Ladies and gentlemen, good morning and welcome to the HSN, Inc. Third Quarter 2016 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 and President of Cornerstone Brands. 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 on 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 like to turn the call over to Judy Schmeling. Judy?

Good morning. Our third quarter results were affected by a confluence of internal and external factors. This included the underperformance of certain categories at HSN, the continued weakness in outdoor within the Cornerstone portfolio, a challenging retail environment, and consumer mindshare distractions, including the high-followed Presidential race that culminates tomorrow. We completed the divestiture of TravelSmith and Chasing Fireflies within the Cornerstone portfolio. Our third quarter results included their performance of the data sale on September 8. Associated with the divestiture, we recorded a loss on sale of $11 million which included charges of approximately $4 million related to transaction costs and employee and a lease liabilities. We are now 100% focus on the key brands that will drive the portfolio and best aligned with our long-term vision. HSNi sales decreased 5% in the third quarter or 3% excluding the divested businesses. Gross profit was down 140 basis points with operating expenses decreasing $11 million or 5% excluding non-cash charges and the loss on sales. Diluted earnings per share was $0.38 versus $0.64 in the prior year. Adjusted earnings per share was $0.52 compared to $0.70 a year ago. At HSN, sales decreased 4% to $570 million. Sales grew in apparel and accessories and wellness offset by decreases in other categories most notably fitness, infomercial, and electronics. We had lower shipping revenues primarily due to increased promotions and changes in our shipping tables as we simplified and standardized our shipping rates for our customers. Digital sales grew 7%, with digital penetration increasing 430 basis points to 45%. HSN's return rate improved 30 basis points and units shipped grew 1%. Average price point decreased 5% primarily from changes in product mix and higher clearance activity, most notably in fashion, which was also impacted by the timing of a clearance event. Gross…

Thank you, Judy. Good morning, everyone. At HSNi, we are taking strategic actions to return the business to a growth trajectory with a focus on maximizing profitability. We made progress in certain areas, yet our overall performance in the third quarter, as Judy articulated, was impacted by lower sales and specific merchandising categories in HSN, continued weakness in the outdoor segment within the Cornerstone portfolio and a difficult overall consumer environment in which we are operating. As we all know, there have been challenges in the retail sector that were compounded in the third quarter by disruptive and distracting political climate which affected consumer buying patterns in general and viewership, in particular. I'm confident that we will manage through these immediate headwinds by expanding our proprietary merchandising pipeline and destination programming, elevating our content, digital, and data capabilities, extending our distributed commerce platform which includes experiential retail and maximizing a focused portfolio. We have actions underway on all these fronts to improve long-term performance which I will be reviewing. Digital remains an essential part of our strategy to optimize our contents across the multiple distributed commerce platform. HSNi digital now represents 53% of sales, an increase of 330 basis points over the prior year. Mobile grew 17%, now reflecting 22% of our total business and 42% of digital sales. At HSN, we're implementing strategies to ignite the business, including the expansion of our proprietary product portfolio, accelerating our content generation and optimizing our digital assortment and platforms to complement the traditional brand experience of our live content, giving customers additional reasons to engage with us. We operate in more digestible video content and distributing it through alternative channels that appeal to both existing and new customers. We also remain focused on energizing our merchandising categories by infusing newness, pace and…

And our first question comes from Eric Sheridan of UBS. Your line is now open.

Thank you for taking the question. Maybe a big picture question for Mindy. I think one of the bigger topics that's come up with investors as we move through the quarter and ahead of results is really the long term of how much of what's going on from a competitive environment is secular in nature, how much of it is cyclical, how much of what's going on in the business right now is being driven by macro impacts you're seeing in terms of the way people shop. I'd love to get a little more color of teasing out all of those, what you're seeing on the competitive landscape, how much of this is shopper habits as a result of what you're seeing in the macro environment, as much color as you can would be very helpful? Thanks, Mindy.

Sure. And, Eric, I think it's a confluence of a lot of those things. There is definitely competition out there. We're certainly cognizant of that and people's expectations are such that we have to be able to differentiate ourselves as much as possible. Hence, a lot of the things that we are doing to build the business for the long term and whether they be investments in design and proprietary product development, investments in our content and digital capabilities, investments in our supply chain to be able to meet customers' expectations which continue to rise and to be able to focus on how we're creating very unique experiences whether they be digital, whether they be physical or any way we reach the customer. The second piece of that, and it relates to how we are aggressively pursuing customer acquisition while certainly satisfying our existing customer, is the world of distributed commerce and our ability to be able to leverage our brands, our products and our content externally across broader platforms. We don't see the environment or at least the competition in the environment, abating. I mean, we're all looking to gain share of customer's wallet which is why we are making the investments we're making, which is why we feel confident about our brands and our products especially moving forward.

