Shares in HSNi dropped 13 percent Wednesday after the shopping network delivered third-quarter earnings that missed analysts’ estimates for sales and earnings.
HSNi reported third-quarter net sales increased 3 percent to $864.9 million, but the consensus was for $873 million. Adjusted earnings were 70 cents a share, lighter than last year’s 74 cents a share and missing the estimate of 76 cents a share. The miss did not go unrecognized by top management.
“We are not pleased with our third-quarter results, which do not reflect the deliberate and strategic changes we have made over the past three years to strengthen our brands, create efficiencies and develop our talent to position ourselves for long-term growth,” stated Mindy Grossman, chief executive officer of HSN Inc. “While we believe that our opportunity to drive growth remains strong, certain product categories at HSN and specific brands within our Cornerstone portfolio weighed on our results in the quarter. We have taken decisive actions to course-correct and move the business forward while managing profitability.”
On the company’s earnings conference call, Grossman admitted the problems in the quarter and articulated strategic responses to each item.
She told WWD, “We’ve identified the issues and fueled the pipeline.”
She also addressed concerns on the call about Amazon’s entry into TV shopping by saying HSNi would be differentiated and competitive and said that they were in the final stages of launching a shop by remote app on the Amazon Fire device. She takes the challenge seriously, but feels HSNi owns the space, as evidenced by a lack of competition.
Grossman also said the company would be offering 12-month financing for jewelry purchases of more than $200. She told WWD, “The hope is that this will increase more high price purchases. Our customers are extremely creditworthy and we want them to embrace higher price points.”
The jewelry business was soft in the quarter and Grossman said the pipeline for this category will bring in new designer names and proprietary diamond cuts.
During the quarter, some of the problems occurred at the Cornerstone segment, where gross profits decreased to 37.1 percent as a result of increased promotions including markdowns on end-of-season inventory. Adjusted earnings before interest, taxes, depreciation and amortization decreased $3.2 million to $11 million primarily due to lower gross profit margin rates and high selling and marketing expenses.
HSNi also saw its cash position drop to $63.2 million from $93.1 million last year. The decrease was due to the funding of HSNi’s capital return plan. HSNi also spent $33.7 million repurchasing shares in the third quarter.
“At Cornerstone, we are maximizing growth opportunities while rationalizing circulation and inventory to drive the business,” added Grossman. “We continue to have strong digital performance at HSNi with digital sales growth of 8 percent and penetration of nearly 50 percent with mobile up 18 percent — now representing 37 percent of our total digital business.”