Courtnee Chun – Senior Vice President-Investor Relations Mike George – President and Chief Executive Officer Mark Carleton – Chief Financial Officer Greg Maffei – Executive Chairman.

Heather Balsky – Bank of America Merrill Lynch Alex Fuhrman – Craig-Hallum Capital Group Eric Sheridan – UBS Edward Yruma – KeyBanc Capital Markets Barton Crockett – B. Riley FBR Thomas Forte – D. A. Davidson Victor Anthony – Aegis Capital.

Ladies and gentlemen, thank you for standing by. Welcome to the Qurate Retail Incorporated 2018 Q2 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, August 8.

I would now like to turn the conference over to Courtnee Chun, Senior Vice President of Investor Relations. Please go ahead..

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, market potential, stock repurchases, future financial performance, market conditions, integration of HSN and expected benefits and synergies, future impact of accounting changes and changes in tax law, expected benefits in the sale of ILG, future expenses at QVC, sales demand, customer growth, 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 conditions conducive to repurchases, the availability of acquisition opportunities, competitive issues, regulatory issues and continued access to capital on terms acceptable to Qurate Retail.

These forward-looking statements speak only as of the date of this call, and Qurate Retail expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Qurate Retail'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, adjusted OIBDA margin and constant currency. The required definitions and reconciliations, including preliminary notes in Schedules 1 through 3, can be found in the earnings press release issued today, which is available on our website.

Today, speaking on the call, we have Qurate Retail President and CEO, Mike George; CFO, Mark Carleton; and Executive Chairman, Greg Maffei.

As discussed on prior calls, at the beginning of 2018, we changed our revenue recognition in accordance with new accounting standards related to recognizing branded credit card income as revenue rather than an offset to SG&A expense.

Throughout our comments, unless noted, we'll discuss Q2 net revenue results for QVC U.S., HSN and zulily as if the credit card income remains an offset to SG&A expenses as it was in 2017. We believe this provides the most comparable review of our year-over-year performance.

In accordance with new accounting standards, we also now recognize revenue at the time of shipment rather than delivery. We did not adjust our results for this change in our comments on this call because this impact is expected to balance out over the course of the year.

For Q2, the new delivery-based standard reduced Qurate Retail's reported net revenue growth by approximately 20 basis points and reduced our reported adjusted OIBDA margin by approximately 15 basis points.

Our reported results and the impact of the revenue recognition changes are included in our earnings release issued this morning and in our SEC filings. Now I'll hand the call over to Mike George..

Doubling down on digital innovation across platforms, building distinctive marketing capabilities, driving customer engagement and growth, getting key integration milestones and building our leadership teams. These gains put us in a strong position to deliver on our strategy and on our financial plans.

More near term, we expect to see improvement in our overall margin profile in the second half of 2018, driven by the action plans detailed at Investor Day as well as the easing of some of the onetime headwinds that we faced in the first half.

Before taking a closer look at the second quarter results by segment, let me provide perspective on the recent decision by the Supreme Court regarding the collection of sales tax by remote sellers. Using full year 2017 revenue as a proxy, approximately 15% of Qurate Retail's domestic sales are impacted by this decision.

We're working toward collecting sales tax in the required states based on guidance provided by each state and expect to collect sales tax in substantially all the required states by the start of 2019. Turning now to the second quarter results, starting with QVC U.S.

We delivered our fourth consecutive quarter of revenue gains, though growth is not yet at the level we want. Now revenue grew 2% adjusted for the credit card income component of the revenue recognition changes on strong unit volume growth of 6%, partially offset by 4% decrease in average selling prices.

As you may recall, last year, approximately 1% of sales shifted from Q2 to Q3 due to a systems outage at the end of the quarter that delayed shipments. This benefited our results this quarter and will have a corresponding negative impact in Q3.

Our fashion business remains strong with outstanding growth across apparel, handbags, footwear and intimate apparel. Consumer electronics and jewelry remain challenged. Home was mixed, with strength in home improvement and health and fitness offset by softness in home decor and cooking and dining. And beauty was down slightly.

