HSN's CEO Discusses Q1 2014 Results - Earnings Call Transcript

May. 2.14 | About: HSN, Inc. (HSNI)

HSN, Inc. (NASDAQ:HSNI)

Q1 2014 Earnings Conference Call

May 1, 2014 9:00 a.m. ET

Executives

Mindy Grossman – Chief Executive Officer

Judy Schmeling – Chief Operating Officer and Chief Financial Officer

Felise Kissell – Vice President of Investor Relations

Analysts

Neely Tamminga – Piper Jaffray

Eric Sheridan – UBS

Alex Fuhrman – Craig Hallum

Matt Nemer - Wells Fargo Securities

Ben Mogil – Stifel Nicolaus

Anthony Lebiedzinski – Sidoti & Company

Barton Crockett – FBR Capital Markets

Matthew Harrigan – Wunderlich Securities

Operator

Ladies and gentlemen, good morning and welcome to the HSN Inc.'s First Quarter 2014 Earnings Conference Call and Webcast. This call is being recorded. Following the conclusion of today's discussion, the HSNi team will be taking your questions.

With that, I would like to turn the call over to Felise Kissell, Vice President of Investor Relations. Ms. Kissell, please go ahead.

Felise Kissell

Good morning, everyone, and thank you for joining us. On this morning's call, we have Mindy Grossman, Chief Executive Officer of HSNi; and Judy Schmeling, Chief Operating Officer and Chief Financial Officer. Judy will initially review our financial performance. Mindy will then strategically discuss the business.

As always, some of the statements made on this call may be forward-looking and as such, are subject to many factors that could cause actual results to differ materially from expectations reflected in the forward-looking statements. Additional information regarding these factors, as well as various risks and uncertainties, can be found in HSNi's earnings release filed with the U.S. Securities and Exchange Commission and available on the company's website. HSNi does not undertake to publicly update or revise any forward-looking statements. In addition, on today's call, there will be references to certain non-GAAP financial measures. These are described in more detail in the company's earnings release and SEC filings available on the HSNi website. You are encouraged to refer to the press release and SEC filings and to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP results.

With that, I would now like to turn the call over to Judy Schmeling, HSNi's COO and CFO. Judy?

Judy Schmeling

Thank you, Felise. Good morning and thank you for joining us.

At HSNi, sales increased 1% with digital sales up 6% and adjusted EPS was $0.50 compared to $0.56 in the prior year. Our results in the first quarter are not reflective of the strength of our brand and strong customer engagement. The primary factors for these results included a highly challenged retail environment driven by severe weather across much of the country. This lowered demand and heightened promotional activity in the market which primarily impacted our Cornerstone division. The women’s apparel category continues to be very soft and we were particularly impacted by Garnet Hill’s results. Also, we are taking strategic actions to reposition certain categories within the HSN business for long term success.

At the HSN division, sales decreased 1% to $545 million, with digital sales growth of 5% and digital penetration increasing 220 basis points to 38%. Strong sales growth in home design and improvement was offset by lower sales in electronics, jewelry and health. We are extremely pleased with our results across the board in home design and improvement. We saw growth in many different categories, including luggage, textiles, DIY, organization and storage, crafts and collectible's. We continue to remain very bullish on these growth categories. As I mentioned on our earnings call, we decreased airtime in electronics as we remain selective in our product assortment. Our focus will be on key events and brands to drive improved performance.

Jewelry sales declined due to a reduction in airtime and less clearance sales this quarter. We are cautiously optimistic about our jewelry business and expect to see growth in the back half. In addition to the jewelry division, we had lower clearance sales in fashion. We are pleased with the success we had in lowering our inventory levels and reducing the impact of clearance. Overall, the impact of less clearance in our total sales growth at HSN was approximately 2%. Lastly, sales in health and wellness were down due to less airtime.

HSN units shipped increased 1% while the average price point decreased 3% and our return rate decreased 170 basis points as a result of product mix.

HSN’s gross profit decreased 1% to $191 million. Gross profit margin remained unchanged at 35%, largely due to favorable product mix and fewer clearance sales which offset lower net shipping margins.

Operating expenses, excluding noncash charges, improved 20 basis points as a percent of sales, and declined 2% to $131 million as we focused on prudent expense management, especially in light of challenging topline results. HSN's adjusted EBITDA remains unchanged at $59 million.

