Felise Kissell - Vice President, Investor Relations Judy Schmeling - Chief Operating Officer & Chief Financial Officer Mindy Grossman - Chief Executive Officer & Director.

Neely J. N. Tamminga - Piper Jaffray & Co (Broker) Eric J. Sheridan - UBS Securities LLC Tom Forte - Brean Capital LLC Matt Nemer - Wells Fargo Securities LLC Barton Crocket - FBR Capital Markets & Co. Victor Anthony - Axiom Capital Management, Inc. Alex Joseph Fuhrman - Craig-Hallum Capital Group LLC Anthony C. Lebiedzinski - Sidoti & Co. LLC Matthew J.

Harrigan - Wunderlich Securities, Inc..

Ladies and gentlemen, good morning and welcome to the HSN, Inc. Third Quarter 2015 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 now like to turn the call over to Felise Glantz Kissell, Vice President of 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. HSN does not undertake to publicly update or revise any forward-looking statements.

Also, 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's 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 like to turn the call over to Judy Schmeling, HSNi's COO and CFO.

Judy?.

Thanks, Felise. Good morning, everyone. At HSNi, sales increased 3% with digital sales up 8% and adjusted EPS was $0.70 compared to $0.74 in the prior year. Our results in the third quarter were not reflective of the power of our brand.

The primary factors for this performance included a highly competitive retail environment, resulting in heightened promotional activity coupled with lower demand trends, most notably impacting our Cornerstone portfolio.

And at HSN, strong growth in electronics and culinary was not enough to offset softness in other categories, particularly home and jewelry. Sales increased 2% at HSN to $591 million with digital sales growth of 7%. As I mentioned, strong sales growth in electronics and culinary was offset by lower sales in home and jewelry.

Our home business lacked enough newness and variety in key categories such as home solutions and crafts. In jewelry, we have not been satisfied with the performance in this category and have taken additional actions to reignite this business.

While we are pleased with the performance of electronics and culinary, we recognize the need to have consistent performance from all of our product divisions. Mindy will be reviewing our merchandising actions shortly. Similar to the second quarter, there were minimal sales from our direct-response television marketing campaign featuring Keith Urban.

As I have previously stated, the third quarter does not represent meaningful sales volume for this business, an area we continue to view as opportunistic. HSN's units shipped increased 2% and average price point grew 1%. Return rates improved 80 basis points, primarily driven by product mix. Gross profit increased 1% to $205 million.

Gross profit margin decreased 50 basis points to 34.6%, sensibly from greater electronic sales and shipping and handling promotions. Operating expenses as a percent of sales excluding non-cash charges improved 20 basis points to 23.3%.

Contributing to this improvement was the timing of certain marketing events that offset the increase in our bad debt expense associated with changes in sales mix. HSN's bad debt expense remained low at approximately 1% of total sales.

As a result of the factors that I just outlined, HSN's adjusted EBITDA increased 1% to $67 million in the third quarter. We are focused on returning to a normalized EBITDA growth rate through a balanced approach of driving sales and gross profit expansion, while tightly managing expenses.

Turning now to Cornerstone, sales increased 6% to $274 million with digital sales growth of 9%. Sales were driven by the home brands, particularly Frontgate and Grandin Road. Garnet Hill sales continue to strengthen and we remain pleased with the progressive improvement we are seeing in the business.

We continue to have challenges at TravelSmith and Chasing Fireflies. Mindy will speak more about our strategies on improving performance at these brands. Gross profit at Cornerstone increased 2% to $102 million.

Gross profit margin decreased 140 basis points to 37.1%, primarily as a result of increased promotional activity across the portfolio to stimulate additional demand. We also took actions to move out of season inventory within our outdoor category.

Operating expenses as a percent of sales excluding non-cash charges increased 10 basis points to 33.1%, primarily from higher employee related costs as well as strategic investments in Garnet Hill.

These investments included circulation to rebuild the customer file following Garnet Hill's improved performance as well as costs associated with the new satellite office in Exeter, New Hampshire, providing closer proximity to major metropolitan areas to access a larger talent pool.

Cornerstone's performance, which I just reviewed, resulted in adjusted EBITDA of $11 million, a decrease of $3 million from the prior year. We are rationalizing circulation, pricing and promotions as well as inventory levels where appropriate, by brand, to drive the business.

During the third quarter, we performed a quantitative assessment of Chasing Fireflies trademark and concluded a fair value adjustment was appropriate. As a result, Cornerstone recorded a $5 million non-cash impairment charge related to Chasing Fireflies.

