Bath & Body Works, Inc. (BBWI) Q1 2013 Earnings Report, Transcript and Summary

Good morning. My name is Laurel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Limited Brands First Quarter 2013 Earnings Call. [Operator Instructions] I will now turn the call over to Ms. Amie Preston, Chief Investor Relations Officer for Limited Brands. Please go ahead.

Thanks, Laurel, and good morning, everyone, and welcome to our first quarter earnings conference call for the period ending Saturday, May 4, 2013. 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 first quarter earnings release and related financial information are available on our website, limitedbrands.com. Also available on our website is an investor presentation, which we will be referring to during this call. The call is being taped and can be replayed by dialing (1) 866-NEWSLTD. You can also listen to an audio replay from our website. Stuart Burgdoerfer, EVP and CFO; Sharen Turney, CEO, Victoria's Secret; Nick Coe, CEO, Bath & Body Works; and Martin Waters, President of International, are all joining us today. After our prepared comments, we will be available to take your questions for as long as time permits. [Operator Instructions] Thanks. And now I'll turn the call over to Stuart.

Thanks, Amie, and good morning, everyone. Our first quarter results were good in many respects. Earnings per share increased 17% to a record $0.48. Total sales increased 5%, and comps increased 3% on top of a 7% increase last year, and inventories were well managed. Operating income improved significantly at Bath & Body Works and in the other segment, but declined at Victoria's Secret. Total operating income dollars increased 6%, a result we're not satisfied with. First quarter traffic trends were challenging, and we responded with incremental promotions to drive traffic. Our first quarter comp increase of 3% was in line with our guidance. And our merchandise margin rate was down in the quarter, below plan. The merchandise margin rate decline was offset by SG&A leverage of 50 basis points. We took action in the first quarter to reduce home office overhead and incurred severance costs related to these reductions. And while these actions did not benefit the first quarter, we will see SG&A expense reductions as a result go forward. We delivered earnings per share $0.03 above the high end of our guidance despite the negative impact of about $0.03 from severance costs and a higher tax rate, which were not included in our guidance. Turning to the balance sheet on Page 6. Retail inventories per square foot at cost ended the quarter up 3% versus last year. We're very comfortable with our inventory position. They are clean and in good shape. We repurchased 1.2 million shares of stock in the first quarter for $54.7 million. At quarter end, we had $184.2 million remaining under our current $250 million repurchase program. Turning to Page 8 of the presentation for our forecast for 2013. We expect earnings per share between $0.50 and $0.55 in the second quarter against last year's adjusted $0.50 result. Our second quarter earnings forecast reflects a low single-digit comp increase. We expect the second quarter gross margin rate to be down to last year, driven by continued anticipated pressure on our merchandise margin rate. We expect the second quarter SG&A rate to decrease versus last year, driven by our continued focus on expense management. We expect to end the second quarter with inventory per square foot up mid-single digits to last year. Quarter end inventories will be impacted by the calendar shift and relaunches planned in both Victoria's Secret and Bath & Body Works. As a reminder, our third quarter is our lowest volume quarter. And therefore, it will be more challenging to leverage expenses and grow earnings in Q3. For the full year, we are projecting positive low single-digit comps. Total sales growth on a 52 to 52-week basis will be about 2 points higher than comps, due to growth in square footage and our International business. We expect our full year gross margin and SG&A rates to be down slightly to last year. Non-operating expenses for the year are projected between $285 million and $290 million, consisting principally of interest expense. Before any discrete items, our tax rate will be approximately 38%. We are forecasting weighted average shares of about 295 million in the second quarter and the full year. Assuming all of these inputs, we expect adjusted earnings per share for the full year 2013 to be between $2.95 and $3.15 per share. We are projecting 2013 capital spending of about $650 million. The increase in CapEx versus last year is attributable to increased real estate investment at Victoria's Secret, primarily to increase square footage for PINK and lingerie. As detailed on Page 9 of the presentation, Victoria's Secret square footage in the United States will increase by just under 4% this year, driven by expansions of existing Victoria's Secret stores and the opening of about 50 new PINK Stores. Total company square footage will increase by just under 3%. This activity will put more pressure on buying and occupancy expense in the near term, including noncash charges for accelerated depreciation on stores that are remodeled before the end of their lease term. But as we shared at the Update Meeting in October, these projects are generating returns in excess of 30%. We will continue to closely monitor the results of this activity. Turning to liquidity. We expect free cash flow in 2013 of about $650 million to $750 million. We remain committed to returning excess cash to shareholders through a combination of share repurchases and dividends. Our free cash flow and cash position, along with the additional availability under our revolving credit facility, result in very strong liquidity, which is more than sufficient to fund our working capital, capital expenditures, dividends and any other foreseeable needs. Thanks. And now I'll turn the discussion over to Sharen.

