QVC Group Inc (QVCGA) 2013 Q4 法說會逐字稿

Good day everyone and welcome to the Liberty Interactive Corporation fourth-quarter conference. As a reminder, today's conference 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 ma'am

Thank you. Good morning. 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 product 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 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, we will discuss certain non-GAAP financial measures including adjusted OIBDA. The required definitions and reconciliations, preliminary notes, and schedules one through four can be found at the end of this presentation. And now I'd like to introduce Liberty's President and CEO, Greg Maffei.

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

On to some of our highlights. At Liberty Interactive, QVC reported strong US and UK results, and also some growth in Italy and China. Results were more challenged in Japan and Germany. In Q4, dot-com penetration in the US was 45%, and impressively 32% of those orders were mobile. During the quarter we also repurchased -- rather, from November 1 to January 31, 2014, we repurchased $309 million worth of LINTA shares, and for the full year 2013 we repurchased $1.1 billion. Yesterday the Board of Directors of Liberty Interactive voted to increase the stock repurchase authorization, effectively a reload by $1 billion.

At our Digital Commerce companies we experienced mixed results for the quarter. We had continued success at Bodybuilding and CommerceHub, and challenges in some of our other units; Chris Shean will talk a little bit more about those. At Liberty Ventures we were very pleased with the results at trip TripAdvisor and Expedia, both have had good operating results and good success in the stock market.

Today also at Liberty Ventures we're announcing a two-for-one split. This is driven by a need to comply with a NASDAQ listing requirement for the minimum number of publicly held shares of our Series B stock. For your information, the minimum is 100,000. We are at 80,000 that are not held by insiders.

To regain compliance and keep those Liberty Ventures B shares listed, we are going to split the B shares. We would like to have split the B shares, but due to charter requirements, Liberty's charter, we're also required to split the A shares. So we're going to split both. We expect that split to be effective in early Q2 and we'll go forward with that.

Regarding our previously announced recapitalization of Liberty Ventures and the tracker at Liberty Digital, we have not changed our plans but the timing is running a little behind. We probably will not get this done until Q3, and as usual, blame it on the lawyers. With that, let me turn it over to Chris Shean, our CFO, to discuss the financials in more detail.

Somehow I managed to escape blame for this whole thing. Liberty Interactive Group's revenue increased 3% for the quarter and 3% for the year, while adjusted OIBDA decreased 1% for the quarter and was essentially flat for the year. QVC's revenue increased 2% and 1% for the quarter and full year respectively, while adjusted OIBDA decreased 1% for the quarter and increased 1% for the year.

Our e-commerce businesses grew revenue 8% for the quarter and 12% for the year, while adjusted OIBDA decreased 29% for the quarter and 11% for the year. The increased revenue was a result of increased marketing efforts, which drove additional traffic, investments in site improvements, increased shipping charges, and overall broader inventory offerings. Additionally, the increased revenue was driven by the selling of product at discounts, which we did to help manage our inventory levels to appropriate or manage down inventory levels, I guess for the year, which impacted margins at some companies, particularly Celebrate retail business and Red Envelope. The decrease in adjusted OIBDA was primarily due to lower margins.

Now let's take a quick look at the liquidity picture. At the end of the quarter, Liberty Interactive Group had attributed cash of $598 million, and $5.1 billion in 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 with that, I will hand the call over to Mike George for additional QVC commentary.

Thank you, Chris. In what turned out to be a very difficult holiday season for many retailers, we were really delighted with our strong performance in Q4, driving 4% consolidated revenue growth in constant currency, with really nice gains in the US, the UK, and Italy, partially offset by continued challenges in Germany and Japan. We also enjoyed strong growth in China, which is not consolidated, up nearly 40% in local currency.

Our adjusted OIBDA also grew 4% on a constant currency basis, excluding the impact of the $20 million credit card legal settlement that we highlighted in Q4 of 2012. We believe this level of revenue growth, combined with strong and stable adjusted OIBDA margins, represents a highly differentiated performance versus the broader retail market.

E-commerce growth also remains strong, up 11% on a constant currency basis to 40% of revenue. That's a 3 point increase over last year. And in the US, we hit an important milestone in December, with e-commerce representing 50% of our total revenue in the month.

