Qurate Retail, Inc. ("Qurate Retail") (Nasdaq: QRTEA, QRTEB,
QRTEP) today reported third quarter 2024 results(1).
“While the third quarter was anticipated to be the most
difficult quarter of 2024, current headline events and the
challenging macro-economic climate heavily impacted viewership of
our programming and consumer behavior more than expected,” said
David Rawlinson, President and CEO of Qurate Retail. “As a result,
revenue underperformed this quarter and resulted in meaningful
bottom-line deleverage. Despite this, we were able to hold
consolidated gross margin flat with disciplined cost management and
reduced operating expenses. We also continued our proactive balance
sheet management, completing an offer in which 89% of QVC’s 2027
and 2028 notes were tendered which improves the QVC credit profile
with reduced debt and an extended maturity profile.
“We are nearing the end of our multi-year Project Athens
initiative focused on margin and free cash flow. The team has
materially improved the business, becoming a more profitable,
leaner and more nimble organization. We are transitioning to the
next phase of our strategic growth as we enhance our capabilities
to reach aggregated audiences on primarily social and streaming
platforms.”
Third quarter 2024 headlines:
- Qurate Retail revenue decreased 5% in both US Dollars and
constant currency(2)
- Generated $152 million in operating income
- Adjusted OIBDA(3) decreased 12% in both US Dollars and constant
currency to $250 million
- QxH revenue decreased 6%
- QVC International revenue decreased 1% in both US Dollars and
constant currency
- Cornerstone revenue decreased 12%
- Tendered 89% of QVC, Inc.’s 2027 and 2028 notes
- Partially funded with $605 million of new 6.875% senior secured
notes due 2029
- Improves QVC credit position with reduced debt balance and
extended maturity profile
Discussion of Results
Unless otherwise noted, the following discussion compares
financial information for the three months ended September 30, 2024
to the same period in 2023.
THIRD
QUARTER 2024 FINANCIAL RESULTS
(amounts in millions)
3Q23
3Q24
% Change
% Change Constant Currency(a)
Revenue
QxH
$
1,617
$
1,521
(6
)%
QVC International
577
571
(1
)%
(1
)%
Cornerstone
285
252
(12
)%
Total Qurate Retail Revenue
2,479
2,344
(5
)%
(5
)%
Operating Income (Loss)
QxH(b)
$
91
$
107
18
%
QVC International
63
57
(10
)%
(8
)%
Cornerstone
4
(2
)
NM
Unallocated corporate cost
(7
)
(10
)
(43
)%
Total Qurate Retail Operating
Income
151
152
1
%
1
%
Adjusted OIBDA
QxH(b)
$
201
$
182
(9
)%
QVC International
77
70
(9
)%
(9
)%
Cornerstone
11
6
(45
)%
Unallocated corporate cost
(4
)
(8
)
(100
)%
Total Qurate Retail Adjusted
OIBDA
$
285
$
250
(12
)%
(12
)%
________________________________________
a)
For a definition of constant
currency financial metrics, see the accompanying schedules.
b)
In the third quarter of 2023, QxH
incurred (i) a $2 million gain on the sale of its Rocky Mount, NC
fulfillment center (“Rocky Mount”) in February 2023 on proceeds
released from escrow and (ii) $21 million of restructuring, penalty
and fire-related costs. These items are included in operating
income and excluded from Adjusted OIBDA. See Reconciling Schedule
2.
QxH
QxH revenue declined due to a 6% decrease in units shipped as
well as lower shipping and handling revenue, partially offset by
favorable returns. QxH reported declines in all categories.
Operating income increased in the third quarter comparing
against $19 million of one-time net restructuring costs and
penalties incurred in the prior year period.
Adjusted OIBDA margin(3) decreased due to fulfillment (warehouse
and freight) pressure and sales deleverage, partially offset by
higher product margins. Fulfillment pressure was driven by higher
fulfillment center wages and freight rates and deleverage,
partially offset by increased productivity efficiencies. Operating
expenses decreased 6% due to lower commissions. Selling, general
and administrative expenses decreased 4% driven by lower personnel
expense and outside services costs, partially offset by increased
marketing costs due to brand marketing to support QVC’s Age of
Possibility campaign.
