Qurate Retail, Inc. (“Qurate Retail”) (Nasdaq: QRTEA, QRTEB,
QRTEP) today reported second quarter 2022 results (1).
“Our second quarter results reflected lower demand driven by
similar factors impacting all of retail including inflation, the
war in Ukraine and rising interest rates, as well as supply chain
challenges and downstream impacts from last December’s fire at our
Rocky Mount, NC fulfillment center that affected our merchandise
availability and operational efficiency,” said David Rawlinson,
President and CEO of Qurate Retail.
“We have already begun implementation of our turnaround plan and
are pleased to report several key developments. First, we unveiled
Project Athens in June, a three-year plan to re-establish revenue
stability, margin expansion and incremental free cash flow
generation at Qurate Retail. Second, we augmented our executive
leadership talent with the addition of a President for our
streaming business and a Chief Merchandise Officer for QVC US. We
look forward to introducing these individuals soon. Third, we took
action to unlock value, monetizing real estate assets to optimize
our balance sheet, increase liquidity and reduce debt. Fourth, we
saw early signs of stabilization and the rate of revenue decline
moderated at QxH in the quarter. We are motivated and confident in
our ability to deliver on Project Athens from a bolstered balance
sheet position, and we look forward to reporting future
progress.”
Second quarter 2022 operating results:
- Qurate Retail revenue decreased 16% to $3.0 billion
- In constant currency(2) revenue decreased 13%
- eCommerce revenue decreased 17% to $1.8 billion or 61% of total
revenue
- Qurate Retail reported diluted EPS of $0.53
- Adjusted diluted EPS(3) of $0.12
- QxH revenue decreased 12%
- QVC International revenue decreased 19%
- In constant currency, revenue decreased 8%
- Zulily revenue decreased 45%
- Cornerstone revenue increased 4%
Other business headlines:
- Completed cash tender for $536 million principal amount, or
71%, of 4.375% Senior Secured Notes due 2023
- Received $100 million of insurance proceeds in second quarter
related to Rocky Mount, NC fulfillment center fire, with additional
$50 million received after quarter-end
- Completed sale and leaseback and lease modification of six US
properties for gross consideration of $783 million
- In June, received $340 million related to Ontario, California
fulfillment center (including cash and items discussed below)
- Subsequent to quarter end in July, received $443 million
related to five other US properties
- Cash proceeds used to repay borrowings under QVC bank credit
facility upon each closing
Corporate Updates
On June 28, 2022, QVC, Inc. (“QVC”) completed a modification of
the lease that resulted in a sale and leaseback for US GAAP
purposes of QVC’s Ontario, California fulfillment center. QVC
received aggregate consideration of $340 million, which includes a
cash payment of $250 million, forgiveness of the remaining
financing obligation of $84 million and $37 million of a
right-of-use asset, offset by $31 million of an operating lease
liability. The annual impact to adjusted OIBDA(3) related to the
lease modification will be approximately $14 million.
Subsequent to quarter end on July 15, 2022, QVC and certain of
its subsidiaries entered into a sale and leaseback agreement with
an investment vehicle managed by Oak Street, a division of Blue
Owl, for five existing properties in Pennsylvania, South Carolina,
Tennessee and Virginia. Under the terms of the agreement, QVC
received a cash payment of $443 million, net of fees and other
expenses. The annual impact to adjusted OIBDA related to the sale
and lease back transactions will be approximately $33 million.
As a result of the foregoing transactions, the aggregate impact
to QxH adjusted OIBDA is expected to be approximately $47 million
annually assuming all of the related leases are in effect. The
weighted average tenor of lease agreements across the six
properties is approximately 19 years. Aggregate after-tax proceeds
recognized upon the sales were approximately $685 million.
Cash proceeds received by QVC were used to repay borrowings
under its bank credit facility upon each closing. The gain from
each property sale in the relevant measurement period is included
in operating income and within the covenant calculations under
QVC’s bank credit facility.
Discussion of Results
Unless otherwise noted, the following discussion compares
financial information for the three months ended June 30, 2022 to
the same period in 2021.
