Q2 2022 Qurate Retail Inc Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the great retail ink 2022.

Q2 earnings call. During the presentation, all participants are in listening 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 August 5th. I would now 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 the Private Securities Litigation Reform Act of 1995. Actual events and results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent...

10K files by our company and QVC with the FCC. These forward-looking statements speak only as of the date of this call and curate retail expressly disclams any obligation or undertaking. Does this emanate any updates or revisions to any forward-looking statement contained herein? To reflect any change in curate retail's expectation with regard there to already changing events, conditions, or circumstances on which any such statement is based, please note that we have published slides to a company that already is released.

On today's call we will discuss certain non-GAAP financial measures including adjusted OIDTA, adjusted OIDTA margins, free cash flow and constant currency. Information regarding the comparable GAAP metrics along with required definitions and reconciliations including preliminary note and schedules 1 through 4 can be found in Ernie's Press.

In 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 including preliminary notes and schedules one through four can be found in the earnings press release issued today or our earnings presentation.

which are available on our website. Today, speaking on the earnings call, we have Curate Retail President and CEO David Rawlinson. Curate Retail Group's CFO , Jeff Davis. And Curate Retail Executive Chairman, Greg Fays. Now I'll hand the call over to David. I'll hand the call over to David. I'll hand the call over to David.

Thank you, Courtney, and good morning to everyone. Thank you for joining us today for your interesting QA retail.

We are continuing to experience the weakness in the macro environment that is affecting all of the retail, as well as some particular issues that uniquely impact our business model. That uniquely impact our business model.

We are also gaining a better understanding of the many ways that the Rocky Mount Fire affected our operations and are working our way through those issues.

Total company revenue declined 13% and constant currency in Q2. Macro headwinds of inflation, the worn Ukraine and rising interest rates impacted cut consumer sentiment. Supply chain challenges in the downstream impacts from the Rocky Mount Fire continue to force us to change plan product offerings on short notice and affected the availability of quality merchandise and our operational efficiency.

In the U.S., QVC and HSN shifted approximately 75% and 60% of their today's special values, or TSVs, and today's specials, or TSs, respectively. Our TSVs and TSs are the driver of engagement around which today's programming is built. So changes at short notice have an outsized effect. Given the supply chain and Rocky Mount challenges.

order to delivery times, worry-longated, which does impact our customer satisfaction, although those challenges are moderating.

Total company adjusted Oyubadai declined 38% in constant currency HQ2, primarily reflecting lower unit volume. This pressure was heightened by cost inflation for freight, labor, and marketing, as well as our inventory reduction actions. The simple truth is that we have been experiencing cost deleverage in an inflationary environment, and are just now able to start to push the counter some of the deleverage.

Jeff will discuss each of our four businesses in more detail shortly.

While it will take time to show up in the numbers, I do want to talk about four key developments that demonstrate the progress of our turnaround.

First, at our June investor event, we unveiled Project Athens, a three-year plan to establish revenue stability, OIBA.margin expansion, and incremental free cash flow generation. We established fiscal 2022 as our base year, where we set the foundation for top and bottom line progress through 2024, while navigating the current challenging environment. We are already starting to make progress here, which I will discuss in more detail shortly. iOS

Second, we have very substantially augmented our executive staff and talent with the addition of a president of our streaming business and a chief merchandise officer for QVC US. We'll have more to say about these additions at Liberty's Investor Day in November . These hires further validate our business model as the leader in human-centric retail and show that our story is attracting top talent.

Third, our free cash flow improved materially from Q1's use of $244 million to positive free cash flow of $107 million. We reduced debt and leverage ratio as well. Operating cash flow increased $300 million sequentially from a use of $179 million in Q1 to a positive $121 million in Q2 driven primarily by working capital improvement.

these gains were bolstered by certain discrete items that Jeff will discuss in more detail.

Fourth, as I look at our Q2 performance, we see some initial signs of stabilization at QXH. The rate of revenue decline moderated within the quarter. We also saw the rate of decline in our customer count, stabilize compared to Q1. Clearly, we have much work to do, and we do not anticipate our recovery will be a straight line, but the early signs of declines in the rate. But the early signs of declines in the rate.

of revenue decline are encouraging, particularly considering the challenging macro environment.

