Q3 2020 Qurate Retail Inc Earnings Call
[music].
Please stand by.
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.
Afterwards, we will conduct a question and answer session.
That time, if you have a question please signal by pressing star one on your telephone keypad.
As a reminder, this conference is being recorded just about Berkshire.
Now I 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 like 95, actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent forms 10-K, and 10-Q filed by our company I see one.
Yes.
These forward looking statements speak only as of the date of this call injury retail expressly disclaims any obligation or undertaking.
Any updates or revisions to any forward looking statements contained herein sort of like any change in carry at retail expectations with regard there or.
Or any change in events conditions or circumstances on which any such statement.
On today's call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA adjusted OIBDA margin free cash flow in constant currency.
And regarding the comparable GAAP metrics, along with required definitions and reconciliations.
What do you preliminary note and schedules what is your 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 on Liberty Investor meeting on Thursday November 19th we will cover Liberty media and Liberty Tripadvisor and Friday November Twentyth. We will include jury duty I Liberty and Liberty broadband from 11, 10 to 11 am to chill down Easter on both days after the presentations on both days John Malone.
And Greg Buffet, along with presenting Ceos will host expressway session. These pre submitted questions by Friday November 13, two Investor day at Liberty Media Dot Com you can find the link to register and all of these details on our home page.
Speaking on the earnings call, we have great retail President and CEO, Mike George Strait Retail group CFO, Jeff Davis available. During this una will have great retail executive Chairman Mr. Zhang. Please note that we've published slides to accompany the earnings. Please see slides are available on our website now I'll hand, the call over to Mike George.
Oh, you called me and welcome everyone.
We've got a tremendous.
That's good all 11 in order to cash flow and help them as they go.
All our businesses.
<unk> results with lots of ability to execute well in the near term or building the foundation for sustained.
Long term growth.
You aren't quite as good for lunch program in the rapidly changing consumer demand.
Home related it's probably got a way to go on day, well apparel woman swap [laughter].
Overall marketplace crime.
Could you comment on his promotion pricing across our businesses.
In mid May we made the decision to pull back on a variety of local activity.
Got a better foundation, so hopefully poorly.
These EPS continued in Q3 similar to significantly improve product margins because it is out there that will get us there.
Yes, good focused on advancing our long term strategic growth initiatives.
Sure we emerged from its been done much better position than what we wanted it to us.
Well look forward to showing progress on these priorities are at Liberty bin Buster, but on November 20.
You also walk through an expanded corporate responsibility program the two purposes really broad commitments.
That's been Barmer substantial progress energy.
When I discuss our boys and the thing and logistics.
The primary sources and then you've got the products responsibly.
Finally, the champion empowerment and belonging to promote.
Promoted diversity, that's what it will include them in our organization and with our customers and partners.
You can find more information on these commitments, but the touring retail group website.
We continued to grow our customer base.
Turning to every customer cohorts.
Business, that's especially strong increases in new customer acquisition.
We generated $1.5 billion in cash flow in the first nine months, that's a $1.1 billion increase year over year.
He will turn on capital to shareholders in the form of a special cash dividend the liquid smoke boats maturity with an attractive yield.
The tax reserves to honor the buyback there please.
Most importantly, our primary focus for me and I'm supposed to open in it so well be watching them.
We continue to expand programs to support our team, including alternative walk arrangements to help families struggle tedious work and personal challenges.
Access to home care health.
Other resources to support local health, it's better for bonuses for many team members love the number of other initiatives.
But the number of Cobiz places those use around the world. We are monitoring the situation closely and working with local authorities to ensure we're taking all appropriate tax and the boat.
Part two numbers I suppose that's possible.
This silly all team members, who can work from home will continue to do so until at least flat.
I remain off of the dedication and resilient are true.
And they'll unwavering commitment to each other and to our customers while dealing with all the challenges of this extraordinary years.
Turning now to our business been a result.
On our last two calls he provided include performance commentary to the volatility surrounding depend on them.
Yeah, we're working towards historic practice and will not be providing current quarter commentary on this call.
A video commerce businesses to accelerate change does it the international is strong revenue growth along with significant expansion and we're gonna yield and grew their customer base across all cohorts with particularly strong growth in new and reactivated customers.
And each continue to go up because of increasing demand on digital platforms. He.
Conversely revenue growth in the double digits.
Christian up more than 300 basis points at each business.
Or something close to real estate, driven by customer and category dynamics, well ours was similar to Q2.
Saw strong sales days and culinary home decor and home innovation, among me reactivated and occasional customers.
We said that capability across our web site.
We advanced our priority to extend video reach and relevance across all video platform.
We continue to grow viewership on traditional TV in Q3 with total minutes watched up 7% in.
And the number of homes in daily at 9%.
Additionally, the quarter end, we reached more than 50 million homes through our streaming service primarily over workers and fire TV.
And last month, we launched on LT Topcon App to 70 million active monthly users.
Okay, how about the collaboration.
In October travel Cook repeat with Curtis film lost exclusively.
<unk> premium classrooms.
It's new original series follow celebrity Chef Curtis stone as the visit regions of the world and searches new flavors and recipes from your current home the Patriots out of prepare the recipe.
Six episodes can be here anytime on demand and I've quickly become among our top to program in a row Creek.
Our vendors highly attractive platform that connects with loyal customers to date in 2020.
We've lost more than a thousand new brands and receiving a dividend 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.
I'm, starting out promotion and pricing practices over the last two quarters.
Have more room to deploy this little promotions, if necessary to support growth because cost to cancel a covered at least in part.
<unk> turn to grow at their higher margin rates.
Moving out because you know it was generated strong two two results the team leaned into its core brand attributes a survey moms with fresh find that amazing values.
The only added several P brands, such as Emeril, Lagasse Blue jeans and Talbot's.
Home of hardline categories continue to grow 25% you over here is customers maintained spending on their phones.
She really capitalize a more cost to acquire customers and advanced is marketing initiatives.
