Q1 2022 Qurate Retail Inc Earnings Call
Please standby we're about to begin.
Ladies and gentlemen, and welcome to the Q right retail Inc. 'twenty 'twenty to Q1 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 one on your telephone.
As a reminder, this conference is being recorded May six 2022.
I would now like to turn the conference over to MS. Courtney Chun Chief portfolio Officer. Please go ahead ma'am.
Thank you before we begin we'd like to remind everyone that this call includes certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 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 filed by our company and QVC with the SEC.
These forward looking statements speak only as of the date of this call and curate retail expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained herein to reflect any change in <unk> retail's expectations with regard thereto or any change in events conditions or circumstances on which any such statements.
<unk>.
Please note we've published slides to accompany the earnings release 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.
<unk> preliminary note and schedules one through four can be found in the earnings press release issued today or.
Or our earnings presentation, which are available on our website today speaking on the earnings call me up with great retail President and CEO , David Rawlinson <unk> retail group CFO , Jeff Davis and available for Q&A accurate retail executive Chairman, Greg Jose now I'll hand, the call over to David.
Okay.
Thank you Courtney and good morning to everyone. Thank you for joining us today.
Your interests and jewelry retail.
Our first quarter.
<unk> reflects the continuation of the supply chain disruptions execution challenges and macro factors that impact the second half of 2021, we also experienced a deepening of certain headwinds coming out of Q4, namely the fire at our Rocky Mount North Carolina fulfillment center economic in place.
NGL political events. The total company revenue declined 12% in constant currency I would note that we were up against a steep comparison in Q1 2021 and with total company revenue grew 13% on a two year basis retail revenue.
<unk> declined 1%.
We believe the video commerce aspects of our business model are more relevant than ever, but we need to address inventory operational and execution challenges as we stabilize the base business.
<unk> brings us back to the fundamentals, we need to cure a great merchandise offer it at attractive values presented in an engaging manner and deliver a superior customer experience. So that customers were seeing so far.
First step is architected the team and the organization to drive the change we need we have already taken significant steps.
To do just that with the restructured <unk> organization.
Work is underway, but it will take time.
Importantly, alongside stabilizing the base business, we have discussed moving faster to capitalize on the lab stream shopping opportunity, where I remain very enthusiastic we created a new business unit dedicated to streaming and digital platforms to pursue incremental growth opportunities.
Momentarily I will discuss the factors that impacted <unk> in more detail first let me provide a quick overview of each of our other businesses.
QVC International revenue declined 7% versus 2021 in constant currency, our European businesses faced ongoing supply chain challenges and product scarcity challenges as well as weakened demand following the Ukraine invasion in Germany, our largest business in Europe February .
Demand was down in the low single digits prior to them basin.
The days immediately following demand declined more than 30% and have returned to low single I'm. Sorry has returned to low double digit declines at the end of March and the UK, we experienced a 15% to 20% decrease in viewership during the daytime hours in late <unk>.
The newest slots following the invasion.
Japan was less impacted by these pressures on a two year stack QVC international generated solid revenue and OIBDA growth.
<unk> revenue declined 38% and continue to experience top line pressure, primarily due to supply chain challenges and reduced marketing efficiency attributable to cost inflation and privacy changes and our advertising partners.
We're working to improve our unit economics and most importantly in mid March we were very excited to welcome Terry Boyle, as president and CEO of <unk> and Lilly.
Experienced delivery revenue and profitability growth at Nordstrom.
As well as in e-commerce, and the Omnichannel retail is an excellent fit to Lilly we are confident that with this new leadership a renewed focus on improved <unk>.
<unk> is a normalized the excess inventory and supply chain environment Zoom Lilly has the capability to return to profitable growth.
Cornerstone continues to be the star performer with revenue growing 19% and record first quarter revenue at each of its brands. This outstanding performance was driven by sustained consumer interest in home furniture, and decor strength of apparel at Garnet Hill and early pull forward.
<unk> about the work furniture as consumers anticipate longer shipping times.
Returning now to <unk>.
<unk> faced continued supply chain disruptions shipping delays and downstream impacts from the fire with Rocky Mountain as we have discussed previously supply chain challenges and shipping delays have an outsized impact on a single item merchant like us while historically this model has been a source of great.
<unk> ability and turning over our historic run every night the acute nature of current supply chain disruptions has been particularly challenging for our business model is.
