Qurate Retail, Inc.

Welcome to the Curate Retail, Inc. 2023 Q3 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At this time, if you have a question, please press star 1 on your telephone. As a reminder, this conference will be recorded November 3rd. I would now like to turn the call over to Shane Kleinstein, Vice President, Investor Relations. Please go ahead.

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. 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 Curate 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 Curate 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 measures, 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 Curate Retail President and CEO David Rawlinson, Curate Retail Group CFO Bill Wofford, and Curate Retail Executive Chairman Greg Maffei. Now, I'll hand the call over to David.

Thank you, Shay, and good morning to everyone. Thank you for joining us today and for your interest in Curate Retail. We unveiled Project Athens last year as our strategic multi-year framework to transform Curate Retail, focused on double-digit growth in EBITDA and cash flow and stabilized revenue through 2024 off of a 2022 baseline. Our 2023 first half initiatives were designed to increase operating free cash flow through working capital. And our second half initiatives are primarily margin focused. The transformation plan is playing out, as we anticipated, with tangible progress in Q3, despite a challenging discretionary retail backdrop. Let me walk through a few of the highlights of the quarter. First, we grew consolidated OEBDA, the first quarterly OEBDA growth since Q2 2021. Total curate retail grew OEBDA 54%. I will remind you that we sold Zulily earlier in the year. in part to benefit total company profitability. Excluding Zulily from prior year results, Oybada was up 35% in constant currency. Second, we grew Oybada at all three of the businesses. This growth was driven by Project Athens and other work streams across the organization focused on refreshing our merchandise assortment, enhancing our programming, sharpening our pricing, in improving our productivity and lowering our cost to serve. Third, we sustained gross margin improvement at our core video commerce businesses. These gains reflect successful execution on our elevated merchandise and pricing strategies and meaningful improvement in fulfillment operations to reduce costs, improve efficiencies, and manage inventory. Fourth, we grew free cash flow $464 million year-over-year in the first nine months of 2023. This growth was due to improved operating cash flow from higher earnings and working capital gains. Fifth, we substantially moderated the rate of decline in revenue. Curate retail revenue, excluding Zulily from prior year results, declined 3 percent in Q3, down from high single digits in the first half of 2023. We are proud of the teams and the hard work underlying our progress over the past 12 to 18 months, especially as we navigated massive impacts from post-pandemic supply chain challenges and the fire at our former Rocky Mountain Fulfillment Center. Over this time, we have made meaningful improvements to execution. We reorganized our U.S. video commerce businesses and attracted key talent throughout the organization. In fulfillment, we negotiated better ocean and domestic freight rates, improved efficiency, and managed inventory to alleviate the detention and demurrage charges that followed the fire and post-pandemic supply chain disruption. We expanded product margins by refreshing our merchandise assortment with higher quality products, rotating into higher performing categories and higher price point subcategories, and affecting strategic price increases. we reinvigorated our core daily programming, the Today's Special Value at QVC and Today's Special at HSN, with elevated merchandise assortment, enhanced programming, events, and re-engaged hosts. We have also returned these specials to time-limited 24-hour events, re-infusing a sense of urgency. From these efforts, we beat expectations on per-minute productivity and overall TSV or TS performance, at both QVC and HSN. We affected workforce reductions throughout the company. While these were difficult decisions, they are right for the long-term health of the business. And lastly, we conducted a deep dive customer analysis and have enacted changes that are beginning to stabilize the customer file. We expect these foundational improvements and Project Athens work streams to continue to drive progress. Now let me discuss each of our three businesses. QXH increased OEBDA 41% driven by 480 basis points of gross margin improvement. From a top line perspective, QXH moderated the rate of decline in Q3 with Q3 down 3% compared to mid-high single digit declines in the first half of 2023. Our total sales outperform the discretionary retail market. We achieved a better balance between unit volume and average selling price. Unit volume declined 3%, which was an improvement from the high single-digit decline in the first half of 2023, largely a function of higher quality product assortment. We continue to drive higher pricing, primarily through our merchandise mix, with average selling price up 1% in Q3. From an operational perspective, QXH continues to lower costs and improve delivery times. Rates for my new domestic parcel contract took effect in late July, and our operational cost per unit declined 12% in Q3. Our order to delivery time declined 2%. Our refreshed merchandise assortment and enhanced programming are contributing to this improving revenue performance. In terms of viewership, minutes viewed on our five linear channels increased 15 percent year-over-year in Q3. The number of new on-air items grew low double digits in Q3, which were met with strong consumer demand. QVC continues to enhance its programming for its core customer. Earlier this year, I told you about a limited run series, Over 50 and Fabulous. We broadcast season two of this series for six weeks from mid-August to late September. We enhanced strategies from season one and improved the show's sales per minute productivity. To date, there are more than 26.5 million views of Over 50 and Fabulous across social and digital platforms. For the series finale, we hosted customers for an in-studio live show and after-party live stream. Tickets for that event sold out in five minutes. Looking at the category performance in the third quarter, QXH saw a turnaround in the home category driven by fresher products, exciting events, and inspiring personalities. We experienced year-over-year growth in demand during our Christmas in July event at QVC. as well as at HSN during its July birthday month. Food and kitchen gadgets were particularly strong as we leaned on our celebrity chefs like David Venable and Wolfgang Puck, proprietary brands such as Kitchen HQ, and special events and programming such as our Foodie Travel series and Foodie Fest. Home decor demand improved, driven by seasonal products, candles, storage, and a 30th anniversary event with Valerie Parhill. QVC US continues to have strength in its wellness and supplements product offering. At HSN, the relaunch of Joy Mangano has drawn a number of our reactivated customers back to the platform. In fashion, we experience growth in accessories, led by higher demand for footwear