QVC International
QVC International’s constant currency revenue decreased
primarily due to a 3% decrease in average selling price, partially
offset by a 1% increase in units shipped and favorable returns. QVC
International reported constant currency growth in home and
accessories, with a decline in apparel and beauty.
Operating income and Adjusted OIBDA margin decreased primarily
due to higher fulfillment costs and lower product margins,
partially offset by lower operating expenses. Fulfillment costs
increased due to higher freight rates and fulfillment center wages.
Product margins decreased reflecting lower initial margin due to
product mix and higher ocean freight rates, partially offset by
favorable returns.
US Dollar denominated results were not materially impacted by
exchange rate fluctuations. The Dollar weakened 3% against the
British Pound, 1% against the Euro and strengthened 3% against the
Japanese Yen. The financial metrics presented in this press release
also provide a comparison of the percentage change in QVC
International’s results in constant currency to the comparable
figures calculated in accordance with US GAAP, where
applicable.
Cornerstone
Cornerstone revenue decreased, reflecting softness and
competitive promotional pressure in the home sector. Cornerstone is
implementing a transformation plan to improve its revenue and
profitability given the continued challenges in the housing sector.
Operating income and Adjusted OIBDA margin decreased mainly due to
higher costs for outside services related to its transformation
plan and sales deleverage, partially offset by lower supply chain
costs.
THIRD
QUARTER 2024 SUPPLEMENTAL METRICS
(amounts in millions unless otherwise
noted)
3Q23
3Q24
% Change
% Change Constant Currency(a)
QxH
Cost of Goods Sold % of Revenue
65.4
%
65.5
%
10
bps
Operating Income Margin (%)(b)
5.6
%
7.0
%
140
bps
Adjusted OIBDA Margin (%)(b)
12.4
%
12.0
%
(40
)bps
Average Selling Price
$
51.78
$
51.76
0
%
Units Sold
(6
)%
Return Rate(c)
15.4
%
14.6
%
(80
)bps
eCommerce Revenue(d)
$
996
$
967
(3
)%
eCommerce % of Total Revenue
61.6
%
63.6
%
200
bps
Mobile % of eCommerce Revenue(e)
69.0
%
70.7
%
170
bps
LTM Total Customers(f)
8.2
7.9
(4
)%
QVC International
Cost of Goods Sold % of Revenue
63.4
%
64.6
%
120
bps
Operating Income Margin (%)
10.9
%
10.0
%
(90
)bps
Adjusted OIBDA Margin (%)
13.3
%
12.3
%
(100
)bps
Average Selling Price
(3
)%
(3
)%
Units Sold
1
%
Return Rate(c)
19.6
%
18.9
%
(70
)bps
eCommerce Revenue(d)
$
283
$
297
5
%
5
%
eCommerce % of Total Revenue
49.0
%
52.0
%
300
bps
Mobile % of eCommerce Revenue(e)
69.3
%
76.1
%
680
bps
LTM Total Customers(f)
4.2
4.0
(5
)%
Cornerstone
Cost of Goods Sold % of Revenue
62.8
%
59.9
%
(290
)bps
Operating Income Margin (%)
1.4
%
NM
NM
Adjusted OIBDA Margin (%)
3.9
%
2.4
%
(150
)bps
eCommerce Revenue(d)
$
218
$
188
(14
)%
eCommerce % of Total Revenue
76.5
%
74.6
%
(190
)bps
________________________________________
a)
For a definition of constant
currency financial metrics, see the accompanying schedules.
b)
In the third quarter of 2023, QxH
incurred (i) a $2 million gain on the sale of Rocky Mount in
February 2023 on proceeds released from escrow and (ii) $21 million
of restructuring, penalty and fire-related costs. These items are
included in operating income and excluded from Adjusted OIBDA. See
Reconciling Schedule 2.
c)
Measured as returned sales over
gross shipped sales in US Dollars.
d)
Based on net revenue.
e)
Based on gross US Dollar
orders.
f)
LTM: Last twelve months.
