Qurate Retail, Inc. Reports Fourth Quarter and Year End 2021 Financial Results

ENGLEWOOD, Colo.–(BUSINESS WIRE)–Qurate Retail, Inc. (“Qurate Retail”) (Nasdaq: QRTEA, QRTEB, QRTEP) today reported fourth quarter and year end 2021 results⁽¹⁾.

“As a team we are focused on a turnaround of this business that will modernize the value proposition, stabilize our core flagship brands and capitalize on growth opportunities,” said David Rawlinson, President and CEO of Qurate Retail. “In the fourth quarter, we managed through a number of continuing challenges and are not pleased with the performance. We feel confident in our ability to deliver, although we know it will take time to improve some aspects of the business and innovate.”

“As we concentrate on enhancing the value proposition and establishing a new growth path, we are maintaining a focus on cost control and free cash flow generation. We believe that we can sustain strong free cash flow while we manage through these transitions and invest in the future.”

Fourth quarter and full year 2021 operating results:

• Total Qurate Retail revenue decreased 9% to $4.1 billion in Q4, and decreased 1% to $14 billion in full year
  • In constant currency⁽²⁾ revenue decreased 8% in Q4 and 1% in full year
  • eCommerce revenue decreased 9% to $2.6 billion or 65% of total revenue in Q4, and decreased 1% to $8.8 billion or 63% of total revenue in full year
• Qurate Retail reported diluted EPS of $(0.54) in Q4 and $0.82 in full year
  • Adjusted diluted EPS⁽³⁾ of $0.40 in Q4 and $1.73 in full year
• QxH revenue decreased 7% in Q4 and 3% in full year
• QVC International revenue decreased 9% in Q4 and increased 4% in full year
  • In constant currency, revenue decreased 5% in Q4 and increased 2% in full year
• Zulily revenue decreased 30% in Q4 and 11% in full year
• Cornerstone revenue increased 8% in Q4 and 16% in full year

Corporate updates:

• Distributed special cash dividend of $1.25 per common share on November 22, 2021, for an aggregate dividend of approximately $488 million
• From November 1, 2021 through January 31, 2022, repurchased 18.2 million QRTEA shares at an average price per share of $9.22 (unadjusted for special cash dividend distribution) and total cost of $168 million
• As of December 31, 2021, all 3.50% MSI exchangeable debentures were exchanged or redeemed for a net cost of $315 million, after settlement of financial instruments

Discussion of Results

Unless otherwise noted, the following discussion compares financial information for the three months and year ended December 31, 2021 to the same periods in 2020.

FOURTH QUARTER 2021 FINANCIAL RESULTS
(amounts in millions)	4Q20				4Q21				% Change			% Change Constant Currency(a)
Revenue
QxH	$	2,723			$	2,539			(7	)%
QVC International		896				813			(9	)%		(5	)%
Zulily		503				351			(30	)%
Cornerstone		331				357			8	%
Intersegment eliminations		(1	)			(1	)		–	%
Total Qurate Retail Revenue	$	4,452			$	4,059			(9	)%		(8	)%
Operating Income (Loss)
QxH(b)	$	384			$	247			(36	)%
QVC International		144				141			(2	)%		2	%
Zulily(c)		(15	)			(396	)		NM
Cornerstone		34				27			(21	)%
Unallocated corporate cost		(17	)			(12	)		29	%
Total Qurate Retail Operating Income (Loss)	$	530			$	7			NM			NM
Adjusted OIBDA (Loss)
QxH	$	486			$	374			(23	)%
QVC International		162				160			(1	)%		2	%
Zulily		9				(10	)		NM
Cornerstone		40				34			(15	)%
Unallocated corporate cost		(14	)			(8	)		43	%
Total Qurate Retail Adjusted OIBDA (Loss)	$	683			$	550			(19	)%		(19	)%

---

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 which are included in Operating Income and excluded from adjusted OIBDA. See reconciling schedule 4.
c)		Zulily incurred a $363 million non-cash impairment charge related to its tradename and goodwill in the fourth quarter of 2021.

