Earnings Call: Q2 2021

Aug 6, 2021

Ladies and gentlemen, thank you for standing by. Welcome to the Qurate Retail Inc. 2021 Q2 Earnings Call. As As a reminder, this conference is being recorded August 6. I would now like to turn the conference over to Courtney Chung, Chief Portfolio Officer. Please go ahead. Ready. Thank you. Before we begin, we'd like to remind everyone that this call includes certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All participants are in the line with the SEC. These forward looking statements speak only as of the date of this call and Qurate Retail expressly disclaims any obligation or undertaking ready to take questions. To disseminate any updates or revisions to any forward looking statements contained herein to reflect any change in Qurate Retail's expectations with regard thereto participants are in the range of 2.5% to 3.5% to 4.5%. Participants are participating in the financial statements, including adjusted OIBDA, adjusted OIBDA margin, free cash flow and constant currency. Information regarding the comparable GAAP metrics along with required definitions reconciliations, including preliminary note in schedules 1 through 3, can be found in the earnings press release issued today on our earnings presentation, which are available on our website. Today, speaking on the earnings call, we have Qurate Retail CEO, Mike George Qurate Retail Group's CFO, Jeff Davis Qurate Retail Executive Chairman, Greg Maffei And we'd like to welcome Turate Retail President and CEO elect, David Rollington. Now I'll hand the call over to Mike George. Thank you, Courtney, and good morning, everyone. Thank you for joining us today and for your interest in Qurate Retail. Provide important context for our results. We delivered year over year revenue and OIBDA growth on a constant currency basis, all participants are in the range of $1,000,000,000 and $0.20 per share. Revenue increased 11% and OIBDA increased 12% in constant currency. The quarter played out largely as we expected. I'll provide a brief update on our QXH. At QXH, we saw a continued rebound of our best customers with the return to growth of apparel and accessories. All participants were in the quarter. While new and reactivated customer count declined, it remained significantly elevated compared to 2019. I'll provide you with a few comments on the financial results. Similarly, home declined given the steep comps in food, personal protection and cleaning products from the initial stages of the pandemic, but is up high teens from 2019. QVC International maintained strong revenue and OIBDA growth, be sustaining the momentum from last year. Zulily revenue declined as we comped the steepest part of the pandemic curve, we delivered healthy revenue and OIBDA growth compared with 2019. And Cornerstone delivered outstanding performance all participants are in line with record Q2 revenue and OIBDA at all of its businesses. While these results were largely expected, all participants are participating in the process of delivering a strong financial performance. We did not anticipate the degree of product shortages we experienced or the level of inflationary pressures across the P and L, which other retailers are also facing. I'll provide you with a few comments on our financial results. The fact that we delivered year over year growth and OIBDA margin expansion even with these challenges is a testament to the strength of our business model. All participants are in the line with us. The strong second quarter results further confirm our belief that we are a much better business now than when we entered the pandemic present the call to questions. With an expanded and loyal customer base, strength across multiple product categories and more extensive distribution and reach of our digital and video participants are well positioned for growth, poised to take advantage of the long term trends toward online shopping, present a few questions. Before I discuss each of our businesses, I am delighted turn the call over to David Rollinson as my successor. David joined us on August 1st as President and CEO-elect I'll present the role of CEO on October 1. David is the right leader to take this wonderful company forward provide our next chapter of growth. He brings an impressive track record of success, most recently with 2 story brands, Nielsen present a call to Mr. Granger. He is a transformational leader with deep experience in global e commerce I'll present the call to questions. And in digital and data driven businesses, who has played a pivotal role in helping prominent companies like Grainger embrace new customer segments and emerging digital business models, while protecting historic strengths. Operator and he inherits an outstanding management team with deep retail, digital and broadcast expertise, I'll be happy to take your questions. And I can't wait to see what they'll accomplish together as they lead Qurate in our next phase of digital growth and transformation. I'll Thank you, Mike. I could not be more excited to be joining Qurate Retail at this special moment in its present you. Shopping has been forever changed by the pandemic, and Qurate's brands have the international scale, customer affinity and in driving demand across multiple platforms to take advantage of this new world. I believe that providing a deep personal and rich shopping experience is only gaining importance in a commoditizing and more digital world. We have the opportunity to take an energized team and, I'll building on our decades of expertise and investment further accelerate our transition as a leading entertainer and retailer, one that curates truly unique products I'll present the call to our audience and create engaging experiences for a growing audience that desires it. We are well positioned to drive value for our customers, present the call to our shareholders, vendor partners and team members. I'm honored to be leading this talented Qurate team, and I look forward to meeting many of you in the months to come. All participants. Finally, I do want to thank Mike for his many years of very capable leadership of this company. I'm fortunate to inherit a strong foundation, I look forward to working very closely with him for the next 2 months as we transition. Now, I will turn it back to you, Mike. Thank you, David. We are absolutely thrilled to have you on the team. Turning now to QXH, I'll provide you with a few more details on the outlook for the Q1. Thank you, Jim. Thank you, Jim. Thank you, Jim. Thank you, Jim. Thank you, Jim. Thank you, Jim. Thank you, Jim. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. And Jeff will provide more details on the specific drivers. Our results further reinforce our confidence in the long term growth prospects at QXH. I'll provide 5 important takeaways from the quarter. First, customer purchase frequency was outstanding, all participants are in the range of 2.5% and units per customer up 15%, participants are in the range of $1,000,000,000 offset by a 6% decline in average selling price. These results reflect high engagement from our best customers I'll provide a brief update on our financial results. And double digit growth in apparel and accessories, offset by declines in higher price point electronics, beauty and certain home products. I'll participants declined versus 2020, but grew 17% from 2019. Now, we've reported in prior calls that the early indicators of these customers' expected lifetime value were encouraging. Now with the full year of experience behind us, We're thrilled to report that their 12 month retention rates are up slightly compared to the prior year. I'll 3rd, sales of items featured on air were up significantly, indicating high engagement across the customer base participants are in the range of 2% to 3% on top of good growth last year, and that's before factoring in the high viewership growth our business is more balanced across categories, with the home segments now representing a larger portion of the mix have for many years prior to the pandemic. At the same time, apparel and accessories recovered all the sales erosion from the start of the pandemic and are up compared to 2019. Further, underlying consumer demand across both home and fashion participants are even stronger than what we captured due to product shortages. And finally, we were able to expand OIBDA margins participants are in the range of $1,500,000,000 underscoring the strength and stability of our financial model and the agility of our team. Looking now at some of the category drivers. In apparel, the team set a strategy to focus on expanding our top 5 brands at QVC and HSN provide a brief overview of our Q1 results. We are pleased with our Q1 results. We are pleased with our While Beauty declined from last year as we reallocated airtime and TSV slots from Beauty to apparel and accessories, we were encouraged to see color cosmetics begin to rebound in the quarter and we're positive about the longer term outlook for beauty as we reinvest back into the category. Operator. We're particularly excited about our efforts in multicultural and in prestige beauty, 2 white space areas with significant upside, encouraging initial results and broader positive social impact. In home, we were pleased to largely hold on to our gains from the stay at home tailwinds, with the category up 18% versus 2019. This was led by home decor, where demand sales grew 8% year over year and more than 25% from 2019 I'll and culinary down versus last year, but up over 30% from 2019 on the strength of our largely proprietary present the Gourmet Food Business. We also began our Christmas in July events in late June with strong initial results, underscoring the pent up demand and consumer excitement about celebrating holidays this year with family and friends and highlighting our ability to create consumer interest participants are participating in the presentation through relevant programming, engaging experiences and curated gifting ideas. All participants are in the quarter following outstanding growth last Q2. We experienced continued supply chain challenges are in difficult comparisons to the early stages of the pandemic when demand was highest for work from home products and virtual schooling needs. I'll let me now give you a little more flavor on the supply pressures we're experiencing across multiple categories. First, late deliveries. Factory shutdowns in areas like India and Vietnam that experienced a surge of COVID cases, coupled with the severe shortage of ocean containers from Asia and the continued backup at the West Coast ports are contributing to substantial late deliveries, despite our efforts to bring inventory in early. I'll provide you with a few comments on our Q1 results. As a business that focuses on a handful of items a day, we're uniquely impacted when key items aren't available for their air date. I'll provide you with a few more details on our Q2 results. For example, nearly 30% of our TSVs in the quarter were impacted by supply issues. Our teams are continuously adjusting our program and calendars in response. 2nd, product and offer shortages. High industry demand for certain home and electronics products, coupled with chip shortages means that in many cases we're either unable to get sufficient quantities of key items or unable to provide a compelling offer on the day. 3rd, apparel sellouts. The high growth and record sell throughs we're enjoying in apparel we're working diligently to get stocked with fresh fall merchandise by September. We're also seeing record cost pressures, participants are participating inbound and outbound freight and are providing wage increases for our fulfillment center and customer service team members in many markets. We took a modest price increase across categories at the start of Q3 to partially offset these pressures. I'll Moving on to QVC International, which sustained momentum and generated strong year over year revenue and OIBDA growth. Revenue was up in every category and customer count, while down against last year, was up substantially compared to 2019. Are enjoying the benefits in international of geographic diversification with our Japan and German businesses particularly strong, provide a lesser impact from core cutting and businesses