Liberty Interactive Corporation Reports Second Quarter 2013 Financial Results

Liberty Interactive Corporation Reports Second Quarter 2013 Financial Results

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- Liberty Interactive Corporation ("Liberty") (Nasdaq: LINTA, LINTB, LVNTA, LVNTB) today reported second quarter 2013 results. Highlights include⁽¹⁾:

Attributed to Liberty Interactive Group

• Grew QVC US revenue by 3% and adjusted OIBDA by 2%

  • QVC US operating income decreased by 3%

  • QVC.com revenue as a percent of total US revenue increased to 42%, a 3 point increase

  • QVC US mobile penetration was 28% of QVC.com orders

• eCommerce group grew revenue by 12% and adjusted OIBDA by 13%

  • Operating income decreased by 100%

• Repurchased $220 million of LINTA shares from May 1 to July 31

Attributed to Liberty Ventures Group

• TripAdvisor posted strong Q2 results

• Liberty Ventures stock posted new all-time high of $94.86 on July 25

"QVC posted solid results in the US, while the international markets proved more challenging and were negatively impacted by the currency fluctuations in Japan and the UK. Our eCommerce companies built on their strong Q1 performance with continued revenue and adjusted OIBDA growth in Q2," stated Greg Maffei, Liberty President and CEO. "We repurchased $220 million of Liberty Interactive stock from May 1 to July 31, and $551 million year to date. Attributable to Liberty Ventures, TripAdvisor posted strong results as they successfully rolled out their hotel metasearch display."

LIBERTY INTERACTIVE GROUP - Liberty Interactive Group's revenue increased 1% to $2.4 billion in the second quarter, adjusted OIBDA was relatively flat at $455 million and operating income decreased 8% to $268 million. The increase in revenue was due to favorable results at the eCommerce companies driven by increased marketing efforts driving additional traffic, greater conversion resulting from investments in site optimization, increased shipping charges, and broader inventory offerings.

QVC

QVC's consolidated net revenue decreased 1% in the second quarter to $2.0 billion. During the same period, adjusted OIBDA decreased 1% to $434 million and operating income decreased 5% to $285 million. On a constant currency basis, consolidated net revenue increased 2% and adjusted OIBDA grew 2% in the second quarter as US denominated results were negatively impacted by exchange rate fluctuations, primarily the strengthening of the US Dollar against the Japanese Yen which decreased 19%.

"Second quarter results showed growth in new customers and continued strength in our digital platforms, despite a cautious consumer spending environment," said Mike George, QVC President and CEO. "eCommerce has grown to represent 37% of QVC's global revenues, and of that, 30% of our eCommerce orders are from mobile devices. QVC has grown to become one of the world's largest mobile commerce retailers, which is the result of how we're working to change the way the world shops by reimagining shopping, entertainment and social as one."

QVC's US revenue increased 3% to $1.3 billion in the second quarter primarily as a result of strength in the beauty and home categories. Average selling price per unit ("ASP") increased 3% from $54.84 to $56.39, while units sold declined 1% compared to the prior year second quarter. Returns as a percent of gross product revenue improved 72 basis points due primarily to changes in prior period estimates based on actual experience. In the same period, QVC US's eCommerce revenue increased 10% to $550 million and grew to 42% from 39% as a percentage of total QVC US net revenue. Adjusted OIBDA increased 2% to $320 million and adjusted OIBDA margin⁽²⁾ decreased 22 basis points in the second quarter. Adjusted OIBDA margin decreased primarily due to higher inventory obsolescence and personnel costs as well as lower credit card income. These unfavorable drivers were partially offset by improved product margins.

QVC's international revenue in US Dollars decreased 6% in the second quarter to $649 million. The second quarter results included the negative impact of the strengthening of the US Dollar against the Japanese Yen, and to a lesser extent, the UK Pound Sterling, which were somewhat offset by the weakening of the US Dollar against the Euro. Adjusted OIBDA decreased 7% to $114 million and adjusted OIBDA margin decreased 15 basis points in the second quarter. In constant currency, QVC's international revenue and adjusted OIBDA increased 2% and 4%, respectively.

QVC Japan's revenue grew 3% in local currency in the second quarter primarily due to growth in apparel. QVC Japan's ASP in local currency decreased 3%, but units sold increased 9% in the second quarter. QVC Japan's second quarter returns as a percent of gross product revenue in local currency increased 160 basis points due primarily to the increased apparel mix that returns at a higher rate as well as higher return rates in accessories, apparel and jewelry. QVC Japan's adjusted OIBDA in local currency increased 1% and adjusted OIBDA margin decreased 66 basis points in the second quarter. The decrease in adjusted OIBDA margin was primarily due to lower product margins driven, in part by, additional anniversary promotional offerings; a cost step up in one of the TV carriage contracts; and higher operating costs associated with the new headquarters.

In US Dollars, QVC Japan's revenue and adjusted OIBDA decreased 16% and 19%, respectively. The decrease in revenue and adjusted OIBDA during the quarter was driven by a 19% decline in the Japanese Yen which created significant pressure on US Dollar denominated results.

