Qurate Retail, Inc. ("Qurate Retail") (Nasdaq: QRTEA, QRTEB,
QRTEP) today reported fourth quarter and year end 2022
results(1).
“2022 was a challenging year for the company. We faced
downstream impacts from the December 2021 fire at our Rocky Mount
fulfillment center throughout the year, while also experiencing
macro pressure that impacted consumer demand,” said David
Rawlinson, President and CEO of Qurate Retail. “We have taken
action to strengthen the balance sheet, improve execution and
aggressively cut costs, including meaningfully reducing excess
inventory and undergoing a structural reorganization. These efforts
are part of a multi-year strategic plan for financial and operating
improvement that will begin to materialize in the coming quarters.
Today, we announced Bill Wafford as Chief Financial Officer of
Qurate Retail Group and have the management team in place to
execute. We believe we are entering 2023 in a healthier position
with operating discipline to achieve our financial targets.”
Fourth quarter and full year 2022 operating results:
- Total Qurate Retail revenue decreased 13% to $3.5 billion in
Q4, and decreased 14% to $12.1 billion in full year
- In constant currency(2) revenue decreased 10% in Q4 and 11% in
full year
- eCommerce revenue decreased 14% to $2.3 billion or 64% of total
revenue in Q4, and decreased 14% to $7.6 billion or 62% of total
revenue in full year
- Qurate Retail reported diluted EPS of $(0.13) in Q4 and $(6.83)
in full year
- Adjusted diluted EPS(3) of $(0.05) in Q4 and $0.15 in full
year
- QxH revenue decreased 11% in Q4 and full year
- QVC International revenue decreased 18% in Q4 and full year
- In constant currency, revenue decreased 4% in Q4 and 6% in full
year
- Cornerstone revenue decreased 3% in Q4 and increased 6% in full
year
- Zulily revenue decreased 28% in Q4 and 38% in full year
Corporate updates:
- Announced Bill Wafford joining as Qurate Retail Group Chief
Financial Officer effective March 20th
- Formerly CFO of Everlane, JCPenney, Vitamin Shoppe; 25 years of
experience in corporate finance, management consulting and
executive leadership
- Closed sale and leaseback of UK and German fulfillment centers
in January 2023 for proceeds of $182 million
Discussion of Results
Unless otherwise noted, the following discussion compares
financial information for the three months and year ended December
31, 2022 to the same periods in 2021.
FOURTH
QUARTER 2022 FINANCIAL RESULTS
(amounts in millions)
4Q21
4Q22
% Change
% Change Constant Currency(a)
Revenue
QxH
$
2,539
$
2,258
(11
)%
QVC International
813
666
(18
)%
(4
)%
Cornerstone
357
348
(3
)%
Zulily
351
254
(28
)%
Intersegment eliminations
(1
)
—
NM
Total Qurate Retail Revenue
$
4,059
$
3,526
(13
)%
(10
)%
Operating Income (Loss)
QxH(b)
$
247
$
28
(89
)%
QVC International
141
85
(40
)%
(27
)%
Cornerstone
27
(14
)
NM
Zulily(c)
(396
)
(47
)
88
%
Unallocated corporate cost
(12
)
(10
)
17
%
Total Qurate Retail Operating Income
(Loss)
$
7
$
42
NM
NM
Adjusted OIBDA (Loss)
QxH
$
374
$
150
(60
)%
QVC International
160
97
(39
)%
(26
)%
Cornerstone
34
(7
)
NM
Zulily
(10
)
(36
)
(260
)%
Unallocated corporate cost
(8
)
(7
)
13
%
Total Qurate Retail Adjusted OIBDA
(Loss)
$
550
$
197
(64
)%
(60
)%
_____________________
a)
For a definition of constant currency
financial metrics, see the accompanying schedules.
b)
In the fourth quarter of 2021, QxH
incurred $21 million of costs related to the fire at its Rocky
Mount, NC fulfillment center. In the fourth quarter of 2022, QxH
incurred $29 million of restructuring and fire related costs, net
of recoveries. These charges are included in operating income and
excluded from Adjusted OIBDA. See reconciling schedule 2.
c)
In the fourth quarter of 2021, Zulily
incurred a $363 million non-cash impairment charge related to its
tradename and goodwill. In the fourth quarter of 2022, Zulily
recorded $2 million in restructuring charges. These charges are
included in operating income and excluded from Adjusted OIBDA. See
reconciling schedule 2.
