QVC Group Inc (QVCGA) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Interactive Corporation 2015 third-quarter earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded, Wednesday, November 4th, 2015. I would now like to turn the conference over to Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

Thank you. Before we begin, we would 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, market potential, stock repurchases, future financial performance, the expected benefits and synergies resulting from the acquisition of zulily, the implementation of new marketing and fulfillment processes at zulily, 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, market conducive to repurchases, the availability of acquisition opportunities, 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 and adjusted net income. The required definitions and reconciliations, preliminary notes and schedules one through four can be found at the end of the earnings press release issued today which is available on our website. This call also may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Liberty TripAdvisor holdings.

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. These forward-looking statements speak only as of the date of this call and Liberty TripAdvisor holdings 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 TripAdvisor holdings, expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is base.

Now I'd like to introduce our President and CEO, Greg Maffei.

Thank you, Courtnee. And good afternoon to all of you out there. Today speaking on the call besides myself we'll have Liberty Interactive's CFO Chris Shean; QVC's President and CEO who's out here in the home office, Mike George; and joining us for the first time today we are very happy to have Darrell Cavens, President and CEO of zulily. During the Q&A portion of the call, we will also answer questions, if they are asked, about Liberty TripAdvisor holdings.

So on to some of the highlights. Most importantly on October 1 we completed the acquisition of zulily. QVC itself had solid results in all consolidated markets, revenue grew in local currency and saw adjusted OIBDA improvement for the second quarter in a row. A great fete.

QVC grew US revenue 4% and adjusted OIBDA 1% in the quarter. Notable was the continued phenomenal growth in mobile. Mobile was 52% of qvc.com's orders in the US and 53% on a consolidated basis. This highlights our strength as one of the -- and the growth as one of the world's largest mobile e-commerce players.

I would also note during the quarter we repurchased $98 million of QVCA shares from August 1 to October 31, but we were out of the market from August 4 to September 30 due to the zulily transaction.

Turning to Liberty Ventures. Interval Leisure Group entered into a definitive agreement to acquire Starwood Hotels and Resorts vacation ownership business in October and it will own 45% of the combined company on a pro forma basis. And pro forma Liberty Interactive's ownership in the combined company will be an estimated 13%.

And at Liberty TripAdvisor, we announced an important instant booking partnership with Priceline, continuing our progress there, and we also added the Wyndham Hotel group as an instant booking marketplace partner. At TripAdvisor we were also pleased to welcome during the quarter [Ernst Tunison], our new CFO, who will start next week, and [Beth Graus] our Chief People Officer, who started last month -- excuse me, in September.

I look forward to seeing all of you on November 12 in New York for our annual investor meeting. And with that, let me turn it over to Chris Shean to discuss the financials.

Thanks, Greg. I just wanted to highlight that since the zulily transaction was not completed until October 1, there is no zulily financial information in our numbers for this quarter which ended September 30.

QVC's group revenue decreased 1% in the second quarter while adjusted OIBDA decreased 3%. We'd like to call to your attention to a figure in the earnings release. Adjusted net income for the QVC group. Here we adjust for the digital commerce companies and the nontax deductible purchase accounting amortization balances that relate to the original acquisition of QVC back in 2003. You can find this on schedule four of the Press Release.

Now let's take a quick look at the liquidity picture. At the end of the quarter, the QVC group had attributed cash and liquid investments of $527 million and $5.7 billion in principal amount of attributed debt. QVC's total debt to adjusted OIBDA ratio, as of September 30, as defined in its credit agreement, was approximately 2.4 times as compared to our stated target of 2.5 times.

Subsequent to quarter end, QVC borrowed an additional $910 million under the credit facility in connection with the closing of the zulily acquisition. zulily's OIBDA will not count towards the leverage ratio under QVC's credit agreement. QVC Group also issued approximately 38.5 million shares of Series A QVC Group stock to former holders of zulily common stock.

Now I will hand the call over to Mike George for additional QVC comments.

Thank you, Chris. We delivered a very solid quarter and we were especially encouraged by our broad-based revenue growth, as Greg mentioned, with gains in local currency in every market for the second quarter in a row. We also expanded our reach with additional TV carriage globally and outstanding e-commerce growth and we delivered significant enhancements to our digital experience, achieved record mobile penetration, and remained at the forefront of digital innovation with last week's launch of our app for the new Apple TV.

