ShopNBC Honcho Keith Stewart ‘Splains 5 Percent Drop In Sales

It was not a good first quarter for ValueVision, better known as ShopNBC.

The No. 3 home shopping network Wednesday reported net sales of $136.5 million, a 4.9 percent decrease versus the year-ago period.

Internet net sales slipped 2.8 percent, while penetration increased 100 basis points to 45.9 percent.

ShopNBC CEO Keith Stewart had plenty of ‘splaining to do.

“While we are disappointed in our consumer electronics performance, we are encouraged by the improved results from our other product categories,” he said in a canned statement.”We do not foresee a significant improvement in consumer electronics performance in the upcoming quarters.”

He went on, “However, in the final three quarters of last year, our consumer electronics sales mix moderated, making the comparative performance of this category less impactful to overall results going forward. Although we will continue our efforts to improve consumer electronics performance, we are focused on further broadening our other higher-margin businesses while investing in new businesses to grow our product mix and customer base.”

And on: “We are pleased with our strong net shipped unit growth in the quarter, reflecting lower average price points and broader customer reach. We were also able to maintain healthy gross margin levels in Q1 despite an increase in shipping and other promotional initiatives.”

And on: “We continue to improve our performance across a number of areas, though the company’s turnaround is still a work in process. We remain focused on increasing top line sales through solid merchandise execution and customer experience initiatives. These efforts aim to further improve retention rates and ultimately drive higher sales per customer. With an experienced multichannel team in place, I remain confident in our ability to execute on those growth initiatives.”

ShopNBNC did cut its losses in the quarter. It lost $8.7 million, compared with $28.9 million in the year-ago period.

Combined sales in jewelry, watches, health, beauty, home, fashion and accessories actually jumped in the double-digits, up 12 percent in the first quarter versus a year ago.

ShopNBC said that as anticipated, sales gains in these categories were offset by consumer electronics sales, which dropped a drastic 76 percent in the period.

The average price point in the quarter decreased 18.8 percent to $95 due to a higher concentration of product sales in beauty, fashion and home combined with the decline in consumer electronics. Net units shipped increased 17.8 percent in the quarter versus last year’s same period.

Gross profit increased 20 bps to 37.4 percent. This was driven by a favorable product mix, partially offset by increased shipping and handling promotions.

Gross margin dollars decreased 4.4 percent compared with the prior year, reflecting lower sales.

Adjusted EBITDA in the quarter was negative $1 million compared to positive $3.1 million in the same period last year.

“We made solid progress on the balance sheet in Q1’12. As of April 28, our cash position, including restricted cash, was $45 million compared to $35 million at Jan. 28,” ShopNBC executive vice president and chief financial officer William McGrath said. “The increase in cash reflects the seasonal timing of cash receipts from fourth-quarter receivables as well as disciplined management of other working capital components within the quarter.”

In the first quarter, ShopNBC secured a $40 million revolving credit facility with PNC Bank. The facility bears interest at a rate of LIBOR plus 3 percent. During the first quarter, ValueVision utilized the new credit facility to retire its 11%, $25 million term loan and paid a $12.5 million deferred obligation to a TV distribution provider.

These actions, according to ShopNBC, improved its financial liquidity and reduced future annual interest expense. As a result of the early retirement of the $25 million term loan, ShopNBC incurred a pre-payment penalty of $500,000.

The home shopping network also recorded a non-cash interest charge of $2.4 million related to the write off of previously capitalized debt financing costs associated with the $25 million term loan.

“Looking ahead, the impact of Consumer Electronics on our quarterly comparisons should diminish for the balance of 2012 and thereafter,” McGrath said. “Moving into next year, the recent renewal of our largest TV distribution relationship will also benefit performance by providing $15 million in annual cost savings starting January 2013.”

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