SECOND
QUARTER 2022 FINANCIAL RESULTS
(amounts in millions)
2Q21
2Q22
% Change
% Change Constant Currency(a)
Revenue
QxH
$
1,989
$
1,754
(12
)
%
QVC International
791
638
(19
)
%
(8
)
%
Zulily
397
220
(45
)
%
Cornerstone
327
341
4
%
Total Qurate Retail Revenue
$
3,504
$
2,953
(16
)
%
(13
)
%
Operating Income (Loss)
QxH(b)
$
295
$
361
22
%
QVC International
127
81
(36
)
%
(27
)
%
Zulily(c)
(15
)
(51
)
NM
Cornerstone
44
36
(18
)
%
Unallocated corporate cost
(18
)
(9
)
50
%
Total Qurate Retail Operating Income
(Loss)
$
433
$
418
(3
)
%
Adjusted OIBDA (Loss)
QxH
$
391
$
232
(41
)
%
QVC International
144
95
(34
)
%
(24
)
%
Zulily
9
(18
)
NM
Cornerstone
52
44
(15
)
%
Unallocated corporate cost
(15
)
(6
)
60
%
Total Qurate Retail Adjusted OIBDA
(Loss)
$
581
$
347
(40
)
%
(38
)
%
a)
For a definition of constant currency financial metrics, see the
accompanying schedules.
b)
In the second quarter of 2022, QxH incurred (i) a $15 million
write-down related to inventory at its Rocky Mount, NC fulfillment
center included in cost of goods sold and (ii) a $240 million gain
on sale related to the modification of the lease of its Ontario, CA
distribution center. These items are included in operating income
and excluded from adjusted OIBDA.
c)
Zulily recorded $6 million of restructuring charges during the
second quarter of 2022 that are included in operating income and
excluded from adjusted OIBDA.
SECOND
QUARTER 2022 NET INCOME AND ADJUSTED NET INCOME(3)
(amounts in millions)
2Q21
2Q22
Net income
$
222
$
203
Adjusted net income(a)
$
232
$
47
Basic weighted average shares outstanding
("WASO")
410
381
Potentially dilutive shares
13
1
Diluted WASO
423
382
GAAP EPS(b)
$
0.52
$
0.53
Adjusted EPS(a)
$
0.54
$
0.12
a)
See reconciling schedule 3.
b)
Represents diluted net income per share attributable to Series A
and Series B common stockholders as presented in Qurate Retail’s
financial statements.
QxH
QxH revenue declined primarily due to a 9% decrease in units
shipped, reflecting supply chain challenges and downstream impacts
from the December fire at its Rocky Mount, NC fulfillment center,
weakened consumer sentiment due to inflation and a decrease in
shipping and handling revenue. Average selling price declined 3%
reflecting a mix shift away from higher price point electronics.
Although total customer count declined, QxH experienced a 5%
increase in average spend per customer and an 8% increase in items
purchased per customer. QxH reported declines primarily in home,
electronics, beauty and accessories.
Operating income margin increased primarily due to the
aforementioned $240 million gain on sale related to the
modification of the lease of QVC’s Ontario, California fulfillment
center, partially offset by an additional $15 million in write-down
of inventory at the Rocky Mount facility, described below. Adjusted
OIBDA margin(3) decreased primarily due to higher fulfillment
(freight and warehouse), inventory obsolescence, fixed costs and
bad debt expenses. These pressures were partially offset by lower
incentive compensation accruals and higher product margins.
On December 18, 2021, QVC experienced a fire at its Rocky Mount,
NC fulfillment center. QVC has elected not to rebuild the facility;
however, it is still in the process of determining future plans for
the property. QVC has taken steps to mitigate disruption to its
operations including diverting inbound orders, leveraging its
existing fulfillment centers and supplementing these facilities
with short-term leased space as needed. While the company has taken
steps to minimize the overall impact to its business, it
experienced elevated warehouse and logistics costs during the three
months ended June 30, 2022 and anticipates these increased
warehouse and logistics costs to continue during 2022.
During the three months ended June 30, 2022, QVC incurred an
additional $1 million in fire related costs, net, primarily related
to personnel costs and legal fees, that will not be reimbursed by
QVC’s insurance policies and are included in operating income, and
$24 million of other fire related costs for which recovery was
deemed probable based on the company’s insurance policies. QVC
received an additional $100 million of insurance proceeds in the
second quarter of 2022. While there can be no assurance, based on
the provisions of QVC’s insurance policies and discussions with
insurance carriers, QVC determined that recovery of certain fire
related costs is probable, and has recorded an insurance receivable
with a balance of $66 million as of June 30, 2022 (see Schedule 4).
Subsequent to quarter end, QVC received an additional $50 million
of insurance proceeds and in total has received $250 million of
insurance proceeds since December 2021.
QVC is still in the process of assessing the extent of damage to
property and recoverability of inventory and submitting relevant
insurance claims. During the three months ended June 30, 2022, QVC
recorded a $15 million write-down related to Rocky Mount inventory
which was included in cost of goods sold in the quarter. Due to the
circumstances surrounding the write-down of the inventory, this
write-down has been excluded from adjusted OIBDA. These write-downs
are expected to be submitted as part of QVC’s business interruption
insurance claim; however, there can be no assurance they will be
recovered. QVC expects to continue to record additional costs and
recoveries until the property damage and inventory recoverability
assessment is completed and the insurance claim is fully
settled.