FOOTNOTES
1)
Qurate Retail will discuss these
headlines and other matters on Qurate Retail’s earnings conference
call that will begin at 8:30 a.m. (E.T.) on November 7, 2024. For
information regarding how to access the call, please see “Important
Notice” later in this document.
2)
For a definition of constant
currency financial metrics, see the accompanying schedules.
Applicable reconciliations can be found in the financial tables at
the beginning of this press release.
3)
For definitions and applicable
reconciliations of Adjusted OIBDA and Adjusted OIBDA margin, see
the accompanying schedules.
NOTES
Cash and Debt
The following presentation is provided to separately identify
cash and debt information.
(amounts in millions)
6/30/2024
9/30/2024
Cash and cash equivalents
(GAAP)
$
1,210
$
873
Debt:
QVC senior secured notes(a)
$
3,086
$
2,732
QVC senior secured bank credit
facility
1,225
1,280
Total Qurate Retail Group Debt
$
4,311
$
4,012
Senior notes(a)
792
792
Senior exchangeable debentures(b)
779
779
Corporate Level Debentures
1,571
1,571
Total Qurate Retail, Inc. Debt
$
5,882
$
5,583
Unamortized discount, fair market value
adjustment and deferred loan costs
(543
)
(524
)
Total Qurate Retail, Inc. Debt
(GAAP)
$
5,339
$
5,059
Other Financial Obligations:
Preferred stock(c)
$
1,272
$
1,272
QVC, Inc. leverage(d)
3.1x
3.1x
________________________________________
a)
Face amount of Senior Notes and
Debentures with no reduction for the unamortized discount.
b)
Face amount of Senior
Exchangeable Debentures with no adjustment for the fair market
value adjustment.
c)
Preferred Stock has an 8% coupon,
$100 per share initial liquidation preference plus accrued and
unpaid dividends and is non-voting. It is subject to mandatory
redemption on March 15, 2031. The Preferred Stock is considered a
liability for GAAP purposes, and is recorded net of capitalized
costs.
d)
As defined in QVC’s credit
agreement. A portion of expected cost savings are included in
Adjusted EBITDA for purposes of the covenant calculations under
QVC’s bank credit facility.
Cash at Qurate Retail decreased $337 million in the third
quarter primarily due to net debt repayment and capital
expenditures during the period. On September 26, 2024, QVC
completed an offer in which 89% of its 4.75% senior secured notes
due 2027 and 4.375% senior secured notes due 2028 were tendered.
The transaction was funded by $605 million of new 6.875% senior
secured notes due 2029 and $352 million of cash. Total debt at
Qurate Retail decreased $299 million in the third quarter due to
the repurchase of QVC’s 2027 and 2028 senior secured notes,
partially offset by the issuance of the new 2029 senior secured
notes and additional net borrowing under QVC’s bank credit
facility.
QVC’s bank credit facility has $1.3 billion drawn as of
September 30, 2024 with incremental availability of $1.8 billion,
net of letters of credit. QVC’s leverage ratio, as defined by the
QVC revolving credit facility, was 3.1x at quarter-end. Pursuant to
the terms of QVC’s revolving credit facility, a portion of expected
cost savings are included in operating income for purposes of QVC’s
leverage ratio for covenant calculations.
As of September 30, 2024, QVC’s consolidated leverage ratio (as
calculated under QVC’s senior secured notes) was greater than 3.5x
and as a result QVC is restricted in its ability to make unlimited
dividends or other restricted payments. Dividends made by QVC to
service the principal and interest of indebtedness of its parent
entities, as well as payments made by QVC to Qurate Retail under an
intercompany tax sharing agreement in respect of certain tax
obligations of QVC and its subsidiaries, are permitted under the
bond indenture and credit agreement.
Qurate Retail is in compliance with all debt covenants as of
September 30, 2024.
