QVC Group Inc. (QVCGA) Q2 2019 Earnings Report, Transcript and Summary

Welcome to the Qurate Retail’s 2019 Q2 Earnings Call. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, August 8. I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer and Senior Vice President of Investor Relations. Please go ahead.

Good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10-K and 10-Q filed by our Company and QVC with the SEC. These forward-looking statements speak only as of the date of this call, 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. On today's call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA, adjusted OIBDA margin, and constant currency. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations including preliminary notes and schedules 1 through 3, can be found in the earnings press release issued today, which is available on our website. Today speaking on the call, we have Qurate Retail President and CEO, Mike George; Qurate Retail Group CFO, Jeff Davis; Executive Chairman, Greg Maffei. Please note, we've also published slides to accompany the earnings release. These slides are also available on our website. Now I'll hand the call over to Mike George.

Thank you, Courtnee, and good morning, everyone. We are making good progress against the priorities we outlined on our last call. Our second quarter results were highlighted by improved performance at QxH and QVC international relative to the first quarter, including sequential net revenue and OIBDA margin improvement at QxH and double-digits year-over-year OIBDA growth at QVC international and constant currency. These gains were partially offset by further performance deterioration at Zulily. We are working aggressively to address these issues at Zu, although we do anticipate that they will persist in the near-term. We also improved free cash flow relative to Q1 due to disciplined inventory management and more favorable working capital timing. Additionally, we resumed our share buyback program purchasing nearly 12 million shares of stock for $153 million from May 1 to July 31. While our Q2 results declined year-over-year, I am encouraged by the resiliency of our QxH business, and our ability to generate high levels of OIBDA and free cash flow in a dynamic and highly competitive environment. Going forward, we remain focused on evolving the QVC and HSN brands, building on our collective strengths in the powerball model here in the U.S. and globally, capturing our targeted synergies and stabilizing Zulily. I'll focus my comments on strategic and operational execution and then turn the call over to Jeff for a more detailed financial review. Starting with QxH, despite a slight decline year-over-year, we are pleased with sequential improvement in operating results. The improved sales trend reflected a moderation in the sales decline from on-air products relative to Q1. Please see the definitions of on-air, off-air and digital-only sales in the presentation posted on our website. We drove year-over-year on-air sales gain in several areas. Culinary and garden strengthened due in part to Eastern driven demand shifting out of Q1. [QV] returned to growth although that category remains highly competitive. Accessories growth accelerated while apparel softened and reflected in part a weakening closing cycle across retail. On the off-air side, some growth in categories like home decor and beauty where we feature more curated and differentiated assortments. And in our digital-only business, we pulled back on lower margin national brand offers in areas like household and electronics. As a result of these actions, we saw nice gains in overall off-air and digital-only product margins, highlighting our focus on winning in digital through curation and differentiation. We remain pleased with TV viewership and digital engagement at both QVC and HSN, which speaks to the relevance of our brands. TV viewership group, driven by enhanced programming, improved channel placement and expanded distribution of our secondary channels, QVC-2 and QVC-3, each received more than 8 million additional homes as of June 30. And HSN-2 reached an additional 19 million homes. While TV viewership doesn't correlate directly with sales, we do see it as a positive indicator of overall engagement with our brands, especially at a time when TV viewership more broadly is declining. Our digital engagement also continues to grow as the number of digital visits and sessions across our websites and apps increase, reflecting the power of our TV broadcast to drive traffic through our digital properties, bolstered by continued growth in performance marketing. Due to encouraging viewership of our live TV programming