Ladies and gentlemen, good morning, and welcome to the HSN Inc. Fourth Quarter and Full Year 2012 Earnings Conference Call and Webcast. This call is being recorded. Following the conclusion of today's discussion, the HSNi team will be taking your questions. With that, I'd now like to turn the call over to Felise Glantz Kissell, Vice President of Investor Relations. Ms. Kissell, please go ahead.

Good morning, everyone, and thank you for joining us. On today's call, we have Mindy Grossman, Chief Executive Officer of HSNi; and Judy Schmeling, Chief Financial Officer. Judy will initially discuss our financial performance. Mindy will then provide our strategic review of the business. As always, some of the statements made on this call may be forward-looking and, as such, are subject to many factors that could cause actual results to differ materially from expectations reflected in the forward-looking statements. Additional information regarding these factors, as well as various risks and uncertainties, can be found in HSNi's earnings release filed with the U.S. Securities and Exchange Commission and available on the company's website. HSNi does not undertake to publicly update or revise any forward-looking statements. In addition on today's call, there will be references to certain non-GAAP financial measures. These are described in more detail in the company's earnings release and SEC filings available on the HSNi website. You are encouraged to refer to the press release and SEC filings and to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. I would now like to turn the call over to Judy Schmeling, HSNi's CFO. Judy?

Hi. Thanks, Felise. Good morning, everyone, and thank you for joining us. As we look back on 2012, we are pleased with our overall financial accomplishments and the strategic milestones we achieved to build a strong foundation for future growth at HSNi. For the full year of 2012, we drove digital sales growth of 13% with penetration of 270 basis points that contribute to overall net sales growth of 6%. We increased gross profit by 8%, strategically invested in the business, and we rebalanced the Cornerstone portfolio through the acquisition of Chasing Fireflies and the divestiture of Territory Ahead and Smith+Noble. We refinanced our credit facility, resulting in annual pretax interest expense savings of approximately $23 million. And we continued our capital return plan for shareholders that included a 44% increase in our quarterly dividend and $221 million in stock repurchases or over 5 million shares for the year. And we grew adjusted earnings per share by 26%. For the fourth quarter, net sales increased 7%, with digital sales up 13%. We now have digital sales penetration of 47%, up from 44% a year ago, and adjusted earnings per share increased 27%. At HSN, sales increased 7% to $684 million. Digital sales grew 11%, with digital sales penetration up 140 basis points to 38%. We had strong growth in electronics, home design, household and beauty. Sales increased in every product category with the exception of jewelry and fitness and infomercial products. Shipping and handling revenues decreased 10%, primarily due to an increase in promotions. HSN's gross profit grew 6% to $225 million. Gross profit margin decreased 30 basis points to 32.9%, as a result of increased shipping and handling promotions, partially offset by improved product margins. Operating expenses, excluding noncash charges, were up 6% to $141 million and were flat…

Thanks, Judy, and good morning, everyone. Our results for the quarter and the year demonstrate the effectiveness of our strategic priorities, including strong customer engagement efforts, content-rich experiences and digital platform enhancements. All of these priorities are consistent with our strategic focus to utilize technology, social networks and mobility to redefine shopping. As a result, it was a record year for customer growth and digital penetration at both HSN and Cornerstone. The momentum that we established earlier in the year continued into the fourth quarter, resulting in solid financial performance. HSNi achieved 7% sales growth and 27% earnings per share growth in the fourth quarter. Digital is a key strategic growth driver. And during the fourth quarter, digital sales increased 13%, with penetration reaching 47%, now nearly half of our total business. At HSN, we grew sales 7% during the quarter despite what appeared to be a lackluster holiday retail season. These results reflect our intense focus on our customer through our unique product assortment, transformational partnerships, events that create appointments to view and by leveraging our content across multiple platforms. Many of our customer metrics are at multi-year highs, including overall file size growth, best customer growth and retention. All customer buying segments grew in the quarter, which included an 11% increase in best customers. Contributing to the success with our best customers is our loyalty-driven HSN credit card program, which now has closed to 1 million active credit card holders. In addition, our focus on unit growth helped drive customer acquisition and overall file growth. Digital sales at HSN and increased 11% during the quarter, with penetration increasing 140 basis points to 38%. Digital traffic had double-digit growth over the previous year, with increases in both new and repeat customers. We are focused on extending our social media…

[Operator Instructions] Our first question comes from Alex Fuhrman of Piper Jaffray.

