Felise Glantz Kissell - Senior Vice President of Investor Relations and Strategy Judy A. Schmeling - Chief Financial Officer and Chief Operating Officer Mindy F. Grossman - Chief Executive Officer, Director and Member of Executive Committee.

Thomas Forte - Brean Capital LLC, Research Division Neely J.N. Tamminga - Piper Jaffray Companies, Research Division Alex J. Fuhrman - Craig-Hallum Capital Group LLC, Research Division Timothy Edward Chiodo - UBS Investment Bank, Research Division Trisha Dill - Wells Fargo Securities, LLC, Research Division Benjamin E.

Mogil - Stifel, Nicolaus & Company, Incorporated, Research Division Howard Ma - FBR Capital Markets & Co., Research Division Anthony C. Lebiedzinski - Sidoti & Company, Inc. Matthew J. Harrigan - Wunderlich Securities Inc., Research Division.

Ladies and gentlemen, good morning, and welcome to the HSN Inc. Fourth Quarter and Full Year 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'd like to turn the call over to Felise Glantz Kissell, Vice President, Investor Relations. Ms. Kissell, please go ahead..

Good morning, 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 first 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.

Also on today's call, there'll 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. I would now turn the call over to Judy Schmeling, HSNi COO and CFO.

Judy?.

Thank you, Felise. Good morning, and thank you for joining us. HSNi's strong performance for the fourth quarter was a result of strategic actions that we implemented throughout 2014 to position the company for long-term success.

Financial highlights for the fourth quarter included sales growth of 10% with digital sales up 12%, gross profit up 8%, adjusted EBITDA increase of 7% and adjusted EPS growth of 10%. We also maintained our commitment to return capital to shareholders in a balanced and disciplined manner.

Just last month, we introduced the next phase of our capital return plan, which included a $10 per share special cash dividend and authorization of a 4 million share repurchase program. These actions were an addition to our existing quarterly dividend of $0.35 per share. At HSN, we had exceptional performance in the fourth quarter.

Sales increased 14% to $797 million with digital sales growth of 22% and digital penetration increasing 280 basis points to 42%. This increase represents HSN's highest sales and digital sales growth for any quarter since becoming an independent public company in August, 2008.

Most product categories had strong sales growth in the quarter with particular strength in electronics, home, culinary and our ingenious designs by Joy Mangano business. Also contributing to our sales performance was the successful launch of our direct response television programming featuring Keith Urban.

Joy is down slightly in the quarter, primarily due to a strategic reduction of air time. HSN's average price point grew 2%, unit shift increased 11% and return rates improved 90 basis points, primarily as a result of our product mix. Lower clearance sales also contributed to the higher average price point. Gross profit increased 14% to $262 million.

Gross profit margin decreased 20 basis points to 32.9%, largely due to product mix driven by our strong performance in electronics, an addition to an increase in net shipping expense. This decline was partially offset by $5 million related to the cumulative reversal of liabilities for certain unused merchandise credits.

Excluding the $5 million reversal, gross profit margin would have been 32.5%. Operating expense leverage, excluding noncash charges, improved 70 basis points to 20%, primarily due to strong leverage over fixed operating expenses. This improvement was partially offset by media spend for our direct response television marketing efforts.

As a result of all the factors I just outlined, HSN's adjusted EBITDA grew 14% to $101 million in the fourth quarter. Turning to Cornerstone, sales were relatively unchanged at $321 million with digital penetration increasing 70 basis points to 70%.

All of the home brands experienced sales growth in the quarter except for Frontgate, whose sales performance was impacted by softness in the brand's holiday specific offering. We continue to manage the market challenges in our apparel businesses and adjusted circulation accordingly.

Gross profit at Cornerstone decreased 2% to $120 million and gross profit margin declined 50 basis points to 37.2%, largely due to higher inventory reserves, particularly at Frontgate, where we are taking the appropriate actions to prudently manage our inventory position.

This decline was partially offset by higher product margins primarily within our home brands as well as higher shipping margins. Operating expenses as a percent of net sales, excluding noncash charges, increased 80 basis points to 31%, driven by higher employee-related costs on relatively flat sales growth.

Cornerstone's adjusted EBITDA decreased $4 million to $19 million, with Frontgate as the largest contributor to the decline in performance. We did have positive EBITDA growth in all other home brands as well as Garnet Hill, which returned to positive growth for the first time in 5 quarters.

At HSNi, our fourth quarter effective tax rate of 37% was higher than the effective tax rate for the same quarter last year of 36%, primarily due to the favorable tax treatment of fair value adjustments in the prior year.

I would now like to turn to our announcement a few weeks ago related to the next phase of our capital return plan, which was a direct result of our continued confidence in HSNi's long-term growth prospects, financial stability and strong cash flow generation.

We took advantage of the highly favorable corporate lending environment by entering into a new $1.25 billion 5-year credit facility that replaced our previous $600 million credit facility. Pricing on the new credit facility is 25 basis points lower across the pricing grid as compared to the prior credit facility.

