QVC Group Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Macro Environment: Faced challenging macro environment with declining linear TV viewership and consumer confidence; QxH minutes viewed declined 15% in Q2.
• Operational Initiatives: Successfully completed HSN's transition to Studio Park in Westchester, PA; launched Hello HSN PA! marketing campaign; welcomed HSN hosts to new studio; ongoing sourcing diversification to reduce dependence on single countries and tariff pressures.
• Social and Streaming Growth: Social and streaming revenue grew over 30% vs Q2 2024; over 100,000 new social customers via TikTok shop; streaming monthly active users grew over 80% to nearly 1.5 million, and minutes watched grew 25%; joined Philo and launched ad-supported QVC2; season 2 of Busy This Week on streaming had strong start.
• Capital Structure: Made progress in reducing net debt by over $1.5 billion since end of 2021; focused on improving gross margins and managing costs.

Segment Performance

• QxH: Revenue declined 11% in Q2. Home revenue decreased 12%, apparel down 9%, beauty down 13%, accessories down 15%, while electronics grew 4%. Adjusted OIBDA margin contracted 165 basis points. Operating loss was driven by a $2.4 billion noncash impairment charge. Operating expenses decreased 13% and SG&A was flat.
• QVC International: Constant currency revenue declined 3%. Adjusted OIBDA decreased 8% and adjusted OIBDA margin declined 60 basis points. Revenue decline was due to a 3% decrease in units shipped and 2% decrease in average selling price, partially offset by favorable returns rate.
• Cornerstone: Revenue declined 8% in the quarter. Adjusted OIBDA margin decreased approximately 30 basis points driven by cost for outside services related to transformation plan and sales deleverage, partially offset by product margin and fulfillment.

Guidance

• Social/Streaming: Continued focus on growing social and streaming businesses, with expectation of increasing their percentage of revenue over time.
• Capital Structure: Ongoing work to strengthen capital structure and balance sheet; proactively evaluating financial and strategic alternatives.
• Sourcing: Target to have no single country represent more than 1/3 of sourced goods in the U.S. by end of the year.

Risks

• Macro Economic: Declining linear TV viewership and volatile consumer confidence continuing to pressure the business.
• Tariffs: Tariff pressures and related sourcing challenges, though sourcing diversification efforts are underway.
• Business Model: Unique business model still facing pressure from tougher macro environment impacting top line and margins.

Q: Can you share some trends in new customers versus reactivated customers versus core customers?

A: Traditional customer count doesn't include new customers from TikTok shop. Over 100,000 new customers via TikTok shop in Q2; new customer count improved vs prior year, average customer spend up 1%, existing customer retention up ~100 basis points vs last year.

Q: Can you share the percentage of sales coming from the core business? And has that changed?

A: Social and streaming revenue is approaching low double digits of QxH revenue. Social and streaming grew over 30% in Q2 vs last year and is a larger percentage of QxH revenue than in Q1; expect increasing social/streaming revenue as a percentage of total revenue over time.

Q: Did you see the tariff impact expected for fiscal '25? And what are your top ways to mitigate tariffs? And then second follow-on, did you see any tariff impact in the second quarter? And are your vendors passing on increased tariff costs?

A: Monitoring tariff impact, being prudent with new orders and canceling certain orders from high tariff countries, actively sourcing from new countries, negotiating with vendors; some price actions in Christmas in July event. Minimal tariff impact on international business; Christmas in July event didn't see big drop-off in demand despite price changes; vendors are being negotiated with regarding tariff impacts.