HSN a horror show for IAC performance

The shopping channel's outlook isn't rosy.

Published May 4, 2007

HSN's comeback is taking longer than expected, and on Thursday the shopping network took the blame for the parent company's stock dropping the most in three years.

"Most of our businesses had good news to report, but the bad news is HSN and Lending Tree are performing poorly, " said Barry Diller, chairman and chief executive officer of IAC/InterActiveCorp. "I expect to see more of the same this quarter."

Wall Street reacted swiftly. IAC shares, which had been run up 33 percent in the past year, dropped 7 percent on the news before recovering to close at $36.10, down $2.49.

A comparatively small business unit that specializes in the home loan business, Lending Tree was tossed in a cyclical hurt locker by the default-ridden subprime mortgage market.

By contrast, HSN contributes more than a third of IAC's revenue and continues its struggle to land more customers. The sluggish performance in the quarter ended March 31 turns up the heat on a team headed by former Nike executive Mindy Grossman. This week she celebrated her first anniversary at the helm of the St. Petersburg TV shopping network. Diller said he still has "confidence HSN will emerge stronger than ever."

But he found little cheer in the network's first-quarter results that included a 12 percent, or $8-million, operating profit decline. Profits were eroded by inventory piling up from experiments with new merchandise. Yet sales inched up only 1 percent to $685-million, not counting America's Store, the network's just-dismantled second channel.

In addition, the network chose to eat higher shipping costs rather than raise fees, went off the air a spell in 1-million Los Angeles homes in a cable service switch and sold fewer items overall to customers.

Lending Tree's revenues have been stymied by the housing slump, this time dropping 12 percent to $114-million from a year ago. Because investors are tighter about lending money, the online comparison loan shopping site could muster only an operating profit of $100, 000. That's down sharply from $9-million a year ago. Meanwhile, Lending Tree is effectively out of the fatter-margin business of originating new loans, instead spending most of its time refinancing wobbly ones. One sign of tighter lending criteria: The site could provide more than one loan quote for 86 percent of site visitors, down from 99 percent a year ago.

"It's clear the events in the subprime market have spilled over into other types of loans, " said Tom McInerney, chief financial officer.

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