Thank you, Stuart, and good morning, everyone. Our first quarter results are detailed on Page 11 of your presentation material. In the Victoria's Secret segment, our result did not meet our expectation, as operating income declined $18 million or 7% from last year. Nearly half of this decline was driven by calendar shift related to a marketing campaign. We made investments in real estate, technology and store label to enable future growth with the knowledge that it would make it more challenging to increase profitability in the quarter. In addition, we experienced softer than expected top line growth, as well as lower merchandise margin rate as a result of increased promotional activity. These were the primary drivers to our miss in operating income expectation in both channels. In the stores channel, first quarter sales increased 5% and comps were up 3% on top of the 9% increase last year. Our growth in sales came from both PINK and Beauty, and we continue to have record conversion rate. While the total bra business was up to last year, it did miss our expectation as a result of softer than expected launch. Our merchandise margin dollars increased. However, the margin rate declined as a result of 3 drivers. First, we increased promotional activity in response to weak mall traffic. Second, we continued to see strong customer response to marketing programs, including GWPs, direct mail and Secret Rewards. Lastly, due to the calendar shift from the 53rd week, there were marketing related impact merchandise margin that fell into the first quarter versus the second quarter last year. Operating income dollars decreased, as higher merchandise margin dollars were more than offset by growth in buying and occupancy and SG&A expenses, driven by our investment in real estate and the in-store experience. These were deliberate investments, and we are confident that will provide strong returns in the future. In the direct channel, first quarter sales decreased 6%, as decreased apparel sales offset strong growth in lingerie and PINK. As you know, we are transitioning our apparel business, while at the same time, distorting our marketing resources to the core business of the brand: bras, panties, PINK and Beauty. We plan the apparel business to be down this season. With a 30% reduction in styles and a 25% reduction in inventory, these results were below our expectations, down roughly 20%. In hindsight, we believe we went too far too fast. As we go forward, we will work to get the right combination of assortment, stock count and inventory that our customers want and expect from Victoria's Secret. Our direct channel's first quarter merchandise margin rate was about flat to last year. However, merchandise margin dollars decreased on the sales decline. Operating income dollar declined as the decline in merchandise margin dollars more than offset our reduction in expenses. Looking ahead to the second quarter, we are excited about our assortment and are also excited about our real estate and technology investments. We have the right fashion and units across our channels, and we will continue to focus on servicing our customers. We will continue to achieve the right promotional balance between driving traffic into our stores and maintaining the integrity of our brand, while leveraging speed and agility to adjust our assortments. Our inventories are well positioned, which allows us to optimize our business. We are confident in our upcoming bra launches, which have tested well. Our semiannual sale begins in June. In closing, we know where we need to get better and are focused on improving our results in the second quarter. Thanks. And now I'll turn it over to Nick.

