At this time, I'd like to welcome everyone to the Limited Brands second quarter earnings call. (Operator Instructions) I'd now like to turn the call over to Amy Preston, Vice President, Investor Relations.

Good morning, everyone, and welcome to the Limited Brands second quarter earnings conference call for the period ending Saturday, August 1, 2009. As a matter of formality, I need to remind you that any forward-looking statements we may make today are subject to our safe harbor statement found in our SEC filings. Our second quarter earnings release and related financial information are available on our Web site, LimitedBrands.com. This call is being taped and can be replayed by dialing 1-866-News-LTD. You can also listen to an audio replay from our Web site. Martyn Redgrave, EVP and Chief Administrative Officer; Stuart Burgdoerfer, EVP and Chief Financial Officer; Sharen Turney, CEO, Victoria's Secret; and Dian Neil, CEO, Bath & Body Works, are all joining us today. After our prepared comments we will be available to take your questions for as long as time permits. So that we can speak with as many callers as possible, please limit yourself to one question. Thanks and now I'll turn the call over to Martyn Redgrave.

Good morning everyone. Our second quarter performance was generally consistent with the first quarter. As was the case in the first quarter, our overall second quarter comp results and promotion levels within each of our businesses were generally in line with our guidance and we were able to deliver earnings upside versus our guidance through our continued focus on expense management. As we look ahead to the third quarter, we are continuing to manage the retail fundamentals of the business very conservatively, wherefore, we remain laser-focused on inventories, all expenses, and capital spending. We expect to deliver strong free cash flow results and to maintain a very strong balance sheet. Overall, we continue to believe that we're in the right businesses. Our brands lead their categories and offer high emotional content at accessible prices. As Sharen and Diane will further describe in just a few minutes, we are aggressively focused on bringing compelling merchandise assortments, marketing and store experiences to our customers in order to maximize sales and margins. And we are continuing to be very opportunistic in this difficult environment. We continue to be on track with our technology initiatives and with Victoria's Secret direct distribution center. As you've heard on earlier calls, we implemented the new supply chain systems at Victoria's Secret stores in June and I'm happy to report that the post-implementation and stabilization processes are progressing as expected. On the international front, we continue to be very pleased with the performance of the six new BBW stores that we opened in Canada in 2008, as well as the eight additional stores opened so far this year. These stores continue to deliver outstanding performance and we plan to open approximately 17 more BBW stores this year as well as the first four new Pink stores in Canada.…

Turning to our second quarter performance, we reported adjusted earnings of $0.19 per share, versus $0.27 last year, which excludes significant items of $0.04 in 2009 and $0.02 per share in 2008. The 2009 significant item of $0.04 per share relates to a gain associated with the divestiture of a non-core joint venture and the 2008 item of $0.02 per share relates to a gain in the cash distribution from Express. All results discussed on this call exclude these significant items in both years. As Martyn mentioned, our second quarter results exceeded our guidance at $0.11 to $0.16 per share. Our comp, merchandise margin and SG&A expense results were roughly in line with our guidance. The upside was primarily a result of the decline in buying and occupancy expense versus our expectations, driven by lower home office costs recorded in the D&O line, lower occupancy costs, and lower catalogue information costs. To take you through the second quarter results in more detail, net sales were $2.67 billion versus $2.284 billion last year when comps were down 9%. The gross margin rate decreased 100 basis points to 32.3%, driven by buying and occupancy expense deleverage. The merchandise market rate was roughly flat and benefitted by about 100 basis points from the decline in lower margin rate mask sales. Sales in the other segment, which consists principally of masks, declined 13%. SG&A dollars decline by $55.9 million, or 10%, and the SG&A rate was flat, primarily driven by our expense reduction efforts and to a lesser extent, a decline in marketing. Total operating income decreased $36.5 million, or 20%, to $148.6 million. By segment, the Victoria's Secret segment decreased by $56.0 million to $126.4 million. The Bath and Body Works segment increased by $3.5 million to $44.2 million and the other segment…

