Home shopping networks took a beating in the third quarter, with QVC seeing its revenue dive 6 percent, to $1.3 billion, just a day after HSN reported that its sales had slid.
The news about QVC, the dominant domestic shopping channel, was not surprising in at least one respect: Company honcho Mike George had warned in the second quarter that there revenue had slowed down and might take a tumble in the coming period.
HSN also had a rough go. Net sales for the third quarter were $569.7 million, a decrease of 3.5 percent from the prior year.
“The U.S. experienced declines in the electronics, beauty, jewelry and accessories categories, which were partially offset by gains in home and apparel,” QVC’s parent, Liberty Interactive Corp., said in a press release on Tuesday.
“eCommerce revenue increased 1 percent to $684 million and grew 342 basis points to 51 percent of total U.S. revenue,” the release said. “Operating income decreased 18 percent to $175 million, operating income margin declined 199 basis points, adjusted OIBDA decreased 8 percent to $308 million and adjusted OIBDA margin declined 43 basis points.”
Consolidated revenue for the QVC Group, which includes its domestic and international networks, was down 3 percent to $1.9 billion.
“We are benefiting from our diversified global model,” QVC President and CEO George said in a canned statement.
“While we are facing sales pressures in our U.S. business, we delivered local currency sales gains in every non-U.S. market in the quarter. We are responding to the immediate domestic challenges through a series of strategies to drive more balanced growth across our categories, consistently deliver exceptional customer experiences, offer outstanding values, accelerate new customer acquisition, and lower operating costs.”
He added, “And last week we were thrilled to launch Beauty iQ, the first multi-platform shopping network dedicated exclusively to beauty. These actions demonstrate our confidence in the long-term health of our unique retail model.”
QVC has now centralized many of its corporate functions in Poland, creating the network calls its “ONE Q organizational structure.
The goal is to “better leverage its global scale and capabilities, to enhance its competitive position and to create operational efficiencies,” the press release said.
Then it went on with this gobble-gook to explain the financial impact of this change. Maybe you can make heads or tails of it, cause we sure can’t.
Beginning in the first quarter of 2016, QVC began allocating certain corporate costs for management reporting purposes differently. Historically, QVC allocated these costs to the market from which the services were provided.
Now, as more of QVC’s costs support initiatives in multiple markets, QVC is allocating costs to the markets that will benefit from the expenditures. These management cost allocations are related to certain functions, such as merchandising, commerce platforms, information technology, human resources, legal, finance, brand and communications, corporate development and administration.
The cost allocations (from QVC U.S. to QVC International) totaled approximately $8 million in the third quarter and are expected to approximate $32 million in 2016.
As a result of the allocations, the US segment’s operating income and adjusted OIBDA margins were each positively impacted 60 basis points and the international segment’s operating income and adjusted OIBDA margins were negatively impacted 131 basis points in the third quarter.
There was no impact to consolidated operating income and adjusted OIBDA margins. With the completion of the ONE Q implementation, QVC’s financial disclosure is consistent with the way it evaluates its business performance and manages its operations.
Regarding domestic QVC, “The third quarter included the aforementioned cost allocations from ONE Q, which were mostly offset by approximately $7 million of severance expense. The results primarily reflect lower product margins and higher warehouse costs, which were partially offset by favorable inventory obsolescence and lower bonus and benefit expenses of approximately $10 and $8 million, respectively, and higher credit card income.”
Also for QVC domestic, the average selling price per unit (“ASP”) decreased 7 percent to $54.75, units sold decreased 1 percent, and returns as a percentage of gross product revenue improved 170 basis points.