QVC International
US Dollar denominated results were negatively impacted by
exchange rate fluctuations, primarily due to the Dollar
strengthening 15% versus the Japanese Yen, 11% against the Euro and
10% versus the British Pound. The financial metrics presented in
this press release also provide a comparison of the percentage
change in QVC International’s results in constant currency (where
applicable) to the comparable figures calculated in accordance with
US GAAP for the second quarter of 2021.
QVC International’s constant currency revenue declined primarily
due to a 6% decline in units shipped, reflecting weakened consumer
sentiment driven by inflation and the invasion of Ukraine, which
particularly affected QVC International’s European markets. QVC
International reported declines in all categories except apparel in
constant currency.
Operating income and adjusted OIBDA margin decreased primarily
due to lower product margins, deleverage of fulfillment expenses
and higher fixed marketing costs, partially offset by lower
incentive compensation accruals.
Zulily
Zulily revenue decreased primarily reflecting supply chain
constraints and marketing inefficiencies due to cost inflation,
which caused Zulily to reduce marketing spend, affecting its
customer acquisition and retention.
Operating margin and adjusted OIBDA margin decreased primarily
due to deleverage of fixed costs and fulfilment expenses, which was
partially offset by lower marketing spend and higher product
margins. Zulily recorded $6 million of restructuring charges during
the second quarter of 2022 related to rightsizing its corporate
staffing and exiting a fulfillment center. These restructuring
charges are included in operating income and excluded from adjusted
OIBDA.
Cornerstone
Cornerstone generated record second quarter revenue at each of
its brands. This was primarily driven by solid growth in its home
brands (Frontgate, Ballard Designs, and Grandin Road) with strong
demand for bath, case goods, kitchen and home furniture, as well as
demand for apparel and home textiles at Garnet Hill.
Operating income and adjusted OIBDA margin decreased primarily
from higher freight and marketing costs, which were partially
offset by product margin gains.
SECOND
QUARTER 2022 SUPPLEMENTAL METRICS
(amounts in millions unless otherwise
noted)
2Q21
2Q22
% Change
% Change Constant Currency(a)
QxH
Cost of Goods Sold % of Revenue(b)
63.8
%
67.5
%
370
bps
Operating Income Margin (%)(c)
14.8
%
20.6
%
580
bps
Adjusted OIBDA Margin (%)(b)(c)
19.7
%
13.2
%
(650
)
bps
Average Selling Price
$
50.12
$
48.67
(3
)
%
Units Sold
(9
)
%
Return Rate(d)
14.8
%
14.8
%
0
bps
eCommerce Revenue(e)
$
1,176
$
1,040
(12
)
%
eCommerce % of Total Revenue
59.1
%
59.3
%
20
bps
Mobile % of eCommerce Revenue(f)
66.1
%
66.6
%
50
bps
LTM Total Customers(g)
11.4
9.5
(17
)
%
QVC – International
Cost of Goods Sold % of Revenue
61.4
%
64.1
%
270
bps
Operating Income Margin (%)
16.1
%
12.7
%
(340
)
bps
Adjusted OIBDA Margin (%)
18.2
%
14.9
%
(330
)
bps
Average Selling Price
(12
)
%
1
%
Units Sold
(6
)
%
Return Rate(d)
18.1
%
19.4
%
130
bps
eCommerce Revenue(e)
$
375
$
302
(19
)
%
(2
)
%
eCommerce % of Total Revenue
47.4
%
47.3
%
(10
)
bps
Mobile % of eCommerce Revenue(f)
71.3
%
70.2
%
(110
)
bps
LTM Total Customers(g)
5.0
4.6
(8
)
%
Zulily
Cost of Goods Sold % of Revenue
75.8
%
77.3
%
150
bps
Operating Income Margin (%)(h)
(3.8
)
%
(23.2
)
%
NM
Adjusted OIBDA Margin (%)(h)
2.3
%
(8.2
)
%
NM
Mobile % of Total Orders
74.3
%
74.2
%
(10
)
bps
LTM Total Customers(g)
5.6
3.4
(39
)
%
Cornerstone
Cost of Goods Sold % of Revenue
56.0
%
58.7
%
270
bps
Operating Income Margin (%)
13.5
%
10.6
%
(290
)
bps
Adjusted OIBDA Margin (%)
15.9
%
12.9
%
(300
)
bps
eCommerce Revenue(e)
$
240
$
252
5
%
eCommerce % of Total Revenue
73.4
%
73.9
%
50
bps
a)
For a definition of constant currency financial metrics, see the
accompanying schedules.
b)
Excludes a $15 million write-down related to inventory at its
Rocky Mount, NC fulfillment center included in cost of goods
sold.
c)
In the second quarter of 2022,
QxH recognized a $240 million gain on sale related to the
modification of the lease of its Ontario, CA distribution center.
