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QURATE RETAIL, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/04/2021 | 03:43pm EST

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business strategies; COVID-19 (as defined below); revenue growth at QVC, Inc. ("QVC"); the redemption or exchange of the 3.5% Exchangeable Senior Debentures due 2031; our projected sources and uses of cash; the recoverability of our goodwill and other intangible assets; and fluctuations in interest rates and foreign currency exchange rates. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

the impact of the novel coronavirus ("COVID-19") pandemic and local, state and

? federal governmental responses to the pandemic on the economy, our customers,

our vendors and our businesses generally;

customer demand for our products and services and our ability to attract new

? customers and retain existing customers by anticipating customer demand and

adapting to changes in demand;

? competitor responses to our products and services;

? increased digital TV penetration and the impact on channel positioning of our


? the levels of online traffic to our businesses' websites and our ability to

convert visitors into customers or contributors;

? uncertainties inherent in the development and integration of new business lines

and business strategies;

? our future financial performance, including availability, terms, deployment of

capital and our level of indebtedness;

? our ability to effectively manage our installment sales plans and revolving

credit card programs;

the cost and ability of shipping companies, manufacturers, suppliers, digital

? marketing channels, and vendors to deliver products, equipment, software and


? the outcome of any pending or threatened litigation;

? availability of qualified personnel;

? the impact of the seasonality of our businesses;

changes in, or failure or inability to comply with, government regulations,

? including, without limitation, regulations of the Federal Communications

Commission, and adverse outcomes from regulatory proceedings;

? changes in the nature of key strategic relationships with partners,

distributors, suppliers and vendors;

? domestic and international economic and business conditions and industry

trends, including the impact of Brexit (as defined below);

? changes in the trade policy and trade relations with China;

? consumer spending levels, including the availability and amount of individual

consumer debt and customer credit losses;

? system interruption and the lack of integration and redundancy in the systems

and infrastructures of our businesses;

? advertising spending levels;

changes in distribution and viewing of television programming, including the

? expanded deployment of video on demand technologies and Internet protocol

television and their impact on home shopping programming;

? rapid technological changes;

failure to protect the security of personal information, subjecting us to

? potentially costly government enforcement actions and/or private litigation and

reputational damage;

? the regulatory and competitive environment of the industries in which we


? natural disasters, public health crises (including COVID-19), political crises,

and other catastrophic events or other events outside of our control;

? threatened terrorist attacks, political and economic unrest in international

markets and ongoing military action around the world; and

? fluctuations in foreign currency exchange rates.


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For additional risk factors, please see Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 10-K"). These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and the 2020 10-K.

The information herein relates to Qurate Retail, Inc. and its controlled subsidiaries (collectively "Qurate Retail," the "Company," "Consolidated Qurate Retail," "us," "we" or "our" unless the context otherwise requires).


We own controlling and non-controlling interests in a broad range of video and online commerce companies. Our largest businesses and reportable segments are our operating segment comprised of QVC U.S. and HSN ("QxH") and QVC International. QVC markets and sells a wide variety of consumer products in the United States ("U.S.") and several foreign countries, primarily by means of its televised shopping programs and the Internet through its domestic and international websites and mobile applications. Zulily, LLC ("Zulily"), an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched every day, is a reportable segment.

Our "Corporate and other" category includes our consolidated subsidiary Cornerstone Brands, Inc. ("Cornerstone"), along with various cost and equity method investments.

In December 2019, the COVID-19 pandemic was reported to have surfaced in Wuhan, China and has subsequently spread across the globe, impacting all countries where Qurate Retail operates. As a result of the spread of the virus, certain local governmental agencies have imposed travel restrictions, local quarantines or stay at home restrictions to contain the spread, which has caused a significant disruption to most sectors of the economy.

In response to these stay at home restrictions, QVC has mandated that non-essential employees work from home and has reduced the number of employees who are allowed on its production set and has implemented increased cleaning protocols, social distancing measures and temperature screenings for those employees who enter into certain facilities. In some cases, the move to a work from home arrangement for QVC's non-essential employees will be permanent, which has resulted in the reduction of office space. QVC has also mandated that all essential employees who do not feel comfortable coming to work will not be required to do so. As a result of these resource constraints, QVC included fewer hours of live programming on some of its secondary channels and has experienced some delays in shipping at certain fulfillment centers. In certain markets, QVC temporarily increased the wages and salaries for those employees deemed essential who do not have the ability to work from home, including production and fulfillment center employees. The inability to control the spread of COVID-19, or the expansion or extension of these stay at home restrictions could negatively impact QVC's results in the future.

