QVC Group Inc (QVCGA) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Liberty Interactive Corporation 2015 fourth quarter earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded Friday, February 26, 2016. I would now like to turn the conference over to Courtnee Chun, Senior Vice President of Investor Relations. Please go ahead.

Thank you. 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, market potential, stock repurchases, future financial performance, international expansion including QVC's new support center in Poland, the expected benefits and synergies resulting from the acquisition zulily, the implementation of new marketing and performance processes at zulily, new service and product launches, the proposed spin-offs of CommerceHub and Liberty Expedia Holdings, and other matters that are (inaudible) 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, the satisfaction of conditions the proposed spin-offs, market conditions 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 note and schedules one through four can be found at the end of the earnings press release 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 Trip Advisor Holdings. These forward-looking statements involve 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 Trip Advisor 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 Trip Advisor Holdings' expectations with regard thereto, or any change in events, conditions, or circumstances on which any such statement is based.

With that, I'll turn it over to Greg Maffei, Liberty Interactive President and CEO.

Thank you, Courtnee. Thank you out there in the listening public. Good morning. Today, speaking on the call besides myself we will have Liberty Interactive CFO, Chris Shean; QVC's President and CEO, Mike George; zulily's President and CEO, Darrell Cavens; and I note that during the Q&A portion of the call we will also be happy to answer any questions you might have about Liberty Trip Advisor Holdings. On to the highlights.

QVC had solid results and grew US revenue and adjusted OIBDA by 3% in 2015, strong in light of weak retail US comps. In Q4, we achieved our first 50-50 with QVC.com at 52% of total orders and US mobile penetration at 50%.

zulily revenue in Q4 was up 17% and after adjusting for a $17 million purchase accounting adjustment, adjusted OIBDA was up 87%. We are quite happy with this deal and the early operating results at zulily. During the period of November 1 to January 31, we repurchased $272 million of QVCA shares.

Now on to Liberty Ventures. We are working on the S1's for the spinoffs of CommerceHub and Expedia. We are currently finalizing the CommerceHub S1, including updated financials and expect to file in March, and we are working towards a Q2 close.

At Liberty Expedia that spinoff is targeted for second quarter as well. The filing should be shortly behind the chub filing and will included bodybuilding's financials.

Lastly, at Liberty Trip Advisor, Trip Advisor continues to make tremendous progress in reinventing how users plan and book the perfect trip. Users are now adding content at the rate of more than 200 contributions per minute to the Trip Advisor site. Metasearch enables search over 200 booking options, different booking options, and most importantly the continued roll out of Instant Book which allows travelers to complete the transaction all within the Trip Advisor site is continuing going well, and we're pleased with its progress.

We look forward to seeing some of you at conferences this March and please mark your calendars for our bi-annual QVC investor day on Monday, May 16, in Westchester, Pennsylvania. Please reach out to Courtnee and the IR team for more details. With that, let me turn it over to Chris Shean to discuss the financials in more detail.

Thanks, Greg. As Greg mentioned, we completed the zulily acquisition and closed it on October 1, and from that point forward its results are included in ours, so for the entire Q4.

We'd like to call your attention to a figure in the earnings release labeled adjusted net income for the QVC group. Here we adjust for the digital commerce companies and the non-tax deductible purchase accounting amortization related from the acquisitions of QVC and zulily. You can find this on schedule 4 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 $438 million and $6.6 billion in principal amount of attributed debt. QVC's total debt to adjusted OIBDA ratio as of December 31, as is defined in its credit agreement, was approximately 2.8 times. Please note that zulily's OIBDA does not count towards the leverage ratio under QVC's credit agreement.

Now I'll hand the call over to Mike George for additional QVC commentary.

Thank you, Chris. 2015 was a transformational year for QVC as we invested and built on a strong foundation for continued long-term success. We launched our new global organizational structure designed to leverage the best of QVC globally to improve our ability to differentiate our shopping experience, to accelerate deployment of new capabilities, and to reduce performance volatility across markets. We invested in lower shipping and handling rates in the US.