Going forward, you really will continue to experiment and invest a new marketing channels, such as affiliates influencers techs programs and bloggers.
We're excited by the traction $2 has been in the past two quarters and believe it signifies the practice nature <unk> Korbren after beach, both customers and vendors.
Cornerstone generated an outstanding quarter record the results of fun K salad designs and granted road.
Barnhill also soft strong.
Home products.
He recently pointed wine Mckelvin, yes, president cornerstone.
Brian drawing cornerstone in 2000, most recently that evening valid designs and overseeing cornerstone service operations. Yeah is that an outstanding job that Ballard expand name is.
Adding two services will confidence visibility guilty cornerstone and continue with strong momentum.
Because you let me provided looking at a holiday season.
In anticipation as an elongated holiday shopping season.
By the need to reduce stroke crowding her in traditional holiday peaks.
And managed constrained shipping capacity.
Is expand at an accelerated key events promotional periods.
Restarted October with a black Friday account down it's T V T and Black Friday Jumpstart Sam.
Both brands in long island, and the ZIP programming holiday looking for you for the broadcast in digital platforms mid October.
And later October, Louisiana, offering Black Friday previews.
You feel good about our holiday lineup.
Yeah, I'll just need to authenticate and so I can see how customers are shopping for you the quota.
I look forward to speaking with all of you have liberties Investor day on November 20th.
Our handbags.
Adjusted OIBDA grew 10% and adjusted OIBDA 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 negotiations and a greater penetration of regular sale price sales.
On October Onest.
Making this year's growth even more impressive.
Overall E commerce growth grew 17%.
In the third quarter total customers grew 6% with existing customers up 3% activated up 11, and new growing 26%.
From a category perspective, we experienced strong growth in home and electronics with gains in mid single digit range and other categories.
Adjusted OIBDA increased 21% and adjusted EBITDA margin improved 200 basis points.
Excluding a retroactive refund to customers.
Step by higher freight costs from the international product mix and fulfillment center wages.
<unk> continues to benefit from lower marketing costs with customer acquisition costs declined nearly 50% driven by E commerce tailwind and the diversification and enhancement of its marketing initiatives.
Moving to cornerstone deliver outstanding results.
Front gate Ballard designs, and Brandon generated record revenue in Florida.
Overall cornerstone, who is 26% driven by strength and home brands within the bus demand for outdoor furniture pull accessories and interior furnishings and E. Commerce revenue grew 30% with E commerce penetration improved more than 200 basis points.
The strong gains were partially offset by declined within select women's apparel categories within the garner he'll brand.
And I'm proud to announce that adjusted OIBDA increased $31 million against $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.
Revenue declines Coronach Hill was able to deliver expanded gross margins although.
Through reduced promotional activity and improved home category mix.
SG&A improved primarily from effective use of digital marketing and leveraging administrative costs.
We anticipate cornerstone will incur increased gross margin pressure in the fourth quarter from the third party 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 too.
2020, capex for the year two range between 270 and $280 million.
Year to date distribute distribution payments team distribution payments were $41 million, reflecting an awful cycle year for multi year contract renewals.
Mike mentioned, we 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 benefits from the operating businesses, namely the extension of vendor payment terms enacted since March of 2020.
A 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 Green energy investment couple of $262 million was received this quarter.
Looking at our debt 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 Bill 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 and 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 values.
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 the 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 curate retail.
In fact, I would like to open it up for questions.
Thank you.
You would like to ask a question. Please signal my fishing star one on your telephone keypad.
If you're using a speaker phone. Please make sure you meet function is turned off to lashing out to reach our equipment.
If you find your question has been answered you may remove yourself by pressing star too.
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.
Right and then most importantly, we look at their behavior and their behavior based on 14, 30, 60 day repeat purchase rates of the hedges based on the value of the repeat purchase shares okay.
Hey, you're even within the last few months shows graduate into kind of best customer status. All of those things are holding the historic trends, so really outstanding quality. Despite the high surge in new customers and the growing mix of customer support kind of Mous came into play marketing, but I think that reflects the diversity of weight.
So.
This is Greg and say look we during the course of 2020 have utilized a couple of different tools for capital allocation, which have been outside our usual path.
It included a preferred dividend and a large one time cash dividend I.
What I would say is.
All the early indicators of holiday that we saw on the two two time period, while encouraging and.
Two two time currently really really young too all of the decor early gifting and knows all perform really nicely.
In Q3.
We definitely tie modest rebound and <unk> wisely round comfort side of the pillow Uhm casual sweaters loungewear some activewear.
We think that will continue during the holiday time period, but there's a holiday kind of time for the yearly even in a normal year is destroyed it 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.
Pay for the weekend apparel I expressed on balance you. They will remain somewhat soft with these pockets of.
Growth that are related to the stay home lifestyle, you know until we get further through the pandemic, but on the flip side I expect a home business to remain.
Strong demand across a number of categories and our ability to keep that replenishment going.
And at the rate of customer demand.
Those product categories that time from lesser.
Demand from.
Year over year basis.
Right and I would add on.
The margin question Ali we.
Our goal is to remain conservative in our promotional practices you know.
Holiday time period is always intrinsically more promotional and that's kind of built into the base of the business there.
But in terms of year over year trends in product margins and promotional activity you know our goal would be to take the kinds of year over year improvements. We saw in Q3 and kind of say those as best we can in a.
T core I mean every holiday season is increasingly promotional event in normal times. So we're trying to stay out of that frame to software Oh.
Relaxing refuge during the holiday season, and a place to get great items at great values in a pretty good about our position.
The new customers that make a couple of comments first as I mentioned.
More new customers and then the final point I'd make is you know, we're just available and more closely today talked about world Courier and algae shop time and.
Facebook live it it could go on and on all the way.
Consumers can find that today. This is different than a couple of years ago, almost point too 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 bigger picture question, you know accident years had a similar sort of new customers. During the current harvest to price and I think the postmortem, while they didnt exhibited behaviors. If you want it sorry, I'm sure. Some of the new customers you are gaining today, it's been a kinda that strong lifetime value versus maybe what happened two years ago and.
