We didn’t even know that ShopHQ had been in a dispute with Dish Network and had been dropped by the satellite provider.
When we covered cable TV, we saw that Dish was was a brutally tough negotiator with networks that wanted to be carried on its channel lineup. In any event, the home shopping network blamed the fact that Dish wasn’t carrying it for a six month-period for hurting its third-quarter earnings.
That may be true, but it’s also a convenient excuse. In any event, ShopHQ’s third-quarter net sales were $123 million, a 5.7% decrease over the same prior-year period, primarily driven by its carriage drop with Dish. The network was reinstated on Dish on Nov. 21.
And guess what? Shop HQ is taking a page out of QVC’s book by striking so-called sale-leaseback for three of its four buildings for $48 million on Nov 8. In such arrangements, a company sells its real estate in order to raise capital, but still occupies those properties by leasing them from the new owner.
Those buildings include ShopHQ’s corporate headquarters and production studios in Eden Prairie, Minnesota, and its distribution center in Bowling Green, Kentucky. In total, the three buildings are 810,679 square feet.
QVC just did a blockbuster sale-leaseback, for a whopping $443 million, for buildings including QVC Studio, its global HQ and studio facility in Pennsylvania.
“Tough economic conditions increasingly distract consumers; therefore, our priority is to ensure we strengthen our balance sheet and build our core businesses to serve our customers,” ShopHQ CEO Tim Peterman said in a statement. “Or 2022 debt & liquidity management plan is ahead of schedule.”
As for the sale-leaseback, he said, “We plan to use our net operating loss carryforwards to offset the taxable gain. Our use of proceeds plan is to retire existing debt, including the $28.5 million Green Lake term loan, and increase working capital. We remain confident this transaction will close in Q4.”
For the seventh successive quarter, ShopHQ said it posted year-over-year customer growth in the third quarter, this time 15%.
“In light of the short-term challenges we faced with the Dish carriage disruption on ShopHQ and the negative impacts from the Ukraine and Russia conflict on 1-2-3.tv, our Q3 net sales only declined 6% year-over-year,” Peterman said. “In short, our unique media strategy of building television networks supported by three distinct revenue streams, T-commerce, ecommerce, and advertising, provides us with a competitive advantage in today’s crowded media landscape.”
He added, “As we announced yesterday, ShopHQ relaunched on the Dish Network, ending the six-month carriage disruption pressuring our financial performance. Dish customers can once again engage with their favorite ShopHQ hosts and brands on the same channel location as before.”
Year-to-date net sales were $411 million, a 15% increase over the same prior-year period, which is a nice surprise.
And for the full year, ShopHQ expects revenue of roughly $588 million, a 7% increase compared to last year.
Qurate Retail, the parent of QVC and HSN, reported that the two home shopping networks suffered a revenue decrease of 8%, to $1.66 billion, in the third quarter.
“An intensely promotional environment and weakened consumer sentiment impacted our third quarter performance, along with other retail players, amplified by continued downstream impacts from the December 2021 fire at our former Rocky Mount, North Carolina, fulfillment center and our actions to move excess inventory,” David Rawlinson II, Qurate president and CEO, said in a statement.
“Despite soft results, we maintained our focus on progressing the five pillars of Project Athens, our three-year strategic plan to re-establish revenue growth, adjusted OIBDA margin expansion and incremental cash flow generation,” he said. “We are augmenting our team and attracting executive leadership talent with top tier experience who will help drive this transformation, including a chief operating officer, president of streaming operations, a chief merchandising Officer for QVC US and a Chief People Officer.”
During the quarter, Qurate said it received $180 million in insurance proceeds related to the North Carolina fire, where one employee died. Year to date the company has collected $280 million of insurance money for the tragic event, which destroyed its warehouse.
In addition — and this is our day-job bailiwick — on July 15 QVC entered into a sale-leaseback agreement with investment vehicles managed by Oak Street, a division of Blue Owl, for five existing properties in Pennsylvania, South Carolina, Tennessee and Virginia. Under the terms of the agreement, QVC received a cash payment of $443 million, net of fees and other expenses.
What does that mean in commercial real estate jargon? Looks like QVC sold these distribution centers to an investment firm, and will then pay rent to that company and continue to occupy those facilities. It’s a way for companies to raise capital.