Assuming our current outstanding debt, we expect additional interest expense of approximately $0.10 per share. Our ability to pay down this outstanding debt could be accelerated based on our strong cash flow generation.

These actions result in a more efficient capital structure, increasing our pro forma debt-to-EBITDA leverage to 2x at the end of 2014, reducing our weighted average cost of capital while improving our return on invested capital.

This new credit facility allowed us the flexibility to issue the special dividend of $524 million and authorized a 4 million share repurchase program that I referenced earlier. Since inception of our capital return plan in 2011 and including the special cash dividend just paid last week, we have returned $1.1 billion to shareholder.

In summary, we continue to closely manage our business to drive growth, profitability and shareholder value while pursuing opportunities to leverage our unique position in the marketplace. With that, I will now turn the call over to Mindy..

Thank you, Judy, and good morning. HSNi's performance gained momentum throughout 2014 as we executed on our strategic priorities across our business, by strengthening our customer file, optimizing our digital platform and differentiating HSNi and our brands at content-rich, immersive commerce destination.

Our consistent focus on deploying these strategies drove our strong results for the quarter in an environment where differentiation is critical for success. For the quarter, HSNi had sales growth of 10%, EBITDA growth of 7% and digital grew 12%, reaching a major milestone of now representing over half of our business.

And mobile remains our fastest growing platform with 40% growth in the quarter and mobile penetration reaching 18% of our total business and over 35% of digital sale. These results demonstrate the power of our unique position at the intersection of technology, media and retail, which enables us to leverage content across platforms to drive commerce.

It's also a testament to the integrated efforts that we have accomplished as an organization. HSN had an outstanding quarter, with sales growth of 14%, the highest increase we've seen since I joined the company in 2006, and an EBITDA increase of 14%. Digital sales were up 22% with penetration increasing 280 basis points to over 42%.

It was the third sequential quarter of double-digit digital sales growth. During the fourth quarter, we continued to leverage the investments we've made in customer analytics that have strengthened our customer segmentation, customization and targeting capabilities. We applied our learnings to scale these efforts significantly.

The growth of the customer file has accelerated for the past few years, now reaching over 5.2 million customers, our largest active customer base ever. All buying segments were up considerably during the quarter, including an increase in best customers of 9%. Once again, our customer success was led by digital and mobile.

In addition to growing the file at a faster pace, we're seeing an improvement in the quality of the file. We're retaining more customers and assimilating new customers at a higher rate. In fact, we haven't experienced this rate of new customer growth in a decade.

Retention also hit a 10-year high with the retained-customer spend nearly 4x more than a new customer. This reflects our ability to not only attract new customers but also to stimulate them to make repeat purchase at a higher rate. Our focused efforts related to our HSN credit card program also contributed to the success.

Sales from our HSN credit card has double-digit increase over the prior year with significant growth coming from digital purchasing. HSN credit card sales now represent 1/3 of total HSN sales.

In digital, we maintained our focus on optimizing the entire digital experience to create a more effective end-to-end commerce interface, from the point of entry and throughout the shopping funnel.

In fact, we were particularly honored to have just achieved the top ranking in the e-tailing group's customer experience index, reflecting our strong digital experiences and classifying us as a merchandising innovator. HSN's #1 ranking topped retailers including Amazon, Target and Office Depot, and we're extremely proud of this accomplishment.

Our launch of responsive design across desktop, mobile and native apps provided a consistent experience and improved efficiencies in content creation and delivery. This approach drove success, particularly during our showcase programming, including our HSN's cook event, innovation event and holiday initiatives.

For example, we saw a significant increase in digital sales and traffic throughout the holiday period. Black Friday was the biggest sales day in HSN digital history. We also had our highest-ever digital traffic. During the Thanksgiving weekend, nearly a quarter of our total sales came through a mobile device with record-breaking digital penetration.

As with our other digital platforms, we changed our mobile storefront every hour with different offers to give customers a reason to check in throughout the day and create 24-hour-a-day engagement. Our mobile first mind-set lead to a number of achievements in mobile during the fourth quarter.

Sales grew 48%, with penetration increasing to 18% and 43% of total digital sales. Over 20% of mobile customers in the fourth quarter were new, 140-basis-point improvement over the previous year.

Responsive design was instrumental to mobile's performance, and we further optimized the shopping experience within our mobile website and native apps, including the shopping grid, product retail page, key event pages and check-out page. We've extended our social media efforts to further build awareness and engagement.

In addition to continuously leveraging our brand partners reach and scale, we intend to find [ph] our partnership with Pinterest, executing a large-scale campaign to target and promote Pins with the goal of increasing awareness, engagement and sessions.

It was one of our most successful social campaigns to date, driving consistent engagement 11x higher than average for 2014 and driving 37% of all Pinterest sessions for the entire year in just 5 weeks.

