Market Overview

Qurate Retail, Inc. Reports Second Quarter 2018 Financial Results

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Qurate Retail, Inc. ("Qurate Retail") (NASDAQ:QRTEA, QRTEB)) today
reported second quarter 2018 results. Highlights include(1):

Second quarter operating results:

  • Qurate Retail revenue of $3.2 billion
    • Qurate Retail eCommerce revenue of $1.9 billion
  • Qurate Retail reported EPS of $0.40 and adjusted EPS(2) of
    $0.45
  • QVC US revenue up 4% as reported, up 2% on a comparative basis
    excluding impact of new accounting standards regarding credit card
    income
  • Total QVC mobile penetration was 66% of QVC.com orders, a 320 basis
    point increase
    • QVC US mobile penetration was 65% of QVC.com orders, a 300 basis
      point increase
  • HSN operating income margin decreased due to purchase accounting,
    while adjusted OIBDA(2) margin increased due to reduced
    promotional activity and progress on cost saving initiatives
  • zulily revenue grew 13%, operating loss decreased 7% and adjusted OIBDA(2)
    grew 12%
  • Strong customer growth at QVC and zulily

Corporate updates:

  • Repurchased approximately $418 million principal amount of 1.75%
    Charter exchangeable debentures
  • ILG and Marriott Vacations Worldwide merger expected to close end of
    August
  • From May 1, 2018 through July 31, 2018, repurchased 9.6 million QRTEA
    shares at an average price per share of $21.86 and total cost of $209
    million

"We continued our sales growth at QVC and the strong momentum at zulily,
as well as initial profit improvement at HSN as we implement our
operating strategies," said Mike George, Qurate Retail's President and
CEO. "We are showing solid early execution on strategic priorities to
expand and engage our customer base across platforms and achieve
attractive operating synergies. Qurate realized strong growth in its
total customer count, led by zulily and QVC, and significantly grew
customer engagement as we increased exposure on emerging video and
social platforms and continued to strengthen our performance marketing
capabilities. Qurate Retail's unique position at the intersection of key
trends in retail, together with our operational execution, will set a
strong foundation to drive sustainable growth and long term value
creation."

Corporate Updates

On March 9, 2018, Qurate Retail, Inc. (formerly Liberty Interactive
Corporation ("Liberty Interactive")) and GCI Liberty, Inc. ("GCI
Liberty") completed the series of transactions that effected the
split-off of GCI Liberty. As a result, the former QVC Group common stock
became an asset-backed stock. In addition, Liberty Interactive changed
its name to Qurate Retail, Inc. effective as of April 9, 2018 and
eliminated its tracking stock capital structure effective May 23, 2018.
Qurate Retail, Inc. includes QVC, Inc., HSN, Inc. ("HSNi") (which
includes the Cornerstone brands), and zulily, llc (collectively, "Qurate
Retail Group"), which are wholly owned subsidiaries, as well as minority
interests in ILG and FTD and various green energy investments.

Discussion of Results

Unless otherwise noted, the following discussion compares financial
information for the three months ended June 30, 2018 to the same period
in 2017. For purposes of presentation herein, the pro forma results of
operations in this press release include historical HSN and Cornerstone
results for comparison purposes. This is intended to supplement and
enhance the information related to prior periods. The impacts of
purchase accounting resulting from our acquisition of HSNi have not been
reflected in these historical results.

Qurate Retail adopted the new U.S. accounting standard regarding revenue
recognition (ASC 606) as of January 1, 2018. Accordingly, QVC, HSN and
zulily recognize credit card income for their branded credit cards as
part of net revenue rather than as an offset to SG&A expense. This
change will positively impact Qurate Retail's revenue for 2018. Qurate
Retail is providing comparable results in addition to GAAP results where
applicable and the narrative in this press release is presented
excluding the impact of this accounting adjustment. The zulily-branded
credit card was first implemented in the third quarter of 2017 and this
change did not have a material impact on zulily's reported revenue in
the second quarter of 2018.

In addition, under new revenue recognition standards, Qurate Retail now
recognizes revenue at the time of shipment as opposed to delivery. This
accounting change had a modestly negative impact on reported results for
Qurate Retail in the second quarter, but this impact is expected to
balance out over 2018. As such, comparable results presented in this
press release are not adjusted for this change. HSNi previously
recognized revenue at the time of shipment, so there is no impact to
HSNi's reported results.

