Liberty Interactive's CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: Liberty Interactive (QVCA)

Liberty Interactive Corporation (LINTA) Q1 2013 Earnings Call May 8, 2013 11:45 AM ET

Executives

Courtnee Ulrich – VP, IR

Greg Maffei – President and CEO

Chris Shean – SVP and CFO

Mike George – CEO, QVC

Claire Watts – CEO, QVC USA

Analysts

Jason Bazinet – Citi

Ben Mogil – Stifel

Dave Gober – Morgan Stanley

Tom Forte – Telsey Advisory Group

Trisha Dill – Wells Fargo

Bart Crockett – Lazard Capital Markets

Victor Anthony – Topeka Capital Markets

Matthew Harrigan – Wunderlich Securities

Operator

Good day everyone, and welcome to the Liberty Interactive Corporation Quarterly Earnings Conference. Today’s conference is being recorded.

Now at this time, I would like to turn things over to Ms. Courtnee Ulrich, Vice President of Investor Relations. Please go ahead ma’am.

Courtnee Ulrich

Good morning. This call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about financial guidance, business strategies, market potential, future financial performance, new service and product launches and other matters that are not historical facts.

These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including without limitation, possible changes in market acceptance of new products or services, 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 any change in events, conditions or circumstances on which any such statement is based.

On today’s call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA. The required definitions and reconciliations, preliminary note and Schedules 1 through 3 three can be found at the end of this presentation.

And now, I’d like to introduce Greg Maffei, Liberty’s President and CEO.

Greg Maffei

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

Now, onto the highlights. QVC had solid results for the quarter, led by the United States. Notably, in Q1, dot-com penetration in the US was at 42% with 27% of that being mobile. It’s a great testimony to how the business continues to evolve and work on increasing number of platforms.

Notably, our eCom Group got back on track with OIBDA growth of about 15%. We significantly ramped up our purchases of LINTA buying $267 million of stock. And we had lots of activity on the debt side with both QVC and Liberty Ventures undertaking re-financings and financings. Chris Shean will talk about more about those in a second.

A little more on the Liberty Ventures; TripAdvisor posted strong results yesterday. Across the board, robust metrics, amazing growth in traffic on a global basis.

And with that, let me turn it over to Chris Shean to talk about our financials.

Chris Shean

Liberty Interactive Group’s revenue increased 5% in the first quarter while its adjusted OIBDA increased 4%. QVC increased net revenue by 2% for the quarter and adjusted OIBDA increased 4%.

Liberty Interactive’s other eCommerce businesses grew revenue 20% for the quarter while its adjusted OIBDA increased 15%.

I’ll take a quick look at the liquidity picture. At the end of the quarter, Liberty Integrative Group had attributed cash of $587 million and $4.7 billion in principal amount of attributed debt. QVC’s total debt to adjusted OIBDA ratio, as is defined in their credit agreement, was approximately 1.95 times, as compared to a maximum allowable leverage of 3.25 times.

QVC has been very active on the debt side. It refinanced and extended its credit facility, while improving the pricing and its terms. It redeemed the full amount of the 7.125% senior secured notes due 2017, some of which happened post-quarter-end; tendered for a portion of the 7.5% senior secured notes due 2019 and issued $750 million in 4.375% senior secured notes due 2023 and $300 million in 5.95% senior secured notes due 2043.

All these actions resulted in significantly decreasing the weighted average cost of debt and increasing the average term of the debt.

And with that, I’ll hand it over to Mike George for additional comments on QVC.

Mike George

Thank you, Chris. And we were very encouraged with our results in the quarter, highlighted by a strong performance and the US, despite the weakening retail environment; a return to positive growth in Germany; and the continued ramp-up of our newest businesses in China and Italy. We grew consolidated revenue 2% and adjusted OIBDA 4% in the quarter with the 14% decline in the yen creating significant pressures on our dollar-denominated results.

