Qurate Retail, Inc. ("Qurate Retail") (Nasdaq: QRTEA, QRTEB,
QRTEP) today reported second quarter 2023 results (1).
“In this quarter, we made meaningful progress on Project Athens,
our multi-year plan to transform the company, expanding gross
margins in our video commerce businesses for the first time in over
18 months and materially improving our cash flow,” said David
Rawlinson, President and CEO of Qurate Retail. “While our revenue
was down, our topline results were in line with the discretionary
retail industry, which was impacted by softer consumer sentiment
and more promotional intensity particularly in the home categories.
During the quarter, we also divested Zulily, which simplified our
portfolio and improved our go forward liquidity. We finalized our
insurance claims for the fire at our former Rocky Mount, NC
fulfillment center and received $225 million of insurance
proceeds.
“We continue our focus on cash flow, costs and margin growth in
the near term and anticipate improved profitability in the second
half of 2023. We believe we are on track to achieve our Project
Athens objectives through 2024.”
Second quarter 2023 operating results:
- Qurate Retail revenue(2) decreased 7% to $2.5 billion
- In constant currency(3) revenue(2) decreased 7%
- Qurate Retail reported diluted EPS of $0.28
- Adjusted diluted EPS(4) of $(0.03)
- QxH revenue decreased 8%
- QVC International revenue decreased 5%
- In constant currency, revenue decreased 3%
- Cornerstone revenue decreased 7%
Corporate headlines:
- Finalized insurance claim related to Rocky Mount, NC
fulfillment center (“Rocky Mount”) fire and received $225 million
of insurance proceeds in second quarter; total insurance proceeds
received of $660 million
- Divested Zulily on May 24th
- Repaid $192 million of near-term QVC debt maturities
- Settled $94 million and $251 million principal amount of
exchanges of 1.75% exchangeable debentures with October 2023
put/call in the three and six months ended June 30, 2023,
respectively
Discussion of Results
Unless otherwise noted, the following discussion compares
financial information for the three months ended June 30, 2023 to
the same period in 2022.
SECOND
QUARTER 2023 FINANCIAL RESULTS
(amounts in millions)
2Q22
2Q23
% Change
% Change Constant Currency(a)
Revenue
QxH
$
1,754
$
1,618
(8
)
%
QVC International
638
606
(5
)
%
(3
)
%
Cornerstone
341
316
(7
)
%
Total Qurate Retail Revenue (excluding
Zulily)
2,733
2,540
(7
)
%
(7
)
%
Zulily(b)
220
109
N/M
Total Qurate Retail Revenue (as
reported)
$
2,953
$
2,649
(10
)
%
(10
)
%
Operating Income (Loss)
QxH(c)
$
361
$
303
(16
)
%
QVC International(d)
81
71
(12
)
%
(10
)
%
Cornerstone(e)
36
15
(58
)
%
Unallocated corporate cost
(9
)
(9
)
-
%
Total Qurate Retail Operating Income
(excluding Zulily)
469
380
(19
)
%
(19
)
%
Zulily(b)
(51
)
(14
)
N/M
Total Qurate Retail Operating Income
(as reported)
$
418
$
366
(12
)
%
(12
)
%
Adjusted OIBDA
QxH(c)
$
232
$
185
(20
)
%
QVC International(d)
95
77
(19
)
%
(15
)
%
Cornerstone(e)
44
25
(43
)
%
Unallocated corporate cost
(6
)
(7
)
(17
)
%
Total Qurate Retail Adjusted OIBDA
(excluding Zulily)
$
365
$
280
(23
)
%
(22
)
%
Zulily(b)
(18
)
(10
)
N/M
Total Qurate Retail Adjusted OIBDA (as
reported)
$
347
$
270
(22
)
%
(21
)
%
_____________________
a)
For a definition of constant currency
financial metrics, see the accompanying schedules.
b) Zulily was divested on May 24, 2023. Second quarter 2023 results
include Zulily through May 23, 2023. In the second quarter of 2023
and 2022, Zulily recorded $1 million and $6 million, respectively,
of restructuring charges that are included in operating income and
excluded from adjusted OIBDA.
