HSNi net sales increased 5% with digital sales up 9%
HSNi Adjusted EBITDA decreased 4% while HSN increased 10%
Diluted EPS was $0.76 compared to $0.79 in the prior year
Completed 10 million share repurchase program
ST. PETERSBURG, Fla., Aug. 7, 2014 (GLOBE NEWSWIRE) — HSN, Inc. (Nasdaq:HSNI) reported results for the second quarter ended June 30, 2014 for HSN, Inc. (“HSNi” or “Company”) and its two operating segments, HSN and Cornerstone.
Table 1
HSNi SUMMARY RESULTS AND KEY OPERATING METRICS (a)
(In millions, except per share and average price point amounts)
Q2 2014
Q2 2013
Change
Net Sales
$ 855.2
$ 812.6
5%
Adjusted EBITDA (Non-GAAP)
$ 82.1
$ 85.2
(4)%
Operating Income (GAAP)
$ 67.4
$ 71.3
(6)%
Net Income (GAAP)
$ 40.9
$ 43.3
(5)%
Diluted EPS (GAAP)
$ 0.76
$ 0.79
(4)%
Average price point
$ 65.15
$ 64.25
1%
Units shipped
14.7
14.1
4%
Gross margin
36.6 %
38.0 %
(140 bps)
Return rate
16.5 %
17.0 %
50 bps
Digital sales penetration
46.6 %
45.1 %
150 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 2014 Results vs Second Quarter 2013 Results
HSNi’s net sales grew 5% over the prior year to $855.2 million. HSN’s net sales increased 6% to $556.5 million, including 11% growth in digital sales. Cornerstone’s net sales increased 4% to $298.7 million, including 6% growth in digital sales.
HSNi’s Adjusted EBITDA decreased 4% to $82.1 million. HSN’s Adjusted EBITDA increased 10% to $62.7 million. Cornerstone’s Adjusted EBITDA decreased to $19.4 million from $28.0 million in the prior year. GAAP operating income decreased 6% to $67.4 million.
During the second quarter, HSNi repurchased approximately 0.9 million shares of its common stock at a cost of $49.5 million, or an average cost of $54.78 per share. In July 2014, HSNi completed its 10 million share repurchase program authorized in September 2011 at an aggregate cost of $451 million, representing an average cost of $45.10 per share.
HSNi’s board of directors approved a quarterly cash dividend of $0.25 per share payable September 17, 2014 to shareholders of record as of September 3, 2014.
“Our focus during the second quarter remained on engaging our customers, emphasizing our unique content and proprietary products, and strengthening our digital platforms. HSNi sales increased 5% and digital sales grew 9% with mobile now representing 15% of our total sales. During the quarter, we saw a bifurcation within our business. HSN had strong results with sales up 6%, digital sales up 11% and Adjusted EBITDA up 10%. While Cornerstone maintained top line growth of 4%, margins were impacted by a highly promotional marketplace,” said Mindy Grossman, CEO of HSN, Inc. “Our customer file metrics at both HSN and within the Cornerstone portfolio were at record highs. We also returned $63 million to our shareholders through our capital return plan.”
Table 2
SEGMENT RESULTS
($ in millions)
Three Months Ended June 30,
Six Months Ended June 30,
2014
2013
Change
2014
2013
Change
Net Sales
HSN
$ 556.5
$ 526.2
6%
$ 1,101.0
$ 1,076.3
2%
Cornerstone
298.7
286.4
4%
531.6
508.9
4%
Total HSNi
$ 855.2
$ 812.6
5%
$ 1,632.6
$ 1,585.3
3%
Gross Profit
HSN
$ 196.5
$ 187.5
5%
$ 387.1
$ 379.8
2%
Cornerstone
116.6
121.3
(4)%
201.8
209.1
(3)%
Total HSNi
$ 313.1
$ 308.8
1%
$ 588.9
$ 588.9
—%
Adjusted EBITDA (Non-GAAP measure)
HSN
$ 62.7
$ 57.1
10%
$ 121.8
$ 116.1
5%
Cornerstone
19.4
28.0
(31)%
20.1
35.9
(44)%
Total HSNi
$ 82.1
$ 85.2
(4)%
$ 141.8
$ 152.0
(7)%
Operating Income
HSN
$ 52.1
$ 47.0
11%
$ 100.6
$ 95.6
5%
Cornerstone (a)
15.3
24.3
(37)%
8.6
28.2
(70)%
Total HSNi
$ 67.4
$ 71.3
(6)%
$ 109.2
$ 123.8
(12)%
(a) Results for the six months ended June 30, 2014 include a $3.1 charge for the CPSC settlement.
