Ladies and gentlemen, good morning, and welcome to the HSN, Inc. Second Quarter 2013 Earnings Conference Call and Webcast. This call is being recorded for future play, if desired. Following the conclusion of today's remarks, 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.

Hello, everyone, and thank you for joining us. On this morning's call, we have Mindy Grossman, Chief Executive Officer of HSNi; and Judy Schmeling, Chief Operating Officer and Chief Financial Officer. Judy will initially review our financial performance. Mindy will then strategically discuss 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 results. I would now like to turn the call over to Judy Schmeling, HSNi's COO and CFO. Judy?

Thanks, Felise. Good morning, everyone, and thank you for joining us. We are pleased with our overall financial performance in the second quarter, which reflected our focus to drive growth, profitability and shareholder value. Our strategic actions resulted in continued momentum in growing our customer file, achieving digital sales growth of 10%, with penetration up 170 basis points that contributed to overall net sales growth of 6%; returning value to shareholders through our share repurchase and cash dividend programs that included purchasing over 900,000 shares in the second quarter; and growing our earnings per share by 30% to $0.79 per share. At HSN, sales increased 5% to $526 million. We had strong sales growth in home design, household and electronics, offset by lower sales in jewelry and culinary, as well as a 3% decline in shipping and handling revenue. HSN also experienced higher clearance sales in the second quarter and lower returns. Digital sales at HSN grew 10%, with digital sales penetration up 160 basis points to 35%. We are pleased with these results following the launch of our digital site redesign earlier this year and the ongoing site enhancements we have made since that time. HSN's unit shipped increased 7%, and the average price point decreased 4%. Excluding clearance, both units shipped and price point relatively unchanged in the second quarter. We continued our focused efforts to drive customer growth, resulting in a 5% increase in our customer file. HSN's gross profit increased 3% to $188 million. Gross profit margin decreased 60 basis points to 35.6%, primarily from shipping and handling promotions. Our clearance sales did not notably impact gross margins as we had inventory reserves associated with those products sold. Operating expenses, excluding noncash charges, were up 1% to $130 million and improved 90 basis points as a…

Thanks, Judy. Good morning, everyone. Our strong financial performance during the second quarter was a result of the uniqueness of our customer experiences, the power of our digital platforms and the quality of our brands and products. Sales increased 6%, EBITDA increased 7% and earnings per share grew 30%. In addition, the strength of our overall brand experience resulted in substantial increases in our customer file at both HSN and Cornerstone. Digital sales increased 10% and digital penetration grew 170 basis points, as digital moves even closer to comprising half of the HSNi business. Mobile remains our fastest-growing platform, with growth of 71% during the quarter and mobile penetration now representing over 10% of total HSNi's sales. We continue to leverage the synergies between HSN and Cornerstone, positioning us to capitalize on our strong brand and reshape the landscape of retail commerce. HSN sales increased 5%, with adjusted EBITDA growing 8%, as we delivered on our overall strategy of more experiential shopping, that means offering rich content experiences, optimize each touchpoint then inform, educate, inspire and entertain our customers. We finished the second quarter with our highest active customer file size on record and experienced the highest quarterly new customer growth in 5 years. Nearly half of the new customer growth was driven to our digital platform with mobile as a key contributor. We also reached a 10-year high for our 12-month retention rate. Best customers were up 7%, with their engagement up across nearly all categories. Our loyalty-driven HSN credit card program also contributed to our best customer growth and now represents 28% of total HSN sales. Last quarter, we indicated that we expected improved digital sales in the second quarter, as the comprehensive digital redesign we launched in January became fully implemented. We are pleased to report that…

[Operator Instructions] Our first question comes from the line of Neely Tamminga from Piper Jaffray.

I just want to offer my congratulations again to Judy and Bill on just much-deserved promotions here within the organization. Mindy, if you could help us understand, mobile, obviously, has been a big success for you guys, overall. And I'm just wondering -- it sounds like the traffic is also up, but I think what I'm also hearing is the conversion on mobile is also up. If you could also talk maybe some -- through some specific initiatives that are driving mobile conversion, that would be helpful. And I just had a follow-up question for Judy on the Cornerstone businesses. Congratulations all around on that one, too. It sounds like the average price point is up, your gross margin is up. I would think that your average price point is up because of furniture, which would inherently be a lower-margin business. Can you just reconcile for me a little bit like what's going on there and what the product mix looks like that's driving the margins higher?

