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HSN, Inc. Reports Fourth Quarter and Full Year 2013 Results

Highlights for the Fourth Quarter 2013:

• Adjusted EPS increased 11% to $1.11 per share
• Net sales increased 4% with digital sales up 8%
• Adjusted EBITDA increased 4%

ST. PETERSBURG, Fla., Feb. 20, 2014 (GLOBE NEWSWIRE) -- HSN, Inc. (Nasdaq:HSNI) reported results for the fourth quarter and full year ended December 31, 2013 for HSN, Inc. ("HSNi" or "Company") and its two operating segments, HSN and Cornerstone.

Fourth Quarter 2013 Results vs Fourth Quarter 2012 Results

• HSNi's net sales grew 4% over the prior year to $1.0 billion.ÌýHSN's net sales increased 2% to $697.4 million, including 7% growth in digital sales.ÌýCornerstone's net sales increased 8% to $322.4 million, including 9% growth in digital sales.
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• HSNi's Adjusted EBITDA increased 4% to $111.3 million.ÌýGAAP operating income increased 5% to $97.8 million.Ìý
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• Diluted EPS from continuing operations increased 14% to $1.14 compared to $1.00 in the prior year.ÌýAdjusted EPS (which excludes a net expense reduction in the fourth quarter of 2013 from fair value adjustments related to an acquisition in 2012) increased 11% to $1.11 compared to $1.00 in the prior year.

Full Year 2013 Results vs Full Year 2012 Results

• HSNi's annual net sales grew 4% over the prior year to $3.4 billion.ÌýHSN's net sales increased 2% to $2.3 billion, including 7% growth in digital sales.ÌýCornerstone's net sales increased 9% to $1.1 billion, including 11% growth in digital sales.
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• HSNi's annual Adjusted EBITDA increased 4% to $337.9 million.ÌýHSNi's GAAP operating income increased 9% to $282.7 million.Ìý
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• Diluted EPS from continuing operations for the year increased 38% to $3.25 compared to $2.36 in the prior year.ÌýAdjusted EPS for the year (which excludes certain significant items identified in Table 4) increased 19% to $3.15 compared to $2.64 in the prior year.Ìý
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• HSNi announced a 39% increase in its quarterly dividend in November from $0.18 to $0.25 per share and repurchased a total of 2.7 million shares during 2013 at a cost of $146.9 million, or an average cost of $53.67 per share.Ìý Since initiation of the capital return plan in September 2011 through February 19, 2014, HSNi has returned more than $478 million to shareholders through share repurchases and dividends.

"Throughout 2013, we successfully managed the Company to position us for long-term growth. We kept our focus on the customer, emphasized our unique content and proprietary products, strengthened our digital platform, further leveraged opportunities and synergies across the HSN and Cornerstone brands and returned value to our shareholders by delivering nearly $200M through share repurchases and cash dividends," said Mindy Grossman, CEO of HSN, Inc. "During the fourth quarter, we achieved 4% sales growth and a digital sales increase of 8%, including mobile growth of 59%. Adjusted EPS growth for the quarter and year were 11% and 19%, respectively.Ìý We also ended 2013 with record customer levels at both HSN and Cornerstone."

HSN Segment Results for the Fourth Quarter 2013

HSN's net sales were $697.4 million, an increase of 2% from the prior year.ÌýDigital sales grew 7% with penetration increasing 190 basis points to 39.5%.ÌýSales grew in health, beauty and apparel & accessories, offset by lower sales in jewelry, culinary and electronics.Ìý Net sales were favorably impacted by lower than historical returns in many product categories.ÌýThe average price point increased 1% while the units shipped remained unchanged.Ìý

Gross profit increased 3% to $230.6 million.ÌýGross margin increased 20 basis points to 33.1% primarily due to lower inventory reserves.ÌýOperating expenses (excluding non-cash charges) increased 1% to $142.6 million and were 20.4% as a percentage of net sales compared to 20.6% in the prior year.

