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HSN, Inc. Reports Second Quarter 2014 Results

Highlights:

• HSNi net sales increased 5% with digital sales up 9%
• HSNi Adjusted EBITDA decreased 4% while HSN increased 10%
• Diluted EPS was $0.76 compared to $0.79 in the prior year
• Completed 10 million share repurchase program

ST. PETERSBURG, Fla., Aug. 7, 2014 (GLOBE NEWSWIRE) -- HSN, Inc. (Nasdaq:HSNI) reported results for the second quarter ended June 30, 2014 for HSN, Inc. ("HSNi" or "Company") and its two operating segments, HSN and Cornerstone.

Second Quarter 2014 Results vs Second Quarter 2013 Results

• HSNi's net sales grew 5% over the prior year to $855.2 million.ÌýHSN's net sales increased 6% to $556.5 million, including 11% growth in digital sales.ÌýCornerstone's net sales increased 4% to $298.7 million, including 6% growth in digital sales.
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• HSNi's Adjusted EBITDA decreased 4% to $82.1 million.ÌýHSN's Adjusted EBITDA increased 10% to $62.7 million.ÌýCornerstone's Adjusted EBITDA decreased to $19.4 million from $28.0 million in the prior year.ÌýGAAP operating income decreased 6% to $67.4 million.Ìý
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• During the second quarter, HSNi repurchased approximately 0.9 million shares of its common stock at a cost of $49.5 million, or an average cost of $54.78 per share.ÌýIn July 2014, HSNi completed its 10 million share repurchase program authorized in September 2011 at an aggregate cost of $451 million, representing an average cost of $45.10 per share.Ìý
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• HSNi's board of directors approved a quarterly cash dividend of $0.25 per share payable September 17, 2014 to shareholders of record as of September 3, 2014.

"Our focus during the second quarter remained on engaging our customers, emphasizing our unique content and proprietary products, and strengthening our digital platforms. HSNi sales increased 5% and digital sales grew 9% with mobile now representing 15% of our total sales. During the quarter, we saw a bifurcation within our business. HSN had strong results with sales up 6%, digitalÌýsales up 11% and Adjusted EBITDA up 10%. While Cornerstone maintained top line growth of 4%, margins were impacted byÌýa highlyÌýpromotional marketplace," said Mindy Grossman, CEO of HSN, Inc. "Our customer file metrics at both HSN and within the Cornerstone portfolio were at record highs. We also returned $63 million to our shareholders through our capital return plan."

HSN Segment Results for the Second Quarter 2014

HSN's net sales were $556.5 million, an increase of 6% from the prior year.ÌýDigital sales grew 11% with penetration increasing 180 basis points to 37.2%.ÌýSales grew in beauty, home design, health and culinary offset by lower sales in electronics and jewelry.Ìý Units shipped increased 4% and average price point increased 2%.Ìý

Gross profit increased 5% to $196.5 million with gross margin decreasing 30 basis points to 35.3% primarily due to an increase in shipping promotions.ÌýOperating expense leverage (excluding non-cash charges) improved 80 basis points to 24.0%.

Adjusted EBITDA increased 10% to $62.7 million.ÌýGAAP operating income increased 11% to $52.1 million.

Cornerstone Segment Results for the Second Quarter 2014

Cornerstone's net sales were $298.7 million, an increase of 4% from the prior year.ÌýSales grew in the home brands, partially offset by lower sales in the apparel brands.ÌýDigital sales grew 6% with penetration increasing 130 basis points to 64.2%.Ìý

Gross profit decreased 4% to $116.6 million. Gross margin decreased to 39.1% from 42.4% primarily due to increased promotional activity primarily in response to competitive market conditions.ÌýOperating expenses as a percentage of net sales improved 10 basis points to 32.5%.

