Qurate Retail, Inc.
Q4 2015 Earnings Call Transcript

Published: 26 Feb 2016

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Liberty Interactive Corporation 2015 Fourth Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded Friday, February 26, 2016. I would now like to turn the conference over to Courtnee Ulrich, Senior Vice President of Investor Relations. Please go ahead.

[Courtnee Chun Ulrich:]

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, including statements about business strategies, market potential, stock repurchases, future financial performance, international expansion including QVCA's new support center in Poland, the expected benefits and synergies resulting from the acquisition of zulily, the implementation of new marketing and fulfillment processes at zulily, new service and product launches, the proposed spin-off of CommerceHub and Liberty Expedia Holdings, 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, the satisfaction of conditions to the proposed spin-off, 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 statement 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 notes and schedules 1 through 4 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. With that, I'll turn it over to Greg Maffei, Liberty Interactive President and CEO.

[Gregory B. Maffei:]

Thank you, Courtnee, and thank you out there in the listening public. Good morning. Today speaking on the call, besides myself, we'll have Liberty Interactive CFO, Chris Shean; QVC's President and CEO, Mike George; zulily's President and CEO, Darrell Cavens. And I'd note that during the Q&A portion of the call, we will also be happy to answer any questions you might have about Liberty TripAdvisor Holdings. On to the highlights. QVC had solid results and grew U.S. revenue and adjusted OIBDA by 3% in 2015, strong in light of weak retail U.S. comps. In Q4, we achieved our first 50-50 with QVC.com at 52% of total orders and U.S. mobile penetration at 50%. zulily revenue in Q4 was up 17%, and after adjusting for a $17 million purchase accounting adjustment, adjusted OIBDA was up 87%. We're quite happy with this deal and the earlier operating results at zulily. During the period of November 1 to January 31, we repurchased 272 million of QVCA shares. Now on to Liberty Ventures. We are working on the S-1s for the spin-offs of CommerceHub and Expedia. We are currently finalizing the CommerceHub S-1, including updated financials and expect to file in March, and we are working towards a Q2 close. At Liberty Expedia, that spin-off is targeted for second quarter as well. The filing should be shortly behind the CHUBB filing and will include Bodybuilding's financials. Lastly, at Liberty TripAdvisor, TripAdvisor continues to make tremendous progress in reinventing how users plan and book the perfect trip. Users are now adding content at the rate of more than 200 contributions per minute to the TripAdvisor site. Metasearch enables search over 200 booking options, different booking options, and most importantly, the continued roll-out of Instant Book, which allows travelers to complete the transaction all within the TripAdvisor site is continuing, going well, and we are pleased with its progress. We look forward to seeing some of you at conferences this March and please mark your calendars for our Bi-Annual QVC Investor Day on Monday, May 16 in West Chester, Pennsylvania. Please reach out to Courtnee and the IR team for more details. And with that, let me turn it over to Chris Shean to discuss the financials in more detail.

[Christopher W. Shean:]

Thanks, Greg. As Greg mentioned, we completed the zulily acquisition and closed it on October 1. And from that point forward, its results are included in ours, so for the entire Q4. We 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 related from the acquisitions of QVC and zulily. You can find this on Schedule 4 of the press release. Now let's take a quick look at the liquidity picture. At the end of the quarter, the QVC Group had attributed cash and liquid investments of $438 million and $6.6 billion in principal amount of attributed debt. QVC's total debt to adjusted OIBDA ratio as of December 31, as is defined in its credit agreement was approximately 2.8 times. Please note that zulily's OIBDA does not count towards the leverage ratio under QVC's credit agreement. Now, I'll hand the call over to Mike George for additional QVC commentary.

[Michael A. George:]