Thank you, Sharen, and good morning, everyone. At Bath & Body Works, we delivered sales and operating income growth versus last year's record performance in the first quarter. Comps increased 3% against 6% last year. After a softer start in the February, we were able to achieve a full comp during the March and April time periods. Customers responded to newness in both form of fragrance in our 3 key categories; our Signature Collection product line; the soap and sanitizer business; and our home fragrance assortments. Total sales for the quarter were $530 million, up 5% or $25 million versus last year. The difference between the comp increase and the total sales increase was strong sales performance in the BBW Direct channel. For the first quarter, our operating income was $73 million, up $12 million or 21% from last year. Operating income, as a percentage of sales, was 14% in the quarter and was up 180 basis points to last year. Gross margin rate in the quarter was about flat to last year. SG&A expenses leveraged versus last year. The BBW Direct channel also delivered operating income growth versus last year in the quarter. We finished the quarter with inventory levels down to last year. Looking ahead to the second quarter, we will continue to introduce newness and innovation in both form and in fragrance. This month, we transitioned from our Bella Italy theme into our newest Signature Collection fragrance, Pure Paradise, which is available in all forms. We're excited about the assortment, and we will continue to manage expenses and inventory conservatively. Our overall focus continues to be about getting faster than better at understanding and satisfying our customers' needs, whilst providing them with a world-class in-store experience. In addition to focusing on products and fragrance launches, we will continue to test and read results of new products offerings and promotional strategies, while maintaining flexibility in our inventory to read quickly to our customers' preferences. With that, I'll turn the discussion over to Martin Waters.

Thanks, Nick, and good morning, everyone. My comments this morning will focus on an update of our international businesses. We believe our opportunity for international growth is significant, given the leadership position and awareness of our brands and the successes we've seen to date. We made a lot of progress in the first quarter, with all of our international businesses showing improvement. At Victoria's Secret International, we continued to be pleased with the performance of our full assortment stores. We now have 26 stores in Canada, and we'll open another 8 stores during the balance of this year. In the U.K., we continue to be very pleased with our store on Bond Street, London and with the London Stratford store. We are on track to open stores in Manchester, Leeds and Sheffield this summer. Elsewhere in the world, the 3 Victoria's Secret full assortment franchise stores in the Middle East, under our partnership with Alshaya, continue to do very well. And we have committed to open another 1 or 2 stores this year and several more in 2014. Our Victoria's Secret Beauty and Accessories business continues to progress well, and we ended the quarter with 126 stores open and are on track for nearly 200 stores by the end of 2013. We opened our first 2 Victoria's Secret Beauty and accessory stores in Hong Kong this past month, and we are very pleased with early results. In Bath and Body Works International, we are now up to 72 stores in Canada and 43 stores under our franchise partnership with Alshaya. We continue to be very pleased with the performance of BBW outside of the USA. And in 2013, we'll open another 7 stores in Canada and another 15 or so stores with Alshaya. Turning now to La Senza. We continue to see some signs of progress within the business. Comps in Canada increased 5% in the first quarter and our merchandise margin rate was up significantly to last year. We continue to be encouraged by the repositioning work we're engaged in, creating a distinct and compelling customer proposition that is globally appealing and highly scalable around the world. Our franchise partners will open another 10 to 20 net stores in 2013, which will put us at over 350 stores by the end of the year. We still have a way to go to get La Senza to an acceptable performance, but we are encouraged by recent results. So that's an update on international. As I know you know, we're not dependent on international for growth. Our overarching priority is the strength of our brands in North America. And with that, I'll say thank you and turn it back over to Amie.

Thanks, Martin. At this time, we are ready to take your questions. We do have a shorter amount of time on this call this morning due to our annual meeting, which was this morning. So please limit yourself to one question in consideration of others. Thanks, and I'll turn it over to Laurel.

[Operator Instructions] Your first question comes from the line of Kimberly Greenberger with Morgan Stanley.

