Ladies and gentlemen, welcome to the Qurate Retail Inc. 2024 Q2 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 will be recorded August 08. I would now like to turn the call over to Claire Adams, Senior Manager, 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. Please note that we have published slides to accompany the earnings release. 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 one through three, can be found in the earnings press release issued today or our earnings presentation, which are available on our website. Today, speaking on the earnings call, we have Qurate Retail President and CEO, David Rawlinson; Qurate Retail Group, CFO, Bill Wafford; and Qurate Retail, Executive Chairman, Greg Maffei. Now I'll hand the call over to David Rawlinson.

Thank you Claire, and good morning to everyone. Thank you for joining us today and for your interest in Qurate Retail. We delivered a solid quarter of earnings while revenue was in line with overall discretionary retail and a challenge macro backdrop, we expanded gross margin and grew adjusted OIBDA through our continuing focus on cost and efficiency. Total company revenue declined, which reflected lower volume, particularly at QxH and Cornerstone brands. QxH revenue was pressured by macro factors, including inflation, as consumers continue to spend mostly on necessities and less on discretionary purchases. The housing market has continued to pressure the Cornerstone business as existing home sales and housing starts are historically low and mortgage rates remain at peak levels. Despite these macro and top line pressures, we are pleased to report gross margin expansion for the fifth consecutive quarter, with margin expansion at all of our business units. These gains were due to continued product margin and fulfillment improvement from our project Athens initiatives. In addition to gross margin gains, we remain disciplined in cost management and lowered total company SG&A expenses, resulting in total company adjusted OIBDA growth and adjusted OIBDA margin expansion for the fourth consecutive quarter. We improved profitability in our core video commerce businesses with QxH adjusted OIBDA of 5% and QVC International adjusted OIBDA up 8% in constant currency. Total company profitability was pressured by a decline in Cornerstone from continued housing market challenges as well as some incremental marketing expense. Looking at the QxH business in more detail. This quarter, we invested in the Age of Possibility campaign we launched in April, where we gathered 50 powerful, influential women, including celebrities, businesswomen and activists to be QVC brand ambassadors. Since launch, we have experienced strong initial reaction to this campaign with 38…

Thank you David and good morning everyone. Unless otherwise noted, my comments compare financial performance for the three months ended June 30, 2024 to the same period in 2023. Starting with QxH, revenue declined 4% due to lower unit volume and shipping and handling revenue partially offset by higher average selling price. From a category perspective, QxH experienced growth in jewelry, which was offset by declines mainly in beauty, apparel and accessories. Home revenue decreased 1% due to soft demand for gardening and food. Apparel declined 4% due to soft demand for clearance and spring apparel, partially offset by gains in certain brands related to QVC's age of possibility, as well as Diane Gilman's 30th anniversary celebration at HSN. Beauty declined 9%, reflecting lower demand for Bath & Body, accessories declined 5% due to lower demand for loungewear and handbags. Electronics declined 11% due to softness in computers and smart home. Jewelry grew 12%, reflecting successful firelight, lab grown diamonds and a today's special value for ultrafine silver. Adjusted OIBDA margin increased 110 basis points, driven by continued gross margin gains. Gross margin expanded 160 basis points, driven by favorable product margins and fulfillment expense. Product margins increased 105 basis points due to higher initial margins from project Athens initiatives partially offset by lower shipping and handling revenue. Fulfillment expenses improved 60 basis points due to efficiencies from Athens and average selling price leverage. SG&A was unfavorable, approximately 55 basis points, of which 105 were from higher marketing expenses partially offset by lower administrative costs. Marketing expenses increased due to the launch of QVC's Age of Possibility Campaign in April and associated brand marketing. Administrative expenses declined as we comped Project Athens related costs in the prior year period. We continue to be disciplined in our cost management to sustain…

Thanks Bill. As you just heard, it was another solid quarter in a difficult macro environment. Great to see continued gross margin expansion and Adjusted OIBDA growth. The Qurate team is focused on execution and making progress on new and creative initiatives like streaming and the Age of Possibility. We're also paying close attention to the balance sheet and you heard about reducing the revolver balance by 70 million Adjusted OIBDA, improvement in net debt paydown, improving leverage, and we will continue to assess incremental opportunities to improve the balance sheet. Our Annual Investor Day will be Thursday, November 14 in New York. Please save the date. Additional details will be provided soon and we hope to see many of you there. And with that operator, we'll open the line for questions.