The first quarter QVC U S shifted over half of its today's special values HSN shifted about 60% of this today specials.
72%.
<unk> pose arrived late.
And on average over four five weeks away.
The Rocky Mount fire impacted operations throughout our fulfillment network, even more than initially anticipated.
Put additional pressure on our ability to offer attractive merchandise on a timely basis.
We lost 25% to 30% of our QVC U S fulfillment center capacity it had to reallocate incoming inventory through the remainder of our network to put this in perspective, we lost one 5 million square feet in one of our most productive fulfillment centers, creating operational challenges to process orders and returns.
Patiently and causing capacity constraints at our other centers, we started the process to replace some capacity with third party logistics providers and sourcing other additional space, but this new space is less efficient since it does not have the same level of autonation as rocky Mount.
All of these factors affected the amount of inventory available for sale and the added incremental fulfillment costs, Jeff will discuss the actions, we're taking to address the inventory situation, but we know it will take some time to work through.
We made the difficult decision not to rebuild our fulfillment center and Rocky Mountain. We believe this is the right step.
The business long term.
Decision was part of a comprehensive analysis of our overall fulfillment Center network and.
In this landscape, where consumer expectations for delivery continue to evolve we examined our complete fulfillment center footprint and are making decisions based on where the network needs to be in the next five years.
With the strongest players in retail.
The <unk> customer count declined across all cohorts in Q1, reflecting a combination of the factors I've mentioned as well as marketing and efficiency, while QVC U S. That's customers were down in count they increase their average Stan in the low to mid single digits largely driven by.
Broadband apparel sale.
Sales deleverage impacted OIBDA to a greater extent in Q1 than in previous quarters. In addition, we continue to experience cost inflation or freight rates marketing and fulfillment center labor. We also experienced some euro rates and surcharges for shipments waiting to be process.
S and higher fixed inventory obsolescence and bad debt costs, which Jeff will discuss.
Looking forward, we are committed to maintaining cost discipline as an important driver of future value creation.
As I said before we are undergoing a significant turnaround and are working through the factors within our control to be able to return to the business to growth. Although the turnaround itself will take time, we are making decisions quickly and I am pleased with the advances we have made on a number of initiatives.
We've restructured the <unk> organization to reinvigorate growth at our core U S brands, we brought dedicated leadership to QVC U S and HSN and put our best operators in charge of each brand, we've given them accountability to grow the brand's master the volume value proposition for customers.
<unk> refreshed the product portfolio and bring a level of execution to the business that was method.
We also created a separate screening division to generate new revenue streams and attract incremental customers. Our focus is to get better relevance penetration and productivity from our strong streaming rights.
Briefly there we have not had enough focus on streaming and the path.
We are starting from a position of strength with our distribution across streaming platforms and applications. We are now focused on driving engagement on these digital platforms.
We launched transactional capability, our QVC and HSN screening services on Comcast X, one Xfinity flex to 19 million households since.
Since last June the U S have been able to launch the free app by speaking less shop into their Xfinity voice remote now they can make purchases in the app directly using the remote.
I've already introduced new screening only content in April we launched four new shows exclusively across our streaming app on Roku fire TV.
<unk>, TV, <unk> and Apple TV <unk>.
Total look without program host Julia featured one staple apparel styles.
Style three ways. The first episode featured a Jason Who's spring dress, Vanessa can't Cook with Vanessa Harry introduces QVC host, Vanessa who really can't Cook celebrity mentors and food experts to enhance our cooking skills 24 seven.
Ill drop is an exclusive daily deal for QVC and HSN streaming app users and the total experience as I showed dedicated to a brand or personality with exclusive content. So far we have featured calista and mally beauty products as well as recipes cooking.
Ideas and cookware from Blue Gene Chef Meritor Laurence.
While we are in the early days of the organizational changes and turnaround we feel good about the current business leadership the leaders at QVC U S and HSN are putting their imprint on their businesses asking the difficult questions to uncover root causes and to elevate the accountability of 13.
In summary, we are focused on stabilizing the core business and driving innovation in digital to enhance the value, we create and deliver to shareholders. We believe the team understands the issues and have begun to address them, it's going to take quarters, now weeks or months or access to become visible in the headline number.
And we do not anticipate a recovery in turnaround will be a straight line. However, we are taking tangible actions to address and mitigate the pressures as we execute on our long term strategy.
