LIBERTY INTERACTIVE CORPORATION REPORTS

FOURTH QUARTER AND YEAR END 2017 FINANCIAL RESULTS

Englewood, Colorado, March 1, 2018 - Liberty Interactive Corporation (“Liberty Interactive”) (Nasdaq: QVCA, QVCB, LVNTA, LVNTB) today reported fourth quarter and year end 2017 results.  Highlights include(1):

Attributed to QVC Group

Attributed to Liberty Ventures Group

“QVC US and International posted excellent fourth quarter results, and we were pleased to complete the acquisition of HSN,” said Greg Maffei, Liberty Interactive President and CEO.  “We anticipate closing the acquisition of GCI and the subsequent creation of two asset-backed stocks, Qurate and GCI Liberty, on March 9th. With the separation, Mike George

will become President and CEO of Qurate.  Mike has done a fantastic job building QVC, delighting customers and driving value for shareholders over the last twelve years. We look forward to him leading this innovative set of companies.”

“As we launch Qurate, Greg Maffei will become Executive Chairman focusing on strategy and capital deployment.  The creation of the two asset-backed stocks is the result of Greg’s skilled deal-making and determination and I’m pleased that he will continue to provide strong leadership and vision,” said John Malone, Liberty Interactive Chairman.  “I am excited to remain on the board and the Company’s largest shareholder.”

Unless otherwise noted, the following discussion compares financial information for the three months and year ended December 31, 2017 to the same period in 2016.

QVC GROUP – Approximately $44 million and $74 million of corporate level selling, general and administrative expense (“SG&A”) (including stock-based compensation expense, which increased as a result of the stock option exchange in December 2017) was allocated to the QVC Group for the fourth quarter and full year 2017, respectively. 

Liberty Interactive acquired the 62% of HSNi it didn’t already own in an all-stock transaction on December 29, 2017. HSNi consists of two main operating segments, its video commerce business, HSN, and its interactive lifestyle retail business, Cornerstone.  HSNi shareholders (other than Liberty Interactive) received a fixed consideration of 1.65 shares of QVCA for each share of HSNi. Liberty Interactive issued 53.6 million shares of QVCA to HSNi shareholders, a market value of $1.3 billion as of December 29, 2017. The total equity value of the transaction was $1.9 billion (including Liberty Interactive’s $605 million ownership interest previously held in HSNi), based on fair value.  With the exception of $43 million of severance-related costs incurred by HSNi on December 30, 2017, HSNi’s results of operations are not included in Liberty Interactive’s consolidated results, as the final two days of the quarter were considered immaterial. Of the $43 million of severance-related costs, $38 million were incurred directly by HSN, including $8 million of stock-based compensation, and $5 million were incurred by Cornerstone. The standalone results of HSN and Cornerstone are included later in this press release. We believe discussions of standalone results for HSN and Cornerstone promote a better understanding of the overall results of these businesses.

Following the completion of the proposed transactions between Liberty Interactive and GCI (described later in this press release), the QVC Group will cease to trade as a tracking stock and will effectively become an asset-backed stock. In addition, Liberty Interactive announced today that it intends to rebrand as Qurate Retail Group after the closing of the transactions, with the formal name change to follow. The new Qurate Retail Group will represent a select group of like-minded retail businesses offering a third way to shop – beyond traditional brick-and-mortar or transactional eCommerce. Qurate Retail Group will consist of eight leading retail brands – QVC, HSN, zulily, Ballard Designs, Frontgate, Garnet Hill, Grandin Road and Improvements. It will also hold a minority interest in ILG,  various green energy investments and is expected to include Liberty Interactive’s interest in FTD. As part of the rebranding to Qurate Retail Group, the QVCA and QVCB tickers are expected to change to QRTEA and QRTEB, respectively, effective on the first trading day following the GCI Liberty split-off, which is expected to be March 12th.  

