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Bob Johnson Charles Burnside

Welcome to ShopNBC's fiscal second quarter 2009 teleconference. (Operator Instructions) I would now like to turn the call over to Ms. Nancy McGrath of ShopNBC.

-: I would now like to turn the call over to Mr. Keith Stewart, ShopNBC's President and Chief Executive Officer. -: I would now like to turn the call over to Mr. Keith Stewart, ShopNBC's President and Chief Executive Officer.

-: We continued to strengthen our leadership team in the quarter. The Board of Directors unanimously appointed Randy Ronning, a retail and TV shopping veteran of 36 years, as our Chairman of the Board. The Board also appointed Ed Garrubbo, a direct response veteran as a Director. We are so very pleased to be benefiting from their expertise, insight, and instrumental guidance to advance our strategies during this period of transition to the company. -: -: Customer trends continued to improve in the second quarter. New and active customers were up 59% and 32% respectively. We are building excitement and trust with our customer base through our premium product quality, tremendous value, and highly critical guest experts. In the quarter, we added a record 106 new vendors, a record 60 new launches, and a record 32 expert guests, such as TV shopping veteran Dave King and gem expert Paul Deasy. -: -: -: -: Finally, the company's overall cost structure was reduced by 19% in the second quarter versus last year as part of an ongoing initiative to tightly manage costs. As these business metrics indicate, we are now in the early innings of a whole new ballgame at ShopNBC. We have the right leadership team in place. We are buying the right merchandise and building up our reorder business. With improved inventory levels, higher margins, and lower price points, positive business metrics continued to take form. In fact, weekly sales trends improved sequentially at the company during the second quarter to the extent that we achieved positive EBITDA in the month of July. We are very happy about this strong finish to Q2. -: Finally, the company's overall cost structure was reduced by 19% in the second quarter versus last year as part of an ongoing initiative to tightly manage costs. As these business metrics indicate, we are now in the early innings of a whole new ballgame at ShopNBC. We have the right leadership team in place. We are buying the right merchandise and building up our reorder business. With improved inventory levels, higher margins, and lower price points, positive business metrics continued to take form. In fact, weekly sales trends improved sequentially at the company during the second quarter to the extent that we achieved positive EBITDA in the month of July. We are very happy about this strong finish to Q2. -: With that, I would like to turn the call over to Frank Elsenbast, our CFO, who will provide more detailed financial overview of the second quarter. Then I will spend a few minutes talking about initiatives being implemented in Q3, to improve our sales performance for the balance of the year, as these steps are a necessary precursor to improve sales and profits. -: With that, I would like to turn the call over to Frank Elsenbast, our CFO, who will provide more detailed financial overview of the second quarter. Then I will spend a few minutes talking about initiatives being implemented in Q3, to improve our sales performance for the balance of the year, as these steps are a necessary precursor to improve sales and profits.

-: Second quarter revenues were $119.3 million, a 16% decrease compared with revenue of $142 million last year. The shortfall in the quarter was due to the 42% decline in the average selling price of our merchandise versus last year. This reduction in our price point is an essential part of our strategy to increase viewership, rebuild our customer base, and increase unit volume. During the second quarter, we grew our active customer base by 32% and drove a 40% increase in unit volume, which partially offset the decline in our average selling price. Gross margin in the second quarter increased to 34.8%, which is up 330 basis points versus our first quarter margin of 31.5%. The margin increase was driven by less product discounting and a favorable mix change as we reduced our sales of consumer electronics. We are focused on continuing margin improvement throughout the second half of the year. Operating expenses for the quarter were $52.3 million, a reduction of 19% or $12 million versus last year. The reduction was driven by continued focus on all discretionary spending, significant reductions in salaried headcount over the last year, efficiency gains in our warehouse and call centers, reduced marketing spend, as well as a significant reduction in our cable and satellite fees. -: -: The $8.5 million of restricted cash is related to our increased direct importing. These dollars support overseas letters of credit on merchandise imports for the third and fourth quarters. A final note on our balance sheet. We end the second quarter with a strong balance sheet. In addition to our cash resources, ShopNBC has over $100 million in assets that could be monetized to raise additional capital if needed. These assets include our accounts receivable portfolio, real estate in Eden Prairie, our Bowling Green fulfillment center, and our full power TV station in Boston. That concludes my update. Now, I will turn the call back to Keith. -: The $8.5 million of restricted cash is related to our increased direct importing. These dollars support overseas letters of credit on merchandise imports for the third and fourth quarters. A final note on our balance sheet. We end the second quarter with a strong balance sheet. In addition to our cash resources, ShopNBC has over $100 million in assets that could be monetized to raise additional capital if needed. These assets include our accounts receivable portfolio, real estate in Eden Prairie, our Bowling Green fulfillment center, and our full power TV station in Boston. That concludes my update. Now, I will turn the call back to Keith.

