UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED FEBRUARY 7, 2004

OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10204

CPI Corp.
(Exact name of registrant as specified in its charter)

314/231-1575
(Registrant’s telephone number, including area code: )

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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 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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

|X| Yes |_| No

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the New York Stock Exchange on April 16, 2004, of $18.00 was $141,969,402.

The number of shares outstanding of each of the registrant’s classes of Common Stock, as of April 16, 2004 was: Common Stock, par value $.40 – 8,108,897

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement relating to the Annual Meeting Of Shareholders to be held July 22, 2004 are incorporated by reference into Part III of this Report.

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TABLE OF CONTENTS

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THE STATEMENTS CONTAINED IN THIS REPORT, AND IN PARTICULAR IN THE “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” SECTION THAT ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995, AND INVOLVE RISKS AND UNCERTAINTIES. MANAGEMENT WISHES TO CAUTION THE READER THAT THESE FORWARD-LOOKING STATEMENTS, SUCH AS THE COMPANY’S OUTLOOK FOR PORTRAIT STUDIOS, FUTURE CASH REQUIREMENTS, COMPLIANCE WITH DEBT COVENANTS, VALUATION ALLOWANCES, AND CAPITAL EXPENDITURES, ARE ONLY PREDICTIONS OR EXPECTATIONS; ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY AS A RESULT OF RISKS FACING THE COMPANY. SUCH RISKS INCLUDE, BUT ARE NOT LIMITED TO: CUSTOMER DEMAND FOR THE COMPANY’S PRODUCTS AND SERVICES, THE OVERALL LEVEL OF ECONOMIC ACTIVITY IN THE COMPANY’S MAJOR MARKETS, COMPETITORS’ ACTIONS, MANUFACTURING INTERRUPTIONS, DEPENDENCE ON CERTAIN SUPPLIERS, CHANGES IN THE COMPANY’S RELATIONSHIP WITH SEARS AND THE CONDITION AND STRATEGIC PLANNING OF SEARS, FLUCTUATIONS IN OPERATING RESULTS, THE ATTRACTION AND RETENTION OF QUALIFIED PERSONNEL AND OTHER RISKS AS MAY BE DESCRIBED IN THE COMPANY’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THIS FORM 10-K FOR THE YEAR ENDED FEBRUARY 7, 2004.

PART I

Item 1. Business

An Overview of the Company

CPI Corp. (“CPI”, the “Company” or “we”), a Delaware corporation formed in 1982, is a long-standing leader in the professional portrait photography of young children and families. From the single studio opened by its predecessor company in 1942, we have grown to 1,018 studios throughout the United States, Canada and Puerto Rico under license agreements with Sears, Roebuck and Co. (“Sears”). Our position in the top tier of the estimated $1.2 billion pre-school photography market is based on our revenues, which exceeded $301 million in fiscal year 2003, when our photographers captured approximately 4.6 million sittings. Management has determined that the Company operates in one segment offering similar products and services in all locations.

We have provided professional portrait photography for Sears customers since 1959 and have been the exclusive Sears portrait studio operator since 1986. Studios are located in all fifty states, Canada and Puerto Rico. Operations in the United States and Puerto Rico are conducted through the Company’s subsidiaries, Consumer Programs Incorporated and CPI Images, LLC, and a partnership, Texas Portraits, L.P. (owned by Consumer Programs Incorporated and another subsidiary, Consumer Programs Partner, Inc.), pursuant to a license agreement with Sears. Approximately $72.3 million of long-lived assets are used in our domestic operations as of February 7, 2004.

In Canada, we operate 119 Sears Portrait Studios through CPI Corp., which was originally organized under the laws of Ontario and which we reorganized under Nova Scotia law at the end of fiscal 2002. With 2003 sales of $22.1 million generated from 448,000 sittings, Canadian studios accounted for 7.3% of our revenues and 9.6% of annual sittings. Long-lived assets employed in the Company’s Canadian operations at February 7, 2004 amounted to $1.7 million.

In late February 2003, we launched our Mexican portrait studio business. CPI Portrait Studios de Mexico, S. de R. L. de C. V., a limited liability company owned by Consumer Programs Incorporated and Consumer Programs Partner, Inc., was established to operate the Company’s studios in Mexico. As of February 7, 2004, our Mexican operations consisted of 18 portrait studios which generated $731,000 from 18,000 sittings during 2003. Long-lived assets employed in the Company’s Mexican operations at February 7, 2004 amounted to $1.3 million.