I would like to begin with four key messages that I will discuss this morning. First, although spring was difficult, the insight we gained will benefit us in the fall. Second, we had reacted to these insights with speed to affect the first quarter. Third, we are more confident in the balance of fashion and price points within our [inaudible] to go forward. And finally, we are focused on maximizing sales and margins. So with that as an introduction, let me turn to our second quarter results. The consumer environment remained challenging throughout the second quarter. This is evidenced by declines in traffic, higher revision of offers, and increased promotion of selling. In an effort to drive more traffic to our stores, we utilized targeted promotions and limited time pricing in the quarter. We achieved a higher than expected response rate to these actions, which drove unit growth over last year. However, the resulting decline in average unit retail negatively impacted our sales and margin growth. Turning to our overall growth, in the second quarter sales for our total segments, including La Senza, decreased 11% to $1.306 billion. Comp store sales were down 12%. Total segment operating income increased $56.0 million to $126.4 million. Turning to performance by channel, Victoria's Secret stores comps declined by 12% and total sales decreased 8% to $837.7 million. All three businesses—Intimate, Pink, and Beauty—experienced comp declines in the quarter and while we focused on managing expenses and inventory levels, we were not satisfied with this sales performance. Turning to sales performance by merchandise category, Intimates experienced softness in bras and panties, particularly basics. In addition to the soft traffic trends and a decline in AURs already discussed, there are two other notable issues I would call out related to performance in our core of…

As I highlighted at the end of the first quarter, at Bath and Body Works we focus on driving the performance of our top three categories: our Signature Collection product line, the Internet business, and our home fragrance assortment. These three categories delivered results for us last year. Our conversion was up significantly versus this last year, to partially offset traffic declines. Additionally, the retail environment continued to be generally promotional and our customers are increasingly responsive to our promotional vehicles. So with that backdrop, let me take you through our financial results for the quarter. Bath and Body Works second quarter comps were down 5%. Total sales for the quarter were $534.0 million, down 4%, or $20.0 million, from last year. For the quarter, our operating income was $44.0 million, which was up $4.0 million from the second quarter of last year. The increase in operating income was the result of disciplined management. Specifically, SG&A expense was down significantly the last year and despite the negative comp results, we were able to leverage total expenses versus last year. Gross margin rate was roughly flat from last year and our focus on inventory management helped us deliver a merchandise margin rate that was up slightly the last year. The merchandise margin rate improvement was offset by de-leverage in buying and occupancy expense. Buying and occupancy dollars were down, slightly de-leveraged from last year due to sales growth. Another outcome of our focus on inventory is that we finished the quarter with inventory levels down from last year, which was enabled by our technology infrastructure implementation that happened two years ago. This is the ninth consecutive quarter that inventories were down year-over-year while our in-stock positions continued to improve. The Bath and Body Works direct channel continues to deliver strong growth…

That concludes our prepared comments and we would be happy to take any questions that you might have at this time. Again, just a reminder, we want to get to as many of you as we can, so please limit yourself to one question.

(Operator Instructions) Your first question comes from John Morris - BMO Capital Markets.

I wanted to dive a little bit deeper on the marketing plans, looking ahead for the back half. Stuart, you talked about marketing, it sounds like being planned down. Can you quantify how much it would be down and give us a little bit of color by division? In particular, I'm wondering for Victoria's Secret, if it's down as well, where is it coming from? Is it print? Is it TV? And just thoughts about the fashion show this year.

In terms of the marketing dollars in the balance of the year, I wouldn't describe it as a key driver of declines for the balance of the year. There is some reduction in the third quarter and some in the fourth quarter as well, so we are working hard, as we've talked about before, to ensure that we're getting the maximum return on those investment dollars and there is some decline in the back half of the year, but I wouldn't describe it as a major change, particularly on a rate basis. And as it relates to the specific plans and shedding some color on that, Sharen and Diane are in the best place to provide on that.

From a Victoria's Secret perspective, we have marketing plans slightly down in the fall season primarily having unprofitable CRM and actually optimizing the mailings. The other opportunity that we have is shifting some of the marketing into online, which has been very beneficial for us and we are very excited about that. Another question that you had was in terms of the fashion show. We are having the fashion show—we just announced our partnership with CBS—which will be held in New York this year.

Does that come out of TV? Is TV down as well in the back half?

TV is slightly down in the back half, in one month particularly.

Marketing expense in BBW is minimal. Most of our marketing expense in the back half of the year is in CRM and that's basically flat year-over-year.

Your next question comes from Kimberly Greenberger – Citigroup. Kimberly Greenberger – Citigroup: Sharen, does it feel like the bra business at Victoria's Secret might be turning, and do you think that the issues of the first half of the year in the intimate business were just the economy and the color palette or did you really need to re-brighten the assortment or, let's say, adjust the mix across the pricing spectrum?

