iMedia Brands Inc (IMBI) 2011 Q4 法說會逐字稿

Good morning, and welcome to the ValueVision fourth quarter and fiscal 2011 conference call. Following today's presentation, there will be a formal question-and-answer session. Today's call is being recorded for instant replay.

I would now like to turn the call over to Teresa Dery, General Counsel at ValueVision. You may begin.

Thank you, operator, and good morning. I am joined today by Keith Stewart, CEO; Bob Ayd, President; Bill McGrath, EVP and CFO; and other senior management.

Comments on today's conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by words such as anticipates, believes, estimates, expects, intends, predict, hope, or similar expressions. Listeners are cautioned that these forward-looking statements may involve risks and uncertainties that could significantly affect actual results from those expressed in any such statements. More detailed information about these risks and uncertainties, and related cautionary statements, is contained in ValueVision's SEC filings.

In addition, comments on today's call may refer to adjusted EBITDA, a non-GAAP financial measure. For reconciliation of adjusted EBITDA to our GAAP results, and a description of why we use adjusted EBITDA, please refer to our Q4 news release available on our website. All information in this conference call is as of today, and the Company undertakes no obligation to update these statements.

I will now turn the call over to Keith.

Thanks, Teresa, and thank you all for joining us on the call today. Let me begin by saying that we are disappointed with our sales performance during the second half of the year. We expect more from ourselves, period. 2011 started off strong; however, as we entered Q3 and through the back half of the year, our Consumer Electronics segment, which had been a major contributor to our growth in previous quarters, encountered significant challenges related to the organization, product, and execution. We attempted to offset these challenges with products from other segments, but found we did not yet have sufficient product diversity or depth across the other businesses to overcome the shortfall in electronics.

Later in our remarks, Bob will highlight the initiatives underway to address the electronics business. Some of these are still in process, and others have been completed. As it stands today, we expect Consumer Electronics issues to continue to negatively impact results in Q1 and Q2. As the repositioning of the category takes hold, we hope to see the benefits of these efforts in the second half of the year.

I have been here just over three years. Over that time, many new multichannel industry veterans have been recruited, and joined our senior leadership team. Together, we have strengthened the Company by broadening the product mix, reducing overhead, optimizing our TV distribution footprint, and significantly improving the balance sheet.

Although much of the restructuring is complete, we still have much work to do. We are focused on the fundamentals of executing our multichannel retailing business, expanding our merchandise assortment, and improving the customer experience. I have the utmost confidence in our ability to build shareholder and stakeholder value. We remain committed to our plans to turn around the Company's operational performance, and I remain confident in our strategy for the year ahead and the long-term sustained growth.

With that, I would like to turn the call over to Bill, who will review a few of the highlights in Q4 and full year. Bill?

Thanks, Keith. Fiscal 2011 fourth-quarter sales were $147.5 million, a 17.5% decline from prior year. Full-year revenue declined 1%, to $558.4 million. Gross profit for the quarter declined 17.5%, to $49.2 million versus last year; while year-ago gross profit increased by 2.3%, to $204.1 million. Fourth-quarter gross margin percentage of 33.3% is in line with prior year. The comparable year-to-year gross margin rate reflects a favorable impact of lower CE mix, offset by a higher level of price discounting.

Given our fourth-quarter sales challenges, we were particularly focused on careful working capital management. Fourth quarter had more promotional pricing, which enabled use of lower ValuePay installment programs as a promotional tool, thereby reducing our level of accounts receivable. Additionally, we carefully managed our inventory turnover in the period.

On a full-year basis, our gross margin increased 106 basis points over prior year, to 36.6%. Operating expenses increased 1% over the year-ago period to $56.5 million, principally reflecting a higher cost for our expanded television distribution footprint. Our fourth-quarter operating loss was $7.3 million, versus $3.5 million in operating income in the prior year. For the full-year 2011, we recorded an operating loss of $16.8 million, as compared to an operating loss of $15.5 million in fiscal 2010.

The net loss for the fourth quarter was $8.3 million, or a loss of $0.17 a share, compared to a year-ago net loss of $1.4 million, or $0.04 a share. On a full-year basis, our net loss, which included a $25.7 million charge for the early retirement of our preferred stock, was $48.1 million, or $1.03 per share. This compares to a net loss of $25.9 million, or $0.78 a share, in 2010. On an adjusted EBITDA basis, we had a loss of $2.7 million in Q4 2011, versus a profit of $8 million in the year-ago quarter. On a full-year basis, adjusted EBITDA was positive $1 million, compared to positive $2.4 million in the full-year fiscal 2010.