This gain is included in operating income and excluded from
adjusted OIBDA.
d)
Measured as returned sales over
gross shipped sales in US dollars.
e)
Based on net revenue.
f)
Based on gross US dollar
orders.
g)
LTM: Last twelve
months.
h)
Zulily recorded $6 million of
restructuring charges during the second quarter of 2022 that are
included in operating income and excluded from adjusted OIBDA.
Taxes
Qurate Retail estimates that its average annual effective tax
rate in 2022 will be in the mid to high-30s percent range including
federal, state and foreign taxes, excluding the impact of one-time
gains and losses and other discrete events. This is elevated
relative to prior years due to the expiration of certain of Qurate
Retail’s green energy investment tax credits at the end of 2021,
the GAAP treatment of dividends paid on Qurate Retail’s Preferred
stock, and the mix of operating income in certain high-rate tax
jurisdictions in 2022. This estimate excludes the impact of
one-time items and is subject to adjustment.
Capital Returns
There were no repurchases of Qurate Retail’s Series A common
stock (Nasdaq: QRTEA) from May 1, 2022 through July 31, 2022. The
remaining repurchase authorization for Qurate Retail is
approximately $492 million as of August 1, 2022.
FOOTNOTES
1)
Qurate Retail will discuss these headlines and other matters on
Qurate Retail’s earnings conference call that will begin at 8:30
a.m. (E.D.T.) on August 5, 2022. For information regarding
how to access the call, please see “Important Notice” later in this
document.
2)
For a definition of constant currency financial metrics, see the
accompanying schedules. Applicable reconciliations can be found in
the financial tables at the beginning of this press release.
3)
For definitions and applicable
reconciliations of adjusted OIBDA, adjusted OIBDA margin, adjusted
net income and adjusted diluted EPS, see the accompanying
schedules.
NOTES
Cash and Debt
The following presentation is provided to separately identify
cash and debt information.
(amounts in millions)
3/31/2022
6/30/2022
Cash and cash equivalents
(GAAP)
$
608
$
561
Indemnification Asset(a)
$
239
$
175
Debt:
QVC senior secured notes(b)
$
4,450
$
3,914
QVC senior secured bank credit
facility
747
914
Total Qurate Retail Group Debt
$
5,197
$
4,828
Senior notes(b)
792
792
Senior exchangeable debentures(c)
1,159
1,158
Corporate Level Debentures
1,951
1,950
Total Qurate Retail, Inc. Debt
$
7,148
$
6,778
Unamortized discount, fair market value
adjustment and deferred loan costs
(56
)
(309
)
Total Qurate Retail, Inc. Debt
(GAAP)
$
7,092
$
6,469
Other Financial Obligations:
Preferred stock(d)
$
1,265
$
1,265
QVC, Inc. leverage(e)
2.5x
2.3x
a)
Indemnity from Liberty Broadband, pursuant to an indemnification
agreement with respect to the 1.75% exchangeable debentures due
2046 (the “Charter exchangeable debentures”) issued by Liberty
Interactive LLC (“LI LLC”), as described in this press release.
b)
Face amount of Senior Notes and Debentures with no reduction for
the unamortized discount.
c)
Face amount of Senior
Exchangeable Debentures with no adjustment for the fair market
value adjustment.
d)
Preferred Stock has an 8% coupon,
$100 per share initial liquidation preference plus accrued and
unpaid dividends and is non-voting. It is subject to a mandatory
redemption on March 15, 2031. The Preferred Stock is considered a
liability for GAAP purposes, and is recorded net of capitalized
costs.
e)
As defined in QVC’s credit
agreement. The gain from the leaseback transaction discussed
previously is included in operating income and within the covenant
calculations under QVC’s bank credit facility. Such gain was $240
million for the three months ended June 30, 2022. The expected gain
from the QVC property transactions in July 2022 will also be
included within the covenant calculations under QVC’s bank credit
facility for the relevant measurement period.
Cash at Qurate Retail decreased $47 million in the second
quarter as net debt reduction and capital expenditures more than
offset proceeds received from asset sales, insurance proceeds and
cash from operations.