So in the quarter, we expanded our relationship with Pinterest to extend across the HSNi portfolio of brands, created Pinterest boards promoting seasonal product offerings that included a broad assortment of products to attract a wide range of followers.

Both boards were among our top 10 performers during the quarter, generating a total of 2.2 million impressions, and we continue to explore additional opportunities to partner with Pinterest and other social media. At HSN, entertainment has quickly become a core part of who we are and is a key differentiator from others in the retail landscape.

And we're very excited about capitalizing on these unique capabilities. For example, on our last earnings call, I spoke to you about our Internet launch of supermodel Tyra Banks' TYRA beauty, an exciting new cosmetics line.

The November launch was an excellent example of how we're creating disruptive-dynamic partnering as we partner with Tyra to create an all-new category of Beautytainment that has not been done before.

The 2 hour prime-time high energy show included a live audience, makeovers and music along with a DJ, choir and runway, with content integration and a strong social media component.

We capitalized on Tyra's large social reach to increase awareness of HSN as a beauty shopping destination, resulting in our most successful use of generated content campaign. Viewers submitted more than 7,000 selfies using the hashtag #MakeupFierceUp.

We elevated on their social integration with a photomosaic, which shows user submissions on a large photo wall. All of this created a major retail entertainment event that contributed to our overall success in the beauty category.

And in partnership with Lyric Culture, we also premiered a 2-hour prime time special celebrating 50 years of The Rolling Stones with fashion, content, music and differentiated products. We especially introduced the first-ever fashion collection featuring lyrics by the Stones and designed by Diane Gilman, R.J. Graziano, Carlos Falchi and Lyric Culture.

Nearly all items sold out during the show. Based on this success, we'll be introducing similar events in 2015. Also in December, we integrated Disney's film Into the Woods across all platforms, featuring behind-the-scenes clips and interviews.

And finally, we're very excited about the success from our recently launched fixed [ph] program, The Monday Night Show with Adam Freeman, a 2-hour content-rich variety show that provides viewers a fresh perspective on product favorites and introduces them to new products and brands.

The Monday Night Show joins Beauty Report and The List as exclusive dramatic 6 [ph] programming. We're leveraging these shows to develop original content that creates continued engagement with customers.

Turning now to the key HSN product categories that drove our performance during the quarter, we had strong sales growth in all areas of the business, aside from a slight decline in jewelry, where we had pulled back airtime.

As we embarked on 2014, we communicated that our strategy in electronics would be to focus on core partnerships, capitalize on events and expand our digital assortment to maximize productivity.

Our momentum in electronics continued this quarter as we concentrated on key partnerships with exclusive offerings from brands such as HP, Beats, Acer and Samsung. We actually pulled back airtime in electronics to drive productivity, while allocating airtime to other growth businesses, such as culinary, home and beauty.

In addition, we expanded our curated product assortment that included a stronger cadence of digital-only offerings and more strategic use of paid search.

We also formalized our strategies with sales opportunities earlier in the year to provide ample time to build exclusive models and bundles with our partners, while maintaining the agility to maximize sales. Specific categories that drove success included computers, televisions and audio accessory.

In home, we had success across the entire portfolio from gadget gifts to our proprietary businesses for our designer brands, such as Jeffrey Banks. Culinary's tremendous growth was driven by the strategic actions that we deliberately undertook over a year ago, actions that proved to be the right ones to set us up for long-term success.

We saw increases in sales, productivity and gross profit, partially as a result of reduced clearance compared to last year when we deliberately exited certain brands. All of the key chef brands performed well in the quarter, particularly Wolfgang Puck and Curtis Stone.

And our HSN Cooks in November generated the highest sales volume since we launched the concept. The event features multiple key chefs, including Ming Tsai, Lorena Garcia and the premier of Robert Irvine. During the quarter, we also launched Kelsey Nixon and a line of kitchen essentials.

In apparel and accessories, we continued our focus on an expanding digital assortment with a never-out strategy on key products.

In addition to the launch of Lyric Culture Presents, which I mentioned previously, we introduced a new programming concept called Curations Caravan by Stefani Greenfield, who takes our customer on a global journey through content and product. We plan to expand in 2015 with the next event inspired by Greece.

We also continued to develop our weekly fixed fashion programming for The List, which exceeded our expectations for the quarter and will be expanding to a 2-hour show beginning in March. Once again, our Joy Mangano with genius designs business delivered phenomenal results driven by organization solutions and an expanded digital assortment.

During the quarter, we also launched Joy's Closet Shop on our digital platforms to engage our customers and provide them with customizable product configuration and exclusively created video-rich content. We continue to leverage our partnership with Keith Urban, with 2 successful visits in the fourth quarter.

In addition to his HSN appearances, our expertise in the creation of engaging and emerging content provided us the ability to launch Keith's Player Guitar and lesson collection in long form direct response television programming. This new distribution channel broadens our reach, while utilizing HSN's infrastructure.