Alright. It comes on shipping you know.
Benefit of our size and scale is you know a very deep relationships with our partners Rosemary meaningful customer of the major I should've been carriers. If he has been able to negotiate agreements that.
<unk> can meet all the demands that we anticipate and you're not gonna be crap like others are you know that's certainly pressure getting all the boxes out of our own four walls and getting 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 believes will be it should be fine uhm and be able to meet typically.
Commitments and and get through the holidays.
Well.
Thank you.
Okay well.
Well now take our next question from <unk> from City. Please go ahead.
I just have two questions she could.
Do you all have a target never sure excellent leverage figure if you keep in mind.
If you do have to feed you reset it the T.
Q V C V V code group level consistent with the to transfer the temperature was released or a debit card.
Okay.
And then my second question is you 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.
Q V C level, we maintain a leverage targeted two and a half times, we do not have it stayed at curate level leverage target, but we have stated are two and a half times target or below for QVC <unk>.
Exactly when were released out of our blackout window, which is normal I'm not going to comment on.
Question. Thank you.
Well now take our next question from.
Four times from.
D J a chance. Please go ahead.
Okay.
So your line is open.
Okay.
Again fill your line is okay.
In an hour is fine.
The next question will take our next question from what William Brewster from <unk> Capital Group. Please go ahead.
Hey, guys, good morning, and I'd say, great quarter, but I think that there would understate it 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.
Yeah. Thank thank you prefer.
Comment well all her performance marketing and then let's go Greg go from there you know.
You need to invest in performance marketing, it's generally been increasing amount of your your basis and you know 40 to 50 basis point range.
A little bit off set by your commission rates, because there's folks gravitated to get all our I T V guys commissions tend to decline every year will continually calling into that investment as long as we're getting a good return on it and you expect the problem with marketing that'd be yeah net positive within a year.
That has been made with the values of the customers.
Come into it so maybe some good about our ability to read that back in the business and performance marketing 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 spelled out with it.
Hence dollars and then capital dollars an unbelievable using those effective immediately widen the digital <unk> both of them.
Oh find this in the way that we can put people to argue new platforms.
Can I just Wanna make an heather.
<unk> you too.
Yeah, I 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 favorite buybacks.
Candidly they have not work as successfully as when you'd 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.
<unk> overturning capital, including that one time cash dividend preferred yesterday, which we thought had the benefit of opening up choice more choice for investors, who wanted a continuous stream versus those who wanted a more elaborate equity.
I think those have largely been successful we're not anti buyback, it's really not been the liberty.
Posture, and we will use that and look at that was one of our tools going forward and look at the ways to deliver value for 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 are go obviously is like most of you would hope.
Agreed 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.
Well now take our next question from Sofa Pre-k from my gave it D. Davidson. Please go ahead.
Great. Thanks, So I apologize I didn't take a trip to Michelle Sir Mike Congrats on the considerate of Covid.
Understood across the board I wanted to get your thoughts on recurrent 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 Ah Ah high leg.
A distraction or it gives me what's going on with the election and things of that nature. So.
Appreciate your thoughts on the current state of your consumer thanks.
Thanks for the question.
HM HM HM.
Good about this consumer hoping she is amazingly resilient that'd be your point you know, we we benefit from a somewhat higher income and generally higher household as well.
<unk>. So she is in a better place financially I will not as a driven by which is like you know governments give me a lesson unemployment rates will also know that you know all all consumers, including ours have been increasing their savings rate. So we do have.
Have some money in savings.
Quite frankly, as we pulled back on the use of installment payments that gives her more open the guy with that because she doesn't she hasn't been using credit to the same level and her purchasing oh, I shouldn't say credit, but our install my payment programs that usually within the past. So she's just she has resources you have savings.
And she's cooking to be resilient certainly the election is a distraction.
You can also place to our strategy, which is.
Could be that place you can turn to on the dial or on the web you know could could get away from election news can I get some joy to get some inspiration to get some distraction could be among friends and I virtual community that she cares about and so I think by not being and the promotional fray.
Just to be there for her and she was looking for a distraction from the election is all positive.
<unk>, how can expect that the selection gets resolved.
Shortly with because that will you'd have 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 take our last question from <unk> from 40 10 capital. Please go ahead.
Yeah. Thanks, I 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 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 perceived perceived as well.
During the recent quarter, we were prohibited as we know ready for some tax reasons from doing buyback, but as we said we are not certainly not taking buyback off the table and certainly not.
Looking at.
The buyback is wanted tools from which we will do view us. So thanks for the observations then don't disagree with them.
Okay. Thank you.
Yeah.
Thank you and.
Yeah My.
Okay.
Yeah, that's our last call, but thanks, everyone for your time and interest today and we look for tech connected with your 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.
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[music].
[music].
[music].
Welcome to the Kerry retail ink 2022, three 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 like pushing star one on your telephone keypad.
As a reminder, this conference is being recorded November 5th.
Oh, no like turn the conference over to Courtney Chang.
She's portfolio Officer. Please go ahead.
Thank you.
We'd like to remind everyone that this call include certain statements opinionated and the private Securities Litigation Reform Act 1995 actual events the results could differ materially due to a number of risks and uncertainties.
And the most recent 110 and 10-Q filed by our company on T V.
Yes.
Each barbecue statements the only estimate database call and carry retail expressly disclaims any obligation or undertaking.
Any updates and revisions to any forward looking statements contained herein sort of like any change in current retail expectations with regard there too alrighty changing events condition.
On which any such statement unsafe.
Call, we will discuss certain non-GAAP financial measures.
Adjusted OIBDA margin free cash flow in constant currency.
Regarding the comparable gap, Patrick along with required definitions of reconciliation.
Preliminary note and schedule is 123 it can be found in the earnings press release issued yesterday on alrighty presentation, which are available on our website.
You remember to register for our virtual Liberty Investor meeting on Thursday November 19th we will cover Liberty media and Liberty Tripadvisor and Friday November 20th include.
Yeah.
And Liberty brought back from 11 11 am.
Eastern time, both days after the presentations on both days, John Malone, and Greg Miss a long list.
Six Q a session.
Submit questions by Friday November 13th two Investor day at Liberty Media Dot Com.
Find a link to register at all of these details on our homepage today.
Call, we have curate retail president and CEO might George.
Mailed rooms, CFL, Jeff Davis.
Mailable Q&A will have curate retail executive chairman.
Please note that we've published five to accompany the earnings please.
Those are available on our website now I'll hand, the call over to make George.
Oh, you called me and welcome everyone.
We've got a tremendous please.
Revenue or is it a two cats.
Slow and customer game.
All our businesses.
Mhm.
The ability to edit you well in the near term.
Building a foundation, what's the state long term growth.
One quite a performance programming and events.
Rapidly shifting consumer demand.
Formulated this garbage generated gone game will tell a woman and soft.
[laughter] well marketplace friends.
We could could you could manage promotions and prices cloth or businesses.
Mid Mary we made the decision to pull back on a variety.
Liberty instead of better foundation for help with.
He continued in two three.
Glad to significantly improve product Martin.
Visiting does outstanding.
Yeah.
He's been focused on advanced in our long term strategic growth initiatives.
Really emerged from the pandemic better position than what are you wanting to it.
The little toward the Sharon talk with on these priority that liberties investigate on November 20th.
We also offer an expanded corporate responsibility program, which encompasses three broad commitments.
Perfect environment sustainable packaging.
Christian operations and logistics.
Sure sure it's in the nineties.
The product responsibly.
Finally, the champion empowerment and belonging.
The motor diversity equity and inclusion in our organization any of our customers and partners.
You can find more information on these commitments the Detroit retail group website.
Continued to grow our customer base.
Every customer cohort.
Every business.
Especially strong increases in new customer acquisition.
The generated $1.5 billion of food quite slow in the first nine months with like 1.1 billion dollar increase your over here.
He will try and capital to shareholders.
One of the special cash dividend.
For security, we're gonna crackers emailed.
<unk> unable to buy back there.
Most importantly, all summer acceptable named on protecting the health and financial will be two numbers.
He continued to expand programs to support our team, including all tired of work arrangements to help families juggle working on personal challenges.
Access to home care of health.
Resources to support knuckle health.
<unk> two numbers.
Number of other initiatives.
Cause the number of Covid Christmas is around the world.
[noise] agreement situation closely working with local authority to insure was taking all appropriate back in.
Two party numbers are faithful possible.
Basically all team members, who can work from home will continue to do so until everything's Craig.
I <unk>.
Off of the dedication of.
Archie.
And the unwavering commitment to each other and to our customers will get them all the challenges of this extraordinary.
Cutting out our business being resolved.
On our last two calls you provided.
Performance commentary.
Volatility fill out an independent woman.
Well, we're hurting talk historic practice and will not be quiet and current quota commentary on this call.
The new comer businesses, two weeks H N PVC international.
<unk> revenue growth.
That's a good experience and it was at a year old.
Do their customer base across all cohorts with particularly strong growth removed and reactivated customers.
Each continue to adapt to increase in demand on digital platforms.
Newcomers who grew up in the double digits.
Christian more than 300 basis points.
Scripted.
Oh, he's been closer to update with given by a couple more in category dynamics well argued similarly to 222.
He got strongsville games, and culinary home decor and home renovation.
New reactivated.
Customers.
Definitely we were encouraged to see that person was sales increased modestly phone a decline due to.
We called the best customer Sanders heavily weighted towards the fashion category.
Right here on their spending too too.
It's been about 10 or I can also declined the M. P three but at a left to right.
It was more than upset.
Squall increases homestead.
And my last call, we said the July demand <unk> off in the low single digits.
<unk> revenue growth.
The full quota.
Combination of sales of celebration on September 5th.
Electronics began to a couple of within the difficult start to the quarter.
Can expected customer returns.
It's been in handling revenue with you maintained our type of promotional posture.
Well 2020, we have.
Main focus on the priority foundational longterm growth.
If you have more insight into been investigated.
Let me provide a cute yeah Bulldogs progress.
Failing visit all discovered.
Including the same level of engagement inspiration on a digital platforms.
Video platforms.
Over the last 12 months, we've been policy in an attempt to all that usually the she's learning to inspire customers to purchase.
Looking to get any messages.
Well ahead of expectations.
Banning the use of the capability across their website.
He advanced up priorities extend video Walgreens across all video possible.
You continue to grow viewership on traditional T V and typically it's totaled let us watch Oh, 7%.
Home and Bailey help 9%.
Especially the quarter and we reached more than 50 million homes to our premium service, primarily overlooking and file a T V.
Wow must be lost unhealthy pop contact.
Practice.
Provided the lives with a R T name that works.
On demand programs.
Your product.
And personalities led constant.
And the innovation.
Particular focus on seamlessly integrated in contact and capability.
<unk> liquidity picks the buying experience on their shop time half.
Tend to advocate the ability to locate screaming service as well.
Which is one step.
Among several anticipated innovations to naval Frictionless commerce.
Cause actual integration and there's a video.
<unk>.
We'll also have got to the destination programs a special deal two o'clock audiences video platform.
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Premier the Grove multiple sellouts.
You continue to focus on five.
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And we hope to the first whatever five inclusive and body positive stomach September.
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Opportunity.
With some of the most influential woman and body positivity Fireside chats, the beauty panel with Christmas section.
It's built on a 30 plus year commitment the size in fashion.
Why didn't Miss personal forum to educate consumers and capitalize on our leadership in this area.
Had a fun example, or toy business is up more than 52 723.
Due to the standout success I was a child a baby yoda from the pill.
Have ours will quickly to jump on the two o'clock.
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On air and online than Christmas in July.
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We provide vendors highly attractive platform to connect with loyal customer.
Date in 2020.
We've lost more than a thousand new brands on T V.
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30% from last year.
Growing are accurate community.