Total debt at Qurate Retail decreased $370 million in the second
quarter. On June 21, 2022, QVC completed its purchase of $536
million of its 4.375% Senior Secured Notes due 2023 (the “2023
Notes”) pursuant to a cash tender offer to purchase any and all of
its outstanding 2023 Notes. As of June 30, 2022, the remaining $214
million principal amount of the 2023 Notes are classified within
current portion of debt as they mature in less than one year. QVC
financed the cash tender offer with cash on hand and borrowings
under its bank credit facility. Additionally during the second
quarter, $250 million of cash proceeds received from the
modification of the lease of QVC’s Ontario, CA fulfillment center
was used to repay borrowings under its bank credit facility and the
property’s $84 million remaining financing obligation was
forgiven.
QVC’s bank credit facility has $914 million drawn as of June 30,
2022 with available capacity of approximately $2.31 billion, net of
letters of credit. Qurate Retail is in compliance with all debt
covenants as of June 30, 2022.
Subsequent to quarter end, QVC received $443 million in cash
proceeds, net of fees and other expenses, related to the sale and
leaseback of five US properties. Proceeds received by QVC were used
to repay outstanding borrowings under its bank credit facility.
Qurate Retail benefits from an indemnification agreement with
Liberty Broadband with respect to its Charter exchangeable
debentures. The indemnification agreement compensates Qurate Retail
for any payments made in excess of the adjusted principal amount of
the debentures to any holder that exercises its exchange right on
or before the put/call date of October 5, 2023. This indemnity is
supported by a negative pledge in favor of Qurate Retail on the 1.0
million reference shares of Class A common stock of Charter held at
Liberty Broadband that underlie the Charter exchangeable
debentures. The indemnification asset on Qurate Retail’s balance
sheet is valued based on the estimated exchange feature in the
Charter exchangeable debentures. As of June 30, 2022, a holder of
the Charter exchangeable debentures has the ability to exchange
and, accordingly, the indemnification asset is included as a
current asset in our condensed balance sheet as of that date.
Important Notice: Qurate Retail, Inc. (Nasdaq: QRTEA,
QRTEB, QRTEP) will discuss Qurate Retail’s earnings release on a
conference call which will begin at 8:30 a.m. (E.D.T.) on August 5,
2022. The call can be accessed by dialing (800) 458-4121 or (323)
794-2093, passcode 8858509, at least 10 minutes prior to the start
time. The call will also be broadcast live across the Internet and
archived on our website. To access the webcast go to
https://www.qurateretail.com/investors/news-events/ir-calendar.
Links to this press release and replays of the call will also be
available on Qurate Retail’s website.
This press release includes certain forward-looking statements,
including statements about business strategies and initiatives and
their expected benefits (including Project Athens and the sale
leaseback transactions), market potential, future financial
performance and prospects, the impact of the fire at QVC’s Rocky
Mount fulfillment center, insurance recoveries, the impact of
global conflicts, Qurate Retail’s estimated ongoing annual tax
rate, market conditions (including inflation and supply chain
issues), the indemnification by Liberty Broadband, future repayment
of debt, the continuation of our stock repurchase program and other
matters that are not historical facts. These forward-looking
statements involve many risks and uncertainties that could cause
actual results to differ materially from those expressed or implied
by such statements, including, without limitation, possible changes
in market acceptance of new products or services, competitive
issues, regulatory matters affecting our businesses, continued
access to capital on terms acceptable to Qurate Retail, changes in
law and government regulations, the availability of investment
opportunities, general market conditions (including as a result of
COVID-19), issues impacting the global supply chain and labor
market, and market conditions conducive to stock repurchases. These
forward-looking statements speak only as of the date of this press
release, and Qurate 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
Qurate Retail's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based. Please refer to the publicly filed documents of Qurate
Retail, including the most recent Forms 10-K and 10-Q, for
additional information about Qurate Retail and about the risks and
uncertainties related to Qurate Retail's business which may affect
the statements made in this press release.
NON-GAAP FINANCIAL MEASURES
To provide investors with additional information regarding our
financial results, this press release includes a presentation of
adjusted OIBDA, which is a non-GAAP financial measure, for Qurate
Retail, QVC (and certain of its subsidiaries), Zulily and
Cornerstone together with a reconciliation to that entity or such
businesses’ operating income, as determined under GAAP. Qurate
Retail defines Adjusted OIBDA as operating income (loss) plus
depreciation and amortization, stock-based compensation, and where
applicable, separately identified impairments, litigation
settlements, restructuring, acquisition-related costs and fire
related costs, net (including Rocky Mount inventory losses) and
(gain) loss on sale of fixed assets. Further, this press release
includes Adjusted OIBDA margin, which is also a non-GAAP financial
measure. Qurate Retail defines Adjusted OIBDA margin as Adjusted
OIBDA divided by revenue.