We extended and enriched our digital shopping experience by redesigning our web and mobile platforms. We launched QVC France, our seventh market, and in our China joint venture we expanded our TV reach to 114 million homes, making it our largest market by homes reached. And of course we forged a new relationship with zulily, one of the world's leading e-commerce companies.

And while making these investments, we also were able to deliver strong and consistent financial results for the full year. On a constant currency basis we grew revenue 3% with gains in every one of our seven markets. Adjusted OIBDA grew 4% and adjusted OIBDA margin increased 7 basis points, excluding the France startup costs and the one-time costs related to establishing a new global business service center, which I'll discuss in a moment. The total CapEx in 2015 was $215 million.

As part of the new global organizational structure, we created an international division led by Steve Hoffman. As a result, we changed our reporting to align with this new operating structure. QVC will now report results as QVC US and QVC International.

Looking now at the fourth quarter. We were very pleased with our results. At QVC we once again demonstrated the stability of our model at a time when many other retailers struggled with the challenging holiday season. On a constant currency basis, consolidated revenue grew 3% and adjusted OIBDA grew 2%, excluding the impact of France and the new global business service center.

And zulily ended the year with an especially strong quarter with really superb execution, a greatly enhanced customer experience, and adjusted OIBDA results that far exceeded expectations once you adjust for the purchase accounting treatment. Darrell will provide more details on zulily in a few minutes.

Turning now to QVC US. We grew revenue by 3% in the quarter, reflecting volume gains and improved return rates. We saw increases in all categories except jewelry.

We were particularly encouraged by our strong double-digit growth in apparel and accessories despite overall softness in that category. Our adjusted OIBDA increased 2%, excluding the cost of the business service center. The OIBDA margin decline was primarily driven by lower shipping and handling revenue as a result of the new S&H policies we implemented last February, as well as higher warehouse costs. These were partially offset by improved initial product margins, lower personnel expenses, and lower inventory obsolescence.

Turning to international. On a constant currency basis revenues increased 3% in the quarter, up primarily due to volume growth with gains in the home, beauty, and apparel categories, and partially offset by a decline in electronics and in jewelry. Adjusted OIBDA also increased 3% on a constant currency basis, again excluding France and the new service center. We saw continued strength in the UK in German operations, and we were especially pleased to see accelerating results in Italy with good gains in both new customer acquisition and existing customer spend.

France continues to build brand awareness and ended the year with TV reach of 18 million homes. These gains were partially offset by softening results in Japan, especially in our fashion categories. And in our joint venture in China we saw revenue growth up 22% in local currency in the quarter as we continue to benefit from improved execution and this past summer's expansion in Shanghai.

Now, as I have been mentioning, in the quarter we incurred $7 million of costs related to establishing a global business services center to consolidate select finance, human resources, information technology, and legal support functions for our US and European markets. Approximately $4 million of the costs were incurred in international and $3 million in the US. And we do expect to incur another $11 million of additional one-time incremental operating expenses in 2016.

We plan to establish this new service center in Krakow, Poland, where some of the world's leading companies have similar operations. In addition to cost benefits, the center will allow for operational efficiencies and the ability to scale more effectively. We expect the center to open by early 2017, and to build to approximately 200 to 300 positions in the following one to two years. Once fully operational, we anticipate annual cost savings of approximately $12 million to $15 million.

We continue to exceed the reach and the revelance of the brand through commerce platform expansion and growth of our customer base. Including our China JV, our TV broadcast reached approximately 358 million homes at the end of 2015, that's a 13% year-over-year increase.

