QVC Group Inc (QVCGA) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Liberty Interactive Corporation Q4 2012 earnings conference call. Just a reminder, today's call is being recorded. For opening remarks and introductions, I would now like to turn the call over to Ms. Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

Good afternoon. This call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about financial guidance, business strategies, market potential, future financial performance, new service and product launches, and other matters that are not historical facts.

These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, possible changes in market acceptance of new products or services, competitive issues, regulatory issues, and continued access to capital on terms acceptable to Liberty Interactive.

These forward-looking statements speak only as of the date of this call, and Liberty Interactive expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Interactive's expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based.

On today's call, will discuss certain non-GAAP financial measures, including adjusted OIBDA. The required definitions and reconciliations, preliminary note, and schedules one through three can be found at the end of this presentation. Now I'd like to introduce Greg Maffei, Liberty Interactive President and CEO.

Thank you, Courtnee, and good afternoon to all of you. Besides myself, today speaking on the call we will have Liberty's CFO, Chris Shean; QVC's CEO, Mike George; and QVC US CEO, Claire Watts. On to the highlights. QVC had solid results for the quarter. Notably in Q4, dot com penetration the US was 43%, with 23% mobile penetration. QVC is the second-largest mobile commerce retailer in 2012, behind only Amazon, according to Internet Retailer magazine.

Regarding Liberty Ventures, in December, we purchased an additional 4.8 million TripAdvisor shares for $300 million. We now control 22% of the economics and 57% of the vote at TripAdvisor. We are very pleased with the performance of Liberty Ventures. Since its creation, the stock is up 58%. Notably during the quarter, we also ramped back up on LINTA repurchases, buying back $177 million worth of stock. So with those highlights, let me turn it over to Chris Shean to discuss the financials.

Liberty Interactive Group's revenue increased 2% in the fourth quarter and 4% for the year, to $10 billion, while adjusted OIBDA increased 1% for the fourth quarter and 4% for the year. QVC increased net revenue by 2% for the quarter and 3% for the year, while adjusted OIBDA increased 4% for the quarter and 5% for the year. Liberty Interactive's other e-commerce businesses grew 5% for the quarter and 11% for the year, while their adjusted OIBDA for the quarter decreased 29%, and 22% for the year. We have previously discussed some of the challenges that these businesses have faced this year which have negatively impacted adjusted OIBDA.

The decrease for the full year was a result of principally increased spending in paid search as a percent of revenue, increased promotional activity to move some seasonal inventory, which impacted -- negatively impacted gross margins, and lower advertising revenue due to pricing and a shift to mobile applications. Operating income has been reduced by $325 million and $323 million of non-taxable tax-deductible amortization related to Liberty's acquisition of QVC for the years ended 2011 and 2012, respectively.

Taking a quick look at liquidity, at the end of the year the group had attributed cash of $700 million and $4.6 billion in attributed debt. QVC's total debt-to-adjusted OIBDA ratio as defined in their credit agreement was approximately 1.9 times, as compared to a maximum allowable leverage of 3.25 times. Now I'll hand the call over to Mike George for detailed commentary on QVC.

Thank you, Chris. We were pleased with our success driving revenue growth and increasing our tested OIBDA margin in the face of some external pressures in the quarter. Revenue increased 2% and adjusted OIBDA increased 4%, despite the continued FX headwinds that we face. On a constant currency basis, we increased revenues 3% and adjusted OIBDA over 5%, while we continued our strong e-commerce performance, as Greg mentioned, with worldwide penetration of 37%, up 3 points from year ago.

We continue to be a leader in mobile commerce. Our mobile orders were up 87% globally and well over 100% in the US, UK and Germany. Mobile orders now represent 25% of total -- excuse me, 24% of total e-commerce. And earlier this month, QVC earned the number two spot, along with Apple, in ForeSee's annual mobile retail customer satisfaction rankings. To further our digital strategy, we were delighted to announce the purchase in Q4 of Oodle, a leading social marketplace, which we will use as a platform to establish a leadership position in social commerce. Claire will tell you more about this exciting opportunity shortly.

