Q2 2022 Qurate Retail Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Great Retail Inc. 2022.
Q2 earnings call during the presentation. All participants are 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 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, and 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 day.
This call and curate retail expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statement contained herein to reflect any change in keurig retail's expectation with regard thereto or any change in events conditions or circumstances on which any such statement is based please note that we have 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, including preliminary note 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 <unk> retail president and CEO , David Rawlinson curate retail group CFO , Jeff Davis, and curate retail executive Chairman, Greg and say now I'll hand, the call over to David.
Thank you Courtney and good morning to everyone. Thank you for joining us today and for your interest in <unk> retail.
We are continuing to experience the weakness in the macro environment that is affecting all of retail as well as some particular issues that uniquely impacted our business model.
We're also gaining a better understanding of the many ways that the rocky Mount Bayou are affected our operations and are working our way through those issues.
Total company revenue declined 13% in constant currency in Q2 macro headwinds of inflation the war in Ukraine.
Rising interest rates impacted consumer sentiment supply chain challenges in the downstream impacts from the Rocky Mount buyer continue to force us to change planned 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 <unk> and todays specials rts's, respectively are <unk> and <unk> are the driver of engagement around which the <unk> programming has built so changes.
Short notice have an outsized effect, given the supply chain and Rocky mountain challenges, our order to delivery times were elongated which does impact our customer satisfaction, although those challenges are moderating.
Total company adjusted OIBDA declined 38% in constant currency in Q2, primarily reflecting lower unit volume. This pressure was heightened by cost inflation freight labor and marketing as well as our inventory reduction actions. The simple truth is that we have been experiencing cost deleverage and then at <unk>.
<unk> area 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 Adams, a three year plan to establish revenue stability OIBDA 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 two.
124, while navigating the current challenging environment, we are already starting to make progress here, which I will discuss in more detail shortly.
Second we are 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 U S. We will have more to say about these additions at Liberty's Investor day in November these hires further validate our business model as the <unk>.
Leader in human centric retail and showed 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 reduce debt and leverage ratio as well operating cash flow increased $300 million sequentially from a use of $179 million in <unk>.
One to a positive $121 million in Q2, driven primarily by working capital improvements. 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 <unk> the rate of revenue decline moderated within the quarter. We also saw the rate of decline in our customer count stabilized 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.
Of revenue decline are encouraging, particularly considering the challenging macro environment.
We are making early progress at correcting execution of weaknesses throughout the organization and have started to implement several initiatives laid out in project Athans. We've started to see some tangible progress and are confident in our go forward strategy procure ray to create engaging and deeply personalized shopping experiences.
For our customers, while enhancing returns for our shareholders let.
Let me now provide a progress update on the five pillars of project Athans I'll start with pillar, one which is to improve customer experience and grow relationships.
In Q2, QVC and HSN customers remain engaged as average daily reach and total minutes views increased year over year and sequentially from Q1, our REIT 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 <unk> customer count decline to $9 5 million for the last 12 months ending June 30, as detailed on slide eight we experienced a meaningful increase in customer count during the pandemic compared with the pre pandemic period June 2019.
<unk>, 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 costs inflation and reduced marketing efficiency or existing customer cohort 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 gained their perspective on how we can better serve them in June we celebrated <unk> 36, a birthday by providing Tim.
Of our top customers with a $20 with a 20 dollar 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 recommendations.
And then Jim on our web mobile web and our apps to improve the level of personalized products suggestions at QVC, We launched our first trigger push notifications in June which sends a tailor raws personal raws notifications through our push messaging based on a user's activity on our app.
Finally, we were im semi personalized campaigns on our website to drive urgency and impulse, we sent messages to people who added an item to their cart that the TSB price within 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 with which reaches 15 million additional homes.
Yes.
Moving to pillar two.
As to rigorously execute core processes with respect to pricing, we had multiple pricing tiers between sale and TSB pricing, which confuse customers as a result, the customers' value perception of the TSV and PFS was eroded in July we began putting that today.
The special back in the TSV MTS 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 <unk> are the best price.
Yeah.
Okay.
In support of our strategy, we will also be adjusting our programming with new host and the return of guest 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 capabilities and intellectual property, adding third party brands and developing brands with celebrity talent, we added new brands at QVC that performed well <unk>.
<unk> studio Park lands in sports savvy and encore by demons out. We also benefited from expanding Kim gabel into swimwear in beauty, we're excited to announce a new agreement with fanatics, which will start on HSN with plans to expand to QVC U S. As well this agreement.
