Qurate Retail, Inc. Class A Aktie

Greetings, and welcome to the QVC Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Jessica Donati. Thank you. You may begin.

Thank you, Rob, and good morning. Before we begin the call, I'd like to remind everyone that this call contains 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 QVC Group and QVC with the SEC. These forward-looking statements speak only as of the date of this call, and QVC Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in QVC Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Please note that we have published slides to accompany the earnings release. 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 note and schedules 1 and 2, can be found in the earnings press release issued today, or our earnings presentation, which are available on our website.

Today, speaking on the earnings call, we have QVC Group President and CEO, David Rawlinson; QVC Group CFO and CAO; Bill Wafford; and QVC Group's Executive Chairman, Greg Maffei.

Now I'll hand the call over to David Rawlinson.

Thank you. Good morning, everyone. We appreciate you joining us and from your continued interest in QVC Group. During the third quarter, we continued to make progress implementing our WIN growth strategy and other key initiatives to drive the future of live social shopping. We are encouraged by the results we're seeing in our social and streaming platforms against what continues to be a challenging tariff, viewership and macroeconomic backdrop.

Though declining linear TV viewership has put pressure on our business, we are executing well on the second phase of our transformation as we continue to manage costs, address our capital structure and invest in social and screening. As I mentioned last quarter, we are continuing to work to find cost reduction opportunities. In Q3, we are fully recognizing the favorable impact of our organizational change from our IT outsourced service model. We have largely completed our previously announced reduction of our global workforce by over 1,000.

In last quarter, we completed the operational move of HSN to our headquarters in West Chester, Pennsylvania and have now entered into agreements to sell the St. Petersburg properties to independent third parties. We also remain focused on our long-term sourcing diversification strategy which we have discussed during the prior 2 quarters. We have made meaningful progress this year by reducing the penetration of goods from China by 8% to 10%, and we remain on track to achieve our goal that no country will represent more than 1/3 of our sourced goods in the U.S. by the end of the year.

We continue to monitor any changes to tariff rates and evaluate the impact as necessary. In Q3, total revenue declined by 6% in constant currency. QxH revenue declined 7%, QVC International revenue declined 5% in constant currency and Cornerstone revenue declined 8%. As I've previously discussed, returning our company to growth continues to be difficult as challenges persist, and we continue to ramp up our WIN growth strategy.

We continue to see growth in revenue attributed to our social and streaming channels, helping to moderate the year-over-year revenue decline at QxH by 4 points in Q3 compared to the first half of 2025. We believe that the revenue attributed to our social and streaming platforms is now low double digits as a percentage of QxH total revenue. And according to some third-party attribution methodologies could be even higher.

With our current measurement, social and streaming revenue is growing 30% over last year. This is an improvement from Q2, which we estimated at high single digits. This strong momentum is why I believe in our strategy to drive the future of live social shopping.

We know that our channels on TikTok are reaching new customers. And in Q3, we added approximately 255,000 new customers through our TikTok Shop and an additional 300,000 through our traditional linear and digital channels. We are also encouraged by early repeat customer rates on TikTok Shop. We continue expanding our partnership with creators, and we now rank among the top sellers for total U.S. TikTok Shop.

On streaming, we continue to expand content and distribution and are pleased to see another quarter of strong monthly active user and revenue growth. We are continuing to pursue additional FAST TV channel launches on Amazon Fire TV and Roku and launched a new live-like channel called the Deals Channel. This new channel is a compilation of our TSVs and TSs and is a good example of collaboration across our digital, linear and streaming channels.

We continue to build our library and streaming original content with new shows like Your Splendid Space with Kathy Hilton and new episodes of our top show series hosted by Busy Philipps. Both of these highlight our new way of working to create content in multiple forms to engage with our customers in various ways.

In the third quarter, we were pleased to see QxH average customer spend increased for the first time since Q2 2024. Spend per customer grew 4%, while total customer count decreased 12%, not including customers buying through our TikTok Shop. Existing customers declined 10%, new customers declined 26% and reactivated customers declined 11%.