Our customer metrics also remain strong, and we enjoyed an increase in both the count and the spend of our existing customers. And the retention rate remained unchanged, at a high 89%. In addition, revenue from new customers was up in the US, in Germany, and in Italy, although it was offset by continued soft results in Japan, driven by challenges with new customers locating our channel following the digital conversion last year. We do expect this negative trend in Japan to moderate in 2013.

Now turning to the results by market. In the US, we grew revenue 2% and adjusted OIBDA 7%. And while we were generally pleased with our sales momentum and with a number of highlights in the quarter that Claire will touch on, our growth was adversely affected by Sandy. And with approximately 25% of our sales coming from the areas directly affected by the storm, our revenue growth rate for the quarter was negatively impacted by 1% or 2%.

Excluding the storm impact, and some softness that we felt at the very end of the holiday selling season, we posted consistently strong results, with revenue growth rates comparable to the first half of the year. Additionally, our return rate remained relatively flat compared to the prior year, at 17%. And we once again stuck to the fundamentals of our model and avoided the increased promotional frenzy at traditional retail. Our shipping and handling revenue per unit was stable, and our use of EasyPay was up just 1%.

E-commerce in the US increased 3 points to 43% of our business, and mobile jumped 5 points to represent over 10% of our total business and 23% of our e-commerce business. Our adjusted OIBDA margin increased nearly 110 basis points. That was primarily driven by a $20 million net legal settlement in the quarter.

Japan had another terrific quarter, with revenue up 6% and adjusted OIBDA up 8% in local currency, on top of a strong performance last Q4. While our new customer growth, as I mentioned, has been hampered by the digital conversion, we saw revenue from existing customers increase 11%. We have also substantially completed our new headquarters, broadcast studio, and call center, and will begin broadcasting from the new facility on April 1.

With our new studios, we will be able to significantly enhance the quality of our broadcast and our programming; for example, through improved sets for kitchen and cooking, our first outdoor sets, and a new fashion runway experience. As with the UK, we will incur some duplicate and incremental operating costs as we complete the move. These costs will adversely impact adjusted OIBDA by approximately $5 million through the course of 2013.

In Germany, while our revenue declined 3% in local currency, we were encouraged by the improvement in trend relative to the 6% decline in Q3. In a somewhat sluggish consumer economy, the team has really focused on improving the diversity and the freshness of our products, our brands, and our programs, and we believe these efforts are beginning to pay off. Adjusted OIBDA declined 13%, due to the anniversarying of some one-time benefits that we realized last year at the clean-up of our jewelry inventory and a reduction in the mix of high-margin health products.

In the UK, we grew revenue by 3% in local currency, in the face of the double-dip recession. Adjusted OIBDA margins increased slightly, due to a significant reduction in inventory obsolescence rates and lower affiliate commissions, partially offset by a higher mix of lower-margin consumer electronics products and higher costs associated with the move to the new headquarters earlier in 2012.

Italy continues on a very strong trajectory, with revenue up 119% over last year and 44% over Q3 in local currency. Our adjusted OIBDA loss fell to EUR4 million. That's a 44% improvement over the prior year. And we continue to be encouraged by the positive customer response in Italy, with purchase frequency rates for our existing customers among the highest of any QVC market. We now anticipate achieving positive OIBDA on a quarterly basis late this year or early next year. It's about three to six months behind the guidance we gave prior to the launch a few years ago.

In China, our CNR Mall joint venture achieved revenue of 160 million RMB, or about $25 million, up 37% over Q3 in local currency. The venture's adjusted OIBDA loss was RMB14 million, or about $2 million, approximately the same as the prior year. CNR Mall ended the year achieving over 48 million homes. That's up from 32 million at the start of the year. In just its first 2.5 years of operation, CNR Mall has already served nearly 1 million customers. Now we are committed to evolving this format closer to a traditional QVC model, which we believe will further build customer trust and repeat purchase rates and enable the business to emerge as a market leader in China.

I will wrap up my comments with a few brief reflections on the full year. We are proud of the financial results we achieved in a difficult year, in the face of the worsening economic situation in most of our markets, and some external events, like the Olympics and Sandy, along with worsening FX rates. We still grew revenue 3% and adjusted OIBDA 5%. And normalizing for the FX impact, we grew revenue over 4% and adjusted OIBDA over 6%.

