Home Shopping Network 2011 Annual Report Download - page 26

HSN
Gross profit for HSN increased 5% in 2011, or $32.1 million, compared to the prior year. Gross profit
margin increased 80 basis points to 34.3% from 33.5%. The margin increase was primarily attributable to lower
outbound shipping costs, liquidation charges and inbound freight costs.
Gross profit for HSN increased 4% in 2010, or $30.5 million, compared to the prior year. Gross profit
margin declined 30 basis points to 33.5% from 33.8% in the prior year. The slight decline in the gross profit
margin was primarily attributable to a decrease in net shipping margins primarily due to a product mix shift
towards electronics, partially offset by improved product margins due to less promotional activity in the first half
of the year. Gross profit margin was also negatively impacted by increased inventory reserves as a result of a
higher inventory balance.
Cornerstone
Gross profit for Cornerstone increased 16% in 2011, or $56.9 million, compared to the prior year. Gross
profit margin improved 30 basis points to 40.2% from 39.9% in the previous year. The margin increase was
primarily attributable to improved outbound shipping margins and leverage over fixed warehousing costs,
partially offset by increased promotional activity to drive sales demand.
Gross profit for Cornerstone increased 16% in 2010, or $49.2 million, compared to the prior year. Gross
profit margin declined 90 basis points to 39.9% from 40.8% in the previous year. The decrease in the gross profit
margin was primarily due to increased rates for inbound and outbound shipping services for larger package
deliveries (as a result of increased global demand for shipping services and the expiration of favorable shipping
contracts in place during 2009) and increased promotional activity to drive demand, partially offset by leverage
over warehousing costs due to the revenue growth and warehouse efficiencies.
Selling and Marketing Expense
Selling and marketing expense consists primarily of advertising and promotional expenditures,
compensation and other employee-related costs (including stock-based compensation) for personnel engaged in
customer service, sales and merchandising functions and on-air distribution costs. Advertising and promotional
expenditures primarily include catalog production and distribution costs and online marketing, including fees
paid to search engines and third-party distribution partners.
Year Ended December 31,
2011 Change 2010 Change 2009
(Dollars in thousands)
HSN..................................... $291,966 1% $289,676 5% $275,296
As a percentage of HSN net sales .............. 13.5% (20 bp) 13.7% 0 bp 13.7%
Cornerstone ............................... $285,244 15% $249,013 7% $232,273
As a percentage of Cornerstone net sales ........ 28.1% (20 bp) 28.3% (300 bp) 31.3%
HSNi .................................... $577,210 7% $538,689 6% $507,569
As a percentage of HSNi net sales ............. 18.2% 20 bp 18.0% (50 bp) 18.5%
HSNi’s selling and marketing expense in 2011 increased 7%, or $38.5 million, and was 18.2% of net sales
as compared to 18.0% in 2010. The increase in the expense is primarily due to additional expenses incurred at
Cornerstone for catalog production and distribution costs associated with a 12% increase in catalog circulation,
an increase in compensation and other employee-related costs primarily due to increased headcount and
investments in digital marketing.
HSNi’s selling and marketing expense in 2010 increased 6%, or $31.1 million, and was 18.0% of net sales
as compared to 18.5% in 2009. The increase in the expense is primarily due to increased catalog production and
24