FULL
YEAR 2022 FINANCIAL RESULTS
(amounts in millions)
2021
2022
% Change
% Change Constant Currency(a)
Revenue
QxH
$
8,277
$
7,359
(11
)%
QVC International
3,077
2,528
(18
)%
(6
)%
Cornerstone
1,238
1,313
6
%
Zulily
1,453
906
(38
)%
Intersegment eliminations
(1
)
—
NM
Total Qurate Retail Revenue
$
14,044
$
12,106
(14
)%
(11
)%
Operating Income (Loss)
QxH(b)
$
1,018
$
(1,820
)
NM
QVC International
489
306
(37
)%
(28
)%
Cornerstone
108
48
(56
)%
Zulily(c)
(469
)
(539
)
(15
)%
Unallocated corporate cost
(59
)
(36
)
39
%
Total Qurate Retail Operating Income
(Loss)
$
1,087
$
(2,041
)
NM
NM
Adjusted OIBDA (Loss)
QxH
$
1,439
$
750
(48
)%
QVC International
562
358
(36
)%
(27
)%
Cornerstone
137
78
(43
)%
Zulily
(12
)
(97
)
(708
)%
Unallocated corporate cost
(46
)
(25
)
46
%
Total Qurate Retail Adjusted OIBDA
(Loss)
$
2,080
$
1,064
(49
)%
(46
)%
_____________________
a)
For a definition of constant currency
financial metrics, see the accompanying schedules.
b)
For the year ended December 31, 2021, QxH
incurred $21 million of costs related to the fire at its Rocky
Mount, NC fulfillment center. For the year ended December 31, 2022,
QxH incurred (i) a $2.7 billion non-cash impairment charge related
to goodwill and the HSN tradename, (ii) $520 million of gains
related to the sale and leaseback of six US properties and (iii) a
$10 million net gain related to restructuring and fire related
costs, net of recoveries. These items are included in operating
income and excluded from Adjusted OIBDA. See reconciling schedule
2.
c)
For the year ended December 31, 2021,
Zulily incurred a $363 million non-cash impairment charge related
to its tradename and goodwill. For the year ended December 31,
2022, Zulily recorded (i) a $366 million non-cash impairment charge
related to its tradename and goodwill and (ii) $13 million in
restructuring charges. These items are included in operating income
and excluded from Adjusted OIBDA.
FOURTH
QUARTER AND FULL YEAR 2022 NET INCOME AND ADJUSTED NET
INCOME(3)
(amounts in millions)
4Q21
4Q22
2021
2022
Net income (loss)
$
(215
)
$
(51
)
$
340
$
(2,594
)
Adjusted net income (loss)(a)
$
160
$
(18
)
$
716
$
58
Basic weighted average shares outstanding
("WASO")
389
381
403
380
Potentially dilutive shares
11
1
12
3
Diluted WASO
400
382
415
383
GAAP EPS(b)
$
(0.54
)
$
(0.13
)
$
0.82
$
(6.83
)
Adjusted EPS(a)
$
0.40
$
(0.05
)
$
1.73
$
0.15
_____________________
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 in the fourth quarter and full year,
primarily reflecting an impact on demand of supply chain
constraints in the first half of 2022 and inventory and receipt
management in the second half of 2022, as well as downstream
impacts from the December 2021 fire at its Rocky Mount, NC
fulfillment center, weakened consumer sentiment due to
macro-economic factors and a decrease in shipping and handling
revenue in both periods. Units shipped decreased 9% in both
periods. Average selling price declined 3% in the fourth quarter
and 2% in the full year, reflecting inventory reduction actions in
the second half of 2022 and a mix shift away from higher price
point home and electronic categories in the first half of 2022. QxH
reported declines in all categories for the quarter and full
year.
During 2022, QVC, Inc. (“QVC”) took actions to reduce inventory
and planned a workforce reduction that takes effect in 2023. QVC
recorded restructuring charges of $24 million at its QxH operating
segment related to severance, which is included in Restructuring
and fire related costs, net of (recoveries) in the consolidated
statement of operations during the year ended December 31,
2022.
Operating loss for the full year 2022 was primarily driven by a
$2.7 billion non-cash impairment charge related to QxH goodwill and
the HSN tradename, partially offset by $520 million of gains
related to the sale and leaseback transactions. Operating income in
the fourth quarter of 2022 was impacted by $24 million of costs
related to workforce reductions, described above. Adjusted OIBDA
margin(3) decreased in the fourth quarter and full year primarily
due to lower product margins reflecting inventory reduction and
promotions, higher administrative expense, deleverage of
fulfillment (freight and warehouse) costs, and higher marketing and
commission expenses.
QVC completed sale and leaseback transactions for six US
properties in 2022. The annual rent expense impacting Adjusted
OIBDA from these transactions was $23 million in 2022 and is
expected to average approximately $47 million in future years.
