |   | 603 |   |
|                                                       |   |                                    |   |                                    |   |   |   |
| Total                                                      |   | $                                       | 9,067  |                                    | $      | 9,271 |   |
|                                                       |   |                                    |   |                                    |   |   |   |

**NOTE            6 - BORROWINGS**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

| *thousands*                                                           |   | February                        3, 2007 |   | February                        4, 2006 |   |
|-----------------------------------------------------------------------|--------|-----------------------------------------|--------|-----------------------------------------|--------|
|                                                                  |   |                                    |   |                                    |   |
| Term                        loan portion of the Credit Agreement,     |   |                                    |   |                                    |   |
|                           net of unamortized issuance costs |   | $                                       | 16,080 |                                    | $      | 24,080 |   |
| Less:                        current maturities                       |   |                                    | 8,333  |                                    |   | 8,333 |   |
|                                                                  |   | $                                       | 7,747  |                                    | $      | 15,747 |   |
|                                                                  |   |                                    |   |                                    |   |   |   |

| *thousands*                                       |   |   |   |
|---------------------------------------------------|--------|--------|--------|
|                                              |   |   |   |
| 2007                                              |   | $      | 8,333  |   |
| 2008                                              |   |   | 8,334  |   |
|                                              |   | $      | 16,667 |   |
| Unamortized                        issuance costs |   |   | 587    |   |
|                                              |   | $      | 16,080 |   |
|                                              |   |   |   |   |

**NOTE            7 - STOCKHOLDERS’ EQUITY**

**Share            Repurchase Program**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**Shareholder            Rights Plan**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**Comprehensive            Income and Accumulated Other Comprehensive Loss**

| *thousands*                                                                |   | 2006   |   | 2005   |   | 2004   |   |
|----------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                       |   |   |   |   |   |   |   |
| Net                        earnings (loss)                                 |   | $      | 16,327 |   | $      | 6,389  |   | $ | (18,508 | ) |
| Other                        comprehensive income (loss):                  |   |   |   |   |   |   |   |   |   |   |
| Foreign                        currency translation adjustments            |   |   | (264   | )      |   | 947    |   |   | 620 |   |
| Defined                        benefit plans (1)                           |   |   | 2,048  |   |   | (1,613 | )      |   | (1,526 | ) |
| Total                        accumulated other comprehensive income (loss) |   |   | 1,784  |   |   | (666   | )      |   | (906 | ) |
|                                                                       |   |   |   |   |   |   |   |   |   |   |
| Total                        comprehensive income (loss)                   |   | $      | 18,111 |   | $      | 5,723  |   | $ | (19,414 | ) |
|                                                                       |   |   |   |   |   |   |   |   |   |   |

|   |                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   | (1)                        Net of tax expense (benefit) of $1,255, ($989) and ($936)                        for 2006, 2005                        and 2004, respectively. |
|   |                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |

|  *thousands*                                                         |   | 2006   |   | 2005   |   | 2004   |   |
|---------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                      |   |   |   |   |   |   |   |
| Foreign                        currency translation adjustments           |   |   | $      | 902    |   | $      | 638    |   | $ | 1,585 |   |
| Unfunded                        projected benefit obligation, net of tax: |   |   |   | -      |   |   | -      |   |   | - |   |
| Prior                        service cost                                 |   |   |   | 178    |   |   | -      |   |   | - |   |
| Unamortized                        net actuarial losses                   |   |   |   | 8,307  |   |   | -      |   |   | - |   |
| Minimum                        pension liability, net of taxes            |   |   |   | -      |   |   | 10,533 |   |   | 8,920 |   |
| Accumulated                        other comprehensive loss               |   |   | $      | 9,387  |   | $      | 11,171 |   | $ | 10,505 |   |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**NOTE            8 - OTHER CHARGES AND IMPAIRMENTS**

| *thousands*                                                                                                                |   | 2006   |   | 2005   |   | 2004   |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                                       |   |   |   |   |   |   |   |
| Recorded                        as a component of income (loss) from operations:                                           |   |   |   |   |   |   |   |
| Impairment                        charges                                                                                  |   | $      | 179    |   | $      | 567    |   | $ | 6,516 |   |
| Accruals                        related to accelerated vesting of supplemental retirement                                  |   |   |   |   |   |   |   |   |   |   |
| plan                        benefits and guaranteed bonuses for 2004                                                       |   |   | -      |   |   | -      |   |   | 3,656 |   |
| Reserves                        for severance and related costs                                                            |   |   | 878    |   |   | 2,546  |   |   | 3,430 |   |
| Contract                        terminations and settlements                                                               |   |   | -      |   |   | (346   | )      |   | 1,261 |   |
| Consent                        soliciation costs                                                                           |   |   | -      |   |   | -      |   |   | 816 |   |
| Strategic                        alternative review costs                                                                  |   |   | 183    |   |   | -      |   |   | - |   |
|                                                                                                                       |   |   | 1,240  |   |   | 2,767  |   |   | 15,679 |   |
| Recorded                        as a component of other (income) expense following income                                  |   |   |   |   |   |   |   |   |   |   |
| (loss)                        from operations:                                                                             |   |   |   |   |   |   |   |   |   |   |
| Impairment                        (recovery) and related obligations of preferred security                        interest |   |   | (887   | )      |   | -      |   |   | 9,789 |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |
| Total                        Other Charges and Impairments                                                                 |   | $      | 353    |   | $      | 2,767  |   | $ | 25,468 |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |

**Impairment            Charges**

**Accelerated            Vesting of Supplemental Retirement Plan Benefits and Guaranteed Bonuses            for            2004**

**Reserves            for Severance and Related Costs**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**Contract            Termination and Settlements**

**Consent            Solicitation Costs**

**Strategic            Alternative Review Costs**

**Impairment            and Related Obligations of Preferred Security Interest**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

|                                                                                                 |   |   |   |    |   |    |   |                                  |   |      |   | Asset       |   |     |   |        |   |                                  |   |
|------------------------------------------------------------------------------------------------------|--------|--------|--------|---------|--------|--------------|--------|---------------------------------------|--------|-----------|--------|-------------|--------|----------|--------|-------------|--------|---------------------------------------|--------|
| *thousands*                                                                                          |   |   |   | Reserve |   | 2005         |   | Write-                                |   |      |   | Receipts    |   | Reserve  |   |
|                                                                                                 |   |   |   |    |   |    |   | Balance                               |   | Charges   |   | Downs/      |   | Cash     |   | from        |   | Balance                               |   |
|                                                                                                 |   |   |   |    |   |    |   | Feb.                          5, 2005 |   | (Credits) |   | Impairments |   | Payments |   | Settlements |   | Feb.                          4, 2006 |   |
| Recorded                          as a component of income (loss)                                    |   |   |   |    |   |         |   |                                  |   |      |   |        |   |
|   from                        operations:                                                  |   |        |   |    |   |         |   |                                  |   |      |   |        |   |     |   |
|     Reserves                        for severance, executive                     |   |   |   |    |   |         |   |                                  |   |      |   |        |   |     |   |        |   |
|         retirements/repositioning                        and |   |   |   |    |   |              |   |                                  |   |      |   |        |   |     |   |        |   |                                  |   |
| related                          costs                                                               |   |   |   |    |   |         |   |                                  |   | $         | 4,303  |        | $      | 2,546    |   | $           | -      |                                  | $      | (6,306 | ) | $ | - |   | $ | 543 |   |
| Accruals                          related to accelerated vesting                                     |   |   |   |    |   |         |   |                                  |   |      |   |        |   |     |   |        |   |                                  |   |   |   |   |   |
| of                          supplemental retirement plan                                             |   |   |   |    |   |         |   |                                  |   |      |   |        |   |     |   |        |   |                                  |   |   |   |   |   |   |   |   |   |   |
| benefits                          and guaranteed bonuses                                             |   |   |   |    |   |         |   |                                  |   |      |   | 318         |   |     | -      |        |   | -                                     |   |   | (318 | ) |   | - |   |   | - |   |
| Impairment                          charges                                                          |   |   |   |    |   |         | -      |                                  |   | 567       |   |        | (567   | )        |   | -           |   |                                  | -      |   |   | - |   |
| Contract                          terminations and settlements                                       |   |   |   |    |   |         | 280    |                                  |   | (346      | )      |        | -      |     |   | (332        | )      |                                  | 400    |   |   | 2 |   |
| Production                          facility closure                                                 |   |   |   |    |   |         | 33     |                                  |   | -         |   |        | -      |     |   | (33         | )      |                                  | -      |   |   | - |   |
|                                                                                                 |   |   |   |    |   |         |   |                                  |   |      |   | 4,934       |   |     | 2,767  |        |   | (567                                  | )      |   | (6,989 | ) |   | 400 |   |   | 545 |   |
| Recorded                          as a component of other expense                                    |   |   |   |    |   |         |   |                                  |   |      |   |        |   |     |   |        |   |                                  |
| following                          income (loss) from operations:                                    |   |   |   |    |   |         |   |                                  |   |      |   |        |   |     |   |        |   |                                  |   |   |
| Impairment                          and related obligations of                                       |   |   |   |    |   |         |   |                                  |   |      |   |        |   |     |   |        |   |                                  |   |   |   |   |   |
| preferred                          security interest                                                 |   |   |   |    |   |         |   |                                  |   |      |   | 3,100       |   |     | -      |        |   | -                                     |   |   | (470 | ) |   | - |   |   | 2,630 |   |
|                                                                                                 |   |   |   |    |   |         |   |                                  |   |      |   |        |   |     |   |        |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Total                                                                                                |   |   |   |    |   |         | $      | 8,034                                 |   | $         | 2,767  |        | $      | (567     | )      | $           | (7,459 | )                                     | $      | 400 |   | $ | 3,175 |   |
|                                                                                                 |   |   |   |    |   |         |   |                                  |   |      |   |        |   |     |   |        |   |                                  |   |   |   |   |   |   |   |   |   |   |

| *thousands*                                                     |   |  Reserve                             |   | 2006      |   | Asset       |   |       |   |     |   |   |   | Reserve                             |   |
|-----------------------------------------------------------------|--------|-------------------------------------------|--------|-----------|--------|-------------|--------|------------|--------|----------|--------|--------|--------|-------------------------------------|--------|
|                                                            |   |  Balance                             |   | Charges   |   | Writedowns/ |   |       |   | Cash     |   |   |   | Balance                             |   |
|                                                            |   |  Feb.                        4, 2006 |   | (Credits) |   | Impairments |   | Recoveries |   | Payments |   |   |   | Feb.                        3, 2007 |   |
| Recorded                        as a component of income (loss) |   |                                 |   |      |   |        |   |       |   |     |   |   |   |                                |   |
| from                        operations:                         |   |                                 |   |      |   |        |   |       |   |     |   |   |   |                                |   |
| Impairment                        charges                       |   | $                                         | -      |      | $      | 179         |   | $          | (179   | )        | $      | -      |   | $                                   | -      |   |   |   | $ | - |   |
| Reserves                        for severance, executive        |   |                                      |   |      |   |        |   |       |   |     |   |   |   |                                |   |   |   |   |
|                          retirements/repositioning and     |   |                                      |   |      |   |        |   |       |   |     |   |   |   |                                |   |   |   |   |   |   |   |
|                          related costs                     |   |                                      | 543    |      |   | 878         |   |       | -      |     |   | -      |   |                                | (972   | ) |   |   |   | 449 |   |
| Strategic                        alternative review costs       |   |                                      | -      |      |   | 183         |   |       | -      |     |   | -      |   |                                | (183   | ) |   |   |   | - |   |
| Contract                        terminations and settlements    |   |                                      | 2      |      |   | -           |   |       | -      |     |   | -      |   |                                | (2     | ) |   |   |   | - |   |
|                                                            |   |                                      | 545    |      |   | 1,240       |   |       | (179   | )        |   | -      |   |                                | (1,157 | ) |   |   |   | 449 |   |
| Recorded                        as a component of other expense |   |                                      |   |      |   |        |   |       |   |     |   |   |   |                                |   |   |   |   |   |   |   |
| following                        income (loss) from operations: |   |                                      |   |      |   |        |   |       |   |     |   |   |   |                                |   |   |   |   |   |   |   |
| Impairment                        and related obligations of    |   |                                      |   |      |   |        |   |       |   |     |   |   |   |                                |   |   |   |   |   |   |   |
|                          preferred security interest       |   |                                      | 2,630  |      |   | -           |   |       | -      |     |   | (887   | )      |                                | (999   | ) |   |   |   | 744 |   |
|                                                            |   |                                      |   |      |   |        |   |       |   |     |   |   |   |                                |   |   |   |   |   |   |   |
| Total                                                           |   | $                                         | 3,175  |      | $      | 1,240       |   | $          | (179   | )        | $      | (887   | )      | $                                   | (2,156 | ) |   |   | $ | 1,193 |   |
|                                                            |   |                                      |   |      |   |        |   |       |   |     |   |   |   |                                |   |   |   |   |   |   |   |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**NOTE            9 - STOCK-BASED COMPENSATION PLANS**

**Stock            Option Plan**

|                                            | 2006                          |   | 2005                          |   | 2004                           |
|-------------------------------------------------|-------------------------------|--------|-------------------------------|--------|--------------------------------|
| Dividend                        yield           | 3.4%                          |   | 3.6%                          |   | 2.9%                           |
| Stock                        volatility factor  | 37.0%                         |   | 31.0%                         |   | 24.0%                          |
| Risk-free                        interest rate  | 3.0%                          |   | 3.0%                          |   | 3.0%                           |
| Expected                        life of options | 1                        year |   | 1                        year |   | 8                        years |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

|                                                                 |   | 2006   |      | 2005      |   | 2004   |   |
|----------------------------------------------------------------------|--------|--------|-----------|-----------|--------|--------|--------|
|                                                                 |   |   |      | Weighted- |   |   |   | Weighted- |   |   |   | Weighted- |   |
|                                                                 |   |   |      | Average   |   |   |   | Average |   |   |   | Average |   |
|                                                                 |   |   |      | Exercise  |   |   |   | Exercise |   |   |   | Exercise |   |
|                                                                 |   | Shares |      | Price     |   | Shares |   | Price |   | Shares |   | Price |   |
| Balance                        at beginning of year                  |   |   | 126,020   |      | $      | 20.02  |   |   | 229,470 |   | $ | 19.28 |   |   | 530,206 |   | $ | 19.17 |   |
| Granted                                                              |   |   | -         |      |   | -      |   |   | - |   |   | - |   |   | 4,968 |   |   | 22.14 |   |
| Cancelled                        or expired                          |   |   | (53,933   | )         |   | 25.75  |   |   | (45,464 | ) |   | 23.73 |   |   | (239,259 | ) |   | 20.76 |   |
| Exercised                                                            |   |   | (37,041   | )         |   | 15.90  |   |   | (57,986 | ) |   | 14.18 |   |   | (66,445 | ) |   | 13.29 |   |
| End                        of year balance                           |   |   | 35,046    |      | $      | 15.56  |   |   | 126,020 |   | $ | 20.02 |   |   | 229,470 |   | $ | 19.28 |   |
|                                                                 |   |   |      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reserved                        for future grant at year-end         |   |   | 1,020,639 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable                                                          |   |   | 35,046    |      | $      | 15.56  |   |   | 126,020 |   | $ | 20.02 |   |   | 229,470 |   | $ | 19.28 |   |
| Fair                        value of options granted during the year |   |   |      |      |   |   |   |   |   |   |   |   |   |   |   |   | $ | 4.29 |   |

|                                            |   | Options                        Outstanding and Exercisable |   |
|-------------------------------------------------|--------|------------------------------------------------------------|--------|
|                                            |   |                                                       |   | Weighted-Average |   |   |   |
|                                            |   |                                                       |   | Remaining                        Contractual |   | Weighted-Average |   |
| Range                        of Exercise Prices |   | Shares                                                     |   | Life                        (Years) |   | Exercise                        Price |   |
|                                            |   |                                                       |   |   |   |   |   |
| $                        12.96                  |   |                                                       | 10,046 |   |   | 3.72 |   | $ | 12.96 |   |
| $                        16.50 - 17.00          |   |                                                       | 25,000 |   |   | 3.18 |   |   | 16.60 |   |
|                                            |   |                                                       |   |   |   |   |   |   |   |   |
| Total                                           |   |                                                       | 35,046 |   |   | 3.34 |   | $ | 15.56 |   |
|                                            |   |                                                       |   |   |   |   |   |   |   |   |

**Restricted            Stock Plan**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

|                                                                                |   | 2006   |    | 2005                                    |   | 2004    |   |
|-------------------------------------------------------------------------------------|--------|--------|---------|-----------------------------------------|--------|---------|--------|
|                                                                                |   | Shares |    | Grant-date                        Value |   | Shares  |   | Grant-date                        Value |   | Shares |   | Grant-date                        Value |   |
| Nonvested                        stock, beginning of year                           |   |   | 29,727  |                                    | $      | 17.20   |   |   | 5,205 |   | $ | 13.45 |   |   | 577 |   | $ | 14.37 |   |
| Granted                                                                             |   |   | 44,207  |                                    |   | 17.75   |   |   | 64,730 |   |   | 16.67 |   |   | 5,205 |   |   | 13.45 |   |
| Vested                                                                              |   |   | (52,223 | )                                       |   | 17.39   |   |   | (37,396 | ) |   | 16.02 |   |   | (577 | ) |   | 14.37 |   |
| Forfeited                                                                           |   |   | (17,263 | )                                       |   | 17.83   |   |   | (2,812 | ) |   | 13.66 |   |   | - |   |   | - |   |
| Nonvested                        stock, end of year                                 |   |   | 4,448   |                                    | $      | 17.99   |   |   | 29,727 |   | $ | 17.20 |   |   | 5,205 |   | $ | 13.45 |   |
|                                                                                |   |   |    |                                    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reserved                        for future grant at year-end                        |   |   | 240,909 |                                    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                |   |   |    |                                    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock-based                        compensation expense related to restricted stock |   |   |    |                                    | $      | 776,088 |   |   |   |   | $ | 727,532 |   |   |   |   | $ | 13,803 |   |
|                                                                                |   |   |    |                                    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Future                        compensation expense related to nonvested stock       |   |   |    |                                    | $      | 78,222  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                |   |   |    |                                    |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