Qurate Retail realized $8 million in cost synergies in the second
quarter related to the HSNi acquisition, of which approximately $6
million benefited operating income and adjusted OIBDA(2) and
the remaining $2 million relate to equity compensation expense. Qurate
Retail remains on track to achieve $35 - $40 million of cost synergies
in 2018.

                       

SECOND QUARTER 2018 FINANCIAL RESULTS

 
(amounts in millions) 2Q17 2Q18 % Change

% Change

Constant

Currency(a)

Revenue
QVC US(b) $ 1,367 $ 1,427 4 %
QVC International(c) 612 656 7 % 1 %
HSN(b)(d) 533 473 (11 ) %
zulily(b) 367 415 13 %
Cornerstone(d) 288 262 (9 ) %
Intersegment eliminations   -     -   NM  
Total Qurate Retail Revenue (pro forma) $ 3,167   $ 3,233   2   %
Former Liberty Ventures corporate and other(e) 6 -
Pre-acquisition HSNi results   (821 )   -  
Total Qurate Retail Revenue (as reported) $ 2,352   $ 3,233  
 
Operating Income
QVC US $ 225 $ 288 28 %
QVC International(c) 81 82 1 % (3 ) %
HSN(d) 39 20 NM
zulily (29 ) (27 ) 7 %
Cornerstone(d) 16 8 NM
Unallocated corporate cost(f)   (12 )   (13 ) (8 ) %
Total Qurate Retail Operating Income (pro forma) $ 320   $ 358   12   %
Former Liberty Ventures corporate and other(e) (11 ) -
Pre-acquisition HSNi results   (55 )   -  
Total Qurate Retail Operating Income (as reported) $ 254   $ 358  
 
Adjusted OIBDA
QVC US $ 361 $ 355 (2 ) %
QVC International(c) 107 100 (7 ) % (12 ) %
HSN(d) 50 46 (8 ) %
zulily 26 29 12 %
Cornerstone(d) 21 19 (10 ) %
Unallocated corporate cost(f)   (6 )   (7 ) (17 ) %
Total Qurate Retail Adjusted OIBDA (pro forma) $ 559   $ 542   (3 ) %
Former Liberty Ventures corporate and other(e) (7 ) -
Pre-acquisition HSNi results   (71 )   -  
Total Qurate Retail Adjusted OIBDA (as reported) $ 481   $ 542  
 
a)     For a definition of constant currency financial metrics, see the
accompanying schedules.
b) As a result of Qurate Retail's adoption of new accounting standards
around revenue recognition (ASC 606), QVC-, HSN- and zulily-branded
credit card income is recognized as part of net revenue. Second
quarter 2018 revenue includes the following amounts of credit card
income:

    QVC US: $26 million; revenue grew 2% in the second quarter of 2018
excluding the impact of this accounting change

HSN: $3 million; revenue declined 12% in the second quarter of 2018
excluding the impact of this accounting change

zulily-branded credit card income did not materially impact reported
results.
c) Includes QVC France, QVC Germany, QVC Italy, QVC Japan and QVC UK.
d) Pro forma results present HSN and Cornerstone historical results.
e) 2017 results include the results of the former Liberty Ventures
Group consolidated in Qurate Retail's results.
f) Includes corporate costs incurred at Qurate Retail, Inc. but not
allocated to any business segment.
 
                       

SECOND QUARTER 2018 NET INCOME AND
ADJUSTED NET INCOME
(2)

 
Three months ended
(amounts in millions) 2Q17 2Q18
Net Income(a) $ 111 $ 187
Adjusted Net Income(b) $ 188 $ 214
 
Basic weighted average shares outstanding ("WASO") 451 467
Potentially dilutive shares   4   4
Diluted WASO   455   471
 
GAAP EPS(a) $ 0.24 $ 0.40
Adjusted EPS(b) $ 0.41 $ 0.45
 
a)     Represents net income and diluted net income per share from
continuing operations attributable to Series A and Series B common
stockholders as presented in Qurate Retail's financial statements.
b) See reconciling schedule 3.
 

QVC US

QVC US realized year-over-year sales gains in apparel and accessories,
which were partially offset by declines in home, beauty, electronics and
jewelry. Gross margins were flat, excluding the impacts of ASC 606,
primarily driven by higher initial product margins due to mix shift and
freight savings, partially offset by higher warehouse costs due to
average selling price ("ASP") deleverage. Selling, general and
administrative expense increased primarily due to higher bad debt
expense resulting from a favorable bad debt adjustment in the second
quarter of 2017, and higher fixed costs, including an increase in bonus
accrual due to a change in QVC's bonus accrual methodology. The change
in QVC's bonus accrual methodology has been a headwind in the first half
of 2018 but will even out for the full year. These factors were
partially offset by lower customer service costs due to the increase in
digital and mobile penetration. Operating income margin expansion
primarily reflects lower amortization as a result of the roll-off of
purchase accounting amortization from Qurate Retail's acquisition of
QVC. Adjusted OIBDA margin(2) contraction primarily reflects
the aforementioned SG&A factors.