QVC Germany's revenue decreased 3% in local currency in the second quarter. QVC Germany's ASP in local currency remained flat, while units sold increased 5% in the second quarter. The increase in units sold was primarily due to growth in apparel and accessories. This was more than offset by QVC Germany's second quarter return rate as a percent of gross product revenue in local currency that increased 524 basis points from the prior year due primarily to changes in prior period estimates based on actual experience, the greater mix of apparel that returns at a higher rate as well as higher returns in almost all categories. QVC Germany's adjusted OIBDA in local currency decreased 14% and adjusted OIBDA margin decreased 166 basis points for the second quarter. Adjusted OIBDA margin decreased primarily due to higher inventory obsolescence, higher freight costs due to the greater returns processing and higher personnel costs. These unfavorable drivers were partially offset by higher product margins primarily as a result of the increased mix of apparel.

QVC UK's revenue grew 2% in local currency in the second quarter primarily due to sales in the home and beauty categories. QVC UK's ASP in local currency increased 5%, while units sold decreased 3% in the second quarter. QVC UK's second quarter return rate as a percent of gross product revenue in local currency decreased 34 basis points primarily due to the increase in the beauty and home product mix that typically return at lower rates. UK's adjusted OIBDA in local currency increased 29% and adjusted OIBDA margin increased 353 basis points in the second quarter. The increase in adjusted OIBDA margin was primarily due to lease cancellation costs and duplicate overhead costs that were incurred in the prior year related to the move to the UK's new headquarters and improved product margins.

QVC Italy's revenue increased 59% in local currency in the second quarter. QVC Italy's sales were primarily from the cooking and dining, beauty and apparel product categories. QVC Italy's ASP in local currency decreased 2%, but units sold increased 64% in the second quarter. In the same period, the adjusted OIBDA deficit in local currency improved by 51%.

CNR Home Shopping Co., Ltd. ("CNRS"), QVC's joint venture in China, experienced a revenue increase of 42% in local currency in the second quarter. In the same period, CNRS' adjusted OIBDA deficit improved by 9%. This joint venture is being accounted for as an equity method investment.

QVC's outstanding bank and bond debt was $3.8 billion at June 30, 2013, an increase of $406 million since December 31, 2012. On April 17, 2013, QVC completed the redemption of the remaining $376 million principal amount of its 7.125% Senior Secured Notes due 2017, fully retiring these notes.

eCommerce Businesses

In the aggregate, Liberty Interactive Group's eCommerce businesses increased revenue 12% to $439 million for the second quarter. Adjusted OIBDA increased 13% to $26 million and operating income decreased 100% to a loss of $2 million. The increase in revenue and adjusted OIBDA were the result of increased marketing efforts driving additional traffic, greater conversion resulting in site optimization, increased shipping charges, and broader inventory offerings partially offset by the shift in the Easter holiday falling during the first quarter of 2013 (which typically is a second quarter holiday). The decrease in operating income was due to greater amortization and depreciation and stock compensation expense during the quarter.

Share Repurchases

From May 1, 2013 through July 31, 2013, Liberty repurchased approximately 9.6 million Series A Liberty Interactive shares (NAS: LINTA) at an average cost per share of $22.77 for total cash consideration of $219.6 million. Since the creation of the Liberty Interactive stock in May 2006, Liberty has repurchased approximately 206.5 million shares at an average cost per share of $19.33 for aggregate cash consideration of $4.0 billion. These repurchases represent approximately29.4% of the shares outstanding at the time of creation of the Liberty Interactive stock. All repurchases up to August 9, 2012, the date on which the Liberty Interactive stock was recapitalized to create the Liberty Ventures stock, were comprised of shares of the combined stocks. The total remaining repurchase authorization for Liberty Interactive Group stock is approximately $704 million.

Liberty Interactive Group holds controlling interests in companies that are engaged in digital commerce, including QVC, Provide Commerce, Backcountry.com, Bodybuilding.com, Celebrate Interactive, CommerceHub, and also owns an interest in HSN.

LIBERTY VENTURES GROUP - As of June 30, 2013, the fair value of the equity method securities and AFS securities attributed to the Liberty Ventures Group was $1,767 million and $917 million, respectively. When compared to March 31, 2013, the fair value of Liberty Ventures Group's equity method securities decreased 2%. The Liberty Ventures Group's AFS securities balance decreased 52% primarily due to sales of certain AFS securities during the second quarter. Total outstanding principal of debt attributed to Liberty Ventures Group decreased by $285 million as a result of debt repayments in excess of borrowings.

Share Repurchases

There were no repurchases of Liberty Ventures Group stock (NAS: LVNTA) from May 1, 2013 through July 31, 2013. The Liberty Ventures Group does not have an outstanding stock repurchase authorization at this time.

The businesses and assets attributed to the Liberty Ventures Group are all of Liberty's businesses and assets other than those attributed to the Liberty Interactive Group and include its subsidiary TripAdvisor, its interest in Expedia, and minority interests in Time Warner and Time Warner Cable. TripAdvisor is a separate publicly traded company and additional information about TripAdvisor can be obtained through its website and filings with the Securities and Exchange Commission.

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