Turning to the balance sheet -- we ended the year with $35 million in cash and cash equivalents, including restricted cash, versus $32.7 million at the end of Q3. Our positive operating cash flow in Q4 reflects disciplined accounts receivable and inventory management in the period.

Subsequent to year-end, the Company secured a $40 million revolving credit facility with PNC Bank. The new credit facility has an interest rate of LIBOR plus 3%. In February, we drew down on the facility to retire the Company's existing 11%, $25 million term loan, and we made an early repayment of a $12.5 million deferred payment obligation to a TV distribution provider.

As a result of the early repayment of our $25 million term loan, the Company will recognize a non-cash charge of $2.3 million during the first quarter of fiscal 2012. This represents the write-off of previously capitalized costs associated with the original Crystal term loan. The successful completion of our debt refinancing puts the Company in a stronger position to fund working capital needs, and to support the business going forward.

Finally, with respect to our TV distribution footprint, earlier this year we were able to renew agreements covering approximately 54% of our 81 million households. The early renewal of our largest TV distribution agreement is expected to provide annual TV distribution cost savings of approximately $15 million, starting in January of 2013. The agreement also provides us with a second channel on this provider. The other two renewals covered a total of 26 million ShopNBC homes, and were accomplished at comparable rates, with some improvements in channel position.

I will now turn the call over to Bob.

Thanks, Bill. We are clearly disappointed with our results in the fourth quarter. In Q4, our Consumer Electronics business declined 65% versus the prior year. Excluding Consumer Electronics, sales were down 5% in the quarter. The Q4 decline in CE reflected a lack of breadth and depth, and a limited merchandise assortment, as well as executional challenges. To compensate for this shortfall, we turned to our other business categories to fill the vacancy of airtime. However, these segments were not prepared to productively cover the vacancy of airtime that was created. This is an unacceptable result, and I am fully committed to fixing the Consumer Electronics business, and to improving overall results.

While we continue to recruit for an open CE Director, we have already taken actions to strengthen and expand the Consumer Electronics team. Additionally, we are improving our vendor sourcing relationships by working directly with a number of CE manufacturers. Going forward, with a more robust team and new industry relationships, we hope performance will improve during the second half of the year.

Additionally in fiscal 2012, we are investing in our Home, Health, and Beauty businesses. This includes building broader and stronger merchandising and planning teams, as well as introducing new products and more diverse categories that will excite the customer. In the Home business, we have added a seasoned, multichannel retailing veteran as Vice President of Home. We are focused on adding [directed] product in the Home category, which is a key driver of new customer acquisition, and increased purchase frequency. Our relationship with Macy's in cookware and textiles has been a positive step in this regard. We are pleased with the initial performance, and look forward to building upon this relationship.

In our Fashion and Accessories business, we are diversifying the category, as well as building on the initial success of Brooks Brothers and Calvin Klein, which launched in Q4. We are also continuing to introduce new brands to our core watch business, which has a loyal and active following.

In summary, with over 300 new vendors having joined us last year, and a core base of existing products, we remain confident in our merchandising strategy. Going forward, we remain focused on our three goals of increasing top-line sales, diversifying our product and brand assortment, and optimizing our merchandise margins.

Keith?

Thanks, Bob. In closing, the key takeaway for shareholders and stakeholders is that we are taking decisive actions to reposition the businesses that need it, and to grow the businesses that are already on sound footing. We are confident that these initiatives are the right measures to restore the Company to a path of growth. I am also pleased with the strengthening of our balance sheet. It provides us with a solid foundation from which to implement these initiatives.

That concludes our prepared remarks. I would now like to open the floor for questions. Operator?

(Operator Instructions)

Neely Tamminga, Piper Jaffray.

A question for you, Bob, on the Macy's relationship -- we were pleased to see that you guys have really given them some good placement, even on your own website. I'm just wondering if, having kind of micro-siting strategies like it seems like you have done with Macy's, is that something that is a model for future other brands? Or is that something unique to Macy's?

And I have some follow-ups.

At this point, it's something that is unique to Macy's; but that doesn't preclude it from being expanded in the future. And as far as the Macy's relationship is concerned, we are very pleased with it. And as we said, we are just starting out with it, and we expect to continue with it.

And how should we think about some of the new products or innovation coming from that relationship? Could it be more meaningful in the second half? Is it more like a Q4 thing? Or is it -- this is the groundwork for next year? I'm just kind of curious how those discussions are progressing.

