Hale Holden: Thank you very much. I appreciate it.
Operator: Our next question is from the line of Karru Martinson with Jefferies. Please proceed with your questions.
Karru Martinson: Good morning. Speaking as someone who was targeted with the new QVC women over 50 ad this morning, I can certainly say that you guys have stepped up your advertising, nice to see. I think last year you had kind of the inflection point in the third quarter where the business changed. One of the pushbacks I’ve gotten this morning is like, hey, you guys have shown stability, you have traction, but these are against easy comps. Do you feel that the momentum that you generated will continue here through the second half of the year?
David Rawlinson: So first, I’m glad you saw some of our advertisement. I would say don’t just look by. Feel free to log in, help out the financials. We want you as a customer as well. So we did have, I think just on a practical basis, we did have some easier comps in the first half of the year. I think that’s fair. And obviously, we had better performance in the back half of the year from an OIBDA and free cash flow basis last year. I think we think we have the ability to continue making real progress as we go through the back half. Bill talked about the fact that we continue to have Athens initiatives that we’re executing going through the year. We continue to build on those initiatives. We have a management cadence where we’re adding additional incremental initiatives to project Athens as we go.
So we’re refilling the funnel of initiatives. And then I think the other thing that will continue to be positive is as the customer count stabilizes and as we continue to get closer to flat and then growth. That also gives us some additional ability to drive the bottom line results. So we continue to be optimistic about hitting our objectives for the full year.
Karru Martinson: Okay. And how do you guys feel right now on your inventory given kind of perhaps some timing shifts on seasonal and as people buy closer to need?
Bill Wafford: Yes, I think we feel really good about, you know, a lot of work was done over the last, let’s say, 18 months to get our inventory, kind of a right size position. I think if you look at ending Q1 2024 versus ending Q1 2023, the inventory level was still down about $200 million. And you feel comfortable that from a days of supply perspective, that teams have got a really good control on, kind of managing inventory level, and even with the kind of the impact of people buying a little closer to need.
David Rawlinson: Yes, I’d say a couple of things I agree with Bill. Obsolescence is in a good place. Age of inventory is in a good place. I think aggregate level of inventory we’re carrying is in a good place. What I feel really good about, as we talked about, percentage of our sales that we’re going to new or first time on air items that continue to grow, and those items are performing better than repeat items. And so as we’ve been able to get to a better inventory position and bring in new, higher quality merchandise than we had last year, we think that continues to be a tailwind for the business. So we feel good about our inventory and about what’s in it and about what we’re going to be bringing in for the back half of the year.
Karru Martinson: Okay. And just lastly, there’s been a kind of a shift in the questions I get. You know, people feel comfortable that you have the liquidity, the cash flow to handle the 2024 maturities that you retire. The 2025 is coming up. I think the big sticking point for the market has been the 2026 revolver. You know, how are you guys thinking about that? Do you need a revolver this size? And what’s kind of the early feedback from your banks?
Ben Oren: Yes. This is Ben Oren. I think the first comment would be, we don’t need a revolver of this size. We’ve gone that high, and so we’ve got room to reduce that to make banks more comfortable. We’re looking at it. It’s gotten more and more favorable as the business has continued to perform. And I would say that we’re only about a half turn away from being under the three and a half times RP [ph] test under the bond indenture, so long as the business continues on this trajectory. We’re going to continue to monitor it and try to finance in a more favorable environment. Whether that comes in the form of a cash flow revolver or ABL or some alternative, we’ll basically roll with what the market conditions are at that time.
Karru Martinson: Thank you very much, guys. I appreciate it.
Operator: Thank you. Our next questions are follow-up from the line of Carla Casella with JPMorgan. Please proceed with your questions.
Carla Casella: Great, thank you. Following on that debt question, can you give us the net deferred tax liability as it relates to the Linton [ph] notes at the end of the quarter?
Bill Wafford: Hey, Carla, I think we’re going to be consistent and only give that once annually at the Investor Day, but no material change.
Carla Casella: Okay. And you talked to the 2026 revolver. Did you say I may have missed it, that you expect to pay the 2025 notes off cash like you did the. With cash and revolver like you did the 2024 notes.
