QVC Group Inc (QVCGA) 2013 Q3 法說會逐字稿

Good day, everyone, and welcome to the Liberty Interactive Corporation Third Quarter Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

Good afternoon.

Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Including statements about business strategies, the proposed creation of the QVC Group, and Liberty Digital Commerce Group tracking stocks, the proposed spinoff of our interest in TripAdvisor, 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, our ability to satisfy the conditions to both the proposed recapitalization and the proposed spinoff, competitive issues, regulatory issues, and continued access to capital in 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, we 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.

And with that, I'd like to turn the call over to Greg Maffei, Liberty's President and CEO.

Thank you, Courtney, and good afternoon to all of you. Today's speaking on the call besides myself we'll have Liberty's CFO, Chris Shean, QVC's CEO, Mike George, and QVC US's CEO, Claire Watts.

So we had a busy October. We repurchased over $300 million of LINTA stock. We announced our plan at our Investor Day to create Liberty Digital Commerce Tracking Stock, and rename the remainder of the group QVC Group. We've been pleased with the market reaction to those announcements.

Let me go on to the operating highlights. At QVC, we had strong US and UK results and continued growth in Italy. Results were negatively impacted by currency moves, particularly in Japan. And dot com penetration in the US for the third quarter rose to 41%, and in a very positive manner 32% of those orders were on mobile. We also launched our toGather social site at the end of September, and have seen good early results.

Turning to Liberty Digital Commerce. We experienced good revenue growth, 14%, at those businesses to be attributed to Liberty Digital Commerce which now excludes BUYSEASONS. Bodybuilding.com was up 27%. CommerceHub, while still small, grew 38%. We had mid-single-digit growth at Provide and Backcountry during off quarters for both of them. Their businesses are stronger either leading into the Winter season for Backcountry, or into the Mother's Day and Valentine's for Provide. Q3, as I noted, is a seasonal low point in profitability also for these businesses, which scale during their respective holiday seasons. And we continued to see declines as we invested heavily in those businesses.

Despite that, though, we saw improving trends throughout the quarter at Bodybuilding. And again, great growth in profitability as well as revenue at CommerceHub. And at Provide, operational changes and a resetting of our merchandise offering at RedEnvelope, impacted the quarter in advance of the more important holiday season.

Let me turn to Liberty Ventures, where we announced the plan to spinoff Liberty TripAdvisor Holdings, and affectively our control stake in TripAdvisor into that separate company. And we also invested $300 million in what we believe is an attractive solar project with Abengoa.

So let me turn it over to Chris Shean to discuss the financials.

Liberty Interactive Group's revenue increased 2% in the third quarter, while adjusted OIBDA was flat. QVC's net revenue on a consolidated basis, they increased 2%, while adjusted OIBDA increased 3% for the quarter. Liberty Interactive e-commerce businesses grew 7% for the quarter, while adjusted OIBDA decreased to a loss of $5 million. Revenue for the e-commerce businesses, as Greg pointed out, is seasonal due to the holiday seasons, which drive a significant portion of the revenue. The third quarter is generally lower than the other quarters, due to fewer holidays.

We saw improvement in revenue at all of the subs, other than by seasons. These increases were driven by marketing efforts to drive additional traffic, investment, and sight improvements, increased shipping charges, and broader inventory offerings. Additionally, the increased revenue was partially driven by selling product at discounts to continue to manage our inventory levels to what we consider to be more appropriate balances, which impacted margins at some of the companies. The decrease in adjusted OIBDA was the result of these lower product margins, increased credit card charge backs at one the subsidiaries, and a deleveraging of fixed costs at BUYSEASONS and RedEnvelope.

Now, let's take a look at the liquidity picture. At the end of the quarter, Liberty Interactive Group had attributed cash of $455 million, and $4.8 billion principal amount of attributed debt. QVC's total debt to adjusted OIBDA ratio, as is defined in their credit agreement, was approximately 2.1 times as compared to a maximum allowable leverage of 3.5 times.

Now, for more detailed comments on QVC, I'll hand the call over to Mike George.

Thank you, Chris.