As a result of Qurate Retail's adoption of ASC 606, revenue for the
three months ended June 30, 2018 includes an additional $26 million of
revenue from its private label credit card program which was previously
classified as an offset to selling, general and administrative expenses.
Excluding the impact of this accounting adjustment, QVC US revenue grew
2% in the second quarter of 2018. This accounting change increased
reported SG&A and had an approximately 120 bps positive impact on
reported gross margins and an approximately 40 bps negative impact on
reported adjusted OIBDA margins. These results are not adjusted to
reflect the impact of ASC 606 as it relates to recognizing revenue at
the time of shipment rather than delivery, which had a modest negative
impact on reported revenue and adjusted OIBDA in the second quarter.

QVC International

In the second quarter, QVC International experienced year-over-year
constant currency(3) sales growth primarily in home,
accessories and beauty, which was partially offset by declines in
apparel, jewelry and electronics. The contraction in operating income
margins and adjusted OIBDA margins(2) primarily reflects
lower product margins as a result of heightened clearance activity in
Germany and the UK and higher freight and warehouse costs in the UK and
Japan due to ASP deleverage, as well as higher fixed costs and higher
commissions in Japan. The operating income margin compression was
partially offset by lower amortization.

US Dollar denominated results were impacted favorably by exchange rate
fluctuations. The Dollar weakened versus the Euro, British Pound and
Japanese Yen 9%, 7% and 2%, respectively. The financial metrics
presented in this press release also provide a comparison of the
year-over-year percentage change in QVC's results in constant currency(3)
(where applicable) to the comparable figures calculated in accordance
with US GAAP for the second quarter of 2018.

HSN

Although HSN's results are only included in Qurate Retail's results
beginning January 1, 2018, we believe a discussion of HSN's stand-alone
results compared to the prior year period promotes a better
understanding of the overall results of the business. HSN has
reclassified certain costs between line items to conform to Qurate
Retail's reporting for ease of comparability for the periods presented.

In the second quarter, HSN's sales mix shifted to home, accessories and
beauty from apparel, jewelry and electronics. ASP increased primarily
due to sales mix and reduced clearance and promotional activity. Return
rate improved due to the sales mix shift toward product categories with
lower return rates and a continued positive trend in several categories.
The decline in operating income margin is primarily due to purchase
accounting amortization. Adjusted OIBDA(2) margins increased,
demonstrating initial progress on HSN's strategic initiatives, primarily
due to higher product and shipping margins and lower bad debt expense,
partially offset by higher inventory obsolescence reserves and
deleveraging of fixed cable and warehouse costs due to the decrease in
revenue.

As a result of Qurate Retail's adoption of ASC 606, HSN has classified
approximately $3 million of revenue from its private label credit card
program in net revenue for the three months ended June 30, 2018.
Excluding the impact of this accounting adjustment, HSN revenue declined
12% in the second quarter of 2018. This change had an insignificant
impact on reported adjusted OIBDA margins.

zulily

Revenue increased year-over-year in the second quarter primarily due to
a shift in marketing strategy which drove strong customer acquisition.
Operating loss and adjusted OIBDA(2) improved due to
increased sales and leveraging operating expenses, partially offset by
higher transportation and SG&A expenses. Operating loss improvement was
also partially offset by higher amortization of software. The adoption
of ASC 606 regarding changes to revenue recognition for zulily-branded
credit card income did not materially impact zulily's reported results
in the second quarter. The impact of ASC 606 as it relates to
recognizing revenue at the time of shipment rather than delivery had a
negative impact on reported revenue and adjusted OIBDA in the second
quarter.

Cornerstone

Revenue declined in the second quarter of 2018 primarily driven by
weakness in the home segment, particularly in Frontgate and the outdoor
assortment, partially offset by growth at Garnet Hill and Ballard
Designs. Operating income and adjusted OIBDA(2) declines were
primarily driven by lower sales, partially offset by lower operating
expenses due to reduced catalog circulation. Catalog circulation
decreased, consistent with ongoing efforts to re-balance investments
towards the digital and retail segments to drive demand.

