QVC Group Inc (QVCGA) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the Liberty Interactive Corporation quarterly earnings conference. Today's conference is being recorded. At this time I'd like to turn things over to Ms. Courtnee Ulrich, Vice President of Investor Relations. Please go ahead, ma'am.

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

On today's call we will discuss certain non-GAAP financial measures including adjusted OIBDA. The required definitions and reconciliations, preliminary note and Schedules 1 through 3 can be found at the end of this presentation. Now, I like to introduce Greg Maffei, Liberty's President and CEO.

Thank you, Courtnee, and good morning to all of you out there. Today, speaking on the call besides myself, we will have Liberty's CFO, Chris Shean; QVC's CEO, Mike George; and QVC US's CEO, Claire Watts. Now, onto the highlights.

QVC had solid results for the quarter led by the United States. Notably, in Q1 dot-com penetration in the US was at 42% with 27% of that being mobile. It's a great testimony to how the business continues to evolve and work on increasing number of platforms. Notably, our eCom group got back on track with OIBDA growth of about 15%. We significantly ramped up our purchases of LINTA, buying $267 million of stock, and we had lots of activity on the debt side with both QVC and Liberty Ventures undertaking refinancings and financings. Chris Shean will talk more about those in a second.

A little more on Liberty Ventures. TripAdvisor posted strong results yesterday. Across the board, robust metrics, amazing growth in traffic on a global basis. With that, let me turn it over to Chris Shean to talk about our financials.

Liberty Interactive Group's revenue increased 5% in the first quarter while its adjusted OIBDA increased 4%. QVC increase net revenue by 2% for the quarter and adjusted OIBDA increased 4%. Liberty Interactive other eCommerce businesses grew revenue 20% for the quarter while its adjusted OIBDA increased 15%.

Let's take a quick look at the liquidity picture. At the end of the quarter, Liberty Interactive Group had attributed cash of $587 million and $4.7 billion in principal amount of attributed debt. QVC's total debt-to-adjusted OIBDA ratio, as is defined in their credit agreement, was approximately 1.95 times as compared to a maximum allowable leverage of 3.25 times. QVC has been very active on the debt side. It refinanced and extended its credit facility while improving the pricing and its terms. It redeemed the full amount of the 7.125% senior secured notes due 2017, some of which happened post quarter, tendered for a portion of the 7.5% senior secured notes due to 2019, and issued $750 million in 4.375% senior secured notes due 2023, and $300 million in 5.95% senior secured notes due 2043. All these actions resulted in significantly decreasing the weighted-average cost of debt and increasing the average term of the debt.

With that, I will handed over to Mike George for additional comments on QVC.

Thank you, Chris. We were very encouraged with our results in the quarter, highlighted by strong performance in the US despite the weakening retail environment, return to positive growth in Germany, and the continued ramp up of our newest businesses in China and Italy. We grew consolidated revenue 2% and adjusted OIBDA 4% in the quarter with a 14% decline in the yen creating significant pressures on our dollar-denominated results. On a constant currency basis, however, our revenue increased over 4% and our adjusted OIBDA increased 6%. In addition, normalizing for the impact of leap year in 2012, our sales would have been around 1% greater. Our eCommerce revenue worldwide increased 15% on a constant currency basis to over 36% of revenue, up from 33% a year ago. Mobile continues to grow at a rapid clip, up 78% worldwide in constant currency to 28% of eCommerce orders.

We saw a particularly strong growth globally from our existing customers as well as customers that we reactivated in the quarter with sales up 4% and 9% respectively on a constant currency basis. Total sales growth from new customers was flat with positive results in the US, Germany, and Italy, primarily offset by continued softness in Japan. Our retention rates across all customer types remains strong, basically unchanged from prior quarters.

Now turning to the results by market. The US increased revenue 5%. As noted earlier, our growth would have been closer to 6% normalizing for the leap year impact. The improved growth rate was driven in part by a rebound in the consumer electronics business, especially the tablet category, along with continued strong growth in beauty. While beauty and electronics were particular standouts, we also saw positive growth in fashion, in cook, and in home improvement. Our eCommerce growth accelerated, up 13% to 42% of revenue, a three-point improvement. Mobile growth remained strong, up 95% in the US and that represents 27% of total US eCommerce orders.

Adjusted OIBDA grew 8% to 22.4% of revenue, a 67 basis-point improvement in OIBDA margin. Contributing to these gains were improvements in warehouse and freight costs and lower inventory obsolescence as we continue to focus on controlling the level and quality of our inventory. Our operating costs were relatively stable with benefits from the release of a franchise tax accrual and also anniversary in last year's severance charge related to the downsizing of the Contact Center largely offset by a higher bonus provision.

In Japan revenue increased 3% in local currency with strength in fashion, beauty, and electronics, partially offset by softness in the home categories. While on solid results overall, this is below our recent trend due in part to higher return rates in fashion and jewelry and a few programming events that missed our expectations. However, we believe these were isolated issues and don't reflect an overall weakening in the business.

We achieved an important milestone on April 1 when we began broadcasting from QVC Square, our new headquarters, studio, and call center. We completed the transition without any operational issues, and we are already seeing a very positive response from our viewers and customers to the new look and feel of our shows, a significant upgrade from our old studios.

Our adjusted OIBDA in local currency was flat in the quarter. As we discussed on the Q4 call, we are incurring approximately JPY360 million, or about $4 million, in duplicate and incremental operating costs in 2013 associated with our move to QVC Square. In Q1, these costs totaled approximately JPY240 million. Adjusting for these one-time impacts, our OIBDA would have grown 5% driven by improvements in freight, lower inventory obsolescence expense, and fixed cost leverage, partially offset by an increase in one of our carriage contracts.

In Germany revenue increased 1% in local currency. Our fashion businesses returned to strong growth, and we saw continued strength in beauty and in consumer electronics, partially offset by softness in jewelry. As we discussed on prior calls, we have really been focused in Germany on freshening our product assortments and reducing promotional activity. In Q1 we saw a significant increase in the number and the performance of new items, an increased in the mix of business at regular price and a reduction in the mix of Easy Pay. We also saw 12% increase in revenue from new customers. We think these efforts are paying off. We are pleased to see the business back on a positive growth track after four quarters of sales decline.

We are also seeing outstanding growth in eCommerce in Germany, up 36% driven by positive customer response to our new global eCommerce platform; eCommerce now represents 21% of revenues, up from just 15% a year ago. While our mobile programs in Germany are in their infancy, we are delighted with this strong start. With mobile up nearly 400% in the quarter, it now represents 10% of total eCommerce orders. We also relaunched our Beauty Channel, converting the format to a broader, fashion lifestyle concept and saw an immediate lift in sales. One downside to the quarter, our return rates to increase 266 basis points, which offset some of our sales gains. About 160 basis points of this increase was driven by changes to prior period estimates based on actual experience with the remainder primarily caused by higher return rates in the quarter in electronics and jewelry.

Adjusted OIBDA declined 7% in local currency, principally due to an accrual we made in connection with additional taxes and social security contributions that are expected results from the potential reclassification of certain workers. If we exclude this accrual, adjusted OIBDA would have increased 1%, right in line with our revenue growth.

In the UK, revenue grew 1% in local currently with gains in home and beauty largely offset by a reduction in our jewelry business as we ship at air time to more productive categories. The overall UK retail market remains weak and we'll stay focused on adjusting our product mix and our air time as needed to optimize results in the face of a rather sluggish consumer spending environment. We also experienced some weakening in our adjusted OIBDA margins, down about 70 basis points, those driven by increased mark-down activity to clean inventories and some inventory FX related losses due to the decline in the value of the pound. We also have some severance costs in the quarter related to ongoing efficiency initiatives.

