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Stable sales are good for HSN

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By RICHARD MULLINS

rmullins@tampatrib.com

Published: May 8, 2009

TAMPA - Pilates equipment is in; diamonds are out.

That was one consumer trend singled out by home shopping company HSN Inc. as it presented evidence to investors that the consumer market (theirs at least) has stopped getting worse.

"We feel the business has stabilized," HSN CEO Mindy Grossman said.

HSN customers, almost all of them women, are spending more on products they can use to improve themselves, use with their families or that can save them money, Grossman said. Anything carrying a whiff of selfish indulgence tends not to do as well.

That trend showed up in HSN's first quarter earnings, released to investors Thursday.

HSN sales in its core television shopping division were nearly flat at $474.9 million. In today's retail market, flat counts as an accomplishment. Operating income in that division rose 7 percent to $26.2 million.

And the company seems to have reversed a long-running increase in the number of products customers return. Return rates fell to about 18 percent, compared with 20 percent a year ago, or 1 in 5 items.

The bad news: Sales fell 22 percent to $154.7 million at HSN's catalog business, Cornerstone Brands, which publishes catalogs such as Frontgate, Smith+Noble and The Territory Ahead.

In response, HSN reduced circulation of its catalogs by 31 percent and heavily discounted products to reduce inventory. Operating losses grew 30 percent to $12.3 million. As Grossman told investors Thursday, affluent homeowners just aren't renovating their pool areas and buying outdoor furniture like they used to.

Significant discounting and other changes at the catalogs are starting to take effect, Grossman said, and results should improve over time.

Grossman said she wants HSN to find new ways to engage people new to the channel. Along those lines, she senses a desire among stay-at-home moms to become entrepreneurs. HSN will help launch a show this fall with Kelly Ripa and TV channel TLC called "Mom Inc." that will feature real-life moms inventing products.

Given the awful consumer-spending market, the results somewhat pleased Wall Street investors, and HSN stock rose nearly 17 percent Thursday to close at $8.40.

Reporter Richard Mullins can be reached at (813) 259-7919.

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