Thank you, Chris. 2015 was a transformational year for QVC, as we invested in building a strong foundation for continued long-term success. We launched our new global organizational structure, designed to leverage the best of QVC globally; to improve our ability to differentiate our shopping experience, to accelerate deployment of new capabilities and to reduce performance volatility across markets. We invested in lower shipping and handling rates in the U.S. We extended and enriched our digital shopping experience by redesigning our web and mobile platforms. We launched QVC France, our seventh market, and in our China joint venture, we expanded our TV reach to 114 million homes, making it our largest market by homes reached. And of course, we forged a new relationship with zulily, one of the world's leading e-commerce companies. And while making these investments, we also were able to deliver strong and consistent financial results for the full year. On a constant currency basis, we grew revenue 3% with gains in every one of our seven markets. Adjusted OIBDA grew 4% and adjusted OIBDA margin increased 7 basis points excluding the France startup cost and the one-time cost related to establishing a new global business service center, which I'll discuss in a moment. The total CapEx in 2015 was $215 million. As part of the new global organizational structure, we created an international division led by Steve Hofmann. As a result, we changed our reporting to align with this new operating structure. QVC will now report results as QVC U.S. and QVC International. Now looking out to fourth quarter, we were very pleased with our results. At QVC, we once again demonstrated the stability of our model at a time when many other retailers struggled with the challenging holiday season. On a constant currency basis, our consolidated revenue grew 3% and adjusted OIBDA grew 2%, excluding the impact of France and the new global business service center. And zulily ended the year with an especially strong quarter with really superb execution, a greatly enhanced customer experience and adjusted OIBDA results that far exceeded expectations once you adjust for the purchase accounting treatment. Darrell will provide more details on zulily in a few minutes. Turning now to QVC U.S., we grew revenue by 3% in the quarter, reflecting volume gains and improved return rates. We saw increases in all categories except jewelry. We were particularly encouraged by our strong double-digit growth in apparel and accessories despite overall softness in that category. Our adjusted OIBDA increased 2%, excluding the cost of the business service center. The OIBDA margin decline was primarily driven by lower shipping and handling revenue as a result of the new S&H policies we implemented last February as well as higher warehouse costs. These were partially offset by improved initial product margins, lower personnel expenses and lower inventory obsolescence. Turning to international, on a constant currency basis, revenues increased 3% in the quarter primarily due to volume growth with gains in the home, beauty and apparel categories, and partially offset by decline in electronics and in jewelry. Adjusted OIBDA also increased 3% on a constant currency basis, again excluding France and the new service center. We saw continued strength in the UK and German operations, and we were especially pleased to see accelerating results in Italy, with good gains in both new customer acquisition and existing customer spend. France continues to build brand awareness and ended the year with TV reach of 18 million homes. These gains were partially offset by softening results in Japan, especially in our fashion categories. And in our joint venture in China, we saw revenue growth up 22% in local currency in the quarter as we continue to benefit from improved execution and this past summer's expansion into Shanghai. Now, as I've been mentioning in the quarter, we incurred $7 million of costs related to establishing a global business services center to consolidate select finance, human resources, information technology and legal support functions for our U.S. and European markets. Approximately $4 million of the cost were incurred in international and $3 million in the U.S. We do expect to incur another $11 million of additional one-time incremental operating expenses in 2016. We plan to establish this new service center in Krakow, Poland, where some of the world's leading companies have similar operations. In addition to cost benefits, the center will allow for operational efficiencies and the ability to scale more effectively. We expect the center to open by early 2017 and to build to approximately 200 positions to 300 positions in the following one to two years. Once fully operational, we anticipate annual cost savings of approximately $12 million to $15 million. We continue to extend the reach and the relevance of the QVC brand through commerce platform expansion and growth of our customer base, including our China JV. Our TV broadcast reached approximately 358 million homes at the end of 2015; that's a 13% year-over-year increase. We generated strong e-commerce and mobile growth in the quarter and consolidated e-commerce revenue grew at 12% on a constant currency basis to 47% of revenue, up 400 basis points from the comparable period. U.S. e-commerce revenue increased 13% to 52% of total revenue; that's an increase of 470 basis points. And this quarter, as Greg mentioned, marks the first time e-commerce sales have represented over half of the U.S. business. And mobile orders continue on their rapid growth. On a constant currency basis, consolidated mobile orders grew 34% to represent 52% of e-commerce orders in the quarter. That's an increase of over 800 basis points. And we continue to invest in our digital platforms, to expand our presence and to adapt to changing technology and consumer behavior. We launched our app through the Apple TV in the U.S. in October and in the UK in November. We also launched a universal android app in the U.S., UK and Germany in Q4, for both phones and tablets. It delivers a much more