Home Shopping Network 2013 Annual Report Download - page 24

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22
Gross profit for HSN in 2012 increased 6%, or $45.3 million, compared to the prior year. Gross 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 shipping margins primarily due to an increase in shipping promotions.
The increase was also due to lower transaction costs related to debit card fees.
Cornerstone
Gross profit for Cornerstone in 2013 increased 9%, or $36.0 million, compared to the prior year. Gross margin
increased 10 basis points from 39.6% to 39.7% primarily due to an increase in product margins driven by product mix and
selective price increases.
Gross profit for Cornerstone in 2012 increased 11%, or $38.1 million, compared to the prior year. Gross 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.
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.
Year Ended December 31,
2013 Change 2012 Change 2011
(Dollars in thousands)
HSN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 392,715 2% $ 385,243 4% $ 368,915
As a percentage of HSN net sales . . . . . . . . . . . . . . . . . . . . . . . . . . 17.0% 0 bp 17.0% (10 bp) 17.1%
Cornerstone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 303,079 9% $ 277,079 12% $ 247,501
As a percentage of Cornerstone net sales. . . . . . . . . . . . . . . . . . . . . 27.8% 10 bp 27.7% 50 bp 27.2%
HSNi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 695,794 5% $ 662,322 7% $ 616,416
As a percentage of HSNi net sales . . . . . . . . . . . . . . . . . . . . . . . . . . 20.4% 10 bp 20.3% 20 bp 20.1%
HSNi's selling and marketing expense in 2013 increased 5%, or $33.5 million, and was 20.4% of net sales compared
to 20.3% in the prior year. The increase was primarily due to additional catalog costs associated with a 5% increase in
Cornerstone's catalog circulation and increases in employee-related and digital marketing costs.
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 costs associated with a 10% increase in Cornerstone's
catalog circulation and increases in employee-related and digital marketing costs.