We also extended our leadership in mobile commerce, with orders up 56% globally in constant currency; mobile now represents 34% of e-commerce. And in both the UK and Japan, mobile orders are now more than half of all e-commerce.

The health and vibrancy of our customer base also remains outstanding. Sales growth from new customers increased 7% worldwide on a constant currency basis, and sales from reactivated customers were up a strong 11%, while retention and repeat purchase rates of our existing customers also remained strong.

Now, looking at the results by market. In the US we grew revenue by 6% in the fourth quarter and adjusted OIBDA by 7% after normalizing for last year's legal settlement. The US team executed at a high level in Q4, with a compelling holiday positioning, strong and balanced growth across a number of product categories, and good gains from our new Q Plus channel. We also benefited from anniversarying the impact of Superstorm Sandy, which we believe suppressed last year's revenue by 1% or 2%.

And our team has driven strong improvements in delivery times to our customers, which enabled us to reduce the FOB, or revenue recognition adjustment that we make at quarter end, from four days to three days. This effectively extra day of shipping in Q4 increased our revenue growth rate by approximately 1%.

Now, as we look to Q1 in the US we do face some timing and calendar shifts that will negatively impact the quarter, including lower carry-forward of shipments out of Q4 into Q1, delayed timing of Easter, several gardening and advanced order jewelry events where the product will sell in Q1 but ship in Q2, and we also saw some viewership competition from the Olympics. And of course, we're not immune to the weather challenges that all retailers are talking about right now, from power outages to delayed purchases of spring goods, but it's too early to say whether these challenges will reverse themselves once we hopefully see warmer weather. That's the US.

Now looking at Japan. Net revenue fell 3% in local currency as we continued to see pressure from a decline in new customers, due to the digital conversion we've talked about for the last year or so, along with some performance misses in the jewelry and accessories categories. We're also disappointed with the results from some TV carriage that we had added earlier in the year, and faced a generally soft discretionary spending environment.

And our adjusted OIBDA fell 14%, driven by decline in product margins, and an increase in TV carriage cost related to a pricing step-up in one of our carriage contracts, and the addition of an extra hour of carriage on a new distribution platform. Reminder, we'll lapse those costs around March.

The team has I think a very comprehensive plan in place to address some of these challenges in Japan, including driving higher sales growth in key categories like beauty and jewelry, moderating return rates, accelerating digital growth, rebalancing our TV carriage portfolio, and tightly managing cost. And so despite what turned out to be a disappointing back half of 2013, we remain very confident in the long-term potential of the business in Japan.

In Germany, revenue declined 4% in local currency, due to weak growth in jewelry and apparel, coupled with a highly promotional retail environment. Our adjusted OIBDA fell 3%, although after adjusting for one-time costs related to severance and other restructuring actions, adjusted OIBDA actually grew 5% on strengthened product margins and lower inventory obsolescence expenses. And return rates, which rose significantly earlier in the year, fell over 60 basis points on improved product mix.

This is now our second year of disappointing performance in Germany, and while we have made progress strengthening a number of QVC disciplines, including diversifying our product assortment, increasing product rotation, and lowering our promotional usage, we're certainly not satisfied with the results. We took a number of difficult actions late in the year, including making several leadership changes and launching cost and productivity initiatives, including announcing plans to switch from live to recorded hours in the overnights, and consolidating our European IT structures.

Steve Hofmann, our Europe CEO, is currently serving as acting CEO in Germany while we conduct a search for a permanent leader. Steve is working closely with the German Management team to re-examine every aspect of our operations in order to develop a more sustainable plan for driving revenues while also structurally reducing our cost base. Nonetheless, we do expect performance to remain challenged in the short term.

On a brighter spot, the UK had a terrific quarter with revenue up 5% in local currency and adjusted OIBDA up 10%. We saw particular strength in home and beauty, outstanding growth in e-commerce, up 22%, and mobile up 97% to now represent over half of all e-commerce orders. Good growth from our extra and beauty channels and a 14% increase in sales from new customers.

Adjusted OIBDA margins expanded 117 basis points, primarily on strong product margins. The UK team has done I think a really nice job driving both growth initiatives and productivity improvements like our recently announced warehouse automation project, and so it's encouraging for us to see such strong results. Italy continues its strong growth track with revenues up 17% in local currency.