At HSNi, our effective tax rate was 36% for the third quarter compared to 38% in the prior year, largely due to the benefit from state taxes. The full-year effective tax rate for 2015 is estimated to be between 37% and 38%. In the third quarter, we returned $52 million to shareholders through our share repurchase and cash dividend program.

We repurchased 541,000 shares in the quarter and 819,000 shares year-to-date with 3.2 million shares remaining under our existing share repurchase authorization.

While we were disappointed with our third quarter performance and we are cognizant of the highly competitive retail environment and facing much tougher comps leading into holidays, we remain committed to delivering a consistent and sustainable long-term profit growth.

We have taken immediate actions to improve the business, including evaluating all pricing and promotional strategies and marketing programs, and rationalizing costs and organizational structures.

We will continue to leverage our core strengths of customer focus engagement, providing unique and immersive retail experiences, and most importantly, offering great products. Mindy will now review our strategies we are pursuing to drive performance..

Thank you, Judy, and good morning. Clearly our performance in the third quarter did not represent what we expect from the business, particularly given our core strategies and our extensive growth opportunities.

Over the past three years, we have made deliberate and strategic changes to strengthen our brands, create efficiencies, leverage and evolve our talent, and set ourselves up for long-term success. We believe that these changes are critical, will make us even stronger and allow us to capitalize on the foundation we have built.

They have already resulted in improved performance in a number of areas. The move to a center of excellence model and operations is complete, and we continue to see synergies across our business and improvements in efficiencies and the overall customer experience.

Investments in tools and talent have led to strong customer growth metrics at HSN and a new team has executed the turnaround of Garnet Hill. However, there are other areas that have not delivered on our expectations. This was evident in the third quarter in specific brands within our Cornerstone portfolio and certain merchandising categories at HSN.

We have clearly identified and isolated the issues that weighed on our results and are taking the appropriate actions to course correct and move the business forward.

We remain confident that our unique capacity to create and distribute experiential content across multiple platforms, combined with our ability to curate differentiated products, positions us well for long-term success. As Judy mentioned, HSNi ended the quarter with sales growth of 3%, digital sales of 8% and mobile growing 18%.

Digital penetration increased 200 basis points, representing nearly half our business. Mobile penetration now represents 18% of total sales and 37% of the digital business.

Our EBITDA decrease was driven by the Cornerstone portfolio, which was particularly impacted by the strategic decision within our Home brands to reduce inventory levels, including end of season and discontinued inventory. In addition, we continue to experience sales declines at TravelSmith and Chasing Fireflies.

And I will be sharing with you our specific strategy for improvement and containment for these brands. At HSN, our 12 month customer file continues to grow, increasing 5% with best customers up 6%.

This growth was primarily driven by our core customers with improvements in retention as we continue to deploy our campaign management strategies, providing us with the ability to capture additional insights on customer behaviors to reach and communicate with them more effectively.

We maximize categories that were performing exceptionally well such as electronics, culinary and health and wellness. However, we need to have the appropriate balance within our portfolio with sustainable strength in other areas of the business.

We have taken decisive actions to reorganize our merchandising team, which included the recent departure of HSN's Chief Merchant. We are leveraging the strong talent within our merchandising, digital and planning teams to optimize our greatest opportunities.

Bill Brand and I will be working diligently with the teams to organize appropriately against these opportunities. We believe these changes will enable us to be more agile, respond to changes in consumer behavior and maximize all our categories of business. We are undertaking these actions with an intense focus on gross profit expansion.

At HSN, digital sales were up 7%. Digital penetration increased 170 basis points to over 40%. In addition, mobile sales continued to strengthen, up 17% in the third quarter, and now represent 19% of total sales and 46% of digital sales.

Our top digital priorities include optimizing our digital platform, developing unique enhanced experience across categories and events, and adding personalization to the user journey and customer touch points, including increasing the frequency of compelling customer campaigns.

During the quarter, we advanced our digital experience by introducing innovative alternative programming through our first digital-only live streaming event with HSN's wellness expert, Andrew Lessman. The new format's informative and educational approach resonated with customers who had an average viewing time of nearly 20 minutes.

Andrew discussed wellness, answered real-time questions from his customers and offered a special value that customers responded to. The event had more than 52,000 unique views and based on its success, we plan to imply this alternative programming strategy with other key personalities.

Our strategic use of social media continue to provide us with unique opportunities to advance the HSN brand. Most recently, we leveraged the Serena Williams Fashion Show across our digital and social platforms to reinforce our reputation as a fashion authority.

We stage our first-ever front real live stream event from New York Fashion Week runway show streaming live on HSN.com as well as AOL.com and vogue.com. We gave viewers the opportunity to shop at the show during and immediately following the event. We also streamed a live Q&A with Serena via Periscope. She streamed live to her huge social following.