We generated strong e-commerce in mobile growth in the quarter. Consolidated eCommerce revenue grew 12% on a constant currency basis to 47% of revenue, up 400 basis points from the comparable period. US eCommerce revenue increased 13% to 52% of total revenue, that's an increase of 470 basis points. In this quarter, as Greg mentioned, marks the first time eCommerce sales have represented over half of the US business.

And mobile orders continue on their rapid growth. On a constant currency basis, consolidated mobile orders grew 34% to represent 52% of eCommerce orders in the quarter. That's an increase of over 800 basis points.

And we continue to invest in our digital platforms, to expand our presence and to adapt to changing technology and consumer behavior. We launched our app for the Apple TV in the US in October and in the UK in November. We also launched a universal Android app in the US, UK, and Germany in Q4 for both phones and tablets. It delivers a much more robust customer experience and has driven meaningful increases in both conversion and sales.

We experienced outstanding customer growth in 2015. On a trailing 12-month basis total consolidated customer count increased 3% to 12.6 million customers, and in the US customer count grew 4% to 8.3 million. Those are both records for total customers served. We think these strong customer dynamics are the result of our focus on compelling merchandise and content and our increasing focus on personalizing our digital platforms. In addition, our China joint venture served another 1.4 million customers, that's an increase of 14%.

We delivered on our promise of combining the worlds of shopping, entertainment, and social during the holiday season. Thanksgiving week was a particular highlight in the US. It was the largest sales week in our history with eCommerce accounting for 58% of sales.

Thanksgiving day was our highest selling Thanksgiving ever. Black Friday was the best selling Black Friday on QVC.com, and Cyber Monday was a record as well. On November 28, a Dell laptop was the best selling today's special value ever on QVC.com.

More broadly in the quarter we continue to see strengths in our fashion, home decor and fitness businesses in the US. In fashion we had great success with proprietary designer brands such Lori Goldstein and Isaac Mizrahi Live. We also experienced strong performance in accessories, driven especially by designer footwear, and we're seeing great strength in the fitness wearables category with Garmin and FitBit.

Consumer electronics was up slightly with the rebound in computers, audio, and cameras, and we sold a lot of drones and introduced new brands like GoPro, Amazon Echo, and Microsoft Surface. That said, we do remain highly cautious about the long-term outlook for the consumer electronics category.

Jewelry continued to be soft due to weakness in our gold business. We are refocusing our assets into better performing categories, such as private label Diamonique and Affinity, and will be adding a number of new designer brands in 2016.

We continue building on our social media successes, our flagship Facebook now reaches 2.2 million fans worldwide, and just in the US we have 4.5 million social fans across all social platforms. Instagram became our second largest US flagship platform in fan count in 2015, growing more than 200%. And in the fourth quarter we launched a presence on Instagram in Germany for the first time.

In Q4 we began building a real-time data analytics response technology to drive multi channel revenue. Similar to the testimonial calls that we have used for years on our live TV broadcast, the digital analytics response technology will allow QVC to crowd source customer feedback 24 hours a day. We are now monitoring several different data sources, including intraday detailed sales performance and forecasting, customer feedback across the web and social platforms, customer behavior on QVC.com, and the impact of the live broadcast. We're reacting to this data in real time to provide an enhanced multi channel customer experience tailored to our customers' expectations and to help drive incremental sales.

We were also pleased to have been once again recognized for outstanding customer service. QVC ranked number two behind Amazon in customer satisfaction for web among mass merchants in the 2015 4C customer experience index. In the UK we achieved the number one ranking in the retail sector for customer service and ICMI's annual awards. And in Germany service [atlas] ranked QVC as the top customer oriented online retailer in 2015 and service value ranked QVC Germany number one for customer service in the sector.

Now, looking forward to this year, we are excited about the opportunities in front of us to continue extending our industry leadership, capitalizing on the significant investments we have made over the past year. We believe we are well positioned to grow our business and continue taking market share.