During the first quarter of 2003, we also launched our mobile photography operations through CPI Images, LLC, doing business as Everyday Expressions™, which currently offers mobile photography services to childcare centers,

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youth sports associations and events in 26 markets throughout the United States. Our mobile photography division generated $1.9 million in revenues during 2003 from 53,000 sittings.

We sold our wall décor business, operated by Prints Plus, Inc., to that company’s management in July 2001. In 2002, we continued our efforts to focus on maximizing the potential of our core photography business by eliminating our technology development segment, which was launched in 2001. Operating through a subsidiary, Centrics Technology, Inc., the segment offered software development and systems consulting for third parties, in addition to continuing the software development historically performed for the Sears Portrait Studios. Near the end of 2002, we reintegrated the portion of the segment dedicated to software development for the portrait studios with our corporate information technology function and discontinued the sale of consulting and software development to third parties. Further financial information on continuing and discontinued operations of the Company appears in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Part II, Item 8. “Financial Statements and Supplementary Data”.

In addition, during 2002 we integrated searsphotos.com, the online photofinishing service previously operated through the technology development segment, with the studio operations. Our searsphotos.com team is also engaged in developing other on-line products and services for portrait studio customers and it supports the vehicle for sharing portraits via email and ordering additional portraits and products. Information about our portrait studios and special offers are available through the www.searsportraits.com website. In 2003, revenues from on-line sales and services were approximately $2.5 million.

The Company’s Products and Services

We offer Sears Portrait Studio customers a wide range of choices. They may select a “package” sitting or a “custom” sitting. The package sitting includes a fixed number of portraits, all of the same pose, for a fixed, relatively low price and a sitting fee of $9.99 per person in the portrait. Package customers may purchase additional portrait sheets at an additional cost. Mothers of very young children who need a lot of portraits often prefer this kind of offer. A custom sitting offers portraits by the sheet, a variety of poses and backgrounds, and an unlimited number of people in the portrait for a session fee of $14.99. Families with two or more children or those who want a mix of group and individual poses frequently prefer this offer. Customers who enroll in the Company’s Smile Savers Plan® for a one-time fee of $29.99 pay no sitting or session fees for two years. We designed this plan to promote loyalty and encourage frequent return visits.

After the customer selects a package or custom session and their preferred backgrounds, the photographer captures images of multiple poses. Our Portrait Preview System allows customers to view each image as it is captured and accept or reject each pose while they are still in the camera room. After the image capture portion of the portrait session is completed, the images are transferred to a monitor at a sales table where customers can view each image and order portraits in the sizes they need, as well as other products, such as greeting cards. At the sales table, a studio associate reviews the images captured with the customer and describes product options, such as digitally enhanced products (black and white, sepia, color accents, etc.) and digital collages featuring multiple poses and a customized message. Customers may take the portrait collage home when they leave the studio on the day of the sitting. They may also purchase a full color proof sheet to take home as soon as the sitting is completed. Other products available from the studio are portraits on disk, passport photos and accessories such as frames and photo albums.

The customer’s order is transmitted electronically to one of our processing facilities in St. Louis, Missouri; Thomaston, Connecticut or Brampton, Ontario, Canada and the film is then shipped to the applicable processing facility. At the end of fiscal 2002, the Company closed a fourth processing facility located in Las Vegas, Nevada, following a comprehensive review that identified excess manufacturing capacity. We complete the customer’s orders to their specifications and return them to the studio for pick-up approximately 2 1/2 weeks after the order.

Our Mexican studio operations also offer customers the choice of a “package” or a “custom” sitting. The same products and services offered to our Sears Portrait Studios customers are offered to our Mexican patrons. Everyday Expressions™ customers may choose from a variety of “package” sittings as well as adding additional portrait sheets

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to their order at an additional cost per sheet. Everyday Expressions™customers’ images are also uploaded to our website, everydayexpressions.com, where friends and family can also view and order portraits. Personalized keepsakes and gifts, such as photo t-shirts, mugs, mouse pads, magnets, etc. are also available to purchase on-line. As of February 7, 2004, in approximately 630 studios, we can upload images captured in a Sears Portrait Studio session to our searsphotos.com website. With a code and individualized passwords, our customers can view the images from home and share them via email with friends and family. Any recipient of the on-line images may place orders for additional portraits from home, as well as other portrait related gifts such as personalized t-shirts, mugs, mouse pads and more.