As Greg mentioned, on October 1 the acquisition of zulily was completed extending our reach to millennial consumers. QVC and zulily are both leading discovery-based e-commerce brands and together we are confident we will have new opportunities to enhance the customer experience, strengthen our digital platforms, introduce new inspirations and products, and bring value to all of our stakeholders. So we are excited to welcome the talented zulily team to the QVC family.

Now looking at our third-quarter financial performance. On a constant-currency basis consolidated revenues grew 4% and adjusted OIBDA increased 3% excluding the impact of our France startup. Our US business delivered 4% revenue growth on a strong 5% unit volume gain and 1% higher ASP. We saw particular strength in apparel, accessories, home, and beauty.

Our adjusted OIBDA grew 1% on top of a strong 8% growth in the prior-year third quarter. OIBDA margins declined, primarily due to freight increases that were driven by volume growth, the higher mix of heavier merchandise and higher freight rates, and also higher inventory obsolescence expenses largely reflecting a higher ending inventory level.

However, we are very confident in our inventory quality and we anticipate bringing inventory into line in the coming months. These expense increases were partially offset by higher product margins and that is in spite of the significant reduction in S&H revenues driven by the new rates that we launched in February.

Turning to international, consolidated revenues internationally grew 4% and adjusted OIBDA increased 7% and OIBDA margins expanded 44 basis points on a constant-currency basis, again excluding the costs associated with the launch of France. Our UK business continues its terrific momentum with strong local currency sales growth and outstanding adjusting OIBDA gain resulting in a record OIBDA margin for the third quarter.

Germany delivered solid local currency sales growth in a year-over-year adjusted OIBDA gain on top of the 12% gain in the prior third quarter. Japan continued its recovery, delivering mid-single digit local currency sales growth, solid OIBDA growth, and continued progress attracting new customers. Our performance in Italy was somewhat disappointing with just 2% local currency revenue growth, although our OIBDA loss further narrowed a very strong expense management.

We are also encouraged by continued strong gains in new customer growth in Italy, up 18% in the quarter. Our joint venture in China delivered stellar results. Local currency revenue grew 43%, the highest growth in two years, and I think we are benefiting from overall improved execution in China as well as our July expansion into the Shanghai market.

And we were delighted to launch our seventh market, QVC France, and we are very pleased with the quality of brands we had available at launch and our on-air and online execution.

Our sales in the first two months were quite modest as we launched our TV broadcast on August 1 with just 1 million homes. The TV carriage has continued to ramp since launch and we now reach approximately 17 million homes. So we are working hard to build awareness of the brand in this new market and believe we will earn a strong position in the market over time.

Now looking at some other highlights for the quarter, on a consolidated basis we grew our overall customer base 4%, and new customers 2%, and we improved retention rates across all customer segments existing, new, and reactivated. This strong customer growth was fueled by engaging products and programming, continued work on personalization initiatives, enhanced digital marketing and growing mobile penetration.

We saw especially strong growth in the US with total customer account increased 5% and we continue to be encouraged by our new customer acquisition rates in Japan and Italy, which has been a focus for us.

We are benefiting also from balanced performance across product categories. Our apparel and home businesses were strong performers, as were accessories and beauty. Jewelry was soft globally and primarily due to weak results in our gold business. And while consumer electronics declined year over year, the pace of deceleration has moderated from prior quarters. And its productivity actually improved significantly as we reduced electronics' air time.

We continue to increase the reach and penetration of our commerce platforms, our TV distribution now reaches more than 350 million homes, including 111 million in China. Our digital growth, as Greg mentioned, was outstanding with global e-commerce revenue up 14% on a constant-currency basis to 40% of total revenue, up from 39% last year and mobile continues to be a strong vehicle to extend our brand.

On a constant-currency basis, our mobile orders grew 36% and represented 53% of all e-commerce orders. That's 1,000 basis point increase from Q3 of 2014.

In August we launched significant enhancements to the digital experience across all customer touch points. These changes reflect the more modern and flexible e-commerce design, giving our customers an enhanced way to shop, discover and engage with our products and brands digitally. These latest updates are part of the strategic redesign of our web and mobile platforms globally, including incorporating responsive design to optimize the experience across all screen sizes.

And we remain committed to staying at the forefront of digital innovation. We were one of the first retailers to launch an Apple watch app and one of the first to make use of Apple's Touch ID. And last week we deployed a global Apple TV app to coincide with the launch of their new set-top box.

