Qurate Retail Group CEO Mike George got to celebrate his final round of earnings with positive second-quarter results before stepping down on Oct. 1.
In a Nutshell: Qurate Retail’s sustained growth in the second quarter reflects a business that is emerging stronger from the 2020 pandemic.
“The quarter played out largely as we expected, with our businesses responding effectively to customers’ evolving needs while managing continued supply chain headwinds and a tight labor market,” George said. “We delivered strong increases in apparel and accessories and growth from our best customers at QxH, sustained momentum across our international businesses, and had record second quarter performance at Cornerstone Brands.”
The company last month said David Rawlinson II would become president and CEO of Qurate Retail on Oct. 1. He joined the company on Aug. 1 as president and CEO-elect. An expert in global e-commerce and digital, he was most recently CEO at NeilsenIQ and president of Grainger Global Online, a standalone division of W.W. Grainger Inc., where he managed both businesses through their evolutionary transitions.
During a conference call to Wall Street analysts, George spoke about supply pressures the company has experienced across multiple categories.
The CEO said “factory shutdowns in areas like India and Vietnam that experienced a surge of Covid cases, coupled with a severe shortage of ocean containers from Asia and the continued back up at the West Coast ports are contributing to substantial late deliveries despite our efforts to bring inventory in early.” He explained that the company is uniquely impacted when key items aren’t available for their air date and Qurate’s teams have been “continuously adjusting our programming calendars in response.”
He said another problem has centered on product and offer shortages. High demand from certain home and electronics goods, along with chip shortages, has meant that Qurate in some cases had an insufficient quantity of key items and then couldn’t provide the “compelling offer” it had planned.
In the case of apparel, sell-throughs caused a different—but good—problem for the company. “The high growth and record sell-throughs we’re enjoying in apparel drained our spring and summer inventory. As a result, we did see pressure on June apparel sales as we ran out of hot products. We’re working diligently to get stock with fresh fall merchandise by September,” George said.
He added that the company is also seeing “record cost pressures,” particularly in inbound and outbound freight, and it is also increasing wages for its fulfillment center and customer service team members in many markets.
“We took a modest price increase across categories at the start of [the third quarter] to partially offset these pressures,” George said. He noted that while QVC International is facing similar supply and cost pressures as in the U.S., “the impacts are not as significant.”
The company in the first quarter also passed some higher costs onto consumer.
The company continues to extend its video reach across the next generation of media platforms, George said. In June, the company launched its streaming service on both Comcast Cable and its broadband-only services. The CEO noted that Comcast already carries the company’s linear channels in one place, as well as a catalog of video on demand and original programming designed for streaming.
“The streaming app is our flagship, providing a highly immersive, interactive and frictionless experience with the ability to make purchases directly through the app using a remote control—a new capability—we’re deploying across Comcast, Roku, Apple TV and Amazon Fire. And we also anticipate adding more distribution partners for our streaming service in the coming months,” George said.
Separately, Qurate also launched a new social shopping app called Qurio in the U.K. in May. “The new app allows users to share video reviews, discover new products and message one another in a supportive and collaborative environment,” George said. “We’ve built a sense of community for more than 30 years through our TV broadcast. This new app transforms how that community comes to life on digital platforms. While Qurio is in the early stages, initial engagement is highly encouraging. It is a terrific example of our ability to leverage our smaller international markets as test beds for innovation. Our focus now is to build scale and then deploy across markets.”
Net Sales: For the second quarter ended June 30, total revenue rose 2 percent to $3.50 billion from $3.42 billion. The company said that e-commerce revenue for the quarter was flat at $2.2 billion, representing 62 percent of total revenue.
Qurate’s largest division QxH (QVC and HSN U.S. operations) saw revenue grow 6 percent over 2019’s pre-pandemic quarter, George said.
“New customers declined versus 2020, but grew 17 percent from 2019. And we’ve reported in prior calls that the early indicators of these customers expected lifetime value were encouraging. Now with the full year of experience behind us, we’re thrilled to report that our 12-month retention rates are up slightly compared to the prior year,” he said.
George said sales of items featured on air were up significantly, an indicator of high engagement across the customer base with the company’s full video experience. The company saw sustained growth in traditional TV viewership with total minutes up 6 percent from last year, separate from growth at its digital video platforms. The company didn’t provide comparable growth data for its digital video platforms because it doesn’t yet have the same measurement tools, he said.
In the quarter, the company extended the product offerings of actress Candace Cameron Bure to include fashion. She already sells beauty and inspirational home products at QVC. The new fashion line is a collaboration with QVC’s proprietary design and development team, and includes staples such as tees, colorful flannels, jeans, dresses and loungewear. The line was one of QVC’s top 10 apparel brands in the quarter.
George also noted that the fashion line launched by Jason Wu in November performed well enough in the quarter to rank in the top 15 apparel brands at QVC. In the fall, Jason Wu product offerings will extend to the culinary category, such as cookware and kitchen tools.
By business group, QxH saw a 1 percent slip in revenue to $1.99 billion. The company said the decline reflects a 6.1 percent decrease in average selling price that was mostly offset by a 4.5 percent increase in the units sold. “QxH experienced a 15 percent increase in units purchased per customer and an 8 percent increase in spend per customer, offset by a decline in customer count compared to last year’s strong gains,” Qurate said, noting that the business saw growth in apparel and accessories and a decline in electronics, beauty and home.
QVC International revenue rose 11 percent to $791 million. Constant currency revenue growth was led by japan and Germany. The business generated gains in every category, led mostly by apparel and home, Qurate said.
Zulily revenue was down 6 percent to $397 million, impacted by supply constraints and reduced marketing effectiveness. Those factors were partially offset by “sustained growth” from its factory direct business, Qurate said.
The Cornerstone business—comprised of home brands Frontgate, Ballard Designs and Grandin Road, as well as apparel and home textiles brand Garnet Hill—rose 18 percent to $327 million. Growth was due to strong demand from the brands.
Earnings: Net income rose 1 percent to $222.0 million, or 52 cents a diluted share, from $220.0 million, or 53 cents, in the same year-ago quarter. Adjusted earnings per share were 54 cents in the quarter.
The company uses OIBDA (operating income before depreciation and amortization) as its standard metric to show operating performance. For the current quarter, adjusted OIBDA rose 3 percent to $581 million from $565 million a year ago. On an adjusted basis by business, QxH saw OIBDA rise 1 percent in the quarter to $391 million, while QVC International was up 21 percent to $144 million. Zulily saw OIBDA fall 80 percent to $9 million, while Cornerstone was up 148 percent to $52 million. The balance was listed as “unallocated corporate cost.”
CEO’s Take: “Our results demonstrate that we are a stronger business today than when we entered the pandemic, with an expanded loyal customer base, leadership across multiple product categories, more extensive distribution and reach of our digital and video content, including the launch of our streaming service on Comcast, and an outstanding durable financial position,” George said. “We’re well positioned for growth, poised to take advantage of the accelerated trends toward online shopping, video streaming, social media, and all things for the home.”