We are leveraging our new global organizational model to extend our best brands and more rapidly deploy best practices across all markets. We are particularly excited about the upcoming relaunch on an exclusive basis of the C. Wonder brand, which will be launched first on zulily next week and then launched subsequently in the US, UK, Italy, and France on the QVC platform in early March.

We will be completing the next major phases in the redesign of our web platform in the first quarter and we will be deploying new personalization and optimization capabilities on the site, leveraging learnings and tools from zulily through the year. We'll open our new West Coast DC late this year and we anticipate achieving significant freight savings along with substantially improved delivery times it our customers as the site ramps its volume through 2017 and 2018.

And importantly, our zulily and QVC teams are working together incredibly well and working to drive new revenue and cost opportunities. This work began in earnest in Q4. We have placed a number of today's special values on zulily, introducing those customers to QVC.

We have sold some of QVC's proprietary product lines on zulily, and used zulily as an outlet for some of our mark down products. We ran on-air spots on QVC for zulily and saw meaningful traffic to their site minutes after the spots ran. And in early December we ran a zulily program on QVC Plus featuring an assortment of products both on zulily and interviews with zulily team members.

We conducted digital marketing test redirecting consumers from QVC.com to zulily. We also ran print promotions with package inserts and ads in our QVC customer magazine Inside Q.

Now, while none of these tests were large enough to be material in the quarter, they completely confirmed our thesis, our belief that we can accelerate customer growth and increase purchase occasions for both brands as we work together. And, finally, in 2016 we anticipate our capital spend to be approximately $210 million to $220 million at QVC, and another $25 million to $30 million at zulily.

And with that I'll turn the call over to Darrell to discuss zulily's results.

Thanks, Mike, and thanks everybody for joining today's call. We ended the year and the holiday peak season strong, particularly from an operational perspective. Fourth quarter revenue came in at $426 million, up 9% year over year, and adjusted OIBDA came in at $21 million, up 1% year over year.

It's important to note these amounts would have been $17 million higher had we not reduced the amount of deferred revenue as part of a non-cash acquisition purchase accounting adjustment. As a result, fourth quarter revenue would have been $443 million, up 13% year over year, and adjusted OIBDA of $38 million, up 87% year over year.

For the full year, revenue grew to $1.4 billion, up 13% year over year, an adjusted OIBDA to $71 million, up 63% year over year. In addition to the previously mentioned deferred revenue adjustment, full-year 2015 adjusted OIBDA excludes $30 million in transactions costs related to the closing of the acquisition.

As Mike noted, it was an incredibly busy initial quarter for us as part of the QVC Group. We stayed focused on delivering our holiday season but also put a lot of focus at zulily and QVC on shared learnings and exploring the opportunities between our brands. I am pleased at how our zulily and QVC teams are working together and I am encouraged by our initial results.

I would like to spend a minute talking about two areas where we made substantial investments over the past year, marketing and customer experience. I'm excited about the amount of progress we have made in both these areas and we remain focused on our efforts to reaccelerate growth in 2016.

First, on marketing. As expected, active customers, which we define as any customer who placed an order in the past 12 months, trended relatively flat through Q4 as we focused on the higher churn -- excuse me, the higher churn rates of our more transactional customers from the year prior. As a reminder, in early 2015 we made a significant transition in our marketing model to focus on acquiring higher lifetime value customers. We pulled back on spend in Q2 and refocused our efforts by shifting more spend into the broad based channels like display and TV, gradually ramping as the year progressed.

We made some key leadership changes in our marketing organization, and made additional investments in key tools to help drive better visibility as we scale. In Q4, we continued to see repeat rates improve with 90% of our total orders coming from repeat customers, up from 86% a year ago and 88% in the third quarter.

Mobile continued to be a key driver for our business, with mobile orders growing 35% year over year. In Q4, 59% of the orders came from mobile devices, flat from the prior quarter and up from 51% a year ago.

