Ladies and gentlemen, good morning, and welcome to the HSN, Inc. Third Quarter 2014 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, 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 first 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. Also, 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. With that, I would now turn the call over to Judy Schmeling, HSNi's COO and CFO. Judy?

Thanks, Felise. Good morning, everyone, and thank you for joining us. HSNi's performance in the third quarter reflected our ongoing collective pursuit to drive growth, profitability and shareholder value. This commitment resulted in sales growth of 5%, with digital sales up 7%, gross profit up 5%, adjusted EBITDA increase of 9%, adjusted earnings per share of $0.74 compared to $0.70 in the prior year, and returning value to shareholders through a 40% increase in our quarterly dividend just announced this morning. We were particularly pleased with the results from our HSN business. Sales increased 7% to $578 million, with digital sales growth of 13% and digital penetration increasing 200 basis points to 39%. Nearly all categories had solid sales growth in the quarter, with notable strength in apparel and accessories, home and health. And for the first time in 1 year, electronics reported strong sales growth despite reduced airtime as we effectively curated our assortment, particularly for digital. Jewelry and culinary were the only categories down in the quarter, primarily due to less airtime combined with fewer clearance sales. As you'll recall, we strategically repositioned these businesses, particularly in the third quarter of last year. HSN's average price point grew 4%. Units shipped increased 3%, and return rates improved (sic) [decreased] 120 basis points, primarily as a result of product mix. Lower [indiscernible] sales also contributed to the average higher price points. Gross profit increased 9% to $203 million. Gross profit margin increased 50 basis points to 35.1%, largely due to lower clearance sales and higher product margins, partially offset by an increase in net shipping expense. Operating expense leverage, excluding noncash charges, improved 50 basis points to 24%. Last year, we had severance-related costs of approximately $2 million from our restructuring initiatives that consolidated resources in several areas. As…

Thank you, Judy. Good morning, everyone. Our strong performance at HSNi reflects the effectiveness of the strategic actions we have taken over the past year. These actions included deploying strategies based on enhanced customer analytics; further leveraging our digital assets, in particular mobile, our fastest growing platform; and continuing to deliver unique products and experiences to our customers. As a result, HSNi achieved net sales growth of 5%, EBITDA growth of 9%. Digital sales were up to 7%, including double-digit growth at HSN. HSNi's mobile sales increased 37% and now represents 16% of our total business. Our performance was propelled by the outstanding results at HSN, which included sales growth of nearly 7.5%, gross profit growth of 9% and an EBITDA increase of 17%. Within our Cornerstone brand, while the environment remained competitive, the brands did take decisive measures to strategically improve profitability. A number of the home brands had solid sales and EBITDA performance. Within our apparel businesses at Cornerstone, specifically Garnet Hill, we continue to reposition, test new product concepts with a deliberate focus on driving profitable growth. At HSN, our momentum accelerated from the second quarter in both the top and bottom line as a result of having the right balance of units and price point, a sharp focus on effective mix and margin and an assortment of highly differentiated products, events and programming. These focused efforts also contributed to our 50-basis-point improvement in gross profit margin. Digital sales grew 13%, marking the second sequential quarter of double-digit growth, and penetration increased 200 basis points to 39%. Our emphasis on strengthening the customer experience drove growth in every customer-buying segment, along with an increased spend in every one of those segments. Our active customer file increased 2% and continues to be at record level, reaching more than…

[Operator Instructions] Our first question comes from the line of Eric Sheridan of UBS.

Mindy, maybe a bigger picture question. You highlighted video a lot on the call, talked about it as a theme going forward to drive both new customers and also engagement on the platform. Maybe give us a little more detail about how you think that's going to evolve both off of the TV, on mobile and then also via e-commerce longer term as well, and how video plays a role there.

