Qurate CEO Talks Turnaround and Growth Plans
For a company surrounded by negativity, not to mention a sad stock price, Qurate Retail Inc.’s chief executive officer sees headway in turnaround efforts — and misconceptions that must be corrected.
“We’ve made a lot of progress in the transformation in the last 18 months,” Qurate CEO David Rawlinson 2nd said at the ICR Retail Conference Monday.
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He said revenues are back to being stable, though down low-single digits; that Qurate had its first operating income before depreciation and amortization (OIBDA) growth during the third quarter after eight quarters of declines, and that gross margins across the video commerce businesses are growing.
Rawlinson also said that “substantial” amounts of debt were paid down in 2023; that the company has $1 billion in cash and $2 billion worth of revolver capacity, and “plenty of room to cover our 2024 and 2025 maturities.”
“We did all that while we continue to invest in the things that will be the future of this business. We continue to invest in livestreaming. We continue to experiment across the platform. And we also continue to reinvest in our existing customers. I feel really good both about the difference we’ve made. The third quarter turn was the inflection point. The low point was the first half of 2023. I like what we’re seeing out of our customers. I like what we’re seeing about restoring the profitability of the company.”
To help maintain the momentum, as Rawlinson sees it, on Tuesday, Qurate’s QVC division will launch Scarlett Johansson’s beauty brand The Outset and entrepreneur Kim Gravel, who’s been selling on QVC for about a decade, will launch home decor later this year.
Qurate, with a portfolio consisting of QVC, HSN, Ballard Designs, Frontgate, Garnet Hill and Grandin Road, is the largest player in video commerce (v-commerce), which includes video-driven shopping across linear TV, e-commerce sites, digital streaming and social platforms. The retailer claims it reaches more than 200 million homes worldwide via 14 television channels available on cable/satellite TV, free over-the-air TV, and digital live streaming TV. The retailer also reaches millions of customers via its QVC+ and HSN+ streaming experience, websites, mobile apps, social pages, print catalogs, and in-store destinations.
“We just have this extraordinary track record of building brands, and if anything, you’re going to see that accelerate next year,” Rawlinson said, adding that, “We’re really going to lean into streaming in 2024.”
Still, linear TV, he said, remains strong. “It’s incredibly profitable and it’s incredibly sticky,” said Rawlinson. “Linear TV is going to be with us for a long time…As people move from linear TV to streaming, we want to be there with them. And we’re going to continue to grow e-commerce. We do $6 billion worth of e-commerce. We’re one of the largest e-commerce companies in the United States. Nobody thinks about us like that. And we still think we have massive opportunities in the e-commerce space that are untapped. We’re going to be doing some doubling down there as well. So you will see the mix. There will be a gradual change, but it will be a substantial change. I think we’re still largely known as a linear TV cable company. Ten years from now, that will be a minority of our business and we’ll be known as the leading video based multiplatform retailer and entertainer in the world.
“It’s been an interesting year-and-a-half” of turnaround efforts, said Rawlinson, who joined Qurate as CEO two years ago. “If you’ve been following the stock or the debt, you’ve seen some pretty large fluctuations over the course of that year-and-a-half.”
The stock fluctuated again on Monday, gaining about 7 cents, or 7.7 percent, to 91 cents after Rawlinson’s ICR presentation.
He said the stock, in the way it’s been trading, has been “overly punished” by the market which he said has “over-read” into some of the negative trends experienced by the company. “They thought the trends would continue forever. I think we’ve now shown that we’re on a very different trajectory and we’ve substantially changed almost all of those trends,” Rawlinson said.
The stock price and the company’s profitability have been impacted by the December 2021 fire at the Qurate distribution center in Rocky Mount, N.C., which was Qurate’s biggest fulfillment center, resulting at the time in the loss of about a million customers who couldn’t be served and the loss of hundreds of thousands of dollars in sales. Qurate has also been impacted by the underperforming Zulily business, which was divested last year. Rawlinson referenced both.
Beyond the market undervaluing the stock, Rawlinson, citing another misperception, said, “In my mind, there’s an inexplicable stigma to our core customer. Our core customer is a woman over 45, probably married on average, probably has older kids, maybe kids out of the home. But that woman makes 70 percent of the household purchases. She’s in an age bracket demographically that’s actually growing in the United States, in the Western world, when most other demographics are actually shrinking. So we’re actually part of a growth sector. When people think of us as part of a shrinking sector, that’s just wrong.”
He said that 40-years-and-older customer has been loyal to Qurate brands year after year. “Our existing customer makes a purchase 30 times a year,” Rawlinson said. “Essentially every time she gets a paycheck, she’s making a purchase. So I think there’s this stigma around mostly serving older women that I’m partly offended by, but I also think just misses the boat. Our customer is about the best possible customer that you can have in the world of retail. She’s still there. She’s still with us. We know how to serve her better than anybody else on the planet. And if you understand that, you can understand more of our story and where we’re headed.”
Commenting on Qurate’s holiday performance, Rawlinson said the Black Friday-Cyber Monday stretch was “pretty strong for us” with the level of shopping similarly stable as it was in the third quarter.
“Certainly the bottom didn’t fall out, but we didn’t see an explosion” of business. “The consumer was choosy from what we saw, but we did see [strong] performance when we hit it right. And we saw some good performance actually at the upper end,” he said, citing diamonds, specifically lab-grown diamonds.
He said barring some sort of external macroeconomic event, “the first half of 2024 looks pretty stable — and really that’s all we need.” He said the second half of 2024 is still an unknown.
“We had a really strong third quarter,” said the CEO. “We really turned the corner in terms of both OIBDA growth and free cash flow growth. We are seeing everything we need from the consumer to keep making pretty radical progress on our turnaround into 2024…We’re just concentrating on our existing customer. Our businesses is relatively concentrated. Our best customer is about 18 percent of our file and about 75 to 78 percent of our sales, with 90 percent retention rates.
“These are massive super customers so we have to take care of them. We’re looking at new ways to reward them. We’re in contact with them. We’re bringing them into the studio” to meet hosts and celebrities and get behind-the scenes of the operations. “We’re bringing in even more celebrities, more events, more specials.
“If you were to walk into a QVC studio and get a tour, at some point you would go into what’s kind of a control room and you would see us monitoring what’s happening in terms of the response to the programming in real time,” with sales figures and the response on social media. “We’re also getting really deep in the data. I’m a data guy.” He characterized Qurate as “one of the most data-rich companies that exists.”
Asked what keeps him up at night, Rawlinson replied the macroeconomic environment, the wars in Ukraine and the Middle East, risks to shipping, and up-and-down consumer sentiments. “We’ll have to keep a tight eye on consumer sentiment. Second, when I came in, one of the first things I said was there’s a lot of opportunity just in raw execution, just in getting back to our core disciplines and doing them better. And so when you’re in my seat, just making sure we have the right people who have the right orientation for that execution is really important.
“In the third quarter we started showing we were turning the corner on that period. In the next year to three years, the question is about growth. Can we grow the top line again? Can we grow the number of customers in the customer base again? Can we grow our streaming service? That’s where all the pressure is going to be on the next few years. And we’ve already started working on those questions and we think we have really exciting answers. But making sure we fulfill our promise on those answers is probably the thing that keeps me up at night,” Rawlinson said.
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