Great. Thanks. So I think one of the major things for us in mobile across all our businesses is that, philosophically, the way we look at it is mobile first and knowing that, that is really where the customer is living and breathing and interacting with us. So, really, the efforts around engagement seamless ability to shop and everything we implemented in the HSN redesign was really focused on creating a very rich mobile experience, and that's both speed, efficiency and, certainly, the experience as a whole. And I think that's why we're seeing both the engagement and the conversion there. We also have some very specific mobile strategies and whether that be around impulse buying or whether it be around games and spin to win and getting the customers to come in, but they're very specifically focused there. And on the HSN side, in particular, it's very much both smartphone and tablet, where on the Cornerstone side, it's much more significantly a tablet experience, which makes sense, given the nature of the products that they sell. As I mentioned, 4 of our brands have completely new mobile-optimized experience on the Cornerstone side, and that's definitely helped their conversion there as well. And we will continue to optimize all our mobile platforms and create new marketing experiences.

Yes. And on the Cornerstone side, yes, the sales volume was driven by the home brands, but we have very strong margins in all of our home brands. So while Frontgate definitely really excelled in outdoor furniture this quarter, they also had success in many other product categories and also outdoor furniture accessories like cushions, et cetera. And our Grandin Road business has been extremely strong, which also carries very nice margin. So even though those are home brands in general, because the product is proprietary, they do carry higher margins.

Our next question comes from the line of Matt Nemer from Wells Fargo Securities.

I was just curious in terms of the new digital platform at HSN, if you could talk to metrics like conversion and cart abandonment during the quarter. Do you think that all of the cobwebs are out of the new platform? Or is there still room for that to improve going forward?

So we're certainly pleased to get it on trend and back to prelaunch level, but I would say, as you know, the reason why we relaunched the platform was to accelerate growth. So definitely, we have more opportunity, and we're optimizing the site. I mean, we are now just really utilizing a lot of the new technology that's enabling us to do a significant amount more A/B testing, as well as a much more nimble approach to changes. So yes, we are looking for more growth going forward based on the relaunch.

And in terms of your best customer growth, can you just talk to what's driving that strength? Is that primarily migration from existing customers up the continuum? Or are those sort of newer customers that are coming in at a very high spend rate?

It's definitely a combination of things. Number one, we continue to see will [ph] engagement with our loyalty program and our private label credit cards, so that definitely has an impact. Two, as you mentioned, we're definitely seeing that migration across categories, which is creating additional spend. And then, as we said, our retention rate is at a high, so that's also contributed to that.

And actually, just to follow up on the credit card, are there limits around -- is there an opportunity to drive that penetration a lot higher? Could you just kind of talk to the appetite from your partner to, I guess, increase new accounts and credit lines, et cetera?

We have a fantastic partnership with AVS [ph], and I think both us and they have been very pleased with the performance, with the creditworthiness of our customer. And we are continuing to look to invest in growing that percentage.

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

I had 2 questions. The first was, I want to know if you could talk about new customer growth as it pertains to category. In the first quarter, you said that you were seeing particular strength in home and beauty as a means to drive new customers, whereas historically, it's come from consumer electronics. And then the second question is, on consumer electronics and gross margin, selling more mobile and accessories in audio, is that superior in gross margin to televisions and things you were selling, I guess, 1 year or 18 months ago?

So on both of those sides. So new customer growth, there's definitely category, so just by nature of the category, bring in more new customers. Beauty definitely is one. Home, especially in strong price point, solution-driven items, businesses like our Joy Mangano Ingenious Designs businesses and others like that. In terms of electronics, as you saw, we had growth in the quarter, and it's definitely unit-driven because we're obviously selling different price points based on the mix. As far as margin goes, in mobile, really not an increase in margin. We're selling everything from iPads to tablets, and that's equivalent. However, in audio, yes, that's a slightly higher margin than we would get from the bigger TV, computer items.

Our next question comes from the line of Anthony Lebiedzinski from Sidoti. Anthony C. Lebiedzinski - Sidoti & Company, LLC: I was wondering if you could comment on the opportunities for synergies between the Cornerstone and HSN segments.