on our own web and app platforms continued to grow rapidly. The strong engagement translated into healthy customer activity. On a trailing 12-month basis, our total customer account retention and number of items purchased remained strong and stable and withdrew the number of new customers in both Q2 and the last 12 months. Looking forward, we continue to focus on bringing together QVC and HSN in ways to capture the best of each brand separately while harnessing the power of both brands together. And we'll continue to leverage our core differentiators and lean into our strategic priorities, which are first being best our product curations and discoveries. It's always been the core of our success. In today's world, we need to further increase product differentiation, expand variety and be faster the market to new and undiscovered curations, and we continue to strive for best value while also enhancing our delivery promised to customers rising expectations. Second, winning in digital, which is about delivering our unique value proposition to run curated product discovery, storytelling and lively experiences across all the platforms consumers engaged with today, creating new purchase opportunities and attracting new generations of customers. We've evolved into one of the largest e-commerce and mobile retailers in the U.S. and we're leveraging all of our platforms to grow digital faster by delivering highly engaging, curated video rich shopping experiences rather than by competing directly with transactional e-commerce companies on their terms. Let's take a closer look starting with being the best in product curation and discovery. We generated strong performance from unique proprietary and limited distribution brands in the second quarter, including AnyBody and Breezies and Intimates, Josie Maran, TATCHA and Beekman 1802 and Beauty, Valerie Parr Hill and Northern Nights, Home Decor, Curtis Stone, KitchenHQ, TEMPTATIONS, Rastelli Market Fresh, and Kansas City Steak and Culinary, and Diane Gilman in apparel. We're continuing to expand our proprietary brand capabilities by building out our D3, design, development, and discovery organization. We're increasing our offerings from KitchenHQ, which has become a key contributor in HSN Culinary growth. And Beauty, we're excited about the September launch of Carmen de Beauty, our first proprietary beauty brand, which we're developing in coordination with Batallure Beauty. We're establishing strategic vendor partnerships to leverage our integrated merchandising team. We've seen success with a brand shared across HSN and QVC including Beekman 1802, Dalton and Tweak'd by Nature and Beauty, and Teeter Inversion, Sleep Number, Wing, Fitbit, and Bose and Home, and Fitness. We're excited about launching outerwear line at HSN this fall. The launch is our success at QVC with capital requirements. As part of our ongoing commitment to bring customers more discoveries, increased product differentiation and incubate new products. We launched The Big Find, a nationwide search for the next big brands in beauty, fashion and jewelry. This month, select groups of entrepreneurs are joining us in four cities to pitch their products to panels – merchandise leaders from across our Company. We anticipate the chosen entrepreneurs will launch their products in QVC and HSN beginning this Q4 and through 2020. It's one of many ways we can build on our legacy of launching or fostering many of the most successful entrepreneurial brands in the marketplace, including a Cosmetics, Philosophy, bareMinerals, Spanx, Andrew Lessman and Diane Gilman. We continue to expand our curated digital only assortments. Let's compliment and expand our current on-air assortments. For example, we've curated unique assortment of crafting items at qvc.com that appeals to our customers, leveraging the success of HSNs on-air crafting business. Our second priority is to win in digital. Broadcast TV is an amazing platform to attract viewers, build relationships and inspire immediate purchases. Additionally, it is a powerful marketing vehicle and drive traffic to our digital properties where consumers can experience the full range of our offerings and content. We're programming strategically across our six networks or five broadcast networks and our digital-only Beauty iQ network to maximize both video and digital audiences, creating joint events across H&Q and categories like culinary and fashion, the traditional deliver higher viewership and can create multiplier effect in overall audience size. Well, adopting a counter programming strategy and lower viewership categories like electronics and household. And we now have one QxH leader overseeing