This was our largest social and PR campaign to-date, resulting in more than 3 billion media impressions. Let me now review the product categories that most impacted the third quarter.

In electronics, our focus on becoming a customer destination for technology solutions, partnering with key brands and trusted experts and delivering engaging information drove strong sales. However, given the margin implications in this business, we are working diligently to balance the success within electronics with other categories.

Performance was led by HP, Dell, Canon, Panasonic, Samsung and Bose. Culinary had strong sales and productivity gains with exceptional performance in our proprietary chef brands. This included Wolfgang Puck's 17th anniversary celebration, which had record sales.

We also saw solid performance from our other key chefs, including Curtis Stone and Ming Tsai.

Known as a category with exceptional strength, the home area experienced a sales decline, although productivity did increase as we strategically pulled back air-time to the lack of newness, most notably in organization and floor care, particularly in national brands at a broader distribution.

This reinforces our strategy to greater distort our proprietary product offerings and we're currently working with our partners to curate additional unique assortments specifically for us. We've been speaking about repositioning our jewelry business for quite some time and our progress to-date has not met my expectations.

We're addressing this by making organizational changes within the team with a renewed strategic focus on driving more variety and newness in both our core proprietary brands and new brands. In addition, a key strategy will be to distort the fine jewelry business, a current marketplace trend.

We have strategic launches in this category that are compelling and proprietary starting this month as we gear up for holidays. Turning now to Cornerstone. Sales in the home brands outpaced our apparel business aside from the sales strength in Garnet Hill.

Within our home business, we have success across the portfolio in the indoor furnishing category, a strategy we had outlined. Garnet Hill continues to make significant progress with strong sales and margin expansion over the prior year. As you know, late last year we appointed Jeff Kuster as President of the Cornerstone portfolio.

Jeff's extensive background from working at a Berkshire Hathaway Company to his time in Mackenzie makes him the ideal leader to critically access the portfolio, as well as optimize growth opportunities, a project that is already underway as I previously outlined.

Digital remains a key strategy for the Cornerstone portfolio with over two-thirds of our sales derived from digital platforms, up 200 basis points from the prior year. Digital sales grew 9% and digital penetration notably increased across all brands. Mobile sales were up 20% with mobile accounting for 17% of total sales and 25% of digital sales.

We have enhanced the digital sites for all of our brands with tools that provide the framework for additional features going forward.

As we embark on the fourth quarter, we recognize that the ever important holiday period is still ahead, appreciating that we are confronting tough comps in the fourth quarter, particularly HSN's outstanding 14% sales growth in the prior year.

That said, we are focused on maximizing our pipeline of products, events and strategic promotions across all of our brands at HSNi. At HSN, we kicked off our Merry, Happy, Everything holiday campaign that will feature unique events and programming.

Last month, actress and style icon, Sofia Vergara returned to HSN with the launch of her new fragrance, Love, and Melissa McCarthy followed her successful debut at HSN with the new assortment from her Seven7 clothing line offering sizes for all women.

Keith Urban will return for two visits during the quarter that will include the introduction of his new vintage style guitar. Other noteworthy HSN personalities including Wolfgang Puck, Giuliana Rancic, Christie Brinkley, IMAN and Jennifer Flavin-Stallone will also be returning with new offerings for the holidays.

Leveraging our ingenious designed business with our innovative products from Huggable Hangers to the Miracle Mop, and Joy Mangano's broad consumer appeal, we're investing in these business in several ways.

We just launched the website joymangano.com that shares product insights, education and Joy's personal experiences and will soon be adding the ability to seamlessly purchase product within the site, further extending our distributed commerce capabilities.

This unique Buy button technology will also be deployed to entertainment partners such as Univision. We are working hard to keep ingenious design products top of mind with customers, as we approach the movie premiere inspired by Joy's life happily titled Joy, a David O.

Russell film opening on Christmas Day starring Jennifer Lawrence, Bradley Cooper and Robert De Niro. We are excited about the opportunities for awareness and engagement which will comprise a significant amount of PR and appearances with Joy, including multiple magazine covers and national speaking engagements.

We are also expanding our existing footprint in retail to take advantage of this momentum. This strategy will include greater product assortment with increased square footage and prominence at Target, Bed Bath & Beyond and The Container Store, and we are also launching Macy's for the first time. This retail relaunch will be in early 2016.

This is a perfect example of our ability to extend the reach of our proprietary brands to alternative distribution and platforms, power e-commerce and leveraging external awareness.