Important Notice: Qurate Retail, Inc. (Nasdaq: QRTEA,
QRTEB, QRTEP) will discuss Qurate Retail’s earnings release on a
conference call which will begin at 8:30 a.m. (E.T.) on November 7,
2024. The call can be accessed by dialing (877) 704-4234 or (215)
268-9904, passcode 13744091, at least 10 minutes prior to the start
time. The call will also be broadcast live across the Internet and
archived on our website. To access the webcast go to
https://www.qurateretail.com/investors/news-events/ir-calendar.
Links to this press release and replays of the call will also be
available on Qurate Retail’s website.
This press release includes certain forward-looking statements,
including statements about business strategies and initiatives
(including Project Athens and Cornerstone’s transformation plan)
and their expected benefits, market potential, future financial
performance and prospects and other matters that are not historical
facts. These forward-looking statements involve many risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied by such statements, including,
without limitation, possible changes in market acceptance of new
products or services, competitive issues, regulatory matters
affecting our businesses, continued access to capital on terms
acceptable to Qurate Retail, changes in law and government
regulations, the availability of investment opportunities, general
market conditions (including as a result of future public health
crises), issues impacting the global supply chain and labor market
and use of social media and influencers. These forward-looking
statements speak only as of the date of this press release, and
Qurate Retail expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in Qurate Retail's
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
Please refer to the publicly filed documents of Qurate Retail,
including the most recent Forms 10-K and 10-Q, for additional
information about Qurate Retail and about the risks and
uncertainties related to Qurate Retail's business which may affect
the statements made in this press release.
NON-GAAP FINANCIAL MEASURES
To provide investors with additional information regarding our
financial results, this press release includes a presentation of
Adjusted OIBDA, which is a non-GAAP financial measure, for Qurate
Retail, QVC (and certain of its subsidiaries) and Cornerstone
together with a reconciliation to that entity or such businesses’
operating income, as determined under GAAP. Qurate Retail defines
Adjusted OIBDA as operating income (loss) plus depreciation and
amortization, stock-based compensation, and where applicable,
separately identified impairments, litigation settlements,
restructuring, penalties, acquisition-related costs, fire related
costs, net (including Rocky Mount inventory losses), and (gains)
losses on sale leaseback transactions. Further, this press release
includes Adjusted OIBDA margin, which is also a non-GAAP financial
measure. Qurate Retail defines Adjusted OIBDA margin as Adjusted
OIBDA divided by revenue.
Qurate Retail believes Adjusted OIBDA is an important indicator
of the operational strength and performance of its businesses by
identifying those items that are not directly a reflection of each
business’s performance or indicative of ongoing business trends. In
addition, this measure allows management to view operating results
and perform analytical comparisons and benchmarking between
businesses and identify strategies to improve performance. Because
Adjusted OIBDA is used as a measure of operating performance,
Qurate Retail views operating income as the most directly
comparable GAAP measure. Adjusted OIBDA is not meant to replace or
supersede operating income or any other GAAP measure, but rather to
supplement such GAAP measures in order to present investors with
the same information that Qurate Retail's management considers in
assessing the results of operations and performance of its assets.
Please see the attached schedules for applicable
reconciliations.
This press release also references certain financial metrics on
a constant currency basis, which is a non-GAAP measure, for Qurate
Retail. Constant currency financial metrics, as presented herein,
are calculated by translating the current-year and prior-year
reported amounts into comparable amounts using a single foreign
exchange rate for each currency.
Qurate Retail believes constant currency financial metrics are
an important indicator of financial performance, in particular for
QVC, due to the translational impact of foreign currency
fluctuations relating to its subsidiaries in the UK, Germany, Italy
and Japan. We use constant currency financial metrics to provide a
framework to assess how our businesses performed excluding the
effects of foreign currency exchange fluctuations. Please see the
financial tables at the beginning of this press release for a
reconciliation of the impact of foreign currency fluctuations on
revenue, operating income, Adjusted OIBDA and average selling
price.