c)
In the second quarter of 2023, QxH recognized (i) a $209 million
net gain on insurance proceeds representing insurance proceeds
received in excess of fire-related costs and (ii) a $2 million gain
on the sale of Rocky Mount in February 2023 that was released from
escrow. In the second quarter of 2022, QxH incurred (i) a $15
million write-down related to inventory at Rocky Mount included in
cost of goods sold, (ii) a $240 million gain on sale related to the
modification of the lease of its Ontario, CA distribution center
and (iii) $1 million of non-reimbursable fire-related costs. These
items are included in operating income and excluded from adjusted
OIBDA. See Reconciling Schedule 2.
d)
In the second quarter of 2023, QVC International recognized a $6
million gain on an intangible asset primarily related to the sale
of a channel positioning right that is included in operating income
and excluded from adjusted OIBDA. See Reconciling Schedule 2.
e)
In the second quarter of 2023, Cornerstone recorded $2 million of
restructuring charges related to a workforce reduction. These are
included in operating income and excluded from adjusted OIBDA. See
Reconciling Schedule 2.
SECOND
QUARTER 2023 NET INCOME AND ADJUSTED NET INCOME(4)
(amounts in millions)
2Q22
2Q23
Net income
$
203
$
107
Adjusted net income (loss)(a)
$
47
$
(13
)
Basic weighted average shares outstanding
("WASO")
381
388
Potentially dilutive shares
1
1
Diluted WASO
382
389
GAAP EPS(b)
$
0.53
$
0.28
Adjusted EPS(a)
$
0.12
$
(0.03
)
_____________________
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 12% decrease in units
shipped, reflecting fewer customers and weakened consumer
sentiment, as well as lower shipping and handling revenue. This was
partially offset by a 5% increase in average selling price driven
by an elevated product assortment and price increases. QxH
experienced a 6% increase in average spend per customer. QxH
reported declines in home, electronics, accessories and apparel,
partially offset by growth in beauty.
Operating income and adjusted OIBDA margin(4) decreased
primarily due to higher administrative expenses from certain costs
related to Project Athens, higher benefits expense and sales
deleverage and, to a lesser extent, from increased commissions due
to expanded distribution. These pressures were partially offset by
higher product margins, favorable fulfillment (warehouse and
freight), lower obsolescence expense and lower bad debt expense.
Product margins increased mainly due to higher initial margins,
partially offset by unfavorable returns and lower shipping and
handling revenue. Fulfillment favorability was driven by less
detention and demurrage costs and reduced volume, partially offset
by higher freight and labor rates and fulfillment center rent
expense due to sale leaseback transactions in the prior year.
In the second quarter of 2023, QxH received a final payment of
$225 million of insurance proceeds related to the December 2021
fire at Rocky Mount, primarily business interruption proceeds, for
an aggregate of $660 million proceeds received.
QVC International
US Dollar denominated results were negatively impacted by
exchange rate fluctuations, primarily due to the Dollar
strengthening 6% versus the Japanese Yen and 1% versus the British
Pound, partially offset by weakening 2% against the Euro. The
financial metrics presented in this press release also provide a
comparison of the percentage change in QVC International’s results
in constant currency to the comparable figures calculated in
accordance with US GAAP, where applicable.
QVC International’s constant currency revenue declined primarily
due to a 7% decrease in units shipped, reflecting weakened consumer
sentiment driven by inflation primarily in Europe. This was
partially offset by a 5% increase in average selling price driven
by price increases and product mix. QVC International reported
declines in electronics, jewelry and apparel, while beauty grew
modestly and home was flat.
Operating income and adjusted OIBDA margin decreased primarily
due to higher administrative and fulfillment expenses.
Administrative costs increased due to higher wages, outside
services and management incentive accruals. Fulfillment pressure
was primarily attributable to higher fulfillment center rents due
to sale leaseback transactions and increased labor costs. These
pressures were partially offset by higher product margins and lower
inventory obsolescence expense from reduced inventory levels.
Product margin favorability was primarily due to increased initial
margin, partially offset by lower shipping and handling
revenue.
Cornerstone
Cornerstone revenue decreased, reflecting softness and
competitive promotional pressure in the home sector as well as
lower demand for apparel at Garnett Hill.
Operating income and adjusted OIBDA margin decreased primarily
due to increased promotions and higher fulfillment, marketing and
administrative costs. These pressures were partially offset by
lower inbound logistic costs.