Extra teacher priority.
A strong new customer acquisition and the growth of our total customer base are testament to the relevance of our media assets.
Retail platforms.
He's gonna walk blind traveller as Chief marketing officer for Culex age and this incredible.
And will be responsible for all practical customer acquisition and engagement he.
He brings 20 years, a strong experience in marketing and business development and strategies from retailers, such as J, Jill Lane Bryant and Kohl's.
Well before discussing our other business with one is reiterate our confidence with the screen help as long term growth.
Ross to a page and T V C International.
When you combine all hope portfolio of media assets with exceptional product creation capabilities.
A highly loyal customer base.
<unk> distribution network.
Successfully Ah Walgreen, <unk> multiplatform digitally blurred personalize the video screen and model, but it's difficult to replicate especially at our scale.
Oh, well positioned to capitalize on the growing popularity a video selling with consumers look for what for ways to replicate and enhance the experience of physical stores.
In the near term, we blues or several past the consumer a room.
We expect a sustained growth in the home categories across all customer cohorts.
Continue to convert these large do customer classes the high value lifetime customers.
What what time, the Pittsburgh Homeclub, many moderate so we should to fashion categories begin to recover.
Put in a continued reacceleration best customer growth.
Finally by resetting I'll put lotion and pricing practices over the last two quarters.
You have more room to deploy this little promotions if necessary to support quote because cough potentially covered at least in part it's crashing category can kinda grow at their higher margin legs.
Moving out cause you Lily with generate it's gone in to to waltz between leaned into its core Brad attribute So survey moms with fresh bottom that amazing values.
It only added several P. Brad such as Emeril, Lagasse Blue jeans and talbots.
Hard like categories continue to grow 25% you over here is preferable to maintain spending on their phones.
He really capitalize a more cost to acquire customers in advance as marketing initiatives.
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We're excited by the traction.
And in the past two quarters and believe it signifies the corrective nature.
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Cornerstone generated an outstanding quarter record the results of front gate salad designs and granted road.
Barnhill also soft stronger that's home products.
He recently pointed wine mckell V as president of cornerstone.
Well I am drawing cornerstone in 2000, those recently that email valid designs.
Cornerstone service operations, Yeah is that a outstanding job that Ballard expand name is.
Adding a few services will conflict with the ability guilty cornerstone and continue with strong no Michael.
According to let me provided pull up at a holiday season.
You know take vacation as an elongated holiday shopping season.
By the need to reduce school crowding her in traditional holiday peaks.
And that is constrained shipping capacity.
Is extended an accelerated key events promotional periods.
Restarted October with a black Friday account balance.
And Black Friday Jumpstarted HSM.
Both brands long hold on and the ZIP code brand new holiday looking to open the broadcast in digital platforms mid October.
And later October, Louisiana, Awesome, Black Friday previews.
You feel good about our holiday lineup will stay agile and just need to authenticate and so I can see how.
Customers are shopping through the quota.
I look forward to speaking with all of you at Liberty the rest of your day on November 20th.
What kind of a good just to you off and that's spelled results.
Thank you Mike M and good morning to everyone as Mike mentioned, we didn't live with another strong quarter revenue and was it a growth across our businesses.
Especially strong consolidated boarded 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 games, as well as our ability to offer and demand products.
For the quarter total customers, who 8% with existing customer, 5% reactivated Cup 15 and knew growing 27%.
We continue to be encouraged by new customer subsequent purchase behavior with 30 to 60 days and purchase rates consistent with prior years.
Ah no straightened on slide six of our earnings presentation, once again harder sizable shit and category mix from a Carolyn beauty to home.
Uhm increased 22% as consumers maintain your focus on nothing families and wellbeing.
With a strong demand for food seasonable decor, fitness and wellness for care and household products.
Moving to consumer electronics, which declined 6%.
Reflecting a lower demand for smart home products and supply constraints for cabinets computers, and televisions as well as intentional promotional actions to reduce the number of installment payment options for a D V clients.
Clients.
The teams work diligently during the quarter with our Grand partners to secure additional products, which led to improve sales performance in September.
We believe supply constraints for many products have improved for the holiday season.
With respect to our fashion category beauty declined 2% as color cosmetics arms less demand during the pandemic, while wearing masks. However, our customers remain interested in self care and we experience games and hair care.
And body products.
Apparel and jewelry remained challenge down seven and 5% respectively in line with general market conditions.
And finally accessories, which was a bright spot had a nice 10% rebound from strong demand and loungewear athleisure and non leather handbags.
Adjusted OIBDA grew 10% and adjusted for that a margin expanded 50 basis points.
Let me share to detail as outlined on page nine presentation.
First gross margin.
<unk> 70 basis points.
In contrast to last quarter, you're able more than able to offset product margin pressure from the category Nick's shift.
Product margin expanded 220 basis points from lower customer returns higher shipping and handling revenue.
Center negotiation and a greater penetration regular sale prices.
Fulfilment costs increased 90 basis points, primarily due to general frankly increases.
Could cost associated with opening a Bethlehem fulfillment center.
Increased wage rates contributed to heightened competition for labor.
And lower tax actor.
Let me see the last component of gross margin obsolescence. It 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.
As we replenished inventory levels in advance of the holiday season.
Moving the operating expenses, which were 40 basis points favorable predominantly do 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 it.
Administrative expense was 105 basis points unfavourable driven by higher incentive compensation accruals, partially offset by not revenue leverage.
Marketing contributed 35 basis points of pressure, reflecting enhancer acquisition and retention strategies for new customers can be targeting efforts to increase customer lifetime value.
He said Orange would partially offset by 75 basis points of problems a favorite reality.
From bad that was.
Is 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 get we successfully and install a a common warehouse management system and Rocky Mount North Carolina in Bethlehem, Pennsylvania.
While productivity at the site cause mark reached pre pandemic expectations.
Your experiments sequential improvement.
Are Lancaster facility has not been fully decommissioned edited that that is primarily processing customer returns, which is contributing to the duplicate occupancy and labor costs cause we referenced earlier.