We're focused on getting back to consistent growth in home and beauty, and we also see more opportunities for consumer electronics in the back half. QVC U.S. operating income increased 28%, and operating income margin increased primarily due to lower purchase accounting amortization.

Reported adjusted OIBDA margin declined 110 basis points after normalizing for the change in revenue recognition for private label credit card income. As we shared at Investor Day, we anticipated a number of pressures on adjusted OIBDA margin in the quarter, and we performed somewhat better than expected.

We also remain confident these pressures will ease in the second half. Gross margin was flat when excluding the impact of the credit card change. We saw improved product margins due to higher mix of fashion as well as freight savings. These gains were offset by higher warehouse costs due to ASP deleverage.

SG&A expenses increased due to higher bad debt expenses, resulting from a favorable bad debt adjustment in the second quarter of 2017, investments in performance marketing and higher fixed costs, which includes the impacts from a change in bonus allocation at QVC.

These factors were partially offset by lower customer service costs due to the increase in digital and mobile penetration. In total, approximately 70% of the adjusted OIBDA margin contraction was driven by non-operating items, with the largest being the prior period bad debt reserve adjustment.

We'll have more favorable margin comparisons in the back half due to fewer onetime pressures, and we expect to make progress on ASPs by better managing offer prices and overall product mix.

Finally, in the U.S., I would note that the change to recognize revenue at the time of shipment rather than delivery had a modestly negative impact unlike in Q1, where it had a favorable impact.

Under the prior accounting treatment, adjusting for both the Q Card impact and the time of shipment, Q2 net revenue would have grown 3% and adjusted OIBDA would have been essentially flat. Moving on to QVC International. Revenue increased 7% in U.S.

dollars, reflecting favorable exchange rate fluctuations as the dollar weakened against the euro, pound and yen. Revenue grew 1% in constant currency while operating income margin decreased 70 basis points and adjusted OIBDA margin fell 230 basis points.

These results are well below what we typically deliver in our international operations and are traceable to unique mix of factors. We're focused on getting better results in the back half. The top line slowdown was driven by soft demand in Japan and Italy.

These sales pressures reflected specific challenges in each market, including weak TSV performance in Japan and lapping an advertising campaign in Italy. We achieved substantial improvements in the international sales trend in June. Turning to the operating income margin, adjusted OIBDA margin contraction. There are two primary drivers.

The first was a heightened level of clearance and liquidation activity and increased inventory obsolescence in the U.K. and to a lesser extent, in Germany, which also put pressure on freight and warehouse costs due to ASP deleverage. This was the primary driver of the 130 basis point gross margin decline in international.

We believe the clearance actions are largely behind us as we move into the back half, significantly lessening the gross margin pressure. We also had a freight rate increase in Japan as demand is consistently outrunning carrier capacity in that market.

Second, fixed costs and commission expenses increased approximately 100 basis points due to sales deleverage and growth investments, among other factors. While we expect these expense challenges to lessen in the back half, we will continue to see some pressure from freight, commissions and other investments. Turning to HSN.

As I shared at Investor Day, we fully expected sales trends to be as challenging in Q2 as they were in Q1. We're prioritizing profitability improvement and better quality of sales so that, ultimately, as we rebuild revenue, we're doing so on a strong foundation. The quarter played out as expected.

Sales and customer count continued to decline, but we began to see significant margin improvement. We focused particularly on improving discipline around pricing and promotion and shipping and handling charges, along with achieving the acquisition synergies.

Operating income and operating income margin declined primarily due to purchase accounting amortization. Adjusted OIBDA was down 8% on a 12% sales decline. Adjusted OIBDA margin expanded 40 basis points adjusting for the private label credit card income. The improvements stem from our strategic initiatives, especially on the gross margin line.

Sales from merchandise on clearance, for example, was reduced to 5% of total sales – total HSN sales from 10% in last year's second quarter. And more importantly, the depth of clearance markdowns were substantially reduced. Along with improved product mix, this helped drive a 6% increase in ASPs.