Turning now to Cornerstone. Sales in the first quarter increased 5% to $233 million and digital sales grew 6%, representing an 80 basis points increase in digital penetration to 68%. Although our home business experienced sales growth, specifically at Frontgate and Grandin Road, our apparel businesses continued to be challenged resulting in sales declines particularly at Garnet Hill.

As we have previously articulated, the continued severe weather, combined with softness in demand for women’s apparel and the resulting competitive issues were a concern and it certainly impacted us this quarter. Our gross profit at Cornerstone decreased 3% to $85 million, with gross profit margins decreasing to 36.6% from 39.5%, driven by increased promotional activity in the apparel brands, particularly Garnet Hill and lower net shipping margins.

Operating expenses, excluding noncash charges and a $3.1 million tentative settlement with the Consumer Product Safety Commission, increased 40 basis points as a percent of sales to $85 million. The increase in expenses was primarily related to higher catalog and page count circulation at certain brands and digital marketing.

In regards to the CPSC settlement, as you recall from previous disclosures, we had a voluntary product recall in 2010 related to a Frontgate ladder sold from 2005 to 2010. This settlement is related to this historical matter.

Cornerstone’s adjusted EBITDA decreased $7 million to $1 million with Garnet Hill representing approximately 80% of that decline. The first quarter is normally our lowest in profitability and any shortfalls are magnified in the results for this period. We believe that we will continue to see our growth from our home businesses for the balance of the year. We expect to continue to be challenged in our apparel businesses at Cornerstone, particularly in the first half. We have recently completed the operation transition for taking Fireflies to the Cornerstone platform, including our distribution center, order management system and digital sites. By operation on a clear digital platform, Chasing Fireflies will be able to give our customers an enhanced digital experience through larger product images, expanded search tools, a robust gift registry and showcase collections. In addition it will provide us with enhanced email capabilities and improved SEO.

Our effective tax rate was 39.8% for the first quarter compared to 38% in the prior year. The change in the effective tax rate was primarily due to the non-deductibility of the charge for the CPSE settlement. Excluding this impact, the effective tax rate was 37% for the first quarter. At HSNi, we remain committed to returning value to our shareholders. We will continue to be opportunistic in our share repurchase program and consider all internal and external factors. Recently our board approved a quarterly cash dividend of $0.25 per share payable June 18 to shareholders of record as of June 4.

I will now turn the call over to Mindy to provide a strategic review. Mindy?

Mindy Grossman

Good morning, everyone. As Judy mentioned, our results were impacted in the first quarter partially due to severe weather across the country, softness in women’s apparel, particularly at Garnet Hill and a heightened promotional environment. However, we are seeing improved performance at HSNi as demand strengthened throughout March and it’s continued into April. I believe our opportunity to drive growth remains strong and that our proven business model, unique digital platforms and customer engagement efforts will lead to long term success.

During the quarter, we had areas of strength that we plan to leverage going forward, including a digital penetration increase of 220 basis points, mobile growth of 44%, now representing 15% of our total business and our highest ever customer levels at HSNi. At HSN, overall sales were down slightly compared to the prior year with digital sales up 5%.

I’ll review some of the key accomplishments we had at HSN and then discuss some of the factors that influenced our performance. Our focus on the HSN customer resulted in a 12 month active file that remains at the highest point ever with more than 5 million active HSN customers. Total new and retained customers all increased during the quarter. Actively pursuing our strategies to build our digital presence enabled us to increase digital penetration 220 basis points to 38%. Both new and repeat digital traffic were up. In addition mobile sales grew 44% during the quarter and now represent 15% of HSN’s total business.

Unique customers purchasing our mobile and new customers to HSN via mobile, both had large increases over the previous year. Our use of social media is extensively to engage and communicate with our customers. All our social communities grew during the quarter and more significantly Pinterest increased over 160% driven by our first ever integration of the Pinterest experience to support our HSN in cooks events.

But now turning to product categories at HSN that influenced the quarter’s performance. Sales were strong in our Home business, which was pervasive throughout the company. We are very happy with the launch of our improvements brand on HSN, part of how we are leveraging the opportunities between HSN and Cornerstone brands. As I mentioned on the last earnings call, we plan to further expand these cross brand opportunities to generate sales efficiencies, customer engagement and brand awareness. We believe the successful brand fusion serves as a blueprint for future opportunities within HSNi. In Home we also launched the HGTV outdoor season with an assortment of exclusive HGTV products and in addition our own Joy Mangano business exhibited strong growth in the quarter.

