Ladies and gentlemen, thank you for standing by. Welcome to the Qurate Retail Inc. 2021 Q2 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, August 6. I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer. Please go ahead.

Thank you. Before we begin, we would 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 statements 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 in 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 CEO, Mike George; Qurate Retail Group CFO, Jeff Davis; Qurate Retail Executive Chairman, Greg Maffei. And we’d like to welcome Qurate Retail President and CEO elect, David Rawlinson. Now, I will hand the call over to Mike George.

Thank you, Courtnee and good morning everyone. Thank you for joining us today and for your interest in Qurate Retail. In the second quarter, we started to anniversary pandemic-related growth. Therefore, in our comments we will include select 2-year performance metrics to provide important context for our results. We delivered year-over-year revenue and OIBDA growth on a constant currency basis, up 1% and 2% respectively, on top of last year’s strong growth. Compared to 2019, revenue increased 11% and OIBDA increased 12% in constant currency. The quarter played out largely as we expected. At QxH, we saw a continued rebound of our best customers with the return to growth of apparel and accessories. While new and reactivated customer account declined, it remains significantly elevated compared to 2019. Similarly, home declined, given the steep comps in food, personal protection and cleaning products from the initial stages of the pandemic, but is up high-teens from 2019. QVC International maintained strong revenue and OIBDA growth, sustaining the momentum from last year. Zulily revenue declined as we comped the steepest part of the pandemic curve, but we delivered healthy revenue and OIBDA growth compared with 2019. And Cornerstone delivered outstanding performance with record Q2 revenue and OIBDA at all of its businesses. While these results were largely expected, we did not anticipate degree of product shortages we experienced with the level of inflationary pressures across the P&L, which other retailers are also facing. The fact that we delivered year-over-year growth and OIBDA margin expansion even with these challenges is a testament to the strength of our business model. The strong second quarter results further confirm our belief that we are a much better business now than when we entered at the pandemic with an expanded and loyal customer base, strength across multiple product categories, and more extensive distribution and reach of our digital and video content. We are well positioned for growth, poised to take advantage of the long-term trends towards online shopping, video streaming, social media and all things for the home. Before I discuss each of our businesses, I am delighted to welcome David Rawlinson as my successor. David joined us on August 1 as President and CEO-elect and will assume the role of CEO on October 1. David is the right leader to take this wonderful company forward and write our next chapter of growth. He brings an impressive track record of success, most recently with two store brands, Nielsen and Grainger. He is a transformational leader, with deep experience in global e-commerce and in digital and data-driven businesses. He has played a pivotal role in helping prominent companies like Grainger embrace new customer segments and emerging digital business models, while protecting historic strengths. And he inherits an outstanding management team with deep retail, digital and broadcast expertise, and I can’t wait to see what they will accomplish together as they lead Qurate in our next phase of digital growth and transformation.

Thank you, Mike. I could not be more excited to be joining Qurate Retail at the special moment in its history. Shopping has been forever changed by the pandemic and Qurate’s brands have the international scale, customer affinity and expertise in driving demand across multiple platforms to take advantage of this new world. I believe that providing a deep, personal and rich shopping experience is only gaining importance in a commoditizing and more digital world. We have the opportunity to take an energized team and building on our decades of expertise and investment, further accelerate our transition as a leading entertainer and retailer, one that Qurate’s truly unique products and creates engaging experiences for a growing audience that desires it. We are well-positioned to drive value for our customers, shareholders, vendor partners and team members. I am honored to be leading this talented Qurate team and I look forward to meeting many of you in the months to come. Finally, I do want to thank Mike for his many years of very capable leadership of this company. I am fortunate to inherit a strong foundation, and I look forward to working very closely with him for the next 2 months as we transition. Now, I will turn it back to you, Mike.

