HSN, Inc. Reports Second Quarter 2015 Results
HSNi Highlights for the Second Quarter 2015:
- Net sales increased 4% with digital sales up 11%
- Adjusted EBITDA increased 10%
- Adjusted EPS increased 7% to
$0.81 per share
Table 1 |
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HSNi SUMMARY RESULTS AND KEY OPERATING METRICS (a) | |||||||||
(In millions, except per share and average price point amounts) | |||||||||
Q2 2015 | Q2 2014 | Change | |||||||
Net Sales | |
|
4% | ||||||
Adjusted EBITDA (Non-GAAP) (b) | |
|
10% | ||||||
Operating Income (GAAP) | |
|
5% | ||||||
Adjusted Net Income (Non-GAAP) (b) | |
|
6% | ||||||
Net Income (GAAP) | |
|
2% | ||||||
Adjusted EPS (Non-GAAP) (b) | |
|
7% | ||||||
Diluted EPS (GAAP) | |
|
3% | ||||||
Average price point | |
|
3% | ||||||
Units shipped | 14.7 | 14.7 | —% | ||||||
Gross margin | 38.0% | 36.6% | 140 bps | ||||||
Return rate | 16.2% | 16.5% | (30 bps) | ||||||
Digital sales penetration | 49.9% | 46.6% | 330 bps | ||||||
(a) HSNi’s two operating segments, HSN and Cornerstone, are presented separately in Tables 2 and 3 of this release. | |||||||||
(b) Q2 2015 results exclude |
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See reconciliation of Non-GAAP to GAAP measures in Table 4. |
Second Quarter 2015 Results vs Second Quarter 2014 Results
- HSNi’s net sales grew 4% over the prior year to
$885.6 million . HSN’s net sales increased 3% to$572.3 million , including 11% growth in digital sales. Cornerstone’s net sales increased 5% to$313.3 million , including 10% growth in digital sales. - HSNi’s Adjusted EBITDA increased 10% to
$90.0 million . HSN’s Adjusted EBITDA increased 9% to$68.2 million . Cornerstone’s Adjusted EBITDA increased 12% to$21.8 million . HSNi’s operating income, which includes$3.0 million for certain costs associated with the planned closure of one of HSN’s distribution centers, increased 5% to$70.7 million . - Adjusted EPS, which excludes
$0.03 per diluted share for certain costs associated with the planned closure of one of HSN’s distribution centers, increased 7% to$0.81 compared to$0.76 in the prior year. Diluted EPS increased 3% to$0.78 compared to$0.76 in the prior year. - During the second quarter, HSNi repurchased approximately 159,000 shares of its common stock at a cost of
$10.4 million , representing an average cost of$65.59 . Additionally, inAugust 2015 , HSNi’s board of directors approved a quarterly cash dividend of$0.35 per share payableSeptember 16, 2015 to shareholders of record as ofSeptember 2, 2015 .
“Our ongoing focus on content-driven commerce continues to position us well for long-term growth,” stated
Table 2 | ||||||||||||||||
SEGMENT RESULTS | ||||||||||||||||
($ in millions) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
|
|
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2015 | 2014 | Change | 2015 | 2014 | Change | |||||||||||
Net Sales | ||||||||||||||||
HSN | |
|
3% | |
|
7% | ||||||||||
Cornerstone | 313.3 | 298.7 | 5% | 554.7 | 531.6 | 4% | ||||||||||
Total HSNi | |
|
4% | |
|
6% | ||||||||||
Gross Profit | ||||||||||||||||
HSN | |
|
7% | |
|
8% | ||||||||||
Cornerstone | 127.3 | 116.6 | 9% | 219.9 | 201.8 | 9% | ||||||||||
Total HSNi | |
|
7% | |
|
8% | ||||||||||
Adjusted EBITDA (Non-GAAP measure) | ||||||||||||||||
HSN (a) | |
|
9% | |
|
10% | ||||||||||
Cornerstone (b) | 21.8 | 19.4 | 12% | 28.8 | 20.1 | 44% | ||||||||||
Total HSNi (a)(b) | |
|
10% | |
|
15% | ||||||||||
Operating Income | ||||||||||||||||
HSN | |
|
3% | |
|
8% | ||||||||||
Cornerstone | 17.2 | 15.3 | 12% | 19.3 | 8.6 | 124% | ||||||||||
Total HSNi | |
|
5% | |
|
17% | ||||||||||
(a) Results for the three and six months ended |
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(b) Results for the six months ended |
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See reconciliation of Non-GAAP to GAAP measures in Table 4. |
Table 3 | ||||||||||||||
SEGMENT KEY OPERATING METRICS | ||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||
|
|
|||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | |||||||||
HSN: | ||||||||||||||
Average price point | |
|
1% | |
|
1% | ||||||||
Units shipped (millions) | 11.4 | 11.2 | 2% | 23.4 | 22.4 | 5% | ||||||||
Gross margin | 36.6% | 35.3% | 130 bps | 35.5% | 35.2% | 30 bps | ||||||||
Return rate | 18.0% | 18.7% | (70 bps) | 17.8% | 18.5% | (70 bps) | ||||||||
Digital sales penetration | 40.3% | 37.2% | 310 bps | 40.5% | 37.6% | 290 bps | ||||||||
Cornerstone: | ||||||||||||||
Average price point | |
|
8% | |
|
9% | ||||||||
Units shipped (millions) | 3.4 | 3.5 | (3)% | 6.5 | 6.9 | (5)% | ||||||||
Gross margin | 40.6% | 39.1% | 150 bps | 39.6% | 38.0% | 160 bps | ||||||||
Return rate | 12.7% | 12.2% | 50 bps | 13.0% | 12.9% | 10 bps | ||||||||
