SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 15, 2000
SHOP AT HOME, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 0-25596 62-1282758
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
5388 Hickory Hollow Parkway, Antioch, Tennessee 37013
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(Address, including zip code, of principal executive office)
(615) 263-8000
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(Registrant's telephone number, including area code)
Item 5. Other Events
On November 14, 2000, Shop At Home, Inc. held a conference call to
discuss the Company's financial results for the first quarter of its fiscal year
2001, ending September 30, 2000. These results were filed with the SEC on the
Form 10-K filed November 14, 2000. The Company has elected to voluntarily file a
copy of this transcript on this Form 8-K to ensure that the contents of such
conference call are fully disseminated and that any investor of Shop At Home,
Inc. has full access to such transcript. A transcript of the November 14, 2000,
Financial Conference Call is attached hereto as Exhibit 99.1.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SHOP AT HOME, INC.
(Registrant)
By: /s/ George J. Phillips
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George J. Phillips
Executive Vice President and General Counsel
Date: November 15, 2000
<PAGE>
EXHIBIT 99.1
SHOP AT HOME NETWORK
Transcript of Conference Call
November 14, 2000 - 9:00 a.m. CST
OPERATOR: Good morning and welcome to the Shop At Home Network First
Quarter Conference Call. All participants will be
able to listen only until the question and answer session of today's call. This
call is being recorded for instant replay purposes.
If you have any objections, you may disconnect.
I'd like to turn the meeting over to Ms. Amiri, and you may begin.
ARIANE AMIRI: Good morning, and welcome to Shop At Home's first quarter
fiscal 2001 conference call. On the call with me today is Kent Lillie, President
and Chief Executive Officer; Arthur Tek, Executive Vice President and Chief
Financial Officer; and Tim Engle, President and Chief Operating Officer of the
Shop At Home Network and Collectibles.com.
Our release was sent yesterday evening and our 10Q is currently
available on Edgar. We will be taking questions after our presentation of the
quarterly results for both the Network and collectibles.com. And you may direct
your questions to any of those present.
Before we begin, I'd like to say that any statements made today on
behalf of Shop At Home, with regard to the expectations of future revenues,
earnings coverage or other performance factors and including any statements
regarding the plans or objectives of management for future operations are
forward-looking statements for the purposes of the SEC statutes.
Actual results may differ materially from these forward-looking
statements for a number of reasons, as discussed in Shop At
Home's SEC report. It is my pleasure now to introduce Mr. Lillie.
KENT LILLIE: Good morning. We've made some significant progress on a
number of fronts since July in pursuit of our two primary objectives, although
we continue to show operating and bottom line losses for the September quarter,
improvements made in the last quarter indicate positive trends for the future.
The first of these two objectives is to return the company to operating
profitability. The second is to recapitalize through the reduction of debt and
the repurchase of the Series B preferred stock.
On the positive side of the operating results, we continue to grow the
number of households reached through the Network and the total number of
fulltime equivalent households or FTEs.
Gross profit margins are up substantially over the previous quarter.
We've had a significant decrease in losses due to fraud, and we have lowered
operating expenses by a considerable amount. Further, our Internet business,
collectibles.com, continues to grow at a rate faster then originally forecasted,
outperforming expectations including number of browsers, page views, time spent
per browser, revenue per browser, and gross revenue margins and earnings.
Our turnaround plan continues to gain momentum, and we are emerging a
much stronger more efficient and ultimately more profitable company. For
example, we've eliminated almost 130 positions since our highest employment of
early May for an annualized cost savings in excess of $4.0 million. As well,
we've renegotiated affiliate agreements for a savings so far of $1.8 million
annually. We've also been successful in renegotiating other long-term operating
agreements and eliminated superfluous expenses that will result in reductions in
other operating expenses of over $1.7 million per year. That's a grand total of
7.5 million in annual expense reductions so far, and we've just really started
that in early July.
Further, we continue to reduce inventory and receivables. We're also
pleased to report that we have reached a final agreement for the sale of our
Houston television station, and expect FCC approval and transfer well before the
end of March. It's important to note that because of our NOL this will be an
essentially tax-free transaction.
