Sans Suzanne Somers, HSN Sales Dip 1 Percent In The Third Quarter, But Earnings Skyrocket

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Suzanne Somers

The No. 2 home shopping network HSN saw its net sales slip 1 percent in the third quarter, versus growth of 4 percent in the prior-year period, the company reported Thursday. But earnings rose sharply.

Net sales for the HSN network and Web site (excluding HSN Inc.’s Cornerstone unit) decreased in the quarter to $467 million, versus $471 million last year. However, operating income increased 115 percent to $37.1 million compared to $17.3 million in the prior year.

In contrast to HSN, QVC saw its sales rise slightly in the third quarter. Earlier this week, QVC domestic posted $1.098 billion in revenue in the third quarter, a 2 percent increase from $1.073 billion in the year-ago period.

At HSN in the third quarter, gross profit increased 8 percent to $168.6 million and the gross profit margin improved 310 basis points to 36.1 percent in the third quarter compared to 33 percent in the prior year. The significant improvement in gross profit was due to a reduction in inventory reserves, improved product margin and net shipping and handling costs.

“In our first year as an independent public company, we have clearly demonstrated our ability to leverage our differentiated business model, strengthen our foundation and exert strict financial and operational discipline to maximize results,” HSN CEO Mindy Grossman said in a prepared statement. “Despite the continued macro-economic challenges, we emerged as a stronger company at the end of the third quarter with EBITDA growth of 30 percent and $238.7 million in cash.”

For the first nine months, HSN’s net sales slipped 1 percent, to $1.396 billion from $1.410 billion in the year-ago period.

In the third quarter HSN’s shipped units increased by 6 percent while the average price point decreased by 6 percent as a result of a continued focus on key items and price/value. Return rates improved by 80 basis points due to improved product quality, apparel fit initiatives, and lower price points.

HSN.com net sales grew 7 percent over the prior year following 17 percent growth in the prior year. Sales from e-commerce represented 29.8 percent of HSN’s total net sales, up from 27.6 percent in the prior year.

“At HSN, sales momentum continued to build as the quarter progressed,” Grossman said. “Our strategy of driving customer engagement through unique interactive experiences, differentiated brands and products, and a continued focus on customer service resulted in a 6 percent increase in unit sales and best customer growth of 7 percent. And 10 years after the launch of hsn.com, we now have one of the most video pervasive sites in e-commerce and our hsn.com sales penetration now represents 30 percent of our total business.”

The improvement in net shipping and handling was due to lower fuel costs and warehouse productivity improvements. Gross profit margins also benefited from a reduction in inventory reserves related to HSN’s inventory levels. Continued efforts on aligning inventory purchases with sales demand and reducing aged inventory resulted in a decrease in inventory by $39.6 million, or 15 percent, compared to the same period last year.

Adjusted EBITDA increased 32 percent to $47.1 million in the third quarter compared to the prior year as a result of the increase in gross profit.

“We remain on the forefront of transactional innovation,” Grossman said. “In addition to launching the first live in-flight television shopping experience, we are the only retailer streaming live video across three different screens – television, online and mobile and we continue our roll-out of Shop by Remote, the only interactive shopping platform of its kind in the U.S. We are excited about our opportunities as we continue to fully maximize our capabilities combining innovative products and lifestyle brands with our unique ability to interact with our customers across multiple platforms.”

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