Subsequent to the quarter’s end, on Nov. 2 and 3, QVC International did another deal with Oak Street for the sale and leaseback of two existing properties in Germany and the United KingdomK. The sale and leaseback agreements are expected to close in the first quarter, and QVC will receive cash payments of roughly €97 million related to its German facility and about £68 million related to its UK facility before fees, taxes and other expenses.
QVC plans to use the proceeds from those deals pay down debt upon each closing.
In fact, here is exactly what Qurate had to say about QxH, which is QVC and HSN combined:
QxH revenue declined primarily due to a 6% decrease in units shipped, reflecting weakened consumer sentiment due to macro-economic factors of inflation and higher interest rates, as well as a decrease in shipping and handling revenue. Average selling price declined 2%, reflecting inventory reduction actions. Although total customer count declined, QxH experienced a 3% increase in average spend per customer and a 6% increase in items purchased per customer. QxH reported declines in all categories.
Operating income margin decreased primarily due to a $2.7 billion non-cash impairment charge related to QxH’s goodwill and HSN’s tradename recognized in the third quarter of 2022. This was partially offset by a $277 million gain on the sale of certain US real estate assets and a $137 million net gain on insurance proceeds received in excess of losses recognized on inventory, fixed assets and other fire related costs.
These items are included in operating income and excluded from adjusted OIBDA. Adjusted OIBDA margin(3) decreased primarily due to higher fulfillment (freight and warehouse) and administrative expenses, lower product margins, and higher marketing and inventory obsolescence costs.
On December 18, 2021, QVC experienced a fire at its Rocky Mount, NC fulfillment center. QVC has taken steps to mitigate disruption to its operations including diverting inbound orders, leveraging its existing fulfillment centers and supplementing these facilities with short-term leased space as needed.
While the company has taken steps to minimize the overall impact to its business, it experienced elevated warehouse and logistics costs during the three months ended September 30, 2022 and anticipates these increased warehouse and logistics costs to continue during 2022.
QVC received an additional $180 million of insurance proceeds in the third quarter of 2022. In total, QVC has received $380 million of insurance proceeds since December 2021 and recorded a net gain of $137 million in restructuring and fire related costs during the nine months ended September 30, 2022, net of (recoveries) in the condensed consolidated statement of operations, representing proceeds received in excess of losses recognized on inventory, fixed assets, and other fire related costs.
During the three months ended September 30, 2022, QVC incurred an additional $2 million in fire related costs, net, primarily related to personnel costs and legal fees, that are not expected to be reimbursed by QVC’s insurance policies and are included in operating income, and $12 million of other fire related costs for which recovery was deemed probable based on the company’s insurance policies.
While there can be no assurance, based on the provisions of QVC’s insurance policies and discussions with insurance carriers, QVC determined that recovery of certain fire related costs is probable, and has recorded an insurance receivable with a balance of $35 million as of September 30, 2022 (see Schedule 4).
In addition, QVC submitted its business interruption claim with the insurance company; however, there can be no guarantee that all business interruption losses will be recovered. QVC expects to continue to record additional costs and recoveries until the insurance claim is fully settled.
The company’s interim CEO offered more color.
“Home revenue declined 9%, which was an improvement from the first half of the year in Q3 we experienced lower demand primarily for seasonal, cleaning, heating, air purification bed and bath and garden, partially offset by gains in food,” he said.
“Apparel declined 2% against 8% growth in Q3 of 2021, which demonstrate solid two year performance. Weakness this quarter was primarily in contemporary apparel. Beauty declined 10% primarily due to weaknesses in bath and body and prestige skincare. Accessories declined 10% primarily due to lower demand for handbags and luggage, intimates and casual and athletic footwear. Electronics revenue declined 11%, which was an improvement from our over 25% declines in Q1 and Q2. The Q3 softness was primarily in computers and home office.”
In other ShopHQ news that we never got wind of last week, the No. 3 home shopping channel reported its third-quarter earnings. Not a pretty picture.
It posted net sales of $115 million, down about 13% from $132 million in the year ago-period.
On the bright side, the network is bleeding less red ink. It lost $6.7 million in the third quarter compared with $9.2 million a year ago.
ShopHQ also boasted that it had launched its male-targeted home shopping channel, the Bulldog Shopping Network. Where it launched, we have no idea.
ShopHQ also said it has struck exclusive relationships with with seven new home and fashion brands: John O’Hurley, Heather Dubrow, Romero Britto, Danny Seo, Heather Hall, Bear Creek Cattle Steaks and Leota Fashions. The network also cited its deal with Shaquille O’Neal, who will be doing a live show.
