Qurate Retail, Inc.
Q2 2015 Earnings Call Transcript

Published: 5 Aug 2015

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Liberty Interactive Corporation 2015 Second Quarter Earnings Call. As a reminder, this conference is being recorded, Wednesday, August 5, 2015. I would now like to turn the conference over to Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

[Courtnee Chun Ulrich:]

Thank you. Before we begin, we'd like to remind everyone this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, market potential, stock repurchases, future financial performance, new service and product launches, and other matters that are not historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, possible changes in market acceptance of new products or services, market conditions conducive to repurchases, the availability of acquisition opportunities, competitive issues, regulatory issues, and continued access to capital on terms acceptable to Liberty Interactive. These forward-looking statements speak only as of the date of this call, and Liberty Interactive expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Interactive's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA and adjusted net income. The required definitions and reconciliations, preliminary note and schedules one through four can be found at the end of the earnings press release issued today, which is available on our website. This call also may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding Liberty TripAdvisor Holdings. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These forward-looking statements speak only as of the date of this call and Liberty TripAdvisor Holdings expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty TripAdvisor Holdings' expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Now, I'd like to introduce Greg Maffei, Liberty Interactive's President and CEO.

[Gregory B. Maffei:]

Thank you, Courtnee. And thank you to the audience for listening in. Today speaking on the call, besides myself, we'll have Liberty Interactive CFO, Chris Shean; QVC's CEO, Mike George. During the Q&A portion, we will also answer some questions, if there are any, about Liberty TripAdvisor Holdings. I'd note, in a new practice, we don't have any slides to accompany today's calls, but have included all the previously referenced information in those slides in this morning's press release. Onto the highlights. QVC had quite strong results. They grew U.S. revenue 4% and adjusted OIBDA 7% in the second quarter. The U.S. adjusted OIBDA margin rose to 24.8%. We saw revenue growth in all consolidated markets in local currency, and saw adjusted OIBDA improvement. Particularly notable was the very strong adjusted OIBDA growth in local currency in the UK and in Germany. I'd note we also continued phenomenal growth in mobile, which now represents 48% of QVC.com's orders in the U.S. and 49% on a consolidated basis. We launched programming for QVC France on the 1st of August. And lastly, we repurchased, a large for us, $348 million of QVCA shares from the 1st of May to the end of July. We have now fully utilized all the funds distributed to QVCA or in conjunction with the LTRIP spinoff, and the Board of Directors of Liberty Interactive increased the buyback authorization at QVC by $1 billion. Turning now to Ventures, we completed an attractive sale of Backcountry.com at the end of the second quarter on 30th of June. This resulted in a book gain of $105 million. Our total consideration in that transaction was approximately $350 million, which is an implied multiple of over 11 times the enterprise value versus the forecasted 2015 adjusted OIBDA, so we consider that a pretty attractive sale. We agreed to invest also during the quarter up to $2.4 billion in Liberty Broadband as part of Charter's transactions with Time Warner Cable and Bright House. As you know, we have been looking for investments and the way to utilize our cash at Liberty Ventures. And we think the investment we made in Liberty Broadband and the underlying Charter is very attractive. The transaction in which we're investing has a reference price for Charter. When you look at the blended investment cost of about $176.40, Charter currently trading around $150 and upside in that number in our judgment we think it's going to turn out to be a very attractive transaction. As you may recall, we don't fund until the closing of the deal and have taken no deal risk on things like breakup fees or the like. So we consider a very attractive transaction. Turning lastly to Liberty TripAdvisor, who had their call recently, TripAdvisor announced six – TripAdvisor had their call rather – TripAdvisor announced six new instant booking partnerships and continued its progress there, including Marriott International and another international chain. We've now partnered with six of the top 10 global hotel chains to power direct bookings. TripAdvisor has continued to grow its community by more than 30% to 375 million monthly unique users around the world. It's an impressive content engine, and I'd note there are more than 0.25 billion reviews on the site. With that, let me turn over to Chris Shean to discuss our financials in more detail.