In April, 2016, the Financial Accounting Standards Board (“FASB”) issued further guidance on revenue from contracts with customers effective for fiscal years beginning after December 15, 2017, which QVC and zulily adopted as of the start of the first quarter of 2018. Under the previous accounting guidance, revenue was recorded when delivery to the customer occurred and deferred revenue was recorded to account for shipments in-transit. As a result of this change, beginning in the first quarter of 2018, we recognize revenue at the time of shipment. Thus, revenue for QVC and zulily items shipped before the end of 2017 but not delivered until 2018 will not be recognized in the fourth quarter of 2017 nor in the first quarter of 2018.  An immaterial adjustment in the first quarter of 2018 will be made to retained earnings using the modified transition method. HSNi previously recognized revenue at the time of shipment, so there is no expected change to HSNi’s reported results.

In addition, under previous accounting guidance, QVC-, HSN- and zulily-branded credit card income was historically included as an offset to SG&A expenses. As of the start of the first quarter of 2018, QVC, HSN and zulily will recognize credit card income for the QVC-, HSN- and zulily-branded credit cards as part of net revenue.

QVC

“We generated strong revenue gains across the business, with strong sales at QVC US, growth in every International market, and outstanding sales acceleration at zulily during the quarter. This performance demonstrates our ability to curate compelling products and events, create engaging customer experiences and aggregate large shopping audiences across multiple commerce platforms,” said QVC President and CEO, Mike George. “With our announcement today of the upcoming launch of the Qurate Retail Group—which consists of eight powerful brands: QVC, zulily, HSN, Ballard Designs, Garnet Hill, Grandin Road, Frontgate and Improvements—and the pending formation of an asset-backed security, we are extremely well positioned as we distinguish ourselves from other retailers by combining the best of retail, media and social.”

The following table provides QVC’s consolidated financial and operating results for the fourth quarter of 2017.  US Dollar denominated results were impacted favorably by exchange rate fluctuations in the fourth quarter. The Dollar weakened versus the Euro and British Pound 9% and 7%, respectively, and strengthened against the Japanese Yen 3%. The following table also provides a comparison of the year-over-year percentage change in QVC’s results in constant currency(2) (where applicable) to the comparable figures calculated in accordance with US GAAP for the fourth quarter of 2017.

The following table provides QVC’s consolidated financial and operating results for the full year 2017.  US Dollar denominated results were unfavorably impacted slightly by exchange rate fluctuations for the full year. The US Dollar strengthened versus the British Pound and Japanese Yen 4% and 3%, respectively, and weakened against the Euro 2%. The following table also provides a comparison of the year-over-year percentage change in QVC’s results in constant currency(2) (where applicable) to the comparable figures calculated in accordance with US GAAP for the full year 2017.

The following table provides QVC US’s financial and operating results for the fourth quarter of 2017.  

In the fourth quarter, QVC US realized year-over-year gains in all categories except jewelry. The operating income margin and adjusted OIBDA margin(3) performance primarily reflects higher fixed costs associated with incentive compensation and HSNi integration consulting services, as well as higher inventory obsolescence and marketing expenses, which were partially offset by lower bad debt and amortization. Adjusted OIBDA(3) for the fourth quarter includes $7 million of integration costs and a  $6 million increase in management bonuses.

The following table provides QVC US’s financial and operating results for the full year 2017.  

For the full year, QVC US realized year-over-year gains in all categories except jewelry. The full year operating income margin and adjusted OIBDA margin(3) performance primarily reflect lower bad debt expense, higher product margins and lower amortization, which were partially offset by higher incentive compensation and inventory obsolescence costs. Adjusted OIBDA(3) in 2017 includes $9 million of HSNi integration costs and a $26 million increase in management bonuses.

The following table provides QVC International’s financial and operating results for the fourth quarter of 2017, including the year-over-year percentage change in QVC’s results in constant currency(2) (where applicable) to the comparable figures calculated in accordance with US GAAP due to the net impact of unfavorable exchange rate fluctuations.

In the fourth quarter, QVC International experienced year-over-year constant currency(2) growth in all categories except electronics. The operating income margin and adjusted OIBDA margin(3) performance primarily reflects fixed cost leverage, higher product margins and lower amortization, which were partially offset by higher inventory obsolescence.

The following table provides QVC International’s financial and operating results for the full year 2017, including the year-over-year percentage change in QVC’s results in constant currency(2) (where applicable) to the comparable figures calculated in accordance with US GAAP due to the net impact of unfavorable exchange rate fluctuations.