Second, regarding our customer experience, we saw significant improvements in our operational execution. At the end of January our net promoter score was at some of the highest levels in recent history. In Q4, we reduced our average delivery times, but more importantly we drastically improved our accuracy around ship dates.

We have also put a concerted effort into monitoring product quality, traffic feedback, and increasing real-time visibility to our vendors. This allows us to react quickly to negative customer feedback and assures our merchandising team and vendors have a constant feedback loop to help scale and improve their businesses. I am excited about the tremendous progress we made in 2015, and expect our team to elevate our standards going into 2016.

We also saw significant improvements in our profitability. Our adjusted OIBDA margin expanded 335 basis points year over year, driven by strong supply chain execution that resulted in gross margins exceeding our expectations. Our Q4 gross margins improved 380 basis points year over year, driven by supply chain efficiencies, including fulfillment processes and transportation operations improvements.

Into 2016, I am primarily focused on doing what we need to do across the business to reaccelerate our growth. Having such strong operational execution and improving unit cost economics is a foundation for keeping our customers engaged and happy.

For zulily, that means investing in the opportunities core to our unique experience. To become a daily habit for our customers by inspiring products and experiences she loves. For example, in merchandising we will expand our daily offering with amazing new products and vendors and make sure we maintain our strong brand trust by delivering something special every day.

In marketing, we'll invest in technologies such as mobile and personalization to drive innovative experiences in how we acquire and engage with customers. And as mentioned earlier, we will also look to enhance our customer experience. For example, in 2016 we continue to expand our vendor fulfillment services program. As a reminder, we typically purchase inventory after the products are sold to the customer.

With the new program, we essentially act as our vendor's third-party logistics provider. The vendor pays a fee to use our fulfilment centers for storage and for shipping items they sell through zulily as well as their other retail channels. This eliminates the ship time from the vendor to fulfillment centers.

Because the inventory still belongs to our vendors, though, we are able to do this without bringing the inventory on to our balance sheet. By year end 2016, we hope to more than double the number of units shipped to our customers through this program. By extending this offering, we hope to continue to reduce our ship times.

Lastly, I'm excited about the testing we have done so far in collaboration with QVC. Together, I believe we will be able to drive incremental growth opportunities and leverage our brand to become the leading entertainment based shopping experience in the world. I look forward to continuing to update you on our progress here over the coming quarters.

With that, let me turn the call back over to Chris.

Thanks, Darrell. Let's take a look at Liberty Ventures. As you will note in the press release and in the 10-K we will be filing later today, we've removed the segment information of the digital commerce business for a number of reasons, including the aforementioned proposed spin-off, the sales of Backcountry.com, and the sale of Provide Commerce. The digital commerce business information is now included in the corporate and other line items. We do note that the detailed information of both CommerceHub and Bodybuilding.com will be included in the upcoming filings for their respective spin-off transactions.

Now let's take a quick look at the liquidity picture for the Liberty Ventures Group. At the end of the quarter the group 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 $3.7 billion and $1.3 billion respectively at the end of the quarter.

Now with that I'll hand the call back to Greg for Q&A.

Thank you, Mike, Darrell, and Chris, and to our listening audience we appreciate your continued interest in Liberty Interactive. Now I'd like to open it up for questions. Operator, please.

(Operator Instructions)

Your first question comes from the line of Matt Nemer with Wells Fargo Securities.

Thanks so much, and good afternoon, everyone. So my first question is for Mike and Darrell. Now that you have had some time to run revenue and marketing scenarios, can you give us an updated view of where you think the biggest opportunities are? Is it frequency and spend on the Zu platform? Is it bringing Zu customers over to the Q platform? I would love to get are you sense for where the lowest fruit is on the tree.

Darrell, why don't you start with that and then I'll add a couple thoughts.

Sure. Yes, I think as we dug into it over the past four months, I think it's as both Mike and I mentioned in the script, I think we are continuing to see great opportunities, really similarities in the teams and cultures, as well as the way we think about telling our stories to our very similarly engaged customer bases.