[Christopher W. Shean:]

Thanks, Greg. QVC Group's revenue decreased 1% in the second quarter, while adjusted OIBDA increased 3%. We'd like to call your attention to a figure in the earnings release labeled adjusted net income for the QVC Group. Here we adjust for the digital commerce companies and the non-tax deductible purchase accounting amortization from the original acquisition of QVC. You can find this on schedule 4 in the press release. Now let's take a quick look at the liquidity picture. At the end of the quarter, QVC Group had attributed cash and liquid investments of $505 million and $5.7 billion in principal amount of attributed debt. QVC's total debt-to-adjusted OIBDA ratio as defined in its credit agreement was approximately 2.4 times as compared to our stated target of 2.5 times. Now, I'll hand the call over to Mike George for additional comments on QVC.

[Michael A. George:]

Thank you, Chris. We had a terrific quarter with strong and balanced results across our markets, our platforms, across product categories, and also across customer segments. We grow solid local currency revenue and adjusted OIBDA growth in every one of our consolidated markets. Our e-commerce growth accelerated significantly, with nearly half of our e-commerce orders coming from mobile devices. Our overall customer base and our new customer additions increased at some of the strongest rates we've seen in years. We achieved strong OIBDA margin expansion and that's despite the FX headwinds and also our major investments and things like the new shipping and handling rates and, of course, the launch of QVC France. We believe these strong results in the quarter reflect our disciplined execution of strategies aimed at extending our leading global video and e-commerce position. On a constant currency basis, consolidated revenues grew 5% and adjusted OIBDA increased 7% and OIBDA was up 8%, if you exclude the impact of the France startup. Our U.S. business delivered strong results and we think the new shipping and handling rates that we launched in February are achieving their intended outcomes. We believe the increases in our shipped sales growth rates, especially in fashion, in household and in beauty largely offset the lower S&H revenues we're collecting. And we think the rates are helping fuel the strong e-commerce and new customer growth that we're seeing. Previously, we had mentioned that the S&H changes could negatively impact our adjusted OIBDA margins in the U.S. by about 25 basis points for the 12 months post-launch. We think that impact is probably a little bit less than that given the mix of business we're seeing. Looking at international, on a constant currency basis, consolidated international revenues increased 6%, adjusted OIBDA grew 9%, and OIBDA margin increased 57 basis points in our existing international markets. In addition, we incurred $6 million of costs related to the launch of QVC France. Our UK and German businesses continued their strong momentum with good sales growth and outstanding margin expansion. Japan returned to growth, delivering its best year-over-year revenue performance in nearly three years, although I'd note it's against a weak comparison in the prior year. Our revenue growth rate in Italy remained in the single-digits for the second consecutive quarter. Now, that is a disappointing result at this stage in its cycle. However, supported by strong promotional strategies, we did see new customers increase 25% in Italy. That follows eight quarters of new customer declines. China's local currency revenue growth accelerated to 14% and we did see sequential improvements in growth each month of the quarter as we improved execution in a highly competitive market. Our initiatives to extend the reach and relevance of our brand paid off with strong customer account growth and improved retention rates across all segments, existing, new and reactivated. Our consolidated customer base increased 5% and new customers increased 9%. And in the U.S., total customer count increased 7% and new customers increased 12%, driven by strengths in product and programming, personalization initiatives, enhanced digital marketing, growing mobile penetration, and the new S&H rates. And both Japan and Italy delivered double-digit new customer growth as we expanded on a variety of programming, marketing and promotional strategies to attract new customers. We're also benefiting from strong and balanced performance across our product categories on a global basis. Our fashion business is a particular standout, but we're seeing good growth in home, in beauty and in jewelry as well. Really the only soft spot in our categories is consumer electronics, which continues to struggle across most markets. However, the sales declines moderated this quarter, and our sales productivity increased significantly as we shifted airtime to better performing categories. While we do anticipate that the soft results in electronics will likely continue in the back half, we are encouraged by early consumer response to Win 10 and 4K TVs among other items, and we think we have the right plans in place to maximize the business through the holiday season. In the U.S., leading brands in the quarter included Lori Goldstein and Isaac Mizrahi Live! In apparel, Roberta's and Cottage Farms in live plants and WEN, Perricone and IT Cosmetics in beauty. In the home area, Dyson performed well along with Sleep Number mattresses. Internationally, the standouts included THOM by designer Thomas Rath in fashion, VITAFORM in accessories, Elemis and Simply Beautiful collection in beauty, Lola Rose in jewelry, and in home Dyson, EasiYo Yogurt Makers and Richard Jackson Gardening. We continue to increase the reach and penetration of our commerce platforms. Our TV distribution now reaches approximately 340 million homes worldwide following the launch of QVC France, and also carriage expansion in China where we began broadcasting in the strategically important Shanghai market in early July. With the launch of Shanghai, our TV reach in China is now about 107 million homes. Now that makes China our largest market in terms of homes reached, about 1 million ahead of the U.S. Our e-commerce revenue grew 13% on a constant currency basis to represent 42% of total revenue, up from 39% last year. Mobile continues to be a strong vehicle to extend our brand with customers adopting mobile at a rapid rate across all markets. On a constant currency basis, our mobile orders grew 45% in the quarter and are now 49% of all the e-commerce orders, a 950 basis point increase from Q2 of last year. In April, we launched and optimized experience for QVC.com for all customer access points, desktop phone and tablet. In August, we'll launch the next phase of our site refresh, which will enhance our ability to share product discoveries, compelling trends and ideas and fresh stories throughout the