Thank you, David. We are absolutely thrilled to have you on the team. Turning now to QxH, revenue declined 1% year-over-year and grew 6% over 2019. OIBDA grew 1% from last year and declined 1% from 2019 and Jeff will provide more details on the specific drivers. Our results further reinforce our confidence in the long-term growth prospects at QxH. I will highlight five important takeaways from the quarter. First, customer purchase frequency was outstanding, with total unit volume up 4.5% and units per customer up 15%, offset by a 6% decline in average selling price. These results reflect high engagement from our best customers and double-digit growth in apparel and accessories offset by declines in higher price point in electronics, beauty and certain home products. Second, we held on to much of the gains in new customers from the peak of the pandemic. New customers declined versus 2020, but grew 17% from 2019. And we have reported in prior calls that the early indicators of these customers’ expected lifetime value were encouraging. Now, with the full year of experience behind us, we are thrilled to report that their 12-month retention rates are up slightly compared to the prior year. Third, sales of items featured on air were up significantly, indicating high engagement across the customer base with our full video experience. This is also reflected in sustained growth in traditional TV viewership, with total minutes viewed up 6% on top of good growth last year and that’s before factoring in the high viewership growth on digital video platforms, where we don’t currently have the same measurement tools. Fourth, our business is more balanced across categories with the home segments now representing a larger portion of the mix than they have for many years prior to the pandemic. At the…

Thank you, Mike, and good morning, everyone. Qurate Retail delivered revenue and OIBDA growth on top of compelling 2020 results. Let me start with QxH. Revenue declined 1% versus last year, reflecting a decline in consumer electronics, beauty and certain home subcategories compared to robust growth during initial stages of the pandemic. This was partially offset by the continued rebound in apparel and accessories, driven by our best customers and strong demand for home decor. As Mike said, our customers purchase more units and spend more per customer than in 2020. These gains were offset by lower ASP, reflecting the product mix shift. As largely expected, eCommerce revenue of $1.2 billion declined 2% and with an 80 basis point decrease in penetration. This erosion is primarily due to category and custom mix shifts. Total customers declined 9% in the quarter versus 2020 and with new customers down 32%, reactivated down 17% and existing down 2%. When compared to 2019, customer counts were up nicely across all cohorts with total customers up 4%, new customers up 17%, reactivated up 7% and existing up 1%. I’m pleased to report that QVC’s best customers to make 20 or more purchases in a year, performed well in the quarter. They increased their total spend 7% by purchasing 12% more units. As illustrated on Slide 7 of our earnings presentation, we experienced a swing in category mix into apparel and accessories from primarily electronics, beauty and home. Revenue in apparel and accessories grew 19% and 11%, respectively, which more than offset declines experienced in 2020. These gains were driven by our best customers top brands and were broad-based across apparel subcategories with continued strength in the loungewear and non-leather handbags. We also saw a nice rebound in luggage as customers transition to more travel. Beauty…

Thanks, Jeff. We are excited to announce that Qurate Retail’s Investor meeting will be held virtually on Friday, November 19. We will have a full morning of content from various members of the Qurate leadership team. Please save that date and look forward for additional details being provided soon. Before turning to Q&A, we need to recognize Mike George. This is his last earnings call as CEO. And I’d like to personally thank Mike who has been an exceptional partner since we both started our roles nearly 16 years ago. He has shepherded Qurate Retail through numerous evolutions and successfully transformed our company from a single business on linear TV into a portfolio of attractive multiplatform assets. Mike’s strong leadership leaves this business on a sound footing, and I will surely miss our working together. We look forward to welcoming David to the team as we drive Qurate Retail into its next chapter of digital innovation. Thank you, Mike. And thank you for the listening audience for your continued interest in Qurate Retail. I’d now like to open the call for questions. Operator?

Thank you. [Operator Instructions] So we will now take our first question from Edward Yruma at KeyBanc. Please go ahead.