SCHEDULE 1
The following table provides a reconciliation of Qurate Retail’s
Adjusted OIBDA to its operating income (loss) calculated in
accordance with GAAP for the three months ended September 30, 2023,
December 31, 2023, March 31, 2024, June 30, 2024 and September 30,
2024, respectively.
CONSOLIDATED
OPERATING INCOME AND ADJUSTED OIBDA RECONCILIATION
(amounts in millions)
3Q23
4Q23
1Q24
2Q24
3Q24
Qurate Retail Operating Income
(Loss)
$
151
$
(103
)
$
145
$
165
$
152
Depreciation and amortization
105
98
99
96
95
Stock compensation expense
10
13
16
3
3
Restructuring, penalty and fire related
costs, net of (recoveries) (including Rocky Mount inventory
losses)(a)
19
—
—
18
—
Impairment of intangible assets(b)
—
326
—
—
—
(Gains) losses on sale of assets and sale
leaseback transactions(c)
—
6
(1
)
—
—
Qurate Retail Adjusted OIBDA
$
285
$
340
$
259
$
282
$
250
________________________________________
a)
In the third quarter of 2023, QxH
incurred (i) a $2 million gain on the sale of its Rocky Mount
fulfillment center in February 2023 on proceeds released from
escrow and (ii) $21 million of restructuring, penalty and
fire-related costs. In the second quarter of 2024, Qurate Retail
incurred $18 million of restructuring charges related to a plan to
shift its information technology operating model. These items are
included in operating income and excluded from Adjusted OIBDA.
b)
In the fourth quarter of 2023,
QxH recognized a $326 million non-cash impairment charge related to
goodwill.
c)
Includes a loss related to the
sale leaseback of a German property in the fourth quarter of 2023
and a gain related to the sale leaseback of a German property in
the first quarter of 2024.
SCHEDULE 2
The following table provides a reconciliation of Adjusted OIBDA
for QVC and Cornerstone to that entity or such businesses'
operating income (loss) calculated in accordance with GAAP for the
three months ended September 30, 2023, December 31, 2023, March 31,
2024, June 30, 2024 and September 30, 2024, respectively.
SUBSIDIARY ADJUSTED
OIBDA RECONCILIATION
(amounts in millions)
3Q23
4Q23
1Q24
2Q24
3Q24
QVC
Operating income (loss)
$
154
$
(113
)
$
157
$
163
$
164
Depreciation and amortization
98
91
92
88
87
Stock compensation
7
10
12
2
1
Restructuring, penalty and fire related
costs, net of (recoveries) (including Rocky Mount inventory
losses)
19
—
—
18
—
(Gains) losses on sale of assets and sale
leaseback transactions
—
6
(1
)
—
—
Impairment of intangible assets
—
326
—
—
—
Adjusted OIBDA
$
278
$
320
$
260
$
271
$
252
QxH Adjusted OIBDA
$
201
$
221
$
185
$
194
$
182
QVC International Adjusted
OIBDA
$
77
$
99
$
75
$
77
$
70
Cornerstone
Operating income (loss)
$
4
$
18
$
(3
)
$
11
$
(2
)
Depreciation and amortization
7
7
7
8
8
Stock compensation
—
2
2
—
—
Restructuring costs
—
—
—
—
—
Adjusted OIBDA
$
11
$
27
$
6
$
19
$
6
QURATE RETAIL, INC.
CONDENSED CONSOLIDATED BALANCE
SHEET INFORMATION
(unaudited)
September 30,
December 31,
2024
2023
amounts in millions
Assets
Current assets:
Cash and cash equivalents
$
873
1,121
Trade and other receivables, net of
allowance for credit losses
883
1,308
Inventory, net
1,299
1,044
Other current assets
174
209
Total current assets
3,229
3,682
Property and equipment, net
500
512
Intangible assets not subject to
amortization
5,873
5,862
Intangible assets subject to amortization,
net
437
526
Operating lease right-of-use assets
618
635
Other assets, at cost, net of accumulated
amortization
116
151
Total assets
$
10,773
11,368
Liabilities and Equity
Current liabilities:
Accounts payable
839
895
Accrued liabilities
802
983
Current portion of debt
874
642
Other current liabilities
134
97
Total current liabilities
2,649
2,617
Long-term debt
4,185
4,698
Deferred income tax liabilities
1,443
1,531
Preferred stock
1,272
1,270
Operating lease liabilities
614
615
Other liabilities
131
148
Total liabilities
10,294
10,879
Equity
397
385
Non-controlling interests in equity of
subsidiaries
82
104
Total liabilities and equity
$
10,773
11,368
QURATE RETAIL, INC.
CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS INFORMATION
(unaudited)
Three months ended
September 30,
2024
2023
amounts in millions
Revenue:
Total revenue, net
$
2,344
2,479
Operating costs and expenses:
Cost of goods sold (exclusive of
depreciation shown separately below)
1,517
1,603
Operating expense
175
186
Selling, general and administrative,
including stock-based compensation
405
415
Restructuring, penalty and fire related
costs, net of (recoveries)
—
19
Depreciation and amortization
95
105
2,192
2,328
Operating income (loss)
152
151
Other income (expense):
Interest expense
(117
)
(119
)
Dividend and interest income
14
14
Realized and unrealized gains (losses) on
financial instruments, net
(36
)
(14
)
Other, net
(13
)
1
(152
)
(118
)
Earnings (loss) before income taxes
—
33
Income tax (expense) benefit
(15
)
(21
)
Net earnings (loss)
(15
)
12
Less net earnings (loss) attributable to
the noncontrolling interests
8
11
Net earnings (loss) attributable to Qurate
Retail, Inc. shareholders
$
(23
)
1
QURATE RETAIL, INC.
CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS INFORMATION
(unaudited)
Nine months ended
September 30,
2024
2023
amounts in millions
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)
$
25
164
Adjustments to reconcile net earnings
(loss) to net cash provided by operating activities:
Depreciation and amortization
290
309
Stock-based compensation
22
40
Realized and unrealized (gains) losses on
financial instruments, net
53
60
Gain on sale of assets and sale leaseback
transactions
(1
)
(119
)
Gain on insurance proceeds, net of fire
related costs
—
(225
)
Insurance proceeds received for operating
expenses and business interruption losses
—
226
Loss on disposition of Zulily
—
64
Deferred income tax expense (benefit)
(86
)
62
Other, net
11
3
Changes in operating assets and
liabilities
Decrease (increase) in accounts
receivable
411
378
Decrease (increase) in inventory
(249
)
63
Decrease (increase) in prepaid expenses
and other assets
71
90
(Decrease) increase in trade accounts
payable
(59
)
(103
)
(Decrease) increase in accrued and other
liabilities
(175
)
(410
)
Net cash provided (used) by operating
activities
313
602
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
(137
)
(151
)
Expenditures for television distribution
rights
(23
)
(111
)
Cash proceeds from dispositions of
investments
7
71
Cash paid for disposal of Zulily
—
(35
)
Proceeds from sale of fixed assets
6
202
Insurance proceeds received for fixed
asset loss
—
54
Payments for settlements of financial
instruments
—
(179
)
Proceeds from settlements of financial
instruments
—
167
Other investing activities, net
(2
)
—
Net cash provided (used) by investing
activities
(149
)
18
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt
1,895
1,137
Repayments of debt
(2,249
)
(1,893
)
Dividends paid to noncontrolling
interest
(51
)
(35
)
Dividends paid to common shareholders
(4
)
(8
)
Indemnification agreement settlement
—
26
Other financing activities, net
(3
)
(3
)
Net cash provided (used) by financing
activities
(412
)
(776
)
Effect of foreign currency exchange rates
on cash, cash equivalents and restricted cash
2
(17
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
(246
)
(173
)
Cash, cash equivalents and restricted cash
at beginning of period
1,136
1,285
Cash, cash equivalents and restricted cash
at end period
$
890
1,112
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Qurate Retail (NASDAQ:QRTEP)
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From Nov 2024 to Dec 2024
Qurate Retail (NASDAQ:QRTEP)
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From Dec 2023 to Dec 2024
