Q2 2021 Qurate Retail Inc Earnings Call

August 6, 2021

[music].

Yeah.

Ladies and gentlemen, thank you for standing by welcome to the jewelry retail Inc..2021, Q2 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 press star 1 on your telephone.

As a reminder, this conference is being recorded August 6.

Now I'd like to turn the conference over to Courtney Chun Chief portfolio Officer. Please go ahead.

Thank you before we begin we'd like to remind everyone that 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 our most recent form 10-K on 10-Q filed by our company and QVC with the SEC.

These forward looking statements speak only as of the date of this call and current retail expressly disclaims any obligation or undertaking this on.

Any updates or revisions to any forward looking statements contained herein to reflect any change in here a retail expectations with regard thereto or any change in events conditions or circumstances on which any such statement is based on today's call. We will discuss certain non-GAAP financial measures, including adjusted OIBDA adjusted OIBDA margin free cash flow and constant currency.

Information regarding the comparable GAAP metrics, along with required definitions and reconciliations income.

<unk> preliminary note and schedules 1 through 3 can be found in the earnings press release issued today on our earnings presentation, which are available on our website today speaking on the earnings call. We a keurig retail CEO, Mike George <unk> retail group CFO, Jeff Davis Terry.

Retail executive Chairman, Greg Maffei, and we'd like to welcome Teri retail President and CEO elect a David Rawlinson now I'll hand, the call over to Mike George.

Thank you Courtney and good morning, everyone. Thank you for joining us today and for your interest ensure a retail and.

In the second quarter, we started to anniversary pandemic related growth. Therefore in our comments will include select 2 year performance metrics provide important context for a result.

We delivered year over year revenue and OIBDA growth on a constant currency basis a blue.

1 and 2% respectively on.

On top of last year's strong growth.

Prior to 2019 revenue increased 11% and OIBDA increased 12% in constant currency.

It's a quarter played out largely as we expected a culex age we saw a continued rebound of our best customers with a return to growth a apparel and accessories.

A new and reactivated customer count declined it remains significantly elevated compared to 2019.

Similarly home decline given the steep comps in food personal protection and cleaning products from the initial stages of the pandemic.

But it is up high teens from 2019.

QVC International maintained strong revenue and OIBDA growth sustaining the momentum from last year.

So really revenue declined as we comp the steepest part of the pandemic curve, but we delivered a healthy revenue and OIBDA growth compared with 2019.

And cornerstone delivered outstanding performance with record Q2 revenue and OIBDA at all of its businesses.

While these results were largely expected we did not anticipate the degree a product shortages, we experienced or the level of inflationary pressures across the P&L, which other retailers are also facing.

The fact that we delivered year over year growth and OIBDA margin expansion, even with these challenges is a testament to the strength of our business model.

The strong second quarter results further confirm our belief that we are a much better business now than when we entered the pandemic.

With an expanded and loyal customer base strength across multiple product categories and more extensive distribution and reach of our digital and video content.

We're well positioned for growth poised to take advantage of a long term trends towards online shopping video streaming social media and all things for the home.

Before I discuss each of our businesses I am delighted to welcome David Rawlinson as my successor.

David joined US on August 1st as President and CEO elect and will assume the role of CEO on October 1.

David is the right leader to take this wonderful company forward and write our next chapter of growth.

He brings an impressive track record of success.

Recently was a 2 story brands Nielsen and Grainger.

He is a transformational leader with deep experience in global ecommerce and in digital and data driven businesses. He has played a pivotal role in helping prominent companies like Grainger embraced new customer segments and emerging digital business models, while protecting historic strength.

And he inherits an outstanding management team with deep retail digital and broadcast expertise and I can't wait to see what they will accomplish together as they lead curate and our next phase a digital growth and transformation.

Yeah.

Thank you, Mike I could not be more excited to be joining curate retail at a special moment in its history shopping has been forever changed by the pandemic and curated brands have the international scale customer affinity and expertise in driving demand across multiple platforms to take advantage of this new <unk>.

World I believe that providing a deep personal enriched shopping experience is only gaining importance on a commoditizing a more digital world. We have the opportunity to take an energized team and building on our decades of expertise and investment further accelerated our transition as a leading entertainer and retailer 1 next year.

It's a truly unique products and creates engaging experiences for a growing audience that desire is that we are well positioned to drive value for our customers shareholders vendor partners and team members I'm honored to be leading this talent to cure a team and I look forward to meeting many of you in the months to come.

Finally, I do want to thank Mike for his many years, a very capable leadership of this company I'm fortunate to inherit a strong foundation and I look forward to working very closely with him for the next 2 months as we transition.

Now I will turn it back to you Mike.

Thank you David we are absolutely thrilled to have you on the team.

Turning now to Q X H revenue declined 1% year over year and grew 6% over 2019, OIBDA grew 1% from last year and declined 1% from 2019, and Jeff will provide more details on the specific drivers.

Our results further reinforce our confidence in the long term growth prospects of <unk>.

I would highlight 5 important takeaways from the quarter.

First customer purchase frequency was outstanding.

With a total unit volume up 4.5% and units per customer up 15%.

Offset by a 6% decline in average selling price.

These results reflect high engagement from our best customers and double digit growth in apparel and accessories.

<unk> offset by declines in higher price point on electronics beauty and certain home products.

Second we held on to much of the gains in new customers from the peak of the pandemic.

New customers declined versus 2020, but grew 17% from 2019.

And we have reported in prior calls that the early indicators of these customers expected lifetime value. We're encouraging now with a full year a experienced behind US. We're thrilled to report that their 12 month retention rates are up slightly compared to the prior year.

Third sales of items featured on air we're up significantly indicating high engagement across the customer base with a full video experience.

This is also reflected in sustained growth in traditional TV viewership with total minutes viewed up 6% on top of good growth last year.

And that's before factoring in the high viewership growth on digital video platforms, where we don't currently have the same measurement tools.

Fourth our business is more balanced across categories with a home segments now representing a larger portion of the mix than they have for many years prior to the pandemic.

At the same time apparel and accessories recovered all of the sales erosion from the start of a pandemic and are up compared to 2019.

Further underlying consumer demand across both home and fashion was even stronger than what we captured due to product shortages.

And finally, we were able to expand OIBDA margins, despite inflationary pressures underscoring the strength and stability of our financial model and the agility of our team.

Looking now on some of the category drivers and apparel the team set a strategy to focus on expanding our top 5 brands at QVC and HSN to lifestyle extensions, such as denim <unk> company Naturals and Bell Beach by Kim Gravelle, and this has worked particularly well with our best customers.

While a beauty declined from last year, as we reallocated airtime and TSV slots from beauty to apparel and accessories. We were encouraged to see color cosmetics begin to rebound in the quarter and were positive about the longer term outlook for beauty as we reinvest back into the category.

We're particularly excited about our efforts in multicultural and in Masstige beauty to white space areas with significant upside encouraging initial results and broader positive social impact.

In home, we were pleased to largely hold onto our gains from the stay at home tailwind with the category up 18% versus 2019.

This was led by home decor, where demand sales grew 8% year over year and more than 25% from 2019 and culinary down versus last year, but up over 30% from 2019 on the strength of our largely proprietary gourmet food business.

We also began our Christmas in July event in late June with strong initial results underscoring the pent up demand and consumer excitement about celebrating holidays this year with family and friends.

And highlighting our ability to create consumer interest through relevant programming engaging experiences and curated gifting ideas.

Consumer electronics on the biggest decline in the quarter following outstanding growth last Q2.

We experienced continued supply chain challenges and difficult comparisons to the early stages of the pandemic when demand was highest for work from home products and virtual schooling needs.

Let me now give you a little more flavor on the supply pressures, we're experiencing across multiple categories first late deliveries.

A factory shutdowns in areas like India, and Vietnam that experienced a surge of Covid cases.

Coupled with a severe shortage of ocean containers from Asia and the continued backup at the West Coast ports are contributing to a substantial late deliveries. Despite our efforts to bring inventory in early.

As a business that focuses on a handful of items a day were uniquely impacted when key items arent available for their air date.

For example, nearly 30% a R. T S fees in the quarter were impacted by supply issues. Our teams are continuously adjusting our program in calendars in response.

A second product and offer shortages.

Hi industry demand for certain home and electronics products, coupled with chip shortages means that in many cases were either unable to get sufficient quantities of key items are unable to provide a compelling offer on a day.

Third apparel sellouts.

The high growth and record sell throughs were enjoying in apparel drained our spring and summer inventory as a result, we did see pressure on June apparel sales as we ran out of hot products, we're working diligently to get stocked with fresh fall merchandise by September.

We're also seeing record cost pressures, particularly in inbound and outbound freight.

And we're providing wage increases for our fulfillment center and customer service team members in many markets.

We took a modest price increase across categories at the start of Q3 to partially offset these pressures.

Moving on to QVC international, which sustained momentum and generated strong year over year revenue and OIBDA growth.

Revenue was up in every category and customer count while down against last year was up substantially compared to 2019.

We're enjoying the benefits in international a geographic diversification with a Japan and German businesses, particularly strong a lot.

Impact from cord cutting and businesses that are still at an earlier stage a market development and penetration. Additionally.

Additionally, while we are facing similar supply and cost pressures as in the U S. The impacts are not a significant.

On slide 10 of the presentation, we highlight our 5 strategic priorities for <unk> and QVC International.