We continue to see terrific retention and repeat purchase behavior from our existing customers, and from most of our other markets. As I mentioned on the last call we reduced our day time selling minute in Q3 in anticipation of expected regulatory changes. This did hurt our new customer acquisition pace in the back half of the year.

We no longer think the regulatory change is likely and we restored the air time late in Q4, although we've not yet seen a material increase in customer acquisition from this change. We had hoped to get to breakeven profitability in the quarter but fell just shy with an adjusted OIBDA loss of a little over EUR1 million as revenues weren't quite enough to cover our fixed cost investments.

Looking at China, we're very encouraged by the strong growth there with revenue up approximately 39% to CNY200 million, or $33 million. And our adjusted OIBDA loss fell slightly to about CNY8 million, or just $1 million. We added another 7 million homes to TV carriage in the quarter, bringing our total home count to 70 million, and we added over 200,000 new customers in just Q4, and grew our total customer base nearly 30%.

We continue to add QVC international brands to the programming mix and increase the number of new items introduced every week. And in October we launched our Today's Special Value programming, along with other changes to bring the viewing experience closer to our standards of other markets. We believe these actions will differentiate us from the competition, and over time drive customer loyalty and retention. We're seeing modest but consistent gains in repeat purchase rates, which will be a key to driving growth over the long term.

And with that, I'll wrap up with a few comments on the full year. With full-year revenue and adjusted OIBDA growth of 4% in constant currency and a 12 basis point expansion in OIBDA margins after adjusting for the legal settlement. We once again demonstrated our ability to drive strong, consistent growth at high adjusted OIBDA margins, despite economic ups and downs and some significant challenges in a couple of our markets. We added over 3.1 million new customers in our consolidated markets and another 740,000 new customers in our China joint venture. And our growth rate in new customers accelerated throughout the year.

We believe these numbers truly highlight the expanding relevance of our brand and our unique customer experience in a challenging retail environment that's often characterized by aggressive price promotion and eroding service. And we've welcomed these new customers to the brand while continuing to delight our existing customers, who's retention rate at 89% hasn't changed in years. With purchases averaging 24 items per year, our existing customers remain among the most loyal and most frequent shoppers of any general merchandise retailer.

Our e-commerce revenue ended the year over $3.2 billion, up 13% in constant currency, making QVC one of the world's largest and certainly most profitable e-commerce platforms. And we did $1.2 billion in mobile commerce orders globally, growing 62%, which puts us among the very largest mobile commerce players worldwide.

In addition, with expanding TV carriage and the launch of specialized TV channels in the US and Europe, we now reach nearly 300 million homes in eight countries through 12 different channels, and we've demonstrated that there's still meaningful growth to be achieved by expanding our TV footprint. And with over $240 million in revenue from Italy and China in 2013, we're demonstrating the extendability of this platform to new markets.

This continues to be a high priority for us and we were pleased to welcome Matt Goldberg to our team in Q4 to lead our global expansion efforts. Through his prior roles as CEO of Lonely Planet and Head of Digital and New Business Development for Dow Jones, he brings great experience to our expansion efforts. With the addition of Matt and also [Tagus Prefski], our CFO who joined last year, after leading Hershey's International division. Along with many other great hires and promotions, we continue to add strength to our team and build our capacity for global growth.

And we remain committed to not only driving sustainable growth in revenue and adjusted OIBDA, but also to ensuring strong free cash flow conversion. We're focused on driving improved capital productivity as we invest to grow. In 2013, our CapEx was $211 million, down from approximately $250 million to $260 million over the prior two years. And in 2014, we anticipate CapEx spend of just $175 million to $200 million, and even on this lower spend our investment in technology to power innovation in the business is actually increasing at nearly $110 million in 2014. Our technology investment will be the highest that it's been in the last three years. And with that, I'll turn it over to Claire to provide more insight on the US business.

Thank you, Mike. QVC US generated very strong results to close out 2013. We focused on reimagining shopping, entertainment, and social as one, and our customers responded to our unique curation of products and programming, integrated on all of our platforms.

We're delighted with our performance this quarter as we achieved increased sales and margin in every category with the exception of jewelry. Our inventory is 1% lower than prior year with purposeful decline in certain categories; creates open-to-buy for fresh receipts where we're growing sales. We're thrilled with the results to engage our new customers; in the fourth quarter we welcomed the highest number of new customers in QVC's history. Our new name count increased by 9% and sales to our new customers was up 11% compared to prior year. In addition, our customer count reached an all-time high of 7.5 million customers.

