Q2 2020 Qurate Retail Inc Earnings Call
With that per se.
[music].
Ladies and gentlemen, thank you for standing by welcome to the Curie retail incorporated 2020 quarter to earnings call.
During the presentation, all participants will be in listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press star one on your telephone.
As a reminder, this conference is being recorded today August 10th.
I would now like to turn the conference over to Courtney Chen Chief portfolio Officer, and senior Vice President of Investor Relations. Please go ahead.
Thank you before we begin we'd like to remind everyone that Colin could include certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent blunt 10-K in 10-Q filed by our company and keep.
You see what the FCC. These forward looking statements speak only as of the date of this call and curate 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 carry we tells expectations with regard there too or any change in events conditions or circumstances on which any such statements based.
On today's call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA adjusted OIBDA margin free cash flow and constant currency information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary note and schedules one through three can be found in the earnings press release issued today on it or the earnings presentation, which are about.
Sellable on our website today speaking on the call. We upped your eight retail executive Chairman Gregg nothing President and CEO, Mike George and curing retail group CFO, Jeff Davis. Please note we publish slides to accompany the earnings release. These slides are available on our website now I'd like to turn the call over to Greg.
Thank you Corgi and welcome to all of our listening audience.
He also stark like thinking mature field team members on their exceptional results.
Truly reflective of their dedication of course users.
And Jeff will be onshore lead to provide more details.
Can you give us some corporate updates.
We know capital return strategy has been ongoing topic among our investors. Thank you pause buybacks last year.
Our historical buybacks have not been a successful we'd like.
Largely due to the markets more negative outlook for true retails terminal value.
Well, our view might differ on management board the dog exploring alternative approaches for return of capital to deliver sustained benefits to shareholders.
Given the strength in curious free cash flow and our confidence in business fundamentals, we intend to return capital to shareholders via special dividend consisting of two pieces.
For one time cash dividend it was all at a few share.
And a preferred stock dividends $3 this year.
The proposed onetime cash dividend will total approximately 633 million.
When we arrived this amount and reviewing the projected 2020 free cash flow.
Expected proceeds from the sale of Barcelona Green energy assets.
And cash built in part from apartment share buybacks over the past year.
This could be important also because and driving to fit and now because you like the optimal timing and event tax rate increase in coming years.
[noise] portfolios preferred stock dividends will have a total phase of approximately 1.3 building billion.
Why did we can choose a preferred stock dividend.
Well effectively with the body juice common stock into a more bomb like interest Smith instrument in a more levered common equity.
In line with many of the other things we've done in terms of providing investor choice, there should increase investor choice as well.
These are tracking stock since then calls have done.
I like that were common are occurring common dividend, which forces common shareholders received a distribution this provides shareholders flexibility.
You can hold.
An income family security or monetize your preferred stock and maintaining that position in a more levered common equity.
We think that could be an attractive new innovative security for those who elect holder.
Generates compelling after tax income at a rate, which is appealing compared to bond choices out there and other alternatives.
In a relatively low levered at any given significant cash generation and coverage as I mentioned the rate is favorable to comparable securities and it will yield the highest after tax yield of all of jewelry choked up like instruments. It's a long 10 years maturing into Q1 2031.
This preferred stock will also highlight our management and board of directors confidence in strong free cash flow generation actuary retail.
We also hope it might be able to attracting new investor base, the bird might be should be good fit for income or investors seeking yield.
John and I are both do do you asked about this preferred stock and intend to be long term holders.
I'd also note for some of you wouldn't historical dense Liberty has had some success issuing these preferred in the past, although admittedly with a fair time ago.
Over the longer term, we expect to preferred stock and common equity in aggregate after giving effect to the cash dividend to trade in excess of the current trading price.
As we move through the balance of 2020 and in future years, we will actively consider additional forms of capital try and give them a substantial cash generation the cure it has.
We retain the ability to deploy just cash mentioned maturity retails cast shareholder practices to be clear.
Hi backs are not off the table in 2020 and beyond.
In any future buybacks will be against a more levered.
Upside in the business.
We also intend to manage the detail the deferred tax liability on our exchangeable bond.
As well in the near and midterm debt maturities you.
You should expect some future repurchases of some of the exchangeable bond as we have done in recent years.
Finally, given the ongoing pandemic.
We have decided that Liberty's investor day, this year will be virtual and be broken into two days. So as much as we love zones no one should have to be on a call that long.
On Thursday November 19th we will cover Liberty media and Liberty Tripadvisor and on Friday November Twentyth will include carry retail Liberty broadband and GCL Liberty.
Okay, well run from 11 to 12 feature.
More details will be provided on our website, but please mark your calendars and with that I'll turn it over to Mike.
Thank you Greg Good afternoon, everyone. Thank you for joining us.
We are certainly live into a period of unprecedented challenge.
A little by the ongoing and perhaps of the global pandemic.
We need across away social and economic Justice.
And to start today's call by summarizing actions, we've taken in response to these extraordinary events.
And then I'll review, our results and our outlook for the future.
Can you give our actions are forced to our primary focus remains on protecting the health and the financial well being of our team members.
All team members, who can work from home will continue to do so.
Until at least early next year.
And civil work from home permanently most notably in customer service.
Social gifting team mandatory maps requirements and screens, including the James aren't affected at all of our sites.
And that we provided a variety of special pay lose a medical and other benefits along with work from home allowances our team members.
Second we continue to support our local communities.
I'm, especially proud of our small business spotlight.
Given the small businesses impacted by cold the visibility across QVC and HSN zulily.
And was totally lots of new series focused on plateau in small businesses.
Our record setting beauty with benefits program on QVC and HSN.
What are projected to and a half million dollars for cancer and careers with $500000 corrupting supporting kobin related grants and programs.
When we donated over a million dollars to equal Justice initiative.
Altogether.
Given the lease commitments to celebrated in support of our communities for our team along with our commitments to combat racial injustice total $40 million.
Third we rapidly pivoted, our product programming events and marketing.
The in tune with consumers most killed out now.
We aspired to be her refuge place for advice entertainment and community.
On a source of joy Polk and inspiration.
Fourth we instituted a significant strategic pull back on promotional activity across all businesses.
Provide a better foundation for helping sustainable long term growth and also to manage elevated demand.
Yes, we simplified and streamlined our operating structure and better align resources with the biggest growth opportunities.
Unfortunately, this necessitated separating the 450 value team members.
Additionally, because multiple customer contact centers as we've shifted those positions and put a minute walk from home.
And finally, we further strengthened our balance sheet.
Inventory reductions more conservative consumer installment payment practices, and our new trade payables program.
We are enormously grateful to our 25000 team members, who navigated these changes with the termination and resilience committed to helping our customers and helping each other it through this crisis.
We've also been inspired by the outpouring of care and concern from our team in response to the death of George Floyd and other recent instances of racial and justice.
We are committed to creating a culture of belonging for all team members and.
And we are redoubling, our efforts to provide multi cultural product assortments mature broad representation and our marketing digital honor activities.
Establishing more diverse supplier base.
These actions we took in response to the pandemic coupled with continued progress on our strategic priorities and the favorable macro trends from the stay at home shift like two outstanding results in the quarter.
Revenue and adjusted EBITDA increased 10% with every business unit and every geographic market demonstrated strong revenue growth.
You can feel grew to $1 billion year to date.
Creases nearly $800 million compared to last year.
And this growth was fueled by record setting new customer gains, we welcomed 2 million new customers to Q RG, 60% increase over the prior year.
Double digit new customer growth every business unit <unk> Co. markets.
We also enjoyed strong growth in reactivated and occasional customers all feeling is 14% growth in the total customer count across the company.
Especially encouraged by the strong performance across our QVC and HSN brands globally.
Brokers collar by high demand for home related products as a consumer electronics.
Partially offset by softness in apparel controlling.
In mid May we made the decision to pull back substantially on a variety of promotional activities to provide a better foundation for healthy long term growth.
While moderating the immediate sales surge, which we were struggling to keep up there.
On an order demand basis.
We saw low to mid teens growth before the pull back.
In low to mid single digit growth after but at more attractive margins.
The total active customer base increased significantly up 14% of Qxh and 9% for QVC International.
These factors record levels of new customers, coupled with strong increases in reactivated occasional customers.
However, sales from our best customers, those who make over 20 purchases per year declined modestly.
They increased their home and electronics purchases, but this was offset by sharp pull back in apparel, where they significantly over index.
Throughout this challenging cardiac stay committed to advancing our strategic priorities, which we see as critical pull long term growth.
First we remain focused on trading special products, a compelling values as we strive to be a source the unique innovative and exclusive merchandise inspiring consumers and feeling serendipitous discovery.
These actions include the recent launches are about new Qxh merchandising organization, a regional cheese, which is international merchandising function.
The growth of our proprietary design development of switching team, including adding additional categories like home.
Highlights from the seamlessly the successful launch of August mostly on the new home decor branded Giuliana rancic as well as the nuances that humans lifestyle brand.
New categories that we flex shifting consumer demand like a new social dispensing category, the toughest mass digital marketers enhance sanitizers much in house.
Rapid expansion includes 37, new offerings in Q2.
Hi, expanding our size inclusive offerings with two major launches this quarter all worthy by 100, Mcgrady, QVC and sitting pretty tight HSN, along with expanding our size range to five times Fivex and all apparel lines.
As a result of our push on product freshness and programming diversity accuse you see what Cuba to U.S., we introduced 44, new on her brands in Q2, that's up from 18 to prior year.
Devoted how does in 32 programming hours in the quoted a new shows up from 80 last year.
Our top 25 times because they represented just under 30% of our sales on a day down from 41% asked here.
We're also making great strides on our second strategic priority extended our video reach and relevance.
Across across all the video platforms that matter to today's consumer.
