ShopNBC (VVTV) Q2 Net Sales Rise 6% to $126.2 Million and Adjusted EBITDA Loss Reduced

ShopNBC (NASDAQ:VVTV – News), the premium lifestyle brand in multi-media retailing, today announced improved financial results for its fiscal second quarter ended July 31, 2010. The company will host a conference call to review its results today at 11:00 a.m. ET; details below.

 
SUMMARY RESULTS AND KEY OPERATING METRICS
($ Millions, except average price points)

                            Q2                            YTD
               For the three months ending     For the six months ending
              -----------------------------  -----------------------------
              7/31/2010  8/1/2009   Change   7/31/2010  8/1/2009   Change
              ---------  ---------  -------  ---------  ---------  -------
Net Sales     $   126.2  $   119.3      5.7% $   251.2  $   253.1     -0.8%
EBITDA        $    (1.9) $    (5.7)    66.1% $    (6.2) $   (12.5)    50.2%
as adjusted
Net Loss      $    (7.7) $    (8.2)     6.6% $   (18.7) $   (20.2)     7.8%

Homes            75,571     73,410      2.9%    75,715     73,183      3.5%
(Average 000s)
Net Shipped       1,195        980     21.9%     2,273      1,857     22.4%
 Units (000s)
Average Price $      97  $     112    -13.2% $     103  $     127    -19.2%

Return Rate %      20.6%      21.8% -120bps       19.9%      21.7% -180bps
Gross Margin %     37.4%      34.8% 260 bps       37.0%      33.1% 390 bps
Internet Net       39.4%      30.8% 860 bps       39.5%      30.4% 910 bps
Sales %
New Customers   573,545    411,029     39.5%       N/A        N/A
 12 month
 rolling
Active
 Customers    1,089,682    861,080     26.5%       N/A        N/A
 12 month
 rolling

“We are pleased with our second quarter progress, reflecting another consecutive quarter of overall improved performance,” said Keith Stewart, CEO of ShopNBC. “Positive customer activity trends and strong gross margin rates, along with disciplined execution in merchandising and financial planning, helped drive the business on the top- and bottom-line. Going forward, we recognize there is still much work to be done. We continue to prudently manage our working capital while focusing on increasing the top line through improved merchandising strategies, aligning price points with consumer demand, and refining our customer outreach initiatives during the second half of the year.”

Second Quarter 2010 Results

Second quarter revenues rose 5.7% to $126.2 million vs. Q2 of last year. As part of its on-going strategic initiatives, the company further lowered its net average selling price to $97 from $112 in the year-ago quarter, while increasing net shipped units by 22%. E-commerce sales penetration represented 39.4% of total company sales in the quarter, up 860 basis points from the prior-year period.

Customer trends continued to improve with new and active customers increasing 39.5% and 26.5%, respectively, on a 12-month rolling basis vs. same period last year. Return rates for the quarter declined to 20.6% vs. 21.8% in the year-ago quarter, reflecting improvements in overall customer satisfaction and the benefit of strategic pricing changes.

Gross profit increased 13% to $47.2 million and gross profit margin improved 260 basis points to 37.4% vs. 34.8% last year, largely driven by merchandise margin rate improvements across several key categories.

Adjusted EBITDA was a loss of ($1.9) million compared to an Adjusted EBITDA loss of ($5.7) million in the year-ago period, driven by improvements in sales and gross margin.

Operating expenses in the second quarter increased approximately 2% to $53.4 million, as a result of the company’s net sales growth.

Net loss for the second quarter declined to ($7.7) million compared to a net loss of ($8.2) million for the same quarter last year.

Liquidity and Capital Resources

Second quarter cash and cash equivalents balance ended at $22.9 million, including $5.0 million of restricted cash. The cash and cash equivalents balance declined $3.0 million from Q1 driven by increased capital expenditures to support the company’s sales growth. On a year-to-date basis, cash and cash equivalents has increased by $0.9 million. Additionally, the company currently has up to $20 million available to it under a 3-year revolving credit facility, of which $12 million of such availability is subject to meeting certain future financial objectives to finance working capital investment and fund other company growth initiatives. To date, the company has no outstanding borrowings on the facility.