The Company’s Relationship with Sears

We have enjoyed a strong relationship with Sears for more than 40 years under a series of license agreements. Over that period, except in connection with Sears store closings, Sears has never terminated the operation of any of our studios. While we are materially dependent on a continuing relationship with Sears, we have no reason to believe that Sears will terminate or materially reduce the scope of our license.

As a Sears licensee, we enjoy the benefits of using the Sears name, access to prime retail locations, Sears’ daily cashiering and bookkeeping system, store security services and Sears’ assumption of credit card fees and credit and check authorization risks. Our customers have the convenience of using their Sears credit cards to purchase our products or services.

As of February 7, 2004, the Company operated 854 studios in full-line Sears stores in the United States under a license agreement that runs through December 31, 2008. Under this agreement, we pay Sears a license fee of 15% of total annual net sales for studios located in Sears stores. The agreement defines net sales as gross sales less customer returns, allowances and sales taxes. We provide all studio furniture, equipment, fixtures, leasehold improvements and advertising, and we are responsible for hiring, training and compensating our employees. We have agreed to indemnify Sears against claims arising from our operation of Sears Portrait Studios.

On August 14, 2003, the Company announced the execution of an amendment to its agreement with Sears eliminating the then existing exclusivity provision from that agreement which effectively precluded us from providing other non-Sears portrait studios photography services in the United States. In return for the removal of the exclusivity provision, the Company, upon certain conditions, has agreed to provide Sears with certain commission adjustments (the “Contingent Payments”) through 2008, the remaining term of the current agreement. The Contingent Payments are triggered only if the Company operates more than 24 domestic non-Sears portrait studios and the rate of growth in total contractual commissions paid to Sears by the Company under the pre-existing agreement does not exceed Sears’ same-store revenue growth rate by specified percentages, up to a maximum of 2%. If both of the above mentioned conditions occur, the Contingent Payments are determined by a formula included in the amendment to the agreement, however, in no event shall such payments exceed $2.5 million annually or $7.5 million cumulatively over the remaining five-year term of the agreement. No domestic non-Sears portrait studios were opened in 2003 and thus no contingent payments were made.

As of February 7, 2004, we operated 45 freestanding studios in the United States under the Sears name in locations not within a Sears store. The Company pays Sears a license fee of 7.5% of total annual net sales per studio in these locations. We pay rent and utilities at each of these locations and provide all studio furniture, equipment, fixtures, leasehold improvements and advertising. We are also responsible for hiring, training and compensating our employees. These studios benefit from the use of the Sears name and Sears’ payment for credit card fees and check clearance systems.

All 119 Canadian studios operate under a license agreement with Sears Canada, Inc., a subsidiary of Sears. Until January 1, 2003, an agreement negotiated in 1977 renewed automatically on a year-to-year basis but was terminable by either party on 60 days’ notice. As of January 1, 2003, a three-year agreement governs our Canadian studio operations. The license fee under the former agreement was 15% of total annual net sales through December 31,

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2002. For 2003, the license fee is the greater of $4.4 million or 13% of the first $30 million in Canadian dollars of annual net sales and 8% of annual net sales above $30 million. In 2004 and 2005, the license fee will be 13% of the first $30 million annual net sales and 8% for annual net sales greater than $30 million. For 2003 through 2005, we will pay a commission equal to 5% of annual net sales for sales made in the two Canadian studios that are not located in full-line Sears stores. The Company provides all studio furniture, equipment, fixtures, leasehold improvements and advertising and is responsible for hiring, training and compensating our employees. In freestanding locations, we also pay rent and utilities and other common area charges.