It's important to note that our traditional customer reporting excludes customers buying through our TikTok Shop. And when we include those new customers in our results, new customers grew 38% versus last year.

As you can see on Slide 8 in our presentation, on a trailing 12-month basis, customer count declined on a sequential basis, approximately 2% versus June 2025. But our existing customers continue to purchase at healthy levels, spending on average $1,620 and purchasing 31x in the 12 months ended September 30. At QVC, our best customers who buy 20 or more items annually, also continue to purchase at very attractive levels. In the 12 months ended September 30, they bought 78 items and spent $4,048 on average, both increasing approximately 2% year-over-year.

As we look at category performance, while we experienced declines in all categories, we saw the year-over-year rate of decline improved compared to the second quarter in every category except for electronics. In apparel, while sales were down year-over-year, we saw a meaningful improvement versus the trend we experienced in the first half of the year. This was driven by successful fall fashion events and strong performances from several of our core brands, including Kim Gravel, Denim & Company, LOGO and Diane Gilman.

The jewelry category showed a notable improvement in trend over the last 3 quarters. This was fueled by standout performances from J. King and our lab-grown diamond assortment. Our home category revenue was down 7%. However, we saw encouraging results from our seasonal programming with customers responding to both our fall and holiday products.

Speaking of holidays. Our team is bringing the holidays to life with festive programming, limited-time deals and tent-pole omnichannel events that span TV, streaming, social and digital. At QVC, we've completed our biggest ever nonstop holiday party last weekend. Kathy Hilton is appearing in many special moments as our official Mrs. Claus this year. We're presenting Mrs. Claus' Holiday House, a pop-up event in New York City that will also be the site of our second TikTok Super Brand Day. QVC, Shawn Killinger is taking customers on a holiday tour of Britain's capital in all-access London calling, a weeklong event featuring Elton John, British bands and more.

Meanwhile, HSN is heading south for All-Star Nashville holiday, a 2-day event featuring country music stars, Martina McBride, Trisha Yearwood, Brad Paisley and Lady A.

Moving to QVC International. Performance in the quarter was stable with the exception of Japan. Our European market revenue was down slightly, but the U.K. grew 2% in the quarter. We continue to see challenges in the Japan market and have kicked off a multiyear plan to combat lost market share driven by technology and marketing investments.

For our Cornerstone brands, revenue declined 8% in the third quarter. As I've mentioned in prior calls, this business has been impacted by tariffs and is largely tied to the housing market, which remains depressed.

To wrap up, our WIN growth strategy continues to guide the company through its transformation. And although there is much work to be done, we are pleased with our progress to date, and the consistent success we've witnessed through our social and streaming efforts. We have demonstrated our ability to evolve to meet the needs of the modern consumer, and we remain confident in the future of live social shopping and QVC's ability to continue to be an innovative class leader in the space. To execute on our ambitious transformation efforts, we will continue to focus on what we do best, creating an opportunity for shoppers to explore, dream and connect.

Now I'll turn the call to Bill to review the Q3 financial results for each business.

Thank you, David, and good morning, everyone. Unless otherwise noted, my comments compare financial performance for the 3 months ended September 30, 2025, to the same period in 2024. Starting with QxH, revenue declined by 7% due to a 7% decrease in unit volume and a 13% decrease in shipping and handling revenue, partially offset by favorable returns rate and slightly higher average selling price.

From a category perspective, home revenue decreased by 7%, primarily due to reduced demand in culinary and ongoing pressure in our today's special value events, many of which were impacted by tariffs. Apparel revenue decreased by 4%, an improvement from Q2. Beauty revenue declined by 9% in Q3. However, we saw wins from standout brands such as No Makeup Makeup, Philosophy, Naked Re and Beekman 1802.

