This Retailer Is Looking Good Beyond TV

Arturo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Can a mature retailer remain nimble and relevant to its market and hence stay as an investor’s darling? It certainly can, as HSN (NASDAQ: HSNI) has shown in the 28 years since its establishment. After its debut in St. Petersburg, FL, in 1985 as a broadcaster of TV home shopping programming, this company has successfully reinvented itself as a multichannel retailer. It did this by adopting the very same e-commerce technologies which emerged as a threat to its original business model.

The company now prides itself as being the only retailer with live streaming video that consumers can access via three media platforms: TV, online, and mobile. HSN also has brick-and-mortar stores in Florida, something that is critical for old-school consumers who need reassurance that they’re dealing with warm bodies; this is something that purely e-commerce market players are sorely lacking.

At the same time, purposive marketing efforts have been undertaken to make over the company’s image and draw in new and younger consumers. In this rebranding campaign, HSN is shedding its dated image and distancing itself from the celebrity has-beens who served as endorsers in previous years. Covering not only TV but also online and mobile, this facelift will focus on the company as the “product hero” and will entice consumers with the thematic blurb “It’s Fun Here.”

More personalized selling

For this year, the company is increasing its previous $7.5 million media spending budget to focus on digital initiatives including search and display ads. This emphasis on digital and mobile media comes on strong for HSN, bringing in about 40% of the company's sales and 50% of its new customers. Among the notable features of these digital assets is HSN’s Arcade where customers can compete for prizes and flaunt their online game ratings. This feature, which is tied to the social medial Google+ Hangouts, has doubled the length of time that consumers stay on the HSN website and boosted the amount they spent as well.

Besides hiring new designers and hosts, the company also assembled an executive think-tank with more female management members. HSN thus has continued to excite its customers with more creative packaging, thank-you notes, and such “icings” as "Look what you got!" on their product purchases.

Zipping with Coke

A partnership it entered with Coca-Cola (NYSE: KO) last December provided an added source of strength for HSN. The partnership created the world’s most extensive online collection of Coca-Cola merchandise and premium items including sporting goods, home décor, and kitchenware. It also allows Coke to harness HSN’s platforms to add more zip to its merchandising and marketing initiatives.

The multichannel retailer’s estimated reach of close to 100 million households should give Coca-Cola a significant boost, especially in developed markets where the room for growth has become smaller. This is important as there is a greater need to generate continuing excitement among consumers.

This situation is evident in Coke’s results for the second quarter of 2013. Volume in the company’s North America market slipped 1%, though Coca-Cola International posted a 2% gain. During the quarter, Coca-Cola had earnings of $2.68 billion, or $0.59 per share, compared with $2.79 billion, or $0.61 per share, a year earlier.

Acting with Disney

The “entertainment integration strategy” that HSN has adopted in recent years provides another catalyst for the company. This thrust enables customer interaction beyond TV-based shopping. It was at work early this year with Oz The Great and Powerful, a production of The Walt Disney Company (NYSE: DIS).

HSN and Disney had a marketing collaboration on the creation of an exclusive collection of home and beauty accessories, fashions, and jewelry based on this movie. The retailer not only conducted a comprehensive marketing campaign across its platforms but also held live events to promote the collection and the film.

A sequel to this collaboration can be expected, as the movie raked in $281.1 million worldwide in its first two weeks of screening; this has been one of the bright spots in Disney’s performance so far this year. The company’s studio entertainment revenue for the fiscal second quarter rose year-over-year to $1.34 billion, up from $1.18 billion, and generated operating income of $118 million compared to an $84 million loss a year earlier. Total Disney revenue for the comparative period rose to $10.55 billion from $9.63 billion, while operating income hit $2.51 billion, up from $1.95 million.

Foolish take: buy on dips

HSN had robust results in its most recent quarter as well, with its net sales up 5% to $772.7 million and its operating income of $52.5 million rising 2% for the period. Its diluted earnings per share of $0.56 was 24% above the year-earlier level and was ahead of the $0.52 analysts’ consensus estimate. For the current fiscal year, analysts expect $3.06 earnings per share for the company

HSN’s premium valuation of a trailing 12-month price-to-earnings ratio in the mid-20s appears justified given its strong fundamentals. Its 26.75% return on equity and annual dividend yield of 1.2% are buying incentives as well. As a final thought, buying on dips from its current level hovering around the $60's might be prudent as this equity has just set a new 52-week high of $61.53.

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Arturo Cuevas has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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