HSN, Inc. Reports First Quarter 2009 Results
ST. PETERSBURG, Fla., May 7, 2009 (GLOBE NEWSWIRE) -- HSN, Inc. (Nasdaq:HSNI) reported results for the first quarter ended March 31, 2009 for HSN, Inc. ("HSNi" or the "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)
Q1 2009 Q1 2008 Change
---------- ---------- ----------
Net Sales $ 629.6 $ 676.9 (7%)
Non-GAAP:
Adjusted EBITDA $ 26.1 $ 33.1 (21%)
Adjusted Net Income $ 4.6 $ 15.0 (69%)
Adjusted EPS $ 0.08 $ 0.26 (69%)
GAAP:
Operating Income $ 13.9 $ 15.1 (8%)
Net Income $ 3.0 $ 9.3 (68%)
Diluted EPS $ 0.05 $ 0.17 (68%)
HSNi:
Average price point $ 58.00 $ 61.19 (5%)
Units shipped (millions) 12.0 12.5 (4%)
Gross profit % 33.5% 34.8% (130 bps)
Return rate % 17.3% 19.1% (180 bps)
Internet net sales % (b) 36.8% 35.4% 140 bps
(a) Segment results for HSNi's two business segments, HSN and
Cornerstone, are presented separately in Tables 2 and 3 of this
release.
(b) Internet net sales as a percent of total HSNi net sales.
See reconciliation of GAAP to non-GAAP measures in Table 4.
First Quarter 2009 Results vs First Quarter 2008:
* HSNi ended the quarter with $186.9 million in cash and cash equivalents. Cash from operating activities during the first quarter of 2009 was $39.6 million compared to a use of cash of $(20.8) million in the same quarter last year. Cash flow improved by effectively managing working capital, including a reduction in inventory of 16% compared to the first quarter of 2008. The $20.0 million outstanding under the revolving credit facility at December 31, 2008 was repaid during the first quarter. * Net sales for HSNi decreased 7% to $629.6 million in the first quarter of 2009 with net sales from HSN down less than 1% to $474.9 million and Cornerstone down 22% to $154.7 million. * HSNi's Adjusted EBITDA margin was 4.1% compared to 4.9% in the prior year. Operating income benefited from a reduction in non-cash amortization expenses and, as a percent of sales, remained unchanged at 2.2%. HSN's operating income increased by 7% offset by a decline in Cornerstone's operating income of 30%. * Net income for HSNi in the first quarter of 2009 was $3.0 million, decreasing $6.4 million from the prior year. Net income for 2009 includes interest expense, net of taxes, of $5.5 million related to financing incurred as a result of the spin-off from IAC in the third quarter of 2008
Mindy Grossman, HSNi's Chief Executive Officer, stated, "In the first quarter, we continued to proactively manage our business and brands by leveraging the unique aspects of our business model, staying focused on our customer, managing operating expenses and maximizing cash flow. While we all know that the macro economic conditions continue to be very challenging, we are pleased that our efforts resulted in sales for HSN declining by less than 1% in the first quarter of 2009, an impressive achievement given both the overall retail environment and strong comparable sales growth of 9% in the first quarter of 2008. We continued to adjust our product assortment, presentations and overall experience to meet our customers' needs. As a result, our 12-month active customer base grew 2% and our repeat customer rate grew 2.1% from the prior year. HSN.com continued to gain momentum with a sales increase of 4% following comparable sales growth of 24% in the same quarter last year. For Cornerstone, we continued to experience sales challenges due to product category exposure in luxury home and apparel. In response, we reduced catalog circulation by over 30% and aggressively managed inventories which declined by 28% compared to the same quarter last year. One of our primary business strategies has been to generate strong cash flow. As a result, we ended the quarter with $186.9 million in cash. I am confident that we are well positioned to take advantage of this changing marketplace by outpacing our competition, building our business and driving long-term value for our shareholders."
