Qurate Retail, Inc. Reports Second Quarter 2024 Financial Results

Qurate Retail, Inc. ("Qurate Retail") (NASDAQ:QRTEA, QRTEB, QRTEP))) today reported second quarter 2024 results⁽¹⁾.

"We delivered a solid quarter of earnings in a continued challenged macro environment. While revenue was in line with overall discretionary retail, we expanded gross margins for the fifth consecutive quarter, generated $165 million in operating income, grew Adjusted OIBDA for the fourth consecutive quarter and reduced net debt," said David Rawlinson, President and CEO of Qurate Retail. "We remain focused on enhancing our merchandise assortment, improving product margins and diligently managing costs. We are also excited about the opportunity in better serving our core customer of women over fifty as part of the QVC Age of Possibility campaign we launched in April."

Second quarter 2024 headlines:

• Qurate Retail revenue decreased 9% in US Dollars and 8% in constant currency⁽²⁾
  • Excluding Zulily⁽³⁾, revenue decreased 5% in US Dollars and 4% in constant currency
• Generated $165 million in operating income
• Adjusted OIBDA⁽⁴⁾ increased 4% in US Dollars to $282 million and 7% in constant currency
• QxH revenue decreased 4%
• QVC International revenue decreased 5% in US Dollars
  • In constant currency, revenue was flat
• Cornerstone revenue decreased 14%
• Reduced revolver balance $70 million using operating cash flow

Discussion of Results

Unless otherwise noted, the following discussion compares financial information for the three months ended June 30, 2024 to the same period in 2023.

QxH

QxH revenue declined due to a 5% decrease in units shipped and lower shipping and handling revenue, partially offset by a 2% increase in average selling price. QxH reported sales declines mainly in beauty, apparel and accessories, partially offset by growth in jewelry.

Operating income decreased primarily as a result of comparing against a $209 million net gain on insurance proceeds recognized in the second quarter of 2023 related to the December 2021 Rocky Mount fire.

Adjusted OIBDA margin⁽⁴⁾ increased due to higher product margins and lower administrative and fulfillment (warehouse and freight) expenses, partially offset by higher marketing costs. Product margins increased due to higher initial margins driven by Project Athens initiatives and mix shift to higher-margin products, partially offset by lower shipping and handling revenue. Fulfillment favorability was due to efficiencies from Project Athens and average selling price leverage. Administrative expenses declined due to lower costs for outside services related to Project Athens. Marketing expenses increased primarily due to the launch of QVC's Age of Possibility campaign in April and associated brand marketing.

QVC International

US Dollar denominated results were negatively impacted by exchange rate fluctuations due to the US Dollar strengthening 12% against the Japanese Yen and 1% against the Euro, partially offset by the US Dollar weakening 1% against the British Pound. 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 GAAP, where applicable.

QVC International's revenue declined 5% in US Dollars. In constant currency, revenue was flat driven by a 4% increase in units shipped, offset by a 3% decrease in average selling price as well as higher returns. QVC International reported constant currency growth in jewelry, beauty and electronics, with a decline in home.

Operating income decreased due to $8 million of restructuring charges related to a plan to shift QVC International's information technology operating model and comparing against a $6 million gain on an intangible asset recorded in the second quarter of 2023.

Adjusted OIBDA margin increased due to higher product margins and lower marketing and administrative expenses, partially offset by higher fulfillment costs. Product margins increased due to mix shift to higher-margin products and favorable vendor negotiations, partially offset by unfavorable returns. Selling, general and administrative expenses decreased primarily due to lower marketing expenses and costs from outside services. Increased fulfillment costs were due to higher unit volume and increased wage and freight rates from inflationary pressures.

Cornerstone

Cornerstone revenue decreased due to continued softness in the home sector. Operating income and Adjusted OIBDA margin decreased due to the deleveraging of selling, general and administrative expenses, partially offset by lower supply chain costs.

FOOTNOTES

NOTES

Cash and Debt

The following presentation is provided to separately identify cash and debt information.

Cash at Qurate Retail increased $108 million in the second quarter as cash from operations more than offset net debt repayment and capital expenditures during the period. Total debt at Qurate Retail decreased $71 million in the second quarter due to net debt repayment under QVC's bank credit facility.

QVC's bank credit facility has $1.2 billion drawn as of June 30, 2024 with incremental availability of $1.9 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. QVC's leverage ratio increased from March 31, 2024 primarily due to certain add backs no longer impacting the calculation.

As of June 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 June 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 August 8, 2024. The call can be accessed by dialing (877) 704-4234 or (215) 268-9904, passcode 13742824, 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 QVC's Age of Possibility) 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), Zulily (through May 23, 2023) 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 June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024 and June 30, 2024, respectively.

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 June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024 and June 30, 2024, respectively.

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