day, providing them incentive for our customers to check back frequently. We've also shifted to a mobile-first design philosophy, with easy to scroll navigation and mobile-optimized content. We believe this has been critical to the continued rapid mobile growth and improved conversion rates we're seeing on the platform. Effective use of data to personalize the QVC experience is also a key component of our ability to attract and retain customers and drive repeat purchases. We are now delivering automated personalized messages that are selective, relevant and timely across an array of mediums, including email, text messages, display and social advertising and affiliate marketing, along with purchase recommendations at multiple points in the digital purchase path based on shopping behaviors. Now, email in particular continues to be a powerful driver of engagement and repeat business, including our new customer welcome series, our purchase anniversary, emails, back in stock and post-purchase messages, as well as other promotional and service-related messages. Our programming strategy remains intensely focused on our vision of combining the roles of shopping, entertainment and social as one. Highlights in the quarter include a live broadcast hosted by Clint Black from the Academy of Country Music Awards, a creative partnership with Disney called The Search for a Better Tomorrow tied to the launch of Tomorrowland, and a continued expansion of our partnership with Vogue in Italy, featuring Vogue accessories in our Fashion Days. And we continue to enhance our additional channels in the UK, Germany, and the U.S. In the U.S., we're increasing the amount of original and live programming on QVC Plus, driving increased productivity. For example, on one Sunday in June when there was a day long jewelry event on the main channel, we shifted our popular In the Kitchen with David live show to QVC Plus, setting a new all-time sales record on that channel. Social media continues to be central to our ability to tell stories, to engage our customers, and increasingly to transact commerce. In Q2, our customer engagement on Instagram increased nearly 700%. We saw particular strength from Tarte cosmetics, from sweepstakes promotions and Instagram takeovers from our popular vendors. We are utilizing the like-to-buy feature, which has helped to make Instagram shoppable and drive traffic to QVC.com, and making Instagram our second highest session driving social channel in the quarter. We continue to invest in our customer experience to adapt to the changing marketplace and strategically evolve our service operations. Last month, we announced plans to open a new distribution center in California in the summer of 2016. This facility will be closer to our customers in the Western U.S., enabling faster delivery times and reduced freight expenses. We're also in the process of transitioning our jewelry return operations from Pennsylvania to our South Carolina facility to improve customer service levels and increase operating efficiency. And in June, we announced our decision to close our Florida contact center in March of 2016. With customers increasingly choosing to place their orders on the web, on mobile, and on voice response platforms, we now need just two contact centers to support anticipated call volumes in the U.S. To better support the long-term growth of our business, we were also excited to launch a new global organizational structure effective July 1, called One Q, designed to leverage the best of QVC globally to improve our ability to differentiate our shopping experience, to increase the speed, to deploying new capabilities around the world, and to reduce performance volatility across markets. We've created global teams across merchandising, planning and programming, our TV and e-commerce platforms, our brand, and our supply chain distribution fulfillment and customer service operations, as well as in key support areas while local teams in each market remain empowered to tailor and deliver the brand experience in ways that are relevant to customers in that market. We're also making some key international leadership transitions. James Clarke, our China market leader stepped down after a very intensive and productive four-year run and getting us launched in China. He is succeeded by Gregg Bertoni, one of our most experienced global leaders with stints in the U.S., the UK and most recently as our Italy market leader. Gregg in turn was succeeded in Italy by Paolo Penati who has been in Italy since the launch, serving at various times as CFO, COO, and CMO. And John Thomas, who has led our Japan team through some challenging years is returning to the U.S. early next year and will be succeeded by Mike Fitzharris who has had a long career in our UK business, most recently as COO. These moves reflect a strong and growing bench of experienced leaders that we're able to deploy across our markets. And as part of our 1Q changes, we are also sending several experienced commerce leaders to Japan, to Italy and to Germany to further strengthen our teams in those markets. And finally, we were thrilled on Saturday, August 1, to launch QVC France. We expect to be in about 12 million homes by the end of the month and nearly 18 million homes by yearend. We launched with full e-commerce and mobile capabilities making it the first QVC operation with a multi-platform presence from the start. We've secured relationships with approximately 200 brands from the global QVC portfolio and a number of leading French brands, as well we were excited that our premier TSV came from one of our global partners, Bare Escentuals. QVC France is an excellent example of how we're utilizing the best of QVC to create operational excellence, flexibility and cost benefits. We're leveraging expertise in broadcast operations and supply chain management from the UK, warehouse operations and freight management from Germany, e-commerce and graphic design from Italy, along with global expertise in IT, procurement and digital platforms. By the end of 2015, we anticipate spending just €23 million in cumulative CapEx for brands, and consistent with prior comments, we anticipate an adjusted OIBDA loss of approximately €20 million to €25 million for the full year of 2015. In closing, we are encouraged by our strong and balanced results across markets, platforms, product categories and customer segments. I'm pleased also with the continued progress investing for the future. And with the France launch, the rollout of a major organizational redesign and significant changes in our service and fulfillment networks along with the complete redesign of our mobile and web experience, we're confident that we are well-positioned for the second half of the year and well-positioned to continue extending our video and e-commerce leadership for the long term. And with that, I'll turn it back to Chris.