While we're disappointed that the sale of Bridgeport will not move
forward, we will claim the $500,000 on deposit and continue to look to sell at
least one of our remaining five stations. We still have interest in Bridgeport
from other prospective buyers, as well as several of our other stations.
I would now like to have Tim Engle outline his progress for improving
the operating performance of both collectibles.com and the Network.
TIM ENGLE: Thank you, Kent.
During our last call I discussed several initiatives that required our
immediate attention in order to improve sales and profitability. I would like to
revisit these initiatives and provide an update on our progress in three areas
improving sales, profitability and maintaining our momentum with
collectibles.com.
First, in our initiative to improve sales, the goals consisted of
implementing more effective price points, greater focus on destination
programming, concentration on database marketing, implementation of a private
label credit card, and a commitment to broader products within our successful
categories. I'll start with price points.
With lower price points come increased call volume, lower returns and
cancellations, higher conversion rates, and reduced fraud. We have made progress
in most categories, especially jewelry and coins. Since June we have reduced our
jewelry price points over 13 percent and in coins over 24 percent. Our overall
price point in all categories increased 7 percent however, due to the success of
one of our products in sports, which I will speak to later.
With that said, our recent progress in all categories have demonstrated
that price points will come down over the next few months based on product and
sales trends.
With regard to destination programming, it has been our objective to
drive viewers to our products by being predictable and dependable for our
programs. Although we continue to make minor adjustments that reflect our
customers' buying patterns, we feel this objective has been achieved.
Another commitment we made was to be aggressive in leveraging the
opportunities available through database marketing. Through careful planning and
implementation, we have experienced success in growing this emerging part of our
business. In fact, just in the month of September we were able to drive over
$1.2 million in incremental sales by reactivating past customers who had not
transacted with us for more than 90 days.
So successful was this program that we launched an even more aggressive
initiative for November. Early results are encouraging. This new and exciting
marketing program will continue to grow the lifetime value of our customers at a
very cost effective rate.
Additionally, we committed to develop and launch a private label credit
card to accomplish two objectives: reduce our reliance on in-house customer
financing while providing our customers an attractive financing option, thus
increasing sales. I am pleased to announce that we have achieved that
commitment.
On October 24th we launched our private label credit card. Early
results include high customer satisfaction with the 90-day same-as-cash
promotion, increased up sales, reduced customer financing on our balance sheet,
and increased call volume. We will continue to aggressively market this program
and expand on the options available to our customers.
Lastly, we have and will continue to increase sales through introducing
new and diverse products through the establishment of unique relationships. Our
recent announcements with the Major League Baseball Players Association and
Upper Deck will allow us to provide our customers products exclusively in this
channel. Also, we have been able to fully take advantage of the latest sports
phenomenon Tiger Woods and the recent Subway Series. We expect all these
relationships and product opportunities to provide product into the holiday
season and beyond.
We have made significant changes in other product areas as well. As an
example, we have restructured our jewelry department with experienced management
and expertise, with almost immediate sales and merchandising improvement in
this, our second largest category.
Additionally, we have new vendors in fitness and electronics who have
performed exceedingly well and are positioned for great success during the
holiday season.
Lastly, we are building a new category in apparel, which is proving to
be successful this fall.
Our second commitment during the last call was to improve
profitability. Arthur will address the progress we've achieved in reducing
expenses. I would like to discuss our success in improving margins.
We committed to improve gross profit margins through managed
programming, improved vendor management, and reduced discounting. I am pleased
to announce that all these initiatives have taken hold and resulted in improved
margins. Just in the short few months we have implemented our programs we were
able to improve gross profit margin by almost 4 points in the September quarter,
versus June quarter. While the average for the quarter was 34%, we have shown
steady and consistent improvements since July and fully expect our margins to
continue the upward trend through the current quarter.
Lastly, I would like to address the success and continued momentum of
collectibles.com. Just the other day we celebrated Collectibles one year
anniversary, and since that time we've exceeded all expectations with regard to
growth, profitability, and efficiencies. Since our first full month of
operations last December we have grown collectibles.com over 500%, generating
over $14 million in sales. This quarter we grew collectibles.com over 54%, to
$4.2 million, up from $2.4 million in the previous quarter.
collectibles.com now represents over 10% of Shop At Home's revenue.
