Home Shopping Network 2012 Annual Report Download - page 25

Table of Contents
Cornerstone
Cornerstone's net sales increased 10% in the 52-week period in 2012, or $92.7 million, compared to the 53-week period in the prior year.
Excluding the incremental sales from the additional week in 2011, net sales increased 12% primarily due to strength in the home brands, the
addition of Chasing Fireflies to the portfolio in April 2012 and an increase in catalog circulation. Digital sales grew 18% with penetration
increasing 430 basis points to 65.0%, up from 60.7% in the prior year. The return rate decreased 130 basis points to 13.4% due to changes in
product mix and a heightened focus on quality assurance efforts. Catalog circulation increased 10% compared to the prior year.
Cornerstone’s net sales increased 18% in the 53-week period in 2011, or $140.6 million, compared to the 52-week period in the prior year.
Excluding the incremental sales from the additional week in 2011, net sales increased 16% which was primarily attributable to strength at
Cornerstone’s three largest brands, Frontgate, Ballard Designs and Garnet Hill; as well as investment in catalog circulation and digital
marketing. Digital sales grew 23% in 2011 with penetration increasing 210 basis points to 60.7%, up from 58.6% in the prior year. The return
rate decreased 30 basis points to 14.7% from 15.0%. Catalog circulation increased 17% in 2011 compared to the prior year.
The brand mix at Cornerstone is provided in the table below:
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 for personnel engaged in warehouse functions. Cost of products sold includes merchandise cost, inbound freight and duties and certain
allocable general and administrative costs, including certain warehouse costs.
bp = basis points
HSN
Gross profit for HSN increased 6% in 2012, or $45.3 million, compared to the prior year. Gross profit margin improved 40 basis points to
34.7% from 34.3%. The margin increase was primarily attributable to an increase in product margins driven by product mix but were largely
offset by the decrease in the net shipping margin primarily due to an increase in shipping promotions. The increase was also due to lower
transaction costs related to debit card fees.
Gross profit for HSN increased 5% in 2011, or $32.1 million, compared to the prior year. Gross profit margin improved 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.
Cornerstone
Gross profit for Cornerstone increased 11% in 2012, or $38.1 million, compared to the prior year. Gross profit margin improved 10 basis
points to 39.6% from 39.5% in the prior year. The margin was positively impacted by lower inbound freight costs in the home brands, lower
return rates and lower inventory reserves, offset by a decrease in net shipping margins driven by the increase in shipping promotions.
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Year Ended December 31,
2012 2011 2010
Home brands (Ballard Designs, Frontgate, Grandin Road and Improvements)
71.8
%
71.5
%
71.4
%
Apparel brands (Chasing Fireflies, Garnet Hill and TravelSmith)
28.2
%
28.5
%
28.6
%
Total
100.0
%
100.0
%
100.0
%
Year Ended December 31,
2012 Change 2011 Change 2010
(Dollars in thousands)
Gross profit:
HSN
$
786,650
6%
$
741,308
5%
$
709,181
HSN gross profit margin
34.7
%
40 bp
34.3
%
80 bp
33.5
%
Cornerstone
$
397,074
11%
$
358,954
21%
$
296,629
Cornerstone gross profit margin
39.6
%
10 bp
39.5
%
90 bp
38.6
%
HSNi
$
1,183,724
8%
$
1,100,262
9%
$
1,005,810
HSNi gross profit margin
36.2
%
40 bp
35.8
%
90 bp
34.9
%