UPDATE 2-HSNi profit beats, sees uptick in discretionary buys

* Q3 EPS $0.29 vs est $0.18

* Says inventory down 18 pct

* Operating expenses down 10 pct

* Sees growing demand for discretionary products

* Shares up as much as 10 percent (Recasts; adds CEO comments, details, updates share move)

By Shobhana Chadha

BANGALORE, Nov 12 (Reuters) - HSN Inc's (HSNI.O) third-quarter profit beat market expectations, helped by improved margins and leaner inventories for its namesake brand, and said it was seeing an uptick in demand for discretionary products in the same brand category.

Shares of the teleshopping and e-commerce operator rose as much as 10 percent to touch an intra-day high of $17.05, but shed some of those gains later, and were trading up $1.04 at $16.56 Thursday afternoon on Nasdaq.

Adjustments in product mix at the company's HSN segment -- which makes up for nearly two-third of net sales -- helped drive unit growth up 13 percent during the quarter, with sterling silver and fashion jewelry sales jumping 30 percent, Chief Executive Mindy Grossman told Reuters.

"Customers responded to a wider range of price points and new designer introductions," Grossman said.

Average price point for the HSN brand fell 6 percent and margins rose to 36 percent, from 33 percent a year ago.

"These are not only our higher margin businesses but also create significant loyalty with our customers," Grossman added.

Sales of discretionary purchases like fashion clothing, jewelry and beauty products have taken a hit as cash-strapped consumers prefer to focus on more practical purchases.

However, the tide seems to be turning for HSNi's business.

"We are definitely still seeing an approach to price value, but we are also seeing re-engagements into those discretionary categories," CEO Grossman said.

Also, the company is seeing lot of strength in categories that save its customers' time and money -- like fitness equipment and kitchenware for home cooking -- with people working more from home, Grossman said.

However, its Cornerstone brand -- which largely includes home goods -- has been hurt due to continued softness in consumer demand for luxury home furnishings and apparel, as well as a strategic reduction in catalog circulation.

Sales at Cornerstone fell 13 percent during the quarter, while those at HSN were almost flat.

The company's quarterly profit grew eight-fold to 29 cents a share, up from 4 cents a share, a year earlier.

Excluding items, it earned 32 cents a share.

HSNi, which competes with other multichannel retailers like QVC Inc and ValueVision Media Inc (VVTV.O), said revenue fell 5 percent to $641.2 million.

Analysts were looking for earnings of 18 cents a share, on revenue of $641.4 million, according to Thomson Reuters I/B/E/S.

Total operating expenses for the quarter fell 10 percent. (Reporting by Shobhana Chadha in Bangalore; Editing by Pradeep Kurup)