ENGLEWOOD, Colo.--(BUSINESS WIRE)--

Qurate Retail, Inc. ("Qurate Retail") (Nasdaq: QRTEA, QRTEB, QRTEP) today reported fourth quarter and year end 2022 results⁽¹⁾.

“2022 was a challenging year for the company. We faced downstream impacts from the December 2021 fire at our Rocky Mount fulfillment center throughout the year, while also experiencing macro pressure that impacted consumer demand,” said David Rawlinson, President and CEO of Qurate Retail. “We have taken action to strengthen the balance sheet, improve execution and aggressively cut costs, including meaningfully reducing excess inventory and undergoing a structural reorganization. These efforts are part of a multi-year strategic plan for financial and operating improvement that will begin to materialize in the coming quarters. Today, we announced Bill Wafford as Chief Financial Officer of Qurate Retail Group and have the management team in place to execute. We believe we are entering 2023 in a healthier position with operating discipline to achieve our financial targets.”

Fourth quarter and full year 2022 operating results:

• Total Qurate Retail revenue decreased 13% to $3.5 billion in Q4, and decreased 14% to $12.1 billion in full year
  • In constant currency⁽²⁾ revenue decreased 10% in Q4 and 11% in full year
  • eCommerce revenue decreased 14% to $2.3 billion or 64% of total revenue in Q4, and decreased 14% to $7.6 billion or 62% of total revenue in full year
• Qurate Retail reported diluted EPS of $(0.13) in Q4 and $(6.83) in full year
  • Adjusted diluted EPS⁽³⁾ of $(0.05) in Q4 and $0.15 in full year
• QxH revenue decreased 11% in Q4 and full year
• QVC International revenue decreased 18% in Q4 and full year
  • In constant currency, revenue decreased 4% in Q4 and 6% in full year
• Cornerstone revenue decreased 3% in Q4 and increased 6% in full year
• Zulily revenue decreased 28% in Q4 and 38% in full year

Corporate updates:

• Announced Bill Wafford joining as Qurate Retail Group Chief Financial Officer effective March 20^th
  • Formerly CFO of Everlane, JCPenney, Vitamin Shoppe; 25 years of experience in corporate finance, management consulting and executive leadership
• Closed sale and leaseback of UK and German fulfillment centers in January 2023 for proceeds of $182 million

Discussion of Results

Unless otherwise noted, the following discussion compares financial information for the three months and year ended December 31, 2022 to the same periods in 2021.

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QxH

QxH revenue declined in the fourth quarter and full year, primarily reflecting an impact on demand of supply chain constraints in the first half of 2022 and inventory and receipt management in the second half of 2022, as well as downstream impacts from the December 2021 fire at its Rocky Mount, NC fulfillment center, weakened consumer sentiment due to macro-economic factors and a decrease in shipping and handling revenue in both periods. Units shipped decreased 9% in both periods. Average selling price declined 3% in the fourth quarter and 2% in the full year, reflecting inventory reduction actions in the second half of 2022 and a mix shift away from higher price point home and electronic categories in the first half of 2022. QxH reported declines in all categories for the quarter and full year.

During 2022, QVC, Inc. (“QVC”) took actions to reduce inventory and planned a workforce reduction that takes effect in 2023. QVC recorded restructuring charges of $24 million at its QxH operating segment related to severance, which is included in Restructuring and fire related costs, net of (recoveries) in the consolidated statement of operations during the year ended December 31, 2022.

Operating loss for the full year 2022 was primarily driven by a $2.7 billion non-cash impairment charge related to QxH goodwill and the HSN tradename, partially offset by $520 million of gains related to the sale and leaseback transactions. Operating income in the fourth quarter of 2022 was impacted by $24 million of costs related to workforce reductions, described above. Adjusted OIBDA margin⁽³⁾ decreased in the fourth quarter and full year primarily due to lower product margins reflecting inventory reduction and promotions, higher administrative expense, deleverage of fulfillment (freight and warehouse) costs, and higher marketing and commission expenses.

QVC completed sale and leaseback transactions for six US properties in 2022. The annual rent expense impacting Adjusted OIBDA from these transactions was $23 million in 2022 and is expected to average approximately $47 million in future years.

QVC International

For the quarter and full year, US Dollar denominated results were negatively affected by exchange rate fluctuations. For the fourth quarter, the US Dollar strengthened 19% versus the Japanese Yen, 13% against the British Pound and 11% versus the Euro. For the full year, the US Dollar strengthened 16% versus the Yen, 11% against the Euro and 10% versus the Pound. The financial metrics presented in this press release also provide a comparison of the percentage change in QVC International’s results in constant currency (where applicable) to the comparable figures calculated in accordance with US GAAP for the fourth quarter and full year 2022.