QVC International
For the quarter and full year, US Dollar denominated results
were negatively affected by exchange rate fluctuations. For the
fourth quarter, the US Dollar strengthened 19% versus the Japanese
Yen, 13% against the British Pound and 11% versus the Euro. For the
full year, the US Dollar strengthened 16% versus the Yen, 11%
against the Euro and 10% versus the 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 fourth quarter and full year
2022.
QVC International’s constant currency revenue declined in the
fourth quarter and full year primarily due to a 6% decline in units
shipped in each period, reflecting weakened consumer sentiment
driven primarily by inflation in Europe, as well as a decrease in
shipping and handling revenue. This pressure was partially offset
by growth in Japan in both periods. For the fourth quarter and full
year, QVC International reported constant currency declines in all
categories except apparel.
For the fourth quarter and full year, operating income and
Adjusted OIBDA margin decreased primarily due to lower product
margins reflecting inventory reduction actions, as well as
deleverage of administrative, fulfillment and commission
expenses.
The average annual expense impacting Adjusted OIBDA from the
sale and leaseback transactions for the UK and German properties
completed in January 2023 is expected to be approximately $16
million based on exchange rates as of December 31, 2022.
Cornerstone
Cornerstone revenue declined modestly in the fourth quarter,
reflecting softness in certain home categories such as outdoor
furniture and seasonal Halloween products, as well as in women’s
apparel. These pressures were partially offset by record fourth
quarter revenue at Ballard Designs primarily on strength in
bedding, dining and kitchen, fabrics and lighting. For the full
year, Cornerstone generated record revenue at each of its brands.
This is primarily due to strong growth in its home brands
(Frontgate, Ballard Designs, and Grandin Road) and demand for
textiles at Garnet Hill.
For the fourth quarter and full year, operating income and
Adjusted OIBDA margin decreased primarily due to higher logistics
costs.
Zulily
Zulily revenue declined in the fourth quarter primarily due to
lower unit volume and a reduction in the rate charged for shipping
and handling, as well as reduced traffic on the site driven by
marketing inefficiencies experienced during the year. These
pressures were partially offset by increased sales from national
brand product, with improved availability in the fourth quarter.
For the full year, Zulily revenue decreased primarily due to lower
availability of national brand product and a pullback in marketing
spend due to cost inflation and increased inefficiencies in
marketing, as well as lower shipping and handling revenue.
In the first quarter of 2022, Zulily began to execute a series
of transformation initiatives, beginning with the announcement of
the closure of its fulfillment center in Bethlehem, Pennsylvania,
and a reduction in its corporate workforce. These initiatives are
consistent with Zulily’s strategy to operate more efficiently as it
implements its turnaround plan, and Zulily expects to incur
additional expenses related to these transformation initiatives in
future periods. Zulily recorded $13 million of restructuring
charges during the year ended December 31, 2022, approximately $9
million of which related to its regional office space strategy and
expenses associated with the Pennsylvania facility closure, and
approximately $4 million of which related to a reduction in
corporate workforce.
Operating loss in the fourth quarter benefited from favorable
comparisons against a $363 million non-cash impairment charge
related to Zulily’s tradename and goodwill incurred in the fourth
quarter of 2021. For the full year, Zulily’s increased operating
loss primarily reflects weakened operating performance. Adjusted
OIBDA margin decreased for the fourth quarter primarily due to
lower product margins, increased shipping and handling promotions,
higher marketing expenses and fixed cost deleverage, partially
offset by lower fulfillment expenses. For the full year, Adjusted
OIBDA margin decreased primarily due to deleverage of fixed costs
and fulfillment expenses, as well as lower product margins.