But I think overall if I look at where the biggest opportunities are, they are very much where I think we thought they were before. It's around taking these great brands that both of us have and exposing them to each other. I think you look today, Mike mentioned this, we actually had Sea Wonder on the site today. If you log on to zulily, you see that at the top of the page.

It's being able to take those incredible brands that QVC has and bringing them to zulily. I think that's first and foremost.

Second is really just exposing the customers to both brands. We see these customers both at zulily and QVC. They love to shop. They love to be entertained by great product. The tests that we have seen taking customers from one brand to the other seem to be working well. I would say we are early in that, but I think both of those, the brands and the customer side, I just -- as we peel the onion back, it feels like there is a lot of opportunity there.

Mike.

Yes. I would just second that and we're learning every day. So, for example, what we have found is we have tested different TSVs on the zulily site. Certainly they have varied performance. Some very strong, some weak, particularly in categories where zulily is not currently strong: live plants, beauty, high-end electronics.

When we introduce TSVs in those kinds of categories, they seem to do pretty well in terms of driving sales of those TSVs to QVC, but also actually, surprisingly, keeping the zulily customer more engaged on the zulily site because she is finding some things she hadn't seen before. And while this is certainly not representative on our best performers, we have seen as much as 15% of the total new names on the TSV, new customers on a TSV coming from that zulily redirect.

And we now have just enough data to begin to look at the performance of those zulily customers to see if they have become good QVC customers. And the early results suggest that they are performing as well as customers we bring in through other marketing channels. Sort of day-by-day learning. We will get more and more surgical, but I think both Darrell and I, as he mentioned, are just really enthused by what we're seeing at this stage.

Excellent. And then secondly, other than the continued investment in the global service center that you mentioned, and obviously the distribution center opening later this year, are there any other meaningful investments that you're anticipating that would impact operating leverage in 2016?

I think those are the primary ones. I mean, we'll continue to -- we will have half a quarter of continued impact in Q1 from the S&H change we made last February, and then we will be past that, which is probably the single biggest hit to OIBDA margin and France will be the other area of continued investment. Most of that headwind was 2016. So it's not going to be highly material on a year-over-year basis in 2016.

Great. Congratulations on a strong holiday in the fourth quarter.

Thank you.

Your next question comes from the line of Barton Crockett with FBR Capital Markets.

Great. Thank you.

I was curious about the explosive growth in EBITDA margin at zulily. And I was wondering if you could peel back the onion a little bit for us and tell us a little bit more specifically what drove that 87% growth in EBITDA broken out between gross margin and operating expenses? Was there any kind of merger cost synergy that helped there? And how sustainable do you think this type of margin improvement is into 2016?

So if you look at Q4 where the margin growth happened, it primarily came from gross margin, and in particular just incredibly strong execution in our fulfillment and logistics operations areas, as well as a lot of the work that we have done over the last 18 months around our transportation improvements to continue to consolidate more items into fewer packages and get those shipments out to mom both fast and in a more consolidated way.

So that's where most of that came from. I think we continued to stay very disciplined on our expenses as well. Really not much in the way of immediate synergies from the deal. So, I think most of that really just came from gross margins and strong execution.

Okay. Great. Thank you for that. And then switching gears a little bit. I know you will give us more data in a bit, but it is new equity coming at us relativity soon. Can you give us any sense how CommerceHub did in the quarter and whether there was any meaningful change or continuation of the business trajectory there?

I think in general CommerceHub's results continue to do forward well. No major variance from the past positive trends, and we expect you'll see that materials, those materials shortly. So, I don't think you'll be surprised. I think it's going to continue to be positive.

Okay. That's great. Thank you.

Your next question comes from the line of Rick Patel with Stephens.

Hello, everyone, and thanks for taking my question.

