QURATE RETAIL, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements regarding our business
strategies; the impact of the fire at the Rocky Mount fulfillment center;
insurance recoveries; the remediation of a material weakness; revenue growth at
QVC, Inc. ("QVC"); our projected sources and uses of cash; the recoverability of
our goodwill and other intangible assets; and fluctuations in interest rates and
foreign currency exchange rates. Where, in any forward-looking statement, we
express an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the expectation or belief
will result or be achieved or accomplished. The following include some but not
all of the factors that could cause actual results or events to differ
materially from those anticipated:

The continuing global and regional economic impacts of the COVID-19 pandemic

? and other public health-related risks and events, on our customers, our vendors

and our businesses generally;

customer demand for our products and services and our ability to attract new

? customers and retain existing customers by anticipating customer demand and

adapting to changes in demand;

? competitor responses to our products and services;

? increased digital TV penetration and the impact on channel positioning of our

programs;

? the levels of online traffic to our businesses' websites and our ability to

convert visitors into customers or contributors;

? uncertainties inherent in the development and integration of new business lines

and business strategies;

? our future financial performance, including availability, terms, deployment of

capital and our level of indebtedness;

? our ability to effectively manage our installment sales plans and revolving

credit card programs;

the cost and ability of shipping companies, manufacturers, suppliers, digital

? marketing channels, and vendors to deliver products, equipment, software and

services;

? the outcome of any pending or threatened litigation;

? availability of qualified personnel;

? the impact of the seasonality of our businesses;

changes in, or failure or inability to comply with, government regulations,

? including, without limitation, regulations of the Federal Communications

Commission ("FCC"), and adverse outcomes from regulatory proceedings;

? changes in the nature of key strategic relationships with partners,

distributors, suppliers and vendors;

domestic and international economic and business conditions and industry

? trends, including the impact of Brexit (as defined below) and the impact of

inflation and increased labor costs;

? increases in market interest rates;

? changes in the trade policy and trade relations with China;

? consumer spending levels, including the availability and amount of individual

consumer debt and customer credit losses;

? system interruption and the lack of integration and redundancy in the systems

and infrastructures of our businesses;

? advertising spending levels;

changes in distribution and viewing of television programming, including the

? expanded deployment of video on demand technologies and Internet protocol

television and their impact on home shopping programming;

? rapid technological changes;

failure to protect the security of personal information, subjecting us to

? potentially costly government enforcement actions and/or private litigation and

reputational damage;

? the regulatory and competitive environment of the industries in which we

operate;

natural disasters, public health crises (including resurgences of COVID-19 and

? its variants), political crises, and other catastrophic events or other events

outside of our control, including climate change;

? threatened terrorist attacks, political and economic unrest in international

markets and ongoing military action around the world;

? failure to successfully implement Project Athens (defined below); and

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? fluctuations in foreign currency exchange rates.

For additional risk factors, please see Part I, Item 1A. Risk Factors of our
Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022
10-K"). These forward-looking statements and such risks, uncertainties and other
factors speak only as of the date of this Quarterly Report on Form 10-Q, and we
expressly disclaim any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein, to reflect any
change in our expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is based.

The following discussion and analysis provides information concerning our
results of operations and financial condition. This discussion should be read in
conjunction with our accompanying condensed consolidated financial statements
and the notes thereto and the 2022 10-K.

The information herein relates to Qurate Retail, Inc. and its controlled
subsidiaries (collectively "Qurate Retail," the "Company," "Consolidated Qurate
Retail," "us," "we" or "our" unless the context otherwise requires).

Overview

We own controlling interests in video and online commerce companies. Our largest
businesses and reportable segments are our operating segment comprised of QVC
U.S. and HSN ("QxH") and QVC International. QVC markets and sells a wide variety
of consumer products in the United States ("U.S.") and several foreign countries
via highly engaging video-rich, interactive shopping experiences, primarily by
means of its televised shopping programs and the Internet through its domestic
and international websites and mobile applications. Cornerstone Brands, Inc.
("CBI"), consists of a portfolio of aspirational home and apparel brands, and is
a reportable segment.