Of course remains critical our viewership on traditional pay TV is up even as the number of pay TV homes declines. The Qxh, we saw strong 10% game in homes fueling one of our networks on any given day.
We're benefiting from the ship to stay at home and we're rapidly because you know programming. It seems most relevant in this environment.
But the majority of our model.
We're also expanding on digital pay TV services or virtual has the PD is understandably watch enough who this quarter.
So in our 18 team now launched late last year in we're on track to find more digital carriers in the back half.
We also added more than 2 million over their households in the quarter altogether. We now reached 95 million TV problems in the U.S., including 76 million traditional MPB homes, Florida, Halfmann virtual NBP homes, and 14 million over their homes.
In addition to these gains in TV viewership and distribution the highly encouraged by progress on our streaming shopping services that we make available across multiple digital platforms.
Consumer adoption video streaming services has significantly accelerated during the pandemic.
There is a great deal of does about livestream shopping as an alternative to physical shopping.
Pleased with this validation of our unique model.
Aim to extend our significant leadership position.
We continue to enhance and expand our core streaming shopping service, which brings together, our QVC and HSN networks Wong with a variety of specialized niche on demand content.
Joe. This is now available on 45 million lightroom and fire TV homes over 3.6 million homes have downloaded app, but the 100% year over year increase the strong growth unique visitors and minutes streamed.
We're accelerating our investments in specialized concept for the service the can attract new audiences, including 10 pull series such as the upcoming launch of our Curtis Stone travel conclude series.
And we'll take questions on the next generation version of the service, which will feature embedded transactional capabilities.
We're also expanding the reach of our networks to other over the top devices, such as Comcast new affinity flux streaming service available to their blood cancers subscribers, we don't purchase Comcast video.
It will grow in range of over the top services, including those offered by Samsung TV plus Cmos in Alger channel plus with more underway.
Finally, we continue to expand our presence on social video sites.
We recently launched a dedicated Facebook page. The features live streaming of all our cheez. It seemed that works integrating with compelling social content and conversation.
You too or new collaboration affecting water gross 1.3 million limits food and hundreds of new subscribers to our beauty I too new to channel the check out Mr waters experts pips exco tips.
Our third priority is to Reimagine daily digital discovery and brings our ecommerce platforms. The same level of engagement and inspiration that characterizes our video platforms.
We recently launched a new engagement tool, which uses machine learning to present personalize messages on the web sites with key moments in the shopper's journey, creating excitement that were gensix, while staying true to our brands voice.
We realized strong growth in all E commerce metrics in the quarter.
At Qxh digital session grew 36%.
Purchases or possibly have products those that are must come to that day on the video platform grew 24%.
And ecommerce penetration was just shy of 60% of total sales of 440 basis points year over year.
If you could see international experience, even stronger results ecommerce penetration up 650 basis points.
Can you really also delivered strong revenue growth on record new customer additions.
As we benefited from an overall macro ship the commerce, coupled with strong progress on our turnaround initiatives.
The second an important strategic pivot the organization refocused all consumer facing activity monitors original target bottomless with kids at home. The team believes in as little as core brand attributes afresh finds that amazing values, adding more than 800, new vendors in the first half.
Supported by topical events relevant to stay at home customer.
I looked face mask have been one of their most successful offerings selling over 3 million units.
As the team was able to move quickly to secure supply really in the prices.
She has also made great strides refocusing its marketing programs.
The only reducing friction we plan on Facebook.
Improving look alike targeting and enhanced enhancing outbound marketing.
After a difficult year, we're encouraged to see the team's hard work to reposition which is only business gaining traction buoyed by the E Commerce tailwind.
Reinforcing in our view of the fundamental attractiveness as lower value proposition.
Cornerstone delivered outstanding results with strong growth at Frontgate, and Ballard designs Grandin Road and home segment of Garnet Hill.
The business benefited greatly from the stay at home when coupled with significant work over the last two years to develop more updated relevant to proprietary assortments have shifted resources from catalog to online marketing.
I want to close my comments by directly addressing the question on everyone's mind.
Can we sustain growth and healthy margins if the economy reopens.
While we certainly recognize that the outsized gains that we achieved this quarter or likely not sustainable.
They are more confident than ever that our business can generate healthy long term growth and revenues profits and cash flow.
A number of reasons.
First we anticipate that many kobin related trends will continue over 2020 and to some extent become part of the new normal including greater consumer engagement.
Live streaming video content.
We accelerated shift the E commerce.
Difficulty of creating engaging experiences and brick and mortars, given the limitations on customer interaction.
And the refocus on a more home center like.
Second.
We believe were uniquely suited to benefit from this environment.
Feature broad and diverse product ranges in the capital influx on met mix for current merchant home categories at QVC and HSN Angela.
In Q2, we were able to do there for her as she moved from clean.
The fitness in self care home office getting their payment or puzzles indoor decor to pool unguarded to food the cookware gadgets, but now sanitizers and air Purifiers.
No I focus on unique differentiated and exclusive products.
With compelling personalities and focus on entrepreneur or.
Keep it out of the Commoditized price driven E Commerce shrine that appeal to the spirit of the times.
Yeah, one of the world's largest shopping platforms and look at home shipping over 220 million packages per year with the benefits of scale experience and efficiency.
And QVC and HSN into really is wrong or centered on relationships.
Community authenticity and engaging experiences.
Attributes that matter is trying times more than ever.
It's why we enjoy a level of loyalty and purchase frequency that are virtually on matched in retail.
Third our confidence in driving long term growth stems from the traction we're seeing our strategic priorities.
Mitch perfectly intersect with these macro forces.
This progress is reflected in key metrics Weve column for example.
We're seeing gains in quite a situation and program and diversity as measured by the success of the new on their brands and programs I mentioned and they reduce concentration of top items.
Our video programming accessible and viewed as more and more places to offset cord cutting.
Growth in virtual and PPD and OTN households, unique visitor growth in recruiting fire.
Those in video views on our web and mobile platforms all up strongly.
As our traditional TV viewership, it's consistently outperformed the underlying erosion and pay TV homes, and that's been going on for many years.
Ecommerce engagement continues to strengthen.
As seen in growth in daily visitors growth across our product Assortments and increased ecommerce penetration metrics. So all moving positively before the pandemic and are now accelerating.
And most importantly, we're seeing growth in our active customer base.
Our strong new and reactivated customer growth benefited significantly by the stay at home trend.
But if our value proposition was highly attractive to consumers you simply would not have seen so many non customers.
Growth from really watching our programming or visiting our web sites to becoming active customers.
With all early indicators pointing to these new customers have been strong lifetime values.
With existing customers were highly encouraged by the surgeon spending another occasional customers, but also cautious about that slowed down some best customers.
Expect things to their pay off each other to some extent.
With occasional customer growth continuing through the strength in home, but likely moderating overtime and best customer growth gradually you give me as she eventually reengages with fashion products.
And finally, Jeff will further discuss why we see opportunities to continue improving EBITDA margins as free cash flow yields as we start to see the benefits of the investments as a last 18 months.
The global community.
Guardedly have difficult days ahead of us.
With the pandemic far from over.
The U.S. election season in full force in economic outlook on certain.
Nonetheless, we are confident that we are and will continue to be one of the winners in this movement on that.
And with that I'll turn it over to Jeff.
Thank you, Mike and good morning, good afternoon, everyone.
As Mike mentioned Q, our eyes net revenue grew 10% for the quarter recall segments delivering mid single high teens growth.
Well, good our improved 10% and included several discrete items, including an incremental 10 million of severance across all business segments.
And a $5 million inventory provision at cornerstone.
Partially offset by a $10 million reduction and sales tax accrual and really it was originally recorded at the time of acquisition.
Let's start with Qxh.
Your next page returned to net revenue growth on a foundation of new customer growth and strong through Congress performance.
As Mike said.
We have a broad product portfolio, which enabled us to new customer demand.
As you'll see on slide 11 in the earnings presentation, we experienced a sizable ship and category mix from apparel accessories and jewelry the home electronics.
The team responded well to these changes in customer demand to drive revenue growth.
Deploys the substantial growth margin pressure.
For the quarter Qx age.
Total customer group.
14%.
With existing customers up 4% reactivated customers at 29% and new customers growing 74%.
We are encouraged by early indicators of our new customers behave.
30, and 60 day retention rates have increased.
30, and 60 day post initial purchase spend is largely consistent with prior year levels.
Let me provide an additional detail on individual category performance.
Home increased 22%.
Man for long they food offerings underway nearly doubled.
We also experienced strong growth in gardening fitness, floorcare cleaning and personal care.
Consumer electronics grew 25%.
Driven primarily by increased interest in home office Entertainment and gaming.
Trends moderated later in the quarter as we reduce the installment payment options available to manage landesk risk.
Really returned to growth up 2%, we continue to see success with our efforts to nurture emerging brands such as Beekman pilot Paradise.
And Lance.
This was partially offset by continued declines in major national brands.
In apparel accessories enjoyed businesses.
The highly challenged.
We were down 12%, 1% kind of 11% respectively.
Customers pulled back significantly on the clothing handbags and footwear purchases.
The apparel decline.
Excuse me apparel decline.
Moderated through the quarter that remained challenged.
However, we are seeing pockets of strength, including active him athleisure, along with loungewear and intimate apparel.
Adjusted OIBDA declined 2% and adjusted OIBDA margin declined 180 basis points.
Excluding $9 million incremental server and she every year.
Adjusted OIBDA was up modestly.
The show more of the detailed behind the margin decline.
First gross margin.
The declined 90 basis points driven by two that's a major components product margin and fulfillment.
This were down 25 basis points, and 60 basis points respectively.
With respect to product margin recall last quarter, Mike indicated the shift in category mix.
That's 150 to 200 basis points decline in initial margin in April.
In the back half through the quarter, we were able to moderate product margin pressures.
