customer base. The following table shows our merchandise mix as a percentage of television home shopping and internet net merchandise sales for the years indicated by product category group:

                                            For the Three-Month              For the Nine-Month
                                               Periods Ended                   Periods Ended
                                         October 27,   October 29,    October 27,         October 29,
                                            2012          2011            2012               2011
Merchandise Mix
Jewelry & Watches                            50%           50%             53 %                 52 %
Home & Consumer Electronics                  28%           28%             25 %                 29 %
Beauty, Health & Fitness                     15%           14%             14 %                 13 %
Fashion & Accessories                        7%            8%               8 %                  6 %

Our product strategy is to continue to develop new product offerings across multiple merchandise categories as needed in response to both customer demand and in order to maximize margin dollars per minute in our television and internet shopping operations. Our multichannel customers are primarily women between the ages of 35 and 65, married, with average annual household incomes of $70,000 or more. We also have a strong presence of male customers of similar age and income range. We believe our customers make purchases based on our unique products, quality merchandise and value.

Company Strategy
As a premium multichannel electronic retailer, our strategy is to offer our customers differentiated quality brands and products at a compelling value proposition. We also seek to provide today's consumers with flexible programming formats and access that allow them to view and interact with our content and products at their convenience - whenever and wherever they are able. Our merchandise positioning aims to make us a trusted destination for quality and an authority in a broad category of merchandise. We focus on creating a customer experience that builds strong loyalty and a growing customer base.

In support of this strategy, we are pursuing the following actions to improve the operational and financial performance of our Company: (i) expand and diversify our product mix to appeal to more customers, to encourage additional purchases per customer and to increase customer retention rates (ii) increase new and active customers and improve household penetration, (iii) increase our gross margin dollars by improving merchandise margins in key product categories while prudently managing inventory levels, (iv) enhance our customer satisfaction through a variety of investments in technology, promotional activity and improved and competitive customer service policies, (v) manage our fixed operating and transaction expenses, (vi) grow our Internet and mobile business with expanded product assortments and Internet-only merchandise offerings, (vii) expand our Internet, mobile and social media channels to attract and retain more customers, and (viii) maintain cable and satellite carriage contracts at appropriate durations while seeking cost savings opportunities and improved footprint productivity through better channel positions and dual illumination or multiple channels.

Our Competition
The direct marketing and retail businesses are highly competitive. In our television home shopping and e-commerce operations, we compete for customers with other television home shopping and e-commerce retailers; infomercial companies; other types of consumer retail businesses, including traditional "brick and mortar" department stores, discount stores, warehouse stores and specialty stores; catalog and mail order retailers and other direct sellers.

In the competitive television home shopping sector, we compete with QVC Network, Inc. and HSN, Inc., both of whom are substantially larger than we are in terms of annual revenues and customers, and whose programming is carried more broadly to U.S. households than our programming. The American Collectibles Network, which operates Jewelry Television, also competes with us for television home shopping customers in the jewelry category. In addition, there are a number of smaller niche players and startups in the television home shopping arena who compete with us. We believe that our major competitors incur cable and satellite distribution fees representing a significantly lower percentage of their sales attributable to their television programming than do we; and that their fee arrangements are substantially on a commission basis (in some cases with minimum guarantees) rather than on the predominantly fixed-cost basis that we currently have. At our current sales level, our distribution costs as a percentage of total consolidated net sales are higher than our competition. However, one of our key strategies is to maintain our distribution fixed cost structure in order to leverage our profitability as we grow our business.

The e-commerce sector also is highly competitive, and we are in direct competition with numerous other internet retailers, many of whom are larger, better financed and have a broader customer base than we do.