and loungewear, including loafers, wellness footwear, and brands like Barefoot Dreams and Cuddle Does. In September, QVC refreshed this Monday night fashion lineup featuring Logo by Lori Goldstein, the relaunch of PM Style with Amy Strand, and new shows Accessorize with Sean and Sean on Style. Each show was developed to deliver a strong fashion point of view and include special sets and fresh production elements. At HSN, we were pleased to launch new brands and offers including Sea Wonder by Christian Seriano, Birkenstock for the first time as a Today's Special, Sharp's Flex Style Hair Tool, and Sofia Vergara's Toti Beauty Line. Now, let me touch on QXH customers. On a quarterly basis, total count declined 8% in the third quarter, partially offset by a 6% increase in average spend per customer resulting in an overall 3% decline in revenue. The rate of declining count moderated in Q3 from the low double-digit declines in the first two quarters of 2023. We're seeing the biggest turn from the low end of our customer file. On slide eight of our earnings presentation, you can see we are stabilizing the trailing 12-month count near 8.2 million, down only modestly from 8.3 million at the end of the second quarter. Please note that while our press release discloses customer count on a trailing 12-month basis, this is a lagging indicator and does not reflect the progress in Q3. The increase in average spend was driven by our existing and best customers and reflects our higher quality product assortment. The average dollar spend for each of these cohorts was the highest of any quarter in 2023. We are taking a variety of actions to attract new customers, retain customers, and reactivate former customers. We have launched new programs and formats on both linear and digital forms. We have offered gifts and vouchers and have refined and enhanced our marketing spin, both of which have yielded high returns. We have created new on-site experiences sent letters from the business presidents to recognize and appreciate our best customers, and we are testing a pilot loyalty program. As a result of these efforts, we're pleased to report that new customers grew 8% at QXH in Q3, which was the first quarter of growth since Q1 2021. This growth was primarily attributed to strategic targeting of promotions based on marketing channel and product categories. We are constantly reviewing our customer acquisition costs and carefully managing overall return on our marketing efforts. We shift marketing spend to capitalize on opportunities in the market where we can efficiently acquire customers in our target demographic and track their lifetime value. We will continue to test, learn, and scale initiatives. We are executing with more success at a faster pace now than a year ago, and I look forward to telling you more on future calls. Before closing on QXH, let me provide a view on the important holiday season. Our customers are looking forward to activities with friends and family, and more importantly, ready for holiday shopping. Our target customer is mindful of her budget and cognizant of inflation, particularly for groceries and gas. Therefore, it is important for us to incite and inspire her with fresh products and compelling value. From a merchandise point of view, We feel good about our assortment and are in a substantially better inventory position than one year ago. At QVC, we are excited about several brand extensions and limited time collections from key brands. These include Susan Graver, Kim Gravel, Dennis Basso, and Denim & Company. We have new product launches, including Lawrence Zarian and a new private label cashmere sweater collection from Pure Splendor. We are extending our chef family with new culinary lines from RIT Sicari and a cookware line from Carla Hall. In beauty, we have exclusive holiday packages from key brands. These include Philosophy, Elemis, Peter Thomas Ross, and more. In addition, QVC is the exclusive retailer for Beekman's launch in November of its Toll House Partnership. HSM will also inspire with new merchandise, including an exclusive with Dolly Parton for the launch of her new rock album, Catherine McPhee's Radiance by Absolute Collaboration, Aaron Andrews' licensed sports launch with Fanatics, and the launch of Tarte Beauty as of today's special. We'll also have all our celebrity chefs cooking their holiday favorites and celebrity designers bringing new and exciting assortments. Looking now at QVC International. Like QXH, we're implementing a transformational program that is focused on margin opportunities, content, and broadcast strategies, and optimizing execution. These efforts are paying dividends. QVC International grew revenue in OIDA compared to last year and sustained gross margin gains from Q2. Growth was stronger in the UK and Germany as euro area inflation leveled off. and the UK was in comparison to the Queen's passing last year. Japan was flat as consumer sentiment continued to be affected by higher energy costs. QVC International's transformation actions are on track to deliver substantial OIDA opportunities that will achieve full run rate by 2025. Looking to the holiday season, we remain optimistic about our product assortment and campaigns that we believe resonate with our customers. At both of our video commerce businesses, I'm especially pleased that we grew OIDA while still investing in growth initiatives. Our domestic streaming operations have grown revenue and customer engagement year to date in 2023. The free ad supported portion is the fastest growing sector. In March, we launched soon our next generation video and live stream shopping platform and app. We continue to build momentum in this beta phase. At QVC International, we launched integrated experience in the UK and Germany with a focus on gardening and food and kitchen, respectively. Both have shown positive customer engagement, and we believe we can scale to other category segments and markets over time. Looking at Cornerstone, the overall home sector remains highly promotional and competitive. Demand for most categories was soft across the four Cornerstone brands. Despite the challenging environment, we focused on factors in our control, managing inventory and lowering supply chain and operating costs. As a result, the business generated a lot of growth in the quarter. We have seen continued progress in our retail store strategy as customers are gravitating to our new physical stores. Accordingly, we are planning to open five new retail stores by the first half of 2024. In closing, our Q3 results are in line with our Project Athens plans and amplify our confidence in our 2024 objectives. Going into Q4, we are cognizant of the challenges from inflation, interest rates, and geopolitical events. We remain steadfast in our transformation. We recognize we have much work still ahead of us, but remain confident in our ability to execute and drive results. The foundational changes we have enacted and the dedication from our teams are materializing in better financial results. We expect to sustain progress going forward, and I want to reiterate our expectations for a double-digit CAGR for OIDA-free cash flow and stable revenue through 2024. Now, I'll turn the call to Bill to discuss the financial results of each of our businesses in more detail.