Adjusted EBITDA decreased $8.6 million to $19.4 million.ÌýGAAP operating income was $15.3 million compared to $24.3 million in the prior year.Ìý

Liquidity and Capital Resources

As of June 30, 2014, HSNi had cash and cash equivalents of $122.3 million compared to $196.4 million at December 31, 2013 and $92.0 million at June 30, 2013.ÌýNet cash provided by operating activities in the six months ended June 30, 2014 was $28.2 million compared to $33.6 million in the prior year.ÌýÌýÌý

HSNi's board of directors approved a quarterly cash dividend of $0.25 per share payable September 17, 2014 to shareholders of record as of September 3, 2014.Ìý

During the second quarter, HSNi repurchased approximately 0.9 million shares of its common stock at a cost of $49.5 million, or an average cost of $54.78 per share.ÌýIn July 2014, HSNi completed its 10 million share repurchase program authorized in September 2011 at an aggregate cost of $451 million, representing an average cost of $45.10 per share.ÌýSince inception of its capital return plan in September 2011, HSNi has returned $558 million to its shareholders through a balanced approach of share repurchases and cash dividends.Ìý HSNi remains committed to returning value to shareholders, while preserving liquidity and flexibility to invest in the business.ÌýÌýÌý

OTHER INFORMATION

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This press release may contain forward-looking statements relating to the future performance and financial condition of HSNi, its operating segments and its consolidated subsidiaries.ÌýForward-looking statements are based on management's current expectations and assumptions which may not prove to be accurate.ÌýForward-looking statements are not guarantees of performance or historical facts and there are a number of known and unknown risks, uncertainties, contingencies and other factors (many of which are outside our control) that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.ÌýFactors that could cause or contribute to such differences include but are not limited to:Ìýchanges in political, business and economic conditions, particularly those that affect consumer confidence, consumer spending or digital sales growth; changes in our relationships with pay television operators, vendors, manufacturers and other third parties; changes in shipping and handling costs, particularly if we are unable to offset them; any technological or regulatory developments that could negatively impact the way we do business, including regulations regarding state and local sales and use taxes; risks associated with possible systems failures and/or security breaches, including any breach that results in the theft, transfer or unauthorized disclosure of customer, employee or company information, or the failure to comply with various laws applicable to HSNi in the event of such a breach; HSNi's business prospects and strategy, including whether HSNi's initiatives and investments will be effective; our ability to offer new or innovative products and services through various platforms in a cost effective manner and consumer acceptance of these products and services; risks associated with acquisitions including the ability to successfully integrate new business and achieve expected benefits and results; and the loss of any key member of our senior management team.ÌýMore information about potential factors that could affect HSNi's business and financial results is included in our filings with the U.S. Securities and Exchange Commission.ÌýOther unknown or unpredictable factors that could also adversely affect HSNi's business, financial condition and results of operations may arise from time to time.ÌýIn light of these risks and uncertainties, any forward-looking statements may not prove to be accurate.ÌýAll written or oral forward-looking statements that are made or attributable to us are expressly qualified in their entirety by this cautionary notice.ÌýAccordingly, you should not place undue reliance on any forward-looking statements, which only reflect the views of HSNi management as of the date of this press release.ÌýSuch statements speak only to the date such statements are made and HSNi does not undertake to update any forward-looking statements.ÌýHistorical results should not be considered as an indication of future performance.

Conference Call

Mindy Grossman, Chief Executive Officer, and Judy Schmeling, Chief Operating Officer and Chief Financial Officer, will hold a conference call on Thursday, August 7, 2014 at 9:00 a.m., Eastern Daylight Time, to discuss these results.ÌýThose interested in participating in the conference call should dial 877-307-0246 or 224-357-2394 at least five minutes prior to the call.ÌýThere will also be a simultaneous audio webcast available via HSNi's website at .

A replay of the conference call can be accessed until Thursday, August 21, 2014 by dialing 855-859-2056 or 404-537-3406, plus the pass code 72340808 and will also be hosted on the company's website for a limited time.

jvidÊÓƵ HSN, Inc.