Additionally, we were able to maintain the time spent on the site to an
impressive 20 minutes. One very important measurement for us is our ability to
convert our browsers to buyers. Once again we've been able to demonstrate some
of the highest revenue per browser numbers in the industry with each browser
averaging over $14.00 and our average order in excess of $195.00.
As we discussed last quarter, we continue to redesign the site to
improve speed and navigation. The first phase of that redesign was implemented
last month. The next phase is scheduled for next quarter.
In conclusion, this is a much improved business since July. Our
business fundamentals are stronger. Our people are more focused, and are
momentum forward-moving. We expect to report continued improvements in the
future quarters.
Kent.
KENT LILLIE: Arthur for some expense detail.
ARTHUR TEK: Thanks, Kent.
As Kent said, the results for third quarter reflect our turnaround
efforts which are ongoing and not yet complete, but show significant progress so
far. Tim Engle detailed our new merchandising and marketing strategies. I am
going to provide you evidence of our success in reducing cash operating costs.
We feel that the relevant comparison is not to the September 1999 quarter as we
do in the Q, when we had no major website, but rather to the June 2000 quarter,
the quarter immediately preceding the quarter just completed.
Our headcount peaked at 618 full time employees in May. We have reduced
that number to 490 currently by converging our broadcast network with our
website collectibles.com, and by reviewing every position in terms of profit
contribution. We are also continuing to leverage our investments and information
technology so we can make our leaner staff even more productive.
Including employee benefits, our headcount reduction has resulted in
savings of over $4.0 million a year. An even bigger expense category for us than
payroll is our affiliate carriage costs. Since June we have had excellent
success here as well in reducing our cash outlays without hurting our core
business.
We decided in June that we would try to cancel or renegotiate any
affiliate carriage agreement which was not profitable, meaning that the payment
exceeded the revenue after merchandizing costs generated by that cable system or
TV station. So far we have saved $574,000 annually by canceling agreements, and
another $1,071,000 by renegotiating. Despite our cancellations, our distribution
has grown to 26 million full time equivalent households [Using Shop At Home's
proprietary formula herein "FTE's"] from 24.8 million at the end of June as we
added new homes under an expanded non-preemptible partnership with the [DISH]
Network, Echostar. We have reduced every other major cost category as well by,
again, canceling or negotiating contracts. We have cut software maintenance
costs by 300,000, shipping/carrier costs by 500,000, telephone line and
transponder charges by 475,000, and a variety of other contractual costs by
425,000, for a total savings of $1.7 million annually.
We believe that these reductions will not impair our operations;
indeed, our lesson learned is that even after our turnaround is completed, we
will continue to aggressively seek cost savings from our service providers.
We have also dramatically reduced spending on capital equipment. We
spent only 430,000 on equipment during the September quarter. This low-level of
spending should continue for the balance of the fiscal year, and was made
possible by the $40 million that we invested in state-of-the-art equipment
during the preceding few years. We are now focused on using what we have to its
fullest potential.
As a result of our cost cutting efforts, our cash burn rate has slowed
each month, dropping even further in October. We are also successfully reducing
our accounts receivable and inventory levels. And, in October, we obtained a new
bank credit facility which added $5.5 million net to our working capital, and
also lengthened the maturity of our debt.
We believe we now have sufficient funds to complete the turnaround of
our operations. We've actually accelerated payments to our merchandising vendors
in order to obtain discounts and to improve our margins.
We announced yesterday a definitive agreement to sell our Houston TV
station for $57 million plus 50% of any spectrum auction profit. This money will
be used to reduce our debt and potentially to redeem our preferred stock as
well. Because of the uncertainty regarding the variable conversion feature of
our preferred stock, we believe that this preferred has had, and continues to
have, a depressant effect on our common stock price. We therefore have as a high
priority the redemption for cash of our preferred stock.
Various creditor consents are required for us to complete this
redemption, but we are still hopeful that we can remove the preferred from our
capital structure.
Kent.
ARIANE AMIRI: We'll go to questions and answers now, please feel free.