**NOTE            10 - EMPLOYEE BENEFIT PLANS**

| *thousands*                                                       |   | 2006   |   | 2005   |   | 2004   |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| Profit                        sharing                             |   | $      | 442    |   | $      | 506    |   | $ | 405 |   |
| Pension                        plan expense                       |   |   | 1,614  |   |   | 1,412  |   |   | 1,211 |   |
| Supplemental                        retirement plan expense       |   |   | 281    |   |   | 280    |   |   | 841 |   |
| Supplemental                        retirement plan expense -     |   |   |   |   |   |   |   |   |   |   |
| accelerated                        vesting from change of control |   |   | -      |   |   | -      |   |   | 3,338 |   |
| Total                                                             |   | $      | 2,337  |   | $      | 2,198  |   | $ | 5,795 |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |

**Profit            Sharing**

**Defined            Benefit Plans**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

|                                     |   |   |   |       |   | Plan                        Assets at December 31, |   |
|------------------------------------------|--------|--------|--------|------------|--------|----------------------------------------------------|--------|
|                                     |   |   |   | Target     |   |                                               |   |   |   |
| Asset                          Category  |   |   |   | Allocation |   | 2006                                               |   | 2005 |   |
| Equity                        securities |   | 60     | %      |       | 66     | %                                                  |   | 63 | % |
| Debt                        securities   |   | 40     | %      |       | 34     | %                                                  |   | 37 | % |
| Total                                    |   |   |   |       |   | 100                                                | %      |   | 100 | % |   | 100 | % |
|                                     |   |   |   |       |   |                                               |   |   |   |   |   |   |   |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

|                                                            |   | Before                        application |   |        |   | After                        application |   |
|-----------------------------------------------------------------|--------|-------------------------------------------|--------|-------------|--------|------------------------------------------|--------|
|                                                            |   | of                        SFAS 158 at     |   |        |   | of                        SFAS 158 at    |   |
|                                                            |   | February                        3, 2007   |   | Adjustments |   | February                        3, 2007  |   |
| *thousands*                                                     |   |                                      |   |        |   |                                     |   |
|                                                            |   |                                      |   |        |   |                                     |   |
| Other                        assets (long-term)                 |   | $                                         | 1,103  |        | $      | (133                                     | )      | $ | 970 |   |
| Deferred                        income tax assets (long-term)   |   |                                      | 3,794  |        |   | 211                                      |   |   | 4,005 |   |
|                                                            |   |                                      |   |        |   |                                     |   |   |   |   |
| Supplemental                        retirement plan obligations |   |                                      | 3,891  |        |   | (419                                     | )      |   | 3,472 |   |
| Accrued                        pension plan obligations         |   |                                      | 13,526 |        |   | 841                                      |   |   | 14,367 |   |
|                                                            |   |                                      |   |        |   |                                     |   |   |   |   |
| Accumulated                        other comprehensive loss     |   |                                      | 9,043  |        |   | 344                                      |   |   | 9,387 |   |

|            |   |           |   |  Pension                          Plan |   | Supplemental                          Retirement |   |
|-----------------|--------|----------------|--------|---------------------------------------------|--------|--------------------------------------------------|--------|
| *thousands*     |   |  Benefits |   | Plan                          Benefits      |   |
|            |   |           |   |                                   |   |                                             |   |
|  2007      |   |           |   |                                        | $      | 2,100,000                                        |   | $ | 230,000 |   |
|  2008      |   |           |   |                                        |   | 2,200,000                                        |   |   | 180,000 |   |
| 2009            |   |           |   |                                        |   | 2,400,000                                        |   |   | 130,000 |   |
| 2010       |   |           |   |                                        |   | 2,600,000                                        |   |   | 40,000 |   |
| 2011       |   |           |   |                                        |   | 2,700,000                                        |   |   | 60,000 |   |
| 2012-2016  |   |           |   |                                        |   | 14,200,000                                       |   |   | 950,000 |   |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

|                                                                |   |   |   |  Defined                        Benefit Plans |   |
|---------------------------------------------------------------------|--------|--------|--------|----------------------------------------------------|--------|
|                                                                |   |   |   | Pension                        Plan                |   | Supplemental                        Retirement Plan |   |
| *thousands*                                                         |   |   |   | 2006                                               |   | 2005 |   | 2006 |   | 2005 |   |
|                                                                |   |   |   |                                               |   |   |   |   |   |   |   |
| **Projected                        benefit obligation**             |   |   |   |                                               |   |   |   |   |   |
| Benefit                        obligation at beginning of year      |   |   |   |                                               | $      | 52,948 |   | $ | 49,898 |   | $ | 3,777 |   | $ | 4,491 |   |
| Service                        cost                                 |   |   |   |                                               |   | 404 |   |   | 468 |   |   | 76 |   |   | 112 |   |
| Interest                        cost                                |   |   |   |                                               |   | 2,869 |   |   | 2,796 |   |   | 200 |   |   | 249 |   |
| Actuarial                        losses (gains)                     |   |   |   |                                               |   | (2,287 | ) |   | 1,858 |   |   | (68 | ) |   | (86 | ) |
| Benefit                        payments                             |   |   |   |                                               |   | (2,098 | ) |   | (2,072 | ) |   | (283 | ) |   | (989 | ) |
|                                                                |   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Benefit                        obligation at end of year (1) (2)    |   |   |   |                                               | $      | 51,836 |   | $ | 52,948 |   | $ | 3,702 |   | $ | 3,777 |   |
|                                                                |   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| **Fair                        value of plan assets**                |   |   |   |                                               |   |   |   |   |   |   |   |   |
| Fair                        value at beginning of year              |   |   |   |                                               | $      | 33,793 |   | $ | 32,412 |   | $ | - |   | $ | - |   |
| Actual                        return on plan assets                 |   |   |   |                                               |   | 3,777 |   |   | 1,403 |   |   | - |   |   | - |   |
| Employer                        contributions (3)                   |   |   |   |                                               |   | - |   |   | 2,050 |   |   | 283 |   |   | 989 |   |
| Benefit                        payments                             |   |   |   |                                               |   | (2,098 | ) |   | (2,072 | ) |   | (283 | ) |   | (989 | ) |
|                                                                |   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair                        value at end of year                    |   |   |   |                                               | $      | 35,472 |   | $ | 33,793 |   | $ | - |   | $ | - |   |
|                                                                |   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| **Funded                        status**                            |   |   |   |                                               |   |   |   |   |   |   |   |   |
| Funded                        status at end of year                 |   |   |   |                                               | $      | (16,364 | ) | $ | (19,155 | ) | $ | (3,702 | ) | $ | (3,777 | ) |
| Unrecognized                        prior service cost              |   |   |   |                                               |   | 133 |   |   | 177 |   |   | 154 |   |   | 184 |   |
| Unrecognized                        net loss (gain)                 |   |   |   |                                               |   | 13,944 |   |   | 18,305 |   |   | (573 | ) |   | (530 | ) |
|                                                                |   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        amount recognized                        |   |   |   |                                               | $      | (2,287 | ) | $ | (673 | ) | $ | (4,121 | ) | $ | (4,123 | ) |
|                                                                |   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| **Components                        of consolidated balance sheet** |   |   |   |                                               |   |   |   |   |   |   |   |   |
| Accrued                        benefit liability                    |   |   |   |                                               | $      | (16,364 | ) | $ | (17,810 | ) | $ | (3,702 | ) | $ | (4,123 | ) |
| Intangible                        asset                             |   |   |   |                                               |   | - |   |   | 177 |   |   | - |   |   | - |   |
| Accumulated                        other comprehensive loss         |   |   |   |                                               |   | 14,077 |   |   | 16,960 |   |   | (419 | ) |   | - |   |
|                                                                |   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        amount recognized                        |   |   |   |                                               | $      | (2,287 | ) | $ | (673 | ) | $ | (4,121 | ) | $ | (4,123 | ) |
|                                                                |   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |

| (1)   | At                    February 3, 2007 and February 4, 2006, the accumulated benefit                    obligation                    for the pension plan was $51.0 million and $51.6 million,                    respectively. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)   | At                    February 3, 2007 and February 4, 2006, the accumulated benefit                    obligation                    for the supplemental retirement plan was $3.6 million and $3.7                    million,                    respectively. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3)   | For                    the supplemental retirement plan for the fiscal years ended February                    3,                    2007 and February 4, 2006, the employer contributions were financed                    throughthe                    liquidation of investments in the Company’s Rabbi                    Trust. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

