Qurate Piles onto Job Cuts With 85 More
The cost-cutting continues at Qurate.
In a Nutshell: The owner of QVC, HSN, Cornerstone and Zulily saw mixed revenue trends in the first quarter.
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“Our customer file continues to be pressured and while we have multiple efforts underway to re-activate customer groups, we expect the impact of these initiatives to take several quarters,” Qurate president and CEO David Rawlinson said in a statement. “We successfully managed towards higher average selling prices through price increases and an elevated merchandise strategy leveraging the improved freshness of our product assortment. In addition, we enhanced programming and improved the performance of our daily specials by returning the urgency of a 24-hour sale.”
In a conference call with Wall Street analysts Friday, Rawlinson said Qurate’s Project Athens is strengthening customer relationships, operating discipline and cost control, and driving streaming growth that the company wants to carry into 2024.
“I’m pleased with the significant progress we made on initial margins. From our pricing and merchandising efforts, we expect to see material improvement in our profitability in the back half of this year,” he said.
Rawlinson pointed out that because “most retailers did not reduce inventory to the extent we did in 2022,” promotions continue to be a dominant force in the landscape. “Inflation remains elevated. Interest rates are rising and consumer sentiment is low by historic standards,” he said, reiterating the 400 jobs Qurate cut in February to control costs.
“We have not experienced any meaningful disruption from the workforce reductions,” Rawlinson said. Zulily eliminated 85 roles in March, resulting in a $4 million restructuring charge in the first quarter that should save $14 million a year.
Rawlinson said existing customers purchased “on average 30 items and their spend grew to $1,500 per customer in the 12 months ended March 31.”
The company is bringing back the 24-hour sale and scrounging around for fresh merchandise to attract and re-engage customers. It’s carefully managing the product assortment to make strategic price increases. Higher priced apparel subcategories, such as dresses and denim, are performing well, Rawlinson said. Qurate is going on hard on higher-ticket accessories such as leather handbags, which did well in the first quarter.
HSN is working with Christan Siriano for the launch of C. Wonder, a ready-to-wear apparel collection.
In the quarter, the company said it repaid $214 million of QVC’s 4.375 percent senior secured notes due March 2023.
Separately, Qurate has 180 calendar days to regain compliance after it received a notice that its stock had fallen below the $1 per share requirement for 30 consecutive business days.
Net Sales: Total net revenue for the first quarter ended March 31 fell 8 percent to $2.64 billion from $2.9 billion a year ago.
By division, QxH for its QVC and HSN business in the U.S. posted a 5 percent decrease in revenue to $1.60 billion from $1.68 billion, mostly due to the decline in units shipped because of fewer customers and a weakened consumer sentiment at HSN. Sales across all categories reflected declines, while apparel was flat. Consumer sentiment was also weak due to inflation in Europe and Japan. QVC International fell 12 percent to $592 million from $670 million, most due to the negative impact of exchange rate fluctuations. Zulily revenue was down 17 percent to $192 million from $232 million, largely driven by reduced traffic to the site that was partially offset by a 9 percent higher average selling price. The Cornerstone group posted a 13 percent decline to $259 million from $297 million, reflecting the increasingly promotional environment in the home category.
Earnings: Net income for the quarter was $20 million, or 5 cents a diluted share, versus $1 million a year ago, or 0 cents. On an adjusted basis, the net loss was $20 million, or 5 cents a diluted share, against net income of $58 million, or 15 cents, a year ago.
Wall Street was expecting an adjusted diluted loss of 8 cents per share on revenue of $2.56 billion.
The company provides data on operating income to provide a clearer picture on the firm’s performance. It posted operating income of $176 million in the quarter, representing a 66 percent gain from $106 million a year ago. And on an adjusted OIBDA basis, or operating income before depreciation and amortization, total operating income was $179 million, or a 47 percent decline from $335 million in the year-ago period.
CEO’s Take: “Our turnaround is underway and we expect to see material improvement in our profitability in the back half of this year,” Rawlinson said.