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Qurate Retail, Inc. (QRTEA)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered continued turnaround momentum: consolidated Adjusted OIBDA rose 45% as reported (25% in constant currency), with gross margin expansion across businesses and improved free cash flow vs prior year, despite a 4% revenue decline ex-Zulily .
  • EPS printed $0.00 GAAP and $0.04 adjusted, with segment strength in QxH margins (+330 bps Adjusted OIBDA margin) driven by higher product margins and lower fulfillment/admin costs, partially offset by higher marketing spend .
  • Balance sheet actions remain a positive catalyst: QVC redeemed the remaining $423M 4.85% notes due April 2024, revolver drawn at $1.3B with $1.9B availability, and QVC leverage at 2.5x; all covenants in compliance .
  • Management emphasized sustained free cash flow improvement in 2024 and continued execution on Project Athens (supply chain/fulfillment gains, product margin mix), plus new growth initiatives (Age of Possibility, streaming expansion, AI shopping assistant pilots in the UK) .

What Went Well and What Went Wrong

What Went Well

  • Consolidated Adjusted OIBDA growth of 45% as reported (259 vs 179) and 25% in constant currency; QxH Adjusted OIBDA up 33% and margin +330 bps; International Adjusted OIBDA up 4% (+10% cc); Cornerstone Adjusted OIBDA +50% .
  • Margin drivers: higher product margins (mix shift, improved inventory health, lower supply chain costs), lower fulfillment/admin expenses; CEO: “We expanded gross margins for the fourth consecutive quarter, increased Adjusted OIBDA over 40%… and improved free cash flow year-over-year for the fifth consecutive quarter” .
  • Liquidity/Balance sheet execution: redeemed $423M notes, revolver availability ~$1.9B, QVC leverage 2.5x; management reaffirmed cushion to 4.5x covenant threshold and FCF trajectory improving in 2024 .

What Went Wrong

  • Top-line: total revenue declined 4% ex-Zulily and 11% as reported; segment declines at QxH (-4%), International (-3%; -1% cc), Cornerstone (-11%) amid selective consumer spending and delayed seasonal purchasing .
  • International operating income declined YoY due to lapping prior year sale-leaseback gains; FX headwinds from Yen strength vs USD impacted reported results .
  • Marketing expense increased due to normalization of annual spend, partially offsetting SG&A reductions; beauty softness at QVC and category pressure in home/apparel at QxH/Cornerstone .

Financial Results

Consolidated Performance vs Prior Quarters

MetricQ3 2023Q4 2023Q1 2024
Total Revenue ($USD Millions)$2,479 $3,143 $2,342
GAAP Diluted EPS ($)$0.00 $(0.70) $0.00
Adjusted EPS ($)$0.10 $0.22 $0.04
Operating Income ($USD Millions)$151 $(103) $145
Adjusted OIBDA ($USD Millions)$285 $340 $259
Adjusted OIBDA Margin (%)11.5% 10.8% 11.1%

Notes: Adjusted OIBDA margin is computed from Adjusted OIBDA divided by revenue using cited figures .

Segment Revenue Breakdown and YoY Change (Q1 2024)

Segment Revenue ($USD Millions)Q3 2023Q4 2023Q1 2024YoY % (Q1 24 vs Q1 23)
QxH$1,617 $2,159 $1,539 (4)%
QVC International$577 $679 $572 (3)% [(1)% cc]
Cornerstone$285 $305 $231 (11)%
Total Ex-Zulily$2,479 $3,143 $2,342 (4)%
Total As Reported$2,479 $3,143 $2,342 (11)% (due to Zulily divestiture)

Segment KPIs (QxH and QVC International)

KPIQxH Q1 2023QxH Q1 2024QVC Intl Q1 2023QVC Intl Q1 2024
COGS % of Revenue69.0% 65.4% 64.7% 64.0%
Adjusted OIBDA Margin (%)8.7% 12.0% 12.2% 13.1%
Average Selling Price ($)53.90 53.60 (7)% YoY (5)% cc YoY
Units Sold YoY(4)% (4)% —+4%
Return Rate16.0% 15.4% 19.3% 19.2%
eCommerce Revenue ($USD Millions)$961 $958 $280 $294
eCommerce % of Total Revenue60.0% 62.2% 47.3% 51.4%
Mobile % of eCommerce68.3% 69.8% 69.5% 68.8%
LTM Total Customers (Millions)8.5 8.0 4.3 4.1

Cash, Debt, and Leverage (Quarter-End)

MetricQ4 2023Q1 2024
Cash & Cash Equivalents ($USD Millions)$1,121 $1,102
QVC Revolver Drawn ($USD Billions)$0.857 $1.3
Revolver Availability ($USD Billions)~2.3 ~1.9
QVC Leverage Ratio2.4x 2.5x
Redeemed NotesAnnounced redemption of remaining 2024 notes $423M 4.85% notes repaid

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted OIBDA & FCF CAGRThrough 2024“Double-digit CAGR on Adjusted OIBDA and free cash flow with stable revenues through 2024 vs 2022” reiterated in Q3 2023 Management expects sustained free cash flow improvement in 2024; higher Adjusted OIBDA and lower TV distribution payments to benefit FCF Maintained/affirmed trajectory
TV Distribution Payments2024 (2-year avg)~$100M 2-year average Expect lower payments benefiting FCF; reaffirm ~2-year avg ~$100M Maintained; tailwind to FCF
Debt Maturities Plan2024–2026Redemption notice for 2024 notes given in Q4 2023 2024 notes repaid; plan to address 2025 notes with cash and revolver, evaluating market conditions; revolver size likely reducible at renewal Executed 2024; plan detailed for 2025; indication to reduce revolver size
Capital Expenditures2024Not explicitly guidedQ1 capex $40M; continued discipline N/A (operational detail)
Tax/Other2024N/ANo material change in deferred tax details (LINTA-related provided annually) N/A