As I previously mentioned, we're implementing strategies to reignite our jewelry business, including curating our fine jewelry assortment with exciting premiers such as Kristin Chenoweth, Diamonds Unleashed with Kara Ross, Forever Flawless – Diamond and Jennifer Miller.

As part of our holiday strategy, for the first time, we are offering 12 Month VIP Financing for jewelry over a certain price point to grow our customer base and drive the fine jewelry business. Our partnerships and collaborations are an important part of our customer engagement strategy.

As an example, we are leveraging our relationship with Margaritaville to joint sponsorship of a New Year's Eve concert with Jimmy Buffett at the Barclays Center in Brooklyn. We plan to stream the concert live on HSN.com by Margaritaville TV, while simultaneously showcasing live feeds from the concert on air at HSN.

We continue to be a compelling destination for brands that view HSN as a marketing power. Because of the loyalty we have built with our customers who trust us to provide value-added services that will be beneficial to them.

For example, in the fourth quarter our partnership with Aetna continues with another program aimed at helping customers navigate the sometimes confusing world of insurance. Aetna will be using our platform to provide information and education to explain their many service options.

In addition, based on the reputation we've built in the marketplace, particularly with our successful partnership with Toyota, we've also teamed up with Ford Motor Company.

With more women influencing vehicle purchases than ever, this partnership gives Ford access to our coveted female audience through an exclusive marketing campaign that gave HSN customers the opportunity to purchase some of Ford's most popular models at preset prices. Moving now to Cornerstone.

All of the brands are taking specific actions to maximize the fourth quarter, focusing on product, experiences and digital. As a content driven retailer, we are always pursuing opportunities to elevate our brands by creating unique experience.

Just yesterday, we unveiled the first Ballard Design studio experiential retail destination in the King of Prussia Mall outside Philadelphia. This retail destination enables us to showcase products in innovative ways and allows customers to engage physically with the brand. Customers will also have the opportunity to buy online and ship to store.

We know that increasing our brand presence and engagement in a geographic area drives performance across all platforms, as evidenced by our current retail locations. This concept, however, takes the brand experience to an entirely new level.

In addition, encouraged by the success of the Garnet Hill pop-up location in Bridgehampton, New York that opened this past summer, we are now utilizing this destination to showcase holiday offerings from Garnet Hill. We launched Grandin Road shoppable interactive experience for Halloween Haven.

As a result of this experience, we premiered our Spooky Decor photo challenge showcasing Grandin's Halloween offering. We also leveraged our partnership with Pinterest as part of this campaign.

Highlighting the most luxurious offerings of Frontgate's gift guide, we are planning an integrated sweepstakes utilizing curated Pinterest boards and Instagram giveaways. At Chasing Fireflies, we are focused on improving the performance of this business.

As part of this effort, we are significantly rationalizing circulation, product assortment and promotional cadence, as well as looking at alternative business models including, but not limiting, to partnerships and licensing opportunities.

Lastly, we appointed industry veteran Michael Alexin as President of TravelSmith, who most recently was a senior executive at Target. Michael brings impeccable credentials and extraordinary track record of success in branding, specifically around merchandising and product development from companies such as Levi Strauss and Nike.

Michael's primary focus is to drive performance at TravelSmith and capitalize on the expanding travel category, including a partnership with HSN to grow the brand's presence. In summary, many of you know me and appreciate my passion for this business and our extensive opportunities for growth. And none of that has changed.

Our third quarter performance does not reflect our recent past, nor our outlook toward the future. As I'm sure that all of you who watch retail trends know, the consumer environment has been extremely volatile across all of retail.

Clearly, we are focused on our business and taking appropriate actions to improve our performance, but I would be remiss if I did not acknowledge the current landscape. But before I close, I also want to respond to a question that you will all be asking.

What about Amazon and TV shopping? Well, first off, they must believe, as we do, that content shopping is compelling and like all retailers, are looking to maximize all channels.

And while we take any competitive entry, especially from the likes of Amazon, very seriously there are significant differences that we believe will keep us differentiated and competitive. Our 24x7 channel is about immersive storytelling, personalities, proprietary products and emotional engagement.

We have a distinct competitive advantage with almost 40 years of insights building a very complex business, which is why there are a very few competitors. We also have a distinct customer demographic and psychographic who are strong loyalists and over 70% of our products are proprietary or exclusively to us.

Now as it specifically relates to Amazon, we are actually in the final stages of launching the shop by remote app on Amazon Fire devices to expand our distributed commerce footprint, which already includes Apple TV, Roku and other OTT players.