                   

SECOND QUARTER 2018 SUPPLEMENTAL METRICS

 
(amounts in millions unless otherwise noted) 2Q17 2Q18 % Change

% Change

Constant

Currency(a)

QVC – Total
Operating Income Margin (%) 15.5 % 17.8 % 230 bps
Adjusted OIBDA Margin (%) 23.6 % 21.8 % (180 ) bps
eCommerce Revenue $ 963 $ 1,041 8 % 7 %
eCommerce % of Total Revenue 48.7 % 50.0 % 130 bps
Mobile % of eCommerce Revenue(b) 63.1 % 66.3 % 320 bps
LTM Total Customers(c) 12.6 12.9 2 %
 
QVC – US
Cost of Sales % of Revenue 62.7 % 61.5 % (120 ) bps
Operating Income Margin (%) 16.5 % 20.2 % 370 bps
Adjusted OIBDA Margin (%) 26.4 % 24.9 % (150 ) bps
Average Selling Price $ 56.05 $ 53.89 (4 ) %
Units Sold 6 %
Return Rate(d) 17.9 % 17.7 % (20 ) bps
eCommerce Revenue $ 746 $ 796 7 %
eCommerce % of Total Revenue 54.6 % 55.8 % 120 bps
Mobile % of eCommerce Revenue(b) 61.5 % 64.5 % 300 bps
LTM Total Customers(c) 8.0 8.1 1 %
 
QVC – International
Cost of Sales % of Revenue 60.9 % 62.2 % 130 bps
Operating Income Margin (%) 13.2 % 12.5 % (70 ) bps
Adjusted OIBDA Margin (%) 17.5 % 15.2 % (230 ) bps
Average Selling Price 2 % (3 ) %
Units Sold 4 %
eCommerce Revenue $ 217 $ 245 13 % 7 %
eCommerce % of Total Revenue 35.5 % 37.3 % 180 bps
Mobile % of eCommerce Revenue(b) 68.1 % 71.5 % 340 bps
LTM Total Customers(c) 4.6 4.8 4 %
 
HSN(e)
Cost of Sales % of Revenue 65.3 % 64.1 % (120 ) bps
Operating Income Margin (%) 7.3 % 4.2 % NM
Adjusted OIBDA Margin (%) 9.4 % 9.7 % 30 bps
Average Selling Price $ 53.05 $ 56.12 6 %
Units Sold (19 ) %
Return Rate(d) 15.6 % 14.6 % (100 ) bps
eCommerce Revenue $ 322 $ 280 (13 ) %
eCommerce % of Total Revenue 60.4 % 59.2 % (120 ) bps
Mobile % of eCommerce Revenue(b) 55.4 % 58.0 % 260 bps
LTM Total Customers(c) 4.9 4.5 (7 ) %
 
zulily
Cost of Sales % of Revenue 72.2 % 72.3 % 10 bps
Operating Income Margin (%) (7.9 ) % (6.5 ) % 140 bps
Adjusted OIBDA Margin (%) 7.1 % 7.0 % (10 ) bps
Mobile % of Total Orders 66.6 % 70.5 % 390 bps
LTM Total Customers(c) 4.9 6.4 31 %
 
Cornerstone(e)
Operating Income Margin (%) 5.6 % 3.1 % NM
Adjusted OIBDA Margin (%) 7.3 % 7.3 % 0 bps
eCommerce Revenue $ 202 $ 188 (7 ) %
eCommerce % of Total Revenue 70.2 % 71.9 % 170 bps
 
China JV(f)
Revenue $ 39 $ 37 (5 ) %
Adjusted OIBDA $ (1 ) $ (4 ) (300 ) %
 
a)     For a definition of constant currency financial metrics, see the
accompanying schedules.
b) Based on gross US Dollar orders.

c)

LTM: Last twelve months.
d) Measured as returned sales over gross shipped sales.
e) Prior year historical results are included for comparative purposes.
f) This joint venture is being accounted for as an equity investment.
 

Taxes

Qurate Retail estimates that its 2018 effective tax rate will be in the
range of 20% - 23% including federal, state and foreign taxes, net of
tax credits generated by Qurate Retail's green energy investments. This
estimate excludes the impact of one-time items and is subject to
adjustment.