We are seeing as we have gone into our launch this fall season with Body by Victoria and improvement in our bra business. I think the first half of the year that we did have problems with our fashion assortment in terms of color. The other piece we do believe is the opportunity for us to attract new customers as we balance our good, better, best pricing has proven that we can actually gain an incremental customers versus trading her down. So that we are optimist about our bra business as we go forward.

Your next question comes from Analyst for Todd Slater - Lazard Capital.

It's Jennifer in for Todd. I was wondering if you could talk a little bit, Sharen, if you feel that Victoria's Secret has gotten too promotional? Are you taking share at the expense of margin? And what do you think the right average ticket price is?

The spring season was promotional for a couple of things. One is that we actually came into fall with a little bit of heavy mix inventory. So to get the inventory in line we were promotional. The second thing, as we already talked about in terms of the color palette, that as we went through our system implementation, we had to pull some deliveries up and therefore we weren't as quick to react as we possibly could be, and that was in my remarks that now that we have gone through that limitation, that we are able to react to the assortment. I think that as we go forward and how we're looking at our promotion is that we are looking to be less promotional this year versus last year in the fall season. We are obviously prepared if the economy turns on us that we will engage in more promotion. I think that when we look at our average unit retail that we're not looking at our average unit retail going down, we're actually looking at it being basically flat.

Your next question comes from Paul Lejuez - Credit Suisse.

Sharen, on that last comment, how is that AURs are going to be held flat? Where is the offset to some of the price reductions that are taking place? Then also wondering if you feel like you're getting adequate return on the Victoria's Secret apparel business on the direct side? A lot of pages dedicated to apparel and I was just wondering if you are happy with the returns in that business?

In the first question about how do we see our AURs declining, I think the big thing is we will have less clearance in the fall versus last year, and in our strategy and intent, not only are we adding things at the opening price point, we are also adding things on the top end of the spectrum as well, which then as you think about that in terms of the selling balancing out. One of the examples, in terms of our higher price point is our BioFit 7-way bra launch, which actually far exceeded our expectation, which was a $50 bra. So I do believe we are well positioned to balance our AURs. And again, the primary reason is less clearance.

Just one follow-up to that. I guess if we're thinking outside of mark-downs, thinking just about initial selling prices, if we talk just on that basis, how long do you foresee pressure in terms of initial selling prices? Is that a one-year adjustment that we're just beginning to go through now? Or is this a multi-year process?

I think that it's really kind of hard to foresee that. I think that number one is that we are, I think it's just good retail practice to always look at your assortments and thinking about them from a good, better, best perspective, as well as from a fashion perspective. And I think that this something that we will continue to wiggle around as we go forward. Going back to the apparel, we are very profitable in our apparel business in the direct channel. This spring season we were obviously disappointed in the return that we got from apparel. Apparel was the hardest hit category and we're making some adjustments in terms of the circ and allocation as we go forward in the fall season. But having said that, the apparel business is very important to that direct channel.

Your next question comes from Thomas Filandro - Susquehanna International Group.

Stuart and Martin, you guys have done an amazing job on the cost side of the equation and obviously we're seeing the comparisons get a little more challenging. Could you help us better understand, long term, how we should think about the operating expenses as a percent of sales, as you're starting to tracking close to historic lows?

What I would say is we remain focused on growing expenses lower than sales. That's the long-term perspective. As we've talked about in lots of forums over the last year or two, we are very focused on improving the operating margin in the business. That's going to come through some comp growth, that's going to come through first [inaudible] margin rates improvements. It's also going to come through an ongoing focus on growing expenses slower than sales. So we do believe that there's more opportunity. We are focused on it as it relates to the near term, as I outlined in the remarks. Getting the 10% reduction in pure dollars quarter after quarter, gets a little challenging as the quarters play through but you [inaudible] some of the actions we took last fall. But on a longer-term basis, very focused on growing expenses slower than sales and it will be a component of getting our operating margin to the 15% level that we're targeting over time.

Your next question comes from Michelle Clark - Morgan Stanley.

When you look at your comp guidance for the back half of the year, it implies an acceleration in the two-year comp trend. What is driving that degree of optimism? And then on the August comp you had mentioned running down mid-single digits versus previous guidance of down high single digits. Any color there by segment?

We are probably not wanting to give the color by segment at this point, just to get to the second half of your question. And as we look at the back half of the year in terms of comps, there is some level of acceleration when viewed on a two-year basis. We obviously don't foresee the type of economic shock that occurred last fall and we are working hard as we've been outlining. Sharen and Diane have been outlining to drive the best sales and margin dollar outcome, so some combination of not seeing an economic shock like we did a year ago and thinking through the expected results from the work that we're doing at a merchandising level, marketing level, we see some, as viewed on a tier basis, improvement in the business in the back half of the year.