[Christopher W. Shean:]

Thanks Mike. Moving on to Liberty Ventures, as Greg had mentioned earlier, we sold Backcountry.com on June 30. It's results are included in the Digital Commerce companies through June 30. There is additional disclosure in the 10-Q that will be filed later today, outlining their results. The continuing consolidated Digital Commerce businesses revenue increased 7% in the second quarter, and adjusted OIBDA increased $2 million. The continuing Digital Commerce businesses revenue are largely comprised of Bodybuilding.com and CommerceHub. Now let's take a quick look at the liquidity picture of Liberty Ventures Group. At the end of the quarter, the Group had attributed cash and liquid investments of $2.9 billion and $2.1 billion in principal amount of attributed debt. The value of the public equity method securities and other public holdings attributed to the group was $3.5 billion and $1.4 billion respectively at the end of the quarter. And now, I'll turn the call back over to Greg.

[Gregory B. Maffei:]

Thank you, Chris. Thank you to the audience for listening to us this morning or this afternoon depending on where you are. And with that operator, I'll turn it over to questions.

[Operator:]

Thank you. And your first question comes from Barton Crockett with FBR Capital Markets.

[Barton Crockett:]

Okay. Great. Thank you for taking my question. I wanted to ask for a little bit more kind of discussion of what happened with the shipping and handling dynamics this quarter? Things seemed to be at least on the top line a little bit choppier last quarter, this quarter looking much better. And you're feeling better about the basis points of kind of impact from this. What's working better than you expected? And can you give us little bit of detail on what's happening in terms of the impact on returns and from not paying for that and any potential customer reaction to that?

[Michael A. George:]

Yeah. Barton, so a couple thoughts. Again, it's hard for us to know for sure what our sales would have been obliviously without the S&H change. So we're doing some speculating about the net impact. But some of the businesses that I think most benefited from the change like apparel where today all apparel product is a flat rate of $3 shipping and handling. Those products seem to be – those businesses are certainly performing very strongly. So it's hard to know how much of that is attributed to a lower shipping and handling rate versus just overall strength in the business. But we're pleased with our strong ship sales growth. We think on the margin at least some of that is probably attributed to the lower rates. And so, when you look at the net decline in shipping and handling revenue, we suspect we're making up at least a decent proportion of that through just healthier ship sales growth across categories. And if you look at the kind of trend of the business and category performance, I think we actually saw a lot of strength across a lot of categories in Q1 and that strength has largely continued, and maybe in some cases accelerated in Q2. And then I would say electronics is slightly less of a headwind in the quarter than it was in Q1 and we've been also more aggressively moving airtime away from electronics. So the net of all of that, I think gives us the kind of improvement in growth trajectory that we saw in the quarter. In terms of return rates, we're really not seeing an impact. So to your point, to partially offset the cost of lowering our shipping and handling rates, we did stop refunding shipping and handling on returns. That hasn't had any material impact on the return rates, so those are fairly stable.