We are making early progress at correcting executional weaknesses throughout the organization and have started to implement several initiatives laid out in Project Athens. We've started to see some tangible progress and are confident in our Go Forward strategy for Curate to create engaging and deeply personalized shopping experiences for our customers while enhancing returns for our shareholders.

Let me now provide a progress update on the five pillars of Project Athens. I'll start with pillar one, which is to improve customer experience and grow relationships.

In Q2, QBC and HSN customers remain engaged as average daily reach in total minutes views increased year over year, and sequentially from Q1. Our reach and attention are as strong as ever. Evidence of our powerful and unique retail assets, re-engaging with our incredibly loyal and powerful customer base is key to our success. Orion Screen

QXA customer count declined to 9.5 million for the last 12 months ending June 30. As detailed on slide 8, we experienced a meaningful increase in customer count during the pandemic. Compared with the pre-pandemic period, June 2019, 75% of the customer count decline is attributable to new and reactivated customers.

Those reductions are primarily due to low to product availability in categories such as consumer electronics and home subcategories that are highly correlated with new customer acquisition.

The pressure in these cohorts was also due to marketing cost inflation and reduced marketing efficiency. Our existing customer cohorts look strong across a number of metrics, including frequency of purchases, viewership, and spend per customer.

When we introduced Athens, we said that we had underserved our best customers.

In April , we began making proactive outbound calls to our top tier customers to reinforce their importance to us and gain their perspective on how we can better serve them. In June , we celebrated QBC's 36th birthday by providing 10,000 of our top customers with the $20 account credit valid during our birthday week.

At HSN, April was customer appreciation month and featured weekly VIP savings for our HSN card holders. And in July , we celebrated HSN's 45th anniversary with a new, simpler, exchange policy.

We've started to improve personalization efforts as well. We installed a new recommendation engine on our web, mobile web, and in our apps to improve the level of personalized product suggestions.

At QVC, we launched our first trigger push notifications in June , which sends a Taylorize, personal rise notification through our plus messaging based on the user's activity on our app.

And finally, we were on semi-personal loss campaigns on our website to drive urgency and impulse. And finally, we were on semi-personal loss campaigns involves.

We sent messages to people who added an item to their cart that the TSB price would end that day. And as a result, we experienced a low to mid-single digit increase in conversion in June .

We also expanded the customer relationships by capitalizing on our newly signed ION distribution agreement, which reaches 15 million additional homes.

Moving the pillar to.

which is to rigorously execute core processes.

With respect to pricing, we had multiple pricing tiers between sale and TSV pricing, which confused customers. As a result, the customer's value perception of the TSV and TS was eroded. In July , we began putting the today and the special back in the TSV and TS by shortening their availability to only one day and offering our best price, driving a greater sense of urgency.

We are reclaiming that deal feeling by establishing and communicating clear rules. So our customers know our TSV and TS's are the best price.

In support of our strategy, we will also be adjusting our programming with new host and the return of guests to our studios in Q3.

We're also actively working to freshen our assortment. In Q2, we demonstrated the ability to expand our assortment by leveraging our in-house capabilities in intellectual property, adding third-party brands, and developing brands with celebrity talent. We added new brands at QVC that performed well, including Studio Park, Lands' End, Sports Savvy, and Encore by Dina Menzel.

We also benefit it from expanding Kim Gravel and the swimwear and beauty. We are excited to announce a new agreement with fanatics, which will start on HSN with plans to expand to QVC US as well. This agreement provides us access to a broad selection of merchandise from fanatics across sports.

styles, and sizes on a dropship basis.

One-third of the merchandise fanatics provides us will be exclusive to HSN and QVC over five year period and we will have two fanatics TS's or TSV's per year. And we will have two fanatics TS's or TSV's per year.

Why is Fanatic's interested in working with our female-focused brands? Because their customer base is remarkably diverse. They have the industry's best selection of products for women, and because we have historically had an extraordinarily strong sports business around unique events like the Super Bowl, where mom often seeks to outfit the full family.

Pillar 3 is to lower the cost to serve.

Project Athens is a transformational program designed to improve growth and operating margins and cash generation. We identified multiple avenues to generate hundreds of millions of dollars and not net-adjusted Oyba.Dollars over the next two to three years. Many of these programs are already underway and others will be implemented in the second half of the year. We expect to see the impact of these efforts flow through in 2023 and pick up momentum in 2024.

