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By RICHARD MULLINS

The Tampa Tribune

Published: July 31, 2008

TAMPA - In March 2005, the parent company of TV shopping network HSN said it would pay about $720 million to acquire the Cornerstone Brands collection of upscale catalogs - titles such as Ballard Designs, Frontgate and Territory Ahead.

Three years after consummating the deal, that purchase is looking more costly than the initial sticker price. Although HSN's television sales business saw robust growth amid a broad revamping, the financial results from Cornerstone show a near shutdown of profit.

HSN's parent company, New York-based IAC/InterActiveCorp., released financial results Wednesday that resembled a checkerboard of good, then bad, financial news. In particular:

• Revenue at St. Petersburg-based HSN rose 11 percent, to $460.9 million, with more products shipped and sold at higher prices. HSN operating income before some accounting charges rose 20 percent, to $27.4 million.

• Cornerstone revenue, by contrast, fell 12 percent, to $235 million, because of a 26 percent drop in catalog circulation. Operating profit fell a whopping 80 percent before certain accounting items, to $3.1 million, partly because of discount sales in the general catalog industry, the company said.

• HSN saw its base of "active" customers grow 3 percent.

• Cornerstone operations, by contrast, prompted IAC to take a $300 million accounting charge to reflect the "significant deterioration in the macro economic environment for retailers." In other words, the company was writing off nearly half the $720 million it spent for the Cornerstone assets that were bought in 2005.

To stem financial problems, the company will cut $8 million to $10 million in annual costs, plus take a hard look at the brand of Ballard Design's catalogs and merchandising at TravelSmith, said Judy Schmeling, executive vice president and chief financial officer of IAC Retailing. Frontgate's high-end outdoor furniture and pool products faced challenges because of the economy, she said, and the company will "diversify the brand's overall product assortment." Frontgate will still target the affluent customer, but offer products with a wider range of prices.

The Cornerstone results are important to HSN because IAC soon will spin off HSN and Cornerstone into one stand-alone public company, to be called HSN Inc. and based in St. Petersburg. Timing has not been announced, but it could happen in August.

This means Cornerstone's problems will be the sole responsibility of HSN.

Reporter Richard Mullins can be reached at (813) 259-7919 or rmullins@tampatrib.com.

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