HSN’s net sales slid 2 percent in the fourth-quarter last year, to $778.7 million, versus the year-ago period. And revenue rose 3 percent for 2015, to $2.5 billion, the No. 2 home shopping network reported on Wednesday.
The channel’s operating income dropped 7 percent in the fourth quarter, to $89 million. And for all 2015, operating income was up a slight 1 percent, to $253,6 million.
HSN pointed out that these comparisons were against the prior year’s fourth quarter and full-year results, when net sales, gross profit and operating income was favorably impacted by $5 million of breakage (the reversal of certain customer credits) income.
In the fourth quarter HSN’s sales increased in electronics, wellness and home, offset by decreases in other categories.
“Our improvement in home was driven by the wholesale expansion of our Ingenious Designs business associated with the Joy Mangano brand into other retail outlets,” HSN Chief Financial Officer Judy Schmeling said during a conference call, according to a transcript from Seeking Alpha.
The return rate improved 30 basis points to 16.3 percent, while units shipped increased 2 percent and the average price point decreased 5 percent primarily due to changes in product mix.
Digital sales grew 1 percent with penetration increasing 100 basis points to 43.3 percent.
Gross profit decreased 4 percent in the quarter and the gross profit rate decreased 50 basis points to 32.4 percent, primarily due to the impact of recognizing the $5 million of breakage income in the prior year.
Excluding the impact of this item, the gross profit rate decreased 10 basis points largely the result of higher shipping promotions, offset by higher product margins driven by lower clearance activity and changes in product mix.
Operating expenses (excluding non-cash charges and reorganization severance costs) decreased 4 percent to $150.8 million and were 19.4 percent as a percentage of net sales compared to 19.7 percent in the prior year. The decrease was primarily due to lower compensation.
Adjusted EBITDA increased 1 percent to $101.4 million. Operating income decreased 7 percent to $89.0 million primarily due to the $5 million of breakage income recognized in the prior year.
The closing of a distribution center cost HSN $2 million in severance costs, with 70 jobs eliminated, according to Schmeling.
Here are some of Grossman’s remarks from the call:
Sales were up in our overall home business, driven by our expanded retail footprint with our Ingenious Designs products from the Joy Mangano brand. This retail rollout was strategically executed to coincide with the premiere of the Joy movie, which opened in theaters on Christmas Day.
The products, which leverage Joy Mangano’s broad customer appeal, are now available at Target, Bed Bath & Beyond, The Container Store, and Macy’s, and we’re pleased with the initial response.
Incidentally, Jennifer Lawrence won a Golden Globe for Best Actress for her performance in the movie and has been nominated for an Oscar. We’re capitalized on the increased national exposure for the brand, including appearances for Joy on Good Morning America, CBS Sunday Morning, as well as cover stories in Good Housekeeping and People, among others.
In other areas within home, warmer weather unfavorably impacted demand for climate-related products, such as heaters, flannel bedding, and fireplaces. We’re also repositioning some categories within home, particularly floor care to induce newness and differentiated products at an accelerated pace.
We had sequential improvement in our jewelry business, particularly in productivity and profitability, as we reassert our authority in this category. Although sales in jewelry were down in the quarter, primarily driven by reduced air time as we rebuilt the business, but we’re encouraged by the strong launches of both our fine jewelry and elevated fashion collection.
In fine jewelry, we launched Diamond Couture and Diamonds Unleashed by Kara Ross, and in fashion jewelry, Kristin Chenoweth and jewels by Jennifer Miller. As I’ve mentioned before, we are optimistic about this business going forward. We have a distinct delineation between brands and are building upon these and other new launches.
In apparel and accessories, our Buy Now Wear Now strategy contributed to the category’s most recent success. Our spring fashion series, which just launched emphasizes Layer Now Lighten Later, providing us with more flexibility to manage unpredictable weather patterns, while still offering new fresh items and colors into our assortment. Premieres will include Sperry, Harve Benard, Tiki and Jay Godfrey, and an exclusive handbag collection from Vince Camuto.
HSN and Cornerstone are both part of HSN Inc. In the fourth quarter, HSN Inc.’s net sales were down 2 percent, to $1.1 billion. For the year, they increased 3 percent, to $3.7 billion.
Last year, the company racked up severance costs stemming from a reorganization and planned closing of a distribution center.
“We have made progress in certain key areas, including optimizing our sophisticated digital platforms,” Grossman said in the earnings press release. “For the first time, HSNi’s digital penetration exceeded half our sales at 52 percent, with digital reaching nearly $2 billion in annual sales. Additionally, mobile now represents nearly 40 percent of total digital sales.”
“Recognizing the continued volatility in the retail environment, we remain focused on execution, working cross-functionally across the organization to drive growth,” Grossman said.
“We will continue to extend our reach to leverage our vast content across traditional and alternative platforms, curate differentiated products and experiences, build communities with customers and provide a frictionless and seamless commerce experience.”