So I'll speak to it from the front-end of the business, and I'll let Judy speak to it from the back-end of the business. I definitely believe that we have a very powerful portfolio of brands. And if you think about, across our brands, with almost 75% of our business being proprietary product, that's a very powerful assortment. As I mentioned, for the first time this year, we're bringing a number of our brands together around 2 specific efforts. One will be in -- around Halloween. We've partnered Chasing Fireflies, Grandin Road and HSN to have one of the broadest aspirational Halloween assortment digitally. We're also partnering there with UNICEF. We will have a Halloween store, and we're partnering with their trick-or-treat campaign together. We will be doing Halloween haunted house shows on HSN television live shows that we will be able to showcase products across the board. So that's one. The second, which we just had the press launch in New York, is we're taking across our entire brand portfolio a very extensive gift assortment. And when I say extensive, it's everything from a $15,000 customized Frontgate pool table in a sports car to a $29 stocking stuffer and everything in between. It'll be a very powerful digital assortment. And when you look at it, no one brand could have the power of that assortment on its own. So we're excited about those opportunities. And we think that if we do that strategically and also leverage the HSN digital platform for improvement stores on HSN, which we have today with Ballard, there's a lot of cross-leverage that we can get to expose our brand more broadly to our total customer base.

Yes. In terms of back-office, we see a lot of potential over the next couple of years, whether it's in relooking at our IT infrastructure across both businesses, really reassessing our supply chain and logistics while we really already maximized all of our contracts, like with UPS. But how can we really look at best practices, relooking at our warehouses, things like that? And on customer care, really elevating our customer experience across all of our brands and doing so at a more efficient cost. We recently just did something within customer care and starting to see some of the benefits of that by really looking at a unified telecom platform. So we took the knowledge at -- and the vision of the Cornerstone team and combined it with the technical expertise that we have here at HSN to be able to provide longer-term benefits for us and our customers. So we're very excited about this. We're just starting on the cusp of it. And we have some great subject matter experts in charge of each one of those areas, and they're digging in. And we look forward to continue to report on our progress. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay. So it sounds like a lot of good opportunities. So as far as the whole reassessment of the supply chain and logistics, how long of a process will that be before you can actually implement some changes, that you can actually see some meaningful savings?

Well, that would be a longer-term issue because you are talking about warehousing and things like that. But certainly, one of the things that we're looking at is just from a process standpoint or the things that we can do in QA or returns to improve the overall experience. That would be more of a shorter term. But true, significant cost differences would be over a longer term. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay. And also, just looking at the Cornerstone segment, you did say that a part of your expense increase was due to reorganization costs. Can you quantify the impact of that? And are these onetime items?

Yes, that's a onetime cost primarily related to severance of some individuals that we did as part of this reorganization. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Right. And is that a number you can quantify?

No. We're not releasing that. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay. All right. Got it. Okay. And as far as the lower return rate, is that just a function of product mix or is anything else there?

Well, let me talk about the lower return rates because we had lower return rates on both HSN and Cornerstone. So on the HSN side of the business, lower return rates in a lot of our categories. So it's pretty much widespread that we saw lower return rates, part of that is going to be related to price point that is driven by lower price points as well. On the Cornerstone side of the business, it's primarily related to product mix shift. The home brands do have lower return rates, and that did dominate our sales part of the business.

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

One is, just looking at the strength in the Frontgate business tied to the outdoor stuff, how correlated is this to the housing market? I mean, back in '08, as we all recall, I mean, you had troubles here when the housing market imploded. And now it's strong, and the housing market seems like it's coming back. So on the surface, it would seem to be correlated. But I'm just wondering how you see it at this point.

Well, I think there's a couple of things you have to take into consideration. First of all, if you remember last year, given the weather patterns, we had more pull forward in the first quarter, and we said we were going to see that normalize and come back in the second quarter. So that definitely was part of it. And I really think part of it is the strength of the product. I think there's about 17 new collections. Clearly, if the housing market is strong, it's going to be just positive across the board for any of the home businesses. But as you may recall, we work really hard to diversify the merchandising portfolio to allow for greater breadth of products across price points, indoor, not just outdoor, so we would be able to balance the business regardless of what was happening in the marketplace.

Okay. And then switching gears on the share repurchase. You guys are within $1.5 million or so, I guess, based on what you said post-quarter that you've done of the $10 million authorization. Can you talk to us about how you see the share repurchase in terms of the timing for that $10 million authorization to be potentially addressed and, just generally, what you think are the merits and demerits of going that $10 million, particularly as it relates to your largest shareholder, Liberty, whether there's any inputs there or things you think about there relative to Liberty?

So in terms of our capital structure, in general, we continually look at our share repurchase program and our dividend program with our board on an ongoing basis, and we'll continue to do so. We are aware that we're getting closer to utilizing our share repurchase program and we'll continue to address that with our board on a go forward basis, as well as our cash dividends and other options as well. So -- and, again, I think that we've articulated this before. We don't look at something just in the view of the lens of one particular shareholder but what's in the best view of all of our shareholders, and we'll continue to do so.

