Qurate Retail(QRTEA) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Adjusted OIBDA increased by 19% in Q3 2024, despite being the most difficult quarter of the year due to macroeconomic challenges and significant events like the Olympics and political conventions [6] - Revenue was lower than expected, leading to meaningful deleverage throughout the P&L [7] - Consolidated gross margin remained flat, with product margin gains offset by unfavorable fulfillment costs due to inflation and market pressures [10] - Operating expenses decreased by $11 million, and SG&A expenses decreased by$ 10 million year-over-year [10] - Adjusted OIBDA margin contracted by 80 basis points due to approximately 125 basis points of sales deleverage [10] - Free cash flow, excluding insurance proceeds, increased by nearly $400 million from December 2022 to September 2024 [24] Business Line Performance - QxH (QVC and HSN) revenue declined by 6%, driven by lower unit volume and shipping and handling revenue, partially offset by favorable returns [28] - QVC International revenue declined by 1%, with QVC Germany and Japan reporting flat revenue, while QVC U.K. declined by 1% [22][30] - Cornerstone Brands revenue declined by 12% due to low demand from continued housing market pressures [23][31] - Streaming business saw strong momentum, with revenue, total minutes viewed, and monthly average users all growing in double digits in Q3 [21] Market Performance - QxH total TV minutes viewed decreased by 4% in Q3, while major networks grew by 16%, and news and information programming increased by more than 20% [9] - Competing events collectively reduced revenue by approximately 1 to 2 percentage points in Q3 [9] - QVC International experienced growth in home and electronics but saw declines in apparel and beauty categories [30] - Cornerstone Brands faced challenges in the housing market, impacting its revenue and adjusted OIBDA [11][23] Company Strategy and Industry Competition - The company is nearing the end of its multi-year Project Athens initiative, which has improved cost, margin, and cash flow focus [24] - Cornerstone Brands is implementing a transformation plan to improve profitability, focusing on cost reduction and revenue growth [23] - The company is pursuing a new growth strategy to reach aggregated audiences on social and streaming platforms, recognizing the impact of cord-cutting on its demographic [26][40] - The Age of Possibility campaign and Q50 brand ambassadors continue to drive brand engagement and customer loyalty [14][15] Management Commentary on Operating Environment and Future Outlook - The macroeconomic climate and significant events like the Olympics and political conventions negatively impacted consumer behavior and viewership [6][8] - Management expects a more normalized viewing cadence in Q4 2024, with a strong programming calendar and improved leverage challenges [57] - The company is focused on driving revenue growth while maintaining efficiency and margin improvements as it transitions from Project Athens to a more growth-oriented phase [63] Other Important Information - The company completed a debt exchange, extending its maturity profile and reducing interest expense by approximately$ 9 million [33][39] - Qurate Retail's leverage ratio was 3.1x, well below the maximum covenant threshold of 4.5x [35] - The company received a notice from NASDAQ regarding its stock price and is taking steps to regain compliance, including a potential reverse stock split [36] Q&A Session Summary Question: Category performance and actions to address soft categories [42] - Management noted that category performance was disproportionately impacted by macroeconomic factors and events, with home revenue declining by 3% and electronics declining by 16% [42] - The company is adjusting airtime assets to focus on stronger categories and expects a bounce back in a more normalized environment [42] Question: Impact of tariffs and sourcing strategies [45] - Vendors are typically responsible for tariffs, and the company has diversified sourcing to mitigate tariff impacts [45] Question: Trends in October and viewership normalization [46][47] - Management observed a direct correlation between significant events and viewership declines, with sales per hour dropping during key events [46] - The company expects a more normalized viewing cadence in Q4 [47] Question: International customer trends and shipping impacts [49][50][52] - QVC Germany and Japan reported flat revenue, while QVC U.K. declined by 1% [50] - Shipping challenges, particularly in the Red Sea, impacted gross margins but are expected to normalize [52] Question: Best customer metrics and future growth focus [53][54] - QVC's best customers, who purchase over 20 items annually, represent 17% of the customer count and 76% of sales [53] - The company plans to focus on growing the customer file as it transitions to a more growth-oriented phase [54] Question: Holiday sales and consumer behavior [57][58][67][68] - Management expects a more normalized Q4 with a strong programming calendar and improved leverage [57] - Consumers remain cautious and value-conscious, responding to seasonal and holiday-themed promotions [67][68] Question: Capital structure and revolver refinancing [69][70] - The debt exchange extended the maturity profile, providing runway for revolver refinancing in late 2028 or early 2029 [69][70] Question: Cash balances and deployment [71][72] - The company maintains strategic cash balances across different entities, with QVC using free cash flow to repay the revolver [71][72]