Q1 2024 Qurate Retail Group Inc Earnings Call
Welcome to the Keurig retail Incorporated's 2024 first quarter earnings call.
During the presentation, all participants will be in 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 keypad.
As a reminder, this conference will be recorded May eight 2024.
I would now like to turn the call over to Claire Adams Senior manager of Investor Relations. Please go ahead.
Claire Adams: Good morning, before we begin we'd like to remind everyone that this call includes certain forward looking statements within the.
Claire Adams: 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 forms 10-K, and 10-Q filed by our company and QVC U S. D. C. These forward looking statements speak only as of the date of this call and carry retail expressly disclaims any obligation.
Claire Adams: So does that mean any updates or revisions to any forward looking statements contained herein to reflect any change in your retail expectations with regard thereto or any change in events conditions or circumstances on which any such statement is based.
Claire Adams: Please note that we have published slides to accompany the earnings release.
Claire Adams: This call will discuss certain non-GAAP financial measures, including adjusted OIBDA, adjusted OIBDA margin free cash flow and constant currency.
Claire Adams: Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary note and schedules one through three can be found in the earnings press release issued today for our earnings presentation, which are available on our website.
Claire Adams: Today speaking on the earnings call the acuity of retail President and CEO, David Rawlinson, Great retail group's CFO Bill offered him here at retail executive Chairman, Greg Maffei, now I'll hand, the call over to David.
David Rawlinson: Thank you Claire and good morning to everyone. Thank you for joining us today and for your interest in jewelry retail.
David Rawlinson: In Q1, we continued to generate positive results as we executed our transformation strategies in the past 18 to 24 months, we took actions to improve margins, we elevated our merchandize assortment and reduce supply chain and fulfillment costs by negotiating better rates created operational efficiencies.
David Rawlinson: <unk> and lowered administrative costs. These actions have resulted in continued margin expansion profitability growth and free cash flow improvement in.
David Rawlinson: In Q1, we sustained gross margin expansion of approximately 400 basis points, which was the fourth consecutive quarter of expansion. We grew consolidated adjusted OIBDA of 45% as reported which was the third consecutive quarter of adjusted OIBDA with each of our businesses.
David Rawlinson: Group gross margin and adjusted OIBDA in the quarter, we also improved free cash flow, but the fifth consecutive quarter of year on year improvement. We are pleased with our sustained momentum in the business through the first quarter.
David Rawlinson: Yeah.
David Rawlinson: Okay.
David Rawlinson: Last month, we launched the QVC age a possibility a new marketing initiative that is focused on celebrating our core customer women over the age of 50, but this campaign, we brought together the quintessential 50 or 50, a group of 50 celebrities Actavis QVC host and business leader.
David Rawlinson: Including Christina Applegate Brunch with Babs, Dr. Mary Claire Haver, Dana Kelsey, Billie Jean King Patti Labelle, Queen Latifah, Martha Stewart, and Naomi Watts QVC is partnering with these incredible women on programming merchandize and much more.
David Rawlinson: Who inspire and empower women over 50.
David Rawlinson: The Q 50 ambassadors have a total social following of $78 million. Many of our key 50, who attended this event have already expressed interest in signing on with QVC and the larger capacity I'll speak more to this initiative momentarily.
David Rawlinson: Now allow me to add.
David Rawlinson: Excuse me now allow me to elaborate on each of our businesses starting with <unk> revenue declined in line with the overall discretionary retail market consumers remain selective in their spending due to inflation and interest rate uncertainty given this and the coldest start to spring.
David Rawlinson: We saw customers buying seasonal products closer to when they needed them such as gardening spring apparel tanning sandals and swimwear. This resulted in uneven performance in these categories and then today's special value in today's special sales strength in other categories such as.
David Rawlinson: Internet fashion accessories, and jewelry, partially offset this pressure.
David Rawlinson: We continue to benefit from new merchandise that is exciting our customers and we increased the number of new one era items about 10% and demand for new items outperform the overall business. We had several successful brand launches, including CEVA XC Scarlet Joe.
David Rawlinson: Since the outset, Kim Gabel Love, who you are and Kim Kibbles, both hair and beauty Mackenzie Childs at home decor, Coldwater Creek, and gray by Johann Sebastian Gray and apparel.
David Rawlinson: While beauty revenue declined at QVC, we sustained strength in beauty at HSN.
David Rawlinson: Now, let's review programming highlights.
David Rawlinson: Total minutes viewed on our five channels remained steady in the quarter last year, we introduced a limited run series over 50 and Fabulous. We aired season III from February to early March and held the first ever two hour finale.
David Rawlinson: Our customers continue to engage at high levels. The series reached an average of 481000 households per hour on linear television, making it one of our top reaching prime time programs of the quarter.
David Rawlinson: Total CRE sales exceeded $3 million on social media. The series reached over 10 million followers with more than 18 million impressions. The program continues to engage customers through our monthly livestream on the first Friday of every month and we play into <unk> and four in early August.