We have ongoing work on the long term strategic vision, we will be hosting an investor event on June 27 straight guar from our headquarters in Westchester, We will provide additional detail on our strategic initiatives at this time and we hope that you will join us.
Now I'll turn the call over to Jeff for a more detailed review of each of our businesses.
Thank you David and good morning, everyone unless otherwise noted my comments compare financial performance for the three months ended March 31, 2022 to the same period in 2021.
Starting with <unk> X H revenue of $1 7 billion declined 13% primarily on lower unit volume.
Overall customer accounts declined in comparison to the strong growth we experienced in 2021, reflecting the impacts of supply chain disruptions lower product availability and the rocky Mount fire and macro factors that David has already discussed.
As shown on slide six we experienced a shift in category mix into apparel and a reduction in electronics and home.
Apparel net revenue increased 2% driven by our best customers with strength in our top brands denim dresses swimwear and activewear.
Beauty declined 9%, primarily due to weakness in Bath, <unk> body skincare and hair care.
Accessories declined 15% and face the steep comparison to last year and which it grew 12% the.
The year over year decline was primarily due to lower demand for leather handbags, and casual and athletic footwear, reflecting supply chain disruptions for raw materials like late.
Like leather and the timing of receipt of some of our seasonal products.
Home revenue declined 16%.
<unk> also faced a steep decline of 14% growth comparison to last year.
Demand.
Was lower most notably in floor care fitness wellness kitchen, electrics, and cookware, which were most attractive during the pandemic.
Electronics revenue declined, 27%, which also face a steep 16% growth comparison to last year.
Demand challenges were primarily in computers home office.
Smartphone and tablets subcategories that are particularly strong during the pandemic pandemic.
Our further impacted by issues related to product availability.
Prolonged supply chain challenges chip shortages lack of innovation and fewer new and reactivated customers suppressed our home and electronics businesses.
New and reactivated customers typically over index in these categories versus our fashion categories, which pressured these cohorts the past couple of quarters.
E Commerce revenue of a $1 billion declined 13% in line with overall revenue performance.
Adjusted OIBDA of $225 million declined, 36% and adjusted margin decreased 460 basis points.
Looking at the main components of margin compression.
Gross margin was unfavorable 140 basis points, excluding the $80 million inventory write down to support an accelerated exit of remaining onside inventory at our rocky Mount location as.
As we prepare to permanently vacate the site.
This charge is excluded from adjusted OIBDA and adjusted OIBDA margin shown on slide nine of our presentation.
While our gross margins benefited from product margins.
Part of margin gains.
There was more than they were more than offset by unfavorable fulfillment expenses and higher inventory obsolescence.
Product margins increased primarily due to category mix into higher margin apparel and pricing actions on proprietary products, which was partially offset by higher returns and lower shipping and handling revenue.
<unk> expenses reflect.
The net incremental expenses associated with our Rocky Mount fulfillment Center.
Freight rate increases in detention and demurrage charges from film capacity constraints and a higher mix of inbound orders in returns as well as higher labor rates and sales deleverage.
These headwinds are particularly offset.
Partially offset by the benefits of network optimization, which is delivering productivity improvements and reduced costs from the closures of our Lancaster.
In Roanoke, Virginia fulfillment centers.
Inventory obsolescence, excluding the Rocky Mountain Writedown.
Increased primarily due to larger increase in inventory in Q1 2022 than in the prior year.
As we're taking actions.
We are taking actions to address our elevated inventory situation.
Our merchant teams are reducing future purchases and inventory receipts were.
We are revising buyer incentive plans to install a greater accountability for sales gross margin and inventory levels. We anticipate it will take time to work through these inventory challenges, but this work is critical to the business stabilization.
Operating expenses were unfavorable 90 basis points.
Primarily due to pressure from customer service, reflecting sales deleverage primarily from increased call activity related to rocky Mount.
Commissions increased due to a higher percentage of sales within the commission will window driven by our shift into apparel.
Higher credit card fees reflect an increase in the number of installment payments that were processed.
Yes.
SG&A was unfavorable approximately 230 basis points, primarily due to higher administrative and bad debt cost as well as pressure from marketing expenses.
Administrative costs were unfavorable primarily from sales deleverage and restored head count in our broadcast production and investment in the merchandise and it organizations.
Bad debt reflects a prior year favorable provision adjustment and increased current year provision, reflecting higher number of installments offered and customer delinquency.
