Q4 2020 Qurate Retail Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the cure rate reach out Inc. Twenty-twenty you're into 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.
Fresh start one your telephone.
Reminder, this conference is being recorded February 26.
I would now like to turn the conference over to a Courtney Chun Chief portfolio Officer. Please go ahead.
Thank you.
For me because we'd like to remind everyone. This call includes certain forward looking statements within the meaning of a private Securities Litigation Reform Act, a 1995 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 10-Q filed by our company and QVC with the SEC.
These forward looking statements speak only as of the date on this call on jewelry retail expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statement contained herein to reflect any change from great retail a expectations with regard there to or any change in events conditions or circumstances on which any such statement is based on.
Today's call will cause a certain non-GAAP financial measures, including adjusted OIBDA adjusted OIBDA margin free cash flow on constant currency information regarding the comparable GAAP metrics, along with required definitions and reconciliations you put your preliminary no unscheduled wonder three can be found in the earnings press release issued yesterday on our or did you today you'd be on our earnings.
Reputation, which are available on our website.
Today speaking on the earnings call, we've got you're a retail president and CEO, Mike George <unk> retail group CFO, Jeff Davis, a great retail executive Chairman break per Se. Please note, we published slides to accompany the earnings release. These slides are available on our website now I'll turn the call over to Mike.
Thank you Courtney and good morning, everyone. Thank you for joining us today.
Well, we had a very strong finish for the year interest.
Top line growth across all business segments.
A team responded with a agility to meet our customers' rapidly shifting needs and the stay at home environment led to a.
That offering and events with basically a substantial quantity for the Joe's a chip and challenges all of.
It's a good work pulling back on promotional activity.
We drove robust new customer growth and a good games on a long term strategic priority for all businesses.
We maintained tight financial management a growth strong overall net revenue was at a a free cash flow growth.
Current capital to shareholders, even as we are investing to keep whomever safe and provide them with enhanced pay and benefits.
Additionally, we continue to support our communities walking.
On a bit of programs such as a small business problems and partnership with a basketball we can tell a federation foundation to help small businesses challenged by COVID-19.
Including a second phase locked in a that's supporting black on businesses.
We publicly announced a new corporate responsibility commitments with a time bound makes a whole targets focused on protecting our environment showing a product responsibly for Japanese inclusion on a problem.
Particularly probably report that we received 100% weighting on the human rights campaign's 'twenty 'twenty, one corporate equality index.
And for most Petsmart and survey made from corporate policies and practices related to LGBTQ workplace equality.
This recognition is a credit to our entire team and their commitment to fostering a culture, where all team members can get a whole selves and do their best work.
We are grateful for the commitment.
So once every member as demonstrated this past year well.
Well grappling with all of a personal challenges this pandemic has rock.
Appreciate him at year end, we awarded a special one time bonus for all regular and supporting team members, who are not eligible for other bullets for success share programs.
Now turning to the numbers.
We grew revenue, 6% and OIBDA, a 13% in constant currency and for the year. We grew revenue five per cent and eight per cent.
We generated free cash flow nearly $2 billion for the year up more than a 200% supported our ability for a current class a shareholders special dividends and share buybacks.
We continued to experience rapid new customer growth across all business units all markets with more than a two 8 million new customers added two for that's up 33 per cent collapsed here for him.
Total new customers for the year to seven 6 million <unk> 25 per cent increase.
COVID-19 has pushed knows a consumer interact with retailers and brands online and many will continue to do so long after the pandemic is over.
We believe this is a fundamental long term shift in consumer behavior.
Given the vast array of online shopping choices for consumers now have a.
On a record acquisition and stable retention of new customers sticks, possibly cause a relevance and a stickiness of our platforms and our experiences.
Now taking a closer look at killed stages performance as a fourth quarter.
There's a quite a few quarters, we delivered outstanding growth across all home categories, partially offset.
Softness in a fashion businesses, although I'd note that we did gain share in apparel accessories and beauty in a down market.
On a steep decline in consumer electronics.
Excluding consumer electronics net revenue of two a stake increased.
Increased 6% from a fourth quarter.
The moderation in revenue growth from the prior two quarters in fact, the two main drivers that are unique to Q4.
First a late season snow storms impacted our northeastern fulfillment centers, which forced us to move up a cut off date for dare to Christmas delivery cost and that's a final weekend a holiday selling.
Second we had significant product shortages in late November and December.
These shortages were driven by a vendor challenges keeping up with rising demand compounded by a chip shortages factory delays scarcity, a shipping containers in Asia and significant backlog at the West Coast ports.
As a business that focuses on key items featured for the day, rather than broad always on Assortments last minute shortages in these key items can be highly disruptive.