SECOND
QUARTER 2023 SUPPLEMENTAL METRICS
(amounts in millions unless otherwise
noted)
2Q22
2Q23
% Change
% Change Constant Currency(a)
QxH
Cost of Goods Sold % of Revenue(b)
67.5
%
66.2
%
(130
)
bps
Operating Income Margin (%)(b)(c)
20.6
%
18.7
%
(190
)
bps
Adjusted OIBDA Margin (%)(b)(c)
13.2
%
11.4
%
(180
)
bps
Average Selling Price
$
48.67
$
51.29
5
%
Units Sold
(12
)
%
Return Rate(d)
14.8
%
15.8
%
100
bps
eCommerce Revenue(e)
$
1,040
$
972
(7
)
%
eCommerce % of Total Revenue
59.3
%
60.1
%
80
bps
Mobile % of eCommerce Revenue(f)
66.6
%
68.7
%
210
bps
LTM Total Customers(g)
9.5
8.3
(13
)
%
QVC International
Cost of Goods Sold % of Revenue
64.1
%
63.5
%
(60
)
bps
Operating Income Margin (%)(h)
12.7
%
11.7
%
(100
)
bps
Adjusted OIBDA Margin (%)(h)
14.9
%
12.7
%
(220
)
bps
Average Selling Price
3
%
5
%
Units Sold
(7
)
%
Return Rate(d)
19.4
%
19.6
%
20
bps
eCommerce Revenue(e)
$
302
$
295
(2
)
%
(1
)
%
eCommerce % of Total Revenue
47.3
%
48.7
%
140
bps
Mobile % of eCommerce Revenue(f)
70.2
%
69.2
%
(100
)
bps
LTM Total Customers(g)
4.6
4.2
(9
)
%
Cornerstone
Cost of Goods Sold % of Revenue
58.7
%
61.1
%
240
bps
Operating Income Margin (%)(i)
10.6
%
4.7
%
(590
)
bps
Adjusted OIBDA Margin (%)(i)
12.9
%
7.9
%
(500
)
bps
eCommerce Revenue(e)
$
252
$
242
(4
)
%
eCommerce % of Total Revenue
73.9
%
76.6
%
270
bps
_____________________
a)
For a definition of constant currency
financial metrics, see the accompanying schedules.
b)
The second quarter of 2022 excludes a $15 million write-down
related to inventory at Rocky Mount included in cost of goods sold
and excluded from adjusted OIBDA. See Reconciling Schedule 2.
c)
In the second quarter of 2023, QxH recognized (i) a $209 million
net gain on insurance proceeds representing insurance proceeds
received in excess of fire-related costs and (ii) a $2 million gain
on the sale of Rocky Mount in February 2023 that was released from
escrow. In the second quarter of 2022, QxH incurred (i) a $240
million gain on sale related to the modification of the lease of
its Ontario, CA distribution center and (ii) $1 million of
non-reimbursable fire-related costs. 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)
In the second quarter of 2023, QVC International recognized a $6
million gain on an intangible asset primarily related to the sale
of a channel positioning right that is included in operating income
and excluded from adjusted OIBDA. See Reconciling Schedule 2.
i)
In the second quarter of 2023, Cornerstone recorded $2 million of
restructuring charges related to a workforce reduction. These are
included in operating income and excluded from adjusted OIBDA. See
Reconciling Schedule 2.
Capital Returns
There were no repurchases of Qurate Retail’s Series A common
stock (Nasdaq: QRTEA) from May 1, 2023 through July 31, 2023. The
remaining repurchase authorization for Qurate Retail is
approximately $492 million as of August 1, 2023.
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.T.) on August 4, 2023. For information
regarding how to access the call, please see “Important Notice”
later in this document.
2)
Adjusted for the divestiture of Zulily on May 24, 2023.
3)
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.