FOURTH
QUARTER 2022 SUPPLEMENTAL METRICS
(amounts in millions unless otherwise
noted)
4Q21
4Q22
% Change
% Change Constant Currency(a)
QxH
Cost of Goods Sold % of Revenue
68.6
%
72.9
%
430
bps
Operating Income Margin (%)(b)
9.7
%
1.2
%
(850
)bps
Adjusted OIBDA Margin (%)(b)
14.7
%
6.6
%
(810
)bps
Average Selling Price
$
55.34
$
53.95
(3
)%
Units Sold
(9
)%
Return Rate(c)
13.1
%
12.0
%
(110
)bps
eCommerce Revenue(d)
$
1,598
$
1,413
(12
)%
eCommerce % of Total Revenue
62.9
%
62.6
%
(30
)bps
Mobile % of eCommerce Revenue(e)
67.0
%
67.9
%
90
bps
QVC – International
Cost of Goods Sold % of Revenue
61.1
%
64.0
%
290
bps
Operating Income Margin (%)
17.3
%
12.8
%
(450
)bps
Adjusted OIBDA Margin (%)
19.7
%
14.6
%
(510
)bps
Average Selling Price
(13
)%
3
%
Units Sold
(6
)%
Return Rate(c)
18.0
%
18.6
%
60
bps
eCommerce Revenue(d)
$
402
$
326
(19
)%
(8
)%
eCommerce % of Total Revenue
49.4
%
48.9
%
(50
)bps
Mobile % of eCommerce Revenue(e)
75.1
%
70.7
%
(440
)bps
Cornerstone
Cost of Goods Sold % of Revenue
59.3
%
71.2
%
1,190
bps
Operating Income Margin (%)
7.6
%
(4.0
)%
NM
Adjusted OIBDA Margin (%)
9.5
%
(2.0
)%
NM
eCommerce Revenue(d)
$
274
$
273
—
eCommerce % of Total Revenue
76.8
%
78.4
%
160
bps
Zulily
Cost of Goods Sold % of Revenue
78.9
%
84.3
%
540
bps
Operating Income Margin (%)(f)
(112.8
)%
(18.5
)%
NM
Adjusted OIBDA Margin (%)(f)
(2.8
)%
(14.2
)%
(1,140
)bps
Mobile % of Total Orders
75.2
%
73.8
%
(140
)bps
_____________________
a)
For a definition of constant currency
financial metrics, see the accompanying schedules.
b)
In the fourth quarter of 2021, QxH
incurred $21 million of costs related to the fire at its Rocky
Mount, NC fulfillment center. In the fourth quarter of 2022, QxH
incurred $29 million of restructuring and fire related costs, net
of recoveries. These charges are included in operating income and
excluded from Adjusted OIBDA. See reconciling schedule 2.
c)
Measured as returned sales over gross
shipped sales in US Dollars.
d)
Based on net revenue.
e)
Based on gross US dollar orders.
f)
In the fourth quarter of 2021, Zulily
incurred a $363 million non-cash impairment charge related to its
tradename and goodwill. In the fourth quarter of 2022, Zulily
recorded $2 million in restructuring charges. These charges are
included in operating income and excluded from Adjusted OIBDA. See
reconciling schedule 2.
FULL
YEAR 2022 SUPPLEMENTAL METRICS
(amounts in millions unless otherwise
noted)
2021
2022
% Change
% Change Constant Currency(a)
QxH
Cost of Goods Sold % of Revenue(b)
66.0
%
69.7
%
370
bps
Operating Income Margin (%)(c)
12.3
%
(24.7
)%
NM
Adjusted OIBDA Margin (%)(c)
17.4
%
10.2
%
(720
)bps
Average Selling Price
$
52.70
$
51.74
(2
)%
Units Sold
(9
)%
Return Rate(d)
14.1
%
14.0
%
(10
)bps
eCommerce Revenue(e)
$
5,003
$
4,450
(11
)%
eCommerce % of Total Revenue
60.4
%
60.5
%
10
bps
Mobile % of eCommerce Revenue(f)
66.4
%
67.1
%
70
bps
LTM Total Customers(g)
10.4
8.9
(14
)%
QVC – International
Cost of Goods Sold % of Revenue
61.8
%
64.1
%
230
bps
Operating Income Margin (%)
15.9
%
12.1
%
(380
)bps
Adjusted OIBDA Margin (%)
18.3
%
14.2
%
(410
)bps
Average Selling Price
(11
)%
2
%
Units Sold
(6
)%
Return Rate(d)
18.1
%
18.8
%
70
bps
eCommerce Revenue(e)
$
1,458
$
1,202
(18
)%
(3
)%
eCommerce % of Total Revenue
47.4
%
47.5
%
10
bps
Mobile % of eCommerce Revenue(f)
73.4
%
70.8
%
(260
)bps
LTM Total Customers(g)
4.7
4.3
(9
)%
Cornerstone
Cost of Goods Sold % of Revenue
59.3
%
64.7
%
540
bps
Operating Income Margin (%)
8.7
%
3.7
%
(500
)bps
Adjusted OIBDA Margin (%)
11.1
%
5.9
%
(520
)bps
eCommerce Revenue(e)
$
915
$
994
9
%
eCommerce % of Total Revenue
73.9
%
75.7
%
180
bps
`
Zulily
Cost of Goods Sold % of Revenue
77.6
%
79.6
%
200
bps
Operating Income Margin (%)(h)
(32.3
)%
(59.5
)%
NM
Adjusted OIBDA Margin (%)(h)
(0.8
)%
(10.7
)%
(990
)bps
Mobile % of Total Orders
75.0
%
74.7
%
(30
)bps
LTM Total Customers(g)
4.6
2.8
(39
)%
_____________________
a)
For a definition of constant currency
financial metrics, see the accompanying schedules.
b)
Excludes $95 million in write-down costs
related to inventory remaining at its Rocky Mount, NC fulfillment
center included in cost of goods sold for the twelve months ended
December 31, 2022.
c)
For the year ended December 31, 2021, QxH
incurred $21 million of costs related to the fire at its Rocky
Mount, NC fulfillment center. For the year ended December 31, 2022,
QxH incurred (i) a $2.7 billion non-cash impairment charge related
to goodwill and the HSN tradename, (ii) $520 million of gains
related to the sale and leaseback of six US properties and (iii) a
$10 million net gain related to restructuring and fire related
costs, net of recoveries. These items are included in operating
income and excluded from Adjusted OIBDA. See reconciling schedule
2.