Absolutely. That's a great question. It's very interesting because in 2014 in particular, we completed a total shift from creating promos for TV to storytelling across all platforms. So just to give you order of magnitude, this year, we produced over 170% more video assets than the prior year. So we can use those assets for everything from the live show story, all the way through our mobile experience, and it was really all funded by [indiscernible] from TV. So the seamless platform experience feels like, as I would say, chapters in a cohesive story. So we want every device to feel like an enhancement on another. It's storytelling by platform. Another thing that we're seeing, everybody talks about this idea of digitally digestible content. It's the same in television. How do we use these new programming venues to almost create short-form storytelling so we can really complete engagement? So I would say that in addition to using all of these original videos -- so for example, if you look in digital and you see these TyTy Tips, that we did with Tyra Banks, they're engaging. They're informative. They're short form, they're stories. And so we're doing more and more of that. And I would say that in addition to original video, we're really trying to generate content for other platforms as well, so HSN2, quick looks [ph]. And then the third piece that I think is very interesting, we have partnerships with Pinterest, [indiscernible] and his family. So how are we creating a variety of experience? So it really needs to be diverse, authoritative, immersive, and we're trying to attract new but really surprising and delighting our core. So we believe that it's going to continue to be very important on every one of our platforms.

Our next question comes from the line of Neely Tamminga of Piper Jaffray.

A little bit here on -- more on the new customer or the overall customer metrics. You shared some with us. I am curious about the new customer growth. And then in addition to the repeat rate of the 90-day return and buy, are you seeing any interesting story as it relates to cross-category, getting multiple categories in her assimilation process?

Yes, that's all good. They all have to happen in tandem. So yes, we want to attract new customers. Mobile, certainly, is a big part of that. Different product categories are a part of that. As I mentioned, to see the increase of 150 basis points in our assimilation rate has been something we've really aspired to, and we're seeing that continue. We also had growth across every customer-buying segment, which basically shows us that we're seeing more cross-category behavior because that's where that comes from. And then continued growth in our best customer, particularly as it relates to engagement with our private label credit card. So we have discrete strategies across each one of these. And as I've mentioned before, the new customer growth that we're seeing in mobile is our youngest, most affluent and most diverse. So really, focus on assimilation in that area is very key.

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

I was hoping that we could talk to the higher net shipping expense, which, I assume, is driven by free shipping promotions. Is that having a desired effect? Is it attracting new customers, driving frequency with existing customers? Anything you can help us with in terms of the return on investment on the shipping promotions.

Yes. One of the things to think about is not everything is in isolation. Our business is really driven by this discrete combination of using any of our demand levers appropriately. We actually planned our demand levers at the individual product level, and that could be shipping and handling; that could be FlexPay; that could be pricing and promotion, exclusivity, limited quantity. And we balance all of that. We have a whole team that does nothing but that. Now having said that, we know that the environment for shipping and handling for the customer remains competitive. So we're being, again, very smart about how we use each of these but ensuring, and particularly in some key categories, that we remain competitive.

Okay. And then just secondly, I'm sure you've noticed, but a lot of other retailers have talked to very weak trends in October and even into early November. I'm just wondering if you can comment on quarter-to-date trends.

Well, I think, you heard from my talk earlier that we're pleased with the continued momentum that we are seeing at HSN, and we believe that's being driven by our capabilities and our new customer analytics; the fact that these events, products and programming are unique; and what we're seeing in terms of growth in our digital platforms, notably mobile. And our goal was to continue to see sequential improvement across our Cornerstone portfolio, which we are seeing. The one area on the Cornerstone side -- as I mentioned, we retrenched the business, and our focus on profitability is the women's apparel segment, which, as you know, from the marketplace; so we really want to drive profitability there. But we think, because of a lot of the work and the heavy lifting that we've done over the past 2 years, the changes we've made even on the back end of the business, positions us well because there is just a limited amount of discretionary income, and if a customer is going to spend it, we want them to spend it with us.

Our next question comes from the line of Ben Mogil of Stifel. Benjamin E. Mogil - Stifel, Nicolaus & Company, Incorporated, Research Division: So one on operations and one on capital structure. So on operations, from a -- you made a lower turn rate in the quarter. Is that a mix issue? Or is there sort of some larger sales or marketing tools at play here to help out on the return rate?

No, our return rate is largely a function of our product mix. So again, it really is by that product category, not just the divisional level. So we continue to see improvement in that, and we'll probably continue to see that as the quarter progresses. Benjamin E. Mogil - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay, great. And then on the [indiscernible] if I missed that part, I apologize. Have you gone back to the Board of Directors for a reauthorized buyback and maybe talk at this -- not so much at this price though, but of the liquidity situation from a stock perspective, how you guys are sort of thinking about buybacks versus share repurchases?