Can you talk about what you think will be the primary drivers of QVC's US business as we think about 2016? I'm curious if there are any particular products or category initiatives that you're particularly excited about. And do you see growth being driven by units or ASP this year?

I think as we look at 2016, I think what we're mostly encouraged by, and this was a trend in 2015 that I think continues is, fairly broad-based health across the categories. And so we're not -- we don't feel like we are overly dependent on one or two categories to drive growth and I think we can have a fairly balanced profile.

The two watch outs continue to be jewelry and consumer electronics. We are working hard to try to turn the jewelry business. I don't know that we have cracked the code yet. We have got a number of new designers we are introducing, as well as sort of a step-up in our proprietary brands. So hopefully we moderate the pressure we have seen in jewelry, and then the fashion business continues to be remarkably strong.

We have been talking about the Sea Wonder launch, which will be one of our biggest launches ever. So feel good with the trajectory in fashion. Then I think there is a handful of things working for us on the home side.

Then add to that all of that continued, I would say, optimization of our second channel, QVC Plus. We continue to do more and more live programming on the second channel, and that performs better than the taped programming. We'll be launching the next big phase of our site redesign, which gets down to the core of the product detail page, which is the most critical and complex page. So some important enhancements there and that along with continued mobile investments. I think those are the primary things we look to to power the business.

Can you also share your thoughts on QVC's launch in France? I know Carriage was a little slow out the gate. But are you at the point where the infrastructure is there for that business to really start ramping up, or is there still more work to done? And given what you have seen so far, any context around the timeframe we should have in mind for when that region will become profitable?

I would say so on the Carriage side it did start -- ramp more slowly than we had anticipated, but we are in a pretty good position as of year end and still some more Carriage opportunities. So we're probably 80% of where we'd like to be with Carriage and hopefully can add a little bit more this year.

I would say the overall, the quality of the team we have in place, the quality of the execution, looking at the products, the programming, we are really quite proud of what we are putting into the marketplace. We were, in ways that we weren't able to do in Italy, we were able to leverage a lot more of the resources of QVC effectively to both bring a better experience to the market and do it at a lower run rate of cost.

Having said all of that, I will tell you that revenue is lighter than we would like it to be. That's a little bit due to the slower carriage ramp in, partly just we have learned that these businesses are -- take time to grow. We don't do a lot of advertising. So it really is about that customer trying to find us on a digital platform.

And in France in particular where it's both a totally new experience for the customer, and I would say the French customer probably more so than any other area in Europe is, she is slow to take on a new brand. So I think we've got -- she's got to see us for a while and believe in us.

So the revenue is certainly ramping every week sequentially, but it is a bit behind where we'd like to see it. I think it's too early to give any long-term outlook for the business other than we are happy with the execution. When we do land the customer, she is responding very positively to what we are offering. We do have a lower run rate of expenses than in Italy. So I think that will enable us to contain our losses nicely as we ramp the business.

Thank you. Good luck this spring.

Thank you.

Your next question comes from the line of Eric Sheridan with UBS.

Thanks for taking the questions. Maybe two for Mike.

Mike, you referenced alternative distribution like Apple TV and some of the other products you're looking at. Maybe you could give us a sense of what you except for those platforms going forward, what those might do for QVC longer term.

And then another on the international business. Sold items came in around 2%. Maybe give us a sense of what might be done to stimulate that to a higher number in 2016?

Thanks.

Thanks, Eric.

On alternative distribution, we love the experience on the Apple TV. We have seen some nice response on Roku, and I think there is a lot more we could do on the Roku platform.

We are encouraged by this trend of a lot of the traditional providers to be offering over-the-top subscription service, and I think that will be an interesting platform for us. So at this point it's really experimentation phase. I just think it's too early -- none of those things have any material impact today, so the sales are very small across all those alternative platforms.