[Barton Crockett:]

Okay. And then if I could squeeze in one other question on Ventures. I think you mentioned there was a $105 million book gain on the Backcountry sale. And I was wondering if you could tell us, is there a tax impact to come there? And generally does the transaction that you've done, is that supportive of the valuation that you placed on the e-commerce businesses when you move them over from QVC?

[Christopher W. Shean:]

So, I think yes, that is a taxable gain. Although there is some, not massive, but some book tax differences. You can't just extrapolate on the $105 million and assume that's the taxable number. I think that as I noted, that was a very attractive price that is probably higher or at the high end of the range of expectations when we looked and we did the reattribution.

[Barton Crockett:]

Okay, great. Thank you.

[Operator:]

Thank you. Your next question comes from Tom Forte with Brean Capital.

[Tom Forte:]

So, I had two for Mike and I actually have one for Greg this time. So, for Mike, congrats on just phenomenal performance. You talked about the Ontario, California fulfillment center saving you 10 million ship miles. Can you quantify what 10 million ship miles means in EBITDA? And then for international expansion, I know the paint's not dry in France, but any thoughts on next countries and or at least the pace of rollout you've been on, I think you've done three in five years. And then for Greg, thoughts on adding on to your commerce hub asset. I was wondering if you were one of the people who had considered buying eBay Enterprise as an example? Thanks.

[Michael A. George:]

Thanks, Tom. So, I'll take those first two. On the distribution center in Ontario, we are excited with this launch. We think it's a win for the service experience and a win for our cost efficiency with the lower freight cost. At this point, we're not going to sort of disclose any specific benefit that that will give us. We're always trying to do things to optimize the freight expense, as the freight rates grow overtime, and this sort of adds a nice piece to that puzzle. And we do think it's up and that will be EBITDA margin positive, relatively shortly after we launch and the asset sort of goes in that general bucket, I'm trying to find efficiencies every year so that we can get little bit of margin expansion every year. In terms of next country, not a lot of color to add this quarter. As I typically I say on these calls, we're always in the process of looking at probably half dozen markets. We would love to move forward with another market, but I wouldn't say anything is particularly imminent at this point and the list is kind of the list that it's been some of the Romanian markets in Europe that we're not in like Spain and love to find South American play and longer-term interest maybe in Asia. But again, nothing is real imminent at this point.

[Gregory B. Maffei:]

And looking at CommerceHub, as you likely know, we added on to CommerceHub recently with Mercent, which enables vendors to get more easily on to marketplaces like Amazon, and that business is going well. I think line extensions or service extensions in new adjacencies also into different geographies are both interesting for CommerceHub and something we're looking at, though they have the challenge of being a relatively small team with a torrid business, so absorbing new stuff is a big challenge. I think we are working to increase the talent level there, given that range of opportunities they have. I won't comment so much on eBay, but I would point out we are very familiar with the businesses we used to own about a quarter, but when it was GSI, before eBay bought it. So it doesn't really fit quite as well with us.

[Tom Forte:]

Thank you.

[Operator:]

Thank you. Your next question comes from Matt Nemer with Wells Fargo Securities.

[Matt R. Nemer:]

Good morning. I had a couple of questions for Mike on QVC. I guess, first, can you quantify the impact of Easy-Pay in the quarter, it looked like there may have been an extra offer versus last year and I'm just wondering if that had any impact on the numbers?

[Michael A. George:]

Yeah, Matt. Nothing I can really quantify, I mean, we certainly use these Easy-Pay as an important promotional tool. As we've talked in the past, it's a relatively efficient vehicle for us. And so, we used it strategically when we need to and the offers and events are always changing a fair amount. So, I don't know if that could give any sort of additional quantification, but it's definitely an important tool for us.

[Matt R. Nemer:]

Okay. And then secondly, as I look at the second half of the year, you had some really great growth last year, I think some of that was driven by the expansion of Q-plus and the addition of some homes in the UK. How much of a headwind is that, or how should we think about growth in the back half versus very strong results last year?

