Q3 2020 Qurate Retail Inc Earnings Call
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Ladies and gentlemen, thank you for standing by.
Welcome to the Q wait till ink 2020, Q3 earnings call.
During the presentation, all participants will be in a listen only mode. After.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please signals I pressing star one on your telephone keypad.
As a reminder, this conference is being recorded my birthday.
Include deteriorate, G.I. Liberty and Liberty broadband from 11% to 11 am to two PM eastern on both days out.
After the presentations on both days, John Maloney, Greg to say, along with presenting Ceos will post acute <unk> session.
Pre submitted questions by Friday November 13, two Investor day at Liberty Media Dot Com.
And finally to register and all of these details on our home page today speaking on the earnings call. We have great retail President and CEO, Mike George Strait Retail group CFO, Jeff Davis.
Well during Q enable have cure rate retail executive chairman right in the face. Please note that we've published slides to accompany the earnings release. These slides are available on our website now I'll hand, the call over to Mike George.
Mhm, Courtney and welcome everyone.
We've got a tremendous room to.
Good on London, or the cash flow and nothing.
All our businesses.
Results also ability to execute well in the near term or building a foundation for sustained long term growth.
No one product is so much programming and events the rapidly shifting consumer demand.
Home related historically generated strong day, well apparel remained soft.
[laughter] overall marketplace trends.
Because you can manage promotions and pricing across our businesses.
Mid may we made the decision to pull back on a variety of muscle activity.
He's got a better foundation for healthy growth.
These efforts continued in Q3.
Glad to significantly improve product margins contributing to the outstanding well did I say.
We stayed focused on advancing our long term strategic growth initiatives to ensure.
Really emerged from its been done much better position than when we went into it.
Well look forward to showing progress on these priorities at Liberty's Investor Day on November Twentyth.
We also want an expanded corporate responsibility program, which encompasses three broad commitments.
The perfect environment to sustainable packaging energy efficient operations tipping and logistics.
Deteriorate shortly to manufacture products responsibly deploy.
And finally, the champion empowerment, and Bonnie I promoted diversity equity in inclusion in our organization and with our customers and partners.
Can find more information on these commitments, but the current retail group website.
We continued to grow our customer base with gains in every customer cohorts everybody.
Every business is especially strong increases in new customer acquisition.
We generated $1.5 billion of free cash flow in the first nine months with a $1.1 billion increase year over year.
One way to return capital to shareholders.
Form of a special cash dividend and the creation of a preferred securities with an attractive yield the.
For tax reasons, we were unable to buy back shares in two please.
Most importantly, our primary focus remained on protecting the health and financial well being of our team members.
We continue to expand programs to support our team, including alternative work arrangements to help families struggling completing work and personal challenges.
Access to home care health.
Added resources to support not go how it's better for bonuses for many team members among a number of other initiatives.
As the number of Cobiz places surgeons around the world. We are monitoring the situation closely and working with local authorities to ensure we're taking all appropriate action to keep our team members of space as possible.
Additionally, all team members, who can work from home will continue to do so until that movie slate.
I remain.
Off of the dedication and resilience of our team.
And they are unwavering commitment to each other and to our customers while dealing with all the challenges of this extraordinary years.
Turning now to our business unit results.
On our last few calls we provided include performance commentary due to volatility surrounding the pandemic, we're reverting to our historic practice and will not be providing current quarter commentary on this call.
A video commerce businesses to accelerate change did you see international sustain strong revenue growth along with significant expansion and we're gonna yield and do their customer base across all cohorts with particularly strong growth in new and reactivated customers.
And each continue to adapt to the increasing demand on digital platforms with E commerce revenue growth in the double digits and penetration up more than 300 basis points at each business.
Our sustained growth that you are faced with different by customer and category dynamics, well I think similar to Q2 we.
We saw strong sales gains and culinary home decor, and home innovation, among new and reactivated and occasional customers.
Additionally, we were encouraged to see that customer sales increased modestly following a decline in Q2.
Crocker website.
We advanced our priority to extend video reach and relevance across all video platform.
Continue to grow viewership on traditional TV in Q3 with total minutes watched up 7%.
And the number of homes, even in Bailey up 9%.
Additionally at quarter end, we reached more than 50 million homes through our premium service, primarily over the locals and fire TV.
And last month, we launched an LT topcon half the 7 million active monthly users.
Yeah.
In October travel repeat with Curtis film lost exclusively on the PVC and Hsm's premium problems with.
It's new original series follow celebrity chef critics spelled as you visit regions of the world and parts of new flavors and recipes and returned home to teach you how to prepare the recipe.
Six episodes can be viewed anytime on demand and I've quickly become among our top to plug it in and out of <unk>.
Attractive platform that connects deployable company to date in 2020 people.
We've lost more than a thousand new brands on the season is it then that's up 30% from last year.
Growing our passionate community is the next strategic priority.
A strong new customer acquisition and the growth of our total customer base are a testament to the relevance of our media assets and retail platforms.
And pricing practices over the last two quarters, we have more room to deploy additional promotions if necessary to support growth because cost essentially covered at least in part this crashing categories returned to growth at their higher margin rates.
Moving now to deploy which generated strong Q2 results the key leaned into its core brand attributes of Serbian moms with fresh bonds at amazing values.
Several key brands, such as Imola coffee lesions and talbot's.
Home and hardline categories continue to grow 25% year over year as customers maintained spending on their phones.
So the only capitalize on lower cost to acquire customers and advanced its marketing initiatives.
Going forward, the Lilly will continue to experiment and invest in new marketing channels, such as affiliates influencers text programs and bloggers.
We're excited by the traction to Lilly has gained in the past two quarters and believe it signifies the attractive nature as little as core brand attributes that those customers and vendors.
Cornerstone generated an outstanding quarter with record results are Frontgate Ballard designs and Grandin Road.
Got it so also saw strong growth with hits home products.
A strong quarter revenue and forward that a gloved across our businesses.
Especially strong consolidated or get up performance outpaced revenue by a magnitude of more than two times on a constant currency basis. So.
So, let's jump right in and start with Culex age.
Revenue groove through strong new customer and E commerce gains as well as our ability to offer and demand products.
For the quarter total customers grew 8% with existing customers, 5% reactivated up 15 and knew growing 27%.
We continue to be encouraged by new customer subsequent purchase behavior with 30 to 60 day, we purchased rates consistent with prior years.
As illustrated on slide six of our earnings presentation. We once again had a sizeable shift and category mix from a Carolyn beauty to home.
Adjusted OIBDA grew 10% and adjusted for that our margin expanded 50 basis points.
