Qurate Retail(QRTEA)2024-05-08 16:38Financial Data and Key Metrics - Adjusted OIBDA grew 45% YoY, marking the third consecutive quarter of growth [31] - Free cash flow improved for the fifth consecutive quarter, with Q1 free cash flow at a use of 70 million last year [7][22] - Gross margin expanded by approximately 400 basis points, the fourth consecutive quarter of expansion [31] - QxH customer count declined 3% YoY, but new customer growth on a trailing twelve-month basis increased by 7% [11][12] - QVC International revenue declined 1%, with adjusted OIBDA increasing 10% and margin expanding 90 basis points [14][21] Business Line Performance - QxH revenue declined 4%, with growth in accessories (+5%) and jewelry (+4%) offset by declines in home (-7%) and apparel (-4%) [20][44] - Beauty revenue declined 3% at QVC but remained strong at HSN [9] - Cornerstone revenue declined 11%, but adjusted OIBDA grew 50% due to lower supply chain costs [46] - Streaming revenue, total minutes viewed, and monthly average users all grew in double digits in Q1 [37] Market Performance - QVC UK led international performance with high single-digit revenue growth, while Japan grew in low single digits and Germany declined mid-to-high single digits [21] - The UK saw strong demand across all categories, particularly in home, driving adjusted OIBDA improvement [14] - QVC International experienced growth in home but declines in jewelry and apparel [21] Strategy and Industry Competition - The company launched the "Age of Possibility" initiative targeting women over 50, a demographic with high discretionary income and control over 95% of household purchase decisions [40][41] - QVC is leveraging its Q50 ambassadors, who have a combined social following of 78 million, to drive engagement and sales [8][32] - The company is focusing on operational efficiencies, including supply chain cost reductions and improved inventory health, through initiatives like Project Athens [6][45] Management Commentary on Operating Environment and Outlook - Management noted that consumers are buying closer to the event and later in the season, impacting seasonal categories like gardening and outdoor decor [33][65] - The company remains optimistic about sustaining free cash flow improvement and addressing near-term debt maturities [48][75] - Management highlighted the stabilization of customer counts and the positive momentum in new customer acquisition [11][12] Other Key Information - The company redeemed 1.1 billion, with 464 million at Liberty Interactive LLC, and 248 million at Qurate Retail Inc [23] - The leverage ratio was 2.5x, with covenant OIBDA including adjusted OIBDA of QVC Inc and Cornerstone [23] Q&A Session Summary Question: Customer Spend and Retention - Existing customers, who make up 50% of the count and 90% of sales, spent an average of 1,600 in Q1, up 10% YoY [53] - New customers are coming in through digital channels, and their purchasing patterns are still being monitored [54] - The company is focusing on reactivating lost customers, particularly high-quality ones, through targeted outreach [56] Question: Streaming Growth and Customer Behavior - Streaming accounted for over 5% of total minutes viewed last year and is now in the high single digits, growing rapidly [60] - Streaming customers are typically multi-platform, and their spending behavior aligns with traditional linear TV viewers [81] Question: Project Athens and Freight Costs - Project Athens initiatives, including cost of goods sold improvements and fulfillment efficiencies, are expected to continue benefiting gross margins through 2025 [82] - Freight costs are managed effectively, with no significant changes expected in the near term [84][106] Question: Debt and Liquidity - The company expects to address 2025 debt maturities using cash and the revolver, similar to the 2024 notes [99] - The 2026 revolver size may be reduced as the business continues to perform well [118] Question: Inventory and Seasonal Trends - Inventory levels are well-managed, with a focus on new and higher-margin items [115][116] - Seasonal merchandise is in good shape, with no significant excess inventory concerns [99] Question: Japan Market Performance - Japan is a core business with consistent growth, and the company is not currently considering monetizing its stake [101][127] Question: Marketing Spend and Product Mix - Marketing spend is expected to remain stable, with potential reallocation but no material increases [104] - The company will continue to focus on higher-margin categories and avoid scaling into lower-margin products [123]