For the full year, QVC International experienced year-over-year constant currency(2) growth in all categories except electronics and jewelry. The operating income margin and adjusted OIBDA margin(3) performance primarily reflect lower fixed costs, higher product margins and lower marketing expense and amortization.

CNR Home Shopping Co., Ltd. ("CNRS"), QVC's joint venture in China, is being accounted for as an equity method investment. There was no material impact to QVC’s net income for the quarter. For the full year, QVC reported a $3 million decrease in net income related to the CNRS investment.

HSN

HSN’s fourth quarter and full year operating results include merger-related costs, including investment banking and legal fees, severance-related costs and additional stock-based compensation expense due to the acceleration of certain equity awards, which are included in operating income but excluded in adjusted OIBDA(3) as presented below. HSN has also reclassified certain costs between line items to conform with Liberty Interactive’s reporting for ease of comparability for the periods presented.

HSN’s stand-alone operating results for the fourth quarter of 2017 were as follows.

HSN revenue declined in all categories in the fourth quarter.  Average selling price declined, primarily driven by product mix shift away from electronics, which typically carry higher price points.  Return rate improved due to a continued positive trend in several categories. Operating income and operating income margin declined, driven by the aforementioned transaction expenses. Adjusted OIBDA(3) and adjusted OIBDA margin(3)  improved, largely due to approximately $16 million in incremental costs incurred in the prior year associated with the implementation of HSN’s warehouse automation initiative.  Additionally, the increase in adjusted OIBDA margin(3) was driven by higher product margins, lower selling and marketing costs and a decrease in personnel expenses.

HSN’s stand-alone operating results for the full year 2017 were as follows.

HSN revenue declined in all categories except home for the full year 2017. Average selling price declined, primarily driven by product mix shift away from electronics.  The sales return rate improved due to a continued positive trend in several categories.  The decrease in operating income margin and adjusted OIBDA margin(3) was due to increases in personnel costs, bad debt expense and lower shipping margins, partially offset by improved product margins and lower selling and marketing costs.

zulily

The following table provides zulily’s stand-alone financial and operating results for the fourth quarter of 2017.

zulily revenue increased in the fourth quarter, primarily due to a 12% increase in orders placed. The increase in orders placed was driven by an increase in active customers. An active customer is defined as an individual who has purchased at least once in the last twelve months, measured from the last date of a period. Operating income margin and adjusted OIBDA margin(3) decreased primarily due to increased marketing promotions and higher supply chain expenses resulting from increased international shipping, higher unit volume at a lower average sales price and ramping up zulily’s Pennsylvania fulfillment center.

The following table provides zulily’s stand-alone financial and operating results for the full year 2017.

zulily revenue increased in the full year 2017, primarily due to a 5% increase in orders placed. The increase in orders placed was driven by an increase in active customers year-over-year, coming from accelerated customer growth in the fourth quarter. Operating income margin improved, driven primarily by decelerating amortization of intangible assets related to purchase accounting. Adjusted OIBDA margin(3) decreased primarily due to increased free shipping and promotional offers and higher supply chain expenses resulting from increased international shipping, a shift in product mix, ramping up zulily’s Pennsylvania fulfillment center, growth in third party fulfillment services and higher unit volume at a lower average sales price.

Cornerstone

Cornerstone’s fourth quarter and full year operating results include merger-related costs which are included in operating income but excluded in adjusted OIBDA(3) as presented below. Cornerstone has also reclassified certain costs between line items to conform with Liberty Interactive’s reporting for ease of comparability for the periods presented.

Cornerstone’s stand-alone operating results for the fourth quarter were as follows.

Revenue, operating income and adjusted OIBDA(3) declined in the fourth quarter. Excluding the prior year impacts of a 53rd week, the divestiture of TravelSmith and Chasing Fireflies, and transaction costs, overall revenue declined 1%, driven by softness in Frontgate offset by growth in Ballard Designs, Grandin Road and Garnet Hill. Cost of sales as a percent of revenue decreased, driven by improved product and shipping margins and a combination of selective price increases and lower promotion. Catalog circulation decreased, consistent with ongoing efforts to re-balance investments towards the digital and retail segments to drive demand.   

Cornerstone’s stand-alone operating results for the full year were as follows.

