Home Shopping Network 2011 Annual Report Download - page 23

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this annual report. Historical results and trends which might appear should not be
taken as indicative of future operations. Our results of operations and financial condition, as reflected in the
accompanying statements and related notes, are subject to management’s evaluation and interpretations of
business conditions, changing market conditions and other factors.
Management Overview
HSNi markets and sells a wide range of third party and proprietary label merchandise directly to consumers
through (i) television home shopping programming broadcast on the HSN television networks; (ii) catalogs,
which consist primarily of the Cornerstone portfolio of leading print catalogs which includes Frontgate, Ballard
Designs, Garnet Hill, Grandin Road, Smith+Noble, The Territory Ahead, TravelSmith and Improvements;
(iii) websites, which consist primarily of HSN.com and the eight branded websites operated by Cornerstone;
(iv) retail and outlet stores; and (v) mobile handheld devices. HSNi’s television home shopping business, related
digital commerce and outlet operations are referred to herein as “HSN” and all catalog operations, including
related digital commerce and retail and outlet stores, are collectively referred to herein as “Cornerstone.”
Sources of Revenue
HSN revenue includes merchandise sales originating from the live television broadcasts of its programming
24 hours per day, seven days a week; HSN2, a network that primarily distributes taped programming on a limited
distribution basis; the HSN.com website; mobile handheld devices; and through outlet stores. HSN also sells
merchandise through its "Autoship" program under which customers receive scheduled merchandise shipments
according to a pre-determined calendar.
Cornerstone sells private label and third party merchandise through its assortment of catalogs, internet sites
and retail and outlet stores. Cornerstone consists of the brands of Frontgate, Ballard Designs, Garnet Hill,
Grandin Road, Smith+Noble, The Territory Ahead, TravelSmith and Improvements.
Products
HSNi sells a wide array of merchandise across its various channels of distribution. HSN merchandise
categories primarily consist of jewelry, fashion (apparel & accessories), beauty & wellness, and home & other
(including housewares, home fashions, electronics, fitness and other). HSN manages its product mix to provide a
balance between satisfying existing customer demand, generating interest from potential viewers and customers,
providing new merchandise or values to its viewership and maximizing airtime and internet efficiency.
Cornerstone merchandise categories generally consist of home furnishings (including indoor/outdoor furniture,
window treatments and other home-related goods) and apparel & accessories.
HSNi management believes that merchandise diversification, combined with an interactive multi-channel
distribution strategy, appeals to a broader segment of potential customers and is an important part of its overall
business strategy. HSNi is continually developing new merchandise offerings from existing, potential and future
suppliers, to supplement its existing product lines.
Economic and Other Trends
In 2011, HSNi’s net sales grew 6% to $3.2 billion, including 13% growth in digital sales. HSN’s net sales
increased 2% driven primarily by increased digital sales penetration and growth in merchandise sales from its
Home & Other division, particularly in the electronics and culinary categories. Increased investments in catalog
circulation and digital marketing contributed to net sales growth at Cornerstone of 15%. Cornerstone’s growth
was led by strength at its three largest brands, Frontgate, Ballard Designs and Garnet Hill.
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