Premier Exhibitions: Staying Alive

One smallcap stock that I have been watching closely is Premier Exhibitions Inc. (PRXI). While you may not be aware of the company by name, you have probably seen or heard of its exhibits. “Bodies…The Exhibition” uses real human cadavers in a special preservation process to show the internal workings of the body. Premier also owns the salvor-in-possession rights to the Titanic wreck, which has also become a touring exhibit.

If you follow the top percentage losers, Premier Exhibitions may have shown up on your watch list in the past week. Dropping from $8.67 (Jan 8, 2008) a share overnight to a low of $5.60 (Jan 9, 2008), the stock has seen better days. In fact, the stock hasn’t been this low since the end of 2006. So the question is what caused the stock to hit an iceberg.

The answer unfortunately is one the street is rather familiar with - they are expecting to miss earnings. Guidance has suggested that fiscal year earnings will be 38 cents to 46 cents a share, compared with a 58 cents a share analyst consensus. Meanwhile, the Chief Financial Officer announced his resignation during this turmoil, citing that the company needs a CFO who lives closer to the corporate headquarters.

Management has suggested customs problems and sparse ticket sales as to why revenue has fallen short. “Bodies…The Exhibition” was supposed to be shown in Saint Petersburg, Russia. Unfortunately, the bodies never quite got past the government, who held them for 6 months before returning them to Premier. Likely, the controversial nature of the exhibit was just too much for the former communist state.

The Russia debacle may show the lack of due diligence on the part of management. Announcing an exhibit in a country without fully being aware of the logistical issues led to losing out on 2 cents per share in earnings. There is a large opportunity cost of having the exhibit in storage in a Russian airport hangar instead of being exhibited elsewhere.

Concurrently, Premier experienced several exhibits in the United States with less than expected attendance. Specifically, these cities were Branson, Missouri; Columbus, Ohio; and Framingham, Massachusetts. All three are lovely cities, but management’s decision to enter “secondary markets” proved costly. Too much expansion is likely causing the brand to get diluted.

I often compare the over-expansion efforts of companies to the struggles of Hard Rock Cafe. At one point one of the trendiest destination restaurants in the world, the company’s per store revenue has diminished greatly. Hard Rock was once only in big tourist destinations, like New York City and Hollywood, but now can be found almost anywhere, including Guam. The allure of the restaurant faded once visitors realized they could experience a Hard Rock in their backyard.

With “Bodies…The Exhibition,” the appeal of the exhibit exponentially diminishes with each new domestic exhibit opening. Adding to the problem is another exhibit, “Body Worlds,” run by a competing company, is very similar to Premier’s. This just adds to the dilemma since getting to cities first may mean owning that particular market. With most of the major domestic markets already tapped, future growth for human cadavers may be dying (pun absolutely intended).

Currently, demand for Premier’s human body exhibits is still relatively high in most markets, which should drive revenue in the short term. Eventually slowing demand will require management to focus on other revenue streams. Perhaps this means focusing more on the promotion of its Titanic exhibits. Additionally, the development of new exhibitions will be crucial to remaining profitable. As the company did with its body exhibitions, management will need to diversify away from its current offering to find future revenue streams.

Discloser: I currently have no position, but may be long in the future.