How Qurate Plans to Drive Growth at QVC and HSN
Qurate Retail Inc., managing through a “transitional” year of turnaround efforts, reported a decline in revenue and a steeper net loss for the fourth quarter.
The operator of the HSN and QVC shopping and entertainment platforms on Wednesday posted a fourth-quarter net loss of $273 million, compared to a loss of $51 million in the year-ago quarter. However, the company also reported adjusted net income of $87 million last quarter, compared to an adjusted net loss of $18 million in the year-ago quarter, demonstrating progress in improving operations.
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Total revenues fell 11 percent to just over $3.14 billion from $3.53 billion in the year-ago period. Excluding Zulily, which was divested in May 2023, fourth-quarter revenues slipped 4 percent last quarter from $3.27 billion in the year-ago period. The revenue decline was attributed to reduced inventory levels and consumers becoming more “choiceful.” Qurate’s fourth quarter ended Dec. 31.
Adjusted OIBDA (operating income before depreciation and amortization) increased 46 percent to $340 million last quarter from $197 million in the year-ago fourth quarter. Qurate Retail believes adjusted OIBDA is an important indicator of the operational strength and performance of its businesses by identifying items that don’t directly reflect each business’s performance or indicative of ongoing business trends.
Diluted earnings per share lost 70 cents, but on an adjusted basis, EPS earned 22 cents.
On Wednesday, investors pushed the stock price up 5.7 percent, or $0.08, to $1.48.
“We are pleased at the way the fourth quarter turned out,” David Rawlinson, president and chief executive officer told WWD in an interview discussing the company’s latest financial results and how the business is evolving.
For the full year, Qurate narrowed its net loss to $145 million; revenues declined 5 percent to just over $6.99 billion. There was a 3 percent decline in adjusted OIBDA, and a loss of 24 cents in adjusted diluted EPS.
By channel, QxH (QVC and HSN) revenue decreased 4 percent in the fourth quarter and 5 percent during all of 2023; QVC International revenue increased 2 percent in the fourth quarter and decreased for the full year.
Qurate Retail Group consists of six retail brands: Ballard Designs, Frontgate, Garnet Hill and Grandin Road as well as HSN and QVC.
“We grew adjusted OIBDA by 73 percent in the fourth quarter, off a 53 percent increase in the third quarter. That’s very strong profitability growth over the back half of the year,” Rawlinson said. “Free cash flow rose to more than a half-billion dollars.
“Our business over-performed in the second half, though the top line was a little bit soft,” Rawlinson added. “We do measure ourselves against others selling discretionary products generally and we are better off. We are back at taking share from our competitors. Every single business was more profitable.”
Rawlinson also said the average sale price, or AUR, for the year was up 8 percent, partly due to inflation and partly due to offering more upscale products, such as $3,000 to $4,000 diamond tennis bracelets, and E-bikes starting at $1,000. “Because inventory was down we could bring in a lot of fresh new product,” Rawlinson said, noting that inventories were down 22 percent last quarter.
Retailers selling fashion and other discretionary categories face challenges in the current economic climate, Rawlinson said. “Consumers are more choiceful. They’re a little bit more stretched now,” after depleting savings accumulated during the pandemic. “Credit card balances are up. Default rates are up, but we don’t see any collapse in demand. We continue to see strength in our value proposition. When we hit the value proposition [right], consumers are very much willing to spend, even on higher end luxury categories.”
Rawlinson said the bestselling categories last quarter were jewelry, particularly diamonds, accessories, and culinary, though gains in those areas were offset by declines in electronics and home.
On his outlook for 2024, Rawlinson said, “We feel good about 2024 after establishing bottom-line momentum in Q3 and Q4 and strong growth in cash flow and OIBDA. We will build on that. Our core consumer is stable, and we’ve made progress reinvigorating our value proposition across our business. You will see more energy, more exclusives, more celebrity participation especially at HSN. We’re very optimistic coming into the year….I see the business starting to gain some real momentum.”
Rawlinson became Qurate Retail’s CEO in October 2021, a particularly challenging time considering the impact of the pandemic and shifting consumer behaviors, and a fire that devastated a QVC warehouse in Rocky Mount, N.C., in December 2021.
In June 2022, Rawlinson unveiled a three-year turnaround plan, the Athens Project, designed to stabilize and differentiate the core businesses, expand video streaming commerce, strengthen customer relationships, improve execution and reduce costs. “We had to undergo a very fundamental turnaround,” Rawlinson said. That included restoring foundational pieces of the business and making a lot of hard choices, he said. “We now see the business starting to gain some real momentum,” Rawlinson said. “After this year, that’s when we really lean into top-line growth, streaming, digital, a series of new value propositions, innovations. We will really be ready in a very exciting way.”
Earlier this week, Rawlinson named a new president of HSN, Stacy Bowes. Asked what’s on the agenda there, Rawlinson said, “You are going to see a new level of celebrity cooperation and exciting product that we’re bringing to the market.”
As for QVC, he said, “We’re going to take out of the studio and into the world. QVC will be showing up in neighborhoods and different formats. You will see a rebranded image, very different from the past.”
Asked what differentiates QVC from HSN, Rawlinson said, “QVC historically has been slightly more upmarket, slightly more host focused and curated. HSN has really prioritized excitement, energy and celebrity.”
In his prepared statement on Wednesday, Rawlinson said, “2023 was a transformational year for Qurate Retail. We executed better on multiple fronts including merchandising, pricing strategy and inventory management, and these efforts yielded significant, positive results in the operational health and financial performance of the business. We increased free cash-flow generation, reduced substantial debt and optimized our portfolio with the divesture of Zulily, and in the fourth quarter, we grew adjusted OIBDA by over 70 percent as reported. As we enter 2024, we expect to continue our momentum and drive improved results.”
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