Our "Corporate and other" category includes our consolidated subsidiary Zulily,
LLC ("Zulily"), along with various cost and equity method investments.

On June 27, 2022, Qurate Retail announced a five-point turnaround plan designed
to stabilize and differentiate its core QxH and QVC International businesses and
expand the Company's leadership in video streaming commerce ("Project Athens").
Project Athens main initiatives include: (i) improve customer experience and
grow relationships; (ii) rigorously execute core processes; (iii) lower cost to
serve; (iv) optimize the brand portfolio; and (v) build new high growth
businesses anchored in strength.

Improve Customer Experience and Grow Relationships. Qurate Retail is focused on
rebuilding stronger connections with our customers. In order to improve customer
experience and grow relationships, Qurate Retail is working to optimize
programming using advanced analytics to align product offerings, promotions and
airtime with customer preferences. In addition, we expect to invest in
infrastructure which will endeavor to improve the customer's order to delivery
experience by increasing personalization, reducing shipping time and improving
shipment tracking visibility. We expect to develop a customer loyalty program
which will provide customers with a more personalized experience.

Rigorously execute core processes. Qurate Retail is enhancing its core processes
to deliver the human story telling experience behind a product while also
sharing a clear and compelling value proposition. In order to rigorously execute
core processes, Qurate Retail will optimize pricing and assortment by investing
in enhanced Information Technology systems that will support real-time pricing
and promotion adjustments at an item level. We will also focus on growing our
private label brands to drive revenue and margin at productive scale.

Lower cost to serve. Qurate Retail is right sizing its cost base to improve
profitability and cash generation. In order to lower cost to serve, Qurate
Retail will enhance review of spending to identify cost savings opportunities,
including opportunities for workforce reduction. Additionally, we will improve
product margin through market vendor efficiency and lower fulfillment costs
through freight optimization and higher productivity.

Optimize the brand portfolio. Qurate Retail is exploring untapped opportunities
at Zulily and our CBI brands. In order to optimize the brand portfolio at
Zulily, we are building the foundation to achieve persistent everyday value for
Mom while evaluating and identifying ways we can reduce costs. At CBI we will
continue to expand our retail footprint in addition to focusing on cross-brand
promotions.

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Build new high growth businesses anchored in strength. Finally, Qurate Retail is
focused on expanding in the video streaming shopping market. In order to build
new high growth businesses anchored in strength, Qurate Retail expects to expand
streaming viewership by improving the current streaming experience with enhanced
video and navigation and seamless transactions. Additionally, we are shaping the
future streaming experience with exclusive content, program and deal concepts.
We are also building a next generation shopping app featuring vendors with
self-made content.

During 2022 QVC commenced the first phase of Project Athens, including actions
to reduce inventory and a planned workforce reduction. These initiatives are
consistent with QVC's strategy to operate more efficiently as it implements its
turnaround plan, and QVC expects to incur additional expenses related to Project
Athens initiatives in future periods. During the three months ended March 31,
2023, QVC implemented a workforce reduction and recorded restructuring charges
of $13 million in Restructuring and fire related costs, net of (recoveries) in
the condensed consolidated statement of operations.

QVC's future net revenue will depend on its ability to grow through digital
platforms, retain and grow revenue from existing customers, and attract new
customers. QVC's future net revenue may also be affected by (i) the willingness
of cable television and direct-to-home satellite system operators to continue
carrying QVC's programming service; (ii) QVC's ability to maintain favorable
channel positioning, which may become more difficult due to governmental action
or from distributors converting analog customers to digital; (iii) changes in
television viewing habits because of video-on-demand technologies and Internet
video services; (iv) QVC's ability to source new and compelling products and
(v) general economic conditions.

