Russell Nuce - Chief Strategy Officer and General Counsel Mark Bozek - Chief Executive Officer Tim Peterman - Chief Financial Officer

Kayla Berg - Piper Jaffray Tom Forte - Brean Capital Alex Fuhrman - Craig-Hallum Capital Group Mark Argento - Lake Street Capital Markets Mark Smith - Feltl & Company Greg McKinley - Dougherty Beth Lilly - GAMCO Investors

Good day, ladies and gentlemen. And welcome to the Q2 2015 EVINE Live, Inc. Earnings Conference Call. My name is [Jemma] [ph], and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Russell -- Mr. Russell Nuce, Chief Strategy Officer and General Counsel. Please proceed, sir.

Thank you, [Jemma] [ph]. I'm joined today by CEO, Mark Bozek; and CFO, Tim Peterman. Comments on today's conference call may contain certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Such statements maybe identified by words such as anticipate, believe, estimate, expect, intend, predict, hope, should, plan, will, or similar expressions. Listeners are cautioned that these forward-looking statements may involve risks and uncertainties that could actual results to vary materially from those expressed in any such statements. More detailed information about these risks and uncertainties, and related cautionary statements are contained in EVINE Live’s SEC filings. Comments on today's call may also refer to adjusted EBITDA which is a non-GAAP financial measure. For reconciliations of this measure to our GAAP results and for an explanation why we use it, please refer to today’s news release available on the Investor Relations section of our website. I’d like to remind you that all information in this conference call is as of today and the company undertakes no obligation to update these statements. I’ll now turn the call over to Mark.

Thanks, Russell, and good morning, everyone. Thank you for joining this call to discuss our second quarter results. We are pleased with our performance over the quarter as we executed a more balanced approach to our airtime mix with continued investment in our new emerging brands, coupled with an ongoing commitment to our established anchor brands. As we addressed a number of challenges we faced in the first quarter, we are seeing momentum in our continued efforts to reposition EVINE Live by introducing more merchandising variety that is generating revenue across all our multiple platforms, especially mobile. We delivered topline growth of 3% and positive adjusted EBITDA in the quarter. These results were driven by better than expected sales with particularly solid performance in the categories of beauty, fashion and accessories. During the quarter the number of active customers grew by more than 1%. Not only did we increase the number of active customers, but we also improved our ability to retain those customers, hitting an all-time high customer retention rate for the company in Q2. We view this metric as a real positive and at the same time, the average purchase frequency increased by 10%. Our online sales grew 240 basis points to approximately 46% of total sales, fueled by healthy increase in both traffic and conversion rates. We improved our website conversion rate by 460 basis points and our mobile traffic conversion rate by 430 basis points. Mobile sales continue to make up a large percentage of our online sales. This quarter saw a 970 basis point increase in mobile sales to 42.3%. As we discussed last quarter and at our Investor Day in May, we believe the foundation for future growth and profitability at EVINE Live is twofold. First, we are focused on increasing the EVINE Live distribution footprint and the quality of those homes in which we are broadcast. And second, we are committed to increasing the number of homes that convert to EVINE Live customers. To that end, we believe the company's performance in the second quarter illustrates that our strategy of attracting and retaining more customers, and motivating those customers to purchase more frequently to a broader mix has real momentum. While our gross margins continued to exceed those of our competitors in this space, we experienced margin pressures in the quarter as we executed on our strategy. During this transition year, we are continually evaluating optimal gross margins in all areas of our business, with the ultimate goal of creating long-term sustainable growth. Now let me highlight some of the areas that resulted in our second quarter sales growth. Topline sales growth was led by our beauty category, which grew over 20%. This growth was fueled by strong performances by our established brands such as Skinn Cosmetics and Isomers. Skinn celebrated its seventh anniversary with us in July and delivered a 10% lift in sales over last year, with over 46,000 customers shopping the anniversary event. Isomers also performed well in the quarter, delivering more than 30% lift in sales over last year with a 13% increase in dollars per minute productivity. Our emerging brands, Beekman 1802 and Consult Beaute showed strong growth since their debut in Q1 and we're proactively marketing these brands with fans by tapping into their robust social networks. While the overall marketplace has experienced challenges in the category of fashion and accessories, our One World, Kate & Mallory and Anuschka brands continued to show strong growth. And our Bohemian-inspired fashion brand Indigo Thread Co., which premiered in May was a big success, with three items selling off before the on-air premier of the brand and all remaining items selling out during the show. The Invicta brand continues to be the anchor in the watch category, following challenges result -- challenging results in Q1 we improved our performance in this category with strong growth from Invicta. Improved productivity in Q2 was driven in part by focusing uncollectible watches at higher price points. At the same time, we premiered the two-hour Invicta Power Play show on Monday night during the quarter. Invicta Power Play show is yet another example of the success we have experienced with our destination programming shows like Wake Up In Style, Before & After Beauty and The Sizzle. As part of our efforts to augment the customer experience across all of our platforms, we also launched a new show Invicta customer experience that engages our customers across all digital platforms. By continuing the Power Play event online and on mobile for 72 hours following the on-air show on Monday nights, we are creating greater engagement from more customers before item sellouts. The results of this new experience have been strong with double-digit sales lift compared to traditional on-air shows only. This really unique customer engagement experience gives us confidence that there's real staying power with the Invicta brand. We are also excited about the full launch of TechnoMarine, an internationally known brand that was recently acquired by Invicta. In the jewelry category, we are encouraged by strong lift in units per customer, which was up for active, new and reactivated customers. Our live events from Las Vegas that included our established brands Gems En Vogue, Gem Insider and Gem Treasures all performed well. The home category continues to be a future growth opportunity for the company. Home not only generates more new customers than any other category, but it also adds significant breathe to our overall assortment of products and brands. Sales in the kitchen area, which includes cookware and small electrics, food -- and food are up 240% over last year. This growth has been fueled by established branded Cook's Companion, as well as our emerging brands such as the Todd English Collection, the Paula Deen's Kitchen, BoKU Superfoods and Deadliest Catch. While textile margins, as well as margins in the home category in general continue to put pressure on overall margins, we believe that as we work through the textile inventories for the rest of the year and focus on increased airtime productivity in this growing new name generating category, we will begin to see improved margins across home. Finally, like others in our space we continue to evaluate the rapid changes in technology and product offerings in the consumer electronics space. We had success in the second quarter with Samsung 4K TVs, the newly launched Apple Watch and an exciting new wireless headset brand called Red Fox Wireless. Our brands with fans strategy to attract new customers along with a wider broadcast footprint is at the core of how we believe we can grow our customer base. Our brands with fans have created new awareness for the EVINE Live brand in our shop, share and smile experience with over 40 million unique impressions year-to-date. In addition, the strong performance of emerging brands like the Todd English Collection, Beekman 1802 and Consult Beaute alone have generated over 10,000 new customers since April. Based on their current run rates, we expect these brands to be among our top 10 brands by the end of 2016. The premiere of the Nancy O'Dell collection on September 11th and Nicole Curtis Home this Friday, as well as other new proprietary brands we announced as part of our fall lineup to further build on our strategy of growing our customer base. Nancy and Nicole are quintessential example of our brands with fans approach to retailing. Nicole's Rehab Addict show on HGTV and DIY is wildly popular, and our announcement on Facebook of her coming to EVINE Live was liked and shared insignificant numbers. And Nancy O'Dell brings with her not only a great sense of style but also a potential new audience of over 4 million viewers who watch her each day on entertainment tonight. In short, we are beginning the fall season with more selections in our store. For content -- for context, we expect that more than half of the new proprietary brands we have launch this year will be returning as part of our fall and holiday seasons. Finally, as we head into the back half of the year, an important time for all retailers, we believe our mix of established and emerging brands of the company better positioned for growth. Despite our missteps in Q1 and the improvements that still need to be accomplished I remain confident in the company's ability to become not only far more competitive, but also profitable and long-term value creator for our shareholders. In the 14 months I have been with the company, I am everyday encouraged and inspired by our team of retail warriors, both the ones who been through it all and the ones who are in some cases getting their very first taste of life in the world of dollars per minutes. I look forward to meeting many of our investors in the coming weeks and months, and I thank you for your continued support. I will now turn the call over to Tim and he will take you through our financials, as well as update you on the progress of our distribution center in Bowling Green. Tim?

