含羞草传媒

含羞草传媒. Reports Second Quarter 2019 Financial Results

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- 含羞草传媒. ("含羞草传媒") (Nasdaq: QRTEA, QRTEB) today reported second quarter 2019 results. Headlines include⁽¹⁾:

Operating results:

• 含羞草传媒 total revenue decreased 4% to $3.1 billion
  • Revenue decreased 3% in constant currency⁽²⁾
  • eCommerce revenue comprised $1.8 billion or 59% of total revenue

• 含羞草传媒 reported $0.28 diluted EPS; $0.48 adjusted diluted EPS⁽³⁾
• QxH revenue decreased 1% to $1.9 billion
• QVC International revenue decreased 2% to $640 million
  • Revenue increased 1% in constant currency

• Zulily revenue decreased 13% to $363 million
• Cornerstone revenue decreased 11% to $234 million
  • Revenue decreased 3% excluding closed Improvements business

• Realized cumulative run-rate cost synergies of $87 million since acquisition through June 30^th

Corporate updates:

• From May 1^st through July 31^st, repurchased 11.9 million QRTEA shares at an average price per share of $12.88 and total cost of $153 million
• Repaid QVC鈥檚 $400 million 3.125% senior secured notes due 2019
• Appointed Leslie Ferraro, former Walt Disney Company executive, to President, QxH effective September 16^th

鈥淲e made good strategic and operational progress, evidenced by the sequential improvement in revenue and adjusted OIBDA margin at QxH and the double-digit, year-over-year adjusted OIBDA⁽³⁾ growth at QVC International in constant currency. These gains were partially offset by deterioration at Zulily,鈥� said Mike George, President and CEO of 含羞草传媒. 鈥淲e are encouraged by the resiliency of our businesses and our ability to generate high levels of adjusted OIBDA and free cash flow in a dynamic and highly competitive environment. We resumed share buybacks, repurchasing nearly 12 million shares at an average price per share of $12.88 following our last earnings call. Going forward, we remain focused on building on the collective strengths of QVC and HSN, realizing synergies and stabilizing Zulily.鈥�

Discussion of Results

Unless otherwise noted, the following discussion compares financial information for the three months ended June 30, 2019 to the same period in 2018. During the first quarter of 2019, 含羞草传媒 changed its reportable segments to combine QVC US and HSN into one QxH reportable segment and is presenting prior period information in this press release to conform to this change.

QxH

QxH reported sales declines in apparel and jewelry, which were partially offset by gains primarily in accessories and electronics. Operating income margin contracted and adjusted OIBDA margin was flat, reflecting gross margin pressure mainly from higher fulfillment (freight and warehouse) expense, which was partially offset by higher product margins. QxH also incurred higher bad debt and marketing expense. These factors were offset by lower TV distribution commissions and customer service expense. Lower TV distribution commissions were due in part to the accounting treatment for certain renewed HSN carriage agreements (described below), as well as renegotiated rates at HSN and growth in off-air sales. Operating income included higher amortization expense related to HSN carriage agreements.

Beginning in the third quarter of 2018, HSN began renewing TV carriage agreements with certain distribution partners, which provided multi-year upfront payments that are amortized over the life of the agreements, versus its previous convention of expensing quarterly payments as incurred. This accounting change has a positive impact on QxH鈥檚 adjusted OIBDA with a corresponding increase in QxH鈥檚 amortization expense, which is neutral to operating income each period and cash neutral over the life of the agreements.

QVC International

US Dollar denominated results were negatively impacted by exchange rate fluctuations, primarily due to the Dollar strengthening 6% versus the Euro and British Pound and 1% versus the Japanese Yen. The financial metrics presented in this press release also provide a comparison of the percentage change in QVC International鈥檚 results in constant currency (where applicable) to the comparable figures calculated in accordance with US GAAP for the second quarter of 2019.

QVC International constant currency sales gains were driven by growth primarily in Japan, partially offset by declines in Germany and the UK. Operating income declined primarily due to $12 million of depreciation expense for the disposition of long-lived assets in France. As previously announced, QVC closed its television and digital platforms in France on March 13, 2019. Operating income margin contracted due to the aforementioned charge related to France, while adjusted OIBDA margin expanded reflecting improved gross margins, primarily from ASP leverage. QVC International also benefitted from lower fixed and marketing costs, which were partially due to the closure of France.

Zulily

Zulily revenue declined due to lower unit volume driven by a decrease in new customers and lower purchasing frequency from existing customers, as well as lower ASP. Product categories that led the sales decline were apparel (kids and women), home and footwear. Zulily鈥檚 results were affected by less efficient customer acquisition spend on certain digital marketing channels and the impact of sales tax collection in additional states versus the prior year. Operating loss improved due to a decrease in purchase accounting amortization. Adjusted OIBDA declined primarily due to lower sales, higher supply chain expense and fixed costs associated with increased technology-related headcount.