Let me share to detail as outlined on page nine of the presentation.
First gross margin.
Increased 70 basis points in.
In contrast to last quarter, we were able to more than able.
To offset the product margin pressure from the category mix shift.
Product margin expanded 220 basis points from lower customer returns higher shipping and handling revenue.
Vendor negotiation and a greater penetration of regular sale price sales.
Brief update on our fulfillment center network optimization.
Overall, the pandemic delayed our progress get we successfully installed the common warehouse management system, and Rocky Mount North Carolina in Bethlehem, Pennsylvania.
While productivity at peace sites has not reached pre pandemic expectations.
You're experiencing sequential improvement.
Are Lancaster facility has not been fully decommissioned edited has it is primarily processing customer returns, which is contributing to the duplicate occupancy and labor costs that we referenced earlier.
Move into QVC International which continues to generate growth across all markets strong new customer growth and retention and increased E commerce penetration.
Revenue.
Leverage including absorbing provisions for acute increased.
Incentive compensation.
Moving to zero early which generated another strong quarter.
Revenue grew 10% driven by 7% increase in average selling price and a 5% increase in unit volume.
In the third quarter total customers grew 3% new customers grew 23% and reactivated grew 13.
And adjusted OIBDA increased $19 million.
The carrier surcharges on large parcels.
Let's quickly look at our balance sheet and cash flow.
Capex with $57 million for the quarter and 165 million through the third quarter.
We anticipate two.
2020, capex for the year two range between 270 $280 million.
At quarter end, we had a zero balance.
On our QVC pink revolver.
With $2.9 billion of capacity.
And $1 billion, roughly $1 billion in cash and cash equivalents.
On September Thirtyth, our leverage ratio as defined in the QVC revolving credit facility was 2.0 times.
As Mike mentioned on September 14th we returned $4.50 of capital to shareholders in the form of a one dollar and 50 cents special cash dividend and a $3 newly issued preferred stock dividend.
Due to the mandatory redemption and cash settlement of the preferred stock. It is accounted for as a liability had its liquidation value right.
Preferred stock pays an 8% dividend, which we classify as interest expense.
In closing we maintained our momentum in Q3 across all of our business units. We believe we are well positioned sustained profitable growth.
The strength of our balance sheet and ability to generate strong free cash flow provides the foundation on which to build and we continue to execute our strategic priorities.
We appreciate your continued interest in trade retail and with that I'd like to open it up for questions.
Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure your mute function is turned off till arsenal to reach our equipment.
If you find your question has been answered you mean remove yourself by pressing star to.
This is Greg and say look we during the course of 2020 have utilized a couple of different tools for capital allocation, which have announced that our usual path.
That included a preferred dividend and a large one time cash dividend I.
Okay.
All the all the indicators of holiday that he saw on the two two time period, while encouraging in the kitchen conquered was really doing and too holiday decor early gifting and no darker form really nicely.
Q3, we definitely tie modest rebound apparel in Q3, largely around the the comfort side of the pillow casual sweaters loungewear some activewear.
I think that will continue during the holiday time period, but you have a holiday time time for the yearly even in a normal year is destroyed it towards home apparel tends to be a smaller part of the Nixon holiday time period. So I think we'll have to get to next year early next year to see some of the.
The pace of the week down apparel I expect on balance it will remain somewhat soft.
Demand across a number of categories and our ability to keep that replenishment gelling.
At the rate of customer demand.
So.
Demand from year over year basis.
Okay, and I would add on maybe on your margin question.
The way you know.
Well our goal is to remain conservative in our promotional practices you know.
Quality time period is always intrinsically more promotional in that kind of built into the base of the business there.
In terms of year over year trends in profit margins and promotional activity you know our goal would be to pick the kinds of year over year equipments. We saw in Q3 and cut a hole goes as best we can in Q.
Q4, I mean every holiday season is increasingly promotional using it in normal times. So we're trying to stay out of that range of software Oh.
Relaxing refuge during the holiday season, and a place to get great items at great values and feel good about our position heading into the new customers that make a couple of comments first as I mentioned.
The final point I'd make is you know we're just available in more places today, you talked about local and algae shop time, and you know Facebook live it it could go on and on all the ways.
Consumers can find that today is different than a couple of years ago almost point clearly good new customer acquisition going forward.
Thanks, very much good luck.
Thank you.
Well now take our next question from Edward Yruma from Keybanc capital markets. Please go ahead.
Hey, guys. Thanks for taking the question I think I get your question, you're not going to get a similar sort of new customers. During the current harvest to price and I think the postmortem wise they didnt exhibited behaviors as to why it Charlie you mentioned some of the new customers you're gaining today, it's been a kind of a strong lifetime value versus maybe what happened two years ago and.
Okay shipping you know.
Could have our size and scale is you know a very deep relationships with our partners, who are really meaningful customer of the major shipping carriers has he been able to negotiate agreements that enable us to meet all the demand that we anticipated that we're not gonna be pack like others are you know that sir.
Certainly pressure getting all the boxes out of our own four walls and getting <unk> access to the carrier network so sensitive to that.
We could create a little bit of pressure on the margin.
Please you have a good plan believe will be there should be fine uhm and be able to meet typically.
Service commitments and and get through the holidays quite well.
Thank you.
Okay.
Take our next question from Jason Paginate from City. Please go ahead.
I just have two questions do you.
Do you all have a target never sure excellent leverage could you repeat to keep in mind and.
If you do that first could you reset it the earthquake QVC.
Q V C V V code group level consistent with the two terms of temperature was released or is that with.
Okay.
And then my second question is you talked about some of the restrictions on buying back stock.
As of today November 5th of those restrictions are lifted.
Thank you.
I'll I'll take a shot at that.
The.
Q V C level, we maintain a leverage targeted two and a half times, we do not have it stated curate level leverage target, but we have stated are two and a half times target or below for QVC proper.
Exactly when were released out of our blackout window, which is normal I'm not going to comment on.
Point range.
A little bit offset by your commission rates, because as you know folks gravitated digital or TV base commissions.
The decline every year, we'll continue to lean into that investment as long as we're getting a good return on it we expect performance marketing that the net.
Net positive within a year as we measure the value to the customers that could come into it. So we feel good about our ability to invest back in the business in performance marketing methods like network optimization.
We expanded.
We expanded our presence on all sorts of digital platforms.
So that more and more folks can find our lives through those are our priorities for both expense dollars and capital dollars and and they were using those effective way to really widened digital footprint. Both the way people find us in the ways that we can put people to our the platforms.
And then I.
I just want to make another comment.