But it sounds like you've been -- you like the share repurchase program. So there's no reason to think that your favorable view of share repurchase is changing at this point.

We've been very pleased with our share repurchase to date, and we'll continue to evaluate that in the context of everything else in our strategic initiatives with the board.

Our next question comes from the line of Matthew Harrigan from Wunderlich Securities.

I was interested in HGTV venture. I mean, obviously, for years, people have talked about EBIF and interactive TV and just how it changes the template for transactional activity on traditional TV. Are you very involved in that with them? I mean, how does -- is there any commentary on how that affects your model? And then secondly, in a lot of the European luxury houses, in particular -- I think I asked you this at your Analyst Meeting in Florida, have been much more active engaging in-house media directors for long-form programming, event programming and all that. I know that's kind of isolated to a few very recognizable brands like Burberry and all that. But do you see that as an opportunity and an issue for you, just a testimonial to the efficacy of your business model?

Okay. So you were talking about HD TV as opposed to what we were talking about...

There's something called EBIF, which Enhanced Binary Interactive Format, for TV, and basically, just think of it as interactive TV. It enables a lot of transactional activity...

No, no, no.

We know that.

We're confused. You were talking about HD TV. Well, I'm sorry, we didn't understand the first part...

I thought you were saying HD TV.

I'm sorry. Maybe I'm slurring my words.

Are you talking about Home and Garden Television or...

Yes, exactly, what you're doing with Scripps.

Okay. That's what I thought. All right. Our partnership with HGTV was obviously just launched this year. We have a lot of plans with them going forward. So for this year, they were really the halo over our outdoor and lawn and garden business at HSN. So it's HGTV Presents. Next year, we will actually have a full portfolio of products under the HGTV and branded HGTV, and we will be working with them to how to market those products using both their air, as well as hours. And coming up, you'll actually see violators actually on the HGTV network talking to HGTV on HSN, and there's a lot more plans for that going forward. So we see it being very interactive. Now as far as what you were talking about in terms of, let's call it, live programming, we definitely believe that digital content is going to be a very key cornerstone of what we continue to do. And whether that's content that we're creating on our site that's digitally digestible or content that we're creating potentially from our live music events and that content could potentially live somewhere else, you're going to see a lot of content focus from us, not just the live TV content.

Our next question comes from the line of Victor Anthony from Topeka Capital Markets.

A question on your partnerships, which seems to me to be a key differentiated aspect of your strategy. So are there figures you could share on a number of customers that are driven by HSN -- to HSN by the partnerships? And how are these customers different from your existing or your core customer base? And also, maybe you can give us a sense of what the upcoming partnership with Disney will entail.

Okay. We don't split out specifically the number of customers through partnerships, but what I can talk to is the strategy around why the partnerships and why the alignment. So if you look at specifically the ones that we've talked about most recently, Coca-Cola, Toyota, Norwegian Cruise Line and Disney, particularly on the movie side, we really feel that partnering with great brands, you have a very broad constituency, which definitely has segments that would appeal and look like, let's call it, the customer we have that may not know about us or may not understand what we do. So with Coca-Cola, how do we get exposure to their Coke Rewards loyalty members or their Facebook fans? Toyota, how do we get exposure on their homepage driving to us, which we know brings in a lot of new viewership and potential customers to HSN? And then Norwegian Cruise Line, we know enough about our customer to know that she's 2x to 3x more likely to actually cruise, so we know that there's affinity base right there. And so we're very strategic about those partnerships, and we are looking to build longer-term sustainable partnerships. So all of these are ongoing. As far as Disney goes, we do have a partnership with them. As you know, we did Oz The Great and Powerful. And we do have future commitments to partner with them on their next big releases, but they haven't been announced yet.

Okay. Just a follow-up on -- in your prepared remarks, you -- on social media, you mentioned Pinterest, as well as Twitter. You did not mention Facebook. I was -- just wanted to get a sense of how you view Facebook as a marketing channel.

Facebook is a terrific marketing channel. I mean, we currently, I think, at HSN have about 800,000 Facebook fans. We use it very much as an engagement tool. We don't measure numbers as much as we really do measure engagement because we think that's the important metric there, and we have definitely seen significant and continued engagement through Facebook. So we're very specific in how we use each one of these social platforms. It's not a peanut butter approach. They're very specific to what we're doing. We did a big Pinterest campaign with Oz The Great and Powerful, as well as with our home brands, and it's a very strong traffic driver as well. So they've all been very strong across all our brands.

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

Well, thank you. As I said, we're pleased with our performance in the quarter and look forward to continue to update you on our progress on all fronts. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.