Home Shopping Network 2013 Annual Report Download - page 23

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21
Divisional product mix at HSN is provided in the table below:
Year Ended December 31,
2013 2012 2011
Jewelry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1% 13.1% 14.0%
Fashion (apparel & accessories) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.9% 13.1% 13.3%
Beauty & Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.5% 22.7% 22.9%
Home & Other (including household, home design, electronics, culinary and other) . . . . . . . . 50.5% 51.1% 49.8%
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cornerstone
Cornerstone net sales in 2013 increased 9%, or $89.9 million. The increase in net sales was driven by sales growth in
the home brands. Digital sales grew 11% with penetration increasing 150 basis points to 66.5%, up from 65.0% in the prior
year. The return rate decreased 50 basis points to 12.9% due primarily to changes in product mix. Catalog circulation increased
5% compared to the prior year.
Cornerstone's net sales in 2012 increased 10% in 2012, or $92.7 million, compared to the prior year. Fiscal year 2012
included 52 weeks compared to fiscal year 2011 which included 53 weeks. 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.
The brand mix at Cornerstone is provided in the table below:
Year Ended December 31,
2013 2012 2011
Home brands (Ballard Designs, Frontgate, Grandin Road and Improvements) . . . . . . . . . . . . . . . . . . . . . 73.9% 71.8% 71.5%
Apparel brands (Chasing Fireflies, Garnet Hill and TravelSmith) (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.1% 28.2% 28.5%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
(a) Chasing Fireflies was acquired in April 2012.
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.
Year Ended December 31,
2013 Change 2012 Change 2011
(Dollars in thousands)
Gross profit:
HSN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 796,705 1% $ 786,650 6% $ 741,308
HSN gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.5% (20 bp) 34.7% 40 bp 34.3%
Cornerstone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 433,110 9% $ 397,074 11% $ 358,954
Cornerstone gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.7% 10 bp 39.6% 10 bp 39.5%
HSNi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,229,815 4% $ 1,183,724 8% $ 1,100,262
HSNi gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.1% (10 bp) 36.2% 40 bp 35.8%
bp = basis points
HSN
Gross profit for HSN in 2013 increased 1%, or $10.1 million, compared to the prior year. Gross margin decreased 20
basis points to 34.5% primarily due to lower shipping margins due to increases in shipping and handling promotions and
shipping costs.