Im here on capital usage.
I would say.
We are not we don't have a religious view about which is the preferred method historically because of tax efficiency, we have favored buybacks.
Candidly they have not worked as successfully as we would like partly due to some diminishing.
Diminishing of the growth of the business, but in large part due to a reduction in multiple in the marketplace not truly following are believing it. This year. We tried some other methods of returning capital, including that one time cash dividend on the preferred dividends, which we thought had the benefit of.
Opening of choice more choice for investors, who wanted to continuing stream versus those who wanted to more levered equity.
Think those have largely been successful.
We are not anti buyback certainly not been a liberty.
Posture, and we will use that and look at that as one of our tools going forward and we'll look at the ways to best deliver value to shareholders. We're also cognizant of changing tax rates, which may influence our views.
And but we'll we'll weigh them all I don't think we have a bias one way or another our goal. Obviously is like most of you would hope agreed to return the best amount of capital we can to shareholders in the most efficient way.
Well. Thank you guys for the hard work and I hope you enjoy a small victory here, it's a heck of a quarter so take care.
Thank you.
Well now take our next question from so footprint pay from the game. It D.A. Davidson. Please go ahead.
Great. Thanks, I apologize there is to create a trip to the cell. So Mike Congrats on the continued improvement.
That's a really cornerstone across the board I wanted to get your thoughts on the current state of your consumer so I feel like working for her and working for you is the state of the stock market and whose values are at the same time I'm concerned about maybe it's too short term in nature.
At a high level of distraction.
Given what's going on with the election and things of that nature. So I'd appreciate your thoughts for the current steadier consumer goods.
Thanks, Stephanie Good question you know.
We feel good about this consumer I think she is amazingly resilient and to your point you know, we we benefit from a somewhat higher income and certainly higher household is all consumer a suit. She is in a better place financially we're not as driven by it seems like you know government stimulus.
Unemployment rates, we also know that the you know all consumers, including ours have been increasing their savings rate. So they do have some money in savings you know quite frankly, as we pulled back on the use of installment payments.
That that gives a more open to buy with us because she doesn't know she hasn't been using credit to the same level, yeah, her purchasing or I should say credible installment payment programs, which is used in the past. So she's just she has resources. She has savings and she has proven to be resilient certainly the election.
There was a distraction.
But I think it also plays to our strategy, which is beat a place you can turn to on the dial or on the web you know cook to get away from election news could get something going to get some inspiration to get some distraction to be among friends and a virtual community she cares about and so I.
I think by not being in the promotional afraid just to be there for her and she is looking for a distraction from the election is a whole positive you know obviously, we hope and expect that the collection gets resolved.
Surely which it appears that it will.
We'd love to be behind it.
But I think you know there's a pandemic through a private racial justice to the election. Its consumer has continued to turn to us.
And we're encouraged by that.
Great. Thanks, Mike.
Thank you.
We will now take our last question from Steve Let some 40 10 capital. Please go ahead.
[noise], yeah, Thanks, I apologize for asking another buyback question, but.
When I look at your company you guys are hitting on all cylinders you got tremendous free cash flow. Your leverage is low do incredibly well positioned, especially retail or you can literally buy back your entire company in three years at current prices. So I'm not sure I understand why not you spend all of your free cash flow right now.
To repurchase stock, while he's got the opportunity. Thanks.
Well I. Appreciate this is Greg again I appreciate the confidence in the business in the end the observations about the strength of the business and the strength of cash flows and I don't disagree with a lot of your points I reiterate that historically, we've been very buyback.
Central buyback focused and that is not perceive proceed as well during the recent quarter. We were prohibited as we noted for some tax reasons from doing buybacks, but as we said, we're not certainly not taking buyback off the table and certainly not.
Looking at you know buying or moving buyback is one of the tools from which we will do utilize so thanks for the observations and don't disagree with them.
Okay. Thank you.
Thank you I'm not.
Yeah, Mike you're going to you can wrap it up that yeah, that's our last call, but so thanks, everyone for your time and interest today, and we look forward to connecting with you virtually at the Investor day. Thanks, everyone.
Thank you.
And with that that does conclude today's call. Thank you for your participation you may now disconnect.
HM.
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Welcome to the Q right retail, Inc, 2020, Q3 earnings call.
During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session at that time. If you have a question. Please signals I pressing star one on your telephone keypad.
As a reminder, this conference is being recorded if membership.
I'd now like turn the conference over to Courtnee churn.
She's portfolio Officer. Please go ahead.
Thank you before we begin we'd like to remind everyone that this call includes certain forward looking statements about the meaning of the private Securities Litigation Reform Act 95, actual events or results could differ materially due to a number of risks and uncertainties include.
We didn't know was mentioned in the most recent form 10-K, and 10-Q filed by our company I see with yes.
These forward looking statements speak only as of the date of this call.
Frankly disclaims any obligation or undertaking.
Any updates or revisions to any forward looking statements contained herein to reflect any change in here every time expectations with regard there.
Or any change in events conditions and circumstances.
Any such statements.
On today's call, we will discuss certain non-GAAP financial measures.
Adjusted OIBDA margin free cash flow in constant currency.
Regarding the comparable GAAP metrics, along with the required definitions and reconciliations.
Well, just eliminating note and schedules one through three can be found in the earnings press release issued yesterday on our earnings presentation, which are available on our website.
Remember to register for our merger all Liberty Investor meeting on Thursday November 19th we will cover in Liberty Media and Liberty Tripadvisor on Friday November 20 asked me will include jury guidance.
And Liberty broadband from 11 to 11 am eastern.
Easter on both days after the presentations on both John Maloney, Greg nothing along with presenting Ceos.
Post acute.
Yes.
Pre submitted questions by Friday November 13.
Investor Day at Liberty Media Dot Com.
Can find a link to register all of these details on our home page today.
It's called me I'm curious at retail President and CEO, Mike George <unk> retail group, CFO and Jeff Davis.
I was wondering if you enable hatchery retail executive chairman.
Please note that we've published slides to accompany the earnings please.
And are available on our website now I'll hand, the call over to Mike George.
Thank you Courtney and welcome everyone.
The blended <unk> what's.
Good all 11 in order to cash flow and kept them again.
All our businesses.
Well, we've got the ability to do well in the near term or building the foundation for sustained long term growth.
You aren't quite so much quote.
Well, Greg I mean annabel.
But instead of being consumer demand for.
Home related it's probably got a way to go on day old coal woman in fall.
Overall marketplace crime.
Because you go now and it's mostly pricing across our businesses.
In mid May we made the decision to pull back on a variety of local activity.