Now let me review some of the categories we referenced on the last call, specifically electronics, Jewelry and Culinary. During the quarter we decreased airtime in electronics, which had sales implications as we had ben adjusting our strategy to manage market challenges and differentiate our programing by focus specifically on events and key brands such as Samsung, HP, and Beats. Implementing this strategy resulted in a very successful 24 hour innovation event late last month. The event featured several product launchers as well as unique offerings in the connected health and smart home categories. We also introduced original content for digital to enhance the overall customer experience, such as our new customized out of the box videos that educate customers on how to set up products.

In jewelry similar to last quarter, sales were impacted as we reduced airtime to reposition the business for long term success by driving more variety in newness in both our core proprietary and new brands. During the first quarter, we launched more brands than in any other quarter in the last five years. We’re encouraged by the consumer response to the changes we’re making. In culinary, we’re extremely pleased with our progress in strategically expanding and diversifying our chef portfolio to include top culinary experts at extensive consumer following.

Taking these actions last fall, led to notable sales and productivity growth in this area during the first quarter. In fact, our 24 hour HSN cooks event in March was our most successful cooking event ever. It featured four of HSN’s most notable chefs, Ming Tsai, Lorena Garcia, Curtis Stone and Donatella together for the first time. The event included cook book presentations from Jessica Seinfeld, Kelsey Nixon and Scott Conant, which resulted in record breaking customer numbers that nearly doubled the number of customers in the previous year. We also introduced live studio audience participation. We plan to build upon these types of events throughout the remainder of the year. Within culinary, sales were down only in the food category during the first quarter. We tested and launched a number of new brands and products. We’re encouraged by the customer response to what will be our expanded assortment of healthy living foods.

Finally, our beauty business remains strong with ongoing success from our weekly beauty report. We had growth in this division with the exception of infomercial beauty tools which had a very strong performance in the prior year. We continued to invest in this business for growth, launching eight new brands so far this year and we’ll be introducing additional partners throughout the remainder of 2014.

At Cornerstone, net sales increased 5% over the prior year driven by strong sales growth in the home brand particularly at Grandin Road and Frontgate. This growth was over shadowed by the challenges in women’s apparel specifically at Garnet Hill. The severity of the weather during the quarter also had an effect on our Cornerstone brands. As the weather improved towards the end of the quarter, we saw increased demand for outdoor furnishings. Cornerstone’s digital sales grew 6% with penetration increasing 80 basis points to 68%. Mobile sales increased 35% compared to the prior year and similar to HSN, mobile penetration reached 15% of Cornerstone’s business.

During this past quarter, our emphasis on strengthening our digital foundations, including launching our digital inspirational boards on Frontgate, Grandin Road and improvement. These boards allow our customers to view and save products as they browse our site, making them great tools for both the novice and experienced designers. We’ll be rolling out additional boards in the coming month. We also introduced our enhanced gift registry and wish list and improved the Frontgate and Grandin Road product stages to highlight our aspirational imagery and unique design element.

Before I discuss strategies for the second quarter, it’s important to reiterate that we’ve already seen improvement in the overall business. At HSN, we’re very excited to extend our entertainment integration strategy to our recently announced multi-film marketing partnership with Disney Studios with three highly anticipated films; Maleficent, Cinderella and The Hundred Foot Journey. This two year three film collaboration marks the first time Disney Studios has enlisted an Omni-channel retailer for a comprehensive long term entertainment marketing partnership. In advance of the release of each film, HSN will create content driven retail events across all platforms, TV, online, social and mobile. These innovative shopping experiences will highlight exclusive and curated assortments of jewelry, fashion and beauty products.

Our Maleficent event, which launches next week will feature products with some of HSN’s top designers, including licensed products from Naeem Khan, Heidu Daus and Amika and additional collections from Juliana Rancic, RJ Graziano, Diane Gilman and others. As you may have seen in a recent AOL press release, we just partnered with AOL in the launch of their new premium video experience on AOL.com, delivering curated videos to millions of daily visitors. As part of this partnership, we’ll combine content with compelling commerce offers for the AOL.com audience. We will be in the company of other world class content creators such as Condé Nast Entertainment, E!, and the Wall Street Journal. Gamification remains a strategy to recognize and reward our customers by making their experience on HSN.com about more than just shopping. In early April, we enhanced our gamification platform to include additional opportunities to earn badges and other rewards such as tickets to win merchandise for completing activities, which enables us to build loyalty within the brand and we’ll continue to refine these efforts over the course of the year.