Bad debt as a percent of net revenue is still approximately 25 basis points favorable to the pre pandemic period.
Marketing reflects cost inflation and lower efficiency and marketing spend.
Moving to QVC International My comments will focus on a constant currency basis and the results.
Revenue declined 7% on lower unit volume increased 7% from Q1 2020.
Our European businesses faced similar supply chain and product scarcity challenges as <unk>.
We also experienced a steep decline in customer demand and the.
The days following the invasion of the Ukraine.
QVC, Japan, which was less impacted by these factors was essentially flat in Q1, but grew 16% versus Q1 2020.
Customer count declined from strong gains in 2021 and decreased only 1% compared to 2020.
E Commerce revenue increased 3% and penetration increased 190 basis points.
QVC international experienced declines in all categories, except apparel.
Adjusted OIBDA decreased 22% and adjusted OIBDA margin declined 300 basis points on a two year basis QVC International adjusted OIBDA increased 9%.
Looking at the components of the quarter's adjusted OIBDA margin compression.
Gross margin declined 170 basis points, primarily due to lower product margin and the deleverage of fulfillment costs, which was partially offset by lower inventory obsolescence.
Product margins declined reflecting unfavorable returns lower shipping and handling revenue due to reduced unit volume and lower liquidation recoveries.
Fulfillment costs reflect sales deleverage and higher labor cost caused by higher COVID-19 related absence rates.
As well as higher freight rates in the European markets.
Inventory obsolescence expense was lower due to improved inventory quality and lapping a higher reserve positions in 2021.
Operating expenses were unfavorable approximately 20 basis points, primarily due to sales deleverage.
Customer service and TV commissions were lower than last year.
SG&A was unfavorable approximately 100 110 basis points, primarily due to deleverage of administrative expenses.
Moving to cornerstone.
Revenue of $297 million grew 19% with a record Q1 revenue at each of its brands driven.
Driven by sustained demand for interior furnishings to core case goods fabrics seasonal and bath products as well as for apparel and textiles at Garnet Hill.
The business also benefited from early demand for outdoor merchandise.
Comparable catalog circulation declined 10%, reflecting industry shortages of paper and staffing challenges at its category catalog printer as well as cost inflation for printing postage and paper.
E Commerce revenue of $224 million increased 24% and penetration rose 340 basis points.
Adjusted OIBDA increased 15%, primarily due to product margin gains and sales leverage of fixed costs and marketing expenses, which was partially offset by higher inbound logistics costs.
Looking at <unk> revenue of $232 million declined, 38%, primarily reflecting supply chain constraints as well as marketing inefficiencies that were caused by cost inflation and privacy changes, which caused xu lei to reduced marketing spend.
<unk> its customer acquisition and retention.
<unk> income included a $2 million of costs related to its regional office space strategy and the previously announced closure of its Pennsylvania fulfillment Center.
Adjusted OIBDA declined $24 million, primarily due to sales deleverage, partially offset by reduced marketing spend and higher product margins driven by pricing actions and a higher mix from its factory.
Factory direct business.
Turning our attention to the balance sheet and cash flow.
Total capital expenditures expenditures were $43 million in Q1, and we spent $2 million on renewals of television distribution contracts.
Total free cash flow in Q1 was a use of $244 million this year versus a use of $6 million last year.
Year over year decline was primarily attributable to the lower net income and unfavorable working capital primarily related to inventory, partially offset by lower expenditures for TV distribution rights and reduced investments in green energy.
Looking at our debt profile.
On March 31, we had $747 million drawn under the <unk> revolver with.
$248 billion.
Available capacity and $608 million of cash on our balance sheet.
Our leverage ratio as defined by the <unk> revolving credit facility was two five times.
<unk>, we reiterate our commitment to our stated long term leverage target of two five times or better and feel confident we have multiple capital strategies to address near term maturities and sufficient capacity to serve that service above the QVC level.
With that I'll turn it back to the operator for Q&A.
Thank you ladies and gentlemen, if you have a question or comment it is star one on your telephone.
Again that is star one for any questions or comments at this time.
Our first question comes from Jason Haas with Bank of America, Jason. Your line is open. Please go ahead.
Hey, good morning, and thanks for taking my questions. The first one is on the Rocky Mountain.
Facility I'm curious.
How much longer do you think that will continue to be called out as a headwind.
Basically the question is how long until we kind of.