On a constant currency basis, however, our revenue increased over 4% and our adjusted OIBDA increased 6%. In addition, normalizing for the impact of leap year in 2012, our sales would have been around 1% greater. Our eCommerce revenue worldwide increased 15% on a constant currency basis to over 36% of revenue, up from 33% a year ago. And mobile continues to grow at a rapid clip, up 78% worldwide in constant currency to 28% of eCommerce orders.

We saw particularly strong growth globally from our existing customers, as well as customers that we reactivated in the quarter, with sales up 4% and 9%, respectively, on a constant currency basis. Total sales growth from new customers was flat with positive results in the US, Germany and Italy, primarily offset by continued softness in Japan. Our retention rates across all customer types remained strong, basically unchanged from prior quarters.

Now, turning to the results by market. The US increased revenue 5%, and as noted earlier, our growth would have been closer to 6% normalizing for the leap year impact. The improved growth rate was driven in part by a rebound in the consumer electronics business, especially the tablet category, along with continued strong growth in beauty.

And while beauty and electronics were particular standouts, we also saw a positive growth in fashion, in cook and in home improvement. Our eCommerce growth accelerated up 13% to 42% of revenue, a 3 point improvement. And mobile growth remained strong, up 95% in the US, and it now represents 27% of total US eCommerce orders.

Adjusted OIBDA grew 8% to 22.4% of revenue, a 67 basis point improvement in OIBDA margin. Contributing to these gains were improvements in warehouse and freight costs, and lower inventory obsolescence as we continue to focus on controlling the level and quality of our inventory.

Our operating costs were relatively stable with benefits from the release of a franchise tax accrual and also anniversarying last year’s severance charge related to the downsizing of the contact center, largely offset by a higher bonus provision.

In Japan, revenue increased 3% in local currency with strength in fashion, beauty and electronics, partially offset by softness in the home categories. And while solid results overall, this is below our recent trend, due in part to higher return rates in fashion and jewelry, and a few programming events that missed our expectations.

However, we believe these were isolated issues and don’t reflect an overall weakening in the business. And we achieved an important milestone on April 1 when we began broadcasting from QVC Square, our new headquarters, studio and call center.

We completed the transition without any operational issues and we’re already seeing a very positive response from our viewers and customers to the new look and feel of our shows, a significant upgrade from our old studios.

Our adjusted OIBDA in local currency was flat in the quarter. And as we discussed on the Q4 call, we are incurring approximately ¥360 million, or about $4 million, in duplicate and incremental operating costs in 2013 associated with our move to QVC Square.

In Q1, these costs totaled approximately ¥240 million. Adjusting for these one-time impacts, our OIBDA would have grown 5%, driven by improvements in freight, lower inventory obsolescence expense and fixed cost leverage, partially offset by an increase in one of our carriage contracts.

In Germany, revenue increased 1% in local currency. Our fashion businesses returned to strong growth and we saw continued strength in beauty and in consumer electronics, partially offset by softness in jewelry. As we’ve discussed on prior calls, we’ve really been focused in Germany on freshening our product assortments and reducing promotional activity.

And in Q1, we saw a significant increasing the number and the performance of new items, an increase in the mix of business at regular price, and a reduction in the mix of Easy Pay. But we also saw a 12% increase in revenue from new customers. So we think these efforts are paying off, and we’re pleased to see the business back on a positive growth track after four quarters of sales decline.

We’re also seeing outstanding growth in eCommerce in Germany, up 36%, driven by positive customer response to our new global eCommerce platform. eCommerce now represents 21% of revenues, up from just 15% a year ago. And while our Mobile programs in Germany are in their infancy, we’re delighted with the strong start. With Mobile up nearly 400% in the quarter, it now represents 10% of total eCommerce orders.

We also re-launched our beauty channel, converting the format to a broader fashion lifestyle concept, and saw an immediate lift in sales. One downside of the quarter, our return rates increased 266 basis points, which offset some of our sales gains. About 160 basis points of this increase was driven by changes to prior-period estimates based on actual experience, with the remainder primarily caused by higher return rate in the quarter in electronics and jewelry.