We were delighted with our performance in Italy with revenue up 90% in local currency to EUR23 million and the adjusted OIBDA loss declining to EUR2 million at the 67% reduction over the prior year loss. We continue to be encouraged, as we have been on past calls, with all the fundamentals that are working so well in Italy, good growth in new customers, strong, sustained, repeat-purchase activity from existing customers, balanced performance across most product categories, strong and stable product margins, and very limited promotional activity. We are especially encouraged that the team is able to continue driving these kinds of gains, in spite of what continues to be a very difficult and uncertain economic and political environment. Given the strength of the business in Italy, we did make the decision to transition product distribution from our German DC to a third-party logistics provider in Italy. This transition will occur over the summer and fall. When completed, it will reduce our delivery time to our Italian customers by three days and reduce our fulfillment costs by about EUR3.5 million in 2014.

Finally, we are also very pleased with the continued strong performance of our newest market, China. Our CNR Mall joint venture increased revenue 39% in local currency to CNY166 million, or about $27 million. The adjusted OIBDA loss declined 41%, at CNY7 million, or just over $1 million. In addition to the strong financial results, we are encouraged by our progress working closely with our CNR partner in implementing core QVC disciplines in merchandising, planning, programming, broadcast, and other key areas. We continue to expand our carriage footprint, now reaching 52 million homes, up from 48 million at the end of Q4.

We've also been working hard to introduce our top, global, QVC vendors to China, because we feel that product differentiation, providing our viewers access to leading international brands will be key to our success. We are pleased to report that in April we premiered our first global brands on CNR Mall, including KitchenAid, Vitamix, and Honora jewelry among several others. We anticipate premiering upwards of 20 global brands in Q2 and another 25 in Q3. We're currently introducing over 40 new items to our viewers every week, a significant acceleration from a year ago.

Now I will turn it over to Claire to discuss the US results in more detail.

Thank you, Mike. QVC US generated strong results in Q1. We continue to make good progress on our efforts to enhance the real relationships we have our customers and provide a unique shopping and service experience across all platforms. We are elevating our content by offering our customers compelling and engaging products and programmings on our broadcasts, website, and mobile platform. As Mike mentioned, our electronics business generated solid results, particularly from stand-out brands Apple, HP, Samsung, and Bose. In our home division, we saw a positive response to our garden offerings in conjunction with Celebrate Spring, the garden special event. Our 24-hour Cooking on Q event generated strong performance from a number of brands, including Temptations, KitchenAid, Keurig, and George Foreman.

We saw great momentum from our beauty and fashion businesses. Stand out beauty brands included Wen by Chaz Dean, Tarte, Dr. Denese, Tree of Beauty, IT Cosmetics and Philosophy. Our Spring Fashion Day event featured best-performing apparel and accessory brands, Isaac Mizrahi, Orthaheel, Dooney & Bourke, and Denim & Company. In March, we kicked off the third season of the Lisa Robertson Show. We are seeing customers increasingly engaged with Lisa on multiple platforms, particularly tablet and social. Our QVC app features an interactive experience with various looks from the show and video content of interviews with fashion designers and style experts. Lisa also encourages her fans to join in the conversation on Facebook throughout the live show. As our experience with Lisa shows, the real relationships our host have with our customers translates very well from the live broadcast into our social platforms. Adding the social dimension not only enhances our connection with the customers, but we are seeing our social sales grow as a result.

Across the board, our eCommerce business is accelerating. Recently, Liberty Interactive, of which QVC is a primary component, ranked fifth in the Internet Retailer 500 guide up from seventh in 2012. We are seeing our mobile growth trend continue, as Mike mentioned, and we continue to focus on optimizing the shopping experience on Cabot Web, which remains our fastest growing portion of the mobile portfolio. Through QVC Sprouts, an ongoing program in search of the best up-and-coming products from inventors and entrepreneurs, we continue to cultivate innovative products customers won't find anywhere else. Since the program launch this year, we've received more than 100,000 votes from customers on their favorite products. Currently, we have 48 QVC Sprouts' active items on QVC.com. Recently five of these innovative new products made their on-air debut generating solid results.