In the second half of the year, we're focused both on reinvigorating growth in the customer base at HSN and on improving fundamentals across the business, including enhancing product freshness, balancing exposure and frequency across categories, strengthening on-air practices and getting more aggressive on driving digital engagement and sales.

Speaking to product assortment. We're focused on improving both the breadth and health of the overall assortment and maintaining a fresher today's special lineup. So far, we're encouraged by the newness coming into our inventories, and we're closely tracking reorders as we move forward.

This fall will be a busy time with more than 100 new brand launches scheduled over the second half of 2018. Customers will see a better balance across a variety of categories. Examples include launching Anne Klein, Clarks, Dooney & Bourke, Beekman 1802, StriVectin, MyPillow, Shark, Sleep Number, Vitamix and Keurig.

Many of these brands are listed among the most desired by our HSN customers. Our recent launch of Beekman 1802 highlights the opportunity in front of us. The team did a fantastic job creating a compelling and engaging event, and the customer responded. We sold 260,000 bars of soap on the day and sold out of 177 SKUs.

In both of sales dollars and units sold, Beekman set a record. No other beauty launch in the history of both HSN and QVC has achieved better results.

In addition to these new brand launches, we're bringing back approximately 30 brands that have been long-time HSN customer favorites that were curtailed in recent years, including Jones New York, G by Giuliana Rancic, Born, Brookstone, Dyson, HoMedics, Sealy and Technobond.

Finally, we're also launching several proprietary brands later this year developed by our Qurate design, development and sourcing team. They've had tremendous success building the strong proprietary fashion business at QVC, and we see great opportunity at HSN where the fashion category has much lower penetration.

We've recently began taking inventories back up as we prepare for our upcoming brand launches. We'll also support the enhanced assortments with increased performance marketing efforts, leveraging the new house – the new in-house Qurate Retail marketing team.

We believe that our strategy will ultimately drive renewed sales growth in HSN, but we remain cautious in trying to predict the timing of the turn given the likelihood of both hits and misses among so many upcoming launches.

But as the success of the Beekman launch demonstrates, we are confident that as we continue to freshen the assortments and then lean in the reordering on the successes, we can get this business back to growth. So the headline on HSN is that Mike Fitzharris and his team are executing well against the priorities we laid out for you in May.

The early results I've shared should indicate that we've got a good handle on the operating levers that drive profitability, and we expect continued improvement. The sales trend is challenging to turn, but we believe we're on the right path. We will take aggressive steps to make it happen.

And when it does, we'll benefit from the margin improvement we're driving. We've said that it will take multiple quarters to complete the turn of HSN, but we remain confident the business will add significant value to our company. The zulily team continued its momentum and delivered another outstanding quarter.

Revenue increased 13%, our third straight quarter of double-digit growth.

We ended the quarter with our record-high 6.4 million active customers, reflecting our continued success investing in our marketing strategy, offering compelling events with boutique and national brands, expanding China direct shipping and enhancing the customer experience through initiatives like the rollout of our new customer returns program.

Operating loss improved 7%. Adjusted OIBDA grew 12% on largely stable OIBDA margins. Sales growth and the leveraging of operating expenses was partially offset by higher SG&A expenses and a slight decrease in gross margins due to higher transportation costs.

However, the hard work of the supply chain team that I mentioned last quarter is starting to show results. Gross margins, while down to last year, improved 140 basis points sequentially, and we remain confident that we'll see improving year-over-year results in the back half. Turning now to Cornerstone.

Sales declined 9% primarily on continued challenges at Frontgate. Garnet Hill achieved a record Q2 financial performance and continues to demonstrate strong momentum. Ballard Designs also registered record Q2 revenue, driven primarily by strong growth in the retail and digital channels.

Operating income at Frontgate declined primarily due to purchase accounting amortization. Adjusted OIBDA fell $2 million or 10%, driven by lower sales, partially offset by lower operating expenses. We strategically reduced catalog circulation as we rebalanced marketing investments across the digital and retail platforms.