Initial results are extremely encouraging, including becoming the #1 long form DR program nationally by the end of December. We're looking to maximize the current success of this program to reach a new and different audience. Turning now to Cornerstone. As you know, we've recently appointed Jeff Kuster as President of the Cornerstone portfolio.

His extensive background, particularly at VF Corporation, Warren Buffett's Fruit of the Loom companies and McKinsey, will be a great asset as he understands the marketplace and the strategic idea of portfolio building. He's already visited every one of the brands and I'm excited that he will be leading the business to its next stage of growth.

In the fourth quarter, we did see sequential improvement in the business. Digital penetration within the Cornerstone portfolio remained strong, increasing 70 basis points, and now represents 70% of their combined business.

Mobile grew 25% and now represents 17% of Cornerstone's total sales aided by the launch of enhanced tools that enable greater personalization and customer messaging on our smartphone sites. Let me highlight some of the key brands that had a particular impact on the business during the fourth quarter.

Grandin Road continues to be our fastest growing business and had exceptional success in home and seasonal decor. Ballard Designs had another successful quarter, maintaining a focus on bed and bath and the outdoor segment, the launch of Bunny Williams and improved digital penetration.

And contributing to improvements performance was the [ph] significant to the HSN integration efforts along with increased digital penetration.

Although we were very pleased with the successful recent launch of Master Suite, Frontgate's performance did not live up to our expectations, particularly in holiday-specific offerings, such as trees and decor.

However, we continue to believe there are ample opportunities in the Frontgate business, including emphasize the enhanced indoor furnishings in our interiors by Frontgate assortment, as the brand strives to become an authority for all needs of the home. We're pleased to say that we had encouraging performance at Garnet Hill.

We strategically pulled back circulation, which resulted in lower sales. However, we improved gross profit margin and EBITDA as a result. This reconfirms that we're taking the right actions to return Garnet Hill's to its sustainable growth trajectory.

Looking ahead for HSNi, we remain focused on differentiating our brands, our products and our experiences, enabling us to continue the momentum we're seeing in the business. While we acknowledge that the external environment can be competitive, our goal is to be a leader in the market.

At HSN, the experience we create are a significant point of differentiation.

And now, we have the tools and capabilities to personalize and customize this experience in ways we never could before, such as using our analytical capabilities to personalize our communications with customers based upon learnings from last year and customizing our programming in new and innovative ways.

This will be a key strategic focus in 2015, particularly within digital, where we intend to deliver a personalized experience across all digital touch points that leverages customer data and marketing insights to integrate personalization into all data eighth-day [ph] activities.

We'll continue our optimization efforts with particular focus on enhancements within the shopping funnel and further development of responsive designs.

We'll enhance experiences by delivering more relevant content when and where the customer wants it, improving customer interactivity with elevated, creative functionality and creating new category-specific experiences, particularly in beauty, home and jewelry.

We're extremely excited about our ongoing partnership with Disney and look forward to launching events centered around Disney's highly anticipated upcoming release, Cinderella. We're actually hosting a screening of the movie at a preview event tonight, and we'll be a sponsor of the movie's official premier in Los Angeles.

This marks the first time that HSN is creating a fully-licensed collection with Disney, leveraging assets from the film to design curated products inspired by it.

Following the premier, HSN will host a 30-hour event across 3 days with products developed by some of HSN's most renowned partners from fashion, jewelry and home, including Vince Camuto, Hal Rubenstein and Jeffrey Banks, Heidi Daus, Christos Garkinos and supermodel Coco Rocha, who will be debuting her first fashion collection.

Leveraging our fixed programming success, we'll be airing 2-hour special editions of Beauty Report and The List, all leading up to Cinderella's nationwide release on March 13. Chasing Fireflies will be participating by creating costumes, apparel, home and décor.

Also in the first quarter within culinary, we'll be premiering our latest 24-hour cooks event, titled the World's Largest Cooking Lessons. Our celebrity chefs will prepare some of their favorite recipes while sharing their tips, tricks and techniques.

We will be posting recipes in advance of the event, so customers can shop for the ingredients and then watch and prepare the dishes right alongside our chefs, most notably, Curtis Stone, Lorena Garcia, Robert Irvine, Donatella Arpaia, Jamie Gwen and Marc Gill.

In addition, Carla Hall from The Chew, television celebrity, Debbie Matenopoulos, and Cooking Light contributor, Keith Schroeder, will be presenting their new cook books and will be launching Kelsey Nixon's new line of kitchen tools designed for the busy mom on the go.

As part of our spring fashion series, we're very excited to be launching a new collection by daytime talk show host and best-selling author, Wendy Williams. Today he (sic) [she] will be part of the continuing series on HSN, Weekends With Wendy. This is the most integrated launch we've done to date.

As Wendy will be cross-promoting her debut on HSN daily during our highly followed Wendy Williams Show. Wendy's talk show will also feature a fashion show and promotion to Wendy's HSN appearance as well as audience gifting. The HSN show will include a live audience to give our customers a sense of being a part of Wendy's highly-rated talk show.