FULL YEAR 2021 FINANCIAL RESULTS
(amounts in millions)	2020				2021				% Change			% Change Constant Currency(a)
Revenue
QxH	$	8,505			$	8,277			(3	)%
QVC International		2,967				3,077			4	%		2	%
Zulily		1,636				1,453			(11	)%
Cornerstone		1,070				1,238			16	%
Intersegment eliminations		(1	)			(1	)		–	%
Total Qurate Retail Revenue	$	14,177			$	14,044			(1	)%		(1	)%
Operating Income (Loss)
QxH(b)	$	1,128			$	1,018			(10	)%
QVC International		439				489			11	%		10	%
Zulily(c)		(12	)			(469	)		NM
Cornerstone		64				108			69	%
Unallocated corporate cost		(47	)			(59	)		(26	)%
Total Qurate Retail Operating Income (Loss)	$	1,572			$	1,087			NM			NM
Adjusted OIBDA (Loss)
QxH	$	1,547			$	1,439			(7	)%
QVC International		510				562			10	%		8	%
Zulily		83				(12	)		NM
Cornerstone		94				137			46	%
Unallocated corporate cost		(36	)			(46	)		(28	)%
Total Qurate Retail Adjusted OIBDA (Loss)	$	2,198			$	2,080			(5	)%		(6	)%

---

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 which are included in Operating Income and excluded from adjusted OIBDA. See reconciling schedule 4.
c)		Zulily incurred a $363 million non-cash impairment charge related to its tradename and goodwill in the fourth quarter of 2021.

FOURTH QUARTER AND FULL YEAR 2021 NET INCOME AND ADJUSTED NET INCOME(3)
(amounts in millions)	4Q20			4Q21				% Change					2020			2021			% Change
Net income (loss)	$	666		$	(215	)		NM					$	1,204		$	340		(72	)%
Adjusted net income(a)	$	680		$	160			(76	)%				$	1,258		$	716		(43	)%
Basic weighted average shares outstanding (“WASO”)		416			389									416			403
Potentially dilutive shares		11			11									5			12
Diluted WASO		427			400									421			415
GAAP EPS(b)	$	1.56		$	(0.54	)		NM					$	2.86		$	0.82		(71	)%
Adjusted EPS(a)	$	1.59		$	0.40			(75	)%				$	2.99		$	1.73		(42	)%

---

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 primarily due to a 6% decrease in units sold, reflecting supply chain constraints and product scarcity for home and electronics. Average selling price was flat in the quarter. QxH experienced a 12% increase in average spend per customer and an 11% increase in items purchased per customer, which were offset by a decline in customer count versus 2020’s solid gains. QxH reported declines primarily in home and electronics, partially offset by growth in apparel and beauty. For the full year, QxH revenue decreased due to a 2% decline in average selling price and 1% decrease in units sold. QxH saw an 8% increase in average spend per customer and a 10% increase in items purchased per customer for the full year, which were offset by reduced customer count. QxH experienced declines in home, electronics and beauty, partially offset by growth in apparel and accessories.

In the fourth quarter, operating income and adjusted OIBDA margin⁽³⁾ decreased primarily due to higher fulfillment (freight and warehouse) and marketing expenses, lower product margins, higher fixed costs and bad debt expense. These pressures were partially offset by lower incentive compensation accruals. For the full year, operating income and adjusted OIBDA margin decreased primarily due to higher fulfillment and marketing expenses, partially offset by lower incentive compensation accruals and lower inventory obsolescence and bad debt expense.

For the quarter and full year, operating income includes $21 million of costs related to the fire that occurred at QVC’s Rocky Mount, NC fulfillment center on December 18, 2021. Rocky Mount was Qurate Retail’s second-largest fulfillment center, processing approximately 25% to 30% of volume for QVC-US and serving as QVC-US’s primary returns center for hard goods. The building was significantly damaged because of the fire and related smoke and will be closed for the foreseeable future. The Company has taken steps to mitigate disruption to operations including diverting inbound orders to its other fulfillment centers and will continue to leverage its existing fulfillment centers in the near-term. Excluding Rocky Mount, QxH operates eight fulfilment centers in the US.

In the fourth quarter, QxH incurred fire related costs of approximately $250 million, which includes (i) $134 million in loss on inventory, (ii) $87 million in loss on fixed assets, and (iii) $29 million in other fire related costs, including $21 million of costs that were not fully reimbursable by QVC’s insurance policies, primarily related to shut down pay and severance expense that were netted with expected insurance recoveries. Based on the provisions of QVC’s insurance policies, Qurate Retail has determined that recovery of certain fire related costs is probable, and an insurance receivable balance of $129 million, net of $100 million of insurance proceeds received in advance, has been recorded as of December 31, 2021. As of the date of this release, Qurate Retail is still in the process of assessing damage to property and inventory and submitting relevant insurance claims. There is approximately $117 million of inventory at the Rocky Mount facility that is currently being assessed for damage and is included on the consolidated balance sheet as of December 31, 2021. We anticipate any additional inventory losses will be covered by our insurance policies. QxH expects to continue to record additional costs and recoveries until the property and inventory assessment is complete and the insurance claim is fully settled. While the Company has started taking steps to minimize the overall impact to the business, we expect a negative impact to net sales because of lost inventory as well as increased warehouse and logistics costs in 2022.

