Boosted by 15 percent growth in e-commerce—62 percent of its total revenue in Q3—Qurate Retail reported “strong” gains in revenue, operating income before depreciation and amortization and free cash flow on its third quarter earnings call Thursday.
Total Qurate Retail revenue increased 10 percent—9 percent in constant currency—to $3.4 billion. Adjusted operating income before depreciation and amortization rose 24 percent from $456 million to $566 million. Qurate reported earnings per share of $0.80. Adjusted diluted EPS increased 36 percent to $0.57. Over the first nine months of 2020, the company said it generated $1.5 billion of free cash flow, a $1.1 billion year-over-year increase.
The company’s QxH, QVC International and Cornerstone brands all experienced an increase in e-commerce’s share of total revenue, rising 330, 380 and 210 basis points, respectively. E-commerce revenue for these brands rose 13 percent, 21 percent and 30 percent, respectively. Revenue for Qurate’s e-commerce brand Zulily grew 10 percent.
With consumers maintaining “their focus on nesting, family and wellbeing,” said Qurate CFO Jeff Davis, the company saw a “sizeable shift in category mix from apparel and beauty to home.” Looking just at QxH, home grew from 36 percent to 41 percent of the brand’s revenue, while apparel slipped from 18 percent to 16 percent. Apparel, Davis said, was down 7 percent, “in line with general market conditions.”
President and CEO Mike George said the company saw a “modest rebound in apparel in Q3, largely around the comfort side of apparel, casual sweaters, loungewear, some activewear.” Qurate believes this will continue during the holidays, he added. Since that time period tends to be distorted toward home, however, George believes the company will have to get to next year to see the pace of the rebound in apparel.
“I expect on balance it will remain somewhat soft, with these pockets of growth related to the stay-at-home lifestyle,” he said.
Qurate’s largest business unit QxH, the combined QVC US and HSN operations, saw revenue rise 7 percent to $2 billion due to higher unit volume, reduced customer returns and an increase in shipping and handling revenue. A reduction in average selling price partially offset these factors. By category, declines in apparel and electronics were offset by growth in home and accessories. Product margin gains were partially offset by higher fulfillment costs in warehousing and freight and inventory obsolescence expenses.
QVC International increased 11 percent to $723 million, positively affected by exchange rate fluctuations. In constant currency, revenue rose 8 percent. The brand reported revenue growth in all categories, except jewelry, which was flat.
Zulily revenue rose 10 percent to $395 million based on higher average selling price and unit volume. Gross margin increased primarily due to higher product margins, partially offset by higher freight costs.
Cornerstone revenue jumped 26 percent to $285 million as it saw strong demand in its home brands including Frontgate, Ballard Designs and Grandin Road, partially offset by weakness in apparel at Garnet Hill. Operating income and adjusted OIBDA margin increased primarily from sales growth and gross margin expansion driven by higher product margins.
“Qurate Retail offers a unique blend of media assets, particularly our leadership in livestreaming, and retail core competencies centered on curating appealing merchandise and building loyal customer relationships through highly engaging content,” George said in a statement. “This combination provides a valuable competitive advantage in the evolving retail marketplace.”