Q Talk

[Spurt]

August 3, 2017

HSN, INC. REPORTS SECOND QUARTER 2017 RESULTS

http://www.hsni.com/releasedetail.cfm?ReleaseID=1035879

HSNi Results for the Second Quarter 2017:

• Net sales decreased 4%; excluding the divested businesses, net sales decreased 2%
• Digital penetration increased 210 basis points to 55%; excluding the divestitures, digital sales grew 3% 
• Diluted EPS was $0.62; Adjusted EPS was $0.63
• HSNi entered into merger agreement with Liberty Interactive and will be combined with the QVC Group creating North America's third largest eCommerce retailer

HSN's net sales were $532.2 million, a decrease of 4% from the prior year. Digital sales grew 2% with penetration increasing 280 basis points to 46.4%. Sales grew in wellness and home, offset by decreases in electronics, beauty and jewelry. Shipping revenues declined primarily due to the August 2016 changes in the standard shipping rates and increased promotions. Average price point decreased 7% while units shipped increased 2% largely due to changes in product mix. 

Gross profit decreased 5% to $186.8 million. Gross profit rate decreased 30 basis points to 35.1% primarily due to a decrease in shipping revenues and higher shipping and fulfillment costs, partially offset by higher product margins and lower inventory reserves due to a change in accounting estimate. The increase in shipping and fulfillment costs was primarily due to annual outbound rate increases and implementation costs associated with HSNi's ongoing supply chain optimization ("SCO") initiative.

Operating expenses increased 4% to $147.6 million driven by approximately $3.7 million in transaction costs related to the Merger Agreement, an increase in employee-related costs, higher costs incurred as part of the SCO initiative and an increase in bad debt expense, partially offset by lower stock-based compensation expense primarily due to the departure of HSNi's Chief Executive Officer during the quarter. Excluding non-cash charges and transaction costs, operating expenses increased 4% and were 25.6% as a percentage of net sales compared to 23.5% in the prior year.

Operating income decreased $15.9 million, or 29%, to $39.2 million. Adjusted EBITDA decreased $15.8 million, or 24%, to $50.5 million. The SCO implementation resulted in an additional $2.9 million of costs in the second quarter of 2017 which impacted gross profit and operating expenses.

Cornerstone Segment Results for the Second Quarter 2017

Cornerstone's net sales decreased 3% to $289.2 million. Excluding the divestitures, net sales increased 3% with growth in Garnet Hill, Ballard Designs, Grandin Road and Frontgate. Digital sales decreased 2% while penetration increased 60 basis points to 69.9%. Excluding the divestitures, digital sales grew 4%, digital penetration increased 110 basis points and catalog circulation decreased 7%.

Gross profit decreased 4% to $109.5 million and the gross profit rate decreased 70 basis points to 37.9%. Excluding the divestitures, gross profit increased 1% while the rate decreased 80 basis points primarily due to promotional activity in the home brands. 

[winamac1]

interesting info.   I'm disappointed as I thought their sales and profits increased.  I hope this doesn't mean higher prices and fewer sales.

[hopi]

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@winamac1 wrote:

interesting info.   I'm disappointed as I thought their sales and profits increased.  I hope this doesn't mean higher prices and fewer sales.

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@winamac1

You would think it would mean lower prices and more sales or just sit on a whole bunch of cheap inventory.

[Kachina624]

You need a MBA to understand all that gibberish but the bottom line seems to be they lost money. 

[VaBelle35]

They lost money by doing free shipping and other incentives.

[JaneMarple]

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@VaBelle35 wrote:

They lost money by doing free shipping and other incentives.

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Then if that's HSN's reason for lost profit then what is the Q's excuse for losing money also?

[winamac1]

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@hopi wrote:

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@winamac1 wrote:

interesting info.   I'm disappointed as I thought their sales and profits increased.  I hope this doesn't mean higher prices and fewer sales.

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@winamac1

You would think it would mean lower prices and more sales or just sit on a whole bunch of cheap inventory.

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This is not always the case.

If a company isn't doing as well as hoped, they change their business model.  Perhaps they'd lower prices for current inventory but I don't think that's going to be something they continue with new inventory and with a new model.

QVC is more profitable, and we all know how "good" their sales are and how often they offer free shipping and deep discounts.