Felise Glantz Kissell - Vice President, Investor Relations Judy Schmeling - Chief Operating Officer & Chief Financial Officer Mindy Grossman - Chief Executive Officer & Director

Neely J. N.

Tamminga - Piper Jaffray & Co (Broker) Eric J. Sheridan - UBS Securities LLC Alex Joseph Fuhrman - Craig-Hallum Capital Group LLC Bart E.

Crockett - FBR Capital Markets & Co. Matthew J.

Harrigan - Wunderlich Securities, Inc. Victor Anthony - Axiom Capital Management, Inc.

Good morning, 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 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. I would now like to turn the call over to Judy Schmeling, HSNi's COO and CFO.

Judy?

Thanks, Felise, and good morning, everyone. On the earnings call, we articulated that the first quarter would be impacted by a challenging retail environment and a repositioning of certain merchandising categories and brands.

As we focused on our merchandising initiatives to drive top line growth, we continued to aggressively manage our cost. At HSNi, sales were down 3% with digital sales increasing 3%, comping 8% sales growth and 12% digital sales growth in the prior year.

Our gross profit rate was down 30 basis points to last year and operating expenses excluding non-cash charges declined $3 million or approximately 1.5%. Adjusted earnings per share was $0.54 compared to $0.63 a year ago.

At HSN, sales decreased 4% to $578 million following sales growth of 10% last year. Sales grew in electronics, wellness, and culinary, offset by sales decline in categories such as fitness and jewelry.

Digital sales grew 4% with digital penetration increasing 310 basis points to 44%. HSN's return rate improved 90 basis points with units shipped unchanged and average price point down 5% primarily driven by product mix.

We deliberately wound down our Keith Urban infomercial in the first quarter, an area we always viewed as opportunistic, and this impacted our sales decline by 2%. We continued our replenishment of the Ingenious Designs products associated with the Joy Mangano brand into other retail outlets.

The sales from this wholesale expansion contributed less than 1% to our sales performance as the majority of these sales were recognized in the fourth quarter of 2015. Gross profit decreased 4% at HSN to $199 million with gross profit margin down 10 basis points to 34.5% primarily due to an increase in shipping promotions and changes in product mix offset by lower procurement costs.

Operating expenses excluding non-cash charges decreased 2% to $139 million. This improvement was primarily from lower compensation expense and decreased marketing expense associated with our Keith Urban infomercial offset by increased advertising costs for the Ingenious Designs wholesale business that I just mentioned and higher distribution costs largely associated with additional carriage for HSN2.

HSN's adjusted EBITDA decreased 8% in the first quarter to $61 million. Excluding the impact of the Keith Urban infomercial, HSN's adjusted EBITDA would have decreased 4%.

Turning now to Cornerstone. Sales were down 1% to $238 million with digital sales up 2%.

We had sales growth in the home brands with the exception of Ballard Designs. Garnet Hill continues to execute its merchandising strategy, resulting in solid sales growth, while the remaining apparel brands had a sales decline in the quarter which included a reduction in circulation.

Gross profit at Cornerstone decreased 3% to $90 million. Gross profit margin decreased 60 basis points to 37.8% largely from increased promotional activity particularly in the home brands.

We continue to see strong commercial activity in the external home marketplace. As part of our focus to continuously review our organizational structure to ensure we effectively align our investment in talent with our greatest growth opportunities, similar to HSN last quarter, we consolidated resources in several areas within the Cornerstone portfolio.

We expect these actions to reduce annual operating expenses by $3 million going forward as we eliminated approximately 35 positions. At HSNi, these combined efficiency efforts result in annual expense savings of approximately $12 million.

Operating expenses excluding non-cash charges decreased 1% to $85 million, primarily reflecting lower catalog costs as we tightly managed circulation with sales demand. We did incur severance-related costs associated with the organizational changes that I just mentioned.