While these shortages a pulse across many categories with other greatest pressure on electronics, which normally represents over 20% of our sales in Q4 about double the normal mix.
As a result, we were unable to meet demand for smart home items tablets and audio calls.
Additionally, in certain sub categories, such as gaming devices that were particularly strong on the market.
Thank you I don't have a meaningful presence given a unattractive margin profile.
So a bank, but it's typically a lower lifetime value that our target demographic.
Well, we're not quite a challenge has significantly impacted our revenue growth. It was not a meaningful impact on OIBDA growth. It is a lower margins our class.
Looking ahead, we do not believe the impact of product shortages through 'twenty and 'twenty, one will be nearly as significant as a war in Q4.
Expect a global supply chain will begin to stabilize on them.
We're taking a stronger action to increase our oversight of inbound product flow from other vendors.
Additionally, but much smaller on the civil of products on the first three quarters of a year significantly reduces our exposure.
We drove strong growth in new customers, a true ups H, a 14% in a quarter, especially impressive in light of a consumer electronics declined as a category things on a larger share of the customers' most holiday seasons, excluding electronics, new customer growth was 36%, but other.
60% of new customers in the quarter came in organically either go directly to a websites or a customer service agents will find enough organic search for organic social.
For the remainder acquired disciplined investment in performance marketing.
These results highlight the combined power of a TV reach a brand and reputation of our social presence and word of mouth.
A probably effective digital marketing programs.
And we remain highly encouraged by both the quantity you have a quality of new customers we're attracting.
Looking back at the past much acquired in the second line third quarter's.
26% a way to at least a second purchase within 90 days, a Jordan that's slightly above last year's rate.
As a percentage of these new customers, who have a 'twenty item purchase threshold to be considered a best customer and just there for 90 days is similar to prior years.
So in addition to a record number of new customers in 2020.
We added more new customers, who have already become best customers.
On a year in our company's history.
We backed our strategic priorities focused on driving sustainable long term growth on a global video commerce business.
As a reminder, our strategic efforts for both to other states and QVC International a focus around five teams.
Share it in special products at compelling values.
Pending a video reach and relevance.
Imagine a daily digital discovery.
Expanding and engaging a passionate community.
On delivering joyful customer service.
I'll briefly comment on a few of these priorities.
As part of a focus on expanding and engaging a passionate community. We continue to investing in enhanced customer acquisition development and personalization initiatives.
Both increase our overall addressable customer base, a retain an enhanced a spend of existing customers.
Our efforts included successfully tested a new advertising programs, such as Youtube and quick talk to reach new audiences building on our success with personalized content and an email communications to increase customer engagement and it's been.
On expanding personalization on the website, it's a great calls to action based on shopper browsing behavior.
We continue to expand a video reach and relevance with the addition of new streaming platforms, including a L. J T V's shop, Com App and Pluto TV the leading.
Green cuisine screaming surface a lot.
Last month, QVC debuted a Youtube TV, which is more than a 3 million subscribers.
This is the only livestream shopping channel on Youtube, TV, which is available across smart Tvs screening media player smartphone apps tablets computers game consoles and smart displays.
We continue to see strong growth of our own scrutiny to app, which integrates a extensive live on demand and original content from QVC and HSN.
Downloads of the App on Roku or up 63% on a 'twenty with average monthly ignores a 47% and day.
Yeah on loads on Amazon fire TV, we're up over 200, a 40%.
New was up 75% since the start a 'twenty 'twenty.
Even as we see growing and of course that a livestream shopping offerings. We also continue to benefit from high engagement with our traditional linear TV offerings with a number of homes tuning into acute safety net work per day, a 14% year over year a Q4.
The reach and relevance of our networks and platforms and sophisticated a development sourcing marketing fulfillment and customer service support makes us a highly attractive partner for <unk>.
Toward a new grants a life as we make strides on our strategic priorities Detroit special products at compelling values.
A big find program, which in 'twenty and 'twenty, one virtual helps us find new grants from up and coming up with a compelling story.
No our customers will love.
From 'twenty 400 entries from 16 different countries 92, exciting new brands across apparel accessories, and jewelry beauty home culinary and electronics was selected for a launch.
And two thirds of the brands the owners identify this woman or a minority owner.
During the fourth quarter and full year were also at a very premium brand partners. For example, QVC U S expanded its closer relationship with Este Lauder.
Food Mac Clinique and too faced in addition to the namesake brand.
Based on this success, we also began offering a state lottery in the U K from the fourth quarter.
We also launched a new exclusive of a timely collaborations with leading designers and entrepreneurs such as Jason wound size of police a fashion line.