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,
2014
2013
Change
2014
2013
Change
HSN:
Average price point
$ 57.62
$ 56.49
2%
$ 57.00
$ 57.17
—%
Units shipped (millions)
11.2
10.8
4%
22.4
21.9
2%
Gross margin
35.3 %
35.6 %
(30 bps)
35.2 %
35.3 %
(10 bps)
Return rate
18.7 %
19.2 %
50 bps
18.5 %
19.6 %
110 bps
Digital sales penetration
37.2 %
35.4 %
180 bps
37.6 %
35.5 %
210 bps
Cornerstone:
Average price point
$ 88.95
$ 89.03
—%
$ 80.26
$ 80.64
—%
Units shipped (millions)
3.5
3.3
5%
6.9
6.5
6%
Gross margin
39.1 %
42.4 %
(330 bps)
38.0 %
41.1 %
(310 bps)
Return rate
12.2 %
12.6 %
40 bps
12.9 %
13.1 %
20 bps
Digital sales penetration
64.2 %
62.9 %
130 bps
65.7 %
64.7 %
100 bps
Catalog circulation (millions)
83.5
79.1
6%
165.2
154.8
7%
HSN Segment Results for the Second Quarter 2014
HSN’s net sales were $556.5 million, an increase of 6% from the prior year. Digital sales grew 11% with penetration increasing 180 basis points to 37.2%. Sales grew in beauty, home design, health and culinary offset by lower sales in electronics and jewelry. Units shipped increased 4% and average price point increased 2%.
Gross profit increased 5% to $196.5 million with gross margin decreasing 30 basis points to 35.3% primarily due to an increase in shipping promotions. Operating expense leverage (excluding non-cash charges) improved 80 basis points to 24.0%.
Adjusted EBITDA increased 10% to $62.7 million. GAAP operating income increased 11% to $52.1 million.
Cornerstone Segment Results for the Second Quarter 2014
Cornerstone’s net sales were $298.7 million, an increase of 4% from the prior year. Sales grew in the home brands, partially offset by lower sales in the apparel brands. Digital sales grew 6% with penetration increasing 130 basis points to 64.2%.
Gross profit decreased 4% to $116.6 million. Gross margin decreased to 39.1% from 42.4% primarily due to increased promotional activity primarily in response to competitive market conditions. Operating expenses as a percentage of net sales improved 10 basis points to 32.5%.
Adjusted EBITDA decreased $8.6 million to $19.4 million. GAAP operating income was $15.3 million compared to $24.3 million in the prior year.
Liquidity and Capital Resources
As of June 30, 2014, HSNi had cash and cash equivalents of $122.3 million compared to $196.4 million at December 31, 2013 and $92.0 million at June 30, 2013. Net cash provided by operating activities in the six months ended June 30, 2014 was $28.2 million compared to $33.6 million in the prior year.
HSNi’s board of directors approved a quarterly cash dividend of $0.25 per share payable September 17, 2014 to shareholders of record as of September 3, 2014.
During the second quarter, HSNi repurchased approximately 0.9 million shares of its common stock at a cost of $49.5 million, or an average cost of $54.78 per share. In July 2014, HSNi completed its 10 million share repurchase program authorized in September 2011 at an aggregate cost of $451 million, representing an average cost of $45.10 per share. Since inception of its capital return plan in September 2011, HSNi has returned $558 million to its shareholders through a balanced approach of share repurchases and cash dividends. HSNi remains committed to returning value to shareholders, while preserving liquidity and flexibility to invest in the business.