We are improving our customer experience at every touch point. We have dedicated team members, responding to questions our customers ask on social platforms. We continue to enhance our customer service communications and support after the purchase. We are creating efficiency to improve speed of delivery of our products to our customers. In the second quarter, our customers have continued to respond to our unique shopping experience. In April, QVC partnered with Cosmetic Executive Women, CEW, to launch our first ever Beauty with Benefits, a new multimedia event in support of cancer and careers. The event included some of the leading brands in beauty and was part of QVC's ongoing commitment to support causes that promote success and wellness of women through the power of relationships. Our upcoming events, including the launch of Lifestyle expert, Jill Martin's Minute Closet Makeover, our special Mother's Day programming, and A Day of Vicenza Style will undoubtedly help our customers make the most of the summer season.

With that, let me turn it back to Chris.

Thanks, Claire. Let's take a look of the liquidity picture for Liberty Ventures, now. At the end of the quarter, the Ventures Group had attributed cash and liquid investments of $1.7 billion, and $2.8 billion in principal amount of attributed debt, which includes TripAdvisor's cash as well as their $391 million debt facility. The value of the equity method securities and non strategic available for sale securities attributed to the Group was $1.8 billion and $1.9 billion respectively at the end of the quarter. In January we announced the full redemption of the $414 million of our 3.25% senior exchangeable debentures. This transaction closed in March.

Post quarter end, we announced our plan to redeem the full 3.125% senior exchangeable debentures due 2023. In connection with this plan redemption, we issued $850 million of new senior exchangeable debentures due in 2043, with an interest rate of 0.75% with an underlying basket of Time Warner and Time Warner Cable securities. We also sold and are selling some Time Warner and AOL shares to cover the remainder of the debt retirement. Once completed, we will have reduced the debt on our balance sheet by over $1 billion, raised a small amount of net cash, and will have done all of this in the tax neutral fashion.

Now, with that I will him call back over to Greg.

Great. Thank you to Mike, Claire, and Chris. As I said earlier, we are pleased with the results of our quarter and the performance of our operating management teams. We appreciate your continued interest in Liberty Interactive. With that, operator, we will open it up for questions.

(Operator Instructions)

Jason Bazinet, Citi.

I just had a question on Liberty Ventures. I think it was last year that you ended up selling 8.5 million or so of the Trip shares, and then turned back around and bought the super votes of Trip, which led to the consolidation this quarter. On Expedia, I think you sold 12 million shares at $34. It just feels like there is a second chapter to that story. I didn't know if you could share what was behind the original Expedia sale, and what, if anything, can we look forward to, be it this year or next? Thanks.

Well, as I think you rightly noted, we changed our position on Trip largely because we had an opportunity to move into a hard controlling consolidation, and that was appealing. We had previously sold the high basis shares. We didn't see a path. When the path changed, our process changed.

At Expedia, I think you saw a little bit of the same. It was, in hindsight, an ill-timed sale, but it was high basis shares that we sold for liquidity. And because we didn't see a path there, there is clearly some other chapter to be written to Expedia. Can't say what that's going to be yet -- don't know what that's going to be yet. That is the opportunity for ventures.

Is there a few high-level options you could outline in terms of paths?

Well, maybe there's a potential to do some kind of a 355 transaction there. We've done 355s in other holdings we've had. Maybe there's the potential to arrange a purchase of the shares -- of the control shares back, or return the proxy back as we did at Trip. Maybe there's the potential to do a tax efficient exchangeable into the base of the other remainder of our shares. Those are three options that Liberty -- would be very Liberty-esque -- any one of three.

Very good. Thank you.

Ben Mogil, Stifel.

I know you talked about the 100-basis-point benefit from the leap-year benefit. Can you give us a sense of what the benefit was, or the better benefit, if you will, from the Easter holiday coming in 1Q versus 2Q last year?

