Qurate Retail, Inc. (“Qurate Retail”) (Nasdaq: QRTEA, QRTEB, QRTEP) today reported first quarter 2022 results(1).
“We took important first steps in our turnaround, with a focus on stabilizing our core US vCommerce business and setting the foundation for accelerating growth in streaming. We restructured the organization and leadership of the QVC US and HSN brands, formed a new dedicated streaming business unit and attracted a proven leader at Zulily,” said David Rawlinson, President and CEO of Qurate Retail.
“Our first quarter results reflect the continued challenges of operating amidst extreme supply chain disruptions. We don’t believe this quarter’s results reflect the long-term underlying health of our businesses. In addition, heightened inflationary pressure and the situation in Ukraine led to depressed consumer sentiment, and we experienced a larger-than-expected operational disruption related to the December fire at our Rocky Mount, NC fulfillment center. While our turnaround will take time, and progress may be not be a straight line, we are starting from a position of strength with scale in our television and streaming reach, a strong financial profile, and core competencies in building consumer engagement.”
First quarter 2022 operating results:
- Qurate Retail revenue decreased 14% to $2.9 billion
- In constant currency(2) revenue decreased 12%
- eCommerce revenue decreased 14% to $1.8 billion or 61% of total revenue
- Qurate Retail reported diluted EPS of $0.00
- Adjusted diluted EPS(3) of $0.15
- QxH revenue decreased 13%
- QVC International revenue decreased 13%
- In constant currency, revenue decreased 7%
- Zulily revenue decreased 38%
- Cornerstone revenue increased 19%
Corporate headlines:
- Announced new executive leadership appointments on March 2nd and efforts to differentiate brand experiences across QVC US and HSN
- Mike Fitzharris named President, QVC US
- Rob Muller named President, HSN
- Mary Campbell named President of a new business unit created to accelerate efforts in streaming and other live video commerce (“vCommerce”) initiatives
- Named Terry Boyle, former Nordstrom executive and digital retail veteran, as President & CEO of Zulily effective March 14th
Discussion of Results
Unless otherwise noted, the following discussion compares financial information for the three months ended March 31, 2022 to the same period in 2021.
FIRST QUARTER 2022 FINANCIAL RESULTS
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(amounts in millions) |
1Q21 |
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1Q22 |
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% Change |
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% Change Constant Currency(a) |
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Revenue |
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QxH |
$ |
1,936 |
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$ |
1,684 |
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(13 |
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% |
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QVC International |
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774 |
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670 |
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(13 |
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% |
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(7 |
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% |
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Zulily |
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377 |
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232 |
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(38 |
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% |
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Cornerstone |
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250 |
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297 |
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19 |
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% |
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Total Qurate Retail Revenue |
$ |
3,337 |
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$ |
2,883 |
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(14 |
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% |
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(12 |
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% |
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Operating Income (Loss) |
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QxH(b) |
$ |
257 |
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$ |
42 |
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NM |
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QVC International |
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124 |
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88 |
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(29 |
) |
% |
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(24 |
) |
% |
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Zulily(c) |
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(18 |
) |
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(38 |
) |
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(111 |
) |
% |
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Cornerstone |
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21 |
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24 |
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14 |
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% |
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Unallocated corporate cost |
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(11 |
) |
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(10 |
) |
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9 |
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% |
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Total Qurate Retail Operating Income (Loss) |
$ |
373 |
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$ |
106 |
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NM |
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Adjusted OIBDA (Loss) |
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QxH |
$ |
349 |
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$ |
225 |
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(36 |
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% |
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QVC International |
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143 |
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104 |
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(27 |
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% |
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(22 |
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% |
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Zulily |
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6 |
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(18 |
) |
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NM |
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Cornerstone |
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27 |
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31 |
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15 |
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% |
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Unallocated corporate cost |
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(8 |
) |
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(7 |
) |
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13 |
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% |
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Total Qurate Retail Adjusted OIBDA (Loss) |
$ |
517 |
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$ |
335 |
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(35 |
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% |
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(34 |
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% |
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a) |
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For a definition of constant currency financial metrics, see the accompanying schedules. |
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b) |
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In the first quarter of 2022, QxH incurred (i) an $80 million write-down related to inventory remaining at its Rocky Mount, NC fulfillment center included in cost of goods sold and (ii) $2 million of other costs related to the fire at its Rocky Mount, NC fulfillment center included in restructuring and fire related costs, net. These costs are included in operating income and excluded from adjusted OIBDA. |
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c) |
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Zulily recorded $2 million of restructuring charges during the first quarter of 2022 that are included in operating income and excluded from adjusted OIBDA. |
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FIRST QUARTER 2022 NET INCOME AND ADJUSTED NET INCOME(3) |
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(amounts in millions) |
1Q21 |
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1Q22 |
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Net income |
$ |
206 |
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$ |
1 |
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Adjusted net income(a) |
$ |
201 |
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$ |
58 |
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Basic weighted average shares outstanding (“WASO”) |
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411 |
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379 |
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Potentially dilutive shares |
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11 |
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5 |
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Diluted WASO |
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422 |
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384 |
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GAAP EPS(b) |
$ |
0.49 |
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$ |
0.00 |
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Adjusted EPS(a) |
$ |
0.48 |
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$ |
0.15 |
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a) |
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See reconciling schedule 3. |
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b) |
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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 supply chain constraints and product scarcity for home and electronics items, as well as weakened consumer sentiment due to inflation and the invasion of Ukraine and a decrease in shipping and handling revenue. Average selling price was flat as price increases primarily in apparel were offset by mix shift away from higher price point categories including home and electronics. Although total customer count declined compared to the first quarter of 2021’s solid gains, QxH experienced a 7% increase in average spend per customer and a 6% increase in items purchased per customer. QxH reported declines primarily in home, electronics, accessories and beauty, partially offset by growth in apparel.
Operating income and adjusted OIBDA margin(3) decreased primarily due to deleverage of fulfillment (freight and warehouse) and operating expenses (customer service, commissions and credit card fees) and higher fixed costs, inventory obsolescence and bad debt expenses. These pressures were partially offset by higher product margins due to favorable category mix shift into apparel. Operating income was further negatively impacted by the $80 million in write-down of inventory remaining at the Rocky Mount facility, described below.
On December 18, 2021, QVC experienced a fire at its Rocky Mount, NC fulfillment center. Rocky Mount was Qurate Retail’s second-largest fulfillment center, processing approximately 25% to 30% of volume for QVC US and serving as QVC US’s primary returns center for hard goods. QVC has made a decision not to rebuild the facility; however, it is still in the process of determining future plans for the property. Excluding Rocky Mount, QVC operates eight fulfillment centers in the US. 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 March 31, 2022 and anticipates these increased warehouse and logistics costs to continue during 2022.
During the year ended December 31, 2021, QVC recorded $229 million of fire related costs for which recovery was deemed probable and received $100 million of insurance proceeds. During the first quarter of 2022, QVC incurred an additional $2 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 $14 million of other fire related costs for which recovery was deemed probable based on the Company’s insurance policies. 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 $143 million as of March 31, 2022, net of $100 million of insurance proceeds received in advance (see Schedule 4).
Qurate Retail 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 March 31, 2022, QVC recorded an $80 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 9% versus the Japanese Yen, 7% versus the Euro and 3% against 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 first quarter of 2021.
QVC International’s constant currency revenue declined primarily due to a 6% decline in units shipped, also reflecting supply chain constraints, product scarcity and weakened consumer sentiment driven by the invasion of Ukraine, which particularly affected QVC International’s European markets. Average selling price was flat, primarily due to product scarcity for higher price home electronic and beauty products. 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 and deleverage of fulfillment and administrative costs.
Zulily
Zulily revenue decreased primarily reflecting product scarcity largely driven by supply chain constraints and marketing inefficiencies due to cost inflation and privacy changes on certain social media platforms, 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 fulfillment expenses, which was partially offset by lower marketing spend and higher product margins. Zulily recorded $2 million of restructuring charges during the first quarter of 2022, principally related to its regional office space strategy and expenses associated with its Pennsylvania facility closure. These restructuring charges are included in operating income and excluded from adjusted OIBDA.
Cornerstone
Cornerstone generated record first quarter 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 apparel and home products at Garnet Hill.
Operating income and adjusted OIBDA margin decreased primarily from higher freight costs, which were partially offset by product margin gains and leverage of fixed costs and marketing expenses.
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FIRST QUARTER 2022 SUPPLEMENTAL METRICS |
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(amounts in millions unless otherwise noted) |
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1Q21 |
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1Q22 |
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% Change |
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% Change Constant Currency(a) |
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QxH |
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Cost of Goods Sold % of Revenue(b) |
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66.0 |
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% |
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67.4 |
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% |
140 |
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bps |
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Operating Income Margin (%) |
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13.3 |
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% |
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2.5 |
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% |
NM |
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Adjusted OIBDA Margin (%) |
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18.0 |
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% |
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13.4 |
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% |
(460 |
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bps |
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Average Selling Price |
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$ |
52.61 |
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$ |
52.81 |
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– |
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% |
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Units Sold |
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(12 |
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% |
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Return Rate(c) |
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14.3 |
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% |
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15.2 |
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% |
90 |
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bps |
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eCommerce Revenue(d) |
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$ |
1,142 |
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$ |
996 |
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(13 |
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% |
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eCommerce % of Total Revenue |
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59.0 |
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% |
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59.1 |
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% |
10 |
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bps |
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Mobile % of eCommerce Revenue(e) |
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66.2 |
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% |
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66.3 |
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% |
10 |
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bps |
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LTM Total Customers(f) |
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11.8 |
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9.9 |
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(16 |
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% |
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QVC – International |
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Cost of Goods Sold % of Revenue |
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61.9 |
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% |
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63.6 |
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% |
170 |
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bps |
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Operating Income Margin (%) |
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16.0 |
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% |
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13.1 |
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% |
(290 |
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bps |
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Adjusted OIBDA Margin (%) |
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18.5 |
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% |
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15.5 |
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% |
(300 |
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bps |
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Average Selling Price |
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(7 |
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% |
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– |
% |
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Units Sold |
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(6 |
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% |
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Return Rate(c) |
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18.0 |
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% |
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18.5 |
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% |
50 |
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bps |
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eCommerce Revenue(d) |
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$ |
353 |
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$ |
318 |
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(10 |
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% |
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3 |
% |
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eCommerce % of Total Revenue |
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45.6 |
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% |
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47.5 |
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% |
190 |
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bps |
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Mobile % of eCommerce Revenue(e) |
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71.7 |
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% |
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71.7 |
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% |
0 |
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bps |
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LTM Total Customers(f) |
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5.1 |
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4.7 |
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(8 |
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% |
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Zulily |
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Cost of Goods Sold % of Revenue |
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76.4 |
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% |
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76.7 |
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% |
30 |
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bps |
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Operating Income Margin (%) |
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(4.8 |
) |
% |
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(16.4 |
) |
% |
(1,160 |
) |
bps |
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Adjusted OIBDA Margin (%) |
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1.6 |
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% |
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(7.8 |
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% |
NM |
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Mobile % of Total Orders |
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75.5 |
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% |
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74.7 |
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% |
(80 |
) |
bps |
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LTM Total Customers(f) |
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5.8 |
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4.0 |
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(31 |
) |
% |
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Cornerstone |
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Cost of Goods Sold % of Revenue |
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59.8 |
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% |
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61.7 |
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% |
190 |
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bps |
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Operating Income Margin (%) |
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8.4 |
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% |
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8.1 |
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% |
(30 |
) |
bps |
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Adjusted OIBDA Margin (%) |
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10.8 |
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% |
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10.4 |
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% |
(40 |
) |
bps |
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eCommerce Revenue(d) |
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$ |
180 |
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$ |
224 |
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24 |
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% |
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eCommerce % of Total Revenue |
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72.0 |
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% |
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75.4 |
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% |
340 |
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bps |
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a) |
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For a definition of constant currency financial metrics, see the accompanying schedules. |
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b) |
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Excludes an $80 million write-down related to inventory remaining at its Rocky Mount, NC fulfillment center included in cost of goods sold. |
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c) |
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Measured as returned sales over gross shipped sales in US dollars. |
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d) |
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Based on net revenue. |
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e) |
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Based on gross US dollar orders. |
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f) |
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LTM: Last twelve months. |
Taxes
Qurate Retail estimates that its average annual effective tax rate in 2022 will be in the range of 27-31% including federal, state and foreign taxes. This is elevated relative to prior years due to the expiration of certain of Qurate Retail’s green energy investment credits at the end of 2021. 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 February 1, 2022 through April 30, 2022. The remaining repurchase authorization for Qurate Retail is approximately $492 million as of May 1, 2022.
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