The app brings together our digital and TV experiences in a really creative way, a new service that enables over-the-top access to our live programming and the ability to purchase the on-air item along with other merchandise directly from the TV. This development we think demonstrates our leadership in capitalizing on the growing convergence of TV and Internet experiences and positioning ourselves for the next era of interactive TV.

In the quarter, we partnered with NBC's Today Show to give hopeful inventors the opportunity to earn a spot on QVC. We had contestants submit over 1,900 products through QVC's Sprouts program and nine of the best entrants made it on to week-long series on the Today Show where viewers picked their favorite products and the winner, Leslie Pearson, presented her product, a magnetic reusable hanging system, on our Saturday morning gifts program and it sold out virtually immediately.

And in September we premiered H by Halston, launching a new chapter in this iconic American fashion brand. The new line was one of our most successful brand launches ever. And in October we extended the brand to the UK and we will be extending it across our other international markets in the coming months.

We are beginning to leverage our strengths in social media on a more consistent global basis. In July, we launched a global Facebook page combining our previous individual market pages. Our total Facebook fan count is now over 2.2 million. And we are seeing really tremendous social engagement across markets.

For example, in the US we had a sweepstakes with Instagram in connection with the launch of Kat Von D's beauty line and it attracted a record number of entrants. And the photo QVC posted is now a top photo for engagement on Instagram and we drove nearly 22,000 new QVC Instagram followers.

So before I hand the call over to Darrell for some comments on zulily, I should note, as Chris mentioned, that zulily's Q3 results were not part of Liberty's financial reporting this quarter, but at a high level, we were pleased with how the business performed in the quarter and we're excited about the opportunities that lie ahead. And we are confident that there will be significant opportunities for meaningful revenue and cost synergies across our two platforms. In fact, less than two weeks after close, we were already in the market testing new programs to expose zulily customers to QVC's best offers, to very positive initial results.

So in closing we're encouraged by our broad-based revenue strength in the quarter, our continued geographic and platform expansion, merchandise differentiation and strong customer growth and outstanding gains in our China joint venture, and we look forward to sharing more information on our strategic direction in QVC, as well as the opportunities for our zulily partnership at Liberty's Investor Day next week.

And with that, I will turn the call over to Darrell.

Thanks, Mike. I'm excited to talk to you all today as part of the Liberty and QVC families. Our third-quarter revenue came in at the middle of our financial guidance provided on zulily's second quarter earnings call of $300 million to $325 million and adjusted OIBDA at the high end of the range of $5 million to $15 million.

We've continued to make progress in realigning our marketing to acquire higher lifetime value customers and continued improving the customer experience, particularly compared to the back half of last year. Note that we will be providing more specifics about our third-quarter results at Liberty's Investor Day next week.

As discussed on zulily's last earnings call, we've been most focused on two areas of the business that are critical to getting us back to stronger growth levels, marketing and customer experience. First an update on marketing. It's been approximately five months since we started transitioning our marketing model to acquire higher lifetime value customers.

In the quarter, we remain focused on leading the content that highlights zulily's unique boutique offering, while also shifting our marketing investments toward broad-based channels like display and TV. While still early days, we've seen some small improvements in the repeat rates of our newly acquired customers relative to last quarter and a year ago. As a result of these positive early signs, we plan to gradually increase our marketing investment to drive growth in 2016 and beyond, but will continue to closely monitor and optimize our marketing strategy over time.

As expected, active customers, which we define as any customer who's placed an order in the last 12 months, have trended flat as we continue to focus on acquiring higher quality customers and work through the higher churn rates from our more transactional customers from last year. We continue to see a strong base of orders generated from repeat customers. 88% of our orders placed in the last 12 months, ended September 27, 2015, came from customers who previously purchased from zulily, in line with the second quarter and up from 84% a year ago.

The second key area of focus for the business has been on our customer experience. Here's a few highlights for the quarter. First, mobile continues to be a key driver for our business. In Q3, 59% of our orders came from mobile devices, up from 56% last quarter and 50% in the same period a year ago. We continue to test and roll out incremental features and launch mobile specific initiatives such as early event access to app customers.