When we create a engaging a new types of content such as our original series Curtis Stone travel Cook repeat.
Which contributed to a 33% sales growth for the could've stope for brand this quarter.
Looking forward, we're leveraging our new merchandising organization.
100 resources on structure, we put in a product discovery and business development.
To go after a high growth or emerging products and categories that we believe will be highly relevant for the consumer this year.
And how long these include new proprietary and exclusive cookware and home decor brands as we build out a global design development and sourcing services increased differentiation in these hot trending categories for.
For the enthusiast increased focus on sporting goods crafts pools, and spas and games for the Cook specialty kitchen electrics from bread makers on ice cream makers, a vacuum sealers task, a maker and white sellers, a lot with plant based food and wine products.
Stay healthy connected fitness equipment and wellness, a hygiene products for mattresses with flowers blockers, because usually sanitizing products cleaning and disinfecting air purification face coverings.
From a fashion side, we're focused on expanded assortments and comfort at homeware, athleisure and outdoor apparel and we're a Washington go footwear.
And what's happened in a multiple growing beauty segments, including a multi cultural beauty and the last piece and so on beauty.
Turning now to QVC International the team delivered exceptional performance in a quarter with double digit revenue and OIBDA growth, including revenue and OIBDA growth in every market and across most categories and strong new customer acquisition up nearly 30%.
The broad trends on our international business really goes in the U S with particular strength of a home categories and among new customers.
For a product shortages were not really a significant.
Most markets didn't place the same inbound supply constraints that we saw at the West coast ports.
Additionally, our international markets, we're making a much smaller purchase orders and therefore have more flexibility to meet their needs.
I would also note that electronics represents only 5% a international mix in the fourth quarter.
We continue to see the benefit.
Strong local teams in each market for <unk>.
Highly tuned a country and regional needs.
Coupled with a test and learn mentality as our teams a lean into a global video commerce strategic priorities with a particular focus on enhancing daily digital discovery, including developing a new live streaming app built around user generated content is now in beta phase.
Deploying drop ship capabilities to expand digital only assortments on expanding digital marketing.
Our international team is also taking a lead on building and deploying new machine learning capabilities to optimize pricing and maximizing airtime productivity. Among many other applications keeping all of these we expect a rollout globally as they are developed.
So a really is gaining momentum on a scrape crushed spine strategy, introducing premier brands, London fog honest company, mango and tailor them to a boots Hugo boss bans and Macy's.
For 200, new long sales vendors launched in 2020, largely from China direct program.
The team is also making good day diversifying its marketing program for them.
A new Influencer based affiliate network and strengthening its outbound marketing.
Given this progress we chose a ramped up our marketing spend in a quarter with an outstanding 74 per cent and new customer growth, absolutely and providing a strong foundation to continue growing into 2021.
Cornerstone had another outstanding quarter with record revenue and adjusted OIBDA.
On a sitting from a surge in home spending and we are excited about the long term prospects for this business.
A cornerstone had strong growth in home office storage outdoor living at home decor.
A hold with a focus on building a highly differentiated proprietary assortments.
We saw continued strong margin expansion with between pulled back significantly on promotional activity.
Along with improved marketing efficiency.
I'd like to close them for a few thoughts on 2021.
We're confident that all of our hard work positions us well successfully navigate this fluid environment.
Given the pace a vaccine availability.
That will be opening up offices before September at our highest.
It's a priority remains the safety of our team members both as a walking on site for those.
Working remotely.
I am excited for the year ahead of us despite the uncertain backdrop.
The macro trends were seeing perfectly aligned with our capabilities and our strategic priorities.
Increasing increasing focus on livestream shopping from Amazon like a tick tock demonstrates that our business has never been more relevant than it is today.
But for the key to success is not the latest technology as a flash as a influencers.
It's building lasting relationships customer by customer.
Fundamentals a great shopping have not changed it's still about the power of human connection and the joy of discovery.
Wandering into your favorite shops.
On today's world your favorite virtual shop.
Have a interesting conversations learning the stories behind the products and getting a inspired.
As the pioneers in both widescreen shopping and leverage a influencers. He has the experience expertise and global infrastructure to be the partner of choice for <unk>.
Tablets for a new brands, a light seeking to reach customers at scale and in a engaging way.
And we have the financial strength to support our continuing investment in innovation growth.
And how we reach customers with personalized messages and how we engage with them on new platforms and new technologies.
I am confident we will emerge from a pandemic stronger.
Well positioned for sustainable long term growth.
And with that I'll turn the call over to Jeff.
Thank you, Mike and good morning to everyone.
Mike mentioned, we delivered strong revenue and OIBDA growth a curated retail in both Q4 and a full year. So let's get started with culex age.