It provides us access to a broad selection of merchandise from fanatics across sports styles and sizes on a drop ship basis.
One third of the merchandise fanatics provides us will be exclusive to HSN and QVC over a five year period, and we will have to fanatics <unk> or <unk> <unk> per year.
Whilst fanatics 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 mob occupancy.
To outfit the full family.
Pillar three is to lower the cost to serve.
<unk> is a transformational program designed to improve gross and operating margins and cash generation, we identified multiple avenues to generate hundreds of millions of dollars and not net adjusted OIBDA dollars over the next two to three years.
Any 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, we.
We have taken a series of actions to optimize our balance sheet and improved liquidity in June we completed a cash tender offer for over 70% of our 2023 senior notes, we finance the tender offer with cash on hand and capacity under Qvc's senior secured revolving credit facility.
An efficient funding source given the dislocation we've seen in the bond markets.
Project Athens is a three year plan 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 sale leaseback agreements for real estate assets, including our studio.
<unk> corporate headquarters and broadcast studios as well as our fulfillment centers in Ontario, California, Piney Flats, Tennessee, Florida, South Carolina, and Suffolk, Virginia, We raised after tax proceeds of approximately $685 million.
And entered into long term operating leases at attractive rates that will continue to serve our needs while maintaining operational flexibility, we reduced debt with the proceeds from the sale leasebacks.
As we previously communicated we made the decision not to rebuild our rocky Mount fulfillment Center. We are now redesigning our next generation network that will satisfy consumer expectations leveraging of node based delivery system with more balanced geographic dispersion and adding three PL fulfillment capacity, we expect our in state.
<unk> network will be more efficient and less expensive to operate while also delivering on the improvements we need to see on our customer ship 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.
So look for us 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 to lily to growth and profitability as well as to sustain cornerstones momentum we have strong leaders at both biz.
<unk> and each is focused on executing their individual plans will be open minded as to what unlocks the most value for our brands and our shareholders.
As you Lily 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 in the business, we reduced corporate head count and May approximately 15%, including open roles, which is expect.
To generate annual savings of approximately $18 million.
So we will have 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 reduce 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 excess inventory and we expect that Lilly will be a beneficiary. The team has had extensive conversations with numerous brands interested in establishing a relationship with zoo Lilly some of which you may already have seen on <unk>.
Our site, including Eddie Bauer, Kim its coal team Sweaty, Betty and third love.
Cornerstone cornerstones sustained revenue growth with record revenue at each of its four brands. This growth was driven by strength in the Bath case goods home furniture soft textiles, and apparel categories. We remain excited about the momentum of this business and look forward to opening three additional retail stores.
This year.
Pillar <unk> is to build new high growth businesses anchored in our strength. This.
This is about participating of the fastest growing segments of our addressable market streaming on the big screen and livestream shopping focus on the small screen earlier. This year, we established the video Commerce Ventures group, the ecommerce debentures, 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 continued to experience strong growth in monthly active users of our streaming service.
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 5 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 <unk>. The addition of key talent to our leadership team and the initial progress on project Athans initiatives at QVC, HSN and <unk> as well as the sustained momentum at cornerstone and <unk>.
See 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.
Our ability to deliver on project assets, we look forward to reporting our progress in future calls now I will 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 June 32022 to the same period in 2021.
Starting with <unk> 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 Mountain fire.
Although the total customer count declined <unk> H experienced a 5% increase in average spend per customer and an 8% increase in items purchased.
E Commerce revenue declined 12% in line with overall revenue performance.
As shown on slide six.
We continue to experience a shift in category mix, primarily into apparel and continued reduction in electronics.
Apparel declined only 1% against a 19% growth in Q2, 2021, which shows strong results on a two year basis.
Q2 performance reflects our strategy to lean into our top brands that resonate with our best customers and deemphasize or those that have not.
We experienced gains in top brands, such as Susan Graver, Kim Gabel, canister Kamran Burger Diane Gilman any mine we.
We've also expanded into swimwear, a white space opportunity.
These actions are consistent with project athans priorities to better serve our most loyal customers and freshen our assortments.
Beauty declined 14%, primarily due to the weakness in Bath, <unk> body and hair care.
Partially offset by gains in skincare.
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 onetime occasional customers.
Supply chain constraints also affected the category performance as we continue to rebuild our inventory that was destroyed in the fire had 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 over year decline was primarily due to lower demand for leather handbags intimates and casual footwear.