The primary reasons.
One.
Most importantly, we made strategic adjustments to our promotional offers resulting in greater shipping and handling revenue and more products sold at regular price.
To the pressures from category mix lessened as quarter as the quarter progress and our prior year apparel sales were lower in June.
And three we benefited from lower customer returns.
With respect to fulfillment that 60 basis point decline, primarily associated with premium pay to our fulfillment center team members along with lower productivity.
To covert protocols lower pack factor.
No trait rate increases in higher drop shipments.
Partially offset by reduced returns and sales leverage.
The lower contractor, which is sort of several elements, including delays and the implementation of our common warehouse management system and the ramping of our network optimization efforts, the operating protocols and product mix shifts.
Moving to operating expenses, which were 20 basis points favorable.
This improvement was predominantly due to 35 basis points, a tailwind from commissions, primarily from increased digital penetration not subject to variable sales commissions.
SGN, a was unfavorable by 185 basis points with marketing and administrative costs, comprising 55 basis points in 40 basis points respectively.
Marketing reflective expanded support to deliver new customer growth and attention.
Also included one time investments in various brand marketing pilots.
The ministry to costs benefited from sales leverage this benefit was more than offset by increased incentive compensation accruals and severance.
I would like to share some of the trends, we're seeing as we wrapped up our July results.
However, these trends should not be construed as guidance for the remainder of the quarter.
In addition of while these references to command sales approximate customer purchases actual ship sales may differ.
Jeff H. demand sales through July four up low single digits on reduced promotional activity.
We have experienced similar category trends.
With growth and home and softness in apparel.
Throughs injury.
Customer growth remained strong double digit growth.
Customers.
At levels below second quarter.
Moving to adjusted OIBDA, We expect sequential quarterly improvement in margins in Q3.
Largely driven by improvements in product margins due to our reduction and promotional activities and vendor negotiations.
We anticipate ongoing margin headwinds gentlemen, as productivity and rate.
Take rates remain under pressure, we continue to invest in marketing will carefully monitoring returns.
With respect to obsolescence really freshiq inventory levels take advantage of new home and apparel opportunities for fall and winter and we expect to increase obsolescence reserves accordingly.
Finally, we expect to continue tailwind as conditions.
As long as modest improvement in bad debt and fixed cost leverage.
Now to the TVC International.
With accelerated first quarter momentum.
Broad based growth across all markets extraordinary new customer growth and retention and the continuation of strong becomes penetration.
On the comments going forward will focus on it on a constant currency results.
We generated growth in all markets led by Germany, UK, which and achieving two year stack growth of 17%.
From a category perspective.
We experienced sales growth and Tronics, which was up 41%.
Home was up 24%.
Really was up 18%.
Adjusted OIBDA increased 13% with gains in all markets adjusted OIBDA margin increased 10 basis points with very similar themes as qxh.
Gross margins.
Were.
Lower primarily due to product margin pressure from category mix shift.
Obsolescence positions from closure retail stores that provide a sort of outlook for slow moving inventory.
Drop ship penetration, improving and pay for onsite two numbers.
Favorable trends and operating expenses, primarily coming from the commissions.
Customer service, reflecting an expanded through congress penetration to sales leverage.
And then a straight of expenses were largely favorable due to sales leverage despite absorbing provisions for increased incentive bonus.
The call QVC, France terminated operations in March 2002.
Recorded a 2 million dollar adjusted OIBDA loss, and approximately 17 million operating loss.
Q2, 2019, primarily related to closure costs.
Looking at the second half demand sale through July.
Trended up.
To the mid to high single digits range.
Yeah strong from the strength across Europe and Japan.
As a reminder, last year, we experienced double digit growth in Japan in Q3 as you saw significant sales pull forward in September in advance of the consumption tax increase accordingly, we expect to paint sales to moderate significantly in the backbone of Q3.
Moving to zero, which delivered exceptional returned to growth.
Total customers grew 15% and new customers grew 54% in the second quarter.
Customer acquisition costs declined more than 50% given by E commerce tailwind and adjustments to our marketing strategies.
Adjusted OIBDA increased $38 million, which included a $10 million reduction in sales tax accrual I referenced earlier.
Originally recorded at the time of acquisition.
Gross margin increased primarily from strong product margin gains driven by strategic vendor negotiations.
These gains were partially offset by fulfillment pressure, primarily from higher fix a freight cost.
As well as close as it relates locally pressure, which improved by quarter end.
Really also benefited from south leverage up marketing and administrative costs.
He's looking at that second half.
Why demand sales trended up in the low teens.
Moving to cornerstone brands.
Which delivered a record second quarter performance revenue grew 18%.
As a business experienced strong consumer demand for home furnishings office storage pool and outdoor products.
The home brands were well positioned to capitalize on increased demand for home furnishings and outdoor products Ballard designs going in roads achieved record second quarter revenue and adjusted OIBDA.
In front gate.
Generated 23% revenue growth.
The strong gains in home brands were partially offset by declines at Cardinal Hill, mainly in the women's apparel category across it dresses footwear swimwear.
Although cornerstone retail stores, and then close where much of the quarter, who is able to offset this pressure. It's online channels to commerce revenue grew 32% into commerce penetration increased more than 800 basis points.
Yes of course, it out increased $7 million.
Gross margins improved primarily due to the strength in the home brands, partially offset currency. So.
Promotional pressure according to a $5 million inventory provision had real us.
The Atlas is amazing.
Innovative apparel brands.
Given the general pressures on apparel related poses Garnet Hill his management team with the decision to focus resources on the core products.
And development of a new strategy for real estate investment environment.
SDMA improved primarily from leverage of marketing and administrative expenses, partially offset by higher incentive compensation costs.
The quarter today sales demand is trying to consistent second quarter.
Let's quickly take a look at our balance sheet and cash flow.
That's what $63 million through the quarter and $108 million year to date.
We anticipate our 2020 capex to be in the range of 250 million a $295 million.
The distribution payments are comprised of multiyear carrier contracts.
We have less.
Contract renewal activity this year and year to date to distribution payments for only $10 million, we expected to increase in the second half of the year.
We generated strong free cash flow in the first half the 2020.
As Mike said year to date free cash flows is approximately $1 billion, an increase of nearly $800 million. The strong gains primarily driven by improved working capital.
Lower TV distribution payments and reduce capex.
Additionally, we had favorable timing and tax payments, which will primarily reverse the two through.
Driven by provisions in the carriers.
Looking at our debt profile, we have a zero balance on the QVC.
And revolver and $2.9 billion available capacity.
We have nearly $950 million of cash cash equivalents and our near term maturities owner senior secured notes.
We do not have anything maturing.
Until 2020 to 2023.
Our leverage ratio it combined.
In the QVC revolving credit facility was 2.0 at June 30.
In closing, we are well positioned to continue building on the momentum built into to the strength of our balance sheet and free cash flow, giving a solid base to invest in growth opportunities and continued execution our strategic.
With that we appreciate your continued interest in New Jersey retail.
I hope you stay safe and healthy.
Now I'd like to open the call for questions, we sent it back the operator.
Thank you if you'd like to ask a question on today's call. Please press star one of your telephone keypad once again that star wins during the question here.
Well take our first question from Edward Yruma with Keybanc capital markets. Please go ahead.
Hi, Thank you can't find on for at year end, bringing remarks first what plans do you guys have been placed hurricane in your customers you've acquired and then looking at that cohort and new customers are there any differently than profile, our consumer behavior, you've observed thus far.
Yes.
Thank you up for the question this is Mike.
Yeah, we're thrilled with the quality of the new customers were seen in India multiple initiatives in weighted underway to tweak them. So in the starwood kind of the quality in the profile in a broadly I would say these new customers look impact like new customers in past years, we just have a lot more them, including new customers in every single.
Product category.
Cool new customers, both you know off their businesses as well as our Hahn air business. So she is engaging new coming to us both what sort of the more traditional TV programming as well and has there been today.
Yeah I mean.
A key metrics, we look out to assess value lifestyle propensity to keep those customers at the 14 30 60 day Mark Walt.
At or above prior year performance.
And we even look at what percentage of new customers become best customers and they're very first couple of months in on that they no major they look as good or better than prior classes.
Probably the only modest defences, she's slightly younger maybe a year to younger than I do typically see with new customers, but other than that.
It looks like our very strong profile now that said, we don't want to take for granted so we've got a number of.
Programs underway to market back to her.
Variety of for the public <unk> outbound marketing programs to presenter with yeah, Hi, it's going to be interested in based on a purchase profile.
Within some.
Programs to Facebook to expose where theyve kind of product killer cells of products that would that and again the data, which they should be interested in so kind of encouraged by the team's efforts to.
Had a full court press on Mark Mckinnies new customers.
Well again.
Okay.
I will go ahead and take our next question from Oliver Wintermantel with Evercore. Please go ahead.
Yes, thanks, good afternoon guys.
My question was regarding inventory growth or inventory decline I should say.
It was down about 14%.
So it looks like doing three is clean heading into the.
Third quarter, which.
Probably there's just not a lot of discounting going on into Opex to school or the second half.
But I was just wondering you know that you have problems for acquiring a inventory into the third quarter with that deliver it.
Because of what do you expect and in the end of for third quarter. So just a little bit commentary about the.
The decline in inventory would be helpful.
[music].
Okay, Holly I would say that decline in such a couple of things of course is just that the obviously sales exceeded our expectations will.
They're coming through a lot of inventory.
And then we often they primarily because you know a cautious posture I just to make sure. We won over bought in a very uncertain time, but it was down because we did want to make sure we have fresh receipts going through the year at a time when other retailers the price cut back more substantially.
So I think because there are really nice job managing those dynamics to Q2 and now we're.
