Home Shopping Network 2012 Annual Report Download - page 26

Table of Contents
Gross profit for Cornerstone increased 21% in 2011, or $62.3 million, compared to the prior year. Gross profit margin improved 90 basis
points to 39.5% from 38.6% in the prior 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.
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, production and programming
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.
HSNi's selling and marketing expense in 2012 increased 7%, or $45.9 million, and was 20.3% of net sales compared to 20.1% in 2011.
The increase was primarily due to additional catalog production and distribution costs associated with a 10% increase in Cornerstone's catalog
circulation, an increase in employee-related costs including for the sales and service center, and investments in digital marketing.
HSNi’s selling and marketing expense in 2011 increased 8%, or $44.1 million, and was 20.1% of net sales compared to 19.8% in 2010.
The increase in the expense was primarily due to additional expenses incurred for Cornerstone's catalog production and distribution costs
associated with a 17% increase in catalog circulation, an increase in compensation and other employee-related costs primarily due to increased
headcount and investments in digital and brand marketing.
General and Administrative Expense
General and administrative expense consists primarily of compensation and other employee-related costs (including stock-based
compensation) for personnel engaged in finance, legal, tax, human resources, information technology and executive management functions, bad
debts, facilities costs and fees for professional services.
HSNi’s general and administrative expense in 2012 increased 7%, or $15.7 million, and was 6.9% of net sales compared to 6.8% in the
prior year. The increase in expense was primarily due to a $7.8 million sales tax settlement at Cornerstone, an increase in bad debt expense due
to higher usage of the extended payment program at HSN ("Flexpay") and technology-related costs, partially offset by a $6.1 million decrease in
stock-based compensation.
HSNi’s general and administrative expense in 2011 increased 6%, or $11.8 million, and was 6.8% of net sales, consistent with the prior
year. The increase in expense was primarily driven by an increase in compensation and other employee
-related costs including $4.5 million of
additional stock-based compensation and higher insurance costs. These expenses were partially offset by a decrease in legal costs due to a $3.0
million settlement recorded in the prior year.
22
Year Ended December 31,
2012 Change 2011 Change 2010
(Dollars in thousands)
HSN
$
385,243
4%
$
368,915
1%
$
363,882
As a percentage of HSN net sales
17.0
%
(10 bp)
17.1
%
(10 bp)
17.2
%
Cornerstone
$
277,079
12%
$
247,501
19%
$
208,421
As a percentage of Cornerstone net sales
27.7
%
50 bp
27.2
%
10 bp
27.1
%
HSNi
$
662,322
7%
$
616,416
8%
$
572,303
As a percentage of HSNi net sales
20.3
%
20 bp
20.1
%
30 bp
19.8
%
Year Ended December 31,
2012 Change 2011 Change 2010
(Dollars in thousands)
HSN
$
162,417
7%
$
151,813
4%
$
146,391
As a percentage of HSN net sales
7.2
%
20 bp
7.0
%
10 bp
6.9
%
Cornerstone
$
62,236
9%
$
57,169
13%
$
50,767
As a percentage of Cornerstone net sales
6.2
%
(10 bp)
6.3
%
(30 bp)
6.6
%
HSNi
$
224,653
7%
$
208,982
6%
$
197,158
As a percentage of HSNi net sales
6.9
%
10 bp
6.8
%
0 bp
6.8
%