Q & A Highlights

Q: Trying to get a little bit of an insight on to the consumer. I mean, certainly, understanding that they're pulling back on discretionary. But then I look at your breakdown where jewelry sales were up 12%. What are you seeing kind of on that trend for consumer spend, is it getting worse? And what's the health of the consumer that you guys see out there? A: Yes, it's a good question. I'd say it's a hard read. I'd make a couple of observations. You have as much access to the macro data as I do. But obviously, we're paying attention to variable interest rate environments and the effect that has on spending, unemployment rate taking up continued pressure on housing. Obviously, a lot of things going on in the external environment, elections around the world, the Olympics, other things that could affect consumer sentiment. I would say the biggest things we're seeing from our consumer are continued -- being very choiceful. That's not quite the same as the pocketbook being closed but it does mean that you have to really excite. When our customer is excited, there's not necessarily massive price sensitivity. We're continuing to be able to sell at volume, high-priced electric bikes at times, high-priced jewelry at times. But on the margin, the willingness to make purchases where she is not extremely excited by the value, I would say, is softer than it has been. I would say anything that feels more like a necessity continues to have reasonable demand. We also see a little bit of trading down and a little bit of value seeking, not extraordinary. We haven't seen, for example, a big fleet of clearance, but we are seeing maybe a touch more price sensitivity at things around our average sale price. So I don't see, so far, the bottom falling out of the consumer. I do see a consumer that looks to be a bit under stress and who's being choosy when they're approaching their purchases. And I would say I think that read across is consistent for us and what I'm largely seeing across discretionary retail.

Q: And then when we look at improving margins through the second half of the year in that environment, is that going to be driven by Project Athens savings? Or are there other additional programs underfoot? A: Yes. It's mostly Project Athens. But keep in mind, Project Athens operates across a wide variety of variables. So Project Athens has hundreds of work streams, some of which are going to things like how we source our products and being able to source more efficiency and take some cost out of the sourcing. Some of Project Athens is going at fulfillment expenses, in fulfillment rates. Some of Project Athens is going after vendor negotiations where we're not participating in the making of the product, but we're just buying it from vendors. Some of it's going after making sure we're pricing it correctly and maximizing on a willing-to-spend basis from our customers. So with the combined effort across things that are having the positive effect on margin. And we still think we have some room to go on those initiatives.

Q: Okay. And just lastly, my standard question every time. When you look at your capital structure, how are you thinking about that going forward? A: This is Ben Oren -- (multiple speakers) Go ahead, David. Sorry. A: No. Go ahead, Ben. A: I think our primary focus is on extending runway. We have debt coming due in 2025 that will be managed by either the revolver or free cash flow. And then going forward, debt that's due in '26, '27 and '28. As the business continues to deliver metric improvement and the markets continue to be -- or improved for us, we'll look for a transaction sometime in 2025 or at the latest early 2026 to address the revolver, and we're going to use free cash flow in the interim to continue to reduce debt.

Q: I'm wondering if you could give us any color in terms of just sequential performance through the quarter or any kind of an exit rate what you're seeing going into 3Q, if you're seeing any change in key trends? A: Yes. I wouldn't point out big changes in key trends other than to say our viewership participates in the larger, what you might call the viewership economy. So when you're going through something like the election, big events like the attempted assassination, vice presidential selections, the Olympics, some of the -- in the international markets, political events going on in those markets, those can have relatively temporary effects on viewership. So we're managing through those events. And then I think the general macro consumer is behaving about as you would expect, if you read across all of the macro consumer data that you see. I wouldn't point out any trends outside of those going through the quarter or the start of this quarter.

Q: Okay. And then in the past, you have commented about the average spend per customer on kind of like an existing customer versus a best. Any changes there? I mean we have existing at about 1,600 and the best at like 3,900. Any changes in that? Or any changes in your best customer numbers as part of your kind of core customers? A: Yes. So for the quarter, existing customers -- and keep in mind, existing is about half the count and the vast majority of the dollars, so for existing customers on a trailing 12 months -- I'm sorry, about 32 items, up 6% year-on-year and spend was $1,665. That's up 8% year-on-year. The other thing we're encouraged by for existing customers, we saw retention tick up a bit year-on-year. And then best customers purchased on average 76 items over the last 12 months, that's up 3% year-on-year. And they spent on average $3,950 and that's up 6% year-on-year.

Q: Okay. That's great. And then one more. E-commerce was up nicely as a percentage for both US and International. I'm just wondering, is the e-commerce business similar in terms of profitability as the core business? A: Yes. I mean, Carla, directionally if you think about, they're both direct-to-consumer businesses on the fulfillment side, potentially depending on product mix on what's there, you could see a little bit of a different margin structure. But by and large, economics of those -- they're the same as when you think about something that's coming off of television as well.

Q: This is Rob, on for Bill. Just one from us. I appreciate you guys discussing Project Athens savings, but I was wondering if you could maybe touch on freight cost expectations for the remainder of 2024. And maybe any updated thoughts related to any disruptions in the Red Sea. A: Sorry, yes. So we're continuing to see some disruption. I think in the US, we have relatively little exposure

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.