Let me share a few key achievements, which speak to our focus on innovation.

As we've demonstrated for the past 35, plus years, we're committed to being there for our customers wherever whenever and however, they want to engage with us.

We achieved a major milestone in our effort to extend our video reach and relevance across next generation media platforms. In June we launched our streaming service on both Comcast cable and its broadband only services.

Comcast already carries our linear channels, but now with the rollout of the service consumers can access 6 QVC and HSN linear channels in 1 place as.

As well as a catalog a video on demand and original programming specifically designed for streaming.

A streaming app is our flagship.

Providing a highly immersive interactive and frictionless experience with the ability to make purchases directly through the app using a remote control a new capability, we are deploying across Comcast Roku, Apple TV Amazon fire.

And we also anticipate adding more distribution partners for our streaming service in the coming months.

As we strive to be a true destination for daily digital discovery, we launched a new social shopping app called a curio in the UK in May.

The new App allows users to share a video reviews discover new products and message 1 another in a supportive and collaborative environment.

We've built a sense of community for more than 30 years through our TV broadcast this new app transforms how that community comes to life on digital platforms.

While curios in the early stages initial engagement is highly encouraging it is a terrific example of our ability to leverage our smaller international markets as a test beds for innovation.

Our focus now is to build scale and then deploy across markets.

In Europe, we're also utilizing advanced analytics and machine learning to analyze a range of internal and external data sets to optimize pricing decisions. We're scaling these advanced analytic capabilities and building out additional uses to create more personalized customer experiences as part of our efforts to better engage a pass.

On a community.

Curating special products at compelling value is a central strategic priority and I want a share 2 examples of category expansion that highlight our curation capabilities.

Power of our platforms and our storytelling and production skill set.

Actress and businesswoman Candace Kamran per started with QVC in 2018 and beauty.

Followed by the launch a inspirational home products such as journals in the core.

And in April we introduced canisters, a new line of women's fashion and collaborations on our proprietary design and development team, it's exclusive to QVC and encompasses size inclusive staples, such as comfortable Ts colorful finals jeans dresses and loungewear.

Although the line was only introduced in April it was 1 of the top 10 apparel brands at QVC in the quarter, It's a remarkable achievement on it.

Believes brand holds significant growth potential.

Last November we launched a new fashion line with award winning global fashion designer Jason move it.

It performed well in Q2 ranking in a top 15 apparel brands at QVC and on the fall, we'll be extending adjacent product offerings in the culinary, including cookware and kitchen tools given his love of cooking. The new line is also developed by a proprietary design and development team and exclusive to QVC.

Moving on that as a Lilly revenue and OIBDA declined in 2020, but grew versus 2020, but grew 9% and 29% respectively from 2019 driven.

A driven in part by the continued expansion of our strong factory direct business featuring proprietary offerings extraordinary values.

In the quarters with Lilly was impacted by marketing pressures and supply constraints.

The new iOS privacy changes have created challenges for all marketers.

As low as high concentration of marketing spend with Facebook resulted in a meaningful increase in the cost of customer acquisition and a corresponding pressures on sales.

Slowly continues to make progress reducing its Facebook dependents with notable success in affiliate and Influencer marketing and it's working actively to both further diversify marketing channels and find more effective ways to market through Facebook.

Additionally, we faced challenges with top tier national brands have not been able to able to provide sufficient inventory for key events.

A largely a reflection of the conservative receipt plans many brands adopted in 2020 during the height of the pandemic at.

Net sales rebounded this year a number a key vendors had limited inventory to allocate this slowly and.

We lost many halo national brand events as a result.

We believe these challenges will moderate through the rest of the year.

And we remain confident in general as a long term growth potential as 1 of a 1 of a few scaled profitable E. Commerce pure plays targeting moms and focused on the off price segment.

A cornerstone the team once again delivered outstanding results with record Q2 revenue revenue and OIBDA at each of its core businesses.

This terrific performance.

<unk> to be driven by strength across home categories as well as a rebound in apparel at Garnet Hill, we remain very bullish about cornerstones long term prospects. It is well positioned to benefit from the home nesting trend supported by our strategies to expand proprietary assortments continue shifting from print catalogs to digital marketing.

And surgically expand our retail store network.

In summary, we are delighted with our Q2 results delivering growth on growth against a high bar 2020 comparisons and executing with agility and a face of macro supply and cost pressures.

We continue to make progress expanding our already extensive digital video ecosystem evolving a highly differentiated customer experiences and building on a strong base of loyal shoppers.

These are clear Differentiators, and we are delivering top and bottom line growth and strong cash flow.

In a great position to continue to win post pandemic and returned value to shareholders.

As I close.

I'd like to take a moment to thank our 25000 team members around the world.

It has been my great privilege. These past 16 years.

To work alongside such dedicated and passionate people.

Never more so.

Over the last year and a half.

They demonstrated remarkable dedication remarkable resilience remarkable agility and.

And serving our customers.

Despite all the obstacles presented by the pandemic.

While at the same time caring caring for their family their friends their teammates.

With that I'll turn the call over to Jeff to review our results in more detail.

Okay.

Thank you, Mike and good morning, everyone.

Retail delivered revenue and OIBDA growth on top of compelling 2020 results let.

Let me start with Cubic's age.

Revenue declined 1% versus last year, reflecting a decline in consumer electronics beauty and certain homes subcategories compared to a robust growth during initial stages of the pandemic.

This was partially offset by the continued rebound in apparel and accessories, driven by our best customers and strong demand from the court.

As Mike said, our customers purchased more units and spend more per customer than in 2020 day.

These gains were offset by lower asps, reflecting the product mix shift.

As largely expected e-commerce revenue, a $1.2 billion declined 2% with an 80 basis point decrease in penetration.

This erosion is primarily due to category and customer mix shifts.

Total customers declined 9% in a quarter versus 2020, with new customers down, 32% reactivated down 17 and existing down too.

But compared to 2019 customer accounts were up nicely across all cohorts with total customers up 4% new.

A new customers up 17% reactivated up 7% and existing up 1.

I'm pleased to report that Qvc's best customers, who make 20 or more purchases in a year performed well in the quarter the.

The increase their total spend 7% by purchasing 12% more units.

As illustrated on slide 7 of our earnings presentation, we experience a swing in category mix into apparel and accessories from primarily electronics beauty and home.

Revenue in apparel and accessories grew 19, and a 11% respectively.

Which more than offset declines experienced in 2020.

These gains were driven by our best customers top brands and were broad based across apparel subcategories with continued strength in loungewear and non leather handbags.

We also saw a nice rebound in luggage as.

Customers transition to more travel.

Beauty declined 10% from last year, reflecting a reduction in airtime and Tsv's, which was reallocated to apparel and accessories.

<unk> reflected softness in most major sub categories, partially offset by gains in skincare.

We look forward to rebuilding this category as consumers reengage outside the home.

From decreased 3% versus last year, reflecting expected lower customer demand for cleaning and personal protection related products that were in high demand during the initial stages on the pandemic.

This pressure was partially offset by continued gains in home decor for seasonal items furniture rugs, bedding Bath and gardening merchandize we.

We believe our home decor represents a longer term growth engine driven by continued robust home sales and the hybrid work from home trends.

Our home decor business is heavily proprietary with a large percentage of a product created through our own design and development team.

It also includes several key exclusive relationships, we saw nice gains from several of these brands, including home reflections Marigold, Valerie Parr Hill and ultimate innovations.

Consumer electronics declined 23%, reflecting lower customer demand for home office and school related products as well as supply chain constraints on a 2 year basis electronics was down 3%.

Adjusted OIBDA grew 1% and adjusted OIBDA margin improved 40 basis points.

Looking at the components of adjusted OIBDA margin.

Gross margin was favorable 30 basis points, primarily due to lower inventory obsolescence expense.

An improved product margins.

Inventory obsolescence reflected a favorable adjustment to provisions as well as increased clearance sales, including sales from a reopened outlet stores.

Product margin gains were largely due to the category mix shift and strategic sourcing initiatives.

These factors were partially offset by a fulfillment primarily due to the increased shipping volumes at a lower average selling price.

Higher freight rates and surcharges.

And elevated labor costs.

This was partially offset by reduced operating expense as we are now ramping down operating.

Operations in our decommissioned fulfillment centers before exiting by year end.

Operating expenses.

A 40 basis points on favorable primarily due to higher customer service costs, and TV commissions, reflecting strong sales from on air products.

SG&A was 40 basis points favorable.

Primarily from lower bad debt and administrative expenses bad debt reflects fewer offered installment payments and a lower mix of consumer electronics and new customers compared to 2020.

These tailwind, partially offset by higher marketing costs for customer retention and acquisition as well as a platform expansion.

We anticipate continued elevated investments in marketing to grow and engage our customer base, while continuously monitoring the return on the spend.

While more recently experiencing cost inflation in marketing channels. We are closely monitoring the current environment and will adjust accordingly.

I would note. We are also less impacted by increases in marketing costs than others due to our high percentage of organic customer acquisition.

As Mike said, we have taken price increases in early Q3 to partially offset the inflationary pressures, we're seeing in marketing freight and labor costs.

Moving to QVC international, which sustain multiple multi quarter track record of growth.

My comments will focus on a constant currency results.

Revenue grew 5% led by Japan, and Germany as expected total customers declined 4% in the quarter versus last year, with new down, 24% and reactivated down 16%.