QVC International’s constant currency revenue declined in the fourth quarter and full year primarily due to a 6% decline in units shipped in each period, reflecting weakened consumer sentiment driven primarily by inflation in Europe, as well as a decrease in shipping and handling revenue. This pressure was partially offset by growth in Japan in both periods. For the fourth quarter and full year, QVC International reported constant currency declines in all categories except apparel.

For the fourth quarter and full year, operating income and Adjusted OIBDA margin decreased primarily due to lower product margins reflecting inventory reduction actions, as well as deleverage of administrative, fulfillment and commission expenses.

The average annual expense impacting Adjusted OIBDA from the sale and leaseback transactions for the UK and German properties completed in January 2023 is expected to be approximately $16 million based on exchange rates as of December 31, 2022.

Cornerstone

Cornerstone revenue declined modestly in the fourth quarter, reflecting softness in certain home categories such as outdoor furniture and seasonal Halloween products, as well as in women’s apparel. These pressures were partially offset by record fourth quarter revenue at Ballard Designs primarily on strength in bedding, dining and kitchen, fabrics and lighting. For the full year, Cornerstone generated record revenue at each of its brands. This is primarily due to strong growth in its home brands (Frontgate, Ballard Designs, and Grandin Road) and demand for textiles at Garnet Hill.

For the fourth quarter and full year, operating income and Adjusted OIBDA margin decreased primarily due to higher logistics costs.

Zulily

Zulily revenue declined in the fourth quarter primarily due to lower unit volume and a reduction in the rate charged for shipping and handling, as well as reduced traffic on the site driven by marketing inefficiencies experienced during the year. These pressures were partially offset by increased sales from national brand product, with improved availability in the fourth quarter. For the full year, Zulily revenue decreased primarily due to lower availability of national brand product and a pullback in marketing spend due to cost inflation and increased inefficiencies in marketing, as well as lower shipping and handling revenue.

In the first quarter of 2022, Zulily began to execute a series of transformation initiatives, beginning with the announcement of the closure of its fulfillment center in Bethlehem, Pennsylvania, and a reduction in its corporate workforce. These initiatives are consistent with Zulily’s strategy to operate more efficiently as it implements its turnaround plan, and Zulily expects to incur additional expenses related to these transformation initiatives in future periods. Zulily recorded $13 million of restructuring charges during the year ended December 31, 2022, approximately $9 million of which related to its regional office space strategy and expenses associated with the Pennsylvania facility closure, and approximately $4 million of which related to a reduction in corporate workforce.

Operating loss in the fourth quarter benefited from favorable comparisons against a $363 million non-cash impairment charge related to Zulily’s tradename and goodwill incurred in the fourth quarter of 2021. For the full year, Zulily’s increased operating loss primarily reflects weakened operating performance. Adjusted OIBDA margin decreased for the fourth quarter primarily due to lower product margins, increased shipping and handling promotions, higher marketing expenses and fixed cost deleverage, partially offset by lower fulfillment expenses. For the full year, Adjusted OIBDA margin decreased primarily due to deleverage of fixed costs and fulfillment expenses, as well as lower product margins.

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Capital Returns

There were no repurchases of Qurate Retail’s Series A common stock (Nasdaq: QRTEA) from November 1, 2022 through January 31, 2023. The remaining repurchase authorization for Qurate Retail is approximately $492 million as of February 1, 2023.

FOOTNOTES

NOTES

Cash and Debt

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

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Cash at Qurate Retail increased $651 million and total debt increased $530 million in the fourth quarter primarily due to borrowing under QVC’s bank credit facility. Following a series of transactions in the fourth quarter, as of December 31, 2022 there is approximately $875 million of cash and cash equivalents at the corporate level available to service corporate level obligations, including $500 million at Qurate Retail, Inc. and $375 million at LI LLC. There is $357 million of cash and cash equivalents at QVC, Inc. QVC’s bank credit facility has $1.1 billion drawn with incremental availability of approximately $2.15 billion, net of letters of credit. Qurate Retail is in compliance with all debt covenants as of December 31, 2022.