David Rawlinson: We also held several successful events in January we entered a 24 hour you bet now Youre cookie that was anchored by Laqueus as today's special value.
David Rawlinson: They included six hours of additional livestream content, featuring several celebrities and food experts, including Carla Hall Jefferies.
David Rawlinson: Zephyr, he's the guy Kieran and our own Vanessa here and they are available over 3 million households tuned into QVC throughout the day on linear television, making it one of the highest Sundays for viewership in the quarter.
David Rawlinson: For the first time since 2020, we focus a full day of programming on International Women's day, we celebrated the accomplishments of women with special focus on some of the entrepreneurs, who inspire us such as Amy Richter from Lug Rene Greenstein from women with control and Mali, Ron Cow.
David Rawlinson: For Mali color cosmetics, let's say debt reached nearly $2 5 million households throughout the day on linear television.
David Rawlinson: We continue to stabilize the <unk> customer file and grow the number of new customers on a quarterly basis <unk> customer count declined 3% compared to mid to high single digit declines in the second half of 2023 on slide eight of our presentation, you can see that our customer count.
David Rawlinson: Significantly stabilize we've moderated the sequential decline of our trailing 12 months count down to less than 50000 from Q1 compared to down over 300000 for the same period last year.
David Rawlinson: We continue to see strength in the purchasing behavior of our existing customers, while only comprising half of the customer count <unk> existing customers still account for 90% of the total spin on average they purchased 32 items and spent more than $600 in the 12 months ended March.
David Rawlinson: 31 of 6% and 10% year over year, respectively.
David Rawlinson: <unk> grew new customers, 23% in Q1, marking the third consecutive quarter of new customer growth. We also saw new customer growth on a trailing 12 month basis, but the first time since the pandemic with new customers up 7% and the 12 months ended March 30.
David Rawlinson: The one.
David Rawlinson: I will now touch on Australia.
David Rawlinson: Our streaming business is still small, but growing well revenue total minutes viewed and monthly average users all increased well into the double digits. In Q1, we anticipate similar growth rates for the full year. We're excited to announce that New York times best selling author Actavis.
David Rawlinson: Actor and writer busy Phillips, who has more than 2 million followers on Instagram is returning to late night to hosted talk show busy this week exclusively on our CVC plus streaming platform.
David Rawlinson: He's bringing celebrity interviews laugh out loud moments personal stories and her favorite curated shopping box Michel will premiere Tonight at <unk> P M. Eastern.
David Rawlinson: The show will premiere Tonight at <unk> PM Eastern the first 10 episodes will be released weekly.
David Rawlinson: And we will air for holiday themed episodes in November and December busy show will be a shop <unk> shop, the look series, which means everything you see on the show such as clothing. The corn crops is easily solvable on PVC dot com.
David Rawlinson: Now moving to QVC International which continues to be our most consistent business unit, we have grown adjusted OIBDA and delivered stable revenue for three consecutive quarters. These results reflect our successful efforts to improve product margins lower fulfillment and administrative expenses and incubate growth strict SKU.
David Rawlinson: Incubate growth screams like integrated experiences, which we've previously discussed.
David Rawlinson: QVC International Q1 revenue declined slightly down 1%.
David Rawlinson: Performance was led by our operations in the UK, which experienced gains across its merchandise assortment with demand growth in all categories and particular strip with at home the sales growth in the U K combined with gross margin expansion and disciplined manage of operating and administrative expenses.
David Rawlinson: This resulted in strong adjusted OIBDA improvement Tvs.
David Rawlinson: QVC U k's integrated experience initiative, which is focused on gardening generated incremental sales customers and spend per customer in Q1.
David Rawlinson: In Q2, QVC U K will conduct testing and learnings to scale. Its integrated experience. These actions include deploying an AI shopping assistance to increase discover ability of content and give customer advice participating at the BBC gardener's world largely there and partner.
David Rawlinson: Partnering with our vendors to bring customers winning flower varieties from the Chelsea flower show.
David Rawlinson: Moving to cornerstone.
David Rawlinson: Cornerstone revenue decline due to soft housing starts and consumer demand for home furnishings. We also experienced a shift to lower ticket products such as textiles in the core in light of the challenging macro backdrop.
David Rawlinson: <unk> remained focused on profitability and grew gross margin 410 basis points in Q1, which was fueled by lower supply chain costs. Finally.
David Rawlinson: I would like to close with the exciting new initiatives, we lost launched in April the age of possibility.
David Rawlinson: To celebrate the limit less potential of women over the age of 50.
David Rawlinson: For nearly four decades QVC has served women 50, plus as our core customer viewer.
David Rawlinson: This demographic has high discretionary income and controls 95% of household purchase decisions women 50, plus are also a large population with approximately $64 million in the U S and the population is growing twice as fast as the 20% to 49 group However, women.
David Rawlinson: 50, plus our overlook by brands and marketers, we conducted a survey of over 3700 respondents and found that only 31% of women ages 50 to 70, you'll supported by brands, even fewer visible and brand marketing and advertising. These women are often made to feel that society.