We provided our customer with an ever-changing collection of interesting finds. QVC was the destination for easy gifting this holiday, offering ready to give gifts, multiple gift sets, and gift collections inspired by our program host and shoppers. During one of the busiest shopping weeks of the year, Monday November 25 through cyber Monday, QVC created the ultimate multimedia shopping experience for our customers across all of our platforms.

We set dozens of internal sales and new name records that week, including achieving our biggest sales week in history, our biggest digital sales, as well as mobile sales week in QVC's history, and the highest grossing new name week ever. We saw positive results across our product categories, electronics showed great momentum through the quarter, with popular brands like Kindle, Dell, Cannon, Samsung, Apple, and HP. The HALO Pocket Power Charger, Today's Special Value, which aired on Sunday, December 1, sold more than 380,000 units, making it the number one selling TSV of all time in terms of units and the top selling item in a single day on QVC.

Our home division generated strong results, particularly our holiday assortment of home decor and toys, as well as floor care and home furnishings. Some of the standout brands include FlashPad, BlissLights, Dyson, Shark, Ninja, Serta, and La-Z-Boy.

Our beauty business surpassed $1 billion in shipped sales in 2013, driven by strong growth in the fourth quarter. QVC's Customer Choice Beauty Awards in October featured this year's best brands, including Josie Maran, Mally, WEN by Chaz Dean, Philosophy, IT Cosmetics, and Peter Thomas Roth.

We also saw positive results in our apparel and accessory business driven by proprietary designer lines like Isaac Mizrahi Live!, LOGO by Lori Goldstein, and Susan Graver, as well as our footwear and handbags with standout brands Clark and Dooney and Bourke.

We invested in our platforms to create a more consistent and accessible shopping experience. In 2013 we expanded our TV distribution by launching a second broadcast channel called QVC Plus, and making our current programming available over the air. We're seeing a positive response to QVC Plus and over the air with additional reach of 75 million households, and it's generated more than 30,000 new customers.

We also completed the first phase of responsive design to transform our existing website developed for desktop experience into a site that has the ability to render content to fit the screens of desktop, tablets, smartphones, and devices yet to come from a single source of content and code. Customers now have an optimized experience for mobile devices for shopping cart, checkout, and my account. The next phase will complete the mobile device experience to include all pages within the shopping experience.

We understand social shopping like no other retailer and are finding innovative ways to bring like-minded people together discovering great finds. toGather, QVC's social experience that brings the magic of what we do on TV every day into the digital space, was a very popular destination for holiday gift ideas from a community of passionate shoppers, program hosts, inventors, and designers. In 2013, the social platform generated more than 290,000 users with more than 35,000 unique collections created. We're excited about the prospective customers who have joined toGather and their level of engagement with our shopping community.

Throughout 2013, we also created unique connections on our community platform on QVC.com, with 2.4 million sessions per month on social platforms such as Facebook, Pinterest, and Instagram, and on our mobile applications. We're improving our service experience at every touch. QVC received the top score of 88 for contact center customer satisfaction by ForeSee experience index. We held the top rank in each of the key drivers of customer experience, including accessibility, knowledge, and professionalism, surpassing the performance of all top 100 retailers in the study.

In 2013, we accomplished several initiatives to enhance the experience we provide for -- the service we provide for our customers. We piloted live chat, completing close to 80,000 chats in 2013 to help support our customer in making purchase decisions. We have dedicated team members who responded to customer questions on our social platforms. We expanded our customer communications that we deliver after purchase to anticipate questions and create a personalized shopping experience, and we improved the speed and accuracy of delivery to our customers.

We're proud of the results we delivered in 2013 and the actions we've taken to establish a model that positions QVC to reinvent the shopping experience. We're excited about our product and programming offerings creating a unique shopping experience in the first quarter as well.

Today we're in LA for our fifth annual red carpet style event celebrating red carpet moments and inspiring viewers to create their own personal style with icons Isaac Mizrahi, Nicole Richie, and Joan Rivers, plus Project Runway All Stars winner Seth Aaron. On March 16, the Muppets come to QVC to promote their upcoming movie, Muppets Most Wanted, which hits theaters on March 21. The multi-platform event, QVC celebrates Muppets Most Wanted, will provide customers with an integrated experience with Ms. Piggy and the Muppets on air, on QVC, on mobile, and on all of our social platforms. With that, I turn it back over to Chris.