We'll augment on their marketing digital pages and live show experiences with video content captured on the Wendy Williams Show set. We expect strong audience crossover and social integration, including Twitter, Facebook and Instagram. HSN is uniquely positioned to present the seamless connection between media and commerce.

As part of our spring fashion series, Kelly Osbourne and Giuliana Rancic, of the Fashion Police, will be co-hosting The List.

The fashion series will also include Beverly Hills lifestyle boutique owner Lisa Klein with the launch of her modern collection of lounge apparel, also footwear premiering for the first time on air with exclusive styles they've created just for us and another addition of the week-long beauty mini-series, which we had so much success with last fall.

It will feature several categories from hair care to skin care, from makeup to fragrance, with brand new launches every day, plus favorite brands with new technology, Lancome, Beauty Bioscience, Perliate [ph], Dr. Graf, Vicky Tiel, ev32 oral care and Chorus [ph] will be featured during the week.

Within the beauty category, we're very pleased to be launching a new innovative makeup line in partnership with makeup artist Jay Manuel, who is the key personality on America's top model. We're also introducing the Martino Cartier hair collection, Elizabeth Arden and Becca [ph], founded by Rebecca Mars Williams.

In electronics, we'll be expanding our partnerships with our core brands and are excited to be featuring the premiere of Dell at HSN.

In collaboration with our highly successful wellness expert, Andrew Lessman, we recently launched the unique microsite within the HSN experience that includes innovative content such as a vitamin finder and products insights from Andrew. The site has outperformed on key metrics, including engagement, sales and conversion.

This is the first phase of a number of enhanced experiences we will be creating. We've also had success broadcasting live from his new studio and his manufacturing facility in Las Vegas, which gives us customer an insider view to the product creation.

We have a number of initiatives underway within the Cornerstone portfolio, keeping in mind that the first quarter is typically our smallest in terms of sales and EBITDA.

At Grandin Road, we're continuing our designer partnerships by launching a new collection of indoor furnishings and the core from American designer and television personality, David Bromstad. Valor designs will be collaborating with 2 editorial partners.

We'll be launching wish list picks from the editor of Traditional Home and menus for 6 different occasions from Cook's Illustrated. At Frontgate, we've identified an opportunity in home to create a new, luxury, contemporary brand that fills a white space in the market.

With that, we're excited to be introducing a unique, modern luxury brand, PortaForma [ph] by Frontgate later this spring. The initial product launch will focus on 12 new furniture collections, merchandising to 4 design aesthetics, supported by complementary decor and products for entertaining.

We plan to build brand awareness with key influencers and targeted affluent homeowners and align our digital channel to support the launch. We'll also be posting photos of the PortaForma [ph] line on Pinterest and How [ph], and developing social outreach campaign with Roberts [ph].

Improvements in TravelSmith will further deepen their successful partnerships with HSN. TravelSmith will also be pursuing opportunities to leverage its new brand campaign as well as building upon its relationship with travel expert Samantha Brown, who is also an HSN core partner.

Garnet Hill will continue to rebalance the portfolio to grow home, the original roots of the brand. This is most evident with Garnet Hill's spring collection, which more prominently showcases an expanded assortment of home products.

And as I've previously mentioned, Chasing Fireflies will be an integral part of our partnership with Disney for the launch of the Cinderella movie event.

The brand will also be intensifying its relationship with Marvel and is looking forward to the exclusive launch of a beautiful collection of children's beachwear inspired by Travel, exotic lands from Theodora and Tallen [ph] later in the spring.

And in a marketplace where media companies are searching for commerce opportunities and retailers are trying to become more of an experiential destination, we have the unique competitive advantage of already having these attributes.

We are a commerce company that's uniquely positioned to drive commerce by leveraging content, entertainment and technology to inspire and engage. We're excited to be in this unique position, one that very few companies have the capacity and capabilities to occupy.

We believe that HSNi is now better prepared than ever to redefine retail as we capitalize on growth opportunities by pursuing innovative new ways to connect with our customer, develop powerful and inspired digital platforms and create content-rich retail experiences. Thank you, and now I'd love to take your questions..

[Operator Instructions] Our first question comes from Tom Forte of Brean Capital..

So 14% sales growth at HSN. Wow. You outlined a lot of plans to continue the momentum into 2015.

I guess the question is, how sustainable is that?.

Well, we've said all along that 2014 was going to be a year of accelerated growth at HSN.

Now I'm not saying we're going to have 14% sales growth every quarter, but we do feel confident that everything that I articulated that we had put in place, and a number of the changes that did create some disruption in 2013, were really part of a strategy to unlock the growth potential at HSN. And we feel confident that we will continue to perform..

Great. And then on margin front, you talked about in the fourth quarter there was a slight impact from use of shipping and handling promotions. Can you talk about -- did you do a lot more than you did historically in the fourth quarter? I know sometimes you do it selectively..

