Diluted EPS From Continuing Operations Increased 30% to $0.79 Per Share
Net Sales Increased 6% With Digital Sales Up 10%
Adjusted EBITDA Increased 7%
ST. PETERSBURG, Fla., Aug. 1, 2013 (GLOBE NEWSWIRE) — HSN, Inc. (Nasdaq:HSNI) reported results for the second quarter ended June 30, 2013 for HSN, Inc. (“HSNi” or “Company”) and its two operating segments, HSN and Cornerstone.
Table 1
SUMMARY RESULTS AND KEY OPERATING METRICS (a)
($ in millions, except per share and average price point amounts)
Q2 2013
Q2 2012
Change
Net Sales
$ 812.6
$ 767.2
6%
Adjusted EBITDA (Non-GAAP)
$ 85.2
$ 79.6
7%
GAAP:
Operating Income
$ 71.3
$ 65.3
9%
Income from continuing operations
$ 43.3
$ 35.6
22%
Diluted EPS from continuing operations
$ 0.79
$ 0.61
30%
HSNi:
Average price point
$ 64.25
$ 64.54
(0%)
Units shipped (millions)
14.2
13.5
5%
Gross margin
38.0%
38.2%
(20 bps)
Return rate
17.0%
17.8%
80 bps
Digital sales penetration
45.1%
43.4%
170 bps
(a) HSNi’s two operating segments, HSN and Cornerstone, are presented separately in Tables 2 and 3 of this release.
See reconciliation of Non-GAAP to GAAP measures in Table 4.
Second Quarter 2013 Results vs Second Quarter 2012 Results
HSNi’s net sales grew 6% over the prior year to $812.6 million. HSN’s net sales increased 5% to $526.2 million, including 10% growth in digital sales. Cornerstone’s net sales increased 8% to $286.4 million, including 10% growth in digital sales.
HSNi’s Adjusted EBITDA increased 7% to $85.2 million. These results were driven by a 6% increase in net sales offset by a 20 basis point decrease in gross margin and a 5% increase in operating expenses (excluding non-cash charges). Operating income increased 9% to $71.3 million.
Diluted EPS from continuing operations increased 30% to $0.79 compared to $0.61 in the prior year.
During the second quarter, HSNi repurchased approximately 0.9 million shares of its common stock at a cost of $49.8 million, or an average cost of $52.95 per share. From inception of the share repurchase program in September 2011 through July 31, 2013, HSNi repurchased a total of 8.4 million shares at an aggregate cost of $365.5 million, representing an average cost of $43.31 per share.
“Our strong financial performance during the second quarter is a result of the uniqueness of our customer experiences, the power of our digital platforms and the quality of our brands and products,” said Mindy Grossman, CEO of HSN, Inc. “Sales for the quarter were up 6%, digital sales increased 10% and EPS grew 30%. In addition, we continued returning value to shareholders through our share repurchase and cash dividend programs.”
Table 2
SEGMENT RESULTS
($ in millions)
Three Months Ended June 30, (a)
Six Months Ended June 30, (b)
2013
2012
Change
2013
2012
Change
Net Sales
HSN
$ 526.2
$ 501.9
5%
$ 1,076.3
$ 1,043.9
3%
Cornerstone
286.4
265.3
8%
508.9
461.2
10%
Total HSNi
$ 812.6
$ 767.2
6%
$ 1,585.3
$ 1,505.1
5%
Gross Profit
HSN
$ 187.5
$ 181.7
3%
$ 379.8
$ 370.1
3%
Cornerstone
121.3
111.7
9%
209.1
190.3
10%
Total HSNi
$ 308.8
$ 293.4
5%
$ 588.9
$ 560.4
5%
Adjusted EBITDA (Non-GAAP measure)
HSN
$ 57.1
$ 52.7
8%
$ 116.1
$ 110.0
5%
Cornerstone
28.0
26.9
4%
35.9
35.8
0%
Total HSNi
$ 85.2
$ 79.6
7%
$ 152.0
$ 145.9
4%
Operating Income
HSN
$ 47.0
$ 43.3
8%
$ 95.6
$ 90.8
5%
Cornerstone
24.3
22.0
10%
28.2
25.8
9%
Total HSNi
$ 71.3
$ 65.3
9%
$ 123.8
$ 116.6
6%
(a) Chasing Fireflies was acquired on April 1, 2012; therefore, the acquisition had no impact on the comparability of periods for the three months ended June 30.