Revenue grew through continued momentum in home category.
Expansion of our customer base and reduce customer returns.
E Commerce revenue grew 6% and penetration improved 270 basis points in a quarter.
For the quarter turtle customers grew 6%.
With new growing 18% reactivated a 13 kind of existing up 2%.
While we only have access to comparable Hs and customer data going back five years. We believe this is the largest new customer class and a history of both QVC U S and HSN.
As illustrated on slide eight of our earnings presentation. We continued to have a sizable shift in category mix into a home and away from primarily for electronics and apparel.
Revenue in home increased 17%.
As consumers maintained their focus on family and wellbeing with strong demand for fitness and wellness products.
Food and kitchen electrics.
Home decor, and furnishings and household home environment and cleaning products.
Consumer electronics declined 17% primarily from the supply chain pressures that Mike has mentioned.
Yet we were able to satisfy customer demand and several higher price sub categories, such as home office and computers and delivered increased overall product margins.
With respect to a fashion categories.
Accessories grew 6% on a strength of loungewear on and.
And non leather handbags.
Judy declined 10%, reflecting lower demand for a color cosmetics and a pandemic.
In apparel and jewelry remained challenged in line with general market conditions, but we did see pockets of strength in activewear and outerwear.
Adjusted OIBDA grew 10% and adjusted OIBDA margin expanded for 130 basis points.
Gross margin and <unk>.
200 basis points, which was led by 360 basis point expansion in product margin.
Approximately 50% of this expansion, we split between or equally between a strategic sourcing initiatives and.
And promotional pullback.
Another 20% from reduced customer returns and 15% from pricing to partially offset for each surcharges and rate increases.
Given the impact of strategic sourcing work I wanted to provide some additional background.
Recall, we initiated this work in 2019 as part of our overall synergy commitments for.
Bringing QVC and HSN merchandise groups together, we were able to work with our vendors across both brands on a broad.
On a broad program to reduce end to end supply chain costs optimize assortments around vendors offering the greatest sales and margin productivity and create new arrangements.
Such as marketing funds to grow the brands.
We started to work and just two categories and expanded across all categories through 2020.
We will begin to anniversary the benefit for this work towards the middle of 2021.
Finally fulfillment costs increased 150 basis points, primarily due to ongoing productivity challenges and a fulfillment centers for material for Covid protocols freight surcharges and rate increases, which were partially offset by improved pack factor.
Operating expense was.
10 basis points unfavorable primarily due to higher customer service from longer average call times associated with executing our upsell initiatives and addressing shipping status questions, partially offset from favorable conditions.
SG&A.
With a 60 basis points unfavorable.
Comprised primarily of a 180 basis points, which was split equally across marketing and administrative costs.
Marketing reflects our continued investment to acquire retain and engage customers.
A total marketing spend while rising will still only 2% for Q X H net revenue and.
In 2020.
We expect to increase the spend on average 50 basis points annually, if we see attractive opportunities to further grow had attractive return a returns.
Administrative costs are primarily due to a higher incentive compensation accruals.
The marketing and.
This marketing and.
On a straight of expense pressures were.
A partially offset by a 125 basis points, a favorable bad debt expense.
With parcel, a and which was a pop.
Primarily reflects lower customer default rates.
And fewer offered for installment payment associated with a pullback in promotional activities.
In closing Q X H, we remain on track to deliver a 370 to 400 million cumulative HSN synergy.
Through 2022.
And we are over 70% complete as of year end.
Moving to QVC International which continues to generate a very strong.
Across nearly all categories.
<unk> with strong new customer gains.
And increased e-commerce revenue and penetration.
My comments will focus on constant currency results.
Revenue grew 10% with strong growth across all markets led by Japan, Germany and the UK.
Total customers grew 10% in a quarter with new up 28% reactivated on three and existing a paid.
<unk> 40 year QVC International attracted $1 2 million new customers a record member for in a year in the last 10.
E Commerce grew 23% and e-commerce penetration increased 500 basis points.
The business generated broad based gains in nearly every category led by home and beauty.
And adjusted OIBDA increased 16%.
Adjusted OIBDA margin, expanding 90 basis points.
One more detail.
So from a gross margin basis, it improved a 120 basis points, primarily due to a higher product margins, which reflects a reduced customer returns strategic sourcing initiatives.
We also benefited from favorable fulfillment expenses, driven by sales leverage and a higher average selling price.
These gains were partially offset a higher inventory obsolescence, primarily due to outlet store closures and proactive inventory management.
Operating expenses were favorable by approximately 50 basis points, primarily due to lower commissions, reflecting higher e-commerce penetration.
Sales leverage on fixed rate contracts and renegotiated carriage contracts.
