ValueVision Media, Inc. (VVTV)
F2Q08 Earnings Call
August 25, 2008 11:00 am ET
Amy Kahlow - Director of Communications
John D. Buck - Executive Chairman of the Board, Chief Executive Officer
Frank P. Elsenbast - Chief Financial Officer, Senior Vice President
Keith R. Stewart - President, Chief Operating Officer, Director
Bob Evans - Craig-Hallum Capital
Jamie Lester - Soundpost Partners
Alan Erinson - AVRS
Campbell Gibson - TGT
Debra Fine - Fine Capital
Previous Statements by VVTV
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Good morning and welcome to today’s conference call. It may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that such forward-looking statements may involve risks and uncertainties that could significantly affect actual results from those expressed in any such forward-looking statements. More detailed information about these risks and uncertainties is contained in ValueVision Media’s filings with the SEC.
I would now like to turn the call over to Mr. John Buck, Executive Chairman of the Board.
John D. Buck
Hello, everyone and thank you for joining us today. Let me begin by saying that we are very disappointed with our second quarter results. I want you to know that the board fully recognizes these performance issues and took decisive action to make the organizational leadership changes it felt were necessary without delay to address these trends.
As announced in the press release on Friday, the board appointed me to return as the company’s CEO, replacing Rene Aiu, who left ShopNBC, along with three other executives she had brought with her. As a part of the organizational leadership change, the board appointed a new president and COO for the company. Keith Stewart, who is with us here today, comes to ShopNBC with 20 years of executive retail experience. Keith has excellent leadership skills, a deep understanding of retail operations domestically and internationally, and importantly, he has nearly 15 years of experience in home shopping as an executive at QVC.
Together, Keith and I, along with our dedicated employees and vendor community, will be highly focused on taking action to reverse sales and earnings trends with a shared goal of making this company a more stable and profitable TV shopping business.
I know the company has undergone significant change this past year. I also know that many of our shareholders are upset, frustrated, and losing patience, if not already run out. We understand how you feel. We understand you have questions like what are you doing to fix this business and restore shareholder value? It’s a fair question and we owe you a response. We will address this and others as best we can and during the question-and-answer period.
Please note that the action being taken is what we believe to be right for the company and in the best interest of our shareholders. We continue to be very positive and confident that the challenges before us can be overcome. This company has a wonderful, wonderful set of assets and during the quarter did make progress in a number of core areas.
Before continuing, however, I would like to outline today’s prepared remarks, which will address three main areas: one, a financial review of our second quarter results by Frank Elsenbast, our CFO; two, a discussion of my role as CEO and Keith’s as President and COO, along with our respective near-term priorities; and three, a commentary on our plans for the periods ahead.
With that, I will turn the call over to Frank for a brief financial review of our second quarter results.
Frank P. Elsenbast
Thanks, John. Our second quarter revenues were $142 million. This is 26% below the $191 million reported last year. The shortfall was due to a 23% decline in shipped units and a 3% decline in the average selling price. Gross margin in the second quarter was 33.7%, which is down significantly from 35.3% last year. This reduction was due to lower merchandise margins partially offset by a favorable mix impact as we reduce the volume of consumer electronics sales.
Controlling our operating expenses remains a priority. In the second quarter, operating expenses, excluding equity compensation, were down 11% versus the prior year. Selling and distribution expense was down 11% versus last year, driven by lower variable costs, reduced marketing expense, and lower headcount. In the quarter, the company saw 4% growth in our FTEs and accordingly, our cable distribution fees increased slightly in the quarter.
G&A was down 11% due to lower headcount. EBITDA as adjusted was a negative $10.7 million, compared with the positive $1.8 million last year, resulting from the sales shortfall and lower gross margins, offset somewhat by the reduced operating expenses at the company.
We are focused on maintaining a strong balance sheet. The quarter ended with over $80 million in cash and securities, which is down $5 million from the first quarter balance. Disciplined management of working capital partially offset the EBITDA loss for the quarter.
Working capital generated over $10 million during the quarter as we reduced inventory levels and accounts receivable. Capital spending for the quarter was $2 million.
Our cash balance also reflects an additional temporary impairment of $3.3 million on our portfolio of auction rate securities. There was no stock buy-back activity this quarter. At this time, the company is focused on stabilizing the business and preserving its cash balance. Therefore, the $10 million share repurchase authorization remains unused.