Zulily has seen increased freight surcharges from China due to COVID-19 and in concert with QVC has made work accommodations in its fulfillment centers which has resulted in an increase in labor expense. Zulily has also incurred additional expenses to clean its fulfillment centers and office buildings. In addition, Zulily management cut travel expenses, and reduced capital expenditures due to uncertainty created by COVID-19.

The stay at home restrictions imposed in response to COVID-19 required many traditional brick and mortar retailers to temporarily close their stores, but allowed distance retailers, including QVC, to continue operating. As a result, beginning at the end of the first quarter of 2020 and continuing through the first quarter of 2021, QVC observed an increase in new customers and an increase in demand for certain categories, such as home. Beginning in the second quarter of 2021, QVC observed a decline in new customers and a decline in demand for its home product category, while also seeing an increase in demand for its apparel product category.


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As a result, for the three and nine months ended September 30, 2020, QVC management had increased the amounts of certain estimated reserves including, but not limited to, uncollectible receivables in anticipation of higher defaults by customers billed through QVC's installment payment option, inventory obsolescence due to decreased demand for certain categories, such as apparel, and sales returns due to QVC's extended return policy. There were no remaining estimated reserves as of December 31, 2020 and September 30, 2021 as a direct result of COVID-19.

In addition, there are several potential adverse impacts of COVID-19 that could cause a material negative impact to QVC's financial results, including its capital and liquidity. These include governmental restrictions on QVC's ability to continue to operate under stay at home restrictions and produce content; reduced demand for products it sells; decreases in the disposable income of existing and potential new customers; the impacts of any recession and other uncertainties with respect to the continuity of government stimulus programs implemented in response to COVID-19; increased currency volatility resulting in adverse currency rate fluctuations; higher unemployment; labor shortages; and an adverse impact to QVC's supply chain and shipping disruptions for both the products it imports and purchases domestically and the products it sells, including essential products experiencing higher demand, due to factory closures, labor shortages and other resource constraints. While the impact is currently uncertain, the inability to control the spread of COVID-19 could cause any one of these adverse impacts, or combination of adverse impacts, to have a material impact on QVC's financial results.

Beginning in the second quarter of 2021, QVC saw increased product shortages as a result of high market demand in some product categories such as home and electronics. QVC also experienced escalating shipping disruptions due to challenges in the global supply chain and labor market. These factors impacted QVC's ability to offer certain goods and ship orders timely to its customers. In addition, QVC began to see increased inflationary pressures during the period. If these pressures persist, it may result in certain increased costs outpacing QVC's pricing power in the near term.

On June 23, 2016, the U.K. held a referendum in which British citizens approved an exit from the European Union (the "E.U."), commonly referred to as "Brexit." The Brexit process and negotiations have created political and economic uncertainty, particularly in the U.K. and the E.U. and this uncertainty may last for years, and could potentially have a negative impact on QVC's business. The potential impacts include, but are not limited to, unfavorable new trade agreements, the possible imposition of trade or other regulatory barriers which could result in shipping delays or shortages of products, and a negative impact to the global economy and consumer demand.

Early decisions by the Biden Administration confirm continuity of a bipartisan consensus in the U.S. government favoring increased confrontation of China in trade practices and economic matters, national security and human rights. The imposition of any new U.S. tariffs on Chinese imports or the taking of other actions against China in the future, and any responses by China, could impair QVC's ability to meet customer demand and could result in lost sales or an increase in QVC's cost of merchandise, which would have a material adverse impact on QVC's business and results of operations.


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Results of Operations-Consolidated

General. We provide in the tables below information regarding our consolidated Operating Results and Other Income and Expense, as well as information regarding the contribution to those items from our principal reporting segments. The "Corporate and other" category consists of those assets or businesses which we do not disclose separately. For a more detailed discussion and analysis of the financial results of the principal reporting segments, see "Results of Operations-Businesses" below.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 14 307 M - -
Net income 2021 762 M - -
Net Debt 2021 - - -
P/E ratio 2021 4,04x
Yield 2021 8,11%
Capitalization 2 945 M 2 945 M -
Capi. / Sales 2021 0,21x
Capi. / Sales 2022 0,21x
Nbr of Employees 26 508
Free-Float 89,2%
Duration : Period :
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Technical analysis trends QURATE RETAIL, INC.
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Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 4
Last Close Price 7,42 $
Average target price 9,82 $
Spread / Average Target 32,3%
EPS Revisions
Managers and Directors
David L. Rawlinson President, Chief Executive Officer & Director
Brian J. Wendling Chief Financial Officer, Senior VP & Controller
Gregory Ben Maffei President, Chief Executive Officer & Director
Renee L. Wilm Chief Legal & Administrative Officer
Malcolm Ian Grant Gilchrist Independent Director
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