Management Update

The company recently announced the appointment of Mr. William J. McGrath as Senior Vice President and Chief Financial Officer of ShopNBC. Mr. McGrath has over 20 years of multi-channel industry expertise as well as global operations and financial leadership experience. Prior to joining ShopNBC, Mr. McGrath served as Vice President Global Sourcing Operations and Finance at QVC.

In addition, the company today announced that Ms. Kris Kulesza, Senior Vice President of Merchandising, is leaving the company effective August 20 to pursue other interests. The company currently does not plan to fill this position, and instead will spread the responsibilities across its current team of seasoned multi-channel executives.

The company also recently appointed multi-channel retailing veterans Stephanie Juaire as Director of Consumer Electronics, and Tom Long as Director of Quality Assurance in the second quarter. Ms. Juaire brings 14 years of consumer electronics experience to the company, previously having held merchandising and business development roles at Imation, ShopKo, Circuit City, and Best Buy. Mr. Long brings 25 years of industry experience to ShopNBC, having held a variety of distribution and manufacturing leadership roles at QVC, Bentley-Harrison Manufacturing, and Kiwi Brands.

Conference Call Information

To participate in the conference call at 11:00 a.m. ET, please dial 1-800-369-2063 (pass code: 7467622; keypad: SHOPNBC) five to ten minutes prior to the call time. If you are unable to participate live in the conference call, a replay will be available for 30 days. To access the replay, please dial 1-800-294-7483 with pass code 81810.

You also may participate via live audio stream by logging on to https://e-meetings.verizonbusiness.com. To access the audio stream, please use conference number 3811097 with pass code: SHOPNBC. A rebroadcast of the audio stream will be available using the same access information for 30 days after the initial broadcast.

About ShopNBC

ShopNBC is a multi-media retailer operating with a premium lifestyle brand. Over 1 million customers benefit from ShopNBC as an authority and destination in the categories of home, electronics, beauty, health, fitness, fashion, jewelry and watches. As part of the company’s “ShopNBC Anywhere” initiative, customers can interact and shop via cable and satellite TV in 76 million homes (DISH Network channels 134 and 228; DIRECTV channel 316); mobile devices including iPhone, BlackBerry and Droid; online at www.ShopNBC.com live streaming at www.ShopNBC.TV and social networking sites Facebook, Twitter and YouTube. ShopNBC is owned and operated by ValueVision Media (NASDAQ:VVTV – News). For more information, please visit www.ShopNBC.com/IR.

EBITDA and EBITDA, as adjusted

EBITDA represents net loss for the respective periods excluding depreciation and amortization expense, interest income (expense) and income taxes. The company defines Adjusted EBITDA as EBITDA excluding non-operating gains (losses); non-cash impairment charges and write-downs; restructuring and chief executive officer transition costs; and non-cash share-based compensation expense. The company has included the term “Adjusted EBITDA” in our EBITDA reconciliation in order to adequately assess the operating performance of our “core” television and internet businesses and in order to maintain comparability to our analyst’s coverage and financial guidance, when given. Management believes that Adjusted EBITDA allows investors to make a more meaningful comparison between our core business operating results over different periods of time with those of other similar companies. In addition, management uses Adjusted EBITDA as a metric measure to evaluate operating performance under its management and executive incentive compensation programs. Adjusted EBITDA should not be construed as an alternative to operating income (loss) or to cash flows from operating activities as determined in accordance with generally accepted accounting principles and should not be construed as a measure of liquidity. Adjusted EBITDA may not be comparable to similarly entitled measures reported by other companies.

