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ValueVision Media (VVTV)

Q4 2012 Earnings Call

March 06, 2013 4:30 pm ET

Executives

Teresa Dery - Senior Vice President, General Counsel and Corporate Secretary

Keith R. Stewart - Chief Executive Officer, Director, Member of Special Committee, Chief Executive Officer of ShopNBC, President of ShopNBC and Director of ShopNBC

William J. McGrath - Chief Financial Officer and Executive Vice President

G. Robert Ayd - President

Carol Steinberg - Chief Operating Officer

Analysts

Alex J. Fuhrman - Piper Jaffray Companies, Research Division

Gregory J. McKinley - Dougherty & Company LLC, Research Division

Mark E. Smith - Feltl and Company, Inc., Research Division

Presentation

Operator

Good afternoon, and welcome to ValueVision Media Fiscal 2012 Fourth Quarter and Full Year Conference Call. [Operator Instructions] This call is being recorded for replay purposes. I would now like to turn the call over to Ms. Teresa Dery, Senior Vice President and General Counsel at ValueVision Media. You may begin.

Teresa Dery

Thank you, operator, and good afternoon. I'm joined today by Keith Stewart, CEO; Bill McGrath, EVP 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 may be identified by words such as anticipates, believes, estimates, expects, intends, predicts, 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 statements. 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. For reconciliation of adjusted EBITDA to our GAAP results and a description of why we use adjusted EBITDA, please refer to our Q4 and full year 2012 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'll now turn the call over to Keith.

Keith R. Stewart

Thanks, Teresa, and good afternoon, everyone. We appreciate your participation on the call today. Prior to taking your questions, Bill will highlight our Q4 and full year 2012 financial performance. Bob will discuss key merchandising and sales initiatives, followed by Carol, who will provide an update on progress made to our operations and multichannel customer experience. Bill?

William J. McGrath

Thanks, Keith. Since ValueVision follows a 4-5-4 calendar, every 5 to 6 years, we end up with an extra week in our fiscal year. This results in a 14-week period for the fourth quarter and a 53-week year for fiscal 2012 versus our typical 13- and 52-week periods. In order to have comparable year-over-year comparisons, we've adjusted our Q4 and full year 2012 net sales and adjusted EBITDA to create pro forma 13- and 52-week periods. Q4 pro forma comparables were derived by dividing the company's Q4 results by 14 and by multiplying the quotient by 13. The 52-week pro forma was derived by adding the Q4 13-week pro forma to actual year-to-date Q3 results. The pro forma comparables are included in the overview table at the top of today's press release, and the percentage changes in the table are based on the pro formas versus last year.

For your reference, the income statement in our press release reflects the company's actual results from the 14- and 53-week full periods. However, management believes that the pro forma results provide a more appropriate basis for prior year comparisons, and that will be the basis for our discussion in today's call.

As outlined in our last earnings call, the start of Q4 coincided with the impact of Superstorm Sandy on the Northeast. In our third quarter 10-Q filing, we stated that sales were down approximately 16% in the first week of the fourth quarter and down approximately 8% in the second week of the fourth quarter. This was followed by flat sales comparisons in week 3 and a resumption of growth thereafter. Despite the rough start, fourth quarter pro forma sales rose 11.7% to $164.8 million, driven by strong results in the Home & Consumer Electronics category, as well as in the Beauty, Health & Fitness category.

Pro forma gross profits increased 11.1% to $54.7 million. Gross margin percent decreased 10 basis points to 33.2% versus 33.3% last year. The current quarter gross margin reflects a higher mix of Home & Consumer Electronics products, which have lower gross margin percentages. This mix effect was offset by improved product margins in other categories, as well as reduced markdown activity and fewer shipping discounts than occurred in the prior year.

Pro forma operating expenses were $65.7 million versus $56.5 million for the same quarter last year. This includes an $11 million impairment charge related to the company's FCC license. In connection with ValueVision's ownership of a full power television station serving the Boston, Massachusetts market, the company has an FCC broadcast license that is accounted for as an indefinite-lived intangible asset.

During the fourth quarter, the company conducted its annual estimate and appraisal of the fair value of its Boston TV station and FCC broadcast license with the assistance of an independent consulting firm. The company annually estimates the fair value of its FCC broadcast license, primarily using income-based discounted cash flow models. Due to a decline in independent television station industry revenues and operating margins resulting from TV station rating declines, the company adjusted certain assumptions for revenue and operating profit margin. These assumption changes resulted in estimated cash flows that did not support the $23.1 million carrying value for the license.

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