Share Repurchases

From May 1, 2018 through July 31, 2018, Qurate Retail repurchased
approximately 9.6 million shares of Series A common stock (Nasdaq: QRTEA) at an average cost per share of $21.86 for total cash
consideration of $209 million. Since the creation of our existing common
stock (including its predecessors, the QVC Group and the Liberty
Interactive Group) in May 2006, Qurate Retail has repurchased shares for
aggregate cash consideration of $8.2 billion, representing approximately
53% of the shares outstanding in May 2006. All repurchases up to August
9, 2012, the date on which the QVC Group stock was recapitalized to
create the Liberty Ventures common stock, were comprised of shares of
the combined stocks. The remaining repurchase authorization for Qurate
Retail as of August 1, 2018 is approximately $866 million.

FOOTNOTES

1)     Qurate Retail's President and Chief Executive Officer, Mike George,
and Executive Chairman, Greg Maffei, will discuss these highlights
and other matters on Qurate Retail's earnings conference call which
will begin at 11:00 a.m. (E.D.T.) on August 8, 2018. For information
regarding how to access the call, please see "Important Notice"
later in this document.
2) For definitions and applicable reconciliations of adjusted OIBDA,
adjusted OIBDA margin, adjusted net income and adjusted EPS, see the
accompanying schedules.
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.
 

NOTES

The following financial information with respect to Qurate Retail's
equity affiliates and available for sale securities is intended to
supplement Qurate Retail's condensed consolidated statements of
operations which are included in its Form 10-Q.

Fair Value of Public Holdings

(amounts in millions)                 3/31/2018           6/30/2018
ILG(a) 518 550
Other public holdings(b)   38   48
Total Public Holdings $ 556 $ 598
 
a)     Represents fair value of investment in ILG.
b) Other public holdings includes fair value of the investment in FTD.
In accordance with GAAP, this investment is accounted for using the
equity method of accounting and is included in Qurate Retail's
balance sheet at $67 million and $31 million at March 31, 2018 and
June 30, 2018, respectively.
 

Cash and Debt

The following presentation is provided to separately identify cash and
debt information.

(amounts in millions)                 3/31/2018           6/30/2018
Cash (GAAP) $ 1,055 $ 657
 
Indemnification Asset(a) $ 253 $ 85
 
Debt:
QVC senior notes(b) $ 3,550 $ 3,550
QVC bank credit facility 1,405 1,335
Other QVC debt   185     178  
Total QVC, Inc. debt $ 5,140 $ 5,063
HSNi bank credit facilities 500 480
Other HSNi debt   8     8  
Total Qurate Retail Group Debt $ 5,648 $ 5,551
 
Senior notes(b) 791 791
Senior exchangeable debentures(c)   1,942     1,523  
Corporate Level Debentures   2,733     2,314  
Total Qurate Retail, Inc. Debt $ 8,381   $ 7,865  
Unamortized discount, fair market value adjustment and deferred loan
costs
  (143 )   (170 )
Total Qurate Retail, Inc. Debt (GAAP) $ 8,238   $ 7,695  
 
QVC, Inc. leverage(d) 2.5x 2.5x
Qurate Retail Group leverage(e) 2.5x 2.5x
 
a)     Indemnity from GCI Liberty, pursuant to an indemnification agreement
with respect to the 1.75% exchangeable debentures due 2046 (the
"Charter exchangeable debentures") issued by Liberty Interactive LLC
("LI LLC"), as described in this press release.
b) Face amount of Senior Notes and Debentures with no reduction for the
unamortized discount.
c) Face amount of Senior Exchangeable Debentures with no reduction for
the fair market value adjustment.
d) As defined in QVC, Inc.'s credit agreement (includes zulily adjusted
OIBDA).
e) Includes QVC, Inc., zulily, llc and HSN, Inc.; based on debt and
adjusted OIBDA as defined for covenant calculation purposes in their
respective credit agreements.
 

Cash at Qurate Retail decreased $398 million in the second quarter as
cash from operations and an indemnification payment from GCI Liberty
(described below) were more than offset by share repurchases and debt
repayments. Total debt at Qurate Retail decreased by $516 million
primarily due to debt repayments.

In June 2018, Liberty Interactive LLC ("LI LLC"), a wholly-owned
subsidiary of Qurate Retail, repurchased approximately $418 million of
its Charter exchangeable debentures for total cash consideration of $457
million, including accrued interest.