The current economic uncertainty in various regions of the world in which our
subsidiaries and affiliates operate could adversely affect demand for our
products and services since a substantial portion of our revenue is derived from
discretionary spending by individuals, which typically falls during times of
economic instability. Global financial markets may experience disruptions,
including increased volatility and diminished liquidity and credit availability.
If economic and financial market conditions in the U.S. or other key markets,
including Japan and Europe, continue to be uncertain or deteriorate, our
customers may respond by suspending, delaying or reducing their discretionary
spending. A suspension, delay or reduction in discretionary spending could
adversely affect revenue. Accordingly, our ability to increase or maintain
revenue and earnings could be adversely affected to the extent that relevant
economic environments decline. Such weak economic conditions may also inhibit
our expansion into new European and other markets. We currently are unable to
predict the extent of any of these potential adverse effects.

The Company has seen inflationary pressures during the period including higher
wages and merchandise costs. If these pressures persist, inflated costs may
result in certain increased costs outpacing our pricing power in the near term.

On December 18, 2021, QVC experienced a fire at its Rocky Mount, Inc.
fulfillment center in North Carolina. Rocky Mount was QVC's second-largest
fulfillment center, processing approximately 25% to 30% of volume for QVC U.S.,
and also served as QVC U.S.'s primary returns center for hard goods. The
building was significantly damaged as a result of the fire and related smoke and
will not reopen. QVC took steps to mitigate disruption to operations including
diverting inbound orders, leveraging its existing fulfillment centers and
supplementing these facilities with short-term leased space as needed. QVC sold
the property in February 2023, received net cash proceeds of $15 million and
recognized a $13 million gain on the sale during the three months ended March
31, 2023. QVC is currently evaluating long-term alternatives to alleviate the
strain on its network caused by the loss of the Rocky Mount fulfillment center.

Based on the provisions of QVC's insurance policies and discussions with
insurance carriers, QVC determined that recovery of certain fire related costs
is probable, and recorded an insurance receivable. As of December 31, 2022, the
Company recorded cumulative fire related costs of $407 million, including $119
million of costs that will not be reimbursed by QVC's insurance policies,
estimated insurance recoveries of $288 million for which recovery was deemed
probable, received cumulative insurance proceeds of $380 million and recorded a
gain of $132 million in restructuring and fire related costs, net of
(recoveries). As of December 31, 2022, the Company recorded an insurance
receivable, net of advance proceeds received, of $40 million in trade and other
receivables, net of allowance for credit losses in the condensed consolidated
balance sheet.

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During the three months ended March 31, 2023, QVC received $55 million of
insurance proceeds of which $40 million was applied to the insurance receivable
and $15 million was recognized as a gain, partially offset by $11 million of
other fire related costs which are included in fire related costs, net of
(recoveries) in the condensed consolidated statement of operations. There was no
remaining insurance receivable outstanding as of March 31, 2023.

QVC submitted its business interruption claim with the insurance company and is
still in the process of assessing the valuation of loss with its insurer; there
can be no guarantee that all business interruption losses will be recovered. QVC
expects to continue to record additional costs and recoveries until the
insurance claim is fully settled. While QVC took steps to minimize the overall
impact to the business, it experienced increased warehouse and logistics costs
during the three months ended March 31, 2023 and 2022 and anticipates these
increased warehouse and logistics costs to continue during 2023.

In November 2022, QVC International entered into agreements to sell two
properties located in Germany and the United Kingdom ("U.K.") to an independent
third party. Under the terms of the agreements, QVC received net cash proceeds
of $102 million related to its German facility and $80 million related to its
U.K. facility when the sale closed in January 2023. Concurrent with the sale,
QVC entered into agreements to lease each of the properties back from the
purchaser over an initial term of 20 years with the option to extend the terms
of the property leases for up to four consecutive terms of five years. QVC
recognized a $69 million and $44 million gain related to the successful sale
leaseback of the German and U.K. properties, respectively, during the first
quarter of 2023 calculated as the difference between the aggregate consideration
received and the carrying value of the properties. The Company accounted for the
leases as operating leases and recorded a $42 million and $32 million
right-of-use asset and operating lease liability for the German and U.K.
properties, respectively.