QVC International

For the quarter, US Dollar denominated results were negatively affected by exchange rate fluctuations. The US Dollar strengthened 8% versus the Japanese Yen and 4% against the Euro, partially offset by weakening 2% versus the British Pound. For the full year, US Dollar denominated results were positively affected by exchange rate fluctuations. The US Dollar weakened 7% versus the British Pound and 3% against the Euro, partially offset by strengthening 3% versus the Japanese Yen. 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 2021.

QVC International’s constant currency revenue declined in the fourth quarter primarily due to a 6% decline in units sold. Average selling price was flat. QVC International also experienced supply chain constraints in Europe and reported declines primarily in home, beauty and electronics. For the full year, QVC International’s constant currency revenue grew primarily due to a 2% higher average selling price, partially offset by fewer units sold. QVC International reported revenue growth primarily in apparel, home and jewelry, partially offset by a decline primarily in electronics.

For the fourth quarter and full year, operating income and adjusted OIBDA margin increased primarily due to lower management incentive accruals and inventory obsolescence expenses and higher product margins, partially offset by fixed cost deleverage.

Zulily

For the quarter and full year, Zulily revenue decreased, primarily reflecting supply constraints and marketing challenges.

Operating loss for the quarter and full year increased primarily due to a $363 million non-cash impairment charge related to Zulily’s tradename and goodwill incurred in the fourth quarter of 2021.

Adjusted OIBDA margin decreased in the quarter primarily due to fixed cost deleverage and higher fulfilment and bad debt expenses, which were partially offset by higher product margins, lower marketing expense due to reduced spend and lower management incentive accruals. For the full year, adjusted OIBDA margin decreased primarily due to higher fulfillment, fixed costs and marketing expenses, which were partially offset by lower management incentive accruals and higher product margins.

Cornerstone

For the quarter and full year, Cornerstone generated record revenue growth 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 apparel and home products at Garnet Hill. For the quarter, operating income and adjusted OIBDA margin decreased primarily from higher freight and marketing costs, which were partially offset by product margin gains. For the full year, operating income and adjusted OIBDA margin increased primarily from sales growth, product margin gains and fixed cost leverage, which were partially offset by higher freight costs.

FOURTH QUARTER 2021 SUPPLEMENTAL METRICS
(amounts in millions unless otherwise noted)		4Q20				4Q21				% Change			% Change Constant Currency(a)
QxH
Cost of Sales % of Revenue			66.8	%			68.6	%		180 bps
Operating Income Margin (%)			14.1	%			9.7	%		(440) bps
Adjusted OIBDA Margin (%)			17.8	%			14.7	%		(310) bps
Average Selling Price		$	55.17			$	55.34			–	%
Units Sold										(6	)%
Return Rate(b)			12.0	%			13.1	%		110 bps
eCommerce Revenue(c)		$	1,701			$	1,598			(6	)%
eCommerce % of Total Revenue			62.5	%			62.9	%		40 bps
Mobile % of eCommerce Revenue(d)			65.8	%			67.0	%		120 bps
QVC – International
Cost of Sales % of Revenue			62.3	%			61.1	%		(120) bps
Operating Income Margin (%)			16.1	%			17.3	%		120 bps
Adjusted OIBDA Margin (%)			18.1	%			19.7	%		160 bps
Average Selling Price										(4	)%		–	%
Units Sold										(6	)%
Return Rate(b)			18.5	%			18.0	%		(50) bps
eCommerce Revenue(c)		$	434			$	402			(7	)%		(4	)%
eCommerce % of Total Revenue			48.4	%			49.4	%		100 bps
Mobile % of eCommerce Revenue(d)			73.3	%			75.1	%		180 bps
Zulily
Cost of Sales % of Revenue			77.9	%			78.9	%		100 bps
Operating Income Margin (%)(e)			(3.0	)%			(112.8	)%		NM
Adjusted OIBDA Margin (%)			1.8	%			(2.8	)%		(460) bps
Mobile % of Total Orders			75.0	%			75.2	%		20 bps
Cornerstone
Cost of Sales % of Revenue			58.6	%			59.3	%		70 bps
Operating Income Margin (%)			10.3	%			7.6	%		(270) bps
Adjusted OIBDA Margin (%)			12.1	%			9.5	%		(260) bps
eCommerce Revenue(c)		$	249			$	274			10	%
eCommerce % of Total Revenue			75.2	%			76.8	%		160 bps

---

a)		For a definition of constant currency financial metrics, see the accompanying schedules.
b)		Measured as returned sales over gross shipped sales in US dollars.
c)		Based on net revenue.
d)		Based on gross US dollar orders.
e)		Zulily incurred a $363 million non-cash impairment charge related to its tradename and goodwill in the fourth quarter of 2021.