Thank you, Mark. Good morning and thanks everybody for joining today. I would like to walk you several Q2 financial and operational takeaway as we continue to make progress and improve our quarterly financial performance. Consolidated net sales for the second quarter were $161 million, compared $157 million for the second quarter last year, which represents a 3% increase year-over-year. In addition, our return rate improved 150 basis points in Q2 from 22.9% to 21.4%, our result of a more balanced merchandising mix and better quality merchandise. However, you can see we experienced margin pressure in the quarter as we implement our new merchandising strategy. Gross profit decreased 2.6% to $59 million. Gross profit as a percentage of sales decreased 210 basis points to 36.5%, primarily related to the following decreases. 190 basis points of gross margin percentage decrease was attributable to reduced margins in Jewelry & Watches and Home, excluding textiles due to merchandising mix changes and a lower than optimal ASP. 30 basis points of gross margin percent decrease was attributable to continued discounting of excess textile inventory. And 25 basis points of gross margin percentage decrease was attributable to reduced shipping and handling margin. So let’s talk about each one individually. As we reported earlier today, our customer retention rate hit an all-time high this quarter. At the same time, our average purchase frequency increased by 10%. We believe this momentum is a result of offering our customers a broader mix of products and our strategy of broadening our product mix, however, had also resulted in certain margin pressures in the quarter. As we navigate through this transition year, we will continue to evaluate the optimal gross margins in all areas of the business as we seek to attract and retain more customers. Regarding ASP, the company strategy over the past few years has been to lower our ASP to match those of our competitors. We moved from more than $100 in 2011 to $67 in 2014, to $62 so far in the first half of this year. We believe these efforts reduced the ASP for more than $100 in 2011 continues to be good for the business long-term. However, we are still working to find the right balance of the ASP with acceptable gross margins. Regarding our textile inventory, let me frame this a little bit to illustrate how we believe our margin pressure from excess textiles will be resolved over the next couple quarters. We had about $6.5 million of textile inventory remaining in our warehouse at the end of Q2. And about half of that was excess that will create some more margin pressure over the next couple quarters as we sail through it. We also have another $8 million of textile inventory to be received this fall. We sold about $4 million in textile at cost in both Q1 and Q2. We expect to sell slightly more than that amount in each of Q3 and Q4. Therefore all-in, we expect we will navigate to our textile inventory and any potential further gross margin challenges within the next two to three quarters. And finally as I mentioned in Q1, shipping margins continued to put pressure on our gross profit margins. EVINE Live along with a number of other retailers is continuing to adjust to the marketplace demand for less expensive shipping. This is a longer term challenge where we are making progress each month and our shipping margin as we implement smarter pricing, more measured promotions and lower negotiated shipping costs. In terms of other Q2 takeaways, second quarter operating expenses totaled $61 million compared to $64 million last year. Excluding unusual items in each year, operating expenses were up 1% versus the prior year. Operating expenses were affected by an increase in variable cost of $1.3 million, variable cost as a percent of sales were 9.5% versus 9.0% last year, reflecting the impact of the 15% increase in net shipped units, as well as the less efficient warehouse as we complete the Bowling Green expansion. As a result of our distribution facility consolidation and technology upgrade initiatives, the company also incurred approximately $1 million in incremental expenses during the second quarter of fiscal 2015 relating primarily to increased labor, warehouse equipment rental and inventory and other warehousing transportation costs. The rollout of our new warehouse management system is a primary operational focus. We are currently in a testing phase and expect to begin moving orders for select merchandising categories through the system later this year. We are still expecting to phase-in this implementation to the first quarter of 2016. And the intended benefits are two-fold: Improved labor productivity and shipping efficiencies that should result in variable rate declines in 2016 and improving the speed and accuracy of our shipments to our customers. In June, we implemented a Shareholder Rights Plan to protect our $298 million federal NOLs and $188 million state NOL tax positions. And we incurred cost of approximately $364,000 in connection with implementing this plan. As for the balance sheet, we ended the quarter with cash and restricted cash of $16.2 million compared to $18.2 million at the end of Q1. Net use of cash in the second quarter was $2 million, primarily driven by positive adjusted EBITDA of $2.5 million and positive working capital changes of $3.4 million, offset by capital expense in the quarter of $5.5 million, of which $1.6 million related to equipment installations in the new Bowling Green facility. We also had approximately $28 million of availability on a revolving credit facility at the end of the second quarter. Our inventory for the quarter finished at $59 million, which was a 13% increase from this time last year. Although this year-over-year growth is slightly higher than we expected, most of this increase is simply the result of changes to the merchandising mix as our new categories of Home and fashion turn at slower rates than Jewelry & Watches and Beauty. As for our cable and satellite distribution footprint, we believe that this is among our biggest strategic opportunities for growth in 2015 and beyond. We continued to explore many avenues and opportunities to reach the customers at times and in channels they most prefer, and we expect to implement certain initiative to expand the company’s distribution footprint in the back half of this year. Finally, as we have talked about, we are continually considering ways to simplify our organization to drive quality decision-making faster and build sustainable shareholder value on an ongoing basis. As we move into the fall season, we are pleased with our momentum and understand the challenges and opportunities that are in front of us. We expect third quarter revenue to be relatively flat with prior year results, followed by fourth quarter sales growth and net income profitability. With that, let me turn it over to the operator and we will be happy to take your questions.

