By  on May 24, 1994

NEW YORK -- Is the bloom off the rose, or has QVC simply run into a pothole on the electronic superhighway?

QVC, the billion dollar-plus leader in home shopping, was viewed only recently as a lucrative profit center, with vast growth potential.

In the last few months, however, the company has taken a big hit on the bottom line from its failed takeover attempt of Paramount Communications and, in the midst of several ambitious startups -- and increased competition -- has lost considerable ground in the financial community.

Last August, when the future of interactive marketing seemed rife with promise, and QVC boss Barry Diller's reputation for creativity and leadership was dazzling Wall Street, QVC's shares were trading at 73.

Since then, the stock has taken a nose dive. On Monday, the stock closed at 31 1/2, unchanged in over-the-counter trading.

"There was a belief a year ago that Barry Diller could walk on water," one industry analyst said. "The market is now saying he can't swim."

Last week, QVC reported that first-quarter earnings dropped 31.5 percent. Net income in the previous quarter was off sharply after an $18.8 million after-tax charge to cover the company's failed pursuit of Paramount.

QVC said its profit margins were hurt by higher gold prices that depressed markups on the jewelry products it sells. Jewelry is a key category, accounting for about 40 percent of the company's overall sales.

The lower margins also reflected strong sales of QVC's promotional Today's Special Value items, which run about 8 to 10 percent below QVC's normal prices, the company said. These items accounted for 20 percent of sales versus 16 percent a year earlier, QVC said.

Is this the classic retail dilemma of shoppers hanging back, waiting for markdowns?

No, says William Costello, executive vice president and chief financial officer of QVC.

"We're very competitive on all our prices already," he said. "What we don't know is whether it was the strength of the TSV itself or that the rest of the mix was weaker last year."

Wall Street analysts point to a number of reasons for the stock's decline, including the general state of the stock market, which has only lately begun to rebound.

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