Ladies and gentlemen, thank you for standing by. Welcome to the Qurate Retail Incorporated 2020 Quarter Two Earnings 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, today, August, 10.

I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer and Senior Vice President of Investor Relations. Please go ahead, ma’am..

Thank you. Before we begin, we’d like to remind everyone this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent forms 10-K and 10-Q filed by our company and QVC with the SEC.

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 statement contained herein to reflect any change in Qurate Retail’s expectation 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, free cash flow and constant currency.

Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary notes and Schedules 1 through 3 can be found in the earnings press release issued today on – or the earnings presentation, which are available on our website.

Today speaking on the call, we have Qurate Retail Executive Chairman, Greg Maffei; President and CEO, Mike George; and Qurate Retail Group CFO, Jeff Davis. Please note, we published slides to accompany the earnings release. These slides are available on our website. Now I’d like to turn the call over to Greg..

A onetime cash dividend of $1.50 a share; and a preferred stock dividend of $3 a share.

The proposed onetime cash dividend will total approximately $633 million, and we arrived at this amount in reviewing the projected 2023 free cash flow, the expected proceeds from the sale of our Solana Green Energy asset and cash built in part from our pause and share buybacks over the past year.

This could be important also because – in terms of having this dividend now because it might be optimal timing in the event tax rates increase in the coming years. The preferred stock dividend will have a total base of approximately $1.3 billion.

Why did we choose a preferred stock dividend? Well, effectively, we’re dividing few common stock into a more bond-like instrument and a more levered common equity. In line with many of the other things we’ve done in terms of providing investor choice, this should increase investor choice as well, much as our tracking stock and spincos have done.

Unlike the recurring common dividend, which forces common shareholders to receive a distribution, this provides shareholder flexibility. You can hold an income-paying security or monetize your preferred stock and maintain a net position in a more levered common equity.

We think this could be an attractive and innovative security for those who like to hold it. It generates compelling after-tax income at a rate which is appealing compared to bond choices out there and other alternatives and a relatively low levered entity, given significant cash generation and coverage.

As I mentioned, the rate is favorable to comparable securities and it will yield the highest after-tax yield of all of Qurate Retail debt-like instruments. It’s a long 10 years maturing in the Q1 of 2031. This preferred stock will also highlight our management and Board of Directors’ confidence in the strong free cash flow generation at Qurate Retail.

We also hope that might be able to attract a new investor base. The preferred might be, should be, I would say, for income or investors seeking yields. John and I are both enthusiastic about this preferred stock and intend to be long-term holders.

I’d also note for some of you with the historical event, Liberty has had some success issuing these preferred in the past, although admittedly, it was a fair time ago. Over the longer-term, we expect the preferred stock and common equity in aggregate after giving effect of the cash dividend to trade in excess of the current trading price.

As we move to the balance of 2020 and in future years, we will actively consider additional forms of capital return, given the substantial cash generation that Qurate has. We retain the ability to deploy this cash commensurate to Qurate Retail’s past shareholder practices. To be clear, buybacks are not off the table in 2020 and beyond.

And any future buybacks will be against a more levered upside in the business. We also intend to manage the detail of the deferred tax liability on our exchangeable bonds as well in the near and mid-term debt maturities. You should expect some future repurchases of some of the exchangeable bonds as we have done in recent years.

Finally, given the ongoing pandemic, we have decided that Liberty’s Investor Day this year will be virtual and be broken into two days. And so as much as we love Zoom, no one should have to be on a call that long. On Thursday, November 19, we will cover Liberty Media and Liberty TripAdvisor.

And on Friday, November 20, will include Qurate Retail, Liberty Broadband and GCI Liberty. Both days will run from 11 to 12 Eastern. More details will be provided on our website, but please mark your calendars. And with that, I’ll turn it over to Mike..

Can we sustain growth and healthy margins as the economy reopens? While we assume we recognize that the outsized gains that we achieved this quarter are likely not sustainable, we are more confident than ever that our business can generate healthy long-term growth and revenue, profits and cash flow for a number of reasons.