the programming and planning teams across QVC and HSN to identify and capture these opportunities. We continue to focus on developing compelling and engaging programming that can draw large audiences. For example, QVC and HSN joined together for the first time this year for our Beauty with Benefits event to support Cancer and Careers. The event, which was aired in both our broadcast and digital platforms and amplified across social media and influencer networks attracted over 3,000 new customers and exceeded our sales goals. As we discussed on prior calls, we've been strategically increasing our marketing spend that's totaled 1.3% of QxH's net revenue in Q2. Marketing spend drove approximately 25% of our new customers with the remainder coming in organically. Our business model fully by the power of our TV reach enables us to spend conservatively on targeted marketing initiatives that yield attractive returns. I'd also note that QxH 's performance marketing is diversified across a variety of channels, including affiliates, comparison shopping engines, paid social, display and e-mail. This approach reduces our dependency on any one channel that allows for more flexibility in how we target high-value prospects. Additionally, we're focused on building strong niche audiences in social media networks. We now have more than 10 new content series across the QVC and HSN YouTube channels focused on beauty, culinary, fashion and lifestyle. We're also advancing our influencer strategy, leveraging customers, hosts and guests and other improvement personalities. In Q2 for example, we introduced QVC's customer advocacy program called Q Crew, which was designed to activate our more passionate customers as ambassadors for our brand, leveraging their own social media networks. We're also tapping into the trust and influence of our hosts and other personalities to initiatives like Getting Real and new YouTube Series, YouTube personal relatable videos about our hosts lives outside of QVC. The Sloane Series and Beauty iQ and David Venable recipe series Half Homemade are additional examples. Further high-profile guests are attracting audiences across both our social networks and there’s, including Jamie Foxx for Prive Revaux, Ryan Seacrest, POLISHED by Dr. Lancer, Farah Mehi for Inspire Me and Jill Martin for G.I.L.I. Home. As a result of all these digital efforts and leveraging our networks as powerful marketing channels, we continue to increase the mix of our revenue generated e-commerce platforms. In Q2 e-commerce revenue was 55.5% of QxH sales of nearly 200 basis points year-over-year and our customers are especially gravitating to mobile, which now represents 68% of e-commerce orders up 400 basis points year-over-year. I do want to take a minute to showcase one recent success story that kind of brings together our ability to execute against both these product curation and digital priorities. Rachel Hollis is a bestselling author of podcaster, social media influencer and motivational speaker. In May, we launched her exclusive fashion collection with QVC only on digital, aligned designed to empower women with beautiful and wearable style for everyday it was developed by Rachel and our teams and using a proprietary D3 capability. The digital first launched and put it a strong social component. I have an impressive new customer acquisition with 80% of new customers in the 25 to 44 demo. We're continuing to launch new Rachel Hollis products digitally and I'm preparing for an on-air launch later this year and we're really pleased with this blueprint and see plan into future brands. And we excited last week to announce the employment of Leslie Ferraro to the newly President of QxH, effective September 16. Now Leslie brings a really impressive 17-year history with the Walt Disney Company. Most recently she's Co-Chaired Disney consumer products and interactive media and President Disney consumer products where she established a proven track record of driving innovative customer centered strategies. Leslie's primary focus would be to advance QxH’s growth strategies by leveraging the power of video, storytelling and Qurate Retail experiences across new and next-gen platforms. and as we invite new customers to join QVC and HSN. Firstly, we'll work closely with Mary Campbell, our Chief Merchandise Officer of QRG and our Chief Commerce Officer of Q U.S.; and Mike Fitzharris, our President of HSN. Now to sort of quickly summarize QxH results, our sequential improvement in revenue and OIBDA as well as our strategic and operational progress demonstrates the ongoing relevance of the QVC and HSN brands and platforms. We continue to engage viewers and visitors, attract