Home Shopping Network 2015 Annual Report Download - page 25

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23
Gross profit for HSN in 2014 increased 7%, or $55.3 million, compared to the prior year. Gross profit as a percentage
of net sales decreased 10 basis points to 34.4% primarily due to an increase in net shipping expense driven by higher shipping
promotions and shipping costs, offset by lower clearance sales.
Cornerstone
Gross profit for Cornerstone in 2015 increased 5%, or $20.0 million, compared to the prior year. Gross profit as a
percentage of net sales increased 50 basis points to 38.4% primarily due to improvement in overall product and shipping
margins, particularly at Garnet Hill. The increases in the product and shipping margins were primarily due to lower
promotional activity and selective price increases in the first half of the year.
Gross profit for Cornerstone in 2014 decreased 3%, or $12.1 million, compared to the prior year. Gross profit as a
percentage of net sales decreased 180 basis points to 37.9% primarily due to increased promotional activity in response to
competitive market conditions and higher liquidations and inventory reserves related to excess inventory positions.
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, on-air distribution costs and marketing partnership programs.
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,
2015 Change 2014 Change 2013
(Dollars in thousands)
HSN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 420,273 2% $ 410,977 5% $ 392,715
As a percentage of HSN net sales . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5% (10 bp) 16.6% (40 bp) 17.0%
Cornerstone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 325,578 4% $ 312,430 3% $ 303,079
As a percentage of Cornerstone net sales. . . . . . . . . . . . . . . . . . . . . 28.3% 20 bp 28.1% 30 bp 27.8%
HSNi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 745,851 3% $ 723,407 4% $ 695,794
As a percentage of HSNi net sales . . . . . . . . . . . . . . . . . . . . . . . . . . 20.2% - 20.2% (20 bp) 20.4%
HSNi's selling and marketing expense in 2015 increased 3%, or $22.4 million, and was 20.2% of net sales, consistent
with the prior year. HSNi's selling and marketing expense in 2014 increased 4%, or $27.6 million, and was 20.2% of net sales
compared to 20.4% in the prior year.
HSN
HSN's selling and marketing expense in 2015 increased 2%, or $9.3 million, due to higher employee-related costs,
primarily for wages and healthcare, media spend for direct-response television marketing and digital marketing. These
increases were partially offset by the benefit of certain marketing partnerships in 2015 as well as lower on-air distribution costs.
Selling and marketing expense was 16.5% of net sales compared to 16.6% in the prior year.
HSN's selling and marketing expense in 2014 increased 5%, or $18.3 million, primarily due to additional on-air
distribution of HSN2, media spend for direct-response television marketing, higher net marketing expense and an increase in
healthcare costs. Selling and marketing expense was 16.6% of net sales compared to 17.0% in the prior year due to the
improved leverage of its fixed costs, particularly its on-air distribution and employee-related costs.
Cornerstone
Cornerstone's selling and marketing expense in 2015 increased 4%, or $13.1 million, and was 28.3% of net sales
compared to 28.1% in the prior year. The increase was due to higher employee-related costs, primarily for wages and
healthcare, catalog costs associated with a 2% increase in circulation and digital marketing costs.
Cornerstone's selling and marketing expense in 2014 increased 3%, or $9.4 million, and was 28.1% of net sales
compared to 27.8% in the prior year. The increase was primarily due to additional catalog costs associated with a 3% increase
in circulation and increases in digital marketing costs and employee-related costs, particularly for its call center.