Industry Background and Competition

Through our relationship with Sears, we have been in the forefront of developing the now highly competitive professional portrait photography market. Although our primary portrait subjects are pre-school children, we also attract families, school-age children and adults. Since approximately 1990, the mass-market professional portrait studio industry has grown increasingly competitive in the United States as the number of permanent studios grew from approximately 2,555 (including 867 Sears Portrait Studios) to approximately 4,805 (including 902 Sears Portrait Studios) in 1996. As of February 7, 2004, there were approximately 4,363 studios. Despite the net decrease of approximately 442 studios from the 1996 peak to the February 7, 2004 number of 4,363 studios, the competitive landscape has intensified with the entrance during that time period of new competitors, including, among others, Target Stores operated by Life Touch and the freestanding Picture People studios. In addition, during the same time period, Wal-Mart studios operated by PCA, have grown dramatically while there have been substantial declines in the number of K-Mart studios (operated by PCA until late 1999 and then by Olan Mills continuing to date) and Olan Mills freestanding studios.

The rapid expansion has been supported by very competitive offers featuring large packages of portraits for a small, fixed price. We responded initially with promotional pricing to maintain market share and shortly thereafter with technological advances to distinguish our products and services and studio expansion and remodeling. By the end of the nineties, we had invested approximately $150 million, primarily to support new technology-based products and to remodel and expand more than 600 studios in the U.S. from an average of 800 square feet to approximately 1,400 square feet. Studios operated by competitors range from one camera room with a small waiting and sales area to more spacious locations with multiple camera rooms and sales areas, such as ours.

The four major participants in the preschool portrait segment of the industry continue to compete on the basis of price, service, quality, location and product mix. They commonly feature large, very low-priced packages in weekly mass marketing campaigns. In addition to CPI, the largest players in our industry are PCA, which operates studios principally in Wal-Mart stores, LifeTouch, which provides portrait services in J.C. Penney and Target stores and Olan Mills, which operates studios in Kmart. The Picture People and Olan Mills operate freestanding studios. Independent photographers comprise most of the balance of the competition. Most of the major competitors have eliminated any charge for the portrait capture (generally characterized as a sitting fee or a shipping and handling fee). Except for targeted promotions to new mothers, we have not followed this practice because we believe the sitting or session fee is justified by the professionalism of our photographers and the quality of our equipment and the studio environment. Further, we believe that our sitting and session fees are a very good value that is recognized by our customers. Similarly, while our products are competitively priced, they are not the lowest priced in the industry.

With more than $301 million in sales in 2003 and an average sale of $63.94 per customer sitting, we believe we are in the top revenue tier of the estimated $1.2 billion preschool portrait industry.

To sustain our competitive position in the industry, we are engaged in continuing efforts to improve the quality of the customer experience, expand and enrich the products we offer to our customers and diversify our customer base.

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Seasonality and Inflation

Our business is seasonal, with the largest volume occurring in the fourth fiscal quarter, between Thanksgiving and Christmas. For fiscal years 2003, 2002 and 2001, fourth quarter sales accounted for 34%, 36% and 35%, respectively, of total net sales for the year and all of the net earnings for the year. In addition, the timing of Easter, a seasonally important time for portraiture sales, has a significant impact on the timing of recognition of sales revenues between the Company’s first and second fiscal quarters. Most of the Company’s Easter-related sales in 2003, a late Easter, were recognized as revenues, in accordance with the Company’s revenue recognition policies reflected in Note 1 of the Notes to the Consolidated Financial Statements, in the second fiscal quarter while such sales in 2002 and 2001, both earlier Easters, were principally recognized in the first fiscal quarter.

The moderate rate of inflation over the past three years has not had a significant effect on the Company’s revenues and profitability.

Suppliers

To ensure consistent, high quality finished portraits, we purchase photographic paper, film and portrait processing chemistry from three major manufacturers. Eastman Kodak provides photographic paper and film for all Sears Portrait Studios pursuant to an agreement in effect through December 31, 2004. Dye sublimation paper used for proof sheets and portrait collages delivered at the end of a sitting is provided by Sony, and we purchase portrait processing and finishing chemistry from Fuji-Hunt. We purchase camera and lens components, monitors, computers, printers and other equipment and materials from a number of leading suppliers, including Dell Inc. as of January 30, 2004.

Historically, with the exception of certain replacement parts for equipment utilized in our studios further discussed below, we have not encountered difficulty in obtaining equipment and materials in the quantity and quality we require and we do not anticipate any problems in obtaining our requirements in the future. We enjoy good relationships with our vendors.