OPERATOR: Thank you. At this time we're ready for questions. If you
would like to ask a question, please press *1 on your
touch-tone phone. You'll be announced prior to asking your question. Once
again, if you'd like to ask a question, please press *1.
Our first question comes from Ned Armstrong.
NED ARMSTRONG: Yes, good morning, gentlemen. A couple questions. First
of all, with regard to the Preferred Series B preferred, you had mentioned
getting some consents from other creditors. Can you elaborate on what
specifically you would need to receive to complete that transaction?
ARTHUR TEK: Sure. And by the way, we started with $20 million in
preferred, and $5 million of it has been converted
already as of October 31st. So 25 percent of the problem is gone already, and
we have $15 million remaining.
Our bonds and our senior debt would both have to consent to our
redeeming for cash, any part of the remaining $15 million. We do have a carve
out under our bonds where we could redeem $5 million, but we would still have to
get consent from our bank facility. So those are the consents that are required,
but we're hopeful that we can work something out.
NED ARMSTRONG: I see. And would the transaction be more or less you
would have to pay some type of consent fee in exchange for those consents?
ARTHUR TEK: That's one possible scenario.
NED ARMSTRONG: Okay. My second question regards something on more of a
big picture basis, and that is what discussions you've had or how much thought
you've seriously given to selling the entire company, TV stations and all. That
seems to be a potential way to realize significantly more value than is
reflected in today's stock price.
KENT LILLIE: We're still open. As you know, we went through a process
at this time last year. We got some sense of valuation. The market's changed
substantially since then. But we're open, obviously, especially to a strategic
partner who could help accelerate our growth and profitability. So I am on
record saying that we're in the business of selling things, and there's nothing
that we don't have for sale, including the entire company, at the right price
and with the right partner.
NED ARMSTRONG: Okay. My final question and then I'll let others
ask. I just want to make sure that I heard Kent correctly
on the revenue per browser number; $14.00, and average order size of $190.00 as
it related to collectibles.com?
TIM ENGLE: Say that again, Ned. I am sorry.
NED ARMSTRONG: Revenue per browser was $14.00
TIM ENGLE: Yes.
NED ARMSTRONG: Average order size was $190.00.
TIM ENGLE: $195.00.
NED ARMSTRONG: $195. Okay. Thank you, gentlemen.
OPERATOR: Our next question comes from Chris Harris.
CHRIS HARRIS: Morning.
ANSWER: Good morning.
CHRIS HARRIS: I just want to follow-up actually on a couple comments
you made earlier in the call. Or actually I think I may have read it in the
release, you mentioned that you will look to sell at least, I guess, the
Bridgeport station -- or continue to market it anyway, you may consider selling
other stations as well. If you could maybe, I guess, speak to the appetite for
selling additional stations and when that might transpire, and I guess, what
might drive it.
KENT LILLIE: Well, price would drive it. We're not desperate to sell
any of our properties. We think they have substantial off-balance sheet value.
We think the market is realizing that. As I've indicated, we have continued
interest, and we'll see the appetite of that interest ultimately on price. So we
remain open. We are in some different levels of discussions with various
potential acquirers.
CHRIS HARRIS: You won't rule out, then, selling the entire station
group, I guess at the right price?
KENT LILLIE: No, we wouldn't. We would like to sell the combination of
stations that would reduce all the overhang of our existing debt and the
preferred stock. And that would be a transaction someplace above 40 or 45
million today. We really aren't eliminating any possibilities. I mean, we're
open to any possibility that will help to grow the company and ultimately
improve shareholder value.
CHRIS HARRIS: When you all speak to cleaning up the capital structure
and reducing debt, to what extent might that mean trying to take the -- the
tender rate for the bonds?
ARTHUR TEK: That's the tender rate for the bonds, that would be, you
know, capital structuring decision based on the cost of funds and the cost of
tendering, and also our primary goal is to redeem our preferred stock, not
necessarily to tender for the bonds, so those are all decisions that would
depend on the potential in-flow of funds, cost of capital at the time. But
tendering for the bonds is certainly something that's potential in improving our
capital structure as we go forward.