Your next question comes from Lorraine Hutchinson - BAS-ML.

For Victoria's Secret I was hoping you could discuss the margin implications of some of the lower-priced products. Have you been able to source into these at your historical margin or will these dilute your overall profitability over the long run?

I am happy to tell you that we have sourced into these and that we will be maintaining the same kind of mark up that we get in our better price point businesses. So we do not see where we had within our IMUs within these lower price points.

Your next question comes from Jennifer Black – Jennifer Black & Associates. Jennifer Black – Jennifer Black & Associates: Sharen, regarding the Lacy Panty, it's clear that you've gone after Hanky Panky and I wanted to know are you planning any other lace extensions to Lacy? Hanky Panky has really expanded their offerings and it seems like a big opportunity.

We are very confident in our Lacy assortment and you will see a robust, expanded assortment starting now and as we continue into the future. So we are very excited about the Lacy opportunity that we have and the expanded assortment.

Your next question comes from Brian Tunick - J.P. Morgan.

Diane, maybe you can give us a sense if you think the Bath and Body Works either comps, or more importantly in the merchandise margins, might have bottomed in July. I guess that you've cleared most of the Signature product or are you sourcing better, maybe just give us your perspective on those two things.

Well, we're definitely sourcing better and getting better costs and we have since cleared all of Signatures, so as we head into the fall season and our top three categories are higher margin categories and we're seeing those trending all the way through current season so we feel pretty confident that we will maintain through the fall and holiday.

Your next question comes from Laura Champine - Cowen & Company. Laura Champine - Cowen & Company: Stuart, it looks like your free cash flow guidance assumes that Q4 has pretty impressive inventory turn performance. Am I looking at that right? And what gives you confidence that you can drive better turns in Q4?

The first thing I would say is that if you look at the cash flow in the business over the first six months and it's substantially improved versus a year ago in terms of free cash flow. Largely obviously a product of the reduction in capital spending, but also getting some good outcomes on the working capital. What gives us confidence that we're at the higher end of that $350.0 million to $450.0 million range is that we've had some improvement in income from the beginning of the year and we're doing a good job managing working capital, including inventory. I don't sense a dramatic change in inventory turn in the fourth quarter versus our prior quarters this year so I would just attribute the confidence in being at the higher end: one, higher income, and two, just good working capital management through the year.

Your next question comes from Dana Telsey - Telsey Advisory Group.

Can you talk a little bit about as you're thinking about the margins with the infusion of newness and color at Victoria's Secret and the improvements that we've seen at Bath and Body Works, what do you see as the key drivers to drive gross margin higher? And how are you feeling about the consumer today versus the beginning of the year? How is it different or the same?

I think as I just mentioned on the last question, we expect our margin rates to maintain as we have our higher-margin categories continue to outperform, so we're pretty excited how that looks for the back half of the year. Even though our traffic is down, we are getting significant improvements in our conversions so we are feeling pretty good about once we get people in the stores that they are liking what they see in our units, so we feel pretty confident that what we are spending will fuel our benefits in the back half of the year.

In Victoria's Secret we will have less clearance so I think that our margin will be flat or slightly up, so we are looking at having, as we walk through this fall and holiday season, a lot less clearance than last year. In terms of the consumers' reaction, again as Diane said, our conversion, as well, is up slightly. As we have landed the fresh new products, we are seeing our conversion even go up more than we experienced in the first and second quarter and so that we are very excited about the opportunities in front of us.

Your next question comes from Richard Jaffe - Stifel Nicolaus & Company. Richard Jaffe - Stifel Nicolaus & Company: A couple of questions about assets. Both your real estate strategy in terms of rationalizing your store count and store size, particularly in the case of Victoria's Secret, are there stores that need to be managed towards a smaller footprint? And then are there other assets within the portfolio that might be sold over the next couple of quarters, whether it's real estate or brands, that sort of thing?

As it relates to store closings and so on, we, even with the reductions in sales volumes over the last few year and a half to two years, even with those reductions, our sales productivity is really as a result of our four wall economics are just very good. So for both Victoria's Secret and Bath and Body Works we literally have a handful of stores that don't make profits that are in good cash flow. So we don't foresee other than what I'll call natural openings and closings, we don't have the situation where there is a big opportunity or a need to close any stores, or to resize stores. So that's where we are on that and we feel good about that. And then as it relates to the monetization of assets, as you know, having followed us for a long time, we have made a lot of different moves. We feel very good about the businesses that we're in, strategically and we don't see any particular opportunity at this time to make any material changes as it relates to the [inaudible].

