QVC Group, Inc. Q4 FY2023 Earnings Call

Ladies and gentlemen, welcome to the Qurate Retail, Inc. 2023 Year-end 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 will be recorded February 28. I would now like to turn the call over to Shane Kleinstein, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and good morning. Before we begin, we'd like to remind everyone that this will include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10-K filed by our company and QVC with the SEC. These forward-looking statements speak only as of the date of this call and Qurate Retail expressly disclaims any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in Qurate Retail's expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. Please note that we have published slides to accompany the earnings release. On today's call we will address – we will discuss certain non-GAAP financial measures, including adjusted OIBDA, adjusted OIBDA margin, free cash flow, and constant currency. Information regarding the comparable GAAP metrics along with required definitions and reconciliations, including preliminary notes and schedules one through three can be found in the earnings press release issued today or our earnings presentation, which are available on our website. Today, speaking on the earnings call, we have Qurate Retail President and CEO, David Rawlinson; Qurate Retail Group, CFO, Bill Wafford; and Qurate Retail, Executive Chairman, Greg Maffei. Now I'll turn the call over to David Rawlinson.

Thank you, Shane, and good morning to everyone. Thank you for joining us today and for your interest in Qurate Retail. 2023 was a transformative year for Qurate with a number of key achievements. In mid-2022, we were facing substantial challenges across the business and announced Project Athens to improve our execution, reinvigorate our core value proposition, and return to significant OIBDA and free cash flow generation. We implemented initiatives to refresh our assortment, sharpen our pricing, enhance our programming, improve our productivity, and reduce our cost to serve. I'm thrilled to say that the initiatives we put into action have yielded strong positive results as evidenced by the adjusted OIBDA growth we experienced in the second half of 2023 and the free cash flow generation over the year. We are encouraged by these results and look forward to continuing the momentum into 2024. Let me share several highlights from 2023. First, as anticipated, we generated strong adjusted OIBDA growth in the second half of the year with Q4 adjusted OIBDA of 73% as reported. This was primarily due to meaningful gross margin expansion of more than 200 basis points in 2023 with gross margin expansion for the last three consecutive quarters. We substantially improved our merchandise assortment with higher quality products, which resulted in higher average selling prices and product margins. Fulfillment expense was favorable as a result of renegotiating ocean shipping and end-market freight rates and executing a number of productivity enhancements. We reduced our inventory balance by 22% year-over-year, making room for a pressure assortment and newer products, which benefited inventory obsolescence expense for the year. We also took down administrative costs at each of our businesses. Second, we divested Zulily MA, delivering on Pillar 4 Project Athens to optimize our portfolio. Zulily has negatively impacted our profitability and cash profile with a $97 million adjusted OIBDA loss in 2022. The divestiture simplifies our portfolio and benefits our go-forward liquidity while allowing management to focus on our remaining businesses. Third, we increased free cash flow to $586 million in 2023. In the first half of the year, this was mainly driven by working capital improvements from accounts payable and inventory reduction actions. In the back half of the year, our free cash flow generation was significant due to adjusted OIBDA growth. Finally, we reduced gross debt by approximately $1 billion in 2023, fortifying our balance sheet. This proves the business' ability to deliver on our commitments. We have fundamentally improved our execution capability through our transformation initiatives. As we enter 2024, we have confidence in our ability to sustain momentum in creating a more streamlined, profitable, cash-producing, and relevant company. Taking a closer look at fourth quarter performance, we built on the momentum coming out of Q3 with strong adjusted OIBDA growth and gross margin expansion of 550 basis points. At QxH, revenue declined 4%. Units declined as we comped significant inventory liquidation sales from last year and from continued industry softness in consumer electronics. We also made deliberate choices to drive higher average selling prices and gross margins and to shift category mix. This reduced revenue, but the resulting revenue had higher initial margins which offset lower volume. In the US, similar to our retail peers, we did see customers start their shopping later in the holiday season. However, when the shopping did kick off, we had strong sell-throughs and key events which drove sales. We are