Turning to rebuild our inventories to make sure we're fully assorted going into the fall and holiday season, as Jeff mentioned and Thats a good there will have fresh receipts in small apparel as an example, and tissue does start to want to reengage with apparel product into the only category that might be out a modest watch.
Now for US is we are seeing the pressures really from the first phase of the pandemic in China, the Twitter disrupted.
Supply in consumer electronics property at the high demand for consumer electronics, I would say, we're working hard with our partners to make sure we've got a full assortment.
Electronics will holiday season, a little bit of risk there.
But you know where a preferred partner for many and I think we'll be able to navigate that without would be there. The one area, where we might have some modest risk otherwise. We do you think inventories are clean and will help us sort of maintain this conservative posture on promotions through the year.
Got it and if I may maybe the second question regarding E commerce growth.
Growth for this quarter with.
I was very strong.
If you could maybe talk a little bit about where that growth is coming from ecommerce is this your how much of that is organic.
Okay, I think I mean directly through to website without people watching the program or is the majority really driven by people working to programming in offering if you could give us she bought literacy skills there that would be helpful. Thank you.
Yeah sure.
As you know, it's hard for us to be able to you know perfectly ascertain cause and effect between TV and and E commerce, but yeah, probably that the metrics. Our most important to us on that question would be I'm looking at the mix of sales.
Well I need commerce, how much of it with the core products for featuring our video and how much of it is products that were not featuring our video so the which we call off airport.
I mentioned in my remarks, this popular products.
North of 20%.
So too much faster than they have all business results.
And they represent roughly 40% of totals.
Total sales.
As the criticized for that business unit.
And you know substantial share of the sales force E. Commerce. So no. It doesn't mean that the promise customer is an engaging with the TV products that any names, but there certainly getting a lot of sales a majority of sales on items that on features.
I'll now where sales are growing rapidly, we're certainly seeing disproportionate ecommerce performers with new customers. So we do think we're seeing more new customers come in.
And make that such purchases could more congratulate you Thomas experience and then some of them that's dependent more baggage customers.
The brand.
Thanks, very much witless.
And I had one thing here, which is although you say that the ER.
Organic.
It's funny, because I would argue flip around Ted.
Organic for us as people, who see the TV the fixed costs.
Early fixed costs that we run a huge prime builder, a huge loyalty builder and a huge continuous ER or promoter for us.
For us inorganic it where we have to.
By online.
Google Facebook cost per click and frankly, that's where it has a variable costs and select attractive. So I don't know slip Brown said, we do we love this upward from promoted from TV rights that we've already paid for that wants.
Thank you very much.
Thank you.
Well go ahead and take our next question from Jason Bazinet with Citi. Please go ahead.
So couple of questions from mystery say.
I appreciate the to choice that you're giving investors with his preferred I.
I suspect a lot of investors are going to look at this move in say that it's sort of lays the groundwork for you to go private actually.
So can I just asked three questions Dave one when this preferred if it goes through.
He's the right to say your 4.8 billion market cap.
We'll go down by billion three for the preferred anchor down 630, some odd million for the special and soda.
The market capture today, let me take another Jason let me take monetize our hope would be no. Our hope is our equity market cap will decline by less than the combined value those because we've shown not only from capability the business, but that we conclude games preferred and some of the access benefit will prove to come.
Understood.
Second what happens to your basis.
Asset after this preferred your fishing introduced there so if I could just adamant first point.
Sure I know you suggested in the past that when actions were taken we were going to take the business private.
Some of them, which would have been illegal and we try not to be things are legal very seriously trial that you can be early so again, we certainly didn't do this will don't tend to take a private and if you take the first point that I made which we truly dewen Chen with a combined are you would go up.
Not in our interest to do this as well with that was our intent to ticket price.
So just wanted to ask that is not our intent on tends to create shareholder value for all shareholders. Sorry go ahead.
Good to what happens gear basis, an asset after the preferred position.
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Depending on who you are generally it's complicated but it will generally split between the two entities there may be some cases in which it goes to the.
More to the common.
This is one they would say I would say consult your tax advisor.
Okay and my last one what happened in 2031, when the preferred sunsets like mechanically what happens at that juncture.
We paid off.
While we issue some other kinds instrument I guess not in exchange for general Youd like most debt securities. These are paid off.
Okay. Thank you.
Thank you.
Well head and take our next question from Carla Casella with JP Morgan. Please go ahead.
Hi, I'm wondering if you could give us some color on as we're coming out of co that if you're seeing much changes in the big business segment.
Meaning.
Home purchases personal care et cetera.
Yeah. Thanks, Karl So the question.
It's been surprisingly consistent so I would say that the categories that are doing well have been largely consistent through the pandemic.
Yeah, the specifics within those categories, obviously change with us with the seasons, but you know homes remains very dominant you can see that you and you know corners, a cornerstone business, which is all home continuing to grow at the same what rates that are grew through Q2, so no she's shifted from.
Pardon me and outdoor stuff.
Ah to now indoor furniture, and kind of getting ready for the fall.
But very much a strong focus across Europe with all home categories.
The only every bit of shifted somewhat is the consumer electronics is much softer for us that's a little bit self imposed because the promotional pullback that I mentioned.
No severely impacted their consumer electronics business, which tends to be the most promotionally driven category. So that's probably a little bit more on asked them abroad market that that otherwise you know see pockets of positive performance in apparel and some of the more comfort in casual wear.
But I would say intimate apparel and jewelry remain.
Challenged.
Accessories, and beauty are okay, and I'm really across the home is made of exception consumer electronics, where you're continuing to see strength.
Okay, Great and then just one follow up on given that the transactions you mentioned with the stock HM view any change in your view on how much leverage you're comfortable with it the QVC entity.
Hi.
Greg do you want to put water again, I think pure and I'll, let go out and then on our omni treasure can comment as well we set forth a ratings at the Q level I believe two and a half times. We also have some trina at times.
Not maintenance covenant, Scott our covenants on our bonds some of our bonds. So those are certainly targets were trying to stay within I'm. Not then what would you at.
Yeah, I would repeat that our stated leverage target for CPC is to run at times.
In addition distribution terrific our aggregate family leverage our ability to draw on our revolver subject to a three and a half times levered. So recurrently retain a most if not all of the.
QVC revolver capacity.
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Okay, great kilogram hybrid herve those are certainly impacted on targets, but we do believe the business could actually maintain higher leverage given its high free cash flow capabilities, but we obviously want to access may want to access at various times that with all.
Okay, great. Thank you.
Thank you.
Thank you Marty I last question essentially out there with D.A. Davidson. Please go ahead.
Great. Thanks, or could you talk more about what drove the strong performances, we really for the quarter as long as what drove the new customer growth curious if you're seeing this new customer being correlated with the continued questions. Your RPT our distribution efforts and then secondly to what extent if at all are you seeing any correlation between.
In geography is that a reopening in traffic trends. Thanks.
Great. Thanks for the question Tom I'm, just really really proud of that CMC work may have been after having had a pretty.
Happier and kind of off the attractiveness of course is going on you know to really put upon to re examine all aspects of the value proposition. There just get refocused on the core mom targeted list, we probably straight away from a little bit in Alaska.
And then in the pursuit of growth.
On a refocus marketing and going after new customers as opposed to trying to get more out of existing customers and pick a number of innovations across marketing and the outbound marketing programs are they going up a kind of what influence or not more to reach into new audience segments the into.
So there's a lot of hard work with Facebook the move some inefficiencies in the fish Casino case, all of which I think we're seeing the benefit of a number of sort of reforms to the score from just to make it a little bit more exciting energizing more self service capabilities.
Capabilities to improve the service levels of the brand.
And then just a huge focus on new brands and Alan you know well. We're excited about mentioned specific names you know with department stores being closed you know I think the team did a really nice job getting a lot of product that might have more than in the specialty or department store channel.
So really and we think about benefit can maintain so clearly isn't overall, you know tailwind, but south E commerce grow in another ecommerce retailers growing but I think the kind of 40 point swing is hard to really from.
On the declines in Q1 to the growth in Q2 is.
Absolutely benefited from the applaud the tail end of E commerce that gotten intersected the of just under this fundamental efforts to improve and strengthen the value proposition.
On the question eyes.
That's the impact of various states reopening you know we're studying outperformance by.
Geography varies by by stay very carefully as you would expect to try to understand those dynamics I think that's probably true is you know those states that shutdown orally and kind of stayed shut down three day in June probably in the early days of the pandemic, you've got a little bit more of the lift from them.
Not really April serves them than other states that have taken a more.
So a posture on on shut down but since about you know early probably mid June hi to performance is more consistent across states than anything else. So even have some state that seem to show against other states have seen improvement it doesn't seem to be meaningful in the results were seeing.
Yeah, I would even extend that to say if you look to Europe, and Asia, which is arguably you know have more success containing the virus not perfectly the more success and scores coconut earlier.
You know weve maintained fairly consistent performance across Europe, and Asia in that mid to high single digit range that Jeff mentioned, so it feels like we're kind of that a new level, where these underlying ah stay at home trends are.
In a fairly stable and not that subject to the ups and downs.
Just a virus surgeon well, let's see how long that laughs, but it's it's one of the things that gives us confidence that yeah with the continued to grow this business and there's some staying power disease.
These trends.
Just out I believe down your final question.
Yes, I want to thank everyone for joining us.
I agree this is Greg I want to thank everyone an eye out I know there will surely be questions.
About the preferred which isn't a nimble instrument.
We look forward to try and educate you we think it's a high value estimate and we hope we can convince you as well.
Thank you.
Once again that does conclude today's conference. Thank you very much for your participation you may now disconnect your phone lines.
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And then.
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And.
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And.
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Ladies and gentlemen, thank you for standing by welcome to victory retail incorporated 2020 <unk> earnings call.
During the presentation, all participants will be in listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press star one on your telephone.
As a reminder, this conference is being recorded today August.