Frontgate remains our primary focus at Cornerstone, and we continue to make progress towards repositioning the brand and the product assortment, and we look forward to the deep experience and leadership that Tom Bazzone brings to the management team.

We recently announced that we will be integrating Cornerstone's Improvements brand into HSN and closing its catalog operation by year-end. Improvements is the smallest business in the Cornerstone portfolio, not currently profitable. And ultimately, we felt that it was not a strategic fit with what we're trying to achieve with the Cornerstone brands.

By integrating the Improvements into HSN, we can preserve the value we see in the line and drive sales on its strongest platform. Overall, the move is expected to reduce Cornerstone's revenue by an estimated $75 million annually, with an essentially neutral impact to overall Qurate adjusted OIBDA.

In Q3, we anticipate incurring approximately $10 million of onetime costs for severance, lease liabilities associated with closing our Cleveland operation and liquidation of inventory.

I want to take a moment to thank our Improvements team members for their extraordinary passion and dedication to the business and all their efforts over many years to make Improvements a special and unique brand. Looking forward, we have a firm grasp on the challenges at Cornerstone and remain confident in the growth potential of the portfolio.

The team remains focused on building strong brands, developing differentiated compelling product assortments that resonate with our customers and driving sustainable growth in revenue and gross margins. In summary, our results are directionally aligned line with what we shared in May.

We're past the most challenging margin comparisons and anticipate a more favorable margin profile in the back half. We're thrilled with the strong growth in new and total customers in key businesses, and we're encouraged by our progress expanding our marketing, social and digital initiatives.

And we will continue to accelerate these programs as we see positive results. At our Investor Day, we articulated a multiyear view of profitable growth and enhanced free cash flow generation that we believe will drive significant value for our shareholders.

The strategic progress we're making reinforces our confidence in the financial framework we've shared. And with that, I will turn it over to Mark..

Thank you, Mike. Let's take a quick look at the liquidity picture. At the end of the quarter, Qurate Retail had attributed cash and liquid investments of $657 million and $7.9 million in principal amount of debt.

QVC Inc.'s total debt-to-adjusted OIBDA ratio, as defined in QVC's credit agreement, was approximately 2.5x, which includes zulily's adjusted OIBDA as compared to a maximum allowable leverage ratio of 3.5x. Total leverage for Qurate Retail Group, which includes QVC, zulily, HSN and Cornerstone, was also 2.5.

Now I'll hand it over to Greg for some final comments..

Thanks, Mike and Mark. I'm going to chat briefly about our capital allocation.

During the quarter, we repurchased $418 million principal amount of charter exchangeable debentures using a portion of the cash reattributed in March in conjunction with the LVNTA split-off and the $133 million of cash received from GCI Liberty in the second quarter related to their indemnification obligation.

From the period of May 1 to July 31, we also repurchased $209 million of Qurate Retail shares. On other news, we expect the Marriott Vacations Worldwide acquisition of ILG to close around August 31.

The after-tax proceeds will be about just over $200 million in cash and just under a 6% stake in Marriott Vacations, which currently has an estimated value of about $332 million. As a reminder, we will be holding our Annual Investor Meeting on November 14 in New York.

As we get closer to that date, please refer to our website for additional information. As always, we appreciate your continued interest in Qurate Retail. And with that, I'd like to open it up for questions.

Operator?.

Thank you. [Operator Instructions] And first, we’ll go to Heather Balsky with Bank of America Merrill Lynch..

Hi, thank you for taking my question.

I guess, for Mike, as we look at the back half of the year and you're lapping tougher comparisons, can you talk about what gives you confidence that you can sustain or even improve the momentum that you're seeing at QVC U.S.? And then as kind of a follow-up to that, can you just talk about what happened in the quarter in beauty and home and how you're course correcting? Thanks..

Yes, thanks Heather for the question. As you said, we clearly face much steeper comps in the back half than the front half. And we never give forward guidance, but our goal is to grow every quarter.

And I've said in the past, when the business is going the other way that I think – while looking at those comps is a factor, I think we can kind of overstate the importance of that two-year view. We look at every quarter as a fresh start. We're pleased with the momentum we have in the customer base.