Earnings Call Themes & Trends

TopicQ3 2023 (Prior-2)Q4 2023 (Prior-1)Q1 2024 (Current)Trend
Supply chain & fulfillment costsProject Athens driving lower detention/demurrage, improved carrier rates; margin tailwinds Continued fulfillment cost reductions, new parcel carrier contract effective July 2023 Further fulfillment efficiencies, lower freight rates; ongoing Athens benefits Sustained tailwind to margins
Product margin mixMix shift to higher-margin products; fewer clearance Higher product margins; improved inventory health Higher initial margins; mix shift to higher-margin products Positive, continuing
Consumer demand/macroModerating revenue decline vs 1H; discretionary softness Mixed category demand; stabilization Selective spending; delayed seasonal purchasing; stable engagement Stabilizing; seasonal timing
Streaming & digitalN/AN/AStreaming minutes share rising to high single digits; show launches; double-digit growth in MAUs Growth initiative accelerating
AI/technologyN/AN/AQVC UK testing AI shopping assistant within integrated experiences Emerging initiative
Category performanceGrowth in accessories/jewelry/home; declines in electronics/apparel/beauty Apparel/jewelry growth in Q4; declines in electronics/home full-year Accessories/jewelry growth; home/apparel declines at QxH; beauty softness at QVC Mixed; margin-aware mix
Balance sheet & leverageRevolver reduced by $435M; leverage 2.6x Leverage 2.4x; redemption notice for 2024 notes 2024 notes repaid; leverage 2.5x; ample revolver capacity Managed prudently

Management Commentary

  • CEO: “We expanded gross margins for the fourth consecutive quarter, increased Adjusted OIBDA over 40%… and improved free cash flow year-over-year for the fifth consecutive quarter” .
  • CFO: “We continue to expect higher adjusted OIBDA and lower TV distribution payments to benefit free cash flow in 2024… As of March 31, 2024, we had $1.3 billion drawn on the QVC revolver with $1.9 billion in available capacity… leverage ratio… 2.5x” .
  • Exec Chairman: “Another quarter of sustained and improved financial performance… third consecutive quarter of OIBDA growth… expect Qurate to sustain free cash flow improvement throughout the year… focused on addressing near-term maturities” .
  • Strategy highlights: Age of Possibility campaign launched to engage core 50+ female segment; celebrity partnerships; streaming expansion; UK integrated experiences (gardening) with AI assistant tests .

Q&A Highlights

  • Customer behavior and cohorts: Best customers (~17% of count, ~76% of sales) spend just under $4,000 annually; existing customers purchase ~32 items and spend >$1,600 LTM, up 10%; retention improved; new customers +23% in Q1; upward migration equals downward, stabilizing file .
  • Streaming trajectory: Streaming minutes share now high single digits and growing; multi-platform customers with encouraging spend dynamics; new “Busy This Week” talk show to drive shoppable engagement .
  • Project Athens and cost outlook: Continued delivery in COGS and fulfillment initiatives into 2024–2025; freight costs managed effectively despite external disruptions; opportunity as more supply comes online .
  • Seasonal demand: Weather-delayed seasonal categories expected to recover into Q2; macro stable but discretionary spend remains cautious; preference for lower price points/sales; fewer large-ticket purchases .
  • Capital structure: 2024 notes repaid; plan to use cash and revolver for 2025 notes while monitoring markets; revolver size likely reducible at renewal; comfortable cushion vs 4.5x covenant .

Estimates Context

  • S&P Global consensus estimates for QRTEA were unavailable through our data interface at this time; attempted retrieval returned a mapping error preventing access. As a result, beat/miss vs Wall Street consensus cannot be assessed here. Values retrieved from S&P Global are unavailable.

Where estimates may need to adjust: Given Adjusted OIBDA outperformance and sustained gross margin expansion, models likely need higher 2024 margin/FCF assumptions, while revenue trajectories remain modestly negative near-term due to category/macro pressures .

Key Takeaways for Investors

  • Margin-led turnaround continues: four consecutive quarters of gross margin expansion and three of Adjusted OIBDA growth; further gains expected from supply chain/fulfillment efficiencies and mix .
  • Liquidity and maturities de-risked: $423M 2024 notes redeemed; revolver capacity ~$1.9B; QVC leverage 2.5x; plan articulated for 2025 notes using cash/revolver .
  • Demand stable but selective: delayed seasonal purchases and lower ticket preferences temper top-line; focus on higher-margin categories preserves profitability .
  • Growth initiatives: Age of Possibility engagement of core 50+ segment and streaming expansion (new shoppable content) could drive new customer growth and digital penetration, supporting LTV .
  • International resilience: UK strength with integrated experiences; testing AI shopping assistant to improve discoverability and advice—a potential template for broader rollout .
  • Inventory discipline: Ending inventories remain lower vs prior year; improved obsolescence supports product margins and reduced clearance .
  • Near-term trading: Focus on FCF beats and balance sheet actions as catalysts; watch category mix, seasonal normalization into Q2, and streaming/AI initiatives traction for sentiment and multiple expansion .

Additional Relevant Q1 2024 Press Releases

  • QVC’s “Age of Possibility” campaign and Quintessential 50 launch (women 50+) with celebrity ambassadors including Christina Applegate, Queen Latifah, Naomi Watts, Martha Stewart; national activations and social engagement .
  • Launch of “The Big Dish” FAST culinary channel on The Roku Channel, expanding vCommerce reach into ad-supported streaming with curated culinary content .
  • Organizational update: CFO Bill Wafford promoted to Chief Administrative Officer & CFO, adding Transformation and People functions to support turnaround execution .