The other facilities up and running and won't be.
And back to sales with Jake Thanks.
Thank you for the question and your your interest I think it's a good question I don't think its I don't think its a straight line. What's clear is it's going to take.
Some time to address.
The various ways that we have impacts on that it might be helpful. For me just to talk through a little bit the ways in which.
Multiple levels of with Rocky mountain impacts us because I think each of them have slightly different timeline impact so.
Rocky now had a number of impacts of destroyed significant inventory of course, and we've talked about that.
But as I've also talked about it also took out 20% to 30% of our most efficient capacity, both the store and process inventory. This in turn it overstress, our capacity and our remaining fulfillment center network exceeding capacity in some parts of our network, which reduce the productivity throughout the full distribution network.
The second effect is that we received the inventory being overcapacity meant we had to leave lots of product in trailers, which resulted in additional given your age entertainment costs and then further this unprocessed inventory because it's not in our system and ready for sale is not available.
For sale once we do get to the inventory and it's a process that we have to move the product through slower and less cost efficient fulfillment centers and then that results in some additional cost.
I would also just point to three places where it impacts sales.
Seasonal date sensitive inventory, that's remaining in storage or in a trailer and therefore not available to be sold at the time when demand is highest.
Second customers, let's see delayed delivery times are less likely to purchase and purchasers experiencing a delay in their orders are less likely to repeat and then finally it also impacts your.
Ability to put the most desirable things on air and your ability to plan and promote effectively in advance.
And so.
As you look at the cost side I think we will.
Be experiencing some level of elevated costs all the way up until the time. When we are finished building out our new capacity.
That'll take place over a number of quarters I would say on the inventory side, we are already working on.
Getting to.
A more run rate inventory levels throughout the.
The business and I would say that that.
That issue and that work is already substantially underway and I think we'll start to see.
Improvements in the near term as we continue to work through.
Still have that and then on the sales side I think as we continue to understand whats in inventory and continue to control our receipts were able to get to some of the programming.
In planning.
<unk> better everyday as we come to a deeper understanding of our of our of our inventory.
And so.
I said in my opening remarks, it's something that's going to take some time to work through Theyre not near term solutions, but I also think it will be getting better and less in tests over time, it wont be fully resolved until we get to our future state.
Supply chain, including.
Bringing back into the network a lot more efficient.
<unk>, Jeff anything you would add.
So what I would add to that is that now that we've made the decision not to.
Rebuild that rocky Mount we're working with our insurance carrier to finalize that.
Sort of physical hard assets component of our of our claim as.
As we think about now how we will rebuild in other locations. In addition to that we will continue to take a look at what is the business interruption component in our business.
And we will appropriately submit claims under that appropriate portion of wire.
Insurance policy.
Thank you that's helpful color and then as my follow up question.
Curious if you could discuss retention rates a little bit more I know that the customers haven't been retained as well as we had initially expected following the pandemic, but I'm curious if now we got to maybe a core base of customers that will be returned to a little bit better.
From this point forward, so Chris if you could comment on that outlook.
Yes, it's a great. It's a great question I'll make a few comments I think one is customer counts declined basically in line with sales.
The largest pressure in our customer file proportionately as with new customers.
That reflects the extraordinary growth was last year.
I would say and then part of it is due to supply chain product availability and the execution factors I've mentioned.
One thing of note is we have a bit of a machine around repeat and I would say that machine has been disrupted a bit customers tend to repeat in the same category.
And then once you can get a customer to repeat two or three times as we've talked about they tend to become.
Very loyal customers for a long period of time, beginning that initial first and second repeat tend to be really important to do that you need to get something attractive to them largely in the same category one of the most popular categories as electronics, where we've been particularly challenged and so.
And I think our supply chain issues have had an ability of getting our customers too.
<unk> the other thing that particularly affects our ability to generate new customers. It's just the level of marketing inefficiency you see as the digital marketing channels today about 40% of our new customer acquisition is from paid marketing cost inflation.
Our paid marketing channels resulted.
The result of the 30% to 35% lower efficacy of our marketing spend and so you just see a direct read through of that lack of efficiency and our new customer accounts.
As well.
So I think the.
The new customer story is a bit of a complicated one but we think we we think we understand it we continue to be encouraged by the.
The strength of our <unk>.
Listing customers, especially our best customers and and we think a lot of the challenges for new customers are moderating over time ultimately we're building plans, especially in each of the brands to make sure we continue to be attractive to new.