(b) HSN’s results for the six months ended June 30, 2012 included one extra day versus the current period because of leap year.
See reconciliation of Non-GAAP to GAAP measures in Table 4.
Table 3
SEGMENT KEY OPERATING METRICS
Three Months Ended June 30,
Six Months Ended June 30,
2013
2012
Change
2013
2012
Change
HSN:
Average price point
$ 56.49
$ 58.64
(4%)
$ 57.17
$ 60.95
(6%)
Units shipped (millions)
10.9
10.2
7%
22.3
20.4
10%
Gross margin
35.6%
36.2%
(60 bps)
35.3%
35.5%
(20 bps)
Return rate
19.1%
19.9%
80 bps
19.6%
19.6%
0 bps
Digital sales penetration
35.4%
33.8%
160 bps
35.5%
34.4%
110 bps
Cornerstone:
Average price point
$ 89.03
$ 81.73
9%
$ 80.64
$ 76.59
5%
Units shipped (millions)
3.3
3.3
0%
6.5
6.2
5%
Gross margin
42.4%
42.1%
30 bps
41.1%
41.3%
(20 bps)
Return rate
12.6%
13.3%
70 bps
13.1%
13.7%
60 bps
Digital sales penetration
62.9%
61.7%
120 bps
64.7%
62.6%
210 bps
Catalog circulation (millions)
79.1
77.2
2%
154.8
145.8
6%
HSN Segment Results for the Second Quarter 2013
HSN’s net sales were $526.2 million, an increase of 5% from the prior year. Digital sales grew 10% with penetration increasing 160 basis points to 35.4%. Sales grew in home design, household, electronics and apparel & accessories, offset by lower sales in jewelry and culinary. Net sales were favorably affected by lower return rates. The average price point decreased 4% while units shipped increased 7% primarily due to an increase in clearance activity.
Gross profit increased 3% to $187.5 million. Gross margin decreased 60 basis points to 35.6% primarily due to an increase in shipping and handling promotions.
Operating expenses (excluding non-cash charges) increased 1% to $130.3 million. Adjusted EBITDA increased 8% to $57.1 million compared to $52.7 million in the prior year. Operating income increased 8% to $47.0 million compared to $43.3 million in the prior year.
Cornerstone Segment Results for the Second Quarter 2013
Cornerstone’s net sales were $286.4 million, an increase of 8% from the prior year. The increase in net sales was driven by sales growth in the home brands. Digital sales grew 10% with penetration increasing 120 basis points to 62.9%.
Gross profit increased 9% to $121.3 million. Gross margin increased 30 basis points to 42.4% primarily due to higher product margins.
Operating expenses (excluding non-cash charges) increased 10% to $93.3 million largely due to an increase in selling and marketing costs, particularly catalog production and distribution costs, and reorganization costs. Adjusted EBITDA increased 4% to $28.0 million. Operating income, which was positively impacted by a decrease in stock-based compensation expense, increased 10% to $24.3 million.
Liquidity and Capital Resources
As of June 30, 2013, HSNi had cash and cash equivalents of $92.0 million compared to $222.1 million at December 31, 2012 and $181.3 million at June 30, 2012. Net cash provided by operating activities in the six months ended June 30, 2013 was $31.4 million compared to cash used of $3.0 million in the prior year, an improvement of $34.4 million, primarily due to improved operating performance and changes in working capital.
Effective August 1, 2013, HSNi’s board of directors approved a quarterly cash dividend of $0.18 per share payable September 18, 2013 to shareholders of record as of September 4, 2013.
During the second quarter, HSNi repurchased approximately 0.9 million shares of its common stock at a cost of $49.8 million, or an average cost of $52.95 per share. From inception of the share repurchase program in September 2011 through July 31, 2013, HSNi repurchased a total of 8.4 million shares at an aggregate cost of $365.5 million, representing an average cost of $43.31 per share. HSNi is authorized to purchase up to 10 million shares under the repurchase program authorized in September 2011.