robust customer experience and has driven meaningful increases in both conversion and sales. We experienced outstanding customer growth in 2015. On a trailing 12-month basis, total consolidated customer count increased 3% to 12.6 million customers, and in the U.S., customer count grew 4% to 8.3 million. Those are both records for total customers served. We think these strong customer dynamics are the result of our focus on compelling merchandise and content and our increasing focus on personalizing our digital platforms. In addition, our China joint venture served another 1.4 million customers with an increase of 14%. Now, we delivered on our promise of combining the worlds of shopping, entertainment, and social during the holiday season. Thanksgiving week was a particular highlight in the U.S. It was the largest sales week in our history with e-commerce accounting for 58% of sales. Thanksgiving day was our highest selling Thanksgiving ever, Black Friday was the bestselling Black Friday on QVC.com and Cyber Monday was a record as well. On November 28, the Dell laptop was the bestselling today's special value ever on QVC.com. More broadly in the quarter, we continue to see strength in our fashion, home décor and fitness businesses in the U.S. In Fashion, we had great success with proprietary designer brands such as Lori Goldstein and Isaac Mizrahi Live!. We also experienced strong performance in accessories driven especially by designer footwear, and we're seeing great strength in the fitness wearables category with Garmin and Fitbit. Consumer electronics was up slightly with the rebound in computers, audio and cameras, and we sold a lot of drones and introduced new brands like GoPro, Amazon Echo and Microsoft Surface. That said, we do remain highly cautious about the long-term outlook for the consumer electronics category. Jewelry continued to be soft due to weakness in our gold business. We're refocusing our assets into better performing categories such as private label Diamonique and Affinity and we'll be adding a number of new designer brands in 2016. We continued building on our social media successes. Our flagship Facebook now reaches 2.2 million fans worldwide and just in the U.S. we have 4.5 million social fans across all social platforms. Instagram became our second largest U.S. flagship platform in fan count in 2015 growing more than 200% and in the fourth quarter, we launched presence on Instagram in Germany for the first time. In Q4, we began building a real-time data analytics response technology to drive multi-channel revenue. Similar to the testimonial calls that we've used for years on our live TV broadcast, the digital analytics response technology will allow QVC to crowd source customer feedback 24 hours a day. We're now monitoring several different data sources, including intraday detailed sales performance and forecasting, customer feedback across the web and social platforms, customer behavior on QVC.com and the impact of the live broadcast. We're reacting to this data in real-time to provide an enhanced multi-channel customer experience, tailored to our customers' expectations and to help drive incremental sales. And we were also pleased to have been once again recognized for outstanding customer service. QVC ranked number two behind Amazon in customer satisfaction for web among mass merchants in the 2015 ForeSee Customer Experience Index. In UK, we achieved the number one ranking in retail sector for customer service in ICMI's annual awards. And in Germany, ServiceAtlas ranked QVC as the top customer-oriented online retailer in 2015 and ServiceValue ranked QVC Germany number one for customer service in the sector. Now, looking forward to this year, we are excited about the opportunities in front of us to continue extending our industry leadership and capitalizing on the significant investments we've made over the past year. We believe we're well positioned to grow our business and continue taking market share. We're leveraging our new global organizational model to expand our best brands and more rapidly deploy best practices across all markets. We're particularly excited about our upcoming re-launch on an exclusive basis of the C. Wonder brand which will be launched first on zulily next week, and then, launch subsequently in the U.S., UK, Italy and France on the QVC platform in early March. We'll be completing the next major phases in the redesign of our web platform in the first quarter and we'll be deploying new personalization and optimization capabilities on the site leveraging learnings and tools from zulily throughout the year. We'll open our new West Coast DC, late this year, and we anticipate achieving significant freight savings along with substantially improved delivery times to our customers as the site ramps its volume through 2017 and 2018. And importantly, our zulily and QVC teams are working together incredibly well working to drive new revenue and cost opportunities. This work began in earnest in Q4. We placed a number of today's special values on zulily introducing those customers to QVC. We've sold some of QVC's proprietary product lines on zulily and used zulily as an outlet for some of our markdown products. We ran on air spots on QVC for zulily and saw meaningful traffic to their site in the minutes after those spots ran. And in early December, we ran a zulily program on QVC Plus featuring an assortment of products sold on zulily and interviews with zulily team members. We conducted digital marketing tests redirecting consumers from QVC.com to zulily. We also ran print promotions with package inserts and ads in our QVC customer magazine Inside Q. Now, none of these tests were large enough to be material in the quarter, they completely confirmed our thesis, our belief that we can accelerate customer growth and increase purchase occasions for both brands as we work together. And finally, in 2016, we anticipate our capital spend to be approximately $210 million to $220 million at QVC and another $25 million to $30 million at zulily. And with that, I will turn the call over to Darrell to discuss zulily's results.