Project Athens is a three-year plan and includes strategic initiatives to improve our balance sheet leverage and cash flow to make long-term decisions in the best interest of the company and our shareholders. In June and July , we entered into several fail-lease back agreements for real estate assets, including our studio of park corporate headquarters and broadcast studios, as well as our fulfillment centers and Ontario, California, Pony, Platt, Tennessee, Florence, South Carolina.

gentlemen's in there.

We are now redesigning our next generation network that will satisfy consumer expectations, leveraging a node-based delivery system with more balanced geographic dispersion and adding 3PL fulfillment capacity.

We expect our in-state network will be more efficient and less expensive to operate, while also delivering on the improvements we need to see on our customership times. Over the next 24 to 36 months, we expect to materially reduce order to delivery times. At full execution, our objective is for more than 90% of orders to be delivered in five days and the vast majority in three days or less. Importantly, we intend to use insurance proceeds from Rocky Mount.

towards funding our ongoing Fulfillment Center Network Optimization.

Pillar four is to optimize our brand portfolio. As we've stated, the best way we can create value in the short term from our broader portfolio is to return Zulily to growth and profitability as well as to sustain Cornerstone's momentum. We have strong leaders at both businesses and each is focused on executing their individual plans. We'll be open-minded as to what unlocks the most value for our brands and our shareholders.

As Zulily, Terry Boyle, its new president and CEO , is already making an impact. In the second quarter, the team executed cost actions across multiple fronts with a focus on resetting the unit economics and the business. We reduced corporate headcount in May, approximately 15%, including open roles, which is expected to generate annual savings of approximately $18 million.

Zulilyk completed its planned closure of its Pennsylvania fulfillment center in early July . This action is anticipated to generate $10 million of annual savings. We also reduced marketing spend, given dramatic cost inflation and diminishing returns, and we are actively working to redeploy that in a more efficient manner across more diverse channels, including influencers, top-of-the-funnel TV advertising, and search engines.

I believe we are pivoting from a period in retail, with historic supply shortages to one of the excess inventory, and we expect Zuluilli will be a beneficiary. The team has had extensive conversations with numerous brands interested in establishing a relationship with Zuluilli, some of which you may already have seen on our site, including Eddie Bauer, Kenneth Cole, Keane Sweaty Betty and Third Love.

Cornerstone sustained revenue growth with record revenue at each of its four brands. This growth was driven by strength in the bath, case of goods, home furniture, soft textiles, and the peril categories. We remain excited about the momentum of this business and look forward to opening three additional retail stores this year.

Pillard Bob is to build new high-growth businesses anchored in our strength.

This is about participating in the fastest growing segments of our addressable market. The biggest thing on the big screen and live stream shopping focus on the small screen.

Earlier this year, we established the Video Commerce Ventures Group, which now owns our streaming experience.

We recently introduced QVC Plus and HSN Plus. Our new streaming service experience designed to reach new and existing customers via the web. Through these new websites, we will reach more customers across digital platforms and link them straight to the streaming experience, which features great content, daily deals, and exclusive offers. That in turn will hopefully drive them to engage on our streaming apps on TVs.

We continue to experience strong growth and monthly active users of our streaming service. We continue to experience strong growth

And we continue to expand distribution. We are pleased that we have signed a new deal to bring HSN to YouTube TV, a leading streaming platform with more than five million subscribers and trailers as of the end of Q2. HSN will join QVC on YouTube TV.

To wrap up, we are pleased with the initial signs of declines moderating at QXH, the addition of key talent to our leadership team, and the initial progress on Project Athens initiatives at QVC, HSN, and Zulily, as well as the sustained momentum at Cornerstone and QVC Japan. Importantly, we fortified our balance sheet and increased our liquidity position.

We recognize there is much work to be done, and we are motivated and confident on our ability to deliver on Project Athens. We look forward to reporting our progress and future calls. 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 and a June 30th, 2022 to the same period in 2021. and a June 30th, 2022 to the same period in 2021.

starting with QXH.

Revenue declined 12%, primarily on 9% lower unit volume.