KENT LILLIE: We're not precluded either from reinvesting in like-kind
assets, so if there are station opportunities -- obviously Houston was a great
opportunity, our complete investment there was $6 million, we sold it for $57
million, so if we see those kinds of opportunities in the future, we're still
open to making acquisitions.
OPERATOR: Our next question comes from Chuck Waltier.
CHUCK WALTIER: Hi, guys. Chuck Waltier. I apologize if you answered
some of these questions. I got on the call late.
The Bridgeport station I notice was absent from the press release in
terms of a definitive agreement being signed. If you spoke to it, I'd like to
hear what your comments were regarding it.
And also, if you could tell me, on the new credit facility if there are
any covenants related to EBITDA net worth that you are currently in violation
of.
KENT LILLIE: To Bridgeport, we did announce in our press release
yesterday that the buyer had not completed a definitive agreement. We believe
that the station was presented properly with full disclosure, and that there was
no material change or material reason not to complete that transaction from the
buyer. So, as we've mentioned in the release and here, we expect and will claim
the deposit of $500,000. Our speculation -- purely our speculation is that the
buyer is having possible problems in obtaining permanent financing, but we'll
continue that station as a very valuable property. It does serve a pretty good
portion of New York. And we feel will have substantial value to someone. But in
the meantime, it's still a good acquisition and a good property for the company,
so we like that position.
Arthur, if you want to address...
ARTHUR TEK: With regard to our recent credit facility, there are no
EBITDA covenants or net worth covenants, I think you said. There is a covenant
regarding a minimum cash balance that we need to make. That's something that
we're of course doing anyway.
CHUCK WALTIER: Could you guys give what the net proceeds on the
Houston transaction is?
KENT LILLIE: Close to $57 million.
CHUCK WALTIER: 57?
KENT LILLIE: Uh-huh. With our NOL, some small fees in the transaction,
but it certainly will exceed $56 million.
CHUCK WALTIER: Okay. Thanks.
OPERATOR: Thank you. Once again, if you'd like to ask a question,
please press *1 now.
We have a question from John Ray.
JOHN RAY: Good morning. Question for Tim. On the database marketing,
which seems to be -- obviously you've done something awfully well in a very
short period of time, and I am just curious as to exactly what you did. Was that
a mail effort? Was it a phone bank effort? I mean, what did you do to, exactly,
to entice some of these names to be coming back to you as customers?
TIM ENGLE: John, the $1.2 million that I referenced was all mail
related. And what we did was basically look at customers who had not bought
from us over a certain specific period of time, and just made an offer to them,
and that generated $1.2 million in additional sales, either on collectibles.com
or coming in on the 1-800 number. That was all mail, which is, as you know, much
more efficient than telemarketing calls.
JOHN RAY: Were there specific products that you were offering them, or
was this a specific group that you pulled, like your sports collectibles buyers,
or what did you do?
TIM ENGLE: John, essentially it was an offer just for them to come back
and try shopping us again. We did do, in that group, very limited and smaller
populations specific to sports and jewelry buyers, and we had enormous amount of
success with that group. And we did a much larger offering for November, which
currently we're in the middle of. But it was just a general offer to buy any
product that they may see.
JOHN RAY: Okay.
TIM ENGLE: The only thing we did utilize is we did utilize coupons, I
think like $20.00 coupon for them or a $10.00 coupon. And what we found in the
purchase, because of that coupon, that they typically bought on an average price
point more stuff, and our margins did not deteriorate from what we would have
normally sold on the network anyway, so we were able to make up the coupon
expense in additional higher priced margin product.
JOHN RAY: So the percent discount didn't end up being that much, then?
TIM ENGLE: No, the percent discount was not -- I would tell you it
was insignificant relative to the impact of the bottom line.
JOHN RAY: If you said this I missed it and I am sorry. You mentioned
the average price point on collectibles.com, what was
it on the network? What is it at this point on the network?
TIM ENGLE: The average price point on the network has been average -- I
am going to give you a range because it changes daily. It's been in the 275
range, and we're seeing that actually -- when I reference, we would see sales
trends bending that down, we're seeing that actually come down over the last few
-- more over the last month to month and a half.