We anticipate continuing competition for viewers and customers, for experienced home shopping personnel, for distribution agreements with cable and satellite systems and for vendors and suppliers - not only from television home shopping companies, but also from other companies that seek to enter the home shopping and internet retail industries, including telecommunications and cable companies, television networks, and other established retailers. We believe that our ability to be successful in the television home shopping and e-commerce sectors will be dependent on a number of key factors, including increasing the number of customers who purchase products from us and increasing the dollar value of sales per customer from our existing customer base. Results for the Third Quarter of Fiscal 2012 Consolidated net sales for our fiscal 2012 third quarter were $137,592,000 compared to $135,187,000 for our fiscal 2011 third quarter, which represents a 2% increase. We reported an operating loss of $3,388,000 and a net loss of $3,675,000 for our fiscal 2012 third quarter. We had an operating loss of $5,369,000 and a net loss of $6,350,000 for our fiscal 2011 third quarter. Results of Operations

Selected Condensed Consolidated Financial Data

                                   Operations
                                  (Unaudited)
                                                   Dollar Amount as a                       Dollar Amount as a
                                            Percentage of Net Sales for the          Percentage of Net Sales for the
                                               Three-Month Periods Ended                 Nine-Month Periods Ended
                                            October 27,          October 29,         October 27,          October 29,
                                               2012                  2011               2012                  2011
Net sales                                      100.0  %              100.0  %           100.0  %              100.0  %
Gross margin                                    36.9  %               37.2  %            37.5  %               37.7  %
Operating expenses:
Distribution and selling                        34.0  %               35.2  %            34.8  %               34.2  %
General and administrative                       3.1  %                3.6  %             3.3  %                3.6  %
Depreciation and amortization                    2.3  %                2.4  %             2.4  %                2.3  %
                                                39.4  %               41.2  %            40.5  %               40.1  %
Operating loss                                  (2.5 )%               (4.0 )%            (3.0 )%               (2.4 )%



                            Key Performance Metrics
                                  (Unaudited)
                                          For the Three-Month                                 For the Nine-Month
                                             Periods Ended                                       Periods Ended
                               October 27,     October 29,
                                  2012            2011          Change        October 27, 2012       October 29, 2011      Change
Program Distribution
Total Homes (Average 000's)        83,268          80,728          3.1  %            82,366                 79,366           3.8  %
Merchandise Metrics
Gross Margin %                       36.9 %          37.2 %    -30 bps                 37.5 %                 37.7 %      -20 bps
Net Shipped Units (000's)           1,273           1,188          7.2  %             3,857                  3,480          10.8  %
Average Selling Price         $       100     $       105         (4.8 )%   $            99        $           108          (8.3 )%
Return Rate                          23.5 %          24.6 %   -110 bps                 22.1 %                 22.8 %      -70 bps
Internet Net Sales % (a)             44.8 %          44.1 %    +70 bps                 45.4 %                 45.0 %      +40 bps

(a) Internet sales percentage is calculated based on sales orders that are generated from our shopnbc.com website and primarily ordered directly online.

Program Distribution
Average homes reached, or full time equivalent ("FTE") subscribers, grew 3% in the third quarter of fiscal 2012, resulting in a 2.5 million increase in average homes reached versus the prior year comparable quarter. The increases were driven primarily by increases in our footprint as we expand into more widely distributed digital tiers of service. In addition, we made low-cost infrastructure investments during the current fiscal year that will enable us to soft launch our signal in high definition (HD) format and improve the appearance of our primary network feed. We are testing HD as a multi channel feed in selected markets in 2012, including 500,000 homes in Seattle that were launched within the third quarter. We believe that having an HD feed of our service will allow us to attract new viewers and customers, although the phased roll out of our HD feed may negatively impact future operating expenses. Our television home shopping programming is also simulcast live 24 hours a day, 7 days a week through our internet websites, www.ShopNBC.com and www.ShopNBC.TV, which is not included in the foregoing data on homes reached.

Cable and Satellite Distribution Agreements We have entered into cable and direct-to-home distribution agreements that require each operator to offer our television home shopping programming substantially on a full-time basis over their systems. The terms of these existing agreements typically range from one to three years. Under certain circumstances, certain cable operators may drop our service prior to the expiration of the contract. Additionally, we may elect not to renew distribution agreements whose terms result in sub-standard or negative contribution margins. If the operator drops our service or if either the Company or the operator fails to reach mutually agreeable business terms concerning the distribution of our service so that the agreements are terminated, our business may be materially adversely affected. Failure to maintain our distribution agreements covering a material portion of our existing households on acceptable financial and other terms could materially and adversely affect our future growth, sales revenues and earnings unless we are able to arrange for alternative means of broadly distributing our television programming.
In February 2012, we renewed our largest television distribution agreement covering 18 million homes, or approximately 22% of our 82 million households. The terms of this agreement better reflect rates in today's competitive distribution environment, and we anticipate a net reduction in annual television distribution costs under this agreement by approximately $15 million beginning January 2013. As part of the agreement, we will also receive a second channel on this distribution provider beginning January 2013.