|                                                                                                                    |   |                                |   | Supplemental                           |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|----------------------------------------|--------|--------|--------|
| *thousands*                                                                                                             |   | Pension                        Plan |   | Retirement                        Plan |   | Total  |   |
|                                                                                                                    |   |                                |   |                                   |   |   |   |
| Prior                        Service Cost, net of tax:                                                                  |   |                                |   |                                   |   |   |   |
| Unrealized                        losses on net prior service cost, beginning of year                                   |   | $                                   | -      |                                   | $      | -      |   | $ | - |   |
| Net                        prior service cost recorded in accumulated other comprehensive                        loss   |   |                                | 110    |                                   |   | 114    |   |   | 224 |   |
| Recognition                        of net prior service cost in earnings                                                |   |                                | (27    | )                                      |   | (19    | )      |   | (46 | ) |
| Unrealized                        losses on net prior service cost, end of year                                         |   | $                                   | 83     |                                   | $      | 95     |   | $ | 178 |   |
|                                                                                                                    |   |                                |   |                                   |   |   |   |   |   |   |
| Actuarial                        (Gain) Loss, net of tax:                                                               |   |                                |   |                                   |   |   |   |   |   |   |
| Unrealized                        losses (gains) on net actuarial (gain)/loss, beginning of                        year |   | $                                   | 10,533 |                                   | $      | -      |   | $ | 10,533 |   |
| Net                        actuarial gains recorded in accumulated other comprehensive                        loss      |   |                                | (1,191 | )                                      |   | (371   | )      |   | (1,562 | ) |
| Recognition                        of net actuarial (losses)/gains in earnings                                          |   |                                | (680   | )                                      |   | 16     |   |   | (664 | ) |
| Unrealized                        losses (gains) on net actuarial (gain)/loss, end of year                              |   | $                                   | 8,662  |                                   | $      | (355   | )      | $ | 8,307 |   |
|                                                                                                                    |   |                                |   |                                   |   |   |   |   |   |   |

|                                                                  |   |   |   | Pension                        Plan |   | Supplemental                        Retirement Plan |   |
|-----------------------------------------------------------------------|--------|--------|--------|-------------------------------------|--------|-----------------------------------------------------|--------|
| *thousands*                                                           |   |        |   | 2006                                |   | 2005                                                |   | 2004 |   | 2006 |   | 2005 |   | 2004 |   |
|                                                                  |   |   |   |                                |   |                                                |   |   |   |   |   |   |   |   |   |
| Components                        of net periodic benefit cost        |   |   |   |                                |   |                                                |   |   |   |   |   |   |   |
| Service                        cost                                   |   |   |   |                                | $      | 404                                                 |   | $ | 468 |   | $ | 745 |   | $ | 75 |   | $ | 112 |   | $ | 190 |   |
| Interest                        cost                                  |   |   |   |                                |   | 2,869                                               |   |   | 2,796 |   |   | 2,702 |   |   | 200 |   |   | 249 |   |   | 358 |   |
| Expected                        return on plan assets                 |   |   |   |                                |   | (2,799                                              | )      |   | (2,831 | ) |   | (2,934 | ) |   | - |   |   | - |   |   | - |   |
| Amortization                        of prior service cost             |   |   |   |                                |   | 44                                                  |   |   | 44 |   |   | 44 |   |   | 31 |   |   | 31 |   |   | 31 |   |
| Amortization                        of net (gain) loss                |   |   |   |                                |   | 1,096                                               |   |   | 935 |   |   | 654 |   |   | (25 | ) |   | (18 | ) |   | - |   |
| Change                        of control - accelerated vesting        |   |   |   |                                |   | -                                                   |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 3,089 |   |
| Net                        (gain) loss due to settlements             |   |   |   |                                |   | -                                                   |   |   | - |   |   | - |   |   | - |   |   | (94 | ) |   | 31 |   |
| Curtailment                        reduction in transition obligation |   |   |   |                                |   | -                                                   |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 480 |   |
|                                                                  |   |   |   |                                |   |                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        periodic benefit                           | $      | 1,614  |   | $                                   | 1,412  |                                                | $      | 1,211 |   | $ | 281 |   | $ | 280 |   | $ | 4,179 |   |
|                                                                  |   |   |   |                                |   |                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                                  |   |  Pension                        Plan |   |  Supplemental                        Retirement Plan |   |
|-----------------------------------------------------------------------|--------|-------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                                                  |   |  2006                                |   |  2005                                                |   |  2004 |   |  2006 |   |  2005 |   |  2004 |   |
|                                                                  |   |                                      |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average                        assumptions used to determine |   |                                      |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| benefit                        obligations at fiscal year end:        |   |                                      |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Discount                        rate                            |   |                                      | 5.75   | %                                                         |   | 5.50 | % |   | 5.75 | % |   | 5.75 | % |   | 5.50 | % |   | 5.75 | % |
|  Rate                        of increase in future compensation  |   |                                      | 3.00   | %                                                         |   | 3.75 | % |   | 3.75 | % |   | 2.00 | % |   | 2.00 | % |   | 2.00 | % |
| Weighted-average                        assumptions used to determine |   |                                      |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net                        periodic benefit cost:                     |   |                                      |   |                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Discount                        rate                            |   |                                      | 5.50   | %                                                         |   | 5.75 | % |   | 5.75 | % |   | 5.50 | % |   | 5.75 | % |   | 6.00 | % |
|  Expected                        long-term return on plan assets |   |                                      | 8.25   | %                                                         |   | 8.50 | % |   | 8.75 | % |   | N/A |   |   | N/A |   |   | N/A |   |
|  Rate                        of increase in future compensation  |   |                                      | 3.75   | %                                                         |   | 3.75 | % |   | 3.75 | % |   | 2.00 | % |   | 2.00 | % |   | 4.00 | % |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

|                                                    |   |  Pension                          Plan |   | Supplemental                          Retirement Plan |   |
|---------------------------------------------------------|--------|---------------------------------------------|--------|-------------------------------------------------------|--------|
| *thousands*                                             |   |  2006                                  |   | 2005                                                  |   | 2006 |   | 2005 |   |
|                                                    |   |                                   |   |                                                  |   |   |   |   |   |
| Projected                          benefit obligation   |   | $                                           | 51,836 |                                                  | $      | 52,948 |   | $ | 3,702 |   | $ | 3,777 |   |
| Accumulated                          benefit obligation |   |                                        | 50,995 |                                                  |   | 51,603 |   |   | 3,607 |   |   | 3,681 |   |
| Fair                          value of plan assets      |   |                                        | 35,472 |                                                  |   | 33,793 |   |   | - |   |   | - |   |

**NOTE              11- INCOME TAXES **

| *thousands*                                                 |   |   |   |   |   |   |   |
|-------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                        |   | 2006   |   | 2005   |   | 2004   |   |
| Total                        income tax provision (benefit) |   |   |   |   |   |   |   |
| Continuing                        operations                |   | $      | 9,107  |   | $      | 4,388  |   | $ | (2,189 | ) |
| Discontinued                        operations              |   |   | -      |   |   | -      |   |   | (2,201 | ) |
| Total                        income tax provision (benefit) |   | $      | 9,107  |   | $      | 4,388  |   | $ | (4,390 | ) |
|                                                        |   |   |   |   |   |   |   |   |   |   |

| *thousands*                                                 |   |   |   |   |   |   |   |
|-------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                        |   | 2006   |   | 2005   |   | 2004   |   |
| **Federal**                                                 |   |   |   |   |   |   |   |
| Current                                                     |   | $      | (484   | )      | $      | 1,631  |   | $ | 2,801 |   |
| Deferred                                                    |   |   | 8,411  |   |   | 1,793  |   |   | (5,121 | ) |
| Federal                        income tax                   |   |   | 7,927  |   |   | 3,424  |   |   | (2,320 | ) |
|                                                        |   |   |   |   |   |   |   |   |   |   |
| **State**                                                   |   |   |   |   |   |   |   |   |   |   |
| Current                                                     |   |   | 140    |   |   | 51     |   |   | 276 |   |
| Deferred                                                    |   |   | 813    |   |   | 375    |   |   | (648 | ) |
| State                        income tax                     |   |   | 953    |   |   | 426    |   |   | (372 | ) |
|                                                        |   |   |   |   |   |   |   |   |   |   |
| **Foreign**                                                 |   |   |   |   |   |   |   |   |   |   |
| Current                                                     |   |   | 94     |   |   | 353    |   |   | 387 |   |
| Deferred                                                    |   |   | 133    |   |   | 185    |   |   | 116 |   |
| Foreign                        income tax                   |   |   | 227    |   |   | 538    |   |   | 503 |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |
| Total                        income tax provision (benefit) |   | $      | 9,107  |   | $      | 4,388  |   | $ | (2,189 | ) |
|                                                        |   |   |   |   |   |   |   |   |   |   |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