Two weeks ago, HSN partnered with Virgin Records to create a US launch platform for famed British artist Matt Goss. HSN and Virgin Records coproduced a one hour HSN live concert special around Matt’s new album Life You Imagine which broadcasted on HSN on Easter Sunday. This partnership is yet another example of our unique integration strategy.

Late last month, we launched Sofia Vergara’s first fragrance, an HSN exclusive until September when it rolls out to retailers’ nationwide. To capitalize on our partnership with Univision, this launch was also promoted through Boutique Univision and included Sofia appearing on Despierta America, the number one rated morning show in the country to promote her new relationship with HSN. These efforts resulted in one of our most successful fragrance launches ever in unit sales.

Also in April, we premiered television personality, two time New York Times bestselling author Robin McGraw’s skin care collection. The launch was so successful that Robin will be back with us later this quarter. Keith Urban returns to HSN in late May with a follow up visit to his stellar debut launched last November. His new guitar collection is inspired by his hugely successful Light the Fuse Tour and number one album.

And in culinary we’ll continue to maximize our extensive chef portfolio with appearances from Curtis Stone and Lorena Garcia in May and Wolfgang Puck and Ming Tsai in June. At Cornerstone, our home brands are off to a good start. We saw a momentum shift from the first quarter into the second with improved performance and the ever important outdoor business opportunities are still ahead. We believe that our expanded and exclusive outdoor collections, particularly at Frontgate make us well positioned to capture a larger share of wallets from high value customers. Frontgate is presenting more than 30 proprietary collections of which 11 are new, offering expanded custom fabric selections and launching new brand awareness programs designed to drive demand through media placements and partnerships including Coastal Living, Elle décor, Traditional Home and House Beautiful.

Ballard Designs is introducing additional new outdoor collections to their extensive assortment, entering into a new partnership with Domino Magazine and sponsoring the Southern Living Idea House, Atlanta Food & Wine Festival and the Traditional Home Atlanta Symphony Decorator’s Showhouse.

Now let’s specifically talk about how we are addressing the problems at Garnet Hill. We are taking decisive steps to improve the business and expect to see results from these actions as the year progresses. As you know from our last call, we’ve brought in new leadership, Claire Spofford, the brand’s new president and she brings more than 20 years of executive experience in the retail industry. Claire is focused on stabilizing the business and driving strategic growth at Garnet Hill in both women’s apparel and home. The team sees opportunity in further developing alliance and programs with existing partners such as Eileen Fischer and Lilly Pulitzer and developing new strategic relationships. I’m pleased about the new energy in the brand and I’m looking forward to Claire’s impact on the business.

To be clear, our team is extremely focused on improving our performance to the levels we know we can achieve. This quarter was not indicative of our true capabilities as supported by our proven track record. The sales performance that we have seen since March reflects both our efforts to make impactful changes in some of our businesses as well as a more normalized seasonal trend. I’ve said that agile is the new smart and as a company we’ll continue driving shareholder value by being adaptable, flexible, and open to change. Our fundamentals, customer engagements, exclusive content, strong digital platforms and massive retail experiences remain strong and key competitive advantages. I believe that these fundamentals which are unique to HSNi will enable us to deliver improved performance and drive growth in the future.

Thank you and now we will take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) and our first question comes from Neely Tamminga from Piper Jaffray. Please go ahead

Neely Tamminga – Piper Jaffray

Great. Good morning, thank you very much. I was wondering, Mindy, if we could talk a little bit about just the comments you’re making about the pace of business. This clearly has been a very tough quarter for nearly the majority of the S&P 500 at this point. So it’s picked up for you guys. Is it broad based across the board or is it really about the key seasonal categories like outdoor? Could you give us a little bit more explanation around --?

Mindy Grossman

Absolutely. What’s interesting is I think that what people have to understand is the impact of what we saw in the weather in January and February was not just about stock closing. So I’ll go by category. Certainly in outdoor living, the shift was more extreme than normal. So two years ago we had a big pull forward. Last year was normalized. And even though we did have sales growth in those home businesses, they weren’t accelerated at the level that they could have been to make up for some of the shortfalls at Garnet Hill. In terms of women’s apparel, this was a combination of delayed spending and we certainly made decisions to move through the inventory because that would become a bigger liability going forward. I think it was a combination of the customer not ready to spend and somewhat of a pullback on discretionary spending based on expense increases in other areas like utilities or need based purchases.