With adjusted OIBDA margins over 23% in the US and over 21% worldwide and climbing, we once again demonstrated our ability to achieve industry-leading financial results and to provide our shareholders with steady, consistent gains in profits and cash flow.

More important still, we invested in the future, offering our customers and viewers a compelling, immersive, multi-screen shopping experience. We rolled out our new e-commerce platform in the US and Europe. We grew our mobile commerce business almost 100%. And according to Internet Retailer, we were the second-largest mobile commerce retailer in 2012, behind only Amazon, and also number two, as I mentioned, in ForeSee's mobile retail customer satisfaction ratings.

We acquired two highly innovative companies in the digital commerce space, Send the Trend and Oodle, which will help us extend our leadership in both e-commerce and social commerce. We completed our new headquarters and broadcast studios in the UK; and in six weeks, we will begin broadcasting from our new headquarters in Japan. These new buildings will reflect some of our growth and success in each market, provide a significantly enhanced viewing experience for customers, and are designed to foster collaboration and creativity among our teams.

In just its second full year of operation, we ramped Italy to a nearly $90 million business, built on the strong loyalty and repeat purchase behavior of our new Italian customers, and without resorting to promotional stimulus. We also launched our joint venture with China National Radio; and in its second full year of operation, CNR Mall achieved over $80 million in revenue. And we continue to actively explore additional markets for expansion.

Finally, our capital expenditures for 2012 were $246 million. Now that's below the guidance of $300 million to $320 million that we communicated at the start of the year. This lower spend reflects cost savings on our Japan headquarters, and a reduction in new IT projects as we focused our efforts on completing and deploying WebSphere and other systems. For 2013, we anticipate capital expenditures of $250 million to $275 million. And with that, I'll turn it over to Claire to discuss our US business in more detail.

Thank you, Mike. QVC US generated solid results to close out 2012. We continue to make progress on our efforts to enhance the real relationships we have with our customers and provide a unique shopping and service experience across all of our platforms.

Our holiday brand campaign, All of the Joy, None of the Craziness, offered our customers compelling and engaging product and programming across all platforms, and positioned QVC as the destination for inspired gifting. We were pleased with the strength of our Home business in fourth quarter. We saw strong performance from a number of brands, including Duraflame, Oreck, Lori Greiner, KitchenAid, Rachael Ray, and Sleep Number beds.

The Halo Pocket Power Charger, which was a Today's Special Value that aired on Tuesday, November 27, sold more than 305,000 units on the day, making it the number-one selling TSV of all time, in terms of units. Within our Beauty, Fashion and Accessories businesses, we saw strong performance from the following brands -- Dooney and Bourke, Judith Ripka, philosophy, Bronzo Italia, Joan Rivers, Forza Heel, Team Yellow, Dennis Basso and Susan Graver.

During one of the busiest shopping weeks of the year, Monday, November 19 through Cyber Monday, QVC created the ultimate multi-media shopping experience for our customers across all platforms. Our customers responded. We achieved our biggest sales week in history, welcomed 5% more first-time customers than last year, and generated the highest number of web sessions and unique visitors in QVC.com's history.

Program host David Venable's cookbook, Comfort Homes -- or, Comfort Foods That Take You Home, was the third best-selling cookbook in 2012, according to Publishers Weekly, with close to 265,000 units sold last year since it debuted on air in April. To promote his cookbook, David made appearances on the Rachael Ray Show, the Today Show, The Chew, and was also featured on Anderson Cooper Live show as a part of the family dinner challenge series.

We remain dedicated to improving customer experience at every touch point. We implemented a click-to-call messaging in paid search ads to make it easier for customers to access QVC via their mobile devices. We refreshed our customer service web page to make it faster for customers to find the information they're looking for, and we created efficiencies to improve speed of delivery of our products to our customers.