Net Shipped Units
The number of net shipped units during the fiscal 2012 third quarter increased 7% from the prior year's comparable quarter to 1,273,000 from 1,188,000. For the nine months ended October 27, 2012, net shipped units increased 11% from the prior year's comparable period to 3,857,000 from 3,480,000. We believe the increase in units shipped during the fiscal 2012 third quarter and year to date is primarily due to a mix shift during the year to higher multi-unit purchase categories such as fashion and beauty.

Average Selling Price
The average selling price, or ASP, per net unit was $100 in the fiscal 2012 third quarter, a 5% decrease from the comparable prior year quarter. For the nine months ended October 27, 2012, the ASP was $99, an 8% decrease from the prior year's comparable period. The decrease in the ASP was driven primarily by a decrease in the sales mix of higher price point consumer electronic items during the quarter and year combined with a higher concentration of product sales in our beauty, fashion and home product categories. Consistent with our long-term strategy, we anticipate a continued decrease in ASP as we further broaden and expand our product assortment of lower priced items to reach a broader audience.

Return Rates
Our return rate was 23.5% in the fiscal 2012 third quarter as compared to 24.6% for the comparable prior year quarter, a 110 basis point decrease. For the nine months ended October 27, 2012, our return rate was 22.1% as compared to 22.8% for the prior year comparable period, a 70 basis point decrease. The decrease in the fiscal 2012 third quarter and year-to-date return rate was influenced by a decrease in return rates within our jewelry & watches, beauty, health & fitness and fashion & accessories product categories. We continue to monitor our return rates in an effort to keep our overall return rates in line and commensurate with our current product mix and our average selling price levels.

Net Sales
Consolidated net sales for the fiscal 2012 third quarter were $137,592,000 as compared with consolidated net sales of $135,187,000 for the fiscal 2011 third quarter, a 2% increase. The increase in quarterly consolidated net sales was driven by sales improvements in the beauty, health, & fitness categories due primarily to a shift in airtime during the quarter into these categories

as well as sales improvements achieved in our jewelry & watches category. This performance was partially offset by a decrease in the categories of fashion & accessories and home & consumer electronics. Consolidated net sales for the nine months ended October 27, 2012 were $409,320,000, a minor decrease to consolidated net sales of $410,857,000 for the comparable prior period. The small decrease in our year-to-date consolidated net sales from the prior year largely reflects the impact of a sales decrease in our home and consumer electronics category. These decreases were mostly offset by sales increases in all other categories. Net sales shortfalls in our consumer electronics category continued to impact our sales results during fiscal 2012 due to challenges related to limited product assortment as well as execution within this product area. We have taken specific actions to address these challenges, and we are starting to see improvements in this category. Going forward, we expect that this category will remain a small percentage of our overall Company sales. We are focused on broadening our higher margin businesses and also investing in new businesses to grow our product mix and customer base. Our e-commerce sales penetration was 44.8% and 45.4% as compared to 44.1% and 45.0%, for the third quarter and first nine-months of fiscal 2012 compared to fiscal 2011, respectively. Our third quarter and year-to-date increases in Internet penetration primarily reflect higher customer utilization of mobile ordering platforms than in the prior year periods.

Gross Profit
Gross profit for the fiscal 2012 third quarter and fiscal 2011 third quarter was $50,790,000 and $50,242,000, respectively, an increase of $548,000, or 1%. The increase in the gross profits experienced during the quarter was driven primarily by the year-over-year quarter sales increase discussed above, offset by lower quarterly gross margin percentages experienced as discussed below. For the first nine-months of fiscal 2012 gross profit was $153,502,000, a decrease of $1,400,000 or 0.9% from $154,902,000 for the comparable prior year period. The decrease in the gross profits experienced during the first nine-months of fiscal 2012 was driven primarily by the year-over-year sales decrease and the lower year-to-date gross margin percentages experienced as discussed below. Gross margin percentages for the third quarter of fiscal 2012 and fiscal 2011 were 36.9% and 37.2%, respectively, a 30 basis point decrease. On a year to date basis, gross profit percentages were 37.5% for fiscal 2012 and 37.7% for fiscal 2011, respectively, a 20 basis point decrease. The decreases in the third quarter and year-to-date gross margin percentage were driven primarily by increased shipping and handling promotions made during the year.