Hey, good morning. Mike, congratulations on the retirement and thanks for all the help over the years. A two-parter for me. I guess, first, it seems like you have a couple of challenges as it relates to both advertising and viewership. I guess any thoughts on how you can try to stimulate more of that front end over the medium term, assuming that these may remain challenging for a period of time. And then David, we will wait to hear more commentary, I guess as you’ve had more time in your seat. But what was the one or two things that was most compelling for you as an external adviser or an external candidate looking inward on the long-term growth opportunity? Thank you.

Thanks, Ed. I appreciate your comments. As we look at advertising and viewership, first, it’s important to obviously differentiate across our different business units. So on the marketing side, clearly, Zulily has more significant challenges, both because it has a higher dependence on paid marketing to attract new customers and a higher mix of Facebook in its marketing channels. So there is some work to do to get through that. But I think the team is well on its way and there is substantial upside as we anniversary this sort of near-term blip in advertising costs and makes I think meaningful progress diversifying our marketing channels. So that’s on the Facebook side – on the Zulily side. When we look at the QxH business, I would say in the main, we’re actually quite encouraged on the viewership front. Viewership was up this quarter on top of being up last quarter. That’s just a traditional pay TV viewership. So despite cord cutting, we’re one of the few folks that is sustainably expanding our viewership. We’ve actually been doing that for many years on traditional pay services. And then the goal is to come up and over that, eliminate any pressures from cord cutting with all these digital media platforms we’re investing in. And that’s why we’re so excited about the Comcast news because you think about what the Comcast news represents. If you get a traditional pay TV service through Comcast, you can get our – all of our channels in the old-fashioned way, but you can also now access them through a great frictionless, rich content, streaming service that we think can stimulate incremental demand. But if you’re a cord cutter and you just use Comcast for your broadband access, you can also get the full power of the streaming…

Yes, I would love to. I will have a lot more to say about this to this community and all communities in the days to come. But I think the main things were that we are at a moment where the market is dynamic and exciting. I think everybody recognizes we are on the cusp of a lot of shifts. Some of those changes in the consumer behavior were pre-pandemic and accelerated. But some of those changes, I think, post-pandemic are going to be new. And you combine that with the core assets across Qurate, both in terms of customers and capabilities and investments that’s been made over time. And what I saw was the ability of the business to compete and win in the market over time. I just think with the core capabilities, core talent, core unique assets and where the market is going, the business is very well positioned to continue to pivot. But Mike, I think, really started to accelerate that pivot and really lean into a growing change, more digital, more streaming-based world.

Thank you.

Thank you. So, our next question comes from Jason Haas at Bank of America. Please go ahead.

Good morning. Thank you for taking my questions. Congratulations on the strong quarter, and I also wanted to offer my congratulations, both Mike and David. So Mike, maybe starting with you, it’s encouraging to see the strong retention rates and also seeing fashion rebound and more than offset any sort of moderation in home. But I am curious about what you are seeing in July and just what you expect as the country reopens further. Do you feel like there is further room for fashion to rebound? And if home continues to decline, just on the tough compares, do you think the potential rebound in cash is enough to offset that?

Thanks, Jason, for your question. We were really encouraged, as you said, by both the retention rates and the rebound of fashion in the quarter. I won’t make any specific comments about what we are seeing in July. We don’t comment on the in-period results. But I will try to frame how we are thinking about it, acknowledging that it’s a little early to know exactly, obviously, how the Delta variant will play out on consumer behavior over the next few months. What struck me is actually most encouraging about Q2 is that we were able to deliver that kind of strong 2-year growth while still in a situation where the number of categories that are really working well was still a little bit narrow and definitely pandemic influence, meaning great to see apparel and accessories rebound. But it was largely casual apparel, athletic footwear, casual footwear and we are still not seeing that rebound in tailored clothing, in leather handbags and dresses, shoes, those things for going out or going to the office. So to me, there is still a lot of room to claw back apparel and accessories business as consumers kind of widen their appetite for what they want to purchase in apparel and accessories. Whether that happens in the next few months or the next year, depending on how things evolve, let’s see. But there is still a lot of room to go in apparel and accessories. Add to that, that we were in limited stock by the end of the quarter. So, we are excited to get back in stock and by September, a few weeks later than we would like to be. But we think that’s meaningful for us. Then in home, again, what I was struck by in home is that the things…

Got it. That’s really helpful color. And then a question for Jeff, on the last call, you talked about QxH margins likely being flat for the remainder of the year. So, I am curious if that outlook still holds. I know you called out some more fulfillment cost pressures. So, just curious if that’s still the right framework to think about?