Moving to QVC International which continues to generate growth across all markets strong new customer growth and retention and increased E commerce penetration.
That comment this morning will focus on constant currency results.
Revenue group, 8% with games in all markets.
Particular strength in the U K and Germany.
Separately, Japan achieve that cheesier fast growth rate of nearly 20%.
We call, Japan benefited last year from actions to accelerate demand and events.
A consumption tax increase in October October.
October 1st.
Making this year's growth even more impressive.
Overall E commerce growth through 17%.
And the third quarter total customer squeeze, 6% with existing customers about 3% activated couple of 11 and new rowing 26%.
From a category perspective, we experienced strong growth and home and electronics with games and mid single digit range and other categories.
Projected pointed increased 21% and adjusted plug it a margin improved 200 basis points.
Excluding a retroactively funded customers and two three of last year from the change in shipping and handling policy congested Oregon.
Increase in the low teens this quarter.
Gross margin improved 90 basis points, 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.
[noise] SG&A costs.
Favorable 65 basis points, primarily due to net revenue.
Leverage, including exhorting provisions really cute increased instead of compensation.
Elect women's apparel categories within the Garnet Hill's brand.
And I'm proud to announce that adjusted OIBDA increased $31 million against $4 million last year for the same period.
Gross margin improved nearly 500 basis points, primarily due to the strength in home brands and less liberal promotional activity.
Despite revenue declines Garnet Hill was able to deliver expanded gross margins although through.
Through reduced promotional activity and improved home category mix.
SDMA improved primarily from effective use of digital marketing and leveraging administrative costs.
We anticipate cornerstone will incur increased gross margin pressure in the fourth quarter from third party carrier surcharges on large parcels.
Let's quickly look at our balance sheet and cash flow.
Capex was $57 million for the quarter and 165 million through the third quarter.
We anticipate two.
2020, capex for the year to range between 270 and $280 million.
Year to date distribute distribution payments TV distribution payments.
Were $41 million, reflecting an off cycle year for multi year contract renewals.
As Mike mentioned.
We generated $1.5 billion of free cash flow in 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 benefits from the operating businesses, namely the extension of vendor payment terms enacted since March of 2020 I.
Strategic pull back in customer installment payments reduced inventory and increased accruals associated with management incentive bonus and returns.
Separately in 2020, we received a 267 million dollar Lucy $267 million in pre tax proceeds from the sale of a green energy investments of which $262 million was received this quarter.
Looking at our debt during Q3, we raised $500 million of 4.375% senior notes due 2028.
And use the proceeds along with cash on hand to redeemed $500 million of senior notes due 2022.
At quarter end, we had a zero balance on our QVC inc. 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 $1.50 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.
Preferred stock paid 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 the foundation on which to build and we continue to execute our strategic priority.
Yes.
We appreciate your continued interest in Q, eight retail and with that I'd like to open it up for questions.
Thank you Ken if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speakerphone. Please make sure your mute function is turned off to like a single treatment equipment.
If you find your question has been answered you mean remove yourself by pressing star to.
As a reminder, it is star one if you would like to ask a question.
Our first question from Eric Sheridan from Me you, Yes. Please go ahead.
Thanks, so much for taking the question.
Very good progress on on continued evolution towards E Commerce, and mobile commerce in the quarter or my colleague Joe If we could better understand how some of your digital marketing channels continue to sort of roll balls, what that means for which we should take away from it in terms of a lifetime value of the customers you can make your marketing channels could you do evolve and how we think that.
How we should we be thinking about that from a margin profile over the medium to long term for the business. Thanks, so much for the color.
Hi, Mike.
My pleasure.
So I have trouble getting off of me Eric. Thank you for the question.
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Let me start with the second part of the question, which is good looking at the lifetime value of the new customers. We have just been incredibly encouraged by the quality of these very large classes of new customers that are coming in.
Peter pandemic.
Every metric we can perhaps they are.
Total lifetime value to previous classes.
About.
40% of those needs.
Customers are coming in through digital marketing. So it's great to see the majority still coming organically, but even with this higher could studies that are coming into digital marketing that lifetime value is holding very strong and remember that we measure that in a couple ways. We measure it based on the history tells us about what categories.
They're buying whether they're buying.
Digital only assortments are buying from the on air programming dances abide from all categories all platforms in.
In a very healthy way most importantly, we look at their behavior.
And their behavior based on 14, 30, 60 day repeat purchase rates their behavior based on the value of their repeat purchases the behavior, even within the last few months, graduating the kind of best customer status all of those things are holding their historic trends, so really outstanding quality. Despite the.
Hi, surge in new customers and the growing mix as well.
Customer support converting into paid marketing and I think that reflects the diversity of ways. We're able to track. These customers are learning a lot about that paid social as a way to find very high quality customers, because influencer networks, which are growing in our media mix.
So Dave.
I will accept influencers could be.
Talking about us they also seem to get the paid marketing Jesse in areas like I Didnt.
Getting people to download a rocky gap in the month the download of her well to apt to do marketing work locally that kind of promote our channels and our experience in another way to grow new customers. There. So I feel really encouraged to find them.
Ray of tools that will leverage paid marketing to expand new customers.
And to keep the overall quality of those new customers at historic levels.
And we'll take our next question from Carla Casella from JP Morgan. Please go ahead.
Hey, This is Derek third party for Carla Casella I was wondering if you could give us a little bit more detail on your capital allocation plans going forward Larry.
And how do you plan to think about any potential M&A activity are you seeing any attractive valuation out there.
Looking at acquiring any potential brands. Thanks.
Hi, do you want me to take a cut at this yeah, let me take the Cup.
So.
This is Gregg will say.
We during the course of 2020 have utilized a couple of different tools for capital allocation, which have been outside our usual path.
Included a preferred dividend and a large one time cash dividend.
I think we have said in the past that we look continually for ways to invest in the business, which are smart and generate a high return on invested capital we would look for ways outside the business, but parallel to win in ecommerce or other areas, which will also generate synergistic high return on invested capital.