David Rawlinson: Views entering 50 as a state of decline.
David Rawlinson: To reverse this misconception we've gathered a powerful group called the quintessential 50 or 50, comprising 50 modern women over the age of 50 that includes celebrities Actavis QVC host entrepreneur business leaders and extraordinary everyday people who have no plan.
David Rawlinson: The slowdown and they're living their next chapter and all sorts of inspiring ways with the age of possibility. These women will provide input and tell their stories through curated new merchandise on air programming remote broadcast social media content podcast advertising in national.
David Rawlinson: Publications, such as U S weekly and woman's World and Vogue as well as in targeted growth markets on radio Youtube mete out of home and display.
David Rawlinson: In late April QVC convened a first of its kind summit at the sphere in Las Vegas Grand Prix Plaza.
David Rawlinson: Bringing together, our chief 50 brand ambassadors for a day of compelling conversations on this next stage of growth keynote speeches on navigating menopause and Rita Wilson first time performance of her new song statue free.
David Rawlinson: Coverage of the event was broadcasted across our CVC channels and across social platforms and the weekend after launch new customer count grew 110% compared to the same weekend and the year prior.
David Rawlinson: This month, we are starting the age of possibility tour to further engage our existing customers and attract prospective customers were taking our show on the road to cities across the country and some destinations we will broadcast live and others. We will conduct panel discussion with some of our key 50 brand ambassadors and customers.
David Rawlinson: We are excited about our mission to lead the way in changing how retail and entertainment see women over 50 empowered and full of possibilities.
Speaker Change: In conclusion.
Speaker Change: Q1 showed the relevance star power and new customer momentum in our brands and it is still early.
Speaker Change: Now I'll turn the call to bill to discuss the financial results of each of our businesses in more detail.
Bill: Thank you David and good morning, everyone.
Bill: Unless otherwise noted my comments compare financial performance for the three months ended March 31, 2024 for the same period in 2023.
Bill: Starting with <unk> X H revenue declined 4%, primarily due to lower unit volume, which was partially offset by favorable returns and higher shipping and handling revenue.
Bill: From a category perspective, <unk> experienced growth in accessories, and jewelry, which were offset by declines mainly in home and apparel.
Bill: Accessories grew 5% largely due to higher demand for intimates and fashion accessories, partially offset by softness in non leather handbags and seasonal footwear.
Bill: Jewelry grew 4%, mainly as a result of strength in gold silver and diamond jewelry, including a successful today's special value of fire light lab grown diamonds.
Bill: Home revenue decreased 7%, primarily primarily due to the colder start to the spring, causing low demand for gardening and outdoor decor. This was partially offset by strength in indoor decor and culinary.
Bill: Apparel declined 4% due to soft demand for spring apparel and swimwear.
Bill: Beauty declined 3%, reflecting lower demand for beauty devices, and Bath and body, partially offset by growth in hair care.
Bill: Adjusted OIBDA margin increased 330 basis points gross margin.
Bill: <unk> expanded 360 basis points, mainly driven by strong product margins and favorable fulfillment expense.
Bill: Product margins increased 200 basis points due to higher margin products, driven by improved inventory health with less liquidation compared to last year as well as lower supply chain costs due to project athans initiatives.
Bill: Fulfillment expenses improved 160 basis points due to efficiencies from project gasolines work streams reduce freight rates and lower detention and demurrage.
Bill: SG&A was unfavorable by approximately 35 basis points, largely due to sales deleverage and higher marketing expenses, partially offset by lower administrative costs.
Bill: Marketing expenses increased mainly due to normalization of the annual spend compared to last year.
Bill: Administrative expenses declined primarily due to lower costs for outside services related to project Athens.
Bill: Moving to QVC International My comments will focus on constant currency results.
Bill: Revenue declined 1%.
Bill: <unk> U K and Japan grew revenue in the high single and low single digits respectively.
Bill: Germany declined mid to high single digits.
Bill: From a category perspective, QVC international experience growth in home and declines largely in jewelry and apparel.
Bill: Adjusted OIBDA increased 10% and adjusted OIBDA margin expanded 90 basis points.
Bill: Gross margin expanded 70 basis points, mainly due to improved product margins, which reflect lower returns higher initial margins and higher shipping and handling revenue.
Bill: SG&A was favorable primarily due to lower administrative costs.
Bill: Moving to cornerstone.
Bill: Revenue declined 11% in the quarter.
Bill: We experienced soft demand and most home categories and for apparel at Garnet Hill.
Bill: Despite the revenue decline cornerstone grew adjusted OIBDA of 50%.
Bill: This performance was primarily due to favorable supply chain costs from lower Ocean shipping rates distribution center costs, and large packaged surcharges, partially offset by deleverage of marketing and administrative expenses.
Bill: Turning to cash flow and the balance sheet.