[Operator Instructions] Your first question comes from Neely Tamminga, Piper Jaffray. Please proceed.

Great. Thank you. This is Kayla Berg on for Neely this morning. Just two questions. First, as we think about gross margin for Q3, I know you mentioned that it was down in Q2 because of that textile assessment and you expect to close through that over the next couple of quarters. Just kind of wondering if you're expecting a similar cadence with the puts and takes or if you are expecting some more textiles in the back half of the year, is that because you are actually going to increase the promotions to drive the units there?

Thank you. Thanks, Kayla for the question. This is Mark. I'll take this one. I think what’s important to remember as it relates to the gross margin. Historically, as many of you know, we have for many years been, business driven by Jewelry & Watches and that’s delivered higher ASPs and higher gross margins. But the last 13 years, we haven't really strong together two consecutive EPS quarters. And so that has a lot to do with the historical merchandising strategy of trying to drive those two categories. We do not believe that that is sustainable and so in order for us to create this sustained growth, as it relates to this depth and breadth of our merchandising mix, we believe that the gross margin challenges that we identified as it relates to textile is one thing. But in order for us to sustain our growth and be much more competitive, we're much more comfortable in the category or in the area and the reign of our competitors and their gross margins rather than trying to meet or exceed these unsustainable gross margins that we have had historically.

Great. And then my other follow-up question is just wanted to clarify, in the release you said there was some declines in the Home & Consumer Electronics category but then you guys said obviously Kitchen is up a lot. So just kind of wanted to clarify, is the Home & Consumer Electronics, is that really driven by a decline in Consumer Electronics, or there other categories within Home that you guys are maybe seeing some weakness there?

Yeah. I think Consumer Electronics -- thanks for the question again. Consumer Electronics is a very fluid business to be in right now. Anybody that's trying to sell a Consumer Electronics has to react very quickly to certain things that come available. And so I think for us it’s an opportunistic category and one that’s harder and harder for us to forecast. And so I think that’s where the areas of concerns that we have in terms of forecasting too much on that side. As it relates to the Home area, we’ve talked about textiles. We ran textiles a lot. We are pulling back on it. We still think it’s a good business to be in. We just have to approach it from a much smarter perspective. And also tabletop, tabletop was one category that we drove really a lot last year and we think we drove it too much and so that one’s pulled back a bit. But we are encouraged by for example, BoKU foods, Todd English, Paula Deen. These categories are driving not only a lot of new names for us but real revenue that’s in some cases replacing the other categories in Home that have not performed as well but also creating that depth and breadth scenario that we believe very strongly in.

Okay. Thank you. Good luck out there.

Thank you very much.

Thank you. Your next question comes from the line of Tom Forte, Brean Capital. Please proceed.

Great. Thank you for taking my questions. So the first question I had is, can you provide any data to support the strong performance of some of your emerging brands? At the Analyst Day in May, I think you gave us statistics to suggest the percent of sales from the new proprietary products in the first quarter versus last year. Thanks.