Well, as with any new business relationship, this technically is a test, and it will take time to build and develop. Right now, we are in a testing phase; but we are, again, as I said, generally pleased with the relationship and how things are going. And we do look forward to further building on it.

But it was any test or any new business, you start out small; you learn; and then, over time, you expand. And we are in the testing phase, but I am very pleased with it, and I expect it to continue.

Great, thanks.

Hey, Keith, just a follow-up question on the -- and we absolutely appreciate the decisive action around Consumer Electronics, and I think it's evident in your messaging. I'm just wondering where you guys are in the process of finding the CE Director, and maybe some of the qualities of the person that you are looking for to fill that role. That would be helpful.

Thanks, Neely.

We are still in the process of recruiting the CE Director, although we have new people in the CE buying positions. The way we have approached this business is very different from what ShopNBC has done in the past 20 years. ShopNBC historically has gone to distributors, Neely, which are middlemen that buy the product and mark up the product. You generally did not have a full assortment of merchandise to select from; and more importantly, you did not have a consistent flow of merchandise. By partnering directly with the manufacturers, it allows us to have, first and foremost, consistent product flow; secondly, factory-direct pricing; third, product technology and pricing cycle information right from the source.

So, this is a very important and a short-margin business. It will be advantageous to us in the second half of the year.

Thanks, Keith. Good luck.

Peter Mahon, Dougherty.

I wanted to just ask a couple questions about ValuePay -- one, I wanted to get the current status of the program, and what kind of attachment rates you have right now. And then, secondly, with the capital position of the Company improving, do you plan on more aggressively marketing that program to maybe drive sales?

Hi, Peter, this is Bill.

ValuePay remains an important part of the business and promotional strategy. We did do -- we ratcheted back, within the fourth quarter, the level of ValuePay for a couple of reasons -- one, we were very focused on overall working capital management and liquidity focus within the fourth quarter. So, we reduced the level of ValuePay, frankly, to a level that we think is appropriate and meaningful for the business going forward. With the additional liquidity that we obtained by virtue of the PNC agreement, we are comfortable with our ability to invest in ValuePay at the appropriate levels going forward. The modulation that we see from quarter to quarter should be within a pretty narrow range.

Okay, great. And then, secondly -- this has to do with the buildout of your team. Do you guys feel like you are pretty close to having the team in place to move forward? Or do you think you still have a few missing pieces to maybe improve some of the business segments -- or the product segments?

I think we have made a great deal of progress here, and we have a couple of jobs that are open. But the key jobs -- most recently, we have added to the Beauty team and the Fashion team. We have also added a Vice President to the Home store, as well as a Director in the Home store, and we have expanded the CE team. And those are the critical jobs. So, I say we are very pleased with the progress we have made, and I think the key jobs, other than the CE Director, are filled.

And really, the purpose for this, and the investment that Bob had referenced in his previous comments, are to get us into new Businesses successfully, as we got into last year and the previous year. And as we develop -- successfully develop those Businesses, we will have a much lesser reliance upon a few categories, like CE.

Perfect, great. Thanks a lot, guys. Best of luck.

Jim Devlin, Henley & Company.

Just had two quick questions -- Comcast, during the quarter, filed an initial ownership stake, which came over from the GE transaction -- it's a little confusing. But they announced a 15.1% stake. They also have options. What I am trying to figure out is -- options, if converted, at what price? And then, would that represent Comcast's ownership, should they convert, in your Company?

No. First of all, I haven't spoken with them about that. That is simply a registration associated with their NBC acquisition and as part of the normal course. I don't think you should be reading into that at all.

No, what I am trying to figure out is -- there are some options that were tied to GE, I think? Does Comcast retain those options?

Yes. That is -- that wasn't tied to that. GE has 6 million warrants.

Warrants, okay.

Yes, those are separate from any filings that may have been made by Comcast or NBC.

And those convert at what price?

They own them at $0.75.

Okay. So, the Company would take it in cash. Okay.

And then, as far as the cable TV station in Boston -- you guys had bought that back in the early 2000s for roughly $33 million. It's broadcast 3 million to 4 million homes in the Boston area, ValueVision, 24 hours. You are in 80 million-plus homes right now. Is that a strategic and core asset to the Company, moving forward? Is there liquidity in that asset? And have you guys had a fairness opinion done on the value of the television property?

Yes, Jim, this is Bill.