that are still at an earlier stage of market development and penetration. Additionally, while we're facing similar supply and cost pressures as in the U. S, the impacts are not as significant. All participants are participating. On slide 10 of the presentation, we highlight our 5 strategic priorities for QXH and QVC International. Let me share a few key achievements, participants will speak to our focus on innovation. As we've demonstrated for the past 35 plus years, we're committed to being there for our customers wherever, present the next generation media platforms. In June, we launched our streaming service on both Comcast Cable all participants are in the same store and its broadband only services. Comcast already carries our linear channels, but now with the rollout of the service, participants can access 6 QVC and HSN linear channels in one place, as well as a catalog of video on demand and original programming Specifically designed for streaming. The streaming app is our flagship, providing a highly immersive, I'll provide an interactive and frictionless experience with the ability to make purchases directly through the app using a remote control, I'll provide a new capability we're deploying across Comcast, Roku, Apple TV and Amazon Fire. I'll provide you with a few more details on our streaming service. As we strive to be a true destination for daily present you the following slides. We launched a new social shopping app called Curio in the UK in May. The new app allows users to share video reviews, discover new products and message one another in a supportive and collaborative environment. I'll provide you with a few more details on our Q2 earnings call. We've built this sense of community for more than 30 years through our TV broadcast. This new app participants are in the early stages. While Curio is in the early stages, participants are in the range of $1,000,000,000. This initial engagement is highly encouraging. It is a terrific example of our ability to leverage our smaller international markets as test beds In Europe, we're also utilizing advanced analytics and machine learning to analyze a range of internal and external data sets to optimize pricing decisions. We're scaling these advanced analytic capabilities and building out additional uses to create more personalized customer experiences as part of our efforts to better engage present our passionate community. Curating special products at compelling value is a central strategic priority, And I want to share 2 examples of category expansion that highlight our curation capabilities, the power of our platforms provide a brief overview of our QVC and our storytelling and production skill set. Actress and businesswoman Candace Cameron Burr started with QVC in 2018 in beauty, followed by the launch of inspirational home products such as journals and decor. And in April, we introduced Candace's new line of women's fashion I'll provide you with our proprietary design and development team. It's exclusive to QVC and encompasses size inclusive staples participants are in the range of the 2nd largest brands in the world. Although the line was only introduced in April, it was one of the Top 10 apparel brands at QVC in the quarter. It's a remarkable achievement, and we believe the brand holds significant growth potential. I'll Last November, we launched a new fashion line with award winning global fashion designer, Jason Wu. It performed well in Q2, ranking in the top 15 apparel brands at QVC. And in the fall, we'll be extending Jason's product offerings in the culinary, participants are participating in the Q1. Including cookware and kitchen tools, given its love of cooking, the new line is also developed by our proprietary design and development team and exclusive present the QVC. Moving on now to zulily. Revenue and OIBDA declined in 2020, but grew versus 2020 but grew 9% and 29%, respectively, from 2019, driven in part by the continued expansion of our strong factory direct business, all participants are in the range of $0.01 per share. The new Ios privacy changes have created challenges for all marketers, but zulily's high concentration of marketing spend participants resulted in a meaningful increase in the cost of customer acquisition and corresponding pressures on sales. Zulily continues to make progress reducing its Facebook dependence with notable success in affiliate and influencer marketing And it's working actively to both further diversify marketing channels and find more effective ways to market through Facebook. I'll Additionally, Zulily faced challenges with top tier national brands not being able to provide sufficient inventory for key events, Largely a reflection of the conservative receipt plans many brands adopted in 2020 during the height of the pandemic. All participants are in the range of $0.01 As sales rebounded this year, a number of key vendors had limited inventory to allocate to Zulily and we lost many Halo National brand events as a result. We believe these challenges will moderate through the rest of the year, and we remain confident in Zillow Lake's long term growth potential is one of the few scaled profitable e commerce pure plays targeting moms and focused on the off price segment. I'll At Cornerstone, the team once again delivered outstanding results with record Q2 and revenue in OIBDA at each of its four businesses. All participants are in the range of $1,000,000,000. This terrific performance continues to be driven by strength across home categories, as well as a rebound in apparel at Garnet Hill. We remain very bullish about Cornerstone's long term prospects. It is well positioned to benefit from the home nesting trend, supported by our strategies to expand proprietary assortments, continue shifting from print catalogs to digital marketing delivering growth on growth against the high bar of 2020 comparisons and executing with agility in the face of macro supply and cost pressures. I'll We continue to make progress expanding our already extensive digital video ecosystem, evolving our highly differentiated customer experiences I'll present the bottom line growth and strong