First, we anticipate that many COVID-related trends will continue over 2020 and to some extent, become part of the new normal, including greater consumer engagement with live streaming video content, the accelerated shift to e-commerce, the difficulty of creating engaging experiences in brick and mortar, given the limitations on customer interaction and the refocus on a more home centered life.

Second, we believe we’re uniquely suited to benefit from this environment. We featured broad and diverse product ranges and can rapidly flex unmet mix for current and emerging home categories at QVC, HSN, and Zulily.

In Q2, we were able to be there for her as she moved from cleaning, the fitness and self care to home office, entertainment and puzzles to indoor decor to pool and garden to food to cookware and gadgets and masks, sanitizers and air purifiers.

And our focus on unique, differentiated and exclusive products with compelling personalities and a focus on entrepreneur, keep us out of the commoditized price driven e-commerce way and appeal to the spirit of the times.

Here, one of the world’s largest shopping platforms in the home, shipping over 220 million packages per year with the benefits of scale, experience and efficiency. In QVC and HSN and Zulily as well are centered on relationships, community, authenticity and engaging experiences, attributes that matter in these trying times more than ever.

It’s why we enjoy a level of loyalty and purchase frequency that is virtually unmatched in retail. And third, our confidence in driving long-term growth stems from the traction we’re seeing on our strategic priorities, which perfectly intersect with these macro forces. This progress is reflected in key metrics we follow.

For example, we’re seeing gains in product curation and programming diversity is measured as the success of the new on-air brands and programs I mentioned in the reduced concentration of top items. Our video program is accessible and viewed and more and more places to offset cord-cutting.

Growth in virtual MVPD and OTA households, unique visitor growth in, Roku and Fire, both in video views on our web and mobile app platforms are all up strongly, even as our traditional TV viewership, it’s consistently helpful form the underlying erosion in pay TV homes and that’s been going on for many years.

E-commerce engagement continues to strengthen, as seen in growth in daily visitors, growth in offer product assortments and increased e-commerce penetration, metrics that are all moving positively before the pandemic and are now accelerating. And most importantly, we’re seeing growth in our active customer base.

Our strong new and reactivated customer growth benefited significantly by the stay at home trend.

But if our value proposition wasn’t highly attractive to consumers, we simply would not have seen so many non-customers convert from nearly watching our programming or visiting our websites to becoming active customers is all early indicators pointing to these new customers, having strong lifetime values.

With existing customers, we’re highly encouraged by the surge in spending another occasional customers, but also cautious about the slowdowns from best customers.

We expect these two to play off each other to some extent, if occasional customer growth continuing, due to strength in home, but likely moderating all the time and best customer growth gradually – as she eventually reengages with fashion products.

And finally, Jeff will further discuss why we see opportunities to continue improving OIBDA margins and free cash flow yields as we start to see the benefits of the investments in the last 18 months. From the global community, we are undoubtedly have difficult days ahead of us with the pandemic far from over, the U.S.

election season and full force in economic outlook uncertain. Nonetheless, we are confident that we are and will continue to be one of the winners in this new normal. With that, I will turn it over to Jeff..

Thank you, Mike and good morning – good afternoon, everyone. As Mike mentioned, QRI’s net revenue grew 10% for the quarter, the will all segments delivering mid-single to high teen growth.

OIBDA improved 10% and included several discrete items, including an incremental $10 million of severance across all business segments and $5 million inventory provision at cornerstone, partially offset by a $10 million reduction in sales tax accrual at Zulily that was originally recorded at the time of acquisition. Let’s start with QXH.

QXH returned to net revenue growth on a foundation of new customer growth and strong e-commerce performance. As Mike said, we have a broad product portfolio, which enabled us to meet customer demand.

As you’ll see on Slide 11 in the earnings presentation, we experienced a sizable shift in category mix from apparel, accessories and jewelry to home and electronics. While the team responded well to these changes in customers’ demand to drive revenue growth, it deploys substantial gross margin pressure.

For the quarter, QXH, total customer grew 14% with existing customers up 4%, reactivated customers at 29% and new customers growing 74%. We’re encouraged by early indicators of our new customers behave. 30 and 60-day retention rates have increased, while 30 and 60-day post initial purchase spend is largely consistent with prior year levels.