New customers a lot of Thats, just focusing on the fundamentals and QVC and HSN curating merchandise concentrating our freshness and newness enhancing programming right post with the right show, creating a sense of urgency we're going to be shortening some of the time that we show.
We can.
Show products, so that we can give.
Our consumers more variation in more looks at value and so.
So we're doing a lot across the enterprise to get back to the type of of.
Attractiveness.
What we're showing the customer that we think will be disproportionately.
<unk> to new customers as we seek to stabilize our new customer acquisition final thing I would just say is the new streaming unit and some of the new things that we're doing within our streaming platforms give us an opportunity to reach different and new customers as well and so that's all.
So one of the reasons we've been concentrating.
Thank you, it's good to hear and if I could squeeze in one more question I was curious if the sourcing environment has gotten any better because do Willy I imagine some of your competitors and some of the other retailers out there had some.
Maybe I'll take it slow down some of the macro issues going on so I'm curious if that makes for a better sourcing department presumably.
Yes, it's a great. It's a great question.
I would say that.
We're certainly seeing some inventory levels.
And excess inventory levels pick up across retail we do believe that over time that should provide some.
Some opportunities with Lilly I can tell you Terry.
Terry is very focused on that and so.
We've I think said from the beginning that part of the real challenge for Lilly.
Our business model setup to take advantage of excess inventory in retail.
And towards the end of last year, there was essentially no excess inventory in retail we do think that we're getting back to an environment, where it will be solved for in excess inventory problem across retail again, so we think.
We do see some signs of that in the future that could.
That could provide for a more favorable environment.
Thank you to you positive thing thanks for answering my questions.
Well go next to Oliver <unk> with Evercore. Your line is open. Please go ahead.
Thank you good morning.
Another question regarding free cash flow to use of cash.
Quarter.
How do you see that progressing throughout the year and should we expect for the full year use of cash or do you think you can still generate free cash flow.
Yeah. Oliver this is Jeff I'll take that as you all know we don't provide guidance with respect to free cash flow.
As it relates to the quarter, we definitely had most pressure on free cash flow as a result of our.
Our net income quite honestly across the business segments.
As well as an inventory as we've talked a little bit about the buildup.
As a result of a number of different factors.
As I think about going forward, our focus and attention on really cash conversion within our.
Net working capital.
Should we think about this inventory that we have and what.
The actions, we will take to appropriately accelerate.
The exit of that inventories, particularly in rocky Mount and.
In addition, as we think about our receivables and then of course on the supplier side with respect to accounts payable those three elements of networking capital is where we are we're focused on working with our merchant teams working our supplier teams.
Such that we can manage that because many times thats, where youll see a little bit more fluctuation from quarter to quarter.
Got it and then my second question would be.
I think it was you Jeff same thing International you gave some examples of beginning of February and then after the war started in Ukraine and then.
End of March you saw some some improvement.
Was that just really specific to international or did you see that in the U S as well.
Yes, it was interesting and that one of the business segments that saw something almost identical was in our cornerstone business.
For the first 14, plus or days of the comparable more.
They saw a pretty precipitous drop in their overall demand.
But we're able to see a recovery.
Off of those lower levels subsequent to that.
Across the.
<unk> domestic business as a result of once again, the distractions that would have from a viewership perspective.
<unk> seen some level of decline for about a two week period also.
So it was not just unique to our European markets, our European markets had more of a ongoing.
Impact of it, particularly because of some of the direct connections then back too.
The Ukraine.
And of course, Russia from a standpoint of some of the energy that they get from their and the concerns about longer term impacts.
Got it thanks, very much and good luck.
Our next question comes from Carla Casella of Jpmorgan. Your line is open. Please go ahead.
Hi, one question on.
Can you just talk about as E.
E Comm growth do you expect to spend less on your TV distribution rights and they were down significantly this quarter do you have a target for 'twenty two and then also just on the.
Spending on that.
Distribution rights.
Do you see any direct correlation between that and kind of sales growth over the next several years is there a way to look at that.
Yes, so the TV distribution.
Those represent multiyear contracts that we pay for this year is what we call an off cycle year with respect to the number of contracts with major.
Relationships that were renewing.
I had given guidance that.
Back in.
The beginning of the year that our expected spend was going to be somewhere between $80 million to $90 million and TD distribution rights versus the prior year being almost double that.