FULL YEAR 2021 SUPPLEMENTAL METRICS
(amounts in millions unless otherwise noted)		2020				2021				% Change			% Change Constant Currency(a)
QxH
Cost of Sales % of Revenue			65.4	%			66.0	%		60 bps
Operating Income Margin (%)			13.3	%			12.3	%		(100) bps
Adjusted OIBDA Margin (%)			18.2	%			17.4	%		(80) bps
Average Selling Price		$	53.63			$	52.70			(2	) %
Units Sold										(1	) %
Return Rate(b)			14.3	%			14.1	%		(20) bps
eCommerce Revenue(c)		$	5,089			$	5,003			(2	) %
eCommerce % of Total Revenue			59.8	%			60.4	%		60 bps
Mobile % of eCommerce Revenue(d)			65.3	%			66.4	%		110 bps
LTM Total Customers(e)			11.6				10.4			(10	) %
QVC – International
Cost of Sales % of Revenue			62.5	%			61.8	%		(70) bps
Operating Income Margin (%)			14.8	%			15.9	%		110 bps
Adjusted OIBDA Margin (%)			17.2	%			18.3	%		110 bps
Average Selling Price										4	%		2	%
Units Sold										(1	) %
Return Rate(b)			18.8	%			18.1	%		(70) bps
eCommerce Revenue(c)		$	1,359			$	1,458			7	%		5	%
eCommerce % of Total Revenue			45.8	%			47.4	%		160 bps
Mobile % of eCommerce Revenue(d)			73.2	%			73.4	%		20 bps
LTM Total Customers(e)			4.9				4.7			(4	) %
										`
Zulily
Cost of Sales % of Revenue			75.1	%			77.6	%		250 bps
Operating Income Margin (%)(f)			(0.7	)%			(32.3	)%		NM
Adjusted OIBDA Margin (%)			5.1	%			(0.8	)%		(590) bps
Mobile % of Total Orders			74.4	%			75.0	%		60 bps
LTM Total Customers(e)			5.6				4.6			(18	) %
Cornerstone
Cost of Sales % of Revenue			60.3	%			59.3	%		(100) bps
Operating Income Margin (%)			6.0	%			8.7	%		270 bps
Adjusted OIBDA Margin (%)			8.8	%			11.1	%		230 bps
eCommerce Revenue(c)		$	811			$	915			13	%
eCommerce % of Total Revenue			75.8	%			73.9	%		(190) bps

---

a)		For a definition of constant currency financial metrics, see the accompanying schedules.
b)		Measured as returned sales over gross shipped sales in US dollars.
c)		Based on net revenue.
d)		Based on gross US Dollar orders.
e)		LTM: Last twelve months.
f)		Zulily incurred a $363 million non-cash impairment charge related to its tradename and goodwill in the fourth quarter of 2021

Taxes

Qurate Retail estimates that its average annual effective tax rate through 2022 will be in the range of 27-31% including federal, state and foreign taxes. This is elevated relative to prior years due to the expiration of certain of Qurate Retail’s green energy investment credits at the end of 2021. This estimate excludes the impact of one-time items and is subject to adjustment.

Capital Returns

On November 22, 2021, Qurate Retail distributed a special cash dividend to holders of QRTEA and QRTEB common stock in the amount of $1.25 per common share, for an aggregate dividend of $488 million.

From November 1, 2021 through January 31, 2022, Qurate Retail repurchased approximately 18.2 million shares of Series A common stock (Nasdaq: QRTEA) at an average cost per share of $9.22 (unadjusted for special cash dividend distribution) for total cash consideration of $168 million. The remaining repurchase authorization for Qurate Retail is approximately $492 million as of February 1, 2022.

FOOTNOTES

1)		Qurate Retail’s President and CEO, David Rawlinson, and Executive Chairman, Greg Maffei will discuss these highlights and other matters on Qurate Retail’s earnings conference call that will begin at 8:30 a.m. (E.S.T.) on February 25, 2022. For information regarding how to access the call, please see “Important Notice” later in this document.
2)		For a definition of constant currency financial metrics, see the accompanying schedules. Applicable reconciliations can be found in the financial tables at the beginning of this press release.
3)		For definitions and applicable reconciliations of adjusted OIBDA, adjusted OIBDA margin, adjusted net income and adjusted diluted EPS, see the accompanying schedules.