Reflecting the outsides growth in Q2 of 2020.

These declines were partially offset by 2% growth on our existing customers.

Compared to 2019 total customers grew 5% with new up 14, reactivated up 5 and existing up 4%.

E Commerce revenue grew 4% and e-commerce penetration increased 10 basis points.

The business generated gains in every category led by apparel and home.

Adjusted OIBDA increased 16% and adjusted OIBDA margin expanded 175 basis points.

Gross margin improved 120 basis points due to higher product margins was primarily flex pricing management. We also benefited from favorable fulfillment expenses driven by higher average selling price and sales leverage.

Operating expenses were favorable by approximately 40 basis points, primarily due to commissions and customer service, reflecting higher e-commerce penetration sales leverage and renegotiated carriage contracts.

SG&A was favorable were favorable by approximately 15 basis points.

Primarily due to sales leverage and administrative expenses, partially offset by higher marketing costs.

And lastly, I would note that we have entered an agreement to sell our minority interest in our joint venture in China.

After internal evaluation of our business in a retail market in China, we determined that the venture was no longer a strategic fit for a portfolio of international operations. This joint venture is accounted for as an equity investment on our financial results.

Moving his duly.

Revenue declined 6%, reflecting a steep comparisons to last year as well as the marketing a supply constraint. Mike mentioned these headwinds were partially offset by continued growth in its factory direct business revenue grew 9% on a 2 year basis.

Total customers declined 17% in Q2 from last year.

Only down 4%.

From 2019, this reflects a sizable swing in new customers, which were down 18% year over year, but up 27% versus 2019.

Adjusted OIBDA decreased $36 million, primarily due to lower product margins higher marketing and fulfillment expenses, including freight rates and surcharges for a factory direct business as well as Comping last year's recognition of a $10 million reduction of our sales tax accrual that was originally.

We recorded at a time of the acquisition.

We believe the surcharges will normalize over time as international travel resumes.

Moving to cornerstone, which once again delivered outstanding results with a record second quarter revenue and adjusted OIBDA at each of its brands.

Revenue grew 18% driven by sustained momentum in home brands are free.

<unk> Gate Grandin road, and Ballard designs and on the strength of core home decor.

Interior furnishings and outdoor categories Garnet Hill also generated solid growth by its apparel and home textiles.

Adjusted OIBDA increased $31 million, primarily due to expanded product margins and leverage a administrative and marketing expenses. These gains were partially offset by higher freight and surcharges.

Turning to our balance sheet and cash flow cash.

Capex was $110 million for the first half a 2021.

During the same period, we spent a $170 million on renewals of our multiyear television distribution contracts, which is nearly all of our planned expenditures for this year.

Cash flow was $331 million in the first half of 2021.

Free cash flow reflects payments of elevated prior year.

Incentive bonuses in March and a multi year, a TV carriage contracts mentioned earlier.

This year, we expect to return to more normalized level of free cash flow conversion and a range of 45 to 55.

A 5% recall, we generate a substantial working capital improvements in the first half of 2020 by pulling back on offered installment payments, which reduced our accounts receivable and strategic sourcing which increased accounts payable. These.

These items are now in our base and we will not serve as a source of working capital this year.

Looking at our debt profile on June 30, we had $77 million drawn on our QVC Com, Inc, a revolver and $2.85 billion of capacity.

We had $950 million, a cash and cash equivalents and our leverage ratio as defined by our our QVC revolving credit facility was 1.9 times.

We returned capital to shareholders through share repurchases from May 1 through July 31, we repurchased 5.9 million shares for a total cost of $74 million and.

In August.

We increased our repurchase authorization.

$500 million.

And a total remaining authorization pro forma for the increased authorization as of August <unk> is approximately $780 million.

As previously stated we are committed to returning substantial portion of our free cash flow to shareholders on an annual basis.

In closing I'll reiterate that we view these results as highly encouraging of our long term growth prospects.

Now I'll turn the call over to Gregg for closing remarks.

Thanks, Jeff.

We are excited to announce that retail investor meeting will be held virtually.

On Friday November 19th.

We'll have a full morning, a content from various members of the cure a leadership team. Please save that date and look forward for additional details being provided soon.

Before turning to Q&A, we need a recognized by George.

This is his last earnings call as CEO.

And I'd like to personally thank Mike who has been on exceptional partners. Since we both start on a role nearly 16 years ago.

He has shepherded curated retail through numerous evolutions and successfully transformed our company from a single business on linear TV into a portfolio of attractive multi platform assets.

Strong leadership leaves this business on a sound footing and I will surely Miss are working together.

We look forward to welcoming David to the team as we drive to a retail into its next chapter of digital innovation.

Thank you Mike.

And thank you for that lift in the audience for your continued interest in <unk> retail.

I'd like to open the call for questions.

Operator.

Thank you. So if you would like to ask a question on today's call you may do so by pressing star 1 on your telephone keypad.

Also please ensure that your mute button is turned off to a without you a signal to reach our equipment from.

From a pause for a moment, where everyone a chance to queue.

Basically net take or first question from Edward <unk> of Keybanc.

Go ahead.

Hey, good morning, Mike Congratulations on the retirement on thanks for all the help over the years a 2 parter from me I guess first it seems like you have a couple a challenge as it relates to both advertising.

And viewership I guess any thoughts on how you can try to stimulate more of that front end over the medium term assuming that these may remain challenging for a period of time and then on David we'll wait to hear more commentary I guess as you've had more time in your seat, but what was the 1 or 2 things that was most compelling for you as an external advisor or an external candidate looking inward on a.

Long term growth opportunity. Thank you.

Okay. Thanks, Ed I appreciate.

Right your comments.

You know as we look at advertising and viewership first its important to obviously differentiate across our different business units. So on the on the marketing side clearly, it's a lilly has a more significant.

<unk> challenges both because it is a higher dependence on paid marketing to attract new customers and a higher.

<unk> a facebook in its marketing channels. So there is some work to do to get through that but I think the team is well on its way.

And there is substantial upside.

As we anniversary this sort of near term blip in advertising cost and and make meaningful progress diversifying our marketing channel. So that's on the on the Facebook side.

On the slowly side, when we look at as a key.

<unk> business.

I would say on the main we're actually quite encouraged on the viewership front viewership.

Was up this quarter on top of being up last quarter and that's just traditional paid a traditional pay TV viewership. So despite cord cutting or 1 of a few folks that a sustained sustainably expanding our viewership we've actually been doing that for many years on traditional pay services.

And then the goal is to come up on over that eliminate any pressures from cord cutting with all of these digital media platforms, we are investing in.

And that's why we're so excited about the Comcast news because you think about what the Comcast news represents.

If you get a traditional pay TV service to Comcast.

You can get our all of our channels a old fashion way, but you can also access them through a great friction less rich content streaming service.

That we think can can stimulate incremental demand, but if youre a cord cutter and you just use Comcast for your broadband access you can also get a.

On the full power of the streaming service all of a linear channels all of the on demand content.

And so.

That's where we're going where we see the streaming service as a flagship.

What can be present on every platform a folks view TP like content, whether or not they have a TV service and that's powerful and then you add to that our continued investment in social media.

And in video viewing on our own apps. We just think we've got a number of ways to continue to stimulate viewership over time.

On the marketing side, you know we're fortunate the marketing is less impactful to cubic's H in general.

It's a compliment to all these other forms a viewership.

But I would say the team continues to make a nice gains in.

In our marketing toolset the channels that we use so youll continue to see a lean in the marketing.

Not necessarily a quite the elevated rate youre seeing right at this moment, but we will continue to lean into it.

To both stimulate incremental sales beyond what we get through a viewership and also to drive people to these new digital platforms, because thats increasingly where we're moving our marketing dollars in a very distinctive way to drive people on to all of these viewership platforms, where reps, it's a unique offering.

And David you want to make any cash.

I meant on on what you saw on joining alright.

Yes, I'd love to.

Well have a lot more to say about this too.

Just give me maybe on all communities and the days to come.

But.

The main things were.

We're at a moment, where the market is dynamic and exciting.

Everybody recognizes we're on the cusp of a lot of shifts some of those changes in consumer behavior, where pre pandemic and accelerated but some of those changes I think post pandemic are going to be new and you combine that with the core assets across cure rate both in terms of.

Customers and capabilities and investment that's been made over time and what I saw was the ability of the business to compete and win in the market over time I, just think with a core capabilities core talent core unique assets and where the market's going the businesses.

Very well positioned to continue to pivot that Mike.

I think really started to accelerate debt to accelerate that pivot and really lean into a.

Growing changed more digital more streaming based world.

Thank you.

Okay.

Thank you. So our next question comes from Jason Haas with Bank of America.

Please go ahead.

Good morning. Thank you for taking my question congratulations on a strong quarter and I also wanted to offer my congratulations both Mike and David.

So.

Maybe starting with you it's encouraging to see the strong retention rates and also seeing fashion, a rebound and more than offset any sort of moderation on home, but I'm curious about what you're seeing in July and just what you expect a country reopens further do you feel like there's further room for fashion to rebound.

It's home continues to decline.

Just on a tough compares you think the potential.

Potential rebound on cash is enough to offset that.

Thanks, Jason for your question.

We were really encouraged as you said by both the retention rates and a rebound of fashion in the quarter I want to make any specific comments about what we're seeing and in July we don't comment on debt.