Yes, Jason, we still stand by our outlook that we expressed as you had mentioned at the end of Q1. And that outlook really was around being relatively flat for the last nine months of the year. And that’s really after also posting a 40 basis point improvement, as you just saw here in the Q2 OIBDA margin. We do recognize and acknowledge that we are experiencing some heightened inflationary pressures in freight and labor. But we are also taking certain steps to mitigate that, that Mike had mentioned early in the third quarter with respect to taking some price where we can, where appropriate.

Thanks. And if I could add one more last question for Greg. Just on capital allocation. So, it’s good to see the step-up in the repurchase authorization. Just curious how you are thinking about using that more aggressively in the remainder of the year? And at least by my math, given the free cash flow conversion, what I am expecting for OIBDA, it seems like you will still end the year with a healthy cash balance. So, curious if it’s possible to do – or what you would do with that extra cash if it’s possible to do another special dividend or could – that could lead to more repurchases beyond the authorization?

Great. Thanks for the question. As you know, we are going to have substantial free cash flow. We had an exceptional 2020, as Jeff noted, but we are going to have a strong 2021 despite some investments in the beginning of the year. We have had multiple tools for return of capital to shareholders, and we have indicated that we will pass the majority of our free cash flow out to shareholders during the year. And as you noted, some of those tools have included buyback, the preferred stock issuance, a couple of special cash dividends and now we have done some derivatives as well. I think we are going to look at all of those tools for the balance of the year recognizing the substantial free cash flow and strong capital position we have. And I expect you will hear more from us on all the various fronts as the rest of the year continues.

Got it. Thank you very much for taking those questions.

Thank you.

Thank you. Our next question comes from Oliver Wintermantel at Evercore ISI. Please go ahead.

Thanks. Good morning. And also congratulations, Mike, and welcome, David. Looking forward to working with you. I have a question regarding the behavior of your best customers. Maybe – can you maybe give us a little bit more detail about how these best customers have behaved maybe before the pandemic, during the pandemic and now in the last few months? Is there a big change of the behavior of those best customers and purchase frequency? How much did you spend? That kind of thing.

Yes, Oliver, thanks for the question. I will tell you what’s changed and what hasn’t changed. Let me start with what hasn’t changed. What hasn’t changed is that we retained best customers at a very high 99% plus rate. That retention hasn’t varied pre, during or now in terms of pandemic trends. And we continue to add a consistent flow of new best customers. So, the percentage of new customers who graduate the best customer status within a month, within a year, within 2 years is continuing to be quite solid. And given the number of new customers we added over the last year, therefore, the number of new best customers we added was quite high. So, we like the stability of the best customers. We like the fact that we are adding new best customers at very good rates. What does swing is how much she spends in the quarter. And that’s heavily influenced by these underlying product category trends, because the way best customers get to that high level of purchase frequency and remember the best customer on average buy 70 items a year. The way she gets there is by buying a lot of apparel and accessories and then to a lesser extent, a fair amount of beauty. And so what we saw in the first part of the pandemic was we held on to all the best customers, but our spend declined because she simply wasn’t making – she was buying – her home sales went way up, but they weren’t enough to offset these big declines in apparel accessories. This quarter, we have seen that extreme flip where best customer sales are up 7% and best customer units purchased were up 12%, which is probably one of the highest growth we have ever had in unit growth and best customers’ sales in a quarter. And so that really reflects that she is continuing to lean into home and all these home nesting trends, but now she is back in the market for apparel and accessories and that really helped to fuel the quarter. And again, that’s despite the fact that beauty is still somewhat challenged, but the apparel and accessories are still somewhat narrow as I mentioned to Jason. So, love the growth and best customers love the retention of it and love to see how they are now coming back strongly across multiple categories, really fueled by apparel and accessories in demonstrating a purchase frequency in the quarter that I have to go back and double check, but I suspect if it’s not a record, it’s probably pretty close to a record.