Adjusted EBITDA increased 5% to $88.1 million compared to $84.0 million in the prior year primarily due to the 2% increase in net sales and the 20 basis point increase in gross margin, partially offset by an increase in operating expenses.ÌýOperating income increased 4% to $77.9 million compared to $74.7 million in the prior year.

Cornerstone Segment Results for the Fourth Quarter 2013

Cornerstone's net sales were $322.4 million, an increase of 8% from the prior year.ÌýThe increase in net sales was driven by sales growth in the home brands.ÌýDigital sales grew 9% with penetration increasing 110 basis points to 69.3%.Ìý

Gross profit increased 8% to $121.7 million. Gross margin decreased 10 basis points to 37.7%.ÌýOperating expenses (excluding non-cash charges) as a percentage of net sales increased 30 basis points to 30.5% compared to 30.2% in the prior year primarily due to employee-related costs.

Adjusted EBITDA increased 3% to $23.2 million compared to $22.6 million in the prior year.ÌýOperating income increased 10% to $19.8 million.ÌýThe increase in operating income was due to a decrease in stock-based compensation expense and the net expense reduction of $0.6 million from non-cash, fair value adjustments related to an acquisition in 2012.

Effective Tax Rate

HSNi's effective tax rate was 36% for the fourth quarter of 2013 compared to 39% in the prior year.Ìý The change in the quarterly effective tax rate was primarily due to the favorable tax treatment of the fair value adjustments related to an acquisition in 2012. The annual effective tax rate for continuing operations was 35% in 2013 compared to 38% in the prior year.ÌýThe change in the annual effective tax rate was primarily due to discrete tax benefits of $3.7 million realized in the third quarter of 2013 and the favorable tax treatment of the fair value adjustments in the fourth quarter related to an acquisition in 2012.Ìý Excluding the impact of these items, the 2013 effective tax rate would have been 37%.Ìý

Liquidity and Capital Resources

As of December 31, 2013, HSNi had cash and cash equivalents of $196.4 million compared to $222.1 million at December 31, 2012. ÌýNet cash provided by operating activities in the year ended December 31, 2013 was $231.9 million compared to $147.4 million in the prior year, an improvement of $84.5 million, due to improved operating performance and changes in working capital.ÌýWorking capital improved primarily as a result of lower inventory receipts, effective inventory management and the timing of collection of credit card receivables, offset by the timing of income tax payments.ÌýÌýÌý

HSNi's board of directors approved a quarterly cash dividend of $0.25 per share payable March 19, 2014 to shareholders of record as of March 5, 2014.Ìý

During the fourth quarter, HSNi repurchased 0.2 million shares of its common stock at a cost of $9.9 million, or an average cost of $51.99 per share.ÌýDuring 2013, HSNi repurchased a total of 2.7 million shares at a cost of $146.9 million, or an average cost of $53.67 per share.Ìý From inception of the share repurchase program in September 2011 through February 19, 2014, HSNi repurchased a total of 9.0 million shares at an aggregate cost of $397.0 million, representing an average cost of $44.03 per share.ÌýHSNi is authorized to purchase up to 10 million shares under the repurchase program authorized in September 2011.

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, February 20, 2014 at 9:00 a.m., Eastern 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 http://www.hsni.com.Ìý

A replay of the conference call can be accessed until Thursday, March 6, 2014 by dialing 855-859-2056 or 404-537-3406, plus the pass code 34758772 and will also be hosted on the company's website for a limited time.Ìý

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 96 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 10 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.Ìý

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.ÌýEffective with the fourth quarter of 2012, HSNi modified its definition of Adjusted Net Income; therefore, previously reported amounts were modified to conform with the current definition.Ìý

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

         Brad Bohnert (Media)
         727-872-7515
         brad.bohnert@hsn.net

Released February 20, 2014