Home Shopping Network 2008 Annual Report Download - page 26

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23
demand, generating interest from potential viewers and customers, providing new merchandise or values to its
viewership and maximizing airtime and internet efficiency.
Net sales from HSN in 2007 increased $7.9 million. Excluding the revenues from America's Store which
ceased operations in 2007, net sales reflect a 2% increase in average price point and a 3% increase in units shipped,
partially offset by a 70 basis point increase in average return rates. The increase in average price point in 2007 was
primarily due to a shift in product mix to the home & other category, particularly electronics and housewares, from
the health & beauty category.
Divisional product mix at HSN is provided in the table below:
2008
2007
2006
Jewelry
16% 18% 18%
Fashion (apparel & accessories)
13% 13% 13%
Health & beauty
19% 19% 20%
Home & other
52% 50% 49%
Total
100%
100%
100%
Year Ended December 31,
Cornerstone
Cornerstone’s net sales for 2008 decreased 15% or $148.9 million from the prior year. The decrease was
primarily the result of slowing demand for Cornerstone’s merchandise, caused by the significant deterioration of the
U.S. economy, particularly its effect on the housing and apparel markets. As a result, average price points and the
number of units shipped decreased 3% and 11%, respectively.
Net sales in 2007 increased $22.4 million from 2006 primarily due to a 5% increase in average price point,
partially offset by a 2% decrease in units shipped.
Cost of Sales and Gross Profit
Cost of sales consists primarily of the cost of products sold, shipping and handling costs and compensation
and other employee-related costs (including stock-based compensation) for personnel engaged in warehouse
functions. Cost of products sold includes merchandise cost, inbound freight and duties and in the case of HSN,
certain allocable general and administrative costs, including certain warehouse costs.
2008
%
Change 2007
%
Change 2006
Gross profit:
HSN
633,186
$
(1%)
640,915
$
(4%)
667,361
$
HSN gross profit margin 32.4% (151 bp) 33.9% (155 bp) 35.4%
Cornerstone 352,244$ (21%) 447,279$ 0% 445,390$
Cornerstone gross profit margin
40.6%
(340 bp)
44.0%
(80 bp)
44.8%
HSNi
985,430
$
(9%)
1,088,194
(2%)
1,112,751
$
HSNi gross profit margin 34.9% (252 bp) 37.4% (125 bp) 38.7%
Year Ended December 31,
(Dollars in thousands)
bp = basis points