Get Paid 25% While You Wait for This Turnaround Plan to Work

Income Investing

The financial results for the Home Shopping and QVC television retail network’s owner have been, frankly, terrible for the last two years.

But the company is almost one year into its “Project Athens” turnaround plan, and if the plan is successful, one particular security could pay off very nicely…

Qurate Retail (QRTEA) owns and operates the two home shopping networks. Qurate was part of billionaire John Malone’s Liberty Media empire. In 2018, Liberty spun off its cable TV operations and other businesses, renaming the HSN/QVC business as Qurate Retail.

Qurate was hugely profitable, earning more than $2 billion in 2019. In 2020 the company paid a special dividend in the form of a new preferred stock, the Qurate Retail 8.0% Cumulative Redeemable Preferred (QRTEP). The preferred shares have a $100 par value and pay a $2.00 quarterly dividend. Uniquely, QRTEP had a mandatory redemption at par on March 15, 2021.

As the pandemic unfolded, Qurate ran into supply chain issues, worsened when its primary warehouse burned down. Profits almost completely dried up, with the company reporting losses for the last half of 2022 and the first quarter of 2023. The QRTEA value fell from above $12 in mid-2021 to below $1.00 today.

Even though it is a preferred stock, QRTEP went from trading steadily around par (actually up to $109) until October 2021 to declining along with the common stock shares. Over the last 18 months, QRTEP fell from over $100 to currently trading for about $35. From the stock prices of both shares, it looks like the market expects an eventual bankruptcy for Qurate.

In June 2022, the company announced a five-point turnaround plan dubbed “Project Athens.” The initiatives include (from the 2022 annual report):

  • Improve customer experience and grow relationships
  • Rigorously execute core processes
  • Lower cost to serve
  • Optimize the brand portfolio
  • Build new high-growth businesses anchored in strength

Since the start of Project Athens, the company has been working to strengthen its balance sheet. Property has been sold and leased back, debt paid down, and last week the company sold its Zulily online sales division and used the proceeds to reduce debt further.

Management’s stated goal is to return to profitability by the second half of 2023. If that goal is reached, the QRTEP share price will start to recover.

QRTEP shares offer a unique opportunity. The share price is $35 and the shares earn an $8.00 annual dividend, for a 23% current yield. The shares have a mandatory redemption for $100 in March 2031. If Qurate stays out of bankruptcy, a $35 investment now will return $160 in dividends and redemption value over 7.5 years. This is cash that must be paid if the company remains in business.

I am closely watching the quarterly results. QRTEP is on my Dividend Hunter recommended portfolio list. To see what other great income investments I’m looking at, take a look below.