Certainly when we saw 8%, shopping as an emotional sport was somehow put on hold. So I think in apparel the HSN customer being more of a buy now, wear now, wasn’t as extreme. I think the issue there was we had significantly less clearance. So a positive long term as the team is really managing the business well. Children’s, definitely -- that’s the only business that we would ever reference a shift around Easter. And homes still showed growth, but not at the accelerated levels we would have anticipated. So, certainly once we got to March and certainly going into April, we definitely saw that freeze list and the business start performing.

Neely Tamminga – Piper Jaffray

And if I may, one follow up related to outdoor. Is outdoor as a percentage of total sales adjust for the Cornerstone division, maybe looking at that as a proxy? Is that significantly larger in Q2 versus Q1 or is it marginally larger?

Mindy Grossman

It’s significant which is again why that first quarter, second quarter shift has a bigger impact on us than what you would see in other businesses, particularly in that business because it’s so large from everything from average ticket to sales to everything.

Operator

Thank you and our next question comes from Eric Sheridan from UBS. Please go ahead.

Eric Sheridan – UBS

Thanks for taking the question. You also called out competition in the quarter as a headwind. but want to understand sort of what you saw in the marketplace, how you responded to it and whether competition primarily around promotions might have eased as we moved out of March and into April. Thanks.

Mindy Grossman

I would definitely say that when I reference competition, it’s around promotional activity. There’s no question that when people realized that slowdown particularly Jan, Feb that to drive topline, they needed to promote more heavily. And also in certain categories like fashion or like women, that inventory becomes a very big liability. So they were promoting to move through and frankly in our apparel businesses, the worst thing that we could do is not levelize the inventories, but yes it was very promotional. Interestingly enough, not just in apparel. It was also more promotional than I would normally see this earlier on in Home.

Operator

Thank you and our next question comes from Alex Frouman from Craig Hallum. Please go ahead.

Alex Fuhrman – Craig Hallum

Great. thanks for taking my question. I wanted to talk a little bit about channel placement for HSN. It’s really easy to look at the increase in your e-commerce revenue and specifically mobile and see that that’s really where the customer’s going on the purchasing side. But it’s a little bit harder for us to really understand on the marketing side, now that mobile is presenting a huge opportunity for you to broadcast your proprietary contents through so many other touch points, how important is the television right now? And how does that change your thought right now? And how does that change your thought about channel positioning? I would imagine that a lot of your new customers are still influenced by the television broadcast and still coming through that channel even if they are purchasing elsewhere.

So curious to how you think about your channels, longer-term. And then specifically in the markets where you have incentives on a variable rate with some of the cable and satellite operators, how important is it to you that you are basing any sort of incentive on a commission base of revenue for products that were aired on TV recently versus your overall sales base? Is there an opportunity to maybe get more of that upside as your business presumably migrates towards more items that are marketed heavily online but not necessarily market on the television screen? Just curious to how you think about that from a longer term perspective within the context of new customer acquisition and marketing? Thanks.

Judy Schmeling

Okay. Great questions, Alex. There was a lot of questions in there so we’ll try and answer them and if we don’t please follow up to the extent that we haven’t answered a question. So first of all we do look at all of our businesses from a channel basis. It’s a 360 degree experience for our consumer, whether she is on a mobile device or on our web platform or watching us on television or watching us broadcast live on any one of those platforms. So again we try and have this holistic experience so that we are with the consumer wherever she’s at. But having said that, even though mobile is a significant driver of business on the HSN side of the equation, we believe in the value of television. Television is a great medium to be able to get across to Europe, experience the product, the detail, showcasing it in a way that other retailers can’t and that video is then lived live and we do shorter clips on our websites that anyone can access those at any point in time to be able to enhance the sale. So from a channel placement position which is what you were asking, we still continue to believe that channel placement is key.

It does continue to migrate over time dependent upon the providers, MSO’s setup in terms of what might be next again. But generally we like to be near the most watched television programs. So your broadcast channels are still very heavily watched. We also like to be near My Style channels. So we definitely have arrangements with different providers because we feel that our channel position is a key component of driving our customer engagements. So again we look at the customer experience completely holistically, but I believe that television is a key marketing vehicle for us. And I think that interestingly if you talk to a lot of other web based digital retailers themselves, they believe that driving television and having commercials actually helps drive their businesses well. So again while we are very active on the digital marketing front to also continue to drive customers to our businesses, that’s a different customer and also television based customers as well.