We will continue to look for ways to go outside.
Business and return capital to shareholders.
Over the recent time, you've heard we were prohibited from buying back shares for a variety of reasons I won't we.
We're now that actively looking at multiple tools for shareholder returns going forward, including buybacks and special dividends and we will take into account many factors, including the share price.
Ongoing free cash flow expectations for the business of which we are increasingly positive and onetime cash receipts. For example, when we saw this awana.
Property earlier this year. So all those will be taken to account and certainly acquisitions are not off the table. We 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 the business recognizing the high free cash flow generating capabilities in the business, Mike I know if you'd add anything.
That's great, but nothing of that.
Thank you. Thank you.
Thank you that was very helpful and if I may just one more do you have any early outlook on holiday I know you commented on on mix shift I'm coming back a little bit more toward santerre overstate home are you expecting to see some of that normalization around the holiday period or is that really a look in Q.
2021.
No I don't want to get access to their specific that our current selling trends but.
What I would say is.
All the early indicators of holiday that we saw in the Q3 time period were incurred getting them.
Typically tankers are really into holiday decor really gets the right and those are performing really nicely.
In Q3, we definitely saw a modest rebound in apparel in Q3 wisely round accomplished side of apparel category.
Casual sweaters loungewear some activewear.
I think that will continue during the holiday time period, but you know the holiday time time period, you really even in a normal year is distorted towards home apparel tends to be a smaller part of the mix in holiday time period. So I think we'll have to get to next year early next year to see.
Okay. So the rebound in apparel I expect on balance it will remain somewhat soft with these pockets of.
Growth that are related to the stay home lifestyle, you know until we get fully approved the pandemic, but on the flip side I expect the home business to remain quite healthy and you know we did see no signs and signs of slowing in home across many of our business units to Q3.
Great. Thank you very helpful.
Thank you.
Well now take our next question from Oliver Wintermantel from Evercore ISI. Please go ahead.
Yes, hi, good morning, guys.
And the question regarding inventories and margins and then a longer and longer term question to follow that.
Tours look looks like they were down down again in the quarter, but but I think a a note which Mike.
Yes.
I think you started buying more inventory for the quarter.
So just some some color what the inventory levels are and then regarding the regarding margins.
Looks like you know you guys benefited from from nesting like like like many other retailers and promotions, where I think you said you pulled back on it.
Like holiday might might be a little bit more promotional than longer tracked out.
Im frame this year versus last few years.
So maybe maybe a comment on gross margin what you do expect and then longer term.
You gave a lot of customers now were reactivated customers during during the second and third quarter.
Look looking out for the next especially next year.
How do you think you're going to keep these customers do you think he did a permanent becoming to you over searches.
By by the pandemic. Thank you.
My colleagues.
Well I'll take the first part of that and then I'll talk more about the customer side.
Absolutely.
So as we think about our inventory our inventory have been down.
Second quarter third quarter, and it's really driven by a couple of things. One is just 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 again, some of the categories and products that are already has not been and strong demand on as you had mentioned you know coming out of Q2 and into Q3, we're anticipating that we would have to replenish our.
Our levels, especially as we thought about the early fall and into the holiday. So you actually did see an increase in our inventories going from Q2 to Q3, but still overall down from.
Mid teens I'm as it relates to just year over year.
We believe that we are in good position.
The as I've mentioned in my lifetime remarks that are.
The buyers are really working very diligently with her brand partners to get certain items back in stock as well as finding additional alternative items that have been.
Identified is on key items for customers and gift, giving and in home decor and even across many of these categories with your current previously and pressure as it relate to consumer electronics. So we think we're in good shape going into the quarter and.
A lot of the.
Sort of.
Inventory reduction year over year is really just driven by increased demand and cost also with the reduced levels and those those product categories that are in lesser.
Demand from a year over year basis.
Yeah, and I would add on the on your margin question always you know we love our goal is to remain conservative in our promotional practices you know.
The holiday time period is always intrinsically more promotional and that's kind of built into the base of the business then.
But in terms of year over year trends in product margins and promotional activity you know our goal would be to put the kinds of year over year equipments, we saw in Q3 and try to hold those as best we can in.
Q4, I mean every holiday season is increasingly promotional event 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.
The new customers that make a couple of comments first as I mentioned.
Now a minute ago no you definitely think the customers that we're bringing in we will stay with us.
Consistent way with what path classes have gotten so the fact that these cone classes are much larger.
Like it because the tailwind that will benefit from over the next couple of years as those.
Elevated levels of new customers that we're currently seeing.
What kind of credit is going to become a good long term approximately but in addition to that we're confident that we can continue to bring in.
Hi, good new customer classes going forward for a couple of reasons first just the broad macro shift a home, which we don't see changing any time soon naturally bring in more new customers and home categories. The hardest category the building a new customer on his apparel.
The easier it is a home categories.
And so what we're we're confident with that mix ship to home that that would be.
They didnt get them to the new customer acquisition.
And then add to that our progress on digital marketing are we also chatted about a moment ago and just the ability to continue to leverage digital marketing to bring in more new customers and as we maintain this conservatism on promotional practices yes.
Yes, actually freeze up a few more dollars that we can redeploy their marketing if we choose to yeah, bringing in high quality to customers. It's good lifetime value while protecting the overall.
Yes. So if you see lots of Optionality that continues because then more new customers in the final point I'd make is you know we're just available for 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 that.
Consumers can find that today is different than a couple of years ago, almost 22, good new customer acquisition going to.
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 Didnt get your question you know I'm sitting at a similar sort of new customers you had kind of hard to price and I think the post minimize they didnt exhibited behaviors. If you want it how do you really should some of the new customers you're gaining today, it's been a kinda that strong lifetime value versus maybe what happened two years ago.
And then as a follow up I know you mentioned shipping at cornerstone are you anticipating shipping difficulties during the season. Thank you.
Yes, that's correct.
[music].
I'm sorry.