cash flow, put us in a great position to continue to win post pandemic I'll return value to shareholders. As I close, I'd like to take a moment present to thank our 25,000 team members around the world. It has been my great privilege these past 16 years present the call to work alongside such dedicated and passionate people, never more so than over the last year and a half, I'll as Dave demonstrated remarkable dedication, remarkable resilience, remarkable agility present your teammates. With that, I'll turn the call over to Jeff to review our results in more detail. Thank you, Mike, and good morning, everyone. Qurate Retail delivered revenue and OIBDA growth on top of compelling 2020 results. Let me start with QXH. Revenue declined 1% versus last year, reflecting a decline in consumer electronics, our product categories compared to robust growth during initial stages of the pandemic. This was partially offset by the continued rebound in apparel and accessories, driven by our best customers and strong demand for home decor. I'll participants are set by lower ASP reflecting the product mix shift. As largely expected, e commerce revenue of $1,200,000,000 declined 2% participants are in the range of $1,000,000 with an 80 basis point decrease in penetration. This erosion is primarily due to category and custom mix shifts. Total customers declined 9% in the quarter versus 2020 with new customers down 32%, we activated down 17 and existing down 2. But compared to 2019, customer counts were up nicely across all cohorts with total customers up 4%, new customers up 17%, reactivated up 7% present an existing UP1. I'm pleased to report that QVC's best customers who make 20 or more purchases in a year performed well in the quarter. They increased their total spend 7% by purchasing 12% more units. All participants are in the range of $1,000,000,000. As illustrated on Slide 7 of our earnings presentation, we experienced a swing in category mix into apparel and all participants are in the range of $1,000,000,000. These gains were driven by our best customers, top brands and were broad based across apparel subcategories with continued strength in loungewear and non leather handbags. We also saw a nice rebound in luggage as customers transition to more travel. I'll Beauty declined 10% from last year, reflecting a reduction in airtime and TSVs, which was pre allocated to apparel and accessories. The performance reflected softness in most major subcategories, participants are partially offset by gains in skincare. We look forward to rebuilding this category as consumers reengage all participants are participating in the home. Home decreased 3% versus last year, reflecting expected lower customer demand for cleaning and personal protection related products that were in high demand during the initial stages of the pandemic. This pressure was partially offset by continued gains in home we believe our home decor represents a longer term growth engine, driven by continued robust home sales and the hybrid work from home trends. Our home decor business is heavily proprietary with a large percentage of product created through our own design and development team. It also includes several key exclusive relationships. We saw nice gains from several of these brands including Reflections, participants declined 23%, reflecting lower customer demand for home office and school related products, as well as supply chain constraints. Electronics was down 3%. Adjusted OIBDA grew 1 percent and adjusted OIBDA margin improved 40 basis points. Looking at the components of adjusted OIBDA margin, all participants are in the range of $0.05 per share. Gross margin was favorable 30 basis points primarily due to lower inventory obsolescence expense and improved product margins. These factors were partially offset by fulfillment, primarily due to increased shipping volumes and lower average selling price, we're now ramping down operations in our decommissioned fulfillment centers before exiting by year end. Operating expenses was 40 basis points unfavorable, primarily due to higher customer service costs and TV commissions reflecting strong sales from on air products. I'll provide you with a few comments on the call. SG and A was 40 basis points favorable, primarily from lower bad debt and administrative expenses. All participants are expected to be in the range of $1,000,000,000. Bad debt reflects fewer offered installment payments and a lower mix of consumer electronics and new customers compared to 2020. These tailwinds were partially offset by higher marketing costs for customer retention and acquisition as well as platform expansion. We anticipate continued elevated investments in marketing to grow and engage our customer base, we are closely monitoring the current environment and will adjust accordingly. I'd note we are also less impacted by increases in marketing costs I'll provide some color on our financial results and results from our financial results. As Mike said, we have taken price increases in early Q3 to partially offset the inflationary pressures we are seeing in marketing, freight and labor costs. Moving to QVC International, which sustained multiple multi quarter track record of growth. My comments will focus on a constant currency results. Revenue grew 5% led by Japan and Germany. As expected, all participants declined 4% in the quarter versus last year, with new down 24% and reactivated down 16%, reflecting the outsides growth in Q2 of 2020. These declines were partially offset by 2% growth in our existing customers. Compared to 2019, total customers grew 5% with new up 14, reactivated up 5 all participants are in the range of $1,000,000 and existing up 4%. E commerce revenue grew 4% and e commerce penetration increased 10 basis points. The business generated gains in every category led by apparel and home. Adjusted OIBDA increased 16% our projected adjusted OIBDA margin expanded 175 basis points. Gross margin improved 120 basis participants are in the range of $0.05 due to higher product margins, which primarily reflects pricing management. We also benefited from favorable fulfillment expenses