Table 2
SEGMENT RESULTS
($ in millions)
Q1 2009 Q1 2008 Change
---------- ---------- ----------
Net Sales
HSN $ 474.9 $ 479.0 (1%)
Cornerstone 154.7 197.9 (22%)
---------- ---------- ----------
Total HSNi $ 629.6 $ 676.9 (7%)
========== ========== ==========
Gross Profit
HSN $ 152.0 $ 154.9 (2%)
Cornerstone 59.2 80.6 (27%)
---------- ---------- ----------
Total HSNi $ 211.2 $ 235.5 (10%)
========== ========== ==========
Adjusted EBITDA
(Non-GAAP measure)
HSN $ 35.3 $ 36.6 (4%)
Cornerstone (9.2) (3.5) (165%)
---------- ---------- ----------
Total HSNi $ 26.1 $ 33.1 (21%)
========== ========== ==========
Operating Income (Loss)
HSN $ 26.2 $ 24.5 7%
Cornerstone (12.3) (9.4) (30%)
---------- ---------- ----------
Total HSNi $ 13.9 $ 15.1 (8%)
========== ========== ==========
See reconciliation of GAAP to non-GAAP measures in Table 4.
Table 3
SEGMENT KEY OPERATING METRICS
Q1 2009 Q1 2008 Change
---------- ---------- ----------
HSN:
Average price point $ 56.67 $ 60.07 (6%)
Units shipped (millions) 9.4 9.1 3%
Gross profit % 32.0% 32.3% (35 bps)
Return rate % 17.7% 20.0% (230 bps)
Internet net sales % (a) 30.0% 28.6% 140 bps
Cornerstone:
Average price point $ 62.67 $ 64.26 (2%)
Units shipped (millions) 2.7 3.3 (18%)
Gross profit % 38.3% 40.7% (240 bps)
Return rate % 16.2% 17.0% (80 bps)
Internet net sales % (a) 57.4% 52.0% 540 bps
Catalog circulation
(millions) 60.5 87.2 (31%)
(a) Internet net sales as a percent of segment net sales.
HSN Segment Results
HSN's net sales decreased less than 1% to $474.9 million in the first quarter of 2009 from $479.0 million in the prior year. Strong sales increases in fitness, health and electronics were offset by sales declines in jewelry and fashion. Shipped units increased by 3%, the average price point decreased by 6% and returns decreased to 17.7% from 20.0% from the same quarter in the prior year. These results were due to select promotional pricing, product mix and sales of key items at lower price points. HSN.com net sales grew 4% over the prior year with sales from e-commerce representing 30.0% of HSN's total net sales, up from 28.6% in the prior year.
Gross profit margin was 32.0% in the first quarter compared to 32.3% in the prior year. This slight decrease was a result of increased promotional activity to reduce inventory levels, particularly in jewelry and fashion, and a shift in product mix towards fitness and electronics. Inventory decreased 7% compared to the same period last year.
Adjusted EBITDA decreased $1.3 million or 4% in the first quarter compared to the prior year driven by the decrease in gross profit which was partially offset by a reduction in operating expenses. Included in HSN's operating income for the prior year was non-cash marketing expense of $3.7 million which HSN did not incur in 2009. As a result, HSN's operating income increased 7% to $26.2 million as compared to $24.5 million in the prior year.
Cornerstone Segment Results
Net sales for Cornerstone decreased 22% to $154.7 million in the first quarter of 2009 as compared to $197.9 million in the prior year due to slower consumer demand overall for luxury home furnishings and apparel.
Gross profit margin was 38.3% in the first quarter of 2009 compared to 40.7% in the prior year, the result of selective promotional and clearance pricing intended to generate additional sales demand and reduce inventory levels. As a result of this focused effort, inventory levels were down 28% compared to the first quarter of 2008. Gross profit margins were also unfavorably affected by specific promotional shipping and handling programs.