Thank you. [Operator Instructions] The first question comes from Karru Martinson with Jefferies Company. Please go ahead.

Good morning. Trying to get a little bit of an insight onto the consumer. I mean, certainly understanding that they're pulling back on discretionary. But then I look at your breakdown where jewelry sales were up, you know, 12%. What are you seeing kind of on that trend for consumer spend? Is it getting worse? And what's the health of the consumer that you guys see out there?

Yes, it's a good question. I'd say it's a hard read. I'd make a couple of observations. You have as much access to the macro data as I do, but obviously we're paying attention to variable interest rate environments and the effect that has on spending, unemployment rate ticking up, continued pressure on, continued pressure on housing. Obviously a lot of things going on in the external environment, elections around the world, Olympics, other things that could affect consumer sentiment. I would say the biggest things we're seeing from our consumer are continued being very choiceful. That's not quite the same as the pocketbook being closed, but it does mean that you have to really excite. When a customer is excited there's not necessarily massive price sensitivity. We're continuing to be able to sell at volume, high priced electric bikes at times, high priced jewelry at times, and so, but on the margin, the willingness to make purchases where she's not extremely excited by the value, I would say is softer than it has been. I would say anything that feels more like a necessity continues to have reasonable demand. We also see a little bit of trading down and a little bit of value seeking. Not extraordinary. We haven't seen, for example, a big fleet of clearance, but we are seeing maybe a touch more price sensitivity at things around our average sell price. So I don't see the, so far, the bottom falling out of the consumer. I do see a consumer that looks to be a bit under stress and who's being choosy when they're approaching their purchases. And I would say, I think that read across is consistent for us. And what I'm largely seeing across discretionary retail.

And then when we look at improving margins through the second half of the year in that environment, is that going to be driven by Project Athens savings, or are there other additional programs underfoot?

Yes, it's mostly Project Athens. But keep in mind, Project Athens operates across a wide variety of variables. So Project Athens has hundreds of work streams, some of which are going to things like how we source our products and being able to source more efficiency and take some cost out of the sourcing. Some of Project Athens is going at fulfillment expenses, in fulfillment rates. Some of Project Athens is going after vendor negotiations where we're not participating in the making of the product, but we're just buying it from vendors. Some of it's going after making sure we're pricing it correctly and maximizing on a willing to spend basis from our customers. So it's a combined effort across things that are having the positive effect on margin, and we still think we have some room to go on those initiatives.

Okay. And just lastly, my standard question, every time when you look at your capital structure, how are you thinking about that going forward?

This is Ben Oren.

Go ahead, Ben, go ahead.

I think our primary focus is on extending run rate. We have debt coming due in 2025 that will be managed by either the revolver or free cash flow. And then going forward, debt that's due in 26, 27 and 28. As the business continues to deliver metric improvement and the markets continue to be or improve for us, we'll look for a transaction sometime in 2025 or at the latest, early 2026 to address the revolver, and we're going to use free cash flow in the interim to continue to reduce debt.

Thank you very much. Appreciate it.

Thank you. The next question is from Carla Casella with JPMorgan. Please go ahead.

Hi. Thank you for taking the question. I'm wondering if you could give us any color in terms of just sequential performance through the quarter or any kind of an exit rate. What you're seeing going into 3Q if you're seeing any change in key trends.

Yes, I wouldn't point out big changes in key trends other than to say, our viewership participates in the larger, what you might call a viewership economy. So when you're going through something like the Election, big events like the attempted assassination, Vice Presidential selections, the Olympics, some of the international markets, political events going on in those markets, those can have relatively temporary effects on viewership. So we're managing through those events. And then I think the general macro consumer is behaving about as you would expect if you read across all of the macro consumer data that you see. I wouldn't point out any trends outside of those going through the quarter or to start this quarter.