[Darrell Cavens:]

Thanks, Mike, and thanks everybody for joining today's call. We ended the year and the holiday peak season strong particularly from an operational perspective. Fourth quarter revenue came in at $426 million, up 9% year-over-year and adjusted OIBDA came in at $21 million, up 1% year-over-year. It's important to note that these amounts would have been $17 million higher, had we not reduced the amount of deferred revenue, as a part of a non-cash acquisition purchase accounting adjustment. As a result, fourth quarter revenue would have been $443 million, up 13% year-over-year and adjusted OIBDA up $38 million, up 87% year-over-year. For the full year, revenue grew to $1.4 billion, up 13% year-over-year and adjusted OIBDA to $71 million, up 63% year-over-year. In addition to the previously mentioned deferred revenue adjustment, full year 2015 adjusted OIBDA excludes $30 million in transaction costs, related to the closing of the acquisition. As Mike noted, it was incredibly busy initial quarter for us as part of the QVC Group. We stay focused on delivering our holiday season but also put a lot of focus at both zulily and QVC on shared learnings and exploring the opportunities between our brands. I'm pleased that how our zulily and QVC teams are working together, and I'm encouraged by our initial results. I'd like to spend a minute talking about two areas where we made substantial investments over the past year, marketing and customer experience. I'm excited about the amount of progress we've made in both these areas, and we remain focused on our efforts to reaccelerate growth in 2016. First, on marketing. As expected, active customers which we define as any customer who has placed an order in the past 12 months, trended relatively flat through Q4 as we focused on the higher churn rate of our more transactional customers from the year prior. As a remainder, in early 2015, we made a significant transition in our marketing model to focus on acquiring higher lifetime value customers. We pulled back on spend in Q2 and refocused our efforts by shifting more spend into broad based channels like display and TV, gradually ramping as the year progressed. We made some few leadership changes in our marketing organization and made additional investments in key tools, to help drive better visibility as we scale. In Q4, we continued to see repeat rates improve with 90% of our total order coming from repeat customers, up from 86% a year ago and 88% in the third quarter. Mobile continued to be a key driver for our business with mobile orders growing 35% year-over-year. In Q4, 59% of the orders came from mobile devices, flat from the prior quarter and up from 51% a year ago. Second, regarding our customer experience. We saw significant improvements in our operational execution. At the end of January, our Net Promoter Score was at some of the highest levels in recent history. In Q4, we reduced our average delivery times, but more importantly, we drastically improved our accuracy around ship date. We've also put a concerted effort into monitoring product quality, tracking feedback and increasing real-time visibility to our vendors. This allows us to react quickly to negative customer feedback and ensures our merchandising team and vendors have a constant feedback loop to help scale and improve their businesses. I'm excited about the tremendous progress we made in 2015 and expect our team to elevate our standards going into 2016. We also saw significant improvements in our profitability. Our adjusted OIBDA margin expanded 335 basis points year-over-year driven by strong supply chain execution that resulted in gross margins exceeding our expectations. Our Q4 gross margins improved 380 basis points year-over-year, driven by supply chain efficiencies, including fulfillment processes and transportation operations improvement. In 2016, I'm primarily focused on doing what we need to do across the business to reaccelerate our growth. Having such strong operational execution and improving unit cost economics is the foundation for keeping our customers engaged and happy. For zulily, that means investing in the opportunities that are core to our unique experience, to become a daily habit for our customers by inspiring her with products and experiences she loves. For example, in merchandising, we'll expand our daily offering with amazing new products and vendors, and make sure we maintain our strong brand trust by delivering something special every day. In marketing, we'll invest in technologies such as mobile and personalization to drive innovative experiences in how we acquire and engage with customers. And as mentioned earlier, we'll also look to enhance our customer experience. For example, in 2016, we continue to expand our vendor fulfillment services program. As a reminder, we typically purchase inventory after the products are sold to the customer. With the new program, we essentially act as our vendor's third-party logistics provider. The vendor pays a fee to use our fulfillment centers for storage and for shipping items they sell through zulily as well as their other retail channels. This eliminates the ship time from the vendor to our fulfillment centers because the inventory still belongs to our vendors, though, we're able to do this without bringing the inventory on to our balance sheet. By year-end 2016, we hope to more than double the number of units shipped to our customers through this program. By expanding this offering, we hope to continue to reduce our ship times. Lastly, I'm excited about the testing we've done so far in collaboration with QVC. Together, I believe we'll be able to drive incremental growth opportunities and leverage our brands to become the leading entertainment-based shopping experience in the world. I look forward to continue to update you on our progress here over the coming quarters. With that, let me turn the call back over to Chris.