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, its operating segments and its consolidated subsidiaries that are based on current expectations, forecasts and assumptions. These statements relate to expectations concerning matters that are not historical fact. These forward-looking statements are based largely on information currently available to our management and on our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, and such statements involve inherent risks and uncertainties. Although we believe our expectations are based on reasonable estimates and assumptions, they are not guarantees of performance and there are a number of known and unknown risks, uncertainties, contingencies and other factors (many of which are outside our control) that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to: the influence of the macroeconomic environment and its impact on consumer confidence and spending levels; changes in our relationships with pay television operators, vendors, manufacturers and other third parties; changes in shipping and handling costs, particularly if we are unable to offset them; any technological or regulatory developments that could negatively impact the way we do business, including developments requiring us to collect and remit state and local sales and use taxes; risks associated with possible systems failures and/or security breaches, including any security breach that results in the theft, transfer or unauthorized disclosure of customer, employee or company information, or the failure to comply with various laws applicable to HSNi in the event of such a breach; HSNi’s business prospects and strategy, including whether HSNi’s initiatives and investments will be effective; our ability to offer new or innovative products and services through various platforms in a cost effective manner and consumer acceptance of these products and services; and the loss of any key member of our senior management team. 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. All written or oral forward-looking statements that are made or attributable to us are expressly qualified in their entirety by this cautionary notice. 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. Such statements speak only to the date such statements are made and HSNi does not undertake to update any forward-looking statements. Historical results should not be considered as an indication of future performance.
Conference Call
Mindy Grossman, Chief Executive Officer, and Judy Schmeling, Chief Operating Officer and Chief Financial Officer, will hold a conference call on Thursday, August 1, 2013 at 9:00 a.m., Eastern Time, to discuss these results. Those interested in participating in the conference call should dial 877-307-0246 or 224-357-2394 at least five minutes prior to the call. There will also be a simultaneous audio webcast available via HSNi’s website at http://www.hsni.com.
A replay of the conference call can be accessed until Thursday, August 15, 2013 by dialing 800-585-8367 or 404-537-3406, plus the pass code 13814363 and will also be hosted on the company’s website for a limited time.
About HSN, Inc.
HSN, Inc. (Nasdaq:HSNI) is a $3.3 billion interactive multichannel retailer with strong direct-to-consumer expertise among its two operating segments, HSN and Cornerstone. HSNi offers innovative, differentiated retail experiences on TV, online, via mobile devices, in catalogs, and in brick and mortar stores. HSN, a leading interactive multichannel retailer which offers a curated assortment of exclusive products combined with top brand names, now reaches 95 million homes (24 hours a day, seven days a week, live 364 days a year). HSN.com offers a differentiated digital experience by leveraging content, community and commerce. In addition to its existing media platforms, HSN is the industry leader in transactional innovation, including services such as HSN Shop by Remote®, the only service of its kind in the U.S., the HSN Shopping App for mobile handheld devices and HSN on Demand®. Cornerstone comprises leading home and apparel lifestyle brands including Ballard Designs®, Chasing Fireflies®, Frontgate®, Garnet Hill®, Grandin Road®, Improvements® and TravelSmith®. Cornerstone distributes more than 300 million catalogs annually, operates eight separate digital sales sites and operates 11 retail and outlet stores.
