Home Shopping Network 2011 Annual Report Download - page 24

During 2011, gross profit margin improved 80 basis points to 36.2%. The increase was primarily
attributable to lower inbound and outbound shipping costs. However, we did experience margin pressure from
the increased promotional activity used to drive demand. As we look forward, we do anticipate that we will
continue to experience these pricing pressures. Also, 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 6%. Included in this operating expense increase were additional
catalog costs, increased compensation and employee-related costs and investments in digital marketing.
Our strategy for HSN continues to be to invest in customer growth by expanding our digital presence
through 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
digital 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. We expect continued challenges as a result of the unpredictable
economic environment, including challenges related to unemployment rates, political climate, consumer
confidence, fuel and product costs, and other economic factors affecting consumer spending behavior. These
challenges could negatively influence our top-line and/or gross profit growth in 2012.
Results of Operations
Net Sales
Net sales primarily relate to the sale of merchandise, including shipping and handling fees, 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.
Year Ended December 31,
2011 Change 2010 Change 2009
(Dollars in thousands)
HSN ....................................... $2,160,341 2% $2,115,918 5% $2,007,897
Cornerstone ................................. 1,016,813 15% 880,862 19% 741,712
Total HSNi net sales ........................... $3,177,154 6% $2,996,780 9% $2,749,609
HSNi net sales in 2011 increased 6%, or $180.4 million, due to 2% sales growth at HSN and 15% sales
growth at Cornerstone. Digital sales grew 13% in 2011 representing 42.0% of HSNi net sales as compared to
39.2% in the prior year. The number of units shipped in 2011 increased 4% to 56.5 million from 54.4 million,
and the average price point increased 3% to $64.81 from $62.62 in the prior year.
HSNi net sales in 2010 increased 9%, or $247.2 million, due to 5% sales growth at HSN and 19% sales
growth at Cornerstone. Digital sales grew 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 2% to $62.62 from $61.12 in the prior year.
HSN
HSN net sales increased 2% in 2011, or $44.4 million, driven by revenue growth in the Home & Other
division, particularly in the electronics and culinary categories. In 2011, HSN continued to focus on customer
growth through our investments in digital marketing and social media initiatives. Digital sales grew 9% with
penetration increasing 200 basis points to 33.8%. Average price point increased 3% and units shipped increased
2%. The return rate increased to 20.0% from 18.9% primarily due to changes in product mix.
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