Troubled by mounting losses and pressure from one of its largest investors, Shop At Home Network's board of directors last week ousted CEO Kent Lillie.
Lillie, who took over management of the home-shopping channel in 1993, had built the network's revenue from $20 million to $200 million over the past seven years. But it was the last two years — in which the company lost more than $16 million — that appear to have inspired the board's decision.
Back in July, Lillie had initiated measures to bring the company back to profitability, mainly through layoffs and asset sales. But it was too little and too late.
"The board decided that, despite Mr. Lillie's efforts and in light of the operating losses sustained by the company over the last several years, it is in the best interests of the company and its future success to bring in a new chief executive officer," Shop At Home chairman J.D. Clinton said in a prepared statement.
Shop At Home also named two new directors and created a new office of the chairman, which will serve as a transitional leadership team as the company searches for Lillie's replacement.
Spokeswoman Kearstin Patterson called the search for a new CEO "active and ongoing."
Lillie could not be reached for comment.
The company named Milton Bradley Co. chairman George Ditomassi and Shop At Home's outside counsel, Charles Bone, to its board of directors. Ditomassi and Bone will also serve in Shop at Home's newly created office of the chairman, along with Clinton and current board member Frank Woods.
Shop At Home is the smallest home-shopping channel in a universe dominated by QVC Inc., HSN (formerly Home Shopping Network) and ValueVision International Inc. But while the other three channels have made buckets of money selling cheap home computers and cubic zirconia, Shop At Home has struggled to sell high-priced collectibles and sports memorabilia.
As a result, Shop At Home's losses quadrupled in the last fiscal year to $13.3 million, and show no signs of improvement. Net losses for the fiscal second quarter, which ended Dec. 31, were $8.2 million, up from a loss of $314,000 in the prior year.
The company is expected to release its fiscal third-quarter results on or before May 15.
John Ray, president of Atlanta-based investment banker Legacy Asset Management, has been critical of Lillie and the rest of Shop At Home's management team since his firm became a major investor earlier this year. Legacy owns about 3.3 million shares of Shop At Home stock, Ray said, or about 8.1 percent of its outstanding shares.
That makes Legacy Shop At Home's second-largest shareholder, behind Promethean Asset Management, a New York-based investment company that holds roughly 8.2 percent of the company.
In March, Legacy filed a securities disclosure citing displeasure with Shop At Home's stock price and its management's performance. While Ray said he doubts Legacy's opposition to Lillie had anything to do with his firing, he wasn't sad to see the former president go.
"They have not been free cash-flow positive for three and a half years," Ray said. "It wasn't like Mr. Lillie wasn't given plenty of time to make something happen."
Ray said that since Lillie joined the company in 1993, cumulative losses have been about $30 million.
Shares in Shop At Home had traded as high as $30 each in 1999, especially when the company was thought to be an acquisition target of USA Networks Inc., which was mainly interested in its broadcast stations.
But in February 2000, negotiations with USA fell through. USA has since sold its broadcast stations to Univision Corp. The stock closed at $1.82 May 9.
Although USA is out of the picture as a suitor, Ray said he still thinks Shop At Home could be attractive to a buyer — especially if it's able to turn its fortunes around.
"If the operations are run right, the buyers will come to you," Ray said. "This company is viewed in the industry as a wounded duck. They need to show there is more to this company rather than just the raw assets."
So far, Shop At Home's most valuable assets have been its television stations, one of which it sold for $57 million in March. The company owns five stations in Boston, Cleveland, San Francisco, Raleigh, N.C., and Bridgeport, Conn.
The proceeds from the March sale of the Houston station were used to pay down debt.
The company's debt is down and Ray said he expects Shop at Home to have about $25 million in cash on hand in the fiscal third quarter. But the company must still control costs and get more and better products to sell, he said.
At the root of Shop At Home's problems are the expensive collectibles it sells, which Ray said have alienated viewers. Shop At Home has also done little to promote its brand, he said.
"I don't think people see Shop At Home as a brand name," Ray said. "There are probably a lot of people who watch Shop At Home who think they're watching the Home Shopping Network."