We were very pleased with our results in the quarter, with consolidated revenue up 4%, and adjusted OIBDA up over 5% on a constant currency basis. We had a particularly strong performance in our US and UK businesses, continuous growth in Italy, and some stabilization in Germany, partially offset by softening results in Japan. In addition, our China joint venture, which is not consolidated, grew revenue over 50%, and reduced its adjusted OIBDA loss by over 40%.

We remain focused on delivering to our current and potential customers a compelling and highly differentiated experience, bringing together the worlds of entertainment, shopping, and social; and making this experience available in relevant ways across all of the screens and devices that our customers engage with. And Q3 was an especially active quarter in building out both our TV and our digital platforms. We launched Q PLUS, our second channel in the US, and QVC Style and QVC Extra, our third and our fourth channels in the UK, along with an interactive application on the UK's free view TV platform, where viewers can navigate to three of our specialty broadcasts within the same channel location. We added another 20 million high-definition homes in the US, bringing our total to 70 million. And we expanded our reach in the US to an incremental 7 million homes through over the air carriage. Along with the 6 million homes we added in China in Q3, our broadcasts now reach 290 million homes worldwide.

On the digital side, we launched our next generation iPad app in the US in July, and will be rolling that out to our other markets shortly. And Japan launched a new mobile optimized website last month, that we believe will drive further mobile adoption. We continue to innovate in the social space, most notably with last month's launch of toGather, a new platform featuring rich commerce and social features and deep integration with Facebook and other social networks.

Now these initiatives are contributing to strong growth in our digital platforms, with global e-commerce growing 12% in constant currency to 36% of revenue, a 3 point increase, and mobile orders growing 55% to $286 million. Almost one-third of our global e-commerce orders are now transacted on mobile devices, with both the UK and Japan near the 50% mark. And according to the latest internet retailer rankings, QVC is once again the second largest mobile commerce player in general merchandise retailing, trailing only Amazon.

We're also seeing healthy and balanced growth across all customer types. Sales for new customers grew 4% in constant currency, with particular strength in the US and the UK. Sales from existing customers grew 6%, and sales from reactivated customers grew 13%. And our customer loyalty remains high, with existing customer retention at 89%, unchanged from last year.

We also continue to focus on productivity initiatives in each of our markets. Now for example, we announced plans to consolidate our country based IT organizations in Europe into one regional and global team. And we made additional automation improvements to the outbound operations at our UK DC.

Now turning to the results by market, the US had a terrific quarter, with revenue up 5% and adjusted OIBDA up 9%. Accessories, cooking and dining, home decor, home improvement, health and fitness, and beauty all showed strong growth. And our e-commerce mix was up 2 points to 41% of total revenue. Adjusted OIBDA margins increased 86 basis points on improved product margins, due in part to the lower electronics mix and improved warehouse productivity and freight costs.

Looking at Japan, Japan had a difficult quarter. Revenue declined 1% in local currency, with softness in beauty and accessories; and a 205 basis point increase in return rates, due to a higher mix of fashion and a shift away from make-to-order jewelry which is not returnable. External pressures we believe are contributing to our sales shortfall including some challenges we've discussed on prior calls regarding our TV carriage position following the digital conversion. A mixed consumer spending environment, with luxury and durable goods appearing to capture a greater share of discretionary spend, and cost and pricing pressures, driven by the yen devaluation. Adjusted OIBDA margins fell 277 basis points, about one half of that decline is driven by a one-time step up in costs that we've talked about on prior calls. Including a fee increase on one of our major carriage contracts, and the cost of an additional hour of air time on a new TV platform. We'll anniversary these cost step ups by the end of Q1.

The remaining margin erosion reflects softer product margins and the higher return rate I mentioned, as well as increases in warehouse and freight costs, due in part to a drop in our average selling price, and a reduction last year in our incentive compensation accrual. We're pursuing a number of initiatives to improve performance in Japan, including strengthening our base business offerings, better managing return rates, pursuing additional carriage opportunities, strengthening our marketing programs to attract new customers, and tightly managing expenses. And despite these external pressures, we remain confident in the long-term health and growth potential of this business.