[Christopher W. Shean:]

Thanks, Darrell. Let's take a look at Liberty Ventures. As you will note in the press release and in the 10-K that we'll be filing later today, we've removed the segment information of the Digital Commerce businesses for a number of reasons, including the aforementioned proposed spin-off, the sale, the sales of Backcountry.com and the sale of Provide Commerce. The Digital Commerce business information is now included in the Corporate and Other line items. We do note that the detailed information of both CommerceHub and Bodybuilding.com will be included in the upcoming filings for their respective spin-off transactions. Now, let's take a quick look at the liquidity picture for the 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 $3.7 billion and $1.3 billion, respectively, at the end of the quarter. Now, with that, I'll hand the call back to Greg for Q&A.

[Gregory B. Maffei:]

Well, thank you, Mike, Darrell and Chris and to our listening audience, we appreciate your continued interest in Liberty Interactive. Now, I'd like to open it up for questions. Operator, please.

[Operator:]

Your first question comes from the line of Matt Nemer with Wells Fargo Securities.

[Matt Nemer:]

Thanks so much, and good afternoon, everyone. So my first question is for Mike and Darrell. Now that you've had some time to run revenue and marketing scenarios, can you give us an updated view of where you think the biggest opportunities are? Is it frequency and spend on the zu platform, is it bringing zu customers over to the Q platform? I'd love to just get your sense for where the lowest fruit is on the tree? Thanks.

[Michael A. George:]

Hey, Darrell, why don't you start with that and then I'll add a couple of thoughts.

[Darrell Cavens:]

Sure. I think as we kind of have dug into it over the past four months, I think as both Mike and I mentioned in the script, I think we're continuing to see great opportunity, just really similarities in the teams and cultures, as well as the way we think about kind of telling our stories to our kind of very similarly engaged customer bases. But I think overall if I look at where the biggest opportunities are, they're very much where I think we thought they were before, it's around kind of taking these great brands that both of us have and exposing them to each other. I think you look today, Mike mentioned in the script, we actually had C. Wonder on the site today, if you log-on to zulily you see that at the top of the page, it's being able to take those incredible brands that QVC has and bring them to zulily I think is first and foremost. Second is, really just exposing the customers to both brands. We see these customers both at zulily and QVC, they love to shop, they love to be entertained by great product, and the tests that we've seen taking customers from one brand to the other seem to be working well. I'd say we're early in that, but I think both of those, the brands and the customer side, as we peel the onion back, it feels like there is a lot of opportunity there. Mike?

[Matt Nemer:]

Great.

[Michael A. George:]

Yeah. I would just second add, and we're learning every day. So, for example, what we have found as we've tested different TSVs on the zulily's site, and certainly they have very performance, some very strong, some weak, but particularly in categories where zulily is not currently strong, live plants, beauty, high-end electronics. When we introduced TSVs in those kinds of categories, they seemed to do pretty well in terms of driving sales of those TSVs to QVC, but also actually keeping – surprisingly keeping the zulily customer more engaged on the zulily site, because she is finding some things she hadn't seen before. And while this is certainly not representative on our kind of best performers, we've seen as much as 15% of the total new names on the TSV – new customers on the TSV coming from that zulily redirect. And we're now – have just enough data to begin to look at the performance of those zulily customers, to see if they've become kind of good QVC customers, and that early results kind of suggests that they're performing, as well as customers we bring into other kinds of marketing channels. So, sort of day-by-day learnings, we'll get more and more surgical, but I think both Darrell and I, as he mentioned, are just really enthused by what we're seeing at this stage.

[Matt Nemer:]

Excellent. And then secondly, other than the continued investment in the global service center that you mentioned and obviously the distribution center opening later this year, are there any other meaningful investments that you're anticipating that would impact operating leverage in 2016?

[Michael A. George:]

I think those are really the primary ones. I mean, we'll continue to – we'll have about half a quarter of continued impact in Q1 from the S&H change we made last February and then we'll be past that, which has probably been the single biggest kind of hit to OIBDA margin. And France would be the other area of continued investment, but clearly most of that headwind was 2016. So, it's not going to be highly material on a kind of year-over-year basis in 2016.

[Matt Nemer:]

Great. Congrats on a strong holiday in the fourth quarter.

[Michael A. George:]

Thank you.

[Operator:]

Your next question comes from the line of Barton Crocket with FBR Capital Markets.

[Barton E. Crockett:]

Okay. Great. Thank you. I was curious about the kind of explosive growth in EBITDA margin at zulily. And I was wondering if you could peel back the onion a little bit for us and tell us little bit more specifically what drove that 87% growth in EBITDA kind of broken out between gross margin and operating expenses? Was there any kind of merger cost synergy that helped there and how sustainable do you think this type of margin improvement is into 2016?

