Yahoo Finance Qurate Retail, Inc. Reports Fourth Quarter and Year End 2022 Financial Results
ENGLEWOOD, Colo., March 01, 2023--(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 20th
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.
FOURTH QUARTER 2022 FINANCIAL RESULTS | |||||||||||||
(amounts in millions) | 4Q21 | 4Q22 | % Change | % Change | |||||||||
Revenue | |||||||||||||
QxH | $ | 2,539 | $ | 2,258 | (11 | )% | |||||||
QVC International | 813 | 666 | (18 | )% | (4 | )% | |||||||
Cornerstone | 357 | 348 | (3 | )% | |||||||||
Zulily | 351 | 254 | (28 | )% | |||||||||
Intersegment eliminations | (1 | ) | — | NM | |||||||||
Total Qurate Retail Revenue | $ | 4,059 | $ | 3,526 | (13 | )% | (10 | )% | |||||
Operating Income (Loss) | |||||||||||||
QxH(b) | $ | 247 | $ | 28 | (89 | )% | |||||||
QVC International | 141 | 85 | (40 | )% | (27 | )% | |||||||
Cornerstone | 27 | (14 | ) | NM | |||||||||
Zulily(c) | (396 | ) | (47 | ) | 88 | % | |||||||
Unallocated corporate cost | (12 | ) | (10 | ) | 17 | % | |||||||
Total Qurate Retail Operating Income (Loss) | $ | 7 | $ | 42 | NM | NM | |||||||
Adjusted OIBDA (Loss) | |||||||||||||
QxH | $ | 374 | $ | 150 | (60 | )% | |||||||
QVC International | 160 | 97 | (39 | )% | (26 | )% | |||||||
Cornerstone | 34 | (7 | ) | NM | |||||||||
Zulily | (10 | ) | (36 | ) | (260 | )% | |||||||
Unallocated corporate cost | (8 | ) | (7 | ) | 13 | % | |||||||
Total Qurate Retail Adjusted OIBDA (Loss) | $ | 550 | $ | 197 | (64 | )% | (60 | )% | |||||
_____________________
a) | For a definition of constant currency financial metrics, see the accompanying schedules. | |
b) | In the fourth quarter of 2021, QxH incurred $21 million of costs related to the fire at its Rocky Mount, NC fulfillment center. In the fourth quarter of 2022, QxH incurred $29 million of restructuring and fire related costs, net of recoveries. These charges are included in operating income and excluded from Adjusted OIBDA. See reconciling schedule 2. | |
c) | In the fourth quarter of 2021, Zulily incurred a $363 million non-cash impairment charge related to its tradename and goodwill. In the fourth quarter of 2022, Zulily recorded $2 million in restructuring charges. These charges are included in operating income and excluded from Adjusted OIBDA. See reconciling schedule 2. |
FULL YEAR 2022 FINANCIAL RESULTS | |||||||||||||
(amounts in millions) | 2021 | 2022 | % Change | % Change | |||||||||
Revenue | |||||||||||||
QxH | $ | 8,277 | $ | 7,359 | (11 | )% | |||||||
QVC International | 3,077 | 2,528 | (18 | )% | (6 | )% | |||||||
Cornerstone | 1,238 | 1,313 | 6 | % | |||||||||
Zulily | 1,453 | 906 | (38 | )% | |||||||||
Intersegment eliminations | (1 | ) | — | NM | |||||||||
Total Qurate Retail Revenue | $ | 14,044 | $ | 12,106 | (14 | )% | (11 | )% | |||||
Operating Income (Loss) | |||||||||||||
QxH(b) | $ | 1,018 | $ | (1,820 | ) | NM | |||||||
QVC International | 489 | 306 | (37 | )% | (28 | )% | |||||||
Cornerstone | 108 | 48 | (56 | )% | |||||||||
Zulily(c) | (469 | ) | (539 | ) | (15 | )% | |||||||
Unallocated corporate cost | (59 | ) | (36 | ) | 39 | % | |||||||
Total Qurate Retail Operating Income (Loss) | $ | 1,087 | $ | (2,041 | ) | NM | NM | ||||||
Adjusted OIBDA (Loss) | |||||||||||||
QxH | $ | 1,439 | $ | 750 | (48 | )% | |||||||
QVC International | 562 | 358 | (36 | )% | (27 | )% | |||||||
Cornerstone | 137 | 78 | (43 | )% | |||||||||
Zulily | (12 | ) | (97 | ) | (708 | )% | |||||||
Unallocated corporate cost | (46 | ) | (25 | ) | 46 | % | |||||||
Total Qurate Retail Adjusted OIBDA (Loss) | $ | 2,080 | $ | 1,064 | (49 | )% | (46 | )% | |||||
