Home Shopping Network 2008 Annual Report Download - page 25

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profit margins declined 151 basis points as compared to 2007. This decline was primarily the result of product
mix changes, pricing pressures in HSN’s apparel and accessories categories, shipping and handling costs and the
general effects of the economic downturn.
Going forward, we believe that the current economic environment will continue to adversely impact
HSNi’s results as consumers continue to approach discretionary spending cautiously. Therefore, while our overall
business strategies of retention and growth of market share, product innovation and brand development, gross
margin maintenance, and growth of our e-commerce penetration remain consistent; we are also focused on
improving profitability through a reduction in operating expenses and capital utilization. We continue to manage
our expenses and working capital judiciously, while focusing on certain key elements to improve profitability.
Results of Operations
Net Sales
2008 %
Change 2007 %
Change 2006
HSN 1,956,871$ 3% 1,892,582$ 0% 1,884,650$
Cornerstone 866,722 (15%) 1,015,660 2% 993,304
Total net sales 2,823,593$ (3%) 2,908,242$ 1% 2,877,954$
Year Ended December 31,
(Dollars in thousands)
Net sales primarily relate to the sale of merchandise and are reduced by incentive discounts and actual and
estimated sales returns. Revenue is recorded when delivery to the customer has occurred. Delivery is considered to
have occurred when the customer takes title and assumes the risks and rewards of ownership, which is generally on
the date of shipment. HSNi’s sales policy allows customers to return virtually all merchandise for a full refund or
exchange, subject in some cases to restocking fees.
HSNi net sales in 2008 decreased 3% or $84.6 million as compared to the same period in 2007 due to a 15%
decline at Cornerstone, partially offset by growth of 3% at HSN. Internet sales continued to grow in 2008
representing 35.9% of HSNi net sales as compared to 33.3% in the prior year. The number of units shipped in 2008
decreased 5% to 51.6 million as compared to 54.1 million; however, this was offset by the 2% increase in the
average price point to $61.30 as compared to the prior year.
Net sales in 2007 increased $30.3 million from 2006 primarily due to slight growth from Cornerstone,
while net sales from HSN remained relatively flat. Online sales continued to grow at a double digit rate in 2007. Net
sales from HSN grew 4%, excluding America's Store which ceased operations on April 3, 2007. HSNi's net sales
reflect a 2% increase in average price point, partially offset by a 1% decrease in units shipped. Average price point
was $60.09 in 2007, up from $58.70 in 2006. Overall units shipped in 2007 were negatively impacted by reduced
sales associated with the shutdown of America's Store. Net sales from America's Store were approximately
$15.9 million in 2007 compared to $88.6 million in 2006.
HSN
HSN net sales increased 3% in 2008 as compared to the prior year, highlighted by HSN.com net sales which
increased 16% and now represent 28% of HSN’s net sales. HSN’s 12-month active customer file increased 3% from
the prior year. The increase in net sales is attributed to the increase in the average price point to $59.21 from $56.41,
offset by the 2% decrease in units shipped to 37.6 million from 38.3 million. The increase in the average price point is
primarily a result of a shift in product mix to the home & other category, particularly electronics, housewares, health
and fitness. These merchandise categories generally carry a higher average price point than fashion and beauty
merchandise offerings. HSN manages its product mix to provide a balance between satisfying existing customer