Cornerstone's performance resulted in adjusted EBITDA of $5 million, a decrease of $2 million from the prior year. The first quarter normally represents the lowest sales and EBITDA quarter for the business with the important outdoor season immediately ahead.

At HSNi, our first quarter effective tax rate was 37%, consistent with the prior year. Our annual effective tax rate for 2016 is estimated to be approximately 37%.

In the first quarter, we repurchased approximately 181,000 shares and more than 1.1 million shares since inception of our share repurchase program initiated early last year, with 2.9 million shares remaining under our existing share repurchase authorization. Additionally, our board just approved a quarterly cash dividend of $0.35 per share payable June 15 to shareholders of record as of June 1.

As I mentioned on the last call, we are carrying some excess inventory in certain brands and categories that could impact margins in the immediate term as we continue to work our way through this merchandise. Where applicable, we will be implementing pricing and promotional strategies to stimulate demand as well as tightly manage inventory levels.

We continue to diligently manage our operating expenses through ongoing talent realignment and strategic initiatives such as our supply chain automation project which is scheduled to have a soft launch later this quarter. We believe this project will save us $5 million to $10 million this year and approximately $20 million on an annual basis.

In summary, we don't underestimate the immediate work ahead of us in this challenging retail environment with improving our top line performance as our top priority. We are focused on driving profitable growth, expanding our digital presence, and strategically investing in the business to offer a compelling customer experience.

Mindy will now discuss our strategic initiatives to drive sales growth in more detail.

Thank you, Judy, and good morning, everyone. At HSNi, we remain focused on the fundamentals of the business that have contributed to our success while implementing growth strategies that capitalize on our differentiated position in retail commerce.

As we can all appreciate, the year began with some extreme volatility in retail as the climate continued from 2015. The first quarter materialized as we expected and had communicated on our last earnings call.

We are navigating through this environment and deploying strategic changes to strengthen our business. We believe these actions will build momentum in the business, particularly in the back half of this year.

Digital, now representing over half of our sales, remains a key area of strategic focus as we pursue opportunities to optimize our content across multiple distributed commerce platforms. Digital sales increase 3% in the first quarter with penetration increasing 290 basis points.

Mobile continues to be our fastest-growing channel with sales growth of 15% now reflecting 21% of our total business and 41% of digital sales. We remain committed to returning the business to the growth trajectory that we expect and have historically executed.

We will accomplish this by focusing on our core principles including expanding our innovative product pipeline, leveraging our proprietary content, forging exclusive partnerships, and developing new channels of distribution. At HSN, we are making progress in reinvigorating certain merchandising categories and further expanding our programming to drive content and engagement.

In the quarter, our sales decreased 4% with our Keith Urban direct-response business, an area we always identified as opportunistic, representing half of that decline. In today's retail environment, it is even more critical that our product assortment be highly compelling and differentiated to attract and retain customers.

We continue to see best customer growth, although our 12 month active customer file was down slightly due to the wind down of our Keith Urban direct-response business and a strategic reduction in airtime as we reposition the home, fitness, infomercial categories. In electronics, our growth was fueled by our strategy of focusing on key partnerships including Samsung, LG, Dell, and Bose, capitalizing on events and expanding our product assortment, particularly in digital.

We devoted additional airtime to leverage our performance while we replenished the product pipeline in certain key areas of the business, including home and jewelry. The growth in our wellness category was driven by our nutritional supplement expert Andrew Lessman.

During the quarter, we expanded our product assortment and engaged customers through enhanced digital experience with relevant video and written content, including a micro site that allows customers to locate vitamins and supplements that fit their needs and lifestyle. Culinary sales were up led by chef brands, particularly Ming Tsai, as we partnered with DreamWorks to develop a unique assortment of products in conjunction with the launch of the film, Kung Fu Panda 3.

Chef Ming is actually a character in the movie, bringing a new level of excitement and integration to our entertainment strategies. The infomercial category, specifically the NutriBullet business, was down along with the airtime as new introductions could not replicate last year's significant volumes.