I would now like turn the conference over to Courtney tried chief portfolio Oster Senior Vice President Investor Relations. Please go ahead.
Thank you before we begin we'd like to my number one the Colin could include certain forward looking statements within the meaning of the private Securities Litigation Reform Act that 1995 actual events or results could differ materially due to a number of brick and uncertainties, including note matching our most recent form 10-K, and 10-Q filed by our company.
We see what the FCC its forward looking statements speak only as of the data this call accurately tell expressly disclaims any obligation or undertaking.
Disseminate any updates or revisions to any forward looking statement contained herein to reflect any change in carry each sales expectations with regard there too or any change in events conditions or circumstances on which any such it must be.
Today's call, we were because certain non-GAAP financial measures, including adjusted OIBDA adjusted OIBDA margin free cash flow in constant currency information regarding the comparable GAAP metrics, along with required definitions and reconciliation, including preliminary no. It's scheduled one through three can be found in the earnings press release issued today.
Or the earnings presentation, which are available on our website today speaking on the call. We upped your eight retail executive Chairman Gregg nothing President and CEO, Mike George Curie retail group CFO, Jeff Davis. Please note, we publish slides to accompany that when you'd probably see slides are available on our website now I'd like to turn the call over to Greg.
Thank you Corgi and welcome all of our listening audience.
We also looked like thinking to cure, we jumped your numbers on their exceptional results.
We will fluctuate up their dedication of course.
Well I can just will be onshore me to provide more details.
Can you give us some corporate doctors.
No cap overtime strategy has been ongoing topic among investors like me pause buybacks last year.
All historical buyback suboptimal successful.
Largely because the markets more negative outlook for jury duty truck terminal value.
Well, our view might differ on board.
The dog sport alternative approaches for toward capital to deliver sustained benefits to shareholders.
Thank you George free cash flow and our confidence in business fundamentals, we intend to work on capital to shareholders via special dividend consisting of two pieces.
A onetime cash dividend of $1.50 years here.
And it works documenting the $3 this year.
Oh onetime cash dividend will total approximately six on burning through night.
We are right, that's not going with the projected 2020 free cash flow.
Good proceeds from the sale of Barcelona Green energy assets.
And cash built in part from an audience your buybacks over the past year.
This could be important also because.
Hi, good didn't know because you like the optimal tightening and youve attach rate increase in coming years.
Oh supports talk to them, we'll have a total page of approximately 1.3 building built.
Why Didnt you true preferred stock.
Well effectively what are the body Jews common stock into a more bomb lucky just like instrument any more levered common equity.
In one, but let me do other things we've done in terms of providing dr. choice. They should increase investor choice as well as much as luck tracking stock. Since then calls have done.
I want to were common are occurring common dividend, which forces common shareholders received a distribution. This provides sure all the flexibility.
You can hold.
Income from security or monetize your preferred stock and maintaining that position in a more levered common equity.
We think that could be an attractive into dave's security, but those who elect holder.
Generates compelling after tax income.
Which is appealing compared to bond choices out there and other alternatives.
In a relatively low levered at any given significant cash generation public.
The rate is favorable to comparable securities and it will yield a higher after tax yield all luxury retail like instruments, it's a long tenures maturing into Q1 2031.
Yes purports stock will also highlight on board workers Kaufman strong free cash flow generation a jury we killed.
We also hope it might be able to attracting new investor base, the bird might be should be a good fit income or investors seeking yield.
John and I are both did you asked about this before talking to tend to be long term holders.
I'd also note that some of you would historical data Liberty you've had some successes issuing these preferred in the past although admittedly it was a fair time ago.
Over the longer term, we expect the preferred stock and common equity in aggregate after giving effect to the cash dividend to trade in excess of the current trading price.
As we move through the balance of 2020 and in future years, we will actively consider additional forms of capital try and give them a substantial cash generation the cure it has.
We retain the ability to deploy just cash the metro Detroit retails cast shareholder practices to be clear buybacks are not off the table in 2020 <unk> and beyond.
And it gives you buybacks will be against a more lever.
Upside in the business.
We also intend to manage the DTA all the deferred tax liability our exchangeable bond.
As well in the near and mid from debt maturities.
Some future repurchases of some of the exchangeable bond that's being done in recent years.
Finally, given the ongoing pandemic.
We've decided to liberate investor day, this year will be virtual.
Can be broken into two days.
So as much as we loved deal no one should have to be I called that long.
On those two numbers I can't we will cover Liberty media and Liberty Tripadvisor and on Friday November 20 ships will employ a jury retail liberty broadband and GTR Liberty both baseball run from 11 to 12 feature.
More details will be provided on our website. Please mark your calendars.
With that I'll turn it over to Mike.
Thank you, Greg and good afternoon, everyone like you control units.
Yes, certainly live into appeal Univar, plus another challenge.
Well body ongoing it perhaps of the global pandemic.
The need alkali palatial economic justice.
Want to start todays call by summarizing actions, we've taken in response to these extraordinary events.
And then I'll review, our results and our outlook for the future.
Come to our actions forestall pardon.
Remains one could that be held in the financial well being of our team members.
All team members, who can work from home will continue to do so.
Till at least early next year.
Somewhat from old permanently most notably in customer service.
Social gifting team mandatory knobs requirements, that's going to including the teams aren't affected at all of our sites.
Yeah, we provided a variety of special pay <unk> medical and other benefits.
All that work from home allowances our team members.
Second we continue to support our local communities.
Especially proud of our small business spotlight.
Small business is impacted by told the visibility across QVC and HSN Julie.
Total watch a new series focused on block those small businesses.
Well, let me setting beauty with that this program on QVC and HSN deliberate up subjected to a lot more dollars cancer and careers. The $500000 grew up in supporting Kobin related Gladstone programs.
When we donated over a million dollars didn't equal Justice initiative.
Altogether.
Over the lease commitments celebrated in support of watch movies marching along with our commitments to combat social justice totaled $40 million.
Thirdly rapidly coveted applauded programming.
Marketing.
In todays consumers most killed out now.
As far as the whole refuge Lightsquared Weiss entertainment and community.
So to draw I hope and inspiration.
Fourth we executed a significant strategic pull back on promotional activity.
While small businesses.
Lot of better foundation for helping sustainable long comes out and also to manage elevated demand.
Yes, we simplified and streamlined our operating structure and better align resources, because they just growth opportunities.
Unfortunately.
Got to pay it it's up waiting at 450 value team members.
Additionally, because multiple customer contracts and that's where should because those positions are putting enough work from home.
Finally, before describing our balance sheet.
Moving towards adoptions more conservative consumer installment payment practices, and our new trade payables program.
We are more must be grateful to our 25000 team members navigated these changes with the termination and resilience.
Committed to help you know customers and helping each other it through this crisis.
We've also been inspired by the outpouring of County concern from our team in response to the death of George Floyd other leases instances, where shopping and justice.
We are committed to creating a culture of belong in football team members.
Our redoubling our efforts because a lot multicultural why did this woman's.
Sure Bob representation and marketing digital on their activity.
That makes them more diverse supplier beds.
These actions we took in response to the pen does not.
Coupled with continued progress on our strategic priorities.
The favorable back what trends come to stay at home ship.
Like two outstanding results in the quarter.
Revenue and adjusted or gotten Chris temperature.
Business unit.
Geographic market demonstrated strong revenue growth.
You can feel grew the $1 billion no today.
Inclusive really $800 million compared to last year.
And this growth was fueled by record setting new customer gains and welcome to no new custom most acute allergy.
<unk> increased over the prior year.
Double digit new customer growth.
Business units have been market.
We also enjoyed strong local reactivated and occasional customers all feeling is 14% growth the total customer Cal across the company.
What especially encouraged by the strong performance across our QVC and HSN blames globally.
Locus collar by high demand home belated products, and the consumer electronics, partially offset by softness in apparel and jewelry.
No we made the decision to pull back substantially all of the widest promotional activities.
Got a better foundation for healthy long term growth.
Moderating immediate sales surge, which we were struggling to keep up the.
On a warrant the man basis.
We saw a low to mid teens growth for the pull back.
And low to mid single digit go after but at more attractive margins.
The total active customer base inclusive.
Up 14% of Qxh lives. So it's usually see international.
Good luck with love this new customers, coupled with strong increases in reactivated and occasional customers.
However, sales from our customers so to make over 20 purchases per year declined modestly.
It includes the home and electronics purchases, but this was offset by shop pull back in apparel, where they significantly over index.
Throughout this challenging Todd do you have stay committed because they ask you know strategic priorities.
We see as critical Polycom club.
First we remain focused on trading special products, a compelling values as we strive to be absorbed the unique benefits of an exclusive merchandise that's why we've consumers and feeling serendipitous discovered.
He watches in two weeks of launches are about new Qxh merchandising organization, a regional chooses international merchandise that function.
Gross profit proprietary design development of switching team, including adding additional categories like home.
Highlights from the seamless is it successfully launch of August plus Liam the new homes, a core brand that giuliana rancic as well as the launch of Newmont lifestyle brand.
New categories flux shipping consumer demand like a new social distancing category, It's office mass digital marketers and had Seattle kaiser's much in house.
Rapid expansion it.
Dozens of new offerings in the Q2.
Expanding our size inclusive offerings.
Maybe the watches this quarter all worthy, but I couldn't mcgrady at QVC in Citicorp, just like it took them along with expanding our size rose to five times why that's all the coal ones.
As a result of all push on product freshness and program in which the acute and see what she wants you asked me because this 44, new auto brands in Q2, that's up from 18 the prior year.
The voting how does it those are two programming hours in the quarter. Good news shows up from eight last year.
Top 25, I just because they represented just under 30% of ourselves in a break down from 41% last year.
We're also making great strides dog second strategic priority extended a video reach and relevance.
<unk> all the video platforms that battle to today's consumer.
