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HSN, Inc. Reports Third Quarter 2013 Results

Highlights for the Third Quarter 2013:
  • Adjusted EPS increased 19% to $0.70 per share
  • Net sales increased 3% with digital sales up 8%
  • Adjusted EBITDA increased 4%
  • Quarterly dividend increased 39% to $0.25 per share

ST. PETERSBURG, Fla., Nov. 6, 2013 (GLOBE NEWSWIRE) -- HSN, Inc . (Nasdaq:HSNI) reported results for the third quarter ended September 30, 2013 for HSN, Inc. ("HSNi" or "Company") and its two operating segments, HSN and Cornerstone.
Table 1      
SUMMARY RESULTS AND KEY OPERATING METRICS (a)
($ in millions, except per share and average price point amounts)
       
   Q3 2013   Q3 2012   Change 
       
Net Sales  $ 798.9  $ 778.8 3%
       
Adjusted EBITDA (Non-GAAP)  $ 74.6  $ 71.8 4%
Operating Income (GAAP) (b)  $ 61.1  $ 49.3 24%
       
Adjusted Net Income (Non-GAAP)  $ 38.3  $ 33.8 13%
Income from continuing operations (GAAP) (b)(c)(d)  $ 42.1  $ 17.6 140%
       
Adjusted EPS (Non-GAAP)  $ 0.70  $ 0.59 19%
Diluted EPS from continuing operations (GAAP) (b)(c)(d)  $ 0.77  $ 0.31 148%
       
HSNi:      
Average price point   $ 60.33  $ 60.53 --
Units shipped (millions)   15.0  14.9 1%
Gross margin  36.1%   36.7%  (60 bps)
Return rate   17%   18.5%  150 bps
Digital sales penetration   46.5%   44.2%  230 bps
       
(a) HSNi's two operating segments, HSN and Cornerstone, are presented separately in Tables 2 and 3 of this release.
(b) Q3 2012 results include an unfavorable sales tax settlement of $7.8 million, or $4.8 million net of taxes, or $0.08 per diluted share.
(c) Q3 2013 results include discrete tax benefits of $3.7 million, or $0.07 per diluted share. 
(d) Q3 2012 results include costs associated with the redemption of Senior Notes of $18.3 million, or $11.4 million net of taxes, or $0.20 per diluted share.
       
See reconciliation of Non-GAAP to GAAP measures in Table 4.

Third Quarter 2013 Results vs Third Quarter 2012 Results
  • HSNi's net sales grew 3% over the prior year to $798.9 million. HSN's net sales were relatively unchanged at $538.6 million, including 7% growth in digital sales. Cornerstone's net sales increased 8% to $260.3 million, including 10% growth in digital sales.  
  • HSNi's Adjusted EBITDA increased 4% to $74.6 million. These results were driven by a 3% increase in net sales, partially offset by a 60 basis point decline in gross margin. Operating expenses as a percentage of net sales decreased 60 basis points (excluding non-cash charges and a $7.8 million sales tax settlement in the prior year). GAAP operating income increased 24% to $61.1 million.   
  • Diluted EPS from continuing operations increased 148% to $0.77 compared to $0.31 in the prior year. Adjusted EPS (which excludes certain significant items identified in Table 4) increased 19% to $0.70.  
  • Effective November 6, 2013, HSNi's board of directors approved a quarterly cash dividend of $0.25 per share representing a 39% increase from the prior dividend of $0.18 per share and is payable December 18, 2013 to shareholders of record as of December 4, 2013. 

"HSNi has built a powerful and diverse portfolio of brands and products enabling us to capitalize on consumer trends, manage marketplace dynamics and position the company for long-term success," said Mindy Grossman, CEO of HSN, Inc. "During the third quarter, this strategy resulted in record customer levels at HSNi, an increase in digital penetration of 230 basis points—including strong growth in mobile, which now represents 12% of our total business—and Adjusted EPS growth of 19%."
Table 2            
SEGMENT RESULTS
($ in millions)
             
  Three Months Ended September 30,  Nine Months Ended September 30, (a) (b)
  2013 2012 Change 2013 2012 Change
Net Sales            
HSN   $ 538.6  $ 537.4 0%  $ 1,614.9  $ 1,581.3 2%
Cornerstone   260.3  241.4 8%  769.2  702.6 9%
Total HSNi  $ 798.9  $ 778.8 3%  $ 2,384.1  $ 2,283.9 4%
Gross Profit             
HSN   $ 186.2  $ 191.8 (3%)  $ 566.1  $ 561.9 1%
Cornerstone  102.4  93.7 9%  311.4  284.0 10%
Total HSNi   $ 288.6  $ 285.5 1%  $ 877.5  $ 845.9 4%
Adjusted EBITDA (Non-GAAP measure)            
HSN   $ 57.1  $ 56.8 1%  $ 173.2  $ 166.8 4%
Cornerstone   17.4  15.0 16%  53.4  50.8 5%
Total HSNi  $ 74.6  $ 71.8 4%  $ 226.6  $ 217.6 4%
Operating Income             
HSN   $ 47.6  $ 47.0 1%  $ 143.2  $ 137.8 4%
Cornerstone (c)   13.5  2.3 477%  41.7  28.2 48%
Total HSNi  $ 61.1  $ 49.3 24%  $ 184.9  $ 165.9 11%
             
(a) Chasing Fireflies was acquired on April 1, 2012; therefore, the acquisition impacts the comparability of periods for the nine months ended September 30.
(b) HSN's results for the nine months ended September 30, 2012 included one extra day versus the current period because of leap year.
(c) Q3 2012 results include an unfavorable sales tax settlement of $7.8 million.
See reconciliation of Non-GAAP to GAAP measures in Table 4.    
             
Table 3            
SEGMENT KEY OPERATING METRICS
             
  Three Months Ended September 30, Nine Months Ended September 30,
  2013 2012  Change  2013 2012  Change 
HSN:            
Average price point   $ 55.70  $ 58.74 (5%)  $ 56.68  $ 60.17 (6%)
Units shipped (millions)   11.3  11.0 3%  33.7  31.4 7%
Gross margin  34.6%  35.7%  (110 bps)  35.1%   35.5%  (40 bps)
Return rate   18.7%  20.5%  180 bps  19.3%   19.9%  60 bps
Digital sales penetration   36.8%  34.6%  220 bps  36.0%   34.4%  160 bps
Cornerstone:            
Average price point   $ 74.22  $ 65.52 13%  $ 78.33  $ 72.39 8%
Units shipped (millions)   3.6  3.8 (5%)  10.1  10.1 0%
Gross margin  39.3%  38.8%  50 bps  40.5%   40.4%  10 bps
Return rate   13.2%  13.6%  40 bps  13.1%   13.7%  60 bps
Digital sales penetration   66.5%  65.5%  100 bps  65.3%   63.6%  170 bps
Catalog circulation (millions)  82.0  77.6  6%  236.7  223.4 6%

HSN Segment Results for the Third Quarter 2013

HSN's net sales were $538.6 million compared to $537.4 million from the prior year. Digital sales grew 7% with penetration increasing 220 basis points to 36.8%. Sales grew in home design and household, offset by lower sales in jewelry, apparel & accessories and culinary. Net sales were favorably affected by the product mix shift to categories with historically lower return rates as well as experiencing overall lower return rates in many product categories. The average price point decreased 5% while units shipped increased 3%.   

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