Ladies and gentlemen, thank you for standing by, and welcome to the Qurate Retail 2021 Quarter One Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, May 7. I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer. Please go ahead, ma'am.

Thank you. 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, and 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 well 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 free cash flow and constant currency. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary note and schedules 1 through 3, can be found in the earnings press release issued today on our earnings presentation, which are available on our website. Today, speaking on the earnings call, we have Qurate Retail President and CEO, Mike George; Qurate Retail Group CFO, Jeff Davis; and available for Q&A, Qurate Retail Executive Chairman, Greg Maffei. Please note, we published slides to accompany the earnings release. And I'll also point you to our annual report and a letter to shareholders, which provides an overview of the ongoing evolution of the business. It's a great read. Both of these documents are available on our website. Now I'll hand the call over to Mike.

Thank you, Courtney, and good morning, everyone. Thank you for joining us today and for your interest in Qurate Retail. I'm delighted to report outstanding results for the first quarter. Our team delivered strong top and bottom line growth across every business unit and every market, driving 13% revenue growth and 32% OIBDA growth in constant currency. This is our best quarterly performance since the formation of Qurate Retail in 2018. We built sales momentum through the quarter, driven by the reemergence of the fashion business and improving customer sentiment, aided in part by stimulus actions. We drove broad-based customer gains across all business units. We welcomed 1.6 million new customers in the quarter, up 35% from the prior year, and served 10.8 million total customers, up 9%. We also made important progress on key corporate responsibility initiatives, and this week published our inaugural corporate responsibility report, guided by the United Nations sustainability development goals. It details our commitments and our ambitions to protect the environment, Qurate products responsibly and champion empowerment and belonging, and also includes disclosure aligned with the SASB framework, so please check out the report at the Qurate Retail Group website. As part of this work, we're expanding our highly successful small business spotlight in 2021 to support 100 entrepreneurs of diverse backgrounds, providing them with on-air and digital exposure and other pro bono services centered around heritage months, including national military appreciation month, pride month and national Hispanic month. Now through the pandemic, our team members' safety and well-being remains our paramount focus. And among other actions, we're providing all team members up to eight hours of pay time off to facilitate vaccine adoption. We anticipate reopening our offices this September, employing a hybrid working model for most office-based team members, blending remote and on-site…

Thank you, Mike, and good morning, everyone. We delivered strong revenue and OIBDA growth at Qurate Retail for the quarter. Revenue grew 13% and OIBDA grew 32% on a constant currency basis. I'll remind you that Q1 2021 had one less day due to leap year in 2020. We estimate the one less day understated our year-over-year revenue growth by approximately one percentage point. Let's start with QxH. Revenue grew 8% through continued momentum in the home category, growth of our customer base, and reduced customer returns largely driven by category mix. E-commerce revenue increased 12% and penetration improved 200 basis points. Total customers grew 8%, with new growing 20%, reactivated up 10% and existing up 5%. As illustrated on Slide 7 of our earnings presentation, we continue to experience a swing in category mix into home from primarily apparel. However, our first quarter mix shift moderated to approximately 200 basis points from approximately 500 basis points in previous quarters. Revenue in home increased 14%, with particular strength in gardening, spring decor, gourmet foods, fitness equipment, health supplements, face coverings and air purification. Consumer electronics returned to growth, up 16% on strength in laptops, portable power, audio devices and smart home. And most importantly, the fashion categories rebounded as demand for beauty, apparel and jewelry recovered late in the quarter. Accessories grew substantially, up 12% on loungewear, non-leather handbags, sunglasses and active footwear. Beauty declined slightly, reflecting gains in bath and beauty -- bath and body, beauty devices and skin care, offset by continued lower demand for color cosmetics. Apparel returned to strong growth in late February and March, with high demand for denim, swimwear and prints. But for the quarter, apparel was down 3%, which is a significant trend improvement from previous quarters. Adjusted OIBDA grew 19% and adjusted…

[Operator Instructions] We will now move to our first question over the phone, which comes from Jason Haas from Bank of America. Please go ahead. Your line is now open.

Congrats on the strong quarter. So Mike, you talked about being pleased with what you're seeing with regards to new customer retention rates, I'm curious if you're seeing those retained customers begin to ramp up their spend, especially in your fashion categories, which I know are key for your best customers. And then does that give you confidence in your ability to lap the comparison they get tougher in the remainder of the year?