driven by higher average selling price and sales leverage. Operating expenses were favorable by approximately 40 basis points, provide you with a few comments on our financial results, primarily due to commissions and customer service, reflecting higher e commerce penetration, sales leverage all participants are in the range of $1,000,000 and renegotiated carriage contracts. SG and A was favorable by approximately 15 basis points, primarily due to sales leverage and administrative expenses, partially offset by higher marketing costs. I'll and lastly, I'd note that we have entered an agreement to sell our minority interest in our joint venture in China. I'll after internal evaluation of our business in the retail market in China, we determined that the venture was no longer a strategic fit I'll provide a brief overview of our financial results. Moving to Zulily. Revenue declined 6%, reflecting a steep comparisons to last year, as well as the marketing and supply constraints Mike mentioned, these headwinds were partially offset by continued growth in its factory direct business. All participants are in the range of $1,000,000,000. Revenue grew 9% on a 2 year basis. Total customers declined 17% in Q2 from last year, we're only down 4% from 2019. This reflects a sizable swing in new customers, which were down 18% year over year, but up 27% versus 2019. We believe the surcharges will normalize over time as international travel resumes. Moving to Cornerstone, which once again delivered outstanding results with a record second quarter revenue and adjusted OIBDA at each of its brands. Revenue grew 18% driven by sustained momentum in home brands, Frontgate, Grand and Road and Ballard Designs I'll provide Apparel and Home Textiles. Adjusted OIBDA increased $31,000,000 primarily due to expanded product margins and leverage of administrative and marketing expenses. These gains were partially offset by higher freight and surcharges. Turn it over to you. Turning to our balance sheet and cash flow. CapEx was $110,000,000 for the first half of twenty twenty one. I'll Q1, free cash flow reflects payments of elevated prior year incentive bonuses in March I'll provide a brief update on our outlook for the Q1 of 2019. This year, we expect to return to more normalized level free cash flow conversion in the range of 45% to 55%. Recall, we generated substantial working capital improvements in the first half of twenty twenty these items are now in our base and will not serve as a source of working capital this year. Looking at our debt profile on June 30, we had $77,000,000 drawn on our QVC, Inc. Revolver I'll provide a brief update on our financial results and $2,850,000,000 of cash and cash equivalents and our leverage ratios defined by our QVC revolving credit facility was 1.9 times. We returned capital to shareholders through share repurchases. From May 1 through July 31, we repurchased 5,900,000 shares for a total cost of $74,000,000 In August, we increased our repurchase authorization by $500,000,000 and the total remaining authorization I'll pro form a for the increased authorization as of August 1 is approximately $780,000,000 as previously stated, we are committed to returning substantial portion of our free cash flow to shareholders on an annual basis. I'll reiterate that we view these results as highly encouraging of our long term growth prospects. I'll now turn the call over to Greg for closing remarks. Thanks, Jeff. We are excited to announce I'll present the Qurate Retail's Investor Meeting will be held virtually on Friday, November 19. We'll have a full morning of content from various members of the Qurate leadership team. Please save that date and look forward for additional details being provided soon. Before we turn into Q and A, we need to recognize Mike George. This is his last earnings call as CEO and I'd like to personally thank Mike who has been an exceptional partner since we both started in our roles nearly 16 years ago. He has shepherded Qurate Retail through numerous evolutions and successfully transformed our company from a single business on linear TV into a portfolio of attractive multi platform assets. I'll turn the call over to Mike's strong leadership leads this business on a sound footing and I will surely miss our working together. We look forward to welcoming David to the team as we drive Qurate Retail into its next chapter of digital innovation. Thank you, Mike, And thank you to the listening audience for your continued interest in Keurig Retail. I'd now like to open the call for questions. Operator? All participants are Edward Ruma at KeyBanc. Please go ahead. Hey, good morning. Mike, congratulations on the retirement and thanks for all the help over the years. Operator. A 2 parter for me. I guess first, it seems like you have a couple of challenges as it relates to both advertising and viewership. I guess any thoughts on how you can try to stimulate more of that front end over the medium term, assuming that these may remain challenging for a period of time. And then David, we'll wait to hear more commentary, I guess, as you've had more time in your proceed. But what was the 1 or 2 things that was most compelling for you as an external advisor or an external candidate looking inward I'll provide a follow-up on the long term growth opportunity. Thank you. Thanks, Ed. Appreciate your comments. As we look at advertising and viewership, first, it's important to obviously differentiate across our different business units. So On the marketing side, clearly, zulily has more significant challenges, both because it has a higher dependence on Paid marketing to attract new customers and a higher mix of Facebook in its marketing channels. So there's some work to do to get through that, but I think I'll The team is well on its way, and there's substantial upside, as we anniversary this sort of near term blip in advertising costs and make, I think, meaningful progress diversifying our marketing channel. So that's on the Facebook side And on the Zulily side, when we look at the QXH business, all participants. I would say in the main, we're actually quite encouraged on the viewership front. Viewership was up this quarter on On top of being up last quarter, that's just traditional paid TV viewership. So despite cord cutting, we operator We're one of the few folks that is sustainably expanding our viewership. We've actually been doing that for many years on traditional paid services. And then the goal is to come up and over that, eliminate any pressures from cord cutting with all these digital media platforms we're investing in. And that's why we're so excited about the Comcast news because you think about what the Comcast news represents. If you get a take a look at our traditional pay TV service through Comcast. You can get our all of our channels the old fashioned way, operator You can also now access them through a great frictionless, rich content, streaming service that we think can stimulate incremental demand. But if you're a cord cutter and you just use Comcast for your broadband access, you can also get the full power of the streaming service, all the linear channels, all the on demand content. And so that's where we're going. We see this streaming service as the flagship, I'll put it on what can be present on every platform where folks view TV like content, whether or not they have a TV service, operator And that's powerful. And then you add to that our continued investment in social media and video viewing on our own apps. Operator We just think we've got a number of ways to continue to stimulate viewership over time. On the marketing side, we're fortunate that marketing is less impactful to QXH in general. Operator, it's a complement to all these other forms of viewership. But I would say the team continues to make nice gains In our marketing tool set, the channels that we use, so you'll continue to see us lean into marketing, Not necessarily at quite the elevated rate you're seeing right at this moment, but we'll continue to lean into it to both Stimulate incremental sales beyond what we get through viewership and also to drive people to these new digital platforms because that's increasingly where we're moving our marketing dollars in a very distinctive way to drive people onto all these viewership platforms where we have such a unique offering. Operator. And David, you want to make any comments on what you saw in joining Qurate? Yes, I'd love to. Operator. I will have a lot more to say about this community and all communities in the days are ready to come. But I think the main things were that we're at a moment where the market is dynamic and exciting. I'll I think everybody recognizes we're on the cusp of a lot of shifts. Some of those changes I'll present the call to questions. And then, on the call, I'll turn the call back over to Eric. Thank you. Thank you. And you combine that with the core assets across Qurate, both in terms of customers and capabilities and investments that's been made I'll present it over time. And what I saw was the ability of the business to compete and win in the market over time. I just think With the core capabilities, core talent, core unique assets and where the market is going, the business is very well positioned, to continue to pivot that Mike, I think really started and participants. Thank you. Thank you. So our next question comes from Jason Haas at Bank to America. Please go ahead. Good morning. Thank you for taking my questions. Congratulations on the strong quarter and I also wanted to offer my congratulations both I'll provide you with the Q1 of 2019. Mike and David. So Mike, maybe starting with you, it's encouraging to see the strong retention rates and also seeing fashion rebound and more than offset all participants Any sort of moderation in home, but I'm curious about what you're seeing in July and just what you expect as the country reopens further. Do you feel like there's further room for fashion participants are going to rebound. And if home continues to decline, just on the tough compares, do you think the potential rebound in fashion is enough to offset that? Operator. Thanks, Jason, for your question. We were really encouraged, as you said, by both production rates and the rebound of fashion in the quarter. I won't make any specific comments about what we're seeing in July. We don't comment on the all participants are in period results. Well, I'll kind of frame how we're thinking about it, acknowledging that it's a little early to know exactly obviously how the Delta variant will play out on consumer behavior over the next few months. What struck me as actually most encouraging about Q2 is that We were able to deliver that kind of strong 2 year growth, while still in a situation where the number of categories that are really working well We're still a little bit narrow and definitely pandemic influenced, meaning great to see apparel and accessories rebound, operator. But it was largely casual apparel, athletic footwear, casual footwear. We're still not seeing that rebound in tailored clothing, in leather handbags, in dressy shoes, those things for going out or going to the office. So To me, there's still a lot of room to claw back apparel and accessories business as consumers kind of widen their appetite for what they want to purchase in apparel and accessories, whether that happens in the next few months or the next year, depending on how things evolve, let's proceed, but there's still a lot of room to go in apparel and accessories. Add to that that we were in limited stock by the end of the take the quarter. So we're excited to get back in stock and by September, a few weeks later than we'd like to be, I'll But we think that's meaningful for us. Then in home, again, what I was struck by in home is that The things that drove the slight negative in home were cleaning, personal protective equipment, those kinds of categories. And we're really actually pleased to see sustained 1 and 2 year growth in home decor in areas like fitness. So just says to us that this multi year nesting trend is real. And when you see growth on growth in areas like home decor and fitness, operator That's pretty encouraging. And of course, our Cornerstone business is seeing outstanding growth on