[Darrell Cavens:]

Yeah. So I think if you look at Q4 where the margin kind of growth happened, it primarily came from gross margin and in particular, just incredibly strong execution in our fulfillment and logistics operations areas as well as a lot of the work that we've done over the last 18 months around our transportation improvement to continue to consolidate more items into fewer packages and get kind of those shipments out to mom both fast and in a more consolidated way. And so that's where most of that came from. I think we continued to stay very disciplined on our expenses as well. Really not much in the way kind of immediate synergies from the deal. So I think most of that really just came from gross margin to strong execution.

[Barton E. Crockett:]

Okay. Great. Thank you for that. And then switching gears a little bit. I know you'll give us more data in a bit, but it is a new equity that's coming out relatively soon. Can you give us any sense of how CommerceHub did in the quarter and whether there was any meaningful change or continuation of the business trajectory there?

[Gregory B. Maffei:]

I think, in general, CommerceHub results continued forward well. No major variance from the past positive trends, and we expect you will see those materials shortly. So I don't think you'll be surprised. I think it's going to continue being positive.

[Barton E. Crockett:]

Okay. That's great. Thank you.

[Operator:]

Your next question comes from the line of Rick Patel with Stephens.

[Rick Patel:]

Hello, everyone, and thanks for taking my question. Can you talk about what you think will be the primary drivers of QVC's U.S. business as we think about 2016? I'm curious if there are any particular product or category initiatives that you're particularly excited about, and do you see growth being driven by units or ASP this year?

[Michael A. George:]

Yeah. I think as we look at 2016, I think what we're mostly encouraged by is – and this was kind of a trend in 2015 that I think continues is a fairly broad based health across the categories. And so, we're not – we don't feel like we're overly dependent on one or two categories to drive growth, and I think we can have a fairly balanced profile. The two watch outs continue to be jewelry and consumer electronics. We are working hard to try to turn the jewelry business. I don't know that we've cracked the code yet, but we've got a number of new designers we're introducing as well as sort of a step up in our proprietary brand. So, hopefully, we kind of moderate the pressure that we've seen in jewelry, and then, the fashion business continues to be remarkably strong. We've been talking about the C. Wonder launch, which is going to be one of our biggest launches ever. So, feel good about the trajectory in fashion. And then, I think there's a handful of things working for us on the home side. And then, add to all of that just sort of continued, I would say optimization of our second channel, QVC Plus. We're continuing to do more and more of live programming on the second channel, and that performs better than the tape programming. We'll be launching the next big phase of our site redesign, which gets down to the core of the product detail page, which is sort of the most critical and complex page. So, some important enhancements there, and that along with continued mobile investments, I think those would be the primary things that we look to to power the business.

[Rick Patel:]

Can you also share your thoughts on QVC's launch in France? I know carriage was a little slow out the gate, but are you guys at the point now where the infrastructure is there for that business to really start ramping up, or is there still more work to be done? I think given what you've seen so far, any kind of context around the timeframe that we should have in mind for when that region will become profitable?

[Michael A. George:]

Yeah. I would say – so, on the carriage side, we're – we have – it did start ramp more slowly than we had anticipated, but we're in a pretty good position as of year-end and still some more carriage opportunities. So, we're probably 80% of where we'd like to be with carriage and hopefully can add a little bit more this year. I'd say the overall kind of the quality of the team we have in place, the quality of the execution, looking at the products, the programming, we're really quite proud of what we're putting into the marketplace. We were – in a way that we weren't able to do in Italy, we were able to leverage a lot more of the resources at QVC effectively to both bring a better experience to the market and do it at a lower run rate of cost. Having said all of that, I would tell you that revenue is lighter than we would like it to be. That's a little bit due to the slower carriage ramp and probably just we have learned that these businesses take time to grow and we don't do a lot of advertising, so it really is about that customer trying to find us on a digital platform. And in France, in particular, where it's both a totally new experience for the customer and I would say the French customer probably more so than any other area in Europe is – she is slow to take on a new brand. So I think we've got to – she's got to see us for a while and believe in us. So the revenue certainly is ramping every week sequentially, but it is a bit behind where we'd like to see it. So I think it's too early to give any kind of long-term outlook for the business other than we're happy with the execution. When we do land the customers, she is responding very positively to what we are offering and we do have a lower kind of run rate of expenses than in Italy, so I think that will enable us to kind of contain our losses basically as we ramp the business.

[Rick Patel:]

Thank you. Good luck this spring.

[Michael A. George:]

Thank you.

[Operator:]

Your next question comes from the line of Eric Sheridan with UBS.