Sure. As I mentioned on the call, we did just approve an increase in our regular cash dividend by 40%. And the board is continuing to look at what makes sense from a further capital deployment and return to shareholders. That does include both special dividend and share repurchases. So the totality of our program the board is still taking under advisement.

Our next question comes from the line of Tom Forte of Brean Capital.

There are a couple of categories you talked about that I wanted to ask further about. So would you say that consumer electronics has not normalized, and we can expect it to grow from this point forward? And same question on fitness. And then how close are we to getting jewelry to where we want it to be, where that could be a growth category once again?

Okay, good questions. I think we're positioned well in electronics. We feel that we have a lineup for the fourth quarter and going forward and, in addition, real strategic partnerships. So for example, our success with HP over the last couple of months is they're building exclusive products just for us. So really, fundamentally, those strategies, I think, bode well. On the fitness front, that really is connected to the innovation coming from the marketplace. As you know, we talked about that for a period of time, but the good news is we do see a pipeline. So as long as that pipeline continues, that business should be on a growth trajectory. And then I mentioned in jewelry, we launched 6 new brands this past season. We're growing our core brands. And certainly our goal is to get that back on a business trajectory, but we're being very focused on doing that profitability without excessive markdowns. So if you look at that team, they have done a good job with that business in terms of balancing sales and profitability.

Our next question comes from the line of Anthony Lebiedzinski of Sidoti & Company. Anthony C. Lebiedzinski - Sidoti & Company, Inc.: So my first question, just a follow-up on the electronics category. You mentioned some exclusive products from HP. Other than that, has there been a significant change in the mix of brands and products versus a year ago?

Yes, we actually do feel that there's a heartbeat on televisions that we're seeing, particularly on ultra HD. We recently had one in the last quarter. We have some other things in the fourth quarter. So I think that's newer in terms of what we're seeing. I think we're seeing PCs now that people are having to replenish. There's a lot of old product out there. We continue to do well with Beats. And even in some televisions that are a little bit broader in terms of the price point, like VIZIO. So what we're really trying to do is also go in to new categories, such as connected home and things like Nest and other businesses, and just really make sure the diversity of the portfolio. And then the last piece is the gadget piece. I mean, we recently added today's special in a power charger that was very successful. So it really is a balance of all of that, but I'd say the one difference is we're seeing the TV business come back a bit. Anthony C. Lebiedzinski - Sidoti & Company, Inc.: That's good to hear. And as far as catalog circulation, how should we think about that for Q4 and then any kind of early read for next year, that would be great.

Yes, we pulled back on circulation in the third quarter, which is really focused on our apparel brands. And we'll continue to do that as we go into the fourth quarter just to make sure that we are positioning that business more for profit. And then strategically, going into 2015, once we see traction in those businesses, we will reinvest back in circulation.

Our next question comes from the line of Barton Crockett of FBR Capital Markets. Barton E. Crockett - FBR Capital Markets & Co., Research Division: I wanted to ask a little bit more about the share repurchase. It's unusual for a company to have such an active program like you've had and then to kind of go quiet on -- for a quarter now. And I'm wondering, to what degree does that reflect a need to work out some type of arrangement with Liberty given that [indiscernible] buyback, their ownership accretes [ph]. Is there some type of negotiation that needs to be completed for this to kind of kick back in? Or is there some other concern that makes it difficult for you to do share repurchase at this point?

Barton, we have the upmost respect for not only Liberty, but all of our shareholders. And we will continue to evaluate what is right for everyone in regards to whether it's a share repurchase or a special dividend or a total capital return program. So we really don't have anything further to comment on that. Our board is taking this very seriously, and we recognize that we have plenty of room to distribute more capital to shareholders. And we will announce that when the board has made their decision. Barton E. Crockett - FBR Capital Markets & Co., Research Division: Okay. And then on a related note, what would you say, at this point, is your leverage target? I mean, what net debt-to-EBITDA level do you think would be optimal for HSN? And how do you get there?