Our customers are taking advantage of our multi-platform shopping experience, as evidenced by our extraordinary growth in web and mobile penetration. As Mike noted, Q4 total e-commerce sales grew by 10%, with penetration of 43%. Our mobile growth is explosive. Q4 orders increased by 114% and penetration grew to 23% in the quarter. We continue to focus on optimizing the shopping experience on Tablet Web, which continues to be the fastest-growing portion of our mobile portfolio.

The QVC shopping experience is fundamentally social in nature. We have a strong community of hosts, designers, guests and customers who enjoy interacting on our community forum, on QVC.com, on social platforms such as Facebook and Pinterest, and of course, on mobile applications.

The acquisition of substantially all the assets of Oodle provide us a sophisticated technology platform that will enable QVC to capitalize on the growing consumer trend of discovering new products via social and allow us to better leverage our brand essence of real relationships on all digital platforms. This opportunity will enable QVC to grow our customer base and strengthen our brand as an innovative retailer.

We are excited about the shopping experience that we've offered to our customers so far in 2013. Italian tenor Andrea Bocelli debuted his much-anticipated new album on QVC in front of a live studio audience. QVC was in LA this past Friday, February 22, for Red Carpet Style with fashion icons Heidi Klum, Nicole Richie, Joan Rivers, and Jennifer Hudson.

We delivered a unique social shopping experience for our customers with a live video feed of celebrity guests walking the red carpet on QVC's iPad app, and social influencers showcasing in-the-moment snapshots of exclusive events on Instagram, creating QVC's very own instaglam experience. And as we say hello to spring, we're helping our customers discover the latest fashion trends, fresh spring cleaning ideas, vibrant flowers, house plants and more. And with that, I will turn the call back to Chris.

Thanks, Claire. Let's take a quick look at the liquidity picture at Liberty Ventures. As of December 11, we -- as Greg had mentioned -- gained control of TripAdvisor, which is now a consolidated subsidiary through our voting shares, and going forward will be a prominently displayed operating unit within the Ventures group. I wanted to point out that full purchase accounting that reflected. And as a result, essentially we had to mark our historical ownership percentage to market, which resulted in an $800 million gain that you will see in the financial statements. But going forward, full consolidation, 78% of the economics will get allocated back out through the non-controlling interest line item in both -- in the P&L.

At the end of the year, the Group had cash of $2.1 billion and $3.3 billion in attributed debt, which includes TripAdvisor's cash and $412 million of their debt facilities. We recently announced the full redemption of all of the outstanding 3.75% senior exchangeable debentures due through 2031, which this will occur and be effective on March 8. And the outstanding principal amounts of these bonds at December 31, 2012 was $414 million.

The value of the equity method securities, principally Expedia and non-strategic AFS securities attributed to the Group was $1.8 billion for each, respectively, at the end of the year. Now with that, I'll turn it back over to Greg to wrap up.

Well, thanks to Mike, Claire, and Chris. As you may have heard from their tone, we are pleased with our results for the quarter and the year, and are excited for 2013. We appreciate your continued interest in Liberty Interactive. And with that, Operator, we'd like to open up for questions.

(Operator Instructions)

David Gober, Morgan Stanley.

One quick housekeeping question for Mike. You mentioned a $20 million net favorable settlement in the press release. Just curious what that was. And then I have a follow-up for Claire.

Yes, David, the settlement related to credit card fees. We're not able to get into the details of it, but view it as a one-time, non-recurring benefit in the quarter.

Got you. And Claire, as you talk about the explosive growth on the mobile side of the business, I was wondering if you see any different characteristics of consumers, either -- are you seeing better acquisition of customers or are you seeing greater loyalty? Is there any difference between a customer that uses mobile devices versus somebody that just comes in on the website or uses the standard phone interface?

Thank you for your question. Yes, we are really pleased with our growth in mobile, crossing our $500 million for the year. A couple of things that I would tell you that we see. One, we have a high percent of our mobile purchases are from new customers. It's sitting at about 24% of our mobile customers are actually new customers. And then as we stated year after year, our best customers are the ones that use all of our platforms. And we see mobile as continuing that trend. When they add that to their portfolio, we do see them become a very valuable customer.