ARTHUR TEK: John, you can define "price point" different ways. You can
do it on a per order basis or a per item basis, because an order -- usually on
average contains, you know, 1.3 to 1.4 items. In our 10K last year we said for
fiscal 2000 we had an average price point of $202. That was per item shipped;
not order but item shipped. And recently, in the past couple of months we've
dropped below the $202, so we're finally making some progress there in reducing
price points on a per item basis.
JOHN RAY: Okay. I am curious about the Bridgeport situation because as
Azteca released a press release this morning basically they did due diligence,
and that was completely customary and, you know, had reason to withdraw, and
they expect the return of their 500 grand. And I am just curious as to what --
and they referenced apparently a letter they sent you that gave the reasons for
the withdrawal. And I am just curious as to what that's all about.
KENT LILLIE: Well, first, they did send us a letter, but it referenced
absolutely nothing with respect to any due diligence issues. Second, to our
knowledge, at least we were never contacted, the buyer never visited the
station to do a proper due diligence. And they have ignored repeated efforts to
discuss where they feel the discrepancy might be so that can be resolved. So,
again, we don't feel that's valid. There's very little due diligence involved in
these stations. We have a transmitter. We have several employees. We have a
signal size. We have a number of cable households, and the evidence of any leins
or no leins against the station. So it's a very simple due diligence process;
should have been completed easily by Pappas. He had full knowledge of all of the
important issues with that station, so that's why we tend to think that it may
have to do more with financing than any real due diligence issues.
JOHN RAY: So as far as you're concerned they don't have any claim on
half a million dollars, and they can go get lawyers if they want to get it?
KENT LILLIE: That is absolutely correct.
JOHN RAY: Okay. I assume there was a process that you went through
on Bridgeport, and are there other potential buyers
that you can now turn to relatively quickly and talk to about this; sell the
station?
KENT LILLIE: Yes, there is; and we have.
JOHN RAY: Do you expect an announcement on that or...
KENT LILLIE: It's difficult to say, John, at this point. I believe that
at least one buyer is continuing to do due diligence. But I can't with any
certainty look into the future to see if we'll receive an acceptable offer.
JOHN RAY: Rightly or wrongly, one of the overhangs on your stock has
been the perception that you're a debt-laden company, not just that this issue
of the preferred, that's just been a recent issue, relatively recent issue. But
the bonds have given people heartburn for some time, and I guess the question
I've got is you talk about alternatives that go short of paying off the
preferred and the bonds, and I am just curious as to, is it a number one
priority to become a completely debt free company or is there some interim step
that you're pursuing as a number one priority, or a step short of that, that
you're pursuing as a priority?
KENT LILLIE: Well, first, I would disagree because we have said that we
continued to look at liquidating other television station assets to eliminate
all the debt. The primary goal of the company is to return to profitability; the
elimination of debt allows us to do that much faster than not. So we would like
to do that, but we want to do that prudently. And $57 million or $56 net or
close to that we should receive from Houston next quarter goes a long way to
achieving that, or if it's carefully reinvested, it should contribute to
earnings. The $57 million represents far more return than we're getting by
owning the station. And again, we will look to an exchange of assets, we'll look
to the possibility of merger or acquisitions, or private investment that will
help us achieve our goals of profitability. And as part of that we'd like,
clearly like to reduce our debt. But as you know, John, that bond helped us
acquire those stations, helped us build that value. So it was important and
necessary at the time, and now it's important I think that we carefully reduce
that.
OPERATOR: Thank you. Our next question comes from Jim McGrath.
JIM MCGRATH: Yeah, hi, this is Jim McGrath at Sun America. I was just
calling to see what is the time frame for Collectibles to be breakeven, EBITDA
breakeven? And also, have you had any discussions with Promethean in terms of
what their intentions are and if in fact they would be willing to hold the
converter, or is it their intentions to hold the convert?
ARTHUR TEK: With regard to collectibles.com, we had our best EBITDA
quarter ever. I believe if you look in the 10Q segment information, then adding
back depreciation and amortization to operating income, you get to EBITDA of a
negative (1.4), but that negative (1.4) is less than the allocation of corporate
overhead. So in some sense you can say it was better than breakeven. But that's
an improvement over the June quarter, I believe it was a negative (3.0) million
EBITDA on the same basis. So obviously collectibles.com continues to improve.