pleased that QxH grew market share as top-line performance largely outpaced discretionary retail for the second consecutive quarter. Throughout the year, we have maintained focus on obtaining new higher-quality inventory that would excite our customers and provide them with value. We reinvigorated our programming and honed the special relationship our customers have with the host, which led to continued high engagement, growing total linear minutes viewed by 15% compared to the prior year. Moving to QVC International, we are proud to report QVC International grew constant currency revenue and adjusted OIBDA for the second consecutive quarter in Q4. We experienced particular strength in the UK as inflation in Europe is stabilizing. Adjusted OIBDA growth was driven by improved product margins, rate efficiencies, and inventory management. Bill will provide more details. As we've said previously, QVC International is executing a series of initiatives that are on track to deliver substantial adjusted OIBDA improvement, reaching run rate through 2025. These initiatives include workforce reductions taken in Europe in the second half of 2023 as well as steps to optimize the organizational structure, drive margin opportunities, and improve broadcast and content strategies. One of the key initiatives in 2023 was the launch of an integrated experience. It aims to turn QVC International into a seamless, integrated, and immersive digital experience. In the UK, our initial focus is gardening and in Germany, food and kitchen. Both have shown positive customer engagement and driven increased sales in their respective categories, and we believe we can scale to other category segments and markets over time. At Cornerstone, our businesses are focused on furniture and home decor, both of which are driven by new housing starts and household moves. With housing starts and home sales at historically depressed rates, Cornerstone's top line has been persistently impacted. In this difficult environment, we maintained our focus on cost management and generated substantial adjusted OIBDA growth in the fourth quarter. The improvement was primarily due to favorable supply chain costs as well as lower catalog and personnel expenses. Expanding physical retail presence has been a successful tool for driving sales, deeper customer engagement, access to design services, and improved conversion. We opened two new retail stores in Columbus, Ohio and Denver, Colorado, and relocated one in Q4. Back in the US, we saw strong performance in our streaming services, QVC Plus and HSN Plus in Q4 and throughout the year. Total minutes viewed on our own platforms and BaaS channels increased 23% to $3.6 billion, representing 5% of our total US minutes viewed in 2023. We see real opportunity in our streaming business. Though still a small percentage of our overall revenue base, streaming revenue grew more than 50% in 2023. We see similar growth rates continuing into 2024 as the business begins to scale. Let me now address our customer count. We have seen substantial stabilization in our customer count and encouraging signs of customer behavior. We believe that we have the customers we need to execute on Project Athens. Consistent with historical averages, QxH existing customers made up half of total customer count that generated 90% of 2023 sales. They purchased 31 items in 2023 and spent $1,600 on average. The strength of engagement is evident in our best customers in QVC US, who are defined as purchasing at least 20 times a year. They made up 17% of the count which generated 76% of the sales in 2023. They purchased, on average, 76 items in the year and increased their average spend by 9% year-on-year to $3,900. We substantially moderated the rate of decline in the customer file as we progressed through 2023. We've moderated the sequential decline of our trailing 12-month count to down less than $100,000 from Q3 compared to down nearly $400,000 from the same period last year. Lastly, we began acquiring more new customers. New customers grew for the second consecutive quarter in Q4 with growth accelerating to 21%. We are utilizing several channels to incentivize additional purchases among our new customers. To share just a few examples, we are sending welcome emails to introduce our host, top deals, and frequently purchased items. We are leveraging improved analytics to expose new customers to personalized content, brands, and categories based on their interactions with us, and we have developed a next purchase direct email piece that features our top national brands in various ways to watch and engage with QVC. Rather than growing the file with expensive-to-obtain and hard-to-retain transient customers for now we are concentrating on stabilizing our customer file, retaining our best customers, and returning to new customer growth year-over-year that will contribute to customer file growth over time. We believe this is the prudent and profitable path and gives us the stability we need to continue to deliver on Project Athens in 2024. We also believe it sets us up nicely for customer file growth in 2025. Now I would like to touch