He of course remains critical or viewership on traditional pay TV it up.
The number of pay TV homes to ponds that Qxh, we saw strong campus in game in homes viewing one the one that works on any given that.
Benefiting from the ship to stay at home and we're rapidly because you know programming. It seems most relevant in this environment, reflecting the agility of all model.
We're also expanding on digital pay TV services was booked 12 of the PD is most notably watch enough who this quarter. Following our 18 team now launched late last year.
Well on track to fly more digital carriers in the back out.
We also added one of 2 million over the hill households in the quarter altogether now reached 95 million TV homes in the U.S., including 76 million traditional NBP homes, Florida half more virtual and the PV and 14 million over their problems.
And if it shouldn't be gains in TV viewership and distribution highly close by was less than our schools shopping services like available across multiple digital platforms.
The tumor adoption video student services that significantly accelerated during the pandemic.
And there was a great deal of Buzz about livestream shopping as an alternative the physical shopping.
We're pleased with this validation of our model.
Aimed to extend our significant leadership position.
We continue to enhance and expand our poor extremely shopping Travis it's putting together, our QVC and HSN networks Wong with a variety of specialized elite onto that content.
Joe This is al billable on 45 million low crude and fire TV homes.
Well, the 2.6 million at homestead download about that that's 100% Woolsey. Your includes the strong growth unique visitors and limits trained.
We're accelerating our investments in specialized concept because its surface that can attract new audiences.
Post foods, such as the upcoming launch of automotive stone travel foods is.
And we're watching on the next generation version of this service.
To embed transactional capabilities.
We're also expanding the reach of on my works the other over the top devices such as Comcast me, that's gonna be flux food service.
The bulk of that Bob answered subscribers, who built coaches Comcast video.
You know grows range over the top services.
It has offered by Samsung TV, plus Cmos and Alger chattel plus more on the way.
Finally, we continue to expand our president Joko video sites.
Recently lost a dedicated Facebook page that features watched and all that you didn't see networks integrated with compelling centric culture and conversation.
Due to a new cooperation with the water <unk> 1.2 million limits food and hundreds of new subscribers to our beauty I choose to channel the check out at the waters exports tips exco tips.
Our third priority was to Reimagine daily digital discovery and brings our ecommerce platforms. The same level of engagement and inspiration that characterizes our video platforms.
We recently launched a new engagement tool, which uses machine learning because the cost wise as much as just on the web sites. Its key moments in the shopper's journey, creating excitement that wouldn't see while staying true to our brands voice.
We realized strong smoking all E commerce, not cooks in the quarter.
Qxh digital sessions grew 36%.
Purchases up off you know products those that are not feature that day on the video platform grew 24%.
Ecommerce penetration was just shy of 60% of put itself up 440 basis points year over year.
If you could see international experience even stronger results.
Commerce penetration up 650 basis points.
Do you really all to deliver strong revenue growth on record new customer additions.
Which has benefited from an overall that book ship E commerce, coupled with strong progress not all kinda labs initiatives.
The second an important strategic pivot the organization refocused all consumer replacement activity, while it's a religion at target bottomless with kids at home.
He believes in does little to core brand attributes, that's fives that amazing value.
Adding more than 800, new vendors in the first half.
Supported by topical events relevance to stay at home customer.
The placemats have been one or the most successful offices. So it another 3 million units.
As a team was able to the quickly that's what's your supply really in the crisis.
She has also made great strides refocusing that's marketing programs.
Finally, we do she looks quite have the baseball.
Look alike targeting and it helps it has to help out marketing.
After a difficult year, we're encouraged to see the team's hard work the repositioning is little bit lifting traction.
By the college tailwind.
Enforcing then I'll do the fundamental attractiveness of is lower value proposition.
Cornerstone delivered outstanding results.
As long as broke up I'm, good Ballard designs Grandin road and home segments have gone itself.
The business benefited greatly from to stay at home can coupled with significant work over the last two years to develop more updated relevant and proprietary assortments well shifted resources from catalog the online marketing.
I want to play my comments by directly addresses a question on everyone's mind.
Can we sustain growth and healthy margins at the economy reopens.
While we certainly recognize that the outsized gains that we achieved this quarter or likely not sustainable.
They are more confident than ever that our business can generate healthy wankel gross revenue profit and cash flows.
A number of reasons.
Well, we anticipate that many hold it related trends will continue over 2020 limit some extra become part of the new normal including greater consumer engagement.
Live streaming video content.
The accelerated shift the E commerce.
Difficulty of grading engaging experiences and brick and mortar given the limitations on customer interaction.
And the we focus on a more home center like.
Second.
We believe were uniquely suited to benefit from this involvement.
Feature broad and diverse product ranges you couldn't rapidly flux, one, but mix well continental merchant home categories at QVC and HSN Angela.
In Q2, we were able to beat up for her what she moved from clean.
Mr himself care to home office getting their payment of puzzles, the inboard acorda pool and garden.
The cookware gadgets, but now Sanitizers and help your fives.
Well focus on unique differentiated and exclusive products.
With compelling personalities like it's lumpy entrepreneur or.
[laughter] out of the Commoditized twice driven E commerce right.
Appeal, because the spirit of the times.
Well one of the world's largest floppies platforms and I've got home shipping over 220 million packages per year with the benefits of scale experience and efficiency.
But you didn't see in it you can answer really is wrong or centered on relationships.
You know the authenticity and engaging experiences.
Attributes that matter is flying times more than <unk>.
It's why we enjoy a level of loyalty and purchase frequency that have virtually on matched in retail.
And third or competence of broadly long term growth stems from the traction we're seeing all our strategic priorities.
Mitch perfectly intersect with these macro forces.
Well I was actually reflected into Mexico truth column.
Yep.
We're seeing games and products relation and programming diversity as measured by the success of the new on her brands and programs I mentioned and to reduce concentration of top items.
Oh video programming acceptable and viewed more and more places to offset cost cutting.
Well the books will then be PV and OTN households.
Visitor growth and what could find.
Both in video views on our web and mobile platforms all up strongly.
As our traditional TV viewership, it's consistently outperformed the underlying lotion pay TV homes, and that's been going on because many years.
[laughter] Commerce engagement continues to strengthen.
She has always been daily visitors broken off their product assortments.
Ecommerce penetration, but cooks they'll all be isn't obvious because people will depend on that and are now accelerating.
And most importantly machine growth at the customer base.
Our strong new and reactivated customer growth benefited significantly by the stay at home threatened.
But for value proposition wasn't Holly crafted to consumers simply would not have seen so many non customers.
Lets them really watching our programming visiting our website to becoming active customers.
It's all really indicators pointing to these new customers, having strong lifetime values.
With existing customers Halim close by the surgeon spending another occasional customers.
I'll just cautious about that slowed down that's customers.
We expect these two to pay off each other to some extent.
Occasional customer growth continuing through the strength in home, but likely moderating overtime and best customer growth gradually really actually eventually reengages with fashion products.
And finally, Jeff whether that's that's why we see opportunity to continue improving well get 'em margins, that's free cash flow yields as we start to see the benefits of investments as a last 18 months.
The global community.
Yeah, Guardedly have difficult days ahead of us.
Pandemic falloff in mobile.
Lessened election season in full force.
Economic outlook on certain.
Nonetheless, we are confident we are and will continue to be one of the winners let's move on.
Now with that I was kind of over to Jeff.
Thank you, Mike and good morning, good afternoon, everyone.
As Mike mentioned Q, our eyes net revenue grew 10% for the quarter called segments delivering mid single high to low.
Well get off improved 10% can include several discrete items, including incremental 10 million of suffers across all business segments.
And a $5 million inventory provision at cornerstone.
Partially offset by a $10 million reduction in sales tax accrual and really it was originally recorded at the time of acquisition.
Let's start with Qxh.
Your next page, we turn to net revenue growth on a foundation of new customer growth and strong through Congress performance.
As Mike said.
We have a broad product portfolio, which enabled us to your customer demand.
As you'll see on slide 11, <unk> earnings presentation, we experienced quite sizable ship.
Category mix from apparel accessories, and jewelry the home electronics.
While the team responded well to these changes in customer demand to drive revenue growth.
Good.
Or is that substantial growth margin pressure.
For the quarter Qxh total customer group.
14%.
With existing customers up 4% reactivated customers at 29% and new customers, calling 74%.
Yeah, I'm encouraged by early indicators I want to new customers behave.
30, and 60 days attachment rates have been trees.
30, 60 day ghosts initial purchase.
And it's largely consistent with prior year levels.
Let me provide an additional detail individual category performance.
Home increased 22%.
NAND for as long they food offerings lumber way nearly doubled.
We also experienced strong growth in gardening fitness, wellcare cleaning and personal care.
Consumer electronics grew 25%.
Driven primarily by increased interest in home office Entertainment and gaming.
Trends moderated later in the quarter, because we reduced the installment payment options available manageable debt yes.
Really returned to growth up 2%, we continue to see success with our efforts to nurture emerging brands such as Beekman pilot paradigms.
Right.
This was partially offset by continued declines in major national brands.
The apparel accessories enjoyed businesses.
We're highly challenged.
We were down 12%, 1% kind of 11% respectively.
That's most pulled back significantly on the clothing handbags and footwear purchases.
The apparel decline.
Excuse me apparel decline.
Moderated through the quarter that remained challenged.
However, we are seeing pockets of strength, including taxes him athleisure, along with loungewear intimate apparel.
Adjusted OIBDA declined 2% kinda adjusted OIBDA margin declined 180 basis points.
Excluding $9 million incremental southern she every year.
Adjusted OIBDA was up modestly.
The show up more of the detail behind the margin decline.
First gross margin.
Hi, 90 basis points, driven by two that's major components product margin for Selman.
Which were down 25 basis points, and 60 basis points respectively.