Cornerstone

Cornerstone revenue declined primarily driven by the shutdown of the Improvements catalog business effective December 2018 and weakness in the outdoor category, particularly at Frontgate, as well as the impact of sales tax collection in additional states versus the prior year. Excluding Improvements, revenue declined 3%. The operating income and adjusted OIBDA declines principally reflect lower revenue and gross margin pressure due to promotional activity, which were partially offset by lower selling, general and administrative costs. Operating income also benefited from lower purchase accounting amortization.

Taxes

含羞草传媒 estimates that its ongoing annual effective tax rate will be in the range of 16% - 19% including federal, state and foreign taxes, net of tax credits generated by 含羞草传媒鈥檚 green energy investments. This estimate excludes the impact of one-time tax items and is subject to adjustment. 含羞草传媒鈥檚 book tax rate in 2019 will be impacted by the tax loss generated by the sale of 含羞草传媒鈥檚 investment in FTD in the second quarter. This loss resulted in a net income tax benefit of $34 million that was recognized in full in the second quarter and a long-term tax receivable of approximately $100 million, which will not impact cash taxes until the end of 2020 when such receivable is expected to be collected.

Share Repurchases

From May 1, 2019 through July 31, 2019, 含羞草传媒 repurchased approximately 11.9 million shares of Series A common stock (Nasdaq: QRTEA) at an average cost per share of $12.88 for total cash consideration of $153 million. Since the creation of our existing common stock (including its predecessors, the QVC Group and the Liberty Interactive Group) in May 2006, 含羞草传媒 has repurchased shares for aggregate cash consideration of $9.0 billion, representing approximately 60% of the shares outstanding in May 2006. All repurchases up to August 9, 2012, the date on which the QVC Group stock was recapitalized to create the Liberty Ventures common stock, were comprised of shares of the combined stocks.

On May 30, 2019, 含羞草传媒鈥檚 board of directors increased its stock repurchase authorization by an additional $500 million. The remaining repurchase authorization for 含羞草传媒 is approximately $526 million as of July 31, 2019.

FOOTNOTES

NOTES

Cash and Debt

The following presentation is provided to separately identify cash and debt information.

Cash at 含羞草传媒 increased $11 million in the second quarter as cash from operations more than offset share repurchases, capital expenditures, net debt repayment and other investing activities. Total debt at 含羞草传媒 decreased by $112 million in the second quarter primarily due to the repayment of QVC鈥檚 $400 million 3.125% senior secured notes due 2019.

含羞草传媒 benefits from an indemnification agreement with GCI Liberty with respect to its Charter exchangeable debentures. The indemnification agreement compensates 含羞草传媒 for any payments made in excess of the adjusted principal amount of the debentures to any holder that exercises its exchange right on or before the put/call date of October 5, 2023. This indemnity is supported by a negative pledge in favor of 含羞草传媒 on the 1.0 million reference shares of Class A common stock of Charter held at GCI Liberty that underlie the Charter exchangeable debentures. The indemnification asset on 含羞草传媒鈥檚 balance sheet is valued based on the estimated exchange feature in the Charter exchangeable debentures. As of June 30, 2019, a holder of the Charter exchangeable debentures does not have the ability to exchange, and accordingly, the indemnification asset has been classified as a long-term asset. There is $332 million principal amount of the Charter exchangeable debentures outstanding as of June 30, 2019.

Important Notice: 含羞草传媒. (Nasdaq: QRTEA, QRTEB) President and CEO, Mike George, and Executive Chairman, Greg Maffei, will discuss 含羞草传媒鈥檚 earnings release on a conference call which will begin at 8:30 a.m. (E.D.T.) on August 8, 2019. The call can be accessed by dialing (800) 347-6311 or (323) 794-2094, passcode 3591272, at least 10 minutes prior to the start time. The call will also be broadcast live across the Internet and archived on our website. To access the webcast go to . Links to this press release and replays of the call will also be available on 含羞草传媒鈥檚 website.

This press release includes certain forward-looking statements, including statements about business strategies and initiatives and their expected benefits, market potential, future financial prospects and performance, 含羞草传媒鈥檚 estimated ongoing annual tax rate, market conditions, the indemnification by GCI Liberty, the expected benefits (including synergies) of the acquisition of HSNi and the related intercompany restructuring, the continuation of our stock repurchase program and other matters that are not historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, possible changes in market acceptance of new products or services, competitive issues, regulatory matters affecting our businesses, continued access to capital on terms acceptable to 含羞草传媒, changes in law and government regulations, the availability of investment opportunities and market conditions conducive to stock repurchases. These forward-looking statements speak only as of the date of this press release, and 含羞草传媒 expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in 含羞草传媒's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Please refer to the publicly filed documents of 含羞草传媒, including the most recent Forms 10-K and 10-Q, for additional information about 含羞草传媒 and about the risks and uncertainties related to 含羞草传媒's business which may affect the statements made in this press release.