growth. I think they're up 40% versus 2019, a pretty remarkable number. So we like the optionality in fashion and where that can go. And then I'd point to Beauty, which was actually a decliner in the quarter. But over the course of the quarter, you started to see color come back. That may now slow down with the return of Basking. Operator. But when you get Beauty working on all cylinders, which it will at some point, that to me is some nice upside we haven't participants are captured. So we're dealing with the wildcard of supply shortages, the consumer electronics business is volatile. But I just think The optionality across apparel, accessories, multiple segments of home and beauty really portend well for growth. I won't try to frame whether that's Q3, Q4, Q1, it just says there's a lot of growth engines yet to be fully tapped as we think over the midterm. Participants are ready. Got it. That's really helpful color. And then, a question for Jeff. On the last call, you talked about all participants are likely being flat for the remainder of the year. So I'm curious if that outlook still holds. I know you called out some more fulfillment cost So, just curious if that's still the right framework to think about? Yes, Jason, we still stand by our outlook that we expressed, as you had mentioned at the end of Q1, and that outlook really was around being relatively flat for the last 9 months of the year. And that's really after also posting a 40 basis point improvement that you just saw in the Q2 or the margin. Operator? We do recognize and acknowledge that we are experiencing some heightened inflationary pressures in freight and labor. I'll But we're also taking certain steps to mitigate that that Mike had mentioned early in Q3 with respect to taking some price I'll be prepared where we can, where appropriate. Thanks. And if I could add one more last question for Greg, just on all participants are in the capital allocation. So it's good to see the step up in the repurchase authorization. Just curious how you're thinking about using that more aggressively in the remainder of the year? And at least by my math given the free cash flow conversion and what I'm expecting for OIBDA, it seems like you still end the year with a healthy cash balance. Operator. So curious if it's possible to do, or what you would do with that extra cash if it's possible to do another special dividend or all participants could that could lead to more repurchases beyond the authorization? Great. Thanks for the question. Operator. As you know, we're going to have substantial free cash flow. We had an exceptional 2020, as Jeff noted, but we are going to have a strong 2021, I'll provide some investments in the beginning of the year. We have had multiple tools I'll provide a brief update on our outlook for the Q1 of 2019. And we've indicated that we will pass the majority of our free cash flow out to shareholders during the year. I'll provide you with a few comments on the call. And as you know, some of those tools have included buyback, the preferred stock issuance, a couple of special cash dividends, and now we've done Derivatives as well. I think we're going to look at all of those tools for the balance of the year, recognizing the substantial free cash flow and strong capital position we have and I expect you'll hear more from us on all the various fronts as the rest of the year continues. All participants. Our next question turn the call over to Oliver Wintermantel at Evercore ISI. Please go ahead. Thanks. Good morning. And also congratulations, Mike, and Welcome, David. Looking forward to working with you. I had a question regarding the behavior of your best customers. Operator. Maybe can you maybe give us a little bit more detail about how these best customers have behaved maybe before the pandemic, during the pandemic and now in the last few months, is there a big change of the behavior of those best customers and purchase frequency, how much they spend that kind of thing. Yes. Oli, thanks for the question. I'll tell you what's changed and what hasn't changed. I'm going to start with what hasn't changed. Participants What hasn't changed is that we retain best customers at a very high 99% plus rate. That retention hasn't varied pre, during or now, in terms of pandemic trends. And we continue to add a consistent flow of new best customers. So the percentage of new customers continue to be quite solid. And given the number of new customers we added over the last year, therefore, the number of new best customers we added was participants are quite high. So we like the stability of the best customers. We like the fact that we're adding new best customers at very good rates. What does swing is how much she spends in the quarter and that's heavily influenced by these underlying product category trends, because the way best customers get to that high level of purchase frequency, but remember that best customer on Average by 70 items a year. The way she gets there is by buying a lot of apparel and accessories And then to a lesser extent, a fair amount of beauty. And so what we saw in the first part of the pandemic we held on to all the best customers, but our spend declined because she simply wasn't making she was buying her home sales went way up, all participants are in the range of $1,000,000,000 but they weren't enough to offset these big declines in apparel accessories. This quarter, we've seen that extreme flip participants are up 7% and best customer units purchased are up 12%, which is probably one of the highest growths we've ever had I'll put you in unit growth and best customers sales in a quarter. And so that really reflects that she's continuing to lean into home I'll put it back in the market for apparel and accessories, and that really helped fuel the quarter. And again, that's despite the fact that beauty is still somewhat challenged, that the apparel and accessories are still somewhat narrow, As I mentioned to Jason, so love the growth of best customers, love the retention of it and love to see how they're now coming back strongly across multiple categories really fueled by apparel and accessories and demonstrating a purchase frequency in the quarter operator? I have to go back and double check, but I suspect if it's not a record, it's probably pretty close to a record. Thanks. Very helpful. And the next question was on inventories. I saw they were up actually all participants are up more than sales in the quarter, but you were speaking of challenges and out of stocks. So is that just a function of inflation that it was up so much? And And how do you expect that to play out for the rest of the year? Jeff, do you want to take that one? Absolutely. Oliver? Oliver, it is a combination of things. 