Thanks, Claire. Taking 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 $1.6 billion, and $2.5 billion in principal amount of attributed debt, which includes $670 million of cash at TripAdvisor as well as liquid securities, and $369 million of their debt facilities. The value of the public equity method securities and other public holdings attributed to the group was $2.2 billion and $1.1 billion respectively at the end of the quarter. Now I'll hand the call back to Greg.

Great. Thank you, Mike, Claire, and Chris. We are pleased with the results for the quarter and year and look forward to a strong 2014. We appreciate your continued interest in Liberty Interactive. And with that, operator, let me open it up for questions.

(Operator Instructions)

Our first question comes from Barton Crockett with FBR Capital Markets.

Thank you for taking the question. I just wanted to follow up on the change in verbiage around the spin, just to make sure that I'm completely clear on this.

Before you guys were saying that the spin would be contingent upon satisfaction of certain conditions and you listed them. Now you're saying that Management can essentially not guarantee when or if this will happen. Are you still as interested in doing this as you were before and the only change is really the timing at this point?

We remain interested, committed to doing the spin as we outlined and as to the verbiage, you'll have to ask Rich Baer.

Okay. I'll leave it there. And then just separately, HSN has slowed its kind of share repurchase pace from what it was doing several quarters ago. In the past you guys have been pretty vocal about wanting HSN to buy back stock. How satisfied are you with the pace of share repurchase there? Do you think there needs to be a change?

Well, by Liberty standards, which we believe obviously are the correct ones, HSN appears underleveraged to us, so utilizing their capital structure more efficiently -- the reality, these are not high-growth businesses today. They are high free cash flow generating businesses that can support leverage, and need leverage to shield taxes sufficiently and provide the relatively slower growth of these assets be generating still sufficient equity returns.

So that's our view of the world. Whether it's the form of share repurchase or return of capital via dividend or other method, we think that's the appropriate way to approach how you should treat your shareholders. That would be our message to HSN. That's certainly what we try and do with our Companies.

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

Our next question comes from Matt Nemer with Wells Fargo Securities.

Good morning. Thanks for taking my question. First, I'm wondering if you could provide a little more color on the Liberty Digital assets and how they grew in terms of the various properties.

So I'll give some high level and then I'll let Chris Shean, our CFO, chat a little further. We have had two businesses, which as I mentioned have grown very well and consistently, CommerceHub and Bodybuilding. We've had some other businesses which are more challenged for a variety of reasons. Provide Commerce has several units, ProFlowers, the gourmet foods area, those were reasonable growers.

Red Envelope did a restructuring of itself, or sorry repositioning of itself, excuse me, that I would say was not as successful as Management would have liked. We'll see where we go with that. Personal Creations, which is basically the personalizing gift effort there also somewhat stalled out on somewhat of a repositioning.

Looking at Celebrate, we've talked for several quarters about how that business is really in transition, needs to be more efficient in its marketing, more effective in its conversions, and have better control of its inventory. I think some of that's underway but on a smaller size business. And at Backcountry, we had better weather this year, not as good as we might have hoped, because what we really needed larger snow early, particularly cold early in the eastern markets and the western markets. Certainly you got plenty of snow in the east. Unfortunately, much of it was probably too late for us really to benefit from it in terms of demand for our products.

We also see increased competition not only from department stores who are selling more kind of outdoor gear, but liquidation causing write-downs with some of the traditional suppliers like the outdoor chains, pressure from our other large online retailers, and the trend towards some of our suppliers going direct, and also opening up additional outlets like the department stores.

So all those created pressure on Backcountry on its sort of traditional winter gear. Its efforts in the cycling area were very effective. Its efforts with the motor sport acquisition were probably okay, not as strong. So it's kind of a mixed bag. Chris, what would you add to any of that?

I would say that at Celebrate we had taken down their inventory levels by 50%, some of that through clearance pricing, some of that through obsolescence charges, but we think we've got that down to a level where the business is hopefully settled out and now on a path to where we can grow it a bit.

And as Greg mentioned, at these businesses in certain areas, we try to do experimentation, and something like Red Envelope where we're trying to re-platform the business, it was a bet that didn't turn out particularly great this year and we're having to re-evaluate where we with head with that. So I think that covers the water front with e-com for the quarter.