again on why Qurate's business model is differentiated across retail and the value we bring to customers, vendors, and celebrities. Starting with vendors, our platform continues to be very attractive to both new and existing vendors. We move meaningful volume and provide a scaled platform to connect with customers on a personal level and share product stories. We had impressive sell-through rates in Q4 across a range of price points and particularly on higher-end products where we were able to demonstrate compelling value for unique products. For example, at QVC, we offered Fire Light lab-grown diamonds from two carats to nine carats ranging in price from $1,300 to $5,000. The entire collection was well received, selling out across sizes and products including a sold-out non-carat tennis bracelet. We also sold $5.7 million of Ninja Woodfire electric smoker and outdoor grill moving 19,000 units priced at $300 a piece. At HSN, we sold out of a day deal with a price point in excess of $1,000 over Black Friday weekend. In Home Decor, we sold $6 million of Barefoot Dreams luxury throw on Cyber Monday. In Beauty, we sold 40,000 units of an Elemis cream in one day and 114,000 units of velocity gift set in two days. The scale of this platform is very difficult to replicate and attractive to existing and new vendors. We debuted a new brand in tights, Sheertex, selling $2.4 million in just a couple of hours. We introduced a new leather handbag and luggage brand, Hawkins, that sold $340,000 in 11 minutes. QVC and HSN have always been a home for celebrities, engaging personalities, and entrepreneurs. We welcomed many familiar and new faces in the fourth quarter with a great pipeline planned for 2024. At QVC, Lawrence Zarian launched BEAUTIFUL, an exclusive fashion collection of dresses, outerwear, and accessories. In connection with the launch, we conducted a satellite media tour with a nationally syndicated segment on Extra. At HSN, we teamed up with legendary singer Dolly Parton for the presale of our debut rock album, Rockstar. Iconic Singer Chaka Khan launched her own perfume. Singer Katherine McPhee debuted her jewelry line, Radiance by Absolute. Erin Andrews launched her Sportswear line. Wolfgang Puck celebrated his 25th year with HSN with a new cookware line. During his time with HSN, he generated $600 million in sales. Numerous other celebrities have teamed up with us recently, and our 2024 celebrities lineup is fantastic. In January, Scarlett Johansson debuted a new beauty line called the Outset. Actress Christina Ricci came on air as the new brand ambassador for Lancer Skincare. In March, self-taught cake artist and social media influencer Yolanda Gampp, who has 4.5 million YouTube subscribers and 2.8 million Instagram followers, will introduce a new bakeware line. Many other celebrities will join us this year, and we look forward to sharing more on future calls. And finally, we continue to provide value to customers through compelling product values, exposure to their favorite hosts and celebrities, and importantly, our engaging programming. Our programming is enhanced by destination and mass events, especially around the holiday season. We hosted a 49-hour nonstop holiday party across channels and platforms with fun holiday shopping and special pop-in personalities. 680,000 customers shopped the weekend, including more than 40,000 new customers. The event generated 81 million views across social platforms. It featured several live streams, including holiday guides to get together with Jimmy Garth, holiday head-to-toe style with experts, high chocolate cocktails, and holiday recipes in 30 minutes with Fabio Pavani. We have also appeared on other powerful platforms to fuel engagement. QVC hosts presented gift ideas on popular talk shows, including The Drew Barrymore Show and the Tamron Hall Show to promote our Holiday Giftathon. We remain excited about the value proposition that makes QVC and HSN unique, and we'll continue leveraging this model as we expand across platforms. Finally, I want to discuss an organizational change we announced yesterday. I'm pleased to announce that Stacy Bowe will be taking over as the President of HSN. Stacy has been serving as the Chief Merchant at QVC US since joining the company in 2022 and has been one of the driving forces behind the improvement at QVC, including rapidly recalibrating our buying program, improving our inventory levels, and bringing freshness and newness to the assortment. Prior to QVC, Stacy had a decorated career at G-III Apparel Group and Macy's. I would like to thank Rob Muller, who has distinguished 23 years of extraordinary contributions to the company, including serving for the last two years as President of HSN. In summary, our business reached an inflection point in the third quarter of 2023. We have made substantial progress in stabilizing revenue and growing cash flow and profitability. We look forward to continuing to drive improved results in 2024 while preparing the business for its future of multi-platform growth. Now, I'll turn the call to Bill to discuss the financial results of each of our businesses in more detail.

