QVC Group, Inc.

Welcome to the QVC Group 2025 Q1 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star 1 on your telephone keypad. As a reminder, this conference will be recorded May 7, 2025. I would now like to turn the call over to Shane Kleinstein, Senior Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon. 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 QVC Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in QVC Group'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 and two, can be found in the earnings press release issue today or our earnings presentation, which are available on our website. Today, speaking on the earnings call, we will have QVC Group President and CEO David Rawlinson, QVC Group CFO and CAO Bill Wofford, and QVC Group Executive Chairman Greg Maffei. Now I'll hand the call over to David Rawlinson.

Thank you, Shane, and good afternoon, everyone. We appreciate you joining us and your continued interest in the QVC group. Q1 was a challenging quarter. We're operating in a tough macro environment, facing continued headwinds from declining linear TV viewership, weakening customer sentiment, and a volatile news cycle, most recently exacerbated by escalating tariff concerns. These recent developments intensified the pressure on our business as they did for the broader discretionary retail market. Total revenue declined 10 percent, driven by sharper than expected pressure on our top line, particularly from accelerated declines in linear TV viewership and reduced consumer confidence that we believe is a result of geopolitical uncertainty across our U.S. and international markets. Our consumer remains heavily distracted by current events. In the U.S., there was a sharp year-over-year shift on linear television to news and business content consumption, which were both up double digits. Based on Comscore data, overall television viewership was down, led by decreases in general entertainment, shopping, and lifestyle viewing, which were all down between high single digits and mid-teens. QVC international revenue declined 4% in constant currency, experiencing episodic softness not seen in prior quarters, driven by German elections, inflationary pressure in Japan, and compared to a particularly strong Easter in the UK in Q1 2024. Cornerstone was down 13%, driven by continued housing market stagnation. As a result of continued sales deleverage, consolidated adjusted OEBDA declined 31% in constant currency. While there is still more work to do, we are building on what we've already done. Over the past two years, we've improved gross margins and aggressively managed costs. This includes closing the Fontana California Fulfillment Center, reducing labor expense for non-fulfillment functions and moving our technology support to a managed services contract. As previously outlined, we are pursuing an additional $100 million of OIDA opportunity by examining all areas of spending across the company, which is even more critical now in the current macro environment. This work began in late 2024 and we expect that it will continue through 2025 and into 2026. In late March, we announced the global reorganization, which impacted a significant portion of our team members, but is necessary to improve our cost structure. As part of this reorganization, we're completing the closure of the St. Petersburg, Florida facility and fully transitioning HSN operations to our Studio Park campus in Westchester, Pennsylvania by Q3 of this year. Some team members have already transitioned out, while others will remain through the end of the year. I want to sincerely thank all affected employees for their professionalism and dedication during this difficult but necessary action. We also completed the first full quarter under the new IT-managed services model I mentioned before. This change has enabled us to reinvest in critical technology upgrades, including fulfillment and order management systems. Cost discipline remains our priority, and we're focused on further reducing our cost to serve. Let me take a minute and give an update on tariffs. Given the inherent uncertainty in ongoing trade negotiations, it is difficult for us to quantify the potential impact of tariffs at this time. This is a challenging and very fluid situation, but we are taking broad-scale action to manage the impact. Five years ago, U.S. goods sourced from China made up over 55% of our product COGS. we've reduced that proportion to less than 50%. Still, China remains our largest import exposure, and given the current level of tariffs, we are working quickly to shift even more sourcing to other countries. Depending on where tariffs settle, we are targeting our sourcing mix so that no single country is worth more than one-third of our sourced goods by the end of the year. In the immediate term, we've canceled a number of contracts with vendors and will be prudent about placing new orders with vendors from China at the existing tariff levels. We are also actively negotiating with many vendors in an attempt to share the tariff impact and may seek to take price action on certain goods where necessary. Moving to QX8. Total customer count declined 10% in the quarter, driven by a 9% decrease in existing customers, a 17% decrease in new, and a 13% decrease in reactivated customers. The decline in linear TV households continues to put pressure on our customer count year over year, and QXH TV minutes watched declined approximately 13%. As you can see on slide 8 in our presentation, on a trailing 12-month basis, customer count declined on a sequential basis with a decrease of approximately 2.6% versus December 2024. But our existing customers continue to purchase at healthy levels, spending on average $1,635 and purchasing 32 items in the 12 months ending March 31st. At QVC, our best customers who buy 20 or more items annually also continue to purchase at very attractive levels. In the 12 months ending March 31st, they bought 76 items and spent $3,975 on average of 1% year over year. We experienced strength from the relaunch of Logo by Lori Goldstein Brand and saw continued strength from our well-known brands like Kim Gravel and Diane Gilman. We also had success in the launch of Jeffrey Zakarian's wine, which sold out, and continued