Great, that's very helpful. Two quick follow-ups on QVC. The first is the faster shipping that you mentioned that impacted the quarter, is that something that plays out over the course of the next three quarters, or when do we cycle that?

And then secondly, on Germany, can you provide any more color on -- you mentioned an intense promotional environment. Any more color on where that's coming from?

On the faster shipping, it's really a one-quarter benefit. So last year we deferred in Q4 kind of four days of shipping and this year we only deferred three days. But now going forward, it's largely a neutral impact to the business.

On Germany, what we just see is fairly aggressive promotional environment with traditional retail also with our primary home shopping competitor, a lot of use in the marketplace of free shipping, growth of -- really just seen a dramatic growth of online retailing in Germany. It had been a little bit slower to come in Germany, and now it's kind of coming full force. And players like Solando, who do a lot with free shipping.

So I don't know that it's fundamentally different than what you see in other markets, but I would say that market is a little more dynamic with a little more kind of pressure for distance retailers like ourselves. That said, we also think a lot of our challenges in Germany are more self-inflicted and we need to do a better job executing consistently and try to rise above those promotional pressures in the marketplace.

Great. Thanks so much.

We'll go next to Jason Bazinet with Citi.

I have sort of an unusual question for Mr. Maffei. Regarding Liberty Ventures, in terms of your efforts to defeas this $5 billion liability in 2030 or so, it would seem to me it's far more difficult to find investments if you have to go -- or generate returns if the cash that you're dealing with is sort of $100 million or $200 million slug that you get per year from Liberty Interactive, and far easier if you pledged in essence those inflows to a creditor and got sort of a multi-billion dollar check today to give you more degrees of freedom to buy something bigger and chunkier today to generate returns. Is that something that you've thought about or contemplated with? Or do you think that's sort of an inappropriate notion given that it would obviously cost you money to do that?

I think Jason that you're talking about leverage, basically, a form of financial leverage. We have a fair amount of leverage at that Company in the form of not only the exchangeables, which are generating that -- those deductions, but other exchangeables like the Time Warner exchangeables. So if you look at the gross asset pool there at Liberty Ventures, it's actually a fairly big pool, over $7 billion of market value or cash. I would also point out that we have a fairly big cash slug there as well.

So when you think about what we are using to try and build value to defeas those bonds down the road or defeas that obligation, it's a larger set of assets than just that stream. And while we have -- you think about the value of Trip has grown substantially, the value of Expedia's grown substantially, we have invested many -- not many, we've invested money in now four or five energy projects, which we think will generate high rates of return and are tax advantaged high rates of return that in effect are fighting fire with fire. So I think it's misleading to do that.

And if you thought about just trying to secure that interest, that's a very difficult interest to secure, because it's contingent upon profitability at QVC. It's contingent upon the continued outstanding of all those bonds, and it's contingent upon -- it would only be attractive if we had a big project in which to invest. You have to know that up front because otherwise you're paying -- you've got a negative arbitrage of that.

So it's not -- it isn't the case we're short on capital at Liberty Ventures. It's the case today that we are being judicious and slow perhaps too on finding investments that are attractive.

Let me ask a follow-up. To the extent that you have assets there other than the cash that's coming in from Liberty Interactive, do you feel like you're impaired at all in your ability to do things like spinning out Trip? Or if you do something with Expedia because of that liability?

No.

Okay, alright. Thank you very much.

We'll go next to Thomas Forte with Telsey Advisory Group.

Thank you for taking my questions. I was hoping that Mike could give us an update on his thoughts on international expansion, what's your current list of targets, and what's your current thoughts on potential timings?

Sure, Tom. Not a lot of new news. We continue to be at it full force, looking at a number of markets. We've shared in the past that we continue to see nice fill-in opportunities in Europe, would love to be in France, potentially Spain, maybe Turkey as that market grows, although certainly had its momentary challenges. Continue to be interested in plays like Mexico and Brazil, continue to see india as something interesting, although probably a little bit further out.

Those are probably still kind of the short list. We're fairly advanced in one or two opportunities, so I hope that we will have news in the next few months. But as always when I say that I caution that these deals are volatile and may not happen on the timetable we would like. But we're -- given that it's now been a couple years since we've done one of these, the time is right and we think we're pretty close to at least one interesting opportunity.