Yes. We've continued to say consistently that we're investing in shipping and handling, and that was part of it and some of it was mix. And what was interesting, as I mentioned, we actually pulled back airtime in electronics but had very strong growth, nevertheless.

So the growth came from productivity, but that also did have a slight impact on the mix. And we'll continue to have our same strategy in shipping, handling. We are very strategic with the use of that. We do go free shipping, handling on national brands, and of course, electronics.

And we look at it strategically in terms of jewelry and beauty where it make sense..

Our next question comes from Neely Tamminga of Piper Jaffray..

A question first for Mindy and then second one for Judy. First for you, Mindy.

Could you just remind us then how we should be thinking about the size and scope of the jewelry business? And how your path -- I know this has been strategic, but how we should be thinking about the path of progress in 2015 on jewelry? And then, for you Judy, could you to talk us through how you're discussing with your sourcing partners and would just what's [ph] around the West Coast port, especially as we're thinking about kind of the bigger ticket furniture guys from the Cornerstone side of the business.

Any help there would be really helpful..

Yes, as you mentioned -- as I mentioned, we really look strategically at the jewelry portfolio, and we have made changes in the mix of that portfolio and have launched a number of brands and have also focused on our core brands. And that's what we will continue to do.

We want to make sure that since it is a higher margin business that, that growth is profitable growth, that we don't overbuy in that business. We worked very hard in 2014 to minimize the clearance in both our fashion and jewelry portfolio, which did contribute to their success.

So we will continue to manage that business in the same way, and that's what we see going forward..

Yes, Neely, and regarding your questions on the port issues. On the HSN side, we have been fairly insulated from those issues. We do have a few issues that have cropped up, but by and large, we can substitute products and we don't think we're going to have any significant impact from the West Coast port.

However, on the Cornerstone side, you're right in terms of some of our larger businesses like Frontgate and Ballard. We do expect to have some impact in the fourth quarter.

We do have some goods held up but we do believe that should just be a timing issue, and hopefully we'll be able to look through that, but we do have some more impact on the Cornerstone side than on the expense side. But we're optimistic it will get cleared through, though..

One next question comes from Alex Fuhrman of Craig-Hallum..

I wanted to ask a little bit the Keith Urban Player Package you've been doing. I'm not surprised to see that was very successful, certainly, compelling programming there.

I'd be curious how much of the revenue growth at HSN came from that? And really, what are some other exclusive proprietary brands of yours that would lend themselves to that sort of off-platform, long-form, direct response marketing? It seems like there could certainly be other candidates within HSN's stable of brands for that.

And curious if that maybe explains some of the increase in inventory as you plan for distribution and broadcasting beyond the HSN platform?.

Sure. The sales of the direct response player with Keith was less than 1%. So it's small relative to the performance of the rest of the business. But again, we do see it being an opportunity, and it is continuing to perform. I would say that we're very, very selective in what we would do in the DR space and that's why we specifically picked Keith.

We felt that was an opportunity, an opportunity to get additional new customer acquisitions. And if we were to feel that there was something else that we really felt was compelling from an individual product point of view, we would consider it. But for now, we're very comfortable that this is the right one for us..

And regarding your question on inventory, yes, it does have a longer lead time due to issues with Chinese New Year. We did an incremental inventory so it did help drive the inventory higher at HSN..

Our next question comes from Timothy Chiodo, UBS..

Yes, Tim in for Eric here. In the past you guys have talked about some of the M&A candidates or kind of the company you might you look at would be something that's profitable or kind of approaching profitability. And once you layered it onto your platform, you might be able to get it there more quickly.

Sometimes, investors have been asking sort of about, what are some of the investments you've made in the past years that'll help make that more possible, centers of excellence and the like. And if you could just help us with maybe a little bit more color there..

Sure. We've done many different things on the HSN front. We invested in our information repository campaign management, which gives us more detailed analytical tools to really help drive analysis on the customer behavior on the front end.

But then also on the back end, we have our investing and warehouse automation, and that should be able to enable us to have additional throughput. And then, just in terms of our scale and leverage, which we've always had, but really from a leverage over our contracts at UPS and our total [ph] operator, things like that.

We can definitely have incremental value added to the portfolio. Yes, in terms of the total customer base, we have 59 million names. We can bring that to bare on the front end of the business, again with our investments that we made on the information repository side.

And then, we've done a lot of smaller things but that they're important to businesses that don't have the scale and size that we do at HSN, things like import compliance, fraud control, all of those smaller areas which we bring a lot of expertise to..

Our next question comes from Trisha Dill of Wells Fargo Securities..

Just have couple here.

I know you're not providing guidance on sales and EBITDA, but maybe you can just help us frame out how you're thinking about the balance between growth and profitability this year, particularly given your incredibly strong sales results this quarter but lack of leverage on the EBITDA line?.

Sure. If you look at that, for the fourth quarter on HSN, we did have a 14% sales growth and a 14% EBITDA increase. So the primary reason for that not having more leverage on EBITDA was the fact that it was partly mix related. If you look at our gross profit, it was down about 60 basis points when you take out that $5 million credit.