Pursuant to an indemnification agreement among Qurate Retail, LI LLC and
GCI Liberty, each of Qurate Retail and LI LLC will use commercially
reasonable efforts to purchase, in one or more privately negotiated
transactions, a tender offer or other purchase transactions (each, a
"Purchase Offer"), the outstanding Charter exchangeable debentures, on
terms and conditions (including maximum offer price) reasonably
acceptable to GCI Liberty, by September 9, 2018. GCI Liberty is
obligated to indemnify LI LLC for the difference between the purchase
price of any Charter exchangeable debenture purchased pursuant to a
Purchase Offer and the cash delivered in the March 9, 2018 reattribution
with respect to each such purchased debenture, plus any tax benefits
associated with early extinguishment of such purchased debenture (the
"Repurchase Indemnity"). In June 2018, GCI Liberty made an
indemnification payment of approximately $133 million in cash to LI LLC
in connection with the $418 million principal amount of repurchases
discussed above.

After September 9, 2018, Qurate Retail will continue to benefit from an
indemnification agreement with GCI Liberty with respect to the Charter
exchangeable debentures for any payments made in excess of the adjusted
principal amount of the debentures to any holder thereof that exercises
its exchange right on or before the put/call date of October 2023 (the
"Exchange Indemnity"). The Exchange Indemnity is supported by a negative
pledge in favor of Qurate Retail on the 1.0 million reference shares of
Class A common stock of Charter held at GCI Liberty that underlie the
Charter exchangeable debentures pro forma for the repurchases discussed
above. GCI Liberty's Exchange Indemnity obligation and the number of
shares subject to the negative pledge will be ratably reduced with
respect to any Charter exchangeable debentures repurchased by LI LLC in
connection with the Repurchase Indemnity. The indemnification obligation
is valued pursuant to the terms of the Exchange Indemnity.

Important Notice: Qurate Retail, Inc. (NASDAQ:QRTEA, QRTEB))
President and Chief Executive Officer, Mike George, and Executive
Chairman, Greg Maffei, will discuss Qurate Retail's earnings release on
a conference call which will begin at 11:00 a.m. (E.D.T.) on August 8,
2018. The call can be accessed by dialing 800-239-9838 or 323-794-2551,
passcode 1166173, 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 http://www.qurateretail.com/events.
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, market potential, future
financial prospects and performance, future impact of accounting
changes, Qurate Retail's estimated 2018 effective tax rate, market
conditions, sales demand, statements about the Purchase Offers and
indemnification by GCI Liberty, the integration of HSNi, the expected
benefits of the acquisition of HSNi (including synergies), the expected
closing of the sale of ILG, new service and product offerings, the
monetization of our non-core assets, 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 that may impact the derivative instruments that
hedge certain of our financial risks, the availability of investment
opportunities 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

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, HSN and Cornerstone together with a
reconciliation to that entity or such businesses' operating income, as
determined under GAAP. Qurate Retail defines adjusted OIBDA as revenue
less cost of sales, operating expenses, and selling, general and
administrative expenses, excluding all stock based compensation, and
excludes from that definition depreciation and amortization, certain
purchase accounting adjustments, separately reported litigation
settlements, transaction related costs (including restructuring,
integration, and advisory fees) and impairment charges that are included
in the measurement of operating income pursuant to GAAP. 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, including each
business' ability to service debt and fund capital expenditures. 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 purchase 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, Japan and France, as well as
its JV in China. 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, 2017, September 30, 2017,
December 31, 2017, March 31, 2018 and June 30, 2018, respectively.

CONSOLIDATED OPERATING INCOME AND PRO FORMA
ADJUSTED OIBDA RECONCILIATION

(amounts in millions)       2Q17       3Q17       4Q17       1Q18       2Q18
Qurate Retail, Inc. Operating Income $ 254 $ 208 $ 368 $ 294 $ 358
Depreciation and amortization 206 180 131 163 159
Stock compensation expense(a) 21 22 64 23 23
QVC/HSNi level transaction related costs 3 40 8 2
Corporate level transaction related costs       15   4  
Qurate Retail, Inc. Adjusted OIBDA (as reported) $ 481 $ 413 $ 618 $ 492 $ 542
Former Liberty Ventures Group adjusted OIBDA(b) 7 6 6 5
Pre-acquisition HSNi adjusted OIBDA(c)   71   50   91    
Qurate Retail, Inc. Adjusted OIBDA (pro forma) $ 559 $ 469 $ 715 $ 497 $ 542
 
a)     4Q17 includes $21 million of accelerated corporate level stock-based
compensation expense due to impending US tax reform and $8 million
of acquisition-related HSN stock-based compensation.
b) 1Q18 includes results of the Liberty Ventures Group through March 9,
2018, at which point certain assets and liabilities were split-off
with GCI Liberty.
c) Adjusted OIBDA of HSNi included prior to the acquisition for
comparative purposes.
 

