QVC sets sights on $1B sales mark in aftermath of CVN acquisition - QVC Network Inc., home shopping service, CVN Companies Inc

QVC Sets Sights on $1B Sales Mark In Aftermath of CVN Acquisition

WEST CHESTER, Pa. - By grafting the best attributes of its own home shopping program onto its newly acquired CVN TV shopping operations, QVC Network is setting its sights on reaching the $1 billion sales mark within the next two years.

Joseph M. Segel, chairman, told a group of securities analysts and reporters here that the three-year-old teleshopper has established goals to more than double its net revenues this year - and double them again next year.

QVC, which completed its acquisition of Minneapolis-based CVN Cos. in early November, expects to report consolidated revenues of between $420 million and $440 million in its current fiscal year, ending Jan. 31, 1990. Those figures include three-months' worth of CVN's TV selling operations. Last year, QVC reported net revenues of $193 million.

QVC is targeting sales of $870 million to $950 million in the next fiscal year, and $1 billion to $1.2 billion the following year.

Segel declined to speculate on how the acquisition would affect short-term earnings. "There are several merger-related matters involving inventory valuations, interim pricing policies, program distribution and disposition of discontinued operations that will require a few more weeks to sort out," he said. "Nonetheless, despite significant interest and goodwill-amortization burdens that often cause acquiring firms to report large losses immediately following a leveraged acquisition, we believe that QVC's consolidated net earnings will still be on the plus side in the current quarter."

Future net income goals are:

* $13 million in fiscal 1991; * $30 million in fiscal 1992; * $50 million in fiscal 1993.

The CVN programming will be gradually converted to emulate the more relaxed, soft-sell approach of QVC's programs. Cable systems that previously carried both CVN and QVC will be offered a new multi-merchant channel, called Cable Shopping Mall, to replace CVN once CVN's programs are completely consolidated onto the QVC channel. The company claims its segmented themed program format and more laid-back style has been more popular with viewer than the hard-sell tactics of CVN and the industry's other major player, Home Shopping Network.

Other QVC business strengths that will be brought to bear on CVN operations include QVC's exclusive affiliation with Sears and its extensive cable industry support. In turn, QVC expects to benefit from CVN's large credit operations which have helped CVN generate higher per customer sales. QVC expects this new service to increase its average revenue per home from $24.11 to $31.40 by fiscal 1993.

As a result of the recent merger, the total number of QVC common shares now outstanding comes to 14,655,947.

The largest increase in shares came as a result of QVC issuing 890,382 additional convertible preferred shares, equivalent to 8,903,820 common shares, to 30 multiple cable system operators (MSOs). In exchange, these MSOs have extended their contracts to carry the QVC or CVN televised shopping programs to a minimum of 17.8 million cable subscribers, 24 hours a day, seven days a week, until the years 2004 to 2005.

This extension is particularly significant, noted Segel, because QVC's principal competition in the home shopping industry, Home Shopping Network, currently operates on much shorter term contracts with its cable carriers. Considering the intense competition for cable channels, Segel feels QVC's longer-term commitments better position the company for the future.

Cable companies now own 68 percent of QVC common and common-equivalent shares. If all debentures were converted and all warrants and options exercised, ownership by cable companies would increase to 74 percent. The largest shareholders of QVC are: Tele-Communications Inc., with 21 percent; Comcast, 16 percent; Time Warner, 11 percent; and United Artists, 7 percent.

With the acquisition of CVN, QVC has leapfrogged over Home Shopping Network in number of cable subscribers and annualized sales. After consolidation, QVC has over 4 million customers, 6,500 employees, 1,800 WATS lines, 30 million cubic feet of warehousing and shipping facilities and $150 million in inventories.

QVC's live, televised shopping programs are transmitted nationally by satellite 24 hours a day, seven days a week. Counting both full-time and part-time carriage, the QVC and CVN programs now reach approximately 32 million cable subscribers, including 7 million who receive both.

Newly Acquired Subsidiary

QVC also has named an executive team for its newly acquired subsidiary. Segal will replace Theodore Deikel as chairman and chief executive officer of CVN.

QVC executive vice president Thomas G. Downs will serve as CVN's vice chairman and will be responsible for QVC/CVN coordination. Roger R. Cloutier II, formerly CVN's senior vice president and chief financial officer, has been promoted to president and chief operating officer.

QVC senior vp, corporate secretary and general counsel Neal S. Grabell will take over those duties at CVN, and Susan L. Stauffer, vp of the defunct The Fashion Channel, will now also serve as president and chief operating officer of Cable Shopping Mall, a new multiple-merchant shopping channel under development by QVC.

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