We believe in the power of our brand, our relationships, and our ability to now distribute our unique content and products to a significantly broader audience.

I remain confident that our core strengths of customer focus and engagement, increasingly sophisticated digital platforms and unique immersive retail experience and product position us well for long-term success, knowing that we need to course correct in the short-term.

Our strategic focus remains on distributing our brands, content and products to a broader audience on multiple distributed commerce platforms to promote consumer engagement and drive sales.

Our intent is to be both platform agnostic and audience centric and in achieving this, we will maximize, differentiate and take advantage of these unique attributes. I look forward to updating you on our progress. And now, I'd like to take your calls..

Our first question comes from the line of Neely Tamminga with Piper Jaffray. Your line is now open. Please go ahead..

Good morning. I have one question and one follow-up if I could.

Judy, could you speak a little bit to the Q4 outlook? We don't intend to be so short term in nature but I think the key question that we are fielding from investors is, are you even able to produce positive top line growth especially out of the HSN division in Q4? So, hearing from you guys more specifically how you navigate in the near-term with the idea that you got the longer-term initiatives in play, that would be really helpful for investors and holders of your stock? And then a follow-up.

So, Mindy, on the Chief Merchandising Officer role, when was this affected, I guess, is the question we are asking, I think this sounds like news to us by and large and I guess the question here too is, are you looking to do something differently with the overall chief merchandising structure or will there be a search in place for another traditional CMO? Thanks..

Sure. Thanks, Neely. Regarding, obviously, heading into holidays, we don't give guidance or anything like that that you know over periods of time. Our goal is to continue to drive top-line performance and improved performance.

However, we recognize the very competitive environment that we are in and as Mindy articulated, it's going to take some time to course correct and really inject some newness into some of our categories. However, as you said, we are completely lined up with products for holiday season.

I think the window is a very compressed window as we head into holiday and we'll just continue to update everyone as we progress throughout the season.

Mindy, would you like to add something to that?.

Sure. No, I mean, obviously October is the smallest element of the season, so we're focused on driving performance for the balance of the quarter, going into the big core season that we have. And as Judy said, we are working with every category to push performance. We have newness coming in. We feel good about a lot of the things that we have upcoming.

And we're going to continue to be focused on top-line growth and improving bottom-line performance. On the Chief Merchant, Ann left in August and we did not believe we had the appropriate strategic or inspired leadership to execute the strategies we needed going forward.

We do have a strong merchandising team and to your point, we are evaluating the right structure, including the Chief Merchant role and alternative organizational structures and I am working very closely on that with Bill.

As I want to say again, we have a lot of talent within the merchandising, digital and planning teams and we'll be leading these teams for the immediate future, which I think will enable us to move forward in the right way..

Thank you. Best of luck..

Our next question comes from the line of Eric Sheridan with UBS. Your line is now open..

Thanks for taking the question and appreciate all the color and commentary on the call. Maybe just going back to the comments around the health of the consumer.

Just maybe, Judy, maybe just helping understand a little bit better your consumer and where the pressure points are in terms of either their velocity of purchases, how they are sort of thinking about price points and where you might be able to push in around your existing consumer base to maybe drive a little bit better behavior? And then one quick follow-up in terms of how the quarter developed, in terms of where was exit run rate in September and how you think about the setup for holiday shopping against that consumer comment? Thanks..

Okay. I'm going to answer the consumer comment in two ways. More broadly, what do we think about consumer and then specifically and probably more related on the HSN side to what we're thinking about our specific customer and what's going to motivate her.

I would say in general, the landscape right now is very volatile, very promotional and I think the consumer has a lot of options for where they are spending their discretionary income, including technology and experience versus just products.

And I think that what we've seen in the last couple of years, as Judy mentioned, is compression in the holiday season because they have been trained to wait. So I think that's how we're seeing the overall macro.

Specifically at HSN, one of the things we do have that's incredibly valuable and I mentioned on our customer metric that best customer, that loyal customer, she is here with us.

We just need to give her the continued diversity of the product to get her to buy more throughout the season and then in addition to that, continue to execute on the new tools and talent that we have driving personalization to create that conversion and still drive a lot of customer acquisition. So that's definitely the focus on the HSN side..

Thanks so much..

Our next question comes from the line of Tom Forte with Brean Capital. Your line is now open..

Great. Thanks for taking my question. I had kind of one related question in two parts.

The first is, on the notion of balancing your sales growth and your profitability growth, is it primarily about getting jewelry on track and then trying to determine the appropriate mix for consumer electronics? And then as it pertains to full-year 2015, you had suggested in the past this notion of 7% sales growth and 11% EBITDA growth.