A better foundation healthy growth.
He's moved in Greece, and wasn't significantly improved product margins because you didn't develop there they will get us there.
Yes, good focus on advancing our long term strategic growth initiatives.
Sure we emerged from its been done much better position than one to one into it.
Well look forward to showing progress on this priority that Liberty's Investor day on November 20.
Well, who want them expanded corporate responsibility program, which is a couple of things one broad commitments.
That's been Barmer sustainable progress that has been because upwards and shipping and logistics.
Sure short man he's got the product possibly.
Luckily, it's not been in parliament and belonging.
Promoting diversity. That's what is included in our organization and with our customers and partners you.
You can find more information on these commitments, but the current retail good website.
<unk> continues to grow our customer base.
Every customer cohort.
[laughter] quantum switches new customer acquisition.
We generated $1.5 billion that flow and the Sun life, that's a $1.1 billion increase year over year.
We'll talk on capital to shareholders in the form of a special cash dividend and the creation of local both security.
Could be.
The plot squeezing pool honorable deposits there equally.
Most importantly, all by Merck they'll get blamed on the pecking Oh, yes, well be watching them.
We continue to expand programs to support our key including ballpark of Walkaway wants to help families. So can you walk personal challenges.
Yeah, that's the home care health.
<unk> reported core not go how that's better for bonuses for many team members love a number of other initiatives.
But the number you called it they just don't use around the world.
A lot of room that situation closely.
Looking at local up on Joe will take you all appropriate action.
Its numbers that space that's possible.
Philly multi rumblings from them, what some home will continue to do so until it would be but.
I will lead off of the dedication and the one that are too.
And they'll unwavering commitment that you'd rather like to walk off the most well dealing with all the challenges of this extraordinary.
Turning now to our business been a result.
Although a lot. He called me provided include performance commentary.
They were all kind of Islam independent.
No what we're going through all this book profit and will not be quad in quote unquote commentary on this call.
I didn't know commerce businesses to accelerate change does it feel that it's gone revenue growth, while we're never going to that's going to we're going to yield and grew their customer base across all cohorts with particularly strong growth in new and reactivated ultimately.
But each could lead to death to increasing demands on digital platforms.
Almost no growth in the double digit penetration up more than 300 basis points, but it's good.
[laughter]. They quoted you update given like more it's not a boy dynamics well just similar to Q2.
We saw strong built they've been calling their home decor and home innovation among me reactivated seasonal customers.
Additionally, we were encouraged to see that happen, which will include model.
Older declined due to.
You called that that's something we'll send it heavily weighted toward the back half of the data goes.
Sure on the extended in Q2.
It's been about the accident also declined in Q3, but at a lesser rate.
It is more than offset.
Well increase the homestead.
And our last call, we said that the log demand does go up in the low single digits.
It's one of those that wasn't as well.
Quarter, except for the combination of sales acceleration in September, but consumer electronics began to go public in a difficult start to the quarter.
Well, then it but didnt help the more the term it's strong it's been in handling revenue related to our type of promotional posture.
Well 2020, you have a main focus on the strategic priorities that are foundational to long term growth.
It's still more insights into bit of investigated the now let me provide an example of our progress.
Daily visit Scotland.
Just on creating the same level of engagement the inspiration all our digital platform that would be our video platform.
Over the last four months, we've been piloting an assessment tool that you either she wanted to inspire customers could purchase deposits was looking to deliver messages.
Results are well ahead of expectation for expanding the use of the capability across our websites.
That's got a lot of good then video reach and relevance across all video platform.
We continued to grow viewership on traditional TV typically its total minutes watched that we spend the.
The number of homes in daily up 9%.
Additionally, the quarter ever with more than 50 million homes was prudent so it was primarily over locally and fire TV.
Last month, we lost some healthy walcott the.
7 million active monthly users.
Well why didn't the lives through the bark may not work as well as on demand programs related products, but we'll deal and personality glut cod.
Well I mean, the innovation and top one.
Ticket will focus on integrating front that capability.
Otherwise healthy liquidity packs the body areas, one they're soft probably half.
That was intended as a capability because it looks a little bit with the world.
He wants to go up well among several anticipated innovation enable flexible calamos <unk> <unk>.
Cause actual integration into the video views there.
Well all of those documents destination programming, that's special deals to attract audiences to our video platform.
You see on the food network wobbling construct new audiences love it so effectively.
[laughter] promoting the food network that we have special offer all that Colin there, so app and website.
That worked out this weekend I put themselves.
Good luck.
So they didn't have all been married the Angela.
Recently married going Yeah, definitely very of food network's Emmy nominated to the kitchen.
The collaboration.
That October travel cope.
What sort of still lost it was like <unk>, <unk>, <unk> <unk> and <unk> platforms.
Its new original series all celebrities quotas. So these visits regions of the world.
New places than recipes and he comes home to teach me without a pair that up between the two.
[laughter] episodes <unk> any thoughts on on demand and has quickly become among our top and put them in a low crude.
Good but the products at compelling value is central to our strategy.
Bob This was putting in a bit of compelling merchandise.
He was going to do that cosmetics, but the digital only lost loved the influencers and digital marketing Cook Lucky younger profit.
We follow that picked up or is it a lot on the easier the girls multiple sellouts.
We continue to focus on why Inclusively the plot all parallon.
We hosted a well never buys inclusive and body positive summit in September.
Well, it's one of them providing them the opportunity to date with some of the most influential women in body positivity.
So Chad.
I'd panel [laughter] itself.
It's built out of building close to your commitment that sizing piecemeal fashion.
That's why do that there's no one to educate consumers.
Capitalize on our leadership in this area.
One example, our core business is up more than 50% decrease in part due to the standout success I was a child baby Noda from itself.
Our <unk> quicker to jump on that the plot, enabling us to offer deploy a lot of the vasomotor basis, both on air and online the Christmas in July work quickly sold out.
We provide vendors.
A classic platform, but not the World Cup and the date in 2021.
We've lost more than a thousand new brands like <unk>, even if it then that's up 30% from last year.
So in our accident unity the next the teacher priority.
Strong new customer acquisition and the growth of our total customer base are testament to the relevance of our media assets and retail platforms I.
We recently welcomed one that works chief marketing officer for Qxh, let's be clear didn't mold well I will be responsible for all facets of customer acquisition engagement.
His 20 years of strong experience and marketing business development and strategy.
Retailers, such as J. drill laying bought it and cold.
Well the core deposits in our other businesses, let me reiterate our confidence.
Staying healthy long term growth across to upstage and QVC International.
