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Qurate Fights Off Inflation, Freight Fees in Q1 Earnings Beat

Qurate Retail Group navigated higher supply-chain costs and other inflationary pressures to report first-quarter results topping Wall Street estimates.

In a Nutshell: Home merchandise and soft home textiles bolstered revenues as fashion sales are starting to pick up. Despite beating Wall Street estimates, the parent to HSN, QVC and Zulily faced higher freight costs—some of which has been passed onto consumers—and increasing wage pressures during the three-month period.

“The team delivered strong top and bottom line growth across every business unit at every market, grabbing 13 percent revenue growth and 32 percent revenue growth [on an operating income before depreciation and amortization, or OIBDA, basis] in constant currency. This is our best quarterly performance since the formation of Qurate Retail in 2018, the best sales momentum through the quarter, driven by the re-emergence of the fashion business, and improving customer sentiment,” Mike George, Qurate Retail’s president and CEO, told Wall Street analysts Friday.

Qurate added 1.6 million new customers in the quarter, up 35 percent from the prior year, George said, giving the company 10.8 million customers, or up 9 percent from a year ago.

Higher costs are hitting the home categories, George said, and higher freight rates are one aspect of price inflation as the “demand for both inbound freight and outbound freight exceeds supply, and prices tend to rise when that happens.”

There’s pressure on wages, too, though George said Qurate is “committed to be market competitive with our team members on wage rates after promised salaries.” On top of that, “there’s just cost pressure from product shortage, and how that drives up costs, so yes, we’re seeing inflation,” he added.

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Qurate managed to surmount those inflationary pressures, much as how retail as a whole has been disciplined into surviving the turmoil without overly relying on promotions, George said. However, the brands in Qurate’s Cornerstone business, including Frontgate, Ballard Designs, Grandin Road, and apparel-focused Garnet Hill, saw the greatest consumers cost increases stemming from steeper freight rates.

Apparel sales had been trending lower prior to the pandemic, George said, but with global economies reopening, consumers are showing a renewed interest in fashion. It’s not yet back to pre-pandemic levels, but there’s room for growth ahead, he added.

Qurate’s “digital video ecosystem, highly differentiated customer experiences and strong and growing base of loyal shoppers is without rival, [and] positions the company well for the future as we emerge from the pandemic and adapt to the new realities,” George said.

Over the past 18 months, Qurate has restructured to “significantly expand the resources focused on new product discovery,” fostering global design development and sourcing capabilities that translate ideas into compelling merchandise, George said. The company has state-of-the-art studios in five countries producing more high-quality live content than any other television program on a global basis, he added.

In 2020, Qurate’s best customers at QVC represented 69 percent of sales, and shoppers visited the company websites or apps 36 times per month, George said of customer engagement.

Qurate plans to reopen offices in September, employing a hybrid model for most office-based staff, with remote and onsite work based on preferences and company needs, George said. The new framework will allow the company to review its “global real estate footprint and reduce operating costs in future years,” he added.

During the earnings call, chief financial officer Jeff Davis said Qurate sold its secondary corporate campus in West Chester, Penn., as part of its new hybrid work approach, and a Lancaster, Penn., distribution center, earning $40 million in the process. The company will lease back the Lancaster location through the end of the year to allow time to decommission the site.

Net Sales: For the quarter ended March 31, total revenue rose 14 percent to $3.34 billion from $2.92 billion.

Included in the revenue tally was an 8 percent gain for QVC US and HSN (the QxH division) to $1.94 billion, a 22 percent increase at QVC International operations to $774 million, a 19 percent rise at Zulily to $377 million and a 41 percent spike at Cornerstone to $250 million.

Earnings: The company posted net income of $206 million, or 49 cents a diluted share, against a net loss of $20 million, or 5 cents, in the year-ago quarter. On an adjusted basis, diluted earnings per share was 48 cents in the quarter.

Wall Street was expecting adjusted diluted EPS of 33 cents on revenue of $3.14 billion.

CEO’s Take: “Looking forward, we are encouraged by the macro environment: the strength of overall consumer demand, the rebound in fashion, the positive outlook for retail sales, and the acceleration of digital trends,” George said, adding that Qurate continues to “closely monitor supply pressures, inflationary challenges, and any shifts in consumer spending patterns.”