Thank you.

Thank you. And our next question comes from Neely Tamminga of Piper Jaffray. Your line is now open. Neely J. N. Tamminga - Piper Jaffray & Co.: Great. Good morning. I have a question for Judy and a question for Mindy. Judy, you talked and highlighted, which was an encouraging impression to hear about some of the top-line growth initiatives for Cornerstone. Could you speak to a little bit more specifically about some initiatives to help either offset some of the competitive pressures on the cost side or just overall improvements in profitability for next year as you've on-boarded there? And then for Mindy, as we think about Q4, it sounds like you have a great gift assortment lined up. Electronics though are on my mind personally as I think about kind of how (35:03) over-SKU it seems in Q4 around holiday gift giving? And just wondering if you could speak to your assortment there and how you're feeling about it, just sort of some of the things going on with like Samsung, et cetera. Thanks.

Sure. I'll take the question, and then let Judy really talk about Cornerstone where she's really spend a lot of time on that second part of the question. So going into the fourth quarter, there's no question that electronics – and I would call electronics and gadgets and things like digital health, are all going to be important. We feel good about our assortment. We have very significant relationships across the electronics brands from HP to Dell to Bose to Samsung, notwithstanding some of their challenges, but we're pretty discreet about what products we really think are going to be right for our audience. We're still in drone land and other categories, and we have a pretty robust lineup for the fourth quarter, where we feel good about where we are.

And in terms of on the Cornerstone brand portfolio side, historically, we have managed the business with a consolidated back end and each individual brand is focused on their front-end business. And while that, it will definitely continue, one of the things that we've been really talking about is leveraging the power of the total on the front end as well and really recognizing some of the similarities and dissimilarities between the businesses and how can we capitalize on that moving forward. I think a couple of our key areas are product development. We have great brands, and we need to accelerate more on that unique product development and develop additional categories as well. We're also really leveraging more of our digital and shifting more of our spend away from traditional catalogs. We're testing different types of marketing strategies and seeing some strength in some of those categories to attract new customers. And then thirdly, just really elevating our customer insight more fully across all of our brands. And we have continued to add additional talents to our business. We hired a new President of our Improvements brand. We are also elevating digital talent across the portfolio. And we also have someone in charge of our retail business who's very experienced in the business to be able to help drive our retail footprint. Neely J. N. Tamminga - Piper Jaffray & Co.: Great. Thanks, guys. Best wishes out there.

Thank you. And our next question comes from Tom Forte of Maxim Group. Your line is now open.

Great. Thanks for taking my question. Wanted to ask first of, how confident you are that you have the Cornerstone portfolio where you wanted to be as far as these further adjustments go. And then wanted to talk about, how should we think about in today's challenging environment with either distractions or the tough consumer environment, how your use of FlexPay has changed? Are you using it more or less? And then are you seeing on a by category basis, variance in your Today's Special, meaning that beauty is still doing well, but consumer electronics is underperforming. Is it consistent with your overriding performance on a by category basis?

Sure. So, relative to the Cornerstone portfolio, obviously we've divested it down and we have the five brands now that are remaining in the portfolio and that's our key focus. And to really grow those businesses and I think that this is more focused primarily in the home category, is really going to help us accelerate that. Of course, anything changes, but that really is our focus and we're committed to really turn those businesses around. Your second question relative to FlexPay, yes, definitely FlexPay remains a unique driver for the HSN side of the business. We have increased our utilization of FlexPay, but really and truly, it is more on the her side of the category. And as you saw from my commentary, in particular, in terms of bad debt expense, that has actually declined over the year. So, we feel like we're using it effectively and we will continue to do so.

So, on your question around TSs, obviously, in the fourth quarter, as we discussed earlier, electronics, what I would call, gadget gifts, gifts in general across the portfolio, really become the big drivers of the business, particularly over the key holiday weekend time period. In addition, we tend to really also focus on events within the fourth quarter so they could be 24-hour culinary events with a focus on the best gifts. The fashion business becomes a little bit more focused on food, outerwear, et cetera, and we're seeing – we've been strong on the fashion side of the business. But there's no dramatic shift in what we're seeing in terms of what we maximize in the fourth quarter. Obviously, I mentioned some changes in, let's call it fitness and infomercial. We just launched Copper Fit, which we actually feel good about and we'll also be continuing in the fourth quarter. So some momentum there that we haven't had prior last couple of quarters. But again, it's a real focus on what people really both need and want in this fourth quarter, and that's been the focus of the TSs, as well as ensuring that we have great value in proprietary products.