Adjusted OIBDA declined 7% in local currency, principally due to an accrual we made in connection with additional taxes and Social Security contributions that are expected results from the potential reclassification of certain workers. If we exclude this accrual, adjusted OIBDA would have increased 1%, right in line with our revenue growth.

In the UK, revenue grew 1% in local currency with gains in home and beauty largely offset by a reduction in our jewelry business as we shifted airtime to more productive categories. The overall UK retail market remains weak and we’ll stay focused on adjusting our product mix and our airtime as needed to optimize results in the face of a rather sluggish consumer spending environment.

We also experienced some weakening in our adjusted OIBDA margins, down about 70 basis points. And that was driven by increased markdown activity to clean inventories and some inventory FX-related losses due to the decline in the value of the pound. We also had some severance costs in the quarter related to ongoing efficiency initiatives.

We were delighted with our performance in Italy with revenue up 90% in local currency to €23 million. And the adjusted OIBDA loss declining to €2 million, that’s a 67% reduction over the prior-year loss.

And we continue to be encouraged as we have been on past calls with all the fundamentals that are working so well in Italy, good growth in new customers; strong, sustained, repeat purchase activity from existing customers; balance performance across most product categories; strong and stable product margins; and very limited promotional activity. And we’re especially encouraged that the team was able to continue driving these kinds of gains in spite of what continues to be a very difficult and uncertain economic and political environment.

Given the strength of the business in Italy, we did make the decision to transition product distribution from our German DC to a third-party logistics provider in Italy. This transition will occur over the summer and fall. And when completed, it will reduce our delivery time to our Italian customers by three days and reduce our fulfillment cost by about €3.5 million in 2014.

And finally, we’re also very pleased with the continued strong performance of our newest market, China. Our CNR Mall joint venture increased revenue 39% in local currency to RMB166 million, or about $27 million. And the adjusted OIBDA loss declined 41% to RMB7 million, or just over $1 million.

In addition to the strong financial results, we’re encouraged by our progress working closely with our CNR partner in implementing core QVC disciplines in merchandising, planning, programming, broadcast and other key areas, and we continue to expand our carriage footprint, now reaching 52 million homes, up from 48 million at the end of Q4.

We’ve also been working hard to introduce our top global QVC vendors to China because we feel that product differentiation, providing our viewers access to leading international brands, will be key to our success. We’re pleased to report that in April, we premiered our first global brands on CNR Mall, including KitchenAid, Vitamix and Honora Jewelry, among several others.

We anticipate premiering upwards of 20 global brands in Q2 and another 25 in Q3. And we’re currently introducing over 40 new items to our viewers every week, a significant acceleration from a year ago.

And now, I’ll turn it over to Claire to discuss the US results in more detail.

Claire Watts

Thank you, Mike. QVC US generated strong results in Q1. We continue to make good progress on our efforts to enhance the real relationships we have with our customers and provide a unique shopping and service experience across all platforms.

We’re elevating our content by offering our customers compelling and engaging products and programming on our broadcasts, website and mobile platforms. As Mike mentioned, our Electronic business generated solid results, particularly from standout brands Apple, HP, Samsung and Bose.

In our Home Division, we saw a positive response to our garden offerings in conjunction with Celebrate Spring, the garden special event. And our 24-hour Cooking on Q event generated strong performance from a number of brands, including Temptations, KitchenAid, Keurig and George Foreman.

We saw great momentum from our Beauty and Fashion businesses. Standout beauty brands included WEN by Chaz Dean, Tarte, Dr. Denese, Tria Beauty, IT Cosmetics and philosophy. And our Spring Fashion Day event featured best performing apparel and accessories brands, Isaac Mizrahi, Orthaheel, Dooney & Bourke and Denim & Co.