GAAP FINANCIAL STATEMENTS
HSN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands except per share amounts)
Three Months Ended June 30,
Six Months Ended June 30,
2013
2012
2013
2012
Net sales
$ 812,606
$ 767,187
$ 1,585,257
$ 1,505,095
Cost of sales
503,829
473,739
996,333
944,733
Gross profit
308,777
293,448
588,924
560,362
Operating expenses:
Selling and marketing
174,875
166,467
339,417
318,183
General and administrative
52,652
52,050
105,786
107,023
Depreciation and amortization
9,951
9,589
19,904
18,555
Total operating expenses
237,478
228,106
465,107
443,761
Operating income
71,299
65,342
123,817
116,601
Interest expense, net
(1,661)
(7,849)
(3,301)
(15,184)
Income from continuing operations before income taxes
69,638
57,493
120,516
101,417
Income tax provision
(26,367)
(21,882)
(45,692)
(38,518)
Income from continuing operations
43,271
35,611
74,824
62,899
Income (loss) from discontinued operations, net of tax
9
(4,864)
—
(5,982)
Net income
$ 43,280
$ 30,747
$ 74,824
$ 56,917
Income from continuing operations per share
Basic
$ 0.81
$ 0.63
$ 1.38
$ 1.09
Diluted
$ 0.79
$ 0.61
$ 1.35
$ 1.06
Net income per share
Basic
$ 0.81
$ 0.54
$ 1.38
$ 0.99
Diluted
$ 0.79
$ 0.53
$ 1.35
$ 0.96
Shares used in computing earnings per share
Basic
53,541
56,970
54,161
57,640
Diluted
54,728
58,450
55,500
59,251
Dividends declared per common share
$ 0.18
$ 0.125
$ 0.36
$ 0.25
HSN, INC. CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
June 30, 2013
December 31, 2012
June 30, 2012
ASSETS
Current assets:
Cash and cash equivalents
$ 91,976
$ 222,092
$ 181,314
Accounts receivable, net
183,940
249,890
153,119
Inventories
355,879
330,936
340,806
Deferred income taxes
29,585
27,603
23,040
Prepaid expenses and other current assets
62,667
46,172
63,682
Total current assets
724,047
876,693
761,961
Property and equipment, net
171,019
171,303
158,610
Intangible assets, net
266,023
266,876
268,057
Goodwill
9,858
9,858
9,858
Other non-current assets
8,348
7,222
11,093
TOTAL ASSETS
$ 1,179,295
$ 1,331,952
$ 1,209,579
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade
$ 212,530
$267,061
$ 209,314
Current maturities of long-term debt
12,500
9,375
—
Accrued expenses and other current liabilities
156,193
215,389
170,015
Total current liabilities
381,223
491,825
379,329
Long-term debt, less current maturities
234,375
240,625
239,208
Deferred income taxes
85,495
79,002
75,094
Other long-term liabilities
11,346
15,986
15,946
Total liabilities
712,439
827,438
709,577
Total shareholders’ equity
466,856
504,514
500,002
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$ 1,179,295
$ 1,331,952
$ 1,209,579
HSN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Six Months Ended June 30,
2013
2012
Cash flows from operating activities attributable to continuing operations:
Net income
$ 74,824
$ 56,917
Income (loss) from discontinued operations, net of tax
—
(5,982)
Income from continuing operations
74,824
62,899
Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities attributable to continuing operations:
Depreciation and amortization
19,904
18,555
Stock-based compensation expense
7,254
10,650
Amortization of debt issuance costs
563
1,422
Loss on disposition of fixed assets
1,019
74
Deferred income taxes
3,536
(1,775)
Bad debt expense
10,018
10,477
Excess tax benefits from stock-based awards
(5,295)
(15,235)
Other
—
42
Changes in current assets and liabilities:
Accounts receivable
55,719
58,763
Inventories
(24,943)
(45,987)
Prepaid expenses and other assets
(16,345)
(15,499)
Accounts payable, accrued expenses and other liabilities
(94,855)
(87,403)
Net cash provided by (used in) operating activities attributable to continuing operations
31,399
(3,017)
Cash flows from investing activities attributable to continuing operations:
Capital expenditures
(22,741)
(19,012)
Acquisition of business, net of cash received
—
(22,875)
Proceeds received on sale of subsidiary
—
5,000
Net cash used in investing activities attributable to continuing operations
(22,741)
(36,887)
Cash flows from financing activities attributable to continuing operations:
Repayment of long-term debt
(3,125)
—
Payments of debt issuance costs
—
(4,607)
Repurchase of common stock
(112,683)
(143,718)
Cash dividends paid
(19,486)
(14,347)
Proceeds from issuance of common stock
3,272
5,399