Okay. Hey, Tom. Thanks for the question. I think the best data that we look at, at this early stage of it, if you look at and then we talked about it, at least three and we mentioned three. We think there is potentially more, but at least three of the brands that we’ve launched since Q1 and that’s Todd English, Consult Beaute and Beekman 1802, are on a run rate to be among our top 10 vendors by the end of 2016. And so we look to that, we would go over, across the whole spectrum of all the new things that we've launched this year. We look at that metric as seeing where, when they -- particularly in their performances coming up in Q3 and Q4 that if their run rates continue as they’ve done so far that they become the real additional anchor brands or the ones that we’ve running for so many years that they become these additional choices for the depth and breadth of the merchandise and so that’s how we measure it. We certainly understand, particularly from Investor Day, the need for and the want for providing more clarity on where we see and how do you begin to measure these emerging brands that we have. And so we look at those rather than being specific in terms of dollar amounts. So we look at them categorically across all the spectrums, all the vendors that we have. If we can crack the top 10 with new and emerging -- some of these new and emerging brands that would be the first time that that top 10 has been cracked in about four years, with the last time that real sustainable new emerging brand was launched. And so that’s how we gauge it now. As we are now lapping quarters with some of these new emerging brands, we are starting to see and measure them in a much more transparent way, because they are coming back in third and fourth quarter and their sustainability seems to have real brakes.

And then if I might follow up with two questions. One, should we think of the shipping and handling pressure as four consecutive quarters of pretty significant pressure and then persistent afterwards, but moderating versus first four quarter period? And then where are you on your thoughts on distribution on heading a second channel, something you talked about in the past? Thanks.

Tom, it’s Tim. To your first question on shipping and handling, I think that it is going to -- the impact of it will begin to dissipate over time as we move through, one, the adjustments we made this quarter, which were around just smarter promotions and more measured promotions. But also long term, one of the reasons we’re putting in the WMS in Bowling Green is so we can more efficiently ship. And we think that will allow our transaction costs to go down. And we are also in broader discussions with our major carriers on shipping costs. So we do think the overall impact although an industry-wide will be -- begin to tailor off for us specifically. So that’s the shipping margin question. Regarding the second channels, is that the distribution? Yes, we are very encouraged by our progress to-date in exploring this opportunity. Obviously, the marketplace has spent a lot more time focusing on these channels and every conversation we have with our distributors has been encouraging. So we remain bullish on opportunity there.

This is Mark, Tom. I will just add, I think for over the years our competitors, including this company as well, have tried to develop second channels right, second pure play channels that are different from the existing channels. And clearly now and particularly over the last 18 months to two years, the notion of a second channel is not necessarily just to completely differently name channel network that programs a completely different array of merchandise. Obviously now there is ways particularly that are being done by our competitors that are proving to be really, really successful to having an incremental 40 million homes, which is our competitors in Florida have and 60 million incremental homes that our competitors in Pennsylvania have. Those are real marketable numbers right now that more and more of our competitors paying attention to. And so we very much are looking to participate and play in that game. We see a lot of incremental growth coming from those initiatives.

Great. Thanks, again.

Tom, thank you.

Thank you. Your next question comes from the line of Alex Fuhrman, Craig-Hallum Capital Group. Please proceed.

Great. Thank you for taking my question, and congratulations on a nice quarter. You’re nice to see guys hitting guidance. Congratulations on that both of you, all of you. I wanted to ask -- kind of make some sense of, of something you said Mark in the prepared remarks about some of your brands being on track to be top 10 brands by the end of 2016. Is that kind of a typical ramp-up period that you’ve seen with new brands in the state at two years kind of a standard amount of time that hit maturity? And if you can comment on the brands you launched in the past year, now that you’ve got enough airtime to kind of get a sense of how they are performing, how does that performance compares to the early days of Kate & Mallory and Skinn Cosmetics relative to how those brands ramped up over time?

Okay. Great. Thanks for the question. I think that when we start to measure the timing and how long it will take and what the cadence will be before some of these emerging brands become our top 10 brands, I think the timing of it, depending on the category, each one is different, but certainly the ones that we have identified Todd English, Consult Beaute, and Beekman 1802, I think they are on a faster run rate frankly than we anticipated. And I think that has a lot to do with the fact that there have not been since Kate & Mallory three or four years ago, there hasn’t been a major launch of anyone that has sort of cracked that top 10. And so it really speaks for us because of our active customer increase and because of this average purchase frequency being up by 10%. I think that means that our current customers as well as new customers are responding. And so the notion of debt and breadth as it relates to these emerging brands is really paying off, because we are not turning away customers. In fact, our core customers are buying more from us than ever before. As we said, it’s a record high in terms of the churn of our customers is at all-time low. And so we look to those emerging brands to become these anchors. And so those three in particular are growing at a really rapid rate because they are not really replacing anything, we are looking for them to become incremental to the existing businesses that we have. For example in that category, we talked about Isomers and Skinn. Isomers has been around for 18 years. Skinn just celebrated their seventh anniversary. In the early days in Florida, some of these brands, it took two, three, four years for them to grow. We are impressed and we are actually a little surprised that they are growing at the rate that they are growing. And so I think it’s encouraging for us to cut the apples to apples comparison to the three or four years ago with Kate & Mallory. It’s harder to sort of making the comparison right now I think, because we’re much more robust online and that was than we were three or four years. Our mobile technology and all the increase that we’ve had there, the different kind of measure, but if you do have to do apples to apples, I would say that these are growing faster, at a faster run rate than we were with Kate & Mallory. Also Kate & Mallory, in those days we had less than 5% of a fashion business, we now have an 18% of our businesses in the fashion area. So it’s certainly became the beginning of all the new next that was coming in fashion, but it’s not the exact apples comparison to what we’re doing now with some of these emerging brands.