Bill: In Q1 capital expenditures were $40 million, and we spent $2 million on television distribution contract renewals.
Bill: Our TV distribution payments can fluctuate year over year, depending on renewal cycles, though we continue to expect the two year average to be approximately $100 million.
Bill: In Q1 free cash flow was a use of $27 million compared to a use of $70 million last year the.
Bill: The year over year improvement was attributable to improved cash flow from operations driven by adjusted OIBDA gains as well as lower capital expenditures and payments for TV distribution rights, partially offset the comping of insurance proceeds from our Rocky Mountain.
Bill: We continue to expect higher adjusted OIBDA, and lower TV distribution payments to benefit free cash flow in 2024.
Bill: Looking at our debt profile.
Bill: In March we redeemed all remaining $423 million of principal outstanding of the QVC for eight 5% senior secured notes due in 2024.
Bill: We funded the redemption with drawing under the QVC revolver.
Bill: As of March 31, 2024, we had $1 3 billion drawn on the QVC revolver with $1 9 billion in available capacity.
Bill: <unk> had total cash of $1 1 billion of which $311 million was at QVC, Inc. 400, $464 million at Liberty Interactive LLC and $248 million was accurate retailing.
Bill: Our leverage ratio as defined by the QVC revolving credit facility was two five times.
Bill: Please note that covenant OIBDA includes the adjusted OIBDA of QVC, Inc, and cornerstone and a portion of the projected cost savings.
Bill: The stated leverage was slightly above the 12 31 <unk>.
Bill: Leverage ratio due to certain add backs no longer impacting the calculation, though these add backs were largely offset by adjusted OIBDA growth.
Bill: In the past two years, we implemented programs to improve our liquidity and successfully execute our transformation plan.
Bill: We affirm that our debt level is manageable and our current tuition is sufficient in relation to the four five times maximum net leverage covenant threshold stipulated in our credit facility.
Bill: In the first quarter, we sustained momentum and generated strong profitability growth and free cash flow improvement.
Bill: We look forward to building on our progress the remainder of the year.
Bill: With that I'll turn the call over to Greg.
Greg Maffei: Thanks Bill.
Greg Maffei: That was another quarter of sustained and improved financial performance at <unk>.
Greg Maffei: The third consecutive quarter of OIBDA growth.
Greg Maffei: And a continuing of the moderation of revenue decline.
Greg Maffei: We are excited about the age of possibility launch and believe the iconic ambassadors, including Billie Jean King Queen Latifah and our very own can't believe she is really 50, Renee will will help unlock the opportunities across the multi platform business.
Greg Maffei: We remain confident in the execution of the turnaround and the trajectory of the business, we expect curated sustained free cash flow improvement throughout the year.
Greg Maffei: We remain focused on the balance sheet and addressing the near term maturities.
Greg Maffei: As noted we repaid the outstanding QVC notes due this year and we continue to access incremental opportunities to improve the balance sheet.
Speaker Change: And with that operator, we'll open the lineup for questions. Thank you.
Speaker Change: Thank you will.
Speaker Change: Now be conducting a question and answer session if.
Speaker Change: If you'd like to ask a question at this time. Please press star one from your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you and our first question comes from the line of Carla Casella with Jpmorgan. Please proceed with your questions.
Carla Casella: Hi, Thank you for taking the question and thanks for the color and it's good to see the customer accounts.
Carla Casella: Starting to inflect more positively across a couple of different categories, but I'm wondering if you could give us more color on the average spend of the customers I know during the Investor Day, you talked about the best customer spend $3800.
Carla Casella: Today, you said over six 1600 for the existing is there any other details you can give between like the new existing reactivated and or if youre seeing any change in the transition like this is it still are you still seeing the same number of new customers ultimately become best as what you have done in the past what you had seen in the past.
Carla Casella: Yes.
Carla Casella: Excellent.
Speaker Change: Thank you Carla I appreciate that I appreciate the question.
Speaker Change: I would say.
Speaker Change: So let me just run through some numbers just to give a little more detail on them.
Speaker Change: I will give some more color.
Speaker Change: So for QVC best customers keep in mind. These are customers that purchased over 20 items a year.
Speaker Change: <unk>.
Speaker Change: Yes, there are about 17% of the account and 76.
Speaker Change: Percent of sales and we felt good through the quarter about their spend retention and their frequency and average spend for the quarter for those best customers was up about seven.
Speaker Change: Percent on a trailing 12 month basis about 3% on a quarterly year over year basis. So I best Quebec customers are still performing very well.
Speaker Change: Going back to the total overall performance of existing customers and existing customers are abroad.
Speaker Change: Broader subsection. So there are about 50% of the count 90% of the sales they purchased on average 32 items. They spent.
Speaker Change: What about little over $600.
Speaker Change: In the quarter, that's up 10% so that feels very good the other thing that we feel very good about and the existing customers as their retention was up both at QVC and HSN versus last year. So we see good very encouraging retention.
Speaker Change: And we see.
Speaker Change: Good spending behavior.