SG&A was unfavorable primarily due to incentive compensation and marketing investment to acquire retain and once again engage customers, partially offset by lower administrative expenses and sales leverage.
Moving to do really well.
Revenue grew 11% driven by outstanding games, and home and hard lines as well a strong customer growth.
Total customers grew 11% and new customers grew 74%.
Adjusted OIBDA declined $7 million and adjusted for the margin.
A decline of 170 basis points, primarily due to higher freight costs from international product mix seasonal wages are a fulfillment centers as well as incentive compensation accruals and marketing expenses.
These pressures were partially offset by improved product margins and leverage kind of administrative expenses.
Moving to a cornerstone once again delivering outstanding results and record revenue and adjusted pointed out.
Revenue grew 30% driven by sustained momentum in a home brands on the strength of <unk>.
Core home decor outdoor categories.
Brian Hill returned to growth on the strength of home textiles, and its cashmere products.
Adjusted OIBDA increased $28 million, primarily due to a product margin gains in a home brands and reduce promotions as well as leverage other administrative and marketing expenses. These gains were partially offset by higher freight rates and surcharges.
Let's quickly review the balance sheet and cash flow.
Capex was $92 million from Q4 and $257 million for a full year, which is a reduction from our initial 2020 indications.
For 2021, we anticipate capex to range from 265 million to $300 million.
PT distribution payments were $56 million from 2020, reflecting an off year of a two year cycle for a multiyear contract renewals, while we do not provide forward guidance.
A fiscal 'twenty, one will be higher than 2020.
On average our amortization of TV distribution payments average $130 million annually.
As Mike said, we generated nearly $2 billion a free cash flow in 2020 with outsized growth was driven primarily by improved cash flow from operations.
Capital benefited from the extension of vendor payment terms pulled back a customer installment payments reduced inventories and increased accruals for management incentive bonus and returns from.
You recall, we also received $267 million a pre tax proceeds from a sale of a green energy investments in 2020.
We expect to return for a more normalized level, a free cash flow conversion and a range of 45% to 55%.
Recall, we generate a substantial working capital improvements in the first half of 2020 from pulling back on offered installment payments, which reduced.
Accounts receivable.
And a strategic sourcing which increased accounts payable.
These items are now on a base you will not serve as a source of working capital this year.
Finally, the accruals for incentive and other bonus compensation will be paid in the first half of a year and these items will create more difficult compares for free cash flow on the first half of 2021.
Looking at our debt profile at the end of the year, we had nothing drawn under our revolver and $2 9 billion of capacity.
$806 million, a cash and cash equivalents and our leverage ratio as defined by a QVC revolving credit facility was two times.
In closing.
We have multiple paths to sustain a net revenue and organic growth.
We look forward to 2021, we believe the same digitally driven macro consumer trends will continue with elevated home demand supporting new and occasional customer growth and upside with best customers and B S behavior shift back to fashion.
Moving to margins are reinforced by rebalancing a category mix continued realization of our strategic into management incentives.
Initiatives.
And reduced commissions from increased e-commerce penetration and contract negotiations.
These positive drivers.
We partially offset will be partially offset by prevailing increases in freight and competitive labor rates has experienced across the industry and increased marketing to support customer acquisition retention and expanded product a audience development.
And now I'll turn the call over to Greg.
Thanks, Mike and Jeff.
In addition to a strong operating performance in 2020.
Germany had superior capital returns a year as well.
We paid out nearly $1 3 billion.
Two special cash dividends.
We also had a $1 $3 billion dividend of 8% preferred stock.
Trading at par now pretty very nicely.
We resumed our buyback in late November the stock didn't move meaningfully higher.
It reaches a buyback in a material move on the stock ranch for a greater impact of a repurchase volume.
Sometimes called it a high class problem on your stock comes back quickly.
Finally, we also repurchased nearly 50 million a our MSI bonds for a liability and tax management.
In 2021, we anticipate using.
The above tools.
All of them potentially too.
Employ a substantial portion of the free cash flow debt Joey will generate to our shareholders.
And with that we appreciate your continued interest feature a retail and hope you all stay safe and healthy and with that operator I'd also like to open up for Florida questions. Thank you.
Well thank you.
Would like to signal with questions. Please press star one on your Touchtone telephone if you're joining us today using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
And that will be star one if you would like to sitting on with questions.
Star one.
And our first question will come from Ed <unk> with Keybanc capital markets.
Hey, good morning, guys. Thanks for taking the question.
I guess first obviously would be you know looking back a 'twenty 'twenty would be I think net new customers you were able to bring in a default how are they a behaving kind of out of the gate and I would guess that they're probably buying getting a category as a navy your cohorts from previous years in and kind of how can you continue to encourage them to come back and become a habituated users.