Qurate Retail believes Adjusted OIBDA is an important indicator
of the operational strength and performance of its businesses by
identifying those items that are not directly a reflection of each
business’ performance or indicative of ongoing business trends. In
addition, this measure allows management to view operating results
and perform analytical comparisons and benchmarking between
businesses and identify strategies to improve performance. Because
Adjusted OIBDA is used as a measure of operating performance,
Qurate Retail views operating income as the most directly
comparable GAAP measure. Adjusted OIBDA is not meant to replace or
supersede operating income or any other GAAP measure, but rather to
supplement such GAAP measures in order to present investors with
the same information that Qurate Retail's management considers in
assessing the results of operations and performance of its assets.
Please see the attached schedules for applicable
reconciliations.
In addition, this press release includes references to adjusted
net income and adjusted earnings per share, which are non-GAAP
financial measures, for Qurate Retail. Qurate Retail defines
adjusted net income as net income, excluding the impact of
acquisition accounting amortization (net of deferred tax benefit),
mark to market adjustments on certain public debt and equity
securities, (gain) loss on sale of fixed assets and other one-time
adjustments. Qurate Retail defines adjusted earnings per share as
diluted earnings per share plus the diluted per share effects of
certain adjustments, net of tax.
Qurate Retail believes adjusted net income and adjusted earnings
per share are important indicators of financial performance due to
the impact of purchase accounting amortization, mark to market
adjustments and other one-time items identified in Schedule 3
below. Because adjusted net income and adjusted earnings per share
are used as measures of overall financial performance, Qurate
Retail views net income and diluted earnings per share,
respectively, as the most directly comparable GAAP measures.
Adjusted net income and adjusted earnings per share are not meant
to replace or supersede net income, diluted earnings per share or
any other GAAP measure, but rather to supplement such GAAP measures
in order to present investors with a supplemental metric of
financial performance. Please see the attached schedules for a
reconciliation of adjusted net income to net income (loss) and
adjusted earnings per share to diluted earnings per share, in each
case, calculated in accordance with GAAP for Qurate Retail
(Schedule 3).
This press release also references certain financial metrics on
a constant currency basis, which is a non-GAAP measure, for Qurate
Retail. Constant currency financial metrics, as presented herein,
are calculated by translating the current-year and prior-year
reported amounts into comparable amounts using a single foreign
exchange rate for each currency.
Qurate Retail believes constant currency financial metrics are
an important indicator of financial performance, in particular for
QVC, due to the translational impact of foreign currency
fluctuations relating to its subsidiaries in the UK, Germany, Italy
and Japan. We use constant currency financial metrics to provide a
framework to assess how our businesses performed excluding the
effects of foreign currency exchange fluctuations. Please see the
financial tables at the beginning of this press release for a
reconciliation of the impact of foreign currency fluctuations on
revenue, operating income, Adjusted OIBDA and average selling
price.
SCHEDULE 1
The following table provides a reconciliation of Qurate Retail’s
Adjusted OIBDA to its operating income calculated in accordance
with GAAP for the three months ended June 30, 2021, September 30,
2021, December 31, 2021, March 31, 2022 and June 30, 2022,
respectively.
CONSOLIDATED OPERATING INCOME AND ADJUSTED
OIBDA RECONCILIATION
(amounts in millions)
2Q21
3Q21
4Q21
1Q22
2Q22
Qurate Retail, Inc. Operating
Income
$
433
$
274
$
7
$
106
$
418
Depreciation and amortization
129
139
141
130
134
Stock compensation expense
19
19
18
15
16
Restructuring and fire related costs, net
(including Rocky Mount inventory losses)
—
—
21
84
22
Impairment of intangible assets
—
—
363
—
—
(Gain) on sale of fixed assets, net(a)
—
—
—
—
(243
)
Qurate Retail, Inc. Adjusted
OIBDA
$
581
$
432
$
550
$
335
$
347
a)
Includes gain on sale related to the modification of the lease
that resulted in a sale and leaseback for US GAAP purposes of QVC’s
Ontario, CA distribution center and the sale of another immaterial
asset.
SCHEDULE 2
The following table provides a reconciliation of Adjusted OIBDA
for QVC, Zulily and Cornerstone to that entity or such businesses'
operating income (loss) calculated in accordance with GAAP for the
three months ended June 30, 2021, September 30, 2021, December 31,
2021, March 31, 2022 and June 30, 2022, respectively.