Forward-Looking Information

This release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): consumer spending and debt levels; interest rates; competitive pressures on sales, pricing and gross profit margins; the level of cable and satellite distribution for the company’s programming and the fees associated therewith; the success of the company’s e-commerce and new sales initiatives; the success of its strategic alliances and relationships; the ability of the company to manage its operating expenses successfully; the ability of the Company to establish and maintain acceptable commercial terms with third party vendors and other third parties with whom the Company has contractual relationships; changes in governmental or regulatory requirements; litigation or governmental proceedings affecting the company’s operations; and the ability of the company to obtain and retain key executives and employees. More detailed information about those factors is set forth in the company’s filings with the Securities and Exchange Commission, including the company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The company is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

 
                          VALUEVISION MEDIA, INC.
                             AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS
              (In thousands except share and per share data)

                                                   July 31,    January 30,
                                                     2010         2010
                                                  -----------  -----------
                                                  (Unaudited)

                             ASSETS
Current assets:
   Cash and cash equivalents                      $    17,952  $    17,000
   Restricted cash and investments                      4,961        5,060
   Accounts receivable, net                            52,382       68,891
   Inventories                                         47,156       44,077
   Prepaid expenses and other                           4,545        4,333
                                                  -----------  -----------
     Total current assets                             126,996      139,361
Property and equipment, net                            27,443       28,342
FCC broadcasting license                               23,111       23,111
NBC Trademark License Agreement, net                    2,541        4,154
Other Assets                                            1,262        1,246
                                                  -----------  -----------
                                                  $   181,353  $   196,214
                                                  ===========  ===========

           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable                               $    50,695  $    58,777
   Accrued liabilities                                 38,591       26,487
   Deferred revenue                                       728          728
                                                  -----------  -----------
     Total current liabilities                         90,014       85,992

Deferred revenue                                          789        1,153
Long Term Payable                                           -        4,841
Accrued Dividends - Series B Preferred Stock            7,454        4,681
Series B Mandatorily Redeemable Preferred Stock        11,954       11,243
   $.01 par value, 4,929,266 shares authorized;
    4,929,266 shares issued and outstanding
                                                  -----------  -----------
     Total liabilities                                110,211      107,910

Commitments and Contingencies

Shareholders' equity:
   Common stock, $.01 par value, 100,000,000
    shares authorized; 32,726,077 and 32,672,735
    shares issued and outstanding                         327          327
   Warrants to purchase 6,022,115 shares of
    common stock                                          637          637
   Additional paid-in capital                         318,223      316,721
   Accumulated deficit                               (248,045)    (229,381)
                                                  -----------  -----------
     Total shareholders' equity                        71,142       88,304
                                                  -----------  -----------
                                                  $   181,353  $   196,214
                                                  ===========  ===========

                          VALUEVISION MEDIA, INC.
                             AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
             (In thousands, except share and per share data)
                               (Unaudited)

                              For the Three Month     For the Six Month
                                 Periods Ended          Periods Ended
                            ----------------------  ----------------------

                             July 31,    August 1,   July 31,    August 1,
                               2010        2009        2010        2009
                            ----------  ----------  ----------  ----------
Net sales                   $  126,177  $  119,345  $  251,154  $  253,147
Cost of sales                   79,021      77,785     158,261     169,398
  (exclusive of depreciation
   and amortization shown
   below)
Operating expense:
  Distribution and selling      45,021      43,885      91,063      89,124
  General and
   administrative                4,795       4,309       9,562       8,936
  Depreciation and
   amortization                  3,527       3,427       7,218       7,216
  Restructuring costs               50         485         426         589
  CEO transition costs               -         223           -         300
                            ----------  ----------  ----------  ----------
    Total operating expense     53,393      52,329     108,269     106,165
                            ----------  ----------  ----------  ----------
Operating loss                  (6,237)    (10,769)    (15,376)    (22,416)
                            ----------  ----------  ----------  ----------
Other income (expense):
  Interest income                    9         146          51         363
  Interest expense              (2,095)     (1,235)     (3,945)     (1,978)
  Gain on sale of
   investments                       -       3,628           -       3,628
                            ----------  ----------  ----------  ----------
   Total other income
    (expense)                   (2,086)      2,539      (3,894)      2,013
                            ----------  ----------  ----------  ----------
Loss before income taxes        (8,323)     (8,230)    (19,270)    (20,403)
Income tax (provision)
 benefit                           630          (5)        606         157
                            ----------  ----------  ----------  ----------