In Germany, our revenue growth was flat in local currency. While this is certainly not where we would like it to be, it does reflect an improvement over the difficult results in Q2. Return rates worsened by 170 basis points, but this rate of increase is also a moderation of what we saw in the first half of the year. Adjusted OIBDA declined 3% in local currency. There were a variety of one-time benefits and one-time expenses in the quarter, which in aggregate, largely offset each other. Including severance charges related to this IT restructuring that I've mentioned, and other organizational changes in Germany, offset by a reversal of the accrual we had taken earlier in the year in connection with additional taxes and Social Security contributions from a potential reclassification of certain workers.

We announced last month that Ulrich Flatten, who has been the CEO of our German business for the last nine years will be retiring at the end of the year. He'll be replaced on an interim basis by Steve Hoffman, who also serves as CEO of all of our European operations while we search for Ulrich's successor. We have a ways to go in getting the German business on the trajectory we'd like to see. But we do think we've made progress strengthening our commerce operations, and also managing costs aggressively. And we will remain focused on strengthening the business trajectory for the long-term.

The UK had an outstanding quarter, with their strongest revenue growth in over three years; up 7% in local currency, due in part to an improving economy, and also in part due to anniversarying last year's soft results during the London Olympics. E-commerce growth was also outstanding, up 34%; and mobile grew 115%, and now represents 48% of digital orders. Adjusted OIBDA grew 25% in local currency, with significant gains in product margins, improved warehouse productivity as we begin to capture the benefits of our outbound automation efforts, and greater customer service productivity. Partially offset by a higher provision for incentive compensation.

Italy continues to perform well, with revenue up 27% in local currency. However, the adjusted OIBDA loss remained at EUR4 million, same as a year ago. We continue to be encouraged by the strong response to our format in Italy, with the spend level and the purchase frequency of our existing customers in Italy similar to those of our more established markets in Europe.

We did see a softening from the revenue growth rate of the prior quarter for two primary reasons. First, in May, we had to replace some of our daytime selling air time with general entertainment programming in order to comply with anticipated changes in the TV regulatory environment. It's unclear at this point whether these regulations will in fact be implemented, and we may be able to restore our normal programming schedule at some point. And second, during the quarter, we shifted from our German DC to a third-party logistics provider in Italy. This is an important move for us that will improve delivery times to our customers, and lower our operating costs. However, it did create a modest shipping backlog at the end of the quarter, and we also incurred one-time costs for the transition that contributed to our OIBDA loss.

China had a great quarter, with revenue up 54% in local currency to RMB177 million or $29 million. And the adjusted OIBDA loss improved 44% to just RMB16 million or $3 million. We added 6 million new homes in the quarter, bringing our carriage to 67 million homes, and we continue to make good strides strengthening the product mix with several new International QVC brands introduced in the quarter. We also introduced the Today's Special Value concept on September 1st to strong customer response.

And with that, I'll turn it over to Claire to provide more color on the US business.

Thank you, Mike.

QVC US continues to remain focused on re-imagining the worlds of shopping, entertainment, and social as one; by offering our customers a unique curation of products and programming through our integration of broadcast, website, e-marketing, mobile, and our social platforms. We're delighted with our performance this quarter, as we achieved increased sales and margins in every category with the exception of jewelry and electronics. Return rates have continued to decrease over the prior year. We are pleased with the result of our efforts to engage new customers. Our count has increased to 7%, with sales to new customers increasing 9% compared to the prior year.

We continued to provide our customers with an ever-changing collection of interesting finds. Our home division generated strong results, particularly in cook, dining, home decor, and home improvement. The kitchen electrics and food business drove growth in this category, with standout brands like Vitamix, Master Built, KitchenAid, and Keurig. We're also encouraged by the early response to our preseason holiday assortment of decor in toys. We saw great momentum in our accessories business. Footwear and handbags generated strong results, driven by standout brands Clark, Bare Trap, Dooney and Borke, and orYany. And we're seeing positive results in our beauty business, with renowned brands such as Wen, Claire Sonic, and Josie Maren.

QVC Plus is providing our viewers with another place for us to share with our customers why we're passionate about our products. Since we launched in August, we're seeing a positive response to our second broadcast channel, which is now available to more than 27 million subscribers. We're enhancing our shopping experience by integrating our platforms. We created a new experience for one of our programs called Your Home With Jill, where we aired four pre-produced shows, and the program host Jill Bauer chatted with customers live on our social platform during the broadcast. Relevant content from the show was also available on QVC.com, mobile, tablet and e-mail. This integrated experience is driving viewership, and strengthening the connection that we have with our customers.