Digital sales penetration | 67.4% | 64.1% | 330 bps | 67.7% | 65.7% | 200 bps | ||||||||
Catalog circulation (millions) | 85.9 | 83.5 | 3% | 169.6 | 165.2 | 3% |
HSN Segment Results for the Second Quarter 2015
HSN’s net sales increased 3% to
Gross profit increased 7% to
HSN recorded
Adjusted EBITDA increased 9% to
Cornerstone Segment Results for the Second Quarter 2015
Cornerstone’s net sales increased 5% to
Gross profit increased 9% to
Adjusted EBITDA increased 12% to
Liquidity and Capital Resources
As of
As of
HSNi’s board of directors approved a quarterly cash dividend of
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: our ability to attract new and retain existing customers in a cost-effective manner; our exposure to intense competition and our ability to effectively compete for customers; 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 access or 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; any material change in HSNi’s business prospects and/or 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 litigation; risks associated with acquisitions including the ability to successfully integrate new businesses 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
Conference Call
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About
GAAP FINANCIAL STATEMENTS | ||||
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(unaudited; in thousands except per share amounts) | ||||
Three Months Ended | Six Months Ended | |||
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|
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2015 | 2014 | 2015 | 2014 | |
Net sales | |
|
|
1,632,624 |
Cost of sales | 549,105 | 542,069 | 1,090,787 | 1,043,715 |
Gross profit | 336,537 | 313,135 | 636,742 | 588,909 |
Operating expenses: | ||||
Selling and marketing | 191,936 | 182,747 | 367,293 | 349,986 |
General and administrative | 62,813 | 52,218 | 119,403 | 108,129 |
Depreciation and amortization | 11,085 | 10,803 | 22,334 | 21,559 |
Total operating expenses | 265,834 | 245,768 | 509,030 | 479,674 |
Operating income | 70,703 | 67,367 | 127,712 | 109,235 |
Interest expense, net | (3,880) | (1,810) | (7,177) | (3,509) |
Income before income taxes | 66,823 | 65,557 | 120,535 | 105,726 |
Income tax provision | (25,191) | (24,617) | (45,214) | (40,604) |
Net income | |
|
|
|
Net income per share | ||||
Basic | |
|
|
|
Diluted | |
|
|
|
Shares used in computing earnings per share | ||||
Basic | 52,683 | 52,916 | 52,628 | 53,037 |
Diluted | 53,675 | 53,745 | 53,718 | 53,954 |
Dividends declared per common share | |
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|
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(unaudited; in thousands) | |||
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|
|
2015 | 2014 | 2014 | |
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | |
|
|
Accounts receivable, net | 195,468 | 317,785 | 199,897 |
Inventories | 448,792 | 398,705 | 382,696 |
Deferred income taxes | 29,775 | 32,668 | 26,849 |
Prepaid expenses and other current assets | 61,241 | 44,728 | 63,350 |
Total current assets | 809,453 | 953,871 | 795,124 |
Property and equipment, net | 199,906 | 193,889 | 173,912 |
Intangible assets, net | 261,863 | 261,962 | 262,159 |
Goodwill | 9,858 | 9,858 | 9,858 |
Other non-current assets | 18,264 | 12,614 | 18,367 |
TOTAL ASSETS | |
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||
Current liabilities: | |||
Accounts payable, trade | |
|
|
Current maturities of long-term debt | 12,500 | 17,188 | 14,063 |
Accrued expenses and other current liabilities | 183,634 | 241,074 | 187,237 |
Total current liabilities | 418,991 | 513,549 | 421,028 |
Long-term debt, net of current maturities | 662,500 | 210,938 | 220,312 |
Deferred income taxes | 81,998 | 88,787 | 80,733 |
Other long-term liabilities | 21,405 | 16,579 | 15,368 |
Total liabilities | 1,184,894 | 829,853 | 737,441 |
Total shareholders’ equity | 114,450 | 602,341 | 521,979 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | |
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|
|
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(unaudited; in thousands) | ||
Six Months Ended | ||
|
||
2015 | 2014 | |
Cash flows from operating activities attributable to operations: | ||
Net income | |
|
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 22,334 | 21,559 |
Stock-based compensation expense | 9,424 | 7,810 |
Amortization of debt issuance costs | 1,276 | 552 |
Deferred income taxes | (3,611) | (4,115) |
Bad debt expense | 13,338 | 9,225 |
Excess tax benefits from stock-based awards | (8,251) | (4,981) |
Other | 673 | 135 |
Changes in current assets and liabilities: | ||
Accounts receivable | 108,998 | 55,993 |
Inventories | (50,087) | (55,377) |
Prepaid expenses and other assets | (17,023) | (14,035) |