“I want to explain the significance of our Shaquille O’Neal partnership announced yesterday,” Tim Peterman, CEO of ShopHQ parent iMedia Brands, said in a statement. “Specifically, why we worked so hard to make this happen and why we believe the size of this opportunity is significant.”
Peterman continued, “First and foremost, Shaquille O’Neal is more than a celebrity to iMedia. We know him. We know his work ethic, what kind of partner he will be and how good of an entertainer and entrepreneur he is. That is the ‘why.’ He’s that rare, authentic personality who has grown beyond his achievements to become a pop culture icon.
“iMedia estimates the size of the financial opportunity here to be meaningful. Shaq’s iconic status combined with iMedia’s television and e-commerce retailing expertise create a unique opportunity for iMedia to build a profitable, omni-channel business that iMedia believes could exceed $200 million in annual revenues.”
Then Peterman got into the bad news.
“Regarding our operating results, prior to my arrival in May, the revenue decline for the previous six months was 17.2%,” he said.
“During these past six months, we successfully reduced that decline to 12.7%,” Peterman said. “We accomplished this by launching multiple exciting brands, making important staffing changes, simplifying the promotional framework and introducing an innovative loyalty program. Although the revenue decline did slow, it did not slow as fast as we wanted. The reason was the merchandising effort in the company was more troubled prior to my arrival than previously expected, particularly in our two long-lead businesses of Home and Fashion.”
Here are some other bullet points from the third-quarter results:
* Net sales decline driven by assortment pressure in the long lead time businesses of Home and Fashion & Accessories, which required an over-reliance on the Jewelry & Watches category.
* Subscription sales increased 10%, reflecting strong loyalty within the Beauty & Wellness category.
* Gross margin in the third quarter increased 30 basis points to 36.1% compared to 35.8% in the year-ago quarter. The improvement was driven by a strong discipline to increase rates, which helped to offset slight product mix pressure.
* The return rate for the quarter was 19%, a 90-basis point year-over-year improvement driven by return rate reductions within the Watches, Fashion & Accessories and Consumer Electronics categories.
* Average selling price increased 5% to $66 driven by increases in the Jewelry and Home & Consumer Electronics categories, combined with a mix shift into Jewelry & Watches.
* Operating expenses decreased 15%, or $8.1 million, year-over-year to $47.4 million, reflecting decreases of $9 million in distribution and selling expenses and $800,000 in general and administration expenses, partially offset by a $1.5 million increase related to restructuring costs.
As far as we’re concerned it was a tough third quarter for Evine, which reported its results Wednesday.
Net sales dropped 12 percent year-over-year, to $131.7 million. There was a net loss of $9.2 million versus a net loss of $1.1 million the prior year.
The good news, according to the home shopping network, was that: It introduced 40 new brands and brand extensions during the third quarter, compared to 21 in the prior year; it successfully opened a Los Angeles office and launched a L.A. studio with the first broadcast Oct. 18; signed its first client to a new third-party logistics services business; and secured 2 million new HD channels that will launch in the fourth quarter.
We assume that actually means the HD channel will launch to 2 million more homes, not 2 million HD channels will launch.
It was hard for CEO Bob Rosenblatt to put a rosy spin on it all.
“We had a very difficult quarter, which was disappointing given that we entered the third quarter with strong trends across multiple business drivers, and after delivering several consecutive quarters of solid performance,” he said in a statement.
“Our top-line sales were not where they needed to be or where we expected them to be due to the delayed launch of a new proven brand partner. The shift in the timing of the launch put undue pressure on our existing brands and impacted productivity across all of our product categories. The premiere of this well-established brand is now anticipated to occur in January 2019, and we expect that its proven track record of success and its large and loyal customer following, along with other exciting new launches, will put us back on track for sustainable growth.”
Anyone know what he’s talking about?
“Our goal and strategy remain the same: to drive sustainable growth through the curation and nurturing of a strong collection of brands. This strategy delivered growth in adjusted EBITDA in eight of the past 10 quarters,” Rosenblatt said. “Our expertise is in building great brands and providing a dynamic platform for our core brands. I am encouraged by the quantity and quality of the new brand launches during the quarter and look forward to nurturing and growing these brands over time.