Net loss                        (7,693)     (8,235)    (18,664)    (20,246)

Excess of preferred stock
 carrying value over
 redemption value                    -           -           -      27,362

Accretion of redeemable
 Series A preferred stock            -           -           -         (62)
                            ----------  ----------  ----------  ----------
Net income (loss) available
 to common shareholders     $   (7,693) $   (8,235) $  (18,664) $    7,054
                            ==========  ==========  ==========  ==========

Net income (loss) per
 common share               $    (0.24) $    (0.26) $    (0.57) $     0.22
                            ==========  ==========  ==========  ==========

Net income (loss) per
 common share
 ---assuming dilution       $    (0.24) $    (0.26) $    (0.57) $     0.21
                            ==========  ==========  ==========  ==========

Weighted average number of
 common shares outstanding:
     Basic                  32,703,164  32,272,841  32,691,334  32,688,289
                            ==========  ==========  ==========  ==========
     Diluted                32,703,164  32,272,841  32,691,334  33,391,279
                            ==========  ==========  ==========  ==========

                          VALUEVISION MEDIA, INC.
                             AND SUBSIDIARIES

            Reconciliation of EBITDA, as adjusted, to Net Loss:

                                 For the Three Month    For the Six Month
                                    Periods Ended         Periods Ended
                                --------------------  --------------------

                                July 31,   August 1,  July 31,   August 1,
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------

EBITDA, as adjusted (000's)     $  (1,943) $  (5,733) $  (6,234) $ (12,521)
Less:
     Non-operating gain on sale
      of investments                    -      3,628          -      3,628
     Restructuring costs              (50)      (485)      (426)      (589)
     CEO transition costs               -       (223)         -       (300)
     Non-cash share-based
      compensation                   (717)      (901)    (1,498)    (1,790)
                                ---------  ---------  ---------  ---------
EBITDA (as defined) (a)            (2,710)    (3,714)    (8,158)   (11,572)
                                ---------  ---------  ---------  ---------

A reconciliation of EBITDA to
 net loss is as follows:

EBITDA, as defined                 (2,710)    (3,714)    (8,158)   (11,572)
Adjustments:
Depreciation and amortization      (3,527)    (3,427)    (7,218)    (7,216)
Interest income                         9        146         51        363
Interest expense                   (2,095)    (1,235)    (3,945)    (1,978)
Income taxes                          630         (5)       606        157
                                ---------  ---------  ---------  ---------
     Net loss                   $  (7,693) $  (8,235) $ (18,664) $ (20,246)
                                =========  =========  =========  =========

(a) EBITDA as defined for this statistical presentation represents net income (loss) for the respective periods excluding depreciation and amortization expense, interest income (expense) and income taxes. The Company defines EBITDA, as adjusted, as EBITDA excluding non-operating gains (losses); non-cash impairment charges and writedowns, restructuring and CEO transition costs; and non-cash share-based compensation expense.

Management has included the term EBITDA, as adjusted, in its EBITDA reconciliation in order to adequately assess the operating performance of the Company’s “core” television and Internet businesses and in order to maintain comparability to its analyst’s coverage and financial guidance when given. Management believes that EBITDA, as adjusted, allows investors to make a more meaningful comparison between our core business operating results over different periods of time with those of other similar companies. In addition, management uses EBITDA, as adjusted, as a metric measure to evaluate operating performance under its management and executive incentive compensation programs. EBITDA, as adjusted, should not be construed as an alternative to operating income (loss) or to cash flows from operating activities as determined in accordance with GAAP and should not be construed as a measure of liquidity. EBITDA, as adjusted, may not be comparable to similarly entitled measures reported by other companies.