Let me provide additional detail on individual category performance. Home increased 22%. Demand for our gourmet food offering is underway, nearly doubling. We also experienced strong growth in gardening, fitness, floor care, cleaning and personal care.

Consumer electronics grew 25%, driven primarily by increased interest in home office, entertainment and gaming. Trends moderated later in the quarter, as we reduced the installment payment options available to manage bad debt risk. Beauty returned to growth up 2%.

We continue to see success with our efforts to nurture emerging brands, such as Beekman, Isle of Paradise, Street and Lancer. But this was partially offset by continued declines in major national brands. In apparel, accessories and jewelry businesses are highly challenged. We were down 12%, 1% and 11% respectively.

Customers pull back significantly on their clothing, handbag and footwear purchases. The apparel decline moderated through the quarter but remained challenged. However, we are seeing pockets of strength, including active and at leisure, along with loungewear and intimate apparel.

Adjusted OIBDA declined 2% and adjusted OIBDA margin declined 180 basis points. Excluding $9 million of incremental severance year-over-year, adjusted OIBDA was up modestly. We’ll share with more of the details behind the margin decline. First, gross margin.

We declined 90 basis points driven by two of its major components, product margin and fulfillment. This were down 25 basis points and 60 basis points respectively. With respect to product margin, recall last quarter, Mike indicated the shift and category mix led to 150 to 200 basis point decline from the initial margin in April.

In the back half of the quarter, we were able to moderate product margin pressures for three primary reasons. One, most importantly, we made sure strategic adjustments to our promotional offers, resulting in greater shipping and handling revenue and more products sold at regular price.

Two, the pressures from category mix lessened has quarter – as the quarter progressed and our prior year apparel sales were lower in June. And three, we benefited from lower customer returns.

With respect to fulfillment, the 60 basis point decline that’s primarily associated with premium pay to our fulfillment center team members, along with lower productivity, due to COVID protocols lower pack factor, train load rate increases and higher drop shipments, partially offset by reduced returns and sales leverage.

The lower pack factor was a result of several elements, including delays in the implementation of our common warehouse management system and the ramping of our network optimization efforts, the operating protocols and product mix shifts. Moving to operating expenses, which were 20 basis points favorable.

This improvement was predominantly due to 35 basis points of tailwind from commissions, primarily from increased digital penetration not subject to variable sales commissions. SG&A is unfavorable by 105 basis points with marketing and administrative class comprising 55 basis points and 40 basis points, respectively.

Marketing reflected expanded support to deliver new customer growth and retention, and also included one-time investments in various brand marketing pilots. Administrative costs benefited from sales leverage, this benefit was more than offset by increased incentive compensation accruals and severance.

Now I would like to share some of the trends we’re seeing as we wrapped up our July results. However, these trends should not be construed as guidance for the remainder of the quarter. In addition while these references to demand sales approximate customer purchases, actual ship sales may differ.

QxH demand sales till July were low single digits on reduced promotional activity. We’ve experienced similar category trends with growth in home and softness in apparel, accessories and jewelry. Customer growth remains strong with double-digit growth in new customers, albeit at levels below the second quarter. Moving to adjusted OIBDA.

We expect sequential improvement in margins in Q3, largely driven by improvement in product margins due to our reduction in promotional activities and vendor negotiations.

We anticipate ongoing margin headwinds on fulfillment as productivity and freight rates remain under pressure, and we continue to invest in marketing while carefully monitoring returns.

With respect to obsolescence, we are refreshing inventory levels, take advantage of new home and apparel opportunities for fall and winter and we expect to increase obsolescence reserves accordingly. Finally, we expect a continued tailwind as commissions – as well as modest improvement in bad debt and fixed cost leverage.

Now through the QVC International with accelerated first quarter momentum with broad-based growth across all markets, extraordinary new customer growth and retention and the continuation of strong e-Commerce penetration. My comments going forward will focus on the constant currency results.

We generated growth in all markets led by Germany and U.K., with Japan achieving two years stack growth of 17%. From a category perspective, we experienced sales growth in electronics, which was up 41%; home was up 24%, and beauty was up 18%. Adjusted OIBDA increased 13% with gains in all markets.