Fitness is a category where consumers have made a significant shift from larger stay-at-home equipment such as treadmills and ellipticals to community workouts along with a migration to wearables and social sharing of their fitness activities. We recently made organizational changes to reflect these shifts in consumer behavior and strengthen our ability to maximize product integration.

Jewelry was down in the quarter but driven by a reduction in airtime as we continue to refine our assortment. We are having success in fine jewelry, particularly in gold, diamonds, and pearls as well as in our elevated fashion collection.

I'm pleased to say that given the progress we have made against our new strategy, over the course of the year, we will be reinvesting in airtime against these key businesses including the successful relaunch of our fine jewelry experience on-air just last month in our 24-hour fine jewelry event. In addition, we are extremely excited that veteran jewelry industry executive, Catherine Coquillard, joins the team as Senior Vice President of Jewelry at the end of the first quarter.

Catherine brings more than 20 years of leadership positions within jewelry including Helzberg Diamonds and QVC. We look forward to her meaningful contributions to the business.

We continue to advance our customer analytic capabilities by testing numerous campaigns that have yielded positive results. We will roll out these campaigns more broadly over the course of this year.

As part of our frictionless commerce efforts to remove barriers in the checkout process, we continued to implement new payment strategies to drive customers to HSN, including Visa Checkout. Since launching our partnership with Visa late last year, we've seen strong engagement from our customers, especially new customers, who represent over 40% of our Visa Checkout users.

Digital sales increased 4% after comping 8% growth last year. Nearly all categories experienced digital growth with a penetration up 310 basis points to 44%.

Traffic increase led by mobile with stable conversion rate and average order value. Mobile sales grew 16% over the prior year and now comprised 22% of the overall HSN business and 50% of digital sales.

Going forward, our strategic digital priorities include: enhanced customer personalization, distributed commerce and payment enablement, continued optimization of the digital experience, and creating a 360-degree view of the business to more easily apply our content and programming strategies across platforms. We continue to pursue innovative ways to leverage our strong social media presence.

As part of our distributed commerce strategies, we partnered with Facebook to launch Facebook Live, online broadcast that provides fans with the behind the scenes look at HSN and real-time access to partners. Featured celebrity partners have included Melissa McCarthy, Serena Williams, and Suze Orman.

These broadcasts are outperforming other posts and are increasing brand awareness, engagement, and relevance. In our early debut, Facebook Live broadcasts have already been viewed more than 1 million times and have earned nearly 3.5 million impressions.

We continue to leverage this successful platform including a live performance by Keith Urban last month as well as appearances from other high-profile personalities. In leveraging new channels of distribution and our patented HSN Shop by Remote technology, we have created a strong presence in the over-the-top environment.

We now have transactional channels on Apple TV, Amazon Fire TV, TiVo, Roku, and most of the major smart TV manufacturers. In particular, Roku now carries channels for HSN, HSN2, as well as HSN electronics, building out a channel for a niche product vertical.

While the sales from the OTT environment are currently limited, it positions us well for the future in this rapidly emerging space. Turning to Cornerstone.

We had sales growth in Frontgate, Grandin Road, Improvements, and Garnet Hill offset by sales decline in Chasing Fireflies, TravelSmith, and Ballard Designs. We strategically pulled back circulation in several brands, which contributed to the 1% sales decrease.

In addition to the circulation and head count reductions that Judy mentioned, we are critically reviewing our brands' product assortment and newness, creative direction and value proposition as well as evaluating the brand portfolio. We are making progress and will update you as appropriate.

Digital sales increased 2% in the quarter with digital penetration up 190 basis points to 70% with almost all brands reporting increased digital penetration. Mobile sales grew 10% with mobile now comprising 19% of the overall business and 27% of digital sales.