Thank you.

Thank you. And our next question comes from Jason Bazinet of Citi. Your line is now open.

Just one quick question on shipping. You mentioned some of the new policies that went into effect in August. How do you feel about your shipping and handling policies now? In other words, is this sort of a gradual step down as you sort of harmonize to the new competitive environment or you think you sort of are where you'll be sort of 1, 3, 5 years from now in terms of the policies and prices?

I think we feel good about the recent changes we made in the shipping tables at HSN, which I think is an incentive for customers. However, we're not naïve that over the course of time, we're going to continue to harmonize and look at what is going to make us more competitive, and I think it's the landscape we're dealing with, but we feel that this recent change will be positive.

Okay. Thank you.

Thank you. And our next question comes from Anthony Lebiedzinski of Sidoti. Your line is now open. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Good morning and thank you for taking the question. So as far as the issues that you have with your distribution center, I appreciate that you quantified that $10 million to $15 million, so if you could just clarify, is that mostly going to be cost of goods sold and then to a lesser extent, higher SG&A for the incremental labor?

Hi, Anthony. Yes. It is a combination of expedited shipping and labor which does hit our gross profit line as well as in incremental labor and customer credits and appeasements. Right now, we don't have it broken out between what that is. This is a very large range that we have just identified at this point in time. We will, as we get further into dissecting it, where we'll be able to tell you exactly what lines that would hit. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Okay. And will this be all in the fourth quarter or could some of this spill over to the first quarter of next year?

Yeah. Right now, we believe that it's going to be localized into Q4. There could be some spillover impact into Q1. And right now, we're just in the middle of finalizing our strategies and course correcting. So, let's say it's our goal to make sure it's only in Q4. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Got it. Okay. And then also as part of your cost decreases that you have done, I know some of that is because of lower catalog circulation. Some of that is also lower incentive compensation and so on. So kind of going forward, how much of these decreases are kind of more permanent in nature and how much are more variable?

Yeah. Most of the cost reductions so far have been more of a permanent nature with the exception of course incentive compensation. We would like that to increase in the future. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Sure.

But we've really balanced it throughout. We want to make sure that we're not starving the business from a growth potential. So, we are looking into other areas to say how we've pulled back too much, say for instance, on circulation. Are there key areas that we should be looking at reinvesting in? Should we be reinvesting more in some digital marketing? So, we're constantly making that balance between all of our costs. Anthony C. Lebiedzinski - Sidoti & Co. LLC: Great. Thank you.

Thank you. And our next question comes from Barton Crockett of FBR Capital Markets. Your line is now open. Barton Crockett - FBR Capital Markets & Co.: Okay. Great. Thanks for taking the question. I was curious about the trajectory of the top-line trends, if we could get a little bit more color on what happened intra-quarter and what's happening so far this quarter if you're able to give us any color. It looks like things were flattish or maybe up a little bit in July and then went pretty steeply south in August and September. And I was wondering if you could quantify what August and September looks like in terms of the year-over-year trend in the TV shopping segment and if you're seeing any abatement or any change in that trend so far in the fourth quarter.

So, Bart, as you know, when we talked last quarter and we gave a tiny bit of color because people understand our July is unique compared to other retailers, so we were somewhat more positive. But to your point, we did see deceleration in August and September more than we had anticipated based on the environment and, actually, as you can see, although digital sales remained strong, we definitely saw some shifts. So having said that, I'm just kind of loathe to talk about any particular month and I'll just say, as I've said earlier, we feel good about what we have in place for the fourth quarter and our focus and obviously are prepared going into the peak holiday season with best products, best offers, and the light marketing investments to drive the business. Barton Crockett - FBR Capital Markets & Co.: Okay. I mean, if I could just follow up a little bit, do you see specific trends in your business so far in the fourth quarter that give you some optimism that the top line trajectory should look better in TV shopping?

Well, I don't think it's "TV shopping". I think that we live in a much broader landscape. And clearly, what I articulated is things that we're doing in the fourth quarter and what we're seeing. And a lot happens as you know. So, am I going in, thinking we're in the right place and doing the right things, yes. Barton Crockett - FBR Capital Markets & Co.: Okay. And then if I could just clarify one other thing here, you mentioned Piney Flats as an issue in the fourth quarter. Was that an issue in the third quarter at all or was it really just a fourth quarter situation?