Adjusted OIBDA margin increased 10 basis points with very similar themes as QXH. Gross margins were lower primarily due to product margin pressure and category mixture, obsolescence provisions from closure of retail stores that provide our sales outlet for some moving inventory, higher drop ship penetration and premium pay for on-site team members.

Favorable trends in operating expenses were primarily coming from commissions and customer service, reflecting an expanded e-commerce penetration and sales leverage. Administrative expenses were largely favorable due to sales leverage despite absorbing provisions for increased incentive bonus.

Recall QVC France terminated operations in March of 2019, we recorded a $2 million adjusted OIBDA loss and approximately $17 million operating loss in Q2 2019, primarily related to closure costs. Looking at the second half, demand sales for July trended up into the mid-to-high single digits range. We have strong – strength across Europe and Japan.

As a reminder, last year, we experienced double-digit growth in Japan in Q3 as we saw significant sales pull-forward in September in advance of the consumption tax increase. Accordingly, we expect Japan sales to moderate significantly in the back half of Q3. Moving to Zulily, which delivered exceptional return to growth.

Total customers grew 15% and new customers grew 54% in the second quarter. Customer acquisition costs declined more than 50% and driven by e-commerce tailwind and adjustments to our marketing strategies.

Adjusted OIBDA increased $88 million, which included a $10 million reduction the sales tax accrual I referenced earlier and was originally recorded at the time of acquisition. Gross margin increased primarily from strong product margins gains driven by strategic vendor negotiations.

These gains were partially offset by fulfillment pressure primarily from higher fixed freight costs as well as COVID-related delivery pressure, which improved by quarter end. Zulily also benefited from sales leverage of marketing and administrative costs. And looking at the second half, July demand sales trended up in the low-teens.

Moving to Cornerstone brands, which delivered a record second quarter performance. Revenue grew 18% as the business experienced strong consumer demand for home furnishings, office storage, pool and outdoor products.

The home brands were well positioned to capitalize on increased demand for home furnishings and outdoor products Ballard Designs, Grandin Roads achieved record second quarter revenue and adjusted OIBDA and Frontgate generated 23% revenue growth.

The strong gains in home brands were partially offset by a decline in Garnet Hill, mainly in the women’s apparel category across dresses, footwear and swim wear. Although Cornerstone retail stores remained closed for much of the quarter, it was able to offset this pressure through its online channels.

E-commerce revenue grew 32% and e-commerce penetration improved more than 800 basis points. Adjusted OIBDA increased $7 million, gross margins improved primarily due to the strength in the home brands, partially offset by promotional pressure at Garnet Hill and a $5 million inventory provision at Ryllace.

Ryllace is a nascent, innovative apparel brand, given the general pressures on apparel related COVID, Corner’s sales and management team made a decision to focus resources on the core power products and development of a new strategy for Ryllace in this new environment.

SG&A improved primarily from leverage of marketing and administrative expenses, partially offset by higher incentive compensation accruals. The quarter-to-date sales demand has turned consistent with the second quarter. Let’s quickly take a look at our balance sheet and cash flow. CapEx was $63 million for the quarter and $108 million year-to-date.

We anticipate our 2020 CapEx to be in the range of $250 million to $295 million. The distribution payments are comprised of multi-year carrier contracts. We have less contract renewal activity this year and year-to-date carrier distribution payments of $110 million. We expect it to increase in the second half of the year.

We generated a strong free cash flow in the first half of 2020, as Mike said year-to-date free cash flow is approximately $1 billion, an increase of nearly $800 million. This strong gain was primarily driven by improved working capital, lower TV distribution payments and reduced CapEx.

Additionally, we had favorable timing of tax payments, which will primarily reverse in Q3 driven by provisions in the CARES Act. Looking at our debt profile, we have a zero balance on the QVC Inc. revolver and $2.9 billion available capacity.

We have nearly $960 million in cash and cash equivalents and our near term maturities on our senior secured notes do not have anything maturing until 2022 and 2023. Our leverage ratio combined with the QVC revolving credit facility was 2.0 at June 30.

In closing, we are well positioned to continue building on the momentum built in Q2, the strength of our balance sheet and free cash flow, giving a solid base to invest in growth opportunities and continued execution of our strategic plan. With that we appreciate your continued interest in Qurate Retail. We hope you stay safe and healthy.