Speaker Change: I think we see more stability in the file than we've had historically I think if you look at the aggregate customer account numbers you see it's basically flat since the fourth quarter. So I think the customer count is.
Speaker Change: Very stable now with some good underlying dynamics the new customers.
Speaker Change: Heart largely look like.
Speaker Change: Our traditional new customers.
Speaker Change: They are coming in through digital channels, a little more than they have historically.
Speaker Change: It's still early.
Speaker Change: We're a couple of quarters and to really attracting new new customers at scale again and it sometimes takes.
Speaker Change: A little bit of time to fully understand what their purchasing patterns are going to be and how what the demographics of those new customers are so we're watching it very closely but I would say so far we are encouraged by what we're seeing from.
Speaker Change: A pretty substantial crop of new customers that are now coming into the business.
Speaker Change: Okay, and if I could ask one follow up so there were 100000 existing keloid today's customers lost with average spend and purchase frequency.
Speaker Change: On those be more similar to the existing or can you give us any color on that.
Speaker Change: I'm sorry ask the question again, yes, we want to make sure losing customers who in the existing customers' accounts were down by 100000.
Speaker Change: And the LTM versus last year or was there is there when you're losing customers.
Speaker Change: Do they have similar spending pick up the same patterns as existing ore.
Speaker Change: Is it a lower amount assuming they'd kind of drift off.
Speaker Change: Yes, I think thats right. So we tend we tend to lose lower quality customers over time.
Speaker Change: And so they tend to drop out of the <unk>.
Speaker Change: Drop out of the file we have a pretty big effort going on right now you'll you'll continue to see improvement in the reactivated customers, we're putting a lot of effort into whenever we lose an existing customer, especially if they were very good customer contacting them by phone or sending them materials are giving them.
Speaker Change: Coupons to get them back into the brand I would say if you on average if you trace the customer one or two things happens there.
Speaker Change: And we know.
Speaker Change: Calling and talk to them talking to them.
Speaker Change: Either they have a big life change often the financial condition in their personal lives that causes them to drop off.
Speaker Change: They dropped off.
Speaker Change: Slowly for whatever reason have become less connected to the brands sometimes that is a result of.
Speaker Change: Technology.
Speaker Change: I would say final observation, we're seeing about as many people move up the file as move down to file so our upward migration.
Speaker Change: Now about the same as our downward migration and Thats been a reversal of positive reversal and I think that will continue and then eventually when that flips is when you'll actually start to see growth in the aggregator customer class.
Speaker Change: Okay great.
Speaker Change: Thanks.
Speaker Change: I've got more but I'll get back in queue, and let others ask.
Speaker Change: Alright, thank you.
Speaker Change: Our next question is from the line of William Reuter with Bank of America. Please proceed with your question.
William Reuter: Good morning.
William Reuter: I think that streaming comprised 5% of your minutes viewed last year.
William Reuter: You mentioned it was growing.
William Reuter: I guess can you share where you expect that assuming may be as a percentage of minutes viewed this year and then how is the spending of the customers that are viewing minutes on streaming services versus traditional linear TV.
Speaker Change: Yes. Thank you for the question I don't I don't think we've on a regular basis updated exactly the percentage of overall minutes that streaming is what I would say as it were.
Speaker Change: About 5% last year, it's more than that.
Speaker Change: It's more than that now it's been growing where streaming as a total percentage of minutes is sort of high single digits and growing fast announcer.
Speaker Change: We're very happy with what that progress I think they'll continue to.
Speaker Change: To take share of total minutes as they continue to grow.
Speaker Change: Relatively quickly.
Speaker Change: The spending dynamics are a little bit difficult to tease out because a lot of times our customers are multi platform customers. So somebody who's streaming us may also be watching us on linear and then they're shopping on.
Speaker Change: Across a variety of sites and so we tend to look at them as multi platform customers not streaming only customers I would say.
Speaker Change: There is nothing about the profile of our streaming customers that.
Speaker Change: Causes us to be less excited about where we think what we think the growth of streaming is going to meet it mean for the business in the medium to long term.
Speaker Change: Got it.
Speaker Change: And then just secondarily for me.
Speaker Change: There have not been kind of consistent updates on project Athens.
Speaker Change: I didn't know whether there was any way to think about what's left on this program I'm not sure. If there's a large majority of it has been completed or what types of dollar opportunities still may remain.
Speaker Change: Yeah, I think when you look through kind of what's been done in project Athans, we've talked a lot about.
Speaker Change: Initiatives impacting you know kind of product margin fulfillment kind of working down the P&L. There I think when you look at the balance of the year and what'll carry into 'twenty five.
Speaker Change: Some of those initiatives are still being delivered whether it's associated with cost of goods sold improvement fulfillment initiatives and others that will continue to benefit gross margin throughout the year. In addition here David referenced other in terms of how we're reaching out to the customer in some growth initiatives that I think will start to take it.
Speaker Change: Shape and you'll start to see more impactful end of 'twenty four heading into 'twenty five.
