Qurate Retail, Inc. Reports Second Quarter 2023 Financial Results

Qurate Retail, Inc. ("Qurate Retail") (Nasdaq: QRTEA, QRTEB, QRTEP) today reported second quarter 2023 results ⁽¹⁾.

“In this quarter, we made meaningful progress on Project Athens, our multi-year plan to transform the company, expanding gross margins in our video commerce businesses for the first time in over 18 months and materially improving our cash flow,” said David Rawlinson, President and CEO of Qurate Retail. “While our revenue was down, our topline results were in line with the discretionary retail industry, which was impacted by softer consumer sentiment and more promotional intensity particularly in the home categories. During the quarter, we also divested Zulily, which simplified our portfolio and improved our go forward liquidity. We finalized our insurance claims for the fire at our former Rocky Mount, NC fulfillment center and received $225 million of insurance proceeds.

“We continue our focus on cash flow, costs and margin growth in the near term and anticipate improved profitability in the second half of 2023. We believe we are on track to achieve our Project Athens objectives through 2024.”

Second quarter 2023 operating results:

• Qurate Retail revenue⁽²⁾ decreased 7% to $2.5 billion
  • In constant currency⁽³⁾ revenue⁽²⁾ decreased 7%
• Qurate Retail reported diluted EPS of $0.28
  • Adjusted diluted EPS⁽⁴⁾ of $(0.03)
• QxH revenue decreased 8%
• QVC International revenue decreased 5%
  • In constant currency, revenue decreased 3%
• Cornerstone revenue decreased 7%

Corporate headlines:

• Finalized insurance claim related to Rocky Mount, NC fulfillment center (“Rocky Mount”) fire and received $225 million of insurance proceeds in second quarter; total insurance proceeds received of $660 million
• Divested Zulily on May 24^th
• Repaid $192 million of near-term QVC debt maturities
• Settled $94 million and $251 million principal amount of exchanges of 1.75% exchangeable debentures with October 2023 put/call in the three and six months ended June 30, 2023, respectively

Discussion of Results

Unless otherwise noted, the following discussion compares financial information for the three months ended June 30, 2023 to the same period in 2022.

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QxH

QxH revenue declined primarily due to a 12% decrease in units shipped, reflecting fewer customers and weakened consumer sentiment, as well as lower shipping and handling revenue. This was partially offset by a 5% increase in average selling price driven by an elevated product assortment and price increases. QxH experienced a 6% increase in average spend per customer. QxH reported declines in home, electronics, accessories and apparel, partially offset by growth in beauty.

Operating income and adjusted OIBDA margin⁽⁴⁾ decreased primarily due to higher administrative expenses from certain costs related to Project Athens, higher benefits expense and sales deleverage and, to a lesser extent, from increased commissions due to expanded distribution. These pressures were partially offset by higher product margins, favorable fulfillment (warehouse and freight), lower obsolescence expense and lower bad debt expense. Product margins increased mainly due to higher initial margins, partially offset by unfavorable returns and lower shipping and handling revenue. Fulfillment favorability was driven by less detention and demurrage costs and reduced volume, partially offset by higher freight and labor rates and fulfillment center rent expense due to sale leaseback transactions in the prior year.

In the second quarter of 2023, QxH received a final payment of $225 million of insurance proceeds related to the December 2021 fire at Rocky Mount, primarily business interruption proceeds, for an aggregate of $660 million proceeds received.

QVC International

US Dollar denominated results were negatively impacted by exchange rate fluctuations, primarily due to the Dollar strengthening 6% versus the Japanese Yen and 1% versus the British Pound, partially offset by weakening 2% against the Euro. 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.

QVC International’s constant currency revenue declined primarily due to a 7% decrease in units shipped, reflecting weakened consumer sentiment driven by inflation primarily in Europe. This was partially offset by a 5% increase in average selling price driven by price increases and product mix. QVC International reported declines in electronics, jewelry and apparel, while beauty grew modestly and home was flat.

Operating income and adjusted OIBDA margin decreased primarily due to higher administrative and fulfillment expenses. Administrative costs increased due to higher wages, outside services and management incentive accruals. Fulfillment pressure was primarily attributable to higher fulfillment center rents due to sale leaseback transactions and increased labor costs. These pressures were partially offset by higher product margins and lower inventory obsolescence expense from reduced inventory levels. Product margin favorability was primarily due to increased initial margin, partially offset by lower shipping and handling revenue.

Cornerstone

Cornerstone revenue decreased, reflecting softness and competitive promotional pressure in the home sector as well as lower demand for apparel at Garnett Hill.

Operating income and adjusted OIBDA margin decreased primarily due to increased promotions and higher fulfillment, marketing and administrative costs. These pressures were partially offset by lower inbound logistic costs.