new generations of customers and deliver high levels of OIBDA and free cash flow. That said, we are hesitant to commit to a specific time line for returning to revenue growth as we are operating in an increasingly uncertain macro environment, including unknown tariff impacts while also driving at the same time numerous innovations and our business model to enhance product discovery and win in digital. We will remain focused on pursuing these strategic priorities, carefully balancing revenue, OIBDA and cash flow levers to drive meaningful cash flow and delighting current and prospective customers. I'll turn now to QVC international, where we saw continued constant currency revenue growth and a double-digit OIBDA gain led by strong performance in Japan. Our European markets were mixed in part due to a challenging macro environment, but we did see solid growth in Italy. Among the highlights across international were positive results for our product margin improvement efforts, including discipline, promotional and inventory management actions that reduce clearance. We're also seeing improvement from our increased focus on more targeted promotional activity, rebounds in the categories and brands and improved TSB margins. Looking forward, we're focused on building momentum at QVC international through a set of growth priorities, but are largely aligned with what I shared for QxH. International is looking to capitalize on successes from the U.S. in areas like performance marketing and expanded digital assortments. We are also being purposeful about where international can take the lead on key innovations in social and in digital discovery, especially as it relates to further elevating our online store experience and customer communities. In additional, exploring opportunities to evolve the international operating model to pursue growth opportunities in a more leveraged way across markets. Turning to Zulily. Our challenging results reflect further erosion in the acquisition of new and reactivated customers. As marketing cost to acquire new customers continue to rise, we also saw an increasing pressure on the existing customer base due to lower purchase frequency from existing customers, along with ASP erosion and lower average order value. We're also continuing to see headwinds from sales tax collection and remittance, which we expect to continue through most of the year. The Zu team is focused on enhancing its core customer promise and is making strategic changes to its customer experience to return to growth. Concerted initiatives are underway to improve the assortment of fresh quality products while launching fewer, but more curated events, increase overall customer engagement and conversion. We're also focused on creating a more fun and engaging shopping experience on our website and app and reducing order to delivery times. As we see these headwinds in marketing spend efficiency, we have chosen to maintain our marketing return requirements. And as a result, overall marketing spend declined 10% which further compounded our customer acquisition and sales pressures, but we are accelerating experimentation across alternative marketing channels such as TV marketing, while still early have shown positive indicators. We're also committed to maintaining rigorous cost disciplines to address the lower volumes. In summary, we are diligently focused on key initiatives to reinvigorate the customer experience, and we believe we're taking the right action at Zulily to stabilize the business over time and eventually return to growth. At Cornerstone, excluding improvements that we closed in Q4 last year, we realized a modest sequential net revenue improvement. Overall, Cornerstone continues to face a highly competitive environment across home and outdoor as well as pressures from ongoing sales tax collection. Our Frontgate has been most impacted by these challenges, but we are seeing some signs of improvement. Garnet Hill and Grandin Road showed modest sequential gains, Ballard Designs continues to deliver solid growth supported by the success of its retail stores and design studios, and we do see retail expansion remaining an exciting opportunity for us. Near-term Cornerstone is focused on improving its overall assortments, reducing promotional activity and executing expense control. Longer-term initiatives include deploying at new customer journey platform that will enable us to better connect the impact of digital marketing spend and catalog circulation that a customer love it, driving the Ballard retail store opportunity and optimizing the distribution network. I'll stop there and turn the call over to Jeff for the financial discussion.