We can body Oh portfolio of media assets.
So product creation capabilities.
Highly loyal customer base and.
Scale distribution network.
More successfully a wall between multi platform digital glared personalized video streaming model, but it's difficult to replicate especially at our scale.
Well well position to capitalize on the growing popularity of video selling lets consumers look for local ways to work with it and enhance the experience of physical stores.
In the near term, we believe there are several paths to the poor our book.
We expect a sustained growth in the home categories across all customer cohorts.
Need to convert these large new customer classes, the high value lifetime customer.
Well the time that it could stay at home growth may moderate, but we should see passion categories begin to recover supported <unk> real acceleration of the comfortable growth.
And finally by resetting our promotion and pricing practices over the last two quarters we.
We have more room to deploy additional promotions if necessary to support growth because cost that comes with public at least in part it's tracking that it wasn't going to grow up our higher margin rates.
Moving up is really what's generated strong throughput he walks the clean leaned into what's called brand attributes of children Moms with cross bodies at amazing values.
You know we added several key brands such as similar golfing lesions themselves.
Home Hardlines categories continued to grow 25% year over year as customers they paid spending on their phones.
So the only capitalize on lower cost to acquire customers.
Dan its marketing initiatives.
Going forward the Lilly will continue to experiment and then that's the new marketing channels, such as the Philips importers Perks program bloggers.
We're excited by the Tractions with Lilly has gained in the past two quarters and believe it signifies the attractive nature as little as corporate attributes that those customers and vendors.
Well, if those generated an outstanding quarter record results once they ballard designs and Grandin Road.
Bart So also saw strong growth that's home products.
We recently appointed Ryan Macdonald President of cornerstone.
Well I'm drawing cornerstone in 2000, and most recently the medians Ballard designs and overseeing the cornerstone service operations. He has done an outstanding job at Ballard expanded its footprint, adding new services, well, probably the visibility that we quote though it would seem to me its strong momentum.
In closing, let me provide a couple of the holiday season.
When I took the pension of an elongated holiday shopping season.
Given by the need to reduce school crowded or difficult holiday peak.
Americas grain shipping capacity.
Weve expanded and accelerated the events that promotional periods.
We started October with a black Friday countdown, it didn't seem like Blackwater jumpstart at HSN and.
Both brands was moving into this program and all of the look and feel for the broadcast and digital platforms in mid October.
And later October Yeah, the Hopkins Black Friday <unk>.
We feel good about our holiday lineup with the child Duffy and all of them say it is that the key.
A couple of other shopping through the quarter.
I look forward to speaking with all of you have liberty the buffet on that though when you add it up I would say it was only the judge whose new all things I'd say results.
Thank you, Mike and good morning to everyone.
As Mike mentioned, we delivered another strong quarter of revenue and organic growth across our businesses.
Her, especially strong consolidated OIBDA performance outpaced revenue by a magnitude of more than two times on a constant currency basis.
So, let's jump right in and start with Qxh.
Revenue grew through strong new customer and ecommerce games as well as our ability to offer in demand products.
For the quarter total customers grew 8% with existing customers up 5%.
Reactivated 15, and new growing 27%.
We continue to be encouraged by new customer subsequent purchase behavior with 30 to 60 day repurchase rates consistent with prior years.
[noise] illustrated on slide six of our earnings presentation. We once again had a sizable shift in category mix from apparel and beauty <unk> home.
Expanded 50 basis points.
Let me share to detail as outlined on page nine presentation.
First gross margin increase.
Increased 70 basis points and.
In contrast to last quarter, we were able more than able.
To offset product margin pressure from the category mix shift.
Product margin expanded 220 basis points from lower customer returns higher shipping and handling revenue.
Under negotiation and a greater penetration a regular sale price sales.
Fulfilment costs increased 90 basis points, primarily due to general freight rate increases.
Could cost associated with opening a Bethlehem fulfillment center.
Increased wage rates contributed to heightened competition for labor.
And lower tack factor.
Moving to the last component of gross margin obsolescence increased 65 basis points, primarily related to the transition to our new warehouse management system, which will be completed in the next couple of quarters.
We also recorded a modest increase in the reserves every as we replenished inventory levels in advance of the holiday season.
Moving the operating expenses, which were 40 basis points favorable predominantly day 230 basis points of commission tailwind, reflecting higher digital penetration not subject to variable Commission.
And finally, SG&A, which was a net 65 basis points unfavorable is comprised by the following.
Administrative expense was 105 basis points unfavourable driven by higher incentive compensation accruals, partially offset by Mac revenue leverage.
Marketing contributed 35 basis points of pressure, reflecting enhanced acquisition and retention strategies for new customers and re targeting efforts to increase customer lifetime value.
These headwinds were partially offset by 75 basis points of profit favorability.
From back that was.
Was primarily reflected favorable provision adjustments and recovers.
Let me provide a brief update on our fulfillment center network optimization.
Overall, the pandemic delayed our progress yet we successfully installed the common warehouse management system, and Rocky Mount North Carolina in Bethlehem, Pennsylvania.
While productivity at these sites has not reached pre pandemic expectations, we are experiencing sequential improvement.
Are Lancaster facility has not been fully decommissioned additives has it is primarily processing customer returns, which is contributing to the duplicate occupancy and labor costs that we referenced earlier.
Move into QVC International which continues to generate growth across all markets strong new customer growth and retention and increased E commerce penetration.
My comments this morning will focus on constant currency results.
Revenue grew 8% with games in all markets with particular strength in the U K and Germany.
Separately, Japan achieve that two year track growth rate of nearly 20%.
We call, Japan benefited last year from factions to accelerate demand in advance.
A consumption tax increase in October.
October 1st.
Making this year's growth even more impressive.
Overall E commerce growth through 17%.
And the third quarter total customers grew 6% with existing customers up 3% activated couple of 11 and knew growing 26%.
From a category perspective, we experienced strong growth and home and electronics with games and mid single digit range and other categories.
Adjusted pointed out increased 21% and adjusted posted a margin improved 200 basis points.
Excluding a retroactively funded customers in Q3 of last year from a change in shipping and handling policy congested OIBDA would have increased in the low teens this quarter.
Gross margin improved 90 basis poems, primarily due to higher product margins, which reflected favorable product returns and shipping and handling revenue.
Operating expenses were favorable by approximately 50 basis points, primarily due to lower commissions, reflecting expanded E commerce penetration and that revenue clever.
Leverage.
SG&A costs.
Favorable 65 basis points, primarily due to net revenue.
Leverage, including exorbitant provisions, Frankie and increased incentive compensation.