A couple of questions. I would love to talk more about the mobile channel. Really, I mean, this is growing so much faster than we would've thought 6 or 12 months ago. I think you mentioned that 25% of your mobile transactions here in the fourth quarter were to new customers. I mean, has this really been -- has it been the mobile channel that's really been the bulk of the new customer acquisition and what's been driving your customer file to new highs over the last few quarters? Or how do you think about the mobile channel being a tool of customer acquisition versus the brands and more cross-marketing efforts? I mean, do you think it's 50-50? Or it's really more of the brands, or more of the channel positioning that's helping to grab the new customers?

Yes, great question. And we definitely believe in a mobile-first strategy. But to answer what's been driving, it really is a 360 integrated effort in leveraging across channels. Having said that, the new customer growth, although we get customers through all our channels, definitely digital, in general, is driving that. And some of that is part of our marketing efforts but also just customers naturally gravitating towards digital channels. As it relates to mobile, we're seeing a number of different behaviors that we think, because of our content-driven platform, really bodes well for us. So one is customers using multiple screens at the same time. So even though they may be watching TV, they may be also scrolling through and looking at the broader assortments on their tablets. Then we also see, because a part of our business is somewhat impulse, on the HSN side, people are using their smartphones for checking our Today's Special. We have our Spin2Win game everyday, so it's almost like they're checking in. And what's interesting about the mobile channel, what we're seeing there is a younger, more affluent and more diverse audience, which is particularly bringing in a new demographic that's definitely the prospect that we're looking for. So particularly in the digital relaunch, we made very sure that the experience was customized for the device, whether it was smartphones, tablet or hsn.com, how people were going to using these devices in their lives. And certainly, because our customer is primarily female, obviously, particularly on the HSN side, these devices, as we've seen through what's performing in the electronics category, are now with her 24 hours a day, whether she's at a soccer game or whether she's home using it in multiple ways. On the Cornerstone side, obviously, all the content that we have from the catalog lends itself very much to a tablet experience. And that's where we're seeing the penetration there. But to sum it up, it's the combination of our efforts across digital, our efforts in expanding our reach through these partnerships. So for example, with Toyota, we had the Toyota homepage featuring HSN during that period, which drove a lot of customers to us through digital. So again, it's a combination of all these things, but we definitely believe in the opportunities we have with mobile.

Great. That's really helpful. And then, I guess, just to touch base on the digital relaunch that we saw in January. I mean, it sounds like there's some minor temporary disruption here in the first quarter, just given, I guess, any sort of change in the aesthetic of a website. But beyond just looking at the big picture revenue numbers, what have you been seeing since that website relaunch in terms of engagement levels? I mean, I'd be curious to see what you've seen in terms of whether it's pages per site view or minutes spent per page? Or how many people are using the on-demand video feature? I mean -- I'm not really sure what exactly you guys are specifically looking at as your key metrics there. But would be curious to see what you've really seen in terms engagement levels of your core customers just in those last 6 weeks?

Right. Yes, to your point, upon launch, like any normal website launch, customers are getting used to navigation, shopping, et cetera, and we're very proactive in responding to customers' needs. So we feel good about where we've gone in that process. We are definitely seeing increased engagement with the site. It's a very immersive experience. We're seeing -- there's a lot of new elements to the site that the customer can engage with, and that's everything from elements of, let's call it, gamification, pick your favorite shoe, interface with Robert Verdi in fashion. And what we're seeing is, especially now we launched Fashion Week for example, we're seeing customers definitely spending more time as we've changed kind of how that content is immersive, and that's exactly what we wanted to see. And we're also seeing very favorable scores with new customers, who've not yet shopped at HSN, because it is a very much more aspirational experience. So again, we will continue to refine it, continue to add new elements to the site, as I mentioned. Shoe Shop is launching in March, for example, but we're very pleased with the experience that we have on the site.

That's really great to hear. And then just real quick, I mean, if we could touch on the issue of smart TV. For those of us who are coming more from a consumer background and aren't media experts, we've been seeing it in the press a little bit more about smart TVs and certainly saw Panasonic's announcement out at CES, that HSN -- there is going to be an HSN app built into their suite of smart TV apps. I mean, how did these actually -- in terms of the content being distributed to the customer through that smart TV, I mean, how does that actually work? Is that all a web-based technology? And then if the customer who has the smart TV is just doing things like on-demand video and Hulu and isn't actually paying for a cable subscription, I mean, is that just cutting the MSO operator right out of the equation, and it's just a matter of you and the smart TV maker? If you could just talk a little bit about how that -- how these dynamics work for the industry?