Thank you, David, and good morning, everyone. Unless otherwise noted, my comments compare financial performance for the three months ended December 31, 2023 to the same period in 2022. Starting with QxH, revenue declined 4%, primarily on lower unit volume. These pressures were partially offset by 3% growth in average selling price. As David mentioned, lower unit volume was in part a result of comping to liquidation sales in Q4 2022 to actively reduce inventory. While this negatively impacted revenue, it was accretive to profitability. Second, we saw higher returns in the fourth quarter, which are normalizing to pre-pandemic levels across the industry, after an extended low period during the pandemic. From a category perspective, QxH experienced growth in Apparel and Jewelry. These gains were offset by a decline mainly in electronics, which accounted for 64% of QxH's revenue decrease. The decline in electronics is primarily driven by category softness across the industry, due to a lack of innovation as well as the strategic pullback in the category as our merchandise team focuses on the higher-margin categories. Apparel grew 3%, due to strength in classic and contemporary apparel. Jewelry grew 8%, mainly on the strength of Fine Jewelry. Home revenue decreased 2% mainly due to lower demand for Home Improvement & Floor Care, partially offset by growth in Cleaning & Fitness. BD declined 1%, mainly due to lower demand for Bath & Body as well as our strategic decision to dedicate more airtime to launching and growing smaller brands in order to diversify our assortment. This was partially offset by strong performance in beauty devices. Accessories declined 3%, primarily due to lower demand for loungewear, partially offset by strength in fashion accessories and footwear. Adjusted OIBDA margin increased 360 basis points with gross margin expansion of 450 basis points, primarily driven by favorable product margins, fulfillment, and inventory obsolescence expense. Product margins increased 215 basis points, driven by a mix shift to higher-margin products and fewer clearance actions due to improved inventory health. Fulfillment expenses improved 155 basis points due to improved efficiency and freight factor from Project Athens initiatives, less detention and image costs, and favorable rates from our new parcel carrier contract that went into effect in late July. Inventory obsolescence declined reflecting enhanced merchandise and assortment and comping 2022's Q4 inventory reductions. SG&A was unfavorable by approximately 75 basis points, primarily due to sales deleverage on administrative and marketing expenses. Bad debt expense accounted for approximately 20 basis points of pressure due to provisional adjustments, while our overall bad debt rates remain low and well under 2% of revenue. Before moving on to QVC International, as noted in our earnings release, we conducted an annual impairment assessment and recognized a $326 million non-cash goodwill impairment charge at QxH. This is included in operating income but excluded from adjusted OIBDA. Moving to QVC International, my comments will focus on constant and currency results. Revenue grew slightly reflecting a 1% increase in average selling price offset by a 1% decrease in unit volume. QVC UK letter performance, up low-double digits with sales gains in all but one category and particular strength in home. Japan was down slightly, and Germany declined mid-single digits. From a category perspective, QVC International experienced growth mainly in Home and Beauty, with declines in Apparel and Accessories. Adjusted OIBDA increased 2%, and adjusted OIBDA margin was flat. Gross margin increased 100 basis points, mainly due to improved product margins in the UK and Germany. QVC International benefited from fewer inventory clearance actions due to healthier inventories compared to last year, lower supply chain costs from ocean containers in Europe, and a mix shift to higher-margin products including beauty. Fulfillment was unfavorable, primarily due to $4 million of rent from the sale-leaseback transactions in January and increased labor costs. SG&A was unfavorable due to higher administrative costs from outside services related to transformation actions and management incentive accruals, partially offset by lower marketing expense. QVC International is executing a series of transformation initiatives that are on track to deliver substantial adjusted OIBDA improvement reaching run rate through 2025. Moving to Cornerstone. Revenue declined 12% in the quarter. We experienced soft demand in most home categories, as well as in apparel at Garnet Hill. Despite the decline in revenue, Cornerstone diligently managed costs and significantly grew adjusted OIBDA. Growth was primarily driven by decreased supply chain costs from lower ocean shipping rates and less detention and demurrage costs. These gains were partially offset by promotional activity and deleverage of marketing expense. Turning to cash flow and the balance sheet. Full year capital expenditures were $230 million. For 2024, we anticipate capital expenditures to be approximately $235 million to $250 million. We spent $113 million on renewals of our TV distribution contracts in 2023. Our TV distribution payments can fluctuate year-over-year depending on renewal cycles, though we continue to expect the two-year average to be approximately $100 million. Free cash flow for 2023 was $577 million versus a use of $9 million last year. The year-over-year improvement was attributable to increased cash flow from operations, driven by working capital improvements in the front half of the year and higher earnings in the back half of the year. This was partially offset by higher TV distribution payments year-over-year. We continue to expect higher adjusted OIBDA to benefit free cash flow in 2024. Looking at our debt profile, we repaid $138 million net on the revolver in the fourth quarter. Net debt at Qurate Retail Group reduced $209 million in the fourth quarter from the revolver paydown and strong cash generation. As of December 31, we had $857 million drawn on the QVC revolver with $2.3 billion in available capacity. In terms of cash balances, as of December 31, 2023, Qurate Retail had total cash of $1.1 billion, of which $307 million was at QVC Inc., $453 million was at Liberty Interactive, and $275 million was at Qurate Retail Inc. Our leverage ratio as defined by the QVC revolving credit facility was 2.4 times. Note that covenant OIBDA includes the adjusted OIBDA of QVC Inc. and Cornerstone, gains from the sale-leaseback transactions completed in the last 12 months, and a portion of projected cost savings. Note that we delivered a redemption notice yesterday to redeem all remaining outstanding QVC 4.85% senior secured notes due in 2024 on March 28, which we will fund with cash and revolver capacity. In 2022 and 2023, we executed programs to increase our liquidity and position ourselves for the successful implementation of our transformation plan. We affirmed that our debt level is manageable and our current cushion is sufficient in relation to our 4.5 times maximum net leverage covenant threshold stipulated in our credit facility. In 2023, we made substantial progress in the execution of our transformation initiatives and Qurate's second half results are a measure of our progress. We look forward to building on this momentum in 2024. Now with that I'll turn the call over to Greg.