Mindy, would you like ...

Mindy Grossman

Yeah. To Judy’s point, we feel that we have to use every channel both on HSN and off HSN. So let me explain. What we are trying to do with our programing is integrate all our channels. So a great example is that so every Thursday night from 7:00 to 9:00 we do the beauty report. It’s one of our highest viewed, very important programing. We integrate live chat, mobile. We have a new studio called the Beauty Bar where we do specific online videos as well as the live shows. So the customer can integrate at any point. But with the video that we are now creating, we are able to leverage that video even off HSN and a great example of that is our new AOL partnership. So I think it’s important that we leverage all the assets we have, use television as the big bleach vehicle, market through our other platforms, integrate them and then also bring HSN off HSN to potential new customers.

Alex Fuhrman – Craig Hallum

Great. That is a tremendously thorough response. Sorry to throw 100 questions in there all in one, but thank you so much for the answer and looking forward to seeing how this unfolds over the course of the year. It’s been very exciting so far.

Operator

Thank you and our next question comes from Matt Nemer from Wells Fargo Securities. Please go ahead.

Matt Nemer - Wells Fargo Securities

Thanks so much. So I’ve got two questions. The first is, I would echo Neely’s comments that anyone in retail had a very tough first quarter. A number of retailers have actually provided some color on the sales pace in markets that weren’t impacted by weather. So I’m just wondering if you can provide a sense for the pace in California and Nevada, Arizona. Did you see a better result from those markets?

Judy Schmeling

I think that we actually have not looked at it specifically like for Garnet Hill for instance. I think that most of their businesses are in the Northeast. It’s a very Northeastern brand. So you would see that from that specific brand it would have been more impacted just because that’s naturally where their customer base is. So I can’t say it was better in California per se. It’s not as meaningful. In terms of outdoor furniture, I think that’s the reason why we still had our respectable result just because we weren’t selling it in those locations that were impacted, but in certain coastal areas that weren’t as impacted like California maybe, we were selling a little bit better. But quite frankly down here in Florida too, it’s miserable weather. So I think that the south was impacted as well. And again, on the HSN side of the business, it was -definitely you can see within pockets and by zip codes that certainly we were a little bit more impacted by a certain area, but not to the same extent as our Cornerstone brand.

Matt Nemer - Wells Fargo Securities

And then secondly, just wondering if you can comment on the inventory at Cornerstone at the quarter end. One of the specific questions I’m interested in is, does the Coldwater liquidation put an additional pressure point on you in the short term? And then is that actually a longer-term benefit to some of your brands? I would think there’s some customer overlap there.

Judy Schmeling

Okay. So in terms of the inventory levels at Cornerstone, they did increase significantly, but that is really the inventory in the -- primarily in the Home brand, so to drive our outdoor furniture business as well as our Grandin Road business, which is definitely on fire. So that increased in inventory significantly related to those two businesses, as well as I think if you recall, last year we did have more out of stocks. So we’re now more in position as we in stock as we move forward. So I’ll let Mindy answer the cold water.

Mindy Grossman

As it relates to Coldwater Creek specifically, I think there’s a bigger issue there and it’s the issue in this year apparel in general and it goes back to the promotional activity. Clearly it has been a segment of the business that’s been somewhat more challenged. So I think that’s just one additional reference point, but it’s not the only reference point. And our goal is to really focus on our business and what’s going to differentiate us. We have opportunities. Garnet Hill in addition to apparel as a Home business. We’re going to focus on those areas as well to diversify the business and we’ll continue to update you on that, but our focus is going to be differentiating us in that space.

Operator

Thank you and our next question comes from Ben Mogil from Stifel. Please go ahead

Ben Mogil – Stifel Nicolaus

Hi guys. Good morning and thank you for taking my question. Just one on the balance on the brands that are from big profile events, Mindy, curious on how you balanced out. (Inaudible) could do a number of these because of the high profile nature they give, but also not overloading the consumer so that they become numb to it. So curious from in terms of differ categories, how you’re thinking about it or even from a seasonal perspective how you’re thinking about it.