With respect to product margin, we call last quarter, Mike indicated the shift and category mix.
250 that you want a basis point decline some initial margin than Paypal.
In the back half of the corridor, we were able to moderate product margin pressures.
The primary reasons.
One.
Most importantly, we made strategic adjustments to our promotional offers resulting in greater shipping and handling Avenue and more products sold.
Yes.
To.
Pressures from category mix left and has quarter over quarter, Congrats and acquire year apparel sales were lower in June.
And three we benefited from lower customer returns.
With respect to fulfillment that 60 basis point decline, primarily associated with premium pay to Oklahoma Center team members, along with lower productivity.
To cope with protocols.
Lower pack factor.
Joel trait rate increases in higher drop shipments.
Mostly offset by reduced returns and sales leverage.
The lower contractors as result of several elements, including delays and the implementation of our common warehouse management system and the ramping of our network optimization efforts the operating protocols.
Product mix shifts.
Really to operating expenses, which were 20 basis points favorable.
This improvement was predominately due to 35 basis points a tailwind from commissions.
Barely from increased digital penetration not subject comparable sales commissions.
SGN today.
Was unfavorable by 105 basis points with marketing and administrative costs, comprising 55 basis points 40 basis points respectively.
Marketing reflected expanded support to deliver new customer growth and attention.
Also included onetime investments in various brand marketing.
Ministry to costs benefited from sales leverage.
Benefit was more than offset by increased incentive compensation accruals and settlements.
I would like to share some of the trends, we're seeing as we wrapped up our July results.
However, these trends should not be construed as guidance for the remainder of the quarter.
In addition, while these references to command sales approximate customer purchases actual ships sales may differ.
Qxh demand sells through July four up low single digits on reduced promotional activity.
We have experienced similar category trends.
With growth in home and softness in apparel.
Throughs enjoy.
That's what growth remained strong double digit growth.
Customers.
<unk> levels below second quarter.
Moving to adjusted OIBDA.
We expect sequential quarterly improvement.
Margins in Q3.
Largely driven by improvements in product margins due to our reduction and promotional activities and vendor negotiations.
We anticipate ongoing margin headwinds have kept selman, that's productivity and rate.
Take rates remain under pressure.
Continue to invest in marketing carefully monitoring returns.
With respect to obsolescence.
Refreshing inventory levels take advantage of new home and apparel opportunities for fall in Warner and we expect to increase obsolescence reserves accordingly.
Finally, we expect that continue tailwind as conditions.
As was modest improvement in bad debt and fixed cost leverage.
Now to the to see international.
With accelerated first quarter momentum.
With.
Broad based growth across all markets extraordinary new customer retention and the continuation of strong becomes penetration.
On the comments going forward will focus on it on a constant currency themselves.
We generated growth in all markets led by Germany UK.
And achieving two year stack was up 17%.
And the category perspective.
We experienced sales growth Tronics, which was up 41% home was up 24% really with up to 2%.
Just before the dot increased 13%.
Gains in all markets adjusted OIBDA margin increased 10 basis points.
Similar themes as Qxh.
Gross margins.
Were.
Lower primarily due to product margin crusher and category mix shift.
Obsolescence provisions from closure retail stores that provide it sort of outlook.
Moving inventory.
Hi, a drop ship penetration improving and pay for onsite two numbers.
Favorable trends in operating expenses, primarily coming from commissions.
Customer service, reflecting an expanded two comments penetration in size watch.
Ministry of expenses were largely favorable due to sales leverage despite absorbing provisions for increased incentive bonus.
The call TV series plants terminated operations in March 2001, too.
Recorded a 2 million dollar adjusted OIBDA loss, and approximately 17 million operating loss.
Q2, 29 to primarily related to closure costs.
Looking at the second file.
Man sell through July.
Trended up.
Into the mid to high single digits range.
Yes, strong dollar strength across Europe and Japan.
As a reminder, last year, we experienced double digit growth in Japan in Q3 as you saw significant sales pull forward in September in advance of the consumption tax increase accordingly, we expect handsets to moderate significantly in the backbone of Q3.
Moving to zero, which delivered exceptional returned to growth.
Total customers grew 15% new customers grew 54%.
In quarter.
But small acquisition costs declined more than 50% to them by E commerce tailwind and adjustments to our marketing strategies.
Adjusted OIBDA increased $38 million, which included a $10 million reduction in sales tax accrual I referenced earlier was originally recorded at the time of acquisition.
Gross margin increase primarily from strong product margin gains driven by strategic vendor negotiations.
These gains were partially offset by fulfillment pressure.
When they're always going higher six freight costs.
As well as co good relations locally pressure, which include by quarter end.
Really also benefited from self leverage up marketing and administrative costs.
Looking at the second time.
A lot of demand sales trended up in the low.
[music].
Moving to cornerstone brands.
Which delivered a record second quarter performance revenue grew 18%.
But the business experienced strong consumer demand for home furnishings office storage pool in older products.
Home brands will walk position to capitalize on.
The man for home furnishings and outdoor products.
Well it designs going in roads, and she record second quarter revenue and adjusted OIBDA.
And truncate.
We generated 23% revenue growth.
The strong days in home brands were partially offset by declines at Cardinal Hill mailing and the women's apparel category across your guess is put war swimwear.
Although cornerstone retail stores and then close through much of the quarter. He was able to offset this pressure it's online channels to call. Much revenue grew 32% come to Congress penetration increased more than 800 basis.
Yes of course, it out increased $7 million.
Gross margins improved primarily due to the strength in the home brands, partially offset come to more so.
Notional crusher, according to a $5 million inventory provision of real us.
The Atlas is amazing.
Innovative apparel brands.
Given the general pressures on apparel related poses Garnet Hill's Atlanta summit to make a decision to focus resources on the core products.
And development of a new strategy previous from this morning bond.
SDMA improved primarily from leverage of marketing and administrative expenses, partially offset by higher incentive compensation cool.
The quarter today sales demand has turned it consistent.
Second quarter.
Let's quickly take a look at our balance sheet and cash flow.
Bucks, what $63 million through the quarter $150 million for the year to date.
We anticipate 2025 folks to be in the range of 250 million $290 million.
The distribution payments are comprised the multiyear carrier contracts.
You have less contracted deal activity this year.
Year to date to distribution payments, the only $10 million, we expected to increase from the second half of the year.
We generated strong free cash flow in the first half at 2020.
As Mike said year to date pre cash flow with approximately $1 billion, an increase of nearly $800 million.
The strong day was primarily driven by improved working capital.
Lower TV distribution payments and reduce capex.
Additionally, we had favorable timing and tax payments, which will primarily reverse in Q3.
Driven by provisions the carriers.
Looking at our debt profile, we have them zero balance on the QVC.
And revolver and $2.9 billion variable cost me.
We have nearly $960 million and cash cash equivalents no near term maturities owner senior secured notes.
We do not obviously maturing we.
He took 2020 to 2023.
From a leverage ratio if the buying.
In the QVC revolving credit facility was 2.0 at June 30.
In closing, we are well positioned to continue building on the momentum built into too.
The strength of our balance sheet and free cash flow give a solid base to invest in growth opportunities and continued execution color strategically.
We appreciate your continued interest only true retail.
So to say.
Hello.
Now I'd like to open the call for questions, we kinda talk quickly.
Thank you if he'd like to ask a question on today's call. Please press star one of your telephone keypad once again that Scott ones. During the question can you.
I think our first question from Edward Yruma with Keybanc capital markets. Please go ahead.
Right, but that he can't find on spread here at bringing remote.
Our what plans do you guys haven't played care came in your customers you've acquired and then looking at that cohort and new customers are there any differences in profile are concerned behavior, you've observed thus far.
Thank you up for the question this is Mike.
We're thrilled with the quality of the new customers, who were seeing them do have multiple initiatives and weighted underway to teach them. So in the starwood kind of the quality and the profile broadly I would say these new customers look impact like new customers past years, I would just have a lot more them, who grew new customers in every single product.
Category.
The new customers, both you know off their businesses as well as our Hahn Air business. So she is engaging new coming to us both what sort of the more traditional TV programming as well as well as of today.
Put them in a key metrics, we look out to assess value like the capacity to keep those customers at the 14 coding 60 day more Walt I had or above what probably yield performance.
We've looked at what percentage of new customers become that's customers and then they're very first couple of months yet on what they measure.
Hi, good or better than.
Prior classes are probably the only modest defences shoes widely one bill maybe a year to younger than.
We typically see with new customers, but other than that.
Looks like I was very strong profile that said, we don't want to take it to granted to we've got a number of.
Programs underway to market back at her a variety of for the pool outbound marketing programs to presenter with no price is going to be interested in based on a purchase profile.
There's been some.
Pulled them since they go up to expose would have kind of product killer cells of products that would though is in the data, which they should be interested and so kind of encouraged by the team's efforts to had a full court press on <unk> continues to customers.
Thank you.
I will go ahead and take our next question from Oliver Wintermantel with Evercore. Please go ahead.
Yeah. Thanks, Good afternoon, guys, but my question was regarding inventory growth or inventory decline I should say.
I thought about 14% quarter. So it looks like doing three is clean heading into the.
Third quarter, which.
Probably there's does not a lot of discounting going on into the back to school or that the second half, but I was just wondering you know did you have problems or acquiring a inventory into the third quarter with that deliver it or because of what do you expect him to Indiana for third quarter. So just a little bit commentary about.
The decline inventory would be helpful.
Okay, Holly I would say that decline in such a couple of things of course is just that the odds who failed exceeding our expectations. So we'll be able to lived through a lot of up even toward.
And then we often depends upon it because you know.
She's posture I took the because we won over bought in a variety of quite uncertain time, but it was down just because we did want to make sure we expressly suits going through the year at a time when other retailers could probably cut that more substantially.