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)
For the year ended December 31, 2021,
Zulily incurred a $363 million non-cash impairment charge related
to its tradename and goodwill. For the year ended December 31,
2022, Zulily recorded (i) a $366 million non-cash impairment charge
related to its tradename and goodwill and (ii) $13 million in
restructuring charges. These items are included in operating income
and excluded from Adjusted OIBDA.
Capital Returns
There were no repurchases of Qurate Retail’s Series A common
stock (Nasdaq: QRTEA) from November 1, 2022 through January 31,
2023. The remaining repurchase authorization for Qurate Retail is
approximately $492 million as of February 1, 2023.
FOOTNOTES
1)
Qurate Retail will discuss these
highlights and other matters on Qurate Retail’s earnings conference
call that will begin at 8:30 a.m. (E.T.) on March 1, 2023. 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)
9/30/2022
12/31/2022
Cash and cash equivalents
(GAAP)
$
624
$
1,275
Indemnification agreement
receivable(a)
$
35
$
50
Debt:
QVC senior secured notes(b)
$
3,914
$
3,914
QVC senior secured bank credit
facility
545
1,075
Total Qurate Retail Group Debt
$
4,459
$
4,989
Senior notes(b)
792
792
Senior exchangeable debentures(c)
1,114
1,114
Corporate Level Debentures
1,906
1,906
Total Qurate Retail, Inc. Debt
$
6,365
$
6,895
Unamortized discount, fair market value
adjustment and deferred loan costs
(459
)
(542
)
Total Qurate Retail, Inc. Debt
(GAAP)
$
5,906
$
6,353
Other Financial Obligations:
Preferred stock(d)
$
1,266
$
1,266
QVC, Inc. leverage(e)
2.0x
2.8x
_____________________
a)
Indemnity from Liberty Broadband, pursuant
to an indemnification agreement with respect to the 1.75%
exchangeable debentures due 2046 (the “LI LLC Charter exchangeable
debentures”) issued by Liberty Interactive LLC (“LI LLC”), as
described in this press release. LI LLC is a wholly owned
subsidiary of Qurate Retail.
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, Inc.’s credit
agreement. The gains from the leaseback transactions discussed
previously are included in operating income and within the covenant
calculations under QVC’s bank credit facility. See schedule 1.
Cash at Qurate Retail increased $651 million and total debt
increased $530 million in the fourth quarter primarily due to
borrowing under QVC’s bank credit facility. Following a series of
transactions in the fourth quarter, as of December 31, 2022 there
is approximately $875 million of cash and cash equivalents at the
corporate level available to service corporate level obligations,
including $500 million at Qurate Retail, Inc. and $375 million at
LI LLC. There is $357 million of cash and cash equivalents at QVC,
Inc. QVC’s bank credit facility has $1.1 billion drawn with
incremental availability of approximately $2.15 billion, net of
letters of credit. Qurate Retail is in compliance with all debt
covenants as of December 31, 2022.
As of December 31, 2022, QVC’s consolidated leverage ratio (as
calculated under QVC’s senior secured notes) was greater than 3.5x
and as a result QVC is restricted in its ability to make unlimited
dividends or other restricted payments. Dividends made by QVC to
service the principal and interest of indebtedness of its parent
entities as well as payments made by QVC to Qurate Retail under an
intercompany tax sharing agreement in respect of certain tax
obligations of QVC and its subsidiaries are permitted under the
bond indenture and credit agreement.
Qurate Retail benefits from an indemnification agreement with
Liberty Broadband with respect to its LI LLC Charter exchangeable
debentures. Pursuant to the indemnification agreement, Liberty
Broadband will be required to indemnify LI LLC for any payments
made to a holder of such debentures that exercises its exchange
right on or before the put/call date of October 5, 2023 in excess
of the sum of the adjusted principal amount of such debentures plus
certain estimated tax benefits to Qurate Retail, if any, resulting
from the exchange. LI LLC would be responsible for paying the
adjusted principal amount to such holder. This indemnity is
supported by a negative pledge in favor of Qurate Retail on 1.0
million reference shares of Class A common stock of Charter held at
Liberty Broadband that underlie the LI LLC Charter exchangeable
debentures. The indemnification asset on Qurate Retail’s balance
sheet is valued based on the estimated exchange feature in the LI
LLC Charter exchangeable debentures. As of December 31, 2022, a
holder of the LI LLC Charter exchangeable debentures has the
ability to put their debentures on October 5, 2023, and
accordingly, the indemnification asset is included as a current
asset in our balance sheet as of December 31, 2022.