Mindy Grossman

That’s a great question. To your point, we have to look at everything as let’s call it the triangle. We have our base business, that core business that we have to do every day. We have what I call internal events, which could be a 24 hour beauty event. It could be our beauty report. It could be our fashion series that our customers look forward to, and then the pinnacle are really those events that we’re partnering with. And we have to be very selective on those. So for example with our partnership with Disney, we’ve been working on Maleficent for almost 18 months. And we do one real pinnacle event a year so the customer can get excited and they’re looking forward to it, and we have to manage our assets and investments appropriately. So what we really look for is the quarterly cadence of our traditional programing, our internal seasonal events and then what we call our tent pole events. And then we also try and time some of those. So for example Memorial Day weekend, Keith Urban is like the pinnacle of the weekend, but surrounding that is all our traditional big programing to drive sales for the weekend. So it really is a balance to your point.

Operator

Thank you. And our next comes from Anthony Lebiedzinski from Sidoti & Company. Please go ahead.

Anthony Lebiedzinski – Sidoti & Company

I was wondering if you could give us some color on the cross brand opportunities that you envision for the balance of the year. I know you talked about the improvements. Can you give us just as better sense of how we should expect that through the balance of the year?

Mindy Grossman

Sure. I would focus on let’s call it three different opportunities that we see for this year. Number one is very specific to the brand, which is really maximizing the improvements brand as a proprietary brand for problem solution on HSN, very similar to how we’ve grown the ingenious designs business. We’ve developed a proprietary brand Origami. We have the license for HGTV Outdoor Lawn & Garden. Improvement will be in order core brand for us throughout the year and we expect to see significant growth in that brand over the course of the year.

The second would be as a follow up from last year, but more diversified is our programing around Halloween, with both Chasing Fireflies and Grandin Road as well as HSN and our programing around that as well as our integration with UNICEF. You saw a Chasing Fireflies. We’ll have an extensive array of costumes along with the Disney costumes for the first time. So that will be embedded throughout our programing. And then lastly as a follow up from what our first efforts were last year around using our entire portfolio of companies for gift, programing we will be doing that but we would be doing it more extensively both with on air programing. And then the individual brand for the first time will really be able to focus on their wish list and gift registry. So I would say those are the three parts for this year, but I think going forward based on the success of improvements, we will be looking across our brands around what other opportunities there might be.

Anthony Lebiedzinski – Sidoti & Company

That’s very helpful. And looking at the return rate for the HSN segment, a nice improvement there. Is that just a function of product mix changes or is there anything else going on and what’s your outlook for that?

Mindy Grossman

It’s related to two things. Certainly mix drives a significant amount of what that return factor would be. But in addition to that we have had a real quality focus over the last number of years on reducing return rates by category and that’s everything from looking at upfront QA more stringently to packaging that we’ve been doing to videos as well as our on air presentation of getting the customer to understand exactly what they are going to get. And an example of that, our recent innovation event, we had all of these out of box videos. So when the customer got any kind of technology home, she could click on the video and literary showed her how to get it out of the box. So I think there’s a number of different things we are doing. We are also starting to incorporate video in our email based on our new relationship with ExactTarget. So when the customer gets home we can time the video. And I think all of those things cumulatively make a difference.

Anthony Lebiedzinski – Sidoti & Company

Okay. Thank you. And lastly, just looking at the share buyback activity, it certainly was rather modest in the quarter. How should we think about share repurchases going forward?

Judy Schmeling

Yes. It was modest in the quarter and again we continue to be opportunistic. So depending upon internal and external events we, we might go in one quarter and purchase a million versus lighter quarters. So I think part of this quarter also was timing and the first quarter relative to when we released last period. So I can’t give you any specifics guidance, but we do remain committed to our share repurchase program in all our return to shareholder value program.

Operator

Our next question comes from Barton Crokett from FBR Capital Markets. Please go ahead.

Barton Crockett – FBR Capital Markets

Thanks for taking the question. I was wondering if you could just quantify a couple of things to some degree in the quarter, the Olympics impact, the Easter impact, any way to size up an effect they have, particularly on TV shopping?

Judy Schmeling

So I would say it’s hard to kind of quantify the Olympics season because obviously there was a lot of other things going on at the same time that could have impact. So in a very normalized scenario, you could probably isolate certain programing, but it would have been hard to do. And I would say, relative to Easter, that doesn’t have a really big HSN impact. It does have Chasing Fireflies and a certain level of apparel impacts. So it was relatively minor on the Easter ships in total for our business. But certainly as you know, Barton, Olympics does take away viewing. So but to Mindy’s point, it’s hard for us to quantify that this year because there were so many other things that were happening around it.

Mindy Grossman

But to your point it was just additive to the situation.