Thank you, Mike, and good morning, everyone. I'll now provide an overview of the second quarter financial results for our business segments beginning with QxH. QxH revenue decreased 1% led by a 3% decline in ASP, partially offset by a 1% growth and unit volume. The sequential improvement first quarter results was driven by improved trends in our on-air business. Adjusted OIBDA dollars declined 1% and margin rate was flat versus last year, but improved sequentially from Q1. The flat margin rate primarily reflects favorability from reduced TV distribution commissions in part due to the accounting treatment for certain renewed HSN carriage agreements, as well as the renegotiated rates that HSN and growth in off-air sales, offset by warehouse, freight and inventory management expenses. The warehouse pressures are mainly related to our multi-year multi-phase fulfillment network optimization plan. The initial phase will reduce our U.S. fulfillment center footprint from nine to seven facilities. By 2020, we expect to improve customer delivery times and labor productivity, and reduce transportation and fixed costs. However, in the short-term, we absorbed approximately 15 basis points of dual lease and quarterly incentive payments, and approximately 35 basis points from reduced productivity during the ramp up and retrofit of certain facilities. We expect the productivity headwinds to continue through the back half of the year. Additionally, freight costs reflect higher freight rates, particularly from U.S. postal service and unit growth at lower ASPs. While higher freight rates are not anything new, we were less successful offsetting these rate increases with pack factor improvements or the number of items we ship in the same box, due to the ongoing fulfillment network optimization plan. We expect these freight pressures to also continue through the year, but begin to moderate in 2020 as new fulfillment center begins to realize increase pack factor along with the benefit, we'll realize from reduced shipping distances. And while inventory management reduced the overall OIBDA margin by 25 basis points, led by liquidations and costs associated with Clearing Ingenious Designs brands at HSN. Inventory obsolescence was favorable by 20 basis points for the quarter. Finally, on QxH, we've realized cumulative run rate cost synergies of $87 million through June 30. Moving to our international business unit, in constant currency, international delivered another solid quarter with revenue up 1% on a 7% ASP increase, which was counterbalanced by a 5% decline and unit volume. Japan had a strongest performance across the markets with double-digit growth across four key product categories. Strong demand generated from a TSV replay and expansion of destination tuning programming. Italy realized improved results while Germany and UK posted mixed results in the quarter. Adjusted OIBDA was up 10% and margin expanded to 140 basis points from gross margin improvement, fulfillment, leverage, lower fixed costs, and reduce losses associated with our former France operations. Turning to Zulily. Net revenue declined 13% led by the continued challenge and new customer growth. Lower spend with an existing customer base and lower ASP. Adjusted OIBDA declined 76% and margins compressed 510 basis points versus last year, with the topline erosion accounting for 320 basis points of the margin rate decline. We are encouraged by increased product margins. There were several factors beyond the revenue decline, which more than offset this favorability. First fixed expenses, connected with the expansion of a technology related headcount and a charge for recent workforce reductions, which I'll discuss in a moment. Second is freight cost. Unit economics deleveraged when ASP declines and freight rates increase, and finally warehouse expenses as a percent of net revenue have increased due to increase wages and benefits and the deleveraged of fixed costs. Going back to my earlier mention of the recent workforce reductions, Zulily made a strategic decision to reduce the number of daily events from 150 to 100, which will allow better focus on each daily event on the quality, unique product fines, and personalized shopping experiences the Zu customer expects. As a result, Zulily streamline their operations, eliminating positions primarily in its merchandise and studio operations, but remains focused on increasing their investment in technology, user experience, and other areas to help support speed and agility. Wrapping up with Cornerstone. Excluding the improvements Catalog business that was closed Q4 2018, revenue declined 3% and adjusted OIBDA was down $5 million. The OIBDA performance principally reflected the impact of lower revenue and gross margin pressure from promotional activity, partially offset by lower selling general and administrative costs. Garnet Hill, Grandin Road, Ballard Designs deliver sequential improvement over Q1. While we've seen improvement in front gate, the turnaround is taking longer than anticipated due to ASP deleverage, a soft outdoor furniture season and overall competitive pressures. Before I discuss CapEx and free cash flow, let me take a moment to address the ongoing tariff situation. The three tronches in effect to date cover approximately 10% of curated costs of goods sold. Through our mitigation efforts we believe these tariffs had a limited impact on our results. The recently announced four tronch for cover and an additional 40% of our cost of goods sold with over 80% from vendor source products and the remainder from direct imports. Our total exposure approximately 30% is in electronics with the rest spread fairly evenly across the apparel, accessories and the remainder of our home categories. Teams are taking actions to mitigate the cost impact and collaboration with our vendors, including shifting product sourcing from China, sharing the cost burden across the supply chain and increasing retail prices where necessary. It's too early to predict accurately what effect the tariffs may have on sales demand. However, this is a dynamic situation we are continuing to monitor and we hope trade actions between U.S. and China deescalate. Moving now to capital expenditures and cash flow, capital expenditures were approximately $106 million on a cash basis in Q2. For the full-year, we anticipate CapEx to be approximately $370 million to $390 million, which is a below our initial estimate of $410 to $425 million. As a reminder, the total increase over 2018 is primarily due to the U.S. fulfillment network optimization and continued technology and commerce platform investments. Free cash flow increased modestly versus last year and a substantially recovered versus Q1. From improved working capital primarily associated with reduced inventory levels and accrued sales return reserves. QVC’s total net debt to adjusted OIBDA ratio as defined in our credit agreement was 2.4x as compared to a maximum allowable leverage ratio of 3.5. With that, I'll now turn it over to Greg.