Thanks, Jason. Appreciate your comments and question. We are seeing the new customers ramp their spending in ways that are pretty consistent with what we've seen in past years. And as you know, given the rebound in the fashion business, it gives sort of that much more opportunity for these new customers to engage with us in a broad way. And of course, you see a range of behavior, but we're definitely seeing a comparable number of new customers move up the kind of spend ladder, even getting all the way to the best customer spend within their first year. So very pleased with both the retention and kind of the ramp of spend of those customers. We're not going to offer any forward-looking guidance on the rest of the year, but I would reiterate what I said during my comments, which is, we're very encouraged by consumer confidence. We're very encouraged by what's been a stronger-than-anticipated rebound in fashion. And so even though we're lapping these tough home compares, we like what we're seeing. We like that our consumer -- our customer base has more resources at our disposal, savings, good stock market, good housing market. And kind of more things to buy as she starts to get back out into the world, engages with fashion in a broader way. So we like how we're positioned and confident about how things look for the future.

That's great color. So as a follow-up, Jeff, I believe you mentioned, if I caught it right, that you're expecting OIBDA margins for QxH to be flat in the remainder of the year. Is that the case each quarter? I think the compares get a little bit harder in the second half. So I'm just curious on how we should think about the cadence there?

Yes. So as we look at -- my comments were really for the totality, the quantum of the rest of the year. From quarter-to-quarter, you'll have some fluctuation. But as I mentioned, just a number of different programs with respect to how category mix rebounds as we see more of a -- some of the investments that we've made in network optimization turning more positive for us in the back half to offset some of the other pressures that we're having with respect to sort of near-term fulfillment pressures around wage rates and freight rates.

That's helpful. And maybe last one if I could squeeze one more in. Just on capital allocation. It looks like you repurchased a similar, I guess, slightly less than you did in the fourth quarter. So just curious how you're thinking about repurchases going forward? And if there's a potential for any sort of special dividend or any other means of capital return?

Greg, do you want to take that?

I was going to take it, mic, but you can take a first shot, and I'll happy chip in.

No, sorry, I would turn it over to you. So go ahead. Great. Look, we -- over the last year, as you know, we've had one special dividend of a preferred stock and two special cash dividends and we've increased the buyback from what was a low rate to a higher rate. The stock did move up dramatically during the period and like most companies, we have a grid. And sometimes when the stock moves during the period, that means you buy less. We will continue to look at the high free cash flow generation we expect this year and how best to apply it. I think you should expect that we will be looking for a large payout as a percentage of that high free cash flow and how it -- what form it takes, whether it's another cash, special cash dividend, or whether it's increased buyback, we'll continue to evaluate.

We'll now move to our next question, which will come from Oliver Wintermantel from Evercore. Please go ahead. Your line is now open.

Yes, Mike, when I heard your comments, it sounds like you don't expect that your strong performance was really just driven by the pandemic and the nesting trends. So for the rest of the year then, should we look at two-year trends, two-year stacks to be relatively flat in sales? Or do you expect that to decelerate?

Good morning, Oli. And again, we're going to shy away from any concrete guidance for the rest of the year as is our normal practice. So again, I can't add much more color other than to say, encouraged by the performance of the business, encouraged by the strong level of consumer confidence, encouraged by this reemergence of fashion and also just encouraged by this much larger installed customer base that we have a year into the pandemic. And that -- as I mentioned in my comments, that behavior we're seeing from her to come back, those that we acquired last year are coming back this year. They're spending at historically traditional rates. So, we do think -- so we do think we have a lot looking in our favor. We certainly recognize the steep comps, especially in the home categories, and we won't put an aggregate number on our expectations. But net-net, we feel good about the consumer and we feel good about the installed customer base. We feel good about the strategic programs we've put in place to find more and more ways to reach consumers and surround her with high-quality content. We like the diversity of our merchandising mix. And we're charging forward.

Got it. And then, Mike, one more. You mentioned on the -- in your prepared remarks that you're seeing some inflationary pressure and some supply issues. And I saw inventory was down this quarter. Maybe if you could give us a little bit more details, what you're seeing out there in inflation and supply issues and how you think you're going to navigate this year? For example, in inflation, are you trying to put prices through to the end customers?