Bill Wafford: Currently, that is our expectation that cash and cash on hand and revolver for the 2025s put it, if the markets continue to improve, we’ll continue to look at the capital markets as an option to extend.
Carla Casella: Okay, great. Then you talked about seasonality and how customers are buying closer to season. What’s your comfort level with the inventory that you have now? Is it a lot of seasonal merchandise that may need to be cleared, or are you in a good seasonal position with your merchandise inventory?
Bill Wafford: Yes, I think we feel good about our inventory. We don’t have, we don’t see a lot of excess seasonal that would need to be cleared. We feel good about the level anew. We feel good about the assortment going in the spring, so nothing that we see that’s concerning there.
Carla Casella: Okay. And the fire related proceeds, that’s all behind you. Right? There are no more, I guess, assets or anything on the balance sheet accrued for potential additional proceeds?
David Rawlinson: No, that’s all behind us, Carla.
Carla Casella: Okay, great. And then just one question on Japan. Any more comments you can give us on that market? How the performance is there? And is that something you would ever consider monetizing, that stake in Japan to address some of your debt maturities?
David Rawlinson: Yes. So on performance, we continue to be optimistic about that business. We continue to think they’re taking share in that market. They largely outrun a slightly, even if anything, more difficult mark set of market conditions. And so I’d say that’s been, if you look over the last few years, one of our strongest performing, most consistent and strongest performing businesses. And it’s a business that is growing and continues to grow. And so we feel very good. Other thing I just note about Japan is that, it is our core business model. So we do essentially with regional adjustments, essentially what we do across the QVC and HSN businesses and all of our other markets. We share talent across. We’ve had people who have led that business that have gone on to lead other businesses across the portfolio and vice versa.
And in fact, I will be in Japan myself, and I think, next month. And so we’re very excited about the business material, to the overall results in terms of whether we ever monetize it, I would say it’s a core business. I’ve been pretty careful to delineate core and non-core businesses. It’s a core business, but we’re always looking at every opportunity to create shareholder value. We’ll continue to do that, like all businesses, but we’re very happy with the performance of Japan and what it’s meant for the overall portfolio.
Carla Casella: Okay, great. Thanks a lot.
Operator: Our next question, or follow-up from the line of William Reuter with Bank of America. Please proceed with your questions.
William Reuter: Hi. I just have two that I think are relatively quick. The first, there are clearly a lot of big names associated with the age of possibility tour and marketing program, some of which you mentioned may be kind of staying on in a permanent role. Should we think about a meaningful increase in those, whether you want to call those marketing dollars, advertising, whatever those funds would be allocated towards, should that be a meaningful increase?
Bill Wafford: No, I wouldn’t expect that. In terms of how we’ve laid out the year as fully anticipated with kind of the launch of Q50, I don’t expect any meaningful change in our level of marketing spend across the portfolio, or it may be a reallocation of funds in some minor way, but nothing material.
William Reuter: Cool. And then the second one, you’ve mentioned that some of the more discretionary product categories that we’re seeing weakness across all retailers. You’ve seen the same thing. Are you going to be changing your mix much this summer that will change kind of the margin profile to some kind of lower margin, less discretionary categories?
Bill Wafford: No, I don’t think so. I think you’ll continue to see us shift slightly away from electronics. We’re dedicating less airtime there, and I think we don’t see the same type of innovation or demand across electronics. That being said, if we see an innovation cycle happening, and we’re starting to hear from some of the manufacturers that they may want to lean into an innovation cycle. If we see an innovation cycle happening, I think we have the ability to get back into that market relatively quickly. We’re continuing, I think we’re on a nice string in terms of gross margin expansion. Some of that’s clear, but some of that’s also being mindful of which categories we’re pushing and what the margin profile on those, on those categories are.
We’re going to continue to maintain that discipline and so, and we’re going to continue to lean into higher margin categories when it meets the demand we’re seeing from our customer. So I don’t see to your question, I don’t see us going into lower margin categories at any sort of scale. We’ll be opportunistic. We’ll have to continue to read the customer and we’ll follow the customer where she goes. But there’s nothing that we see so far that should suggest we can’t continue to make good progress on the gross margin profile of the business.