Important Notice: Qurate Retail (Nasdaq: QRTEA, QRTEB,
QRTEP) will discuss Qurate Retail’s earnings release on a
conference call which will begin at 8:30 a.m. (E.T.) on March 1,
2023. The call can be accessed by dialing (877) 704-4234 or (215)
268-9904, passcode 13735786, 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, market potential, future financial
performance and prospects, free cash flow, insurance recoveries,
cost cutting measures, sale and leaseback recoveries, market
conditions, 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 or other public health crises),
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 Form 10-K, 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
business’s operating income, as determined under GAAP. Qurate
Retail defines Adjusted OIBDA as operating income (loss) plus
depreciation and amortization, stock-based compensation, separately
reported litigation settlements, transaction related costs
(including restructuring, integration and advisory fees),
impairments and fire-related costs. 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’s 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 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 (loss) calculated in
accordance with GAAP for the three months ended December 31, 2021,
March 31, 2022, June 30, 2022, September 30, 2022 and December 31,
2022 and years ended December 31, 2021 and 2022.
CONSOLIDATED
OPERATING INCOME AND ADJUSTED OIBDA RECONCILIATION
(amounts in millions)
4Q21
1Q22
2Q22
3Q22
4Q22
2021
2022
Qurate Retail Operating Income
(Loss)
$
7
$
106
$
418
$
(2,607
)
$
42
$
1,087
$
(2,041
)
Depreciation and amortization
141
130
134
107
110
537
481
Stock compensation expense
18
15
16
15
14
72
60
Restructuring and fire related costs, net
of (recoveries) (including Rocky Mount inventory losses)
21
84
22
(134
)
31
21
3
Impairment of intangible assets
363
—
—
3,081
—
363
3,081
(Gains) on sale leaseback
transactions(a)
—
—
(243
)
(277
)
—
—
(520
)
Qurate Retail Adjusted OIBDA
$
550
$
335
$
347
$
185
$
197
$
2,080
$
1,064
_____________________
a)
Includes gains 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 in the second quarter of 2022, and
the sale and leaseback transactions of five US properties completed
in the third quarter of 2022.
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 December 31, 2021, March 31, 2022, June 30,
2022, September 30, 2022 and December 31, 2022 and years ended
December 31, 2021 and 2022.
SUBSIDIARY ADJUSTED
OIBDA RECONCILIATION
(amounts in millions)
4Q21
1Q22
2Q22
3Q22
4Q22
2021
2022
QVC
Operating income (loss)
$
388
$
130
$
442
$
(2,199
)
$
113
$
1,507
$
(1,514
)
Depreciation and amortization
114
109
102
94
96
429
401
Stock compensation
11
8
10
9
9
44
36
Restructuring and fire related costs, net
of (recoveries) (including Rocky Mount inventory losses)(a)
21
82
16
(137
)
29
21
(10
)
(Gains) on sale leaseback transactions
—
—
(243
)
(277
)
—
—
(520
)
Impairment of intangible assets
—
—
—
2,715
—
—
2,715
Adjusted OIBDA
$
534
$
329
$
327
$
205
$
247
$
2,001
$
1,108
QxH Adjusted OIBDA
$
374
$
225
$
232
$
143
$
150
$
1,439
$
750
QVC International Adjusted
OIBDA
$
160
$
104
$
95
$
62
$
97
$
562
$
358
Cornerstone
Operating income (loss)
$
27
$
24
$
36
$
2
$
(14
)
$
108
$
48
Depreciation and amortization
6
6
8
6
7
27
27
Stock compensation
1
1
—
2
—
2
3
Adjusted OIBDA (Loss)
$
34
$
31
$
44
$
10
$
(7
)
$
137
$
78
Zulily
Operating income (loss)
$
(396
)
$
(38
)
$
(51
)
$
(403
)
$
(47
)
$
(469
)
$
(539
)
Depreciation and amortization
21
15
24
7
7
81
53
Stock compensation
2
3
3
2
2
13
10
Restructuring charges
—
2
6
3
2
—
13
Impairment of intangible assets
363
—
—
366
—
363
366
Adjusted OIBDA (Loss)
$
(10
)
$
(18
)
$
(18
)
$
(25
)
$
(36
)
$
(12
)
$
(97
)
_____________________
a)
For the quarter ended December 31, 2022,
QxH incurred (i) $24 million of costs related to workforce
reductions, (ii) $7 million of Rocky Mount costs incurred for which
QVC previously received insurance proceeds and (iii) the reversal
of $2 million of costs related to Rocky Mount that will not be
reimbursed by QVC’s insurance policies as a result of a true-up of
accounting estimates. For the year ended December 31, 2022, QxH
incurred (i) $95 million in write-down costs related to inventory
remaining at its Rocky Mount, NC fulfillment center included in
cost of goods sold, (ii) a $132 million net gain on insurance
proceeds received in excess of losses recognized primarily on
inventory, fixed assets and other fire related costs, (iii) $3
million of costs related to Rocky Mount that will not be reimbursed
by QVC’s insurance policies and (iv) $24 million of costs related
to workforce reductions.