“Additionally, our new L.A. studio and office is providing a previously untapped pipeline of brands and new partners that align with our business strategy and model. Our new studio and entrance into direct-to-consumer third-party logistics services were wins for us in the third quarter as we continue to move our company forward towards our goal of being a leading interactive video and digital commerce company.”
Here are some 3Q highlights:
The top-performing category in the quarter was beauty & wellness, which declined 4 percent year-over-year. Subscription sales increased 13 percent and continue to help this category be one of the top performers.
Digital net sales as a percentage of total net sales increased 40 basis points to 51.9 percent, reflecting our continued focus on making the customer experience seamless across all platforms.
The return rate for the quarter was 19.9 percent; an increase of 80 basis points year-over-year driven by increased ASP and increased mix into our jewelry & watches category.
Qurate Retail Inc., the parent of QVC and HSN, will release its third-quarter earnings Nov. 9.
Qurate President and CEO Mike George and Executive Chairman Greg Maffei will host a conference call to discuss results at 11 a.m.
Following prepared remarks, the company will host a brief Q&A session during which management will accept questions regarding Qurate Retail.
During the call, George and Maffei may discuss the financial performance and outlook of the company, as well as other forward-looking matters.
Please call ReadyTalk at (800) 239-9838 or (323) 794-2551, passcode 8205223, at least 10 minutes prior to the call. Callers will need to be on a touch-tone telephone to ask questions. The conference administrator will provide instructions on how to use the polling feature.
In addition, the third quarter earnings conference call will be broadcast live via the Internet.
All interested participants should visit the Qurate Retail website at http://ir.qurateretail.com/events.cfm to register for the webcast. Links to the press release and replays of the call will also be available on the Qurate Retail website.
The conference call will be archived on the website for one year after appropriate filings have been made with the SEC.
Not a great third quarter for Evine this year, especially when someone is stalking the company.
The home shopping network posted net sales of $150 million, a roughly 1 percent decrease year-over-year. Management estimates net sales would have increased 1 percent when excluding the estimated $3 million negative sales impact from Hurricanes Harvey and Irma during the quarter.
Evine suffered a net loss of $1.1 million, and an adjusted EBITDA of $3.8 million, a 49 percent improvement year-over-year.
“I am very proud of our Q3 operating results,” CEO Bob Rosenblatt said in a canned statement.
“As our stakeholders know, this is the very beginning of what we call Year Two, the phase in our strategic plan that is focused on delivering revenue and free cash-flow growth. In Year One, we fixed our merchandising mix and significantly improved our balance sheet and profitability. This coming year our plan is to begin scaling our enterprise. In addition, boosted by our recent sale of our Boston television station, we are positioned to deliver positive EPS [earnings per share] for the fiscal year, which would be the first time we have accomplished this since fiscal 2007.”
He added, “We believe our strategy of a thoughtful transition over time into an interactive digital commerce company will drive sustainable revenue growth, EPS growth and multiple expansion growth that will combine to drive significant shareholder value. Specifically, longer term we seek to build and operate multiplatform digital commerce experiences using proprietary technologies that monetize multiple business models.”
The top-performing category in the third quarter was beauty, which rose 10 percent year-over-year. Fashion, home and consumer electronics also increased.
The return rate for the quarter was 19.1 percent, an improvement of 140 basis points year-over-year.
Gross profit as a percentage of sales increased 150 basis points to 38.1 percent year-over-year, driven primarily by improved rates. Gross profit dollars increased 3 percent to $57.3 million. Operating expense remained flat at $58 million.
As of the end of October total cash was $23 million, compared to $22 million at the end of the second quarter. Evine also had an additional $13 million of unused availability on its revolving credit facility with PNC Bank, which gave it total liquidity of about $36 million as of the end of the third quarter.
As previously announced Evine agreed to sell its television station, WWDP, serving the Boston market, for an aggregate of $13.5 million. The transaction includes two agreements with unrelated parties.
The first agreement closed in the third quarter and resulted in the initial receipt of a $2.5 million cash payment. That cash was used to pay down an equal amount of our loan with GACP.
The transaction resulted in an $833,000 net tax benefit related to the reversal of a deferred tax liability that was partially offset by a $221,000 loss related to the early debt extinguishment.
Got that?
The second agreement is expected to close in the fourth quarter following satisfaction of customary closing conditions, including Federal Communications Commission approval.
The financial impact of this transaction, including the complete pay-down of the remaining $3.6 million loan with GACP, is expected to include a $3 million positive impact to net income in the fourth quarter.