Great. Thanks. And a quick follow-up for Claire. So for consumer electronics I was pleased to hear that you had strong performance. Have we fully lapped the transition away from televisions and laptop computers, and are you positioned for continued expansion in consumer electronics as 2014 progresses?

So just thank you for the question. I would say that to characterize it as a transition away from selling televisions and laptops would be an overstatement because we still sell a lot of those.

Having said that, the key growth really still has come from the tablet category. We feel good about our position for 2014 and we've become a key partner for many of the electronics brands to introduce new technology and new stories and new functionality to their customers. So we feel that we have a very solid plan for '14.

Thank you.

And we'll go next to Ben Mogil with Stifel.

Hi, good afternoon, thanks for taking my question. Just a quick one, Claire. On the return rates on QVC US, much lower return rates than we've seen sort of for a while now. Anything that you can add in terms of sort of what was changing?

Yes. Thank you again for your question. What we've seen is in some of our higher categories of return rates, that being apparel and accessories and jewelry, we have seen a decline in the rate that's been purposeful. We've put a lot of effort and energy into understanding why products are returning and how we could improve the quality and the experience for the customers.

So we were very pleased to see those three fashion categories improve in their rates in the quarter and stabilization in our hard lines area. That's the biggest difference.

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

And our last question will come from Matthew Harrigan with Wunderlich Securities.

Two questions. Firstly, on international, you talked a little bit at your Investor Day about capital light, and can you talk also about working capital needs for that and how your technology investments are affecting your working capital cycle? Greg, obviously talked about the cash generation being paramount.

And then secondly, the other huge trend in retailing other than m-commerce, is kind of the wall breaking down between consumer product companies, the tech companies, and the retailers themselves, a lot more consumers are engaging directly with manufacturers. I know (inaudible) almost having trying the media aspects of the business, I know not everybody can be Red Bull or Louis Vuitton.

But do you still feel like you're always going to be distinctive as an aggregator, having such a traditional media background, or do you get a little bit more nervous about some of your suppliers trying to do what you do, basically, even on the social media basis.

So let me try to take a bit of both of those and see if Claire has anything to add on the second. So on international, as a general statement as you said, we do try to -- we're going to try to do these on a little bit more of a capital light basis, just because we think that in areas like distribution center, call center, sometimes even studios, that there are good third-party operators and we can leverage their assets for a period of time and kind of variableize our cost of getting into these markets, although ultimately we'll probably hit a size and scale in all those markets where we'll do more things internally, it'll be more economic to do things internally than through third party. So we think we step into the capital commitment more gradually.

I don't know that I would say on the working capital front that there are any big technology changes that are going to fundamentally affect that. We usually can manage the step-up in working capital so that it's not a huge drain. We do incur obviously OIBDA losses in these markets in their early years. We are pretty cautious in how we bring in inventory, often in a new market we might do a little bit on consignment or other ways to manage either the financial cost or the risk of the inventory.

All markets are different in terms of customer payment, which is the other big driver of working capital, and so the characteristics will look different by market. But at a high level I don't see working capital as being sort of highly -- working capital in a new market as being highly-material to the overall cash flow of the Company, and something we'll manage on a pretty careful basis.

I guess at a high level on your second question, Matthew, if I understood kind of where you were going, we do think in aggregate we have a very distinctive proposition in how we present ourselves to our customers as a curator and aggregator of great content, not only the product content but the experience that we put around that content.

And we actually are working very closely with our partners to have integrated social strategies, so we'd love it when the partner has their own social strategy as you described it, because then you get a real win-win and they can bring their customers to the QVC experience.

Because we're such an attractive channel for our brand partners, and typically it's often the case that we're their most profitable channel and certainly that channel that gives them the best sort of halo around the band experience, so we have this nice mutual interest in building the business and leveraging sort of all the capabilities of both QVC and the partner. And so you'll just see us do a lot more of kind of integrated social strategies, reaching out to both customer bases. So I see more in the opportunity column than at the risk. Claire, anything else you would add?

No, I think that's exactly right.

Thanks, Mark. Thanks, Claire.

Thank you.

Thank you everybody for your questions and interest in Liberty Interactive. We hope the to speak with you next quarter if not sooner.

Ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.