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
December 31, 2021, March 31, 2022, June 30, 2022, September 30,
2022 and December 31, 2022 and years ended December 31, 2021 and
2022.
ADJUSTED NET INCOME
AND ADJUSTED EPS RECONCILIATION
(amounts in millions)
4Q21
1Q22
2Q22
3Q22
4Q22
2021
2022
Qurate Retail Net Income (Loss)
(GAAP)
$
(215
)
$
1
$
203
$
(2,747
)
$
(51
)
$
340
$
(2,594
)
Purchase accounting amort., net of
deferred tax benefit(a)
28
17
17
16
18
106
68
Impairment of intangible assets, net of
tax impact
331
—
—
3,004
—
331
3,004
Restructuring and fire related costs, net
of (recoveries) and tax impact (including Rocky Mount inventory
losses)
16
63
17
(101
)
24
16
3
Gains on sale leaseback transactions, net
of tax impact
—
—
(185
)
(207
)
—
—
(392
)
Mark-to-market adjustments, net(b)
—
(23
)
(5
)
6
(9
)
(77
)
(31
)
Adjusted Net Income
$
160
$
58
$
47
$
(29
)
$
(18
)
$
716
$
58
Diluted earnings per share (GAAP)
$
(0.54
)
$
—
$
0.53
$
(7.21
)
$
(0.13
)
$
0.82
$
(6.83
)
Adjustments, net of tax
0.94
0.15
(0.41
)
7.13
0.08
0.91
6.98
Adjusted earnings per share
$
0.40
$
0.15
$
0.12
$
(0.08
)
$
(0.05
)
$
1.73
$
0.15
_____________________
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
fulfillment center fire for the three months ended March 31, 2022,
June 30, 2022, September 30, 2022 and December 31, 2022.
DIRECT COSTS RELATED
TO ROCKY MOUNT FIRE AND INSURANCE RECEIVABLE BALANCE
(amounts in millions)
Year ended December 31, 2021:
Loss on inventory
$
134
Loss on fixed assets
87
Other fire related costs
29
Total
250
Less: Fire related costs not deemed
probable to be covered by insurance policies(a)
(21
)
Less: Insurance recoveries received
(100
)
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
Three months ended September 30, 2022:
Other fire related costs
$
12
Less: Fire related costs not deemed
probable to be covered by insurance policies(b)
(2
)
Less: Insurance recoveries received
(180
)
Plus: Gain on insurance proceeds
received
139
Insurance receivable balance as of
September 30, 2022
$
35
Three months ended December 31, 2022:
Other fire related costs
$
10
Plus: Reversal of fire related costs not
deemed probable to be covered by insurance policies(b)
2
Less: Reduction of gain on insurance
proceeds received(c)
(7
)
Insurance receivable balance as of
December 31, 2022
$
40
_____________________
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 business interruption 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.
c)
During the fourth quarter of 2022, QxH
incurred $7 million of costs related to expenses for which QVC
previously received insurance proceeds. These costs were recorded
as a reduction to the gain on insurance proceeds received.
QURATE RETAIL, INC.
BALANCE SHEET
INFORMATION
(unaudited)
December 31, 2022
December 31, 2021
amounts in millions
Assets
Current assets:
Cash and cash equivalents
$
1,275
587
Trade and other receivables, net
1,394
1,679
Inventory, net
1,346
1,623
Indemnification agreement receivable
50
324
Other current assets
210
235
Total current assets
4,275
4,448
Property and equipment, net
570
1,030
Intangible assets not subject to
amortization
6,219
9,377
Intangible assets subject to amortization,
net
612
745
Operating lease right-of-use assets
585
351
Other assets, at cost, net of accumulated
amortization
310
251
Total assets
$
12,571
16,202
Liabilities and Equity
Current liabilities:
Accounts payable
$
976
1,429
Accrued liabilities
1,133
1,236
Current portion of debt
828
1,315
Other current liabilities
162
244
Total current liabilities
3,099
4,224
Long-term debt
5,525
5,674
Deferred income tax liabilities
1,440
1,350
Preferred stock
1,266
1,261
Operating lease liabilities
518
303
Other liabilities
198
404
Total liabilities
12,046
13,216
Equity/Attributed net assets
(liabilities)
412
2,850
Non-controlling interests in equity of
subsidiaries
113
136
Total liabilities and equity
$
12,571
16,202
QURATE RETAIL, INC.