<unk> results, Bob I'll try to frame, how we're thinking about it.

Acknowledging that it's a little early to know exactly obviously, how the delta variant will pay out on consumer behavior over the next few months what struck me is actually most encouraging about Q2.

Is that.

We were able to deliver to deliver a that kind of a strong 2 year growth while still on a situation where the number of categories that are really working well was we're still a little bit narrow and definitely a pandemic influenced meaning <unk>.

A great to see apparel and accessories rebound, but it was largely a casual apparel athletic footwear casual footwear.

Still not seeing that rebound in tailored clothing in leather handbags, and dressy shoes, those things for going out or go into the office. So to me, there's still a lot a room to claw back apparel and accessories business as consumers kind of widen their appetite for what they want a.

Purchase in apparel and accessories, whether that happens in the next few months or the next year, depending on how things evolve, let's see but theres still a lot a room to go on apparel and accessories add to that that we were in a limited stock by the end of the quarter. So we're excited to get.

Back in stock and by September It a few weeks later than we'd like to be low.

We think that's meaningful for us.

Then on home again, what I was struck by in home is that.

The things that drove a slight negative in home we're cleaning.

Personal protective equipment, a those kinds of categories.

On.

And we're really actually pleased to see sustained 1 and 2 year growth on home decor and areas like fitness. So just says to us that this multiyear nesting to trend is real and when you see growth on growth in areas like home decor and fitness.

That's a pretty encouraging and of course, our cornerstone business has seen outstanding growth on growth I think they were up 40%.

Versus 2019, a pretty remarkable number so we like the optionality in fashion and where that can go.

And then.

I would point to beauty, which was actually a decline in the quarter, but over the course of the quarter, you're starting to see color.

Come back debt.

Matt May now slowed down with the return of Baskin.

But when you get beauty working on all cylinder cylinders, which it will at some point that they made some nice upside we have at <unk>.

Captured so we're dealing with a wildcard of supply shortages at the consumer electronics business is volatile, but I just think the optionality across apparel accessories multiple segments of home and beauty really portend well for growth I won't try to frame, whether that's Q3 Q4 Q1. It just says.

There's a lot of growth engines, yet to be fully a tap as we think over the over the midterm.

Got it that's really helpful color and then a question for Jeff on the last call you talked about helix H margins likely being flat for the remainder of the year on so I'm curious if that outlook still holds.

That's a more fulfillment cost pressures. So just curious if that's on a REIT Graham if you think about.

Yes, Jason we still stand by our outlook that we express as you had mentioned at the end of Q1.

And that outlook really was around being relatively flat for the last 9 months of the year and Thats a really after also posting a 40 basis point improvement as you just saw here on the queue.

You too.

OIBDA margin.

We do recognize and acknowledge that we have are mixed.

Experiencing some heightened inflationary pressures.

Freight and labor.

But we're also taking certain steps to mitigate that that Mike had mentioned.

Early in the third quarter with respect to taking some price, where we can where appropriate.

Thanks, and if I could add 1 more last question for Greg just on capital allocation. So it's a bit to see the step up in a repurchase authorization. Just curious how are you thinking about using that more aggressively in the remainder of the year.

And at least by my math, given a free cash flow conversion on.

And what I'm expecting a OIBDA it seems like a slow on a year with a healthy cash balance. So curious if it's possible to do what you would do with that extra cash as possible to do another special dividend or could that could lead to more repurchases beyond the authorization.

Great. Thanks for the question.

As you know we're going to have substantial free cash flow, we had an exceptional 2020 as Jeff noted, but we're going to have a strong 2021.

Despite some investments in the beginning of the year.

We have had multiple tools for a return of capital to shareholders and we've indicated that we will pass the majority of our free cash flow out to shareholders during the year.

And as you know some of those tools a included buyback.

The preferred stock issuance a couple a special cash dividends and now we've done some derivatives as well.

I think we're going to look at all of those tools for the balance of the year Rec.

Recognizing the substantial free cash flow is strong.

Capital position we have.

And I expect you'll hear more from us on all the various fronts as the rest of the year continues.

Got it thank you very much for taking our questions.

Thank you.

Thank you. Our next question comes from Oliver a winter Michael.

As a evercore ISI.

Go ahead.

Thanks, Good morning, and also a congratulation Mike.

Welcome David looking forward to working with you.

I had a question regarding the behavior of your best customers maybe.

Maybe can you maybe give us a little bit more detail about how these best customers have to behave maybe before the pandemic during a pandemic and now.

In the last a few months.

Is there a big change.

The behavior of those best customers and purchase frequency how much do you spend.

Okay.

Alright, thanks for the question I'll.

I'll tell you what's changed and what hasn't changed let me start with what hasn't changed what Hasnt changed is that.

We retained best customers at a very high 99% plus rate that retention hasnt varied pre during or now.

In terms of pandemic trends.

And we continue to add a consistent flow of new best customers. So the percentage of new customers, who graduate the best customer status within a month within a year within a 2 year within 2 years.

As a continuing to be quite solid and given the current number of new customers. We added over the last year. Therefore, the number of new best customers we added.

Was quite high so we like the stability of the best customers, we like the fact that we're adding new gas customers.

Very good rates, what does swing is how much he spends in the quarter and thats heavily influenced by these underlying product category trends because.

On.

The way best customers get to the high level, a purchase frequency and remember that a best customer on average by 70 items a year.

The way she gets there is by buying a lot of apparel and accessories, and then to a lesser extent a fair amount of beauty.

And so what we saw in the first part of the pandemic was held on to all the best customers, but our spend declined because they simply wasn't making she was buying a home sales went way up but they weren't enough to offset these big declines in apparel accessories.

This quarter, we are seeing that extreme flip where our best customer sales were up 7% and best customer units purchased or up 12%.

On a highest growth we've ever had.

Unit growth and best customers sales in a quarter.

So that really reflects that she is continuing to lean into home and all of these home nesting trends, but now she is back in the market for apparel and accessories and that really helped a.

Fuel the quarter.

On.

And again Thats. Despite the fact that beauty is still somewhat challenged the apparel and accessories are still somewhat narrow as I've mentioned adjacent so.

Love the growth and best customers, a loved the retention of it and love to see how they're now coming back strongly across multiple categories really fueled by apparel and accessories and demonstrating a purchase frequency in the quarter that.

To go back a double check, but I suspect if it's not a record, it's probably probably a pretty close to a record.

Thanks very helpful.

And the next question was on inventories I saw there were there were up actually.

Up more than sales in the quarter.

But you were speaking a challenges in other stocks.

Just a function of inflation that it was up so much and how do you expect that to play out for the rest of the year.

Just John I'll take that 1.

Absolutely.

Oliver It's a combination of things 1 we are in preparation for Q3 and for holiday starting to take some receipts earlier than what we had in the past once again to try and get ahead of some of the challenges that we've been experiencing and the other portion of it.

It's quite honestly as a result of some of these supply chain delays and we've got to have more product in transit than we normally would have.

This time a year so the combination of higher in transit levels as well as getting out ahead, where we can in certain areas to restock. The covers for us as we move forward.

Got it thanks very much a good luck.

Thank you, we'll now take our last question from William Brewster attitude on Mark Hospital group.

Please go ahead.

Hey, guys as it go on Mike.

I hope you enjoy retirement.

Thanks for all you've done over the past.

24 months really and especially over the last 18.

Some of that's just on me scratching my head a little bit is.

She got into reopening right got dressed up went out so our friends again.

What's going on.

With the.

Mix why is she turning to us for athleisure and maybe not some.

The higher ticket items and a.

Beauty has me scratching my head on I don't mean to keep asking the question, but if you could maybe give a little bit of a color on that that'd be great.

Sure Thanks, and I appreciate your comments.

I would say.

Yes.

Again, if I look at across a range of what she's buying I feel good about the pace of rebound into apparel and accessories actually felt good about what she's buying in home.

The things that were a deflating tends a price average price point and where we had some more downside pressure was again part of it is comping cleaning and PPE. Those are obviously non strategic business set a so it doesn't trouble me at all the other 1 was that a consumer electronics was obviously a way down in the quarter.

A combination of supply shortages lack a really good compelling products and offers.

That's not as motivating to the best customers. So it doesn't tend to have a big impact on her spend.

Might miss out on that incremental.

And electronics purchase from her but not not the most strategic categories certainly not a high margin category. So if youre going to have a wobble somewhere.

Not a bad place to have it the 1 that's most important is the 1 you mentioned, which is beauty beauty is a highly strategic category for us.

Did see softness across all customer classes in beauty.

I would say that our own reflection is it was it was largely not largely but a part of it was self inflict inflicted deliberately so we.

We did make a choice.

To be ready for that uptick in apparel and accessories by just basically moving our finite airtime.

And TSV slots from beauty to apparel and accessories, so to dimensionalize that.

The amount of air time, we devoted to beauty in the quarter was down 15%.

Mt is TSV slots, we devoted a beauty was down 20%. So that's really meaningful it's almost impossible to grow in that context.

And we.

We could debate whether that was the right move to make or not we thought it was the best choice at the time, given the various pressures and opportunities we saw but as we now start to feed that business again I do think we will see beauty come back I've said, all along that the 1 wildcard is the pace at which colored returns. We were pleased to see it start to come back late in.

The quarter, let's see if that continues with a delta but.