And as a follow on.
I know you had a lot a favorability in 'twenty from a returns perspective, you're able to have a do you just came out of easy pay and I know you don't guide in 'twenty, one, but should we assume that where do you see some normalization of those trend. Thank you.
Thank you Yeah. This is Mike I'll take the first part of a question and maybe Jeff you can comment on the question around a P.
Payables.
We continue just to be very encouraged by the new customer performance as I've mentioned on the script growth in the quantity and quality that they're coming in for things that they are coming along every single category.
And and and there kind of a exhibiting very similar behavior to prior classes. So what they're buying is aligned with what everyone is buying so it's certainly a more of a shift towards home, but we've been on especially encouraged by the fact that we're actually seeing its got a new name growth even in a down trending categories of a.
Hello, and beauty, so there they're coming in on every category.
As I mentioned about a quarter of them are getting to a second purchase within 90 days and I mentioned that metric because it's sort of that one metric that has really stood the test a time is that you know it's.
It's a repeat purchase within 90 days, there's probably going to stick with you and and so we watch that metric carefully that metric is at or above our prior year performance of a lifestyle there re engaging.
With us and <unk>, even seen a a small price of these new customers get to this 20 purchase threshold, which is debt plus what we talk about when you hit that threshold you are absolutely amazing customer for life.
So on all of those dimensions, there, they're sticking with us and that's why we don't want to take it for granted and so we are leaning into a a lot of marketing programs I would say a couple a big categories. We're looking at how do we target new customers, a I mentioned a new Youtube.
Same thing for example, so well well we target that new customer once you go on Youtube and presents a real.
Really compelling video experience to her that's a very much fits with a brand and kind of reminds her a why should a that first purchase at a QVC or HSN equivalents, a successful within those kinds of programs and on this.
A lot of a personalized outbound marketing both email and physical mail because we're finding as others are the physical mail looked a little disruptive right now and people enjoy seeing a great culinary catalog as an example, that's a will get folks back went through a really cool culinary experience cause catalog. So really pleased with what we are.
We're seeing a.
And Chuck you want to take the second part.
Sure.
You know Ed.
Part of your question was around the.
On the promotional activities.
We have a unique opportunity hasn't done a a pandemic maybe a once in a lifetime opportunity to kind of a reset some of the.
Promotions that we were doing with respect to installment accounts, just being one element of it.
It's really important to note is that that's really just one portion of our overall strategic actions that were taken from a promotional a element you know as we move forward as we see customers.
Continue to possibly rotating back into other categories will continue to evaluate how we pulse those.
From a payments in order to continue driving a demand overall.
As you may recall that.
We really started this promotional pull back a few will in the second quarter.
A 2020, so as we kind a go through first quarter and going into a second we'll start to anniversary some of those items, but the one thing I'd want to leave you with is that.
A lot of these activities that we were taking was our opportunity to try and protect as much margin as we could.
Given the shift from fashion and beauty into into a home.
As we start to see hopefully that rotation back into some of our fashion and beauty categories will have an opportunity to take a look at our overall margin.
Margin mix and how we will continue to maintain and grow that's a promotional activities may get a little more aggressively and there may be a less but on them.
Real decision is around trying to be very disciplined on our actions going forward and then the last piece just to go on just one moment is around returns while returns have been favorable for us its really reflective of a categories and what she's currently buying which has a lower return range.
But also a if you think about this is they usually have a little lower margin a rate associated with it.
Getting back to my early portion, where I think about a rotation back into some of our fashion and beauty categories, which may have a higher return rate will also get higher margins associated with that business to offset that.
That's a return cost.
Thank you.
Thank you. Our next question will come from Oliver Winter mental with Evercore ISI.
Hi, good morning, guys.
My question is more regarding cubic's age and a.
On debt with with a strong decline.
A CE was down about 17%.
That must have been a very big help from a mix shift perspective for margins.
On the shift to home.
Probably a.
In addition to that so maybe if you could maybe give us some quantitative or qualitative.
For information about what the mix shift due to margins how much did that help.
Mike do you want me just yeah checked on take that sure.
Sure.
So you know.
Interesting enough as a result of the dike.
A decline in electronics in the fourth quarter for us and giving a overall penetration.
Customer mix was actually probably one of a lots of favorable items, but in our kind of waterfalls, we think about what was supporting product margins.
Customer mix on us.
As a result would have been maybe the last item. So you know in our presentation, we outlined that a strategic sourcing promotional pull back returns and pricing where some of a major drivers of a product a margin increase.
Category mix would've been a you know a.