Moving to zulli, which generated another strong quarter.
Again $4 million last year for the same period.
Gross margin improve nearly 500 basis points, primarily due to the strength and home brands and less liberal or promotional activity.
Despite revenue declines Carnage Hill was able to deliver expanded gross margins although.
Through reduced promotional activity and improved home category mix.
[noise] SG&A improved primarily from effective use of digital marketing and leveraging administrative costs.
We anticipate cornerstone long increased gross margin pressure in the fourth quarter from the third party carriers surcharges on large parcels.
Let's quickly look at our balance sheet and cash flow.
Capex with $57 million for the quarter and 165 million through the third quarter.
We anticipate too.
2020, capex for the year two range between 270 $280 million.
Year to date distribute distribution payments team distribution payments.
$441 million, reflecting an off cycle year for multi year contract renewals.
Mike mentioned.
Be generated $1.5 billion, a free cash flow and the first nine months of the year, an increase of $1.1 billion led by higher cash flow from operations.
Year over year working capital benefited from Comping. Several one time tax items at the corporate level. In addition to benefit from the operating businesses, namely the extension vendor payment terms enacted since March of 2020.
Strategic pullback in customer installment payments reduced inventory can increase the calls associated with management incentive bonus and returns.
Separately in 2020 receive a 267 million dollar.
When you see $267 million in pretax proceeds from the sale of of Green energy investment of which 262 million was received this quarter.
Looking at our dead during Q3 raised 500 million of four 375% senior notes do 2028 and use the proceeds along with cash on hand to redeem $500 million a senior notes do 2022.
At quarter, and we had a zero balance on our QVC pink revolver.
With $2.9 billion of capacity and.
And $1 billion, roughly $1 billion in cash and cash equivalents.
On September 30th or leverage ratios defined in the QVC revolving credit facility was 2.0 times.
As Mike mentioned on September 14th we returned $4.50 of capital to shareholders in the form of a $1.50 special cash dividend and a three dollar nearly issue preferred stock dividend.
Due to the mandatory redemption and cash settlement of the preferred stock. It is accounted for as a liability had its liquidation value.
Referred stock pays an 8% dividend, which we classified as interest expense.
In closing we maintained our momentum in Q3 across all of our business units. We believe we are well positioned sustained profitable growth the strength of our balance sheet and ability to generate strong free cash flow provides a foundation on which to build and we continue to execute our strategic priorities.
<unk>.
We appreciate your continued interest and trade retail.
In fact, I would like to open it up for questions.
Thank you.
You would like to ask a question. Please signal by pressing star one on your telephone keypad.
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If you find your question has been answered you may remove yourself by pressing star too.
As a reminder, it is star one if you would like to ask a question and we'll take our first question from Eric Sheridan from you. Yes. Please go ahead.
Thanks, So much for taking the question you know a very good progress on and continued evolution towards E Commerce in mobile commerce in the quarter My furniture, if we could better understand how some your digital marketing channels continue just sort of evolved would that means or which we should take away from them in terms of a lifetime value of the customers, you'll get a major marketing channel.
Could you do evolved and and how we think that Ah, we should we be busybodies picky about that for a marching profile over the museum too long term business. Thanks, so much for the color.
Like the religion since I have traveled in Annapolis, New car Erica I can play the question Uhm let.
Let me start with the second part of the question, which is good looking at the lifetime value of the new customers. He has this been incredibly encourage the quality is very logged classes that mood customers that come in.
Who the pandemic on uhm metrically can crack they are equal lifetime value to previous classes.
And about.
40% of those new customers are coming in from digital marketing. So it's great to see the majority is still coming in organically, but even with with higher percentage that are coming into digital marketing lifetime value is holding a very strong and remember that we measure that a couple of what is the nature of based on the history.
I was just about what categories, there by whether they're buying.
Cause it'll only will solve months or buy from the on your program stances Goodbye from all categories all platforms in a very healthy way than most importantly relocate their behavior.
And their behavior based on 14, 30, 60 day Huipil perpetuates the behavior based on the value of the rupee purchases.
Okay, Hey, there even within the last few months I graduated into kind of best customer status. All of those things are holding up the scale of traveling so really outstanding quality.
Spike the high surge in new customers and the going next.
Customer support can look came into pay market and I think that reflects the diversity away critical detractors customers. They were running a lot about pay social as a way to find a very high quality customers the power and cancer networks, which are growing in our media mix. So getting you know.
It looks at the Influencers could be talking about us they'll also seeing if I could get the pay marketing Jessie in areas like yeah getting people to download a roku app and the munsters download a <unk> app to do marketing with Roku to kind of promote our channels and all experience and that's another way to put it.
New customer again.
Oh really encourage fine then.
Way of tools leverage pay marketing to expand new customers.
And to keep the overall quality new customers that historic levels.
And we'll take our next question from car that's S. L. I found my J P. Morgan. Please go ahead.
Hi, This is Sarah Clarke, one for Carla K. So I was wondering if you could get.
That more.
Count on your capital allocation plans going before.
And how you plan to think about any potential any activity are you seeing any attracted valuation out there I'm looking at acquiring any potential Fran.
Do you want me to take a cut it does.
Yeah, I'll have to take the test.
So.
Spreading and say look we during the course of 2020 have utilized a couple of different tools for capital allocation whichever one outside our usual path.
That included a preferred dividend and a large one time cash dividend.
I think we have said in the past.
We look continually for ways to invest in a business, which are smart and generate a high return on investment capital, we would look for ways outside the business, but parallel to it and E commerce or other areas, which would also generate synergistic high return on invested capital and we will continue to look for ways to go out.
Side of the business and returned capital shareholders.
Over the recent time, you've heard that we're prohibited from buying back shares for a variety of reasons. What we are now actively looking at multiple tools for shareholder returns going for including buyback and special dividend and we will take into account many factors, including the share price.
Going free cash flow expectations for the business of which we are increasingly positive and one time cash receipts for example, when we sold the silvana.
Carpeting earlier this year. So all of those will be taken into account and certainly acquisitions are not off the table when will look for them in this environment, but in general it's been hard to find things, which are attractive. So we look for things outside in Vegas, recognizing the high free cashflow generating capability of a business.
Know if you'd have anything.
So that's that's great, but nothing up at.
Yeah.
Thank you. Thank you.
Thank you that was very helpful and if I may just one more do you have any early outlooks on holiday I know you commented on on Nick's chest coming back or what I'll get more toward staying up here all Thursday at home are you expecting to see some of that normalization around the holiday period areas that really I look into.
2021.
Yeah, I don't want to get off.