SUBSIDIARY ADJUSTED OIBDA
RECONCILIATION
(amounts in millions)
2Q21
3Q21
4Q21
1Q22
2Q22
QVC
Operating income
$
422
$
316
$
388
$
130
$
442
Depreciation and amortization
102
111
114
109
102
Stock compensation
11
13
11
8
10
Fire related costs, net (including Rocky
Mount inventory losses)
—
—
21
82
16
(Gain) loss on sale of fixed assets,
net
—
—
—
—
(243
)
Adjusted OIBDA
$
535
$
440
$
534
$
329
$
327
QxH Adjusted OIBDA
$
391
$
325
$
374
$
225
$
232
QVC International Adjusted
OIBDA
$
144
$
115
$
160
$
104
$
95
Zulily
Operating income (loss)
$
(15
)
$
(40
)
$
(396
)
$
(38
)
$
(51
)
Depreciation and amortization
20
20
21
15
24
Stock compensation
4
3
2
3
3
Restructuring charges
—
—
—
2
6
Impairment of intangible assets
—
—
363
—
—
Adjusted OIBDA (Loss)
$
9
$
(17
)
$
(10
)
$
(18
)
$
(18
)
Cornerstone
Operating income
$
44
$
16
$
27
$
24
$
36
Depreciation and amortization
7
8
6
6
8
Stock compensation
1
—
1
1
—
Adjusted OIBDA
$
52
$
24
$
34
$
31
$
44
SCHEDULE 3
The following table provides a reconciliation of Qurate Retail’s
net income (loss) to its adjusted net income and diluted earnings
(loss) per share to adjusted earnings per share, in each case,
calculated in accordance with GAAP for the three months ended June
30, 2021, September 30, 2021, December 31, 2021, March 31, 2022 and
June 30, 2022, respectively.
ADJUSTED NET INCOME AND ADJUSTED EPS
RECONCILIATION
(amounts in millions)
2Q21
3Q21
4Q21
1Q22
2Q22
Qurate Retail, Inc. Net Income
(GAAP)
$
222
$
127
$
(215
)
$
1
$
203
Purchase accounting amort., net of
deferred tax benefit (a)
25
27
28
17
17
Impairment of intangible assets, net of
tax impact
—
—
331
—
—
Restructuring and fire related costs, net
of recoveries and tax impact (including Rocky Mount inventory
losses)
—
—
16
63
17
Gain on sale of fixed assets, net of tax
impact
—
—
—
—
(185
)
Mark-to-market adjustments, net(b)
(15
)
(31
)
—
(23
)
(5
)
Adjusted Net Income
$
232
$
123
$
160
$
58
$
47
Diluted earnings (loss) per share
(GAAP)
$
0.52
$
0.31
$
(0.54
)
$
—
$
0.53
Total adjustments per share, net of
tax
0.02
(0.01
)
0.94
0.15
(0.41
)
Adjusted earnings per share
$
0.54
$
0.30
$
0.40
$
0.15
$
0.12
a)
Add-back relates to non-cash, non-tax deductible purchase
accounting amortization from Qurate Retail’s acquisitions of QVC,
HSN, Zulily and Cornerstone, net of book deferred tax benefit.
b)
Add-back includes realized and unrealized gains/losses on
financial instruments, net of tax.
SCHEDULE 4
The following table provides certain incremental costs incurred
and the insurance receivable balance related to the Rocky Mount,
Inc. fulfillment center fire for the three months ended March 31,
2022 and June 30, 2022.
DIRECT COSTS RELATED TO ROCKY MOUNT FIRE
AND INSURANCE RECEIVABLE BALANCE
(amounts in millions)
Insurance receivable balance as of
December 31, 2021
$
129
Three months ended March 31, 2022:
Other fire related costs(a)
$
16
Less: Fire related costs not deemed
probable to be covered by insurance policies(b)
(2
)
Insurance receivable balance as of March
31, 2022
$
143
Three months ended June 30, 2022:
Other fire related costs(a)
$
24
Less: Fire related costs not deemed
probable to be covered by insurance policies(b)
(1
)
Less: Insurance recoveries received
(100
)
Insurance receivable balance as of June
30, 2022
$
66
a)
Excludes write-downs related to inventory remaining at the Rocky
Mount facility, for which no insurance receivable was recorded.
These expenses will be submitted as part of QVC's insurance claim;
however, there can be no assurance that it will be recovered. The
inventory write-downs are included in QxH's operating income and
excluded from adjusted OIBDA.
b)
Costs included in QxH's operating income and excluded from
adjusted OIBDA primarily related to personnel costs and legal
fees.
QURATE RETAIL, INC.