Speaker Change: Got it and then I guess, just lastly from me in terms of.
Speaker Change: Freight costs.
Speaker Change: Do you know kind of roughly what percentage of freight.
Speaker Change: Are those which you pay for versus your vendors paying.
Speaker Change: Paying for the freight and then if youre expecting any changes in your freight costs kind of.
Speaker Change: Going forward versus the LTM period.
Speaker Change: Yes, I mean, it's obviously a mix right depending on you know kind of how an individual contract has struck with our various suppliers. We haven't seen material impacts our teams have done a really good job of kind of managing through obviously.
Speaker Change: Kind of a lot of volatility around the Covid time periods I think now you've been managing with the Red Sea Port of Baltimore, which we don't choose things they've been able to effectively manage that and kind of mitigate any.
Speaker Change: Increases in freight and probably have a little bit of opportunity as more supply has come online, but that's always a kind of a case by case basis, we don't expect anything hugely material to change though.
Speaker Change: Got it that's all for me thank you.
Speaker Change: Sure. Thank you.
Speaker Change: Our next question is from the line of Hale Holden with Barclays. Please proceed with your questions Hey, good morning.
Speaker Change: <unk>.
Hale Holden: Sales that were lost because of weather whether they were in swim are outdoor.
Hale Holden: Is your expectation that they may come back in the second quarter or are they just lost permanently and then any thought on consumer health health.
Hale Holden: As you go into the second quarter versus what you saw in the first quarter and then I have a follow up.
Hale Holden: Yes.
Speaker Change: Two good and fair questions.
Speaker Change: What we.
Speaker Change: I think we are seeing and I would say this has been true over the last 12 months to 18 months as consumers are buying closer to the event and they are buying later I would say.
Speaker Change: The last three or four.
Speaker Change: Seasonal cycles have started later than they have historically.
Hale Holden: I think we're seeing some of that in the spring as well so I would.
Hale Holden: Certainly hope that a lot of.
Hale Holden: Uptick from spring and from seasonal where we will continue to climb as we get.
Hale Holden: The weather turns warmer and we've seen a little bit of that already so I do think those sales continue to be.
Hale Holden: Available for.
Hale Holden: I do think those sales continue to be available for us in terms of the consumer in terms of consumer sentiment.
Hale Holden: The macro I'd say.
Hale Holden: It continues to be relatively.
Hale Holden: <unk>.
Hale Holden: Stable.
Hale Holden: Stable at sort of persistently lower level and discretionary retail than what we've seen I think.
Hale Holden: You will have seen the GDP real consumer spending numbers unemployment numbers I think there is nothing about those numbers that tells you. The task is going to be taken off the market.
Hale Holden: Anytime soon that being said, we're continuing to see real stability in terms of trends in terms of.
Hale Holden: Buying behavior or purchase frequency.
Hale Holden: <unk>.
Hale Holden: So our customers are sticking with us they are still very engaged they are still.
Hale Holden: Watching and they are still <unk>.
Hale Holden: <unk> to shop, we do see a little bit of trading down so we see a little bit of preference for lower price points, we see a little bit of preference for waiting for <unk>.
Hale Holden: Sales.
Hale Holden: That's especially the case by.
Hale Holden: Brands some of our lower average sell price bands tend to be experiencing that more and we also see a little bit of leaning away from especially large purchases where consumers look to be a bit more considered.
Hale Holden: But generally I would say we're seeing.
Hale Holden: Decent stability in the macro and then the outlook.
Speaker Change: And then the second question I had was.
Speaker Change: If you could walk through the decision to put the 24 maturity, mostly on the revolver rather than using the cash that you had on the balance sheet.
Hale Holden: Just given the interest cost on the revolver.
Hale Holden: Yes.
Hale Holden: Really just timing there.
Hale Holden: In the quarter worth do that on the balance of the year on appropriate capital allocation there.
Hale Holden: Timing in the quarter.
Speaker Change: Okay. Thank you very much I appreciate it.
Speaker Change: Our next question is from the line of Guru Martinsen with Jefferies. Please proceed with your questions.
Guru Martinsen: Good morning speaking as someone who was targeted with the new QVC women over 50 at this morning, I can certainly see say that you guys have stepped up your advertising nice to see.
Guru Martinsen: I think last year, you had kind of the inflection point in the third quarter.
Guru Martinsen: Where the business changed.
Guru Martinsen: One of the pushback that I've gotten this morning is like Hey, you guys have shown stability you have traction, but these are against easy comps do you feel that the momentum that you've generated will continue here through the second half of the year.
Guru Martinsen: Okay.
Speaker Change: So first I'm glad you saw some of our advertisement I would say don't just look by feel free to.
Guru Martinsen: Yeah.
Speaker Change: How about the financials.
Guru Martinsen: We want to you as a customer as well. So we did have I think just on a practical basis. We did have some easier comps in the first and the first half.
Guru Martinsen: The year I think Thats I think Thats fair.