The aging equipment in our studios has created difficulties in acquiring replacement parts and repairing those in the event equipment fails. Parts for our film cameras, studio computers and printers are increasingly difficult to find or are no longer produced. We have internalized most all repairs for our studio equipment. Our expansion into Mexico combined with depleting inventories of parts in 2003 has caused us to shut down low volume camera rooms in 2004 in order to reclaim parts. We have continued to build an internal knowledge base and repair capabilities to support our current studio equipment. To further address this situation, the Company and its new Board of Directors are currently reviewing options to transition to full digital technology.

Intellectual Property

We own numerous registered service marks and trademarks, including Portrait Creations® and Smile Savers Plan®, which have been registered with the United States Patent and Trademark Office. Our rights to these trademarks in conjunction with our operation of Sears Portrait Studios will continue as long as we comply with the usage, filing and other legal requirements relating to the renewal of trademarks.

The Company’s Employees

As of February 7, 2004, we had approximately 7,300 employees, including approximately 4,500 part-time and temporary employees.

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The Company Website and Periodic Reports

Our Annual Reports on Form 10-K, including this Form 10-K, as well as our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports are available, free of charge, on the Investor Relations portion of our website, www.cpicorp.com. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. References to the Company’s website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document.

Environmental Regulation

Our operations are subject to commonly applicable environmental protection statutes and regulations. We do not expect that compliance with federal, state and local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment will have a material effect on our capital expenditures, earnings, or competitive position. At present, we have not been identified as a potentially responsible party under the Comprehensive Environmental Responses, Compensation and Liability Act and have not established any reserves or liabilities relating to environmental matters.

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Item 2. Properties

        The following table sets forth certain information concerning the Company’s principal facilities:

As of February 7, 2004, the Company operated 854 portrait studios in Sears stores in the United States pursuant to the license agreements with Sears and 119 studios in Canada under a separate license agreement with Sears Canada, Inc. The Company pays Sears a license fee of 15% of total annual net sales for studios located in Sears stores in the United States. Effective January 1, 2003, the license fee for Canadian studios is 13% of the first $30 million in Canadian dollars in annual net sales and 8% of annual net sales in excess of $30 million. For 2003 only, the Company paid $4.4 million in Canadian dollars in license fees for Canadian sales, the minimum called for under the revised agreement. This license fee covers the Company’s use of space in the Sears stores, the use of Sears’ name and related intellectual property, and all services provided by Sears. No separate amounts are paid to Sears expressly for the use of space. The Company operates 48 portrait studios in shopping centers that do not have Sears stores, which are generally leased for at least three years with some having renewal options. The Company also operates 18 portrait studios in Mexico. The leased studio space in Mexico is generally under one year leases with renewal options. See Part I, Item 1. “BUSINESS, The Company’s Relationship with Sears” for more information on the Sears license agreements.

The Company believes that the facilities used in its operations are in satisfactory condition and adequate for its present and anticipated future operations.

The Company’s physical properties owned or leased are all considered commercial property.

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Item 3. Legal Proceedings

There are various suits pending against the Company, none of which are material in nature. It is the opinion of management that the ultimate liability, if any, resulting from such suits will not materially affect the consolidated financial position or results of operations of the Company.

Item 4. Results of Votes of Security Holders

On November 6, 2003, a group of stockholders led by the Knightspoint Partners I, L.P. (the “Knightspoint Group”) filed with the SEC preliminary consent materials relating to their commencement of a solicitation of the Company’s stockholders. The purpose of the consent solicitation was to, among other things, remove seven of the nine members of the Company’s Board of Directors, decrease the size of the Board to eight directors and elect six Knightspoint Group nominees to the Board. In addition, consent was also solicited for the following actions: amend the Company’s Amended By-Laws to authorize stockholders who own, individually or in the aggregate, 25% or more of the Company’s outstanding common stock, to call a special meeting of stockholders; amend the Company’s Amended By-Laws to provide that any vacancies in the board of directors resulting from stockholder action may be filled only by the stockholders, and may not be filled by the directors, until at least 20 days after creation of such vacancy; and repeal any amendments, if any, to the Company’s Amended By-Laws adopted by the board of directors after September 1, 2003, or adopted prior thereto but not publicly disclosed prior to November 1, 2003, and prior to the effective date of the stockholder consents solicited by this Consent Statement.