So I because they can get a little about shop and managing those dynamics to Q2, and now were Rob gradually do different colors culture will fully assorted going into the fall and holiday season, as Jeff mentioned and I feel good that we'll have fresh receipts in golf apparel as an example, and kids she does.
Talk to want to Reengage with apparel product, which is the only category that might be a modest watch out for US is we are seeing the pressures really from the first phase of a pandemic in China. The 20 disrupted a supply in consumer electronics, coupled with the hide the vast the consumer electronics and I would say.
We're working hard with our partners to make sure. We've got a full assortment in electronics for the holiday season, a little bit of risk there, but no work before pardon for Maddie and I think we'll be able to navigate that book I'll do that the one area, where we might have some modest growth otherwise. We do think inventories are clean and will help us sort of maintain this can.
So with posture on promotions through the year.
Got it and if I may that maybe the second question regarding E commerce growth.
Growth this quarter with Oh, it was very strong.
If you could maybe talk a little bit about where that growth is coming from ecommerce.
It's your how much of that is Oh can you guys.
Okay, I think I mean directly through the website without people watching the program for this is a majority really driven by people watching the program and then offering if you could give us.
Literacy skills, there that would be helpful. Thank you.
Yes sure.
As you know, it's hard to us to be able to you know perfectly ascertain cause and effect between TV and and E commerce, but yes, probably that that was our most important to us on that question would be looking past the mix of sales one E commerce, how much of it.
Core products with featuring our video.
How much of it aquatic still a lot picture and I'll give you still got which we call it off airport [noise].
As I mentioned in my remarks was Caulfield products were up north of 20%.
So grew up much faster than your vault business results.
It was up as young roughly 40% of total.
Total sales and has a little so with that business unit.
And no substantial she held for sale sporting comedy show.
So that doesn't mean that we promised customer is an engaging with the TV product names that were certainly getting a lot of sales a majority of sales on items on features.
I'll now where sales are growing rapidly.
Well, it's really too disproportionate ecommerce fulfillment for new customers. So they do think machine water new customers come in.
And make that such purchases could more conventional the Thomas experience when they some of them that's becoming more bloggers.
The brand.
Thanks, very much of that much.
And I had one thing here, which it although you say that the ER.
You know organic.
It's funny, because I would argue flipped on Ted.
Organic for us to people, who see the TV fixed costs.
Early fix cost that we run a huge prime builder, a huge loyalty build it on a huge continue which promoter for us.
Oh, it's inorganic it where we have to buy online.
Google Facebook cost per click and frankly, that's where it has a variable costs and it's a less attractive. So I don't want split that out and said we don't we love. This upward from promoted from TV rights that we've already paid for that once.
Thank you very much.
Thank you.
Well go ahead and take our next question from Jason Bazinet with Citi. Please go ahead.
[noise] set a couple of questions from Mr. buffet.
You should see to choice that you're giving investors with this preferred.
I suspect a lot of investors are going to look at this move and say that it sort of lays the groundwork for you to go private actually.
So can I just asked two questions Dave one when this preferred if it goes through.
He's the right to say your 4.8 billion market tab.
Well go down by 1 billion three for the preferred I think are down 630, some odd million for the special in soda.
The market capsule today, but let me take another Jason.
I don't want to fund our hope would be no. Our hope is our equity market capital declined by less than the combined probably those because we've shown not only from get go the business, but that we can sustain preferred and what some of the access bunker recruited the comp.
Understood.
Second what happens to your basis.
Asset after this preferred units issued it triggers there so if I could just add them of course point.
Sure I know you've suggested in the past that when actions were taken we were going to take the business private.
Some of them, which would have been illegal and we try not to do things are legal very assiduously trial that you're going to be early.
So again, we certainly didn't do this won't have to take a private and if you take the first point that I made which we truly dewen Chen with a combined why you would go up.
Not in our interest to do this as well with that was on the ticket price.
So just want to add to that as long term contracts to create shareholder value for all shareholders. Sorry go ahead.
No. It's good to what happens to your basis, a massive after the preferred position.
Uh huh.
[music].
Depending on who you are generally it's complicated but it will generally split between the two entities there may be some cases in which it goes to the.
What are the common a this is one of their would say I would say consult your tax advisor.
Okay and then my last one what happens in 2031 when that for sure some sets like mechanically what happens at that juncture.
We paid off.
Well, we issue some other tied instrument I guess not in exchange for general Youd like most debt securities we would pay it off.
Okay. Thank you.
Thank you.
Well I didn't take our next question from Carla Casella with JP Morgan. Please go ahead.
Hi, I'm wondering if you could give us some color on as we're coming out of co that if you're seeing much changing in the big business segment.
Meaning no home purchases personal care et cetera.
Yeah. Thanks, Karl So the question.
It's been surprisingly consistent so I would say that the categories that are doing well.
Has been largely consistent through the pandemic.
Yeah, the specifics within those categories, obviously change with the with the seasons, but you know homes remains very dominant you can see that man.
Corners, a cornerstone business, which is all home continuing to grow at the same weights that a good through Q2. So no. She's shipped the problem you know pardon me I mean outdoor stuff.
Ah to now indoor furniture, and kind of getting ready for the fall a that very much a strong focus across Europe with all home categories.
Only there that have shifted somewhat as the consumer electronics is much softer for us that's a little bit self imposed because the promotional pulled back that I've mentioned, most severely impacted the consumer electronics business, which can you give me the most promotionally driven category, just got a little bit more on Austin abroad.
Okay that that otherwise, mostly pockets of positive performance in apparel and some of the more comfort in casual wear.
But I would say intimate apparel and jewelry remain a challenge accessories and beauty <unk>, Okay, and <unk> cost at home with maybe the exception of consumer electronics, where we're continuing to see strength.
Okay, Great and then just one follow up on given that the transactions you mentioned with the stock.
Any view any change in your view on how much leverage you're comfortable with it the QVC entity.
Okay.
Greg you on a quarter ago, I think shirt and I'll, let go out and then or and are on the treasury can problem as well we set forth a ratings at the two level I believe it two and a half times. We also have some three and a half times not maintenance problems, but covenants on <unk>.
Some of our bonds. So those are certainly targets were trying to stay within I'm not then what would you at.
Yeah, I would repeat that our stated leverage target for PBC is too and at times.
In addition distribution terrific our aggregate family leverage our ability to draw on our revolver subject to a three and a hot times Levered. So we currently retain a most if not all of the QVC revolver capacity.
Okay, Great foundry logic.
Those are certainly impacted on targets, but we do believe the business could actually maintain higher leverage given its high free cash flow capabilities, but we obviously want to access may want access at various types of that with all.
Okay, great. Thank you [laughter].
Thank you.
Thank you I'm Lucky I last question, Sam County, Alper with D.A. Davidson. Please go ahead.
Great. Thanks Art could you talk more about what drove the strong performances, we really for the quarter as well that's what drove the new customer growth curious if you're seeing this new customer being correlated with the continued questions here a few key our distribution efforts and then secondly to what extent if at all are you seeing any correlation between.
In geography is that a reopening in traffic trends. Thanks.
Okay. That's for the question Oh, I'm I'm, just really really proud of that seems to work and they've been after having had a pretty.
Happier and kind of off the top equipped with good on the to really put upon to lose them in all aspects of the value proposition. There just get we focused on the core bomb targeted who probably straight away from a little bit in the last that [noise].
I live in the pursuit of growth.
Really be focused marketing I'm going after new customers as opposed to try to get more out of existing customers and just the numbers innovations across marketing and new outbound marketing programs.
Moving up a kind of what influence or nothing more to reach into new audience segments because until it shows no water hard work that says go up to as it moves from inefficiencies in the Facebook units as well all of which I think we're seeing the benefit of a number of sort of reforms to the school from just to make it a little bit.
More excited and energized in more self service capabilities.
Capabilities to improve the service levels of the beforehand.
And then just got huge focus on new brands and you know well. We're excited about mentioned specific names that are with the public schools being closed you know the team did a really nice job getting a lot of product that might have you already been in the specialty or the public script channel.
It really and guys who could could that benefit can maintain so clearly isn't overall, you know tailwind, but south ecommerce growing up we become much retailer is growing but I think the kind of 40 point squarely side to really from.
The declines in Q1 to the growth in Q2 is.
Absolutely benefited from that God, the tailwind of E commerce that gotten intersected the up just as long as it's called the mental efforts to improve and which go into the value proposition.
On the question as.
What's the impact of various states reopening you know we're studying outperformance by geography varies by by stays very carefully as you would expect to try to understand those dynamics I think whats broadly crew is you know those states that shutdown orally and kind of stayed shut down today.
In June the probably early days as a pandemic, we've got a little bit more of the lift from them that really April sewage them than other states that have taken a more well slower posture on how to shut down but since about you know only growing mid June I took performance is more consistent across.
Offtake them, but anything else so even have some state Pepsi and the shield against other states have seen improvement it doesn't seem to be meaningful and the results from worsen.
I would even extend that to say, we look to Europe, and Asia, which is arguably you know have more success containing the virus not perfectly the more success and then scores cooking earlier.
No we maintain fairly consistent performance across Europe and Asia.
In that mid to high single digit range that Jeff mentioned, so it feels like what kind of that a new level, where these underlying ah stay at home trends are set up fairly stable and not that subject to the ups and downs.
With the virus children love to how long that laughs, but it's it's one of the things that gives us confidence that yeah with the continued to grow this business and there are some staying power devices.
Because these trends.
Just out I believe that final question.
I don't want to thank everyone for joining us.
I agree this is Greg thank everyone an eye out I know there will surely be question about a preferred which is a wonderful instrument.
Look forward to try to educate you we think it's a high volume estimates and we hope we can convince you is low.
Thank you.
Once again that does conclude today's conference. Thank you very much for your participation you may now disconnect.