Accessories improved from Q2, with revenue down 6% for the quarter. Handbag and lounge categories drove some positive momentum, along with brands like Skechers and Patricia Nash. Electronics declined 14%, driven by reduced demand in portable power. Adjusted OIBDA decreased 26% and adjusted OIBDA margin contracted 245 basis largely driven by 145 basis points of marketing investment, 130 basis points of total sales deleverage and 85 basis points of pressure from a change in the management incentive compensation plan, partially offset by favorable commissions.

Gross margin declined approximately 110 basis points driven by fulfillment pressure, sales deleverage and lower product margins. Product margins decreased by approximately 25 basis points, driven by higher promotions and increased tariffs. Fulfillment expenses were unfavorable 80 basis points due to increased freight rates and sales deleverage.

On an aggregate dollar basis, operating expenses decreased 12% and SG&A expenses increased 4%. Operating expenses decreased $15 million, largely driven by lower commissions. SG&A expenses increased $10 million and were unfavorable by approximately 180 basis points due to sales deleverage, higher marketing costs and higher management incentive costs, partially offset by lower personnel costs. Excluding the increased marketing investment and timing change related to incentive compensation, SG&A expense was down approximately $18 million year-over-year.

Moving to QVC International. My comments will focus on constant currency results. Revenue declined approximately 5%, driven by a 4% decrease in average selling price and lower shipping and handling revenue. From a category perspective, sales declined in all categories with the exception of apparel, which increased 3%. U.K. net revenue increased 2%, while Japan net revenue declined 11% and Germany declined 3%.

Adjusted OIBDA decreased 21% and adjusted OIBDA margin declined 210 basis points. Gross margin decreased 130 basis points due to sales deleverage and fulfillment pressure, partially offset by product margin gains. Operating expenses were flat, and margin was unfavorable due to sales deleverage.

SG&A expenses decreased 2% due to lower personnel expenses. SG&A margin was unfavorable by approximately 40 basis points due to sales deleverage and the timing related to management incentive costs. Excluding the timing change related to incentive compensation, SG&A expenses were down approximately 6% year-over-year.

Moving to Cornerstone. Revenue declined 8% in the quarter as we continue to experience soft demand for outdoor furniture and seasonal decor in our home brands in apparel at Garnet Hill, largely driven by continued challenges in the housing market. Adjusted OIBDA margin decreased approximately 315 basis points driven by sales deleverage and product margins. Product margins decreased 220 basis points due to pressure from tariffs.

I would also like to comment on the recent change to our management incentive compensation program. We believe the recent change allows us to appropriately recognize our team for their efforts and continued progress of the WIN strategy in a more timely manner. The cost of the program had a material impact on our adjusted OIBDA results in 2025. And going forward, the long-term incentive portion is no longer treated as stock-based compensation and is now recognized as an expense impacting OIBDA.

Turning to cash flow and the balance sheet for the quarter. In the first 9 months of 2025, free cash flow was a use of $184 million compared to a source of $102 million last year. The decrease in cash flow was primarily due to a reduction in cash provided by operations and higher payments for TV distribution rights, partially offset by lower capital expenditures and timing of dividend payments to our Japanese joint venture partner. As a reminder, our TV distribution payments fluctuate year-over-year depending on renewal cycles.

Looking at QVC Group, Inc. debt profile. As of September 30, 2025, net debt was $4.8 billion and the QVC Group revolver had $2.9 billion drawn. QVC Group had total cash of $1.8 billion, of which $1.3 billion was at QVC Inc., $160 million was at Liberty Interactive LLC and $250 million was at QVC Group. Our leverage ratio as of September 30, 2025, as defined by the QVC revolving credit facility was 4.2x, excluding Cornerstone, compared to our maximum covenant threshold of 4.5x.

As a reminder, covenant OIBDA includes the adjusted OIBDA of QVC, Inc. as Cornerstone was removed as a borrower from -- under QVC's credit agreement as of April 1. As David touched on in his remarks, we remain laser-focused on managing costs and addressing our capital structure to better position the business for long-term success. This is a key pillar of our WIN growth strategy. And as part of these efforts, we are continuing to evaluate a range of proactive financial and strategic alternatives. This review is ongoing and no decisions have been made at this stage. We will provide updates if and when there are material developments that warrant further communications.