Great. That’s really helpful. Thank you. And then as a follow-up, can you just comment -- I know you mentioned in the prepared remarks what I thought was pretty surprising that there was a strong performance in customer retention. And intuitively I brought these new brands here you’re offering and launching would be helping to bring a new customers, which it certainly sounds like it is. But wouldn’t necessarily expect that in and of itself to impact retention, but where is that coming from, is that just more efficient your email database, and just curious to how things counterintuitive to retention will be at an all-time high at a time when you’re launching so many new products? We’d just love to get more color on that.

Right. I think it’s a combination of things, Alex. I think it’s a combination of being better on emailing and being better on text and being better on communication with how we are socialing, networking and launching these new brands. These brands come with a lot of fans. And so I think that helps. But the notion of and it’s a very fair question, we changed our name and that took place in February and did that have any sort of negative effect, but in fact it’s had a very positive affect that our core customers are seeing that depth and breadth of merchandise that we are offering. And so they are not only watching more, they are buying more. And so for us rather than it being buying to the core and hello to only new, this retention rate for us is above the metrics that we have in addition of course to being up 3% in sale. That’s a really, really important metric for us, because it shows that the core customer had belief in our strategy of this depth and breadth. And if we get the core to do that and we are able to then expand that core from 1.4 to 1.6 and 1.8 and 2.8, etcetera, then you can see the real opportunities for us to grow the topline. And our model becomes very scalable in terms of, because of our fixed costs that we’ve talked about now for the last year or so. It’s a really exciting metric for us. And we saw at the end of the quarter was that we’re not losing our core customers, in fact they were staying with us more than they ever have.

Great. Thank you so much for the color. And good luck in the back half of the year.

Thanks very much.

Thank you. And the next question comes from the line of Mark Argento, Lake Street Capital Markets. Please proceed.

Hi, good morning, guys. Congrats on a nice quarter.

Thanks, Mark.

I just wanted to focus a little bit about or just drill down a little bit, and obviously nice bounce back from a tougher Q1 as you had mentioned. What did you learn coming out of Q1 that you may be implemented in Q2 that maybe helped provide the solid results that we saw?

Yes. I think a couple of things. I think that as we talked about and certainly as we have shown a bit more in Q2, it’s focusing on the airtime mix, right. I think as we said and I said in the last quarter, we went too far and pushed too quickly on some of the newer launches. And so it’s really a balanced more now of the airtime mix. So that as we introduced the new that we introduced them in a somewhat slower cadence without taking away the airtime from some of our core established brands particularly in the jewelry and the watch category, I think that we had a more balanced effort on our shipping promotion, Mark. So that we weren’t -- we were reacting competitively in the first quarter and we reacted I think too quickly or too heavily I should say. And I think all of those combination of factors really kind of drove some of the mistakes that we made in Q1 that we ideally now have begun the corrections of those. I think you have to learn and recognize quickly what happened during that period of time and so progress. And I think we have definitely done that in this quarter. And I have to say also I am -- I was recruiting much of the first quarter, right. We replaced our CFO. We replaced our -- we removed our President. We hired a new Chief Merchandising Officer. We have a new finance team, two gentlemen that joined us from Target in the last couple of months. And so I think you look at all of those things not as necessarily as excuses, but as the reasons as to if that occurred in Q1, what do you do fix it? We have been unbelievably focused. We have not been on the road. We have been in Minneapolis and in the trenches, and I think it’s really starting to pay off for us in a positive way. I am surrounded by a room full of people here today, none of which have been here longer than 14 months, except for Nick Vassallo, who has been our Controller thankfully for the last 16 years. And so I think it’s a combination of all of those things. You better learn from those mistakes, otherwise you continue to perpetuate them. We are very pleased that that did not happen in the second quarter. And while we are still in this transition phase of figuring out the gross margin along with the airtime mix of strategy, I have to say again that 13 years there has not been two positive EPS quarter strong together, because of this focus on these two primary category of jewelry and watches and it was not a model that was built for scale. We absolutely believe that this diversity model that we are in the midst of right now in this transition is built for scale and that’s what has us most excited about it. We’re cautious. We’re not being overly optimistic, which is why we said what we said about what we think we’re going to do in the next couple of quarters, but make no mistake. From the day we started here to right now despite what happened in Q1, we absolutely believe that the breadth and depth of the merchandise is the absolute answer for sustainable growth for this company.

That’s helpful. Yes. I mean, it’s impressive that you’re able to beat the numbers and it didn’t do it on the back of watches, it’s watches only and jewelry only be enough modestly for the quarter. So hats off to the mix and the ability to get some of these new products and brands cranking. Last question for me, in terms of brands and additional brands, I know you had mentioned in your prepared remarks roughly 50% will be making a return to the lineup here for the holiday season. Thinking about reloading in additional brands, obviously you have more fashionable brands that are launching. I know you’ve talked about some consumables and some other verticals that you might be focused on vitamins or other areas. Maybe a quick update on your thoughts on new brand launches for later this year or early next year?

You bet. So we announced couple of weeks ago for those that we’re just in Q3. And as you touched on, we touched on Nancy O'Dell and Nancy O'Dell, we’re extremely excited about. And the fact she has a web-only preview show tonight at 9 AM or 9 PM Eastern on evine.com that we’re really excited about, her actual launch at September 11, but there’s already a lot of buzz around that. I think that the area of ingestible vitamins is one I’ve talked about since I’ve got here or since I arrived here. And it’s one that’s really exciting for us. I’m having built the business at my previous place into almost $200 million business at 60 points of margin. It’s one that takes time because you got to find the right person ideally and the right formula for this ingestibles, but we are excited about what’s going to be called OptiLife by Dr. Joe that’s going to be launching in September. I think that there’s some exciting ones even in the jewelry area, one of them is called Margo Manhattan Silver, John Wind Fashion Jewelry is another one that’s coming up. Andrew Zimmern from Bizarre Foods on the Travel Channel, he is going to be launching in a couple of weeks, we’re really excited about him. And I think again, what's important for us is that we continue this, right. And so that we’re able to show because there was some discussion about while there was this lull over the summer of launching brands, we wanted to launch them when there we got, in many cases going to actually be on the air. So we kind of waited for this time to announce our fall schedule and this was really just about Q3. You’re going to be hearing in the coming weeks about several more for Q4 and into spring of 2016. I have to say that as it relates to these new launches, we are destination now. You go to Las Vegas to the jewelry show, you go to Cosmoprof at the beauty show, you go to the Tucson Gem Show, you go to Hong Kong for the jewelry show, we are being sought after right now and didn't occur a year ago. And I think that's really important for us as a retailer. You want people in the pipeline who want to do business with you and despite what happened in Q1, there has been absolutely no lack of people lining up wanting to do business with us. And to that end, Penny Burnett, who’s now been here for three or four months, who’s certainly learning all about the world, the dollars per minute is really excited and she's becoming this anchor position for our DMMs, who are out in the field having real conversation and real competitive conversation, the likes of which we've never had before. So, we look to that, overall as our strategy as it fits into our strategy of this diversity. You can’t say diversity and have diversity unless the people that create that diversity are going to do business with you. And to that end, we have no -- there is just no end to the amount of people who want to be here.

Great. Thank you.

Thank you. And the next question comes from the line of Mark Smith, Feltl & Company. Please proceed.

Good morning, guys. First off, Mark, can you quantify at all airtime for watches and maybe how the watch business did versus jewelry?

To quantify it specifically, I think what’s more important about is what we talked about what -- the misstep in Q2 was the ASP particularly in watches and the lower margin associated with the ASP in watches. And what we found in Q1 is we’re trying to be more competitive with some of the other price ranges that Invicta in particular we are selling in. When in fact we discovered, luckily not too much time for one quarter to the next, we discovered that the collectible men's watch business was something that was much more successful for us and it was the formula that had been in the past and we kind of moved back to that. You attach that to this Invicta Power Play thing that we did. I think we talked about in first quarter. One of the good things that happened in the first quarter was this little test that we did on a boat with a shaky little GoPro Camera to see if we could drive revenue offline that wasn't on television where we’re selling televisions on EVINE Live. So, we’ve now expanded that and that little test has become the Invicta Power Play show and so it’s a two hour show on TV every Monday night and then our show that’s online only that is also live. And those events that extend now for 72 hours are becoming really popular. So, we’re able to grow the Invicta business in a careful, smart kind of way. We're very excited about what we have in store for them for the third and fourth quarter as a relevant part of our business. But we’re now been able to drive business online, which enables us to do other kinds of merchandising strategies and use of airtime in other categories. As it relates to jewelry, I think jewelry still is a big part of what we do. I think there is a need for diversity in our jewelry category and I think the customers want that diversity. We have some core brands as we said, Gems en Vogue, et cetera that have been stalwarts here for a long, long time but I think customers are wanting more diversity in that. And I think some of these new launches that we’ve talked about. Perla Donna is an Italian jewelry line, BB Becker and I also mentioned Margo Manhattan and John Wind. So, I think some diversity in that category is really what's needed. Again, we still have a much higher percentage of jewelry than our competitors do and we feel comfortable with that. But I think they need to be surrounded by some newness, as well as the depth and breadth that we’re bringing from some of the other categories. All of these core businesses. Again, it's important to say that we’re not moving away from them. But I've always believed from the start that if we surrounded them with more better stuff and had and this diversity was there than the eyeballs would come to us and they would watch us much more consistently than they have in the past. And if we can get them to do that, particularly from these price points of these other new categories, then you have sustainability, then you have the ability to stream two quarters together and really grow the topline then drives the bottomline to a much more profitable, sustainable company.

Okay. And can you guys talk a little bit about your comfort with current inventory levels and Tim, you maybe walk us through, I think, you said, you got an additional $8 million in a textiles coming in the inventory this quarter? Maybe walk us through where you are today, kind of what's coming on board in your inventory and your comfort levels with what you have and will have?

Yeah. Sure. Thank. The -- when you think about our inventory, it grew this quarter by 13%, which is about half the growth rate of what it’s grown over the past three quarters. So we’re really happy actually with the progress that we're making around inventory and that progress revolves around a couple key things. Number one, we’re having a lot more robust conversations about inventory when we actually issued the purchase order. So we start back to the very beginning and Penny has brought a lot of discipline to this idea about when we’re issuing purchase orders, asking the right kind of questions to make sure that the buys we put into the system are reasonable, compelling, price right and complement the other categories and the products on-air. And the other thing that we're doing in the inventory to make sure that it continues on this trend of moving smaller year-over-year growth is around the lifecycle and we’ve talked about this in the past. We’re really focusing on trying to develop our airtime on a revenue yield model, which means that once a particular product doesn’t do, as well as we expected to do on-air, we quickly move it off in order to move it into off-air channel that whether that be online, a marketplace, a third party marketplace or what we’ve talked about in the past and what we’re still exploring, which an outlet store for some of the more representative products and categories like fashion and home and categories like that. So with those two things, with the discipline that Penny is leading on the front-end with the purchase orders and with the backend lifecycle improving the velocity of merchandise through the system, it will not only allow us to keep our inventory relatively flat or small increases, but it will also improve our revenue yield, which is what Mark was talking about when we have these diversity of products. We make sure that there’s small buy that actually sell out and that we’re actually driving our revenue on a yield basis rather than what just inventory we have on hand and that’s really the major focus. As we talked about aligning the ASP with the merchandising, with the purchase orders, with the revenue yield, it’s a very linear model.

I think you answered probably my next question that was on an outlet center. No significant change you are still kind of exploring stage at this point?

Yeah. We’ve really centered our attention in almost a radius around our Bowling Green facility, because we want to make sure that we can replenish the area and move through without a lot of cost. And so we focused on some markets that we think are viable and now we’re into really exploring the absolute business model and then timing and locations and all those sort of things.

And last question for me, can you confirm, I think you said variable expense during the quarter was 9.5%? Can you confirm that and then talk about cost per home where that came in during the quarter?

Cost per home was relatively flat for the quarter, but in terms of variable costs, yeah, you are correct, it is 9.5% and the -- slightly up and that as result as you can imagine, as we move things together and move that in base things down in Bowling Green we consolidated $2 billion down to $1 million and implementing the new WMS were just not at peak performance right now in terms of efficiency.

I will say that we have this guy name Jimmy Donohue down in Bowling Green who joined us six months ago from Amazon, who has been a terrific new voice and a new face and has provided some really great leadership down in Bowling Green to the team down there. So we’re feeling really good about him as well.

Jimmy has done a great and he has been -- he has done wonderful.

Thank you.

Thank you. And the next question comes from Greg McKinley from Dougherty. Please proceed.

Good morning. Had a couple of questions that -- regarding your guidance. Now just historically, Q3 revenues have tended to be modestly higher than Q2 revenues that isn’t always the case but on average it is. Is your guidance for flat year-over-year revenues which should be down a little bit sequentially? Is that more just sort of high-level guide or is that reflective of continued testing in transitional business or should we not read necessarily much into that discrepancy?

Thanks Greg. This is Tim. The times that we provided, there are couple of things, couple of facts out there. Number one, Q3 last year was 7% growth, that was our highest growth quarter of ‘14. And so we were -- we want to make sure that we are conservative and that we are in the business of outperforming our estimates. That being said, I think that we are continuing to implement a new merchandising strategies and there is no -- there is no priority right now to maximize as markup but maximize margins and yields on two categories. We’re really trying to find a right mix on ASP, the right margin balance and the right category balance and that takes some trial there on-air time and trial there on new products. And this is a transitional year that we are moving through. So we want to make sure that we adjust everybody’s expectations to the task at hand.

Okay. Fair enough. Thank you. And then, regarding customer retention rates, you had addressed that earlier and indicated that you’re really starting to achieve historically high retention rates there. Have you quantified that or could you quantify that for us so we can understand the degree of change?

This is Mark, Greg. Yeah, I think we can quantify when we say it’s all time high. Traditionally, we have churned through half of our customers, half of our 1.4 million customers we churn through at 50% roughly. And now, it’s higher than that but the churn is 54.5% are being retained versus 50% that are being retained. And again, it’s relatively small on a basis of 1.4 million customers but the notion of it at all. I mean, that churn has been consistent for so many years here because of this merchandising strategy, we believe of just being so focused on jewelry and watches. But this depths and breadth that really speaks to the idea that not only are the new names being attracted but the core customer purchase frequency. So those core men and women that are buying from us have increased by 10%. So not only are we retaining them, they are buying more products. And so those are early metrics and for us that was the most deciding metric for us because when you are doing this transition that we are in. And it’s this bumpy process but boy, if you are keeping your core and they are staying with you and in fact they are actually buying more because we think we’re offering them more than we think that’s a really good foundation to build upon.

Yeah. Very good. Okay. Thank you. And then transaction costs, I wonder if you could talk a little bit, how are those linked to the product mix in ASP, my guess is so when new systems come online that will allow for more efficient picking and distribution but with lower ASP, you probably have what more units shipped per transaction. So Mark, if you can help us understand how those two core relate to each other and how we should think about them in the future?

Yeah. I think that the whole premise of putting or consolidating Bowling Green and putting a new WMS, we can make sure that we are more efficient as we know that the units shipped will increase disproportionately to the revenue as the ASP declines, right. So if you think about what we just went through in Q2, it was a 15% increase in units shipped and 3% increase in revenue. And so the idea is that consolidating packaging, consolidating routes and distribution points, all these elements go into the idea of keeping transaction costs relatively flat from a metric perspective while we find the right mix on ASP and merchandising. So it’s a -- you're right, it’s a closed ecosystem. They do work hand-in-hand together but we do think they will come down in time as the tumult of the consolidation in the WMS is taking place right now actually becomes functioning through the first quarter of next year.

Okay. And then maybe, the other topic I wanted, just to better understand turning back within gross margins. So we talked about how much was attributable to tax styles. We talked about shipping and handling. Most of what you called out was related to reduced margins in jewelry and watches due to lower ASPs but are we at a point, I guess at the product level within watches and jewelry, we’re starting to ratchet it that back up as you again focus on collectibles and how much of that 190 basis points, I guess, is behind us as we get our inventory back to where we wanted it to be in those areas?

Yeah. Thanks Greg. It’s Mark. I think that is correct as it relates to jewelry and particularly watches that I think that the issues that we had in Q1 and that have started to rectify in Q2 are on a good trend for us to get them back up to more sustainable gross margin as the ASP goes up a bit and those collectible watch customers that we have, buy more of that. And so I think that we’ve, of course, corrected that really smartly. I mean, overall as a gross margin scenario overall, again I think that if you look historically where we’ve been versus our competitors, we’ve been in many cases much higher. And so for us to be competitive particularly in the categories, these new categories that we’re venturing into, some of which have higher margins, some of them have low margins. Beauty has high, Homes doesn’t have as high as much but it’s the overall mix of that. And we think that we can be much more competitive on a sustainable basis in this 36% and 36.5% range as we grow. I think that that’s a real area for us that’s perhaps new in terms of how we are looking at things. But I think it’s the way that we think sustainability will come rather than us pushing these two categories with these high margins at such a rate. We just don’t think. We’ve seen it over the years that it’s just not sustainable. So we’re becoming much more comfortable with this notion of this margin range across the breadth and depth of what we sell because we think that’s where the real growth is going to come.

Okay. Thank you. And then just last question, other channel development whether it’s online, you talked about having your Invicta show both on TV as well as online and then exploring fair channels on outlet or some thing. Are you doing those things with brands other than Invicta or is Invicta really done the test so far and any color you can add there?

Yes. We started with go pro on the bow, I think as we talked about our last quarter. And of course, we wanted to focus on our biggest brand. And if there was a way to extend that customer and grow them even more, let’s use them because we certainly know a lot about the Invicta customer and what in most cases, he buys from us.

Yeah.

But no -- since that time, we’ve also done several other web-only shows with this phone app. It’s no longer about taking a truck on the road and spending $200,000 to do a live remote. We went live from the Beekman 1802 Farm in Sharon Springs, New York and we did this retail reality show of an hour of these two gentlemen who run the company, giving a tour of their farm and we rented and sold product online. That had nothing to do with what was going on-air at the time. We did the same thing within these ambush makeovers downtown in Minneapolis with skin cosmetics that were really fun. In fact, I think one of our analyst Scott ambushed during that time. And I’m not sure who but yet I think one of the man, Neely, actually got ambushed during that time. We went live to Paula Deen’s house in Savannah. And so it’s really that the notion of can you create the content and, of course, the sales that come with it and that’s why Nancy O'Dell one we’re really looking forward tonight at 9 o’clock to see if we can begin generating these revenue in ways that are not necessarily just coming from TV. We’re able to do it. Our bar is pretty low, Greg, in terms of what we can do and what has to be accomplished and we’re finding through technology particularly through this amazing phone apps and the ability for us to go and shoot a live show with a small little go pro, our small little HD camera that you can even broadcast that live online and in some case on TV. It’s really exciting for us. I think those are ways for us to be nimble in that sense, that you create live, exciting events. That’s why again live is in the name of our company. It wasn’t just about TV. It was that you could create these live experiences online. I have to say even with the Invicta one, we -- there was a watch that they designed that had all these skulls and bones in it that we had a contest for the customers who actually name it. And we had almost 10,000 people enter the cost to name it and it ended being called a bone collector. And we sold through half of them already in the first couple of shows that we’ve had on the year. So it’s that kind of engagement as that we see as really important not only with the new customers that are coming through but also with our existing customers. I think we’ve found a better balance in Q2 in so many areas but in particular with how we’re treating the customer and how we’re appropriating the right amount of air time in terms of our mix.

Yeah. Okay. Very good. Thank you.

Thank you. [Operator Instructions] The next question comes from the line of Beth Lilly at GAMCO Investors. Please proceed.

Good morning.

Hello Beth.

I wanted to ask you at your Analyst Day, you didn’t say anything about this. So for a long time, the management team or prior management team talked about the Boston Station in core and Mark, you haven’t said much about it. So I just wanted to ask you what are your thoughts about the station at Boston WWDP and what’s the auction, airwave auction everything going on? What do you think longer term about the prospects for that asset?

Thanks for the question, Beth. And yes, you can imagine that, Beth, the topic of that conversation is becoming more and more frequent as we follow like others in our scenario who own these type of stations are following it very carefully. It is a very, very fluent process. The valuations on the station and the stations are wildly disparate from x amount to y amount without going into too many specifics about what they are. But we are mindful of the potential value of that station as it relates to spectrum. Right now, it’s on the books. The real estate that we have on the books is $12 million. But it’s the conversations and we’re certainly getting increase from it. We’re following it very carefully. We believe it we’re following it with smart advice from people who know how to -- what that’s all about. But it is something that we’re watching very, very carefully but it’s just not something we’re in the position to say anything more about until what happens and we -- and they decide when in fact they are going to actually have this auction.

Right. So you -- in essence, you want to watch to see what the valuations are before you decide what to do?

Absolutely.

Okay. Great. And do you view it as a longer term as an asset that you want to retain or do you think that longer term, it’s something that you don’t get this core?

Yeah. I mean, we look to it as -- we certainly look to it as opportunistic. I mean, we would be -- it would be foolish for us not to look at it as opportunistic than what it was when it was just $12 million asset that we had on our books. So absolutely we look at that as the potential opportunity. It’s just too early in the game for us to speculate anymore.

Okay. Terrific. Thank you very much.

Okay. Thank you, Beth.

Thank you. I would now like to turn the call over to Mark Bozek for closing remark.

Great. I appreciate the call. We appreciate all you questions. We appreciate your support. We’re looking to look very much forward to getting back on the road again beginning in September. I do want to mention as I said in my prepared remarks about our retail warriors. We have brave ones particularly in our merchandising team. I want to call out Teresa Harris, Brian Scevola, Lee Goehring, David Miller and [Matthew Glickman] [ph] all who work with Penny Burnett. They have been absolute warriors out on the infield if you were and again are having great, robust discussions with people and brand and personalities, the likes of which this company has not seen and I wanted to acknowledge them on this call because they deserve it. Thank you all very much and we look forward as I said to seeing you out at some of our investor meetings over the next couple of months.

Thank you. Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.