Home revenue declined 12% with lower demand, primarily in 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 and were particularly strong during the pandemic and especially with new customers and have been pressured by product availability issues.
Adjusted OIBDA declined 41% and adjusted OIBDA margin decreased 650 basis points.
Looking at the main components of the margin compression.
Margin declined approximately 370 basis points, reflecting product margin gains, which were offset by unfavorable fulfillment expenses and inventory obsolescence.
Product margins increased primarily due to higher margin category mix into apparel and pricing actions on our 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 deleverage.
These headwinds are partially offset by savings from network optimization, and which we decommissioned are.
Lancaster, and Roanoke, Virginia fulfillment centers in the second half of 2021.
And then the last component was up inventory obsolescence, which increased primarily due to prior year favorable provision adjustments and a higher current year reserve.
Operating expenses were favorable currency unfavorable so operating expenses were unfavorable 55 basis points, primarily due to commissions and customer service commissions were primarily due to a higher mix of sales in the commission of a window and expanded distribution, including the launch of <unk>.
Sure.
I would note that these new distribution agreements are expense and are not capitalized given the payment terms.
Customer service reflected sales deleverage and increased wage rates.
SG&A was unfavorable approximately 220 basis points with fixed costs were unfavorable primarily due to sales deleverage.
That 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.
With 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 ended June 32022.
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 32022, we have received $200 million in insurance proceeds and the remaining $66 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 to $250 million.
Moving to QVC International My comments will focus on constant currency results.
Revenue declined 8%, primarily on lower unit volume and higher customer returns, our European business declined, 14% and experienced cautious consumer sentiment.
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 counts 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 apparel, which increased 5%.
Adjusted OIBDA decreased 24% and adjusted OIBDA margin declined 330 basis points.
The primary factor for the margin compression was lower gross margin fall or to a lesser extent by margin pressure from SG&A and operating expenses.
Looking at gross margin, which declined 270 basis points, primarily due to lower product margins and higher fulfillment costs product margins declined reflecting lower initial margin from inventory clearance actions on.
Unfavorable returns and lower shipping and handling revenue due to reduced unit volume.
Film costs reflect sales deleverage and higher labor costs caused by Covid related staffing issues.
As well as higher freight rates in European markets.
Operating expenses were unfavorable primarily due to sales deleverage TV commissions and customer service costs were lower than last year.
SG&A was unfavorable due to higher fixed cost and marketing expenses, partially offset by reduced customer.
Management.
Management and incentive compensation accruals.
Moving to cornerstone revenue grew 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 our apparel and home textile at Garnet Hill.
E Commerce increased 5% and penetration rose 50 basis points.
Adjusted OIBDA decreased 15%, primarily due to higher inbound transportation costs and.
Detention and demurrage fees for storage and handling.
And were partially offset by positive initial margin gains looks.
Looking at Xu Lei <unk>.
<unk> revenue declined, 45%, primarily reflecting supply chain constraints as well as marketing inefficiencies due to cost inflation that caused zulli to reduce marketing spend which affected customer acquisition and retention.
As David mentioned Zulli took decisive cost reduction actions with its corporate head count and recorded a $6 million restructuring charge included in operating income.
Adjusted OIBDA declined $27 million, primarily due to sales deleverage, which was partially offset by reduced marketing spend and higher product margins driven by pricing actions and higher mix of its factory direct business.
Turning your attention to our balance sheet and cash flow for the six months ended June 32022, total capital expenditures were $101 million and we spent $15 million on renewals of our television distribution contracts.
For the six months ended June 32022, total free cash flow was a use of cash of $137 million versus a source of cash of 30.
$331 million last year.
The year over year decline was primarily attributed.
The lower operating income.
Unfavorable working capital, partially offset by lower payments for TV distribution rights and insurance proceeds.
For the three months ended June 32022, we generated $107 million of positive free cash flow, which benefited from a second payment of $100 million and.
An insurance recovery related to Rocky Mount file.
Regarding the lease sale leaseback transaction.
David mentioned.
We completed the transaction related to Ontario, California.
California fulfillment center in Q2 and received aggregate consideration of $340 million.
Composition of which is detailed in our earnings release issued today and we also have a slide deck posted on our website.
The cash proceeds of $250 million were used to reduce our outstanding QVC international revolver balance.
Subsequent to June 30.
We completed the sale and leaseback of five additional properties and we received $443 million in cash proceeds which were used to reduce our revolver balance.