In March, we kicked off the third season of the Lisa Robertson Show. We’re seeing customers increasingly engage with Lisa on multiple platforms, particularly tablet and social. Our QVC App features an interactive experience with various looks from the show and video content of interviews with fashion designers and style experts.

Lisa also encourages her fans to join in the conversation on Facebook throughout the live show. As our experience with Lisa shows, the real relationships our hosts have with our customers translates very well from the live broadcast into our social platforms. Adding the social dimension not only enhances our connection with the customers, but we’re seeing our social sales grow as a result.

Across the board, our eCommerce business is accelerating. Recently, in Liberty Interactive, of which QVC is the primary component, ranked fifth in Internet Retailer 500 Guide, up from seventh in 2012. We’re seeing our Mobile growth trend continue, as Mike mentioned, and we continue to focus on optimizing the shopping experience on tablet web, which remains our fastest-growing portion of the Mobile portfolio.

Through QVC Sprouts, an ongoing program in search of the best up-and-coming products from inventors and entrepreneurs, we continue to cultivate innovative products customers won’t find anywhere else. Since the program launched this year, we’ve received more than 100,000 votes from customers on their favorite products. Currently, we have 48 QVC Sprouts active items on QVC.com. Recently, five of these innovative new products made their on-air debut, generating solid results.

We’re improving our customer experience at every touch point. We have dedicated team members responding to questions our customers ask on social platforms. We continue to enhance our customer service communications and support after the purchase. We’re creating efficiency to improve the speed of delivery of our products to our customers.

In the second quarter, our customers have continued to respond to our unique shopping experience. In April, QVC partnered with Cosmetic Executive Women, CEW, to launch our first-ever Beauty with Benefits, a new multi-media event in support of Cancer and Careers. The event included some of the leading brands in beauty and was part of QVC’s ongoing commitment to support causes that promote success and wellness of women through the power of relationships.

Our upcoming events, including the launch of lifestyle expert Jill Martin’s Minute Closet Makeover, our special Mother’s Day programming, and a Day of Vicenza Style will undoubtedly help our customers make the most of the summer season.

And with that, let me turn it back to Chris.

Chris Shean

Thanks, Claire. Let’s take a look at the liquidity picture for Liberty Ventures now. At the end of the quarter, the Ventures Group had cash, had attributed cash and liquid investments of $1.7 billion and $2.8 billion in principal amount of attributed debt, which includes TripAdvisor’s cash, as well as their $391 million debt facility. The value of the equity method securities and non-strategic available-for-sale securities attributed to the group was $1.8 billion and $1.9 billion, respectively, at the end of the quarter.

In January, we announced the full redemption of the $414 million of our 3.25% senior exchangeable debentures. This transaction closed in March. And post-quarter-end, we announced our plan to redeem the full 3.125% senior exchangeable debentures due 2023. In connection with this planned redemption, we issued $850 million of new senior exchangeable debentures due in 2043 with an interest rate of 0.75% with an underlying basket of Time Warner and Time Warner Cable Securities.

We also sold and are selling some Time Warner and AOL shares to cover the reminder of the debt retirement. Once completed, we will have reduced the debt on our balance sheet by over $1 billion, raised a small amount of net cash and will have done all of this in a tax-neutral fashion.

Now, with that, I’ll hand the call back over to Greg.

Greg Maffei

Great. Thank you to Mike, Claire and Chris. As I said earlier, we are pleased with the results of our quarter and the performance of our operating management teams. We appreciate your continued interest in Liberty Interactive.

And with that, operator, we’ll open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question today comes from Jason Bazinet of Citi.

Jason Bazinet – Citi

I just had a question on Liberty Ventures. I think it was last year that ended up selling $8.5 million or so of the Trip shares and then turned back around and bought the super votes of Trip, which led to the consolidation this quarter.

On Expedia, I think you sold 12 million shares at $34 million, and I’m just – it just sort of feels like there’s a second chapter to that story and I didn’t know if you could share sort of what was behind the original Expedia sale. And what, if anything, can we look forward to either this year or next? Thanks.