Yes. We're definitely seeing as all retailers are very dimensions of, I would say, cost inflation by three big categories, and one that we've talked a lot about, and Jeff mentioned, is just higher freight rates as the demand for both inbound freight and outbound freight exceeds the supply and prices tend to rise when that happens. So we're paying more for freight. We're -- you're certainly seeing wage pressure, and we're trying to make -- we're committed to being market competitive with our team members on wage rates and our fulfillment centers. And so there's some pressure there. And then there's just cost pressure from product shortage and how that drives up cost. So yes, we're seeing inflation. But as you could see in our results, we've been able to overcome those inflationary pressures. And we think the whole industry is acting in a highly disciplined way, trying to manage through these various challenges, trying to get overly promotional. And so, in some cases, we have had to pass pricing through, and our Cornerstone business as an example, where are the freight increases are the most impactful given just the bulky size of those products. You definitely have to pass some on to the customer. We're trying to do that in a judicious way. We're trying to stay disciplined on promotions. And so we think we're able to kind of outrun those inflationary pressures with the assets that Jeff talked about, and that's why we're projecting relatively stable OIBDA rates. But within that, it's some built-in inflation, some recovery of that there been some other good programs to to offset so that we can stay neutral in the aggregate.

Our next question now comes from Ed Yruma from KeyBanc Capital Markets. Please go ahead. Your line is now open.

I guess, first, a very helpful slide deck. There's a -- I think I noted there was a 200 basis point difference in apparel penetration versus first quarter of '20. But maybe just provide some more historical context. If we look at where apparel is as a percent of mix drink kind of peak a cycle, where is it versus where you're at today? And maybe just in general terms, how much incremental margin is apparel versus company average?

So apparel is definitely still down in Q1 from peak for sure. And it's probably -- if you look at apparel, it had been relatively flattish to slightly down in a couple of years preceding the pandemic. So we're probably a few hundred basis points off of peak. And we do believe still room to recapture a lot of share and mix in apparel. In terms of the margin rate, it certainly comes with a higher-margin rate, and we think that will be one of the positives that Jeff mentioned to kind of rest of year OIBDA rate. But I would note that it also comes with a higher return rate. So, to some degree, product margin rate and return rate tend to offset each other to some degree. So you'll get some mix related benefit in product margins from the rebound of apparel, which will be meaningful, but it will be -- a portion of that will be offset by what you would then expect to see as a higher level of returns that just comes with the category. And that's part of why we have a higher product margin rate in apparel. So, a long way of saying 300 to 400 basis points at least of probably mix below peak and room to grow in some modest mix benefit that comes with that.

Got it. And maybe a bigger picture question. Certainly, you likely benefited or you have drink COVID with your new customers, right? She was at home, maybe turned on queue for the first time in some period of time. As you start to venture out and engage her in more activity out of the home, how do you -- what initiatives you have in a way to make sure that you continue to drive continued viewership of that consumer? Or maybe if she's not turning into queue, maybe engage with you digitally?

Yes. Thanks. First, it's really a multidimensional strategy to kind of surround this new consumer, new customer with compelling content wherever she is traveling. So that consumer is we're just simply at a different threshold of engagement in online shopping in social streaming and video streaming as it's not going away, right? So when that new customer is visiting YouTube, not associated with our business, but just engaging in YouTube, if we have something that's going to be of interest to whatever she's engaging with on YouTube, we're going to present that to her in a really compelling platform, or if she's a much younger consumer. She's kind of -- we discover us on TikTok, with fun 15- to 30-second videos created by TikTok creator community. We're going to go back to her with great -- with certain demographic may be great actual physical catalogs of gourmet food offerings. But we just -- as you know, we believe in [indiscernible] discovery fueled by our push. So we want to push our platform in front of her on whatever digital medium she's engaged in, in a way that's relevant to how Verse's engaging on that digital medium and having really nice success getting her then to kind of come back with the additional purchases. And as you know, it only takes a few purchases to lock someone into being a customer for life. So if we didn't get that second and third purchase, we know we're in a great shape for the long term.

We'll now move to our next question over the phone, which comes from Oliver Chen from Cowen. Please go ahead. Your line is now open.

Thank you very much, Mike and Jeff. Mike, regarding live streaming and the thoughts around fragmentation, what do you see happening over time? And how will curate be prepared to be competitive there? I would also love your thoughts on content and how content has evolved and which changes will be more sticky in terms of what the customer likes in terms of the creative and content and engagement factors as you think about innovation there as well?