HSN, Inc. (Nasdaq:HSNI) is a $3.4 billion interactive multichannel retailer with strong direct-to-consumer expertise among its two operating segments, HSN and Cornerstone. HSNi offers innovative, differentiated retail experiences on TV, online, via mobile devices, in catalogs, and in brick and mortar stores. HSN, a leading interactive multichannel retailer which offers a curated assortment of exclusive products combined with top brand names, now reaches 95 million homes (24 hours a day, seven days a week, live 364 days a year). HSN.com offers a differentiated digital experience by leveraging content, community and commerce. In addition to its existing media platforms, HSN is the industry leader in transactional innovation, including services such as HSN Shop by Remote^®, the only service of its kind in the U.S., the HSN Shopping App for mobile handheld devices and HSN on Demand^®. Cornerstone comprises leading home and apparel lifestyle brands including Ballard Designs^®, Chasing Fireflies^®, Frontgate^®, Garnet Hill^®, Grandin Road^®, Improvements^® and TravelSmith^®. Cornerstone distributes approximately 320 million catalogs annually, operates eight separate digital sales sites and operates 11 retail and outlet stores.

HSN, INC.'S PRINCIPLES OF FINANCIAL REPORTING

HSNi reports Adjusted EBITDA, Adjusted Net Income and Adjusted EPS, all of which are supplemental measures to GAAP. These measures are among the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results.ÌýThese non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. HSNi endeavors to compensate for the limitations of the non-GAAP measures presented by providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures contained in this release and which we discuss below.

Definitions of Non-GAAP Measures

Adjusted EBITDA is defined as operating income excluding, if applicable: (1)Ìýnon-cash charges including: (a) stock-based compensation expense, (b)Ìýamortization of intangibles, (c)Ìýdepreciation and gains and losses on asset dispositions, and (d)Ìýgoodwill, long-lived asset and intangible asset impairments; (2)Ìýpro forma adjustments for significant acquisitions; and (3)Ìýother significant items.ÌýSignificant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, thereby affecting the comparability of results.ÌýAdjusted EBITDA is not a measure determined in accordance with GAAP, and should not be considered a substitute for operating income, net income or any other measure determined in accordance with GAAP. Adjusted EBITDA is used as a measurement of operating efficiency and overall financial performance and HSNi believes it to be a helpful measure for those evaluating companies in the retail and media industries.ÌýAdjusted EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Adjusted EBITDA has certain limitations in that it does not take into account the impact to HSNi's statement of operations of certain expenses, gains and losses that are excluded from the company's definition of Adjusted EBITDA.

Adjusted Net Income is defined as net income available to common shareholders excluding, net of tax effects, if applicable: (1) goodwill, long-lived asset and intangible asset impairments, (2)Ìýpro forma adjustments for significant acquisitions, (3) discontinued operations and (4)Ìýother significant items.ÌýSignificant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, thereby affecting the comparability of results.Ìý We believe Adjusted Net Income is useful to investors because it represents HSNi's consolidated results taking into account charges which are not allocated to the operating businesses such as interest expense and taxes, but excluding the effects of goodwill and asset impairments, significant acquisition-related adjustments, discontinued operations and certain other significant items.

Adjusted EPS is defined as Adjusted Net Income divided by diluted weighted average shares outstanding for Adjusted EPS purposes.Ìý We believe Adjusted EPS is useful to investors because it represents, on a per share basis, HSNi's consolidated results, taking into account charges which are not allocated to the operating businesses such as interest expense and taxes, but excluding the effects of goodwill and asset impairments, significant acquisition-related adjustments, discontinued operations and certain other significant items.Ìý Adjusted Net Income and Adjusted EPS have certain limitations in that they do not take into account the impact of goodwill and asset impairments, significant acquisition-related adjustments, discontinued operations and certain other significant items.ÌýTherefore, we think it is important to evaluate these measures along with our consolidated statement of operations.

CONTACT: Felise Glantz Kissell (Analysts/Investors)
         727-872-7529
         felise.kissell@hsn.net

         Gigi Ganatra Duff (Media)
         727-872-4808
         gigi.ganatraduff@hsn.net

Released August 7, 2014