So I'll answer part of that, and I'm going to let Judy talk a little bit more on the MSO side. So we really see smart TV is as almost the next-generation Shop by Remote, but now, the customer can really browse. And if you look at the Panasonic app for example, you are delivering this 10-foot experience but with the capabilities that you have on your computer to browse, to shop and to look at content, and then with one click, enable you to buy. And we see it as just the natural evolution of a combination of digital and Shop by Remote. So we're working very closely with all our partners. Our innovation team is very engaged, and our feeling is wherever we can reach our customer in an innovative way and make it seamless for her, that's just an added benefit to our overall experience.

Right. And to Mindy's point, we work with all of our partners, whether it's on the product side, be it Panasonic, or whether on it's the cable and satellite side with our partners. They've been a huge supporter of our Shop by Remote experience. And so we view this as continuing evolution over all of the business, whether we're on digital platforms, on television, on connected TVs. Again, it's a seamless experience for our customer, as well as our relationship with all of our partners.

Our next question comes from Tom Forte of Telsey Advisory Group.

So I wanted to talk about your use of free shipping and handling. The sales at HSN were very robust in the quarter. And I'm wondering if you perhaps used free shipping and handling maybe more than you needed to? And then I also wanted to talk about the seasonal use of free shipping and handling. Can we assume that now that we're out of the holiday period, you'll scale back there? And then a quick follow-up afterwards.

Sure. We had very strong sales at HSN. But I don't think that, as a result of us having strong sales at HSN, we should have pulled back on our shipping and handling overall. It's part of a cohesive strategy. And we really do look at it by product and, specifically, sometimes at the item level, what's going to drive the consumer behavior. So it was a strategic review sitting back seeing what would drive demand. Did we get every single item right? Of course not, but overall from the strategy, that's what we were trying to achieve. Certainly -- and there's always the seasonal impact of more promotional activity, whether it is shipping and handling or price promotion in the fourth quarter as everyone out there is competing with each other. So you will see some seasonality impact where it's not as great in other quarters as in the fourth quarter, but I think that as we have articulated in the past, we do continue to believe that shipping and handling is a headwind and we're continuing to manage that against all of our other levers as appropriate to offset that. As you've seen that we've been able to do for the majority of the year until the fourth quarter, was offset a good chunk of that with improved product margin at both of our businesses. And we'll continue to work on that whether it be mix, cost concessions, working with our partners, to try and offset some of that competitive headwinds to the extent that we can.

Great. So my quick follow-up question is at your Analyst Day in November, you indicated that 18% of your sales came from states impacted by Hurricane Sandy. Any thoughts on how that affected the results in the quarter?

There was some impact at some of the brands, and there was a momentarily impact, I would say, on HSN, but it was such a -- I would call it a more short-lived window. We can't feel like we can absolutely quantify that it had a significant impact, although it did have some impact at some brands more than others.

Our next question comes from Ben Mogil of Stifel, Nicolaus. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: And I hope you didn't start talking about this in the preamble, I missed a little bit of it. When you look at the mix shift in the quarter, you obviously talked about electronics being stronger and I know that you talked a little bit about tablets and things like that returning. Why, out of curiosity, this quarter? Like what sort of brought electronics sort of back more to the forefront? And sort of then my second question which would simply be on the payroll or the end of the payroll tax holiday. I know it's -- your consumer is a little bit better off than the average, but are you seeing anything so far that you can sort of talk about?

Yes. In electronics, if you remember, last fourth quarter, is where we started seeing the impact of the, let's call it, both price point drop in what consumers were buying and the tougher quarter as it related to TVs and laptops. So that's number one. Number two, I think we had a very strong lineup of the right products at the right time in terms of Apple, Kindle, Beats, Samsung, tablets. So I think it was a combination of we were lapping challenges in the fourth quarter last year. However, we had to drive a significant amount more units in that category just because of the mix shift within the category as a whole, but that's really -- the combination of both those things is why we felt the sales rebounded. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: Great. And then on the payroll tax holiday ending? It's, I guess, been sort of 6, 7 weeks now. What are you seeing -- I know you don't give guidance, but in general, what are you seeing?

It's hard for us to specifically say anything related to the payroll tax issue. But I would say that anything that takes additional dollars out of the consumer's wallet isn't good for any retailer, some more than others. So that along with recent gas hikes are certainly concerning to us, and we're keeping a close watch on it. But I can't say that we've seen, quantitatively, anything that's specifically related to that. We're going to continue to keep an eye on it and see and adjust our businesses accordingly. Clearly, that's not an issue with the Frontgate or Garnet Hill, but it could be for an improvement in some of our other businesses. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: When you saw that Walmart email that, unfortunately for them, got leaked, would you sort of say that, that's -- there's certainly some of your customers that fit into that, but that's not a characterization of your business?