Yes. Great. A couple of thoughts. At the highest level, I think we've got to be in constant test learn, innovate mode because this ecosystem is going to continue to evolve in ways that are hard to predict. I don't know that we ever see kind of really substantial consolidation like there's in China where you can have one or two big platforms that just dominate live stream shopping. I just think you're seeing a consumer that is engaging across every social platform, depending on the consumer, and this almost infinite variety of ways consumers are accessing live TV, whether it's a digital skinny bundle or Roku device or directly through their Samsung Smart TV. I just think you see this explosion of ways in which consumers access content in both sort of lean back linear mode and in a lean in interactive and navigation mode. And so we're trying to win on both sides. Well, if she's in a lean back mode that consume TV content or live stem content, we want to be there, reverses going to lean in mode, whether that's engagement on a social platform. We're navigating our streaming app, which is a highly interactive app. At least we want to be there and try to understand what behaviors she wants to demonstrate and what she's most interested in. And I think we'll just continue to learn as we go. On the second part of your question about content, again, a great time of discovery, and I think it's not widely understood just how big our competitive advantage is in content because the amount of content we produce, our experience base and content creation, resources at our disposal globally are just overwhelming. And the thing we've learned is that these live streaming platforms are content beasts and to be able to have great high-quality content that's fresh every day, so if she wants to come back every day, is this huge barrier that others are finding. And so we're just that others are finding. And so we're just going to continue to test and learn. And what's striking to us is that the diversity of content that works. So everything from a 30-minute original series with Curtis Stone or he travels around the world and cooks great dishes, and we discover culinary innovation around the world, that's a fun 30-minute show. No selling involved, but brings people into out streaming app and gets them engaged in it. To on the other end of the spectrum, how you engage someone in a 6- or a 15-second interval on TikTok. It's really kind of all of the above. And I think too early to say what will be most common other than -- I think there'll be a variety. I think it will be extensive. And I think we've got the scale and resources to go after it.

Thanks Mike. And on sustainability and ESG. From the lens of the consumer, what do you think will be increasingly important and from the lens of stakeholders of Qurate? What metrics are you focused on in terms of visibility and tracking?

Yes. Our view is, we've got to take out really comprehensive approach because different kind of -- to your question different stakeholders have different areas of focus. And what's most important is that we do right for ourselves that we, as a Qurate team, are proud of the way in which we're engaging in the world around us. So what are the things that are important? I think they're really embedded, I would encourage you to read our corporate social responsibility report and also the commitments we've published because they kind of reflect what we think is most important. But in the protecting the planet category, we're focused on obvious issues around emissions, recyclability, how do we really drive our customers to recycle, so just sort of reducing waste and emissions throughout the supply system, getting rid a single-use plastics in our facilities. And so a series of comments along those lines and then around product sourcing, I think that's a critically important area so really trying to make sure that we're doing all we can around where we source product, who we source from, use of different fibers and materials to reflect what the society cares about today. And then finally, on our pillar around empowerment, we want to create thriving communities, and thriving communities as our diverse communities, so we've set goals for ourselves for a diverse representation in our leadership ranks. We've set goals for ourselves about how we create a thriving community of entrepreneurs and support entrepreneurial development, which we think our consumers have a lot of passion for seeing how we're embracing the small business community. So a long answer, but sort of all of the above, we think are important.

Okay. That's really helpful. Lastly, Jeff, on the increase in marketing investments, how are you pursuing that composition as you think about engagement and also balancing the media mix and thinking about new versus existing engagement?

Yes. Oliver, it's a great question because as our marketing teams are looking at sort of the duality of continue to attract and expand the spend with new customers. And how do you continue to reach them across a number of different platforms and where we believe that we will get the appropriate returns. So we're definitely leaning in there. But yet also, as Mike had mentioned, with the opportunity to reengage and expand and revitalize our experience with our avids and elites, who have a much larger purchasing velocity and is something that we believe is the opportunity to continue through personalization and through the opportunity to have some push notifications, if you will, recognizing her and the other platforms in which she is engaged, is some of the areas that we're looking at really leaning into. And quite honestly, we're getting some great results from it.

We'll now move on to our next question over the phone, which comes from Michael [Copolla] from JP Morgan. Please go ahead. Your line is now open.

The slides you guys provided on, I believe is Page 6, picture of the category performance for QxH, excuse me, was very helpful. I was curious if you guys had talked about how what categories we're shifting as the United States reopens? And even if you could provide color sequentially throughout Q1, what categories kind of came back month-to-month as well?