[Eric J. Sheridan:]

Thanks for taking the questions. Maybe two for Mike. Mike, you referenced alternative distribution like Apple TV and some of the other products you're looking at. Maybe you can give us a sense of what you expect for those platforms going forward, what those might do for QVC longer term? And then another on the international business, sold items came in around 2%, maybe give us a sense of what might be done to stimulate that to a higher number in 2016? Thanks.

[Michael A. George:]

Thanks, Eric. On alternative distribution, we kind of love the experience on the Apple TV. We've seen some nice response on Roku and I think there is a lot more we could on the Roku platform. We're encouraged by this trend of a lot of the kind of traditional providers to be operating over-the-top subscription services and I think that will be an interesting platform for us. So, at this point, it's really experimentation phase. I just think it's too – none of those things have any kind of material impact today. So the sales are very small across all those alternative platforms. So our view is, let's kind of be wherever the customer is going, continue to experiment with what kind of experience and interface makes the most sense for her, and kind of be ready when one of those takes off to ride the wave. But really too early I think to make any call as to whether those will be coming in for over what time period. And again, despite all the concerns in the industry, we continue to feel very good about kind of viewership on our core traditional TV platforms and the stability that we're seeing on that platform. And I'm sorry, can you give me your second question?

[Eric J. Sheridan:]

I was curious about sort of international units. It came in around 2%. What sort of might be done, maybe a little bit of market color even, to stimulate that number higher in 2016?

[Michael A. George:]

Yeah. I think the international story really boils down to Japan being softer than we anticipated. So very nice results in Europe. UK continued good momentum. Germany continued good momentum. Italy really picking up nicely. We're really encouraged by what we're seeing in Italy. But Japan softened up. And over the last couple of years, I've been kind of consistently saying, it's the market that faces the biggest sort of structural headwinds and it's an everyday fight. But just given the size of that market, we still think it has a lot of potential. So we were on a better run in Japan earlier in the year and saw some softening. A little bit of that is macroeconomic weakness and other issues we face in Japan. But I think some of that was our own execution. Our fashion offerings just weren't resonating with the customer. So we're very excited about having a new leadership team in Japan. Mike Fitzharris who was our COO in UK is now running that market, and we've brought in some terrific talent from the U.S. and other places to lead merchandising. So we're trying to kind of put a fresh team in place and really look at how to drive this more consistent sustainable growth in that country. And I think we'll get there. It's little too early to say on exactly what pace, but I'm kind of encouraged by what they are already doing. But that's really I would say our only real kind of soft spot in international.

[Eric J. Sheridan:]

Great. Thank you.

[Operator:]

Your next question comes from the line of James Ratcliffe with Buckingham Research Group.

[James M. Ratcliffe:]

Good morning. Thanks for taking the question. I have two, if I could, one on Ventures, one on LTRIP. On Ventures, I think we all sort of expect the Charter deal to go through. But if it doesn't, any thoughts on how the landscape has changed in terms of potential uses of cash balance? And secondly on LTRIP, in the event that there was interest in LTRIP from an entity other than TRIP, can you talk to us about the tax implications of that, if is it really sellable on a tax efficient way for either cash or stock to somebody who isn't TRIP? Thanks.

[Darrell Cavens:]

So, on Ventures, I think you've heard us in the past, James, as a listener, speak about our belief that our ability to write a big large check, which differentiates us from many, is a powerful incentive and not be a buyer of 100% but being a buyer of a meaningful percentage of a company, have influence, have a role but not necessarily control or consolidation. That's an attractive position. In the unfortunate event, because we consider it a very attractive transaction, that the Bright House and Time Warner deals don't close, Ventures will be quite liquid, quite strong, and in a market where there are truly disruptions as people noted on the earlier LMC call. I think Ventures would have a lot of attractive opportunities, some of which we're already in dialogue on already, but which you could imagine being done in a bigger way. So I'm not looking forward to Bright House/Time Warner not closing, don't think that's what's going to transpire. But if it does, I also think we're going to see a lot of choices. On TRIP – LTRIP, LTRIP has been a public company now on its own for since I think it's August a bit over year-over-a-year ago, so it's approaching two years in this August, and we would be free to sell LTRIP to any buyer we wished, TRIP or otherwise, with no issue. So I don't think there are any tax implications.

[James M. Ratcliffe:]

Great. Thank you.

[Operator:]

Your next question is from the line of Ed Yruma with KeyBanc Capital Markets.

[Edward J. Yruma:]

Hi. Thanks for taking my questions. I guess, first, you hit some important milestones in the Q business in terms of e-comm penetration. I guess, what are the puts and takes of the margin structure as e-comm continues to ramp in its penetration? I'm sure there are higher costs, but I'd assume there are also cost saves as well.