Your next question comes from Randy Konik – Jefferies & Co. Randy Konik – Jefferies & Co.: Sharen, just thinking about in the summer, the semi-annual sale I guess is below expectations and I think you spoke about the basics business here being somewhat weak. And you talked about maybe fashion not being right, but are there any other competitive factors that we are seeing here? Because it just seems like on the low end on the pricing end you are starting to see some weakness here and I am just trying to get a better sense of your thought process on what you're seeing.

The major semi-annual sale, lower volume this year versus last year, primarily was the fact that we went in with a lot less inventory, both in the Beauty category as well as the Pink category. So that was the big piece around the semi-annual sale. Right now I think that our assortment in terms of especially at us looking at our good, better, best pricing strategy, if there was any competition draining from us, I think that we will have course corrected and really addressed that as we go forward, but in looking at our malls and looking at real competition, is that we continue to have the better market share within those markets versus the competition, so we're not seeing that happening today. Randy Konik – Jefferies & Co.: Just follow-up, on the high end, is that where you're still seeing most of the strength, is on the high end stuff and then the low end is where you're seeing the weakness right now? In the bra category?

No. On the low end step, I don't know what you mean in terms of the low end. Randy Konik – Jefferies & Co.: In terms of pricing strata. On the lower end pricing strata, is that where you're seeing the most weakness and the higher end pricing strata within the bra category, is that where most of your incremental strength is right now?

No. Where we saw the weakness in the spring season was in our basic assortment and not about the price point. So where the weakness was in the spring season was just in the basics.

Your next question comes from Stacy Pak - SP Research.

Diane, could you talk more about what happened, in your perspective, in July when there was such big upside to the guidance for BBW, particularly with regard to the top three, Signature, home fragrance, and the anti-bac, and why that improvement should be sustainable. And just as an understanding point to Sharen, can you comment, other than the better inventory position's impact on AUR, how will the AUR in fall compare to last year?

As I look at July actually it was a backfire on the entire spring season and our categories being, as I mentioned before, Signature, home fragrance, and anti-bacterial soap, are all trending above our expectations for the season. June was a little bit of a blip with our semi-annual sale as we ramped down significantly. Part of that was that we made some decisions not to go as the [inaudible] as we did in previous years. So I think when you look at the beginning of the year, through May as well as July, those results have been more consistent with those three categories, which is one of the reasons why I have extreme confidence going forward. As well as all the newness within those three categories, we have much more newness in the back half of the year in those three categories versus last year, as well as an additional fragrance line.

Our expectations for AUR will be flat.

Your next question comes from Howard Tubin - RBC Capital Markets.

Can you tell us how you're thinking about square footage expansion for next year, and particularly on the stores that will be open outside the U.S.

In total, we are thinking about square footage expansion conservatively. So as we think about going forward, we will be taking a more conservative posture. Obviously we are in the process of finalizing our plans for 2010. As it relates to expansion outside the United States, obviously as we've talked about, is more highlighted [inaudible] Canada does very good in Bath and Body Works and we are testing Pink of Victoria's up there as well. And those locations are doing very well. And we will pursue aggressive growth in Canada. But we haven't finalized our 2010 plans.

The other clarification I would just add is that Canada is clearly our focus for company-owned expansion for both VC. La Senza is more about right-sizing it. But the growth in BBW, Pink, coming in the fall, Victoria's Secret will be introduced into Canada in the spring of next year. Outside of Canada, and I mentioned this T&T concept, is what we call Travel and Tourism, and franchising and other things that we talked about before, and we're still very focused on expansion for those mechanisms and those business models but not on a company-owned basis.

Do you think we will see any franchise stores in Europe next year?

I can't really comment on specifically where you're going to see the stores. There's this pilot that we're running in the Travel & Tourism and [RIA] is giving us a lot of very interesting learnings about taking the creation of the brand to the rest of the world in what I call a very low-risk kind of format, for wholesaling and traveling retail format for now. And that's going to teach us a lot about the brand going to the rest of the world and it will leverage off of that learning to decide when and where we would be expanding with the rest of the world.

There are no further questions in the queue.

We would like to thank everybody for joining us today and for your interest in Limited Brands.

This concludes today’s conference call.