Second, we've continued to see substantial improvement in supply chain execution, resulting in another quarter of strong gross margins and a significant improvement in the number of orders meeting and exceeding our customers' expectations relative to the back half of last year. We continue to raise the bar to exceed those customers' expectations. As an example, we see greater opportunity to lower ship times through initiatives such as our new vendor fulfillment services program. We only recently started marketing the benefits of this program to customers with certain products now shipping in two to four days.

As a reminder, we typically purchase inventory after the products are sold to the customer. With the new program, we essentially act as our vendors' third-party logistics provider. The vendor pays a fee to use our fulfillment centers for storage and shipping for the items they sell through zulily, as well as through their retail channels. This eliminates the ship time from the vendors to our fulfillment center.

Because the inventory still belongs to our vendors, we are able to do this without bringing the inventory onto our balance sheet. We remain excited about the impact of this program -- that it can have on our customer experience over time.

Lastly, we continue to see a positive lift in repeat spending by customers in our returns test with a minimal lift in return rates. We have been testing different programs since earlier this year and will continue to carefully monitor the impacts of operating returns on longer-term customer behavior. We will continue to update you on our offering over time.

In summary, we continue to make progress on our 2015 objectives and remain focused on delivering an amazing customer experience by offering highly diverse, fresh, unique products at great values every day. Similar to Mike's comments, we are incredibly excited about our opportunities to collaborate with QVC.

Partnering with QVC significantly broadens our platform and leverages their tremendous depth of knowledge around customer behavior. This allows us to test and build on our growth opportunities faster than if either of us was to do this on our own. As Mike mentioned, we've made great progress in testing some of these initiatives already and very excited about the long-term partnership opportunities to come.

We look forward to sharing more on our efforts at the Investor Day next week. With that, I will turn the call back over to Chris.

Thanks, Darrell. Moving on to Liberty Ventures. The continuing consolidated digital commerce businesses revenue increased 4% in the third quarter and adjusted OIBDA increased $3 million. The continuing digital commerce businesses result was largely comprised of bodybuilding.com and CommerceHub.

Now let's take a quick look at the liquidity picture at Liberty Ventures. At the end of the quarter, the group had attributed cash and liquid investments of $2.9 billion and $2.1 billion in principal amount of attributed debt. The value of the public equity method securities and other public holdings attributed to the group, was $3.6 billion and $1.3 billion, respectively, at the end of the quarter.

Now I will hand the call back to Greg.

Thank you to Darrell, Mike, and Chris. To the audience, we appreciate your continued interest in Liberty Interactive. And with that, I will open the floor to questions. Operator.

(Operator Instructions )

Aram Rubinson with Wolfe Research.

Good afternoon. Thanks for taking my question. Couple things, if you can. Just talk to us a little bit about inventory. Remind us on the QVC side what you own in inventory? What the consignment kind of mix has been doing? Why the inventory has been rising?

And also just a question, the payables look like they were up pretty nicely as well. So didn't know if you were doing something to work more efficient working capital overall.

Yes, this is Mike. On the inventory QVC, so most of it is owned in the US, depending on the quarter, 93% to 95% is owned and the rest is drop-shipped from vendors. That's true in most of our markets except Japan, which is primarily a consignment market.

And largely what drove the increase in inventory in US was sort of a mix of both being a little bit more aggressive about bringing in some inventory ahead of Q4. A little bit of it was a timing issue, trying to make sure we were strongly positioned for the holidays. So we expect to work through that. And some of it was a bit of a pop-up, especially in our jewelry inventory. The jewelry business did slow down more than we anticipated and we were left with more inventory than we had planned.

So while we certainly don't like to see a bubble like this in inventory, we've got a really nice track record over the last several years of growing inventory more slowly than sales and we're quite confident that we will kind of work through this bubble and be back on that trajectory. So a little bit of expense pressure in the quarter but not something we see as a long-term concern.

The payables growth was due to different factors. Probably the biggest factor is that we did change terms with our vendors to 45-day terms from 30 days. It's probably the biggest movement.

That's quite substantial. And then do you mind just commenting briefly -- I know Amazon is looking to launch some kind of a video commerce initiative next year. I'm sure it will either get asked tonight or next week, so maybe just give us the high level views of what you think and how your business stands to be in the face of that competition?

Amazon is a formidable competitor that you always have to pay attention to, but there's really nothing that we've heard or understand about what they are doing that causes a particular concern for us other than the fact that they're Amazon and they're important and you want to stay in a very discrete space away from where they are.

