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ValueVision Media, Inc. (VVTV)

Q3 2012 Earnings Call

November 14, 2012, 11:00 am ET


Teresa Dery - SVP & General Counsel

Keith Stewart - CEO

Bill McGrath - EVP & CFO

Bob Ayd - President

Carol Steinberg - COO


Alex Furhman - Piper Jaffray

Mark Smith - Feltl & Company

Greg McKinley - Dougherty



Good morning and welcome to ValueVision Media Fiscal 2012 Third Quarter Conference Call. Following today's presentation, there will be a formal question-and-answer session. Today's call is being recorded for instant replay. I would now like to turn the call over to Teresa Dery, Senior Vice President and General Counsel at ValueVision. You may begin.

Teresa Dery

[Technical Difficulty] and CFO, Bob Ayd, President, Carol Steinberg, COO and other members of the senior management team. Comments on today’s conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements maybe identified by words such as anticipate, believe, estimate, expect, intend, predict, hope or similar expressions.

Listeners are cautioned that these forward-looking statements may involve risks and uncertainties that could significantly affect actual results from those expressed in any such statement. More detailed information about these risks and uncertainties and related cautionary statements is contained in ValueVision’s SEC filings.

In addition, comments on today's call may refer to adjusted EBITDA, a non-GAAP financial measure. A reconciliation of adjusted EBITDA to our GAAP results and a description of why we use adjusted EBITDA, please refer to our Q3 news release available on the investor relations section of our website. All information in this conference call is as of today and the company undertakes no obligation to update these statements.

I will now turn the call over to Keith.

Keith Stewart

Thanks Teresa and good morning everyone. We appreciate your participation on the call today. Prior to taking your questions, Bill will highlight our Q3 financial performance. Bob will discuss key merchandising and sales initiatives followed by Carol who was recently named Chief Operating Officer. Carol has 30 years of multi-channel leadership experience including 17 years of experience in Information Technology, putting her in a unique position to take on this role. Carol will provide an update on progress made through our operations and multi-channel customer experience. Bill?

Bill McGrath

Thanks Keith. Good morning everyone. Third quarter sales were $137.6 million, a 2% increase versus Q3 last year. Gross margin percent decreased 30 basis points to 36.9% in Q3 ’12 versus 37.2% in Q3 last year. The margin change primarily reflects increased shipping and handling promotions in the current period. Gross margin dollars increased 1.1% in the quarter.

Operating expenses decreased 3% in Q3 ’12 versus Q3 last year, despite higher carriage distribution expenses related to a 3.1% increase in average homes. Higher distribution costs were offset by a reduction in variable expenses. Variable expense decreased by 12% in Q3 ’12 versus Q3 last year driven by more favorable credit card and debit card rates as well as lower bad debt expense. Additionally, operating expenses decreased $800,000 in Q3 ’12 versus Q3 last year due to lower stock option and restricted stock expense.

Aggregate transaction costs were down 7% from the prior year. The impact of a 7% increase in shipped units was offset by a 13% reduction in transaction costs to $2.59 per gross telemarketing order in Q3 ’12 from $2.99 per gross telemarketing order in Q3 ’11. The reduction in transaction costs primarily reflects higher use of our automated voice response system for order entry and customer service enquiries as well as the impact of lower customer return rates.

ValueVision reported an adjusted EBITDA gain of $600,000 in Q3 ’12, compared to an adjusted EBITDA loss of $500,000 in Q3 ‘11. Net loss for the quarter improved to $3.7 million or a loss of $0.08 per share compared to a year ago Q3 net loss of $6.3 million or $0.13 per share.

Relative to the balance sheet, during the third quarter, we had a net use of cash of around $8 million. Cash including restricted cash totaled $32.6 million at end of the third quarter, compared to $40.3 million in Q2 ‘12. The $8 million reduction in cash was used to finance planned inventory investment during the quarter in preparation for the holiday season.

Total inventory at the close of Q3 ‘12, increased to $54 million from $46 million at the end of Q2 ‘12. In addition, accounts receivable increased during the third quarter due to increased usage of our ValuePay installment program. A quick reminder, looking forward to Q4 and next year, ValueVision operates on a 364 day, 454 retail calendar. A format that includes a 53rd week every five or six years. Our fourth quarter and fiscal year 2012 will therefore include an extra week of reported sales as compared to the prior year. Our fiscal year ends on February 2 ,2013 versus January 28, 2012 last year.

Finally, with respect to Super-storm Sandy, first, my thoughts are with all those who are impacted by this event. We wish them the best as they recover. Second, our sales performance in the first two weeks of the fourth quarter was impacted by Super-storm Sandy and we wanted to communicate this information.

With that I will turn the call over to Bob. Bob?

Bob Ayd

Thanks Bill. Our merchandise and sales growth strategy remains focused on three priorities; drive topline sales, optimize merchandise margins and broaden the product mix. We made progress across many key areas of our business during the third quarter which contributed to an increase in overall sales. A continuous flow of 68 new vendors and 30 new programming concepts were added in Q3. We are also encouraged by progress made in the quarter on new and active customer accounts, particularly in the subset of our best customers, those who purchase more than 52 times a year where we saw a significant increase. We are equally pleased with the steady improvements made year-to-date in increasing customer retention rates across our entire customer base.

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