I would definitely say that some of our customers fit down there in some of our businesses, but I don't think it's as wide spread. We're certainly not a Walmart, so it's not to that impact. But again, at HSN, our average customer income is $65,000 to $70,000. So while robust and completely above average, still any hike that takes out 10%, I would say, would have some impact. We did see in the Women's Wear Daily today, an article on surveys that were done, saying that they expect it to come out of women's apparel potentially, so that would be a hurt if, in fact, that comes to fruition. So far, we haven't seen anything dramatic on our women's apparel side other than the competitive pressures that we already saw in the first -- in the fourth quarter.

Our next question comes from Jason Bazinet from Citi.

You guys are, obviously, doing a very good job managing the business. The trends look good. The only area that sort of caught my eye, I guess, just comparing '11 to '12, which maybe caused a little bit of a concern was just the receivables balance and the trends in bad debt expense. The receivables seem to be up, I don't know, a little bit, at least relative to the past 5 years and bad debt expense. I was just wondering how if you can qualitatively just talk about -- are you still comfortable sort of with the current policies that you have in place? Or do you feel like you may have overshot a bit in terms of extending credit?

Sure. We did use FlexPay more extensively. That is specifically at the HSN business in the fourth quarter this year than we did in the prior year. And as a result of that, our bad debt expense did increase correspondingly with our increased use of FlexPay. However, I'd say that we did use that strategically to really drive customer engagement and really use that to focus on our best customers as well and continue to grow that file. So can we -- you're talking to the finance person here, so can we FlexPay down some for all of our merchants that are listening? The answer is yes, but I still have to say that, strategically overall, it was the right thing to do in the fourth quarter. But you have to balance that on ongoing basis. In other words, it'll continue to flex up and down over the next couple of quarters because it is a demand lever and any time you overuse a demand lever, it becomes less effective, so -- and I do think part of that is also by product mix. So since we did have such a success in electronics in the fourth quarter, we saw higher usage and availability of people using that, but we haven't seen like any deterioration in the credit portfolio of any significant nature. So it's not a concern to us, it was just a use of cash.

Our next question comes from Anthony Lebiedzinski from Sidoti & Company. Anthony C. Lebiedzinski - Sidoti & Company, LLC: I was wondering if you could discuss opportunities for further cross-selling between the brands? And also I had another follow-up question afterwards.

Yes, it's Mindy. We definitely feel that the efforts that we've made over, in particular, the past year of looking at HSNi and the leverages across our businesses has continued opportunity and I would put them in a number of areas. One is between all of our businesses, including existing customers, former customers and prospects. We have a database of about 59 million customers. And with the IBM work that we're doing with the customer management tool and working with Karen Etzkorn, our new CIO, we have a lot of work being done to look at potential opportunities to cross market across our portfolio. So we'll start implementing more of that this year starting in second quarter. Number two, is there are particular categories of business and events where we feel we can maximize across our portfolio. So for this year, we have 2 projects underway. One is around the critical Halloween season, where Chasing Fireflies, Grandin Road, HSN, that large portfolio of businesses, how can we work together to maximize that business across our brands. And then, certainly, in the fourth quarter around the gift strategy, we have an opportunity to do that well. So we actually have integrated teams across the businesses working on that. So that's definitely our first significant foray into these things and we certainly look forward to seeing the results. But it goes back to why we've been refining the portfolio, what brands do we naturally see synergies against. And probably, lastly, for example, you'll see more kind of solution-based improvements products, for example, on HSN, so definitely an enhanced strategy. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay. That's helpful. And also, during your Analyst Day, you talked about your private label credit card program. I was wondering whether during the holiday season you saw further penetration for your private label credit card? And how do you see that going forward?

Yes, we did -- we've continued to see increased penetration. As I mentioned, we're very, very close to that 1 million customer number, and we see continued growth potential there. It very much is incorporated around our best customers and loyalty. We work extremely well with ABS. They've been great partners. And we see continued opportunity there as well.

Our next question comes from Barton Crockett of Lazard Capital Markets.

I guess 2, if I can. First, on the share repurchase, the pace has been a little bit -- the step down from the past 2 quarters versus the big kind of chunk of share repurchase we saw in the second quarter. What looks like the new normal, I think, going forward, more like the third and fourth quarter pace, or more like what we saw in the second quarter?