BALANCE SHEET
INFORMATION
(unaudited)
June 30,
December 31,
2022
2021
amounts in millions
Assets
Current assets:
Cash and cash equivalents
$
561
587
Trade and other receivables, net
1,142
1,679
Inventory, net
1,737
1,623
Indemnification agreement receivable
175
324
Other current assets
226
235
Total current assets
3,841
4,448
Property and equipment, net
813
1,030
Intangible assets not subject to
amortization
9,288
9,377
Intangible assets subject to amortization,
net
666
745
Other assets, at cost, net of accumulated
amortization
621
602
Total assets
$
15,229
16,202
Liabilities and Equity
Current liabilities:
Accounts payable
1,043
1,429
Accrued liabilities
1,020
1,236
Current portion of debt
1,109
1,315
Other current liabilities
202
244
Total current liabilities
3,374
4,224
Long-term debt
5,360
5,674
Deferred income tax liabilities
1,457
1,350
Preferred stock
1,265
1,261
Other liabilities
582
707
Total liabilities
12,038
13,216
Equity
3,072
2,850
Non-controlling interests in equity of
subsidiaries
119
136
Total liabilities and equity
$
15,229
16,202
QURATE RETAIL, INC.
STATEMENT OF OPERATIONS
INFORMATION
(unaudited)
Three months ended
June 30,
2022
2021
Revenue:
Total revenue, net
$
2,953
3,504
Operating costs and expenses:
Cost of goods sold (exclusive of
depreciation shown separately below)
1,978
2,240
Operating expense
198
217
Selling, general and administrative,
including stock-based compensation
461
485
Restructuring and fire related costs,
net
7
—
Depreciation and amortization
134
129
(Gain) loss on sale of fixed assets,
net
(243
)
—
2,535
3,071
Operating income (loss)
418
433
Other income (expense):
Interest expense
(119
)
(118
)
Share of earnings (losses) of affiliates,
net
—
(22
)
Realized and unrealized gains (losses) on
financial instruments, net
7
19
Other, net
35
(23
)
(77
)
(144
)
Earnings (loss) before income taxes
341
289
Income tax (expense) benefit
(120
)
(39
)
Net earnings (loss)
221
250
Less net earnings (loss) attributable to
noncontrolling interests
18
28
Net earnings (loss) attributable to Qurate
Retail, Inc. shareholders
$
203
222
QURATE RETAIL, INC.
STATEMENT OF CASH FLOWS
INFORMATION
(unaudited)
Six months ended
June 30,
2022
2021
amounts in millions
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)
$
234
474
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization
264
257
Stock-based compensation
31
35
Share of (earnings) losses of affiliates,
net
1
54
Realized and unrealized (gains) losses on
financial instruments, net
(37
)
(60
)
(Gain) loss on sale of fixed assets,
net
(243
)
—
Deferred income tax expense (benefit)
56
(10
)
Other, net
(5
)
7
Changes in operating assets and
liabilities
Decrease (increase) in accounts
receivable
420
429
Decrease (increase) in inventory
(139
)
(133
)
Decrease (increase) in prepaid expenses
and other assets
41
64
(Decrease) increase in trade accounts
payable
(364
)
(136
)
(Decrease) increase in accrued and other
liabilities
(317
)
(279
)
Net cash provided (used) by operating
activities
(58
)
702
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in and loans to cost and
equity investees
(7
)
(139
)
Capital expenditures
(101
)
(110
)
Expenditures for television distribution
rights
(15
)
(170
)
Cash proceeds from dispositions of
investments
12
2
Proceeds from sale of fixed assets
256
40
Insurance proceeds
70
—
Other investing activities, net
22
(2
)
Net cash provided (used) by investing
activities
237
(379
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt
1,355
302
Repayments of debt
(1,466
)
(230
)
Repurchases of Qurate Retail common
stock
—
(105
)
Withholding taxes on net settlements of
stock-based compensation
(8
)
(24
)
Derivative payments to counterparties
—
(81
)
Derivative proceeds from
counterparties
—
24
Dividends paid to noncontrolling
interest
(27
)
(31
)
Dividends paid to common shareholders
(10
)
(13
)
Other financing activities, net
(10
)
(6
)
Net cash provided (used) by financing
activities
(166
)
(164
)
Effect of foreign currency rates on cash,
cash equivalents and restricted cash
(39
)
(15
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
(26
)
144
Cash, cash equivalents and restricted cash
at beginning of period
596
814
Cash, cash equivalents and restricted cash
at end period
$
570
958
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220804006055/en/
Courtnee Chun, (720) 875-5420
Qurate Retail (NASDAQ:QRTEP)
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