Now I'll turn the call over to Greg.

Good morning. As both David and Bill noted, it was a challenging quarter as we continue to experience pressure from the linear TV decline, but are making good progress on our WIN strategy, specifically around social. We continue to invest here. We expect to continue to invest here and we will balance cost and return. We are working on our capital structure and balance sheet and proactively evaluating financial and strategic alternatives.

And with that, we'd like to note that we appreciate your continued interest in the QVC Group, and thank you for listening to the call. We're done.

Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings. Welcome to QVC Group's Second Quarter 2025 Earnings Call. It is now my pleasure to hand the call over to Jessica Donati.

Thank you, and good morning. Before we begin, we'd like to remind you that 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 QVC Group and QVC with the SEC.

These forward-looking statements speak only as of the date of this call, and QVC expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in QVC Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Please note that we have published slides to accompany the earnings release.

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 note and schedules 1 and 2, can be found in the earnings press release issued today or our earnings presentation, which are available on our website.

Today speaking on the earnings call, we have QVC Group President and CEO, David Rawlinson; QVC Group CFO and CAO, Bill Wafford; and QVC Group Executive Chairman, Greg Maffei. Following today's presentation, we will address questions that were submitted in advance of the call. There will be no live Q&A session.

Now I'll hand the call over to David Rawlinson.

Thank you, and good morning, everyone. We appreciate you joining us and your continued interest in QVC Group.

Coming off a challenging Q1, we continue to manage through what has proven to be a difficult macro environment in Q2. Namely, we continue to experience declining linear TV viewership as well as ongoing volatility in consumer confidence. QxH minutes viewed declined 15% in the second quarter.

Declining consumer confidence in the earlier part of the second quarter was primarily driven by international economic policies and geopolitical events. Our implementation of key initiatives to strengthen our capital structure for the long term remains ongoing. At the same time, we are acutely focused on moving the business forward and implementing our WIN strategy to drive the future of live social shopping. To this end, we continue to advance the number of cost-cutting efforts and accomplished various milestones this quarter. In late June, we successfully completed the transition of HSN's operations to Studio Park in Westchester, Pennsylvania, bringing our 5 U.S. TV channels across HSN and QVC under one roof.

In total, we now feature 52 hours of linear content a day. This will not only generate cost reductions but is also a major milestone in our WIN growth strategy and a testament to the dedication of our team. With a single headquarters for QVC and HSN, we believe we are in a much stronger position to efficiently create content for multiple platforms.

To keep our customers engaged through this transition, particularly for our avid and elite customers, HSN launched Hello HSN PA!, a month-long marketing campaign across all of our touch points. We brought our customers with us on this exciting journey through moving theme programming and deals, shout-outs in our top-rated shows, behind-the-scene social clips with our host and much, much more. Hello HSN PA! culminated in a blowout housewarming party in late July. More than 130 customers joined our hosting guests in person at our new Studio H in Westchester, and we broadcast the party live to the entire HSN community.

As HSN President, Stacy Bowe told customers in an open letter, HSN may have a new address. But the HSN they know and love isn't going anywhere. The fun is here to stay. We also welcomed 11 of our HSN hosts to Studio Park and 3 others will commute to Pennsylvania for the remainder of the year.

In addition, we continue to take strategic steps to diversify our sourcing and reduce our dependence on any single country and related tariff pressures. During our last call, we mentioned monitoring the tariff impact, being prudent about placing new orders and canceling certain orders with high tariff countries, actively sourcing from new countries, negotiating with vendors to share any tariff impact and potentially taking price action when necessary.