During the quarter, we continued our focus on making the shopping experience frictionless with a number of site optimizations, including advancing our product configuration and personalization strategies with gift registry and wish list capabilities, enhancing seamless cross-device engagement including the relaunch of the Garnet Hill smartphone site with a new adaptive design platform, and creating new relevant immersive experiences for Frontgate, including Porta Forma and Grandin Road, to showcase their outdoor furnishing collections with enhanced lookbook functionality. We continue to be pleased with the performance of the Ballard Designs studios, who are in King of Prussia.

While early, we have seen increased sales in the region surrounding this destination as well as heightened brand awareness and engagement with elements such as pickup in store and customization. Leveraging the success and learnings from this flagship destination, we'll be opening a new design studio at Tysons Corner outside Washington, D.C.

later this year and are evaluating additional future locations. Across HSNi, we are intensely focused on strengthening the business for sustainable long-term growth.

I want to share some of our immediate initiatives that we are particularly excited about. Our entertainment integration strategy remains a key point of differentiation for HSN.

Later this month, we will be reinforcing this unique position through our sixth movie collaboration with Disney: Alice Through the Looking Glass. The film has inspired our largest ever retail event which will be spanning 73 hours of continual programming and launching curated capsule collections by top designers including famed costume designer Colleen Atwood as well as many others such as Josie Natori, Patricia Underwood, Vince Camuto, Giuliana Rancic, Miranda Kerr and Jeffrey Banks.

We will be featuring more than 300 different products, all exclusive to HSN. HSN is also sponsoring the film's Hollywood premiere which will include a social media scavenger hunt across HSN's platforms that will be shared and promoted by Disney.

HSN is also featured in two movies that were released last month. Mother's Day, starring Julia Roberts, Kate Hudson and Jennifer Aniston, was highlighted on HSN's Monday Night Show and the movie was the title sponsor of HSN Today.

Our very own show host, Adam Freeman, is featured in the film. HSN is also included in Melissa McCarthy's new movie, The Boss.

As you know, Melissa has a successful fashion collection on HSN and, in the film her character appears as a guest selling brownies on HSN. As part of our new partnership with one of the most successful independent labels in music, Big Machine Label Group, GRAMMY Award-winning artists Martina McBride and Jennifer Nettles each performed live on HSN from Nashville last month during two special Big Machine Rocks broadcast events in advance of their latest album releases.

We are leveraging our customers' strong affinity for country music while building on Nashville's current cultural relevancy. We know our customers appreciate these exclusive, intimate live music events which are also a competitive differentiator for HSN.

This is the first time we have signed with one music label to a multi-concert agreement and we are pursuing other opportunities to leverage this new partnership. HSN is increasingly known as an authoritative source for information and value-added services that enhance our customers' lives.

We are intensifying this focus and introducing new experts such as trusted personal finance expert, Suze Orman, and motivational speaker, Tony Robbins. Other experts we are featuring including Paula Froelich, who is Yahoo's (23:14) former travel guru, and Randi Zuckerberg, who will curate the best tech products during our upcoming Innovation Week.

And just last month, we announced a new marketing partnership with Angie's List as we continue to be a compelling platform to reach a highly valued female demographic. At HSN, we are leveraging our 360-degree view to enhance our programming strategies and maximize customer engagement across all channels.

As part of our destination programming, we're building on the success of HSN's monthly Deal Hunter series featuring Tory Johnson, host of Good Morning America's popular Steals and Deals (sic) [Deals and Steals] (23:53). We also just launched Saturday Morning Market with Chef Donatella Arpaia.

This programming features seasonal themes and cooking with products found in farmers markets across the country. We are proud of our American Dreams initiative, which rewards entrepreneurial spirit by helping inventors realize their dreams.

Since recently launching this series, we have received more than 5,000 product ideas and have aired nearly 50 products to-date with many sellouts. This year, we're excited to be partnering with Good Housekeeping to conduct a nationwide search for a new HSN American Dreams entrepreneur who will also receive the Good Housekeeping Seal.

