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HSN posts stellar performance in fourth quarter

Defying a flat retail environment, HSN Inc. clicked on all cylinders through a fourth quarter that included the holiday shopping season.

Almost all categories and performance measures rose at the St. Petersburg company, which Wednesday reported an 8 percent increase in sales and an 18 percent increase in profit. One hiccup was a small sales decrease at its long-struggling Cornerstone catalog unit.

Sales on just the HSN TV network and its Web site leaped 12 percent from a year ago to $612 million, the most in the company's 32-year history.

The sales performance was mirrored by rival QVC, signaling a comeback for the two biggest TV shopping networks that suffered with other retailers through the recession.

The only TV shopping network broadcasting streaming video on TV, online and to mobile devices, HSN said its ability to react to signs of new interest in discretionary shopping late in the third quarter enabled it to beef up its fashion, jewelry, home and electronics selections well ahead of other merchants.

"Clearly there has been a fundamental shift away from stores that operate from a static place," said Mindy Grossman, HSN chief executive. "Being wherever the customer wants us to be and our ability to adjust to demand closer to real time makes us more relevant to today's customer. We see the momentum continuing."

Carrying merchandise that customers want to buy is perhaps the biggest reason for both networks improved performance. HSN and QVC recently moved to punch up their fashion sense and take product quality up to and sometimes above the level of lifestyle goods found in department stores.

Once known for frumpy frocks, QVC and HSN are engaged in a signing war of red carpet couture apparel designers to develop affordable ready-to-wear lines. QVC signed up Isaac Mizrahi while HSN turned heads in the garment industry press with Naeem Khan, who dressed Michelle Obama for her first state dinner, and the duo of Mark Badgley and James Mischka.

At HSN, prestige level brands were the top selling cosmetics during the holidays — Lancome, Givenchy, Carol's Daughter and Lancaster.

Executed well, TV shopping has another huge built-in advantage over stores and catalog retailers. Other merchants make their bets months before the holidays and live with them for better or for worse. TV shopping channels know instantly what's not selling and have the luxury of switching the pitch to something that does.

To make merchandising decisions in what Grossman calls "real time," HSN has off-camera teams that monitor sales per minute. Plans include pre-staging alternative products to substitute as soon as they pull the plug on a loser. Additionally, the network has made a science of profiling its audience and its tastes that change with the time of day.

"It's about being ready with the right products when the customer decides to buy," said spokeswoman Mia Carbonell.

But HSN considers itself a state-of-the-art e-commerce company now, not just a TV shopping network.

By being online and mobile with streaming video, customers can watch or buy just about whenever and wherever they please. They can summon any of 12,000 product videos (52,000 on YouTube) to watch and order on their own schedule. The strategy is working: A third of sales were products that had not aired on HSN TV 72 hours before or after they were purchased.

With 70 percent of its products sold only through HSN, the company also does a robust replenishment business online with vitamins, cosmetics and specialty foods shipped automatically to regular customers when they run out.

In other highlights:

• HSN announced the launch of a its first application for Android and the upgrade of its mobile video applications to HD quality.

• HSN reported its Web sites have grown to 40 percent of the company's sales. Named second-fastest-growing online retailer during the holidays by the research firm ComScore, surpassed $1 billion in sales online in 2009.

• Cornerstone Brands, the company's troubled collection of mail order catalogs, also posted operating profits as sales improved to $212 million. That was a decrease of 2 percent but better than a 14 percent decline a year ago and a 19 percent decline in the prior quarter.

"We're clearly seeing a turnaround in Cornerstone," said Judy Smelling, HSN chief financial officer.

Mark Albright can be reached at [email protected] or (727) 893-8252.

Fast facts

HSN's earnings report

The company earned $39 million, or 68 cents a share, in the last quarter of 2009, compared to a loss of $2.1 billion, or $38.39 a share, for the last quarter of 2008. Analysts were expecting net income of 46 cents a share. Sales were $839 million, up from $779 million a year ago.

For the full year, HSN reported net income of $73 million, or $1.26 a share, up from a loss of $2.4 billion in 2008, the year HSN was carved out of Barry Diller's IAC/InterActiveCorp and ran up a massive write down of goodwill on its books. Sales of $2.8 billion, however, fell 3 percent from 2008.

The news ignited the price of HSN stock, which had already more than doubled in the past year. Shares closed Wednesday up
9 percent for the day at $24.73, up $2.03.

HSN posts stellar performance in fourth quarter 03/03/10 [Last modified: Thursday, March 4, 2010 10:48am]
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