“We continue to expect fourth-quarter revenue growth in the mid- to high-single digits,” the network said in a press release Tuesday.
HSN reported its third-quarter earnings this week, and Hurricane Irma took a $13 million chunk out of the channel’s sales.
The No. 2 home shopping network registered a 6 percent decline in its sales, to $536.2 million, but part of that drop was blamed on the hurricane.
HSN closed down its Florida HQ and broadcast live from Nashville during the storm.
“In September, HSN implemented its business continuity plan as a result of the approach of Hurricane Irma,” the company said in its press release.
“HSN closed its headquarters, redeployed critical personnel and relocated its broadcast studios to temporary facilities outside of the storm’s track. These actions resulted in increased operating expenses and limited program effectiveness which we estimate impacted net sales and Adjusted EBITDA by $13 million and $5 million, respectively.”
Here are the other key grafs from the press release.
Digital sales decreased 3 percent while penetration increased 130 basis points to 46.1 percent. Sales decreased in electronics, apparel and accessories and beauty, offset by increases in fitness and home. Shipping revenues declined primarily due to the August 2016 changes in the standard shipping rates. Average price point decreased 6 percent largely due to changes in product mix. Units shipped decreased 2 percent.
Gross profit decreased 5 percent to $181.3 million. Gross profit rate increased 50 basis points to 33.8 percent primarily due to an increase in product margins, partially offset by higher outbound shipping rates and fulfillment costs.
Operating expenses increased 5 percent to $150.3 million driven by increases in employee-related costs and bad debt expense. HSN incurred approximately $1.6 million in expenses related to Hurricane Irma and approximately $0.9 million in allocated transaction costs related to the merger.
Operating income decreased $16 million, or 34 percent, to $31 million. Adjusted EBITDA decreased $15.4 million, or 27 percent, to $42.6 million. The impact of Hurricane Irma on Adjusted EBITDA is estimated to be $5 million. The supply chain optimization implementation resulted in an additional $1.3 million of costs in the third quarter of 2017 which impacted gross profit and operating expenses.
Holy crow! QVC had a 3 percent revenue increase in the third quarter, to $1.4 billion, its parent company Liberty Interactive Corp. reported Thursday. This is after several quarters when sales were down.
The dominant domestic home shopping networks also posted a 14 percent rise in its operating income.
“QVC had an excellent quarter, growing constant currency revenue and adjusted OIBDA in every market,” Liberty President and CEO Greg Maffei said in a statement. “We made progress on the acquisition of HSN and expect to close in the fourth quarter.”
QVC saw year-over-year gains in the apparel, beauty, accessories and electronics categories in the third quarter.
But the home category was essentially flat and jewelry declined, according to Liberty.
The average selling price declined 4 percent in the quarter, “primarily driven by product mix within the electronics category, as several successful items sold in the quarter carry lower price points than items sold in the prior year,” Liberty said in its press release.
“We are very pleased with our strong results,” QVC President and CEO Mike George said in a statement.
“Our U.S. business returned to growth and our international segment continued its solid momentum,” he said. “Our performance demonstrates our ability to execute our strategic initiatives to improve product freshness and discovery, leverage our commerce content across platforms, increase customer engagement and attract new customers. We remain excited about the pending transaction to acquire HSNi and the formation of the new QVC Group.”
In the quarter QVC’s number of new customers increased 7 percent.
“As noted last quarter, the U.S. business experienced a systems outage late in the second quarter of 2017, which resulted in an estimated 1 percent shift in net revenue to the third quarter,” Liberty said.
Evine will report its third-quarter earnings Nov. 21 before the market opens, the home shopping network said Wednesday.
CEO Bob Rosenblatt, Chief Operating Officer and CFO Tim Peterman and Michael Porter, vice president of finance and investor relations, will host a conference call later that morning at 8:30 a.m. to review the results.
Those interested in participating in the conference call should dial 1-877-407-9039 or 1-201-689-8470 (international) at least five minutes prior to the call.
There will be a simultaneous audio webcast available at the following link:
HSN will release its third-quarter earnings Nov. 8, the network said this week.
“Due to the pending acquisition of HSNi by Liberty Interactive Corp.QVC Group, HSNi will not hold a conference call to review these results,” the press release said.
Public companies typically hold conference calls with Wall Street analysts when they announce their quarterly earnings. This is the first time we recall a company not doing one.
Homeshoppingista's Blog By Linda Moss 