The winner will be featured in the publication and launched on HSN. And as part of this partnership, Good Housekeeping will also be extensively promoting HSN across their platforms.

As I mentioned earlier, we are currently positioning a number of key product categories against our greatest opportunities to drive top line growth. We are rightsizing certain businesses while focusing on developing strategic growth businesses to infuse innovation, variety, and newness in the business.

We are already making progress in the home category by introducing new brands and creating a greater breadth of assortment with exclusive configurations and product launches. Within textiles, we are launching new proprietary brands such as Cottage Collection and Elements.

We are also introducing interior designers Sabrina Soto, Ron Chereskin, and Richard Mishaan, launching a new capsule collection from Samantha Yanks, Editor of Hamptons and Gotham Magazines, and expanding our destination programming with AT Home (25:47), which offers solutions to our customers for specific areas in the home. In electronics, we're focused on our upcoming Innovation Event, one of our most followed technology experiences.

The event will feature Lenovo, the world's largest PC manufacturer, who will be intensifying their partnership with us. We will also be leveraging our success in the emerging category of connected home that will include a monthly programming series.

In apparel and accessories, I am very excited about the product pipeline that we are building and we will continue to capitalize on our successes in proprietary apparel brands and footwear. We're also looking forward to Serena Williams' live appearance from London as she appears for Wimbledon.

Serena's fashion collection is all about her travel necessities including loungewear that is exclusive to HSN. We are developing additional content that will be featured before she competes at the Wimbledon tournament.

And as part of our culture of generosity, last week, we showcased our partnership with Blake Mycoskie, founder of TOMS footwear, and we launched our exclusive partnership with Jessica Seinfeld and her organization GOOD+ Foundation with a sold-out accessories collection that will benefit women and families in need. In culinary, we are partnering with Food Network's highly popular program, Chopped, to feature a curated assortment of cookware, tools, and accessories.

Season Chopped judge and chef, Marc Murphy, will be our on-air guest and we will be collaborating with the Chopped team to seed products into their shows. We continue to strengthen our strategies in beauty as we leverage our prestige brands to drive new customer acquisition.

And building on our identity as a source for expert advice, we are expanding our Dr. Brandt with enhanced storytelling and teaching moments, digital experiences, social media, and meet the expert interaction.

At Frontgate, we're emphasizing our outdoor lifestyle collection with the most important months for this category immediately ahead. Frontgate is extending its relationships with world-renowned designers including Carleton Varney.

Carleton has decorated landmark buildings like The Plaza Hotel in New York and the renowned Greenbrier Resort and consulted on several functions at The White House. He is also a long-term partner of HSN.

Building on its new configurator technology, Ballard Designs is extending its interior design services and customized product offerings. The brand is also launching new collections within its Casa Florentina assortment where every product is custom-built and hand-finished in Italy.

In addition, Ballard welcomes Eddie Ross, well-known guest stylist, author, and current East Coast editor of Better Homes and Gardens, for a summer style series. The brand is also part of two showhouse partnerships: the Traditional Home New Orleans Showhouse and the House Beautiful Kitchen of the Year.

And as I stated previously, we are focused on the upcoming launch of our Tysons Corner design studio. Garnet Hill will continue its seasonal location in Bridgehampton, New York.

Given its success, we will be selectively creating pop-up locations in other high-profile markets. And at Grandin Road, we are identifying strategic opportunities to dramatically showcase our product in innovative ways, particularly with seasonal offerings.

In closing, we've critically evaluated the business and are taking decisive actions from our proprietary product assortment to customer engagement, content creation, and digital innovation for sustainable long-term growth. We are implementing these strategies while maximizing the return from our investments.

We anticipate that these combined efforts along with our differentiated position in the marketplace will favorably impact the business over the course of the year as we ignite our strong brands and unique products, extensive content and frictionless commerce experience. I look forward to updating you on our progress and I also look forward to taking your calls.