We're just making such a big push in other segments.

As well so I mentioned a couple in my comments, but.

We're excited about multicultural beauty, a number of new launches in that space. We're excited about really trying to go in in a more meaningful way in masstige beauty that sort of that price point that between drugstore and premium.

In areas like nail care hair care.

It really is on cap space for us, it's a heavily digital offering more so than on on air offering, but we're leaning into that hard.

We've really expanded our relationship with Premier brands like Este Lauder so.

In the last handful of months and we're coming up we've launched Este Lauder Mac clinique to face Bumble and Bumble a veda.

A pretty bumble and bumble innovative being quite new to the assortment.

So I think I think we're going to be okay, and do you think we have a lot teed up.

Is that could really help those results.

Through the next several months and that you put your finger on it that's the most important 1 and we're going on we're going to lean into that 1.

So if I can just reiterate real quick we've got purchasing frequency is great.

On retention of customers was very good and the beauty.

Decision was almost an internal merchandising decision, but I see a mix shift into reopening which sort of validates the entire business thesis. So maybe more airtime to beauty will be a good thing and we.

We should see an uptick is that is that like a fair assessment of what's going on here.

It's a very fair assessment.

Okay. Thanks, Mike take care of yourself. Thank.

Thank you I appreciate it.

And I believe that was our last.

A question. So again, thanks, all of you for your time definitely check out the Investor day in November.

And thanks to all of you for your partnership with me over the years, it's been a wonderful journey for the last.

16 years in a greatly value to your partnership and friendship. So thanks, everyone.

Okay.

Okay. So they're cross that gives you a participation you may now disconnect.

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Thank you.

Ladies and gentlemen, thank you for standing by welcome to the <unk> Retail Inc..2021, Q2 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 press star 1 on your telephone.

As a reminder, this conference is being recorded August 6.

I'd now like to turn the conference over to Courtney Chun.

Chief portfolio Officer. Please go ahead.

These forward looking statements speak only as of the date of this call and current retail expressly disclaims any obligation or undertaking to do so.

M&A any updates or revisions to any forward looking statements contained herein to reflect any change in keurig retail expectations with regard thereto or any change in events conditions or circumstances on which any such statement is based on today's call. We will discuss certain non-GAAP financial measures, including adjusted OIBDA adjusted OIBDA margin free cash flow and constant currency.

Information regarding the comparable GAAP metrics, along with required definitions and reconciliation income.

On the preliminary note and schedules 1 through 3 can be found in the earnings press release, each day on our earnings presentation, which are available on our website today speaking on the earnings call. We had a keurig retail CEO, Mike George <unk> retail group CFO, Jeff Davis Carey, Inc.

Retail executive Chairman, Greg Maffei, and we'd like to welcome to a retail president and CEO, David Rawlinson now I'll hand, the call over to Mike George.

Thank you Courtney and good morning, everyone. Thank you for joining us today and for your interest in <unk> retail.

In the second quarter, we started to anniversary pandemic related growth. Therefore in our comments will include select 2 year performance metrics provide.

Provide important context for our results.

We delivered year over year revenue and OIBDA growth on a constant currency basis up 1 and 2% respectively on top of last year's strong growth compared to 2019 revenue increased 11% and OIBDA increased 12% in constant currency.

The quarter played out largely as we expected at <unk>. We saw a continued rebound of our best customers with a return to growth of apparel and accessories.

While new and reactivated customer count declined it remains significantly elevated compared to 2019.

Emily home decline given the steep comps in food personal protection and cleaning products from the initial stages of the pandemic, but it is up high teens from 2019.

QVC International maintained strong revenue and OIBDA growth sustaining the momentum from last year.

So really revenue declined as we comp the steepest part of the pandemic curve, but we delivered a healthy revenue and OIBDA growth compared with 2019.

And cornerstone delivered outstanding performance with record Q2 revenue and OIBDA at all of its businesses.

The fact that we delivered year over year growth and OIBDA margin expansion, even with these challenges is a testament to the strength of our business model.

The strong second quarter results further confirm our belief that we are a much better business now them on a universe of pandemic.

With an expanded and loyal customer base strength across multiple product categories and more extensive distribution and reach of our digital and video content.

We are well positioned for growth poised to take advantage of a long term trends towards online shopping video streaming social media and all things for the home.

Before I discuss each of our businesses I am delighted to welcome David Rawlinson as my successor.

David joined US on August 1st as President and CEO elect and will assume the role of CEO on October 1.

David is the right leader to take this wonderful company forward and write our next chapter of growth.

He brings an impressive track record of success.

Recently with 2 storey brands Nielsen and Grainger.

And he inherits an outstanding management team with deep retail digital and broadcast expertise and I can't wait to see what they will accomplish together as.

They lead share rate and our next phase a digital growth and transformation.

<unk> to take advantage of this new world I believe that providing a deep personal enriched shopping experience is only gaining importance in a commoditizing a more digital world. We have the opportunity to take an energized team and building on our decades of expertise and investment further accelerate our transition as a leading entertainment.

Rainer and retailer wanted to cure rates truly unique products and creates a engaging experiences for a growing audience that desire zone, we are well positioned to drive value for our customers shareholders vendor partners and team members on.

Honored to be leading this talent a cure rate team and I look forward to meeting many of you in the months to come.

Thank you David we are absolutely thrilled to have you on the team.

Turning now to Q X H revenue declined 1% year over year net grew 6% over 2019, OIBDA grew 1% from last year and declined 1% from 2019, and Jeff will provide more details on a specific drivers.

Our results further reinforce our confidence in the long term growth prospects of <unk>.

I would highlight 5 important takeaways from the quarter.

First customer purchase frequency was outstanding.

With a total unit volume up 4.5% and units per customer up 15%.

Offset by a 6% decline in average selling price.

These results reflect high engagement from our best customers and double digit growth in apparel and accessories.

Offsetting by declines in higher price point, and electronics beauty and certain home products.

Second we held on to much of the gains in new customers from the peak of the pandemic.

New customers declined versus 2020, but grew 17% from 2019.

Third sales of items featured on air we're up significantly indicating high engagement across the customer base with our full video experience.

This is also reflected in sustained growth in traditional TV viewership with total minutes viewed up 6% on top of good growth last year.

And that's before factoring in the high viewership growth on digital video platforms, where we don't currently have the same measurement tools.

Fourth our business is more balanced across categories with a home segments now representing a larger portion of the mix than they have for many years prior to the pandemic.

At the same time apparel and accessories recover all of the sales erosion from the start of a pandemic and are up compared to 2019.

Further underlying consumer demand across both home and fashion was even stronger than what we captured due to product shortages.

And finally, we were able to expand OIBDA margins, despite inflationary pressures underscoring the strength and stability of our financial model and the agility of our team.

Looking now on some of the category drivers and apparel the team set a strategy to focus on expanding our top 5 brands at QVC and HSN to lifestyle extensions, such as denim <unk> company Naturals and Bell Beach by Kim <unk> and this has worked particularly well with our best customers.

While a beauty declined from last year, as we reallocated airtime and TSV slots from beauty apparel and accessories.

We're encouraged to see color cosmetics begin to rebound in the quarter and were positive about the longer term outlook for beauty as we reinvest back into the category.

We're particularly excited about our efforts in multicultural and Masstige beauty to white space areas with significant upside encouraging initial results and broader positive social impact.

In home, we were pleased to largely hold onto our gains from the stay at home tailwind with the category up 18% versus 2019.

This was a led by home decor, where demand sales grew 8% year over year and more than 25% from 2019 and.

In culinary down versus last year, but up over 30% from 2019 on the strength of our largely proprietary gourmet food business.

In highlighting our ability to create consumer interest through relevant programming engaging experiences and curated gifting ideas.

Consumer electronics side on the biggest decline in the quarter following a outstanding growth last Q2.

We experienced continued supply chain challenges and difficult comparisons to the early stages of the pandemic when demand was highest for work from home products and virtual schooling needs.

Let me now give you a little more flavor on the supply pressures, we're experiencing across multiple categories first late deliveries.

Factory shutdowns in areas like India, and Vietnam that experienced a surge of Covid cases.

As a business that focuses on a handful of items a day were uniquely impacted when key items arent available for their air date.

For example, nearly 30% of our TSV is in a quarter were impacted by supply issues. Our teams are continuously adjusting our program in calendars in response.

Second product and offer shortages.

Third apparel sellouts.

We're also seeing record cost pressures, particularly on inbound and outbound freight.

Providing wage increases for our fulfillment center and customer service team members in many markets we serve.

Took a modest price increase across categories at the start of Q3 to partially offset these pressures.

Moving on to QVC international, which sustained momentum and generated strong year over year revenue and OIBDA growth.

Revenue was up in every category and customer count while day.

On against last year was up substantially compared to 2019.

We're enjoying the benefits in international a geographic diversification with a Japan and German businesses, particularly strong on it.

Lesser impact from core cutting and businesses that are still on an earlier stage a market development and penetration. Additionally.

Additionally, while we are facing similar supply and cost pressures as in the U S. The impacts are not a significant.

On slide 10 on the presentation, we highlight our 5 strategic priorities for <unk> and QVC International.

Let me share a few key achievements, which speak to our focus on innovation.

As we've demonstrated for the past 35, plus years, we're committed to being there for our customers wherever whenever and however, they want to engage with us.