Greg Maffei

Well, yeah, as I think you rightly noted, we changed our position on Trip largely because we had an opportunity to move into hard control and consolidation, and that was appealing. We had previously sold the high-basis shares when we didn’t see a path.

When the path changed, our process changed. At Expedia, I think you saw a little bit of the same. It was, in hindsight, an ill-timed sale, but it was high-basis shares that we sold for liquidity and because we didn’t see a path there. There is clearly some other chapter to be written with Expedia. I can’t say what that’s going to be yet. Don’t know what that’s going to be yet. But that is the opportunity for Ventures.

Jason Bazinet – Citi

Are there a few high-level options you could outline in terms of paths?

Greg Maffei

Well, maybe there is a potential to do some kind of a 355 transaction there. We’ve done 355s in other holdings we’ve had. Maybe there’s the potential to arrange a purchase of the shares – of the control shares back and return the proxy back, as we did at Trip. Maybe there’s a potential to do a tax-efficient exchangeable into the base of the other remainder of our shares. Those are three options that Liberty would be very Liberty-esque, any one of the three.

Jason Bazinet – Citi

Very good. Thank you.

Operator

Moving on, we’ll hear from Ben Mogil of Stifel.

Ben Mogil – Stifel

Hi, guys. Good morning and thanks for taking the question. I know you talked about the 100 basis point benefit from the leap year benefit. Could you give us a sense of what the benefit was, or sort of the better benefit, if you will, from the Easter holiday coming in, in 1Q versus 2Q last year?

Mike George

Generally speaking, unlike traditional retail, we don’t really have a meaningful impact from Easter. So typically, timing of Easter is not a real material driver of our performance in the quarter.

Ben Mogil – Stifel

Okay. And then looking at Japan specifically, obviously the currency has been highly volatile there of late. Even leaving aside the same currency or constant currency situation, would you just look at the currency as it impacts your business in constant currency? Can you talk about that? I mean, should we be seeing COGS be going up in that market, just by virtue of the fact that you’re buying, I’m guessing, from China vis-à-vis US dollars, if you will?

Mike George

So far, we haven’t seen any impact and we don’t anticipate it, largely given the structure of our businesses, although I don’t know that we can totally rule it out. Keep in mind that unlike our other markets, most of our inventory is on consignment. And so the way we work in Japan is we work with a number of Japanese agents who are – and vendors who are procuring that inventory on our behalf. And so all of our – the sort of all of our financial transactions with those Japanese vendors are in yen.

So in that sense, we’re neutral. Now, maybe if there’s some cost pressure at the source that will eventually impact us. But so far, we’re really not seeing any significant in-country impact from the devaluation of the yen.

Ben Mogil – Stifel

Okay. Thanks. And then just last question, on the MSO agreements domestically, are you seeing no real change in pricing, et cetera? Is it sort of steady-as-she-goes?

Mike George

Yes, it’s very steady.

Ben Mogil – Stifel

Okay, that’s great. Thank you very much.

Mike George

Thank you.

Operator

We’ll take our next question today from David Gober of Morgan Stanley.

Dave Gober – Morgan Stanley

Good morning, guys. Thanks for taking the question. So Mike, you mentioned that Easter didn’t have a material impact on QVC. But Greg, I think in the press release, there was a mention of the eCommerce businesses, and I’m guessing that was ProFlowers that saw a benefit.

Is there any way you could quantify what that impact was? And obviously, there was some fairly market improvement in the eCommerce businesses in 1Q. Do you think that’s sustainable over the remainder of the year?

Greg Maffei

I don’t think we could quantify – I don’t have that in hand, the ProFlowers one. In the context of Liberty Interactive, it is not a material number. Clearly, there’s some benefit, and Easter is a distant third in their holidays in terms of attractiveness, obviously behind Valentine’s Day and Mother’s Day. I think if you look at the broader question about our eCommerce companies, I’ll wax for a little bit here; we have – CommerceHub is on a continuing strong trend.