Guru Martinsen: Obviously, we had better performance in the back half of the year from an OIBDA and free cash flow basis last year I think we think we have the ability to continue.
Guru Martinsen: We're making real progress as we go through the back half Bill talked about the fact that we continue to have Athens initiatives that we're executing going through the year. We continue to build on those initiatives we have.
Guru Martinsen: Management cadence, where we're adding additional incremental initiatives to project out as we go so we're.
Guru Martinsen: <unk> feeling the funnel of.
Guru Martinsen: Other initiatives and then I think the other thing that will continue to be.
Guru Martinsen: The positive is as the customer count stabilizes and as we continue to get closer to flat and then growth that also gives us.
Guru Martinsen: Some additional <unk>.
Guru Martinsen: The ability to drive the bottom line result, so we can continue to be.
Guru Martinsen: Optimistic about hitting our objectives for the full year.
Guru Martinsen: Okay.
Guru Martinsen: You guys feel right now on your inventory given kind of perhaps some timing shifts in seasonal and as people.
Guru Martinsen: Buy closer to need.
Guru Martinsen: Yes, I think we feel really good about you know a lot of work was done over the last I'll say 18 months to get our inventory.
Guru Martinsen: Of note our right size position I think if you look at Q, ending Q1 24 versus in Q1 'twenty three the inventory level was still down about $200 million.
Guru Martinsen: And you feel comfortable that from a days days of supply perspective, the teams have got a really good.
Guru Martinsen: Control on kind of managing inventory level, even with the kind of.
Guru Martinsen: The impact of people buying a little closer to need.
Speaker Change: Yes, I'd say, a couple of things I agree with bill.
Guru Martinsen: Obsolescence.
Guru Martinsen: In a good place.
Guru Martinsen: The age of inventory is in a good place I think aggregate level of inventory, we're carrying us in a good place what I feel really good about is we talked about percentage of our sales that were going to new or first Tom.
Guru Martinsen: Our items that continue to grow in those items are performing.
Guru Martinsen: Better than repeat items, and so as we've been able to get to a better inventory position and bring in new higher quality.
Guru Martinsen: Merchandise than we had last year, we think that continues to be a <unk>.
Guru Martinsen: Tailwind.
Guru Martinsen: For the business. So we feel we feel good about our inventory and about whats in it and about what we're going to be bringing in for the back half of the year.
Speaker Change: Okay, and just lastly.
Speaker Change: And then.
Speaker Change: And then a kind of a shift in the questions I get people feel comfortable that you have the liquidity to cash flow to handle the 'twenty four maturities that you retired the 25 is coming up I think the big sticking point for the market has been the 26 revolver.
Guru Martinsen: How are you guys thinking about that do you need a revolver this size and whats kind of the early feedback from from your banks.
Ben: This is Ben.
Ben: I think the first comment would be we don't need a revolver of this size, we've definitely gotten that high and so we've got room to reduce that to make banks more comfortable.
Speaker Change: We're looking at it.
Speaker Change: It's gotten more and more favorable as this has continued to perform.
Speaker Change: And I would say that.
Speaker Change: We're only about a half turn away from.
Speaker Change: Being under the.
Speaker Change: R&D test under the bond indenture.
Speaker Change: So so long as the business continues on this trajectory.
Speaker Change: We're going to continue to monitor it and try to finance and a more favorable environment.
Speaker Change: And that comes in the form of a cash flow revolver or ABL or some alternative.
Speaker Change: Well basically wrong with what the market conditions are at that time.
Speaker Change: Thank you very much guys I appreciate it.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is who follow up from the line of Carla Casella with Jpmorgan. Please proceed with your question.
Carla Casella: Great. Thank you.
Carla Casella: Following on that question.
Carla Casella: Can you give us a.
Carla Casella: Net deferred tax liability as it relates to the LINTA notes at the end of the quarter.
Speaker Change: Hey, Karla I think where it has been consistent and only give that.
Speaker Change: Once annually at the Investor day, but no material change.
Speaker Change: Hey.
Speaker Change: And you talk to the 26 revolver did you say I may have missed it did you expect to pay the 25 notes off cash like you did the.
Speaker Change: The cash and revolver like you did the 24 notes.
Speaker Change: Currently that is our expectation that cash and cash on hand, and revolver for the 2020 fives, but if the markets continue to improve.
Speaker Change: We will continue to look at the.
Speaker Change: Capital markets has an option to extend.
Speaker Change: Okay great.
Speaker Change: And you talked about seasonality and how consumers are buying closer to season.
Speaker Change: Your comfort level with the inventory that you have now is it a lot of seasonal merchandise. It may need to be cleared or are you in a good seasonal position with your merchandise inventory.
Speaker Change: Yes, I think we feel good about our inventory we don't have.
Speaker Change: Don't see.
Speaker Change: A lot of access season that would need to be cleared.
Speaker Change: We feel good about the level of new we feel good about the assortment going into spring so.