Generally speaking, unlike traditional retail, we don't really have a meaningful impact from Easter, so typically, timing of Easter is not a real material driver of our performance in the quarter.

Okay. Then, looking at Japan specifically, obviously the currency has been highly volatile there of late. Even leaving aside the same-currency or constant-currency situation, when you just look at the currency as it impacts your business in constant currency, can you talk about that? Should we be seeing COGS be going up in that market just by virtue of the fact that you are buying, I'm guessing, from China vis-a-vis US dollars, if you will?

So far, we haven't seen any impact, and we don't anticipate it, largely given the structure of our business, although I don't know that we can totally rule it out. Keep in mind that, unlike our other markets, most of our inventory is on consignment, and so the way we work in Japan is we work with a number of Japanese agents and vendors who are procuring that inventory on our behalf. All of our financial transactions with those Japanese vendors are in yen. In that sense, we are neutral. Maybe if there is some cost pressure at the source, that will eventually impact us, but so far we are really not seeing any significant in-country impact from the devaluation of the yen.

Thanks. Just the last question -- on the MSO agreements domestically, are you seeing no real change in pricing, et cetera? Is it steady as she goes?

Yes, it's very steady.

That's great. Thank you very much.

David Gober, Morgan Stanley.

Mike, you mentioned that Easter didn't have a material impact on QVC, but, Greg, I think in the press release there was a mention of the eCommerce businesses. I am guessing that was ProFlowers that saw a benefit? Is there any way you could quantify what that impact was? Obviously, there was some -- a fairly marked improvement in the eCommerce businesses in 1Q. Do you think that is sustainable over the remainder of the year?

I don't think we could quantify -- I don't have that at hand, to the ProFlowers one. In the context of Liberty Interactive, it is not a material number. Clearly, there is some benefit, and Easter is a distant one-third of their holidays in terms of attractiveness, obviously behind Valentine's Day and Mother's Day.

I think if you look at the broader question about our eCommerce companies, I will wax for a little bit here. We have -- CommerceHub is on a continuing strong trend. Bodybuilding has had great top-line growth, and continues that. Sometimes they have had some margin issues around promotions and around their vendors, but in general, the growth has been sustained and strong over the last few years.

Then we've had three businesses which have had either some challenges or are in transition. We have new management at Provide that is, I think, reigniting and exciting consumers around gifting, and around differentiating some of our gifting capabilities. I think that's beginning to take hold, and you are seeing some of that in the good results that Provide had in Q1. There's more opportunity there, frankly, around RedEnvelope.

Some of the other softer elements outside of flowers -- flowers is a pretty competitive category because there are three big players. But some of the other areas are outside of competitive flowers like gourmet foods -- they are doing an incredibly good job. There's opportunity around personalization with PersonalCreations, where we've made good progress, but more ahead.

Looking at Backcountry, I think they have largely been a victim of poor winter weather. They have a better start in terms of revenue this year, still some margin pressures because of release of prior-year goods, not just with us but in the industry, and great progress in some of their ancillary categories like cyclists and BMX gear. I think we feel very good about the progress at Backcountry. Pray for cold, early, winter weather, and we will have good results.

Then, the one that has had the biggest challenge has been Celebrate. Largely around some of our -- a more competitive environment in costumes and party supplies created by excess space in retail malls across the country, and new strong competitors. Also, definitely some self-inflicted wounds in terms of marketing, in terms of the website access, in terms of, to some degree, merchandising and, therefore, site conversion. I think we have a new CEO there who is undertaking an aggressive plan to improve that business, and I'm confident we are on the right track. Not easy. Clearly, the one with the biggest set of challenges. But if you look at the portfolio overall, all of them feel like they are headed in the right direction this year compared to last year.

So, Greg, having said that, could you maybe wax a little bit on the strategic positioning of those assets? I know in the past there's been some thought and discussion around potentially spinning them off. It feels like the benefits that may be cross-pollinating with QVC likely would have taken hold by now. Do you think that makes sense over time, given that those assets feel like they are on better footing this year?