SCHEDULE 2

The following table provides a reconciliation of adjusted OIBDA for QVC
(and certain of its subsidiaries), zulily, HSN and Cornerstone to that
entity or such businesses' operating income (loss) calculated in
accordance with GAAP for the three months ended June 30, 2017, September
30, 2017, December 31, 2017, March 31, 2018 and June 30, 2018,
respectively. As there are no material reconciling items between
adjusted OIBDA and operating income for the QVC China joint venture for
the referenced periods, no reconciliation has been provided.

BUSINESS SEGMENT ADJUSTED OIBDA RECONCILIATION

(amounts in millions)       2Q17       3Q17       4Q17       1Q18       2Q18
QVC
Total QVC operating income $ 306 $ 274 $ 496 $ 343 $ 370
Depreciation and amortization 154 129 79 77 74
Stock compensation 8 9 8 9 11
Transaction related costs       3     6     4      
Total QVC adjusted OIBDA $ 468   $ 415   $ 589   $ 433   $ 455  
 
QVC US Adjusted OIBDA $ 361 $ 316 $ 442 $ 326 $ 355
QVC International adjusted OIBDA 107 99 147 107 100
 
HSN(a)
Operating income (loss) $ 39 $ 31 $ (3 ) $ 13 $ 20
Depreciation and amortization 8 8 7 24 23
Stock compensation (1 ) 3 11 2 1
Transaction related costs(b)   4     1     64     4     2  
Adjusted OIBDA $ 50   $ 43   $ 79   $ 43   $ 46  
 
zulily
Operating income (loss) $ (29 ) $ (44 ) $ (18 ) $ (28 ) $ (27 )
Depreciation and amortization 51 51 50 51 52
Stock compensation   4     5     6     4     4  
Adjusted OIBDA $ 26   $ 12   $ 38     $ 27   $ 29  
 
Cornerstone(a)
Operating income (loss) $ 16 $ 2 $ (11 ) $ (9 ) $ 8
Depreciation and amortization 3 4 4 11 10
Stock compensation 1 1 1 1
Transaction related costs(c)   2         18          
Adjusted OIBDA $ 21   $ 7   $ 12     $ 3   $ 19  
 
a)     Information included for periods prior to the acquisition for
comparative purposes.
b) Q4-17 includes $30 million of severance and bonus cost at HSN that
was consolidated in Qurate Retail's reported results as well as
other costs incurred prior to Qurate Retail's acquisition and not
included in Qurate Retail's consolidated results.
c) Q4-17 includes $5 million of severance cost at Cornerstone that was
consolidated in Qurate Retail's reported results as well as other
costs at Cornerstone incurred prior to Qurate Retail's acquisition
and not included in Qurate Retail's consolidated results.
 

SCHEDULE 3

The following table provides a reconciliation of Qurate Retail's
adjusted net income to its net income and adjusted earnings per share to
diluted earnings per share, in each case, calculated in accordance with
GAAP for the three months ended June 30, 2017, September 30, 2017,
December 31, 2017, March 31, 2018 and June 30, 2018, respectively.

ADJUSTED NET INCOME AND ADJUSTED EPS RECONCILIATION

(amounts in millions)         2Q17         3Q17         4Q17         1Q18         2Q18
Qurate Retail, Inc. Net income (GAAP) $ 175 $ 296 $ 1,463 $ 384 $ 187
Former Liberty Ventures Group net income(a)   (64 )   (177 )   (576 )   (242 )    
Net income attributable to QVC Group common stock 111 119 887 142 187
Purchase accounting amort., net deferred tax benefit (b) 77 63 30 47 41
QVC/HSNi level transaction related costs, net of tax 3 25 6 2
Corporate level transaction related costs, net of tax 9 3
Gain on transactions, net (409 )
Acceleration of stock compensation expense, net of tax(c) 19
Impact of US tax reform (295 )
Mark-to-market adjustments(d)               37     (16 )
Adjusted Net Income $ 188   $ 185   $ 266   $ 235   $ 214  
 
Diluted earnings per share (GAAP) $ 0.40
Adjustments, net of tax 0.05
Adjusted earnings per share $ 0.45
 
a)     Represents results of the Liberty Ventures Group through March 9,
2018 at which point certain assets and liabilities were split-off
with GCI Liberty.
b) Add-back relates to non-cash, non-tax deductible purchase accounting
amortization from Qurate Retail's acquisitions of QVC, HSNi and
zulily, net of book deferred tax benefit.
c) 4Q17 includes $21 million of accelerated corporate level stock-based
compensation expense due to impending US tax reform and $8 million
of acquisition-related HSN stock-based compensation, net of tax.
d) Add-back includes realized and unrealized gains/losses on financial
instruments, net of tax.
 