They haven't really disclosed their plans, but as best as we can interpret them, it's adding some video content to their current experience. It does not sound like it is anything like launching a live linear broadcast channel with all of the attributes of product duration and people connections and service levels that are at the core of our model. So it's not that that is particularly concerning to us at this point.

Thanks for the clarity.

Eric Sheridan, UBS.

Thanks for taking the question. Maybe two for Mike. Mike, one on the reduced shipping and handling, it's been a while now that those have been out in the field. I wanted to understand how those are sort of living and breathing, what you're seeing in terms of customer activity? How that is sort of impacting velocity of customer spend? Maybe that would be the first one.

And then on the second one, broad health of the consumer, any comments you wanted to make. HSN today said there was both competitive environments out there as well as some headwinds from consumer behavior. What are you guys seeing in terms of the QVC typical client? Thank you.

Thanks. On S&H, we will continue to be pleased in general with the impact of that program. We were cautious when we launched it in that we did not believe that it would drive such a velocity increase that it would outweigh the foregone revenue. But when you look at very strong shipped sales growth of 6% in the quarter. When you look at a pretty sustained track record of growing total customer account and new customers.

When you look at the sort of modest increases in retention rates that are already very high and that we've been able to enjoy over the last few quarters, it is difficult to precisely ascribe any of that to S&H, but we think the S&H move just helped to reduce a little bit of a potential negative for both existing customers and new customers. And at a minimum probably has helped some of those core customer funnel metrics that I just mentioned.

It is clearly costing us in margin rate. And I said in the Q2 call that we thought the margin impact of S&H was less than planned in the quarter and this quarter it was probably a little bit more than planned. So we needed a year to get through that margin compression, but we like what it's doing to the health of the customer base.

In terms of a read on the holiday season, there is certainly nothing we see out there that suggests that the holiday is going to be stronger than past years. I just think we are in a pretty sort of consistent environment where it's a fight for every dollar and I don't view the landscape as necessarily being more negative than it's been in the past. But we also certainly have not seen any kind of particular buoyancy in the market.

So it's highly competitive, highly promotional, and we are going to continue to stay in this very kind of differentiated space. And we've learned with things like the Halston launch that I mentioned that when we're out there with fresh product and fresh ideas, we will get the customer. We've got a really nice plan for our holiday season. Sort of a new approach to the Black Friday week, trying to both dissipate with the energy and excitement of the promotional environment out there at retail, but do it with our margins and our pricing principles. And I think we will get through it, but it is definitely a share fight as opposed to any underlying strengths in the consumer economy.

Great. Next please, operator.

Jason Bazinet with Citi.

-- in for Mr. George. I think there was a time back in the 2007 and 2008 when jewelry was sort of a larger part of your mix. Then we went through the big commodity run-up and jewelry represented a smaller part. I just wondered in terms of the jewelry slowdown that you cited in the quarter, why is that? Why are we not seeing a broader pickup in jewelry now that the commodity complex has come under pressure?

Yes, Jason. I think we have seen a couple of things. You are right. We had this sort of long-term erosion in the jewelry business. It used to be a much, much bigger part of the mix than it is today. Today it's probably down in the 12% to 13% of the business range.

And, generally speaking, we had seen the jewelry business stabilize over the last couple of years, so we thought we had gotten to a point of at least stable performance in jewelry, but we just got into a bit of a tougher run in the last few months. I think what we are seeing is the let's call it undifferentiated gold business. It is just a harder sell for today's consumer, even with gold prices coming down.

And that was really what we built our business on many years ago. So we are actually having a decent amount of success in designer jewelry. So when we can offer personalities and stories and experiences associated with the jewelry, we do pretty well. But we had this massive gold business. It is now much smaller than it used to be, but still big enough that we have to kind of work through that business. And that is probably not a business that is going to grow for us and we have got to grow in these more designer and kind of personality-themed categories.

Okay. Thank you.

James Ratcliffe, Buckingham Research.

Thanks for taking the question. Two on Ventures, if I could, for a moment. First of all, assuming it goes through, the charter transaction's done, does it make sense for the broadband and charter stakes to remain in Ventures combined with the Expedia stake? Or does it start to make sense to split those two out?

And second, regarding the Expedia stake, (inaudible) great, what is your thought on your ownership stake there in either direction? Thanks.