Within that, though, we see different behavior and activity coming from mobile phone versus tablets, web versus apps. And we've talked a little bit about that before, that the web is the fastest-growing portion, both on mobile and on tablet, and that is definitely a shopping -- more of what we call buying e-time experience, where our apps on mobile continue to be more like an ordering mechanism for the customer. Definitely adding mobile to their portfolio makes him a better customer and we have seen a high percent of the mobile customers being new.

Got you. And maybe just a quick one. Not sure who would be best on this, maybe Greg. Just on the e-commerce side, obviously some challenging trends there. Just curious if you could give us any color on the performance of the various subsidiaries there and what is going on with the various sites?

I think we had talked about some of these before. We were in transitions at a couple of the subsidiaries. We have a new CEO, for example, at Celebrate, which has struggled through the Halloween season. We have had good top-line growth, but some discounting at Bodybuilding, as well as some legal expenses which hurt its results. Backcountry had challenges around a tough environment for outdoor winter retailers, a lot of discounting in the industry, from which they suffered commensurately. They actually are off to a very improved January, with more snow in the West. And that's a positive.

Provide has a new CEO as of about a year ago, who's made, I think, some good changes. And we saw direction improvements at the Provide flower business for Valentine's Day, and I think we were pleased with that. But there were some one-time charges around the new CEO and a retention program, some hiring charges and the like that hurt that company's results. And the one that has done the strongest, CommerceHub, continued to have excellent results.

So if I look across the portfolio, we have two businesses or so which are doing quite well, two which are banging along, but we are having issues around weather, in which we cleaned up some items, and one which is probably the most challenged, in Celebrate, but we're excited about the prospects with our new CEO there.

Great. Thanks.

Tom Forte, Telsey Advisory Group.

This is actually Calvin filling in for Tom. You talked a little bit about the strength in Home and Beauty. Could you talk about whether this is sustainable in 2013? And then, could you give some highlights for what you're seeing in Electronics? Thanks.

Yes. Thank you for your question. We have seen our -- within Home, our Cooks and Dining business, our Household business, particularly floor care, and this past season, particularly our seasonal and toy business all very strong, consistent results throughout the year. So we do expect those categories to remain strong going into '13. Beauty is the same as Jewelry. We've had year-over-year sustained growth. We are quite a player in the prestige beauty market, and we have big plans for our Beauty business in 2013, as well.

And Electronics?

I'm sorry, yes. On Electronics, what we've seeing is a pretty tough year for us, finished pretty soft. The categories that have been good continue to be good, and that is the tablet business has been particularly strong, particularly the Apple brand. Our camera business is pretty strong. But we continue to have a sluggish performance in televisions and computers, picked up a little bit in the fourth quarter, but not anywhere close to our performance in the past couple of years. So we remain a little bit unsure of the growth for electronics in '13, and we're viewing it fairly conservatively.

Great. Thank you.

Trisha Dill, Wells Fargo Securities.

Just a question on the e-commerce and mobile growth. Although the penetration continues to increase at QVC, just wondering if you can comment on the slowdown in the year-over-year growth rate during the quarter and what you attribute that to?

Yes, 10% growth. We have a large site, so $2.6 billion for the year. But part of that is when the top line slowed -- and 2%, as Mike talked about, we definitely experienced an unusual impact from external. That affects the overall growth rate on the website, as well. 10% is okay, but we expect it to be a little bit higher than that. It definitely reflected the overall performance of the business in the quarter.

Okay. And then this is a question on the competitive free shipping and promotional environment. It doesn't really sound like you participated in that. And your gross margin in the US business doesn't really reflect it, but perhaps it contributed a little bit to the slower sales growth versus 3Q. Just wondering if you can comment on that, and maybe what you are seeing so far in the first quarter in the promotional environment?

Yes. We did strategically make the decision, as Mike outlined, to stick with our brand story, which we are not a highly promotional brand. Free shipping and handling, when we offer it in the fourth quarter, really has to do more with the competitive landscape. So in some cases, national brands, we do offer free shipping and handling, because that's what it takes to be competitive. For the most part, we see ourselves as having differentiated product and experience, and we try to stay out of the promotional activity.