Cornerstone realized revenue declines for the full year 2017. Excluding the prior year impacts of a 53rd week and the divestiture of TravelSmith and Chasing Fireflies, overall sales increased 1%. Cost of sales as a percent of revenue increased,  driven by higher promotional activity, primarily in the home segment. Operating expenses were tightly controlled and catalog circulation decreased,  improving operating and adjusted OIBDA margins(3) versus the prior year,  partially offset by investments towards the digital and retail segments to fund overall demand. 

Share Repurchases

From November 1, 2017 through January 31, 2018, Liberty Interactive repurchased approximately 8.6 million Series A QVC Group shares (Nasdaq: QVCA) at an average cost per share of $24.27 for total cash consideration of $209 million. For the full year 2017, Liberty Interactive repurchased 34.8 million QVCA shares at an average price per share of $22.03 and a total cost of $766 million.  Since the creation of the QVC Group stock (including its predecessor, Liberty Interactive Group) in May 2006, Liberty Interactive has repurchased shares for aggregate cash consideration of $7.8 billion, representing approximately 51% of the shares outstanding at the time of the creation of the QVC Group stock.  All repurchases up to August 9, 2012, the date on which the QVC Group stock was recapitalized to create the Liberty Ventures common stock, were comprised of shares of the combined stocks. The remaining repurchase authorization for Liberty Interactive as of February 1, 2018 is approximately $1.3 billion, of which $613 million can be applied to repurchases of either QVC Group or Liberty Ventures Group stock and $650 million can only be applied to Liberty Ventures Group stock.

QVC Group has attributed to it Liberty Interactive’s subsidiaries, QVC, Inc., HSN, Inc. and zulily, llc.

LIBERTY VENTURES GROUP  – Approximately $23 million and $53 million of corporate level SG&A expense (including stock-based compensation expense, which increased as a result of the stock option exchange in December 2017) was allocated to the Liberty Ventures Group for the fourth quarter and full year 2017, respectively.  

On April 4, 2017, Liberty Interactive entered into an agreement and plan of reorganization with GCI, the largest communications provider in Alaska, whereby Liberty Interactive will acquire GCI through a reorganization in which certain Liberty Ventures Group assets and liabilities will be contributed to GCI in exchange for a controlling interest in GCI, followed by a subsequent split-off of the combined company, GCI Liberty.  Additional information is available in the proxy statement filed by Liberty Interactive with the SEC on December 29, 2017.

On February 2nd,  the holders of Liberty Ventures common stock and GCI common stock approved the proposed transactions between the two companies. The transactions between Liberty Interactive and GCI are expected to be completed on March 9th.  At closing, Liberty Interactive will reattribute certain assets and liabilities of the Liberty Ventures Group to the QVC Group. As a result of the changes in tax law under the tax reform bill, Liberty Interactive announced on December 26, 2017 that the total amount of cash expected to be reattributed from the Liberty Ventures Group to the QVC Group will increase from the previously disclosed amount of $932 million to approximately $1.3 billion. Additional information is available in the 8-K that Liberty Interactive filed with the SEC on December 26, 2017. Final reattribution valuations are expected to be determined just prior to closing based on closing prices on March 8th, where applicable.  Simultaneous with the closing of the transactions, the QVC Group, to be renamed Qurate Retail Group, including wholly-owned subsidiaries QVC, Inc., zulily, llc and HSNi, will cease to function as a tracking stock and will effectively become an asset-backed stock.

Share Repurchases

There were no repurchases of Liberty Ventures common stock (Nasdaq: LVNTA) from November 1, 2017 through January 31, 2018. The remaining repurchase authorization for Liberty Interactive as of November 1, 2017 is approximately $1.3 billion, of which $613 million can be applied to repurchases of either QVC Group or Liberty Ventures common stock and $650 million can only be applied to Liberty Ventures common stock.    

The businesses and assets attributed to the Liberty Ventures Group are all of Liberty Interactive's businesses and assets other than those attributed to the QVC Group, including its interests in Liberty Broadband Corporation and FTD, Liberty Interactive’s subsidiary Evite, and minority interests in ILG, LendingTree and Charter Communications.

FOOTNOTES

QVC GROUP FINANCIAL METRICS – QUARTER