Specific at our current selling trends, but.
What I would say is all.
All the all the indicators of holiday that we saw in the queue to time period, while encouraging and.
<unk> really really really into all of his decor early gifting and there's also a form really nicely.
123.
Definitely tie modest rebound in <unk> wildly around the comfort side of the pillow.
Mm no casual sweaters loungewear some activewear.
I think that will continue during the holiday time period, but you know the holiday time timeshare really even in a normal year is distorted towards home apparel tends to be a smaller part of the Mexican holiday time period. So I think we'll have to get the next year early next year to see.
The pace of the week that Ah Carol I expressed on balance it'll remain somewhat soft.
These pockets of.
Growth that are related to the stay home lifestyle, you know until we get full include the pandemic, but on the good side I expect a home business to remain.
Healthy and you know just see no signs, it's fine just swelling and home approximately about a business here and it's 2223.
Great. Thank you you're very helpful.
Thank you.
Well now take our next question from Oliver when Chimento from Evercore ISI. Please go ahead.
Yeah, Hi, good morning, I have a question regarding inventories and margins and then a longer and longer term Christian to follow that so inventories. It looks it looks like you were down down again into quarter, but I think I know cause my <unk> I think she started buying more.
Inventory for the quarter, such as some some color where what the inventory levels are and then regarding the <unk>.
Got in margins.
Looks like you know you you guys benefited from from this thing like like like many other other retailers and promotions, where I think you said you you put back on it.
It looks like holiday might might be a little bit more promotional the longer a dragged out a time frame this year versus last few years. So.
So maybe maybe a comment on a close Marshall what he didn't expect.
And then longer term.
You you you you get into a lot of customers now will react with customers during during the second and third quarter.
Look looking out for the next especially the next year, how do you think you're going to keep these customers do do you think he permanently coming to you or was such as you know.
Driven by by the condemning thank you.
I'm, calling.
You want to put the first part of that and then I'll talk more about the customer side.
Absolutely.
The first of all as we think about our inventory our inventory have been down.
Second quarter third coordinates really driven by a couple of things Uhm. One he was just a strong demand across a number of categories and our ability to keep that replenishment going and at the rate of customer demand.
We've also taken the opportunity to address our inventory levels against some of the categories and products that alright, it's not been 10.
Strong demand.
As you had mentioned you know coming out of Q2 and Q3, we're anticipating that we would have to replenish our.
Our levels, especially as we thought about currently fall and then for the holidays. So you actually did see increase in our inventories going from two to the Q3, that's still overall down.
<unk> as it relates to just year over year.
We believe that we are in good position the cause I've mentioned in my my son remarks that are.
And the buyers don't really working very diligently with Ah.
Brand partners to get certain items back in stock as well as finding additional alternative items that have been identified as key items for customers and gift, giving and and home decor and even across many of these categories.
<unk> previously and pressure as it related to consumer electronics. So I think we're in good shape going into the quarter and a lot of the sort of.
Inventory reduction year over year, Israeli just driven by increased demand and also with the the reduced levels and those those product categories that probably lesser demand from one year over year basis.
And I would add on on your margin question always.
I'll I'll go with the main conservative in our promotional practices.
Alrighty time period is always intrinsically more promotional and that's kind of built into the base of the business. There in terms of your over here trends in profit margins and promotional activity near our goal would be to put the kinds of year over your equivalent Tucson, two three and quite a whole those as best we can and two four I mean every holiday.
And is increasingly promotional even it in normal times, but we're trying to stay out of that phrase a software.
Relaxing refuge during the holiday season, and a place to get great items are great values. So good about our position comes with the new customers I'd like a couple of comments.
You mentioned, you know a minute ago.
I think the customers that were bringing in will stay with us.
In a consistent way with would pass classes have gotten so the fact that these current coffee that a much larger.
Cause it <unk> that will benefit from over the next couple of years and it goes down.
The levels of new customers, but we're currently seeing.
<unk> to become good as long term our customers, but in addition to that will confidence that we can continue to bring in a larger new customer classes going forward for a couple of reasons first.
This blog macro shifts the home, which we don't seem changing anytime soon.
Naturally bring in more than a customer here at home categories. The hardest category to put in a new customer on his apparel.
Is it home categories, and so what what what a confident with a mixture of the home that that would be great.
Thank goodness in a new customer acquisition, and then we'll add to that Ah progress on digital marketing and then also chatted about a moment ago.
The ability to continue to love with digital marketing Department more new customers and as we maintain as conservatism on promotional practices.
Alright, I can squeeze a few more dollars that we can redeploy marketi, if we choose to yeah, bringing high quality to customers with good lifetime value, while protecting as well.
So does it seem to be lots of Optionality. So continually cause then more new customers and then the final point I'd make is.
What was it the available or places today, you've talked about Roku and Oh Gee shop time then.
Facebook liven it could go online all the way.
Consumers can find it today, if there's different than a couple of years ago. So all those two good customer acquisition going too.
Thank you very much good luck.
Okay well.
Now take our next question from Edward Grandma from keeping capital markets. Please go ahead.
Hey, guys. Thanks for taking the question I need to get your question. You last time, you guys had a similar sort of new customers you had turned the hottest enterprise and I think the postmortem like they didn't exhibit the behaviors that you wanted.
Sure some of the new customers you're getting today.
Kinda that strong lifetime value of or what happened two years ago and then there's a follow up I know you mentioned shipping at cornerstone are you anticipating shipping difficulties. During this evening. Thank you.
Yeah, that's correct.
As I've kind of mentioned, we're we're really confident then call or is this new customers are nice I think what you're referring to who definitely side to Lily two years ago.
<unk>, new customers and we were finding as I was out of the quality of the anticipated.
That led cause that downturn in performance.
In the 20th 19, that's here it is.
That's a very basically I'm learning to Lily, we've got a new marketing later check <unk> alright, and last name is doing a terrific job trying to.
Really good really focused on the fundamentals good customer acquisition going to the right channels, making triggers our customers that have high quality, but I wouldn't know yeah that was quite isolated to visit really experienced if you look more broadly across two weeks H and too I really never had any.
And our history had a surge of new customers that did not perform particularly with a long term expectation. So all the current data said they will and then give it was never had an experienced that didn't fit that model. So we had one or two of <unk>.
Cause I just put that they're very good about the quality of the customer just bringing in a cross.
I'm sure I can come.
The shipping you know.
Instead of our size and scale is.
Deep relationships with our partners were very meaningful a customer of the major I should've been carriers has he been able to negotiate agreements that enable us to meet all the demand that we anticipate we're not gonna be pack like others are you know that said there there's certainly pressure's getting all the boxes out of our own.