Yes, I'd say that I'd kind of flipped that around a little bit, that all of our quarters, 4 of the past 5 quarters that we have been repurchasing shares, have been about the same pace and that the second quarter was more of the anomaly versus the inverse. But having said that, I would say that in the fourth quarter, we have to institute a 10b5 program early in December. And we had a significant run-up in our stock price, so, of course, that affects all the variables and we can't adjust those plans on a go-forward basis. So looking into Q1, I don't think you'd see a Q2 repurchase program because we're still in that same 10b5 program. And then we'll be opportunistic and adjust our share repurchase program as we proceed. But again, we are very committed to that and feel quite good that only in a short period of time, we've almost repurchased approximately 65% of the authorized amount.

Yes, I mean, it's been a tremendous kind of cash return, so it's been good to see. I wanted to switch gears a little bit on the Cornerstone business, the 12% growth adjusted for comparable weeks. What would've the growth been excluding the acquisition of Chasing Fireflies, which I think is in this period but not in the year-ago period when you look at that 12% growth?

It is, yes, but just like any of our brands, we don't specifically break out sales for each one of those businesses, but we are very pleased with this Chasing Fireflies acquisition. It performed up to our expectations and it's been a nice addition to the portfolio. But overall, the business still would've had a strong business excluding that 14-week period, with the exception of the brands that I -- we mentioned.

And we lap that -- when do we start to lap that acquisition?

That is April 1. Almost -- and they're not [indiscernible] with the first quarter, by the way.

Our next question comes from Matthew Harrigan of Wunderlich Securities.

One thing that people were really noticing at -- or noting at CES was the second screen usage. I think 70% of it is unrelated to the large screen. In fact, in some instances, people are probably using HSN on a tablet and watching something else on the large screen. The other thing that's interesting is unless you have a home gateway, I mean, there's certainly synching issues with what's on the tablet, what's on the large screen. I think you've done -- actually done a very good job there, technology-wise in-house. Can you talk about just -- not the technology, but just kind of behaviorally, do you really see people doing both at the same time? Or frequently, as I said, people watching one thing on the large screen and HSN on the tablet? And then secondly, you've got a -- absolutely blue chip queue of companies that want to be your marketing partners now, I mean, Disney, Coca-Cola, et cetera. Can you talk about how active that pipeline is as a lot of large consumer companies become even more engaged in media, if you will, with you as a component?

Sure. As it relates to the screen, it's kind of all of the above. We're seeing really diverse behavior, and it could be watching something else on the screen and shopping at HSN; it could be watching both simultaneously; it could be watching streaming video; it could be playing a game and watching the video. So we know from -- certainly, from talking to a lot of our customers and then just seeing the behavior, our best opportunity is just to create as much engagement as possible even throughout the day, because what we see our customer doing, and it's why we have one global shopping cart, is she may be shopping in the morning on a tablet. Then she takes her smartphone and she's running out, and she wants to check her cart, but then she wants to buy it on her laptop later. So we know these behaviors are happening, so how do we respond to them. And then where do we market to her appropriately, which is what our analytics are going to enable us to do even more effectively. So as it relates to the partnerships, yes, we are really pleased that we're being recognized as a very strong marketing partner to powerful brands. Our philosophy is fewer, bigger, better, and how could we really partner with ones who, a, are the type of brands we want to be in business with; two, where there's a cultural fit and a mutual fit for what we're going to do with one another. I think Coca-Cola is a great example of that. That's a multi-year partnership. Both of us have done more than the originally even anticipated because of what we feel the power of the partnership is. And we will continue to selectively look at where we can find partnerships that are mutually beneficial and are going to allow us to extend our reach. And we have a strong business development team with a strong filter on what we're doing, and we do have plans to continue to focus in the marketing side of the business.

So you would still feel that, relative to a company like Burberry who was trying to do more things in-house, you just have a huge advantage in terms of your customer lists and your engagement and just being able to link everything up?

I think it's a combination of different things. So if you look at Burberry, that's a single brand, right? That's a vertical. What we're trying to do -- I mean, we're a broader-based retailer that's actually trying to create almost Burberry-like experiences within our different areas of business, and that's why I believe what we've been doing is somewhat unique. So I think our opportunity to be able to partner broadly is somewhat different. Again, because we are both a powerful marketing vehicle as well as a commerce vehicle. And none of these partnerships are actually one-size-fits-all. So for example, Coca-Cola, is a very strong merchandising partnership. It's product, brand and marketing driven. Toyota is somewhat different; Disney, somewhat different. So we look at each one individually. We measure what we think impact is going to be, and then we make a decision on the business model.

There appears to be no further questions. I will now turn the call back over to Ms. Grossman.

Okay, well, thank you, everyone. Great having you on the call, and we look forward to following up with everyone.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.