Comcast already carries our linear channels, but now with the rollout of the service consumers can access 6 QVC and HSN linear channels in 1 place as.

As well as a catalog a video on demand and original programming specifically designed for streaming.

The streaming App is our flagship.

Providing a highly immersive interactive and friction less experience with the ability to make purchases directly through the app using a remote control a new capability, we are deploying across Comcast Roku, Apple TV Amazon fire.

And we also anticipate adding more distribution partners for our streaming service in the coming months.

As we strive to be a true destination for daily digital discovery, we launched a new social shopping app called Curio in the UK in May.

The new App allows users to share a video reviews discover new products and message 1 another in a supportive and collaborative environment.

We've built a sense of community for more than 30 years through our TV broadcast this new app transforms how that community comes to life on digital platforms.

Well a curio in the early stages. The initial engagement is highly encouraging. It is a terrific example of our ability to leverage our smaller international markets as a test beds for innovation.

Our focus now is to build scale and then deploy across markets.

In Europe, we're also utilizing advanced analytics and machine learning to analyze a range of internal and external data sets to optimize pricing decisions. We're scaling these advanced analytic capabilities and building out additional users to create more personalized customer experiences as part of our efforts to better engage our patch.

On a community.

Curated a special products at compelling value is a central strategic priority and I want a share 2 examples a category expansion the highlight our curation capabilities.

Power of our platforms and our storytelling and production skill set.

Actress and businesswoman Candace Kamran per started with QVC in 2018 and beauty.

Followed by the launch of inspirational home products, such as journals in the core.

And in April we introduced canisters, a new line of women's fashion and collaborations on our proprietary design and development team, it's exclusive to QVC and encompass a size inclusive staples, such as comfortable Ts colorful finals jeans dresses and loungewear.

Although the line was only introduced in April it was 1 of the top 10 apparel brands at QVC in the quarter, It's a remarkable achievement on it.

Believes brand holds significant growth potential.

Last November we launched a new fashion line with award winning global fashion designer Jason move it.

It performed well in Q2 ranking in the top 15 apparel brands at QVC and on the fall, we will be extending adjacent product offerings in the culinary, including cookware and kitchen tools given his love of cooking a new line has also developed by a proprietary design and development team and exclusive to QVC.

Moving on that as a Lilly revenue and OIBDA declined in 2020, but grew versus 2020, but grew 9% and 29% respectively from 2019 driven.

Driven in part by the continued expansion of our strong factory direct business picturing proprietary offerings extraordinary values.

And the quarters, although it was impacted by marketing pressures and supply constraints.

A new iOS privacy changes have created challenges for all marketers.

Low a high concentration of marketing spend with Facebook resulted in a meaningful increase in the cost of customer acquisition and a corresponding pressures on sales.

Additionally, although we face challenges with top tier national brands have not been able to able to provide sufficient inventory for key events.

A largely a reflection of the conservative receipt plans many brands adopted in 2020 during the height of the pandemic.

Net sales rebounded this year a number of key vendors had limited inventories to allocate this slowly and we lost many halo national brand events as a result.

We believe these challenges will moderate through the rest of the year and.

And we remain confident in general it's a long term growth potential.

1 of a few scaled profitable e-commerce pure plays targeting moms and focused on the off price segment.

A cornerstone the team once again delivered outstanding results with record Q2 revenue revenue and OIBDA at each of its core businesses.

This terrific performance.

<unk> to be driven by strength across home categories as well as a rebound in apparel at Garnet Hill.

A very bullish about cornerstones long term prospects it is well positioned to benefit from the home nesting trend.

Sorted by our strategies to expand proprietary assortments continue shifting from print catalogs to digital marketing and surgically expand our retail store network.

In summary, we are delighted with our Q2 results.

<unk> growth on growth against a high bar 2020 comparisons and executing with agility and a face of macro supply and cost pressures.

We continue to make progress expanding our already extensive digital video ecosystem evolving our highly differentiated customer experiences and building on a strong base of loyal shoppers.

These are clear differentiators.

And we are delivering top and bottom line growth and strong cash flow.

In a great position to continue to win post pandemic and returned value to shareholders.

As I close.

I'd like to take a moment to thank our 25000 team members around the world.

It has been my great privilege. These past 16 years.

To work alongside such dedicated and passionate people.

Never more so.

But over the last year and a half.

They demonstrated remarkable dedication remarkable resilience remarkable agility and.

And serving our customers.

All of the obstacles presented by the pandemic.

While at the same time caring caring for their family their friends their teammates.

With that I'll turn the call over to Jeff to review our results in more detail.

Okay.

Thank you, Mike and good morning, everyone.

Keurig retail delivered revenue and OIBDA growth on top of compelling 2020 results let.

Let me start with <unk>.

Revenue declined 1% versus last year, reflecting a decline in consumer electronics beauty and certain homes subcategories compared to a robust growth during initial stages of the pandemic.

This was partially offset by the continued rebound in apparel and accessories, driven by our best customers and strong demand from the core.

As Mike said, our customers purchased more units and spend more per customer than in 2020.

These gains were offset by lower ASP.

Reflecting the product mix shift.

As largely expected e-commerce revenue, a $1.2 billion declined 2% with an 80 basis point decrease in penetration.

This erosion is primarily due to category and customer mix shifts.

Total customers declined 9% in the quarter versus 2020, with new customers down, 32% reactivated down 17 and existing down too.

But compared to 2019 customer accounts were up nicely across all cohorts with total customers up 4% new customers up 17%.

Activate it up 7% and existing up 1.

I'm pleased to report that Qvc's best customers, who make 20 or more purchases in a year performed well in a quarter.

The increase their total spend 7% by purchasing a 12% more units.

As illustrated on slide 7 of our earnings presentation, we experience a swing in category mix into apparel and accessories from primarily electronics beauty and home.

Revenue in apparel and accessories grew 19, and a 11% respectively.

It's more than offset declines experienced in 2020.

These gains were driven by our best customers top brands and were broad based across apparel subcategories with continued strength in loungewear and non leather handbag.

We also saw a nice rebound in luggage as customers transition to more travel.

Beauty declined 10% from last year, reflecting a reduction in airtime and Tsv's, which was reallocated to apparel and accessories.

<unk> reflected softness in most major subcategories.

Partially offset by gains in skincare.

We look forward to rebuilding this category as consumers reengage outside the home.

AUM decreased 3% versus last year, reflecting expected lower customer demand for cleaning and personal protection related products that were in high demand during the initial stages of a pandemic.

This pressure was partially offset by continued gains in home decor seasonal items furniture rugs, bedding bath and gardening merchandize.

We believe our home decor represents a longer term growth engine driven by continued robust home sales.

On the hybrid work from home trends.

Our home decor business.

As heavily proprietary with a large percentage of a product created through our own design and development team.

It also includes several key exclusive relationships you saw a nice gains from several of these brands, including home reflection Marigold, Valerie Parr Hill and ultimate innovation.

Consumer electronics declined 23%, reflecting a lower customer demand for home office and school related products as well as supply chain constraints.

On a 2 year basis electronics was down 3%.

Adjusted OIBDA grew 1% and adjusted OIBDA margin improved 40 basis points.

Looking at the components of adjusted OIBDA margin.

Gross margin was favorable 30 basis points, primarily due to lower inventory obsolescence expense and improved product margin.

Inventory obsolescence reflected a favorable adjustment to provisions as well as increased clearance sales, including sales from a reopened outlet stores.

Product margin gains were largely due to the category mix shift and strategic sourcing initiatives.

These factors were partially offset by a fulfillment primarily due to the increased shipping volume and lower average selling price.

Higher freight rates and surcharges and.

And elevated labor costs.

This was partially offset by reduced operating expense because we are now ramping down operating.

Operations in our decommissioned fulfillment centers before exiting by year end.

Operating expenses.

With a 40 basis points on favorable primarily due to higher customer service costs, and TV commissions, reflecting strong sales from on air products.

SG&A was 40 basis points favorable.

Primarily from lower bad debt and administrative expenses.

Bad debt reflects fewer offered installment payments and a lower mix of consumer electronics, and new customers compared to 2020.

These tailwind.

Partially offset by higher marketing cost per customer retention and acquisition as well as a platform expansion.

We anticipate continued elevated investments in marketing to grow and engage our customer base, while continuously monitoring the return on the spend.

While more recently experiencing cost inflation in marketing channel. We are closely monitoring the current environment and will adjust accordingly.

I would note. We are also less impacted by increases in marketing costs than others due to a high percentage of organic customer acquisition.

As Mike said, we have taken price increases in early Q3 to partially offset the inflationary pressures, we're seeing in marketing freight and labor costs.

Moving to QVC international where sustained multiple multi quarter track record of growth.

My comments will focus on a constant currency results.

Revenue grew 5% led by Japan, and Germany as expected total customers declined 4% in the quarter versus last year, with new down, 24% and reactivated down 16%.

Reflecting the outsides growth in Q2 of 2020.

These declines were partially offset by 2% growth in our existing customer.

Compared to 2019 total customers grew 5% with new up 14, reactivated up 5 and existing up 4%.

E Commerce revenue grew 4% and e-commerce penetration increased 10 basis points.

The business generated gains in every category led by apparel and home.

Adjusted OIBDA increased 16% and adjusted OIBDA margin expanded 175 basis points.