Amie, my question is for Sharen of Victoria's Secret. Sharen, I'm wondering if you could just help us understand your outlook in the bra category. I know that the business didn't perform to your expectations here in Q1. What sort of launches do you have coming in the pipeline? You said that you're encouraged by what we've got coming. And is 2Q a big quarter for the bra category or does it sort of accelerate in 3Q and 4Q, if you could just help us with that.

Sure, Kimberly. Let me just kind of set some context about the bra business. Our bra business in the first quarter was up 4%. We exited about 1 million units that we sold last year that were not in the assortments this year. Performance of those bras started decreasing significantly in Q2 last year. So exiting them was right thing to do. We launched an Angel Fantasies bra, and we're able to off some of that volume, but not all. We were also growing up our largest launch ever of Very Sexy last year. And we have high expectation this year for our Multi-Way category. We did get double-digit results, but it did fall slightly short of our expectation. So when you add all of that up and we were able to run -- we were still able to run at 4%, I'm very optimistic. We continue to have balance growth across good/better/best. Good is growing a little faster because of the fashion in the mix-and-match program and in the PINK layering [ph] involved. But again, we are seeing growth across the good/better/best category. I feel good about Q2. Q2, we do not have a real media launch -- that means putting TV behind it -- nor have we had in the past. We have already landed the launch bra for the second quarter. It is a smaller launch quarter than the first quarter. Our biggest launch quarter comes up in the third quarter or early this year because of the shift in calendar will be starting in the last week of July.

Your next question comes from the line of Omar Saad with ISI Group.

This is Vick in for Omar. Could you give us some more color on how the Hong Kong stores are doing and what you think the longer-term opportunity is in this market?

We'll go to Martin for that question.

Sure. Yes, we opened 2 stores in Hong Kong in the last month, one in the IFC center, which is the most fashionable center in the whole of Hong Kong, and the second in New Town Plaza in the new territories, which is more representative of more mainstream Hong Kong. Both are great centers for Chinese tourists. So we feel that we're exposing the VSBA proposition to a significant number of tourists from all over the world, but also most importantly, from Mainland Chinese tourists. Early results are really very encouraging. And we'll open a third store within the next month or so. And we're looking to open more stores in the balance of '13 and '14.

Your next question comes from the line of Ike Boruchow with Sterne Agee.

Sharen, I know the PINK business has been a phenomenal growth engine in the past few years. Can you maybe talk about the performance of PINK in Q1 and how do you see that concept's growth trajectory going forward? And also, how you kind of view that concept internationally, if that can be an opportunity? And then, secondly, can you talk about the Beauty business and maybe how you're thinking about that business as you start to get Suzy's revamp the assortment in the stores in time for holiday this year?

Sure. The PINK had a strong Q1. Both the bras and panties were very strong in PINK. We had a little miss in apparel basically in the licensed apparel business. We feel very strong about our PINK going forward. We continue to see momentum. We continue to believe that we can double that business as we go forward. We are expanding the real estate in PINK. We are actually opening up about 50 new free-standing PINK Stores and then we're also expanding the PINK real estate. And when we do that, we see very high productivity in those stores. And then when we pull PINK out of the Victoria's Secret stores, the Victoria's Secret store actually even gets more powerful. So 1 plus 1 is equaling 3 in these centers where we're doing that. So we feel very strong about the opportunity that we have. The other thing that makes me very confident about PINK is that PINK is a very balanced business. It has a lingerie component of it, which is about 45%. It's about 10% accessories, and then the rest is in the apparel category. But it's not just in the fleece category of apparel. It's in the yoga category. So it has a broader assortment. So it's a very balanced business not weighted heavily to one category or not. We, as you know, we do have some free-standing PINK stores in Canada that we're pleased with the results. So I do believe that we have opportunity to continue the momentum of PINK, to continue the brand recognition that we have. And we're very excited about the positioning as we go forward. When I think about the Beauty business and as Suzy is new, I think we're making great progress. We saw the Beauty business get stronger in the first quarter. I think when you're really going to see the effects of the Beauty business as we go into the fall season. Our focus is primarily around our 5 fragrance business and how we are repositioning that. I feel probably stronger about the new launch of fragrance that we have in August, which is a perfect fragrance for back-to-school. So we're excited about the opportunities that we have there. As we've expanded into our new real estate, we actually have not grown the real estate as much in Beauty as we have in some of the other categories. But the productivity growth that we see and the opportunities that we see are terrific. As you see, the strength of the Beauty business is being able to export it into the international land with the VSBA shows you the strength and the power of this Beauty business.