-: -: In short, when the customer shops ShopNBC, they will have to pay one shipping and handling fee for multiple purchases made throughout the day. No one else in our industry is offering this. So let's talk some shop. -: In short, when the customer shops ShopNBC, they will have to pay one shipping and handling fee for multiple purchases made throughout the day. No one else in our industry is offering this. So let's talk some shop. -: -: -: -: In our fashion business, a new foundation is being laid for the business with a refocused merchandise strategy. We are casting a wide net with our fashion business at ShopNBC, so that whatever our customers' life demands, we've got their style. 50 new launches are planned in Q3, including Sag Harbor apparel, Esprit outerwear, Via Spiga shoes, Laundry by Shelli Segal, O by Oscar handbags, and Geoffrey Beene. So stay tuned. -: In our fashion business, a new foundation is being laid for the business with a refocused merchandise strategy. We are casting a wide net with our fashion business at ShopNBC, so that whatever our customers' life demands, we've got their style. 50 new launches are planned in Q3, including Sag Harbor apparel, Esprit outerwear, Via Spiga shoes, Laundry by Shelli Segal, O by Oscar handbags, and Geoffrey Beene. So stay tuned. -: -: -: In summary, across all these categories, a record 121 new show titles, concepts, and brands are planned for launch in Q3. In Q2, we launched 64. Let me just add that the brands we are launching now weren't here one year ago or even six months ago. Now we are being sought out. Buzz is building in the industry and they want to be part of it. So with more new product coming in the door, with more reorders being made, and with a robust holiday strategy planned to drive incremental sales, it is fair to say that we aren't even close to hitting our peak. -: In summary, across all these categories, a record 121 new show titles, concepts, and brands are planned for launch in Q3. In Q2, we launched 64. Let me just add that the brands we are launching now weren't here one year ago or even six months ago. Now we are being sought out. Buzz is building in the industry and they want to be part of it. So with more new product coming in the door, with more reorders being made, and with a robust holiday strategy planned to drive incremental sales, it is fair to say that we aren't even close to hitting our peak. -: Q1 margins were 31.5%. In Q2, they were 34.8%. We intend to keep our margins up through buying right and knowing how to mitigate risk. On new merchandise, we are dipping our toe in the water to see how the customer will respond. Then with proven product, we are building up the reorder business where margins are safe. This is why we are so focused on ramping up this part of our business. The other way to keep margins strong is to keep our inventory clean. We have a real partnership with our merchants and product planning organizations. Merchants are bringing in the new. Planners identify the risk. We are being careful on the risk. Where product tests well with the customer, it's full speed ahead. This approach keeps the customer happy, while we manage the financial responsibility around the inventory and keep margins higher. -: Now to keep bringing in more new customers and to keep activating our customer base of repeat customers, the use of daily sales promotions and sales events need to be bigger and they are. Throughout it all, we will be holding operating costs steady. With that, let me conclude. As I said in the outset, the turnaround at ShopNBC is gaining momentum. Q2 was another solid building block quarter. We are executing the business better and continue to make progress in many areas. We tested and added dimension to our product portfolio. We are buying with better discipline and our inventory and margins are being well managed so that reorders are a bigger percentage of our overall business. We are past the pain, and while there still will be some growing pains, which is a natural part of evolution and growth, I remain highly encouraged about the progress made during the first half of the year and hope you share our enthusiasm about ShopNBC's future. We certainly appreciate your time this morning, we will now take your questions.

(Operator Instructions) Our first question comes from [Bob Johnson]. Sir your line is now open.

The question I have is, you mentioned that EBITDA was positive in July. Do you think that trend is going to continue in Q3 and Q4?

We are not providing guidance at this time. However, as I mentioned during the comments on the call, we are very pleased with the building blocks that we have laid in Q2 and we've seen sequential improvement in the topline, but don't get too excited. We have got a lot of work to do and thanks to the great team here at ShopNBC and the vendor community, we will continue our progress throughout.

Our next question comes from Mr. [Charles Burnside].

The question I have is I noticed an awful lot of inside buying in the month of July. Was that a reflection of confidence or were there other mitigating circumstances?

I cannot speak for others, but I can speak for myself that I would eat my own cooking. Thank you very much for your questions and I hope you enjoy the rest of your summer.

Thank you for joining today's conference call. You may disconnect at this time.