Four walls and getting access to the carrier network, so sensitive to that it could create a little bit of pressure on the margin bold blues you have a good plan believe will be there should be fine uhm and be able to move out typical.
Sort of commitments and and get to the holidays quite well.
Thank you.
Okay.
Well now take our next question from Jason Paginate from City. Please go ahead.
I just have two questions. She could do you all have a target never sure excellent leverage figure that you keep in mind and.
If you do have to figure is that it.
Q V C V V code group level consistent with the two terms of temperature was released or if you have it because.
Level.
And then my second question is you've talked about some of the restrictions on buying back stock.
As as of today November 5th of those restrictions are lifted.
<unk>.
I'll I'll take a shot at that.
The.
QVC level, we maintain a leveraged target of two and a half times, we do not have it stated curate level leverage target, but we have stated are two and a half times target or below for QVC power.
Exactly when were released out of our blackout window in which is normal I'm not going to comment on.
And question.
Well now take our next question from four.
Okay I'm from.
D J a chance. Please go ahead.
[laughter].
Okay.
So your line is okay.
[laughter].
Again fill your line is okay.
He didn't know restaurants cause I know our next question will take our next question from what William Britcher from somebody in my account. Please go ahead.
Hey, guys, good morning, and I'd say, great quarter, but I think that there would understated and I want to say thank you guys for your hard work.
I I wanted to drill and if possible on something that Greg had said within the internal capital allocation priorities like I was hoping that maybe you could talk to performance marketing and what you see in there and Greg if you could expand on any of your priorities that'd be great. Thank you guys.
Okay. Thanks, I appreciate the comment well all her performance marketing and then let's go great go from there.
You need to invest in performance marketing, it's generally been increasing on a yoga your basis and.
40 to 50 basis points range, a little bit offset by your commission rates because folks gravitate. The digital T V guys commissions tend to decline every year.
We'll continue killing me into that investment as long as we're getting a good return on it and you can expect the phone with marketing that'd be yeah net positive within a year.
Major the values are good customers that come into itself made me feel good about our ability to reinvest back into business and performance marketing looks.
Looks like network optimization, alright, and could expand you're not pregnant all sorts of digital platforms. So the more and more folks can find a large screen now those are our priorities for both expense dollars in capital dollars, an unbelievable using those effective over to really widen the.
Digital <unk> both of those people find this in the way that we can put people to I'd be new platforms.
Okay, great well I'm like I'm Heather.
<unk> you too.
Yeah, I I would say, we're not we don't have a religious view about which is the preferred method historically because of tax efficiency, we have favorite buybacks.
Candidly they have not worked as successfully as we would like partly due to some you know dimunition of the growth of the business, but in large part due to a reduction multiple in the marketplace not truly following or believing it. This year. We tried some other method.
Message overturning capital, including that one time cash dividend preferred dividend, which we thought had the benefit of opening up choice more choice for investors, who wanted a continuing stream versus those who wanted a more elaborate equity.
I think those have largely been successful we're not anti buyback that's certainly not been the liberty.
Posture, and we will use that and look at that as one of our tools going forward and look at the ways to get delivered via shareholders. We're also cognizant of changing tax rates, which may influence our views, but we'll we'll wait them. All I don't think we have a bias one way or another our goal. Obviously is like most of you would hope.
I agree to return the best amount of capital and kind of shareholders in the most efficient way.
Well. Thank you guys for the hard work and I I hope you enjoy a small victory here, it's a heck of a corner so take care.
Thank you.
Oh no I'll take our next question from <unk> from my gave it the Davidson. Please go ahead.
Great. Thanks, So I apologize or to take a trip to Michelle Sir Mike Congrats on are considered improvement.
Cornerstone across the board I wanted to get your thoughts on the current state of your consumer So I feel like working for her and working for you is the state of the stock market and home values at the same time I'm concerned about maybe it's too short term in nature, but.
The high level of distraction or does it or what's going on with the election and things of that nature. So.
Appreciate your thoughts for the current state of your consumer thanks.
Thanks for the question.
You know we feel good about this consumer hoping she is amazingly resilient that'd be you're applying it we we benefit from a somewhat higher income in Chile higher household as well consumer. So she is in a better place financially I will not as a girlfriend by which is like you know government spending a lot.
And unemployment rates.
You know that you know all all consumers include in our system increasing their savings rate. So we do have some money in savings.
Quite frankly, as we pulled back on the use of installment payments that that gives her more open the guy with us because she doesn't she hasn't been using credit to the same level and her purchasing or I shouldn't say credit burnt orange palm of payment programs, which is used in the past. So she's just she has resources you have savings.
And she was cooking to be resilient certainly the election is a distraction and.
But I think it also place to our strategy, which is.
Could be that place you can turn to on the dial or on the web you know to to get away from election news could get some joy to get some inspiration to get some distraction to be among friends in a virtual community that she cares about.
And so I I think by not being and the promotional fray just to be there for her and she's looking for a distraction from the election is all positive you know obviously, we hope and expect that the selection gets resolved.
Because it it will we'd love to be behind it but I think you know.
Cause the pandemic through the Friday, what Rachel Justice through the election. This consumer has continued to turn to us and we're encouraged by that.
Great. Thank you Mike.
Thank you.
We will now check our last question from Steve Let some 40 10 capital. Please go ahead.
Yeah. Thanks.
Apologize for asking another five that question uhm, but.
When I looked at your company you guys are hitting on all cylinders, you've got tremendous free cash flow. Your leverage is low do incredibly well positioned that's a retailer you could literally buy back your entire company and three beers that credit prices. So I I'm not sure I understand why not you spend all of your free cash flow right now.
To repurchase stock, while he's got the opportunity. Thanks.
Oh I. Appreciate this is Greg yet I appreciate the confidence in the business and the and the observations about the strength of the business and the strength of cashflows and I don't disagree with a lot of your points I reiterate that historically, we've been very buyback central buyback focused and that is not proceed.
<unk> as well during the recent quarter, we were prohibited as we noted for some tax reasons for doing buyback, but as we said, we're not certainly not taking buyback off the table and certainly not.
Looking at.
Buyback is one of the tools from which we will do view us. So thanks for the observations and don't disagree with them.
Okay. Thank you.
Thank you and.
Okay.
Yeah, that's our last call, but thanks, everyone for your time and interest today and we look for tech connected with you virtually at the Investor day, Thanks to everyone.
<unk>.
And with that that does conclude today's call.
Thank you for your participation you may now disconnect.