Many thanks for the strategic overview, as usual. I'm wondering if we can dig a little bit more into the idea of new channels of distribution, thinking maybe even the traditional brick-and-mortar.

You've mentioned some success here on Ballard Designs. You've also talked about Ingenious Designs wholesaling into folks like Target.

We're also noticing a brand that you guys are known for, Diane Gilman, over at Christopher & Banks. Just wondering kind of where you're seeing some success stories of maybe new customer acquisition lift from these dynamics.

Does this make sense? Are you seeing assimilation?

Things like that would be helpful in how this could play out. And a housekeeping question for Judy.

If we excluded the whole Keith Urban dynamic on the customer acquisition or the customer active file, which you said, I think, on a 12-month is down slightly, if you exclude the Keith Urban dynamic, are you guys actually up? And if you could quantify, that'd be great, Thanks.

Okay. Great question on the channels of distribution.

Specifically, in Ballard and a number of our brands, we do feel that giving the customer a 360-degree experience will have a positive implication from the business. As I mentioned, what we're seeing in the markets where we do have the physical design studios, not only are we seeing performance in that environment, we're seeing a lift in performance in the marketplace as well as elevated awareness and engagement.

So, we do feel that there is a significant opportunity for us, as you have seen evidenced by a number of other retailers, to be able to service the customer in a very broad way. So we will be looking at that in our brands.

Specifically in the Joy Mangano business, as you mentioned, we've had very strong success with Macy's, for example, and we really represent a category that is not robustly done as a collection within these environments. And we feel it's very complementary to our business to be able to have a physical presence.

But we still continue and we feel it's very important to be as proprietary as possible, even with the brands that we have similarly to prestige beauty or electronics or footwear, where we may have designers and/or brands that have other distribution, where we still have the opportunity and the brands are creating exclusive products just for us. So we still can have a very significant point of differentiation.

So, again, we feel strongly that creating this 360-degree platform, obviously, is going to be very unique by brand and by category where we have a filter and where we think it makes sense, but we do feel it is a growth opportunity for the company.

Hi, Neely. This is Judy.

Regarding your question on customer bases excluding Keith Urban, we were still slightly down but the vast majority of it was related to the Keith Urban. I would point out that the other big driver of that was our core HSN infomercial type products that Mindy had referenced particularly in fitness and our NutriBullet business, which generated a lot of sales and new customers last year.

Based upon that huge success, we're not able to comp that this year. So excluding those, we would've been relatively flat.

Now, I would say something to note is that the new customer acquisition on the infomercial side is a very low lifetime value. It skews more mail, lower income.

So that's important to note in terms of what those comps are.

Okay. That's helpful context.

Thanks, y'all. Good luck out there.

Thank you.

Thanks for taking the questions. One, on the customer analytics that you mentioned during your commentary, wanted to understand sort of how that will roll out through the year, what you think that might do to the business as you sort of continue to push that forward, not only in 2016 but beyond.

And then based on the commentary, there are a lot of puts and takes on places where you're looking to invest in the business in 2016 but also places where there could be cost savings and leverage in the business. Can you help us understand a little bit how those puts and takes will move as we go through the year just so we don't get too far ahead of ourselves in terms of thinking about projections?

Thank you.

Sure. As far as – I can let Judy talk on some of the puts and takes and all of that.

Yeah. I'll take your second question first.

On the operating expenses, you're correct in the fact that we have a lot of expense savings that we really have been pushing forward in terms of talent realignment and operating expense reductions, whether it be in circulation or our supply chain management optimization program. We are going to be reinvesting some of that back into areas of growth, particularly in some of the things regarding our customer analytics and digital marketing.

So there will be some puts and takes as we continue to see the business have opportunities to grow the top line. Having said that, we are very focused on that operating expense leverage as we continue to move forward and should continue to see savings for the balance of the year.