[Michael A. George:]

With the normal caveat of not giving any kind of forward-looking guidance, I don't know that we view – I don't think we really view Q-plus as a big headwind in terms of lapping it. So to your point, we're lapping kind of the addition of a number of homes on the Q-plus platform. But our goal has always been to continue, one, we think there is some room to add homes on Q-plus. We're around about 60 million homes today. I don't know that we will get any added this year, but we're – that's a constant focus of ours. But then secondly, we are getting more productivity out of the channel by moving from a year ago being almost the 100%, just take delay of the main channel to now doing much higher proportion of original and, in some cases, live programming. In that, we do see the productivity boost when that happens. So we think we've got more run way on Q-plus and to continue to expand programming, improved productivity and over time add more homes. So we don't look at it as something that should become a kind of a drag on results as we lap the initial distribution.

[Matt R. Nemer:]

Okay. Thanks. And then, just one final one if I could. What's the anticipated CapEx and expense impact of the West Coast DC? I assume that most of that is in 2016, but does any of that hit in 2015 and can you quantify it? Thanks.

[Michael A. George:]

In 2015, there's not a meaningful amount and it would be within the guidance that we gave at the beginning of the year on our CapEx spend. So, no real change to the 2015 outlook. There is probably between 2015 and 2016, $30 million to $40 million in kind of machinery-related expenses, so not a huge number. We haven't released 2016 guidance yet, but it won't be – it might be a little be up versus the trend of the last couple of years, but not that meaningful. And then, the bulk of the capital is in the form of a lease that's a 15-year lease, so you won't see a big bump in capital, you'll see a little bit of a impact of the part that's not – the facility is fully leased and it's really just the equipment part of it, so not a big change in CapEx trajectory.

[Matt R. Nemer:]

Great. Congrats on a great quarter.

[Michael A. George:]

Thanks, Matt.

[Operator:]

Thank you. Your next question comes from James Ratcliffe with Buckingham Research.

[James M. Ratcliffe:]

Hi. Thanks for taking the question. On Ventures with the Backcountry gone, you're down to, I guess, Bodybuilding and CommerceHub, any thoughts on the pluses and minuses of those being standalone entities? I mean, can they be standalone companies? And what are the trade-offs of making them such versus keeping them within the – well, over your portfolio? Thanks.

[Gregory B. Maffei:]

Well, I would point out, you're just – this is Greg, you're looking only at the ones that we have 100% ownership or effectively 100% control of, because obviously we have other assets in there.

[James M. Ratcliffe:]

Sure. Yeah.

[Gregory B. Maffei:]

Yeah. I think they tend to be on the small side. Particularly, if you look at the valuations and the growth rates, that would be more true for Bodybuilding than CommerceHub. Given CommerceHub's potential growth, not only internal growth, but in adjacencies as I already talked about both markets and geographies, it's not inconceivable that could be a public company.

[James M. Ratcliffe:]

Thanks.

[Operator:]

Thank you. Your next question comes from Eric Sheridan with UBS.

[Eric J. Sheridan:]

Thanks for taking the question. Mike, as more the customers transacting in both the e-commerce and on mobile, what are you learning about sort of size of transaction, philosophy of purchases? What's that doing to sort of the customer file, lifetime value dynamics that you know in the business? And an offshoot from that is, what could that mean longer term for margins for QVC? Thanks.

[Michael A. George:]

Eric, I'd say that maybe, at a headline level, it's amazingly stable as customers shift the platform. So, if you look at our kind of aggregate customer metrics, even as a much higher percentage of the transactions are on e-comm and mobile, that sort of aggregate customer metrics don't tend to move very much, which we view as mostly a good thing. They're very stable. So, I would say kind of quality of the customer, spend pretty comparable across platforms. Typically when they transact on a digital platform, they have a slightly higher orders, slightly higher units per order, although it's not totally clear that they have a substantially higher units over the course of, say, over a year's buying. So, the net of it is you see this highly loyal, highly engaged customer with QVC that's making many purchases a year and as she shifts from phone to e-comm to mobile, there aren't huge changes in that. I think hopefully we're getting slightly more purchase occasions and so it all kind of contributes to on balance a couple of percent growth in spend per existing customer that we need to fuel healthy top line. So stable, extends the reach of the brand, is helping us reach a somewhat broader audience, so probably more customers, but behavior within that pretty comparable. Not a big impact on margins. As we've discussed, when we do shift obviously from a phone order to a digital order, we're saving that customer service expense. If we ship from an order that was featured on TV during the day to a product that was not featured on TV during the day, we save commission. So, those are modest benefits going forward, but probably not quite at the same rate they might have been historically.