We always look and think about different alternatives. I'm not sure that Group is ready to be a separate public company, to be perfectly honest. They are not capitalized, their infrastructure -- behind that is not there. But we certainly look and think about ways that we could highlight the value there, which, in general, barring '12, has been excellent. Stay tuned, and we don't have a plan yet, but stay tuned. I'm sure something will arise.

Great. Thank you.

Tom Forte, Telsey Advisory Group.

I wanted to talk a little bit about QVC and consumer electronics. It looks like you had a rebound in the quarter, which you attributed to strength in tablets. Do you think that is sustainable? Can you talk a little about the relationship between new client growth and consumer electronics sales? Thanks.

Claire, do you want to take that one?

Yes, I certainly will, Mike. Yes, our electronics business did recover in the quarter, very strong performance, led by tablets; our camera business was also quite good. We feel good about tablet continuing to be a strength for QVC throughout the year. It is, as we've mentioned, our fastest growing platform. It's a vehicle that our customers really enjoy, so we do feel good about that.

Then, yes, the performance of new names we are pleased with, and certainly the spend. Electronics is a huge driver of new names for us, and the spend comes with it. They are definitely tied.

Thank you.

Trisha Dill, Wells Fargo.

You saw nice acceleration in QVC.com relative to Q4. How much of that do you think was related to the new WebSphere platform? Do you have any data or metrics to support that, maybe time spent on the site per user or improved conversion? Or maybe there's something else you can comment on in terms of what's driving this acceleration?

Then, just as a follow up, can you elaborate on any plans for QVC.com for the rest of the year, and anything we should expect to see new there?

Yes. This is Claire. I will answer that for you. For the US, we did see our eCommerce, particularly QVC.com, build throughout the quarter. It is -- every time you put in a new platform, there are a number of things that you work through to get it completely stable and to optimize it. We continue to work at that every single week, and we've seen that performance increase.

We see that through metrics. I'm not going to quote the time on site, because we haven't, but definitely in our core performance metrics, we do see improvement, and we know that it is from refining the capabilities on the site.

As far as the rest of the year, it's the same plan. We are going to be working every week to find any last-minute bugs, and we have a long list of enhancements that we'll continue to roll out -- on the shopping experience and on the service side for the site for the rest of the year.

Great. And if I could just ask one more? In terms of the international business, just wondering if, so far in Q2, you are continuing to see stability there in terms of local currency trends, or if you've seen any real change in trend in April or May?

We typically don't comment on in-period performance. I won't comment on any specifics related to our international performance. I think the economic outlook in the markets we operate in, and the consumer spending environment feels relatively consistent with Q1, so no obvious significant changes in the external environment.

Great. Thanks.

Barton Crockett, Lazard Capital Markets.

I was wondering if you could update us on shipping and handling, which was add one at the top line at HSN, a tailwind for you guys last year, a headwind the year before. What do you see now?

Claire, you want to cover the US?

Yes.

Yes. From the US perspective, our shipping and handling remained flat for the quarter. In other words, we did not have any additional promotional activity. So, we are seeing the same thing that we've seen in the past. There are certain categories, from a competitive standpoint, that we will participate, but for the most part, we are driving all of our levers of activity around value to drive customer purchase. We are keeping our shipping and handling as just one of those levers, but we have not expanded it in the quarter.

Okay. And if I could ask a follow-up question? Any comment on what the implementation of an internet sales tax could mean for you guys, if that were to be passed?

Well, we are --

It depends -- when you say you, it's a breadth of companies inside Liberty. If you look on the margin, I mean, QVC is the largest element, as Mike was going to say, is already collecting that sales tax. But there are other companies that we have, and not all of them are collecting sales tax in all venues.

Okay. So, it feels modest within eCommerce mainly?

Yes.

Okay. Thank you.

Victor Anthony, Topeka Capital Markets.

A question on the mobile percent of total eCommerce in the US, and I guess, globally. Maybe you could talk to the differences you are seeing on the mobile side in terms of the product categories that are being pushed through the mobile side?