In June, we launched Christmas in July, a large home decor event with items largely sourced from countries impacted by tariffs. Although the tariff rates vary, we do not see significant impact to demand for items with tariff price adjustments. Our longer-term strategy of sourcing diversification continues. And as we shared last quarter, we are still targeting that no single country will represent more than 1/3 of our sourced goods in the U.S. by the end of the year.

As a reminder, at the end of 2024, we committed to finding an additional $100 million worth of OIBDA opportunities by examining all areas of spending across the company. In Q2, we saw the favorable impact of our organizational changes in our expenses. We also saw the benefits from our IT outsourcing initiatives, allowing us to reinvest in marketing and technology that drives our growth businesses. Also, we completed the operational move of HSN, including standing up a new content organization and merchandise function.

Returning our company to growth continues to be difficult as certain macroeconomic challenges persist. It will take time to ramp up. However, we believe the current strategy we have in place, our WIN growth strategy, is the right one and is already delivering results. I'd like to walk through some of the wins we saw just this quarter and why we're excited for what is to come.

Our social and streaming channels continue to grow, and we estimate that the percentage of QxH revenue that was attributable during Q2 through these platforms is approaching double digits. This is an increase from what we saw in Q1. Social and streaming revenue experienced over 30% growth versus Q2 of 2024. As we will discuss more fully below, Q2 experienced substantial growth in new social customers with well over 100,000 new customers finding us through TikTok shop alone.

In streaming, we continue to expand content and distribution. QVC and HSN recently joined Philo, a popular live TV streaming service with approximately 1.3 million paid subscribers. This launch reflects our strategic initiative to drive live shopping content to everywhere customers are spending their time. We also recently launched an ad-supported version of QVC2 on several leading SaaS platforms. Additionally, season 2 of Busy This Week on streaming is off to a strong start. Season 2 reached over 1 million households, 80% of which were new. In fact, in Q2, streaming monthly active users grew over 80% to nearly 1.5 million users, and streaming minutes watched grew 25% in the quarter.

Building off the strategic agreement we discussed last quarter with TikTok, we hosted our first TikTok -- sorry, first, we hosted our first TikTok Shop Super Brand Day, kicking off the second year of The Age of Possibility. Over 80 of our top affiliate creators joined us for the event, along with 40 of our Q50 ambassadors, including Hoda Kotb, Jennie Garth, Billie Jean King and more. The event was our highest viewed and most engaged QVC-hosted live stream today.

We are integrating TikTok creators into customer events like QVC's Foodie Fest and are seeing the success of our push into the ever crucial streaming and social businesses. We now have 8.4 million followers across all of our social media accounts, a 700,000 increase from last quarter. And we've uploaded our full QVC catalog into Meta shop for a seamless shopping experience on Facebook and Instagram.

Notwithstanding the successful accomplishments we achieved this past quarter, given QVC Group's unique business model, certain elements of the tougher macro environment continue to apply pressure on our business. Total revenue declined in Q2 by 9% in constant currency. QxH's revenue declined 11%. QVC International revenue declined 3% in constant currency, and Cornerstone revenue declined 8%. As a result of top line softness, consolidated adjusted OIBDA declined 19% in constant currency in the second quarter, an improvement from the first quarter, which was down 31% versus last year. While these results are not yet where we want them to be, we are working to remain agile as we navigate the current landscape.

Drilling down on our capital structure, thanks to the hard work of everyone at QVC Group, over the past few years, we've made meaningful progress in reducing our net debt by over $1.5 billion since the end of 2021. Our goal is to create more flexibility for our transformation and put ourselves on the strongest and most sustainable path forward.

Improving gross margins and aggressively managing costs also continue to be top of mind. As you can see on Slide 8 in our presentation, on a trailing 12-month basis, customer count declined on a sequential basis with a decrease of approximately 3% versus March 2025. Please note, this does not include any new customers purchasing through our TikTok shop. Existing customers continue to purchase at healthy levels, spending on average $1,622 and purchasing 31 items in the 12 months ended June 30. And at QVC, our best customers, who buy 20 or more items annually, also continue to purchase at very attractive levels. In the 12 months ending June 30, they bought 76 items and spent $300 $990 (sic) [ $3,990 ] on average, up approximately 1% versus last year.