Cornerstone's Adjusted EBITDA margin decreased to (5.9%) in the first quarter of 2009 from (1.8%) in the prior year. The decrease was attributable to lower gross profit, partially offset by specific cost reduction initiatives including a 25% decrease in circulation costs and a decrease in personnel costs due to headcount reductions. Operating loss increased by $2.8 million or 30% from the prior year. Included in Cornerstone's operating income for the prior year was amortization of intangibles of $2.1 million.
Effective Tax Rate
HSNi's effective tax rate for continuing operations was 40% for the first quarter of 2009 as compared to 38% in the prior year. The change in the effective tax rate is primarily due to state income taxes. The annual effective tax rate for 2009 is expected to be 39%.
Liquidity and Capital Resources
For the three months ended March 31, 2009, HSNi generated net cash provided by operating activities of $39.6 million and as of March 31, 2009 had cash and cash equivalents of $186.9 million, up from $177.5 million at December 31, 2008. The $20.0 million outstanding under the revolving credit facility at December 31, 2008 was repaid during the first quarter of 2009. Total debt was approximately $384.8 million resulting in a ratio of total debt to EBITDA, as defined in our credit agreement, of approximately 2.43x as of March 31, 2009. HSNi was in compliance with all of the covenants in its credit agreement and senior notes indenture as of March 31, 2009.
OTHER INFORMATION
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This press release may contain forward-looking statements relating to the future performance of HSNi and its consolidated subsidiaries that are based on current expectations, forecasts and assumptions. HSNi's actual results could differ materially from those predicted. Factors that could cause or contribute to such differences include but are not limited to: the depth and duration of the current recession, which may persist throughout and beyond 2009, and the impact of these conditions on consumer confidence and spending levels; whether national economic stimulus initiatives and measures to stabilize the financial system will be successful in achieving their objectives within the expected timeframes; other changes in political, business and economic conditions, particularly those that affect consumer confidence, consumer spending or ecommerce growth; changes in the interest rate environment and developments in the overall credit markets, and particularly the impact of the current constrained credit environment, if it persists; HSNi's business prospects and strategy, including whether HSNi's initiatives to generate cash and preserve liquidity will be effective; changes in our relationships with pay television operators, vendors, manufacturers and other third parties; technological or regulatory changes; changes in senior management; our ability to offer new or alternative products and services in a cost effective manner and consumer acceptance of these products and services; and changes in product delivery costs. More information about potential factors that could affect HSNi's business and financial results is included in our filings with the U.S. Securities and Exchange Commission. Other unknown or unpredictable factors that could also adversely affect HSNi's business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, any forward-looking statements may not prove to be accurate. Accordingly, you should not place undue reliance on any forward-looking statements, which only reflect the views of HSNi management as of the date of this press release. Reported results should not be considered as an indication of future performance. HSNi does not undertake to update any forward-looking statements.
Conference Call
Mindy Grossman, Chief Executive Officer, and Judy Schmeling, Executive Vice President and Chief Financial Officer, will hold a conference call on May 7, 2009 at 11:00 a.m, Eastern Time, to discuss these results. Those interested in participating in the conference call should call 719-325-4797 or 877-795-3610 at least five minutes prior to the call. There will also be a simultaneous audio webcast available via the Company's website at http://www.hsni.com.
A replay of the conference call can be accessed from 2:00 p.m., Eastern Time, on Thursday, May 7, until midnight, Eastern Time, on Thursday, May 21, by dialing 719-457-0820 or 888-203-1112, plus the passcode 9021944 and will also be hosted on HSNi's website for a limited time.
About HSN, Inc.