STATEMENT OF OPERATIONS
INFORMATION
(unaudited)
Years ended December
31,
2022
2021
amounts in millions
Revenue:
Total revenue, net
$
12,106
14,044
Operating costs and expenses:
Cost of retail sales (exclusive of
depreciation shown separately below)
8,417
9,231
Operating expense
835
875
Selling, general and administrative,
including stock-based compensation
1,945
1,930
Impairment of intangible assets and
long-lived assets
3,081
363
Gains on sale leaseback transactions
(520
)
—
Restructuring and fire related costs, net
of (recoveries)
(92
)
21
Depreciation and amortization
481
537
14,147
12,957
Operating income (loss)
(2,041
)
1,087
Other income (expense):
Interest expense
(456
)
(468
)
Share of earnings (losses) of affiliates,
net
(1
)
(94
)
Realized and unrealized gains (losses) on
financial instruments, net
41
99
Gains (losses) on transactions, net
—
10
Tax sharing income (expense) with Liberty
Broadband
79
10
Other, net
70
(6
)
(267
)
(449
)
Earnings (loss) from continuing operations
before income taxes
(2,308
)
638
Income tax (expense) benefit
(224
)
(217
)
Net earnings (loss)
(2,532
)
421
Less net earnings (loss) attributable to
the noncontrolling interests
62
81
Net earnings (loss) attributable to Qurate
Retail shareholders
$
(2,594
)
340
QURATE RETAIL, INC.
STATEMENT OF CASH FLOWS
INFORMATION
(unaudited)
Years ended December
31,
2022
2021
amounts in millions
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss)
$
(2,532
)
421
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization
481
537
Impairment of intangible assets
3,081
363
Stock-based compensation
60
72
Noncash interest expense
10
10
Share of (earnings) losses of affiliates,
net
1
94
Realized and unrealized (gains) losses on
financial instruments, net
(41
)
(99
)
(Gains) losses on sale leaseback
transactions
(520
)
—
(Gains) losses on transactions, net
—
(10
)
Gain on insurance proceeds, net of fire related costs
(132
)
—
(Gains) losses on extinguishment of
debt
(8
)
1
Deferred income tax expense (benefit)
12
(4
)
Insurance proceeds received for inventory
and operating losses
96
100
Other noncash charges (credits), net
(45
)
22
Changes in operating assets and
liabilities
Decrease (increase) in accounts
receivable
124
27
Decrease (increase) in inventory
254
(440
)
Decrease (increase) in prepaid expenses
and other assets
102
76
(Decrease) increase in trade accounts
payable
(446
)
147
(Decrease) increase in accrued and other
liabilities
(303
)
(92
)
Net cash provided (used) by operating
activities
194
1,225
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash proceeds from dispositions of
investments
13
81
Investment in and loans to cost and equity
investees
(7
)
(202
)
Capital expenditures
(268
)
(244
)
Expenditures for television distribution
rights
(45
)
(187
)
Insurance proceeds for fixed assets
184
—
Proceeds from sale of fixed assets
704
54
Other investing activities, net
20
(3
)
Net cash provided (used) by investing
activities
601
(501
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings of debt
3,029
1,037
Repayments of debt
(3,008
)
(594
)
Repurchases of Qurate Retail common
stock
—
(365
)
Withholding taxes on net share settlements
of stock-based compensation
(7
)
(29
)
Payments for issuances of financial
instruments
—
(694
)
Proceeds from settlements of financial
instruments
—
311
Dividends paid to noncontrolling
interest
(68
)
(60
)
Dividends paid to common shareholders
(12
)
(503
)
Other financing activities, net
(6
)
(17
)
Net cash provided (used) by financing
activities
(72
)
(914
)
Effect of foreign currency exchange rates
on cash, cash equivalents and restricted cash
(34
)
(28
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
689
(218
)
Cash, cash equivalents and restricted cash
at beginning of period
596
814
Cash, cash equivalents and restricted cash
at end of period
$
1,285
596
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230228006503/en/
Qurate Retail, Inc. Shane Kleinstein, 720-875-5432
Qurate Retail (NASDAQ:QRTEP)
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