Now I’d like to open the call for questions. I will turn it back to the operator..

Thank you. [Operator Instructions] We’ll take our first question from Edward Yruma with KeyBanc Capital Markets. Please go ahead..

Hi. This is Kaseylyn O’Brien on for Edward Yruma.

First, what plans do you guys have in place to retain the new customers you’ve acquired? And then looking at that cohort of new customers, are there any differences in profile or consumer behavior you’ve observed thus far?.

Thank you for the question. This is Mike. We’re thrilled with the quality of the new customers we’re seeing, and we do have multiple initiatives underway to keep them. So when we start with kind of the quality and the profile. And broadly, I would say, these new customers looking at like new customers in past years, we just have a lot more of them.

We grew new customers in every single product category. We grew new customers both in our off-air business as well as our on-air business. So she is engaging and coming to us both with sort of a more traditional TV programming as well as digital programming.

The key metrics we look at to assess value like potentially to keep those customers at the 14, 30, 60-day mark while at or above the prior year performance. We even look at what percentage of new customers become best customers in their very first couple of months. And on an update measure, we’ll look as good or better than prior classes.

Probably the only modest differences, she’s slightly younger, maybe a year or two younger than we typically see with new customers. But other than that, this looks like a very strong profile. That said, we don’t want to take it for granted.

So we’ve got a number of programs underway to mark it back to her, a variety of sort of personal outbound marketing programs to present her with – she’d be interested in based on our purchase profile.

We’re doing some programs through Facebook to expose the kind of product carousels of products that would – again, the data would say should be interested in. So kind of encouraged by the team’s efforts to have a full-court press on retaining these new customers..

Thank you..

And we’ll go ahead and take our next question from Oliver Wintermantel with Evercore. Please go ahead..

Yes, thanks. Good afternoon guys. My question was regarding inventory growth or inventory decline, I should say. It was down about 14% in the quarter. So it looks like your inventory is clean heading into the third quarter, which probably there’s not a lot of discounting going on into back-to-school or the second half.

But I was just wondering, did you have problems acquiring inventory into the third quarter? Or was that deliberate because of what you expect in the end of the third quarter? So just a little bit commentary about the decline in inventory would be helpful..

Yes, I would say the decline reflects a couple of things. First suggest that, obviously, sales exceeded our expectations. So we are able to move through a lot of inventory.

And then we also do think a fairly thinking of the cautious past year just to make sure we weren’t overbought in a very uncertain time, but it was balanced because we did want to make sure we have fresh receipts going through the year at a time when other retailers could probably cutback more substantially.

So I think they can get a really nice job of managing those dynamics through Q2. And now we’re gradually rebuild the inventories to make sure we’re fully assorted during the fall and holiday season as Jeff mentioned.

And that’s so good that we’ll have fresh receipts [indiscernible] as an example, in case she does start to want to reengage with the payroll product, which is the only category that might be a modest watch out for us is we are seeing the pressures really from the first phase of the pandemic in China, which really disrupted supply in consumer electronics, coupled with the high demand for consumer electronics.

And I would say we’re working hard with our partners to make sure we’ve got a full assortment in electronics for the holiday season. A little bit of risk there, but we’re a preferred partner for many, and I think we’ll be able to navigate that. But that will be the one area where we might have some modest risk.

Otherwise, we do think the inventories are clean and will help us sort of maintain this conservative posture on promotions through the year..

Got it. And if I may – maybe a second question regarding e-commerce. The growth this quarter was very strong. If you could maybe talk a little bit about where that growth is coming from e-commerce.

Is your – how much of that is organic – inorganic I mean, directly through the website without people watching the program? Or is the majority really driven by people watching the program and then offering? If you could give us a little bit of details there, that would be helpful. Thank you..

Yes, sure. As you know, it’s hard for us to be able to perfectly ascertain positive effects between TV and e-commerce.

But probably the metrics are most important to us on that question would be looking at the mix of sales on e-commerce, how much of it is the core products we’re featuring on video, and how much of the products though not featuring on video, so the – which we call our off-air [ph] products.