We're also extending the QVC brand beyond our own platform via partnerships with media properties. We've teamed up with TV phenomenon and self-made businesswoman Bethenny Frankel on her new talk show Bethenny. QVC lifestyle experts David Venable and Lisa Robertson will participate as guest contributors in 12 segments over the show's 22 week season. We're also partnering with Project Runway All-Stars airing October 24th to January 9th on Lifetime. QVC will be featured in every episode as the exclusive sponsor of the Accessory Wall, and Lisa Robertson will be a guest judge on one episode. And as part of the grand prize, the winner will create a collection to be sold on QVC and appear at our red carpet style broadcast from Beverly Hills in February. In September, QVC's Sprouts inventors were featured on the Today Show, and more than 21,000 viewers voted for their favorite products. QVC Sprouts helped find and develop the next big QVC brands by offering an entry path for vendors and inventors who may be too small right now to meet our on air productivity requirements.

These integration opportunities highlight our experts and the unique products in a relevant way, and increase our brand awareness by positioning QVC in places where new people might see and learn more about us. We understand social shopping like no other retailer, and we're finding innovative ways to bring like-minded people, discovering great finds together. As Mike mentioned, we launched toGather, a new social experience that brings the magic of what we do on TV every day into the digital space. This online gathering place helps us capitalize on the growing consumer trend of discovering interesting finds via social, and allows QVC to leverage our brand essence of real relationships on our digital platform. It is a community of passionate shoppers, sharing what they love.

We're also improving our service experience at every touch point. We've recently launched live chat in limited scope to help us understand where the customer may need additional support to make her purchasing decisions. We've found that customers who make fewer purchases than our core customers are utilizing this service. We have dedicated team members responding to questions our customers asked on social platforms, and we've made the returns experience more convenient for customers by expanding our home pick up service as we continue to look for ways to exceed expectations on service experiences that matter most to her.

We're also proud to share that we completed the second phase of our solar farm at our Rocky Mountain distribution center, that will provide this site with an alternative power source, as well as having significant environmental benefits. We now have over 17,000 panels generating 4.2 million-kilowatt hours, and this offsets approximately a third of the distribution center's power demands.

We're excited about the shopping experience we're offering our customers in the fourth quarter. In October, we celebrated 20 years of FFANY Shoes on Sale. Through our partnership with the Fashion Footwear Association of New York, we've donated more than $41 million towards finding a cure for breast cancer over the years. We broadcasted our annual Customer Choice Beauty Awards, which generated strong sales, viewership, and social engagement. Top YouTube beauty blogger, Emily Eddington, was the host of QVC's Behind the Beauty Live, the webcast component of the Customer Choice Beauty Awards, which garnered 2.5 million impressions. And last Friday, we broadcasted Celine Dion singing new music off her album Love Me Back to Life from New York City. This is her first English-speaking album released in six years, and we're thrilled that she debuted it on QVC with an exclusive product offering before it hit the streets.

As we look forward to the balance of the quarter, while the rest of retail promotes commodity gifts on price, our holiday brand campaign positions QVC as the destination for easy gifting. QVC provides shoppers with ready to give gifts, multiple gift sets, and gift collections inspired by our program hosts and shoppers. We're helping customers find the right gifts, while providing all the joy without the chaos that typically comes with the holiday shopping.

And with that, I'll turn it back over to Chris.

Thanks, Claire.

Let's take a quick look at the liquidity picture at Liberty Ventures Group. At the end of the quarter, the group had attributed cash and liquid investments of $1.5 billion, and $2.5 billion in principal amount of attributed debt which includes $596 billion of TripAdvisor's cash balances and liquid investments, and $376 million of their debt facilities. The value of the public equity method securities and other public holdings attributed to the group was $1.7 billion, and $947 million respectively at the end of the quarter.

And now, I'll turn it back over to Greg.

Well, thank you to Mike, Claire, and Chris. As I think you heard, we're pleased with the results for the quarter, and look forward to a strong finish to 2013. We appreciate your continued interest in Liberty Interactive. And with that, I'd like to open it up for questions, operator.