1, we are in preparation for Q3 I'll and for holiday, starting to take some receipts earlier than what we had in the past, once again to try I'll get ahead of some of the challenges that we've been experiencing. And the other portion of this, quite honestly, is as a result of some of these supply chain delays. And I'll We have more product in transit than we normally would have this time of year. I'll No, the combination of higher in transit levels as well as, getting out ahead where we can and certain areas to restock the coverage for us participants will be in the queue. Got it. Thanks very much and good luck. Ready. Thank you. We will now take our last question from William Brewster at Suramar Capital Group. Please go ahead. Hey, guys. How's it going? Mike, I hope you enjoy retirement and thanks for all you've done over the past I'll 24 months really and especially over the last 18. Some of that's just got me scratching my head a little bit I'll put it in the queue. She got into reopening, right, got dressed up, went out, saw her friends again. All participants are in the range of the participants and beauty has me scratching my head and I don't mean to keep asking the question, but if you can maybe give a little bit of color on that, that would be great. Sure. Thanks and appreciate your comments. I would say, operator? Again, as I look across the range of what she's buying, I feel good about the pace of rebound into apparel and accessories. Actually felt good about what she's buying in home. The things that were deflating to the average Price point and where we had some more downside pressure was again part of it is comping, cleaning and PPE. Those I'll Those are obviously non strategic businesses, so it doesn't troubled me at all. The other one was that consumer electronics was obviously way down in the quarter, all participants Combination of supply shortages, lack of really good compelling products and offers, that's not as motivating to the best customers. So it doesn't present. And have a big impact on her spend. You might miss out on that incremental electronics purchase from her, all participants Yes, not the most strategic category, certainly not a high margin category. So if you're going to have a wobble somewhere, I'll It's not a bad place to have it. The one that's most important is the one you mentioned, which is beauty. Beauty is a highly strategic category for us. We did see softness across all customer classes in beauty. I would say that our own reflection all participants It was largely not largely, but a part of it was self inflicted, deliberately so. We did make a choice will be ready for that uptick in apparel and accessories by just basically moving our finite airtime I'll provide you with a follow-up on the participants are in the quarter. The amount of TSV slots we devoted to Beauty was down 20%. So that's really meaningful. It's almost impossible to grow in that for the context. And we could debate whether that was the right move to make or not. We thought it was the best choice at take time given the various pressures and opportunities we saw. But as we now start to feed that business again, I do think we'll see Beauty come back. I've said all along that the one wildcard is the pace at which Color returns. We were pleased to see it start to come back late in the quarter. Operator Let's see if that continues with the Delta. But we're just making such a big push in other segments as well. So I mentioned a couple in my comments, but we're excited about multicultural beauty and number of new launch in that space, we're excited about really trying to go in, in a more meaningful way in mastese, beauty, that sort of that price point Between drugstore and premium, in areas like nail care, hair care, it's really an on cap space for us. It's a heavily digital offering more so than an on prepare offering, but we're leaning into that hard. We've really expanded our relationship with premier brands like I'll Estee Lauder, so in the last handful of months and or coming up, we've launched Estee Lauder, MAC, Clinique, Too Faced, Bumble and Bumble, Aveda, operator? Pretty Bumble and Bubl and Aveda being quite new to the assortment. So I think we're going to be okay in duty. I think we have a lot teed up all participants that could really help those results through the next several months. And that you put your finger on it, that's the most important one and we're going to lean into that one. So if I can just reiterate real quick, we've got purchasing frequency is great. Retention of customers was very good. All participants are in the same store. And the beauty decision was almost an internal merchandising decision, but I see a mix shift Into reopening, which sort of validates the entire business thesis. So maybe more airtime to beauty will be a good thing and We should see an uptick. Is that like a fair assessment of what's going on here? It's a very fair assessment. Okay. Participants are ready to take questions. Thanks, Mike. Take care of yourself. Thank you. Appreciate it. And I believe that was our last participants are ready for questions. So again, thanks all of you for your time. Definitely check out the Investor Day in November. And thanks to all of you for your partnership with me over the years. It's been a wonderful journey for the last participants are in the range of $1,000,000 and I've greatly valued your partnership and friendship. So thanks, everyone. Participants are participating. Thank you for your participation. You may now disconnect.