Your next question comes from the line of Erika Maschmeyer with Robert W. Baird.

Could you walk us through and provide some additional detail around the cost cuts you made and severance, where things were trimmed? And do you see additional opportunity to make cuts as you go throughout the year if the top line is disappointing?

We'll go to Stuart.

So with respect to the management of expenses and actions that we took in the quarter, the first theme or the maybe the most important point that I would reiterate, which we've been clear about for a long time, is that the company is very committed to growing expenses lower than the sales. So it's just a very firm commitment. It's hard to improve your operating income rate, and we believe we'll have significant opportunity to do that without managing expenses growing at a rate slower than sales. So that's potentially the most important point. With respect to the actions that we talked about and took in the first quarter. Contextually, not as significant as the actions that we took in the summer of '07 or in January of '09. But with that said, we did reduce home office overhead, and that involved personnel expenses and other outside spending. We didn't get a lot of benefit from that in the first quarter because we took the action in the first quarter. We'll get benefit through the remainder of the year, as I indicated in our prepared remarks. And that benefit is included in the updated guidance that we provided, and it's really just another lever, if you will, to make sure that we deliver on that guidance. So hopefully, that answers your question. And obviously, as we go through the year, we work hard to manage our near-term variable expenses in line with sales, the most significant of which is store payroll, obviously. You know we are investing in that to make sure that we provide great customer experiences. But with that said, our brands, Bath & Body Works and Victoria's Secret, work very hard to flex store selling cost in relation to the current selling trend.

Your next question comes from the line of Matt McClintock with Barclays.

Stuart, I was hoping you could actually elaborate on the last comment that you just made in particular, on the investment that you're making in store selling within Victoria's Secret specifically. Could you perhaps just add some color on the overall trend for the returns that you're seeing on those investments? Are those returns stable? Are they declining? Or are they actually increasing?

Well, the most important investment, and I think you're referring more to store payroll, but the most important investment that we're making in Victoria's Secret relates to the real estate. And we have talked about the returns related to that investment. Again, 30% non-layer [ph] on average. And we've also talked about the P&L pressure that, that puts on the business in the near term. But again, believe that those investments are very good investments. With respect to store selling costs, the business has been working in meaningful ways over the last several years to improve the selling experience. And with that, investing in those costs. Sharen may want to elaborate. But the business continues to focus on that opportunity, which we believe is an important lever in driving sales. And so we're going to continue to invest in those costs. We also think we'll be able to continue to get more productivity related to those investments as we move forward. Sharen, you may want to elaborate?

No, I think that we want to have the best selling service model that we can and giving -- and really making sure that we have outstanding customer service. I think one of the key measures that you can look that as well is that just looking at our consistent improvement in conversion that we're getting. Obviously, part of that is the product. But as well, it's really thinking differently about how we're using our selling staff. I think it's a big part of our future.

Your next question comes from the line of Jennifer Davis with Lazard Capital Markets.

A quick kind of calendar question, I guess. We're hearing different things from different retailers about the calendar shift and the impacts between the quarters. So could you kind of talk about or compare the volumes of the impacts of those weeks in early May, August and November? And then, related to that, is there any shift in the timing of the semiannual sales due to the calendar? And are the number of days of the semiannual sales at both divisions the same this year?