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 and financial condition of HSNi, its operating segments and its consolidated subsidiaries. Forward-looking statements are based on management’s current expectations and assumptions which may not prove to be accurate. Forward-looking statements are not guarantees of performance or historical facts 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: changes in political, business and economic conditions, particularly those that affect consumer confidence, consumer spending or digital sales growth; 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 regulations regarding state and local sales and use taxes; risks associated with possible systems failures and/or security breaches, including any 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; risks associated with acquisitions including the ability to successfully integrate new business and achieve expected benefits and results; 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 7, 2014 at 9:00 a.m., Eastern Daylight 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 21, 2014 by dialing 855-859-2056 or 404-537-3406, plus the pass code 72340808 and will also be hosted on the company’s website for a limited time.
About HSN, Inc.
HSN, Inc. (Nasdaq:HSNI) is a $3.4 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 approximately 320 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,
2014
2013
2014
2013
Net sales
$ 855,204
$ 812,606
$ 1,632,624
$ 1,585,257
Cost of sales
542,069
503,829
1,043,715
996,333
Gross profit
313,135
308,777
588,909
588,924
Operating expenses:
Selling and marketing
182,747
174,875
349,986
339,417
General and administrative
52,218
52,652
108,129
105,786
Depreciation and amortization
10,803
9,951
21,559
19,904
Total operating expenses
245,768
237,478
479,674
465,107
Operating income
67,367
71,299
109,235
123,817
Interest expense, net
(1,810)
(1,661)
(3,509)
(3,301)
Income from continuing operations before income taxes
65,557
69,638
105,726
120,516
Income tax provision
(24,617)
(26,367)
(40,604)
(45,692)
Income from continuing operations
40,940
43,271
65,122
74,824
Income from discontinued operations, net of tax
—
9
—
—
Net income
$ 40,940
$ 43,280
$ 65,122
$ 74,824
Net income per share
Basic
$ 0.77
$ 0.81
$ 1.23
$ 1.38
Diluted
$ 0.76
$ 0.79
$ 1.21
$ 1.35
Shares used in computing earnings per share
Basic
52,916
53,541
53,037
54,161
Diluted
53,745
54,728
53,954
55,500
Dividends declared per common share
$ 0.25
$ 0.18
$ 0.50
$ 0.36
HSN, INC. CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
June 30, 2014
December 31, 2013
June 30, 2013
ASSETS
Current assets:
Cash and cash equivalents
$ 122,332
$ 196,433
$ 91,976
Accounts receivable, net
199,897
265,115
183,940
Inventories
382,696
327,319
355,879
Deferred income taxes
26,849
29,761
29,585
Prepaid expenses and other current assets
63,350
48,630
62,667
Total current assets
795,124
867,258
724,047
Property and equipment, net
173,912
178,720
171,019
Intangible assets, net
262,159
262,460
266,023
Goodwill
9,858
9,858
9,858
Other non-current assets
18,367
19,627
8,348
TOTAL ASSETS
$ 1,259,420
$ 1,337,923
$ 1,179,295
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade
$ 219,728
$ 255,627
$ 212,530
Current maturities of long-term debt
14,063
12,500
12,500
Accrued expenses and other current liabilities
187,237
207,984
156,193
Total current liabilities
421,028
476,111
381,223
Long-term debt, net of current maturities
220,312
228,125
234,375
Deferred income taxes
80,733
88,034
85,495
Other long-term liabilities
15,368
16,572
11,346
Total liabilities
737,441
808,842
712,439
Total shareholders’ equity
521,979
529,081
466,856
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$ 1,259,420
$ 1,337,923
$ 1,179,295
HSN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Six Months Ended June 30,
2014
2013
Cash flows from operating activities attributable to continuing operations:
Net income
$ 65,122
$ 74,824
