HSN reported on Wednesday that its net sales dipped 1 percent, to $769.3 million, in the fourth quarter versus the prior year.
The No. 2 home shopping network said that the “decrease is largely due to a direct-response television marketing campaign that concluded earlier this year and the prior year’s incremental sales from the initial roll-out for a wholesale business expansion, offset by a 1 percent increase in HSN’s core business.”
Operating income also decreased, by 2 percent, to $64.6 million.
Digital sales rose 9 percent, with penetration increasing 440 basis points to 48 percent.
HSN’s sales increased in wellness, culinary and electronics, offset by decreases in jewelry, apparel and accessories and in shipping revenue.
The decrease in shipping revenue was primarily due to changes in the standard shipping rates, which became effective in last August, as well as increased promotions.
HSN is part of HSN Inc., which also includes the Cornerstone unit. HSNi’s net sales decreased 2 percent in the fourth quarter, to $1.1 billion, with Cornerstone’s net sales dropping 5 percent, to $304 million.
“Clearly, 2016 was a year of disruption in retail characterized by a distracting environment, cautious consumer spending and a heightened promotional climate,” HSN Inc. CEO Mindy Grossman said in a canned statement.
“While this impacted the performance of our business, we have been taking strategic actions to best position HSNi and take advantage of new opportunities, including building our brands with a continued emphasis on digital — now representing 55 percent of our business, with mobile 45 percent of digital.”
“In addition to the disruptive retail climate, our overall fourth-quarter results were affected by certain under-performing product categories — particularly jewelry at HSN and areas within home in the Cornerstone portfolio, the standardization of our shipping and handling practices at HSN and implementation of our supply chain optimization initiative. Also, our year-ago comparisons were distorted by the divestiture of two businesses,” Grossman added.
The home shopping network’s average price point decreased 2 percent, largely due to an increase in promotional activity and changes in product mix. Units shipped increased 2 percent.
Gross profit decreased 9 percent to $229.7 million. Gross profit rate decreased 250 basis points to 29.9 percent primarily due to higher shipping and handling costs and lower shipping revenues.
The increase in shipping and handling costs was largely due to the issues with the implementation of HSN’s supply-chain optimization, changes in product mix and increased shipping cost rates. The implementation issues reduced gross profit by $13 million, or 160 basis points as a percentage of net sales.
HSN said that began phasing in its expanded automation capabilities in its Piney Flats, Tenn., distribution center in the third quarter last year. During that conversion, HSN “experienced implementation issues which had an impact of approximately $16 million, or 19 cents per diluted share, in the fourth quarter which largely impacted gross profit and, to a lesser extent, operating expenses.”
Operating expenses increased 1 percent, to $165.1 million.
Adjusted EBITDA decreased 25 percent, to $75.8 million. Excluding the impact of the supply-chain optimization implementation, operating income was $80.6 million and adjusted EBITDA was $91.8 million, representing a 9 percent decrease.
HSN Inc. also appointed Rod Little as chief financial officer, reporting to Grossman. He comes to HSNi with significant public company expertise in the consumer-products industry, having served as CFO for Elizabeth Arden Inc. as well as a variety of leadership positions with Procter & Gamble.
“We expect our hard work and learnings from 2016 to position 2017 as a year of growth regeneration, with a laser-focus on our proprietary product pipeline; driving customer acquisition, retention and spend; optimizing digital platforms; leveraging our distributed commerce capabilities; advancing our supply chain initiatives and cultivating talent across the organization,” Grossman said.
“We will be executing against these priorities while investing in operational execution for future efficiency and leverage. am particularly excited that Rod Little has recently joined as CFO of HSNi. Rod will be a key partner as we evolve and pursue our strategies with an emphasis on growth, optimal resource allocation, expense management and value creation.”