HSN, Inc. (Nasdaq:HSNI) is a $3 billion interactive multi-channel retailer with strong direct-to-consumer expertise among its two operating segments, HSN and Cornerstone Brands. HSNi offers innovative, differentiated retail experiences on TV, online, in catalogs, and in brick and mortar stores. HSNi ships 52 million products and handles 50 million inbound customer calls annually. HSN, which created the television retail industry 31 years ago, now reaches approximately 93 million homes (24 hours a day, seven days a week, live 364 days a year). HSN.com ranks in the top 30 of the top 500 internet retailers, is one of the top 10 trafficked e-commerce sites, and has more than a quarter million unique users every day. In addition to its existing media platforms, HSN is the industry leader in technological innovation including services such as Shop by Remote, the only service of its kind in the U.S., and Video on Demand. Cornerstone Brands comprises leading home and apparel lifestyle brands including Ballard Designs, Frontgate, Garnet Hill, Improvements, Smith+Noble, The Territory Ahead and TravelSmith. Cornerstone Brands distributes 325 million catalogs annually, operates seven separate e-commerce sites and operates 26 retail stores.
GAAP FINANCIAL STATEMENTS
HSN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands except per share amounts)
Three Months Ended
March 31,
-----------------------
2009 2008
---------- ----------
Net sales $ 629,620 $ 676,886
Cost of sales 418,396 441,402
---------- ----------
Gross profit 211,224 235,484
---------- ----------
Operating expenses:
Selling and marketing 122,517 136,750
General and administrative 51,710 54,374
Production and programming 13,503 14,343
Amortization of non-cash marketing -- 3,715
Amortization of intangible assets 141 2,198
Depreciation 9,451 9,026
---------- ----------
Total operating expenses 197,322 220,406
---------- ----------
Operating income 13,902 15,078
---------- ----------
Other (expense) income:
Interest expense (8,950) --
Interest income 34 15
---------- ----------
Total other (expense) income, net (8,916) 15
---------- ----------
Income from continuing operations
before income taxes 4,986 15,093
Income tax provision (2,004) (5,687)
---------- ----------
Income from continuing operations 2,982 9,406
Loss from discontinued operations,
net of tax (28) (78)
---------- ----------
Net income $ 2,954 $ 9,328
========== ==========
Income from continuing operations
per share:
Basic $ 0.05 $ 0.17
Diluted $ 0.05 $ 0.17
Net income per share:
Basic $ 0.05 $ 0.17
Diluted $ 0.05 $ 0.17
Shares used in computing earnings
per share:
Basic 56,339 56,206
Diluted 56,781 56,649
HSN, INC. CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
March 31, Dec. 31,
2009 2008
---------- ----------
ASSETS
Cash and cash equivalents $ 186,899 $ 177,463
Accounts receivable 124,961 165,114
Inventories 274,341 304,172
Deferred income taxes 21,648 21,777
Prepaid expenses and other current assets 46,854 42,080
---------- ----------
Total current assets 654,703 710,606
Property and equipment, net 152,368 157,832
Intangible assets, net 261,607 261,747
Other non-current assets 20,902 22,272
---------- ----------
TOTAL ASSETS $1,089,580 $1,152,457
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable, trade 179,648 198,464
Current maturities of long-term debt 16,875 15,000
Accrued expenses and other
current liabilities 165,072 190,788
---------- ----------
Total current liabilities 361,595 404,252
Long-term debt, less current liabilities 367,952 393,528
Deferred income taxes 82,712 83,276
Other long-term liabilities 12,620 13,116
---------- ----------
Total liabilities 824,879 894,172
TOTAL SHAREHOLDERS' EQUITY 264,701 258,285
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,089,580 $1,152,457
========== ==========
HSN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Three Months Ended
March 31,
-----------------------
2009 2008
---------- ----------
Cash flows from operating activities
attributable to continuing
operations:
Net income $ 2,954 $ 9,328
Less: Loss from discontinued operations,
net of tax (28) (78)
---------- ----------
Income from continuing operations 2,982 9,406