Just kinda mentioned, we're really confident lead quality with new customers and I think what you're referring to is we definitely saw its really two years ago I'm confident that the team kind of lean into new customers and we're finding that they would not have the quality of the anticipated.
That would cause that downtime in performance.
We saw it in the 2019 occurred as we anniversary that that's that's already baked in learning how to really we've got new marketing leadership, Yeah, I can do and that team is doing a terrific job find Oh, you really didn't really focused on the fundamentals are good customer acquisition.
I'm going to the right channels, they contribute to our customers that have high quality, but I didn't know if that was a quite isolated to because it really experience. If you look more broadly across to a patron q. I really never at any point in our history has certainly customers that did not perform kartik.
Our long term expectation so oh, the current data that they will.
And then again, we've never had an experience that didn't fit that model. So we had one issue. If you really believe we've adjusted that well very good about the quality of the company's agreement across.
Hi, Terry.
Number of shipping you know.
Benefit of our size and scale is a you know a very deep relationships with our partners are very meaningful customer of the major shipping carriers.
We've been able to negotiate agreements that.
<unk> can meet all the demand that we anticipate that you're not going to be packed like.
Like others are you know that said there is certainly pressure getting all the boxes, our own four walls and getting black boxes to the carrier network. So we're sensitive to that it could create a little bit of pressure on the margin, but we believe we have a good plan believes will be should be fine and be able to me.
At our typical sort.
So its commitments and they get to the holidays quite well.
Thank you.
Okay well.
Well now take our next question from Jason Bazinet from Citi. Please go ahead.
I just had two questions do you do you all have a target leverage from our maximum leverage figures that you keep in mind.
If you do have a figure is that at the okay QVC retail group level consistent with the two turns of leverage in the research out there.
Corporate level.
And then my second question is you talked about some restrictions on buying back stock.
And as of today November sister, those restrictions are lifted.
I'll take a cut at that you.
The.
That's the QVC level, we maintain a leverage target of two and a half times, we do not have a stated.
Curie level.
Leverage targets, but we have stated our two and a half times target or below for QVC proper.
Uh huh.
Exactly when were released out of.
Our blackout window, which is normal I'm not going to comment on.
Next question. Thank you.
Well now take our next question from.
Sales for type from <unk>.
D.J. can't attend please go ahead.
Oh.
[noise] Phil your line is open.
I guess, Phil your line is open.
Okay.
Given our sites, we know that our next question well take our next question from William Bremer from recently Meyer Capital Group. Please go ahead.
Hey, guys, good morning, and I'd say, great quarter, but I think that would understated and I want to say thank you guys for your hard work.
I wanted to drill in the if possible on something that Gregg said.
With any internal capital allocation priorities like I was hoping that maybe you could talk to performance marketing and what you're seeing there and Greg if you could expand on any of your priorities that'd be great. Thanks, guys.
Yeah. Thanks, guys I appreciate the.
The comment well the performance marketing and then let Greg Goff from there you know we continue to invest in performance marketing, it's generally been increasing on a year over year basis and.
40 to 50 basis point range.
A little bit offset by lower commission rates, because that folks gravitated digital or TV base commissions tend to decline every year. You know, we'll continue to lean into that investment as long as we're getting a good return on it you expect performance marketing there be.
Yeah, net positive within a year and a healthy measure the value to the customers that come into it. So we feel good about our ability to invest back in the business in performance marketing methods like network optimization right again.
Expanding 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 they were using those affected they really widen a digital footprint both the way people find us in the way.
We can put people to our the platforms.
As long as any other.
How many are 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 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.
Methods of returning capital, including that one time cash dividend on the preferred dividends, which we thought had the benefit of.
Opening up choice more choice for investors, who wanted to continuing stream versus those who want more levered equity I.
I think those have largely been successful.
We are not anti buyback certainly nothing to 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 were also cognizant of changing tax rates, which may influence our views are.
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.
Capital, we can to shareholders in the most efficient way.
Well. Thank you guys for the hard work and I Hope you enjoy small victory here, it's a heck of a quarter so take care.
Thank you.
Well take our next question from Jennifer Fritzsche pay from a game. It D.A. Davidson. Please go ahead.
Great. Thanks, I apologize or to take a trip to the cell. So Mike Congrats on the continued improvement I do every quarter. So across the board I wanted to get your thoughts on recurrent state of your consumer so I feel like working for her and working for you is the state of the stock market.
In their home values are at the same time I'm concerned about maybe it's too short term in nature, but at a high level of distraction or given what's going on or what.
The election and things of that nature. So.
I appreciate your thoughts for the current steadier consumer goods.
Hi, Thanks for question.
You know we do 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 generally higher household wealth.
Humor us if she is in a better place financially or were not as driven by issues like you know government stimulus and unemployment rates. We also know that you're all consumers, including ours have been increasing our savings rate. So they do have some money in savings.
Quite frankly, as we pulled back on the use of installment payments.
That gives a more open to buy with us because she doesn't know she hasn't been using credit to the same level in 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 I certainly the election is.
Distraction and I think it also plays to our strategy, which is.
Beat up place you can turn to on the dial around the web you know could 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 think by not being in the promotional fray.
Just to be there for her and she is looking for a distraction from the election is Oh positive you know, obviously, we hope and expect that the collection gets resolved could you sure.
Surely which it appears that it will.
I would love to be behind it.
But I think you know there's a pandemic crew.
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.
Well now take our last question from Steve Let some 40 10 capital. Please go ahead.
[noise] yeah. Thanks.
Hi, guys for asking another buyback question, but when.
When I look 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 at retail or you can do the buyback 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 and the any 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.
By removing buyback is one of the tools, which will do view us. So thanks for the observations and don't disagree with them.
Okay. Thank you.
Thank you I'm not sure.
Mike you are going to do rapid asset.
Yeah, that's our last call, but thanks, everyone for your time and interest today, and we look forward to connecting with you virtually at the Investor day. Thanks, everyone. Thank.
Thank you.
And with that that does conclude today's call. Thank you for your participation.
You may now disconnect.