Gross margin improved 120 basis points due to higher product margins was primarily from <unk> pricing management. We also benefited from favorable fulfillment expenses driven by higher average selling price and sales leverage.

Operating expenses were favorable by approximately 40 basis points, primarily due to commissions and customer service.

Reflecting higher e-commerce penetration sales leverage and renegotiated carriage contracts.

SG&A was favorable were favorable by approximately 15 basis points.

Primarily due to sales leverage and administrative expenses, partially offset by higher marketing costs.

And lastly, I would note that we have entered an agreement to sell our minority interest in our joint venture in China.

After internal evaluation of our business in the retail market in China, we determined that the venture was no longer a strategic fit for a portfolio of international operations.

This joint venture is accounted for as an equity investment in our financial results.

Moving on is duly realm.

Revenue grew 9% on a 2 year basis.

Total customers declined 17% in Q2 from last year.

We're only down 4%.

From 2019, this reflects a sizable swing in new customers, which were down 18% year over year, but up 27% versus 2019.

Adjusted OIBDA decreased $36 million, primarily due to lower product margins higher marketing and fulfillment expenses, including freight rates and surcharges for our factory direct business.

As well as Comping last year's recognition of a $10 million reduction of our sales tax accrual that was originally recorded at a time of the acquisition.

We believe the surcharges will normalize over time as international travel resumes.

Moving to cornerstone, which once again delivered outstanding results with a record second quarter revenue and adjusted OIBDA at each of its brand.

Revenue grew 18% driven by sustained momentum in home brands.

Front Gate Grandin road, and Ballard designs and on the strength of core home decor.

Interior furnishings and outdoor category.

Garnet Hill also generated solid growth by its apparel and home textile.

Adjusted OIBDA increased $31 million primarily.

Due to expanded product margins and leverage a administrative and marketing expenses.

These gains were partially offset by higher freight and surcharges.

Turning to our balance sheet and cash flow cash.

Capex was a $110 million for the first half a 2021.

During the same period, we spent $170 million on renewals of our multiyear television distribution contract, which is nearly all of our planned expenditures for this year.

Cash flow was $331 million in the first half of 2021.

Free cash flow reflects payments of elevated prior year.

Incentive bonuses in March and a multi year TV carriage contracts mentioned earlier.

This year, we expect to return to more normalized level of free cash flow conversion and a range of 45% to 55%.

Call regenerate a substantial working capital improvements in the first half of 2020 by pulling back on offered installment payments, which reduced our accounts receivable and strategic sourcing which increased accounts payable.

These items are now in our base and will not serve as a source of working capital this year.

Looking at our debt profile on June 30, we had $77 million.

A drawn on our QVC Com, Inc, a revolver and $2.85 billion of capacity.

We had $950 million, a cash and cash equivalents and our leverage ratio as defined by our our QVC revolving credit facility was 1.9 times.

We returned capital to shareholders through share repurchases.

From May 1 through July 31, we repurchased 5.9 million shares for a total cost of $74 million.

In August.

We increased our repurchase authorization.

$500 million and a total remaining authorization pro forma for the increased authorization as of August <unk> is approximately $780 million.

As previously stated we are committed to returning substantial portion of our free cash flow to shareholders on an annual basis.

In closing I'll reiterate that we view these results as highly encouraging over a long term growth prospects.

Now I'll turn the call over to Gregg for closing remarks.

Thanks, Jeff.

We are excited to announce that retail investor meeting will be held virtually on.

On Friday November 19th.

We will have a full morning, a content from various members of the cure a leadership team. Please save that date and look forward for additional details being provided soon.

Before turning to Q&A, we need to recognize Mike George.

This is his last earnings call as CEO.

And I'd like to personally thank Mike who has been on exceptional partner since we both start on a role nearly 16 years ago.

He has shepherded curate retail through numerous evolutions and successfully transformed our company from a single business on linear TV into a portfolio of attractive multi platform assets.

<unk> strong leadership leaves this business on a sound footing and I will surely Miss are working together.

We look forward to welcoming David to the team as we drive to a retail into its next chapter of digital innovation.

Thank you Mike.

And thank you listening audience for your continued interest in <unk> retail.

I would like to open the call for questions.

Operator.

Thank you. So if you would like to ask a question on today's call you may do so by pressing star 1 on your telephone keypad.

Also please ensure that your mute button is turned off to a without you a cyclical return equipment from.

On a pulse for a moment.

Yes.

Basically net take our first question from Edward <unk> of Keybanc.

Go ahead.

And viewership I guess any thoughts on how you can try to stimulate more of that front end over the medium term assuming that these may remain challenging for a period of time and then on David we'll wait to hear more commentary I guess as you've had more time, a your seat, but what was the 1 or 2 things that was most compelling for you as an external advisor or an external candidate looking inwards on a.

<unk> term growth opportunity. Thank you.

Okay. Thanks, Ed I appreciate your comments.

You know as we look at advertising on viewership first it's important to actually differentiate across our different business units. So on the on the marketing side clearly a slowly has a more significant challenges both because it is a higher dependence on paid marketing to attract new customers and a higher <unk>.

Mix, a Facebook and its marketing channels. So there is some work to do to get through that but I think the team is well on its way.

And a substantial upside.

As we anniversary this sort of near term blip in advertising cost and and make meaningful progress diversifying our marketing channel. So that's on the Facebook side.

On the <unk> side, when we look at the <unk>.

<unk> business.

I would say in the main we're actually quite encouraged on the viewership front viewership was up this quarter on top of being up last quarter and that's just traditional paid traditional pay TV viewership. So despite cord cutting or 1 of a few folks did a sustained sustainably expanding our viewership we've actually been doing that for me.

Many years on traditional pay services.

And then the goal is to come up and over that eliminate any pressures from cord cutting with all of these digital media platforms. We are investing in.

And that's why we're so excited about the Comcast news because you think about what the Comcast news represents.

If you get a traditional pay TV service to Comcast.

You can get our all of our channels the old fashion way, but you can also now access them through a great friction less rich content streaming service.

That we think can can stimulate incremental demand, but if youre a cord cutter and you just use Comcast for your broadband access you can also get.

The full <unk>.

<unk> of this streaming service all of a linear channels all of the on demand content.

And so on.

That's where we're going where we see the streaming service as a flagship.

What can be present on every platform a folks view TB like content, whether or not they have a TV service and that's powerful and then you add to that our continued investment in social media.

<unk>.

In video viewing on our own apps. We just think we've got a number of ways to continue to stimulate viewership over time on.

On the marketing side, you know, we're fortunate that the marketing is less impactful to cubic's H in general.

It's a compliment to all these other forms a viewership.

But I would say the team continues to make nice gains in.

In our marketing toolset the channels that we use so youll continue to see a lean into marketing.

Not necessarily a quite the elevated rate youre seeing right at this moment, but we will continue to lean into it.

To both stimulate incremental sales beyond what we get through viewership and also to drive people to these new digital platforms, because thats increasingly where we're moving our marketing dollars on a very distinctive way to drive people on to all of these viewership platforms, where reps, it's a unique offering.

And David do you want to make it a.

Comments on on what you saw on joining Kerry.

Yes, I'd love to.

Have a.

A lot more to say about this too.

Just give me maybe on all communities and the days to come.

But.

I think the main things were a bit.

We're at a moment, where the market is dynamic and exciting.

I think everybody recognizes we're on the cusp of a lot of shifts some of those changes in consumer behavior, where pre pandemic and accelerated but some of those changes I think post pandemic are going to be new and you combine that with the core assets across cure rate both in <unk>.

Terms of customers and capabilities and investments Thats been made over time and what I saw was the ability of.

Business to compete and win in the market over time and I, just think with a core capabilities core talent core unique assets and where the market's going the business is very well positioned to continue the pivot that Mike.

<unk> really started to accelerate that to accelerate that pivot and really lean into.

A growing changed more digital more streaming based world.

Thank you.

Okay.

Thank you. So our next question comes from Jason.

A America.

Please go ahead.

Good morning, and thank you for taking my question congratulations on a strong quarter and I also wanted to offer my congratulations both Mike and David.

So Mike maybe starting with you it's encouraging to see the strong retention rates and also seeing fashion, a rebound and more than offset any sort of moderation on home, but I'm curious about what you're seeing in July and just what you expect a the country reopens further do you feel like there is further room for fashion to rebound.

Home continues to decline.

Just on a tough compares do you think the potential.

Potential rebound on cash is enough to offset that.

Thanks, Jason for your question.

<unk> results, but I'll try to frame, how we're thinking about it.

Is that.

We were able to deliver to deliver a that kind of a strong 2 year growth while still on a situation where the number of categories that are really working well was we are still a little bit narrow and definitely a pandemic influenced meaning.

Great to see apparel and accessories rebound, but it was largely casual apparel athletic footwear casual footwear.

<unk> not seen that rebound in tailored clothing in leather handbags, and dressy shoes, those things for going out a go into the office. So to me, there's still a lot a room to claw back.

Apparel and accessories business as consumers kind of widen their appetite for what they want a purchase in apparel and accessories, whether that happens in the next few months or the next year, depending on how things evolve, let's see but theres still a lot a room to go on apparel and accessories add to that debt. We were in a limited stock by the end of the.

A quarter. So we're excited to get back in stock and by September of a few weeks later than we'd like to be.

Low.

We think that's meaningful for us.

Then on home again, what I was struck by in home is that.