NOTES

Cash and Debt

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

(amounts in millions)		9/30/2021			12/31/2021
Cash and cash equivalents (GAAP)		$	798		$	587
Indemnification Asset(a)		$	394		$	324
Debt:
QVC senior secured notes(b)		$	4,450		$	4,450
QVC senior secured bank credit facility			120			481
Senior exchangeable debentures(c)			210			—
Total Qurate Retail Group Debt		$	4,780		$	4,931
Senior notes(b)			792			792
Senior exchangeable debentures(c)			1,192			1,160
Corporate Level Debentures			1,984			1,952
Total Qurate Retail, Inc. Debt		$	6,764		$	6,883
Unamortized discount, fair market value adjustment and deferred loan costs			530			106
Total Qurate Retail, Inc. Debt (GAAP)		$	7,294		$	6,989
Other Financial Obligations:
Preferred stock(d)		$	1,260		$	1,261
QVC, Inc. leverage(e)			1.9x			2.1x

---

a)		Indemnity from Liberty Broadband, pursuant to an indemnification agreement with respect to the 1.75% exchangeable debentures due 2046 (the “Charter exchangeable debentures”) issued by Liberty Interactive LLC (“LI LLC”), as described in this press release.
b)		Face amount of Senior Notes and Debentures with no reduction for the unamortized discount.
c)		Face amount of Senior Exchangeable Debentures with no adjustment for the fair market value adjustment.
d)		Preferred Stock has an 8% coupon, $100 per share initial liquidation preference plus accrued and unpaid dividends and is non-voting. It is subject to a mandatory redemption on March 15, 2031. The Preferred Stock is considered a liability for GAAP purposes, and is recorded net of capitalized costs.
e)		As defined in QVC, Inc.’s credit agreement, which was amended and restated on October 27, 2021. Among the definitional changes to QVC, Inc. leverage, two primary revisions include (a) Cornerstone added to the borrowing group and (b) recognition of all unrestricted cash of the borrowers and their restricted subsidiaries. Excluding these revisions and based on terms of the prior credit agreement leverage, QVC, Inc. was 2.1x as of September 30, 2021.

Cash at Qurate Retail decreased $211 million in the fourth quarter as the $488 million special cash dividend, share repurchases, net cash paid to exchange and redeem the 3.50% Motorola Solutions, Inc. (“MSI”) exchangeable debentures and capital expenditures was partially offset by cash from operations, borrowing under QVC’s bank credit facility and $100 million of insurance proceeds representing an advance of funds from the fire at the Rocky Mount fulfillment center.

Total debt at Qurate Retail increased $119 million in the fourth quarter primarily due to borrowing under QVC’s bank credit facility to fund capital returns and the exchange and redemption of the 3.50% MSI exchangeable debentures. QVC’s bank credit facility has $481 million drawn as of December 31, 2021 with available capacity of approximately $2.75 billion, net of letters of credit. During November and December 2021, QVC delivered MSI shares to holders of the 3.50% MSI exchangeable debentures to settle exchanges of the debentures. For holders who did not participate in the exchange, their bonds were redeemed on December 13, 2021 at adjusted principal, plus accrued interest and dividend pass-thru. The 3.50% MSI exchangeable debentures had a fair value of approximately $573 million, and the total cost to exchange and redeem the debentures was approximately $315 million, net of proceeds from unwinding related derivative contracts. No 3.50% MSI exchangeable debentures remain outstanding as of December 31, 2021. Also in the fourth quarter, Qurate Retail repurchased approximately $35 million original principal amount of its 4% exchangeable senior debentures due 2029 as part of its ongoing tax and liability management efforts.

Qurate Retail benefits from an indemnification agreement with Liberty Broadband with respect to its Charter exchangeable debentures. The indemnification agreement compensates Qurate Retail 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 Qurate Retail on the 1.0 million reference shares of Class A common stock of Charter held at Liberty Broadband that underlie the Charter exchangeable debentures. The indemnification asset on Qurate Retail’s balance sheet is valued based on the estimated exchange feature in the Charter exchangeable debentures. As of December 31, 2021, a holder of the Charter exchangeable debentures has the ability to exchange and, accordingly, the indemnification asset is included as a current asset in our balance sheet as of that date.

Important Notice: Qurate Retail, Inc. (Nasdaq: QRTEA, QRTEB, QRTEP) President and CEO, David Rawlinson, and Executive Chairman, Greg Maffei, will discuss Qurate Retail’s earnings release on a conference call which will begin at 8:30 a.

Contacts

Qurate Retail, Inc.

Courtnee Chun, 720-875-5420

Read full story here