NON-GAAP FINANCIAL MEASURES

To provide investors with additional information regarding our financial results, this press release includes a presentation of adjusted OIBDA, which is a non-GAAP financial measure, for 含羞草传媒, QVC (and certain of its subsidiaries), Zulily and Cornerstone together with a reconciliation to that entity or such businesses鈥� operating income, as determined under GAAP. 含羞草传媒 defines adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and administrative expenses, excluding all stock based compensation, and excludes from that definition depreciation and amortization, certain purchase accounting adjustments, separately reported litigation settlements, transaction related costs (including restructuring, integration, and advisory fees) and impairment charges that are included in the measurement of operating income pursuant to GAAP. Further, this press release includes adjusted OIBDA margin which is also a non-GAAP financial measure. 含羞草传媒 defines adjusted OIBDA margin as adjusted OIBDA divided by revenue.

含羞草传媒 believes adjusted OIBDA is an important indicator of the operational strength and performance of its businesses by identifying those items that are not directly a reflection of each business鈥� performance or indicative of ongoing business trends. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. Because adjusted OIBDA is used as a measure of operating performance, 含羞草传媒 views operating income as the most directly comparable GAAP measure. Adjusted OIBDA is not meant to replace or supersede operating income or any other GAAP measure, but rather to supplement such GAAP measures in order to present investors with the same information that 含羞草传媒's management considers in assessing the results of operations and performance of its assets. Please see the attached schedules for applicable reconciliations.

In addition, this press release includes references to adjusted net income and adjusted earnings per share, which are non-GAAP financial measures, for 含羞草传媒. 含羞草传媒 defines adjusted net income as net income, excluding the impact of acquisition accounting amortization (net of deferred tax benefit), mark to market adjustments on certain public debt and equity securities and other one-time adjustments. 含羞草传媒 defines adjusted earnings per share as diluted earnings per share plus the diluted per share effects of certain adjustments, net of tax.

含羞草传媒 believes adjusted net income and adjusted earnings per share are important indicators of financial performance due to the impact of purchase accounting amortization, mark to market adjustments and other one-time items identified in Schedule 3 below. Because adjusted net income and adjusted earnings per share are used as measures of overall financial performance, 含羞草传媒 views net income and diluted earnings per share, respectively, as the most directly comparable GAAP measures. Adjusted net income and adjusted earnings per share are not meant to replace or supersede net income, diluted earnings per share or any other GAAP measure, but rather to supplement such GAAP measures in order to present investors with a supplemental metric of financial performance. Please see the attached schedules for a reconciliation of adjusted net income to net income (loss) and adjusted earnings per share to diluted earnings per share, in each case, calculated in accordance with GAAP for 含羞草传媒 (Schedule 3).

This press release also references certain financial metrics on a constant currency basis, which is a non-GAAP measure, for 含羞草传媒. Constant currency financial metrics, as presented herein, are calculated by translating the current-year and prior-year reported amounts into comparable amounts using a single foreign exchange rate for each currency.

含羞草传媒 believes constant currency financial metrics are an important indicator of financial performance, in particular for QVC, due to the translational impact of foreign currency fluctuations relating to its subsidiaries in the UK, Germany, Italy and Japan, as well as its JV in China. We use constant currency financial metrics to provide a framework to assess how our businesses performed excluding the effects of foreign currency exchange fluctuations. Please see the financial tables at the beginning of this press release for a reconciliation of the impact of foreign currency fluctuations on revenue, operating income, adjusted OIBDA and average selling price.

SCHEDULE 1

The following table provides a reconciliation of 含羞草传媒鈥檚 adjusted OIBDA to its operating income calculated in accordance with GAAP for the three months ended June 30, 2018, September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, respectively.

SCHEDULE 2

The following table provides a reconciliation of adjusted OIBDA for QVC (and certain of its subsidiaries), Zulily and Cornerstone to that entity or such businesses' operating income (loss) calculated in accordance with GAAP for the three months ended June 30, 2018, September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, respectively. As there are no material reconciling items between adjusted OIBDA and operating income for the QVC China joint venture for the referenced periods, no reconciliation has been provided.

SCHEDULE 3

The following table provides a reconciliation of 含羞草传媒鈥檚 adjusted net income to its net income and adjusted earnings per share to diluted earnings per share, in each case, calculated in accordance with GAAP for the three months ended June 30, 2018, September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, respectively.

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含羞草传媒.
Courtnee Chun, 720-875-5420

Source: 含羞草传媒.

Released August 7, 2019