So that impact did impact our leverage. And then we also had some increase in catch up and expenses, like health care and things like that, that impacted fourth quarter.

But I think if you look overall for the year, HSN had a 7% sales increase with an 11% EBITDA, and that's the kind of relationship that I think that it makes more sense for us on a long-term basis. Likewise, I would say on the Cornerstone side, we certainly don't.

And the reason why I caution people who look at any one quarter versus looking over a period of time, where we're going to take it, I don't think that we're looking for a flat sales increase and a negative EBITDA increase going forward for Cornerstone either.

So I think on balance, we should continue to look at HSN and over a period of time for the year, like our performance in 2014 at the home and then improvement on the Cornerstone side..

Okay that's very helpful.

And then just on the Frontgate, still hoping you get a little more clarity on how much of the decline was due to seasonal versus core furniture and then how you're feeling about the brand so far in Q1?.

I feel good about the Frontgate brand. I mean, it's certainly powerful. It's got a great connection, and a big part of that was the seasonal piece of the business, including they had a lack of a very key tree that had driven a lot of the business that we were not able to have this year.

So their strengths going into -- their biggest quarter is obviously Q2. But we felt great about the collections they have. PortaForma [ph], which is launching, which is the new modern book as a separate brand. I think when we looked at the market, we really saw an opportunity that wasn't even addressed that we will.

And certainly, we're evaluating what percentage of the business in the fourth quarter we're going to allocate to seasonal next year. And we're really much more focused on the indoor segment to expand their ownership of the house, as you will, in addition to outdoor..

Our next question comes from Ben Mogil of Stifel..

On just sort of the more consumer environment, can you sort of talk maybe regionally. Are you seeing any parts of the country being stronger than others? Kind of curious around areas that have a lot of energy production, employment, if you're seeing any kind of sort of material slowdown there? And it's sort of almost 2/3 through the quarter.

Maybe you can talk about how the current quarter, just broadly speaking, is sort of shaping up from a trend perspective?.

We're not seeing any anomalies on a regional or location basis. So there's no big sound bites on that. As it relates to the consumer, I think what you seen is somewhat more money in their pocket based on gas and based on employment, and some other things.

The question is, where is that money going? And is going to technology, is it going to autos? Is it going to other things? And if I look at the overall environment and I look at retail results, what I'm really seeing are the people who have been innovating and have been investing in the right ways to reach the customer relative to their digital assets, their mobile assets, and they're really focused on differentiating their brands, their products and experiences are the ones that are performing.

And so, we continue to look at a broad swath of retail and have a real focus on gaining share through customer acquisition and as well as the overall file and spend..

Our next question comes from of Barton Crockett of FBR Capital Markets..

Hi, this is Howard Ma in for Barton.

Given the tremendous growth of digital sales for both HSN and TV shopping in general, could you talk about how aggressively HSN has to invest going forward to drive this level of digital growth? I guess, versus taking a more passive stance, or I guess asked another way, given HSN's great improvements already in the online platform, have you tried to parse out how much of future digital growth will happen on its own as a function of the continued change in online adoption and just consumer behavior shift? And then, just given the HSN segment digital sales approach or exceeds 50%, do you see any structural changes in the inner carriage agreements as you -- are you believe have more leverage versus distributors? And are having any increasing cost for versus primary method of engagement might not be through TV set?.

Okay. On additional conversations, I don't think there's anyone that should put the word passive next to their strategies around digital and mobile. I mean that is the most personal way to reach the consumer.

And the expectation of the consumer is that, that experience is going to be seamless, it's going to be consistent across screens, and they're going to want to engage anywhere, how, and have that experience, and we're going to continue to invest.

Now surely there's just adoption that's going to happen naturally, but we really feel the big opportunity is personalizing and customizing our ability to reach the customer through these platforms. And that's where a lot of our investments have been.

And if you remember, we really started testing against those capabilities at the end of last year, and we've been ramping up throughout this year, and we are certainly seeing the benefits of that. So we're going to continue those investments..

And in terms of our agreements with our cable operators, certainly, things have changed tremendously over the past 10 years and they'll continue to change going forward. I said that we do view being on television as key differentiator for us. We love to be able to demonstrate our products into 95 million homes. So that's part of our overall strategy.

I'm hesitant to say leverage of any kind because that's a rather strong word, but we do continue to work on our agreements and try and get the best possible arrangement for HSN and try and to make those shorter terms so we can be more flexible with what's happening currently as those deals come up for renewal..

Our next question comes from Anthony Lebiedzinski of Sidoti & Company..

Just had a couple of questions. So looking at your comments already about your liquidity in your press release, FlexPay was certainly a demand level that you used.

Can you just talk about you view that going forward? Do you plan to use that more aggressively?.