Does the third quarter performance change your view on that regard? Thanks..

Sure. In terms of – first let me answer your second question first, on the leverage. That was really, the 7% and 11% was more of an example of what we can expect from a leverage perspective. That was not meant to be any type of long-term guidance.

Our goal is definitely to achieve those things over a period of time, but it wasn't anything specifically related to that.

It was specifically, we do expect to continue to get leverage out of our business on the HSN side and we're very disappointed that we were unable to achieve that which is the reason why Mindy also focused on gross profit expansion as we head into the remaining years, which include to your point a balancing of electronics, getting jewelry really back on-track, but also more importantly, getting the home business back where it needs to be.

We did have enough newness and variety in that category. And as Mindy mentioned, our best customers will continue to shop with us. She just wasn't buying as much because those categories did not have the compelling products that she needed. So those are the things that we're really working on course correcting.

But, again, our goal here is to continue to drive strong performance in the HSN business.

And I do want to then talk about in terms of the Cornerstone side of the business, we do have a couple of businesses that are very challenged, TravelSmith and Chasing Fireflies that Mindy mentioned and as a result of really analyzing the current performance, us, Chasing Fireflies we did decide to take down the trademark.

So we're not pleased with that businesses and we're going to get both of those business back on track and are looking in all different alternatives to do that..

So just a little further on the categories and product mix, as you've certainly seen when we had driven extremely high performance, where maximizing how that mix all works together, we are not investing more in electronics. And even in the third quarter those gains were from productivity. So we need to see greater productivity.

Our home business is very different than the Cornerstone home business. Our categories are in organization, in DIY, in floor care, in crafts and we did have some softening in some of those businesses that we are reigniting, as Judy mentioned, with newness. But it's not just isolated to those categories.

We need beauty business, which has been a solid business for us, we just need to accelerate it further, hence a lot of the new launches there as well. So this is what we are very focused on. But to your point, every division is focused on gross profit expansion and maximizing the balance. It's not just key divisions..

Thank you..

Our next question comes from the line of Matt Nemer with Wells Fargo. Your line is now open..

Thanks so much. Good morning. My first question was on the inventory actions at Cornerstone home brands.

Just wondering if we could get some more color on that? Is it broad based, is it certain categories, and what would the sales growth look like excluding those markdowns?.

Sure. So it was primarily in our outdoor categories and several of our brands that we just had quite a bit of inventory, we did a deep analysis of that and decided that it was time to move through some of that inventory and mark it down accordingly.

We do think that there's some residual inventory heading into Q4, although not to the extent that it was. We also have some residual inventory related to our Chasing Fireflies spend, but we do expect to be able to move that quite effectively in Q4. So that was really the overall category that drove that decline.

I can't say exactly what the sales growth would have been without that. It was really more of the margin pressure versus the top line growth perspective..

Okay.

And then just secondly, the shipping promotions that you talk to, do you think that that's really just a reflection of the broader environment or could we read into that that the lower -- the new lower shipping prices at QVC, which is more of an EDLP shipping message as potentially having an impact?.

Okay. Great question. Part of the shipping and handling promotions was related to our increase in electronics, which generally are on free shipping and handling as well.

But I would also say that part of the issue of the incremental shipping and handling promotion this quarter was because of not having a robust pipeline in home and jewelry that we should have. And so, we were putting more promotional cadence.

So, unlike other quarters when I would have said that we were very strategic with driving our shipping and handling promotions, this was not that way. It was more reactionary in the moment. We do not believe that QVC shipping and handling promotions have an impact on our overall business.

We had a more robust shipping and handling programs across all of our brands. We did buy more and save early on. We've done OVT (39:41) shippings. So, we have been more promotional than them historically. So, I do not believe that had an impact..

Okay. Thanks so much..

Our next question comes from the line of Barton Crockett with FBR Capital Markets. Your line is now open..

Okay, great. Thanks for taking the question. I just wanted to circle back a little bit to the Halloween kind of spookiness around Amazon.com and TV shopping. At this level, I think that the press report that was out there that affected your stocks really had no substance to it in terms of presentation of anything like a TV shopping channel.

But you guys are out there working in the industry.

Do you hear anything from your interactions with cable distributors, satellite distributors to suggest that Amazon is negotiating for carriage of a TV channel? Or do you hear anything about Amazon approaching TV shopping hosts or production crews or managers who have expertise in producing a competitive show? Have you seen any evidence that they're doing either of those things?.

Hey, Barton, that's a great question and we have not. We were just simply calling that out because we knew that there was a lot of chatter around that which was very de minimis, but there was a lot of inquiries into our Investor Relations Department just as a matter of course. But we have not heard anything of the sort..