I would say -- no, it's not necessarily a strategic asset for us, for the long-term. It is a meaningful asset to us, because, as you mentioned, we have got a footprint within the Boston area that this provides an opportunity to broadcast our signal, and therefore, obviate any cable distribution costs that would be otherwise incurred. So, it's a meaningful reduction in operating expenses that comes about by virtue of the ownership of the station.

And to answer your question -- yes, we do have an independent appraisal that is updated on that asset, and that was in the current year, as well. That substantiates the carrying value of that asset. If -- it could be a potential source of liquidity in the future -- as it stands now, we don't have any specific intent to sell that asset.

Okay. I appreciate the look there.

And on the PowerPoint, I guess you guys had carried the current value at about $26 million?

I think a little bit less than that, about $23 million.

Okay, $23 million? Okay, great. Thank you for your help. Appreciate it. Thank you.

(Operator Instructions)

Greg Butler, IKO Money and Asset Group.

I guess this question might be going towards Bob and Bill -- I might have missed a few things, but with the Electronic division being down 65% per annum, can you explain a little bit more, as far as the Watch group? Did you see any increase during 2011? And, going forward with the relationships you have, say with Invicta and others, are you going to increase the Watch part of the revenue stream?

The drop in Consumer Electronics of 65% was Q4 only, not for the year.

Oh, I apologize about that.

That is okay. It was Q --

[How long] -- and I'm sorry to cut you off, but would the relationship with Mitsubishi, as far as Electronics -- would that continue going forward?

If Mitsubishi has the right products, we will buy them. But the Electronics business for us is about great items. And as Keith had mentioned, what we have done in Electronics is we started going -- we have established factory-direct relationships; we have established broader assortments into categories we have only dabbled in or haven't been in. And as far as Mitsubishi is concerned, we would love to have a strong business with them, but that is all predicated, not on the relationship, so much, but the product itself.

Right. So, you are waiting for that group that you will be hiring in the near to immediate future, to consolidate and go forward with the Electronic division of this?

We are not waiting. We are not waiting for anything.

We have, as previously mentioned, one key position yet to fill in the Consumer Electronics business.

Okay, understand.

We are proceeding full ahead.

Let me leave you with this one comment -- it's not just about CE. It's not just about watches. It always has been about broadening the mix. This has been a journey, and will continue to be a journey. As Bob referenced in his comments, and I mentioned earlier, we are investing in this Business -- particularly, as he said, in the Home Businesses, which drive new customer acquisition, and further investment in the Health and Beauty Business. And the stronger these new Businesses become, the less important the existing Businesses are to quarterly results.

And I think that is fantastic, and thank you for the information.

Do you -- but along with that, how were the sales for the year with the watches? Because you do spend a lot of time with that particular item. Was that profitable this year? And do you see that going forward as part of your agenda for the next quarter, per se? And the next year, going forward? And the new channel coming up in 2013, I believe you said?

Oh, but the Watch business is very important to ShopNBC and to the vendor community, and Bob has mentioned in previous quarters there too. We will continue to broaden the mix in the Watch area, so to make that stronger and stronger as time progresses.

Have you seen increases each quarter this year?

We haven't broken out Watch sales. It's -- in the filing, it's between jewelry and watches.

Fantastic. Thank you so much, both of you -- everybody. I guess I spoke with Bob and Bill.

Before we let you go, Greg, I did want to clarify one point.

You mentioned the separate channel in 2013. And to that point, the addition of a second channel is actually -- within this large distribution footprint that we described, is going to be a simulcast of the existing channel. It's not a second channel of an independent broadcast with a separate product mix; it will be --

A second channel position in a better neighborhood.

Okay, with that being said also, like the other question from the other caller asked -- I see on the balance sheet, is it a royalty you are paying for the keeping the ShopNBC after Comcast took over GE/NBC? And where do you see that going forward? Are you going to keep the name? Do you have to pay for the name? Or are you waiting on something to maybe change [for] the name?

No, we are -- that is a licensing fee. And the fee was last year, and --

$2 million something?

It was about $4 million.

Okay.

And right now, we are in discussions with NBCU concerning the extension of the license, and we hope to have something definitive to report in the next several weeks. Our current license expires on May 15, with an option to renew for one year, [at] the agreement with both parties agreeing.

Are you in talks right now with Comcast, as far as before the execution date, there, of May 15?

Yes, we are in active discussions with the NBCU team regarding the terms of the extension.

And how do you feel that is going?

Very confident that we will reach an agreement on an extension. It's about all the color I can really offer at this time.

Okay, I understand. Thank you again, and best of luck. Thank you.

Thank you. Thank you, everyone, for joining us on the call today. And with that, we will conclude the call.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.