Great. Thanks Jeff. Looking at the corporate level issues, I wanted to recently revisit our green energy investments including wind and solar. These green energy investments are very attractive financially and will continue to be a part of our strategy. The assets were invested in generate losses which appear on our P&L under the share of earnings losses of affiliates. However, we are able to generate material tax benefits both through these losses and tax credit associated with these investments. Other issues in the quarter, we sold our investment in FTD resulting in $34 million book income tax benefit in Q2 from the tax loss, we expect approximately $100 million tax benefits at the end of 2020 when our long-term tax receivable is collected from the period of May 1 through July 31, we repurchased 11.9 million shares of curated retail for $153 million. This compared to 9.6 million shares bought in Q2 last year. As a reminder, we will be holding our Annual Investor meeting on November 21 in New York. The link to register for this event is on our homepage of our website. We appreciate your continued interest in Qurate Retail. And with that, operator, I'd like to open it up for questions. Thank you.

[Operator Instructions] And we will take our first question from Ed Yruma with KeyBanc Capital Markets. Please go ahead.

Good morning. Thanks for taking the questions. I guess first, last call you signaled that you were suspending share buybacks given kind of the volatility in the business. Obviously, you restarted that. I guess what changed in terms of the speed by which we're able to inflect the trajectory of the business, kind of what gives you the confidence to do more share repurchase going forward? And then as a follow-up, I know that there were some issues that kind of resulted on the operational side is merging your merchant organizations I think at the end of last year that impacted the first quarter. Are those issues behind you? Thank you.

So we are on the first one. I would say as we expressed are going to be opportunistic on our share buybacks. We had increasing competence during some of the results of the quarter as Mike and Jeff outlined. And I would note there was a substantial pullback in the share price during the quarter, which made share repurchase a more attractive option. Mike, do you want to handle the second part?

Yes. On the challenges with integration especially around the merchant function, I do think we’re largely passed and the things have now been working together for several months. I have still some work to do to get all the processes working smoothly and of course with fine lead times, it takes a bit of time for all that to show up in the results. So I was still feeling a little bit of pressure from that and our numbers probably, but I think we're largely passed the biggest challenges associated with integration.

Great. Thanks so much.

We'll take our next question from Oliver Wintermantel with Evercore ISI.

Yes. Good morning, guys. Thank you. I just had a question regarding Zulily. If you could maybe walk us through, I know you provided the details there, but I think it's still a little bit unclear what really drove the deterioration over the last, I would say two or three quarters in the Zulily business. If you could maybe try to explain what drove that and how you are trying to fix that?

Thanks, Oliver. I would say at a high level, I would point to two things. Clearly the most proximate cause was that this is a business that really worked well on bringing in new customers through Facebook marketing and now it's a channel we were having a huge success with a year ago and grow the kind of strong level of new customer ads and growth we enjoyed last year. Just seeing that dramatic sort of increase in cost or the decrease in efficiency of that channel, such that, we just have struggled to get the times of marketing returns the need. And so we're both bringing in fewer new customers for every dollar spent and spending fewer dollars. And this is a business that still needs to bring in a lot of new customers every year. So a fair amount of pressure on the customer acquisition front. We are obviously working hard to find new acquisition channels that will work for us. Some amount of experimentation that haven't yet cracked the code on that, but we'll obviously have to stay after that. We've chosen not to kind of give up on our return on marketing spend requirements to stabilize the sales. We just don't think that would be healthy spend. That's the biggest issue. I think the second issue is that in some ways, probably some of the success we had in marketing last year, masked the fact that I think we haven't made as much progress as we would've liked to make and just continuing to evolve the overall customer experience. So website isn't as fresh as it needs to be. Tim is working on a number of things as we speak some new innovations in the website store experience. We haven't had as much success bringing in delivery times as we'd hoped for. And so we can see when those delivery times are really long that we get a lot of customer satisfaction at the long tail of those delivery times. And so we need to move faster on some of these more experiential aspects of the brand, which I think are causing a little bit of burnout with existing customers. So I’d say those are the two big factors. We have to get more effective forms of marketing spend at the front end, and just kind of be sensitive to burnout risk with existing customers through freshness and product, freshness in the web experience, better service levels, and a number of initiatives underway on all those fronts. And good news is I do think that the customer base still wants the brand, still purchase as frequently, but clearly, we're seeing a pretty big erosion in that rate of purchase and need to work it aggressively.

Got it. Thanks. And maybe as a follow-up to that maybe bigger picture question regarding the portfolio of your brands or businesses. If you look at hurdle rates in regards to Zulily or Cornerstone, is there anything that you would say, we give to these businesses, not a year or whatever the hurdle rates are and look for the opportunities then or if there's within the portfolio, if you think that there's – is there any need for acquisitions in the near-term? Thank you very much.