We continue to look to alternatives for the Expedia stake. We have noticed that it's had a heck of a run. We are very pleased to be shareholders. We've got nothing to announce today, but we have talked about how we have continued to have dialogue with Expedia and [Barry] about alternatives and we're hopeful that we will be able to arrive at something.

How the totality of what shakes out where, we will see when broadband closes if broadband is able to purchase and we are able to purchase the broadband shares, what happens.

Tom Forte, Brean Capital.

Great. Thanks. I had a quick comment for Greg and then a couple questions for Mike and for Darrell. So first for Greg, I have high expectations for the upcoming video at the Analyst Day. You set a high bar last year ( Laughter )

And then second, on the shipping and handling, is there an opportunity for QVC to leverage the infrastructure for zulily to reduce costs over time? I know you are adding the Ontario, Canada -- sorry, California Performance Center, but can you also use zulily's infrastructure to lower costs there? And then lastly, if Darrell could remind us on the timeline for when they think they will resume active customer growth again at zulily? Thanks.

Thank you.

So, Tom, first of all, it is a great video, but let's be surprised. ( Laughter ) You know, there might be opportunities to better leverage the combined distribution networks of the two Companies. It's not been something we viewed as an initial focus because the fundamental supply chain models of the two Companies are very different and so each Company has DCs that are really purpose built to the unique supply model that they represent.

That said, the good news about zulily is they have got a lot of capacity with their Pennsylvania facility coming online. And there might be some creative things we can do over time to better optimize the combined network. But that's -- it is a little early to make the call on that.

And then, Darrell, I will let you answer the other question.

Sure. Tom, I think as we've said before, I think as we look at the back half of this year, we are really anniversarying some very, very strong growth last year. And I think as we come out of that, we are just very, very focused on the higher-quality customer growth first. And I think we are not giving forward guidance here, but I would just say that I think the back half of this year is really where we added a tremendous amount of buyers last year and I think once we get out of that, I hope we are going to see some growth beyond that.

Trisha Dill with Wells Fargo Securities.

I was wondering if you can talk to what drove the big acceleration in e-commerce revenue during the quarter just by the tougher compare? And then just wondering if there's anything different about the mix of products being sold online in terms of items recently featured on air versus maybe web-only items compared to recent trends or is it all still largely items that were recently featured on air? And then I have one quick follow-up.

Yes. On the e-commerce increase, it was largely due to the Mercent acquisition by CommerceHub.

I think the question is really more directed to how did QVC increase the [1100] deficit [the comps]?

On the QVC side.

Sorry.

Yes, for QVC, I am really excited about the kind of growth rates we're seeing in e-commerce overall and in mobile and the big penetration gains we're getting. So we really felt good about it. I think it's a lot of really good work by the team in a few different categories that are all kind of paying off right now.

We've been on the journey to really re-platform and redesign the web experience across markets over the last several months and we have been rolling out an enhanced web experience in phases of which the most recent phase launched in August. In totality, it creates a much different experience and a much richer experience for the customer and there are more phases to come. We're maybe one-half to two-thirds of the way done with that.

That would be the first thing. I think the second thing is really getting focused on how to really do a mobile first design, which everyone talks about but few people do. Our mobile experience is really good right now and the team has systematically worked at reducing all the friction points in a mobile experience. Because the big challenges when the business shifts to mobile is the conversion rates are inherently lower on mobile devices. And we have been able to really raise the conversion rates on mobile through a lot of detailed work at each stage of the browse-and-purchase funnel.

So I think it's replatforming, redesign, mobile first orientation and a big focus on the sort of blocking and tackling of conversion. It has all been helping. And I also think it just speaks to the ability of QVC to attract a broader and broader customer range.

30% of our new customers in the quarter came in through mobile and those customers were much younger on average than our overall customer base. That mobile platform seems to be speaking to a lot of new customers.

In terms of the product mix, not a lot different. The product mix online is about 60% items that were not featured on air that day. So about 40% of it is the items featured on air in the day and about 60% is kind of browsing the broader assortments. So we are definitely, I think, seeing incremental purchase occasions online.

Okay, great. Thanks for that. And then just a quick follow-up on the holiday. You do some early Christmas programming in Q3, which I think has been historically a good barometer for holiday spending. I think last year you talked about some early successes here and then it did, in fact, translate to strong Q4 performance. I'm just wondering if you can comment at all on what you saw there in Q3?

We might have been overexuberant with our holiday programming in Q3. We keep moving it up. So we started July 1 this year and had a fair amount of holiday programming. I would say overall good results.