Also, are you seeing -- are most of these sales tablet sales? Or what percent of your sales are you seeing through smartphones?

Claire, can you take that?

Yes. In the US -- answer your -- two parts of your question. The first part is, as we've talked about before, we do see a different behavior coming through the mobile phone versus tablet. Mobile phone, for our customers, predominantly is an ordering mechanism, and to check in on the TSV, Today's Special Values, or to check in on the things that they are looking for on programming for the day. So very, very different behavior than what we're seeing from the tablet. The tablet is definitely a second screen; it's a companion activity. It's browsing, it is shopping, it is social in nature, and it is a very, very enjoyable platform for our customers.

We don't give out specific percentages, but we have quoted a number of times that tablet is the fastest-growing part of our portfolio. That is across the board, whether it's sales, sessions, customer growth. For us, the tablet is the most important device at this time, although I will tell you, our apps and our mobile phone are doing very, very decent business as well. But tablet is number one.

Thank you.

Matthew Harrigan, Wunderlich Securities.

Two distinctly unrelated questions. On Ventures, I think you said at the investor conference last year that you could avoid as much as $7 in tax leakage if you are really fast all in addressing those Time Warner exchangeables. Do you feel like you've accomplished that pretty much in its entirety?

Then separately, on China, I mean, you've got a little bit, I guess D&A from the CNRS before Q was involved, but you really are starting on a blank slate in terms of how you approach that market. Obviously, it had some cultural quirks. Can you talk a little bit more about ASPs, what categories are working, how social media ties in, in that market, the popularity of luxury goods? Obviously, the European makers are very big in that market. Are you getting companies that are approaching you to work with you in China that aren't even that engaged with you in some other markets?

Matt, this is Greg. On the TWX exchangeables, that $7 still sits out there. We have obviously had, as we noted, had no leakage in the transactions that we did to date. That opportunity still sits ahead to defer that or avoid that potentially, we'd like to think, forever.

Great.

And on China, I'd make a few observations. It's interesting, I think in the pre-QVC involvement, the business actually looked not unlike home shopping businesses looked in the US many years ago, including the early days of QVC. The strongest categories were collectibles and jewelry, which is really how QVC started. We are, in a very careful way, reducing those businesses in the mix, and putting a much bigger focus on beauty, which is one of our strongest businesses worldwide. We have been encouraged -- while it is still a small part of the mix, we've been encouraged by the early acceptance of beauty. We have seen just enormous growth in the kitchen area, which is also, probably right after beauty, one of our consistently strongest categories around the world. We are starting to introduce what I would categorize as actually a more traditional QVC mix, and it appears that that is working, although that certainly won't happen overnight.

In terms of the luxury goods side of it, we really haven't pursued that. We don't want to rule out anything, but our focus has been more on taking those global QVC brands, some of which I mentioned earlier, that we know that those brands know how to work and be successful in our kind of shopping environment, and try to get those to our consumers in China. That has been our highest priority from a product mix standpoint. We're pretty confident that will work.

It's interesting, we are actually seeing in China the highest ASP -- to get to your price question -- the highest ASP of any country. They are selling high-ASP product. Again, that little bit reflects this historic focus on collectibles and jewelry. We think part of getting sustained growth, and most importantly, getting higher repeat-purchase rate, which, of course, is how the QVC model is built, will come from probably on the margin starting to bring those ASPs down to be more in line with our other markets, and have the product mix also be more in line with our other markets.

What about the social media aspect over there, which has to be pretty entertaining, to say the least?

At this point, we are actually not that engaged in social media, nor do we -- are we doing a lot of web-based business. We do have a website, but we are not doing significant business on the website. I would say those are more to come. Our focus right now really is on the blocking and tackling of a really great classic TV experience.

Thanks, Mike.

Ladies and gentlemen, that does conclude today's Liberty Interactive Corporation quarterly earnings call. We do thank you all for joining us.