Bodybuilding has had great top line growth and continues that. Sometimes, they’ve had some margin issues around promotions and around their vendors. But in general, the growth has been sustained and strong over the last few years.

Then we’ve had three businesses which have had either some challenges or are in transition. We have new management, Provide, that is I think re-exciting, reigniting and exciting consumers around gifting and around differentiating some of our gifting capabilities. And I think that’s beginning to take hold and you’re seeing some of that in the good results that Provide had in Q1.

There’s more opportunity there, frankly, around RedEnvelope. Some of the other softer elements outside of flowers; flower is a pretty competitive category because there are three big players. But some of the other areas are outside of competitive flowers like gourmet foods that are doing an incredibly good job. And there’s opportunity around personalization with Personal Creations where we’ve made good progress but more ahead.

Looking at Backcountry, I think they have largely been a victim of poor winter weather. They have a better start in terms of revenue this year, still some margin pressures because of release of prior-year goods, not just with us, but in the industry. And great progress in some of their ancillary categories, like cyclists and BMX gear. So I think we feel very good about the progress of Backcountry. Pray for cold, early winter weather and we will have good results.

And then the one that has had the biggest challenge has been Celebrate, largely around some of our more competitive environment in costumes and party supplies, created by excess space in retail malls across the country and new strong competitors and also definitely some self-inflected wounds in terms of marketing; in terms of the website access; in terms, to some degree, merchandizing; and therefore, site conversion. And I think we have a new CEO there who is undertaking aggressive plan to improve that business.

And I’m confident we’re on the right track. Not easy; clearly the one with the biggest set of challenges. But if you look at the portfolio overall, all of them feel like they’re headed in the right direction this year compared to last year.

Dave Gober – Morgan Stanley

So Greg, having said that, could you maybe wax a little bit on the strategic positioning of those assets? I know in the past, there’s been some thought and discussion around potentially spinning them off. And it feels like the benefits that may be cross-pollinating with QVC likely would have kind of taken hold by now. Do you think that makes sense over time given that those assets feel like they’re on better footing this year?

Greg Maffei

There are – we always look and think about different alternatives. I’m not sure that Group is ready to be a separate public company. To be perfectly honest, they’re not capitalized; their infrastructure behind that is not there.

But we certainly look and think about ways that we could highlight the value there, which in general, barring 2012, has been excellent. And we’ll stay tuned and we don’t have a plan yet, but stay tuned and I’m sure we’ll – something will arise.

Dave Gober – Morgan Stanley

Great. Thank you.

Operator

And next, we’ll take a question from Tom Forte of Telsey Advisory Group.

Tom Forte – Telsey Advisory Group

Great. Thanks. I wanted to talk a little about QVC and consumer electronics. So it looks like you had a rebound in the quarter which you attributed to strength in tablets. Do you think that’s sustainable? And then can you talk a little about the relationship between new client growth and consumer electronics sales? Thanks.

Mike George

Yeah. Claire, do you want to take that one?

Claire Watts

Yes. I certainly will, Mike. So yes, our Electronics business did recover in the quarter; very strong performance led by tablets. Our Camera business was also quite good. We feel good about tablet continuing to be a strength for QVC throughout the year. It is, as we’ve mentioned, our fastest-growing platform. It’s a vehicle that our customers really enjoy. So we do feel good about that. And then yes, the performance of new names we’re pleased with and certainly the spend. Electronics is a huge driver of new names for us and the spend comes with it. So they are definitely tied.

Tom Forte – Telsey Advisory Group

Thank you.

Operator

Our next question comes from Trisha Dill with Wells Fargo.

Trisha Dill – Wells Fargo

Good afternoon. Thanks for taking my question. So you saw a nice acceleration in QVC.com relative to Q4. How much of that do you think was related to the new Webster platform?