We've got, obviously, detailed plans to win in the back half. So we have to get there. We have to get through those laps and show that we can do it. And we're just sort of confident that we're on a good path as a company and excited about the plans and initiatives for the back half.

But we'll know we can comp them when we get there and show that we've been able to do that. Across beauty and home, I won't say there were any really specific challenges to highlight.

Beauty has become an increasingly competitive business, so we just got to continue to lean into new launches, new initiatives, really leaning into how do we get more out of Beauty iQ, so challenging how do we take that business forward.

While they're not yet at scale, we mentioned some of these kind of micro beauty sites that we're experimenting with. We continue to see beauty as one of the most important and strategic businesses of the company.

It's right at that intersection of some of those trends that I talked about in terms of influencers, in terms of engagement over digital media. So we continue to look at driving the core business as well as we can, continuing to up-brand innovation and introductions but also experiment with some of these other platforms to get to sustainable growth.

Home was a more varied story. No one issue, some ups and downs but we're moving into a really – as we get closer to Q4, really strong time for our home business. We're pretty pleased with our Christmas in July programming, which is always a perfect indicator but on the – sort of the holiday side of home.

And we're just getting into sort of naturally stronger time for the home businesses. So we like the plans we have. And we'll continue to push there and also push on electronics, again, as we move into more favorable time of the year for electronics.

So definitely, a steep hill decline, but feel like we have a number of initiatives that we're feeling good about..

Thank you. And I'm going to throw in one other. You mentioned in the script that you're making headway on ASP.

Can you just elaborate on the changes you're making and kind of what you're seeing thus far?.

Yes. I've discussed in the past that we historically don't try to manage the ASP. So we want the customer to pick product she wants, and ASP falls out of that.

But our conclusion, after having now seen several quarters of ASP erosion, is that we need to be more proactive about shaping the assortments with an eye towards ASP, making sure we're giving her fully featured options that are still great values but enable us to drive up ASP, just being thoughtful about how we're driving the mix of business.

So it's something we approach carefully. But as we started to get more serious about that work over the last few months, we've began to see progress. So even though we had a significant ASP erosion in Q2, the back two months of the quarter were better, still down in ASP but much better than April. So we feel like we're on the right trend.

And just whether or not we'll get it fully turned, let's see, but we typically can make it a much less important part of the story and really reduce the margin pressure that it's created..

Great, thank you again..

Thank you. And moving on, we'll move to Alex Fuhrman with Craig-Hallum Capital Group..

Great, thanks very much for taking my question. One thing I wanted to ask about is it looks as though the over-the-phone business for QVC – and obviously, whether customers are checking out over-the-phone or online, I mean, it's all generally influenced through the same channels.

But curious, it looks like that actually increased year-over-year for QVC for the first time in several years.

I’m wondering if some of the recent accounting changes perhaps influenced that or if there's maybe a difference in your product assortment or the way you're staffing your phone lines that could be influencing how that business has turned around?.

I think what you're maybe seeing more is just the volume impact. So the mix of business continued to mix towards digital and online and so we had, I would say, kind of on trend or maybe even slightly stronger shift of the business towards online.

Now because of the 6% growth in units, we had absolute increases in activity, right, just because of – even though the revenue growth wasn't as strong, we had unusually strong growth in units and therefore, in activity and calls.

So I'm not sure exactly what you're looking at, but I would say from a sales mix standpoint, the business kind of continues to shift towards digital and away from phone. But in terms of absolute activity, there's clearly an increase in activity associated with the units..

Great, thanks. That’s helpful. And then I know you generally don't like to talk about quarter-to-date results, but HSN just wrapped up its July birthday month.

I know the prior management team at HSN would always talk about that as being a very important event and kind of a predictor of the second half of the year in terms of the customer response to new product.

Curious if you can give us a sense of how that birthday month went and if there's any learnings that you'll be applying to the rest of the year based on that..