Total QxH customer count declined 12% in the quarter driven by a 10% decrease in existing customers, a 21% decrease in new and a 16% decrease in reactivated customers. The decline in linear TV households continues to put pressure on our customer count year-over-year. Our traditional customer reporting does not include any new customers who purchase from our TikTok shop. We estimate that well over 100,000 new customers purchased through our TikTok shop in the second quarter. There are still many unknowns in this relatively immature business. We continue to grow our catalog and improve our technology, and we expect to have more robust customer level analytics and reporting in the coming quarters.

Notably, when we -- when the estimated new TikTok shop customers are now added to traditional customer reporting, we saw the number of new customers grow substantially year-over-year and a halving of the rate of decline in the overall customer file. We believe this is a strong and early sign of success in our social strategy.

When we look within our categories, we saw declines in all categories with the exception of electronics compared to last year. Although apparel was down, we experienced strength from several of our core apparel brands including Kim Gravel, Denim & Co., Diane Gilman and LOGO by Lori Goldstein and also saw success in accessories driven by handbags and luggage. The Christmas in July event we kicked off in June through strong sales with customers responding to our food offerings, along with new items from favorite brands like Valerie Parr Hill, Bethlehem Lights and Homeworks by Slatkin.

Our home business was down 12%, but we saw success in our private label, [ Bette ] Bath, home environment and smart home categories. Tariffs were a factor in our inventory mix and impacted deliveries and product availability.

Moving to QVC International. We saw revenue decline 3% in constant currency compared to prior quarters of broadly stable revenue performance. We continue to experience top line pressure in Japan, but revenue in our European markets was only down approximately 1%. Total customer count declined 4% in the quarter, driven by a 3% decrease in existing customers, a 5% decrease in new customers and an 8% decrease in reactivated customers.

Finally, for our Cornerstone brands, revenue declined 8% in the second quarter, an improvement from our first quarter results driven by our transformation efforts.

To wrap up, while some of the uncertainty we experienced last quarter has persisted in Q2, we remain guided by our confidence in our business, strategy and leadership. We continue to do what we do best: Creating an opportunity for shoppers to explore, dream and connect. We've evolved with the changing consumer preferences towards newer channels and platforms like streaming, TikTok and Facebook and are now beginning to see those efforts positively impact our business. We will continue to be a class leader here while also tightly managing costs in the balance sheet.

Now I'll turn the call to Bill to review Q2 financial results for each of our businesses.

Thank you, David, and good morning, everyone. Unless otherwise noted, my comments compare financial performance for the 3 months ended June 30, 2025, to the same period in 2024. Starting with QxH. Revenue declined by 11% due to lower unit volume and less shipping and handling revenue, with a partial offset in favorable returns rate and higher average selling price. From a category perspective, home revenue decreased 12%, driven by reduced demand in culinary and pressure in many of our Today's Special Value events.

Apparel revenue decreased by 9%, consistent with what we experienced in Q1. Beauty revenue fell by 13% in Q2, although we did see wins in brands like bareMinerals, Elemis, and Tatcha. Accessories experienced another challenging quarter with a 15% decline, driven again by footwear and loungewear. Electronics grew 4%, driven by smart home, computers, audio and gaming. Operating loss was primarily driven by a $2.4 billion noncash impairment charge related to goodwill and trade names.

Adjusted OIBDA margin contracted 165 basis points. Gross margin declined approximately 15 basis points with higher product margins and favorability in obsolescence, more than offset by fulfillment pressure and sales deleverage. Product margins increased by 50 basis points, driven by better return rates, partially offset by lower shipping and handling revenue and initial margin. Obsolescence favorability of 25 basis points is driven by the overlap of abnormally high balance in Q2 2024.