Accounts payable, accrued expenses and other liabilities | (80,092) | (53,690) |
Net cash provided by operating activities | 72,300 | 28,198 |
Cash flows from investing activities: | ||
Capital expenditures | (26,242) | (15,901) |
Other | 6 | (491) |
Net cash used in investing activities | (26,236) | (16,392) |
Cash flows from financing activities: | ||
Borrowings under term loan | 500,000 | — |
Repayments of term loan | (228,125) | (6,250) |
Borrowings under revolving credit facility | 225,000 | — |
Repayments of revolving credit facility | (50,000) | — |
Payments of debt issuance costs | (6,620) | — |
Repurchase of common stock | (18,335) | (50,979) |
Cash dividends paid | (561,182) | (26,429) |
Proceeds from issuance of common stock | 11,357 | 1,441 |
Tax withholdings related to stock-based awards | (12,218) | (8,653) |
Excess tax benefits from stock-based awards | 8,251 | 4,981 |
Net cash used in financing activities | (131,872) | (85,889) |
Total cash used in continuing operations | (85,808) | (74,083) |
Total cash used in discontinued operations | — | (18) |
Net decrease in cash and cash equivalents | (85,808) | (74,101) |
Cash and cash equivalents at beginning of period | 159,985 | 196,433 |
Cash and cash equivalents at end of period | |
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Table 4 | ||||||
RECONCILIATIONS OF NON-GAAP TO GAAP MEASURES | ||||||
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(unaudited; in thousands) | ||||||
Three Months Ended | Three Months Ended | |||||
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|
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HSN | Cornerstone | Total | HSN | Cornerstone | Total | |
Adjusted EBITDA | |
|
|
|
|
|
Stock-based compensation expense | (3,617) | (1,151) | (4,768) | (3,053) | (731) | (3,784) |
Depreciation and amortization | (7,590) | (3,495) | (11,085) | (7,423) | (3,380) | (10,803) |
Distribution center closure (a) | (3,032) | — | (3,032) | — | — | — |
Loss on disposition of fixed assets | (430) | (7) | (437) | (104) | (34) | (138) |
Operating income | |
|
|
|
|
|
Interest expense, net | (3,880) | (1,810) | ||||
Income before income taxes | 66,823 | 65,557 | ||||
Income tax provision | (25,191) | (24,617) | ||||
Net income | |
|
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Six Months Ended | Six Months Ended | |||||
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HSN | Cornerstone | Total | HSN | Cornerstone | Total | |
Adjusted EBITDA | |
|
|
|
|
|
Stock-based compensation expense | (7,226) | (2,198) | (9,424) | (6,197) | (1,613) | (7,810) |
Depreciation and amortization | (15,008) | (7,326) | (22,334) | (14,860) | (6,699) | (21,559) |
Distribution center closure (a) | (3,032) | — | (3,032) | — | — | — |
CPSC settlement (b) | — | — | — | — | (3,100) | (3,100) |
Loss on disposition of fixed assets | (665) | (8) | (673) | (104) | (42) | (146) |
Operating income | |
|
|
|
|
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Interest expense, net | (7,177) | (3,509) | ||||
Income before income taxes | 120,535 | 105,726 | ||||
Income tax provision | (45,214) | (40,604) | ||||
Net income | |
|
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(a) In the second quarter of 2015, HSN recorded |
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(b) In the first quarter of 2014, Cornerstone had a |
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(unaudited; in thousands except per share amounts) | ||||
Three Months Ended | ||||
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2015 | 2014 | |||
Net Income | EPS | Net Income | EPS | |
Non-GAAP Adjusted | |
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|
|
Distribution center closure (a) | (1,894) | (0.03) | — | — |
CPSC settlement (b) | — | — | — | — |
GAAP | |
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GAAP diluted weighted average shares outstanding | 53,675 | 53,745 | ||
Six Months Ended | ||||
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||||
2015 | 2014 | |||
Net Income | EPS | Net Income | EPS | |
Non-GAAP Adjusted | |
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|
|
Distribution center closure (a) | (1,894) | (0.03) | — | — |
CPSC settlement (b) | — | — | (3,100) | (0.05) |
GAAP | |
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|
|
GAAP diluted weighted average shares outstanding | 53,718 | 53,954 | ||
(a) In the second quarter of 2015, HSN recorded |
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(b) In the first quarter of 2014, Cornerstone had a |
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.
CONTACT:Felise Glantz Kissell (Analysts/Investors) 727-872-7529 felise.kissell@hsn.netGigi Ganatra Duff (Media) 727-872-4808 gigi.ganatraduff@hsn.net
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