QVC Group, Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Q1 Results: Continued positive results with sustained gross margin expansion (400 basis points, fourth consecutive quarter), adjusted OIBDA up 45% (third consecutive quarter of growth), and fifth consecutive quarter of free cash flow improvement.
• QVC Age of Possibility: Launched a marketing initiative targeting women over 50, featuring the Quintessential 50 (Q50) group. Included a summit in April with keynote speeches and performances, and the Age of Possibility tour starting this month.
• Programming Highlights: 'Over 50 & Fabulous' season three aired with high viewership and sales; 'Now You're Cooking' event had over 3 million household viewers; International Women's Day programming reached nearly 2.5 million households.
• Customer File: QxH customer count declined 3% quarterly, with existing customers accounting for 90% of spend. New customers grew 23% in Q1, marking third consecutive quarter of growth. Streaming business growing with double-digit increases in revenue, minutes viewed, and monthly average users.
• QVC International: Consistent business with Q1 revenue down 1%, led by UK operations with growth in merchandise assortment. UK's integrated experience initiative for gardening generated incremental sales.
• Cornerstone: Focused on profitability, growing gross margin 410 basis points in Q1 due to lower supply chain costs.

Segment Performance

• QxH: Revenue declined 4%. Adjusted OIBDA margin increased 330 basis points. Gross margin expanded 360 basis points. Category-wise, accessories and jewelry grew, while home and apparel declined. Home revenue down 7% due to cold spring affecting gardening and outdoor decor; apparel down 4% due to soft spring apparel and swimwear demand; beauty down 3% with lower demand for beauty devices but growth in hair care.
• QVC International: Constant currency revenue declined 1%. QVC UK and Japan grew revenue, while Germany declined. Adjusted OIBDA increased 10% and margin expanded 90 basis points. Gross margin expanded 70 basis points due to improved product margins.
• Cornerstone: Revenue declined 11% due to soft housing starts and home furnishings demand. Despite revenue decline, adjusted OIBDA grew 50% driven by favorable supply chain costs.

Guidance

• Greg Maffei expects Qurate to sustain free cash flow improvement throughout 2024.
• Confident in the execution of the turnaround and business trajectory.
• Repaid the outstanding QVC notes due in 2024 and continues to assess balance sheet improvements.
• Anticipates continued focus on the balance sheet and addressing near-term maturities.

Risks

• No specific material risks detailed in the transcript beyond general market uncertainties and potential impacts of macroeconomic conditions on consumer spending.

Question and Answer

• Q: Carla Casella (JP Morgan) on customer average spend and customer file: A: David Rawlinson noted Best Customers (purchasing over 20 items/year) had average spend up 7% trailing 12 months. Existing customers (50% of count) spent over $1,600, up 10% year-over-year. Losing customers tend to be lower quality, but upper migration equals downward migration now.
• Q: William Reuter (Bank of America) on streaming and Project Athens: A: David Rawlinson said streaming minutes are growing, now in high single digits. Bill Wafford noted Project Athens initiatives continue to benefit gross margin with ongoing cost savings initiatives.
• Q: Hale Holden (Barclays) on seasonality and debt: A: David Rawlinson said consumers buy closer to season, expecting spring sales to improve. On debt, timing of 2024 maturity was due to quarter timing, with plans to manage 2025 maturities using cash and revolver.
• Q: Karru Martinson (Jefferies) on Japan market and inventory: A: David Rawlinson said Japan is a strong-performing core business. Bill Wafford stated inventory is in a good position with no excess seasonal merchandise needing clearance.