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Catalog items give HSN new vitality

The retailer hopes the home and leisure products will help alleviate its summertime slump.

By MARK ALBRIGHT
Published November 2, 2005

Sales at HSN are recovering from a summertime funk as the St. Petersburg TV shopping network prepares to stir dozens of items into its product mix from a mail-order catalog acquired in April.

"HSN is improving and continues to get better every day," Barry Diller said of his e-commerce conglomerate's biggest single cash generator. "I'm hoping sales growth accelerates to a sustainable level now that we have a good retail portfolio."

HSN, which is part of Diller's IAC/InteractiveCorp, paid $720-million for Cornerstone Brands Inc., a Cleveland direct mail operator whose seven brands of home and leisure products Diller is counting on to find a receptive TV shopping audience.

Cornerstone, perhaps most known for selling its products in Skymall catalogs, boosted IAC's retailing unit's sales 47 percent to $750-million in the third quarter ended Sept. 30.

HSN's results were far more modest. Margins shrank and the network's U.S. sales rose 8 percent during the quarter, better than the network's 2 percent gain in the second quarter. Both, however, were overshadowed by bigger rival QVC's 15 percent sales gain in the most recent quarter.

Diller accepted the blame, citing HSN's execution during what he called a transition. The network resorted to more discounting to ditch slow-moving merchandise.

As far as the upcoming fourth quarter holiday shopping season, "we're cautiously optimistic," said Tom McInerney, IAC chief financial officer, who oversees the retailing business units.

Diller is counting heavily on the Cornerstone product lines to invigorate HSN sales through 2006. The network has been testing sales pitches and building sets to sell the more lifestyle-oriented lines - many of them aimed at more upscale, adventurous customers who travel a lot - which include TravelSmith, Front Gate, Ballard Design, Garnet Hill and Smith & Noble.

IAC said 23 percent of HSN's sales have shifted to HSN.com, the company's online presence, up from 15 percent a year ago. Thanks to the acquisition of Cornerstone, HSN mailed 92-million catalogs, four times what the network mailed a year ago.

IAC reported that earnings declined 24 percent to $68-million, or 18 cents a share, down from $89-million, or 24 cents a share in the year-ago quarter. Much of the reduced income related to charges for Diller's recent spinoff of Expedia and IAC's other travel-related businesses. Despite shedding Expedia, IAC revenues soared 55 percent to $1.5-billion largely because of the acquisition of Ask Jeeves, the Internet search engine that will drop Jeeves from the nameplate when it is rebranded as "Ask" next year.

Diller's latest strategy is to lace the Ask Jeeves home page and search engine with more direct links to IAC's vast collection of online business transaction sites, including Ticketmaster, LendingTree, TripAdvisor and a variety of matchmaking and local advertising-supported entertainment guide sites. Expedia, which Diller controls, will get a visible access button on the Ask Web site.

IAC's latest online shopping site is called gift.com. It markets a variety of HSN merchandise and goods from other retail sites such as Macy's and Saks that pay for the exposure.

Mark Albright can be reached at albright@sptimes.com or 727 893-8252.

[Last modified November 2, 2005, 00:46:18]