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At QVC and HSN, Home Sales Slump as Apparel Gains

Qurate Retail Inc., whose portfolio includes QVC, HSN, Zulily and Cornerstone, had a lot to say about apparel, home goods sales, and logistics costs and headwinds during its third-quarter conference call.

In a Nutshell: QVC and HSN’s (QxH) quarterly revenue fell on a 9 percent drop in units sold stemming from supply constraints. A 1 percent increase in average selling price partially offset the decline and reflected product mix and targeted pricing actions to counter cost inflation.

“QxH experienced a 6 percent increase in spend per customer and a 4 percent increase in items purchased per customer, which were offset by a decline in customer count compared to last year’s strong gains,” Qurate said, reporting business unit declines “primarily in home, electronics and beauty, partially offset by growth in apparel.”

Supply challenges drove Zulily’s revenue decline though the Cornerstone catalog business, led by Ballard Designs and Grandin Road, performed well. “Revenue increased primarily due to strong demand for home décor, interior furnishings, bath and textiles, and for apparel at Garnet Hill,” Qurate said.

On a Wall Street conference call, Qurate president and CEO David Rawlinson noted a positive trend on the logistics front. The company is “starting to see some early signs of some lessening of that pressure” in fulfillment centers, he said, though “costs are still incredibly elevated.”

“I was in one of our largest fulfillment centers yesterday, and we’re starting to clear a little bit of backlog,” Rawlinson said. “We’re starting to see some lightening of the labor market and some success in hiring back. I think container costs are still [at] an incredibly elevated level, but have started to stabilize just a touch. So we are feeling a bit better about the supply chain and fulfillment center.”

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That said, supply chain constraints and cost inflation are impacting efficiency, cost and delivery times for the entire industry, Rawlinson said. “These headwinds include unscheduled factory shutdowns. They also include the limited availability of containers, trucks and drivers. Like others, we are also seeing cost inflation for freight, fulfillment labor and marketing costs. These factors led to a larger-than-normal deviation between demand sales and net revenue in the quarter,” he added.

Qurate raised prices several times to counter cost inflation and boost average selling prices company-wide. It also let customers order in advance, swapped lower-sales-velocity products into high-volume time slots and gave shoppers vouchers as a token of appreciation for their patience with the supply delays. Despite the challenges, Qurate continue generating growth in apparel at QxH, QVC International and Garnet Hill.

Zulily faced limited inventory from top-tier national brands to support its key events, while the largely proprietary Cornerstone business battled transportation delays, Rawlinson said. The average cost of a shipping container rose more than 2.5 times from 2020 for QxH and for Cornerstone, while the average fulfillment center labor rate jumped 20 percent to 25 percent year-over-year at QxH and Zulily.

“As we look ahead, we’ve taken a series of actions to deliver improved performance in the fourth quarter. First, we proactively communicated further up the supply chain to understand production and delivery delays, allowing more time to adapt. We pre-bought inventory and have taken early delivery for a portion of our Q4 supply,” he said.

Qurate creates 90 hours of live programming per day on 14 TV networks beamed into 200-million-plus homes, Rawlinson said. QVC’s best U.S. customers purchase close to 70 items on average and shell out north of $3,000 each year, visiting the retailer’s website “more than 30 times per month” and tuning into its “programming 18 days per month,” he added.

Rawlinson believes current trends bode well for Qurate. “The pandemic accelerated the widespread shift to a digital lifestyle, a space we should be able to compete in an even more effective way over time,” he said. The company has built up investments in digital live streaming TV, interactive streaming services, social streaming sites, websites and mobile apps.

“I firmly believe that there is a place for a more human, trusted, experiential set of brands that grow alongside the impersonal and algorithmically optimized scale players. That will be Qurate, and I look forward to discussing this more with you in the coming months,” Rawlinson said.

Net Sales: Total revenue for the quarter ended Sept. 30 fell 7 percent to $3.14 billion from $3.38 billion.

By division, QxH revenue fell 8 percent to $1.81 billion from $1.98 billion, while apparel sales totaled $336 million and home sales were $679 million. QxH e-commerce revenue fell 7 percent to $1.07 billion. QVC International revenue decreased 3 percent to $699 million from $723 million, while e-commerce revenue rose 2 percent to $328 million. Zulily revenue fell 17 percent to $328 million from $395 million. Cornerstone reported a 7 gain in revenue to $304 million from $285 million and e-commerce revenue rose 7 percent to $223 million.

Earnings: Net income fell 62 percent to $127 million, or 31 cents a diluted share, from $338 million, or 80 cents, a year ago. On an adjusted basis, earnings per share totaled 30 cents.

CEO’s Take: “While there are near-term industry challenges to work through, I couldn’t be more excited about the long-term opportunity at Qurate Retail to accelerate growth and drive shareholder value,” Rawlinson said. “Our team is managing through current industry pressures while simultaneously working intently to accelerate growth initiatives and reimagine our strategic plan. Supply chain constraints and cost inflation are impacting our entire industry, and we have taken action to help mitigate the potential impacts.”