Yes. Thanks. I would say on the acquisition front, we're certainly open to something that probably will come in our way. But our view is we're focused on the businesses we have and we'll take a really just extremely attractive scenario for us to consider acquisition at this stage. We like the current portfolio cleaned up. We're happy with the portfolio of businesses we have. We've got a couple – both Zulily and Cornerstone are different types of turnaround. So we need to see that work. Again, we're never going to say never to looking at any opportunity, either acquisition or divestiture, but I would say our focuses on getting these businesses to work and to get back to growth, and I think that is absolutely doable.

Got it. Thanks very much. Good luck.

Thank you.

And we'll take our next question from Alex Fuhrman from Craig-Hallum Capital Group.

Great. Thanks very much for taking my question. Curious with Zulily, I'm struggling a little bit here. Is that brand still helping to bring new customers to QVC and HSN? Just curious if you're still getting that that strategic value and then if I remember correctly, I think you've been doing some today's special values that you've been cross marketing on Zulily. Are you still doing that? Are you still seeing any response to that? Just would love some more color on how you're continuing to use the different assets in your portfolio to drive customers to QVC?

We do think we're getting those strategic benefits, and some of it doesn't outweigh the performance pressures we're seeing. But on the customer acquisition front from Zulily, we've tried to kind of pivot with where we see the performance. So last year as Zulily was really growing, we were focused on keeping new customers on the Zulily platform, less so about trying to get them to migrate to Q&H, a little bit of cross marketing, but not heavy. This year as Zulily has struggled, so we still have a lot of traffic and visitors, but as they've struggled more to monetize that, we put a little more focus on that crossover customer. So as an example, in the daily e-mail that go out to the Zulily customers, we do feature the QVC today's special value. We'll probably in the future be featuring that HSN, today's special and other ways to sort of market the QVC and HSN brands to very large and engaged, so really customer base. We're also doing more cross marketing with our proprietary card program. So as you may recall, we put the QVC proprietary card and launched a Zulily equivalent at Zu and are in the process of converting HSN card to a one – on the QVC platform. That's going to enable us to do some interesting cross marketing, through our proprietary card programs across the brands. We've done a little bit of that in Zu, but I think there's more to be done. So not a massive benefit, but certainly additives, let's speak to a wider range of visitors and potential customers every day.

Great. Thanks. That's really helpful. Thank you, Mike.

Thank you.

We'll take our next question from Eric Sheridan with UBS.

Thanks for taking the question. Mike, I wanted to just check in and sort of get a better view of sort of how your own thoughts on digital marketing and performance based advertising continue to evolve as both the stimulant of individual transactions and at the top of the funnel as sort of a growth driver for users and buyers coming into the platform broadly? What have you learned since you made some of the changes you did late last year? How those sort of continued to evolve? And then maybe a second quick one if I can, just you highlighted mobile shopping and you continue to talk about that in the last couple earnings calls. What have you seen is the mobile shopper continues to evolve with the all of your various properties on a global scale? Thanks so much for the detail.

Yes. Thanks, Eric. On the first one, on performance marketing, we continue to be in this high experimentation mode from the numbers kind of modifying increase in performance marketing every quarter, against a pretty tight sort of return metrics that say that that spend has to kind of pay back within a year. And we are focused on the sort of needle in the haystack of, how do we find customers that could become really great core QVC customers as opposed to one and done, which just doesn't fit our model? And so we're – kind of the stored in our return requirements in particular focus on those, potential customers who could become super users of the brand. And we are finding that we can do that. That's I think the most encouraging thing to us. We're gating our spend. So that we do meet these return requirements. But we're finding that overall average value of these customers, a little – is a little below our total average. There are pockets of these digital customers, especially those that come in on more engagement platforms like social media, medium marketing, that are coming into the ecosystem and becoming pretty high value, pretty high frequency customers, right away. So we think it is working as another way to tell our story and get people into the ecosystem and then get them energized about all the things that we have to offer, so really encouraged by that. Our limitation is really just the fact that if we overspend and we see the returns are dropping, and so we're trying to view this as a long-term strategy, be surgical block who we're going after bump it up every quarter and help sort of build the customer file. But the fact that a quarter of our new customers are coming in through paid marketing, a pretty good level of quality continues to be encouraging for us. On mobile, I think we've just been surprised by how much that platform now dominates the consumer experience. So for years now we've been pretty much in a mobile first mode. All of our design work is done for mobile screens. We are kind of continuing to sort of rebuild the whole digital platform to be more mobile friendly. So we're in the sort of final phase of that work as we speak, which is launching a new checkout platform that's much smoother faster on digital and especially on mobile and that's just the kind of rollout phase. We can present her a lot of great video content on the go. And so I think we're crossing all the benefits of mobile private. The most important one for us is how we enable that great high def video experience so that – why don't you stand in the Starbucks line and she cannot just learn about the TSP, but she could watch a couple minutes of the TSP program live. And so we'll quite pleased with the results both on mobile web and on path and continue to innovate against both and with ours little brand that's also business that's been amazingly successful on mobile and especially on app. And it's another kind of key to winning that so Zulily is to reduce our dependency on e-mail marketing and to the way to get the Zulily customer into our ecosystem is to get her using our app. And so Zulily has that very high app usage rate and almost any other e-commerce brand and we're going to continue to invest in getting a great app experience in front of more customers and prospects at Zu.