So our view is, lets be wherever the customer is going, continue to experiment with what experience and interface makes the most sense for her, and be ready when one those takes off to ride the wave. But really too early, I think, to make any call as to whether those will be coming in full over what time period. And again our -- despite all the concerns in the industry, we continue to feel good about viewership on our core traditional TV platforms and the stability that we're seeing on that platform.

And I'm sorry. Can you give me your second question?

I was curious about international units. It came in around 2%. What might be done maybe a little bit of market color even to stimulate that number higher in 2016?

Yes. I think the international story really boils down to Japan being softer than we anticipated. So very nice results in Europe. UK continued good momentum. Germany continued good momentum. Italy really picking up nicely. We are really encouraged about what we're seeing in Italy. But the Japan softened up. Over the last couple of years I have been consistently saying the market that faces the biggest structural headwinds, and it's an everyday fight. But, just given the size of that market we still think it has a lot of potential.

So we were on a better run in Japan earlier in the year and saw some softening. A little bit of that is macroeconomic weakness and other issues we face in Japan. But I think some of that was our own execution. Our fashion offerings just weren't resonating with the customer.

So we are very excited about having a new leadership team in Japan. The Mike Fitzharris, who was our COO in UK, is now running that market, and we have brought in some terrific talent from the US and other places to fashion as our longest lead time. So, you generally need to load in the inventory further out in front of the sales than you do in other categories.

So, you saw us bring in some spring merchandise at the end of 2015. But, very deliberately, because we really love how that business is trending. So, we feel quite good about our inventory position.

In terms of our consumer outlook, it is hard for me to add much more to what all of you see and read. Obviously, a fairly tepid Q4 for most retailers. A little too early to get a read on 2016. On the up side, I think as folks become convinced that these gas savings are real, and want to spend them in retail, as opposed to put them in the bank, at the same time the stock market volativity is certainly a concern. So if we see continued market recovery from early January, that sort of we think bodes well for at least the consumer segments we serve and if it were to go the other way, that would be a bit of a concern.

So my overarching view is we phased into a fairly tepid consumer environment for six or seven years. I don't anticipate it getting much better, but I also don't anticipate it being a whole lot worse. And so our job is to push through that and try to grow a couple hundred basis points faster than the overall general merchandise market, which we have generally been able to do.

Great. Thanks so much.

Your last question comes from the line of Alex Fuhrman with Craig-Hallum.

Great. Thanks for taking my question. Just a quick one for Mike. I have been noticing a decent amount of TV advertising on other channels promoting the Sea Wonder launch. I wonder if there are other brands that you have done that type of advertising for to support a launch. Just thinking from a broader perspective I know QVC has not done historically a lot of external advertising. Is that something that could be a driver of growth in future years, or is that really just a test for the one launch? Thank you.

First of all, I am thrilled that you are seeing the Sea Wonder advertising. That's very encouraging. We are actually not doing anything meaningful incrementally for Sea Wonder. So we do have some amount of advertisement we run through the year at no cost to us as part of our Carriage agreements. It's typically remnant advertising at a fairly low rate. It does have some impact. People do see it, but it's into the especially heavy, not picking it up for Sea Wonder. Sometimes you can get better placement from our cable partners.

More broadly, I would say we don't have any intent to be more aggressive about TV advertising. We generally feel that ROI is pretty tough because of the overwhelming influence you get from our live TV, that the incremental benefit from advertising can't quite pay for the cost of it. We have done it when we launched a new market. We are debating about whether or not we want to do some of that for France. We haven't yet decided with the bigger businesses. We don't anticipate doing it.

That said, we always have an open mind and we are trying to learn a lot from our friends at zulily who are ramping up their TV advertising in a direct response mode. They have seen nice results. So those are things that are interesting to us that we'll watch, but no current plans.

Great. That's very helpful. Thank you, Mike.

Thanks. So with that, Operator, I think we are done. To our listening audience, thank you very much for your continued interest in Liberty Interactive. We look forward to seeing you soon next quarter or hopefully before. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.