As far as the impact on sales, where we strategically offered it, we felt like that was the right thing to do. And we saw great performances where we didn't offer it. So the top line for us at 2% was disappointing to us, in some regards, because of the significant impact that we incurred through the year. Bottom line is we are going to stay as non-promotional as we can. We feel like that did pay the bills in the fourth quarter. We ended our season very clean, cleanest inventory we've had in a long time, and we are well-positioned to be successful in '13.

Great. Thank you very much.

Ben Mogil, Stifel Nicolaus.

Since January, between the payroll tax holiday going away and, of course, rising gasoline prices, talk about where you are seeing your customer be a little bit more conservative. I know that you're obviously not the Walmart customer, but talk about what you are seeing, if any change in tone since January 1, from the consumer perspective?

I can't, at this point, tell you that we can trace a change in behavior. It is something we are watching very closely, because again, any money that seeps out of the pocketbook is not good for retail and not good for us. But we haven't seen a notable change in our customers' behavior by category, yet, but we remain very focused on that, as some of them are really seeing paychecks diminish for the first and second time. So, more to come on that, I would say.

And what about in Europe? Obviously, the payroll tax is not an issue there, but given the European environment continues to be very much up and down. Italy, for example. Anything you can share there since January 1, in terms of tone, et cetera?

Probably somewhat similar answer to what Claire described for the US. It would be hard for us to see any obvious impact. And as you pointed out, Europe has been -- the economic pressures in Europe have been significant and sustained now for many quarters. So, certainly nothing we've seen there would suggest any fundamental change in what continues to be a relatively soft environment where you have to outperform and take the share.

In Italy, as we've said before, because we are so new and so small, that while I certainly don't think we're immune to the macroeconomic forces, and the business might have ramped even faster in a healthy economy, we've nonetheless seen that we can continue to ramp that business from a fairly small share standpoint, even with all the challenges going on in Italy. So, nothing real specific that feels different this year relative to last year.

Okay. That's great. Thank you very much.

Matthew Harrigan, Wunderlich Securities, Inc.

I had a couple questions, all on international. I think in the release it said in China you were up 14% year-over-year in Q4 and 85% for the full-year. You had some favorable seasonality from Q3 to Q4. I was just curious if you could comment on that, because that's a quirky number.

And then secondly, on Italy, QVC Italia, I think you said it was a quarter or two behind plan. But that's still impressive in the context of everything. But Italy is such a quirky country. I mean seemingly, it's thrown up Silvio Berlesconi again as a power broker, if not the next PM. I think you commented before that you have some advantages in that market in terms of the QOS and what the Italian consumer was used to dealing with with retailers.

Do you feel confident that you can extrapolate from Italy going into some of the other markets, like Spain or France? And obviously, if you generated proportion in your results, there's huge buckets of value there for the taking. Or do you think that Italy was just low hanging fruit on account of the underdeveloped retailing environment? Lastly, particularly with the event programming around Fashion and Beauty and all of that, are you starting to see more things out of Italia and the UK, in particular, in terms of programming that you can use in the US and in other markets, as well as Europe?

Yes. Great. Thank you, Matthew. Let me take each one of those. China, as I have mentioned in my comments, we are just really pleased with the partnership in China and the success we are seeing, with the very strong growth from Q3 to Q4. The grow wasn't as strong, as you note, on a year-over-year basis. Prior to us operating the channel, they were probably doing some businesses last Q4 that were not the kind of businesses we wanted to be doing.

We've been gradually evolving the mix, increasing product margins, trying to build the business we want to build, that we think is sustainable for the long term. We were pleased that we saw a nice lift over the Q3 performance. For us, because we weren't engaged in the business a year ago, the year-over-year comps are a little less relevant.

Another thing to keep in mind about China is the seasonality will feel a little bit different in China than in the rest of the world. It is not as driven by Christmas and it is more driven by New Years, which of course, occurs in February. So you really see the seasonality. If in most markets the heavy seasonality is November/December; in China, it feels more like December/January. So some of the sequential trends are going to look a little bit different in China. But overall, very pleased with the progress there.