Great. Thanks Michael.

Thank you.

Next question comes from Thomas Forte with D.A. Davidson.

Great. Thanks for taking my question. So for Mike, first, Leslie sounds like an excellent hire. So congratulations there. I want to talk a little about over the top four QVC and HSN. To what extent is it driving viewership and how should we think about the shopping habits for consumers who are engaging via Roku, Amazon Fire, Apple TV, and an over the top in general? Thanks.

Thanks Tom. And thanks on Leslie we are thrilled to have on the team so really exciting for us. And I would say we're still in a kind of early learn mode on over the top. We've been pleasantly surprised by the amount of viewership we're getting, especially on Roku, and Amazon Fire growing rapidly, but Roku continues to be now by far the industry leader. What we’d like about the platform as we can present the full experience. So today if you have the QVC app on Roku, you'll see all four of our networks simultaneously along with a lot of short-form content and long-form content. And we're spending a lot of time trying to figure out how to market and push activity to the Roku customer to get her to engage with us. And we expect in the not that distant future knows there could be more of a video shopping app generally that includes not just access to the QVC networks but the QVC and HSN network. So yes, it's a way to get folks into an environment that can be more interactive have the full experience available. So there's a lot we'd like about it. And as I said, we're pleased with the amount of viewership we're getting. I think we still have a lot to learn about how to convert that viewership into sales. So that's probably earlier going. So just really trying to study their viewing patterns, their behaviors, and make sure we're getting out the conversion. We think we will because again, it's essentially a fully feature TV experience so we believe over time. We should be able to get that to convert the sales at the same rate. But it's a little early to read that. So more to come, but happy with where we are pleased with the amount of growth and the amount of engagement.

Thank you, Mike.

And we'll take our last question from Jason Bazinet with Citi.

Thanks. I just had a question on Amazon Prime Day. What impact does that have to your business when that I think rolled out in July and this move from Amazon to one-day shipping on Prime customers? Has that or do you expect it to have any sort of impact on your business? Thanks.

Yes, thanks Jason. Prime day is interesting. We see really no impact. We've not typically – we generally speaking of not taking the approach of using it as a data accessibly market or promote to our customers, but there's sort of more people in the e-commerce ecosystem on that day. So typically you might see a little more traffic, but we've been pleased that we've never seen it hurt our business either sort of immediately on the day of or in the following days. We haven't necessarily credited aggressively capitalize on it either. But I would say fairly neutral to us. I don't see there move to one day shipping has having much impact on us. We were very open about the fact that if you need it in one day or if you need it in two days, we're not the best place to come. We're getting that impulse purchase and someone who's kind of okay with the typical three to five day delivery times that we have. So we really haven't seen, but we've learned over the years is that. We need to get it to the customer in a reasonable period of time and we'll see a fall off if we have a pay a slow delivery times. We're getting it to her in that three to five days that seems to be sufficient and that doesn't appear to be changing a whole lot and haven't seen any sort of direct impact from the move to one day.

All right. Very helpful. Thank you.

So thanks everyone. I think that was the last question. We need to appreciate your interest in support in Qurate and we'll look forward to talking to you on the next call and seeing you at the Investor Day.

Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.