Knightspoint Group’s definitive consent solicitation materials dated January 23, 2004 also stated the belief that, if elected, the Knightspoint Group’s nominees would consider taking the following actions:

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On November 24, December 10, December 23, 2003 and January 8, January 15 and January 20, 2004, the Knightspoint Group filed with the SEC amended preliminary consent solicitation materials.

On January 23, 2004, Knightspoint Group filed with the SEC definitive consent solicitation materials. Also on this date, Knightspoint Partners I, L.P., as a record holder of the Company’s common stock, requested that the Company’s board fix a record date for this consent solicitation. The consent statement and white consent cards were first furnished to stockholders of the Company on or about this date.

On February 2, 2004, the Company announced that its Board of Directors set a record date in response to the Knightspoint Group’s request in connection with the consent solicitation. In accordance with CPI bylaws and applicable law, the Board set February 12, 2004 as the record date.

On March 18, 2004, the Knightspoint Group announced that it delivered to CPI Corp. written consents from holders of a majority of CPI’s outstanding common stock consenting to the election of the Knightspoint Group’s nominees for director of CPI and the adoption of the Group’s proposals included in such consents. On March 18, 2004, CPI Corp. appointed an independent inspector of elections to review the consents and to make a determination as to their number and validity. The Company received the independent inspector’s determination on March 24, 2004.

Out of 8,067,735 shares of common stock entitled to vote on Knightspoint Group’s consent solicitation, 4,574,712 shares were represented.

The results of voting on the following items were as set forth below:

This proposal was approved by the stockholders.

This proposal was approved by the stockholders.

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This proposal was approved by the stockholders.

This proposal was approved by the stockholders.

This proposal was approved by the stockholders.

This proposal was approved by the stockholders.

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PART II

Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters

Price Range of Common Stock and Dividends

Since April 17, 1989, the Company’s common stock has been traded on the New York Stock Exchange under the symbol CPY.

The following tables set forth the high and low sales prices of the common stock reported by the New York Stock Exchange and the dividends declared for each full quarterly period during the Company’s last two fiscal years.

Shareholders of Record

As of April 16, 2004, the market price of the Company’s common stock was $18.00 per share with 8,108,897 shares outstanding and 1,576 holders of record.

Dividends

The Company intends, from time to time, to pay cash dividends on its common stock, as its Board of Directors deems appropriate, after consideration of the Company’s operating results, financial condition, cash requirements, general business conditions and such other factors as the Board of Directors deems relevant. On June 3, 2003, the Company announced that its Board of Directors approved a 14% increase in the annual dividend rate paid on the Company’s common stock from $.56 per share to $.64 per share effective with the third quarter 2003 dividend payment.

Sales of Securities Other Than Sales of Equity Securities

Between February 7, 1999 and June 28, 2001, the Company sold 206,070 shares of its common stock, par value $0.40 per share to an aggregate of ten senior executives. No underwriter was involved in the sale. All shares were issued for cash pursuant to the exercise of options granted under the CPI Corp. Voluntary Stock Option Plan, which was approved by shareholders in 1993.

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The options and shares were issued pursuant to Rule 505 of Regulation D, to a group of executives who were primarily accredited investors. The Company filed a Form D with the SEC in 1993. The options had a term of eight years, with a three-year vesting period. During this period, 24,250 options were exercised at $15.50 per share and 181,820 options were exercised at $18.375 per share. The proceeds received by the Company from the option exercises during this period totaled $3,716,818, which the Company used for general corporate purposes.

Options to purchase common shares of the Company have been granted to employees under various stock-based compensation plans. The following table summarizes the number of stock options issued, the weighted-average exercise price and the number of securities remaining to be issued under all outstanding equity compensation plans as of February 7, 2004.

On August 14, 2003, the Board of Directors terminated the Company’s voluntary stock option plan. The plan termination includes provisions for the retirement and cancellation of all options authorized under the plan not previously awarded. The plan originated in 1993 and options were granted under the plan in 1993 and in 1994. As of February 7, 2004, all previously awarded voluntary options had been exercised, had expired or had been cancelled.

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