HSN Posts Record Fourth Quarter, With 12 Percent Spike In Net Sales

HSN CEO Mindy Grossman

Boosted by growth in the electronics, fitness and fashion categories, HSN’s net sales increased 12 percent to a record $611.8 million in the fourth quarter, the home shopping network reported Wednesday.

For 2009, HSN’s net sales were up 3 percent, to $2 billion from $1.96 billion in the prior year.

HSNi’s net sales, which include the HSN network and Cornerstone, in the fourth quarter increased 8 percent to $838.7 million from $778.5 million in the prior year. HSN’s net sales increased 12 percent to $611.8 million, the highest quarterly sales volume in its 32-year history. Cornerstone’s net sales decreased 2 percent to $226.9 million, an improvement compared to the year-to-date decline in net sales of 19 percent through the end of the third quarter.

HSNi’s adjusted EBITDA increased 78 percent $88 million from $49.3 million in the prior year as a result of the 8 percent increase in net sales, an improvement in gross profit margin of 180 basis points and a reduction in operating expenses, excluding non-cash charges, of $3.1 million.

HSNi’s adjusted earnings per share were 74 cents compared to 36 cents in the prior year, an increase of 105 percent. GAAP diluted EPS was 68 cents per share compared to a loss of $38.29 per share last year. The prior-year results included non-cash asset impairment charges of $2.9 billion to reduce the carrying value of goodwill and intangible assets. The asset impairment charges on an after-tax basis were $2.2 billion.

“We are thrilled to report that EPS more than doubled on the strength of record-breaking sales at HSN and a significant improvement in operating performance at Cornerstone,” HSN Inc. CEO Mindy Grossman said in a press release.

“HSN generated a 12 percent increase in sales to $612 million, the highest quarterly sales volume in our 32-year history, and reported sales growth in every division,” Grossman said. “In addition, our continued focus on driving a multi-channel experience resulted in sales growth on HSN.com of more than 22 percent, with e-commerce sales penetration now reaching a high of 32 percent.”

HSN.com net sales grew 22 percent over the prior year and now represent 32.3 percent of HSN’s total net sales, up from 29.6 percent in the prior year.

All product divisions had strong sales performance in the quarter, led by significant increases in electronics, fitness and fashion. Shipped units increased 9 percent and the average price point increased 5 percent due to product mix and less promotional activity.

For HSN and Cornerstone gross profit increased $31.9 million, or 18 percent, to $205.4 million and gross profit margin improved 180 basis points to 33.6 percent compared to 31.8 percent in the prior year. The significant improvement in gross profit was due to less promotional activity and lower procurement costs.

Gross profit margin also benefited from a reduction in inventory reserves due to lower aged inventory levels. Inventories decreased 11 percent, or $24.9 million, compared to the same period last year.

For HSN alone adjusted EBITDA increased 39 percent to $75.5 million as a result of the significant increase in gross profit, partially offset by an increase in operating expenses. The increase in operating expenses was primarily attributable to the effect of a favorable accrual adjustment of approximately $5 million recorded in the prior year for distribution cost liabilities and compensation expense related to performance driven incentives.

For HSN alone operating income was $65.2 million compared to an operating loss of $2.4 billion in the prior year. Operating loss in the prior year included non-cash impairment charges of $2.4 billion related to the write-down of goodwill and intangible assets.

“On a consolidated basis, HSNi delivered an impressive performance: a sales increase of 8 percent, an improvement in gross profit margin of 180 basis points, a reduction in operating expenses and a significant increase in EBITDA of 78 percent,” Grossman said. “These results clearly demonstrate our continued ability to leverage the unique aspects of our business model to drive long-term value for our shareholders.”

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