Adjustments to reconcile income from
continuing operations to net cash provided
by (used in) operating activities attributable to
continuing operations:
Depreciation 9,451 9,026
Amortization of intangible assets 141 2,198
Non-cash compensation expense 2,547 3,040
Amortization of cable and satellite
distribution fees 841 1,120
Amortization of non-cash marketing -- 3,715
Excess tax benefits from
stock-based awards -- 5
Amortization of debt issuance costs 643 --
Loss on disposition of fixed assets 39 85
Deferred income taxes (435) 2,972
Bad debt expense 4,516 4,596
Changes in current assets and liabilities:
Accounts receivable 34,074 28,964
Inventories 29,831 (18,395)
Prepaid and other current assets (4,838) (525)
Accounts payable and other
current liabilities (40,155) (66,992)
---------- ----------
Net cash provided by (used in) operating
activities attributable to
continuing operations 39,637 (20,785)
---------- ----------
Cash flows from investing activities
attributable to continuing operations:
Capital expenditures (7,517) (6,629)
Transfers from IAC -- 28,280
---------- ----------
Net cash (used in) provided by investing
activities attributable to
continuing operations (7,517) 21,651
---------- ----------
Cash flows from financing activities
attributable to continuing operations:
Repayment of long-term debt (3,750) --
Repayment under revolving credit facility (20,000) --
Excess tax benefits from
stock-based awards -- 5
Other -- (30)
---------- ----------
Net cash used in financing activities
attributable to continuing operations (23,750) (25)
---------- ----------
Total cash provided by continuing operations 8,370 841
Total cash provided by
discontinued operations 1,066 1,676
Effect of exchange rate changes on cash
and cash equivalents -- (720)
---------- ----------
Net increase in cash and cash equivalents 9,436 1,797
Cash and cash equivalents at
beginning of period 177,463 6,220
---------- ----------
Cash and cash equivalents at end of period $ 186,899 $ 8,017
========== ==========
Table 4
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
HSN, INC. RECONCILIATION OF GAAP EPS TO ADJUSTED EPS
(unaudited; in thousands except per share amounts)
Three Months Ended
March 31,
-----------------------
2009 2008
---------- ----------
Diluted earnings per share $ 0.05 $ 0.17
========== ==========
Net income $ 2,954 $ 9,328
Non-cash compensation expense 2,547 3,040
Amortization of non-cash marketing expense -- 3,715
Amortization of intangible assets 141 2,198
Loss on disposition of fixed assets 39 85
Loss from discontinued operations, net of tax 28 78
Impact of income taxes (1,064) (3,434)
---------- ----------
Adjusted Net Income $ 4,645 $ 15,010
========== ==========
GAAP diluted weighted average
shares outstanding 56,781 56,649
Adjusted EPS $ 0.08 $ 0.26
========== ==========
HSN, INC. RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP
(unaudited; in thousands)
Three Months Ended Three Months Ended
March 31, 2009 March 31, 2008
---------------------------- ----------------------------
HSN Cornerstone Total HSN Cornerstone Total
-------- -------- -------- -------- -------- --------
Operating
income
(loss) $ 26,151 $(12,249) $ 13,902 $ 24,533 $ (9,455) $ 15,078
Non-cash
compen-
sation
expense 1,955 592 2,547 1,586 1,454 3,040
Amort-
ization
of
non-cash
marketing -- -- -- 3,715 -- 3,715
Amort-
ization
of
intangible
assets 141 -- 141 143 2,055 2,198
Depreciation 6,974 2,477 9,451 6,550 2,476 9,026
Loss on
dis-
position
of fixed
assets 38 1 39 84 1 85
-------- -------- -------- -------- -------- --------
Adjusted
EBITDA $ 35,259 $ (9,179) $ 26,080 $ 36,611 $ (3,469) $ 33,142
======== ======== ======== ======== ======== ========
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
HSN, INC.'S PRINCIPLES OF FINANCIAL REPORTING
HSNi reports Adjusted EBITDA, Adjusted Net Income and Adjusted EPS, all of which are supplemental measures to GAAP. These measures are among the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. HSNi endeavors to compensate for the limitations of the non-GAAP measures presented by providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures contained in this release and which we discuss below.