Overall, customer counts declined, reflecting macro factors, supply chain disruptions, and downstream impacts from the Rocky Mount Fire.

Although total customer account declined, QXH experienced a 5% increase in average spend for customer and an 8% increase in items purchased.

E-commerce revenue declined 12% in line with overall revenue performance.

is shown on slide six.

We continue to experience a shift in category mix primarily into a peril and continue to reduction electronics. Victoria

A peril declined only 1% against the 19% growth in Q2 2021, which shows strong results on a two-year basis.

The Q2 performance reflects our strategy to lean into our top brands that resonate with our best customers and de-emphasize those that have not.

We experience gains in top brands such as Susan Graver, Kim Gravel, and the Cannes Cameron Burr, Diane Gilman, and Iman.

We've also expanded into swimwear a white space opportunity.

These actions are consistent with Project Athens priorities to better serve our most loyal customers and freshen our assortment. And freshen our assortment.

Beauty declined 14%, primarily due to the weakness in bath, body, and hair care.

partially offset by gains in skin care.

Beauty is notably a strong category with new and reactivated customers.

This quarter, a meaningful percentage of our sales decline was attributable to new, reactivated, and one-time occasional customers.

Supply chain constraints also affected the category's performance as we continue to rebuild our inventory that was destroyed in the fire at Rocky Mount.

In addition, sales were impacted by major transitions of brand ownership and on-air guests at two large brands.

Accessories declined 11% against an 11% growth in Q2 2021. The year-to-year decline was primarily due to lower demand for leather handbags, intimates, and casual footwear. The year-to-year decline was also due to lower demand for leather handbags, for the year-to-year decline.

Home revenue declined 12% with lower demand primarily and garden, fitness and wellness.

Kitchen electronics, electrics.

and floor care, which was partially offset by gains in food and cookware.

Electronics revenue declined 33%.

Challenges were primarily in computers, home office, smart home and tablets. All subcategories were particularly strong during the pandemic, and especially with new customers, and have been pressured by product availability issues.

Adjusted OIVA declined 41%, and adjusted OIVA to margin decreased 650 basis points.

Looking at the main components of the margin compression, gross margin decline to approximately 370 basis points, reflecting product margin gains, which are offset by unfavorable fulfillment expenses and inventory of ceilessence.

Product margins increase primarily due to higher margin category mix into a peril and pricing actions on proprietary products, which were principally offset.

by our inventory clearance actions and inbound transportation cost inflation.

Fulfillment expenses reflect higher freight rates, wages, and fuel costs.

Capacity and operational inefficiencies.

and sales the leverage.

These headwinds are partially offset by savings.

from network optimization, in which we decommission our

Lancaster, PA and Roanoke, VA, to fulfillment centers in the second half of 2021.

And then the last component was inventory obsolescence, which increased primarily due to prior year favorable provision adjustments and a higher current year reserve.

Operate expenses were favorable, excuse me, unfavorable. So operating expenses were unfavorable, 55 basis points.

primarily due to commissions and customer service.

Commissions will primarily due to a higher mix of sales and a commissionable window and expanded distribution, including the launch of ION. ?? by big name, the chief!

I'd note that these new distribution agreements are expense and are not capitalized given the payment terms.

Customer service reflected sales fee leverage and increased wage rates.

SG&A was unfavorable approximately 220 basis points, but fixed costs were unfavorable primarily due to sales deleverage.

That debt pressure reflects comping a prior year favorable reserve release and an increased current year provision reflecting modestly higher payment installments and customer delinquency.

However, bad debt as a percent of net revenue.

was only approximately 1% and remained about 25 basis points favorable to our pre-pandemic period.

Marketing reflects cost inflation and lower efficiency of our marketing spend.

Let me provide an update on the fire related costs and insurance recoveries from our former Rocky Mount North Carolina Fulfillment Center.

In Q4 2021 through the first six months of this year and the June 30th, 2022, we recorded $385 million of fire-related costs, including approximately $95 million of inventory write downs.

We estimate that 266 million of the total costs are probable for insurance recovery.

As of June 30th, 2022, we have received $200 million in insurance proceeds, and the remaining $66 million was recorded as an accounts receivable. As of June 30th, 2022, the $70 million was recorded as an accounts receivable.

At the end of the quarter.

After the end of the quarter.

We received another $50 million of insurance proceeds bringing the total insurance proceeds received the $250 million.

Moving to QVC International, my comments will focus on constant currency results.

Revenue declined 8%, primarily on lower unit volume and higher custom returns.

Our European business declined 14% and experienced cautious consumer sentiment from historic inflation and the ongoing war in Ukraine, as well as supply chain and product scarcity challenges

QVC Japan was less impacted by these factors and grew 2% in Q2.

Customer count declined essentially in line with revenue and e-commerce revenue decreased 2% and penetration increased 15 basis points.

Our QVC International, QVC International, experienced declines in all categories except the peril, which increased 5%.

Adjusted Oibada decreased 24% and adjusted Oibada margin declined 330 basis points.

The primary factor for the margin compression was lower gross margin, followed to a less than extent by margin pressure from S-GNA and operating expenses. Looking at gross margin, which declined 270 basis points, primarily due to lower product margins and higher fulfillment costs,

Product margins decline reflecting lower initial margin from inventory clearance actions.

Unfavorable returns and lower shipping and handling revenue due to reduced unit volume.

Filment costs reflect sales, the leverage, and higher labor costs caused by COVID-related staffing issues.

as well as higher freight rates.

European markets.

Operating expenses were unfavorable primarily due to sales the leverage, TV commissions, and customer service costs lower than last year.

SG&A was unfavorable due to higher fixed costs and marketing expenses, partially offset by reduced customer management.

Management and Senate of Compensation of course.

Moving to Cornerstone, Revenue Group 4% with record performance at each of its brands, driven by demand for bath, case goods, dining and kitchen, and home furniture at its home brands and for apparel and home textiles at Garnet Hill.

He commerce increased 5% and penetration rose 50 basis points.

Adjustive OIBA decreased 15% primarily due to higher inbound transportation costs and detention and demerit fees for storage and handling.

and were partially upset by positive initial margin gains.

Looking at Zulily.

Revenue to client 45%.

primarily reflecting supply chain constraints as well as marketing inefficiencies due to cost inflation that caused Zulily to reduce marketing spend which affected customer acquisition and retention.

As David mentioned, Zoolily took the size of cost reduction actions with its corporate head count and recorded a $6 million restructuring charge included in operating income.

Adjusted Oybed Out declined $27 million, primarily due to salesy leverage, which was partially offset by reduced marketing spend and higher product margins driven by pricing actions and higher mix of its factory direct business. And higher mix of its factory direct business.

Turning your attention to our balance sheet and cash flow, for the six months ended June 30, 2022, total capital expenditures were $101 million, and we spent $15 million on renewals of our TV distribution contracts.

For the six months in the June 30th, 2022, total free cash flow was a use of cash of $137 million versus a source of cash of $30 million.

$331 million last year.

The year-over-year decline was primarily attributed to the

Do lower operating income, an unfavorable working capital.

partially offset by lower payments for TV distribution rights and insurance proceeds.

For the three months ended June 30th, 2022, regenerated $107 million of positive free cash flow, which benefited from a second payment of $100 million insurance recovery related to Rocky Mount File.

Regarding the sale lease back transaction,

that David mentioned.

We completed the transaction related to Ontario California Fulfillment Center in Q2 and received aggregate consideration of 340 million dollars.

The composition of which is detailed in our earnings release issued today. We also have a slide deck posted at a website.

The cash proceeds of $250 million were used to reduce our standing QVC international revolver balance.

Subsequent to June 30th...

We completed the sale and lease back a five additional properties and received $443 million and cash proceeds which we're used to reduce our revolver bounce.

In aggregate, we received after-tax proceeds of approximately $685 million, and the tax liabilities for these sites will be largely payable in the second half of 2022.

We've entered into long-term arrangements for these properties at attractive rates, which average annual rent expense of $47 million that will impact our adjusted way bit out.

The weighted average lease tenor across all six properties is approximately 19 years.

This is an additional, there is additional detail on these transactions in the earnings presentation posted to our website.

Note that we updated our effective tax rate guidance for 2022.

to mid to high 30s per second.

This is elevated relative to prior years due to the expiration of certain curate retail green energy investment tax credits at the end of 2021. Congress restrictions.

The location of operating income in certain high tax

high rate tax jurisdictions in 2022.

Particularly in QBC, Japan.

and the treatment of dividends on cure rates preferred stock, which are recognized as interest expense for GAAP purposes, but are not deductible for tax purposes.

Despite this elevated effective tax rate for gap purposes, our expectation for annual cash tax rate for 2022 is 13 to 15% of adjusted OIVRA. The tax rate for the annual cash tax rate for 2022 is 13 to 15% of adjusted OIVRA.

Looking quickly at our debt profiles, David mentioned in June we made a cash tender offer to receive more than 70% of the QVC.

Senior secured notes due in 2023. We financed the cash tender with cash on hand, as well as the QVC revolver, and subsequently paid down a portion of the revolver with a proceeds from Ontario, California.

On June 30th, we had $914 million drawn on the QVC Revolver with $2.3 billion of available capacity.

Our leverage ratio is defined by the QVC revolving credit facility, was 2.3 times as of June 30th, providing ample cushion to the relative and relative to the 4.5 maximum net leverage covenant in our credit facility, and was further improved by the aforementioned $443 million of debt repayment completed after quarter end.

Our net leverage covenant includes the adjusted Oivida, debt and cash.

from QVC, Cornerstone, and Zulily.

We remain committed to the 2.5 or better long-term leverage target and we believe our debt level is manageable especially with the recently increased liquidity position.

In our earnings presentation, you will find additional detail on the covenant structure in both the QVC credit facility and the bonds.

And now I'll turn it over to Greg.

Thanks, Jeff. I wanna touch briefly on the aforementioned Delispect transaction.

which we view as very positive.

As you'd note, we received cash proceeds that calculated about a pre-tax multiple of cash of approximately 17 times and even higher on an after-tax basis given the basis in the assets compared to the directability of the interest. In the assets compared to the directability of the interest.

This is a substantial premium relative not only to our current multiple

But even to our historic high multiples.

And we view it as an attractive source of financing capitalized on a relatively hot real estate market while importantly maintaining QVC's operational flexibility for its distribution and fulfillment centers.

Our liquidity position was meaningfully improved by these transactions as well as the TVC's working capital improvements during the quarter. The TVC's working capital improvements during the quarter.

And I feel good about the important actions being taken on working capital and inventory levels, which is an important source of future capital.

Net we reduced QVCs leveraged to 2.3 times at quarter-end, as Jeff mentioned, and this provides additional headroom for QVC at the both. It's bank credit facility, bond and dentures, and preferred.

We now have ample cushion under both covenants.

even more so after additional sales lease back transactions, which were completed in July .

And this fortified balance sheet forms a solid foundation for which David...

And a team can execute on the five pillars of project Athens.

Just one more note, our annual investor day will be Thursday November 17th in New York. Please save the date.

Additional details will be provided soon. We hope to see you many of you there. And with that operator, we'll open up for Q&A. And with that operator, we'll open up for Q&A.

Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. Just remember to unmute your phone to allow that signal to reach the equipment.

Once again, Star 1. We'll begin with Jason Haass, Bank of America.

Hey, good morning, and thank you for taking my questions.

So David, you mentioned that you saw a moderation in the revenue decline through the quarter, so I'm curious if you could provide a little bit more color on what you think is driving that. I'm curious if that was a reflection of the supply chain improving, any of the work you've done to mitigate the disruption from Rocky Mount. Just curious if you could provide any more color and if that's continued quarter to date as well.

Yeah, thank you, Jason. I appreciate the question. I really think it's a combination of things. I think some of the execution changes we've made in the business that I tried to detail a bit in my script help. I think we're executing better today than we were six months ago, especially just nailing our core value proposition, and I think that's...

helped to put a bit of a floor under the business. I think some of the things we've done in terms of new brands and attractiveness have also helped. We're also continuing to see our core customer and our best customers show up even down, even though we were down slightly in count. What we saw in terms of frequency approaches were very strong and actually.

What we saw in terms of average purchase was up about 7%, up to about $3,600. That's the highest number we've seen in the last four years. And so our best customers, I think, are really still right there and showing up. Our viewing numbers are still growing and strong. I also think we're, frankly, up against some softer compares.

Now we're coming off of some really hard compares so that also helps. Finally, I would say we're starting to get back to, or at least starting to work through some of the issues we've had at Rocky Mount as we get into some of the inventory that was damaged or stored. And as we clear that, we're being able to bring things.

to our programming and a slightly more real-time way as we gain some of the flexibility and the model back. So I think it's attributable to the improvement sort of top to bottom. All of that said, it's still a very challenging environment. These are improvements from a relatively disappointing starting point and I would say they're incremental.

improvements, we're still a long way from where we want to be to be a growing business in QX8.

That's great to hear. And then as a follow up at your recent investor event, you laid out some long-term guidance, including flat revenue growth for 2023 and double digit employment growth. And double digit employment growth.

So I'm curious if that still holds, if you could talk about what the drivers of that will be, what gives you confidence that you'll be able to get to flat revenues and then drive that double digit expansion or growth for Oedda. Thank you.

Yeah, that's great. I think we talked about stability in revenue and double digit annual Cagars in the Oibidah. We still feel very good about that. We still feel very good about that.

And it really is executing off of all of the pillars we talked about. We talked about the balance sheet a lot today because we need to have the balance sheet liquidity cash flow position to be able to execute on our plan. But also project Athens is a rigorous detailed plan revisiting almost every part of the business. We are now going into a period.

of planning and implementation where we will have the initiatives down to the person and accountability level over the course of hundreds of initiatives. And so there's a great deal of execution and a great deal of detail that goes into what we predicted at the investor event in terms of especially the Oyibitda in the pre-cash flow growth and the business and we think we continue to see.

that opportunity. We continue to be encouraged by the early signs we have from implementing some of the initiatives. And I would also say part of Project Athens was of course the growth initiatives in the video commerce venture space and we continue to see really strong growth from a low base but really strong growth in that space as well. So I think we are as confident if not more than that.

I'm just wondering where we are in that process. How much more is there to go and how much could that be worth in dollars? Thank you.

Well, I'll, this is Greg, I'll start, and then I'll let Ben and David comment. We think they were also very good transactions. Thank you. And these actions taken up to June , strengthen the balance sheet capacity and resulted in more than $2.5 billion of liquidity between our cash and bond capacity and the revolver. And we're going to be able to get a lot of money. We're going to be able to get a lot of money and the revolver.

It also gave us close to a billion and a half of restricted payments capacity to support parent level needs including debt and the preferred. So important things to ensure a very strong balance sheet.

Ben, maybe you want to comment on any further progress?

Yes sir, and just to note the numbers that Greg mentioned were based on the actions in June . The transactions in July will add even more balance sheet comfort. Look, I'll let David respond as well, but we will continue to focus on you know neutral to positive operational impacts of any of these transactions, but we have a large global real estate portfolio. That market or that capital market.

continues to be very favorable and I would expect us to look at additional opportunities.

Yeah, I think that I wouldn't add anything except that we feel very good about the way the cell leaseback positions us to operate and to optimize our operations going forward and everything here operationally is consistent with what we're trying to achieve with project assets.

Got it. Thanks very much and good luck.

Good luck. Thank you.

Now we will hear from Carla Casilla with JP Morgan.

Hi, I'm just curious. Have you said what amount of square footage was sold with those facilities and how much your own square footage you have remaining? Thank you. Thank you.

Hi, I'm just curious. Have you said what amount of square footage was sold with those facilities and how much on square footage you have remaining? We have not said anything publicly about that.

Okay, and then on the, just the covenant question, so are sale lease backs included in your debt levels or are those excluded from your covenant calculations?

The least liability that we recognize on a consolidated basis is not debt for purposes of the

the KVC Bond and Dendra or the KVC credit facility.

Okay, great. And then just curious, you commented in the press release about the Liberty Interactive, I guess, as an asset that you put on the balance sheet for a contingent asset. Can you just explain more what's going on with that and the timing of that potential release of the indemnification asset?

Talk about that same identification agreement with Robin.

Oh, sorry, yeah. So we have, Curate has a exchangeable that's due in 2023, or sorry, did not do in 2023, it has a put in a call date in 2023, as part of the real transaction that's sent charter shares out of Curate. There was an indemnification. So to the extent that the value of that security, the market value or the parity value, that security is above.

face value. There's an indemnification where if someone were to voluntarily convert, we would notify Liberty Broadband and Liberty Broadband would sign cash for that incremental value above the face. And QVC or sorry, Q-rate would be responsible for the face value only. And just mind everyone.

Curate received is part of that M&A transaction cash equal to the face value at the time.

Okay, great. So something could happen on that. If it does, it depends on the holder and it's between now and October .

Yes, any time between now and October to the extent somebody voluntarily converted.

the value above the face value would be the responsibility of Liberty broadband.

Okay, great. And the paid value of responsibility. Okay, and the paid value of the responsibility of curate. Okay, and the paid value of the responsibility of curate.

and you're in your debt.

So restricted payments from QVC permit payments of curate debt, or is it just permit payments for curate and the burdening act of interest? So all of the credit facility and the QVC bond inventors carve out or do not include as a restricted payment debt service, which is interest and principal payments. So there's no restrictions on our ability to send money out as long as we have cash or the ability to borrow it.

Okay, great. Super helpful. There's one more debt question. On the preferred, that coupon, that's cash pay. Is there opportunity to pick that if you wanted to? It is not a voluntary instrument. We could miss the cash payment and then there are penalties that accrue, but that is a cash pay instrument and we intend to pay it. I think what we were going to say is we have substantial flexibility to fund those payments.

Great, okay, thank you so much.

And we will take our final question today from William Reuter with Bank of America.

Hi. My first question is, it seems when you guys were mentioning all the challenges, you were talking about the global supply chain, then the challenges in North Carolina at that facility, and then demand is a challenge. Thinking about when you will have, for example, the Rocky Mountain facility, that volume shifted to other facilities more successfully.

When could we start to see improvement in each of those three areas? I understand that demand is something you don't have a sense for, but I'm trying to get a sense for the two that maybe you do have some visibility into global supply chain and then the facility in North Carolina.

I'll let I'll let you know that

Jeff, follow, but on the global supply chain, I'm not sure we have better visibility than the market at large. What I would say is the global supply chain is still troubled, but I would say it's incrementally more manageable than it was, say, three to six months ago, and I think it's incrementally more predictable than it was three to six months ago. And we've certainly seen the costs stabilize. They haven't always come down substantially, but we're not...

I think we've started making significant progress in stabilizing our fulfillment center, both storage and delivery capacity. I think we, on things like order to delivery times, I think we've seen the worst of the increase in our order to delivery times. Those numbers are now starting to get back to normal, although they are not quite at normal in terms of our delivery expectations yet.

the amount of stored inventory is starting to come down slowly. You can see that a little bit in our quarter over quarter inventory numbers as those started to inch down. And so I think we're going to be working through Rocky Mound again through the end of this year, maybe into the beginning of next year. But I would say I think we've started making substantial.

progress in getting to a normal operating posture. Okay. And then in terms of the reduction in inventory, when you look at the amount of inventory you have in total, and then kind of thinking about a more normalized level, over the next year, what type of an inventory reduction do you think we might be expected to see?

You know, it's part of Project Athens. We had stated that we were going to reduce our inventories by 20 to 30% over the next 18 months. So that would take you through 2023. We're making some good progress against that. As David had mentioned already with the actions that we're taking with respect to some of the cell and clearance actions as well as one of the things that we didn't have a chance to share as much around us.

other avenues for us to use, such as Zoolily as a Clarence have a new forest. in

So, you know, we're on track to do so. We continue to think about ways of as we balance our consignment and drop ship vendor relationships also but all of these things will go to support that revenue reduction.

Okay.

Yeah, hopefully not a revenue reduction. Okay, and just lastly from me, you declined on Carla's question around the amount of square footage remaining. I assume you made decline this as well to respond, but in terms of the value of remaining either real estate or other assets that you could monetize if you were to choose to, is there any kind of ballpark numbers you could give us?

I think you accurately guessed our answer.

You were very forward looking there and thoughtful. But thank you for the questions. And thank you to the listening audience. With that, I think we are complete. Again, thank you for your interest in Curate Retail. And we look forward to speaking with you next quarter, if not sooner, and seeing many of you in November .

Thank you, that's all. Thank you, that's all. Thank you, everybody.

Ladies and gentlemen, this will conclude your conference for today. We do thank you for your participation and you may now disconnect.