Thanks, Bill. Successful 2023 has been demonstrated through improved financial performance and business health. The second half of 2023 was a turning point as Project Athens took hold. We saw enhanced merchandising and pricing strategies. We also saw efficiencies in the fulfillment center, post our fire elevated costs as well as other administrative costs that we're taking out of the business. So all of these drove significant adjusted OIBDA growth in the second half with $586 million of growth in cash flow year-over-year. We also positioned the business for the future, the future multi-platform and digital strategies that will begin to take hold. We also continue to improve the balance sheet, reducing approximately $1 billion of debt in 2023 and lowering the revolver balance by $218 million, including $138 million in the fourth quarter. We will continue to assess incremental opportunities to improve the balance sheet. We did deliver a notice to redeem the outstanding 2024 senior secured notes using cash on hand and our revolver capacity. We expect to continue to build momentum on these successes in 2024. And with that, I'll open it up for Q&A, operator.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question is from Jason Bazinet with Citi. Please go ahead.

Thanks. I just had a high-level question. I guess for 2024, I think it's reasonable to anticipate revenues may not grow but the Athens savings will sort of come in and allow you to grow EBITDA in 2024. Is the high-level vision by the time you get to 2025 the top line should be stable or growing? Or do you think it's more likely you'll still have some top line pressures but there's additional costs as we move into 2025? Thanks.

Thank you for the thoughtful question. As we go through 2024 into 2025, I think we move into a more well-balanced top and bottom line growth story. It would certainly be the case. If we target stability very intentionally, both on top line revenue and stability in terms of customer file through the Project Athens period through 2024, as you directly point out, I think we're setting up after 2024 to have a more balanced path to value creation on both the top and bottom line. And so preparing to be able to grow in the out years after the Project Athens period.

Okay. Can I just ask one follow-up? You mentioned the focus on Garnet Hill UK and Kitchen in Germany. But are there any other things that are causing sort of the more positive results coming out of the international markets relative to the US? I mean, you're making progress on both, but you sort of slipped into growth mode on a constant currency basis internationally. Can you just talk a little bit more about that dichotomy?