| *thousands*                                                        |   | 2006   |   | 2005   |   | 2004   |   |
|--------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                               |   |   |   |   |   |   |   |
| Tax                        at statutory rate                       |   | $      | 8,648  |   | $      | 3,664  |   | $ | (5,763 | ) |
| State                        income tax, at statutory rate, net of |   |   |   |   |   |   |   |   |   |   |
| federal                        tax expense (benefit)               |   |   | 629    |   |   | 281    |   |   | (246 | ) |
| Tax                        effect of:                              |   |   |   |   |   |   |   |   |   |   |
| Nondeductible                        expenses                      |   |   | 184    |   |   | 158    |   |   | 270 |   |
| Tax                        credits and exclusions                  |   |   | (244   | )      |   | (381   | )      |   | (562 | ) |
| Officers                        life insurance                     |   |   | -      |   |   | -      |   |   | 784 |   |
| Valuation                        allowance                         |   |   | -      |   |   | (289   | )      |   | 3,296 |   |
| Foreign                        taxes                               |   |   | 41     |   |   | 372    |   |   | 308 |   |
| Tax                        settlements                             |   |   | (151   | )      |   | 376    |   |   | (228 | ) |
| Tax                        on earnings repatriation                |   |   | -      |   |   | 242    |   |   | - |   |
| Tax                        benefit of foreign tax deduction        |   |   | -      |   |   | (35    | )      |   | (48 | ) |
| Applicable                        income taxes (benefit)           |   | $      | 9,107  |   | $      | 4,388  |   | $ | (2,189 | ) |
|                                                               |   |   |   |   |   |   |   |   |   |   |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

| *thousands*                                                                                                          |   | 2006   |   | 2005   |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                                                                                 |   |   |   |   |   |
| **Deferred                        tax assets**                                                                       |   |   |   |   |   |
| Federal,                        state and foreign operating and capital loss carryforwards                           |   | $      | 4,577  |   | $      | 11,718 |   |
| Pension                        and supplemental retirement plan benefits                                             |   |   | 6,111  |   |   | 8,008 |   |
| Reserves,                        principally due to accrual for financial reporting                        purposes  |   |   | 3,076  |   |   | 4,128 |   |
| Revenue                        recognition, principally due to SAB 101                                               |   |   | 588    |   |   | 759 |   |
| Federal                        and foreign tax credit carry forwards                                                 |   |   | 2,420  |   |   | 3,229 |   |
|                                                                                                                 |   |   |   |   |   |   |   |
| **Gross                        deferred tax assets**                                                                 |   |   | 16,772 |   |   | 27,842 |   |
|                                                                                                                 |   |   |   |   |   |   |   |
| **Deferred                        tax liabilities**                                                                  |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |
| Property                        and equipment, principally due to differences in                        depreciation |   |   | (4,264 | )      |   | (5,470 | ) |
| Other                                                                                                                |   |   | (87    | )      |   | (87 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |
| **Gross                        deferred tax liabilities**                                                            |   |   | (4,351 | )      |   | (5,557 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |
| Valuation                        allowance                                                                           |   |   | (2,660 | )      |   | (2,660 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |
| **Net                        deferred tax asset**                                                                    |   | $      | 9,761  |   | $      | 19,625 |   |
|                                                                                                                 |   |   |   |   |   |   |   |

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**NOTE            12 - COMMITMENTS AND CONTINGENCIES**

**Operating            Lease Commitments**

| 2007                                          |   | $      | 831    |   |
|-----------------------------------------------|--------|--------|--------|--------|
| 2008                                          |   |   | 414    |   |
| 2009                                          |   |   | 292    |   |
| 2010                                          |   |   | 105    |   |
| 2011                                          |   |   | -      |   |
|                                          |   |   |   |   |
| Total                        minimum payments |   | $      | 1,642  |   |
|                                          |   |   |   |   |

**Standby            Letters of Credit**

**Purchase            Commitments**

| 2007                                          |   | $      | 650    |   |
|-----------------------------------------------|--------|--------|--------|--------|
| 2008                                          |   |   | 545    |   |
| 2009                                          |   |   | 224    |   |
|                                          |   |   |   |   |
| Total                        minimum payments |   | $      | 1,419  |   |
|                                          |   |   |   |   |

**Contingent            Lease Obligations**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**Contingent            Commission Payments**

**Legal            Proceedings**

**NOTE            13 - ASSETS OF BUSINESS TRANSFERRED UNDER CONTRACTUAL            ARRANGEMENTS**

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**NOTE            14- FAIR VALUE OF FINANCIAL INSTRUMENTS**

**Current            Assets and Current Liabilities**

**Deferred            Tax Assets, Customer Deposit Liability and Other Long-Term            Liabilities**

**Property            and Equipment**

**Other            Investments-Supplemental Retirement Plan**

**Long-Term            Debt **

**CPI            CORP.**

**Notes            to Consolidated Financial Statements**

**NOTE            15 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)**

| *thousands,                        except per share data*                                |   | **QUARTER                        ENDED:** |   |
|------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                     |   | April                        29,          |   | July                        22, |   | November                        11, |   | February                        3, |   |
| FISCAL                        YEAR 2006                                                  |   | 2006                                      |   | 2006 |   | 2006 |   | 2007 |   |
|                                                                                     |   | (12                        weeks)         |   | (12                        weeks) |   | (16                        weeks) |   | (12                        weeks) |   |
| Net                        sales                                                         |   | $                                         | 59,670 |   | $ | 56,345 |   | $ | 77,050 |   | $ | 100,738 |   |
| Gross                        margin                                                      |   |                                      | 54,101 |   |   | 50,538 |   |   | 69,208 |   |   | 91,828 |   |
|                                                                                     |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                        earnings (loss)                                               |   |                                      | 1,844  |   |   | 640 |   |   | (951 | ) |   | 14,794 |   |
|                                                                                     |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                        earnings (loss) per share - diluted                           |   | $                                         | 0.29   |   | $ | 0.10 |   | $ | (0.15 | ) | $ | 2.32 |   |
|                                                                                     |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                        earnings (loss) per share - basic                             |   | $                                         | 0.29   |   | $ | 0.10 |   | $ | (0.15 | ) | $ | 2.33 |   |
|                                                                                     |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                        average number of common and equivalent shares - diluted |   |                                      | 6,378  |   |   | 6,369 |   |   | 6,351 |   |   | 6,382 |   |
| Weighted                        average number of common and equivalent shares - basic   |   |                                      | 6,365  |   |   | 6,342 |   |   | 6,351 |   |   | 6,355 |   |

| *thousands,                        except per share data*                                |   | **QUARTER                        ENDED:** |   |
|------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                     |   | April                        30,          |   | July                        23, |   | November                        12, |   | February                        4, |   |
| FISCAL                        YEAR 2005                                                  |   | 2005                                      |   | 2005 |   | 2005 |   | 2006 |   |
|                                                                                     |   | (12                        weeks)         |   | (12                        weeks) |   | (16                        weeks) |   | (12                        weeks) |   |
| Net                        sales                                                         |   | $                                         | 55,804 |   | $ | 54,724 |   | $ | 78,470 |   | $ | 102,986 |   |
| Gross                        margin                                                      |   |                                      | 49,087 |   |   | 47,381 |   |   | 69,514 |   |   | 93,351 |   |
|                                                                                     |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                        (loss) earnings                                               |   |                                      | (2,058 | ) |   | (3,017 | ) |   | (3,097 | ) |   | 14,561 |   |
|                                                                                     |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                        (loss) earnings per share - diluted                           |   | $                                         | (0.26  | ) | $ | (0.38 | ) | $ | (0.39 | ) | $ | 1.84 |   |
|                                                                                     |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                        (loss) earnings per share - basic                             |   | $                                         | (0.26  | ) | $ | (0.38 | ) | $ | (0.39 | ) | $ | 1.85 |   |
|                                                                                     |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                        average number of common and equivalent shares - diluted |   |                                      | 7,810  |   |   | 7,850 |   |   | 7,871 |   |   | 7,905 |   |
| Weighted                        average number of common and equivalent shares - basic   |   |                                      | 7,810  |   |   | 7,850 |   |   | 7,871 |   |   | 7,880 |   |

*Item            9.*
*Changes            in and Disagreements with Accountants on Accounting and Financial            Disclosure*

*Item            9A.*
*Controls            and Procedures*

*Internal            Control - Integrated Framework*

*Internal            Control—Integrated Framework *

*Internal            Control — Integrated Framework *
*Internal            Control — Integrated Framework *

*Item              9B.    Other              Information*

**PART              III**

*Item              10.    Directors,              Executive Officers and Corporate Governance*