So just kind of gives you the relationship with the on year versus half year cycle.
As we as the number of subscribers.
Sure.
On these different platforms.
Klein you would actually see.
Lowering of our overall TV distribution.
Obligation.
As you go to renew those contracts and as they are adjusted over time, but there would not necessarily be a direct correlation.
And that we will know that.
Any of our customers, especially our best customers who are still on.
These platforms are not cutting the cord at the same level as some of the others as well as we can recapture of those customers. Many time in other platforms not not only an over the air so the ability to use digital antennas to pick up our signal, where we are very prominent in a number of affiliate.
Stations around the U S. But then also as those customers move to some of our other streaming platforms as David had talked about in the work that we're doing to have a much greater presence. There we have a great distribution, we lead in distribution there, but now it's around how do we convert those customers as they are on those platforms.
Okay, Great and then.
Did you buy back any of the additional LINTA bonds this quarter and what are your thoughts in terms of using.
Some of your cash for any of those buybacks like you've done in the past.
Then do you want to take that.
Yes sure we.
We did not buy any during the last quarter I think we made a we got the question.
Previously and what we've said is it's a function of how.
<unk>.
Availability, we have with respect to interest deductibility and so we'll look at that over the course of the year and determine whether we have flexibility in how much but that is something that we will look to do proactively.
When we have capacity.
Whether it's this year or on an annual basis.
Okay great.
And I just I missed the revolver borrowing did you give I think you gave that number.
Yes.
I'm sorry go ahead.
$747 million.
<unk> hundred 31.
Okay, great. Thank you I'll get back in queue.
We'll take our final question from William Reuter with Bank of America. William Your line is open. Please go ahead.
Good morning.
See you had noted that you expect that that's a supply chain will improve in the second half of the year.
Do you still expect that this is the case.
Kind of on a related note.
Are there certain vendors that have had particular challenges getting product to you and and and if this is the case are you shifting your vendor mix at all to try in.
I guess I have some additional vendors that may have better supply chain capabilities.
Yes, it's a great question.
Yes.
Learned anything it's not to try to predict the supply chain and when exactly it will.
Lastly, the pressure will let up I would say we've seen some stabilization.
Over time, and the supply chain I would I would still have a soft expectation that that stabilization will continue.
Through the second half of the of the year, but it's still I would say.
Very disrupted what we saw in <unk>.
What we saw in Q4 and Q1, we're still.
Relatively pronounced I think.
I may have said, 72% of our <unk> in Q1 were delayed and they were delayed for an average of $4 seven weeks on account basis. So still.
I'd say real real disruption coming through the supply chain.
We are learning through this process, which of our partners are the most dependable.
And we are learning through this process what regions are the most resilient.
So we are of course shifting.
I think consistent with those learnings.
Some of this takes a while to shift for some home products lead times can be.
As much as six months and so even as you have those realizations you can't always turn it overnight, but I think we're doing the right thing to get to a more dependable supply chain.
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Structure going forward.
Also of course impacted by continuing to watch things like the shutdown in China.
Four.
Covid related reasons and interruptions.
International supply chain, given the situation in Ukraine, and so we're monitoring that all of those things very closely.
Okay, and then I guess as a follow up.
We felt like the today's special value is one of a kind of a key cornerstone components of the business.
If you had to shift half of these for the last two quarters, that's clearly a little bit of a onetime challenge as you do get these better product availability.
I guess, what type what type of a decline in those sales are you seeing that used to comprise 20% of quarterly sales where would that be now.
Okay.
So it still comprises.
Approximately 20%, 25% of our sales on a particular.
They weak month.
We have not disclosed what our growth or decline would be.
At that level of detail, but it so as you would think about the total revenue base.
And Ed representing 20% to 5% it would be pretty much in line with that.
Let me.
Just to just to add some additional color I think youre right that is central to this business and I think they are flow through effects, where it effects.
It affects traffic.
New customers it affects the number of people.
That come.
Come to our website and made by things that are not in today's special value.
Because they saw something attractive in today's special value. So youre right and that is absolutely central to what we do across our video platforms and when that's disrupted it does have broader facts and so as.
And I think there are things within and without our control to some extent. These shipment delays that were planned for today's special values have been difficult I also think we have real opportunity to restructure.
It's a fraction.