I wouldn't want to get very specific, consistent with our normal practice, on talking about their birthday month. We took a somewhat different approach to it than maybe historically we've seen, didn't put quite the same emphasis on it. So I wouldn't say there's anything out of that, that's, to me, particularly indicative.

We – by and large, as I mentioned, we're more focused on these new launches, which, by and large, really the first started – there's a little bit in July, but not much. Those are starting to now ramp pretty significantly. So quite frankly, our eye is more on that.

And I think that will be more the kind of the tale of the tape as to some of those will work and some won't work. And it will be choppy, but our success in getting those new products to take and get the customers to reengage is probably going to be a better indicator for us than the birthday month..

Thank you very much, Mike..

Thanks Alex..

Moving on, we'll go to Eric Sheridan with UBS..

Thanks so much. Thanks for all the color also on the customer base and how that’s evolving over the last couple of quarters.

Following up on that, Mike, is there anything to call out in terms of either ROI on marketing spend or acquisition costs as you see people reengage or finding the platform, either, through the vehicles which they're finding it, over-the-top, mobile, what that means for customer lifetime value? Any color there to flesh some of that out on a going-forward basis on ROI, customer lifetime value or customer behavior would be really helpful.

Thanks so much..

Great, thanks Eric. So a couple of thoughts, definitely, the customer that comes in directly from online marketing spend is less valuable, as a general statement, than that customer that comes directly to the digital platforms or directly to the phone.

The most valuable customer is the one that comes directly to digital followed by directly to phone, followed by those influenced by online marketing. But that said, because of the value of our customers, even if it's less valuable than the direct method, it's still a highly valuable customer with attractive returns.

So no, this is a moving target, but I would say, right now, as we ramp our marketing expenses, to give you a feel for it, we're – it's generally going to be modestly negative to EBITDA in the quarter but not significantly because we can get, actually, sales to cover it, but modestly negative.

It's probably taking about nine months to get to a positive return, and that's if you look at the sales influence of that new customer over that time period. So we feel pretty good about that, a nine-month return is we think, a very nice return.

So what you'll see, I think, in the architecture of the P&L is that you might get a little more growth but relative to margin expansion because, again, these investments are modestly negative in the period.

And then within online marketing, as a general statement, it's less valuable, but we're really trying to figure out the most valuable parts of it and lean into those.

And actually paid social, which is our biggest increase in the mix of online marketing, paid social is actually a higher lifetime value than those direct traditional methods, which, to us, is remarkable.

Now it's hard to scale it efficiently, and so we're continuing to work on how to optimize that versus the other extreme kind of typical PLA, Google search customer who's more – generally more transactionally oriented is less valuable. So it's how do we grow paid social efficiently, on the one hand.

And then for these less valuable customers, how do we do a better job with remarketing and retargeting kind of early in their journey to try to increase the odds that they will become a valuable customer? Feeling pretty good about how all of that is mixing out, but a lot to learn as we continue to ramp our focus here..

Thank you..

And next, we’ll go to Edward Yruma with KeyBanc Capital Markets..

Hi, thanks very much for taking my question.

Just as a follow-up to Eric's question, when someone comes in on a Google PLA, are they buying other products subsequent to that? Or is it kind of one and done? And then, I guess, second, with HSN, I know you had initially indicated that some of the weakness was due to low inventory levels from the previous management team.

I guess, as you hindsight that now, was that the real root cause? And how do you feel about inventory levels going forward? Thank you..

Yes. Thanks. So on the first question, it's both, right. So someone who comes in – let's look at something like PLA as maybe one of the most transactional ways you can acquire a new customer. There's a high percentage of one and done, but certainly some repeat.

And so if, roughly speaking, about 40% of our new customers repeat after the first purchase and then once they've made a couple of purchases, as you know, they become lifetime customers. But that very first purchase, they're sort of – about 40% come back.

If it's a PLA customer, it might be half of that, but still that 20% or so could be a very attractive customer. And then, again, with other platforms like paid social, it might actually be higher than that 40% average. So it's a range.

And we – the good news is we understand those economics really well, and we can really manage to those economics and not kind of fool ourselves into chasing poor volume. On inventory, I would say in hindsight, I think our diagnosis was right, that it was certainly an important driver, but it's really not the only important driver.