*Item              11.    Executive              Compensation*

*Item              12.    Security Ownership of Certain              Beneficial Owners and Management and Related Stockholder              Matters*

| Plan                        Category                    |   | Number                        of securities to be issued upon exercise of outstanding options,                        warrants                        and rights (a) |   | Weighted-average                        exercise price of outstanding options, warrants and rights                        (b) |   |  Number                        of securities remaining available for future issuance under                        equity                        compensation plans (excluding securites reflected in column                        (a))                        (c) |   |
|---------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                    |   |                                                                                                                                                                 |   |                                                                                                                          |   |                                                                                                                                                                                                                                                               |   |   |   |
| Equity                        compensation plans        |   |                                                                                                                                                                 |   |                                                                                                                          |   |                                                                                                                                                                                                                                                               |   |   |   |
| approved                        by security holders     |   |                                                                                                                                                                 | 35,046 |                                                                                                                          | $      | 15.56                                                                                                                                                                                                                                                                   |   |   | 1,270,987 |   | (1 | ) |
| Equity                        compensation plans not    |   |                                                                                                                                                                 |   |                                                                                                                          |   |                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |
| approved                        by security holders (2) |   |                                                                                                                                                                 | -      |                                                                                                                          |   | -                                                                                                                                                                                                                                                                       |   |   | 80,232 |   | (3 | ) |
| Total                                                   |   |                                                                                                                                                                 | 35,046 |                                                                                                                          | $      | 15.56                                                                                                                                                                                                                                                                   |   |   | 1,351,219 |   |   |   |
|                                                    |   |                                                                                                                                                                 |   |                                                                                                                          |   |                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |

| (1)   | Includes                    1,020,639 shares reserved for issuance under the Company’s stock option                    plan, 240,909 shares reserved for issuance under the Company’s restricted                    stock                    plan                    and 9,439 shares reserved for issuance under the Company’s employees’                    profit sharing plan. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)   | The                    only plan not approved by security holders is the Company’s stock bonus                    plan. This plan was enacted in fiscal 1982 and is no longer active.                    The                    remaining awards                    granted under this plan vested in fiscal                    2003. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3)   | Represents                    80,232 shares reserved for issuance under the Company’s inactive stock                    bonus plan. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------|

*Item            13.*
*Certain            Relationships and Related Transaction, and Director            Independence*

*Item            14.*
*Principal            Accounting Fees and Services*

**PART            IV**

*Item            15.*
*Exhibits            and Financial Statement Schedules*

| (1.)   | FINANCIAL                      STATEMENTS |   |                                                                                               |                                                                                         | PAGES  |
|--------|-------------------------------------------|--------|----------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|--------|
|   |                                      |   |                                                                                               |                                                                                         |   |   |   |   |   |   |   |   |
|   |                                      | -      |  Report                    of Independent Registered Public Accounting Firm                   | 32                                                                                           |
|   |                                      | -      |  Consolidated                    Balance Sheets as of February 3, 2007 and February 4, 2006   | 33-34                                                                                        |
|   |                                      | -      |  Consolidated                    Statements of Operations for the fiscal years ended          |                                                                                         |
|   |                                      |   |                                                                                               | February                      3, 2007, February 4, 2006 and February 5, 2005                 | 35     |
|   |                                      | -      |  Consolidated                    Statements of Changes in Stockholders' Equity for the fiscal |                                                                                         |
|   |                                      |   |                                                                                               |  years                    ended February 3, 2007, February 4, 2006 and February 5, 2005 | 36     |
|   |                                      | -      |  Consolidated                    Statements of Cash Flows for the fiscal years ended          |                                                                                         |
|   |                                      |   |                                                                                               |  February                    3, 2007, February 4, 2006 and February 5, 2005             | 37-39  |
|   |                                      | -      |  Notes                    to Consolidated Financial Statements                                | 40-66                                                                                        |

| EXHIBIT |   |                                                                                                                                                                     |   |   |   |   |   |   |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| NUMBER  |   | DESCRIPTION                                                                                                                                                              |   |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (3.1)   |   | Articles                        of Incorporation of the Company, incorporated by reference                        to CPI Corp.'s                        Annual Report    |
|    |   | for                        fiscal year 1989 on Form 10-K, Exhibit 3.1, filed 4/30/90.                                                                                    |   |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (3.2)   |   | By-Laws                        of CPI Corp., restated as of June 7, 2006, incorporated by                        reference to                        CPI Corp.'s         |
|    |   | Form                        10-Q, Exhibit 3.2, filed June 2, 2006.                                                                                                       |   |   |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (4.1)   |   | Form                        of Rights Agreement, Dated as of March 13, 2000 between CPI                        Corp. and                        Harris Trust and         |
|    |   | Savings                        Bank, incorporated by reference to CPI Corp.'s Form 8-A,                        Exhibit 4.5,                        dated March 14, 2000. |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.1)  |   | License                        Agreement Sears, Roebuck & Co. dated 1/1/99, incorporated by reference                        to CPI Corp.'s                          |
|    |   | Annual                        Report for fiscal year 1998 on Form 10-K, Exhibit 10.28,                        filed                        5/5/99.                       |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.2)  |   | Second                        Amendment dated 11/10/99 to License Agreement Sears, Roebuck& Co.,                        incorporated                                 |
|    |   | by                        reference to CPI Corp.'s Form 10-Q, Exhibit 5.1, filed                        12/23/99.                                                        |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.3)  |   | License                        Agreement Sears, Roebuck & Co. (Off Mall) dated 1/1/99, incorporated                        by reference to                           |
|    |   | CPI                        Corp.'s Annual Report for fiscal year 1998 on Form 10-K,                        Exhibit 10.29,                        filed 5/5/99.           |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.4)  |   | Second                        Amendment dated 11/10/99 to License Agreement Sears, Roebuck& Co.                        (Off Mall),                                   |
|    |   | incorporated                        by reference to CPI Corp.'s Form 10-Q, Exhibit 5.2, filed                        12/23/99.                                           |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.5)  |   | License                        Agreement Sears, Roebuck De Puerto Rico, Inc. dated 1/1/99,                        incorporated                        by reference       |
|    |   | to                        CPI Corp.'s Annual Report for fiscal year 1998 on Form 10-K,                        Exhibit                        10.30, filed 5/5/99.        |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.6)  |   | Development                        and License Agreement dated 1/31/01 between Sears, Roebuck & Co.                        and Consumer                         |
|    |   | Programs,                        Incorporated, incorporated by reference to CPI Corp.'s Annual                        Report                        for                  |
|    |   | fiscal                        year 2000 on Form 10-K, Exhibit 10.15, filed 5/3/01.                                                                                       |   |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.7)  |   | Third                        Amendment dated 6/5/02 to Sears License Agreement, incorporated                        by                        reference to               |
|    |   | CPI                        Corp.'s Form 10-Q, Exhibit 10.51, filed 6/7/02.                                                                                               |   |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.8)  |   | Sixth                        Amendment dated 11/20/02 to Sears License Agreement, incorporated                        by                        reference to             |
|    |   | CPI                        Corp.'s Form 10-Q, Exhibit 10.54, filed 12/11/02.                                                                                             |   |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.9)  |   | Third                        Amendment to Sears License Agreement (Off Mall) dated 11/20/02,                        incorporated by                                      |
|    |   | reference                        to CPI Corp.'s Form 10-Q, Exhibit 10.55, filed 12/11/02.                                                                                |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.10) |   | Fourth                        Amendment to Sears License Agreement (Off Mall) dated 11/20/02,                        incorporated by                                     |
|    |   | reference                        to CPI Corp.'s Form 10-Q, Exhibit 10.56, filed 12/11/02.                                                                                |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.11) |   | Fifth                        Amendment to Sears License Agreement (Off Mall) dated 11/20/02,                        incorporated by                                      |
|    |   | reference                        to CPI Corp.'s Form 10-Q, Exhibit 10.57, filed 12/11/02.                                                                                |   |
|    |   |                                                                                                                                                                     |   |   |   |   |   |   |
| (10.12) |   | Sears                        License Agreement dated 1/1/03 by and between Sears, Canada,                        Inc., Sears                        Roebuck &        |
|    |   | Co.                        and CPI Corp. incorporated, by reference to CPI Corp.'s Annual                        Report for                        fiscal year           |
|    |   | 2002                        on Form 10-K, Exhibit 10.64, filed 5/16/03.                                                                                                  |   |   |   |

| EXHIBIT  |   |                                                                                                                                                                        |   |   |   |   |   |   |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| NUMBER   |   | DESCRIPTION                                                                                                                                                                 |   |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.13)  |   | Seventh                        Amendment dated 8/11/03 to Sears License Agreement, incorporated                        by                        reference                  |
|     |   | to                        CPI Corp.'s Form 10-Q, Exhibit 10.69, filed 8/27/03.                                                                                              |   |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.14)  |   | Eighth                        Amendment dated 9/1/03 to Sears License Agreement, incorporated                        by                        reference to                 |
|     |   | CPI                        Corp.'s Form 10-Q, Exhibit 10.70, filed 12/18/03.                                                                                                |   |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.15)  |   | Fourth                        Amendment dated 6/5/02 to License Agreement by and between                        Sears, Roebuck                        and Co.               |
|     |   | and                        CPI Corp., incorporated by reference to CPI Corp.'s Annual                        Report for                        fiscal year 2003             |
|     |   | on                        Form 10-K, Exhibit 10.74, filed 4/22/04.                                                                                                          |   |   |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.16)  |   | Sixth                        Amendment dated 4/29/04 to License Agreement (Off Mall) by                        and between                        Sears,                    |
|     |   | Roebuck                        and Co. and CPI Corp., incorporated by reference to CPI Corp.'s                        Form                        10-Q,                     |
|     |   | Exhibit                        10.83, filed 6/10/04.                                                                                                                        |   |   |   |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.17)  |   | Extension                        dated January 18, 2006 of Sears License Agreement between                        CPI Corp.                        and                      |
|     |   | Sears                        Canada, Inc., incorporated by reference to CPI Corp.'s Annual                        Report                        for                         |
|     |   | fiscal                        year 2005 on Form 10-K, Exhibit 10.58, filed 4/19/06.                                                                                         |   |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.18)  |   | Amendment                        dated August 18, 2006 to Sears License Agreement between                        CPI                        Corp.                           |
|     |   | and                        Sears Canada, Inc., incorporated by reference to CPI Corp.'s                        Form 10-Q,                        Exhibit 10.63,             |
|     |   | filed                        August 25, 2006.                                                                                                                               |   |   |   |   |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.19)* |   | Employment                        Contract Jane E. Nelson dated 2/6/00, incorporated by reference                        to CPI                        Corp.'s              |
|     |   | Annual                        Report for fiscal year 1999 on Form 10-K, Exhibit 10.36,                        filed                        4/26/00.                         |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.20)* |   | CPI                        Corp. 1981 Stock Bonus Plan (As Amended and Restated Effective                        2/3/91),                        incorporated by            |
|     |   | reference                        to CPI Corp.'s Annual Report for fiscal year 1992 on Form                        10-K, Exhibit                        10.29, filed 5/5/93. |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.21)* |   | First                        Amendment to CPI Corp. 1981 Stock Bonus Plan (As Amended                        and Restated                        Effective                  |
|     |   | February                        3, 1991) Effective January 1, 1995, incorporated by reference                        to CPI                        Corp.'s Annual           |
|     |   | Report                        for fiscal year 2000 on Form 10-K, Exhibit 10.30, filed 5/3/01.                                                                               |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.22)* |   | CPI                        Corp. Deferred Compensation and Retirement Plan for Non-Management                        Directors                                              |
|     |   | (Amended                        and Restated as of January 28, 2000), incorporated by reference                        to CPI                        Corp.'s Annual         |
|     |   | Report                        for fiscal year 2000 on Form 10-K, Exhibit 10.31, filed 5/3/01.                                                                               |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.23)* |   | Deferred                        Compensation and Stock Appreciation Rights Plan (Amended                        and Restated as                        of                   |
|     |   | June                        6, 1996), incorporated by reference to CPI Corp.'s Annual                        Report for                        fiscal year 2000             |
|     |   | on                        Form 10-K, Exhibit 10.32, filed 5/3/01.                                                                                                           |   |   |   |
|     |   |                                                                                                                                                                        |   |   |   |   |   |   |
| (10.24)* |   | CPI                        Corp. Stock Option Plan (Amended and Restated Effective as                        of December 16,                        1997),                  |
|     |   | incorporated                        by reference to CPI Corp.'s Annual Report for fiscal year                        2000 on Form                        10-K,              |
|     |   | Exhibit                        10.34, filed 5/3/01.                                                                                                                         |   |   |   |   |

| EXHIBIT  |   |                                                                                                                                                               |   |   |   |   |   |   |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| NUMBER   |   | DESCRIPTION                                                                                                                                                        |   |   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.25)* |   | CPI                        Corp. Key Executive Deferred Compensation Plan (As Amended                        and Restated                        June 6, 1996),    |
|     |   | incorporated                        by reference to CPI Corp.'s Annual Report for fiscal year                        2000 on Form                        10-K,     |
|     |   | Exhibit                        10.36, filed 5/3/01.                                                                                                                |   |   |   |   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.26)* |   | Employment                        Agreement dated 4/8/02 by and between Gary W. Douglass and                        CPI Corp.,                                     |
|     |   | incorporated                        by reference to CPI Corp.'s Annual Report for fiscal year                        2001 on Form                        10-K,     |
|     |   | Exhibit                        10.50, filed 5/1/02.                                                                                                                |   |   |   |   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.27)* |   | First                        Amendment to CPI Corp. Deferred Compensation and Retirement                        Plan for                        Non-management     |
|     |   | Directors                        (As Amended and Restated as of January 28, 2002), incorporated                        by                        reference to      |
|     |   | CPI                        Corp.'s Form 10-Q, Exhibit 10.52, filed 6/7/02.                                                                                         |   |   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.28)* |   | Employment                        Agreement dated 10/21/02 by and between Peggy J. Deal and                        CPI Corp.,                                      |
|     |   | incorporated                        by reference to CPI Corp.'s Form 10-Q, Exhibit 10.58, filed                        12/11/02.                                   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.29)* |   | Employment                        Agreement dated 11/15/02 by and between Thomas Gallahue and                        CPI Corp.,                                    |
|     |   | incorporated                        by reference to CPI Corp.'s Form 10-Q, Exhibit 10.59, filed                        12/11/02.                                   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.30)  |   | First                        Amendment dated 9/30/02 to CPI Corp. Retirement Plan and                        Trust,                        incorporated by         |
|     |   | reference                        to CPI Corp.'s Annual Report for fiscal year 2002 on Form                        10-K, Exhibit                        10.65,      |
|     |   | filed                        5/16/03.                                                                                                                              |   |   |   |   |   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.31)  |   | Second                        Amendment dated 11/29/02 to CPI Corp. Retirement Plan and                        Trust,                        incorporated by       |
|     |   | reference                        to CPI Corp.'s Annual Report for fiscal year 2002 on Form                        10-K, Exhibit                        10.66,      |
|     |   | filed                        5/16/03.                                                                                                                              |   |   |   |   |   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.32)  |   | Third                        Amendment dated 2/6/04 to CPI Corp. Retirement Plan and Trust,                        incorporated by                                 |
|     |   | reference                        to CPI Corp.'s Annual Report for fiscal year 2003 on Form                        10-K, Exhibit                        10.73,      |
|     |   | filed                        4/21/04.                                                                                                                              |   |   |   |   |   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.33)* |   | CPI                        Corp. Restricted Stock Plan as Amended and Restated Effective                        as of April                        14, 2005,       |
|     |   | incorporated                        by reference to CPI Corp.'s Annual Report for fiscal year                        2004 on Form                        10-K,     |
|     |   | Exhibit                        10.86, filed 4/21/05.                                                                                                               |   |   |   |   |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.34)* |   | CPI                        Corp. Performance Plan Adopted Effective as of April 14,                        2005,                        incorporated by reference  |
|     |   | to                        CPI Corp.'s Annual Report for fiscal year 2004 on Form 10-K,                        Exhibit                        10.90, filed 4/21/05. |
|     |   |                                                                                                                                                               |   |   |   |   |   |   |
| (10.35)* |   | CPI                        Corp. Non-Employee Directors Restricted Stock Policy Pursuant                        to the CPI                        Corp.            |
|     |   | Restricted                        Stock Plan Adopted Effective as of April 14, 2005, incorporated                        by                        reference       |
|     |   | to                        CPI Corp.'s Annual Report for fiscal year 2004 on Form 10-K,                        Exhibit                        10.91, filed 4/21/05. |

| EXHIBIT  |   |                                                                                                                                                                      |   |   |   |   |   |   |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| NUMBER   |   | DESCRIPTION                                                                                                                                                               |   |   |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.36)* |   | CPI                        Corp. Non-Employee Directors Restricted Stock Policy (Restricted                        Stock                        Election)                 |
|     |   | Adopted                        by the Company April 14, 2005, incorporated by reference                        to CPI Corp.'s                        Annual Report        |
|     |   | for                        fiscal year 2004 on Form 10-K, Exhibit 10.92, filed 4/21/05.                                                                                   |   |   |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.37)* |   | Restricted                        Stock Award Agreement, incorporated by reference to CPI Corp.'s                        Annual                        Report for         |
|     |   | fiscal                        year 2004 on Form 10-K, Exhibit 10.93, filed 4/21/05.                                                                                       |   |   |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.38)* |   | First                        Amendment to Employment Agreement by and between Consumer                        Programs                        Incorprated                 |
|     |   | and                        Thomas Gallahue, incorporated by reference to CPI Corp.'s                        Annual Report                        for fiscal year          |
|     |   | 2004                        on Form 10-K, Exhibit 10.95, filed 4/21/05.                                                                                                   |   |   |   |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.39)* |   | Employment                        Agreement by and between CPI Corp. and Renato Cataldo, incorporated                        by                        reference          |
|     |   | to                        CPI Corp.'s Form 10-Q, Exhibit 10.102, filed 9/1/05. File                        No.                        1-10204                             |   |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.40)* |   | Stock                        Award and Restriction Agreement by and between CPI Corp.                        and Renato                        Cataldo,                   |
|     |   | incorporated                        by reference to CPI Corp.'s Form 10-Q, Exhibit 10.103, filed                        9/1/05.                                           |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.41)* |   | Confidentiality,                        Noncompetition and Nonsolicitation Agreement by and between                        CPI Corp.                        and           |
|     |   | Renato                        Cataldo, incorporated by reference to CPI Corp.'s Form 10-Q,                        Exhibit                        10.104, filed 9/1/05.    |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.42)* |   | Stock                        Award and Restriction Agreement by and between CPI Corp.                        and Paul                        Rasmussen,                   |
|     |   | incorporated                        by reference to CPI Corp.'s Form 10-Q, Exhibit 10.105, filed                        9/1/05.                                           |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.43)* |   | Confidentiality,                        Noncompetition and Nonsolicitation Agreement by and between                        CPI Corp.                        and           |
|     |   | Paul                        Rasmussen, incorporated by reference to CPI Corp.'s Form                        10-Q, Exhibit                        10.106, filed 9/1/05.    |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.44)  |   | Credit                        Agreement (As Amended and Restated Effective November 30,                        2005) among the                        Company,            |
|     |   | the                        financial institutions that are or may from time to time                        become parties                        thereto and LaSalle      |
|     |   | National                        Bank Association, incorporated by reference to CPI Corp.'s                        Current Report                        on Form 8-K,      |
|     |   | Exhibit                        10.84, filed 12/8/05.                                                                                                                      |   |   |   |   |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.45)  |   | Guaranty                        and Collateral Agreement among CPI Corp. and the other parties                        thereto, as                        guarantors, and  |
|     |   | LaSalle                        Bank National Association, an administrative agent, incorporated                        by                        reference to CPI Corp.'s |
|     |   | Current                        Report on Form 8-K, Exhibit 10.85, filed 12/8/05.                                                                                          |   |   |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.46)* |   | Retention                        agreement, dated as of January 12, 2006, by and between CPI                        Corp. and                        Thomas Gallahue,     |
|     |   | incorporated                        by reference to CPI Corp.'s Current Report on Form 8-K, Exhibit                        10.107,                        filed 1/19/06.  |
|     |   |                                                                                                                                                                      |   |   |   |   |   |   |
| (10.47)  |   | First                        Amendment to Amended and Restated Credit Agreement dated                        as of January 25,                        2006                |
|     |   | (the                        "Credit Agreement"), among the Company, the financial institutions                        that                        are or may from         |
|     |   | time                        to time become parties thereto and LaSalle Bank National                        Association, as                        administrative agent   |
|     |   | and                        arranger for the lenders, incorporated by reference to CPI                        Corp.'s Current                        Report on Form 8-K,   |
|     |   | Exhibit                        10.108, filed 1/26/06.                                                                                                                     |   |   |   |   |

| EXHIBIT |   |                                                                                                                                                             |   |   |        |   |   |   |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| NUMBER  |   |                                                                                                                                                             |   |   | DESCRIPTION |   |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (10.48) |   | Stock                        Award and Restriction Agreement, dated April 6, 2006, by                        and between CPI                        Corp. and    |
|    |   | David                        Meyer, incorporated by reference to CPI Corp.'s Current Report                        on Form                        8-K,           |
|    |   | Exhibit                        10.57, filed 4/12/06.                                                                                                             |   |   |        |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (10.49) |   | First                        Amendment to Employment Agreement, dated as of April 25,                        2006, by and                        between         |
|    |   | Consumer                        Programs Incorporated and Gary W. Douglass, incorporated                        by reference                        to           |
|    |   | CPI                        Corp.'s Form 8-K, Exhibit 10.60, filed May 1, 2006.                                                                                   |   |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (10.50) |   | Letter                        from the Company regarding Supplemental Retirement Benefits,                        dated June                        28, 2006,    |
|    |   | delivered                        to Richard Tarpley, incorporated by reference to CPI Corp.'s                        Form                        8-K,            |
|    |   | Exhibit                        10.61, filed July 5, 2006.                                                                                                        |   |   |        |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (10.51) |   | Letter                        from the Company regarding Supplemental Retirement Benefits,                        dated June                        28, 2006,    |
|    |   | delivered                        to Jane E. Nelson, incorporated by reference to CPI Corp.'s                        Form                        8-K,             |
|    |   | Exhibit                        10.62, filed July 5, 2006.                                                                                                        |   |   |        |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (10.52) |   | First                        Amendment to Retention Agreement, dated as of August 23,                        2006, by and                        between         |
|    |   | Consumer                        Programs Incorporated and Thomas Gallahue, incorporated by                        reference                        to            |
|    |   | CPI                        Corp.'s Form 8-K, Exhibit 10.64, filed August 29, 2006.                                                                               |   |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (10.53) |   | Second                        Amendment to Retention Agreement, dated as of October 26,                        2006, by and                        between       |
|    |   | Consumer                        Programs Incorporated and Thomas Gallahue, incorporated by                        reference                        to            |
|    |   | CPI                        Corp.'s Form 8-K, Exhibit 10.65, filed November 1, 2006.                                                                              |   |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (10.54) |   | Resignation                        Agreement dated as of October 30, 2006, by and between CPI                        Corp.                                       |
|    |   | and                        Paul Rasmussen, incorporated by reference to CPI Corp.'s                        Form                        8-K,                      |   |
|    |   | Exhibit                        10.66, filed November 1, 2006.                                                                                                    |   |   |        |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (11.1)  |   | Computation                        of Earnings Per Share - Diluted                                                                                               |   |   |        |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (11.2)  |   | Computation                        of Earnings Per Share - Basic                                                                                                 |   |   |        |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (21.0)  |   | Subsidiaries                        of the Registrant                                                                                                            |   |   |        |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (23.0)  |   | Independent                        Auditor's Consent                                                                                                             |   |   |        |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (31.1)  |   | Certification                        Pursuant to Rule 13a-14(a) Under the Securities and Exchange                        Act of                        1934      |
|    |   | by                        the President and Chief Executive Officer                                                                                              |   |   |        |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (31.2)  |   | Certification                        Pursuant to Rule 13a-14(a) Under the Securities and Exchange                        Act of                        1934      |
|    |   | by                        the Executive Vice President, Finance and Chief Financial                        Officer                                               |   |
|    |   |                                                                                                                                                             |   |   |        |   |   |   |
| (32.0)  |   | Certification                        Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to                        Section 906 of                        the |
|    |   | Sarbanes-Oxley                        Act of 2002 by the President and Chief Executive Officer                        and                        the             |
|    |   | Executive                        Vice President, Finance and Chief Financial Officer                                                                             |   |   |

SIGNATURES

|         |                                                                        |                                       |
|--------------|-----------------------------------------------------------------------------|--------------------------------------------|
|         | **CPI                    Corp.**                                            |
|    |                                                                   |                                  |
|         | By:                                                               | /s/ Renato                    Cataldo |
|         | Renato                    Cataldo                                           |
|         | President                    and                    Chief Executive Officer |

|  **Signature** |                                           | **Title**                                        |                                                           | **Date**                                                  |
|---------------------|------------------------------------------------|--------------------------------------------------|----------------------------------------------------------------|-----------------------------------------------------------|
|                |                                           |                                             |                                                           |                                                      |   |   |
| /s/                 | Renato                          Cataldo        |                                             | President                          and Chief Executive Officer |                                                      | April                          16, 2007 |
|                |                                           | (Renato                          Cataldo)        |                                                           |                                                      |   |   |
|                |                                           |                                             |                                                           |                                                      |   |   |
| /s/                 | David                          M. Meyer        |                                             | Chairman                          of the Board of Directors    |                                                      | April                          16, 2007 |
|                |                                           | (David                          M. Meyer)        |                                                           |                                                      |   |   |
|                |                                           |                                             |                                                           |                                                      |   |   |
| /s/                 | James                          J. Abel         |                                             | Director                                                       |                                                      | April                          16, 2007 |
|                |                                           | (James                          J. Abel)         |                                                           |                                                      |   |   |
|                |                                           |                                             |                                                           |                                                      |   |   |
| /s/                 | Michael                          S. Koeneke    |                                             | Director                                                       |                                                      | April                          16, 2007 |
|                |                                           | (Michael                          S. Koeneke)    |                                                           |                                                      |   |   |
|                |                                           |                                             |                                                           |                                                      |   |   |
| /s/                 | Mark                          R. Mitchell      |                                             | Director                                                       |                                                      | April                          16, 2007 |
|                |                                           | (Mark                          R. Mitchell)      |                                                           |                                                      |   |   |
|                |                                           |                                             |                                                           |                                                      |   |   |
| /s/                 | John                          Turner White, IV |                                             | Director                                                       |                                                      | April                          16, 2007 |
|                |                                           | (John                          Turner White, IV) |                                                           |                                                      |   |   |
|                |                                           |                                             |                                                           |                                                      |   |   |
| /s/                 | Gary                          W. Douglass      |                                             | Executive                          Vice President, Finance     |                                                      | April                          16, 2007 |
|                |                                           | (Gary                          W. Douglass)      |                                                           | and                          Chief Financial Officer      |   |   |
|                |                                           |                                             |                                                           |                                                      |   |   |
| /s/                 | Dale                          Heins            |                                             | Vice                          President, Corporate Controller  |                                                      | April                          16, 2007 |
|                |                                           | (Dale                          Heins)            |                                                           | and                          Principal Accounting Officer |   |   |