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Table of Contents
During 2010, gross profit margin declined 28 basis points to 35.4%. However, in the first half of the year, gross profit margin increased
120 basis points and in the second half of the year, it declined 150 basis points. The decrease in the second half of the year was primarily
attributable to inbound and outbound shipping cost increases, and more promotional activity to drive demand. As we look forward, we do
anticipate that we will continue to experience these cost pressures in the short term and are actively working to mitigate the impact of these
increases by working with our partners, looking at selective price increases and implementing lower cost outbound shipping arrangements.
However, additional increases in product and/or shipping costs could further impact our financial results if we are unable to pass such costs
along in the form of price increases to our customers.
HSNi’s operating expenses increased 5% but were down 117 basis points as a percentage of net sales from the prior year. Included in this
operating expense increase were additional catalog costs to support the 11% increase in catalog circulation, expenses for the launch of our
second network, HSN2, strategic investments in brand and event marketing at HSN and an increase in stock-based compensation expense.
Our strategy for HSN continues to be to build our brands across our multi-channel platforms, leverage innovation and provide our
customers with compelling products and experiences. At Cornerstone, we will continue to leverage the strength of the three largest brands, focus
on e-commerce and multi-channel growth and selectively invest in catalog circulation within our brands to drive demand. We are committed to
managing our operating expenses and will continue to invest in the business, as appropriate, to drive customer growth and profitability.
Results of Operations
Net Sales
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 to pre-established time restrictions.
HSNi net sales in 2010 increased 9% to $3.0 billion due to 5% sales growth at HSN and 19% sales growth at Cornerstone. Internet sales
continued to grow in 2010 representing 39.2% of HSNi net sales as compared to 37.4% in the prior year. The number of units shipped in 2010
increased 7% to 54.4 million from 50.7 million, and the average price point increased 1% to $61.34 from $60.49 in the prior year.
HSNi net sales in 2009 decreased 3% to $2.7 billion due to a 14% decline at Cornerstone, partially offset by growth of 3% at HSN. Internet
sales continued to grow in 2009 representing 37.4% of HSNi net sales as compared to 35.9% in the prior year. The number of units shipped in
2009 decreased less than 1% to 50.7 million from 50.9 million, and the average price point decreased 2% to $60.49 from $61.99 in the prior
year.
HSN
HSN net sales increased 5% to $2.1 billion in 2010 driven by revenue growth in the electronics, fashion and wellness divisions. HSN.com
net sales grew 11% and represented 31.8% of HSN’s net sales compared to 30.3%
22
Year Ended December 31,
2010
Change
2009
Change
2008
(Dollars in thousands)
HSN
$
2,115,918
5
%
$
2,007,897
3
%
$
1,956,871
Cornerstone
880,862
19
%
741,712
(14
%)
866,722
Total HSNi net sales
$
2,996,780
9
%
$
2,749,609
(3
%)
$
2,823,593