_____________________
a) | For a definition of constant currency financial metrics, see the accompanying schedules. | |
b) | For the year ended December 31, 2021, QxH incurred $21 million of costs related to the fire at its Rocky Mount, NC fulfillment center. For the year ended December 31, 2022, QxH incurred (i) a $2.7 billion non-cash impairment charge related to goodwill and the HSN tradename, (ii) $520 million of gains related to the sale and leaseback of six US properties and (iii) a $10 million net gain related to restructuring and fire related costs, net of recoveries. These items are included in operating income and excluded from Adjusted OIBDA. See reconciling schedule 2. | |
c) | For the year ended December 31, 2021, Zulily incurred a $363 million non-cash impairment charge related to its tradename and goodwill. For the year ended December 31, 2022, Zulily recorded (i) a $366 million non-cash impairment charge related to its tradename and goodwill and (ii) $13 million in restructuring charges. These items are included in operating income and excluded from Adjusted OIBDA. |
FOURTH QUARTER AND FULL YEAR 2022 NET INCOME AND ADJUSTED NET INCOME(3) | |||||||||||||||||
(amounts in millions) | 4Q21 | 4Q22 | 2021 | 2022 | |||||||||||||
Net income (loss) | $ | (215 | ) | $ | (51 | ) | $ | 340 | $ | (2,594 | ) | ||||||
Adjusted net income (loss)(a) | $ | 160 | $ | (18 | ) | $ | 716 | $ | 58 | ||||||||
Basic weighted average shares | 389 | 381 | 403 | 380 | |||||||||||||
Potentially dilutive shares | 11 | 1 | 12 | 3 | |||||||||||||
Diluted WASO | 400 | 382 | 415 | 383 | |||||||||||||
GAAP EPS(b) | $ | (0.54 | ) | $ | (0.13 | ) | $ | 0.82 | $ | (6.83 | ) | ||||||
Adjusted EPS(a) | $ | 0.40 | $ | (0.05 | ) | $ | 1.73 | $ | 0.15 | ||||||||
_____________________
a) | See reconciling schedule 3. | |
b) | Represents diluted net income per share attributable to Series A and Series B common stockholders as presented in Qurate Retail’s financial statements. |
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.
FOURTH QUARTER 2022 SUPPLEMENTAL METRICS | ||||||||||||||
(amounts in millions unless otherwise noted) | 4Q21 | 4Q22 | % Change | % Change | ||||||||||
QxH | ||||||||||||||
Cost of Goods Sold % of Revenue | 68.6 | % | 72.9 | % | 430 | bps | ||||||||
Operating Income Margin (%)(b) | 9.7 | % | 1.2 | % | (850 | )bps | ||||||||
Adjusted OIBDA Margin (%)(b) | 14.7 | % | 6.6 | % | (810 | )bps | ||||||||
Average Selling Price | $ | 55.34 | $ | 53.95 | (3 | )% | ||||||||
Units Sold | (9 | )% | ||||||||||||
Return Rate(c) | 13.1 | % | 12.0 | % | (110 | )bps | ||||||||
eCommerce Revenue(d) | $ | 1,598 | $ | 1,413 | (12 | )% | ||||||||
eCommerce % of Total Revenue | 62.9 | % | 62.6 | % | (30 | )bps | ||||||||
Mobile % of eCommerce Revenue(e) | 67.0 | % | 67.9 | % | 90 | bps | ||||||||
QVC – International | ||||||||||||||
Cost of Goods Sold % of Revenue | 61.1 | % | 64.0 | % | 290 | bps | ||||||||
Operating Income Margin (%) | 17.3 | % | 12.8 | % | (450 | )bps | ||||||||
Adjusted OIBDA Margin (%) | 19.7 | % | 14.6 | % | (510 | )bps | ||||||||
Average Selling Price | (13 | )% | 3 | % | ||||||||||
Units Sold | (6 | )% | ||||||||||||
Return Rate(c) | 18.0 | % | 18.6 | % | 60 | bps | ||||||||
eCommerce Revenue(d) | $ | 402 | $ | 326 | (19 | )% | (8 | )% | ||||||
eCommerce % of Total Revenue | 49.4 | % | 48.9 | % | (50 | )bps | ||||||||
Mobile % of eCommerce Revenue(e) | 75.1 | % | 70.7 | % | (440 | )bps | ||||||||
Cornerstone | ||||||||||||||
Cost of Goods Sold % of Revenue | 59.3 | % | 71.2 | % | 1,190 | bps | ||||||||
Operating Income Margin (%) | 7.6 | % | (4.0 | )% | NM | |||||||||
Adjusted OIBDA Margin (%) | 9.5 | % | (2.0 | ... | ||||||||||