On the things that drove a slight negative in home we're cleaning per.

We are all a protective equipment.

These kinds of categories.

And we're really actually pleased to see sustained 1 and 2 year growth in home decor and areas like fitness. So just says to us that this multiyear nesting trend is real and when you see growth on a growth in areas like home decor and fitness.

On.

That's pretty encouraging and of course, our cornerstone business has seen outstanding growth on growth I think they were up 40% versus 2019, a pretty remarkable number so we like the optionality on fashion and where that can go.

And then.

I would point to beauty, which was actually a decline in the quarter, but over the course of the quarter, you're starting to see color color come back debt may now slowed down with a return of Baskin.

But when you get beauty working on all cylinders cylinders, which it will at some point that to me, it's a nice upside we have it.

Captured so we're dealing with a wildcard a supply shortages at the consumer electronics business is volatile, but I just think the optionality across apparel accessories multiple segments of home and beauty really portend well for growth I won't try to frame, whether that's Q3 Q4 Q1. It just says.

There's a lot of growth engines, yet to be fully tapped as we think over the over the midterm.

Got it that's really helpful color and then a question for Jeff on the last call you talked about <unk> margin.

<unk> being flat for the remainder of the year on so I'm curious if that outlook still holds.

Called out some market from a cost pressures. So just curious if thats on a rack grandma to think about.

Yes, Jason we still stand by our outlook that we expressed as you had mentioned at the end of Q1.

And that outlook really was around being relatively flat for the last 9 months of a year and Thats a really after also posting a 40 basis point improvement. If you just saw here on that.

Q2 OIBDA margin.

We do recognize and acknowledge that we are experiencing.

Experiencing some heightened inflationary pressures.

In freight and labor.

But we're also taking certain steps to mitigate that that Mike had mentioned.

Early in the third quarter with respect to taking some price, where we can where appropriate.

Thanks, and if I could add 1 more last question for Greg just on capital allocation. So it's a bit to see the step up in a repurchase authorization.

Just curious how are you thinking about using that more aggressively in the remainder of the year and.

And at least by my math, given the free cash flow conversion on.

So what I'm expecting a OIBDA it seems like a slow on a year with a healthy cash balance. So curious if it's possible to do.

What you would do with that extra cash on its possible to do another special dividend or could that could lead to more repurchases beyond the authorization.

Great. Thanks for the question.

As you know we're going to have substantial free cash flow, we had an exceptional 2020 as Jeff noted, but we're going to have a strong 2021.

Despite some investments in the beginning of the year.

We have had multiple tools for return on capital to shareholders and we've indicated that we will pass the majority of our free cash flow out to shareholders during the year and as you note some of those tools a included buyback.

The preferred stock issuance a couple a special cash dividends and now we've done some derivatives as well I think we're going to look at all of those tools for the balance of the year.

Recognizing the substantial free cash flow and strong.

Capital position, we have and I expect you'll hear more from us on all the various fronts as the rest of the year continues.

Got it thank you very much for taking our questions.

Thank you.

Thank you. Our next question comes from Oliver a winter muscle Evercore.

A evercore ISI. Please go ahead.

Thanks, Good morning, and also a congratulation Mike.

Welcome David looking forward to working with you.

I had a question regarding the behavior of your best customers.

Maybe can you maybe give us a little bit more detail about how these best customers behave maybe before the pandemic during the pandemic and now.

And the last a few months.

Is there a big change.

Behavior of those best customers and purchase frequency how much do you spend.

That kind of thing.

Alright, thanks for the question.

What's changed and what hasn't changed let me start with what hasn't changed what Hasnt changed is that we.

We retained best customers at a very high 99% plus rate that retention has been very pre during or now.

In terms of pandemic trends.

And we continue to add a consistent flow of new best customers. So the percentage of new customers, who graduate the best customer status within a month within a year within a 2 year within 2 years.

As a continuing to be quite solid and given that a number of new customers. We added over the last year. Therefore, the number of new best customers we added.

Was quite high so we like the stability of the best customers, we like the fact that we're adding new gas customers.

At very good rates, what does swing is how much he spends in the quarter and thats heavily influenced by these underlying product category trends because.

On the way best customers get to a high level, a purchase frequency and remember that a best customer on average by 70 items a year.

The way she gets there is by buying a lot of apparel and accessories, and then to a lesser extent a fair amount a beauty.

And so what we saw in the first part of the pandemic was we held on to all the best customers, but our spend declined because he simply wasn't making she was buying a home sales went way up but they weren't enough to offset these big declines in apparel accessories.

This quarter, we have seen that extreme flip where best customer sales were up 7% and best customer units purchased are up 12%.

What a highest growth we've ever had.

Unit growth and best customers sales in a quarter.

So that really reflects that she is continuing to lean into homes and all of these home nesting trends, but now she is back in the market for apparel and accessories and that really helped a.

Fuel the quarter.

And again Thats. Despite the fact that beauty is still somewhat challenged the apparel and accessories are still somewhat narrow as I've mentioned a jason.

So.

Love the growth and best customers Love the retention of it and love to see how they're now coming back strongly across multiple categories really fueled by apparel and accessories and demonstrating a purchase frequency in the quarter that.

To go back a double check, but I suspect if it's not a record as a publicly probably a pretty close to a record.

Thanks very helpful.

And the next question was on inventories I saw there were there were up actually.

Up more than sales in the quarter.

But you were speaking a challenges in other stocks.

It's just a function of inflation that it was up so much and how do you expect that to play out for the rest of the year.

Jeff John I'll take that 1.

Absolutely.

Oliver It's a combination of things 1 we are in preparation for Q3.

<unk> per holiday starting to take some receipts earlier than what we had in the past once again to try and get ahead of some of the challenges that we've been experiencing and the other portion of this quite honestly as a result of some of these supply chain delays and we've got to.

Have more product in transit than we normally would have.

This time a year so.

Combination of higher in transit levels as well as getting out ahead, where we can in certain areas to restock. The covers for us as we move forward.

Got it thanks, very much and good luck.

Thank you, we'll now take our last question from William Brewster attitude on monarch capital group.

Please go ahead.

Hey, guys. So does it go on Mike.

I hope you enjoy retirement.

Thanks for all you've done over the past.

24 months really and especially over the last 18.

And that's just on me scratching my head a little bit is.

On.

She got into reopening right got dressed up went out so our friends again.

What's going on.

With the.

Mix why is she turning to us for athleisure and maybe not some.

The higher ticket items.

Beauty has me scratching my head on I don't mean to keep asking the question, but if you could maybe give a little bit of a color on that that'd be great.

Sure. Thanks, <unk> I appreciate your comments.

I would say.

Yes.

Again, if I look at across a range of what she is buying I feel good about the pace of rebound into apparel and accessories actually felt good about what she is buying in home.

The things that were deflating to the price per average price point, and where we had some more downside pressure was again part of it is comping cleaning and PPE. Those are obviously non strategic businesses. So it doesn't trouble me at all the other 1 was the consumer electronics was obviously a way down in the quarter.

A combination of supply shortages lack a really good compelling products and offers.

Thats not as motivating to the best customers. So it doesn't tend to have a big impact on her spend.

It might miss out on that incremental.

A chronic purchase from her but not not the most strategic categories certainly not a high margin category. So if youre going to have a wobble somewhere it's not a bad place to have it. The 1 that's most important is the 1 you mentioned, which is beauty beauty is a highly strategic category for us.

Did see softness across all customer classes in beauty.

I would say that our own reflection is it was it was largely not largely but a part of it was self inflict inflicted deliberately so.

We did make a choice.

To be ready for that uptick in apparel and accessories by just basically moving our finite airtime.

And TSV slots from beauty to apparel and accessories, so to dimensionalize that.

On the amount of airtime, we devoted a beauty in the quarter was down 15%.

Mt is TSV slots, we devoted to beauty was down 20%. So that's really meaningful it's almost impossible to grow in that context.

And we.

Quarter, let's see if that continues with a delta but.

We're just making such a big push in other segments.

As well so I mentioned a couple in my comments, but.

In areas like nail care hair care.

It really is on a cap space for us, it's a heavily digital offering more so than on on air offering, but we're leaning into that hard.

We've really expanded our relationship with Premier brands like Este Lauder so.

In the last handful of months and or coming up we've launched Este Lauder Mac Clinique too faced bumble and bumble a veda.

A pretty bumble and bumble, a innovative being quite new to the assortment.

So I think I think we're going to be okay, and I think we have a lot teed up.

Is that could really help those results.

Through the next several months and net that you put your finger on it that's the most important 1 and we're going on we're going to lean into that 1.

So if I can just reiterate real quick we've got purchasing frequency is great.

On retention of customers was very good and the beauty.

Decision was almost an internal merchandising decision but.

A mix shift into reopening which sort of validates the entire business thesis. So maybe more airtime to beauty will be a good thing and we.

We should see an uptick is that is that like a fair assessment of what's going on here.

It's a very fair assessment.

Okay. Thanks, Mike take care of yourself.

Thank you I appreciate it.

And I believe that was our last.

A question. So again, thanks, all of you for your time definitely check out the Investor day in November.

And thanks to all of you for your partnership with me over the years, it's been a.

A wonderful journey for the last.

16 years in a greatly value to your partners.

Partnership and friendship so thanks, everyone.

Yes.

Okay.

Okay. Thank you for your participation you may now disconnect.

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