Speaker Change: <unk>.
Speaker Change: Nothing.
Speaker Change: We see that's concerning there.
Speaker Change: Okay and the fire related proceeds that's all behind you right now or are there no more I guess assets or.
Speaker Change: Anything on the balance sheet of crude for potential additional proceeds.
Speaker Change: No. That's yes, that's all behind Us Carla.
Carla: Great and then just one question on Japan.
Carla: Japan anymore comments, you can give us on that market. How the performance is there and is that something you would ever consider monetizing that stake in Japan too.
Carla: Dress some of your debt maturity.
Speaker Change: Yes so.
Carla: On performance, we continue to be optimistic about that business. We continue to think theyre taking share.
Carla: And.
Carla: And that in that market.
Carla: They've largely out run.
Carla: Slightly even if anything more difficult.
Carla: Mark set of market conditions, and so I'd say that's been if you look over the last few years, one of our strongest performing.
Carla: Most consistent and strongest performing busy.
Carla: Businesses in it.
Carla: Business that is growing and continues to grow with so we feel very good other thing I'd. Just note about Japan is that it is our core business model. So we do essentially with regional.
Carla: With a reasonable adjustments essentially what we do across the QVC and HSN.
Carla: Businesses and all of our other markets.
Carla: We share talent across we've had people who led that business that have gone on to lead other businesses across the portfolio.
Carla: And vice versa.
Carla: In fact, I will be in Japan.
Carla: Myself and.
Speaker Change: I think next month and so.
Speaker Change: We're very excited about the business is material to the overall results in terms of whether we ever monetize it I would say.
Speaker Change: Core business.
Speaker Change: Been pretty careful to delineate core and non core businesses, it's a core business, but we're always looking at every opportunity to create share.
Speaker Change: Shareholder value will continue to do that like like all businesses, but we're very happy with the performance of Japan, and what it's meant for the overall portfolio.
Speaker Change: Okay, great. Thanks, a lot.
Speaker Change: Our next questions are follow up from the line of William Reuter with Bank of America. Please proceed with your questions.
William Reuter: Hi, I just have two that I think are relatively quick the first.
William Reuter: There are clearly a lot of big names associated with the agents possibility tour and marketing.
William Reuter: Graham some of which you mentioned, maybe kind of staying on in a permanent role should we think about a meaningful increase in those whether you want to call those marketing dollars advertising whatever those funds would be allocated towards should that be a meaningful increase.
Graham: I wouldn't no I wouldn't expect that in terms of how we've laid out the year was fully anticipated with kind of the launch of <unk> 50.
Graham: I don't expect any meaningful change in our level of marketing spend across the portfolio or maybe a reallocation of funds and some minor way, but nothing material no.
Graham: And then the second one.
Graham: You've mentioned that some of the more discretionary product categories that we're seeing weakness across all retailers you've seen the same thing or are you going to be changing our mix. Much. This summer that will change the margin profile to some kind of lower margin less discretionary categories.
Graham: No I don't think so I think youll continue to see us shift.
Graham: Slightly away from electronics, we are dedicating less airtime.
Graham: Their end of things.
Graham: We don't.
Graham: We don't see the same type of innovation, our demand across electronics that being said, if we see an innovation cycle happening and we're starting to hear from some of the manufacturers that they may want to lean into and.
Graham: Innovation cycle, if we see an innovation cycle happening I think we have the ability to get back into that market relatively quickly.
Graham: We're continuing and I think we're on a nice strength in terms of gross margin expansion some of Thats clearance, but some of that is also being mindful of which categories, we're pushing and what the margin profile on those on those categories are we're going to continue to maintain that discipline and so.
Graham: And we're going to continue to lean into higher margin categories. When it meets the demand we're seeing from our from our customer. So I don't see to your question I don't see.
Graham: Us going into lower margin categories that any sort of.
Graham: Scale will be opportunistic we will have to continue to read the customer end.
Graham: We will follow the customer where she goes but.
Graham: Theres nothing that we see so far that should suggest we can't continue to make.
Graham: Good progress on the gross margin profile of the business.
Speaker Change: Great. Thank you that's all for me.
Speaker Change: Yeah.
Speaker Change: Our next question is from a follow up from the line of Carew Martin with Jefferies. Please proceed with your questions.
Carew Martin: Just some housekeeping what was the split for <unk> between QVC and home shopping network.
Carew Martin: I don't think we talk about that.
Carew Martin: Publicly obviously QVC is the bigger of the two but I don't think we have reported the split.
Speaker Change: Okay and then.
Carew Martin: I understand that the existing customers spend about $1 6K on that but those best customers that you referenced what did they spend.
Carew Martin: Ali.
Speaker Change: Our best customers are around 3900, just under $4000 and that number has continued to grow over time.
Speaker Change: Thank you very much guys I appreciate it.
Speaker Change: Great and with that thank you to the listening audience.
Speaker Change: We look forward to speaking with you next quarter, if not earlier and operator I think we can close the line.
Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.