4)
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)
3/31/2023
6/30/2023
Cash and cash equivalents
(GAAP)
$
1,286
$
1,483
Indemnification agreement
receivable(a)
$
29
$
10
Debt:
QVC senior secured notes(b)
$
3,700
$
3,509
QVC senior secured bank credit
facility
1,345
1,430
Total Qurate Retail Group Debt
$
5,045
$
4,939
Senior notes(b)
792
792
Senior exchangeable debentures(c)
956
861
Corporate Level Debentures
1,748
1,653
Total Qurate Retail, Inc. Debt
$
6,793
$
6,592
Unamortized discount, fair market value
adjustment and deferred loan costs
(678
)
(614
)
Total Qurate Retail, Inc. Debt
(GAAP)
$
6,115
$
5,978
Other Financial Obligations:
Preferred stock(d)
$
1,269
$
1,269
QVC, Inc. leverage(e)
2.5x
2.3x
_____________________
a)
Indemnity from Liberty Broadband
Corporation (“Liberty Broadband”), pursuant to an indemnification
agreement with respect to the 1.75% exchangeable debentures (the
“LI LLC Charter exchangeable debentures”) issued by Liberty
Interactive LLC (“LI LLC”). 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 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 gains from the sale
leaseback transactions discussed previously and a portion of
expected cost savings are included in adjusted EBITDA for purposes
of the covenant calculations under QVC’s bank credit facility.
Cash at Qurate Retail increased $197 million in the second
quarter primarily due to improved cash from operations largely
driven by working capital benefits and the receipt of $225 million
of insurance proceeds, which more than offset capital expenditures,
net debt repayment and TV distribution payments.
Total debt at Qurate Retail, Inc. decreased $201 million in the
second quarter due to debt repayments. Qurate Retail repurchased
$177 million of QVC’s 4.85% Senior Secured Notes due 2024 and $15
million of QVC’s 4.45% Senior Secured Notes due 2025 and settled
$94 million principal amount of exchanges of its LI LLC Charter
exchangeable debentures, leaving $79 million principal amount of
debentures outstanding. This was partially offset by $85 million of
net borrowing under QVC’s bank credit facility.
QVC’s bank credit facility has $1.4 billion drawn as of June 30,
2023 with incremental availability of $1.8 billion, net of letters
of credit. QVC’s leverage ratio, as defined by the QVC revolving
credit facility, was 2.3x at quarter end. Pursuant to the terms of
QVC’s revolving credit facility, gains from sale leaseback
transactions and a portion of expected cost savings are included in
operating income for purposes of QVC’s leverage ratio for covenant
calculations. In connection with the Zulily divestiture, Zulily is
no longer a co-borrower in the credit facility, and repaid its
outstanding borrowings under the credit facility of approximately
$80 million using cash contributed from Qurate Retail.
As of June 30, 2023, 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 is in compliance with all debt covenants as of
June 30, 2023.
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 the
reference shares of Class A common stock of Charter Communications,
Inc. 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 June
30, 2023, holders of the LI LLC Charter exchangeable debentures
have the ability to put their debentures on October 5, 2023, and
accordingly, the indemnification asset is included as a current
asset. During the three months ended June 30, 2023, Qurate Retail
received indemnification payments of $1 million from Liberty
Broadband in connection with exchanges of $94 million principal
amount of the LI LLC Charter exchangeable debentures that settled
in the quarter.
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.T.) on August 4,
2023. The call can be accessed by dialing (877) 704-4234 or (215)
268-9904, passcode 13736987, 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
(including Project Athens) and their expected benefits, market
potential, future financial performance and prospects, 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 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 (through May
23, 2023) 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, fire related costs, net (including Rocky
Mount inventory losses), and (gains) losses on sale leaseback
transactions. 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, (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, 2022, September 30,
2022, December 31, 2022, March 31, 2023 and June 30, 2023,
respectively.
CONSOLIDATED
OPERATING INCOME AND ADJUSTED OIBDA RECONCILIATION
(amounts in millions)
2Q22
3Q22
4Q22
1Q23
2Q23
Qurate Retail Operating Income
(Loss)
$
418
$
(2,607
)
$
42
$
176
$
366
Depreciation and amortization
134
107
110
100
104
Stock compensation expense
16
15
14
16
14
Restructuring and fire related costs, net
of (recoveries) (including Rocky Mount inventory losses)(a)
22
(134
)
31
—
(208
)
Impairment of intangible assets
—
3,081
—
—
—
(Gains) on sale of intangible asset and
sale leaseback transactions(b)
(243
)
(277
)
—
(113
)
(6
)
Qurate Retail Adjusted OIBDA
$
347
$
185
$
197
$
179
$
270
_____________________
a)
In the second quarter of 2023, QxH
recognized (i) a $209 million net gain on insurance proceeds
representing insurance proceeds received in excess of fire-related
costs and (ii) a $2 million gain on the sale of Rocky Mount in
February 2023 that was released from escrow. Additionally, in the
second quarter of 2023, Cornerstone recorded $2 million and Zulily
recorded $1 million of restructuring charges, both related to
workforce reductions. In the second quarter of 2022, QxH incurred
(i) a $15 million write-down related to inventory at Rocky Mount
included in cost of goods sold and (ii) $1 million of
non-reimbursable fire-related costs.
b)
Includes gains on the sale related to the modification of a lease
that resulted in a sale 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, the sale leaseback
transactions of five US properties completed in the third quarter
of 2022, the sale leaseback transactions of UK and German
properties in the first quarter of 2023 and the sale of an
intangible asset primarily related to the sale of a channel
positioning right in the second quarter of 2023.