Adjustments to reconcile income from continuing operations to net cash provided by operating activities attributable to continuing operations:
Depreciation and amortization
21,559
19,904
Stock-based compensation expense
7,810
7,254
Amortization of debt issuance costs
552
563
Deferred income taxes
(4,115)
3,536
Bad debt expense
9,225
10,018
Excess tax benefits from stock-based awards
(4,981)
(5,295)
Other
135
1,019
Changes in current assets and liabilities:
Accounts receivable
55,993
55,719
Inventories
(55,377)
(24,943)
Prepaid expenses and other assets
(14,035)
(16,345)
Accounts payable, accrued expenses and other liabilities
(53,690)
(92,683)
Net cash provided by operating activities attributable to continuing operations
28,198
33,571
Cash flows from investing activities attributable to continuing operations:
Capital expenditures
(15,901)
(22,741)
Other
(491)
—
Net cash used in investing activities attributable to continuing operations
(16,392)
(22,741)
Cash flows from financing activities attributable to continuing operations:
Repayments of long-term debt
(6,250)
(3,125)
Repurchase of common stock
(50,979)
(112,683)
Cash dividends paid
(26,429)
(19,486)
Proceeds from issuance of common stock
1,441
3,272
Tax withholdings related to stock-based awards
(8,653)
(11,900)
Excess tax benefits from stock-based awards
4,981
5,295
Payment of contingent consideration obligation
—
(2,172)
Net cash used in financing activities attributable to continuing operations
(85,889)
(140,799)
Total cash used in continuing operations
(74,083)
(129,969)
Total cash used in discontinued operations
(18)
(147)
Net decrease in cash and cash equivalents
(74,101)
(130,116)
Cash and cash equivalents at beginning of period
196,433
222,092
Cash and cash equivalents at end of period
$ 122,332
$ 91,976
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, 2014
Three Months Ended June 30, 2013
HSN
Cornerstone
Total
HSN
Cornerstone
Total
Adjusted EBITDA
$ 62,657
$ 19,435
$ 82,092
$ 57,135
$ 28,017
$ 85,152
Stock-based compensation expense
(3,053)
(731)
(3,784)
(2,761)
(784)
(3,545)
Depreciation and amortization
(7,423)
(3,380)
(10,803)
(7,037)
(2,914)
(9,951)
Loss on disposition of fixed assets
(104)
(34)
(138)
(357)
—
(357)
Operating income
$ 52,077
$ 15,290
$ 67,367
$ 46,980
$ 24,319
$ 71,299
Interest expense, net
(1,810)
(1,661)
Income from continuing operations before income taxes
65,557
69,638
Income tax provision
(24,617)
(26,367)
Income from continuing operations
40,940
43,271
Income from discontinued operations, net of tax
—
9
Net income
$ 40,940
$ 43,280
Six Months Ended June 30, 2014
Six Months Ended June 30, 2013
HSN
Cornerstone
Total
HSN
Cornerstone
Total
Adjusted EBITDA
$ 121,799
$ 20,051
$ 141,850
$ 116,069
$ 35,925
$ 151,994
Stock-based compensation expense
(6,197)
(1,613)
(7,810)
(5,584)
(1,670)
(7,254)
Depreciation and amortization
(14,860)
(6,699)
(21,559)
(13,858)
(6,046)
(19,904)
CPSC settlement (a)
—
(3,100)
(3,100)
—
—
—
Loss on disposition of fixed assets
(104)
(42)
(146)
(1,018)
(1)
(1,019)
Operating income
$ 100,638
$ 8,597
$ 109,235
$ 95,609
$ 28,208
$ 123,817
Total other expense, net
(3,509)
(3,301)
Income from continuing operations before income taxes
105,726
120,516
Income tax provision
(40,604)
(45,692)
Income from continuing operations
65,122
74,824
Income from discontinued operations, net of tax
—
—
Net income
$ 65,122
$ 74,824
(a) The company reached a $3.1 million settlement related to a civil penalty assessed by the Consumer Product Safety Commission.
HSN, INC. RECONCILIATION OF ADJUSTED NET INCOME AND ADJUSTED EPS TO GAAP NET INCOME AND GAAP DILUTED EPS
(unaudited; in thousands except per share amounts)
Six Months Ended June 30,
2014
2013
Net Income
EPS
Net Income
EPS
Non-GAAP Adjusted
$ 68,222
$ 1.26
$ 74,824
$ 1.35
CPSC settlement
(3,100)
(0.05)
—
—
GAAP results from continuing operations
65,122
1.21
74,824
1.35
Loss from discontinued operations, net of tax
—
—
—
—
GAAP
$ 65,122
$ 1.21
$ 74,824
$ 1.35
GAAP diluted weighted average shares outstanding
53,954
55,500
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.