On the merchandise side and the presentation slides and the tempo of today's special values for how we're presenting it to our customers. So we have a lot of work going on with getting back to fundamentals of the thing that's made that.
Such a really special business generator over time, and so part of the execution that we've discussed is.
Focusing on tools like that and making sure that those tools are are working at an optimal level and we think there we think there is opportunity there.
Yes.
Okay, and then just one last one for me.
I've always felt like the agility to shift between categories as always been another strength and in the event that you are often helping to put products on that you simply have sufficient availability. There's obviously been some sort of a loss.
Selling price, but if you had more.
You would probably generating higher sales is there any way that you tried to quantify it.
What the impact of lack of product availability has been on your sales either this quarter or over the last couple of quarters.
Yes, it's a great question and one that we have.
Tried to anything quite honestly.
Put a finer point too.
There is just a number of different elements that we've talked about today that come into play.
The challenge is quite honestly William that many times when we don't have a particular product available we are substituting it for.
Another product that might be of lesser.
Demand purchase occasion, but you still do get.
Sort of.
Demand for that particular product what would you Miss many times the purchase occasion maintains you missed that.
And that new customer, who is looking for a particular product and the same.
Category in which they purchase previously.
So unfortunately cant give you anything direct on that we do know what we can see when we have.
When we need to replace a product from a TSV perspective.
A decline in the productivity for the day.
But many times when we do have the product we see.
Just a really great response, and we get a recovery of it. So these are the things that we have to work through we think that we have still the agility to do so but it becomes just in this environment a little more difficult given.
Given the availability of the product.
Yes.
The only thing I would add is.
It's not just that.
That moment, it's the moment.
Before and after so when you don't have predictability you can <unk>.
<unk> and advance the fact that youre going to have a special value through all your channels. So all of the pieces that come together to make.
That really powerful special opportunity also under fire. So we do from Thomas we do measure.
The productivity from when we have.
Today's special value adds planned versus when Theres, a substitution and we do observe material.
Impact.
Don't think we've quantified that exactly publicly but certainly there is there is an impact to how these challenges work their way through our P&L.
Yes.
I knew that was complex I appreciate you, giving that shadow response, thank you very much.
Great.
And before we close that question and answer session I will turn to Carla Casella with Jpmorgan. Your line is open. Please go ahead.
Thank you again.
So just trying to understand on the unit weakness I.
I wanted to just drill down a little bit more if you can break out any.
The differences between either online unit sales versus true viewership.
Or if it if it comes it any different kind of age cohort of the consumer or you know if it comes from either new reactivated or existing customers.
Any more detail at the.
The closing is would be helpful.
Yes. The unit decline is really coming from it goes back to the different product categories in which we had the most significant.
Pressure and that was ultimately an R. R.
In our home categories.
That coupled with the overall decline in new customer.
Growth in those categories, where they have the highest affinity is where you would see the unit decline.
Setting that Youll see the unit increases and such things as apparel and even in some of the subcategories within some of our other fashion categories.
That best customer is continues to look for opportunity and value in things that are of particular interest for them.
During the course of the quarter.
Okay. So that makes sense, so you're not seeing a major change or shift in the kind of age.
Bracketing of your consumer.
We look at that over a course of time.
One of the things that we usually do is provide a little more insight to that on an annual basis in our November sort of Investor day.
We do know that.
You see within the economies that.
The age bracket.
55, and older let's say.
Are the ones that are continuing to have.
Capacity.
More resiliency in the.
In the marketplace.
But yet we continue to have great connection.
Connection with our younger cohorts as we continue to expand in some of these digital platform. So it runs the gamut, but once again, we look at that over a course of.
A year not necessarily in a particular quarter.
Okay, great. Thank you for all that.
And that is all of our questions for today I'll turn the conference back for any additional or closing comments.
Just wanted to thank everybody again for their interest.
Want to reiterate that I think.
We have a lot.
So we're working on currently I think it's a business that is adjusting everyday but we as a leadership team. We're also concentrating on making the business better every day and I think there's a lot of energy and momentum in different parts of the business as we continue to do that I would also.
Invite everybody again.
The Investor event, I think we'll have a little bit more space and the opportunity to talk about some of these efforts in the go forward strategy at that time, but thank you for your interest in <unk>.
Look forward to continuing to talk to the people on the call in different environments.
Yes.
Ladies and gentlemen that will conclude today's call. We thank you for your participation you may disconnect at this time.
[music].
Okay.