[Eric J. Sheridan:]

Great. Thanks.

[Operator:]

Thank you. Your next question comes from Victor Anthony with Axiom Capital.

[Victor B. Anthony:]

Thanks. Quick question on Italy, their organic growth rate ex-FX versus the customer growth rate, which you said was 25%. So I just wanted to get more understanding in terms of how do those two growth rates tend to merge over time? And that's one. And second, just on your global initiative, maybe you could just dive a little bit deeper in terms of what you hope to achieve with that initiative. What sort of best practices, vendor relationships, merchandise opportunities that you think that you could leverage across the different platforms? Thanks.

[Michael A. George:]

Great. Thanks. So on Italy, obviously disappointed with the kind of single-digit growth we've seen the last couple quarters, we should still be at this stage in a sort of double-digit growth mode. So, we've got a really good team there. They're working hard on it. And I would say the biggest challenge we've seen sort of systemically over the years in Italy is just difficulty bringing new customers on to the platform and probably harder than we anticipated. And so new customers in any given year are a relatively small portion of our sales, but clearly it matters over time. So, we have been very encouraged by the fact that there's been a bit of an on-lock in the last, probably four months or so in accelerating the rate of new customer adds. That should translate into higher sales going forward. That impact gets a little bit diffused because again, existing customers represent the bulk of sales. But we think that and just continuing to work hard on execution, we think we could improve our offerings in the home category as an example. We think those things together should get us we hope back into at least low double-digit range and that certainly is the goal of the team to try to get there. So a positive step, but more work to be done for sure. In terms of the global initiative, this has been a huge area of focus and effort with well over 100 leaders from across QVC engaged on this for the last year and I will tell you, it's just I think unlocked a whole lot of energy and excitement in the company to take a really fresh view of our organization structure in a way that we really have never done before. I think the benefits will unfold over time. I would say the benefits are more, let's say, quality over cost. In other words, our approach has been to reorganize in a cost neutral way, but in a way that would enable us to extend more capabilities more quickly around the world. What will that look like? Well, I think it's areas like e-commerce where we are moving to a global e-commerce platform where our goal is to be able to simultaneously deploy enhancements around the world, something that historically we've not been able to do. This was sort of a lead – e-commerce is one of the sort of the leading examples of moving to global. And so we're already seeing the benefits of that, something as simple but interesting as launching a Apple Watch app across the U.S. and Europe the day that the watch came out, which is just, in the old days, it would have taken us years to get to that into our European markets. So a lot of benefit I think in technology and platforms to scale more rapidly, deploy innovations more quickly around the world. On the brand side, we're having lots of really interesting discussions with our leading brands about how to create a deeper and stronger strategic partnership around the world. It's always something we've tried to do, but now we have an organization structure that enables it more easily. And I've mentioned brands like Dyson on the call a minute ago, is providing strong performance across a number of markets. And I think there are many cases like that where we're able to have more strategic dialogs with the big brands and we hope to get those into more markets more quickly. I think we're going to be able to spot trends more quickly and react to trends in merchandising around the world. So just a number of benefits across the business that we see coming. And I think over time, it also helps us become a more efficient operator. But, again, we're not initially approaching it as much as cost reduction as it is new ways to kind of continue to inch up the growth rate across the company.

[Victor B. Anthony:]

Thanks. I do have one follow up on China. Wondering if you've seen any sort of impact on the business, given the recent market dislocation over the past two months?

[Michael A. George:]

We have not. We feel – after a tough and disappointing Q1, we feel good about the momentum in the China business. It did pickup. Each month was better than the month before in Q2 and I won't comment on current period results other than just to say that we're not – certainly not seen any meaningful dislocation from the stock market turbulence. It's a dynamic market and who knows what's going to happen in the future, but at least to-date those big externalities don't seem to be hitting our business.

[Victor B. Anthony:]

Okay. Thank you very much.

[Michael A. George:]

Thank you.

[Gregory B. Maffei:]

So with that operator, I think we've come to our appointed time. Thank you very much to all of you on the call for your interest in Liberty Media, and we look forward to speaking with you again next quarter if not sooner. Thank you.