                         

QURATE RETAIL, INC.

BALANCE SHEET INFORMATION

(unaudited)

 
June 30, December 31,
2018 2017
amounts in millions
Assets
Current assets:
Cash and cash equivalents $ 657 903
Trade and other receivables, net 1,103 1,726
Inventory, net 1,510 1,411
Other current assets   200 125
Total current assets   3,470 4,165
Investments in equity securities 645 2,363
Investments in affiliates, accounted for using the equity method 179 309
Property and equipment, net 1,303 1,341
Intangible assets not subject to amortization 10,977 11,011
Intangible assets subject to amortization, net 1,129 1,248
Other assets, at cost, net of accumulated amortization 126 50
Assets of discontinued operations   3,635
Total assets $ 17,829 24,122
Liabilities and Equity
Current liabilities:
Accounts payable 925 1,151
Accrued liabilities 926 1,125
Current portion of debt 1,442 996
Other current liabilities   166 169
Total current liabilities   3,459 3,441
Long-term debt 6,253 7,553
Deferred income tax liabilities 2,091 2,500
Other liabilities 225 242
Liabilities of discontinued operations   303
Total liabilities   12,028 14,039
Equity/Attributed net assets (liabilities) 5,687 9,984
Non-controlling interests in equity of subsidiaries   114 99
Total liabilities and equity $ 17,829 24,122
 
 
                         

QURATE RETAIL, INC.

STATEMENT OF OPERATIONS INFORMATION

(unaudited)

 
Three months ended
June 30,
2018 2017
Revenue:
Total revenue, net $ 3,233 2,352
 
Operating costs and expenses:
Cost of retail sales 2,050 1,494
Operating 238 150
Selling, general and administrative, including stock-based
compensation
428 248
Depreciation and amortization 159   206  
2,875   2,098  
Operating income (loss) 358 254
 
Other income (expense):
Interest expense (96 ) (89 )
Share of earnings (losses) of affiliates, net (46 ) (9 )
Realized and unrealized gains (losses) on financial instruments, net 20 101
Other, net   (13 ) (7 )
  (135 ) (4 )
Earnings (loss) from continuing operations before income taxes 223 250
Income tax benefit (expense)   (25 ) (76 )
Earnings (loss) from continuing operations 198 174
Earnings (loss) from discontinued operations, net of taxes     10  
Net earnings (loss) 198 184
Less net earnings (loss) attributable to noncontrolling interests   11   9  
Net earnings (loss) attributable to Qurate Retail, Inc. shareholders $ 187   175  
 
                         

QURATE RETAIL, INC.

STATEMENT OF CASH FLOWS INFORMATION

(unaudited)

 
Six months ended
June 30,
2018 2017
amounts in millions
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 595 703
Adjustments to reconcile net earnings to net cash provided by
operating activities:
(Earnings) loss from discontinued operations (141 ) (341 )
Depreciation and amortization 322 414
Stock-based compensation 46 37
Share of (earnings) losses of affiliates, net 60 36
Cash receipts from return on equity investments 14
Realized and unrealized gains (losses) on financial instruments, net (119 ) (276 )
Deferred income tax (benefit) expense (1 ) 63
Other, net 24 13
Changes in operating assets and liabilities
Current and other assets 188 299
Payables and other current liabilities   (263 ) (179 )
Net cash provided (used) by operating activities   711   783  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in and loans to cost and equity investees (50 ) (118 )
Capital expended for property and equipment (98 ) (74 )
Other investing activities, net   (58 ) (29 )
Net cash provided (used) by investing activities   (206 ) (221 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt 2,502 1,199
Repayments of debt (2,381 ) (1,497 )
GCI Liberty Split-Off (475 )
Repurchases of Qurate Retail common stock (493 ) (152 )
Withholding taxes on net settlements of stock-based compensation (21 ) (13 )
Indemnification payment from GCI Liberty, Inc. 133
Other financing activities, net   (21 ) (28 )
Net cash provided (used) by financing activities   (756 ) (491 )
Effect of foreign currency rates on cash, cash equivalents and
restricted cash
  4   9  
Net increase (decrease) in cash, cash equivalents and restricted cash (247 ) 80
Cash, cash equivalents and restricted cash at beginning of period   912   836  
Cash, cash equivalents and restricted cash at end period $ 665   916  
 

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