Sure. So FlexPay is definitely a key differentiator for us from -- in retail in general, and it's definitely a lever that all electronic retailers have. And in particular in certain product categories like electronics that is definitely a key differentiator for us. So we'll continue to use it, but again, it's much more strategic.

I'd say that we do use it more historically in the fourth quarter than in any other quarter, just like we used it a lot more during our July birthday month.

So it'll continue to ebb and flow, and we manage that and have a very good process in our credit department, working closely with the planning team to evaluate which items should go on FlexPay and at what price point, et cetera.

So there's always a little bit of push-pull there, but I'd say it'll come down a little bit or go up a little bit, nothing substantial. You can look at our past history to judge from that..

Got it. And then just also touching on the Cornerstone.

As far as the catalog circulation that you did pull that back in the fourth quarter, is that something that we should expect to continue in 2015?.

Well, we pulled back primarily in Garnet Hill in the fourth quarter, to really revamp and get the company back to more of a positive growth story, bottom line versus top line. As we see that business start to continue to respond, we will invest more back in circulation.

But I'd say that the first half, you're going to see probably somewhat similar to what we have in the fourth quarter and then continue to evaluate. We do have some brands that we're investing more in circulation like Grandin Road. So it's hard to say, specifically as a total, because each company we have different strategy for.

But we're very pleased with what we did in the fourth quarter to manage it..

Our next question comes from Matthew Harrigan of Wunderlich Securities..

Mindy, you talk a lot about customization and certainly, one of the themes in retailing is fracturing, I mean marketing to everyone from first wave boomers, Gen Y down to millennials.

But you're still -- one of your big levers is the TV channel, which is almost in a certain sense, an old-fashioned broadcaster in trying to reach everybody who wants to shop with you.

Particularly, as your business model it just really seems to breakout, is there any better way to address the fracturing? And I know on digital devices you've got a lot of adaptability.

But could there possibly be more emphasis on doing flanker channels, either by lifestyle or by product genre? And then, secondly, on the set-top box data, I mean, Cablevision, Rentrak, all wax eloquent about how valuable that is.

That some of the information has a lot of value to the people who are marketing their products through you almost as an advertising form as opposed to just buying the products through you.

Can you talk about the value of the set-top box data to HSN and even getting better analytics on the mobile side as Nielsen and other people try to work with that?.

Okay. I think when I think about -- let's take the word television out of the equation and let's use the word live streaming content. Because that's really what we have to think about in terms of engagement. Because we have the capabilities and we do stream our content live across every platform. So that's number one.

However, recognizing that we have significant engagements through those digital platforms that may not be specific to a time of the day or other, we have created -- we had 180% increase in the amount of original content that we've been creating. And we also have created additional studios to be able to do a lot of that content.

So for example, in our beauty business, the beauty bar is all segments of original content that the customer can engage with every day on demand, on their own terms. And we're also doing that in fashion, in electronics, with our "out of the box" series, and we believe those are both going to continue to be important.

As much as we could call it old fashioned, there's still a lot of people watching the live broadcast in 96 million homes. We do get some of the information, and we know that we don't have a viewership issue, as you will. But I do believe, to your point, that where and how people are viewing has definitely evolved.

And we will continue to evolve with it and test new things. We have our second channel, HSN 2. We're pleased with the performance. We continue to roll out and look for additional distribution. And we will be testing some new formats on HSN 2 this year, to your point, that may be specific to a category or a lifestyle.

And based on those performances, we'll see where we want to go from there..

Yes, and of course we use that same content across all of our platforms as well. So it does have multiple uses to reach multiple customers and demographics. In terms of viewership data, we do have some viewership data that we use that's geared towards a specific cable distributor that we extrapolate those to the rest of our results.

We continue to look at the data coming from Rentrak and Nielsen, et cetera.

But so far, I'd say that for the cost involved, we're a little hesitant to say if it's really going to be beneficially to us because they do sampling prices and we don't have people that are sitting down watching an hour show like you're watching a drama, which, from then you have a bigger base to evaluate that.

So we continue to look at that and see if it makes sense for us. But for now, we feel like we have enough data to be able to understand our viewership and our conversion..

But I would think that you must be getting the sense from some of your partners that you're just getting more and more important as a lever in their marketing strategy as opposed to just the product that's actually moved off your air.

Is that fair? That there's sort of a breakout sense right now?.

I would say that one of the reasons that we've been able to attract the brands, the partners and the personalities we have is because, absolutely, they recognize that we're not just a commerce partner, but we're a marketing partner for the brand.

And over the course of these last years, we've basically said that our point of differentiation and the reason why a brand would choose to come to HSN is because of our capabilities to bring the DNA other brands to light in a very unique way to allow brands to be able to tell their story.

Hence, our partnerships with Disney or our partnerships with any of the other entertainment world, they certainly are looking at that..

There appears to be no further questions. I'll now turn the call back over to Ms. Grossman..

Thank you, everyone. I look forward to following up and speaking soon, and thank you..

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You now disconnect. Everyone, have a great day..