Fulfillment expenses were unfavorable 90 basis points due to increased freight rates and sales deleverage. On an aggregate dollar basis, operating expenses decreased 13% and SG&A expenses were flat. Operating expenses decreased $16 million, largely driven by lower commissions. SG&A expenses were flat, driven by lower personnel costs, offset by higher marketing costs. SG&A was unfavorable by approximately 175 basis points due to sales deleverage.

Moving to QVC International. My comments will focus on constant currency results. Revenue declined 3%, reflecting a 3% decrease in units shipped and a 2% decrease in average selling price, partially offset by a favorable returns rate. From a category perspective, QVC International experienced sales growth in apparel, while home and accessories categories were flat, and beauty and jewelry and electronics declined. Germany net revenue increased 1%, while Japan revenue declined 7% and the U.K. declined 1%. Adjusted OIBDA decreased 8% and adjusted OIBDA margin declined 60 basis points. Gross margin decreased 40 basis points due to sales deleverage and fulfillment pressure, partially offset by product margin gains.

Fulfillment pressure is due to higher variable wage rates in Europe. Product margin strength was due to favorable returns rate, offset by initial margin pressure. Operating expenses were flat, and the margin was unfavorable due to sales deleverage. SG&A expenses decreased 2% due to lower personnel expenses. SG&A margin was unfavorable by approximately 10 basis points due to sales deleverage.

Moving to Cornerstone. Revenue declined 8% in the quarter as we continue to experience soft demand for furniture and decor and from continued challenges in the home sector. Adjusted OIBDA margin decreased approximately 30 basis points driven by cost for outside services related to Cornerstone's transformation plan and sales deleverage, partially offset by product margin and fulfillment.

Turning to cash flow and the balance sheet for the quarter. In the first half of 2025, free cash flow was a use of $156 million compared to a source of $164 million last year. The decrease in cash flow was primarily due to a reduction in cash provided by operations and higher payments for TV distribution rights. As a reminder, our TV distribution payments fluctuate year-over-year depending on renewal cycles.

Looking at the QVC Group, Inc. debt profile. As of June 30, 2025, net debt was $4.7 billion, and the QVC Group revolver had $1.925 billion drawn. QVC Group had total cash of $897 million, of which $330 million was at QVC Inc., $200 million was at Liberty Interactive LLC and $262 million was at QVC Group. Our leverage ratio as of June 30, 2025, as defined by the QVC revolving credit facility, was 3.9x, excluding Cornerstone, compared to our maximum covenant threshold of 4.5x.

Please note that covenant OIBDA includes the adjusted OIBDA of QVC Inc. as Cornerstone was removed as a borrower under QVC's credit agreement as of April 1. In light of the numerous macroeconomic factors and current leverage levels, as we previously announced on May 23, 2025, the Board of Directors unanimously decided to suspend payment of our quarterly dividend for preferred stockholders.

Additionally, to further increase our financial flexibility, we made the decision to borrow $975 million of the funds available on our revolving credit facility in July 2025. These decisions reflect the Board's focus on and commitment to taking the necessary steps to preserve cash and enhance long-term value for our business, customers, partners and investors. As you heard from David, we are focused on taking the necessary steps to strengthen our capital structure. We are in the process of evaluating a range of proactive financial and strategic alternatives. This review is ongoing, and no decisions have been made at this stage. We will provide updates if and when there are material developments that warrant further communication.

Finally, as we previously announced on May 16, 2025, our Board approved a 1-for-50 reverse stock split of the company's Series A common stock and Series B common stock. The reverse stock split was approved by stockholders at our Annual Meeting on May 12, 2025, and took effect after market closed on May 22, 2025. On May 27, the company elected to have QVCGB suspended from trading on the NASDAQ Capital Market, and QVCGB began quotation on the over-the-counter market on May 28. Finally, on June 9, 2025, we received notice that our Series A common stock had regained compliance with NASDAQ. And as a result, QVCGA and QVCGP stocks continue to trade on NASDAQ. Now I'll turn the call over to Greg.