[Michael A. George:]

That's exactly right. I would say it's neutral to modestly positive as we shift the business to e-comm. So same underlying kind of product margin structure, and depending on whether we're getting someone who is placing a phone call to a live operator or using our automated response unit, depending on whether they're buying an item on dotcom that was on air or not, all that sort of influences the economics. But generally speaking, as e-com penetration grows, we're reducing our affiliate commissions that we pay our TV partners because folks are finding more items on dotcom that weren't sold on air, and therefore no kind of commission accrues to them. So generally speaking, while we've had to make incremental investments to really build out our digital platforms, and to provide kind of rich content for those platforms. That investment can be at least self-funding and maybe better than self-funding through kind of savings in contact center costs, and savings in affiliate commissions.

[Edward J. Yruma:]

Great. And two other quick follow-ups, if I may. I guess one, could you talk about maybe seasonal inventory? Obviously, we had a really warm winter. Do you have any pockets of kind of excess inventory? And then, two, a bigger picture question – we see lots of global consumers, any commentary on the state of the global consumer today? Thanks.

[Michael A. George:]

In terms of inventory, we feel quite good about our inventory position as I noted in my comments, our inventory obsolescence rate was down in the quarter. Our absolute level of inventory is up modestly year-over-year but kind of right on our plan and the main reason for that is because of the strength we're seeing in fashion so fashion has our longest lead time. And so you generally need to kind of load in the inventory further out in front of the sales than you do in other category. So you saw us bring in some spring merchandise at the end of 2015 but very deliberately because we really love how that business is trending. So we feel quite good about our inventory position. In terms of the consumer outlook, you know it's hard for me to add much more to kind of what all of you kind of see and read – you know obviously, a fairly tepid Q4 for most retailers. Little too early to get a read on 2016. On the upside, I think as folks become convinced that these gas savings are real and want to spend them in retail as opposed to put them in the bank, at the same time, the stock market volatility is certainly a concern and for our customer that's probably more important. So if we see continued market recovery from early January that sort of we think bodes well for at least the consumer segments we serve, and if it were to go the other way that would be a bit of a concern. So, I guess, my overarching view is, we face into a fairly tepid consumer environment for six years or seven years, I don't anticipate it getting much better, but I also don't anticipate it being a whole lot worse. And so, our job is to kind of push through that and try to grow a couple of hundred basis points faster than the overall general merchandise market which we've generally been able to do.

[Edward J. Yruma:]

Great. Thanks so much.

[Operator:]

Your last question comes from the line Alex Fuhrman with Craig-Hallum.

[Alex Joseph Fuhrman:]

Great. Thanks for taking my question. Just a quick one for Mike. I've been noticing a decent amount of TV advertising on other channels promoting the C. Wonder launch. Just wondering if there are other brands that you've done that type of advertising for to support a launch and just thinking from a broader perspective, I know, QVC has not done historically a lot of external advertising. Is that something that that could be a driver of growth in future years or is that really just a test for the one launch? Thank you.

[Michael A. George:]

Well, first, I'm thrilled that you're seeing the C. Wonder advertising, that's very encouraging. We're actually not doing anything meaningful incrementally for C. Wonder. So, we do have some amount of advertising we run through the year at no cost to us that's sort of part of our carriage agreements. Typically, remnant advertising at a fairly low rate so it does have some impact, people do see it, but it's not especially heavy and we're not picking it up for C. Wonder, but sometimes you can get better placement from our cable partners. More broadly, I would say, we don't have any intent to be more aggressive about TV advertising. We generally feel that the ROI is pretty tough because of the overwhelming influence you get from our live TV. The sort of incremental benefit from advertising can't quite pay for the cost of it. We've done it when we've launched in new market. We're debating whether we want to do some of that for France, haven't yet decided for the bigger businesses. We don't anticipate doing it. That said, we always have an open mind and we're trying to learn a lot from our friends at zulily, who are ramping up their TV advertising in a kind of direct response mode and they've seen really nice results. So those are things that are interesting to us that we'll watch but no current plans.

[Alex Joseph Fuhrman:]

Great. That's very helpful. Thank you, Mike.

[Michael A. George:]

Thanks.

[Gregory B. Maffei:]

So with that operator, I think we're done. And to our listening audience, thank you very much for your continued interest in Liberty Interactive. We look forward to seeing you soon and the phone call you're here on the call next quarter or hopefully before. Thank you.

[Operator:]

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.