So as I mentioned in my remarks, those off-air products were up north of 20%. So it grew much faster than the overall business results. And they represent roughly 30% of total sales and – total sales for the business unit and a substantial share of the sales for e-commerce.

So that doesn’t mean that the e-commerce customer isn’t engaging with the TV product in any names, but we’re certainly getting a lot of sales, majority of sales on items that aren’t featured on air. Those sales are growing rapidly. We’re certainly seeing a disproportionate e-commerce performance with new customers.

So we do think we’re seeing a lot of new customers come in and make their first purchases through a more conventional e-commerce experience, and then some of them becoming more broad-based of the brand..

Got it. Thanks very much. Good luck..

Can I add one thing here, which is, although, when you say that the organic, it’s funny because I would argue to flip it on its head. Organic for us is people who see the TV. It’s a fixed cost, early fixed cost that we run, a huge brand builder, a huge royalty builder and a huge, continuous promoter for us.

For us, inorganic is where we have to buy online, Google, Facebook, cost per click, and frankly, that’s where it has a variable cost and it’s less attractive. So I don’t most flip it on its head. We love the stuff we can promote from a TV, right? We’ve already paid for that once..

Got it. Thank you very much.

Thank you..

We’ll go ahead and take our next question from Jason Bazinet with Citi. Please go ahead..

I just had a couple of questions for Mr. Maffei. I appreciate the choice that you have given your investors with preferred, I suspect a lot of investors are going to look at this move and say that it sort of lays the groundwork for you to go private, actually. So can I just ask three questions.

Day one when this preferred, if it goes through, is it right to say your $4.8 billion market cap will go down by $1.3 billion for the preferred and then go down $630-some-odd million for the special and so the market cap sort of date….

So Jason so let me take it one at a time. Our hope would be no. Our hope is our equity market capital decline are less than the combined value of those because we’ve shown not only the earning capability of the business, but that we can sustain preferred and that some of the excess benefit will prove to come..

Understood.

Second, what happens to your basis in the asset after this preferred gets issue if it goes through?.

So if I could just add on the first point, I know you suggest in the past, that when actions were taken, we were doing to take the business private, some of them which would have been illegal. And we try not to do things very legal, very assiduously try hard to think they’re illegal.

So again, we certainly didn’t do this with we intend to take it private. And if you take the first point that I made, which we truly do intend that the combined value would go up, it’s probably not in our interest to do this as well, if that was our intent to take it private. So I just want to say that is not our intent.

Our intent is to create shareholder value for all shareholders. Sorry, go ahead..

No, that’s great. So, what happens to your basis in the asset after this preferred is issued..

Depending on who you are, generally, it’s complicated, but it will generally split between the two entities. There may be some cases in which it goes to the more of the common, this is one that would say, I would say, consult your tax adviser..

Okay.

And my last one, what happened in 2031 when the preferred sunsets like mechanically, what happens at that juncture?.

We pay it off or we issue some other kind of instrument, I guess, and exchange it but generally like most debt securities, we would pay it off..

Okay. Thank you..

Thank you..

Go ahead and take our next question from Carla Casella with JP Morgan. Please go ahead..

Hi.

I’m wondering if you could give us some color on as we’re coming out of COVID if you’re seeing much change in the big business segment, meaning home versus personal care, et cetera?.

Thanks Carla for the question. It’s been surprisingly consistent. So I would say that the categories that are doing well have been largely consistent through the pandemic. The specifics within those categories obviously change with the seasons, but home just remains very dominant.

You can see that in Cornerstone business, which is all home continuing to grow at the same rates that it grew through Q2. So, she shifted from gardening and outdoor stuff to now indoor furniture and kind of getting ready for the fall.

But very much a strong focus across all home categories, probably the only are that have shifted somewhat is the consumer electronics is much softer for us.

That’s a little bit self imposed because the promotional pullback that I mentioned most severely impacted the consumer electronics business, which tends to be the most promotionally driven category. So that’s probably a little bit more on us than the broad market.

But otherwise, we’re seeing pockets of positive performance in apparel and some of the more comfort in casual wear. But I would say in the main, apparel and jewelry remain challenged. Accessories and beauty are okay. And across the home with the exception of consumer electronics, we’re continuing to see strength..