Thank you, Bill. This was another challenging quarter for QVC Group, and we aren't where we want to be.

We remain unable to offset the declines in linear in a challenging environment, but we were pleased to see the growth in social and streaming. As I said, and you heard it from the above, we are making good progress in social and streaming, and we continue to lean in here. We are balancing execution and a cost focus with investing in this growth businesses. We are also working on our capital structure and our balance sheet, and we are proactively evaluating financial and strategic alternatives. We were pleased to regain compliance in that with the NASDAQ.

And with that, we'll address the questions we received prior to the call. Thank you, operator.

Thank you, Greg. As I mentioned before, we've received a number of questions submitted prior to the call. Our first question is for David and comes from Carla Casella at JPMorgan. David, can you share some trends in new customers versus reactivated customers versus core customers?

Yes. Thank you for the question. As I mentioned during the call, our traditional customer count does not include any new customers we have purchasing through TikTok shop. Our trailing 12-month customer count declined 3% versus Q1 and versus -- last year, our total customer count was down about 12%. But as I mentioned before, we know that over 100,000 new customers brought -- bought from us through our TikTok shop, and comparing that to Q2 2024, that would improve our new customer count to plus 7% versus the reported negative 21%.

We expect that social will continue to help drive new and reactivated customers like we saw in Q2. A few other things I'd call out. We are seeing some stability and average customer spend. That customer spend is up 1% this quarter and existing customer retention is also up, improving about 100 basis points versus last year.

Next question, also for you, David. Can you share the percentage of sales coming from the core business? And has that changed?

Sure. We estimate that social and streaming revenue is approaching low double digits as a percentage of QxH revenue. That obviously still leaves 90% of revenue in QxH driven by core linear and digital. However, our social and streaming businesses grew over 30% in Q2 versus last year and is now a larger percentage of QxH revenue than they were in the first quarter. We've -- and so I would say less is coming out of our core, given just some of the trends that we are seeing there. And then with the significant growth in social and streaming, we would continue to expect to see a shift with increasingly more social and streaming revenue as a percentage of total revenue over time.

Great. And our final question is a 2-part question around tariffs. First, did you see -- can you share the tariff impact expected for fiscal '25? And what are your top ways to mitigate tariffs? And then second follow-on, did you see any tariff impact in the second quarter? And are your vendors passing on increased tariff costs?

Great. A lot there. We're monitoring tariff impact. We're taking a lot of the steps that we've discussed. We're being prudent about placing new orders and canceling certain existing orders from high tariff countries. We're managing sourcing. We're actively negotiating with vendors. And in some circumstances, we've implemented price changes. We're still working towards our target that no single country will represent more than 1/3 of our sourced goods in the U.S. by the end of the year.

That is a big change from where we were, which is more than half of our goods coming from a single country, and so that's a major effort. And we think that's one of the major -- that diversification will be a major source of stability going forward. But we continue to see volatility. You've seen lots of changes even in the last few days. We saw the first real impact of tariffs in our Christmas in July event, which kicked off in June. We completed an inventory assessment for that. We limited some orders and buys, and then we also took some price actions on the things we were selling during the Christmas in July event.

As I said, tariffs will continue to be fluid, and we continue to adjust in changes in rates, including to the most recent ones. But what was encouraging about the Christmas in July event is we did not see big drop-off in demand in response to the price changes that we made in that event. And so it gives us some confidence about our ability to navigate -- continue to navigate our way through some of the current tariff challenges.

And the last comment I have is that we should also remember that our international business had minimal tariff impact. And I would just remind everybody not to forget about that business. Our international business makes up over 25% of our revenue and is more insulated from some of the impacts of the tariffs.

With that, I think that is all the questions. I want to thank you, again, for your interest in the QVC Group. And I want to thank you for your interest in our results and look forward to continuing to share our story and continue to visit as we make more progress on this transformation. Thank you.

This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.