Yes. Sure. I'll take that. So the home category, as you can see from the numbers, kind of maintained strength through the quarter as we started to lap much steeper home growth in March, on a relative basis, it started to soften, as you would expect, but continued broad-based strength in home, that will now start to lap as we get into a much deeper comparison in home. Electronics has been a more up and down category through the pandemic, and we suspect that's what it will look like through the rest of the year. But as we point towards Q4 in the critical holiday season, given that we suffered from substantial consumer electronic shortages last Q4, we actually think there's room there that could be very compelling to get that business back to healthy growth. So it's an area that we actually have an easier compare just because of the supply stages we shared with you on our last call. Accessories have been pretty strong for a few quarters, and we see that business continuing to be strong. And we think it will get healthier as it moves away from a few categories like loungewear, non-leather handbags and active footwear into a broader range of categories as the consumer starts to go out more, maybe want a leather handbag, starts to want a new footwear. Apparel is the big story. Apparel has been substantially negative. It returned to strong growth in March. We were pleased with the strength of the rebound across multiple categories in apparel, and we look to apparel to be a big grower through the rest of the year. Beauty is growing across most categories. As Jeff shared, the one category that isn't growing is color cosmetics, which I don't think will grow until we get past wearing masks. So that's a wildcard. I think there's real upside for us in beauty. We just can't quite predict exactly when that color cosmetics business will rebound. But it's falling off so substantially over the last year, that I think will hit a point of pent-up demand in color cosmetics, and we're confident that the other aspects of beauty will stay strong. And then finally, we don't talk about it very much, but jewelry which has been a difficult business for us. We've purposefully downsized it over the last few years. It was basically flat in the first quarter of this year, which is substantially better than historic trend. We think we found a good formula that's working for us. And so we think we can get that business stabilized and even potentially growing as we move through the year, so kind of excited about the range of categories that are performing and the optionality that gives us as we go forward.

Great. That's very helpful. I appreciate it. And just the last one for me. I know you guys mentioned in the press release that you sold, I believe it was the Westchester corporate campus as well as the distribution facility for $40 million. Should we be thinking of those as onetime in nature? Or are there any plans for further asset sales? And that's all for me.

Jeff, do you want to take that?

Yes. So just to be clear, we actually had two separate corporate campus, as if you were, in Westchester. That was the second location that we actually consolidated. As we continue to look at our sort of hybrid ways of working going forward, understanding what our customer -- our team member needs are to be either on-site or remote, we believe that there will be continued opportunity for us to take a look at our office space to the extent that we will be able to reduce that office space, we will look to do so. We do have some other facilities in which, from a customer service perspective, we actually closed the last year and those customer service individuals are working from home permanently. And we are working to monetize those in the appropriate time also.

And our last question now comes from William Brewster from Sullimar Capital Group. Please go ahead. Your line is now open.

Mike, nice to see the business continuing to execute and with your announced departure coming up in the not-too-distant future, it's nice to see everything coming together that I know that you've worked really hard to make sure is working as a well oiled machine. I was curious on that note. What -- looking back in the past, the HSN integration, I think, caused some issues within the organization, I was hoping that maybe you could talk about what maybe we should expect from a succession planning? And if you're willing to talk a little bit about Leslie's role in the organization and just kind of how you all are thinking about making sure that there's no hiccups as you -- as you get ready to depart, that would be great?

Thanks so much for the comments and questions. We do feel really good about where the business is performing now. And it's not due to me. It's really due to a terrific leadership team and how to engage team members. And just I think years of hard labor, including, as you noted, a challenging integration just because these integrations usually are challenging. And we made a number of changes in HSN business and brought teams together in different ways. It always takes longer to get through those things than probably re-estimating. So maybe we were a little overly optimistic at the speed with which we could get through those complicated changes. But we now look at an organization that is fairly stable in terms of true with the big parts of integration, just a terrific senior leadership team with a number of very strong recent additions, including Leslie. So we really like the stability of a senior leader, team, deep level of experience, along with some talented new folks and we have a really clear strategic focus, which is why we keep coming back every call, reiterating what those priorities are. We know where we're headed, a lot to do for sure, but feel really good about where we're headed. So I think that enables us to get through the succession process very well, which is why I picked this timing. I didn't want to depart before I thought we were in a position of stability, momentum and a strong leader team. And you mentioned Leslie. She actually plays a critical role because she overseas -- and she's been effectively a newly created role when she joined us oversee all of QVC and HSN in the U.S., which was definitely sort of a gap in our organization. So we've got a very talented leader team has QVC and HSN, and she has been able to bring that team together and really help us lean into these strategic priorities that I get to talk about them, but it's really Leslie and her team that have driven these strategic initiatives that are given us the kinds of results we're seeing. So net-net, we feel good that we'll have a good and effective transition, and we'll be able to maintain the momentum and the new leadership team will undoubtedly take the Company much farther than I have, and that's something that I'm excited about and I know that was our last question, and we were a little bit long, so we'll leave it there. Thank all of you for your time and interest. Stay well and look forward to talking to you on the next call. Thanks, everyone.

Ladies and gentlemen, this does conclude today's call. Thank you very much for your participation. You may now disconnect.