As of December 31, 2022, QVC’s consolidated leverage ratio (as calculated under QVC’s senior secured notes) was greater than 3.5x and as a result QVC is restricted in its ability to make unlimited dividends or other restricted payments. Dividends made by QVC to service the principal and interest of indebtedness of its parent entities as well as payments made by QVC to Qurate Retail under an intercompany tax sharing agreement in respect of certain tax obligations of QVC and its subsidiaries are permitted under the bond indenture and credit agreement.

Qurate Retail benefits from an indemnification agreement with Liberty Broadband with respect to its LI LLC Charter exchangeable debentures. Pursuant to the indemnification agreement, Liberty Broadband will be required to indemnify LI LLC for any payments made to a holder of such debentures that exercises its exchange right on or before the put/call date of October 5, 2023 in excess of the sum of the adjusted principal amount of such debentures plus certain estimated tax benefits to Qurate Retail, if any, resulting from the exchange. LI LLC would be responsible for paying the adjusted principal amount to such holder. This indemnity is supported by a negative pledge in favor of Qurate Retail on 1.0 million reference shares of Class A common stock of Charter held at Liberty Broadband that underlie the LI LLC Charter exchangeable debentures. The indemnification asset on Qurate Retail’s balance sheet is valued based on the estimated exchange feature in the LI LLC Charter exchangeable debentures. As of December 31, 2022, a holder of the LI LLC Charter exchangeable debentures has the ability to put their debentures on October 5, 2023, and accordingly, the indemnification asset is included as a current asset in our balance sheet as of December 31, 2022.

Important Notice: Qurate Retail (Nasdaq: QRTEA, QRTEB, QRTEP) will discuss Qurate Retail’s earnings release on a conference call which will begin at 8:30 a.m. (E.T.) on March 1, 2023. The call can be accessed by dialing (877) 704-4234 or (215) 268-9904, passcode 13735786, 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 /investors/news-events/ir-calendar. Links to this press release and replays of the call will also be available on Qurate Retail’s website.

This press release includes certain forward-looking statements, including statements about business strategies and initiatives and their expected benefits, market potential, future financial performance and prospects, free cash flow, insurance recoveries, cost cutting measures, sale and leaseback recoveries, market conditions, the indemnification by Liberty Broadband, future repayment of debt, 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 Qurate Retail, changes in law and government regulations, the availability of investment opportunities, general market conditions (including as a result of COVID-19 or other public health crises), issues impacting the global supply chain and labor market and market conditions conducive to stock repurchases. These forward-looking statements speak only as of the date of this press release, 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 refer to the publicly filed documents of Qurate Retail, including the most recent Form 10-K, for additional information about Qurate Retail and about the risks and uncertainties related to Qurate Retail'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 Qurate Retail, QVC (and certain of its subsidiaries), Zulily and Cornerstone together with a reconciliation to that entity or such business’s operating income, as determined under GAAP. Qurate Retail defines Adjusted OIBDA as operating income (loss) plus depreciation and amortization, stock-based compensation, separately reported litigation settlements, transaction related costs (including restructuring, integration and advisory fees), impairments and fire-related costs. Further, this press release includes Adjusted OIBDA margin which is also a non-GAAP financial measure. Qurate Retail defines Adjusted OIBDA margin as Adjusted OIBDA divided by revenue.

Qurate Retail 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’s 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, Qurate Retail 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 Qurate Retail'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 Qurate Retail. Qurate Retail 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. Qurate Retail defines adjusted earnings per share as diluted earnings per share plus the diluted per share effects of certain adjustments, net of tax.

Qurate Retail 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, Qurate Retail 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 Qurate Retail (Schedule 3).

This press release also references certain financial metrics on a constant currency basis, which is a non-GAAP measure, for Qurate Retail. 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.

Qurate Retail 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. 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 Qurate Retail’s Adjusted OIBDA to its operating income (loss) calculated in accordance with GAAP for the three months ended December 31, 2021, March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022 and years ended December 31, 2021 and 2022.

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SCHEDULE 2

The following table provides a reconciliation of Adjusted OIBDA for QVC, Zulily and Cornerstone to that entity or such businesses’ operating income (loss) calculated in accordance with GAAP for the three months ended December 31, 2021, March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022 and years ended December 31, 2021 and 2022.

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SCHEDULE 3

The following table provides a reconciliation of Qurate Retail’s net income (loss) to its adjusted net income and diluted earnings (loss) per share to adjusted earnings per share, in each case, calculated in accordance with GAAP for the three months ended December 31, 2021, March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022 and years ended December 31, 2021 and 2022.

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SCHEDULE 4

The following table provides certain incremental costs incurred and the insurance receivable balance related to the Rocky Mount fulfillment center fire for the three months ended March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022.