Operating Expenses
Total operating expenses for the fiscal 2012 third quarter were $54,178,000 compared to $55,611,000 for the comparable prior year period, a decrease of 3%. Total operating expenses for the nine months ended October 27, 2012 were $165,780,000 compared to $164,440,000 for the comparable prior period, an increase of 1%.
Distribution and selling expense decreased $815,000, or 2%, to $46,762,000, or 34.0% of net sales during the fiscal 2012 third quarter compared to $47,577,000, or 35.2% of net sales for the comparable prior year fiscal quarter. Distribution and selling expense decreased during the quarter primarily due to decreases totaling $973,000 in variable credit card processing fees, driven by more favorable credit and debit card rates and lower bad debt expense; decreased share based compensation expenses of $431,000 due to the timing of fully vested older stock option grants no longer being expensed and reduced restricted stock compensation expense resulting from the timing of vesting; and decreases in advertising and promotion expense of $158,000. These decreases were partially offset by increased program distribution expenses of $685,000 related to a 3% increase in average homes reached during the quarter.
Distribution and selling expense increased $1,942,000 or 1%, to $142,308,000, or 34.8% of net sales during the nine months ended October 27, 2012 compared to $140,366,000 or 34.2% of net sales for the comparable prior year period. Distribution and selling expense increased on a year-to-date basis primarily due to increased program distribution expense of $4,037,000 related to a 4% increase in average homes reached during the year. The increase over the prior year was also due to increased salary and wage costs of $759,000 and increased customer service and telemarketing expense of $466,000 attributable to an increase in units ordered and shipped during the year. These distribution and selling expense increases were offset by decreases in variable credit card processing fees and other credit expense of $2,264,000, decreased share based compensation expenses of $432,000 and decreases in advertising and promotion expense of $841,000.

General and administrative expense for the fiscal 2012 third quarter decreased $582,000, or 12%, to $4,242,000, or 3.1% of net sales, compared to $4,824,000, or 3.6% of net sales for the comparable prior year fiscal quarter. General and administrative expense decreased during the quarter primarily as a result of a reduction in share-based compensation of $401,000 due to the timing of fully vested older stock option grants no longer being expensed and reduced restricted stock compensation expense resulting from the timing of vesting. In addition, general and administrative expense was also reduced by a $312,000 favorable litigation settlement received during the third quarter of fiscal 2012. For the nine months ended October 27, 2012, general and administrative expense decreased $1,350,000, or 9%, to $13,446,000, or 3.3% of net sales, compared to $14,796,000, or 3.6% of

net sales for the comparable prior year period. General and administrative expense decreased on a year-to-date basis primarily as a result of decreased share-based compensation expense of $982,000 as described above, and decreases in salaries, consulting and bonus expense of $600,000, offset by an increase in board fees of $250,000.
Depreciation and amortization expense for the fiscal 2012 third quarter was $3,174,000 compared to $3,210,000 for the comparable prior year quarter, representing a decrease of $36,000, or 1%. Depreciation and amortization expense as a percentage of net sales for the three-month periods ended October 27, 2012 and October 29, 2011 was 2.3% and 2.4% respectively. For the nine months ended October 27, 2012, depreciation and amortization expense was $10,026,000 compared to $9,278,000 for the comparable prior year period, representing an increase of $748,000, or 8%. Depreciation and amortization expense as a percentage of net sales for the nine-month periods ended October 27, 2012 and October 29, 2011 was 2.4% and 2.3%, respectively. The increase in depreciation and amortization expense on a year-to-date basis was primarily due to increased amortization expense of $211,000 attributable to our renewed NBC trademark license and increased depreciation expense of $484,000 attributable to new software upgrades being put into service.

Operating Loss
For the fiscal 2012 third quarter, our operating loss was $3,388,000 compared to an operating loss of $5,369,000 for the fiscal 2011 third quarter, representing . . .