Do you have any data or metrics to support that maybe time spent on the site per user improved conversion? Or maybe there’s something else you can comment on in terms of what’s driving this acceleration. And then just as a follow-up, can you just elaborate on any plans for QVC.com for the rest of the year? And anything we should expect to see new there?

Claire Watts

Yes. So this is Claire. I’ll answer that for you. So for the US, we did see our eCommerce – particularly QVC.com build throughout the quarter. It is – every time you put in a new platform, there are a number of things that you work through to get it completely stable and to optimize it. So we continue to work at that every single week and we’ve seen that performance increase. We see that through metrics.

I’m not going to quote the time on site because we haven’t, but definitely in our core performance metrics, we do see improvement and we know that it’s from refining the capabilities on the site. And as far as the rest of the year, it’s the same plan. We’re going to be working every week to find any last minute bugs and we have a long list of enhancements that we’ll continue to roll out on the shopping experience and on the service side for the site for the rest of the year.

Trisha Dill – Wells Fargo

Great. And if I could just ask one more; in terms of the international business, just wondering if so far in Q2 you’re continuing to see stability there in terms of local currency trends or if you’ve seen any real change in trend in April or May.

Mike George

We typically don’t comment on in-period performance. I won’t comment on any specifics related to our international performance. I think the sort of economic outlook in the markets we operate in and the consumer spending environment feels relatively consistent with Q1. So no obvious significant changes in the external environment.

Trisha Dill – Wells Fargo

Great. Thanks.

Operator

Our next question will come from Barton Crockett with Lazard Capital Markets.

Bart Crockett – Lazard Capital Markets

Okay. Thank you for taking the question. I was wondering if you could update us on shipping and handling, which was regarded at the top line at HSN, a tailwind for you guys last year, a headwind the year before. What are you seeing now?

Mike George

Claire, you want to cover the US?

Claire Watts

Yes.

Bart Crockett – Lazard Capital Markets

Yes.

Claire Watts

Yes. So from the US perspective, our shipping and handling remained flat for the quarter. In other words, we did not have any additional promotional activity. So we’re seeing the same thing that we’ve seen in the past since there are certain categories from a competitive standpoint that we will participate.

But for the most part, we are driving all of our levers of activity around value to drive customer purchase and we are keeping our shipping and handling as just one of those levers. But we have not expanded it in the quarter.

Bart Crockett – Lazard Capital Markets

Okay. And if I could ask a follow-up question, any comment on what the implementation of an Internet sales tax could means for you guys if that were to be passed.

Mike George

Well, we’re...

Greg Maffei

It depends; when you say you, it’s a breadth of companies inside Liberty. If you look on the margin, I mean QVC, the largest element, as Mike was going to say, is already collecting that sales tax. But there are other companies that we have and not all of them are collecting sales tax in all venues.

Bart Crockett – Lazard Capital Markets

Okay. So it feels modest within eCommerce mainly?

Greg Maffei

Yeah.

Bart Crockett – Lazard Capital Markets

Okay. Thank you.

Operator

And our next question will come from Victor Anthony of Topeka Capital Markets.

Victor Anthony – Topeka Capital Markets

Yeah, thanks. Question on the Mobile percent of total eCommerce in the US, and I guess globally. Maybe you could talk to the differences you’ve seen on the Mobile side in terms of the product categories that have been pushed through the Mobile side. And also, are you seeing – are most of these sales tablet sales? Or what percent of your sales are you seeing through smartphones?

Mike George

Claire, could you take that?

Claire Watts

Yes. So in the US, I’ll answer your – two parts of your question. The first part is, as we’ve talked about before, we do see different behavior coming through the mobile phone versus tablet. Mobile phone, for our customers, predominantly is an ordering mechanism and to check in on the TSV, Today’s Special Value, or to check in on the things that they’re looking for on programming for the day.