Thank you.

(Operator Instructions)

Trisha Dill, Wells Fargo Securities.

I just have a few, if I may. First, can you just isolate what you think were the biggest drivers of the improvement in QVC US and the UK? And whether or not you think those current trends are sustainable?

Claire, do you want to hit on the US?

So in the US, I'd say the consistency of performance across all of our merchandise categories, as we said with the exception of jewelry, we saw really strong performance across the board, and that's encouraging. Also, our distribution OTA was getting Q Plus out there, and OTA has helped put our signal in more places. And we continue to see improvements on our website, as we are refining our new platform and getting SCO back in to line. So it's really product mix, the mix of programming, and our distribution efforts that have made the difference in the US.

And I would say on the UK, I would love to tell you that the 7% growth is sustainable, but I do think we got a bump from anniversarying a very difficult August last year, given the distraction of the London Olympics. That said, I think we've done a number of things to improve the business, and I also think there's a general strengthening in the UK economy. So, I would expect that we can perform better than probably what we've been doing over the last 18 months. But not quite at the 7% level that does have a little bit of the Olympics impact in it.

Okay. Thanks. That's helpful. And then just wondering if you can comment on the inventory growth relative to sales growth during the quarter? It accelerated a bit versus the typical seasonal trend in 3Q. Obviously, this is just a snapshot of one day. But just wondering how you're feeling about inventory levels thus far in the current quarter.

Yes, Trisha. So in the US, I can tell you that it's a little bit of change in the timing of our receipts for the fourth quarter, because of some of the way that our calendar is built. I feel very good about the position that we're in, and that we will end the year where we need to be.

Okay. Great. And then just one quick one on the Liberty Digital. How much of the adjusted EBITDA decline was related to BUYSEASONS? I think you gave the revenue growth ex-that business, but just wondering how much it drove down EBITDA, as well.

$2 million.

Perfect. Thanks so much.

Barton Crockett, FBR Capital Markets.

I wanted to ask a question about the Liberty ventures tracking stock. The Abengoa investment that's 30% IRR that you talked to is very attractive. Could you give us a little bit more detail though about what that constitutes? Is that a 30% return on the net $100 million investment after you get $200 million back over the next 18 months to two years? And is that like $30 million of cash a year, or is it something larger than that 30% on the $300 million? It just seems like a very large return, and some color there would be helpful.

It is. And of course as you know, the danger with calculating IRRs is in this case particularly with much of it being tax- oriented a significant amount of capital comes back in the early days. Now, that's not exactly a problem, but it does not suggest that if you look at multiples of capital invested it's not going to be anything like looking at a $300 million average balance invested. And we're therefore not going to get a return on a $300 million number. Maybe Albert, do you want to add any color on this. Albert Rosenthal --

Sure. No, I think that that's accurate. And going forward, I think will be more in the $10 million to $15 million range per year going forward. But this was a very long investment. It has a long tail to it, and so we like the economics on it. And it fits well with our balance sheet. It's a good long return.

Okay. Great. I'll leave it there. Thank you.

Matthew Harrigan, Wunderlich Securities.

Firstly, I think you -- Inc. 5000 reported that Bodybuilding had, I think, $320 million in revenues last year. I know it's a pretty consistent 20% to 30% type growth rate. That clearly masks a lot of volatility in some of the under other underlying businesses. I think if you look at the value on that on some of the specialty retail and e-commerce comps, there maybe would be a good chunk of what the spinoff could be at prospectively coming out. But is there an argument for breaking this up? Is it a bit of a dogs breakfast in terms of the some of the businesses are performing really well? I know there are commonalities in the systems side and all that, but it just feels like there are some things that cancel each other out.

And then secondly, I know in the overseas markets the arrangements are a little bit different on carriage on the fixed percentage or fixed payment without having the benefit on the e-commerce savings that you get. Is that something that the MSOs are probably going to have to ask for in the US, as more and more of your business get lagged on more than 48 hours on air stateside?

Well Mike George, I'll let you handle the second question in a moment, but I'll try and take a cut at the first one. I think you're right to note that we have some very high growth businesses in the Liberty Digital portfolio, and then we have some which are in more challenged categories. I think in almost every case, we have a plan that we have confidence in that we're investing behind that can accelerate that growth in the ones that are looking at more challenged categories. We'll see how that goes.