However, if we do see pockets of opportunities to reinvest, we will do so. But again, we're very focused on driving operating expense reduction to the extent that we can.

So, in terms of our investments and what we look to see from those investments in tools, systems, talent around data, it really is around data to provide us a greater level of customization and personalization. And we continue to do a significant amount of testing and rollout, testing and rollout.

And we're very pleased with what we're seeing in those areas as we begin to ramp up. And we continue to invest and whether that's in our seamless capabilities across all of our sites, the individualization on the customer level, and we have plans across all of our businesses to be able to leverage that.

But very specifically at HSN, you will continue to see that ramping up across the year.

Great. Thank you.

Hey, guys. Thanks for taking the question.

Just want to try to get a sense of the kind of base case revenue scenario here in the second quarter and beyond. I mean, it looks like for most of the last four years or five years typically there's a meaningful drop-off sequentially from the first quarter to the second quarter.

2014 was obviously a notable exception to that and last year was pretty strong in the first quarter. So just trying to understand, I mean how you kind of think about the base case here of what it would be reasonable to think of the second quarter and the third quarter looking relative to the numbers you just reported here in Q1.

Sure. To your point, in the second quarter, the drop-off does occur on the HSN businesses.

It is the lowest quarter of sales volume absolute dollar-wise that we have. And then it continues to build up for the balance of the year.

So the third quarter normally is higher than the second quarter and then obviously the fourth quarter is the largest. So for HSN historically, the fourth quarter is the strongest followed by the first quarter, third quarter and then the second quarter is our lowest quarter.

So, there is some changes in the dynamic which I think you can see in every quarterly filing that we've had since we've been public. As well as on the Cornerstone side, though, it's the inverse in that the second quarter is typically a very large quarter as it relates to outdoor specifically for Frontgate and Ballard Designs.

So we do have a larger sales volume there than the first quarter. In terms of how we're looking at the business, I think as we articulated on the HSN side of the business, we're continuing to repositioning a lot of these merchandising categories that we have and we do expect that's going to continue to take some time to progress throughout the year and we'll continue to see improvement, as Mindy articulated.

And, Mindy, is there anything else that you'd like to add to that?

Yeah. As Judy said, I mean, we're definitely seeing progress in certain areas of the business that we feel good about.

And there are still some areas that we are working to accelerate and develop. But, certainly, there's no lack of work being done and we feel good about the teams and how they're progressing.

Great. That's really helpful.

Thank you very much.

Okay, great. Thanks for taking the question.

I just wanted to drill down a little bit more on how to think about the revenue trends. And I understand revenue is not the full story.

We've got to think more about kind of gross profit per hour. And the gross margin trends here were encouraging relative to what we were fearing.

But on the top line, your comps did get easier in the first quarter relative to the fourth quarter on a one-year basis. They got about 400 basis points easier.

But in TV shopping – and this is in core HSN TV shopping – in TV shopping, your trend worsened on the top line by about 200 basis points. As we look ahead to the second quarter, it seems like the comp might get, on a one-year basis, about 700 basis points easier.

So when we look about these comps, is that a reasonable way to think about the revenue trajectory from here? Does that really matter?

Or is there something different happening and shift in the environment where we should just kind of ignore the comps and look at the business differently?

Sure. Yes, our comps were slightly easier in the first quarter than they were in the fourth quarter.

As I articulated on the call, excluding that Keith Urban, sales were down 2%, so it wasn't quite as dramatic shifting as the decline. I would say, though, to the point that I made earlier, as we continue to reposition these categories, it has taken us more time to be able to comp some of those and we will continue to see that improvement towards the back half of the year.

So I think that does make the comp situation a little bit different this year than perhaps historically.

Okay. And then if I could follow up, we were looking for a little bit of more gross margin pressure than we saw.

You guys managed that very well. What's your feeling about gross margin potential for stability going forward?

Is there anything we should be cautious about? Or do you feel reasonably okay at this point?