Far distant for that but if it was a modestly favorable for us.
Just a and I'll leave it.
I was going to take a part of it was a better you.
You don't see a bigger benefit as because it was offset by softness in fashion and beauty. So category mix. It suggests that turns out to be a relatively minor driver of the margin expansion.
Got it got it thank you and interest.
Two quick follow ups on on the other balance sheet.
And a cash flow so you mentioned cash.
Capex I think we came in at one eight per cent a sales I think there was below what you guys were.
Talking about at your last analyst day.
You said, it's going to go up it looks like it's two two per one percentage of sales next year.
Is it what is this for like what are you what are you spending on there.
Is it.
Fulfillment centers.
Distribution capacity.
On some more color there and then I saw inventories without a.
Sales up six or seven.
With that.
A.
What is the.
Inventory level going into the spring selling season. Thank you.
Yeah.
Since a Oliver I can't necessarily a.
Opine on.
From a standpoint a.
On a net revenue.
That would be giving guidance for 2021, but as it relates to the absolute dollar of spend that we're anticipating we continue to continuing to invest in our technology platforms.
Still have a.
A little more work to be done while it's much less than in prior years in a network optimization.
But it's really around continuing to expand capabilities in order to drive on.
Our strategies, but it's primarily in technology for the.
The vast majority of the spend is.
Then followed up by sort of our supply chain and fulfillment centers.
And then as it relates to inventory.
Coming out of.
2020, our inventories were down.
That is a result on some of the supply chain challenges that we've had.
We continue to really be disciplined around how we're.
Growing our inventories and really focused on.
For our supplier base and how we support our sales growth.
You would expect to see.
Our inventories start to replenish.
As we go through the.
First half a year.
Because we get away from hopefully some of these supply chain challenges.
Alright, Thank you very much a good luck.
Thank you. Our next question will come from Eric Sheridan with UBS.
Yeah.
Thanks, so much for taking the question I'll just ask one on international that came and shrunk a bit weird for.
Cascade.
You have a interesting, but a way of countries get a in sort of various states for a recovery or is it still in the midst as the pandemic any sense, a consumer behavior, a crusher ways international assets. What do you think that might tell you about how the business by that put a dish. We go through 'twenty wanted it for 22 appreciate the color from scratch.
Yeah, Thanks, a J.
Moving to slide with a broad base strength of international and every market is performing well in most categories that a strong home as the strongest advertising on the U S price.
Especially in Germany and Japan.
We haven't seen a same level of pressure on them in a fashion and beauty and jewelry categories, how is that better.
U K I would say a little more mirrors, what you see in the U S. In terms of consumer behavior in a category. She was selected.
So it's a little hard to draw a lot of conclusions about what that means for the future, but we're certainly focused on making sure. We're staying close a quite a feat for the markets to try to see you need really a ROIC.
Indicators of Bob.
A change you know clearly that a lockdowns in a year.
Europe or stronger more recently than in the U S. So that may have provided some additional benefits for the businesses.
In Europe, getting a brick and mortar environment is a little more constrained.
But I think a a lane we've just seen.
So instead of a more resilient consumer engaging across a broader array of categories.
Got exactly says about the future a little hard to say.
On the breadth and strength as a business international it gives us confidence.
That way, we can sustain a pretty healthy trends debt over the long term.
Thanks, so much.
Thank you.
And moving on to our next question will be Jason Bazinet with Citi.
I just had a two questions on on the on a gross dichotomy between international and domestic on it.
Constant currency basis was there any other driver other than to the electronics issue that you called out that probably.
Hurt us more than international and then my second question is.
I think there was a benefit for you guys when the corporate tax rate dropped from the exchangeable debentures.
Sort of remind us how that works.
It's a good guy he is the Congress also true for just a tax rates go up it becomes a slight negative in terms of what you have to pay back on those mature relative to them.
Lower value of a shield.
Lower federal tax rate, you're kind of stuff.
A few years think I'll, let you like I'll, let you talk about the.
Impact on a U S and then I'm happy to take on a deal.
Right now so for you.
Thanks, Jason on other growth driver a differential U S. A international so you're like consumer electronics was a.
The biggest single component by far of the of the Delta. The other difference is the fact that in Germany and Japan.
Haven't seen a similar pressure in a fashion a beauty.
Did you enjoy business day, so those businesses are.
That's gone away as home.
A growing so home pretty consistent globally.
From beauty and jewelry challenged in the U S. A U K, a and to some extent in Italy, and holding up better in Germany, and Japan. So it doesn't leave a too.
I think the big difference other than as a result of that they'll both customer bases, when you're seeing sort of a good performance across all elements of a customer base and Greg I'll have to take a second.