SCHEDULE 2
The following table provides a reconciliation of adjusted OIBDA
for QVC and Cornerstone to that entity or such businesses'
operating income (loss) calculated in accordance with GAAP for the
three months ended June 30, 2022, September 30, 2022, December 31,
2022, March 31, 2023 and June 30, 2023, respectively.
SUBSIDIARY ADJUSTED
OIBDA RECONCILIATION
(amounts in millions)
2Q22
3Q22
4Q22
1Q23
2Q23
QVC
Operating income (loss)
$
442
$
(2,199
)
$
113
$
230
$
374
Depreciation and amortization
102
94
96
89
94
Stock compensation
10
9
9
9
11
Restructuring and fire related costs, net
of (recoveries) (including Rocky Mount inventory losses)
16
(137
)
29
(4
)
(211
)
(Gains) on sale of intangible asset and
sale leaseback transactions
(243
)
(277
)
—
(113
)
(6
)
Impairment of intangible assets
—
2,715
—
—
—
Adjusted OIBDA
$
327
$
205
$
247
$
211
$
262
QxH Adjusted OIBDA
$
232
$
143
$
150
$
139
$
185
QVC International Adjusted
OIBDA
$
95
$
62
$
97
$
72
$
77
Cornerstone
Operating income (loss)
$
36
$
2
$
(14
)
$
(2
)
$
15
Depreciation and amortization
8
6
7
5
7
Stock compensation
—
2
—
1
1
Restructuring costs
—
—
—
—
2
Adjusted OIBDA (Loss)
$
44
$
10
$
(7
)
$
4
$
25
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, 2022, September 30, 2022, December 31, 2022, March 31, 2023 and
June 30, 2023, respectively.
ADJUSTED NET INCOME
AND ADJUSTED EPS RECONCILIATION
(amounts in millions)
2Q22
3Q22
4Q22
1Q23
2Q23
Qurate Retail Net Income (Loss)
(GAAP)
$
203
$
(2,747
)
$
(51
)
$
20
$
107
Purchase accounting amort., net of
deferred tax benefit(a)
17
16
18
17
15
Impairment of intangible assets, net of
tax impact
—
3,004
—
—
—
Restructuring and fire related costs, net
of (recoveries) and tax impact (including Rocky Mount inventory
losses)
17
(101
)
24
—
(156
)
Gains on sale of intangible asset and sale
leaseback transactions, net of tax impact
(185
)
(207
)
—
(92
)
(5
)
Mark-to-market adjustments, net(b)
(5
)
6
(9
)
35
26
Adjusted Net Income (Loss)
$
47
$
(29
)
$
(18
)
$
(20
)
$
(13
)
Diluted earnings (loss) per share
(GAAP)
$
0.53
$
(7.21
)
$
(0.13
)
$
0.05
$
0.28
Total adjustments per share, net of
tax
(0.41
)
7.13
0.08
(0.10
)
(0.31
)
Adjusted earnings (loss) per
share
$
0.12
$
(0.08
)
$
(0.05
)
$
(0.05
)
$
(0.03
)
_____________________
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.
QURATE RETAIL, INC.