Barton Crockett – FBR Capital Markets

Okay. And then in terms of the retail environment that you're seeing so far in the second quarter, are you seeing the promotional kind of pressures abating. Did it start kind of heavy in the beginning of the quarter? I'm thinking more from your competitors and maybe it’s abating as we exit the quarter, so kind of a good trend kind of exiting the quarter. Is that what you're seeing?

Mindy Grossman

I’m a believer that unless there’s some kind of side mix shift in mentality, we’re going to be living in a fairly promotional environment because I think people are trying to move through products. However I do think that the cadence of spending has improved. So it’s not as big a gap or an influence that we saw in the first quarter.

Barton Crockett – FBR Capital Markets

Okay, great. I will leave it there. Thank you.

Operator

And our next question comes from Tom Forte from Telsey Advisory Group. Please go ahead.

Tom Forte – Telsey Advisory Group

Great. Thanks for taking my question. The first one was, if you look at your categories, you are revamping culinary and jewelry. What percent of completion are you today? Are you 50% completed, 25% completed? And then in the quarter you talked about decreasing the airtime for electronics and jewelry. What categories received incremental airtime? Thank you.

Mindy Grossman

Okay. So I would say I’m very enthused about where we’re going in culinary. As much as we had some pressure in general in the first quarter, what that team has accomplished in terms of getting that business back on track, getting that business diversified, growing the products assortment through the chefs, adding new brands and adding new businesses, I feel very good about that business. You will see greater emphasis, airtime, et cetera, growth and that will be a growth business for us. In jewelry, that was really about getting the business right and getting the business clean. And as you heard from Judy’s script, one of the things that not only airtime in terms of sales, is we had a significant reduction in clearance activity in jewelry and in fashion.

Again I don’t think you’re going to see the trajectory of growth in jewelry that you’re going to see in culinary. It’s a very different business, but it will be a very solid business in progression as we go forward. And then as it relates to electronics, I’m really focused on productivity in electronics, quality of programming and quality of partners. And so inherent that’s how we shifted the business. Now, growth categories, home and improvement, so everything from home decor to outdoor to DIY to the Joy Mangano business, which has been particularly strong. Beauty, we still see a lot of opportunity in the beauty category because it’s so diversified and so innovative. So, that’s been another area that we’ve had to focus on. So again Home, Culinary, Beauty, you’ll see. And then we still feel very strongly about the Health and Wellness category. We just had some programing shifts from Q1 to Q2.

Operator

And our next question comes from Matthew Harrigan from Wunderlich Securities. Please go ahead.

Matthew Harrigan – Wunderlich Securities

Thank you. I don't want to be too think glossy, if that’s a word on the HSN numbers. I thought they were pretty good, maybe a test to your ability to reset the floor and manage through a difficult economic environment. We are hearing a lot of noise on the economy and certainly the (inaudible) number of marks just came in this morning, pretty good. I guess some concerns about the housing market. But when you look at the Cornerstone business, when you look at Frontgate, is that just necessarily pretty cyclical? I mean, HSN in the last recession you were pretty early in your growth curve on e-commerce and all that, but you really powered through pretty nicely. If the economy does slow down and the housing market were to crack, would you get some particular gains regarding Frontgate and all of that at the higher-end demographics?

Mindy Grossman

That’s a great question. And when we went through the recession, we learned a lot obviously in terms of the impact on a Frontgate versus anything else. And I think one of the reasons that we were able to see improved performance is during that period not only did we address circulation, but we really diversified the Frontgate portfolio in terms of the types of business, the price points of business. We launched Experience Frontgate. We weren’t only dependent on the second quarter with outdoor. We went too also an indoor. So they’ve done a lot of work. The second thing that we did was really put a focus on Grandin Road, which has much boarder priced points and a much broader demographic and as Judy said that business has really been performing. Third, Ballard has also looked to diversify and then our improvements brand is much more democratic. So the difference today versus when we looked at it 2008, 2009, our portfolio of home brands, inclusive of HSN is much more balanced both within each brand and across the brands, exactly to your point.

Matthew Harrigan – Wunderlich Securities

Thanks, Mindy. I will look forward to Maleficent.

Mindy Grossman

It will be great. The product’s fantastic.

Operator

Thank you. There appears to be no further questions. I will now turn the call back over to Ms. Grossman.

Mindy Grossman

Thank you, everyone, and I look forward to speaking with you all individually. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone, have a great day.

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