I think that as we've stated in the past, that really hasn't changed. So our goal is in the 2 to 2.5x range. I'm sure that there are different variations of that. But somewhere in that range we continue to remain comfortable with, which will allow us to be flexible and weather any type of downturn in the economy or to be able to do acquisitions and things like that. So nothing in that magnitude has changed from what we've previously stated. Barton E. Crockett - FBR Capital Markets & Co., Research Division: I mean, you're so far away from that though right now. I mean, how -- what would be your belief about how you would get there at this point?

There are so many different ways for us to be able to do that, Barton. So until we have decided on how we're going to do that, I really don't have anything else to say relative to that. But recognize that we are very cognizant of where that is [ph], and the fact it's a very good credit market, and we will do what we think is appropriate.

Our next question comes from the line of Alex Fuhrman of Craig-Hallum Capital.

I just wanted to talk a little bit about these long-form direct response TV spots that you're going to be doing. I think you mentioned something with Keith Urban and the guitars. I mean, is this just part of a broader way of extending the marketing reach you're creating for the brands in other platforms? I'd be curious if there are other examples of brands that you've done this with. And going forward, is this going to be a way that you can really take brands that are on your HSN platform within the 168 hours a week and extend them beyond? Is that something that's a meaningful part of your business right now or even noticeable? Or this is really going to be the first of those?

This is really -- it's new, but it's not something we've never done before. We've done that within our Joy Mangano business in the past. However, this is part of a full holistic program with Keith and the play your guitar and learn to play. We feel that the product and the content is very applicable to the long-form DR and will enhance our ability to have a 365 day a year business punctuated by when Keith comes live. We just started running the media. We're pleased with the initial results. And yes, we do think that it could be another leg or another completion of this holistic strategy. But right now, we're very focused on this. We really don't have any specific plan to go beyond that. But we're certainly going to take the learnings from this and see if, in the future, it's relevant to any other business. But we're really looking forward to it. Keith is back on November 15, and he's back again in December. So this combination of running the DR media and then Keith's performance on HSN, particularly in the fourth quarter, where these types of products tend to perform very strongly. We're excited about it.

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

Firstly, there's a lot of attention now on set-top box data, Rentrak, Cablevision, et cetera. And you've got some interesting data, particularly as the second-screen activity accelerates. How could that integrate into your marketing plan and all that? And then secondly, I think Q's doing a campaign -- image campaign for the first time in quite a number of years. I mean, I know a lot of your profile rests on these entertainment advances of some of these huge companies, like Disney and all of that. But I mean, given where you are and the immense amount of traction that you're getting, do you feel inclined to consider something similar to that?

Okay. A couple of things. We do believe that the idea of trying to leverage our content ubiquitously is very important. And that's everything from HSN -- on HSN to our partnerships with Univision to what we just did with TiVo, to our partnership on the video carousel at AOL. So it's everything from distributing [ph] commerce, to all our marketing vehicles, and we are going to continue to look at opportunities to be able to reach customers across every platform, wherever they are. And that's definitely a big part of our strategy. Now as it relates, we have been very aggressive since we relaunched HSN. It's Fun Here. You probably noticed, you see more marketing on our end, not just with our entertainment partnership, music, personality and a very enhanced approach to social integration. That campaign has been very successful. It's really driven both how we are visually, how we market, our tone of voice, and it's very clear that both new customers and existing customers are responding to it. And we basically believe that we own this integration of entertainment, technology, media and retail, and that's why I think we're seeing the performance.

And in terms of your viewership data with Rentrak or anyone else, we definitely have all the information on transactional data, what our customer has purchased. And we are very much data hounds in that sense. We continue to look at what makes sense in looking at viewership information and how we can integrate that more holistically within our business and data analysis. It is just one part though of the complete marketing program that we look at. So a good question though.

But it's sounds like you're very satisfied -- you're getting good conversion on people who are tuning in for some of these movie events and all that.

Yes, we're very pleased with the -- not only the viewership, which creates brand awareness, but also continued conversion of those customers.

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

Well, thank you, everyone. I'm sure we'll be speaking to you, and we're looking forward to a good holiday season, knowing that we're in retail and it's everyday out there. But as I mentioned before, we feel we are really well positioned in the marketplace with the strategies that we've put into play. So we look forward to talking to you soon.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of your day.