That having been said, I do think that one of the benefits of the tracker is creating greater focus around this and greater opportunity for us to do some things in terms of partnerships or the like that will be more meaningful in the context of the Liberty Digital tracker side, and would have frankly been somewhat lost around LINTA.

So we're certainly aware of that. We're also aware that Liberty has been known to shift its portfolio over time, and in some of these we have pretty good basis and others we don't. So we'll see how it all plays out.

So, Matthew, on the carriage agreements, you're right that there's a variety of carriage agreements internationally. But probably on average, the somewhat higher -- probably the majority of those carriage agreements are fixed at some level. Fixed fee arrangements. Which gives you nice leverage when revenue is really strong, and some pressure when revenue is softer. So, it is a different kind of arrangement. And they don't get the same benefit the US gets, therefore, from the shift to e-commerce.

In terms of whether the US would move to more of that kind of an arrangement, we feel very comfortable with the arrangements in the US; and feel it's a very fair and balanced structure that rewards the carriage provider for driving sales on the broadcast, because anything we sell that's aired that day on any platform, they will get a commission on. And we've renegotiated some major contracts in the last couple of years, and have not changed that arrangement. So we don't anticipate any change in that fundamental structure in the US going forward.

And then I know I'm being bad in asking another question, but if you'll forgive me. If you look at Liberty, a lot of the D&A is just orchestrated toward your big swings, like your SiriusXM or US Cable. And when you look at the new International markets, you have the capital light model that you talked about, less of an investment than Italy. It seems almost counterintuitive that you wouldn't be more aggressive than one market every 18 months or so. Is that something that you could possibly change, or you're still just really, really looking at staggering things out like you said just a couple weeks ago?

We're gated by two factors in coming up with that kind of a timeline. One is, is the reality of really finding and structuring deals that we think are highly attractive, and these take an awful long time. And so, significantly accelerating that pace would imply that we're able to get these deals done on a much faster timetable. That can happen, but it's very opportunistic and very episodic.

So it's a little hard to predict the specific timing. The other thing we're gated by is just making sure that we can execute with excellence. And we do send a team of experienced QVC leaders into these new markets, along with hiring a lot of folks locally. And want to make sure we have the right people, the right systems, the right tools to execute at our level.

So, those are gating factors. Now I would tell you that we have worked hard to prepare ourselves that if we were so fortunate to get a couple of major deals over the finish line at the same time, we wouldn't shy away from doing two deals practically simultaneously. So, there's really some give and take on that broad timeline I gave you. But over some long period of time, I think that's a realistic assessment of the funnel of deals, as well as our capacity to execute well.

Thanks for your tolerance.

Tom Forte, Telsey Advisory Group.

So, the first question I had was, I think this was your strongest performance in the US for unit growth since the third quarter of last year. So to what do you attribute that? And then the second is, where do we stand on jewelry in the US? I know inflated gold prices have put a crimp in the results for a while. But what would it take to improve the results for jewelry in the US? Thanks.

So unit growth is really a function of our mix, a little bit of growth in some of our lower ASP categories, and also just a 5% top line. So that's what's driving the unit. Jewelry for us is still a work in progress. As a matter of fact, I'm just learning today that gold has really come down quite a bit, to your gold statement. So for jewelry, we have a team working on it. It's not an overnight fix for us, because it has been a pretty difficult business to reposition knowing how much of our business was in gold in the past. But we have a very strong designer business. We have a healthy costume business. We're beginning to see a little bit of a resurgence in some of the basics in the jewelry business. So we'll keep working at it, but it is a work in progress.

Thank you.

Jason Bazinet, Citi.

I have a question on Liberty ventures for Mr. Maffei. As we think about future investments that you might make adventures, and the size of those, how should investors think about it? Do we think about it as sort of the annual cash that will come in from QVC for use of your shield, or is it that plus whatever cash you have on the balance sheet?

Well I think, Jason, it tends more toward the latter. We have quite a lot of available cash, not only, I think, the $1.5 billion today but once we complete the trip Liberty trip spin, there will be an incremental -- some incremental money coming across that has to cycle through. But effectively, we'll add another $350 million, so there's quite a lot of available cash. I think we'd be disappointed if we were only able to invest the amount of the shield.