In terms of on Italy, whether we can extrapolate from Italy to Spain or France, the short answer is we think we can. Certainly going into Italy, no one we talked to and none of our internal work made us think that Italy would be an inherently stronger market then Spain or France, from a consumer proposition. It was really more that we were able to get the right carriage in Italy sooner than France, in particular. Spain obviously is a little smaller market, so it was one step behind Italy on our list of priorities.

As we've said in past discussions, if we could get the right deal in Spain or in France, we would definitely explore that. And we are looking hard. Looking at both markets, France is a little bit complicated to get into, and we've been close a couple of times and haven't quite gotten over the finish line. But we continue to work on it, and continue to look very hard at Spain and have a variety of discussions in that market. So, we do think there is value creation in those markets and looking hard at ways to enter them.

I think on your third question was around the ability to export some of the successes we are having in Fashion, let's say from Italy to another market. What we have tried to do is to -- we spend a lot of time just trying to leverage best practices across markets, understand what the hot trends are and share those across markets, leverage vendors where we can. Although also very cautious that specific product styling and what works in one market doesn't always work in the other markets.

So, I won't say that there is -- I could point to a lot of the directly leverageable activity out of Italy into the other markets. But nonetheless, having a presence in Italy we think is a good thing. We've got a good partnership with Vogue in Vogue Italy, and I think developing a nice local supply base. And we would certainly hope that over time some of those local Italian suppliers we're developing in Italy will be attractive in our other markets, as well. But a little too early to read that, at this point.

What about the event program in Milan Fashion Week, in London Fashion Week? Are you actually showing them in the US now? I should know the answer to that, but unfortunately I don't.

We don't directly broadcast the Milan Fashion Week back into the US, on that specific one. Although we have tried over the last couple of years to get more global leverage out of our Fashion events. So Claire talked about the Red Carpet event, which was really extraordinary last week, with the kind of viewer excitement we had and the celebrity turnout we had. And we had our teams from Germany and Italy broadcasting from the red carpet, getting a lot of footage.

I think we will continue -- we haven't done it specifically on the Milan Fashion's Night Out, but I think we'll continue to look for ways to scale up these events globally and leverage the contact across markets. And we've had some early success doing so.

Great. Thanks, Mike.

Victor Anthony, Topeka Capital Markets.

During the prepared script, you talked about softness that you felt at the very end of the holiday season. Wanted to get an idea of what was that attributed to, and did you see a rebound as you headed into the first quarter? And second, if you could just discuss the results you are seeing from the WebSphere e-commerce platform that was launched in the US, Germany and the UK. Thanks.

On the end of the selling season softness, unfortunately, it was really a follow-on to the Newtown tragedy. We had extraordinary sales fall-off in the five days after the tragedy. And I don't know if there's something about us being in the Northeast and being in the midst of that, but it just really had an extraordinary impact on the psyche of our customers. I haven't, quite frankly, seen anything quite like it since October of 2008, in terms of the size and depth of the drop-off.

It was, as you expect, it was relatively short-lived and it lasted for about five days and then business was back on track. And so it was very much a unique thing and not in any way continuing. But it definitely came just as we're finishing our selling season, so it had a meaningful impact on the quarter.

In terms of WebSphere, pleased with the results. Claire can add some color on the US. But we have deployed that across Europe and the US. Germany has been the most significant beneficiary of it, because quite frankly, they had furthest need for improvement, the biggest functional gaps. And so we have seen a significant uptick in their e-commerce performance. Their increase in penetration rate has been about double the rate it was prior to the launch of WebSphere. UK, we are pleased with the results. It hasn't been as dramatic, but good initial results. Claire, do you want to add any color on the US experience?

Sure. We are very pleased that we had as smooth a transition as we did. We have a very large site and didn't make the complete transition until the end of third quarter. So, smooth sailing as far as that goes. What we're looking forward to is this was just to get it in and stabilize our very large e-commerce platform, which is done. And in '13, we are really looking forward to now pushing it forward. With enhancements, fine tuning, optimizing by category. So all of that work is underway.

Thank you.

And that does conclude the question-and-answer session. And that concludes today's conference. We do thank you for your participation today.