But as the declines kind of – obviously, HSN was declining coming into the acquisition. I would say that the further deceleration was compounded by the inventory. So not the whole decline, but at least some of the additional deceleration was compounded by that, but also other choices we made. Q2, I mentioned the clearance issue, right.

So Q2 last year, HSN was taking very deep clearance activity, which we – and did a nice job cleaning up the inventory. That part of it was very productive. As a result of that, we could be much less deep in clearance activity in Q2 this year. That's going to hurt sales velocity, but it's a pain you take.

And actually, a lot of that clearance last year was money-losing clearance. Those are very deep markdowns. So I don't think you can point to any one thing.

But certainly, the reduction in inventory levels, the comping of deep clearance, the lack of newness in the assortments, I would say fairly somewhat repetitive TS lineup that takes many, many months to start to evolve, I think all of those things have been contributors to the pressure we've seen..

Great, thanks so much..

Thank you..

And next, we'll go to Barton Crockett with B. Riley FBR..

Okay, great. Thanks for taking the question. I wanted to ask a little bit more about HSN. And I guess one thing is, can you update us on how much now of the cost synergies you think you've achieved through the second quarter of what you were targeting? That would be one.

And then secondarily, could you talk a little bit more about how far you've been able to progress on the integration, to the degree you can do it, of QVC and HSN in terms of cross-promotion on the two networks, sharing of merchant relationships, supplier relationships between the two? How much of that kind of change are we seeing on the air and in the product lineup at this point?.

Thanks, Barton. So on the first question, we've achieved about $14 million of synergies in the first half of the year, and about – and the goal for full year is $35 million to $40 million, again, about 80% hitting OIBDA and the other hitting stock-based comp. So comfortable we're on a good path there.

And of course, as you know, those synergy savings substantially ramp in the out-years. And we're not disclosing exactly where they fall on the P&L. A lot of those hit HSN, but they may hit other business units as well with the total Qurate savings.

On kind of where are we on cross-promotion, sharing of suppliers, I would say probably a little slower start than we had expected just given so many different moving pieces in the acquisition, but now starting to really kind of ramp nicely.

So in terms of sharing brands, sharing vendors where we think it strategically makes sense, I would say there's a little bit on air in Q2. An example would be a brand like KitchenAid. But that's mostly to come, and again, it will come in a few different flavors.

It will be where there are national brands on QVC that are broadly distributed where we think it's appropriate to have that brand on both networks like the Dyson example or Keurig. A lot of that is to come.

It also takes the form of using our proprietary relationships with, for example, vendors in the food space to create new food lines that are unique to HSN but leverage our food network and supply network. That's largely on to come. And then also, launching these proprietary brands developed by our design and sourcing team, also yet to come.

So I would say we've seen fairly modest part of what we will ultimately see in terms of that kind of leverage. And then some amount of cross-promotion, a little bit – as we are typically on this kind of a topic, we want to really try to figure out from the customer what she wants and what she wants to be cross-promoted.

And so I would say we're getting more comfortable that, that makes sense to do and the customer would value it. And so while we've done some of it, I would say there's definitely more to come as we go over the back half of the year.

And think about some creative ways to do that and basically speak to all of the traffic, viewers and visitors across Q and H to make sure that we're serving up to them the right products and brands and giving them that full exposure across Qurate so a lot more to come on that..

Okay, that’s helpful. And then one other separate topic, just quickly. There's obviously a lot of talk about China and tariffs. You guys get a fair amount of product from China.

Any thoughts about what your exposure is, what, in your thinking, could happen and how that plays out for you?.

Look, it's certainly a risk, I mean, on how it plays out. In terms of what's been sort of formally announced and implemented, we have some home categories that we participate in that have been subject to higher tariffs from the U.S.

We've seen a little bit of impact in Europe actually from retaliatory EU tariffs in areas like beauty that's actually imported from the U.S. to Europe. All told, it's a fairly modest impact, I would say.