interest in floor care from Dyson. And we're seeing new customer growth on social from brands like Tupperware, which added nearly 9,000 new names. While our electronics business experienced lower sales, we continue to see outperformance and portable power driven by brands EcoFlow and Halo in the hearing aid category. Our customers responded less favorably to handbags, luggage, and footwear and accessories, garden and home decor, and some of our core culinary brands. Moving to QVC International. As I mentioned before, we saw a change this quarter internationally. Revenue declined 4% in constant currency compared to prior quarters of broadly stable revenue performance. National elections in Germany, inflationary pressure in Japan, a particularly strong Easter in the UK in Q1 2024, and weakened consumer sentiment led to revenue declines across all markets. Total customer count declined 3% in the quarter, driven by a 2% decrease in existing customers and a 6% and 5% decrease in new and reactivated customers respectively. Finally, our cornerstone brands continue to operate in a depressed housing market, leading to lower consumer demand. Cornerstone revenue declined 13% in the first quarter, with softness across all brands. We have, however, officially kicked off our transformation efforts. We anticipate value from the transformation will be recognized in the last three quarters of the year, although tariffs are likely to have some adverse impact on value. One other point to note, Ryan McKelvey, president of Cornerstone Brands, will be retiring after 25 years. We will commence an internal and external search for a new president of Cornerstone. In the interim, Tom Bazone, president of Frontgate, will assume leadership responsibility and report to me effective immediately. Ryan will remain with the company for a transition period. We thank Ryan for his quarter century of distinguished and capable service to the company and wish him well in retirement. Despite continued challenges in our core business exacerbated by macroeconomic changes, we are intently focused on transforming into a live social shopping company and believe we have the assets needed to win in this space. I would like to share some additional highlights that demonstrate the progression of our win-growth strategy. First, we signed a strategic agreement with TikTok for the first 24-7 live shopping experience in the U.S., and we are now live on TikTok 24-7 on our QVC account. We use our host along with other creators to sell products directly through TikTok Shop, allowing purchases to be made on platform. The success of our streaming and social businesses is crucial, and we are measuring our progress in a handful of ways. Our most important metric is revenue, and we estimate that the percent of QXH revenue that was generated during Q1 through streaming and social platforms was in the mid to high single digits. We're seeing strong platform engagement, another important metric. Combined minutes watched on social and streaming platforms are up 26 percent over last year, growing to 1.4 billion minutes. Streaming monthly active users grew 131%, and we had our largest non-holiday revenue month ever in March. Back to social, across all of our social platforms, including TikTok, we now have a combined over 7 million followers. To help you track our progress, we will look to more regularly provide updates on the social and streaming businesses. We now have thousands of items listed on TikTok and that number continues to grow and we are working with over 85,000 creators. We continue to add new categories like beauty and are scaling our processes for working with creators. We are using our newly formed content factory to produce various forms of content for all of our linear and social platforms. And later this month, we'll kick off the second year of our Age of Possibility campaign with our first TikTok Shop Super Brand Day. We'll offer eight hours of creator and celebrity-led shopping rooted in celebration, empowerment, and connection, all live on TikTok. We have several well-known celebrities who will be joining us. This shows the power of combining our core capabilities and relationships with TikTok scaled platform. And we are also excited to announce the launch of our partnership with TikTok in the UK in February, using what we are learning from our US partnership to inform how we go to market internationally. We also launched a new experience with American Airlines this week, where customers are now able to watch episodes from our QVC Plus and HSN Plus channels on American's free in-flight entertainment platform. We have strengthened our leadership team. We hire two new leaders that bring a wealth of industry expertise. Alex Wellen is our new chief growth officer and has already hit the ground running, leading our growth initiatives. With over 20 years of leadership in digital media, product innovation, and strategic growth, Alex will define and lead our growth strategy for the W and win wherever she shops. He will oversee a multifunctional team, including US social selling, streaming, digital, new business development, and platform distribution. We also welcomed Tony Williams, our new Chief People Officer, at the end of April. Tony brings more than 25 years of global strategic and operational business experience, having led people across a broad range of industries, leading transformation, change management, organizational effectiveness, culture, and other strategies to support increased market share, revenues, and profitability while ensuring the people experience remains a core enterprise focus. Finally, I would like to acknowledge that Greg Maffei will continue to serve as our executive chairman, and I look forward to continuing to benefit from his leadership and advice. In uncertain times such as these, The core insight that guides our business is more relevant than ever. For a valuable portion of consumers, shopping is an opportunity to explore, dream, and connect. This is why social shopping is exploding on platforms like TikTok and Facebook. And it's why we believe in QVC Group's long-term strategy, despite the current headwinds. Now, I'll turn the call to Bill to review the Q1 financial results for each of our businesses.