So we'll start with Stuart for calendar shift in general, and then we'll go to Sharen and Nick for the question about semiannual sale.

With respect to calendar shifts, really, the 2 clearest points that I would want to make are, and Sharen elaborated on this in her prepared remarks, is that Q1 operating income was hurt by the timing of the CRM campaign for Victoria's Secret. And that had an impact, a negative impact on margin rate and a negative impact on expenses in Q1. So that's clear and a definite effect of calendar shift. As we look at weeks in versus weeks out, we do have different outcomes by business, meaning the major businesses, Victoria's Secret stores, Bath & Body Works and importantly, Victoria's Secret Direct. And the headline that I would put on that is that the effect of calendar shifts for the company in total through the balance of the year, at the end of the day, is not material. Now there are some differences in weeks. So in Q2, for example, the week that comes in for Victoria's Secret, August, week 1, is greater in volume than the week that comes out. But again, when it all washes out and we have a schedule in front of me that I'm looking out. When I look at all of that and I think, importantly, just for our investor community, the effects aren't that significant on operating income for the balance of the year. So that's really the second point that I would register. And then, Sharen and Nick you may want to comment on semiannual sales.

Sure. Semiannual sale on the store side is the equal start and the equal amount of days this year versus last year. On the Direct side, we are extending it 3 days because it was going to end -- it was going to end right before fourth of July. And we said, you know what, fourth of July is a promotional weekend. Let's it through the fourth of July and end it after the fourth of July. So basically, it's the same amount of days except for that extension over the fourth of July for Direct.

Hey, Jennifer, it's Nick. Yes, so we will be the same, fundamentally, the same timing and the same number of days for the June sale. The only difference we're thinking this time is to maybe keep a small portion of-- or at least provide the flexibility to extend potentially as we go into July, which is really about recognizing just how promotional the marketplaces is. As we go into July, we're still in the height of summer, still very promotional. So we've set ourselves up with the flexibly to be able to leverage that if we need to.

The next question comes from the line of John Kernan with Cowen and Company.

This is Jerry on for John. You guys had a pretty significant improvement in the operating income in your other business. I was wondering if you could give us some color on what drove that and kind of walk us through how we should plan the profitability of the other segment over the next few years.

Sure. We'll go to Stuart.

There are a lot of components in that other segment. What -- the key driver of improvement in the first quarter was the level of expenses we had 1 year ago related to pre-opening costs related to international expansion. With that said, we did also have broad-based improvement in operating results in the international business and had more profit related to mass global sourcing in the other segment as well in Q1. So maybe 3 points to make. First is not incurring pre-opening costs at the same level as we did a year ago. Second point, improvement, operating improvement across the international businesses. And third point, greater profit in the other segment related to sourcing year-on-year. As it relates to the balance of the year, we would expect to have continued improvement in the other segment. But as we see it today, anyway, and there a lot of moving parts, as we see it today, probably not at the same level that we experienced in Q1.

And your next question comes from the line of Oliver Chen with Citigroup.

This is Nancy filling in for Oliver Chen. My question is, could you tell us a little bit more about the drivers of better merchandise margin going forward and perhaps whether what your views on the state of the consumer at this point and whether that drove the promotional activity in 1Q?

We'll go to both Nick and Sharen for that question.

So I think the thing that was in our favor this year was where we had to be more promotional to combat traffic, we were able to do that in really, margin-rich product areas that really helped keep our margin in place. I think the bigger aspect for us is we're always going to be focused on first quality selling and trying to react as quickly as we can with our read and react model into things that are working to get the full price selling rather than focused on where are we going to be cost or margin-wise. And that's continued to prove to us to be one way of ensuring we keep our margins in a healthy place, as well as our first quality selling in a healthy place.