Thanks. Very helpful. And the next question was on inventories. I saw they were up actually up more than sales in the quarter, but you were speaking of challenges and out of stocks. So, is that just a function of inflation that was up so much? And how do you expect that to play out for the rest of the year?

Jeff, do you want to take that one?

Absolutely. Oliver, it’s a combination of things. One, we are in preparation for Q3 and for holiday. Starting to take some receipts earlier than what we had in the past, once again, to try and get ahead of some of the challenges that we have been experiencing. And the other portion of this, quite honestly, is as a result of some of these supply chain delays, and we have more product in transit than we normally would have at this time of the year. So, the combination of higher end transit levels as well as getting out ahead where we can in certain areas to restock the coverage for us as we move forward.

Got it. Thanks very much and good luck.

Thank you. We will now take our last question from William Brewster at Sullimar Capital Group. Please go ahead.

Hi guys. How is it going? Mike, I hope you enjoy retirement, and thanks for all you have done over the past 24 months really and especially over the last 18 months. Some that’s just got me scratching my head a little bit is she got into reopening, right, got dressed up, went out to see her friends again. What’s going on like with the mix of why is she turning to us for athleisure and maybe not some of the higher ticket items and beauty has me scratching my head, and I don’t mean to keep asking the question, but if you can maybe give a little bit of color on that, that would be great.

Sure. Thanks, and appreciate your comments. I would say, again, as I look across the range of what she is buying, I feel good about the pace of rebound into apparel and accessories, I actually felt good about what she is buying in home. The things that we are deflating to the price – average price point and where we had some more downside pressure was, again, part of it is comping cleaning and PPE. Those are obviously non-strategic businesses, so that’s in probably in all. The other one was consumer electronics was obviously weight down in the quarter, combination of supply shortages, lack of really good compelling products and offers. That’s not as motivating to the best customers. So, it doesn’t have the big impact on her spend. But you might miss out on that incremental electronics purchase from her, but not the most strategic category, certainly not a high margin category. So, if you are going to have a wobble somewhere, it’s not a bad place to have it. The one that’s most important is the one you mentioned, which is beauty. Beauty is a highly strategic category for us. We did see softness across all customer classes in beauty. I would say that our own reflection is it was largely – not largely, but a part of it was self-inflicted, deliberately so. We did make a choice to be ready for that uptick in apparel and accessories by just basically moving our finite airtime and TSV slots from beauty to apparel and accessories. So, to dimensionalize that, the amount of airtime we devoted to beauty in the quarter was down 15%. The amount of TSV slots we devoted to beauty was down 20%. So, that’s really meaningful. It’s almost impossible to grow in that context. And we…

So if I can just reiterate real quick, we have got purchasing frequency is great, retention of customers was very good and the beauty decision was almost an internal merchandising decision, but I see a mix shift into reopening, which sort of validates the entire business thesis. So, maybe more airtime to beauty will be a good thing, and we should see an uptick. Is that like a fair assessment of what’s going on here?

I think it’s a very fair assessment.

Okay. Thanks Mike. Take care.

Thank you. I appreciate it. And I believe that was our last question. So again, thanks all of you for your time. Definitely check out the Investor Day in November. And thanks to all of you for your partnership with me over the years. It’s been a wonderful journey for the last 16 years, and I have greatly valued your partnership and friendship. So thanks, everyone.

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