If we were unable to mitigate any of it through pricing and have to take all of both what the – our third-party vendors incur as well as from our own direct sourcing, you're probably talking in a $10 million to $15 million range in the back half, a real number but not massive given the size of our earnings.

And obviously, our goal would be to try to mitigate that. The unknown is clearly if there was a substantial new wave of tariffs that are significantly larger and more directly impacting our business. Then, we do have risk, and we'll have to determine how much we can pass on, whether we can find alternative sources of supply.

So area of focus, not overly concerned about what's happened to date. But if more were to come, we'll certainly have some pressure as well as all retailers..

Okay, that’s helpful. Thank you..

Thanks Barton..

And next, we’ll go to Thomas Forte with D. A. Davidson..

Great, thanks for taking my question. I have a question for Greg. zulily is doing really well now. So I just wanted you to give us your updated thoughts on capital allocation, including buybacks and then potentially more M&A. Thanks..

Well, I thank you first. And I agree, zulily is doing very well and is exactly the kind of acquisition we would like to do more of. Unfortunately, there aren't a dozen zulilys, and there aren't – there are fewer zulilys or zulily-like companies which fit our model at the price we're willing to pay.

So I think we, first and foremost, said we'd love to find those kind of acquisitions after we invest in our own business. But they aren't necessarily simple to find or easy or priced correctly.

That having been said, we're going to continue to look at capital allocation both to do things to eliminate the exchangeable debentures potentially because of the non – potential non-deductibility of interest given the new tax laws, and we'll continue to drive on share repurchase.

I don't have any update to our share repurchase plans or announcements that we previously made today..

Great, thank you..

And next, we’ll go to, as our last question, Victor Anthony with Aegis Capital..

Thanks guys. It looks like you've seen a lot of optimism in the back half. Just a quick question on the Black Friday in July. You said that you saw meaningful incremental sales. Curious whether or not you were able to bring in – you had five million viewers.

Were you able to bring in a new different kind of customer into the fold, maybe younger? And Facebook live, it looks like you've seen – I think you talked about higher lifetime value. Increase – you plan to increase marketing across Facebook.

Based on the metrics you gave out, you basically said 6% new customer growth and, I think, 6% reactivated customer growth.

Was Facebook a big part of that? And also, the second part of that is how does Instagram fit into the fold as far as your marketing efforts?.

Yes, Victor, thanks for the questions. So I would say – specifically on the Black Friday in July, I would say, it was necessarily targeted at a fundamentally different kind of customer, and we're really analyzing the impact of that program, what kind of customers it brought in, what kind of repeat purchase will they have.

So it's a little early for me to give you any sort of specific insight on that.

I would say we sort of understand, obviously, across these different marketing channels, the nature of the customers, the average age and demos, and we're trying to be thoughtful about targeting different kinds of customers that will sort of expand the – further expand the diversity of our customer age range.

You do see paid social channels typically skew a little bit younger, not necessarily dramatically younger, for example.

So I would say we're looking at obviously how we drive healthy customer acquisition and sales through our various marketing efforts, but also with an eye towards being thoughtful about introducing new generations of customers to our company and brand.

So more to come on how all that plays out, Facebook was an important part – both Facebook and Instagram were meaningful in terms some of these marketing platforms and how they helped influenced that 6% growth. But I'd also say there are other more, call it, traditional marketing platforms, affiliates, Google [indiscernible] as well.

But broadly, paid social, which Facebook and Instagram are the largest, paid social is growing in the mix of our spend. So it's probably the fastest-growing in the mix of spend. I'd also say not to lose sight of we're still bringing a lot of new customers just through the power of that TV signal even with declining viewership in the world.

And so that's still our number one source of new customers. And the fact that we've been in a somewhat lower ASP environment, actually, it's bad on some aspects of the P&L, but it does help to bring in more customers just because of that unit velocity that we see. So we love that TV is still working for us.

And then I would say we have a variety of online programs that are working, with Facebook and Instagram probably being those that are growing most in the mix right now..

Okay, thank you..

Thank you..

And that will conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect..