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Posts Lower Earnings, Blames Phone Problems

March 11, 1988

NEW YORK (AP) _ Home Shopping Network Inc., the leader in televised shop-from-home programs, said Friday that telephone problems were responsible for a 44 percent decline in second-quarter earnings.

The telephone problems - since corrected - prevented some potential customers from placing orders, and contributed to an inventory buildup that the company is still trying to reduce by cutting prices on some merchandise, according to Roy Speer, chairman and chief executive of Home Shopping.

At a briefing for securities analysts conducted at the American Stock Exchange, Speer said, ″We’re out of the telephone problems now and we hope that the future will be bright.″

Nonetheless, the St. Petersburg, Fla.-based company’s stock slumped in the wake of the earnings report. Home Shopping fell $1.37 1/2 a share to $6.12 1/ 2 in trading on the Amex.

Mark Riely, who follows the company for the investment firm Eberstadt Fleming, said, ″The phone situation may have hurt them last year, but one would have expected sales to have been higher in last couple of quarters.″

For the three months ended Feb. 29, Home Shopping said it earned $5.2 million, or 6 cents per share, compared with $9.3 million, or 10 cents a share, a year earlier.

Revenue for the quarter rose 16.6 percent to $192.8 million from $165.3 million a year earlier.

For the first six months of its fiscal year, the company said it earned $8.3 million, or 10 cents a share, down 56 percent from $18.8 million, or 21 cents a share, a year earlier.

Six-month revenue rose 41 percent to $378.8 million from $268.7 million a year earlier.

Speer told the analysts that the company’s sales of $582 million for the fiscal year ended Aug. 31, 1987 had fallen far short of the $800 million the company had forecast for the year.

But he said the reason was that the telephone system the company was using proved incapable of handling the volume of calls that Home Shopping’s two television networks were generating.

The company had ordered merchandise on the presumption that it would sell $800 million worth of goods last year, he said, and couldn’t halt deliveries.

As a result, he said the company’s inventory rose steadily to a peak of $135 million in November. He said the company has been liquidating it gradually by cutting prices, but that the backlog remains at $78 million.

The company didn’t discover the telephone problem until last April, Speer said, and has since changed telephone companies and filed a suit against its former telephone service supplier.

He said the new phone system is operating well and that the company helped itself by moving its operations into a new and bigger facility in St. Petersburg. The network’s old facility was in Clearwater.

Home Shopping sells merchandise ranging from jewelry to computers on two television networks that are carried on cable systems seen by about 19 million subscribers or satellite dish owners and on 22 broadcast television stations reaching about 37 million households.

The company has previously said it planned to sell financial services through the television networks, but officials indicated they are taking a more deliberate approach in that area.

Lowell Paxson, president of Home Shopping, had told a marketing group last May that the television networks would be selling financial products by the spring of 1988. On Friday, he said the telephone problems had commanded so much of management’s attention that that timetable had been delayed.

But he noted that in the past six months, Home Shopping had acquired two seats on the New York Stock Exchange and one seat on the Amex and bought a Dallas-based brokerage, Wealth Planning Resource Center.

Paxson said Home Shopping hopes to sell a family of investment funds through the television programs eventually, but said, ″We are going to move very slowly″ and declined to estimate when that would be.

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