With regard to Promethean we are having discussions with them. And
beyond saying that, I would say that they want to be cooperative and they want
to pursue interests that are mutually beneficial. They continue to be warrant
holders of our stock, so, again, I am hopeful that we can work something out.
JIM MCGRATH: Thank you.
ANSWER: Thank you.
KENT LILLIE: One more question.
OPERATOR: Our next question comes from John Lawrence
JOHN LAWRENCE: Good morning, guys. Tim, would you comment a little bit
on just in the press release and with all these other initiatives comment on the
returns, first of all. And I've got a couple more following that.
TIM ENGLE: Sure. Returns is probably in one of the many initiatives
that we kicked off in late July. Returns was clearly one of our top priorities,
and it'll probably be one item that we've not made the level of progress that
we're satisfied with. And part of that is due to price point. We've not seen
price points come down across the board through the end of September, however,
we are seeing it come down -- a lot of that is taking traction now. So when you
do make a decision to go to lower price points that affects your vendor base,
and you have to go out and get new vendors or totally re-tool them to bring more
price point products to you. So we are hopeful that we will see some improvement
in returns as enter this coming quarter, so -- due to the price point reductions
that we're seeing.
JOHN LAWRENCE: Yeah, and just a bigger picture question. As far as
collectibles.com has been up and running basically a year, and as you sit back
and look at both operations what's different strategically about obtaining that
customer? I mean certainly the revenues are higher than we would have expected
revenues -- I mean ad spending to be higher for Collectibles. As you put both
operations in context at this point, is there any difference in strategy or what
you see about that customer at all?
KENT LILLIE: Well, we think clearly that a customer that will transact
with us in both venues, both by phone and by computer, will be a much better
lifetime customer for the company. A lot of the advertising is an allocation,
John, that is part of our cable expense. It was part of our renegotiations.
We're creating significant advertising benefits on cable systems cross-channel
advertising and promotion. A substantial amount of advertising just started late
last week on Echostar so we're allocating a part of that. It doesn't really
increase the company's expenses overall, but we're allocating a part of our
distribution cost into that advertising category.
JOHN LAWRENCE: Great. Thanks. And last question, would the
shipping savings you mentioned, would any of that be as a
result of doing self-fulfillment yourself?
ARTHUR TEK: No. Those are as a result of negotiating with our
carriers.
JOHN LAWRENCE: Okay. And how is that process going, of doing your own
fulfillment.
ARTHUR TEK: I'll let Tim answer that.
JOHN LAWRENCE: Okay.
TIM ENGLE: We are actually in the middle of making transitions as we
speak. We made a decision to do that on our own because we felt like we needed
the flexibility to do this, and with the right people and bringing in the right
people, it's not really that difficult of a business to run. So that transition
actually is starting this week to go to our new fulfillment facility, which is
about one exit down. And we anticipate that to complete by next quarter -- by
the third quarter fiscal quarter.
JOHN LAWRENCE: And any hot products for the fourth quarter?
TIM ENGLE: Which fourth quarter are you talking about? The Christmas
quarter?
JOHN LAWRENCE: I am sorry. The Christmas quarter, yes.
TIM ENGLE: Yeah, we've got a couple a things up our sleeves. I mean,
one of the things that -- we've got a new hot computer from a new manufacturer
that we launched that we believe is going to be a real hot one. We also have
Subway Series, which had finished up, we're going to get a lot of that exclusive
product that we think will carry us into the end of December. And as long as
Tiger keeps winning we keep winning, so... But we've got a lot of products. We
are announcing this week an electric scooter, which is a hot item that's kind of
tough, in demand to get, that we'll be premiering this week actually.
JOHN LAWRENCE: Great. Thanks, guys.
ARIANE AMIRI: This ends our first quarter earnings conference call.
An instant replay is available for 10 days by dialing
1-800-944-3479. We will also be hosting a web chat this morning at 10:00 am. I
want to thank Mr. Lillie, Mr. Tek, Mr. Engle, and
all of you for your time and attention.
Thank you.
(End of Call)