It's fourth quarter. Barton Crockett - FBR Capital Markets & Co.: Okay. Great. Thank you very much.

Thank you. And our next question comes from Heather Balsky of Bank of America. Your line is now open.

Hi. Thank you for taking my call. I was hoping you could just speak to your inventory composition at HSN, how you're planning given the challenging environment and your ability to chase, if sales are better than expected.

Actually, I feel good about where we are in inventory. As we had said on the last call, we had a real focus on making sure that we had the right inventory and that we were going to manage into that, in areas such as apparel or jewelry or any other home businesses. So as you can see, we don't feel that we're in a bad place at all on the inventory side of the business.

Great. And if sales are better than you expect, do you have ability to chase sales?

Yeah. One of the great things about this business is the flexibility that we have, particularly in certain categories. So, we will obviously, as we've done in quarters in the past, maximize as effectively as we can. We have great partners who are willing to certainly work with us to support being able to maximize the business as well.

Great. Thanks.

Thank you. And our next question comes from Alex Fuhrman of Craig-Hallum. Your line is now open.

Great. Thank you for taking my question here. Definitely you guys have made quite a bit of progress on reducing some of your fixed expenses. Heading into the key holiday season here, have you guys – where do you guys stand, I guess, in terms of making all of your part-time and seasonal hires that you'll need for your distribution center? Do you feel pretty good that you can continue to show progress on expenses with that in mind for the fourth quarter? And then just as an unrelated follow-up, obviously, the election's been a headwind for all of the TV shopping companies out there. Historically, when you look for, 8, 12 years ago, how long does it normally take for things to start to bounce back? Is that something that we might start to see as early as Wednesday or Thursday, or are people pretty much going to be consumed with the post-election coverage for a week or two? Just trying to get a sense of when that has normally turned around in the past.

Yeah. What I have found is that uncertainty in general is an anathema to retail, so, not that there will be certainty no matter what happens. But I do think that there will at least be finality especially going into the fourth quarter. So, I'm hoping that that will abate, which is kind of what we have actually seen in the past. Now, has it turned the switch? I can't tell you that, but I do think that having this behind us across retail will be a good thing.

Yeah. I think certainly this election year has been somewhat unique. So, having said that, that remains to be seen and then what happens in the media. In terms of your question on the labor, at our other facilities, we are fully staffed. Obviously, it's related to the Piney Flats situation that we are increasing our labor there to be able to have that throughput. We're holding job fairs, et cetera. At this point in time, we don't see an issue with that, but that is definitely one of the things that we're having incremental cost related to our issue there.

All right. Thank you very much.

Thank you. And our next question comes from Matthew Harrigan of Wunderlich Securities. Your line is now open.

Thank you. I was curious on the Chief Merchandising Officer position. I mean, there's sort of a glamorous, McKinsey-like brand-building side to it. Then, there's sort of the filings basement, what's going to be the hot item? You and Bill were kind of functionally doing that along people in your verticals. I mean what did you learn from the experience? And then, I guess, secondly, with Carmen Bauza, how desirable do you see the Walmart experience in terms of the demographics of the customer over there and their marketing rep relative to yours? Thanks.

Great question. We are thrilled to have Carmen join the company. As you know, this was a very important position for us to fill. We were not going to compromise, and we were looking for very, very specific qualifications. And to your point, we were looking for the quantitative and qualitative side of someone, someone who had deep strength and understanding of strategy but also the creative muscle to not just manage our team but work across the team and interfaced with all our external constituencies, which as you can imagine, are very, very diverse. I think the combination of her years with The Walt Disney Company or years with L Brands, particularly at Bath & Body, and then her experience at Walmart, really gave her the diversity of consumer segments, product development, strategic segmentation of businesses and actually even if you look at a number of the things she did at Walmart, for example, elevated the entire beauty business. Another thing that we felt was very strong was her real knowledge of the health and wellness category, which is a big focus for us going forward. And in terms of – I obviously did that job including a number of other roles and Bill and I to your point have been in there. And I really think that this role has to be able to in a way be a big orchestra leader across a lot of different categories to be able to drive collaboration, to be able to understand the idea of programming, marry to product, marry to planning. So, I think to have found someone who has that sort of scope and skills are really going to have a great impact on the business and talks to the perspective that this is a big growth opportunity.

Thanks, Mindy.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Ms. Grossman for closing remarks.

Well, thank you, everyone. We look forward to talking to you soon and having a great holiday season. Thank you.

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