And if you can just give us --

That having been said, we barely invested the amount of shield to date. So I'll acknowledge we've been failing.

Okay. But if we were sitting inside your planning room there, is there like a list on the wall of 36 investments and you're just picking one or two that seem extraordinarily attractive, and there's lots that are out there? With (multiple speakers) IRRs?

No. I think we are we have two main thrusts. We have got a couple of people who are focused on and looking at some of these green tax oriented investments, and you've been hearing us chip away at those. None of which, though the Abengoa one is large in initial capital because of the quick return of enormous amount, none of it is an enormous amount of capital being held constantly invested. And then we have a broader corporate development team, which is looking probably more at things that are more traditional for Liberty, lots of, as I said, distribution kinds of assets and content assets. And I think they're probably 10 names in-house we're discussing at any one time, with varying degrees of interest and varying degrees of development.

Okay. Thank you very much.

Victor Anthony, Topeka Capital Markets.

Question on your commerce group. As I look to try to value the asset post the spend, maybe you could help me out or help us out with the one, two, three revenue growth trajectory for these businesses as a whole, as well as a margin expansion. And also, out of the five major businesses, which ones are you most excited about along the lines of revenue growth and margin expansion? And has anything changed from a capital structured perspective since the Analyst Day? Thanks.

I'll take the easy one first. I don't think we've anticipated any change that we announced, but we were going to seek a $250 million credit facility, of which roughly an average balance of about $60 million would be drawn, and I still think we believe that. As far as which businesses we love, that's like the one about all your children. You're reluctant to say which one you like, even if at one moment or other they're making you less or more happy. That having been said, just as a practical matter, the fastest growth assets in there have been CommerceHub and Bodybuilding over the last several years. And I don't think that's going to change.

I think there are plans -- good investment plans that provide around RedEnvelope. There are good and we've got some plans around Backcountry, but unfortunately some of Backcountry's results are going to be impacted by weather. Let it snow early, let it be cold early in San Francisco, New York, LA, that will make us very happy. And then, BuyCostumes, we're in probably in the toughest of somewhat of a turnaround mode. And I think the management there has got a good plan, but it's probably the toughest space. As far as the overall growth rates, I think we've been looking at numbers which have been averaging sort of mid teens plus, and I don't think that's an unrealistic set of assumptions. It could get better, but that's probably a conservative set.

Okay. Thank you.

Carla Casella, JPMorgan.

You had mentioned that returns had picked up a bit internationally. I'm wondering if it's dramatically different in one geography versus another. And if it is just mix related, or there could be any changes you're making to design?

It's certainly concentrated in two markets, Japan and Germany. So that's really where we've seen the return rate pressure. I would say it's largely mix related. There are some specific anomalies. For example, in Japan, we had built a large business on make-to-order jewelry. We've decided to reduce that in the mix, because it's not a great business for attracting new customers. But it had the benefit of not allowing returns. So when you shift that to a returnable business, you see a one-time pop in return rates.

So we have I would say it's largely driven by growth in the fashion businesses in Germany and Japan by this change in jewelry. And I would say we've had some quality issues that we need to pay more attention to. That's a minority of the issue. But I think there's been some things that we could have done a better job of either in terms of quality control or how we present and describe the item on air. The teams are working aggressively on all those fronts. While the returned rates are still up in jewelry, the rate of increase has moderated. And I think we'll start to see these numbers normalize next year. But we've had a few quarters now where we've seen this bump, mainly mix driven.

Okay. Great. And then just one credit question, given our markets are generally strong in the credit markets and all the transactions you have contemplated, do you expect to come to the market any time on the credit side?

This is Greg. I think we're not going to tip our hand. But as we've expressed, our long-term our desire and belief that these are attractive markets, and we will be opportunistic in seeking situations to extend our maturities at attractive rates.

Okay. Great. Thanks.

So with that, operator, I think we're done. Thank you very much, everybody, for your continued interest in Liberty. And we look forward to speaking with you next quarter, if not sooner.

And that will conclude today's call. We thank you for your participation.