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HSN (Nasdaq: HSNI ) , formerly known as the Home Shopping Network, used to be a mind-numbing TV channel that no one really wanted in their cable package. Today, it's a thriving retailer that consistently rakes in more than half a billion dollars in quarterly sales.
Skeptical? Just look at the company's latest earnings report.
HSN had more than $767 million in total sales for the second quarter of 2012, which is a year-over-year increase of 6.4%. Operating margin increased by 10 basis points compared with Q2 2011, and operating income rose by 7.6%.
The stock has returned more than 183% since its 2008 IPO. That's considerably higher than the SPDR S&P 500 Index (NYSE: SPY ) and competitors J.C. Penney (NYSE: JCP ) , Macy's (NYSE: M ) , and Sears (Nasdaq: SHLD ) :
HSN has become much more than just a 24/7 infomercial channel, and its stellar financial performance comes from three main strengths.
Not-at-home shopping network
About 400,000 Americans have dumped their cable and satellite TV services over the past seven months, while mobile-device sales have rapidly increased. Fortunately, HSN foresaw this trend and started streaming its shows through a mobile app in 2010.
I downloaded the HSN iPhone app as part of my research for this piece, and I was thoroughly impressed; I watched a sales pitch, read the lively discussion board, and was almost persuaded to buy a $90 skin-moisturizing cream -- I mean...for my sister, not myself.
Apparently, I'm not the only one who has been beguiled by HSN's online broadcasts. Combined sales from the company's website, smartphone, and tablet apps have been booming, comprising 42% of its sales for fiscal 2011 and 43.4% in the second quarter of 2012.
Shopping the fun way
While HSN's digital strategy makes the shopping experience more interactive, celebrity partnerships make it more entertaining. Stars like Jennifer Lopez, Mariah Carey, and Wolfgang Puck have sold their branded products on HSN in a format closely resembling a talk show. Peppered into the banter, and ever present at the bottom of the screen, are the "amazing," "incredibly low," and "limited time only" prices.
This strategy seems to be working so far. According to the latest Internet Retailer Top 500 Guide, HSN is ranked as the 26th most popular online retailer in the U.S.
Management worth investing in
HSN's forays into online content and celebrity partnerships have undoubtedly contributed to its success, but the visionary behind these strategic moves has been the company's CEO, Mindy Grossman. I'm a huge fan of Grossman's management style: Her focus on efficient operations is evident in a comparison between the financial data from HSN and three competing department stores:
Operating Margin (TTM)
Profit Margin (TTM)
Return on Equity (TTM)
Total Debt (MRQ)
Debt to Equity (MRQ)
|J.C. Penney||1%||(2.3%)||(8.7%)||3.1 billion||78.8|
Source: Author; Yahoo! Finance. TTM = trailing 12 months. MRQ = most recent quarter.
HSN has one of the best margins in the retail business. It falls slightly behind Macy's, but the company is much more efficient than the beleaguered J.C. Penney and Sears. It has an impressive return on equity and carries considerably less debt than its competitors. Additionally, HSN pays a 1.2% dividend yield and only has a 12% payout ratio.
HSN is trading at about 20 times earnings, but its strong leadership and innovative culture make this a stock to watch. I've given it a five-year outperform rating on my Motley Fool CAPS page. You can add this company to your watchlist by clicking here.
HSN might be changing the classic retail business model, but it didn't make our analysts' list of today's most revolutionary retailers. You can find out which stocks they recommend by reading their free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail."