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Q2 2009 Earnings Call
August 19, 2009 11:00 am ET
Nancy McGrath - IR
Keith Stewart - President and CEO
Frank Elsenbast - SVP and CFO
Welcome to ShopNBC's fiscal second quarter 2009 teleconference. (Operator Instructions)
I would now like to turn the call over to Ms. Nancy McGrath of ShopNBC.
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I would now like to turn the call over to Mr. Keith Stewart, ShopNBC's President and Chief Executive Officer.
Good morning and thank you for joining us and thank you, Nancy. As you could see from our second quarter press release, ShopNBC's multi-channel retailing business continued to make progress in its turnaround. The second quarter was another solid foundation building period for us, another step in the right direction, with a number of positive business metrics taking form.
We continued to strengthen our leadership team in the quarter. The Board of Directors unanimously appointed Randy Ronning, a retail and TV shopping veteran of 36 years, as our Chairman of the Board. The Board also appointed Ed Garrubbo, a direct response veteran as a Director. We are so very pleased to be benefiting from their expertise, insight, and instrumental guidance to advance our strategies during this period of transition to the company.
In the quarter, we also added another TV industry expert to the senior management team with the appointment of Carol Steinberg as Senior Vice President E-Commerce. Carol has strong leadership experience in the world of electronic retailing and is adding tremendous value to our Internet business.
Suzanne Somers, it gives me great pleasure to say that this renowned TV personality and home-shopping icon has found a new home at ShopNBC. She will debut on our network in less than one month, on September 18. She has tremendous media interest and a loyal fan base. We look forward to Suzanne bringing her story and product line to life on ShopNBC with a sense of style that is aspirational and a sense of humor that is truly endearing, while entertaining.
Customer trends continued to improve in the second quarter. New and active customers were up 59% and 32% respectively. We are building excitement and trust with our customer base through our premium product quality, tremendous value, and highly critical guest experts. In the quarter, we added a record 106 new vendors, a record 60 new launches, and a record 32 expert guests, such as TV shopping veteran Dave King and gem expert Paul Deasy.
Margins increased to 34.8% in Q2 versus 31.5% in Q1. Inventory levels are being tightly managed and margins are expected to gradually improve throughout the year as we increase the number of higher-margin reorders and expand our merchandise assortment into higher-margin categories of home, fashion, jewelry, and beauty.
Return and cancel rates decreased by double-digits in the quarter versus last year's same period, reflecting continued operational improvements in delivery time, customer service, product quality, and lower price points. Complementing this success, customer service inquiries decreased 18% in the quarter.
Our Internet business, ShopNBC.com, is attracting new and returning customers at an increasing rate as online product assortments expand. Year-to-date conversion is up 36%. The use of live chat for sales assistance and enhanced email retention programs allowed for stronger visitor engagement, customer education, and overall site penetration. Going forward, we will optimize ShopNBC.com with the next phase of its mobile strategy, expand our social networking initiatives, and improve our website's natural search presence in key merchandise categories.
Finally, the company's overall cost structure was reduced by 19% in the second quarter versus last year as part of an ongoing initiative to tightly manage costs.
As these business metrics indicate, we are now in the early innings of a whole new ballgame at ShopNBC. We have the right leadership team in place. We are buying the right merchandise and building up our reorder business. With improved inventory levels, higher margins, and lower price points, positive business metrics continued to take form. In fact, weekly sales trends improved sequentially at the company during the second quarter to the extent that we achieved positive EBITDA in the month of July. We are very happy about this strong finish to Q2.
Now that said, by no means are we close to being done. We still have a lot of work to do, but the critical building blocks are in place and these improved fundamentals are very good signs for our business. I am highly encouraged about the progress made during the first half of the year, especially the fact that year-to-date EBITDA, as adjusted, is $10.5 million better than last year.
With that, I would like to turn the call over to Frank Elsenbast, our CFO, who will provide more detailed financial overview of the second quarter. Then I will spend a few minutes talking about initiatives being implemented in Q3, to improve our sales performance for the balance of the year, as these steps are a necessary precursor to improve sales and profits.
Today I would like to provide an overview of our second-quarter financial results, a review of our cash position, and an update on other key balance sheet items.