Shop At Home Reports Third Quarter 2001 Results; Company Reports Net Income of $19.7 Million
NASHVILLE, Tenn.--(BUSINESS WIRE)--May 15, 2001--Shop At Home, Inc. (Nasdaq:SATH), an electronic commerce leader in both the broadcast and Internet channels, today, reported third quarter revenue of $50.4 million, an 8% increase from second quarter revenue of $46.5 million, and net income of $19.7 million. The Company reported net income available for common shareholders of $17.0 million or $0.43 per share.
Recent Developments
On April 19, 2001, the Company undertook a major re-launch of its website and marketing efforts. Consistent with the Company's strategy to blend and converge its two platforms, it launched shopathometv.com(SM), which replaced the previous website, collectibles.com(SM). The updated site underwent a complete redesign on both the back and front ends to enable enhanced live video streaming at near TV quality, increased speed and more sophisticated navigation.
On May 4, 2001 the Company's Board of Directors voted to terminate the employment of its President and Chief Executive Officer, Kent E. Lillie, effective immediately, and is currently negotiating his severance compensation pursuant to his employment agreement.
On March 20, 2001 the Company sold its Houston Television Station KZJL for $57.0 million. In addition to the cash received, the Company retained rights to 50% of any profits from any sale of the station's Channel 59 - 69 spectrum.
On March 30, 2001 the Company redeemed 584 shares of its Series B Convertible Preferred Stock, which represented all remaining shares for $6.4 million in cash, including dividends. Of the original 2,000 shares issued on June 30, 2000, half were redeemed for cash and the other half were converted into common stock.
Three months ended March 31, 2001 vs. three months ended March 31, 2000
Net Revenues. The Company's revenues for the quarter ended March 31, 2001, were $50.4 million, a decrease of 9.8% from revenues of $55.9 million for the same quarter in 2000. The core business of the broadcast network accounted for 91.3% of revenues. The remaining 8.7% resulted from $4.4 million in revenue from the Company's website through sale of merchandise on the Internet. The decrease in net revenues is primarily due to reduced sales of certain key merchandise categories, including electronics and coins. The Company believes that the general retail market remained soft for the quarter.
Cost of Goods Sold. Cost of goods sold represents the purchase price of merchandise and related shipping charges. For the quarter ended March 31, 2001, the cost of goods sold was $36.3 million and, as a percentage of net revenues, increased to 72.0% from 66.8% in the comparable 2000 period. The increase in cost of goods sold was primarily related to the liquidation of and reserving for slow moving and aged inventory, principally jewelry. The Company sold approximately $1.0 million of aged inventory at slightly above cost and reserved another $2.1 million against the remaining slow moving merchandise. The increased reserve was prompted by two factors: first, management's perception that retail demand for discretionary items such as higher priced jewelry was weakening without near-term prospects of improvement, and second, the Company's inability to develop alternative channels for the disposition of aged inventory other than at deep discounts to cost. To minimize future write-downs, the Company is tightening its inventory management procedures and strengthening its ability to return merchandise to its suppliers for full cash credit.
Salaries and Wages. Salaries and wages for the quarter ended March 31, 2001 were $6.7 million, an increase of 57.4% or $2.5 million over the comparable 2000 quarter. Salaries and wages, as a percent of revenues, increased to 13.4% in the 2001 period compared to 7.7% in the 2000 period. The increase is primarily due to the accrual of $2.3 million in compensation to the Company's former Chief Executive Officer related to the sale of KZJL in Houston.
Transponder and Affiliate Charges; Advertising. Transponder and affiliate charges for the quarter ended March 31, 2001 were $8.3 million, a decrease of $0.1 million from the March 2000 quarter. During the same period advertising, which is primarily paid to affiliates as part of their carriage agreement, rose to $1.5 million from $0.7 million for the quarter ended March 31, 2000. Total transponder, affiliate and advertising expense rose to $9.9 million from $9.1 million or 8.6%. During the same period, average FTE Households grew 14.7%, from 23.1 million to 26.5 million.
General and Administrative. Other general, operating and administrative expenses for the quarter ended March 31, 2001 were $6.4 million, a increase of $0.9 million or 16.9% versus the comparable March 2000 quarter. The increase was due to $1.1 million in additional provision for bad debt, offset by a variety of cost reduction improvements implemented this year. The increased bad debt reserve reflects management's view that credit card collections are becoming more difficult as consumer indebtedness increases and the economy weakens. In response, the Company has reduced the percentage of its sales with extended payment terms and tightened its collection procedures.
Depreciation and Amortization. Depreciation and amortization for the quarter ended March 31, 2001 were $4.6 million, an increase of $1.9 million or 70.4% over the comparable March 2000 quarter, due primarily to the installation of an enterprise wide information system, the launch of the Company's website and a $1.1 million increase in depreciation expense related to the reduction of depreciable lives of certain computer hardware and software from five years to three years to better reflect the expected utility of these assets. This change in estimate is being recognized prospectively effective January 1, 2001.
Interest. Interest expense of $3.6 million increased by $1.1 million or 42.5% over the comparable period in 2000. The increase is primarily due to interest associated with a higher level of bank debt during most of the period.
Other Income. Other income is the net gain from the sale of the Houston television station. The station sold for $57.0 million less $6.8 million for the book value of the fixed assets and license and $1.3 million in closing costs.
Liquidity and Capital Resources
As of March 31, 2001, the Company had total current assets of $54.9 million and total current liabilities of $28.9 million, resulting in a positive working capital position of $26.0 million. This represents a $9.2 million increase from the working capital position at the end of the prior year. The increase resulted primarily from $57.0 million of proceeds from the sale of KZJL, the Company's Houston television station. The Company used $20.0 million of the proceeds to repay in full its bank facility.
Approximately 90% of Shop at Home's receipts are customer credit card charges. During the quarter ended March 31, 2001, the Company provided "stretch pay" terms for 26.1% of its revenue. "Stretch pay" terms allow the customer to pay for the Company's merchandise in two or three monthly credit card installments. In addition, the Company's private label credit card program accounted for 12.9% of revenues. The program is funded by a financial institution to reduce the Company's stretch pay receivables and bad debt.
The Company is highly leveraged. The Company believes that it has sufficient working capital to fund the continuing turnaround of operations as well as reinvesting in its core business.
Shop At Home ended the quarter with $31.8 million in cash.
Conference Call and Webcast
As noted in the Company's May 11, 2001 press release, a conference call to discuss Fiscal Year 2001 3rd Quarter Earnings will be held at 10:30 a.m. CST on May 16, 2001. A live, listen-only broadcast of the call will be available for 90 days on the Company's website at www.shopathometv.com or by dial-in instant replay at 402/998-0660. The dial-in instant replay will be available beginning two hours after the completion of the conference call until May 23, 2001. |