So Jason as you noted the way. These we issued a series of exchangeable debentures, which have a feature that we deduct interest.
At a rate the imputed rate rather than just a cash rate and that deductions for those deductions were taken and higher corporate income tax rates.
We were building for deferred tax liabilities, knowing we would have to pay it back when you do a corporate tax rate was reduced current.
Deferred tax liability was decreased.
And it's a cap corporate tax rate increases, we will have to revalue deferred tax liability and it will likely go up.
I'll make two points about that first is a.
I have not seen any projections debt. It will go up to the rate at which we deduct and I, we will still be net ahead.
Got it at higher rates than a corporate tax rate is likely to get to.
Two you may have noticed over the last several years, we have been managing some of that D. T. A L liability down by repurchasing some of the bonds that generated a D T L liability and in effect a bit like the MSI bonds and in effect had been reducing that liability already.
Makes perfect sense. Thank you.
Yeah.
And our next question will come from Carla Casella with JP Morgan.
Yeah.
Hi, I know she's been keeping your leverage nice and low at QVC at about two times is that within your target range and how high would you be comfortable taking that on either for the right transaction or for a further dividends for the parent.
So Greg you want to pick that out Jack do you want to do that are happy too.
Okay. Our stated corporate leverage targeted for Q level is two and a half times.
Or we are obviously below that probably around a two times.
And so that does create some opportunity.
Yeah.
We had a high quality problem enormous cash generation in 2020 that helps even with our a one time cash dividends and our share repurchases helped drive leverage down. So we do have some flexibility and we'll monitor what we can do with that flexibility in the coming quarters and years.
Okay, and if I could just ask one follow up on the on it answered some questions about payables.
Have you extended terms so with some of the table increased permanent versus temporary or would you call. It all of a temporary and all going to reverse in the first half a 21.
So all of the.
Accenture a payables is one component once again is on how we were strategically working with our vendors we thought that was all permanent.
And those negotiations and how we put that into place happened over the course of 2020.
So you'll start to see a reverse of that really starting in the second quarter through the end of the year.
And just to be a put a fine point on it so both that and the and a reduction in on installment payments, which have benefited a accounts receivable.
As a met to be a long term program. So it's not that they reverse it's just that you don't keep copying them.
Debt at the end of a base.
And then and then and then you have to sort of a normal side working capital trends off of that newly established base.
Okay perfect. Thank you.
Operator, we're ready for the next question.
Thank you our final question will come from Sean interesting with D. A Davidson.
Hi, guys. Thank you for a very much for taking my question. A just wanted to know if you guys could provide a little bit more color on just a new customer cohort that you guys are seeing a.
Just in terms of any new demographic call outs, and then also or are they being acquired at a.
Kind of a lower customer acquisition costs from historically normal thank you.
Yeah. Thanks for the question at all.
Focus my comments on.
Until it takes customers just because it's the most valuable customers and there's so many different stories across all of a different businesses. We have so on.
This focus on that.
Broad scrubbed demographics on the new customers look.
Literally identical at a clip.
For prior years, and a new customers tend to be six to seven years on average a younger.
Except for the customers on average kind of as you.
We would expect that.
It isn't changing so I always.
The fact that a business it tends to be very stable around age cohorts and kind of a life stage both for existing customers a new assets remain true from a pandemic on its remain true as it.
Save a lots of new customers coming in for screening services or other forms of digital platforms. The overall profile of those customers, even though they're coming in on a different platforms is a very light.
Empower your clock isn't a.
It's one of the reasons that just gives us confidence along with the other more quantitative metrics that these customers a well behaved in a similar vein the past here classes because on both Democrat.
Demographic element and on behavioral elements.
Is there a remarkably similar there's just there's just more of a M.
No.
That's the way I would think about cost of acquisition as you know when you think about the 60% on new customers that come in organically.
Actively zero marginal cost for bringing in that 60% and sales.
We're bringing in a lot of them.
Zero marginal cost without a doubt.
On a positive story that 40%, where we use paid marketing to bring them in and that would take paid marketing is a.
You know about stable.
Per a lack of a fishing in Q4, just because we grew it at a pretty rapid rate and we're still on a like positive, but obviously when you grow faster you kind a get a little bit a lack sufficient.
But if you wait all of that out combined with organic on the page I think it's safe to say that core book.
A.
Acquisition costs.
Non down not just based on the volume of new customers that we're bringing in.
And I think that was our last question. So thanks for all of you for your.
A crime and continued interest and support and hope all of you a stay safe and well as we go through what we're hoping for the final stage of this pandemic. Thanks, everyone.
Thank you that does conclude today's conference. We do thank you for your participation and have an excellent day.
Yeah.