CONDENSED CONSOLIDATED BALANCE
SHEET INFORMATION
(unaudited)
June 30,
December 31,
2023
2022
amounts in millions
Assets
Current assets:
Cash and cash equivalents
$
1,483
1,275
Trade and other receivables, net of
allowance for credit losses
931
1,394
Inventory, net
1,168
1,346
Indemnification agreement receivable
10
50
Other current assets
167
210
Total current assets
3,759
4,275
Property and equipment, net
513
570
Intangible assets not subject to
amortization
6,180
6,219
Intangible assets subject to amortization,
net
610
612
Operating lease right-of-use assets
585
585
Other assets, at cost, net of accumulated
amortization
152
310
Total assets
$
11,799
12,571
Liabilities and Equity
Current liabilities:
Accounts payable
697
976
Accrued liabilities
843
1,133
Current portion of debt
710
828
Other current liabilities
147
162
Total current liabilities
2,397
3,099
Long-term debt
5,268
5,525
Deferred income tax liabilities
1,478
1,440
Preferred stock
1,269
1,266
Operating lease liabilities
544
518
Other liabilities
116
198
Total liabilities
11,072
12,046
Equity
621
412
Non-controlling interests in equity of
subsidiaries
106
113
Total liabilities and equity
$
11,799
12,571
QURATE RETAIL, INC.
CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS INFORMATION
(unaudited)
Three months ended
June 30,
2023
2022
Revenue:
Total revenue, net
$
2,649
2,953
Operating costs and expenses:
Cost of goods sold (exclusive of
depreciation shown separately below)
1,734
1,978
Operating expense
193
198
Selling, general and administrative,
including stock-based compensation
466
461
Restructuring and fire related costs, net
of (recoveries)
(208
)
7
Depreciation and amortization
104
134
Gains on sale of intangible asset and sale
leaseback transactions
(6
)
(243
)
2,283
2,535
Operating income (loss)
366
418
Other income (expense):
Interest expense
(123
)
(119
)
Realized and unrealized gains (losses) on
financial instruments, net
(33
)
7
Loss on disposition of Zulily, net
(64
)
—
Gain (loss) on extinguishment of debt
29
(6
)
Other, net
10
41
(181
)
(77
)
Earnings (loss) before income taxes
185
341
Income tax (expense) benefit
(66
)
(120
)
Net earnings (loss)
119
221
Less net earnings (loss) attributable to
noncontrolling interests
12
18
Net earnings (loss) attributable to Qurate
Retail, Inc. shareholders
$
107
203
QURATE RETAIL, INC.
CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS INFORMATION
(unaudited)
Six months ended
June 30,
2023
2022
amounts in millions
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)
$
152
234
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization
204
264
Stock-based compensation
30
31
Realized and unrealized (gains) losses on
financial instruments, net
80
(37
)
Gain on sale of intangible asset and sale
leaseback transactions
(119
)
(243
)
Gain on insurance proceeds, net of fire
related costs
(228
)
—
Insurance proceeds received for operating
expenses and business interruption losses
226
30
Loss on disposition of Zulily, net
64
—
(Gain) loss on extinguishment of debt
(44
)
6
Deferred income tax expense (benefit)
25
56
Other, net
16
(40
)
Changes in operating assets and
liabilities
Decrease (increase) in accounts
receivable
403
420
Decrease (increase) in inventory
131
(139
)
Decrease (increase) in prepaid expenses
and other assets
61
41
(Decrease) increase in trade accounts
payable
(220
)
(364
)
(Decrease) increase in accrued and other
liabilities
(313
)
(317
)
Net cash provided (used) by operating
activities
468
(58
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
(105
)
(101
)
Expenditures for television distribution
rights
(107
)
(15
)
Cash proceeds from dispositions of
investments
71
12
Cash paid for disposal of Zulily
(28
)
—
Proceeds from sale of fixed assets
200
256
Insurance proceeds received for fixed
asset loss
54
70
Payments for settlements of financial
instruments
(179
)
—
Proceeds from settlements of financial
instruments
167
—
Other investing activities, net
(1
)
15
Net cash provided (used) by investing
activities
72
237
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt
1,002
1,355
Repayments of debt
(1,320
)
(1,466
)
Dividends paid to noncontrolling
interest
(24
)
(27
)
Dividends paid to common shareholders
(7
)
(10
)
Indemnification agreement settlement
25
—
Other financing activities, net
(2
)
(18
)
Net cash provided (used) by financing
activities
(326
)
(166
)
Effect of foreign currency rates on cash,
cash equivalents and restricted cash
(7
)
(39
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
207
(26
)
Cash, cash equivalents and restricted cash
at beginning of period
1,285
596
Cash, cash equivalents and restricted cash
at end period
$
1,492
570
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230803830628/en/
Qurate Retail, Inc. Shane Kleinstein, 720-875-5432
Qurate Retail (NASDAQ:QRTEP)
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