Sure. As I mentioned on the call, we are still carrying excess inventory that will continue to pressure our margins in the near-term.

I do feel good about it over the longer term, but definitely, as you can see in the first quarter, we did everything we could to offset some of that pressure. But combined with some of that excess merchandise as well as the competitive environment out there, I would say in the near-term we're going to continue to be pressured.

But we're trying to do as much as we can from an efficiency standpoint in our warehouses, et cetera, to try and offset that as much as we can.

Yeah. We're also extremely focused on everything from pricing to promotion, again, to accelerate certain categories that by nature of the category is higher-margin.

So certainly mix is going to have a lot to do with that as well as looking to get back to a better strategic balance of unit and price point growth.

Okay. Great.

Thanks a lot.

Thank you. Firstly, Comcast X1 is about I think 35% of their video base now and certainly has some characteristics akin to OTT platforms, Roku being cloud-based and just behaviorally what it offers the consumer.

Can you give us any sense of how you (44:07) HSN is faring in that category in terms of viewer activity and how that translates to purchases? And then, secondly, as much activity as I've seen with you on the merchandising side right now, but I'm curious whether you're still going to replace your – I think still open Chief Merchandising Officer position?

Do you want to take the first one?

Sure, Matthew. And we saw you also on CNBC earlier this week.

You looked very good and sounded very smart relative to Hulu and over-the-top. So regarding the Comcast X1 platform, we have not seen any differences between the performance on X1 versus other cable providers platforms, with the exception of the fact that with that moved to the X1 platform, we no longer have our Shop by Remote technology on that.

We are working with Comcast to get that back on the platform because we know that that's a huge driver of customer engagement. So I would say that is the one difference that we're seeing on the X1 platform.

And then on the merchandising side, to your point, we have done a lot of work in each of the categories of the business with very strong Senior Vice Presidents. We have made some organizational consolidations, so there are five key platforms of business.

As you know, we brought in new Senior Vice President of Beauty not too long ago, who's very strong; Alicia Valencia, who had run Bobby Brown North America. We just brought in Catherine Coquillard for jewelry.

We consolidated culinary, electronics, and fitness under Sandy Conrad, who's been certainly successful long-term in the company. Chris Nicola in Home.

And then Vanessa Dusold in Fashion, very strong. And they have really been driving a lot of the efforts in the business, certainly along with Bill Brand and myself.

Having said that, we continue to look for an appropriate head merchant but again, we are going to be very specific and stringent into the qualities we are looking for and we're leveraging our strong team in the process.

Thanks, Mindy.

Thanks. Thanks for taking the call.

Mindy, the retail environment has certainly been challenging across the board except for the pure play Internet retailers, with the exception of eBay, which I think has its own set of unique challenges. To what extent do you think your business, the TV shopping business, the Cornerstone brand, has been impacted by threats on the Internet?

I think the entire retail environment, as you say, is going through a tremendous amount of change and volatility as everyone really looks to find a very specific point of differentiation. And that's competition from everywhere, not just pure play.

And the way we think about it is, in order to really compete effectively, we need that maniacal focus on very differentiated and exclusive product. We need to create experiences beyond just a commerce relationship with our customers.

We need to use our data to create significant personalization and meeting with the customer and in the right selected instances create that 360-degree experience like what we are doing with Ballard and where we're looking. And that's what we have to be very, very focused on, not just us but in general that's going to be very key to differentiation going forward.

Thanks. And for Judy, you mentioned again the supply chain automation that you expect to save $10 million to $20 million annually.

Just help me understand better how you get to that $10 million to $20 million annual savings number?

Sure. It's a much more efficient operation.

We are able to consolidate two warehouses into one warehouse. It utilizes less labor and it's more efficient from a supply chain getting the packages out faster to the customer.

Okay. Thank you.

Very well. Thank you, everyone, and I look forward to keep you updated on our progress.

Have a great day.