I think we probably, in all seriousness, we probably gave the customer a little more than she wanted. And so I think we will probably pull it back next year. But that, to me, doesn't really speak to the -- that's not an indicator of holiday as much as making sure that we keep the programming varied. But a number of hot toys and some good strength in elements of decor. So fairly broad results that we overall felt good about.

Mark Rosenkrantz with Craig-Hallum.

This is Mark in for Alex Furman. Congrats on the good quarter. A few quick questions about the zulily acquisition. It sounds like you've already made some progress on marketing, QVC to zulily customers. I was wondering if you talk a little bit about where you are in terms of getting QVC brands on zulily and vice versa?

Very early days and we will talk more about it at the investor call.

Investor meeting.

Investor meeting. But at a very high level, the initial focus has been get the best QVC offers, which is typically our TSV, exposed on the zulily site. That's kind of where we have started and we have been very pleased to see how zulily customers have reacted to those TSV offers and transitioned from zulily over to QVC to make the purchase and then become a new customer for QVC.

And there will be a number of other tests through the quarter on other elements of revenue synergies. But four weeks into this and about two or three weeks post our first synergy test, we feel very good about the hypotheses we had when we did the deal about the interest that opened up the zulily customers to the QVC experience a few weeks into it. Some positive signs that's going to make a lot of sense.

Okay. Great. Thank you so much.

Your final question comes from Barton Crockett with FBR Capital Markets.

Thanks for getting me in here. I wanted to get your thought about this issue which is zu, before the transaction, put out this filing where essentially they said that with synergies and with their growth they could do $400 million of EBITDA or so in 2017. You guys have responded that those are zulily's numbers, not your numbers. And I think the street has interpreted that as a statement that maybe you don't believe that those numbers are reasonable?

And without commenting specifically or guiding specifically, because I know you guys don't like to do this, you have put $2.4 billion of capital into buying zu, I was wondering if you could tell us whether that type of potential, a $400 million EBITDA in a few years' potential is a type of thing you would need to make this capital investment. And generally whether zu is misplaced directionally in having that type of optimism about what could happen?

Barton, I think those were done in another context and ones that we did not buy into. It was an impulsive -- or not -- it was instinctive, rather, that we -- since those weren't ours, we weren't owning them. We are very optimistic, and I will let Mike and Darrell comment on that in a sec, but we are very optimistic on the potential and everything we are seeing. But I would say, you know, what's the old thing about forecast? Never give a time or a number together?

Your $400 million, I'm sure in the fullness of time, but I don't think in the near term we have to get anything like that for this to be a very attractive acquisition on multiple. We would hope and expect that we should get multiple expansion with this acquisition because our portfolio is now faster growing than it was. There is no question z-u is a faster grower than standalone Q. And z-u combined with us is going to be yet a faster grower than standalone Q. We are the levers that the market should accord us, in the fullness of time, a better and higher multiple.

It is interesting that it has taken our stock down a little bit here on the short-term, but we still remain quite optimistic and everything as we've seen should pan out quite well. I don't know what you'd want to add to that, Mike, and then maybe you, Darrell?

I'd echo Greg's comments. We feel very good about our financial thesis for making this deal work. I do think it should be accorded the combined Company higher multiple, when you just look at the -- even a conservative view about EBITDA growth rates in zulily over time.

And so to me the filing was kind of a distraction. We had a business case that was thoughtful and purposeful and a month post-close we still feel really good about that business case and that business case had a very nice return attached to it.

I would just echo what Mike said. I think we feel kind of very kind of eager and optimistic about the opportunity here. I think as I look at spending time over the last month with some of the QVC team and learning more about the QVC business, I just become more and more excited about the similarities and the learnings that QVC has had. And, frankly, just the scale that I think we can take some learnings on and bring together the businesses and really very focused on how do we drive long-term value and very much focused on EBITDA.

Mike and I together have challenged the teams to say how do we drive growth? How do we stay aggressive here? That is our focus, and you are going to hear a lot more from us over the next couple of quarters. And we will talk a little bit more about some of those specifics at the Investor Day next week.

Great. I think that's it. Thanks to everyone who listened in. Thanks for your continued interest in Liberty Interactive and we look forward to seeing many of you next week at our Investor Day in New York City.

Thank you for your participation. This concludes today's conference call. You may now disconnect.