Tax withholdings related to stock-based awards
(11,900)
(13,965)
Excess tax benefits from stock-based awards
5,295
15,235
Net cash used in financing activities attributable to continuing operations
(138,627)
(156,003)
Total cash used in continuing operations
(129,969)
(195,907)
Cash flows from discontinued operations:
Net cash used in operating activities attributable to discontinued operations
(147)
(4,425)
Net cash used in investing activities attributable to discontinued operations
—
(162)
Total cash used in discontinued operations
(147)
(4,587)
Net decrease in cash and cash equivalents
(130,116)
(200,494)
Cash and cash equivalents at beginning of period
222,092
381,808
Cash and cash equivalents at end of period
$ 91,976
$ 181,314
Table 4
RECONCILIATIONS OF NON-GAAP TO GAAP MEASURES
HSN, INC. RECONCILIATION OF NON-GAAP TO GAAP DETAILED SEGMENT RESULTS
(unaudited; in thousands)
Three Months Ended June 30, 2013
Three Months Ended June 30, 2012
HSN
Cornerstone
Total
HSN
Cornerstone
Total
Adjusted EBITDA
$ 57,135
$ 28,017
$ 85,152
$ 52,709
$ 26,903
$ 79,612
Stock-based compensation expense
(2,761)
(784)
(3,545)
(2,752)
(1,898)
(4,650)
Depreciation and amortization
(7,037)
(2,914)
(9,951)
(6,609)
(2,980)
(9,589)
Loss on disposition of fixed assets
(357)
—
(357)
(31)
—
(31)
Operating income
$ 46,980
$ 24,319
71,299
$ 43,317
$ 22,025
65,342
Interest expense, net
(1,661)
(7,849)
Income from continuing operations before income taxes
69,638
57,493
Income tax provision
(26,367)
(21,882)
Income from continuing operations
43,271
35,611
Income (loss) from discontinued operations, net of tax
9
(4,864)
Net income
$ 43,280
$ 30,747
Six Months Ended June 30, 2013
Six Months Ended June 30, 2012
HSN
Cornerstone
Total
HSN
Cornerstone
Total
Adjusted EBITDA
$ 116,069
$ 35,925
$ 151,994
$ 110,031
$ 35,849
$ 145,880
Stock-based compensation expense
(5,584)
(1,670)
(7,254)
(6,039)
(4,611)
(10,650)
Depreciation and amortization
(13,858)
(6,046)
(19,904)
(13,174)
(5,381)
(18,555)
Loss on disposition of fixed assets
(1,018)
(1)
(1,019)
(45)
(29)
(74)
Operating income
$ 95,609
$ 28,208
123,817
$ 90,773
$ 25,828
116,601
Total other expense, net
(3,301)
(15,184)
Income from continuing operations before income taxes
120,516
101,417
Income tax provision
(45,692)
(38,518)
Income from continuing operations
74,824
62,899
Income (loss) from discontinued operations, net of tax
—
(5,982)
Net income
$ 74,824
$ 56,917
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 charges including: (a) stock-based compensation expense, (b) amortization of intangibles, (c) depreciation and gains and losses on asset dispositions, and (d) goodwill, long-lived asset and intangible asset impairments; (2) pro forma adjustments for significant acquisitions; and (3) other significant items. Significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, thereby affecting the comparability of results. 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 and media industries. 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, gains and losses that are excluded from the company’s definition of Adjusted EBITDA.
Adjusted Net Income is defined as net income available to common shareholders excluding, net of tax effects, if applicable: (1) goodwill, long-lived asset and intangible asset impairments, (2) pro forma adjustments for significant acquisitions, (3) discontinued operations and (4) other significant items. Significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, thereby affecting the comparability of results. 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 goodwill and asset impairments, significant acquisition-related adjustments, discontinued operations and certain other significant items.
Adjusted EPS is defined as Adjusted Net Income divided by 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 goodwill and asset impairments, significant acquisition-related adjustments, discontinued operations and certain other significant items. Adjusted Net Income and Adjusted EPS have certain limitations in that they do not take into account the impact of goodwill and asset impairments, significant acquisition-related adjustments, discontinued operations and certain other significant items. Therefore, we think it is important to evaluate these measures along with our consolidated statement of operations.