Yes, certainly. There are a couple of key points to highlight. First, the international markets in which we are operating generally experience lower competition, particularly in the digital and new customer acquisition areas, and we have been able to capitalize on that. Additionally, these markets are typically more stable, with less cord cutting occurring. On average, we observe more consistent consumer behavior across the markets we serve. Furthermore, we believe we are well-positioned in favorable countries, supported by a stable and well-managed team that has effectively operated those businesses. Historically, our international operations have seen slightly faster revenue growth compared to the U.S. market, partly due to a more advantageous competitive landscape. Therefore, we expect to continue seeing strong performance from our international segments and have confidence in our presence and the market dynamics in those regions.

Thank you. Thank you.

Good morning. I have two. So, the first is you mentioned that you have been able to shift some of your product offering. Clearly, electronics is really weak and you have some pockets of strength in the U.S. accessories and apparel. I guess is there any way you can quantify what amount of programming has been shifted to categories of strength and the opportunity to continue to do that in 2024?

Yes, it's a great question. We have made shifts. I won't provide specific numbers, but if you look at our airtime, we allocated more to jewelry and beauty, while reducing the time spent on electronics, with a slight increase in apparel. Fashion apparel and jewelry saw the biggest increases, whereas consumer electronics experienced the most significant decrease in airtime.

Okay. And then my second question on the third quarter call you mentioned you expected to repay both the 2024s and 2025s with cash or revolver drawings. Does that continue to be the case? And kind of relatedly towards the end of the prepared remarks you talked about taking advantage or continuing to pursue opportunistic? It sounded like asset sales or transactions that would bring in cash? Is there anything active going on there? And do you expect that there will be transactions of that leg this year?

So, we expect we'll do the 2024s and an expectation of the 2025s as a combination of cash on hand and revolver capacity. We don't anticipate any material transactions similar to what you saw in 2022 with sale leaseback activity or anything of that ilk.

Perfect. That’s all from me. Thank you.

Great. Thank you. One follow-up on Bill's question. Can you just remind us how much owned property you still have and whether it's domestic or international?

We — Carla, this is Bill. Obviously, we still have the facility in St. Pete and then other smaller international facilities as well in Japan and the U.K. and so on. But — and then also in terms of distribution centers in the U.S. but nothing that we're considering monetizing in the near term.

We have seen an increase in new customer counts for the first time since the pandemic. What does this indicate about existing customers and their purchasing behavior? Are you observing a different conversion rate of new customers to existing ones compared to the past? Any additional insights you can provide on this?

Yes, great question. You're right that this is the first time we've grown customers and new customers in a number of years. I would say, it's too early to know exactly what that batch is going to be. One of the things that we track very carefully is purchase and repurchase rates across time. We found that to be a highly correlated predictor of customer quality over the life of the customer. And I would say, any time you increase the population of new customers, you change the mix of quality a little bit. And so we've seen some changes in the mix. But on the whole, we're seeing that this group of customers is about the same — shows about the same attributes as previous crops of customers, especially when we've grown new customers. So, they're a little more digital. They're finding us across our platforms. And so, it is a customer that's sort of the next generation of customers. I think one of the things we're really pleased about is, we think it continues to show the relevance of our platform and that we continue to be attractive to new customers. I think looking at the data we see so far for the current crop of customers, we are optimistic about our ability to continue graduating those customers in the becoming avid and elite, and eventually best customers at about the same rate as what we've done previously.

Okay. Great. And then one question. I was looking back through some older presentations from pre-pandemic. And you had talked about inventory exposure of your inventory and that some of it — you've done a great job of reducing inventory lately, but I'm also — I think it's actually your inventory risk might be actually lower than it looks like, because don't give the ability to return inventory to vendors in some cases? And how should we think about inventory at risk versus the balance?

No, no. Good question, Carla. I think from the structure of our agreements with our vendors, I mean our risk profile on inventory is significantly less than it was for a couple of reasons. We reduced our days of supply significantly to a more manageable rate that you would think for a retailer level of revenue will be more commensurate with an appropriate level of turnover. Two, a large percentage of our inventory, our sales revenue to our customers is driven via drop ship, especially in the US, so coming straight from the vendor and the inventory is never on our balance sheet. And then third, depending on kind of the structure with the vendor, there are times when we do have — when we have a returned item that we have the ability to return that to the vendor. And so it minimizes inventory exposure on those products as well.