Okay. All right.

And then switching gears a little bit, when we look at the comparisons in the fourth quarter versus a year ago, do you feel like it is a more difficult comparison or not much change? How would you feel about your comps near-term?.

I would say that certainly from a top line comp perspective, we're facing some very, very tough comps. I mean that's our largest quarter that we've had to-date. And bottom-line was strong too at 14%.

I think that where we have some opportunity is to continue to work on our gross profit margin as well as just really tightly managing expenses more appropriately than – not more appropriately, but better than we did last year say in the fourth quarter. Again, it really, really depends upon the environment as we head into holiday.

Those really heightened six weeks can change those dynamics. So, while we're really working very hard on really improving everything that we can in our gross profit margin across-the-board, I do have to sensitize it to that..

Okay, great. Thank you very much..

Our next question comes from the line of Victor Anthony with Axiom Capital. Your line is now open..

improved performance.

So I wanted to dig into that a little bit and what categories have you seen improved performance, particularly as it relates to the fourth quarter? Second, with regards to the heightened promotional activity in the third quarter, what impact did that have on the gross margin in the quarter? And the third question is really just on market rate availability (43:04).

I think that you mentioned – I could have missed it, but I wanted to see if there is any sort of impact in the quarter?.

Sure. On the promotional activity, I'd say that on our Cornerstone brand about half of it was related to really increased promotional activity and the other half was related to moving in-season inventory and excess inventory, so it was pretty much half-and-half.

And the majority of that would have been in our Home brands from a move in the inventory perspective and promotional activities across our brands with the exception of Garnet Hill, which has seen a remarkable turnaround, which we actually invested in more into Q3 as a result of that turnaround that we've been able to see.

So, we do expect that to continue into the fourth quarter..

And I think you were asking about Margaritaville; we did our first launch in the third quarter, which was kind of our smaller test launch. The big re-launch for that, which makes sense given the nature of the brand, will be in the first quarter of 2016.

However, we are taking advantage of our relationship and doing the partnership and sponsorship of Jimmy Buffett's New Year's Eve concert, which we will be able to stream live. We feel great about the partnership, the connection to our customer and their brand, and the potential to even go further and be at their resort et cetera.

So that will continue..

Our next question comes from the line of Alex Fuhrman with Craig-Hallum Capital. Your line is now open..

Great, thanks. I just wanted to talk a little bit more about the weakness you're seeing in the jewelry business, and you mentioned that at this point, basically your holiday assortment and program lineup is set.

How much of a role is jewelry playing here in the fourth quarter? I mean, are you giving those brands another shot in the holiday season? And to what extent do you think the weakness you've seen in your offerings there have been related to your merchandising structure, which you've obviously taken steps to address, versus perhaps just the power of your proprietary brands? Are they maybe losing a little bit of their appeal this year?.

Well, let me just explain in jewelry. Jewelry is 100% proprietary, but they're not generic brands. They are designers, they are creators. So it's not generic jewelry.

Where we really needed more focus and what you'll see in the fourth quarter was a skew back to the fine the jewelry business and we went out and literally have four major launches in November and December with well known designers such as Kara Ross, or influencers such as Kristin Chenoweth who has been designing jewelry.

We have a new diamond line launching and then actually tomorrow we launch Jennifer Miller. So we've organized against each of the categories of business. We're back in the pearls business, but we really needed to take the bull by the horns and be more aggressive in what we wanted that portfolio to be.

We do have brands that are exclusive to HSN that continue to perform very well. Our Jay King business just had its biggest anniversary, our Heidi Daus business.

So we just needed to get the right extensions of the portfolio going because we do believe given our customer and given the brands that we have, we deserve to have the better business and that's what we're focused on..

Great, that's helpful. Thanks. And then just really quickly on the Keith Urban business. I imagine that that would be back on the long-form direct response campaign for Q4.

Can you just comment on how many hours you have dedicated to infomercials for the product this year versus last year? I mean, is that an opportunity to grow year-over-year, or is that despite the fact that it's coming back versus an absence from Q3? Will that still be a year-over-year headwind?.

Sure. So we're actually in the market right now testing a revised version of that. But it isn't something that we expect to grow over the prior-year and it really depends upon how the infomercial does, how much media we placed against it.

So it would – depending upon how much hours we put into it or media revised, it will either be a top line issue or not, but it was not a significant bottom line driver. It really had not much impact in the fourth quarter. So from that perspective, it's not significant..

Yeah. We do have Keith coming back both this month and in December on HSN Live with a new introduction and that we're looking forward to..

Yeah. And just to let you know how the infomercial business works, you don't plan it out and say this is how many hours I'm already going to dedicate because you determine that we place media buys on a weekly basis. So we can pull and react depending upon on how it's performing..

That's helpful. Thank you very much..

Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Your line is now open..

Good morning. Thank you for taking the questions. Most of my questions have been answered, but just wanted to follow-up as far as your comment earlier about expense management other than the catalog rationalization.

I wanted to know if you could share any specific actions that you are taking to manage your expenses better? I also wanted to see if you could give any comments as far as any inventory or markdown risk for Q4 that you perhaps see that we should be aware of? And lastly, if you could just give us an update on your private label credit card penetration on the HSN side? Thank you..

Sure. So in terms of our cost analysis, we're constantly doing that as you know on the operations side. We have done a lot to really leverage our collective HSNi scale, looking at consolidating our organizational structure and rightsizing the team between HSN and Cornerstone. We've implemented many best practices throughout the organization.

On the customer care side, we've actually have done quite a bit and have implemented a shared variable workforce which really is opening up a new call center in Toledo that's now maximizing all of our brands. We've also done a lot in terms of deploying new technology.

So we're constantly looking at ways and we do think some of those initiative is going to have bigger savings for us as we move forward into 2016. But we are also always reassessing our existing marketing program, our organizational structure, where we can be more efficient, and that work is currently underway.

So we will update you on that if there's anything of significance, but we're very focused on that. Again, in this highly competitive environment, we have to be lean and mean as we can as well as making sure that we're putting all of our assets towards the most innovative growth areas that we have in the company.

Mindy, you want to talk about the – on inventory, sorry I forgot your question on inventory. I would say that in terms of what I had discussed earlier, we do have residual inventory heading into Q4 on the Chasing Fireflies business and we will continue to see margin pressure in that business. We do have some excess inventory.

Not as much because we moved through a lot of that in Q3 at some of our home brands, but really and truly I say that the majority of the pressure would come to the extent that there is a lot of promotional activity out there..

And then on the private label credit card, we continue to be very pleased with our partnership with ADS. It's about one-third of our total sales right now, a little above that. And we are just rolling that out to our Cornerstone brand, literally just this past week. So, we will see – we have very specific programs for each one of the brands.

They customize them for us. So we will see penetration with our other brands going forward..

Thank you..

Our next question comes from the line of Matthew Harrigan with Wunderlich Securities. Your line is now open..

Thank you. So many cable channels, particularly with scripted programming are really getting buffeted by so much fracturing viewing and viewing is lost because you got measurement errors. Hopefully some of that gets corrected with Nielsen and the ComScore, Rentrak deal.

But, where are you in the sense of people consuming your video in terms of activity and how that ties in with your customer list momentum as well. I know you don't generally talk about that, but in the context of the overall environment, I thought it would be an interesting question..

Yes, that's a good question. I think from a viewing perspective, for us it's a different challenge and a different measurement, because part of the reason why people would not be viewing is because you're not showing them the product that they're interested in buying.

So it's not like they are coming to watch NBC and The Big Bang Theory every day and so viewership is down as an issue. It is directly correlated and tied to the products that we are offering at that point in time is that we see that across any of our existing categories, one category has much higher viewership than another category, another item.

So that is probably a more difficult measure for us to say that there is something specifically related to that. However, anytime that there are viewing events or viewing things that are taking people away from our programming that clearly has hurt us. Those are typical examples like the World Series and the big things that happen, news event.

So if there's something that's taking people off of viewing us and they are viewing other consumption, that would specifically impact our business. In terms of the core cutting and things like that, that has not been a significant impact on our business. We've lost some subs this year.

I would say the largest loss has come from the satellite providers which is our lowest performing subs and those are primarily from what we've been able to see related to their own commentaries and related to younger, less affluent consumer base.

So we'll just have to manage that and see that over time and continue to make sure that we are offering consistently great products and great programming to be able to continue to track our core customer and customers like her to our network..

In addition to that, we're also very focused on where customers can view our content and see our products. So, clearly between the live feed, but what we've been doing is in addition creating a lot of original content, creating a lot of digital streaming and putting that content on alternative platforms.

So I also mentioned our other over-the-top devices and our partnerships. So we're really trying to be much more audience centric where we put our product and content from a distributed commerce point of view..

Thanks, Mindy. Thanks, Judy..

Thank you..

There appears to be no further questions. I will now turn it over to Ms. Grossman to close today's call..

Thank you, everyone. I look forward to following up, keep you updated on our progress as we move into the balance of the holiday season. Thank you..

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