Okay. And then in the past, you have commented about the average spend per customer on kind of like an existing customer versus a best. Any changes there? I mean, we have existing at about 1600 and the best at like 3900. Any changes in that or any changes in your best customer numbers as part of your kind of core customer?

Yes. So for the quarter existing customers, and keep in mind, existing is about half the count and existing is about half the count and the vast majority of the vast majority of the dollars. So for existing customers, on a trailing 12-month, I'm sorry, about 32 items, up 6% year-on-year and spend was $1,665. That's up 8% year-on-year. The other thing we were encouraged by for existing customers, we saw retention tick up a bit year-on-year. And then for best customers, and best customers purchased, on average, 76 items over the last twelve months. That's up 3% year-on-year, and they spent on average $3,950. And that's up 6% year-on-year.

Okay, that's great. And then one more. e-commerce was up nicely as a percentage for both U.S. and International. I'm just wondering, is the e-commerce business similar in terms of profitability as the core business?

Yes, I mean, Carla, I would think directly, if you think about they're both direct to consumer businesses on the fulfillment side, potentially depending on product mix on what's there, you could see a little bit, a little bit of different margin structure, but by and large, economics of those, they're the same as when you think about something coming off a television as well.

Okay, great. Thank you so much.

Thank you.

Thank you. The next question is from William Reuter with Bank of America. Please go ahead.

Hey, guys, good morning. This is Rob [ph] on for Bill, just one from us. Appreciate you guys discussing Project Athens savings, but I was wondering if you could maybe touch on freight cost expectations for the remainder of 2024 and maybe any updated thoughts related to any disruptions in the Red Sea. Thank you.

Sorry. Yes, so we're seeing, continuing to see some disruption. I think in the U.S. we have relatively little exposure. I think about 15% of our volume comes through the Suez Canal. So it hasn't been a big impact. We've seen more impact in Europe. About 75% goes through the canal. We've been targeting vessels that are going through alternative routes, and we've had some success there. It has caused some volatility in supply for our European businesses, but we've generally now built in more buying time and vendor order lead times to help counteract that. So I wouldn't say it's been. I wouldn't say it's been a huge impact on the business. What's actually been a little bit more impactful has been, over the course of Q2, the availability of vessel capacity has come in, and that's resulted in a shortage in the global ocean vessel capacity. That's driving up rates, especially on the spot markets. And so those rate increases were manageable in Q2, but we are anticipating more volatility on deliveries and container prices as we go into Q3. So that, plus the potential labor negotiations with the east coast longshoremen are both things we're paying a lot of attention to.

Very helpful. Thank you.

Thank you. Ladies and gentlemen the last question for today is from Hale Holden with Barclays. Please go ahead.

Thank you. I had two quick questions. The first one is the cash you disclosed at Cornerstone. Is that a new disclosure? I don't recall it in the past. Or is that sort of the cash that's been there in the last couple quarters?

I think we were just making sure that we were being comprehensive in the disclosure when we were talking about the cash at the various entities.

Okay. And then my second question is just to follow up on the shipping question, have you seen any of your -- I guess really, mainly Pacific freight carriers break your contracted rates and push you more into spot, or are they still holding their earlier in the year contracted rates?

Yes, I would say we operate in a combination of spot and contract rates. Right. So there has, David talked about the pressure with available capacity that we saw during the period, but I think the teams have done a pretty good job of managing the combination of spot and term contracts across the portfolio to maintain freight rates.

Got it. And then one final one. I know this has come up on the last couple of calls, but anything you can tell us to help us understand what you may or may not be able to do to mitigate tariffs depending on, I guess, which way the coin flips on the election.

So we have since really since the supply chain crisis tried to create some diversity and our sources of supply, less than half of our assortment ends up being impacted by tariffs and even that half the tariff rate is sort of, sort of mid-teens. We think we have a number of continued avenues available to us to diversify supply. So we don't see a scenario either, no matter which way the election unfolds, that creates a level of difficulty around tariffs that are not manageable for us given where we are today.

Great. Thank you so much. I appreciate it.

Thank you, operator. I think we're done. And thank you to the listening audience for your interest in Qurate. We look forward to speaking with you next quarter, if not sooner. Great, thank you.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.