So very, very different behavior than what we’re seeing from the tablet. The tablet is definitely a second screen. It’s a companion activity. It’s browsing. It’s shopping. It’s social in nature. And it’s a very, very enjoyable platform for our customers. Now, we don’t give out specific percentages, but we have quoted a number of times that tablet is the fastest-growing part of our portfolio.

That’s across the board, whether it’s sales, sessions, customer growth. So for us, the tablet is the most important device at this time, although I will tell you our app and our mobile phone are doing very, very decent business as well. But tablet’s number one.

Victor Anthony – Topeka Capital Markets

Thank you.

Operator

And we’ll take our last question today from Matthew Harrigan with Wunderlich Securities.

Matthew Harrigan – Wunderlich Securities

Thank you. Two distinctly-unrelated questions. On Ventures, I think you said at the investor conference last year that you could avoid as much as $7 in tax leakage if you were thinking on addressing those Time Warner exchangeables. I mean do you feel like you’ve accomplished that pretty much in its entirety?

And then separately, on China, I mean, you’ve got a little bit of I guess D&A from the CNRS before Key was involved, but you really are kind of starting on a blank slate in terms of how you approach that market. I mean, it obviously has some cultural quirks.

Can you talk a little bit more about ASPs, what categories are working, how social media ties in, in that market, the popularity of luxury goods, obviously the European makers are very big in that market? Are you getting companies that approach you to work with you in China that aren’t even that engaged with you in some other markets?

Greg Maffei

Yeah. Matt, this is Greg. On the TWX exchangeables, that $7 still sits out there. We obviously, as we noted, had no leakage in the transactions that we did to-date. So that opportunity still sits ahead to defer that or avoid that potentially we’d like to think forever.

Matthew Harrigan – Wunderlich Securities

Great.

Mike George

And on China, I’d make a few observations. It’s interesting I think in the pre-QVC involvement, the business actually looked not unlike home shopping businesses looked in the US many years ago, including the early days of QVC. So the strongest categories were collectables and jewelry, which is really how QVC started.

We are sort of in a very careful way reducing those businesses in the mix and putting a much bigger focus on beauty, which is one of our strongest businesses worldwide. We’ve been encouraged – while it’s still a small part of the mix, we’ve been encouraged by the sort of early acceptance of beauty.

We’ve seen just enormous growth in the kitchen area, which is also probably right after beauty one of our consistently-strongest categories around the world. So we’re starting to introduce what I would characterize as actually a more sort of traditional QVC mix, and it appears that that is working, although that certainly won’t happen overnight. In terms of the luxury goods side of it, we really haven’t pursued that.

We don’t want to rule out anything, but our focus has been more on taking those global QVC brands, some of which I mentioned earlier, that we know that those brands know how to work and be successful in our kind of shopping environment and try to get those to our consumers in China. So that’s been our highest priority from a product mix standpoint and we’re pretty confident that will work.

It’s interesting; we’re actually seeing in China the highest ASP, to get to your price question, the highest ASP of any country. So they are selling high-ASP product. And again, that little bit reflects this historic focus on collectibles and jewelry.

And we think part of getting sustained growth, and most importantly, getting higher repeat purchase rate, which of course is how the QVC model is built, we’ll come from probably on the margin starting to bring those ASPs down to be more in line with our other markets and have the product mix also be more in line with our other markets.

Matthew Harrigan – Wunderlich Securities

And what about the social media aspect over there, which has to be pretty entertaining, to say at least?

Mike George

At this point, we’re actually not that engaged in social media nor do we – are we doing a lot of Web-based business. We do have a website, but we’re not doing significant business on the website. So I would say those are more to come. Our focus right now really is on kind of the blocking and tackling of a really great sort of classic TV experience.

Matthew Harrigan – Wunderlich Securities

Thanks, Mike.

Operator

Ladies and gentlemen, that does conclude today’s Liberty Interactive Corp. Quarterly Earnings Call. We do thank you all for joining us.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!