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ValueVision Media (VVTV)
Q2 2013 Earnings Call
August 21, 2013 4:30 pm ET
Teresa Dery - Senior Vice President, General Counsel and Corporate Secretary
Keith R. Stewart - Chief Executive Officer, Director, 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
Neely J.N. Tamminga - Piper Jaffray Companies, Research Division
Gregory J. McKinley - Dougherty & Company LLC, Research Division
Previous Statements by VVTV
» ValueVision Media, Inc. Discusses Q2 2013 Results (Webcast)
» ValueVision Media Management Discusses Q1 2013 Results - Earnings Call Transcript
» ValueVision Media Management Discusses Q4 2012 Results - Earnings Call Transcript
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 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 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 quarterly 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 R. Stewart
Thanks, Teresa, and thank you, all, for joining us today. With the major elements of our business turnaround behind us, our team has been focusing their full attention and further improvements to what is now a solid operational base. Our second quarter performance demonstrated continued progress on 2 principal fronts and confirmed that our growth strategies are working. Our first area of focus is, of course, driving top and bottom line growth. We made further strides in growing revenue and with initiatives geared at building a broader customer base. We also delivered a solid year-over-year improvement in adjusted EBITDA, which represented our fifth consecutive quarter of positive adjusted EBITDA. The second major area of focus has been to attract and retain customers in order to improve customer penetration within our national footprint. Our strategies to achieve these goals are centered on 3 primary areas: One, diversifying our merchandise mix by increasing the breadth and depth of products and emerging categories, like Home & Consumer Electronics, Health & Beauty and Fashion & Accessories. To support this strategy, we are reallocating resources from our more established Jewelry & Watch category to these emerging product categories.
Bob will speak to this initiative and its performance later in the call. Two, investing in a range of customer-centric programs to enhance the customer experience, increase customer satisfaction and improve the likelihood they will shop with us again. Carol will speak about some of these efforts. And three, enhancing our TV distribution footprint through improved channel placement and the addition of a second channel of exposure, which we've accomplished in over 70% of our homes. Viewers and customers are responding to our initiatives. They are coming to us in greater numbers and voting with their wallets. Over the last 12 months, our total customer base rose 11% to 1.2 million.
More specifically, our total customer base in Q2 increased 22%. And our new customer growth increased 26% versus last year. We believe current trends indicate that more than 1/4 of the new customers will repurchase with us in the next 90 days. Our continued progress has brought us to the point where we're able to take control of our consumer brand. As we announced last quarter, and Carol will discuss, we are actively transitioning our consumer brand to ShopHQ, your shopping headquarters. The transition process is planned to accelerate in visibility over the remainder of the fiscal year.
In summary, we are past the turnaround phase of our company and are now focused on delivering long-term sustained growth. With that, I'll turn the call over to Bill.
William J. McGrath
Thanks, Keith. Second quarter net sales rose 10% to $149 million and year-to-date net sales are $300 million, also up 10% versus last year. Gross profit in Q2 increased 8% to $56 million on higher sales volume. Gross margin decreased 70 basis points to 37.5%. The margin decrease reflects the planned shift in our merchandise mix towards Home & Consumer Electronics. This category is integral to our strategy of increasing customer counts, but can carry lower margin rates. We anticipate continued growth in Home & Consumer Electronics during the third and fourth quarters. During Q2, average selling price declined to $83 versus $102 in the same period last year. This reflects strong growth in our Fashion & Accessories category, which typically has a lower average selling price, as well as a general shift towards lower price points in our other categories. Second quarter operating expenses increased 1% to $56 million and decreased as a percentage of sales to 37.6% compared to 40.8% last year. Variable cost in Q2 increased to 8.3% of sales from 7.1%, principally reflecting a 31% increase in net shipped units. We anticipate variable cost, as a percentage of sales, will be between 8% and 8.5% over the remainder of the fiscal year. Within variable cost, on a rate basis, transaction cost decreased to $2.49 per unit in the second quarter from $2.69 a unit a year ago.