Okay. Great. And then just one last one. Are you — do you ship anything to the Red Sea and are you seeing any impacts there?

Yes. We do ship through the Red Sea. About 15% of our QVC US and HSN volume goes through the Suez Canal. We've transitioned to some other vessel services to try to avoid the area. So, in the US, in our largest businesses, we haven't seen a very big impact and we think our exposure is relatively limited. In Europe, we do have more exposure; about 75% of our supply goes through the canal. We've experienced a delay in receiving some shipments, something in there. We've had a couple of shifts of our today's special value about I think three or four in January and we have started to see higher costs for ocean containers. I would say, none of these are nearly at the level of pain that we experienced during the pandemic. It's very manageable to day in terms of the disruption to our Europe operations, but they have seen some small effects.

Okay. And just sorry one more somewhat related to that as well. Our China tariffs, we're seeing more press on that, how would that impact you? And is that something you're watching as a potential risk?

Carla, I would say, we're always obviously cognizant of that. We haven't seen any significant uptick right now. Our teams, our procurement teams are pretty in tune in terms of kind of how we think about time line of procurement and the source of supply, but that has not yet impacted us nor do we anticipate any time in the near future having a significant impact on margin. Yes.

Good morning. When we look at the 3% price increase in the fourth quarter and kind of carry that forward, what's our expectation for the ability to take price in 2024?

Great question. We still believe we have some capacity to increase prices. We were somewhat late in adjusting prices compared to many other retailers who raised prices before us. However, we still think we can raise prices to some extent. More importantly, we believe we can increase the average sale price because we have been improving the quality of our products and merchandise. When considering the price, it's a combination of raising prices and changing the mix of merchandise we're introducing. Additionally, I want to highlight that we've faced a challenge as electronics sales have decreased. Electronics typically command higher prices, so while they have lower margins, they do contribute to higher average sale prices. As their share in our sales has declined, it has posed a challenge for maintaining our average sale price. If we see some innovative products in electronics coming back, it could further boost the average sale price we aim to achieve in 2024. With that being said, as we move into 2024, we prefer to rely less on price increases and establish a better balance between unit sales and price as we strive to ensure revenue stability and start pursuing revenue growth.

Okay. And my apologies if I missed this just on Project Athens, when we look at that $300 million to $600 million OIBDA opportunity there. How much of that flow through 2023? And how much should we think about the opportunity for 2024?

It's a good question. So I think a fair amount of it flows through 2023. You saw it really starting to come through in the back half of 2023 of course. We see continued opportunities both because of the run rate increases from 2023. And because we're implementing new aspects of Project Athens that will be coming online as we're going through 2024. So we continue to see the ability and a runway towards OIBDA growth and OIBDA margin expansion on the total business.

Okay. And lastly, I've noticed a change in the return policy regarding the printing of return labels. What opportunities do you see in reducing those return costs?

And our supply chain team has a number of continuous improvement initiatives. Some of these are associated with Project Athens to drive efficiency throughout. That was one of several in terms of materiality that's not going to hit your radar. Obviously, we're going to do 100 of these things that are going to move the needle for us in terms of improving pack factor and getting more efficiency in each of our distribution centers. So I think it's just one of several you're going to see.

The other thing I would say is it's less of a cost issue, but we have negotiated with our vendors on the parcel and break side to increase the opportunities and the ways that our customers can return items. We think it's an improvement in the customer experience. Customer returns actually end up being very highly correlated with customer satisfaction over time. And so we've worked pretty hard, not just to get more efficient in the things we're doing in terms of returns, but also to make it easier for customers who have returns. And so we built — we have a good returns program and we feel good about the progress we're making both in terms of efficiency and in terms of customer satisfaction.

Thank you very much, guys. Appreciate it.

Thank you.

And thank you to our listening audience. With that, I think we're done operator. We look forward to speaking to all of you next quarter, if not sooner. Thank you.

Thank you. The conference of Qurate Retail has now concluded. Thank you for your participation. You may now disconnect your lines.