Definitions of Non-GAAP Measures
Adjusted EBITDA is defined as operating income excluding, if applicable: (1) non-cash compensation expense and amortization of non-cash marketing, (2) amortization of intangibles, (3) depreciation and gains and losses on asset dispositions, (4) goodwill, long-lived asset and intangible asset impairments, (5) pro forma adjustments for significant acquisitions, and (6) one-time items. Adjusted EBITDA is not a measure determined in accordance with GAAP, and should not be considered a substitute for operating income, net income or any other measure determined in accordance with GAAP. Adjusted EBITDA is used as a measurement of operating efficiency and overall financial performance and HSNi believes it to be a helpful measure for those evaluating companies in the retail industry. Adjusted EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures. Adjusted EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Adjusted EBITDA has certain limitations in that it does not take into account the impact to HSNi's statement of operations of certain expenses, including non-cash compensation, amortization of non-cash marketing, amortization of intangibles, depreciation, gains and losses on asset dispositions, asset impairment charges, acquisition-related accounting and one-time items.
Adjusted Net Income generally captures all items on the statement of operations that have been, or ultimately will be, settled in cash and is defined as net income available to common shareholders excluding, net of tax effects, if applicable: (1) non-cash compensation expense and amortization of non-cash marketing, (2) amortization of intangible assets, (3) gains and losses on asset dispositions, (4) goodwill, long-lived asset and intangible asset impairments, (5) pro forma adjustments for significant acquisitions, (6) one-time items, and (7) discontinued operations. We believe Adjusted Net Income is useful to investors because it represents HSNi's consolidated results taking into account charges which are not allocated to the operating businesses such as interest expense and taxes, but excluding the effects of identified non-cash expenses or one-time items.
Adjusted EPS is defined as Adjusted Net Income divided by fully diluted weighted average shares outstanding for Adjusted EPS purposes. We believe Adjusted EPS is useful to investors because it represents, on a per share basis, HSNi's consolidated results, taking into account charges which are not allocated to the operating businesses such as interest expense and taxes, but excluding the effects of identified non-cash expenses or one-time items. Adjusted Net Income and Adjusted EPS have the same limitations as Adjusted EBITDA. Therefore, we think it is important to evaluate these measures along with our consolidated statement of operations.
Pro Forma Results
We will only present Adjusted EBITDA, Adjusted Net Income and Adjusted EPS on a pro forma basis if we view a particular transaction as significant in size or transformational in nature. For the periods presented in this release, there are no transactions that we have included on a pro forma basis.
One-Time Items
Adjusted EBITDA, Adjusted Net Income and Adjusted EPS are presented before one-time items if applicable. These items are truly one-time in nature and non-recurring, infrequent or unusual, and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. GAAP results include one-time items. For the periods presented in this release, there are no adjustments for any one-time items.
Basis of Presentation
On November 5, 2007, IAC announced its plan to separate into five independent public companies in order to better achieve certain strategic objectives of the various businesses. This transaction is referred to as the "spin-off."
On August 21, 2008, HSN, Inc. became an independent public company and began trading on the Nasdaq Global Select Market under the symbol "HSNI." These unaudited consolidated financial statements present our results of operations, financial position, shareholders' equity and cash flows of HSN, Inc. on a combined basis up through the spin-off and on a consolidated basis thereafter.
For the three months ended March 31, 2008, we computed basic earnings per share using the number of shares of common stock outstanding immediately following the spin-off, as if such shares were outstanding for the entire period. The diluted earnings per share for prior periods was computed based upon the dilutive impact of all stock-based awards outstanding immediately following the spin-off, as if such awards were outstanding for the entire period.
CONTACT: HSN, Inc.
Analysts/Investors
Felise Glantz Kissell
727-872-7529
felise.kissell@hsn.net
Media
Brad Bohnert
727-872-7515
brad.bohnert@hsn.net
Released May 7, 2009