Okay, great.

And then just one follow-up on, given the transactions you mentioned with the stock, any view – any change in your view on how much leverage you’re comfortable with the QVC entity?.

Greg, do you want to take that or Jeff?.

I think – sure. And I’ll let Ben [indiscernible] our new Treasurer, can comment as well. We’ve set forth ratings at the two level. I believe at two and a half times. We also have some three and a half times, not maintenance covenants but covenants on our bonds, some of our bonds. So those are certainly targets we’re trying to stay within.

I don’t know, Ben, what would you add?.

Yes, I would repeat that our stated leverage target for QVC is two and a half times. In addition, just to be specific, our aggregate family leverage, our ability to draw on our revolver is subject to a three and a half times leverage. So we currently retain most, if not all of the QVC revolver capacity..

Okay, great, thank you very much..

Those are certainly impacted on targets but we do believe the business can actually maintain higher leverage given its high free cash flow capabilities, but we obviously want to access, may want to access at various times to that revolver..

Okay, great, thank you..

Thank you..

Thank you. And we’ll take our last question from Elliot Alper with D.A. Davidson. Please go ahead..

Great. Thanks. Could you talk more about what drove the strong performance in Zulily for the quarter, as well as what drove the new customer growth. Curious if you’re seeing this new customer being correlated with the continued push into your OTT distribution efforts.

And then secondly, to what extent, if at all, are you seeing any correlation between geographies that are reopening and traffic trends? Thanks..

Thanks for the question. I’m really proud of that team’s work. You’ve been – after having had a pretty tough year and kind of off the track record, you’ve been on – the team really put the time to use them in all aspects of the value proposition. They just get refocused on the core mom target.

He probably strayed away from a little bit in the last, in the pursuit of growth, really refocused marketing, and going after new customers as opposed to trying to get more out of existing customers and with a number of innovations across marketing, new outbound marketing programs building up a kind of influencer network to reach into new audience segments, to influencers, a lot of hard work with Facebook to remove some inefficiencies in the Facebook interface.

All of which I think we’re seeing the benefit of, number of sort of reforms to the score from just to make it a little bit more exciting, energizing, more self-service capabilities to improve the service levels of the brand. And then just a huge focus on new brands.

And while we’re excited about mentioning specific names with department stores being closed, I think the team did a really nice job getting a lot of products that might’ve always been in a specialty or department store channel. Because Zulily and you think about benefits can maintain.

So clearly it was an overall, tailwind of e-commerce growing and other e-commerce retailer has grown, but I think the kind of 40-point swing sides.

So really from the declines in Q1 to the growth in Q2 is absolutely benefited from that broad tailwind of e-commerce that got intersected with just the number of his fundamental efforts to improve and strengthen the value proposition. On the question of what’s the impact of various states reopening.

We’re studying performance by geography very – by state very carefully, as you would expect to try to understand those dynamics.

And I think what’s broadly true is, you know, those states that shut down early and kind of stayed shut down through May and June, probably in the early days of the pandemic, we got a little bit more of a lift from them that. April serves them than other states that have taken a more a slower posture on shutdown.

But since about early, probably mid-June. I’d say performance is more consistent across states than anything else. So even as some state that see initial gains, other states have seen improvement, it doesn’t seem to be meaningful in the results we’re seeing.

And I would even extend that to say, you look to Europe and Asia, which has arguably had more success containing the virus, not perfectly, the more success in stores opening earlier. We’ve maintained fairly consistent performance across Europe and Asia in that mid to high single-digit range that Jeff mentioned.

So it feels like we’re kind of at a new level where these underlying stay-at-home trends are fairly stable and not that subject to the ups and downs of the virus surging, let’s see how long that lasts, but it’s one of the things that gives us confidence that, we’re able to continue to grow this business and there’s some staying power to these, to these trends.

So with that, I believe that is our final question. So I want to thank everyone for joining us..

I agree. This is Greg. I want to thank everyone. And I know there will surely be questions about preferred, which is a new instrument. We look forward to trying to educate you. We think it’s a high volume instrument and we hope we can convince you as well. Thank you very much..

Once again, that does conclude today’s conference. Thank you very much for your participation. You may now disconnect..