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 with these properties at attractive rates, which average annual rent expense of $47 million that will impact our adjusted OIBDA.
The weighted average lease tenure across all six properties is approximately 19 years.
This is an additional there is additional detail on these transactions and the earnings presentation posted to our website.
Note that we updated our effective tax rate guidance for 2022.
To mid to high 30% range. This is elevated relative to prior years due to the exploration of certain curated retail green energy investment tax credits at the end of 2021.
The location of operating income in certain high tax.
High rate tax jurisdictions in 2022, particularly.
Particularly in QVC, Japan.
And the treatment of dividends on curates 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 GAAP purposes, our expectation for.
Annual cash tax rate for 2022 is 13% to 15% of adjusted OIBDA.
Looking quickly at our debt profile as David mentioned in June we made a cash tender offer and receive more than 70% of the QVC.
Senior secured notes due in 2023 refinance the cash tender with cash on hand, as well as the QVC revolver and subsequently paid down a portion of the result revolver with the proceeds from the Ontario, California.
Sale leaseback on June 30, we had $914 million drawn on the QVC revolver with $2 3 billion.
Of available capacity.
Our leverage ratio is the buying by defined by the QVC revolving credit facility was two three times as of June 30, providing ample cushion to the relative and relative to the $4 five 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 OIBDA debt and cash from.
From QVC cornerstone and Julie.
We remain committed to the two five or better long term leverage target and we believe our debt level is manageable, especially with a recently increased liquidity position and our earnings presentation, you will find additional detail on the covenant structure and both acuity of both the QVC credit facility and the bonds.
And now I'll turn it over to Greg.
Thanks, Jeff.
I want to touch briefly on the aforementioned sale leaseback transaction.
Which we view as very positive.
As you would note we received cash proceeds that calculated about pretax multiple of cash of approximately 17 times and even higher on an after tax basis, given the basis in the assets compared to the deductibility 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 capitalize on a relatively hot real estate market, while importantly, maintaining qvc's operational flexibility for its distribution and fulfillment.
In centers.
Our liquidity position was meaningfully improved by these transactions as well as QVC is 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 qvc's leverage to two three times at quarter end as Jeff mentioned.
This provides additional headroom for QVC under both its bank credit facility bond indentures 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 from which David.
And his 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 many of you there and with that operator, we'll open it 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 mute your phone to allow that signal to Ritchie equipment once.
Once again star one will begin with Jason Haas Bank of America.
Hey, good morning, and thank you for taking my questions.
David You mentioned that you saw a moderation in the revenue declines in 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.
John .
To mitigate the disruption from Rocky Mount.
Could you provide any more color and if that has continued quarter to date as well.
Yes. 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 the detailed 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 thats 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.
Attractiveness of 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 and count.
What we saw in terms of frequency of purchases were very strong and actually what we saw in terms of average purchase was up about 787% up to about $3600. That's the highest number we've seen in the last four years and so our best customers I think.
Or 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.
That 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 are stored and as we clear that where it's being able to bring things.
Two our programming and a slightly more.
Real time way as we gained some of the flexibility of the model back So I think it's.
It's attributable to the improvement sort of 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 then I would say they are incremental.
Improvements were still a long way from where we want to be to be to be a growing business in <unk>.
Okay, 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 OIBDA growth.
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.
Our growth for OIBDA. Thank you.
Yeah, that's great I think we talked about stability in revenue.
Double digit annual CAGR and OIBDA, we still feel very good about that.
And it really is executing 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 theres a great deal of execution and a great deal of detail that goes into.
<unk>.
What we predicted at the Investor event in terms of especially the OIBDA and the free cash flow growth.
And the business and we think we continue to see that opportunity.
Continue to be.
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.
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 and that in that space as well. So I think we are as confident as if not more confident about.
About that roadmap as we were at the Investor event.
Thank you Vince here. Thank you.
Thank you.
Now I will move to a question from Oliver winter mental with Evercore.
Good morning.
I had a question regarding the sale and leaseback.
The progress there congratulations on all the executed deals there.
Just wondering where we are in that in that process how much more.
<unk> is there to go and how much could that be worse than <unk>.
Thank you.
While all this is Greg I'll start and then I'll, let David comment.
We think they were also very good transactions and these actions taken up until June strengthen the balance sheet.
Capacity and resulted in more than $2 $5 billion of liquidity between our cash and borrowing capacity on our revolver.
It also gave us close to $1 billion of 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 that.
And then maybe you want to comment any further progress.
Yes, sure and just to note the numbers that Greg mentioned, where based on the actions in June the transactions in July will add even more balance sheet comfort.
I'll, let David respond as well, but we will continue to focus on neutral to positive operational impacts of any of these transactions, but we have a large global real estate portfolio that market or.
Our debt capital market continues to be very favorable and I would expect us to look at additional opportunities.
Yes.
I think that I wouldn't add anything except that we feel very good about the way the sell leaseback positions us.
To operate in.
And to optimize our operations going forward and everything here operationally is consistent with what we're trying to achieve with projects Athens.
Got it great. Thanks, very much and good luck.
Thank you.
Now, we will hear from Carla Casella with JP Morgan.
Hi, I'm just curious have you said what amount of square footage was sold with those facilities and how much square footage do you have remaining.
We have not said anything publicly about that.
Okay and then on the.
Just the covenant question. So our sale leasebacks included in your debt levels or are those excluded from your covenant calculation.
The the lease liability that will be recognized on a consolidated basis is not debt for purposes of the QVC bond indenture or the.
QVC credit facility.
Okay, Great and then just curious you commented in the press release about a.
On the Liberty interactive.
I guess it is an asset that you put on the balance sheet for a contingent asset can you just explain what's going on with that and kind of timing.
That potential release of the indemnification asset.
Okay.
Talking about the indemnification agreement with Robin.
I'm sorry, yes, so we have.
Kieran has a exchangeable that's due in 2023 or sorry did not do in 'twenty three it has a put and a call date in 2023.
As part of the original transaction that charter shares out of curate.
Was an indemnification so to the extent that the value of that security the market value of the parity value of that security is above face value.
As an indemnification, where if someone were to voluntarily convert.
We would notify liberty broadband and Liberty broadband.
Cash for that incremental value above that.
Yes.
And QVC or sorry, cure rate would be responsible for the face value only.
And just remind everyone.
<unk>.
Sure eight received as part of that M&A transaction.
Cash equal to the face value at the time.
Okay.
Okay, great so something could happen on that if it does it depends on the holder and it's between now and October .
Yes, anytime 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 then 2020 nine's ability, okay, and the face value of the responsibility of curate.
And your and your debt.
Oh restricted payments from QVC permit payments of cure rate that or is it just permit payments for curate and liberty interests.
So all of the credit facility and the QVC bond indentures carve out or do not include as a restricted payment debt service, which is interest and principal payments. So there is no restrictions on our ability to send money out there as long as we have cash or the ability to borrow it.
Okay, Great Super helpful. There's one more question on the preferred.
That coupon.
Cash pay is there opportunity to pick that if you wanted to.
It is not a voluntary instrument.
Could miss the cash payment and then there are penalties that accrue, but that is a cash pay instrument and we intend to.
What we're trying 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 than 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.
Jeff.
But on the global supply chain I am 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 cost stabilized they havent always come down substantially but were not seeing the same type of.
Right.
Increases.
And so I think.
The pressure is alleviating slowly.
I imagine that will continue to be the case throughout the <unk>.
End of this year into the early part of.
Next year that will continue to be disturbed, but getting better incrementally in terms of rocky Mount.
I'd tell you it's much much the same I think we've started making significant progress.
And 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.
Amount of stored inventory is starting to come down slowly you can see that a little bit in our quarter over quarter inventory.
<unk> as those started to.
It's down and so I think we are.
I think we're going to be working through Rocky Mount 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 see had expected to see.
As part of project Athans reinstated 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 has mentioned already with the actions that we're taking with respect to some of the sell in clearance actions as well as one of the things that we didn't have a chance to share as much around us.
Our avenues for us to use such as zoom only as a clearance.
Have a new for us.
No.
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.
Okay.
Yes, hopefully not a revenue reduction.
Okay, and just lastly for me.
Declined.
Carlos question around the amount of square footage remaining I assume you may decline as well to respond but.
In terms of the value up 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 guest our answer.
You are very important.
Looking there and thoughtful.
But thank you for the questions.
And thank you for the.
Listening audience with that I think we are complete.
Again, thank you for your interest in <unk> retail.
And we look forward to speaking with you next quarter, if not sooner and seeing many of you in November .
Yes.
Thank you.
Thanks, everyone.
Ladies and gentlemen, this will conclude your conference for today, we do thank you for your participation and you may now disconnect.
Okay.
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Yes.
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