As I think about the business going forward, I do think that we will see some -- with moderate and see some -- a little improvement in our margin rate. I think the environment remains uncertain. So what we were going to do is remain focused on what we can control. We'll maintain maximum agility to chase what's working and manage any downturn as a result of the macroeconomic environment. I think as we go into second quarter, we're very well positioned with our marketing activities, with our assortment changes that we've made. So I feel cautiously optimistic.

Your next question comes from the line of Brian Tunick with JPMorgan Securities.

I guess, for Stuart and Sharen, maybe a little more on that lead time discussion. I know it's been a big focus for the company. So maybe can you talk about how it actually worked in reality over the past few months at Victoria's Secret as sales have come in a little softer? How has shortening the lead time cycle helped you guys? And then the second question on market intensification you guys have talked about before. Any update here on how many markets you're already in with that program and how that's changed your view relative to sales per square foot opportunities?

We'll start with Sharen. And then I think, maybe Nick can also speak about our lead times.

We've shortened our lead times across every single category. And there is -- we have the ability in our panty programs to be able to talk about it on Monday nights and within 15 days have reorders in. The same within our bra categories, it's about 30 days in terms of reacting to the bras. We continue to think differently about how we use our speed models. It's a great testing vehicle for color. I think that we continue to maximize our ability to read, react and chase. And it influenced about 33% of our business in the first quarter.

And then market intensification?

So market intensification today, we are very pleased with what's happening in the market intensification. We actually are in 4 major markets today, expanding to the fifth market as we go into our second quarter, which is Los Angeles. We see that the performance in all of these markets continue to be above the company average. The only market that came out a little bit softer for us was in the New York, New Jersey, and there's a lot of moving pieces and targets about what happened in New York and New Jersey, but still above the company average. The learns we're taking across the fleet as quick as we can. The testing that we're doing around our selling models are proving to pay out. It takes time. So we are very optimistic about the increases we're getting in sales, the increases that we're getting in productivity, the increases that we're getting in our customer services board, the increase that were getting in conversion within these markets.

And Nick?

So let me elaborate on lead time a little bit. So I think if I break it into a couple of chunks, I think the first place is, obviously, this is allowing us to make significantly later decisions, and therefore, we're that much closer to market. So clearly, a benefit there. That then leaves us in a position to have a significantly more flexible open-to-buy so we're able to choose where we want to make our investments that much closer. The beauty really for us is then the ability to watch the customer and see what she is responding to or not responding to, and therefore, manage our inventories to be in line with that, which obviously, then has great knock-on effect that allows us to really push in towards a higher mix of full-price items. And therefore, our margin -- our ability to maintain margin remains pretty much intact.

I think we've got time for one more question. I apologize. I know we're not going to get to many of you, but we have a board meeting that we have to get to. So one last question.

Your last question comes from the line of Christian Buss from Crédit Suisse.

This is actually Darla Shay on for Christian. Can you talk a little bit about what you're seeing from the ramping of the U.K. Victoria's Secret stores? How is the brand being received there? And then what you've learned, thus far, that you can apply to the openings later this year?

Martin?

Sure, yes, we've learned an enormous amount in the last 10 months or so in the U.K. Recall that the 2 stores we've had in the U.K. are quite different. So the Bond Street store is a very large full assortment store, primarily driven by traffic from all over the world. An enormous amount of business in that store is tourist driven. Really it's a great flagship for the brand internationally. And then quite separate from that, the store at Stratford is more representative of what we would see rolling across the U.K. and other parts of the world. And that model is much closer to a typical mall format that you might see in North America. In terms of the performance that we see, substantially, similar to business performance in North America, in the U.S. and Canada. And while there are some differences in terms of size and color and fashion choices, for the most part it's a substantially similar result to that, that we see the U.S., which of course, is very helpful when looking to scale the brand. So I think what you'd expect to see in the next 3 stores that open are something very substantially similar to what you see in the Stratford store right now, and we're excited to share the results later this year.

Thanks, everyone for your continuing interest in Limited Brands.

This concludes today's conference call. You may now disconnect.